10-K

FORM 10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

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

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2012

OR

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

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from  to

Commission File Number:  1-8610

AT&T INC.

Incorporated under the laws of the State of Delaware

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

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

Telephone Number 210-821-4105

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

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

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

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

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

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

Yes [X ] No [ ]

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

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

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

(Do not check if a smaller reporting company)

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

Yes [   ]   No [X]

Based on the closing price of $35.66 per share on June 29, 2012, the aggregate market value of our voting and non-voting common stock held by non-affiliates was $207 billion.

At February 20, 2013, common shares outstanding were 5,491,609,489.

DOCUMENTS INCORPORATED BY REFERENCE

(1) Portions of AT&T Inc.’s Annual Report to Stockholders for the fiscal year ended December 31, 2012 (Parts I and II).

(2) Portions of AT&T Inc.’s Notice of 2013 Annual Meeting and Proxy Statement dated on or about March 11, 2013 to be filed within the period permitted under General Instruction G(3) (Parts III and IV).

SCHEDULE A

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

	Name of each exchange
Title of each class	on which registered
Common Shares (Par Value $1.00 Per Share)	New York Stock Exchange
6.125% AT&T Inc.	New York Stock Exchange
Global Notes due April 2, 2015
5.875% AT&T Inc.	New York Stock Exchange
Global Notes due April 28, 2017
1.875% AT&T Inc. Global Notes due                                               December 4, 2020	New York Stock Exchange
3.55% AT&T Inc. Global Notes due                                               December 17, 2032	New York Stock Exchange
7.00% AT&T Inc.	New York Stock Exchange
Global Notes due April 30, 2040
4.875% AT&T Inc.                                               Global Notes due June 1, 2044	New York Stock Exchange

TABLE OF CONTENTS

Item		Page
	PART I
1.	Business	1
1A.	Risk Factors	9
2.	Properties	10
3.	Legal Proceedings	10
4.	Mine Safety Disclosures	10
	Executive Officers of the Registrant	11
	PART II
5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	12
6.	Selected Financial Data	12
7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
7A.	Quantitative and Qualitative Disclosures about Market Risk	13
8.	Financial Statements and Supplementary Data	13
9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	13
9A.	Controls and Procedures	13
9B.	Other Information	13
	PART III
10.	Directors, Executive Officers and Corporate Governance	14
11.	Executive Compensation	14
12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	14
13.	Certain Relationships and Related Transactions, and Director Independence	14
14.	Principal Accountant Fees and Services	14
	PART IV
15.	Exhibits and Financial Statement Schedules	15

AT&T Inc.

PART I

ITEM 1. BUSINESS

GENERAL

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

History

AT&T, formerly known as SBC Communications Inc. (SBC), was formed as one of several regional holding companies created to hold AT&T Corp.’s (ATTC) local telephone companies. On January 1, 1984, we were spun-off from ATTC pursuant to an anti-trust consent decree, becoming an independent publicly-traded telecommunications services provider. At formation, we primarily operated in five southwestern states. Our subsidiaries merged with Pacific Telesis Group in 1997, Southern New England Telecommunications Corporation in 1998 and Ameritech Corporation in 1999, thereby expanding our wireline operations as the incumbent local exchange carrier (ILEC) into a total of 13 states. In November 2005, one of our subsidiaries merged with ATTC, creating one of the world’s leading telecommunications providers. In connection with the merger, we changed the name of our company from “SBC Communications Inc.” to “AT&T Inc.” In December 2006, one of our subsidiaries merged with BellSouth Corporation (BellSouth) making us the ILEC in an additional nine states. With the BellSouth acquisition, we thereby acquired BellSouth’s 40 percent economic interest in AT&T Mobility LLC (AT&T Mobility), formerly Cingular Wireless LLC, resulting in 100 percent ownership of AT&T Mobility. Our services and products are marketed under the AT&T brand name.

Scope

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

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

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

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

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

On May 8, 2012, we sold our Advertising Solutions segment. Subsidiaries in this segment published Yellow and White Pages directories and sold directory advertising and Internet-based advertising and local search. As part of the sale, we received a 47 percent equity interest in the new entity YP Holdings LLC (YP Holdings).

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

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AT&T Inc.

With the expansion of our company through acquisitions and the resulting ownership consolidation of AT&T Mobility, and with continuing advances in technology, our services offerings now combine our traditional wireline and wireless services. We make our customers’ lives more convenient and productive and foster competition and further innovation in the communications and entertainment industry. In 2013, we plan to focus on the areas discussed below.

Wireless

AT&T Mobility began operations in October 2000 as a joint venture between us and BellSouth and, in 2004, acquired AT&T Wireless Services, Inc. Upon our acquisition of BellSouth in 2006, AT&T Mobility became a wholly-owned subsidiary. As of December 31, 2012, we served 107 million subscribers.

We cover most major metropolitan areas of the United States with our Universal Mobile Telecommunications System/High-Speed Downlink Packet Access (HSPA) and HSPA+ network technology, with HSPA+ providing 4G speeds when combined with our upgraded backhaul. At the end of 2012, over 90 percent of our data traffic was carried over this enhanced backhaul. Our network provides superior mobile broadband speeds for data and video services, as well as operating efficiencies using the same spectrum and infrastructure for voice and data on an IP-based platform. Our wireless network also relies on digital transmission technologies known as GSM, General Packet Radio Services and Enhanced Data rates for GSM Evolution (EDGE) for data communications. We have also begun transitioning our network to next generation LTE technology and expect this network to cover approximately 300 million people in the United States and to be largely complete by the end of 2014. We continue to expand the number of locations, including airports and cafés, where customers can access broadband Internet connections using wireless fidelity (local radio frequency commonly referred to as Wi-Fi) technology.

As the wireless industry continues to mature, we believe that future wireless growth will increasingly depend on our ability to offer innovative data services and a wireless network that has sufficient spectrum and capacity to support these innovations and make them available to more subscribers. We are facing significant spectrum and capacity constraints on our wireless network in certain markets. We expect such constraints to increase and expand to additional markets in the coming years. While we are continuing to invest significant capital in expanding our network capacity, our capacity constraints could affect the quality of existing voice and data services and our ability to launch new, advanced wireless broadband services, unless we are able to obtain more spectrum. Any long-term spectrum solution will require that the FCC make new or existing spectrum available to the wireless industry to meet the expanding needs of our subscribers. We will continue to attempt to address spectrum and capacity constraints on a market-by-market basis. To that end, we signed nearly 50 deals to acquire spectrum during 2012 (some pending regulatory review). Much of the recently acquired spectrum came from an innovative solution in which we obtained FCC approval to use WCS spectrum for mobile broadband for the first time.

Also as part of our efforts to improve our network performance and help address the need for additional spectrum capacity, we intend to redeploy spectrum currently used for basic 2G services to support more advanced mobile Internet services on our 3G and 4G networks. We will 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 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. As of December 31, 2012, about 8 percent of AT&T’s postpaid subscribers used 2G-capable handsets. We do not expect this transition to have a material impact on our operating results.

Business Customers

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

Data/Broadband

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

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U-verse Services  During 2012, we continued to expand our offerings of U-verse High Speed Internet and TV services. As of December 31, 2012, we are marketing U-verse services to approximately 24.5 million customer locations (locations eligible to receive U-verse service). As of December 31, 2012, we had 8.0 million total U-verse subscribers (high-speed Internet and video), including 7.7 million Internet and 4.5 million video subscribers (subscribers to both services are only counted once in the total). As part of Project Velocity IP (VIP), we plan to expand our U-verse services to an additional approximately 8.5 million customer locations.

We believe that our U-verse TV service is a “video service” under the Federal Communications Act. However, some cable providers and municipalities have claimed that certain IP services should be treated as a traditional cable service and therefore subject to the applicable state and local cable regulation. Certain municipalities have delayed our requests to offer this service or have refused us permission to use our existing or new right-of-ways to deploy or activate our U-verse-related equipment, services and products, resulting in litigation. 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.

Voice over Internet Protocol (VoIP)  VoIP is generally used to describe the transmission of voice using IP-based technology rather than a traditional wire and switch-based telephone network. A company using this technology can often provide voice services at a lower cost because this technology uses bandwidth more efficiently than a traditional network and because this technology has not been subject to traditional telephone industry regulation. While the development of VoIP has resulted in increased competition for our wireless and wireline voice services, it also presents growth opportunities for us to develop new products for our customers.

Project VIP  In November 2012, we announced plans to significantly expand and enhance our wireless and wireline broadband networks to support future IP data growth and new services. As part of Project VIP, we plan to expand our deployment of LTE wireless technology and deploy additional technology to further improve wireless spectrum efficiencies. To that end, we expect to cover at least 250 million people in the United States by year-end 2013 and approximately 300 million people in the United States by the end of 2014. In addition, we plan to expand our wireline IP broadband network to additional residential and small-business customer locations to cover approximately 75 percent of all such customer locations in our 22-state wireline service area by year-end 2015. This project is intended to support new revenue opportunities in four key areas: wireless, strategic network services, network managed (“cloud”) services and security as well as continued growth in existing wireless, U-verse and IP-related business services. We expect capital expenditures in the $21 billion range for 2013, and 2014 and 2015 to each be approximately $22 billion, and then decrease to pre-Project VIP levels.

BUSINESS OPERATIONS

OPERATING SEGMENTS

Our segments are strategic business units that offer different products and services over various technology platforms and are managed accordingly. We analyze our operating segments based on segment income before income taxes. We make our capital allocations decisions based on 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 postemployment benefits, interest expense and other income (expense) – net, are managed only on a total company basis and are, accordingly, reflected only in consolidated results. Therefore, these items are not included in the calculation of each segment’s reportable results. The customers and long lived assets of our reportable segments are predominantly in the United States. Each segment’s percentage of total segment operating revenue and income calculations is derived from our segment results, and income percentage may total more than 100 percent due to losses in one or more segments. At December 31, 2012, we had three reportable segments: (1) Wireless, (2) Wireline, and (3) Other. Our Operating results prior to May 9, 2012, also included Advertising Solutions, which was a reportable segment. On May 8, 2012, we completed the sale of our Advertising Solutions segment and received a 47 percent equity interest in the new entity YP Holdings.

Additional information about our segments, including financial information, is included under the heading “Segment Results” on pages 33 through 40 and in Note 3 of the Annual Report and is incorporated herein by reference pursuant to General Instruction G(2).

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AT&T Inc.

WIRELESS

Wireless consists of our subsidiary, AT&T Mobility, which operates as a wireless provider to both business and consumer subscribers. Our Wireless segment provided approximately 52% of 2012 total segment operating revenues and 70% of our 2012 total segment income. At December 31, 2012, we served 107 million wireless subscribers. We classify our subscribers as either postpaid, prepaid, connected device or reseller.

Services and Products

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

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

Wireless data revenues continue to be a growing area of our business, representing an increasing share of our overall subscriber revenue. We are experiencing solid growth from both consumer and enterprise wireless data services, as an increasing number of our subscribers have upgraded their handsets to more advanced integrated devices. We are also seeing rapid growth in demand for new data-centric devices such as notebooks, tablets, eReaders, direction and navigation aids and monitoring devices. In late August 2012, we launched new Mobile Share data plans (which allow postpaid subscribers to share data at discounted prices among devices covered by their plan), and sales results have been strong, with approximately 25% of Mobile Share subscribers choosing plans of 10 gigabytes or higher. 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. Customers in our “connected device” category (e.g., users of eReaders and navigation aids) purchase those devices from third-party suppliers that buy data access supported by our network. Other data-centric device users are classified as either postpaid customers (primarily tablet, netbook and notebook users) or prepaid customers since they purchase service directly from us. We continue to upgrade our network and coordinate with equipment manufacturers and applications developers in order to further capitalize on the continued growth in the demand for wireless data services.

Equipment – We sell a wide variety of handsets, wirelessly enabled computers (i.e., notebooks and tablets) and personal computer wireless data cards manufactured by various suppliers for use with our voice and data services. We sell through our own company-owned stores, agents or third-party retail stores. We also sell accessories, such as carrying cases, hands-free devices, batteries, battery chargers and other items, to consumers, as well as to agents and third-party distributors for resale. Like other wireless service providers, we often provide postpaid contract subscribers substantial equipment subsidies to initiate, renew or upgrade service.

Equity in net income (loss) of affiliates for the Wireless segment includes expenses from our mobile payment joint venture with Verizon and T-Mobile, marketed as the Isis Mobile WalletTM (ISIS).

Additional information on our Wireless segment is contained in the Annual Report in the “Operating Environment Overview” section under the heading “Expected Growth Areas,” “Wireless” beginning on page 41 and is incorporated herein by reference pursuant to General Instruction G(2).

WIRELINE

Our Wireline subsidiaries provide both retail and wholesale communication services domestically and internationally. Our Wireline segment provided approximately 47% of 2012 segment operating revenues and 30% of our 2012 total segment income. We divide our wireline services into three product-based categories: data, voice and other. Revenues from our traditional voice services have been declining as customers have been switching to wireless, cable and other Internet-based providers. In addition, the continuing economic climate has caused wireline customers to terminate their residential or business phone service as individuals have lost jobs or otherwise combined households and businesses have closed or reduced operations. We have responded by offering packages of combined voice and data services, including broadband and video, and intend to continue this strategy during 2013.

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Services and Products

Data – We provide data services that rely on IP-based technology and data services that rely on older, circuit-based technology. We provide businesses voice applications over IP-based networks (i.e., Enhanced Virtual Private Networks or “EVPN”). Over the past several years, we have built out our new IP/MPLS (Internet Protocol/MultiProtocol Label Switching) network, to supplement our IP-based product set, and eventually replace our older circuit-based networks and services. These products allow us to provide highly complex global data networks. Additional IP-based services include Internet access and network integration, dedicated Internet and enterprise networking services, U-verse services and related data equipment sales.

Our circuit-based, traditional data products include switched and dedicated transport services that allow business customers to transmit data at high speeds, as well as DSL and dial-up Internet access. Our private line offering uses high-capacity digital circuits to transmit from point-to-point in multiple configurations and allows customers to create internal data networks and to access external data networks. Switched Transport services transmit data using switching equipment to transfer the data between multiple lines before reaching its destination. Dedicated Transport services use a single direct line to transmit data between destinations. DSL is a digital modem technology that converts existing twisted-pair telephone lines into access paths for multimedia and high-speed data communications to the Internet or private networks. DSL allows customers to simultaneously make a phone call and access information via the Internet or local area network (LAN). Digital Services use dedicated digital circuits to transmit digital data at various high rates of speed.

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

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

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

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

Voice – Voice includes traditional local and long-distance service provided to retail customers and wholesale access to our network and individual network elements provided to competitors. At December 31, 2012, our wireline subsidiaries served approximately 16 million retail consumer access lines, 14 million retail business access lines and 2 million wholesale access lines. We also have a number of integrated voice and data services, such as integrated network connections, that provide customers the ability to integrate access for their voice and data services, the data component of which is included in data revenues. Additionally, voice revenues do not include any of our VoIP revenues, which are included in data revenues.

Long distance consists of traditional long distance and international long distance for customers that select us as their primary long-distance carrier. Long distance also includes services provided by calling card, 1-800 services and conference calling. These services are used in a wide variety of business applications, including sales, reservation centers or customer service centers. We also provide wholesale switched access service to other service providers.

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Voice also includes calling features, fees to maintain wire located inside customer premises and other miscellaneous voice products. Calling features are enhanced telephone services available to retail customers such as Caller ID, Call Waiting and voice mail. These calling features services are generally more profitable than basic local phone service.

Other – Other includes application management, security service, integration services, customer premises equipment, outsourcing, government-related services, customer information services and satellite video services. Security services include business continuity and disaster recovery services as well as premise and network based security products.

Customer premises equipment and other equipment sales range from single-line and cordless telephones to sophisticated digital Private Branch Exchange (PBX) systems. PBX is a private telephone switching system, typically used by businesses and usually located on a customer’s premises, which provides intra-premise telephone services as well as access to our network.

OTHER

Our Other segment includes corporate and other operations and impacts from corporate-wide decisions for which the individual operating segments are not being evaluated. The Other segment provided less than 1% of total segment operating revenues in 2012. In 2012, segment operating expenses exceeded revenues. We also include in this segment the equity income (loss) from our international investments in América Móvil, S.A. de C.V., and our 47 percent equity interest in YP Holdings.

MAJOR CLASSES OF SERVICE

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

	Percentage of Total
	Consolidated Operating Revenues
	2012	2011	2010
Wireless Segment
Wireless service	46%	45%	43%
Equipment1	6%	5%	4%
Wireline Segment
Data	25%	23%	22%
Voice	18%	20%	23%
Other2	4%	4%	5%

1 Equipment is reported as “Other” revenue on our consolidated statements of income.

2 Includes integration services and customer premises equipment, governmental-related services and outsourcing.

GOVERNMENT REGULATION

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

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

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

Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 (ITRA) added new section 13(r) to the Securities Exchange Act of 1934, requiring a public reporting issuer to disclose in its annual and quarterly reports whether it or any of its affiliates have knowingly engaged in specific activities or transactions relating to Iran during the period covered by the report, including activities not prohibited by U.S. law and conducted outside the U.S. by non-U.S. affiliates in compliance with local law.

AT&T had no activities in 2012 that required reporting under ITRA. AT&T holds a 9.55% interest in América Móvil, which is more fully described on page 71 of the 2012 Annual Report to Stockholders. América Móvil has reported to AT&T that it and certain of its subsidiaries have entered into roaming interconnection agreements with MTN Irancell. To date, América Móvil and its subsidiaries have no revenues under the agreement. We understand that América Móvil intends to continue this relationship.

Additional information relating to regulation of our subsidiaries is contained in the Annual Report under the headings “Operating Environment Overview” beginning on page 41 and “Regulatory Developments” beginning on page 42 and are incorporated herein by reference pursuant to General Instruction G(2).

IMPORTANCE, DURATION AND EFFECT OF LICENSES

Certain of our subsidiaries own or have licenses to various patents, copyrights, trademarks and other intellectual property necessary to conduct business. Many of our subsidiaries also hold government-issued licenses or franchises to provide wireline or wireless services and regulation affecting those rights is contained in the Annual Report under the heading “Operating Environment Overview” beginning on page 41 and is incorporated herein by reference pursuant to General Instruction G(2). We actively pursue patents, trademarks and service marks to protect our intellectual property within the U.S. and abroad. We maintain a significant global portfolio of patents, trademarks and service mark registrations. We have also entered into agreements that permit other companies, in exchange for fees and subject to appropriate safeguards and restrictions, to utilize certain of our trademarks and service marks. We periodically receive offers from third parties to obtain licenses for patents and other intellectual rights in exchange for royalties or other payments. We also receive notices asserting that our products or services infringe on their patents and other intellectual property rights. These claims, whether against us directly or against third-party suppliers of products or services that we, in turn, sell to our customers, such as wireless handsets, could require us to pay damages, royalties, stop offering the relevant products or services and/or cease other activities. While the outcome of any litigation is uncertain, we do not believe that the resolution of any of these infringement claims or the expiration or non-renewal of any of our intellectual property rights would have a material adverse effect on our results of operations.

MAJOR CUSTOMER

No customer accounted for 10% or more of our consolidated revenues in 2012, 2011 or 2010.

COMPETITION

Information relating to competition in each of our operating segments is contained in the Annual Report under the heading “Competition” beginning on page 43, and is incorporated herein by reference pursuant to General Instruction G(2).

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AT&T Inc.

RESEARCH AND DEVELOPMENT

AT&T Labs’ scientists and engineers conduct research in a variety of areas, including IP networking; advanced network design and architecture; network and cyber security, network operations support systems; data mining techniques and advanced speech technologies. The majority of the development activities are performed by AT&T Services, Inc. The developers within AT&T Services, Inc. work with our business units and AT&T Labs to create new services and invent tools and systems to manage secure and reliable networks for us and our customers. We have recently initiated a technology outreach effort aimed at venture capital funded startups with the objective of rapidly introducing new solutions, products and applications developed by third parties. We also have a research agreement with Ericsson. Research and development expenses were $1,278 million in 2012, $1,307 million in 2011, and $1,280 million in 2010.

EMPLOYEES

As of January 31, 2013, we employed approximately 242,000 persons. Approximately 55 percent of our employees are represented by the Communications Workers of America (CWA), the International Brotherhood of Electrical Workers or other unions. Contracts covering approximately 77,000 (as of December 31, 2012) employees expired during 2012 and we have reached new contracts covering approximately 57,000 of those employees. Contracts covering wireline employees in California, Connecticut and Nevada expired in April 2012. On February 20, 2013, we announced a tentative three-year agreement with the CWA covering the approximately 17,000 wireline employees in California and Nevada; this agreement is subject to ratification by these employees. The contract covering Connecticut employees remains subject to negotiation. In addition, during 2012, we entered into a new national four-year contract covering only benefits with the approximately 40,000 employees in our mobility business; contracts covering wages and other non-benefit working terms for these mobility employees are structured on a regional basis and one regional contract for 20,000 employees expired during February 2013. Contracts covering approximately 30,000 non-mobility employees will expire during 2013, including approximately 20,000 wireline employees in our five-state Southwest region. On February 6, 2013, we announced a tentative agreement with the CWA covering the wireline employees in our Southwest region; this agreement is subject to ratification by these employees. After expiration of the current agreements, work stoppages or labor disruptions may occur in the absence of new contracts or other agreements being reached.

At December 31, 2012, we had approximately 331,741 retirees who, along with their dependents, were eligible to receive retiree benefits.

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ITEM 1A. RISK FACTORS

Information required by this Item is included in the Annual Report under the heading “Risk Factors” on pages 54 through 57 which is incorporated herein by reference pursuant to General Instruction G(2).

CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS

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

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

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

·   Increases in our benefit plans’ costs, including increases due to adverse changes in the United States and foreign securities markets, resulting in worse-than-assumed investment returns and discount rates 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, interconnection obligations, transitioning from legacy technologies to IP-based infrastructure, 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, and the sunset of the traditional copper-based network services and regulatory obligations.

·   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.

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

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

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ITEM 2. PROPERTIES

Our properties do not lend themselves to description by character and location of principal units. At December 31, 2012, approximately 79.5% of our property, plant and equipment was owned by our wireline subsidiaries and approximately 20.5% was owned by our wireless subsidiaries. Central office equipment represented 31.8%; Outside Plant (including cable, wiring and other non-central office network equipment) represented approximately 29.7%; other equipment, comprised principally of furniture and office equipment and vehicles and other work equipment, represented 22.6%; land, building and wireless communications towers represented 11.3%; and other miscellaneous property represented 4.6%.

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

ITEM 3. LEGAL PROCEEDINGS

We are a party to numerous lawsuits, regulatory proceedings and other matters arising in the ordinary course of business. Additional information regarding litigation is included in the Annual Report under the headings “Retiree Phone Concession Litigation,” “Wage and Hour Litigation,” “NSA Litigation” and “Universal Service Fees Litigation” on pages 46 through 47, which is incorporated herein by reference pursuant to General Instruction G(2). As of the date of this report, we do not believe any pending legal proceedings to which we or our subsidiaries are subject are required to be disclosed as material legal proceedings pursuant to this item.

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

(a)   AT&T Mobility has entered into an administrative settlement with the U.S. Environmental Protection Agency (EPA) regarding alleged violations of federal environmental statutes in connection with management of back-up power systems at AT&T Mobility facilities. The EPA’s allegations included noncompliance with requirements to obtain air emission permits for generators and to prepare spill prevention plans for fuel storage tanks. The settlement requires us pay an initial civil penalty of 750 thousand dollars and to spend 625 thousand dollars on certain environmental projects. The settlement also requires us to audit our compliance at over 1,300 facilities and to pay stipulated penalties for any violations discovered by those audits.

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

(c)   In December 2011, Harris County, Texas brought suit on behalf of itself and the Texas Commission on Environmental Quality (TCEQ) alleging AT&T to be liable for statutory civil penalties for past leakage at eleven petroleum storage tank locations. All eleven sites have been remediated (with de minimis actual impact) in accordance with state programs and the TCEQ has issued No Further Action (NFA) letters closing the sites. Notwithstanding these facts, Harris County declined at mediation in June 2012 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.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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AT&T Inc.

EXECUTIVE OFFICERS OF THE REGISTRANT

(As of February 1, 2013)

Name	Age		Position	Held Since
Randall L. Stephenson	52	Chairman of the Board, Chief Executive Officer and President		6/2007
William A. Blase Jr.	57	Senior Executive Vice President – Human Resources		6/2007
James W. Cicconi	60	Senior Executive Vice President – External and Legislative Affairs, AT&T Services, Inc.		11/2008
Catherine M. Coughlin	55	Senior Executive Vice President and Global Marketing Officer		6/2007
Ralph de la Vega	61	President and Chief Executive Officer, AT&T Mobility		10/2008
John M. Donovan	52	Senior Executive Vice President – AT&T Technology and Network Operations		1/2012
Andrew M. Geisse	56	Chief Executive Officer – AT&T Business Solutions		8/2012
Lori M. Lee	47	Executive Vice President-Home Solutions		1/2013
John T. Stankey	50	Group President and Chief Strategy Officer		2/2012
John J. Stephens	53	Senior Executive Vice President and Chief Financial Officer		6/2011
Wayne Watts	59	Senior Executive Vice President and General Counsel		6/2007

All of the above executive officers have held high-level managerial positions with AT&T or its subsidiaries for more than the past five years, except for Mr. Donovan. Mr. Donovan was executive vice president of product, sales, marketing and operations at VeriSign Inc., a technology company that provides Internet infrastructure services, from November 2006 to April 2008. Mr. Donovan joined AT&T as Chief Technology Officer in April 2008. Executive officers are not appointed to a fixed term of office.

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AT&T Inc.

PART II

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

STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

(a) Our common stock is listed on the New York Stock Exchange. The number of stockholders of record as of December 31, 2012 and 2011 was 1,224,601 and 1,301,479. The number of stockholders of record as of February 20, 2013, was 1,217,463. We declared dividends, on a quarterly basis, totaling $1.77 per share in 2012 and $1.73 per share in 2011.

Other information required by this Item is included in the Annual Report under the headings “Quarterly Financial Information” on page 91, “Selected Financial and Operating Data” on page 30, and “Stock Trading Information” on the back cover, which are incorporated herein by reference pursuant to General Instruction G(2).

(c) On December 17, 2010, our Board of Directors authorized a share repurchase plan of 300 million shares of common stock, with no expiration date. During 2010 and 2011, we did not repurchase any shares under this plan. During the first quarter of 2012, we started to repurchase a portion of the shares pursuant to plans that comply with the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934. In November 2012, we completed the purchase of the authorized shares. In July 2012, the Board authorized the repurchase of up to an additional 300 million shares of common stock, with no expiration date. For the year ended December 31, 2012, we repurchased 371 million shares of common stock under both plans. We will continue to fund any share repurchases through a combination of cash from operations, borrowings dependent on market conditions, or cash from the disposition of certain non-strategic investments.

ISSUER PURCHASES OF EQUITY SECURITIES
A summary of our repurchases of common stock during the fourth 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 Programs1,2	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under The Plans or Programs1,2
October 1, 2012 - October 31, 2012	26,946,700	$	37.12	26,946,700	328,537,255
November 1, 2012 - November 30, 2012	44,536,9003		33.76	44,460,000	284,077,255
December 1, 2012 - December 31, 2012	55,195,000		34.01	55,195,000	228,882,255
Total	126,678,600	$	34.58	126,601,700
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, which we completed in November 2012.
2  In July 2012, the Board authorized the repurchase of an additional 300 million shares. The plan has no expiration date. 3 Of the shares purchased, 76,900 shares were acquired through the withholding of taxes on the vesting of restricted stock or through the payment in stock of the exercise price of options.

ITEM 6. SELECTED FINANCIAL DATA

Information required by this Item is included in the Annual Report under the heading “Selected Financial and Operating Data” on page 30, which is incorporated herein by reference pursuant to General Instruction G(2).

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AT&T Inc.

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

Information required by this Item is included in the Annual Report on pages 31 through 58, which is incorporated herein by reference pursuant to General Instruction G(2).

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information required by this Item is included in the Annual Report under the heading “Market Risk” on pages 52 through 53, which is incorporated herein by reference pursuant to General Instruction G(2).

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Information required by this Item is included in the Annual Report on pages 59 through 91, which is incorporated herein by reference pursuant to General Instruction G(2).

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING

AND FINANCIAL DISCLOSURE

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

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The registrant maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the registrant is recorded, processed, summarized, accumulated and communicated to its management, including its principal executive and principal financial officers, to allow timely decisions regarding required disclosure, and reported within the time periods specified in the SEC’s rules and forms. The Chief Executive Officer and Chief Financial Officer have performed an evaluation of the effectiveness of the design and operation of the registrant’s disclosure controls and procedures as of December 31, 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 December 31, 2012.

Internal Control Over Financial Reporting

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

The management of AT&T is responsible for establishing and maintaining adequate internal control over financial reporting. AT&T’s internal control system was designed to provide reasonable assurance as to the integrity and reliability of the published financial statements. AT&T management assessed the effectiveness of the company’s internal control over financial reporting as of December 31, 2012. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework. Based on its assessment, AT&T management believes that, as of December 31, 2012, the Company’s internal control over financial reporting is effective based on those criteria.

(b)  Attestation Report of the Registered Public Accounting Firm

The registered public accounting firm that audited the financial statements included in the Annual Report containing the disclosure required by this Item, Ernst & Young LLP, has issued an attestation report on the Company’s internal control over financial reporting. The attestation report issued by Ernst & Young LLP is included in the Annual Report on page 94, which is incorporated herein by reference pursuant to General Instruction G(2).

ITEM 9B. OTHER INFORMATION

There is no information that was required to be disclosed in a report on Form 8-K during the fourth quarter of 2012 but was not reported.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information regarding executive officers required by Item 401 of Regulation S-K is furnished in a separate disclosure at the end of Part I of this report since the registrant did not furnish such information in its definitive proxy statement prepared in accordance with Schedule 14A. Information regarding directors required by Item 401 of Regulation S-K is incorporated herein by reference pursuant to General Instruction G(3) from the registrant’s definitive proxy statement, dated on or about March 11, 2013 (Proxy Statement) under the heading “Election of Directors.”

Information required by Item 405 of Regulation S-K is incorporated herein by reference pursuant to General Instruction G(3) from the registrant’s Proxy Statement under the heading “Section 16(a) Beneficial Ownership Reporting Compliance.”

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

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

ITEM 11. EXECUTIVE COMPENSATION

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

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND

MANAGEMENT AND RELATED STOCKHOLDER MATTERS

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

Information required by Item 201(d) of Regulation S-K is incorporated herein by reference pursuant to General Instruction G(3) from the registrant’s Proxy Statement under the heading “Equity Compensation Plan Information.”

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

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

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

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

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AT&T Inc.

PART IV

ITEM 15. EXHIBITS and FINANCIAL STATEMENT SCHEDULES

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

Page

(1) Report of Independent Registered Public Accounting Firm                                                                                                                  *

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

Consolidated Statements of Income                                                                                                                                                    *

Consolidated Statements of Comprehensive Income                                                                                                                       *

Consolidated Balance Sheets                                                                                                                                                               *

Consolidated Statements of Cash Flows                                                                                                                                            *

Consolidated Statements of Changes in Stockholders’ Equity                                                                                                       *

Notes to Consolidated Financial Statements                                                                                                                                     *

* Incorporated herein by reference to the appropriate portions of the registrant’s Annual Report to Stockholders for the fiscal year ended December 31, 2012. (See Part II.)

Page

(2) Financial Statement Schedules:

II - Valuation and Qualifying Accounts                                                                                                                                             21

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

(3) Exhibits:

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

Exhibit

Number              

2 Stock Purchase Agreement by and Between Deutsche Telekom AG and AT&T Inc. dated March 20, 2011. (Exhibit 2.1 to Form 8-K dated March 20, 2011.)

3-a Restated Certificate of Incorporation, filed with the Secretary of State of Delaware on May 1, 2009. (Exhibit 3 to Form 10-Q filed for June 30, 2009.)

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

4-a Certificate of Designations for Perpetual Cumulative Preferred Stock of SBC Communications Inc., filed with the Secretary of State of the State of Delaware on November 18, 2005. (Contained in Restated Certificate of Incorporation filed as Exhibit 3-a.)

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

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

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

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

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AT&T Inc.

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

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

4-h Indenture dated as of November 1, 1994 between SBC Communications Inc. and The Bank of New York, as Trustee. (Exhibit 4-h to Form 10-K for 2008.)

4-i Registration Rights Agreement dated December 17, 2012 (Exhibit 4.4 to Form 8-K dated December 17, 2012.)

10-a Short Term Incentive Plan, dated November 18, 2005. (Exhibit 10-a to Form 10-K for 2008.)

10-b 2001 Incentive Plan, dated November 18, 2005. (Exhibit 10-t to Form 10-K for 2008.)

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

10-d 2011 Incentive Plan. (Exhibit 10.4 to Form 10-Q filed for March 31, 2011.)

10-e 1995 Management Stock Option Plan, dated November 16, 2001. (Exhibit 10-w to Form 10-K for 2008.)

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

10-g Supplemental Retirement Income Plan, amended and restated December 31, 2008. (Exhibit 10-c to Form 10-K for 2008.)

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

10-i Senior Management Deferred Compensation Plan (effective for Units of Participation Having a Unit Start Date Prior to January 1, 1988). (Exhibit 10-d to Form 10-K for 2008.)

10-j Senior Management Deferred Compensation Program of 1988 (effective for Units of Participation Having a Unit Start Date of January 1, 1988 or later). (Exhibit 10-e to Form 10-K for 2008.)

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

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

10-m Stock Purchase and Deferral Plan, amended and restated January 31, 2013.

10-n Cash Deferral Plan, amended and restated January 31, 2013.

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

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

10-q AT&T Inc. Health Plan, amended and restated June 28, 2012. (Exhibit 10-b to Form 10-Q filed for June 30, 2012.)

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10-r AT&T Management Relocation Plan.  (Exhibit 10-r to Form 10-K for 2011.)

10-r(i) Amendment to AT&T Management Relocation Plan, dated November 20, 2008. (Exhibit 10-ww to Form 10-Q filed for March 31, 2009.)

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

10-t AT&T Inc. Change in Control Severance Plan, amended and restated effective February 1, 2013.

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

10-v Form of Non-Disclosure and Non-Solicitation Agreement. (Exhibit 10-jjj to Form 10-K for 2009.)

10-w Administrative Plan, amended and restated effective January 1, 2013.

10-x Retirement Plan for Non-Employee Directors.  (Exhibit 10-x to Form 10-K for 2011.)

10-y Non-Employee Director Stock and Deferral Plan, amended and restated June 26, 2008. (Exhibit 10-f to Form 10-Q filed for June 30, 2008.)

10-z Non-Employee Director Stock Purchase Plan, effective June 27, 2008. (Exhibit 10-e to Form 10-Q filed for June 30, 2008.)

10-aa Communications Concession Program for Directors, amended and restated February 1, 2013.

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

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

10-dd Transition Agreement. (Exhibit 10-dd to Form 10-K for 2011.)

10-ee Transition Agreement. (Exhibit 10-ee to Form 10-K for 2011.)

10-ff Agreement and Release and Waiver of Claims between Richard G. Lindner and AT&T Inc. (Exhibit 10.1 to Form 8-K/A dated March 4, 2011.)

10-gg Pacific Telesis Group Supplemental Cash Balance Plan, amended as of July 1, 1996. (Exhibit 10-gg to Form 10-K for 2011.)

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

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

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

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

10-jj(i) Resolutions amending the Plan, effective November 21, 1997. (Contained in and filed as Exhibit 10-hh(i)).

10-kk Pacific Telesis Group 1996 Executive Deferred Compensation Plan, amended November 20, 2008. (Exhibit 10-u to Form 10-K for 2008.)

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AT&T Inc.

10-ll Pacific Telesis Group Executive Deferral Plan, amended November 20, 2008. (Exhibit 10-z to Form 10-K for 2008.)

10-mm AT&T Corp. Executive Deferred Compensation Plan (formerly known as AT&T Corp. Senior Management Incentive Award Deferral Plan), amended and restated January 1, 2008. (Exhibit 10-hh to Form 10-K for 2008.)

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

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

10-oo AT&T Corp. Senior Management Long Term Disability and Survivor Protection Plan, amended December 31, 2008. (Exhibit 10-xx to Form 10-K for 2008.)

10-pp AT&T Corp. Non-Qualified Pension Plan, as amended and restated effective December 31, 2008. (Exhibit 10-ggg to Form 10-K for 2008.)

10-qq AT&T Corp. Excess Benefit and Compensation Plan, as amended and restated effective December 31, 2008. (Exhibit 10-hhh to Form 10-K for 2008.)

10-rr AT&T Corp. 1997 Long Term Incentive Program, dated March 14, 2000. (Exhibit 10-rr to Form 10-K for 2011.)

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

10-tt BellSouth Officer Compensation Deferral Plan, amended January 1, 2005. (Exhibit 10-mm to Form 10-K for 2009.)

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

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

10-ww BellSouth Corporation Stock Plan, dated April 24, 1995. (Exhibit 10-ww to Form 10-K for 2011.)

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

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

10-xx(ii) Second Amendment to BellSouth Corporation Stock and Incentive Compensation Plan, effective June 26, 2008. (Exhibit 10-qq(ii) to Form 10-K for 2008.)

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

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

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

18 

AT&T Inc.

10-bbb BellSouth Non-Employee Directors Charitable Contribution Program, effective February 29, 1992. (Exhibit 10-bbb to Form 10-K for 2011.)

10-bbb(i) First Amendment to the Non-Employee Directors Charitable Contribution Program, effective January 27, 1997. (Exhibit 10-bbb(i) to Form 10-K for 2011.)

10-bbb(ii) Second Amendment to the Non-Employee Directors Charitable Contribution Program, effective February 25, 2002. (Exhibit 10-bbb(ii) to Form 10-K for 2011.)

10-ccc BellSouth Split-Dollar Life Insurance Plan, as amended December 31, 2008, and restated effective January 1, 2005. (Exhibit 10-iii to Form 10-K for 2008.)

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

10-eee BellSouth Compensation Deferral Plan, as amended and restated effective January 1, 2005.  (Exhibit 10-eee to Form 10-K for 2011.)

10-fff BellSouth Nonqualified Deferred Income Plan, as amended and restated May 1, 2012.

10-ggg BellSouth Corporation Executive Incentive Award Deferral Plan, as amended and restated effective January 1, 2008. (Exhibit 10-ggg to Form 10-K for 2011.)

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

10-iii Cingular Wireless Long Term Compensation Plan, amended and restated effective November 1, 2007. (Exhibit 10-iii to Form 10-K for 2011.)

10-jjj Cingular Wireless BLS Executive Transition Benefit Plan. (Exhibit 10-jjj to Form 10-K for 2011.)

10-kkk Cingular Wireless SBC Executive Transition Benefit Plan. (Exhibit 10-kkk to Form 10-K for 2011.)

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

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

10-nnn Amended and Restated Four Year Credit Agreement dated December 11, 2012. (Exhibit 10-nnn to Form 8-K dated December 11, 2012.)

10-ooo Stockholder’s Agreement by and between Deutsche Telekom AG and AT&T Inc. dated March 20, 2011 (Exhibit 10.1 to Form 8-K dated March 20, 2011.)

10-ppp Letter Agreement to Deutsche Telekom AG (exhibit 10 to Form 8-K dated December 19, 2011.)

12 Computation of Ratios of Earnings to Fixed Charges.

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

21 Subsidiaries of AT&T Inc.

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

24 Powers of Attorney.

19 

AT&T Inc.

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

      31.1  Certification of Principal Executive Officer

      31.2  Certification of Principal Financial Officer

32 Section 1350 Certification

101 XBRL Instance Document

 

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

20

Schedule II - Sheet 1

AT&T INC.

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

Allowance for Doubtful Accounts

Dollars in Millions

COL. A		COL. B	COL. C			COL. D		COL. E
			Additions
			(1)	(2)	(3)
	Balance at Beginning of Period		Charged to Costs and Expenses (a)	Charged to Other Accounts (b)	Acquisitions	Deductions (c)	Balance at End of Period
Year 2012	$	878	1,117	48	-	1,496	$	547
Year 2011	$	957	1,136	38	-	1,253	$	878
Year 2010	$	1,202	1,334	(28)	-	1,551	$	957

(a) Excludes direct charges and credits to expense on the consolidated statements of income and reinvested earnings related to interexchange carrier receivables.

(b) Includes amounts previously written off which were credited directly to this account when recovered and amounts related to long-distance carrier receivables which were billed by AT&T.

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

21 

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 22nd day of February, 2013.

 AT&T INC.

/s/ John J. Stephens

John J. Stephens

Senior Executive Vice President

and Chief Financial Officer

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

Principal Executive Officer:

Randall Stephenson*

Chairman of the Board, Chief Executive Officer

and President

Principal Financial and Accounting Officer:

John J. Stephens

Senior Executive Vice President

and Chief Financial Officer

/s/ John J. Stephens

John J. Stephens, as attorney-in-fact

and on his own behalf as Principal

Financial Officer and Principal

Accounting Officer

 February 22, 2013

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

* by power of attorney

EX-10.AA

Exhibit 10-aa

AT&T INC. BOARD OF DIRECTORS

COMMUNICATIONS CONCESSION PROGRAM

Communications Concession

Applies to both active and retired non-employee Directors of AT&T Inc.

1.   Primary Residence Equipment

Each Director will receive equipment that will allow the provision of services offered by affiliates of AT&T at the Director’s primary residence as designated by the Director.  If the relevant AT&T affiliate does not service the area of the Director’s residence and it is impractical to obtain the equipment from an affiliate, then AT&T will reimburse the Director for equipment provided by another company.  Provision of equipment at the primary residence will not count against the annual communications allowance, whether the equipment is provided by the AT&T affiliate or another carrier (where equipment from the affiliate is not available).

2.   Concession for Equipment at Other Residences and for Services

Each Director will receive communications equipment (other than at the primary residence) and services each year in an amount not to exceed the following limits:

·   $25,000.00 for active Directors and Directors retiring after November 20, 2009;

·   $15,000.00 for Directors retiring before November 20, 2009.

3.   Requirements

·   All concession services must be provided by AT&T affiliates, including AT&T Mobility and AT&T Long Distance.  The only exception is service and equipment to the primary residence where the residence is not served by an AT&T affiliate.  Services and equipment will only be provided to locations in the continental United States.

·   The concession benefits are for the personal use of the Director and his/her immediate family sharing the same household.

·   In order to keep you informed, the Secretary’s Office will send you a semi-annual notice indicating the usage of your concession.  If your usage exceeds the maximum benefit, you will be asked to reimburse AT&T.

·   A Director’s surviving spouse will continue to receive benefits for fourteen months after the date of the Director’s death.

·   This concession benefit may be amended or terminated at any time by the AT&T Board of Directors.

Amended February 1, 2013

Effective July 2004

EX-10.FFF

Exhibit 10-fff

BELLSOUTH NONQUALIFIED DEFERRED INCOME PLAN

(As amended and restated effective as of January 1, 2005)

BellSouth Corporation (“BellSouth”) established on the first (1st) day of September, 1985, the BellSouth Nonqualified Deferred Income Plan (“Plan”) for certain employees of BellSouth and its subsidiaries, and the Plan was subsequently amended from time to time.  The Plan is now hereby amended and restated, effective as of the lst day of January, 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, with respect to all benefits under the Plan that are subject to Section 409A.  Subject to the limitations contained in Article 2 of the Plan, and except as expressly provided herein, the Plan as so amended and restated shall hereafter apply to all Deferral Agreements, including those executed before this effective date, under the Plan.

ARTICLE I

DEFINITIONS

1.1            “Base Salary” means the gross salary of the Participants, including the amount of any before-tax basic and supplemental contributions to the BellSouth Retirement Savings Plan or similar contributions to a comparable plan maintained by a Participating Company and the amount of any other deferrals from gross salary under any nonqualified deferred compensation plans which may be maintained by a Participating Company from time to time.

1.1A         “CEO” means the Chief Executive Officer of BellSouth.

1.1B         “Change in Control 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 1.5D below).

1.1C         “Code” means the Internal Revenue Code of 1986, as amended.

1.2            “Compensation” means Net Monthly Salary.

1.3            “Compensation Rate” means the cash compensation of a Participant, including (i) annual Base Salary rate in effect on the date the Deferral Agreement is executed, and (ii) standard lump-sum award amount(s) in effect under incentive compensation programs on the date the Deferral Agreement is executed.  For Participants employed by Participating Companies whose compensa­tion structures do not readily fit within this definition, Compensation Rate means cash compensation as defined by the CEO.

1.4            “Deferral Agreement” means an agreement pursuant to which deferral elections under this Plan are made and includes a standard Deferral Agreement, substantially in the form of Exhibit A hereto, a Deferral Agreement for deferral of certain lump-sum payments, substantially in the form of Exhibit B hereto, and other agreements approved from time to time for use in connection with this Plan as described in Article 2.

1.4A         “Disabled” or “Disability” means, with respect to a Non-Grandfathered Participant, any of 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 an accident and health plan covering employees of the Employer.

1.4B         “Effective Date” means January 1, 2005, the date as of which the Plan is amended and restated.

1.5            “Employer” means (i) BellSouth and (ii) any subsidiary of BellSouth authorized by BellSouth to enter into Deferral Agreements pursuant to this Plan.

1.5A         “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

1.5B         “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.

1.5C         “Grandfathered Participant” means any Participant other than a Non-Grandfathered Participant.

1.5D         “Merger” means the planned 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 will be merged with and into the Merger Sub.

1.5E          “Net Credited Service” shall have the same meaning as is given such term in the BellSouth Personal Retirement Account Pension Plan, under the terms of such plan in effect on the Effective Date.  Net Credited Service will include periods of employment as described in Section 5.5D.

1.6            “Net Monthly Salary” means the amount of a Participant’s Base Salary which actually is paid to him or her in any month, net of all withholding, allotments, and deductions other than any reduction as a result of participation in this Plan.

1.6A         “Non-Grandfathered Participant” means any Participant who (a) is described in Section 5.5A, Section 5.5B or Section 5.5C, or (b) otherwise first becomes eligible for a Retirement benefit, or dies or becomes Disabled, on or after January 1, 2005.

1.7            “Participant” means an employee who is authorized by the CEO or his delegated representative to participate in the Plan and to execute a Deferral Agreement.

1.7A         “Participating Company” means (i) BellSouth and (ii) any corporate Subsidiary at least eighty percent (80%)of the capital stock of which is owned by BellSouth or by one or more eighty percent (80%) owned Subsidiaries, which has been designated by BellSouth for participation in this Plan.

1.7B         “Plan Administrator means the CEO and any individual or committee he designates to act on his behalf with respect to any or all of his responsibilities hereunder; provided, the CEO may designate any other person or committee to serve as the Plan Administrator with respect to any or all of the administrative responsibilities hereunder.

1.8            “Plan Year” means (i) January 1, 1986 through December 31, 1986 and (ii) each and every calendar year thereafter through 1996.  For certain Participants designated by the CEO, “Plan Year” also means calendar year 1997 or calendar year 1998.

1.8A         “Rabbi Trust Agreements” means each and all of the: (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; and (vi) Trust Under Executive Benefit Plan(s) for Certain BellSouth Companies; in each case, as amended from time to time.

1.8B         “Responsible Officer” means the officer elected by the Employer’s Board of Directors (or similar governing body) responsible for human resources matters for the Employer.

1.9            “Retirement” means any termination by a Participant who is (or would be) eligible for a pension, other than a deferred vested pension, under the terms and conditions of the BellSouth Personal Retirement Account Pension Plan, or comparable plan maintained by the Participating Company employing the Participant, under the terms of such plans in effect on the Effective Date.

With respect to any Participant who, at the time eligibility for Retirement is determined, is not eligible to participate in either the BellSouth Personal Retirement Account Pension Plan or a comparable plan maintained by the Participating Company employing the Participant, “Retirement” means the termination of employment by the Participant if at such time (A) the sum of (i) plus (ii) equals or exceeds seventy-five (75) years where (i) is the Participant’s whole years and whole months of age and (ii) is the Participant’s whole years and whole months of Net Credited Service, and (B) the Participant’s Net Credited Service is at least ten (10) years (the “Rule of 75”).  For purposes of the Rule of 75, Net Credited Service shall include the Participant’s period of service with any Subsidiary both prior to and after the time such Subsidiary became a Subsidiary.

Additionally, “Retirement” means (i) any termination by a Participant who is (or would be) eligible for a service benefit under terms and conditions of the BellSouth Corporation Supplemental Executive Retirement Plan (“SERP”), under the terms of SERP in effect on the Effective Date, (ii) any termination by a Participant who has attained age 62 or older and whose Net Credited Service is ten (10) years or more at the time of employment termination, (iii) any termination by a Participant who separates from service under the BellSouth Career Transition Assistance Plan (CTAP), the BellSouth Enterprises Employee Career Transition Plan (ECTP), the BellSouth Telecommunications, Inc. Career Transition Assistance Plan (BST CTAP), the BellSouth Telecommunications, Inc. Career Transition Assistance Plan-Professional (BST CTAP-P), the BellSouth Telecommunications, Inc. Employee Separation Assistance Plan (ESAP), the BellSouth Telecommunications, Inc. Competitive Management Restaffing Plan (CMRP), the BellSouth Telecommunications, Inc. Leadership Repositioning Plan (LRP), the BellSouth Telecommunications, Inc. Competitive Sourcing Transition Assistance Plan - Information Technology (CSTAP-IT), the BellSouth Advertising & Publishing Corporation Voluntary Management Separation Pay Plan (VMSPP), or a designated successor to any such plan, or other severance arrangement approved by the CEO as applicable to this Plan, and (iv) any termination by a Participant who separates from service under the BellSouth Voluntary Transition Incentive Plan (VTIP) and whose Net Credit Service is ten years or more at the time of such separation.

1.10          “Section 409A” means Code Section 409A and the Treasury regulations or other authoritative guidance issued thereunder.  Whenever the terms “subject to Section 409A” or “to the extent permitted by Section 409A” (or any such similar reference so as to indicate that a Plan provision is subject to Section 409A) are used, such terms shall be interpreted to mean that the applicable Plan provision shall be effective only if and to the extent such provision would not trigger penalty taxes or interest under Section 409A.

1.11          “Subsidiary” means any corporation other than BellSouth which is a member of the same controlled group of corporations, within the meaning of Code Section 414(b), as BellSouth and any trade or business (whether or not incorporated) which is under common control with BellSouth, within the meaning of Code Section 414(c).

ARTICLE 2

TERM; AMENDMENT

This Plan shall be effective until terminated by the CEO.  This Plan originally provided for 1986 through 1998 with Plan specifications and interest rates being established by the CEO for each separate Plan Year.  Notwithstanding the foregoing, no deferrals will be permitted under the Plan except with respect to the Plan Years described in Section 1.8 and then only to the extent authorized by the CEO.

This Plan may be amended, renewed, or restated by the CEO; provided that no such action shall accelerate or postpone the time or schedule of payment of any Plan benefits except as may be permitted under Code Section 409A and regulations thereunder.  Notwithstanding the foregoing, no contractual right created by and under any Deferral Agreement on the date of termination or amendment shall be abrogated by the termination or amendment of this Plan unless the Participant who executed such Deferral Agreement consents.  Participants have no other right or interest in the continuance of this Plan in any form.

ARTICLE 3

ADMINISTRATION; INTERPRETATION

3.1            Claims Procedure.

(a)            Initial Claim. Claims for benefits under the Plan may be filed with the Plan Administrator on forms or in such other written documents, as the Plan Administrator may prescribe.  The Plan Administrator shall furnish to the claimant written notice of the disposition of a claim within 90 days after the application therefor is filed.  In the event the claim is denied, the notice of the disposition of the claim shall provide the specific reasons for the denial, citations of the pertinent provisions of the Plan, and, where appropriate, an explanation as to how the claimant can perfect the claim and/or submit the claim for review.

(b)            Appeal.  Any Participant or Beneficiary who has been denied a benefit shall be entitled, upon request to the Plan Administrator, to appeal the denial of his claim.  The claimant (or his duly authorized representative) may review pertinent documents related to the Plan and in the Plan Administrator’s possession in order to prepare the appeal.  The request for review, together with written statement of the claimant’s position, must be filed with the Plan Administrator no later than 60 days after receipt of the written notification of denial of a claim provided for in Section 3.1(a).  The Plan Administrator’s decision shall be made within 60 days following the filing of the request for review.  If unfavorable, the notice of the decision shall explain the reasons for denial and indicate the provisions of the Plan or other documents used to arrive at the decision.

3.2            Interpretation.  The Plan Administrator shall have the exclusive responsibility and complete discretionary authority to control the operation and administration of the Plan, with all powers necessary to properly carry out such responsibility, including without limitation the full and exclusive power (i) to interpret the terms of this Plan and any Deferral Agreement, including the power to construe ambiguous or uncertain terms (ii) to establish reasonable procedures with which Participants must comply to exercise any right established under the Plan or any Deferral Agreement, (iii) to determine status, coverage, eligibility for and the amount of benefits, and all questions arising in connection therewith, and (iv) to resolve all questions that arise in the operation and administration of this Plan.  The rights and duties of Participants and other persons and entities are subject to, and governed by, such acts of administration, interpretations, procedures, and delegations.  All actions or determinations of the Plan Administrator or its delegates under this Article 3 shall be final, conclusive and binding on all persons.

3.3            Post-Merger Plan Administration.  Notwithstanding anything to the contrary in this Plan, following 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 4

DEFERRAL AGREEMENT

4.1            Election to Defer.  As hereinafter provided and subject to acceptance by an Employer, (a) a Participant may elect to reduce the amount of Compensation which will be paid to him or her during any Plan Year by executing and delivering to his or her Employer in a timely fashion a standard Deferral Agreement, substantially in the form of Exhibit A hereto, and (b) a Participant may elect to reduce the amount of a lump-sum payment to which he or she may become entitled prior to 1997 in connection with separation under the BellSouth Career Transition Assistance Plan (CTAP), the BellSouth Enterprises Employee Career Transition Plan (ECTP), the BellSouth Telecommunications, Inc. Career Transition Assistance Plan (BST CTAP), the BellSouth Telecommunications, Inc. Career Transition Assistance Plan Professional (BST CTAP-P), the BellSouth Telecommunications, Inc. Employee Separation Assistance Plan (ESAP), the BellSouth Telecommunications, Inc. Competitive Management Restaffing Plan (CMRP), the BellSouth Telecommunications, Inc. Leadership Repositioning Plan (LRP), the BellSouth Advertising & Publishing Corporation Voluntary Management Separation Pay Plan (VMSPP), the BellSouth Voluntary Transition Incentive Plan (VTIP) or a designated successor to any such plan, or other severance arrangement approved by the CEO as applicable to this Plan, by executing and delivering to his or her Employer in a timely fashion a Deferral Agreement, substantially in the form of Exhibit B hereto; provided that subsection (b) of this Section 4.1 shall apply to a Participant separating under the BellSouth Voluntary Transition Incentive Plan (VTIP) only if the Participant’s Net Credited Service is ten (10) years or more at the time of such separation.

4.2            Creation of Contractual Obligation.  An Employer which accepts a properly executed and timely delivered Deferral Agreement agrees to pay to the Participant or his or her Designated Beneficiary, as defined in Section 6.1, the benefits described in Article 5, which shall be calculated based upon (i) the amount deferred by each Participant, (ii) interest rate established for each Plan Year by the CEO or his delegate and applied to that amount annually, (iii) the time which elapses between the Plan Year of deferral and the date of benefit payments, and (iv) other factors established in this Plan and by the CEO or his delegate.

An Employer’s senior executive officer or Responsible Officer is authorized to accept and approve a properly executed Deferral Agreement on behalf of that Employer under Section 4.2.

4.3            Timing of Election.  A Participant may execute and deliver to his or her Employer a standard Deferral Agreement, substantially in the form of Exhibit A hereto, on or before November 30 of any calendar year to reduce the Participant’s Compensation only for the next subsequent Plan Year.  In addition, a Participant may execute and deliver to his or her Employer a Deferral Agreement, substantially in the form of Exhibit B hereto, in connection with a lump-sum payment described in Section 4.1(b) of this Plan within the time period prescribed by his or her Employer, but in no event later than the day preceding the day on which individuals are selected for separation under such program by the Employer.

Notwithstanding any other provisions of this Plan or any Deferral Agreement, no Deferral Agreement shall be effective to defer Compensation (or other amounts) which is earned by any Participant on or before the date upon which the Deferral Agreement is properly executed and timely delivered to the Participant’s Employer.

4.4            Amount of Deferral.  (a) A Participant may elect to defer during any Plan Year a dollar amount which is less than or equal to a specified percent of his or her Compensation Rate applicable to the Plan Year rounded to the next highest one thousand dollars.  The CEO shall establish the specified percent of the Compensation Rate applicable to each Plan Year.  Notwithstanding any provision of a Deferral Agreement or this Plan to the contrary, the Deferral Agreement of a Participant, with regard to a deferral described in this paragraph (a) shall be modified automatically if necessary such that all actual reductions pursuant to his or her Deferral Agreement are made from his or her Net Monthly Salary.

(b)            A Participant may elect to defer a portion of a lump-sum payment to which he or she may become entitled as described in Section 4.1(b) in an amount not to exceed (i) a dollar amount which is less than or equal to the maximum deferral, if any, which such Participant could elect under paragraph (a) of this Section 4.4 at the time of election, and (ii) the dollar amount by which any election of deferrals under paragraph (a) of this Section 4.4 for the Plan Year in which the Participant terminates employment have not been satisfied at the time of termination of employment, except as may be otherwise approved by the CEO.

4.5            No Deferrals Since 1998.   No deferrals have been permitted under the Plan since Plan Year 1998.  No current or future deferrals shall be permitted under the Plan.

ARTICLE 5

PAYMENT OF BENEFITS

5.1            Retirement Benefit.  (a)  If a Participant terminates employment with his or her Employer and is not immediately reemployed by another Employer (or, in the case of a Non-Grandfathered Participant, by a Subsidiary), and such termination constitutes a Retirement, or upon any subsequent termination from such an entity that constitutes a Retirement, then the Employer shall pay to the Participant the annual Retirement benefit stated in his or her Deferral Agreements on those dates specified in each Deferral Agreement.  The Employer shall also make any Retirement benefit payment to a Participant who has remained employed with the Employer (or with another Employer or a Subsidiary) through the date specified for such payment in his or her Deferral Agreement.  Except as hereinafter provided, the Retirement benefit payment(s) which will be stated in a Participant’s Deferral Agreement shall be a number of payments equal to the lesser of (i) fifteen (15) and (ii) the remainder of eighty (80) minus the age at which Retirement benefit payments commence pursuant to this Section.  The Retirement benefit shall be paid as soon as administratively practicable after the first (1st) day of January following the calendar year in which the Participant attains age sixty-five (65).  Any such Deferral Agreement executed by a Participant which defers amounts which would otherwise be payable to the Participant in or after the Plan Year in which he or she attains age sixty-five (65), however, shall provide that the first Retirement benefit payable shall be paid as soon as administratively practicable after the first (1st) day of January following the later of (i) the fifth (5th) anniversary of the date upon which the Deferral Agreement is accepted by the Employer or (ii) his or her Retirement, and that the number of Retirement benefit payments shall equal the remainder of (i) eighty (80) minus (ii) the age at which Retirement benefit payments commence pursuant to this Section.

(b)            Notwithstanding the provisions of paragraph (a) of this Section 5.1, to the extent authorized in terms and conditions approved for a Plan Year by the CEO pursuant to Article 2 of this Plan, the Employer shall pay to the Participant the annual Retirement benefit specified in his or her Deferral Agreements on those dates specified in each Deferral Agreement which may differ from those specified in Section 5.1(a).

(c)            If a Grandfathered Participant is, on the date of termination, or becomes thereafter a proprietor, officer, partner, or employee of, or otherwise is or becomes affiliated with (i) any business that is in competition with any Employer or (ii) any government agency having regulatory jurisdiction over the business activities of any Employer, then, upon that date, no further benefit payments shall be made to the Participant, or any other person with respect to the Participant’s participation in this Plan, under any provision or Section of this Plan, except that, the Participant shall be paid in lump-sum as soon as administratively practicable after the first (1st) day of January following that date an amount equal to (i) the amount deferred pursuant to each of his or her Deferral Agreements, (ii) plus interest on each such amount (adjusted to take into account all payments described in clause (iii) below) credited separately at a rate equal to the rate paid on ten (10) year United States Treasury obligations on each date for which interest is credited, compounded quarterly, for each Plan Year between the Plan Year to which the Deferral Agreement applies and the Plan Year in which the act occurs or status is first attained, inclusive, (iii) minus the amount of all Interim Distributions and any other payments hereunder.  If the above calculation results in a negative amount, such amount shall not be collected from, or enforced against the Participant as a claim by his or her Employer.  This Section 5.1(c) shall be inapplicable with respect to any Non-Grandfathered Participant.

5.2            Interim Distributions.  A Participant shall be paid the benefits stated in Paragraph 3 of his or her standard Deferral Agreements on those dates stated in that paragraph of each such Deferral Agreement (herein referred to as “Interim Distributions”).  However, no Interim Distribution shall be stated in a Deferral Agreement or paid to any Participant as a result of the Deferral Agreement if the Participant is age fifty-five (55) or older on any day during the Plan Year to which the Deferral Agreement applies.  Except as may be otherwise specified by the CEO, no Interim Distribution shall be paid to a Participant on or after the date upon which the Participant or his or her Designated Beneficiary receives any benefit or payment under any other Section of this Plan or any other paragraph of his or her Deferral Agreement.  No Interim Distribution shall be paid in connection with any Deferral Agreement which does not specifically provide for such benefits.

5.3            Death Benefit.  If a Participant dies on or before the date upon which he or she is eligible for Retirement, then his or her Designated Beneficiary, as defined in Section 6.1, shall be paid in a lump-sum as soon as administratively practicable after the first day of January following his or her date of death an amount equal to:  (i) the amount deferred pursuant to each of his or her Deferral Agreements, (ii) plus interest on each such amount (adjusted to take into account all payments described in clause (iii) below) credited separately at the rate approved for and applicable to his or her participation in each Plan Year for which he or she executed accepted Deferral Agreements, such rates to be compounded quarterly for each Plan Year between the Plan Year to which the Deferral Agreement applies and the Plan Year in which his or her death occurs, inclusive, (iii) minus the amount of all Interim Distributions, if any, received by the Participant or to which the Participant is entitled on or before the date of his or her death.  If the above calculation results in a negative amount, such amount shall not be collected from, or enforced against the Participant as a claim by his or her Employer.

If a Participant dies on or after the date upon which he or she is eligible for Retirement (as defined in Section 1.9), whether or not he or she has in fact terminated employment, prior to commencing receipt of benefits, or having received all benefits, as the case may be, payable in accordance with the duly authorized Deferral Agreement under this Plan, except as provided under Section 5.4, then his or her Designated Beneficiary, as defined in Section 6.1, shall receive all benefits, or continue to receive the remaining benefits, as the case may be, in accordance with that Deferral Agreement.

If the Participant’s Designated Beneficiary receives or is entitled to receive a benefit hereunder, then no person or persons shall receive or be entitled to receive any benefit or payment under any other Section or this Plan or under any Deferral Agreement, notwithstanding any other provision of this Plan or any Deferral Agreement.

5.4            Pre-Retirement Disability Benefit.  If a Participant suffers a Disability or becomes Disabled (as defined in Section 1.4A) prior to the date upon which he or she receives or is entitled to receive a benefit under Section 5.1 or Section 5.3, then he or she shall be paid by the Employer in a lump-sum as soon as administratively practicable after the first (1st) day of January following the Plan Year in which the Disability occurs an amount equal to:  (i) the amount deferred pursuant to each of his or her Deferral Agreements, (ii) plus interest on each such amount (adjusted to take into account all payments described in clause (iii) below) credited separately at the rate approved for and applicable to his or her participation in each Plan Year for which he or she executed accepted Deferral Agreements, such rates to be compounded annually for each Plan Year between the Plan Year to which the Deferral Agreement applies and the Plan Year in which his or her Disability occurs, inclusive, (iii) minus the amount of all Interim Distributions, if any, received by the Participant or to which the Participant is entitled on or before the date of onset of Disability.  If the above calculation results in a negative amount, such amount shall not be collected from, or enforced against the Participant as a claim by his or her Employer.  If the Participant receives or is entitled to receive a benefit hereunder, then no person or persons shall receive or be entitled to receive any benefit or payment under any other section of this Plan or under any Deferral Agreement, notwithstanding any other provisions of this Plan or any Deferral Agreement.

5.5            Termination of Employment Prior to Retirement or Disability.  If a Participant terminates employment with his or her Employer, and is not immediately reemployed by another Employer (or, in the case of a Non-Grandfathered Participant, by a Subsidiary), prior to death, Disability or Retirement, then a benefit amount shall be paid to the Participant in a lump-sum (or, in the case of a Grandfathered Participant, either in a lump-sum or in five (5) annual installments, at the election of the CEO), payable as soon as administratively practicable after the first (1st) day of January following his or her date of termination (and anniversaries thereof in case of installments), which amount equals (i) the amount deferred pursuant to each of his or her Deferral Agreements, (ii) plus interest on each such amount (adjusted to take into account all payments described in clause (iii) below) credited separately at a rate equal to the rate on ten (10) year United States Treasury obligations on each date for which interest is to be credited, compounded quarterly, for each Plan Year between the Plan Year to which the Deferral Agreement applies and the Plan Year in which the termination occurs, inclusive, (iii) minus the amount of all Interim Distributions, if any, received by the Participant or to which the Participant is entitled on or before the date of his or her termination.  If the above calculation results in a negative amount, such amount shall not be collected from, or enforced against the Participant as a claim by his or her Employer.  If the Participant receives or is entitled to receive a benefit hereunder, then no person or persons shall then or thereafter receive any benefit or payment under any other Section of this Plan or any Deferral Agreement, notwithstanding any other provision of this Plan or any Deferral Agreement.

5.5A         Termination of Employment Under TPPS:V Prior to Retirement or Disability.  If a Participant terminates employment with his or her Employer under the BellSouth Corporation Transition Payment Plan for Senior Management: Voluntary (“TPPS:V”) during calendar year 2006, prior to death, Disability or Retirement, the Participant shall be permitted to make a new payment election with respect to the Participant’s Plan benefits to have his or her entire Plan benefit paid as if the Participant’s termination of employment constituted a Retirement for all purposes of the Plan.  Each Participant who elects to participate in TPPS:V, and who terminates employment under the provisions of TPPS:V and satisfies all requirements of TPPS:V, will be deemed to have made this new payment election with respect to his or her NQDIP benefits.  Notwithstanding anything to the contrary in this Plan, the new payment election described above shall in no event change payment elections with respect to benefits that otherwise would have been paid in 2006, or to cause payments to be made in 2006.  No new payment election may be made pursuant to this Section 5.5A after December 31, 2006.

5.5B         Termination of Employment Under Change in Control Severance Plan.  A Participant (i) who as of his or her termination of employment has not satisfied the age and service requirements for Retirement, (ii) who will be treated under the Change in Control Severance Plan as having satisfied such requirements upon terminating employment under the circumstances specified therein, and (iii) who elects on or before December 31, 2006, to be covered under these terms, shall be deemed to have made a new payment election to have his or her entire Plan benefit paid as if the Participant’s termination of employment constituted a Retirement for all purposes of the Plan.  Notwithstanding anything to the contrary in this Plan, no such election made after December 31, 2006, shall be valid and the new payment election described above shall in no event change the terms of payment with respect to benefits that otherwise would have been paid in 2006, or to cause payments to be made in 2006.

5.5C         Termination of Employment Under Executive Severance Agreement.  A Participant who has an Executive Severance Agreement with BellSouth and (i) who as of his or her “Termination Date” (as defined in the Executive Severance Agreement) has not satisfied the age and service requirements for Retirement, (ii) who will be treated under the Executive Severance Agreement as having satisfied such requirements upon terminating employment under the circumstances specified therein, and (iii) who elects on or before December 31, 2006, to be covered under these terms, shall be deemed to have made a new payment election to have his or her entire Plan benefit paid as if the Participant’s termination of employment constituted a Retirement for all purposes of the Plan.  Notwithstanding anything to the contrary in this Plan, no such election made after December 31, 2006, shall be valid, and the new payment election described above shall in no event change the terms of payment with respect to benefits that otherwise would have been paid in 2006, or to cause payments to be made in 2006.

5.5D         Transfer of Employment to YP Holdings LLC (“YPH”)     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”). Participants in the AS unit who leave AT&T employment and transfer to employment with  YPH as part of the closing of the transaction  (hereinafter referred to as  a “YP Participant”) will have their actual period of employment at YPH included as Net Credited Service for purposes of this Plan, up to a maximum of four years.  The closing of the transaction described in the preceding sentence shall be hereinafter referred to as the “Closing.”  The Net Credited Service (maximum four years) will be counted to determine if a Participant meets the eligibility for a Retirement event (described in Section 1.9) and Retirement Benefit (described in Section 5.1).  The YPH service will not be used for any other purpose in the Plan.

Furthermore, if a YP Participant’s employment with YPH is involuntarily terminated (other than for “cause”) by YPH, as determined by the Plan Administrator, within the four year period immediately following the Closing, then additional service will be credited under the Plan so that the YP Participant will be deemed to have met the eligibility for a Retirement event (described in Section 1.9) and Retirement Benefit (described in Section 5.1).  For purposes of clarity, if a YP Participant voluntarily terminates his employment with YPH or is involuntarily terminated for “cause” from YPH, as determined by the Plan Administrator, within the four year period immediately following the Closing, the additional service with YPH to be recognized under the Plan shall cease as of the date of such termination from YPH.  Finally, a YP Participant’s age upon his actual termination of employment (separation from service) from YPH will be used to determine the participant’s eligibility for Retirement (section 1.9) and a Retirement Benefits (Section 5.1) under the Plan.

For purposes of the paragraph above, “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.

In addition, in compliance with the requirements of Code Section 409A, YP Participants 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 they incur a termination of employment (separation from service) from YPH.

The preceding amendment only applies to benefits for certain participants that were not considered “grandfathered” under the Section 409A rules and does not apply to any benefits or participants that were “grandfathered” under Section 409A.

5.6            Distributions to Code Section 409A Specified Employees.  Notwithstanding any provision of this Plan to the contrary, with respect to any Non-Grandfathered Participant who is a “specified employee” for purposes of Code Section 409A, no payment of any portion of the Non-Grandfathered Participant’s benefit amount which is occasioned by the Non-Grandfathered Participant’s separation from service shall be made before the date that is six (6) months after the date of such Participant’s separation from service.

ARTICLE 6

MISCELLANEOUS

6.1            Beneficiary Designation.  If a Participant dies and, on the date of his or her death, any benefit or benefits remain to be paid to the Participant under the terms and conditions of this Plan, the remaining benefit or benefits shall be paid to that person or persons designated by the Participant (“Designated Beneficiary”) on the form provided from time to time to the Participant by his or her Employer in accordance with the Deferral Agreement.  If the Designated Beneficiary dies prior to completion of all payments under the Deferral Agreement, the estate of the Designated Beneficiary shall be paid by the Employer in a lump-sum as soon as administratively practicable after the first (1st) day of January following the year in which the Designated Beneficiary died.  The amount of the lump-sum will be equal to (i) the amount deferred pursuant to each of the Participant’s Deferral Agreements, (ii) plus interest on each such amount (adjusted to take into account all payments described in clauses (iii) and (iv) below) credited separately at the rate approved for and applicable to the Participant’s participation in each Plan Year from which he or she executed accepted Deferral Agreements, such rates to be compounded quarterly for each Plan Year between the Plan Year to which the Deferral Agreement applies and the Plan Year in which the Designated Beneficiary’s death occurs, inclusive, (iii) minus the amount of all Interim Distributions, if any received by the Participant or Designated Beneficiary, (iv) minus the Retirement benefits paid to the Participant or Designated Beneficiary pursuant to the Deferral Agreement(s).  If the above calculation results in a negative amount, such amount shall not be collected from, or enforced against the estate of the Designated Beneficiary.  If no Designated Beneficiary has been chosen by the Participant or if the Designated Beneficiary is not living on the date of the Participant’s death, the estate of the Participant shall be paid by the Employer in a lump-sum as soon as administratively practicable after the first (1st) day of January following the year in which the Participant died.  The amount of the lump-sum shall be determined in the manner described previously in this Section 6.1.

6.2            Obligations of Employers Not the Obligations of BellSouth.  The duties and obligations of each Employer hereunder are several but not joint, each Employer is only liable to its own employees who are Participants hereunder, and BellSouth is not liable for the actions, omissions, duties or obligations of any other Employer hereunder.

6.3            Recalculation Events; Treatment of this Plan under Applicable Federal Income Tax Laws.  With respect to Grandfathered Participants, the adoption and maintenance of the Plan is strictly conditioned upon (i) the applicability of Code Section 451(a) to the Participant’s recognition of gross income as a result of his or her participation, (ii) the fact that Participants will not recognize gross income as a result of participation in this Plan until and to the extent that benefits are received, (iii) the applicability of Code Section 404(a)(5) to the deductibility of the amounts paid to Participants hereunder, (iv) the fact that an Employer will not receive a deduction for amounts credited to any accounting reserve created as a result of this Plan until and only to the extent that benefits are paid, and (v) the inapplicability of Parts 2, 3, and 4 of Title I of ERISA to this Plan by reason of the exemptions set forth in ERISA Sections 201(a), 301(a) and 401(a) and Part 1 of ERISA by reason of the exemption set forth in Section 2520.104-23 of applicable United States Department of Labor regulations.  If the Internal Revenue Service, the Department of Labor or any court determines or finds as a fact or legal conclusion that any of the above conditions is untrue and issues or intends to issue an assessment, determination, opinion or report stating such, or if the opinion of the legal counsel of BellSouth based upon legal authorities then existing is that any of the above assumptions is incorrect, then, if the CEO so elects within one year of such finding, determination, or opinion, a Recalculation Event shall be deemed to have occurred.

If a Recalculation Event occurs under this Section 6.3, Section 6.4, or any other Section of this Plan, then each Grandfathered Participant who has not attained the age of fifty-five (55) years on the date on which the CEO takes official action to elect the occurrence of a Recalculation Event shall thereafter be paid benefits in accordance with the election made irrevocably in connection therewith in the Deferral Agreement.  For each such Grandfathered Participant the amount of Retirement benefit stated in the Deferral Agreement shall be recalculated and restated using a rate of interest equal to the rate of interest on ten (10) year United States Treasury obligations on each date upon which interest should have been or will be calculated, compounded quarterly, instead of the interest rate assumed in originally calculating the benefit, as referenced in Section 4.2.

Notwithstanding anything to the contrary contained in this Plan or a Deferral Agreement, the benefits payable with respect to any Participant who shall have either (i) attained the age of fifty-five (55) years or (ii) died, on or prior to the date on which the CEO takes official action to elect the occurrence of a Recalculation Event under either Sections 6.3 or 6.4 of this Plan, shall not be recalculated and restated in the manner described in such Sections or in any other way affected by such action.  If such Participant or Designated Beneficiary receives or is entitled to receive a benefit as result of the occurrence of a Recalculation Event, then no person or persons shall receive or be entitled to receive any benefit or payment under any other Section of this Plan or under any Deferral Agreement, notwithstanding any other provision of this Plan or the Deferral Agreement.

This Section 6.3 shall be inapplicable with respect to any Non-Grandfathered Participant.

6.4            Changes in the Internal Revenue Code of 1954.  With respect to Grandfathered Participants, the adoption and maintenance of this Plan also is strictly conditioned upon the existence and continuation of the percentage tax rates for corporations stated in Section 11(b) of the Internal Revenue Code of 1954, as amended through August 13, 1981 but not thereafter (the “1954 Code”).  In particular, the adoption and maintenance of this Plan is strictly conditioned upon the rate of tax stated in Section 11(b)(5) of the 1954 Code, that is, “46 percent of so much of the taxable income as exceeds $100,000.”  If (1) 1954 Code Section 11(b) is deleted or amended or a surtax or other addition to tax is imposed and, as a result thereof, the rate of federal income tax imposed on taxable income of corporations in excess of One Hundred Thousand Dollars ($100,000) is reduced below such rate in effect immediately before reduction and is less than forty percent (40%), (2) a tax is imposed by the federal government on income, sales, consumption, or the value of goods and services which is not currently contained in the Code, or (3) the Code is amended or restated so extensively that in the opinion of the legal counsel of BellSouth the tax treatment of this Plan to the Employer has materially changed to the detriment of the Employer, then, if the CEO so elects within one year after the enactment of the legislation causing such event, a Recalculation Event shall be deemed to have occurred and a benefit will be payable only as described in Section 6.3.

This Section 6.4 shall be inapplicable with respect to any Non-Grandfathered Participant.

6.5            Governing Law.  This Plan and the Deferral Agreements shall be construed in accordance with the laws of the State of Georgia to the extent such laws are not preempted by ERISA.

6.6            Successors, Mergers, Consolidations.  The terms and conditions of this Plan and each Deferral Agreement shall inure to the benefit of and bind BellSouth, the other Employers, the Participants, their successors, assigns, and personal representatives.  If substantially all of the assets of any Employer are acquired by another corporation or entity or if an Employer is merged into, or consolidated with, another corporation or entity, then the obligations created hereunder and as a result of the Employer’s acceptance of Deferral Agreements shall be obligations of the successor corporations or entity.

6.7            Discharge of Employer’s Obligation.  The payment by the Employer of the benefits due under each and every Deferral Agreement to the Participant or to the person or persons specified in Section 6.1 discharges the Employer’s obligations hereunder, and the Participant has no further rights under this Plan or the Deferral Agreements upon receipt by the appropriate person of all benefits.  In addition, (i) if any payment is made to a Participant or his or her Designated Beneficiary with respect to benefits described in this Plan from any source arranged by the Employer including, without limitation, any 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 Employer under this Plan and the Deferral Agreements to the extent of such payment as if such payment had been made directly by the Employer; and (ii) if any payment from a source described in clause (i) above shall be made, in whole or in part, prior to the time payment would be made under the terms of this Plan and the Deferral Agreement, such payment shall be deemed to satisfy the Employer’s obligation to pay Plan benefits beginning with the benefit which would next become payable under the Plan and the Deferral Agreement 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 described in clause (ii), 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 the payment(s) described in clause (ii), any such shortfall shall not be collected from or enforced against the Participant as a claim by the Employer.

6.8            Social Security and Income Tax Withholding.  Each Participant agrees as a condition of participation hereunder that his or her Employer may withhold federal, state, and local income taxes and Social Security taxes from any distribution or benefit paid hereunder.

6.9            Notice; Delivery of Deferral Agreement.  Any notice required to be delivered hereunder and any Deferral Agreement is properly delivered to the Employer when personally delivered to, or actually received from the United States mail, postage prepaid, by Executive Compensation and Benefits Group, Room 13J08, BellSouth Corporation, 1155 Peachtree Street, N.E., Atlanta, Georgia  30309-3610, or at such other address as the Plan Administrator shall prescribe from time to time.

6.10          Nature of Obligations Created Hereunder.  The Participants agree as a condition of participation hereunder that:

(a)            Participants have the status of general, unsecured creditors of the Employer and the Plan and the Deferral Agreements constitute the mere promise by the Employer to make benefit payments in the future;

(b)            nothing contained in this Plan or any Deferral Agreement shall create or be construed to create a trust of any kind between BellSouth, any Employer, and any Participant;

(c)            benefits payable, and rights to benefits under, this Plan and Deferral Agreements may not be anticipated, sold, assigned (either at law or in equity), transferred, pledged, encumbered or subject to attachment, garnishment, levy, execution or other legal or equitable process.

The Plan is intended to be unfunded for purposes of ERISA and the Code.

6.11          No Modification of Employment Agreement.  Neither this Plan nor any Deferral Agreement constitutes a modification of any employment agreement which may exist between the Participant and the Participating Company employing the Participant, and no right to continued employment is created by this Plan or the Deferral Agreement.

6.12          Liability of Employers for Individual Participants Employed by More than One Employer; Applicability of Deferral Agreement Filed with One Employer to Subsequent Employers.  Any Deferral Agreement which is timely executed and delivered to an Employer shall be effective to defer Compensation earned by the Participant from that Employer or any other Employer during the period in which the Deferral Agreement is effective.  The execution and delivery of a Deferral Agreement by a Participant constitutes an election by the Participant to defer Compensation earned from any Employer under the terms of this Plan.  A Participant who timely executes and delivers a Deferral Agreement to one Employer and who subsequently transfers to another Employer or otherwise terminates employment and becomes employed by another Employer shall have the Compensation which is paid to him or her by both Employers reduced under the terms of the Deferral Agreement and this Plan as if the transfer or termination and reemployment had not occurred.  The Employer which accepts an executed, timely delivered Deferral Agreement is liable to the Participant for all benefits which may be payable under, and as a result of, that Deferral Agreement notwithstanding the transfer of a Participant to or from another Employer, or the termination and reemployment of a Participant by another Employer.  If a Participant timely executes and delivers Deferral Agreements to more than one Employer, each Employer is singly and not jointly liable for the Deferral Agreement or Deferral Agreements which it accepted.  Any provision of this Plan which refers to a benefit or payment which is payable as a result of more than one (1) Deferral Agreement shall be construed to apply only to the Deferral Agreements delivered by that Participant and accepted by each separate Employer of that Participant, and not to all Deferral Agreements executed and timely delivered by one Participant or all Participants to all Employers, each Deferral Agreement which incorporates the terms of this constituting a separate contractual obligation of a single Employer.

6.13          Savings Clause.  In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality of 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.

6.14          Plan to Comply with Code Section 409A.  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.

Exhibit A

DEFERRAL AGREEMENT

FOR THE BELLSOUTH NONQUALIFIED DEFERRED INCOME PLAN

1.           Amount of Deferral.  I, _______________, hereby agree to participate in the BellSouth Nonqualified Deferred Income Plan (“Plan”).  I have read the Plan in its entirety and agree to its terms and conditions, which are incorporated herein by reference. Pursuant to the terms of the Plan, I elect to defer from my compensation to be paid to me in Plan Year ____ the sum of _________________ Dollars.  I understand that my Compensation which ordinarily would be paid to me in that Plan Year will be reduced by the amount of my deferral, and that such reduction will be made only from my gross monthly salary, not from any bonus or incentive award which may be payable to me.

2.           Retirement Benefits.  In consideration for my deferral, my Employer shall pay to me the following benefits on the dates specified, if I am entitled to these benefits under the terms and conditions of the Plan:

3.           Interim Distributions.  In consideration for my deferral, my Employer shall pay to me the following benefits on the dates specified, if I am entitled to these benefits under the terms and conditions of the Plan:

4.           Recalculation Event.  If a Recalculation Event applicable to me occurs, my Employer shall pay to me benefits in an amount determined in accordance with the terms and conditions of paragraph 6.3 of the Plan paid in accordance with the terms elected below.  The undistributed balance of the recalculated amount will continue to accumulate at the reduced rate specified in paragraph 6.3 of the Plan.

- Recalculated amount paid in a LUMP-SUM in the year following the Recalculation Event.

- Recalculated amount paid in FOUR ANNUAL PAYMENTS beginning in the year following the Recalculation Event.

- Recalculated amount paid in SAME NUMBER of payments beginning on the same date as specified in paragraph 2 of this Agreement.

(All amounts are to be paid as soon as administratively practicable after the first of the specified year.)

5.           Election Irrevocable.  This election is irrevocable after November 30 immediately preceding the Plan Year to which this Agreement pertains.

6.           Primacy of Plan.  I recognize that I am entitled to benefits hereunder and that this Agreement is subject to the terms and conditions of the Plan.

Participant:                                                                       Accepted by Employer:

_______________________________       _________________________________

Name (Print)                                                                     Name of Employer

_______________________________       By:______________________________

Signature                                                                          Its: ______________________________

Title

_______________________________       _________________________________

Date                                                                                   Date

Exhibit B

DEFERRAL AGREEMENT

FOR THE BELLSOUTH NONQUALIFIED DEFERRED INCOME PLAN

(For Deferral of Lump-Sum Payments)

THIS AGREEMENT is made this ___ day of ____________, 19__, by and between ___________________ (the “Company”) and _____________________ (the “Employee”);

W I T N E S S E T H:

WHEREAS, the Employee may separate from service with the Company under the terms of an eligible separation plan or arrangement sponsored by the Company (hereinafter, the “Separation Plan”); and

WHEREAS, the BellSouth Nonqualified Deferred Income Plan (the “Plan”) permits the Employee to elect irrevocably to defer a portion of the lump-sum separation allowance to which he may become entitled thereunder, and the Employee desires to make such deferral;

NOW, THEREFORE, it is mutually agreed as follows:

1.

PLAN PROVISIONS CONTROL

The Plan, including all terms, conditions, restrictions and limitations contained therein, is hereby incorporated by reference and made a part of this Agreement for all purposes.   The terms and conditions applicable to the plan year of the Plan in which the Employee separates from service shall apply to deferrals hereunder.  In interpreting the Plan for purposes of this Agreement, the lump-sum separation allowance payable under the Separation Plan shall not be included in the Employee’s “Compensation Rate” as that term is used in the Plan.

2.

CONDITIONAL DEFERRAL

The deferral election contained herein shall be irrevocable by the Employee upon its submission to the Company but shall be expressly conditioned upon the Employee’s separation from service under the Separation Plan.  If the Employee does not separate from service under the Separation Plan, this Agreement shall be null and void.  Neither the Company’s offering of this deferral opportunity to the Employee, the Company’s acceptance of the Employee’s deferral election contained in this Agreement, nor any other provision hereof shall in any way be construed as conferring upon the Employee any right or entitlement to any payment under the Separation Plan.

3.

DEFERRAL ELECTION(S)

(a)           Subject to the Plan’s limitations, the Employee hereby irrevocably elects to defer from the lump-sum separation allowance payable under the Separation Plan __________________________ Dollars ($__________).*

*NOTE:                      Amount may not exceed __% of the sum of your current annual base

salary and lump-sum awards received in the previous twelve (12) months.

YES _______                                           NO _______

(b)           The Employee hereby irrevocably elects to defer from the lump-sum separation allowance payable under the Separation Plan the dollar amount by which any election of deferrals from base salary under the Plan for the plan year of the Plan in which the Employee separates from service has not been satisfied by the time the Employee separates.

YES _______                                           NO _______

Such amounts shall be subject to the terms of the original Deferral

Agreement to which they relate.

I understand that the lump-sum separation allowance payable under the Separation Plan which would otherwise have been paid to me will be reduced by the amount of my deferral(s).

4.

RETIREMENT BENEFITS

In consideration of my deferral described in section 3(a) above, if any, the Company shall pay to me the following benefits on the dates specified, if I am entitled to these benefits under the terms and conditions of the Plan:

Any distributions attributable to deferral(s) under Schedule B of the Plan shall be made beginning on _____________ in _____ annual payments.

5.

INTERIM DISTRIBUTIONS

In consideration for my deferral described in section 3(a) above, if any, the Company shall pay to me the following benefits on the dates specified, if I am entitled to these benefits under the terms and conditions of the Plan:

6.

RECALCULATION EVENT

If a Recalculation Event occurs, the Company shall pay to me benefits in an amount determined in accordance with the terms and conditions of paragraph 6.3 of the Plan paid in accordance with the terms elected below.  The undistributed balance of the recalculated amount will continue to accumulate at the reduced rate specified in paragraph 6.3 of the Plan.

● Recalculated amount paid in a lump-sum as soon as administratively practicable after the first day of the year following the date of the Recalculation Event.

● Recalculated amount paid in four annual payments beginning as soon as administratively practicable after the first day of the year following the date of the Recalculation Event.

● Recalculated amount paid in same number of payments beginning on the same date as specified in paragraph 4 of this Agreement.

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in its corporate name by a duly authorized officer, and the Employee has hereunto set his hand, as of the date set forth above.

EMPLOYEE:                                                                THE COMPANY:

___________________________   ___________________________________

Name (Print)                                                      Name of Company

___________________________   By: ________________________________

Signature                                                                  Signature

                                                                            ___________________________________

     Title

EX-10.M

Exhibit 10-m

AT&T INC.

STOCK PURCHASE AND DEFERRAL PLAN

Adopted November 19, 2004

As amended through January 31, 2013

Article 1 - Statement of Purpose

The purpose of the Stock Purchase and Deferral Plan (“Plan”) is to increase stock ownership by, and to provide savings opportunities to, a select group of management employees of AT&T Inc. (“AT&T”) and its Subsidiaries.

Article 2 - Definitions

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

Annual Bonus.  The award designated the “Annual Bonus” by AT&T (including but not limited to an award that may be paid in more frequent installments than annually), together with any individual discretionary award made in connection therewith, or comparable awards, if any, determined by AT&T to be used in lieu of these awards.

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

(a)   base salary;

(b)  lump sum payments in lieu of a base salary increase; and

(c)  Annual Bonus.

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

Determinations by AT&T (the Committee with respect to Officer Level Employees) of the items that make up Base Compensation shall be final.  The Committee may, from time to time, add or subtract types of compensation to or from the definition of “Base Compensation” provided, however, any such addition or subtraction shall be effective only with respect to the next period in which a Participant may make an election to establish a Share Deferral Account.  Base Compensation that was payable in a prior Plan Year but paid in a later Plan Year shall not be used to determine Employee Contributions or Matching Contributions in such later Plan Year.

Business Day.  Any day during regular business hours that AT&T is open for business.

Change in Control.  With respect to AT&T’s direct and indirect ownership of an Employer, a “Change in the effective control of a Corporation,” as defined in Treasury Regulation Section 1.409A-3(i)(5)(vi)(A)(1), regardless of whether the Employer is a corporation or non corporate entity as permitted by the regulation, and using “50 percent” in lieu of “30 percent” in such regulation.  A Change in Control will not apply to AT&T itself.

Chief Executive Officer.  The Chief Executive Officer of AT&T Inc.

Code.  References to the Code shall be to provisions of the Internal Revenue Code of 1986, as amended, including regulations promulgated thereunder and successor provisions.  Similarly, references to regulations shall include amendments and successor provisions.

Committee.  The Human Resources Committee of the Board of Directors of AT&T Inc.

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

Eligible Employee.  An Employee who:

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

(b) is, as determined by AT&T, a member of Employer's “select group of management or highly compensated employees” within the meaning of the Employee Retirement Income Security Act of 1974, as amended, and regulations thereunder (“ERISA”), which is deemed to include each Officer Level Employee; and

(c) has an employment status which has been approved by AT&T to be eligible to participate in this Plan or is an Officer Level Employee.

Notwithstanding the foregoing, AT&T (the Committee with respect to Officer Level Employees) may, from time to time, exclude any Employee or group of Employees from being deemed an “Eligible Employee” under this Plan.

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

                Employee.  Any person employed by an Employer and paid on an Employer’s payroll system, excluding persons hired for a fixed maximum term and excluding persons who are neither citizens nor permanent residents of the United States, all as determined by AT&T.For purposes of this Plan, a person on Leave of Absence who otherwise would be an Employee shall be deemed to be an Employee.

Employee Contributions.  Amounts credited to a Share Deferral Account pursuant to Section 4.1 (Election to Make Contributions) of the Plan.

Employer.  AT&T Inc. or any of its Subsidiaries.

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

                Fair Market Value or FMV.  In valuing Stock or any other item subject to valuation under this Plan, the Committee may use such index or measurement as the Committee may reasonably determine from time to time, and such index or measurement shall be the FMV of such Stock or other item, provided that for purposes of determining the Exercise Price of Stock Options, the Committee shall use a value consistent with the requirements of Section 409A.  In the absence of such action by the Committee, FMV means, with respect to Stock, the closing price on the New York Stock Exchange (“NYSE”) of the Stock on the relevant date, or if on such date the Stock is not traded on the NYSE, then the closing price on the immediately preceding date such Stock is so traded.

Leave of Absence.  Where a person is absent from employment with an Employer on a leave of absence, military leave, sick leave, or Disability where the leave is given in order to prevent a break in the continuity of term of employment, and permission for such leave is granted (and not revoked) in conformity with the rules of the Employer that employs the individual, as adopted from time to time, and the Employee is reasonably expected to return to service.  Except as set forth below, the leave shall not exceed six (6) months for purposes of this Plan, and the Employee shall Terminate Employment upon termination of such leave if the Employee does not return to work prior to or upon expiration of such six (6) month period, unless the individual retains a right to reemployment under law or by contract.  A twenty-nine (29) month limitation shall apply in lieu of such six (6) month limitation if the leave is due to the Employee being "disabled" (within the meaning of Treasury Regulation §1.409A-3(i)(4)).  A Leave of Absence shall not commence or shall be deemed to cease under the Plan where the Employee has incurred a Termination of Employment.

Officer Level Employee.  Any executive officer of AT&T, as that term is used under the Securities Exchange Act of 1934, as amended, and any Employee that is an “officer level” Employee for compensation purposes as shown on the records of AT&T.

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

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

Plan Year.  Each of the following shall be a Plan Year:  the period January 1, 2005, through January 15, 2006; the period January 16, 2006, through December 31, 2006; and, for all later Plan Years, it is defined as the period from January 1 through December 31.

Retirement or Retire.  Termination of Employment on or after the earlier of the following dates, unless otherwise provided by the Committee:  (a) for Officer Level Employees, the date the Participant is at least age 55 and has five (5) years of Net Credited Service; or (b) the date the Participant has attained one of the following combinations of age and Net Credited Service:

                      Net Credited Service                                                       Age

                      10 years or more                                           65 or older

                      20 years or more                                           55 or older

                      25 years or more                                           50 or older

                      30 years or more                                           Any age

For purposes of this Plan only, Net Credited Service shall be calculated in the same manner as “Pension Eligibility Service” under the AT&T Pension Benefit Plan – Nonbargained Program (“Pension Plan”), as amended from time to time, except that service with an Employer shall be counted as though the Employer were a “Participating Company” under the Pension Plan and the Employee was a participant in the Pension Plan.

Senior Manager.  Any Employee who is a “senior manager” for compensation purposes as shown on the records of AT&T.

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

Share Deferral Account or Account.   The Account or Accounts established annually by an election by a Participant to make Employee Contributions to the Plan, with each Account relating to a Plan Year.  For each Plan Year after 2008, there shall be (1) a separate Share Deferral Account for Share Units purchased with Employee Contributions of Base Compensation (excluding Annual Bonus) and related Matching Share Units and (2) a separate Share Deferral Account for Share Units purchased with Employee Contributions of Short Term Incentive Award and/or Annual Bonus and any related Matching Share Units.  Earnings on Share Units and Matching Share Units shall accrue to the respective Share Deferral Accounts where they are earned.

Short Term Incentive Award.  A cash award paid by an Employer (and not by a non-Employer, such as state disability payments) under the Short Term Incentive Plan or any successor plan, together with any individual discretionary award made in connection therewith; an award under a similar plan intended by the Committee to be in lieu of an award under such Short Term Incentive Plan, including, but not limited to, Performance Units granted under the 2006 Incentive Plan or any successor plan.  It shall also include any other award that the Committee designates as a Short Term Incentive Award specifically for purposes of this Plan (regardless of the purpose of the award) provided the deferral election is made in accordance with Section 409A.

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

Stock.  The common stock of AT&T Inc.

Subsidiary.  Any corporation, partnership, venture or other entity or business with which AT&T would be considered a single employer under Sections 414(a) and (c) of the Code, using 50% as the ownership threshold as provided under Section 409A of the Code.

Termination of Employment. References herein to “Termination of Employment," “Terminate Employment” or a similar reference, shall mean the event where the Employee has a “separation from service,” as defined under Section 409A, with all Employers. For purposes of this Plan, a Termination of Employment with respect to an Employer shall be deemed to also occur when such Employer incurs a Change in Control.

Article 3 - Administration of the Plan

3.1           The Committee.

Except as delegated by this Plan or by the Committee, the Committee shall be the administrator of the Plan and will administer the Plan, interpret, construe and apply its provisions and determine all questions of administration, interpretation and application of the Plan, including, without limitation, questions and determinations of eligibility, entitlement to benefits and payment of benefits, all in its sole and absolute discretion.  The Committee may further establish, adopt or revise such rules and regulations and such additional terms and conditions regarding participation in the Plan as it may deem necessary or advisable for the administration of the Plan.  References in this Plan to determinations or other actions by AT&T, herein, shall mean actions authorized by the Committee, the Chief Executive Officer, the Senior Executive Vice President of AT&T in charge of Human Resources, or their respective successors or duly authorized delegates, in each case in the discretion of such person.  All decisions by the Committee, its delegate or AT&T, as applicable, shall be final and binding.

3.2           Authorized Shares of Stock.

(a) Except as provided below, the number of shares of Stock which may be distributed pursuant to the Plan, exclusive of Article 8 - Options, is 21,000,000.  The number of shares of Stock which may be issued pursuant to the exercise of Stock Options is 34,000,000 (together with an equal number of Stock Options).  In determining the number of authorized shares remaining available for issuance, shares withheld for taxes in a distribution shall not be considered issued and shall not reduce the number of authorized shares.  When an Option is exercised, the authorized shares of Stock that may be issued pursuant to an Option exercise shall be reduced by the number of Options so exercised.  To the extent an Option issued under this Plan is canceled, terminates, expires, or lapses for any reason, such Option shall again be available for issuance under the Plan.  Conversions of Stock awards into Share Units and their eventual distribution (excluding the effects of any dividends on such Share Units) shall count only against the limits of the plans from which they originated and shall not be applied against the limits in this Plan.  To the extent Share Units are credited through deferrals of Stock or Employee Contributions where the distribution of which would be deductible by AT&T under Section 162(m) of the Code without regard to the size of the distribution, and such deductible Share Units are available for distribution, such Share Units shall be distributed first.

(b)  In the event the Committee determines that continuing the issuance of Share Units under the Plan or Stock Options under the Plan may cause the number of shares of Stock that are to be distributed under this Plan or the number of Stock Options (as determined pursuant to subsection (a), above) to exceed the number of authorized shares of Stock, then in lieu of distributing Stock, the Committee may provide after such determination and only with respect to Share Units that have not theretofore been credited to a Share Deferral Account, that such Share Units may be settled in cash equal to the value of the Stock that would otherwise be distributed based on the FMV of the Stock on the date of the distribution of such Share Unit.  The Committee may also provide after such determination and only with respect to Stock Options that have not theretofore been issued that such Stock Options may only be settled on a Net-Settled basis in cash equal to the value of the Stock that would otherwise be distributed based on the FMV of the Stock on the day of exercise.

(c) In the event of a merger, reorganization, consolidation, recapitalization, separation, liquidation, stock dividend, stock split, share combination, or other change in the corporate structure of AT&T affecting the shares of Stock (including a conversion of Stock into cash or other property), such adjustment shall be made to the number and class of the shares of Stock which may be delivered under the Plan (including but not limited to individual limits), and in the number and class of and/or price of shares of Stock subject to outstanding Options granted under the Plan, and/or in the number of outstanding Options and Share Units, or such other adjustment determined by the Committee, in each case as may be determined to be appropriate and equitable by the Committee, in its sole discretion, to prevent dilution or enlargement of rights.

3.3           Claims and Appeals.

                                (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”) 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 Committee review the determination of the AT&T Executive Compensation Administration Department.  Such request must be addressed to the Committee at the address for giving notice in this Plan.  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 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 Committee.  If the Claimant does not request a review by the Committee of the AT&T Executive Compensation Administration Department’s decision within such sixty (60)-day period, the Claimant shall be barred and stopped from challenging the determination of the AT&T Executive Compensation Administration Department.

(d)           Review of Decision.  Within sixty (60) days after the Committee’s receipt of a request for review, the Administrator will review the decision of the AT&T Executive Compensation Administration Department.  If the Committee determines that special circumstances require an extension of time beyond the initial sixty (60)-day review period, the 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 Committee expects to render its decision on the review of the claim.  If this notice is provided, the 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.

During its review of the claim, the Committee 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 Committee will render a decision, written in a manner designed to be understood by the Claimant.  If the 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 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.

The 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 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 before they seek any other legal recourse regarding claims for benefits.

Article 4 - Contributions

4.1           Election to Make Contributions.

(a)The Committee shall establish dates and other conditions for participation in the Plan and making contributions as it deems appropriate.  Except as otherwise provided by the Committee, each year an Employee who is an Eligible Employee as of September 30 may thereafter make an election on or prior to the last Business Day of the immediately following November (such election shall be cancelled if the Employee is not an Eligible Employee on the last day such an election may be made) to contribute on a pre-tax basis, through payroll deductions, any combination of the following:

(1)  From 6% to 30% (in whole percentage increments) of the Participant’s monthly Base Compensation, other than Annual Bonus, during the calendar year (the Plan Year for such contributions) following the calendar year of such election.  The Employee Contributions shall be used to acquire Share Units to be credited to the Share Deferral Account for that Plan Year.

(2)  Up to 95% (in whole percentage increments or limited to the target amount) of a Short Term Incentive Award, or from 6% to 30% (in whole percentage increments) of Annual Bonus, in each case such contributions shall be made during the second calendar year (which is the Plan Year for such contributions) following the year of such election, except that in 2008 a separate election may be made with respect to contributions to be made in 2009. An Employee may make such an election with respect to the type of Award (Short Term Incentive Award or Annual Bonus) that the Employee is under as of the time the Employee’s eligibility to make such election is determined.  If because of a promotion or otherwise, the Employee receives a different type of Award instead of, or in partial or full replacement for, the type of Award subject to the Employee’s election for the relevant Plan Year, the election will apply to the other Award as well, including but not limited to any individual discretionary award related thereto.

(b)  The Committee may permit an Eligible Employee to make an election to purchase Share Units under this Plan with compensation other than Base Compensation or Short Term Incentive Awards on such terms and conditions as such Committee may permit from time to time, provided that any such election is made in accordance with Section 409A of the Code.  In no event shall an acquisition of Share Units pursuant to this paragraph (b) or pursuant to the conversion of a right to receive Stock into Share Units (such as through a distribution of Stock under the 2001 Incentive Plan) result in the crediting of an AT&T Matching Contribution or Options.

(c) Notwithstanding anything to the contrary in this Plan, no election shall be effective to the extent it would permit an Employee Contribution or distribution to be made that is not in compliance with Section 409A of the Code.  To the extent such election related to Employee Contributions that complied with such statute and regulations thereunder, that portion of the election shall remain valid, except as otherwise provided under this Plan.

(d)  To the extent permitted by Section 409A of the Code, AT&T may refuse or terminate, in whole or in part, any election to purchase Share Units in the Plan at any time; provided, however, that only the Committee may take such action with respect to persons who are Officer Level Employees.

(e)  In the event the Participant takes a hardship withdrawal pursuant to Treasury Regulation §1.401(k)-1 from a benefit plan qualified under the Code and sponsored by an Employer, any election to make Employee Contributions by such Participant shall be cancelled on a prospective basis, and the Participant shall not be permitted to make a new election with respect to Employee Contributions that would be contributed during the then current and immediately following calendar year.

4.2           Purchase of Share Units.

(a) Employee Contributions (as well as any corresponding AT&T Matching Contributions) shall be made pursuant to a proper election, only during the Participant’s lifetime; provided, however, with respect to Employee Contribution elections made prior to 2007, the Employee must remain an Eligible Employee while making any such contributions.  In the event of a Change in Control of an Employer, subsequent compensation from the Employer may not be contributed to the Plan.  The Employer may continue the then current elections of the participants under a subsequent plan in order to comply with applicable tax laws.

(b)  The number of Share Units purchased by a Participant during a calendar month shall be found by dividing the Participant's Employee Contributions during the month by the FMV of a share of Stock on the last day of such month.

(c)  A contribution to the Plan shall be made when the compensation – from which the contribution is to be deducted – is to be paid (“paid,” as used in this Plan, includes amounts contributed to the Plan that would have been paid were it not for an election under this Plan), as determined by the relevant Employer.   The Committee may modify or change this paragraph (c) from time to time.

4.3           Reinvestment of Dividends.

In the month containing a record date for a cash dividend on Stock, each Share Deferral Account shall be credited with that number of Share Units equal to the declared dividend per share of Stock, multiplied by the number of Share Units held in such Share Deferral Account as of such record date, and dividing the product by the FMV of a share of Stock on the last day of such month.

Article 5 - AT&T Matching Contributions

5.1           AT&T Match.

(a) Each month AT&T shall credit the Participant's relevant Share Deferral Account with  the number of “Matching Share Units” found by taking eighty percent (80%) of the Participant's Employee Contributions from Base Compensation made to this Plan and to the Cash Deferral Plan during the month with respect to the first six percent (6%) of the Participant’s monthly Match Eligible Compensation (as defined below) and dividing the resulting figure by the FMV of the Stock on the last day of such month (such resulting amount shall be the “Matching Contribution”).  The monthly “Match Eligible Compensation” shall be the sum of:

(1) the monthly Employee Contributions from Base Compensation to this Plan and the Cash Deferral Plan (in the aggregate, “Deferred BC”), plus

(2) the amount of the Participant’s monthly Base Compensation in excess of the Deferred BC (“Non-Deferred BC”) but only to the extent such monthly Non-Deferred BC, when aggregated with the Participant’s total Non-Deferred BC for prior months in such Plan Year, as determined by the relevant Employer, exceeds the limit in effect under Section 401(a)(17) of the Code applicable with respect to such Plan Year.

The foregoing formula shall apply regardless of whether or not the Participant makes contributions to a 401(k) plan.

A Participant may receive Matching Share Units in a Share Deferral Account for a particular form of compensation only if the Participant is then making contributions to the same Share Deferral Account; provided, however, this condition shall not apply for purposes of determining under Section 5.1(a)(2) whether the limit described therein has been reached.

                As provided in the definition of Share Deferral Account, Matching Share Units shall be credited to the respective Share Deferral Account that is related to the same form of Employee Contributions (either (1) Base Compensation excluding Annual Bonus or (2) Annual Bonus).

(b) In the sole discretion of the Committee, in the event the Committee reduces the number of Options that AT&T issues for each Share Unit purchased, the Committee may provide for the contribution of a Bonus Matching Contribution on such terms as the Committee determines.  Such Bonus Matching Contribution may not exceed 20% of the Participant’s Employee Contributions for the month.  The Bonus Matching Contribution shall be subject to such terms and conditions as required by the Committee and, unless otherwise provided by the Committee, to the same distribution requirements as Matching Contributions.  Pursuant to the foregoing authority and until otherwise provided by the Committee, effective for Share Accounts created pursuant to Employee Contribution elections where such elections are made after January 1, 2010,  AT&T shall make Bonus Matching Contributions equal to 20% of the Participant’s monthly Employee Contributions from each of Base Compensation and Short Term Incentive Award (not to exceed the target amount of such award, which limit shall be pro rated for any partial year award).  Such Bonus Matching Contribution shall be used to purchase that number of Matching Share Units found by dividing the relevant Bonus Matching Contribution for the month by the FMV of the Stock on the last day of such month.

5.2           Distribution of Share Units Acquired with Matching Contributions.

A Participant's Matching Share Units shall be distributed in a lump sum, in accordance with the Plan's distribution provisions, in the earlier of: (a) the calendar year following the calendar year of the Termination of Employment of the Participant, or (b) the calendar year in which the Participant reaches age 55, in each case only with respect to Matching Share Units relating to Share Deferral Accounts for Plan Years before such distribution calendar year.

Matching Share Units acquired as part of a Share Deferral Account that commences in or after the calendar year the Employee reaches age 55 or after the calendar year in which the Employee Terminates Employment will be distributed in the same manner and time as other Share Units in such Share Deferral Account.

Notwithstanding anything to the contrary in this section, Matching Share Units acquired in 2008 and later shall be distributed at the same time as other Share Units (including those acquired with Employee Contributions) in the same Share Deferral Account.

Article 6 - Distributions

6.1 Distributions of Share Units.

(a)  Initial Election with Respect to a Share Deferral Account.  At the time the Participant makes an election to make Employee Contributions with respect to a Share Deferral Account, the Participant shall also elect the calendar year the Share Deferral Account shall be distributed, which may be from the first through fifth calendar years after the Plan Year the Account commenced (except as otherwise provided in this Plan with respect to Matching Share Units).  For example, if an Account commenced in 2005, the Participant may elect to commence the distribution in any calendar year from and including 2006 to and including 2010.  If no timely distribution election is made by the Participant, then the Participant will be deemed to have made an election to have the Share Deferral Account distributed in a single installment in the first calendar year after the calendar year the Account commenced.

(b)  Election to Delay a Scheduled Distribution.  A Participant may elect to defer a scheduled distribution of a Share Deferral Account for five (5) additional calendar years beyond that previously elected (except as otherwise provided in this Plan with respect to Matching Share Units).  Unless otherwise provided by the Committee, the election to defer the distribution must be made on or after October 1, and on or before the last Business Day of the next following December, of the calendar year that is the second calendar year preceding the calendar year of the relevant scheduled distribution.  To make this election, the Participant must be an Eligible Employee both on the September 30 immediately preceding such election and on the last day such an election may be made.  For example, an election to defer a scheduled distribution in 2010 must be made during the period from October 1, 2008, through the last business day of December 2008, and the Participant must be an Eligible Employee both on September 30, 2008, and the last business day of December 2008.  An election to defer the distribution of a Share Deferral Account may not be made in the same calendar year that the election to establish the Share Deferral Account is made.  Notwithstanding anything to the contrary in this Plan, (1) an election to defer the distribution of a Share Deferral Account must be made at least 12 months prior to the date of the first scheduled payment under the prior distribution election and (2) the election shall not take effect until at least 12 months after the date on which the election is made.

(c)  A Participant’s Share Deferral Account shall be distributed to the Participant on March 10 (or as soon thereafter as administratively practicable as determined by AT&T) of the calendar year elected by the Participant for that Account.  In the event the distribution is to be made to a “Specified Employee” as a result of the Participant’s Termination of Employment (other than as a result of a Change in Control), the distribution shall not occur until the later of such March 10 or six (6) months after the Termination of Employment, except it shall be distributed upon the Participant’s earlier death in accordance with this Plan.

6.2           Death of the Participant.

In the event of the death of a Participant, notwithstanding anything to the contrary in this Plan, all undistributed Share Deferral Accounts shall be distributed to the Participant's beneficiary in accordance with the AT&T Rules for Employee Beneficiary Designations, as the same may be amended from time to time, within the later of 90 days following such determination or the end of the calendar year in which determination was made.

6.3           Unforeseeable Emergency Distribution.

If a Participant experiences an “Unforeseeable Emergency,” the Participant may submit a written petition to AT&T (the Committee in the case of Officer Level Employees), to receive a partial or full distribution of his Share Deferral Account(s).  In the event that AT&T (the Committee in the case of Officer Level Employees), upon review of the written petition of the Participant, determines in its sole discretion that the Participant has suffered an “Unforeseeable Emergency,” AT&T shall make a distribution to the Participant from the Participant’s Share Deferral Accounts (other than Matching Share Units), on a pro-rata basis, within the later of 90 days following such determination or the end of the calendar year in which determination was made, subject to the following:

(a)       “Unforeseeable Emergency” shall mean a severe financial hardship to the Participant resulting from an illness or accident of the Participant, the Participant’s legal spouse, the Participant’s beneficiary, or the Participant’s dependent (as defined in Code Section 152, without regard to Code Section 152(b)(1), (b)(2), and (d)(1)(B)); loss of the Participant’s property due to casualty; or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, all as determined in the sole discretion of the Committee.  Whether a Participant is faced with an Unforeseeable Emergency permitting a distribution is to be determined based on the relevant facts and circumstances of each case, but, in any case, a distribution on account of Unforeseeable Emergency shall not be made to the extent that such emergency is or may be relieved through reimbursement or compensation from insurance or otherwise, by liquidation of the Participant’s assets, to the extent the liquidation of such assets would not cause severe financial hardship, or by cessation of deferrals under the Plan.

(b)       The amount of a distribution to be made because of an Unforeseeable Emergency shall not exceed the lesser of (i) the FMV of the Participant's vested Share Deferral Account, calculated as the date on which the amount becomes payable, as determined by AT&T (the Committee in the case of Officer Level Employees) in its sole discretion, and (ii) the amount reasonably necessary, as determined by the AT&T (the Committee in the case of Officer Level Employees) in its sole discretion, to satisfy the emergency need (which may include amounts necessary to pay any Federal, state, local, or foreign income taxes or penalties reasonably anticipated to result from the distribution).  Determinations of the amount reasonably necessary to satisfy the emergency need shall take into account any additional compensation that is available if the plan provides for cancellation of a deferral election upon a payment due to an Unforeseeable Emergency.  The determination of amounts reasonably necessary to satisfy the Unforeseeable Emergency need is not required to, but may, take into account any additional compensation that, due to the Unforeseeable Emergency, is available under another nonqualified deferred compensation plan but has not actually been paid, or that is available due to the Unforeseeable Emergency under another plan that would provide for deferred compensation except due to the application of the effective date provisions under Treasury Regulation §1.409A-6.

(c)       Upon such distribution on account of an Unforeseeable Emergency under this Plan, any election to make Employee Contributions by such Participant shall be immediately cancelled, and the Participant shall not be permitted to make a new election with respect to Employee Contributions that would be contributed during the then current and immediately following calendar year.

6.4           Ineligible Participant.

Notwithstanding any other provisions of this Plan to the contrary, if AT&T receives an opinion from counsel selected by AT&T, or a final determination is made by a Federal, state or local government or agency, acting within its scope of authority, to the effect that an individual’s continued participation in the Plan would violate applicable law, then such person shall not make further contributions to the Plan to the extent permitted by Section 409A of the Code.

6.5 Distribution Process.

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

Article 7 - Transition Provisions

7.1 Stockholder Approval

The Plan was approved by Stockholders at the 2005 Annual Meeting of Stockholders.

7.2           2005 Share Deferral Accounts.

Notwithstanding Article 4 to the contrary, if an Employee is an Eligible Employee on September 30, 2004, the Employee may make an election under Article 4 on or prior to December 15, 2004, with respect to the establishment of a Share Deferral Account for the (i) contribution of Base Compensation and/or Short Term Incentive Awards paid during the period from January 1, 2005, through January 15, 2006, which shall be the Plan Year for such Share Deferral Account; and/or (ii) the conversion of a distribution of Stock that would be made during the same Plan Year pursuant to the 2001 Incentive Plan into an equal number of Share Units, so long as such conversion would not cause the recognition of income for Federal income tax purposes in respect of such distribution of Stock prior to distribution of Share Units under this Plan.

7.3           2007 Amendments.

(a) Amendments made to the Plan on November 15, 2007, shall be effective January 1, 2008. except for amendments to this Article 7, which shall be effective upon adoption.  Any Participants electing prior to November 15, 2007, to make Employee Contributions in 2008 shall have their elections canceled if they do not consent by December 14, 2007, to all prior amendments to this Plan and to the Cash Deferral Plan.  Subject to the foregoing consent requirements, all Employee Contribution elections made prior to 2008, including but not limited to elections to contribute Stock that would be distributed under the 2001 Incentive Plan or a successor plan, shall remain in force, subject to all other terms of the amended Plan. In addition, all unvested but not forfeited Matching Share Units shall vest on November 15, 2007.  Matching Shares that have been forfeited shall not be reinstated, and no amendment to this Plan shall be interpreted as reinstating such forfeitures.

 (b)  Not withstanding anything to the contrary in this Plan, a Participant who as of December 29, 2006, was eligible for an additional payment pursuant to Section 4A of the BellSouth Corporation Executive Incentive Award Deferral Plan shall not, with respect to the 2008 Plan Year, receive Matching Share Units on Base Compensation that exceeds $230,000.

7.4           2008 Amendments.

For Plan Years prior to 2009, Participants who, at the time of the determination of their eligibility to participate in an Account, are paid through a “sales plan” involving the use of commissions may elect to contribute up to 40% of Base Compensation.  For the 2008 Plan Year, only Salary and Short Term Incentive Awards paid after Termination of Employment may be contributed to the Plan.

Article 8 - Options

8.1           Grants.

Options may be issued in definitive form or recorded on the books and records of AT&T for the account of the Participant, at the discretion of AT&T.  If AT&T elects not to issue the Options in definitive form, they shall be deemed issued, and the Participants shall have all rights incident thereto as if they were issued on the dates provided herein, without further action on the part of AT&T or the Participant.  In addition to the terms herein, all Options shall be subject to such additional provisions and limitations as provided in any Administrative Procedures adopted by the Committee prior to the issuance of such Options.  The number of Options issued to a Participant shall be reflected on the Participant's annual statement of account.

8.2           Term of Options.

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

8.3           Exercise Price.

The Exercise Price of an Option shall be the FMV of the Stock on the date of issuance of the Option, and an Option may not be repriced.

8.4           Issuance of Options.

(a)  For each Share Deferral Account established by a Participant pursuant to an Employee Contribution election where such election was made prior to January 1, 2010:

(1)  on June 15 of the Plan Year for the Share Deferral Account, the Participant shall receive two (2) Options for each Share Unit acquired by the Participant as part of such Share Deferral Account during the immediately preceding January through May period with Employee Contributions of Base Compensation and/or Short Term Incentive Award.  A fractional number of Options shall be rounded up to the next whole number.

(2)  on the February 15 immediately following the Plan Year for the Share Deferral Account, a Participant shall receive:

(i)     two (2) Options for each Share Unit acquired by the Participant as part of such Share Deferral Account during the immediately preceding June through the remainder of the relevant Plan Year with Employee Contributions of Base Compensation and/or Short Term Incentive Award; and

(ii)    two (2) Options for each Share Unit acquired prior to such date by the Participant with dividend equivalents that were derived, directly or indirectly (such as dividend equivalents paid on Share Units acquired with dividend equivalents), from Share Units acquired with Employee Contributions as part of such Share Deferral Account.

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

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

(d) If a Participant Terminates Employment other than (i) while Retirement eligible or (ii) because of death or Disability, no further Options shall be issued to or with respect to such Participant.  In the event of re-Employment following a Termination of Employment, the preceding sentence shall not apply to those Options resulting from participation in the Plan after such re-Employment until a subsequent Termination of Employment.

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

(f) The Committee may, in its sole discretion, at any time, increase or lower the number of Options that are to be issued for each Share Unit acquired, not to exceed two (2) Options per Share Unit purchased.  However, if the Committee lowers the number of Options, then such change shall only be effective with respect to the next Share Deferral Account a Participant may elect to establish.

(g) The Committee may also, at any time and in any manner, limit the number of Options which may be acquired as a result of the Short Term Incentive Award being contributed to the Plan.  Further, except as otherwise provided by the Committee, in determining the number of Options to be issued to a Participant with respect to a Participant's contribution of a Short Term Incentive Award to the Plan and subsequent crediting of Share Units, Options may be issued only with respect to an amount which does not exceed the target amount of such award (or such other portion of the award as may be determined by the Committee).  Where a Participant’s election to contribute a Short Term Incentive Award to the Plan becomes applicable to Annual Bonus, the above limitation on options shall apply to the contribution of Annual Bonus as though it were a Short Term Incentive Award.

(h) No options shall be issued to or in respect of a Participant for a particular issuance, unless at least ten (10) Options will be issued to that Participant.

8.5           Exercise and Payment of Options.

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

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

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

Payment may be made:

(a) in cash, or

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

(i) electing a Stock-Settled Exercise on or after February 1, 2013.  Upon exercise of Options through a Stock-Settled Exercise, the Participant shall receive that number of shares of Stock found by (1) subtracting the Exercise Price of an Option being exercised (on a per share basis) from the FMV of the Stock as of the immediately preceding day that the Stock was traded on the NYSE, (2) multiplying the difference by the number of Options being exercised, and (3) dividing the result by the same FMV.  For example, a Participant exercises 1,000 Options with an Exercise Price of $30 (exercises may only occur on a day when the NYSE is open for regular trading) and the FMV for the immediately preceding trading day was $40.  In that case, the Participant would receive his $10,000 profit in the form of 250 shares of Stock, subject to tax withholding and any other costs provided under this Plan.

or;

(ii) if AT&T has designated a stockbroker to act as AT&T's agent to process Option exercises, issuance of an exercise notice to such stockbroker together with instructions irrevocably instructing the stockbroker:  (A) to immediately sell (which shall include an exercise notice that becomes effective upon execution of a sell order) a sufficient portion of the Stock to pay the Exercise Price of the Options being exercised and the required tax withholding, and (B) to deliver on the settlement date the portion of the proceeds of the sale equal to the Exercise Price and tax withholding to AT&T.  In the event the stockbroker sells any Stock on behalf of a Participant, the stockbroker shall be acting solely as the agent of the Participant, and AT&T disclaims any responsibility for the actions of the stockbroker in making any such sales.  No Stock shall be issued until the settlement date and until the oceeds (equal to the Exercise Price and tax withholding) are paid to AT&T.

8.6           Restrictions on Exercise and Transfer.

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

8.7           Termination of Employment.

 (a)  Not Retirement Eligible.  Unless otherwise provided by the Committee, if a Participant Terminates Employment while not Retirement eligible, a Participant's Options may be exercised, to the extent then exercisable:

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

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

 (b)  Retirement Eligible.  Unless otherwise provided by the Committee, if a Participant Terminates Employment while Retirement eligible, the Participant's Option may be exercised, to the extent then exercisable:  (i) for a period of five (5) years from the date of Retirement or (ii) until the expiration of the stated term of such Option, whichever period is shorter.

 (c) Re-Employment of a Participant after a Termination of Employment shall have no effect on the periods during which Options resulting from the prior Employment may be exercised.  For example, if the Option exercise period has been shortened because of the prior Termination of Employment, it shall not be extended because of the re-Employment.

 (d)  Notwithstanding any other definition of Termination of Employment under this Plan, for purposes of this Article 8 – Options only, a Termination of Employment shall mean the cessation of the Employee being employed by any corporation, partnership, venture or other entity in which AT&T holds, directly or indirectly, a 50% or greater ownership interest, including but not limited to where AT&T ceases to hold such interest in the employing company.  In addition, the definition of Retirement for purposes of this Article 8 shall use the immediately foregoing definition of Termination of Employment in  lieu of any other definition.

Article 9 - Discontinuation, Termination, Amendment.

9.1           AT&T's Right to Discontinue Offering Share Units.

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

9.2           AT&T's Right to Terminate Plan.

The Committee may terminate the Plan at any time.  Upon termination of the Plan, contributions shall no longer be made under the Plan.

After termination of the Plan, Participants shall continue to earn dividend equivalents in the form of Share Units on undistributed Share Units and shall continue to receive all distributions under this Plan at such time as provided in and pursuant to the terms and conditions of Participant's elections and this Plan.  Notwithstanding the foregoing, the termination of the Plan shall be made solely in accordance with Section 409A of the Code and in no event shall cause the accelerated distribution of any Account unless such termination is effected in accordance with Section 409A of the Code.

9.3 Amendment.

The Committee may at any time amend the Plan in whole or in part including but not limited to changing the formulas for determining the amount of AT&T Matching Contributions under Article 5 or decreasing the number of Options to be issued under Article 8; provided, however, that no amendment, including but not limited to an amendment to this section, shall be effective, without the consent of a Participant, to alter, to the material detriment of such Participant, a Share Deferral Account of the Participant, other than as provided elsewhere in this section.   For purposes of this section, an alteration to the material detriment of a Participant shall include, but not be limited to, a material reduction in the period of time over which Stock may be distributed to a Participant, any reduction in the Participant's number of vested Share Units or Options, or an increase in the Exercise Price or decrease in the term of an Option.   Any such consent may be in a writing, telecopy, or e-mail or in another electronic format. An election to acquire Share Units with Employee Contributions shall be conclusively deemed to be the consent of the Participant to any and all amendments to the Plan prior to such election, and such consent shall be a condition to making any election with respect to Employee Contributions.

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

The Plan is established in order to provide deferred compensation to a select group of management and highly compensated employees with in the meaning of Sections 201(2) and 301(a)(3) of ERISA. To the extent legally required, the Code and ERISA shall govern the Plan, and if any provision hereof is in violation of an applicable requirement thereof, the Company reserves the right to retroactively amend the Plan to comply therewith to the extent permitted under the Code and ERISA.  The Company also reserves the right to make such other changes as may facilitate implementation of Section 409A of the Code.  Provided, however, that in no event shall any such amendments be made in violation of the requirements of Section 409A of the Code.

Article 10 – Miscellaneous.

10.1        Tax Withholding.

Upon distribution of Stock, including but not limited to, shares of Stock issued upon the exercise of an Option, AT&T shall withhold shares of Stock sufficient in value, using the FMV on the date determined by AT&T to be used to value the Stock for tax purposes, to satisfy the minimum amount of Federal, state, and local taxes required by law to be withheld as a result of such distribution. Employment taxes incurred by a Participant on Employee Contributions and on Matching Contributions shall be withheld from the Participant’s regular wages or paid in cash by the Participant as they become due.

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

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

10.2        Elections and Notices.

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

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

Notice to the Participant shall be deemed given when mailed (or sent by telecopy) to the Participant's work or home address as shown on the records of AT&T or, at the option of AT&T, to the Participant's e-mail address as shown on the records of AT&T.  It is the Participant's responsibility to ensure that the Participant's addresses are kept up to date on the records of AT&T.  In the case of notices affecting multiple Participants, the notices may be given by general distribution at the Participants' work locations.

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

10.3        Unsecured General Creditor.

Participants and their beneficiaries, heirs, successors, and assigns shall have no legal or equitable rights, interest, or claims in any property or assets of any Employer.  No assets of any Employer shall be held under any trust for the benefit of Participants, their beneficiaries, heirs, successors, or assigns, or held in any way as collateral security for the fulfilling of the obligations of any Employer under this Plan.  Any and all of each Employer's assets shall be, and remain, the general, unpledged, unrestricted assets of such Employer.  The only obligation of an Employer under the Plan shall be merely that of an unfunded and unsecured promise of AT&T to distribute shares of Stock corresponding to Share Units and Options, under the Plan.

10.4        Non-Assignability.

Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage, or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt, shares of Stock corresponding to Share Units under the Plan, if any, or any part thereof, which are, and all rights to which are, expressly declared to be unassignable and non-transferable.  No part of the Stock distributable shall, prior to actual distribution, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, nor be transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency.

10.5        Employment Not Guaranteed.

Nothing contained in this Plan nor any action taken hereunder shall be construed as a contract of employment or as giving any employee any right to be retained in the employ of an Employer or to serve as a director.

10.6        Errors.

At any time AT&T or an Employer may correct any error made under the Plan without prejudice to AT&T or any Employer.  Neither AT&T nor any Employer shall be liable for any damages resulting from failure to timely allow any contribution to be made to the Plan or for any damages resulting from the correction of, or a delay in correcting, any error made under the Plan.  In no event shall AT&T or any Employer be liable for consequential or incidental damages arising out of a failure to comply with the terms of the Plan.

10.7 Captions.

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

10.8        Governing Law.

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

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

10.9        Plan to Comply with Section 409A.

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.  Notwithstanding any provision to the contrary in this Plan, each provision in this Plan shall be interpreted to permit the deferral of compensation in accordance with Section 409A of the Code and any provision that would conflict with such requirements shall not be valid or enforceable.

10.10     Successors and Assigns.

This Plan shall be binding upon AT&T and its successors and assigns.

10.11  Loyalty Conditions for Officer Level Employees and Senior Managers

Each Officer Level Employee or a Senior Manager who elects to make Employee Contributions under Section 4.1 of this Plan shall be subject to the agreements and conditions of this section.

(a)By making an Employee Contribution election under Section 4.1 of this Plan after September 1, 2009, a Participant acknowledges that AT&T would be unwilling to provide for such an election but for the loyalty conditions and covenants set forth in this section, and that 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.  Accordingly, as a condition to making an Employee Contribution election under Section 4.1 of this Plan after September 1, 2009, each such electing Participant is deemed to agree that he shall not, without obtaining the written consent of the Committee 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.

(b)Definitions.  For purposes of this section and of the Plan generally:

(i)an “Employer Business” shall mean AT&T Inc. and any of its Subsidiaries, or any business in which they or any affiliate of theirs has a substantial ownership or joint venture interest;

(ii)“engaging in competition with AT&T” shall mean, while employed by AT&T or any of its Subsidiaries, or within two (2) years after 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 non-substantial 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 of, any person or entity that is engaged in competition with any Employer Business or that takes a position adverse to any Employer Business.

(iii)“engaging in conduct disloyal to AT&T” means, while employed by AT&T or any of its Subsidiaries, or within two (2) years after 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 any of its Subsidiaries during the one (1) year prior to the 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 or any of its Subsidiaries; (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 Participant’s Termination of Employment (regardless of the reason for that termination) to terminate, discontinue, renegotiate, reduce, or otherwise cease or modify its relationship with AT&T or any of its Subsidiaries; 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 the Participant’s Termination of Employment (regardless of the reason for that termination), 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” shall also mean, 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.

(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.

(c)Equitable Relief.  The parties recognize that any Participant’s breach of any of the covenants in this section will cause irreparable injury to the 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 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 (including the accrual or granting of Share Units, Matching Share Units and Options) for all Participants.  Accordingly, in the event of a Participant’s actual or threatened breach of the covenants in this section, the 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.  AT&T 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.

(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 ability to make Employee Contribution elections under Section 4.1 of this Plan after September 1, 2009, that each and all of the following conditions apply to all such electing Participants:

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

EX-10.N

Exhibit 10-n

AT&T INC.

CASH DEFERRAL PLAN

Adopted November 19, 2004

As amended through January 31, 2013

Article 1 − Statement of Purpose

The purpose of the Cash Deferral Plan (“Plan”) is to provide savings opportunities to a select group of management employees of AT&T Inc. (“AT&T”) and its Subsidiaries.

Article 2 − Definitions

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

Annual Bonus.  The award designated the “Annual Bonus” by AT&T (including but not limited to an award that may be paid in more frequent installments than annually), together with any individual discretionary award made in connection therewith, or comparable awards, if any, determined by AT&T to be used in lieu of these awards.

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

(a)  base salary;

(b)  lump sum payments in lieu of a base salary increase; and

(c)  Annual Bonus.

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

Determinations by AT&T (the Committee with respect to Officer Level Employees) of the items that make up Base Compensation shall be final.  The Committee may, from time to time, add or subtract types of compensation to or from the definition of “Base Compensation” provided, however, any such addition or subtraction shall be effective only with respect to the next period in which a Participant may make an election to establish a Cash Deferral Account.  Base Compensation that was payable in a prior Plan Year but paid in a later Plan Year shall not be used to determine Employee Contributions in the later Plan Year.

Business Day.  Any day during regular business hours that AT&T is open for business.

Cash Deferral Account or Account.  The Account or Accounts established annually by an election by a Participant to make Employee Contributions to the Plan with each account relating to a Plan Year.  For each Plan Year after 2008, there shall be a separate Cash Deferral Account for Base Compensation (excluding Annual Bonus) and a separate Cash Deferral Account for the Short Term Incentive Award and/or Annual Bonus.  Earnings on each of Employee Contributions shall accrue to the respective Cash Deferral Accounts where they are earned.

Change in Control.  With respect to AT&T’s direct and indirect ownership of an Employer, a “Change in the effective control of a Corporation,” as defined in Treasury Regulation Section 1.409A−3(i)(5)(vi)(A)(1), regardless of whether the Employer is a corporation or non-corporate entity as permitted by the regulation, and using “50 percent” in lieu of “30 percent” in such regulation.  A Change in Control will not apply to AT&T itself.

Chief Executive Officer.  The Chief Executive Officer of AT&T Inc.

Code.  References to the Code shall be to provisions of the Internal Revenue Code of 1986, as amended, including regulations promulgated thereunder and successor provisions.  Similarly, references to regulations shall include amendments and successor provisions.

Committee.  The Human Resources Committee of the Board of Directors of AT&T Inc.

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

Eligible Employee.  An Employee who:

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

(b) is, as determined by AT&T, a member of Employer’s “select group of management or highly compensated employees” within the meaning of the Employee Retirement Income Security Act of 1974, as amended, and regulations thereunder (“ERISA”), which is deemed to include each Officer Level  Employee; and

(c) has an employment status which has been approved by AT&T to be eligible to participate in this Plan or is an Officer Level Employee.

Notwithstanding the foregoing, AT&T (the Committee with respect to Officer Level Employees) may, from time to time, exclude any Employee or group of Employees from being deemed an “Eligible Employee” under this Plan.

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

Employee.  Any person employed by an Employer and paid on an Employer’s payroll system, excluding persons hired for a fixed maximum term and excluding persons who are neither citizens nor permanent residents of the United States, all as determined by AT&T.  For purposes of this Plan, a person on Leave of Absence who otherwise would be an Employee shall be deemed to be an Employee.

Employee Contributions.  Amounts credited to a Cash Deferral Account pursuant to Section 4.1 (Election to Make Contributions) of the Plan.

Employer.  AT&T Inc. or any of its Subsidiaries.

Incentive Award.  A cash award paid by an Employer (and not by a non-Employer, such as state disability payments) under the Short Term Incentive Plan or any successor plan, the 2006 Incentive Plan or any successor plan, or any other award that the Committee specifically permits to be contributed to a Cash Deferral Account under this Plan (regardless of the purpose of the award).

Leave of Absence.  Where a person is absent from employment with an Employer on a leave of absence, military leave, sick leave, or Disability, where the leave is given in order to prevent a break in the continuity of term of employment, and permission for such leave is granted (and not revoked) in conformity with the rules of the Employer that employs the individual, as adopted from time to time, and the Employee is reasonably expected to return to service.  Except as set forth below, the leave shall not exceed six (6) months for purposes of this Plan, and the Employee shall Terminate Employment upon termination of such leave if the Employee does not return to work prior to or upon expiration of such six (6) month period, unless the individual retains a right to reemployment under law or by contract.  A twenty-nine (29) month limitation shall apply in lieu of such six (6) month limitation if the leave is due to the Employee being “disabled” (within the meaning of Treasury Regulation §1.409A−3(i)(4)).  A Leave of Absence shall not commence or shall be deemed to cease under the Plan where the Employee has incurred a Termination of Employment.

Officer Level Employee.  Any executive officer of AT&T, as that term is used under the Securities Exchange Act of 1934, as amended, and any Employee that is an “officer level” Employee for compensation purposes as shown on the records of AT&T.

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

Plan Interest Rate.  An annual rate of interest equal to Moody’s Long-Term Corporate Bond Yield Average for the September preceding the calendar year during which the interest rate will apply.  The Committee may choose another method of calculating the Plan Interest Rate, but such other method may only apply to Cash Deferral Units that Participants have not yet elected to establish.

Plan Year.  Each of the following shall be a Plan year:  the period from January 1, 2005 through January 15, 2006; the period January 16, 2006 through December 31, 2006; and, for all later Plan Years, it is defined as the period from January 1 through December 31.

Retirement or Retire.  Termination of Employment on or after the date the Participant has attained one of the following combinations of age and Net Credited Service:

Net Credited Service                                                  Age

10 years or more                                           65 or older

20 years or more                                           55 or older

25 years or more                                           50 or older

30 years or more                                           Any age

For purposes of this Plan only, Net Credited Service shall be calculated in the same manner as “Pension Eligibility Service” under the AT&T Pension Benefit Plan – Nonbargained Program (“Pension Plan”), as the same existed on October 1, 2008, except that service with an Employer shall be counted as though the Employer were a “Participating Company” under the Pension Plan and the Employee was a participant in the Pension Plan.

Senior Manager.  Any Employee who is a “senior manager” for compensation purposes as shown on the records of AT&T.

Short Term Incentive Award.  A cash award paid by an Employer (and not by a non-Employer, such as state disability payments) under the Short Term Incentive Plan or any successor plan, together with any individual discretionary award made in connection therewith; an award under a similar plan intended by the Committee to be in lieu of an award under such Short Term Incentive Plan, including, but not limited to, Performance Units granted under the 2006 Incentive Plan or any successor plan.  It shall also include any other award that the Committee designates as a Short Term Incentive Award specifically for purposes of this Plan (regardless of the purpose of the award) provided the deferral election is made in accordance with Section 409A.

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

Subsidiary.  Any corporation, partnership, venture or other entity or business with which AT&T would be considered a single employer under Sections 414(a) and (c) of the Code, using 50% as the ownership threshold as provided under Section 409A of the Code.

Termination of Employment.  References herein to “Termination of Employment,” “Terminate Employment” or a similar reference, shall mean the event where the Employee has a “separation from service,” as defined under Section 409A, with all Employers.  For purposes of this Plan, a Termination of Employment with respect to an Employer also shall be deemed to occur when such Employer incurs a Change in Control.

Article 3 − Administration of the Plan

3.1           The Committee.

Except as delegated by this Plan or by the Committee, the Committee shall be the administrator of the Plan and will administer the Plan, interpret, construe and apply its provisions and all questions of administration, interpretation and application of the Plan, including, without limitation, questions and determinations of eligibility entitlement to benefits and payment of benefits, all in its sole and absolute discretion.  The Committee may further establish, adopt or revise such rules and regulations and such additional terms and conditions regarding participation in the Plan as it may deem necessary or advisable for the administration of the Plan.  References in this Plan to determinations or other actions by AT&T, herein, shall mean actions authorized by the Committee, the Chief Executive Officer, the Senior Executive Vice President of AT&T in charge of Human Resources, or their respective successors or duly authorized delegates, in each case in the discretion of such person.  All decisions by the Committee, its delegate or AT&T, as applicable, shall be final and binding.

3.2           Claims and Appeals.

(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”) 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 Committee review the determination of the AT&T Executive Compensation Administration Department.  Such request must be addressed to the Committee at the address for giving notice under this Plan.  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 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 Committee.  If the Claimant does not request a review of the AT&T Executive Compensation Administration Department’s decision by the Committee 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.

(d)           Review of Decision. Within sixty (60) days after the Committee’s receipt of a request for review, the Administrator will review the decision of the AT&T Executive Compensation Administration Department.  If the Committee determines that special circumstances require an extension of time beyond the initial sixty (60)-day review period, the 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 Committee expects to render its decision on the review of the claim.  If this notice is provided, the 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.

During its review of the claim, the Committee 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 Committee will render a decision, written in a manner designed to be understood by the Claimant.  If the 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 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.

The 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 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 before they seek any other legal recourse regarding claims for benefits.

Article 4 − Contributions

4.1           Election to Make Contributions.

(a)  The Committee shall establish dates and other conditions for participation in the Plan and making contributions as it deems appropriate.  Except as otherwise provided by the Committee, each year an Employee who is an Eligible Employee as of September 30 may thereafter make an election on or prior to the last Business Day of the immediately following November (such election shall be cancelled if the Employee is not an Eligible Employee on the last day such an election may be made) to contribute on a pre-tax basis, through payroll deductions, any combination of the following:

(1)  From 1% to 50% (in whole percentage increments) of the Participant’s monthly Base Compensation, other than Annual Bonus, during the calendar year (the Plan Year for such contributions) following the calendar year of such election.  Employees who are below the level of Senior Manager, as shown on the records of AT&T at the time of the election, may contribute no more than 25% or such other amount as determined by AT&T.

(2)  Up to 95% (in whole percentage increments) of a Short Term Incentive Award, or up to 50% (in whole percentage increments) of Annual Bonus (25% for Employees who are below the level of Senior Manager), in each case such contributions shall be made during the second calendar year (which is the Plan Year for such contributions) following the year of such election, except that in 2008 a separate election may be made with respect to contributions to be made in 2009.  An Employee may make such an election with respect to the type of Award (Short Term Incentive Award or Annual Bonus) that the Employee is under as of the time the Employee’s eligibility to make such election is determined.  If because of a promotion or otherwise, the Employee receives a different type of Award instead of or in partial or full replacement for the type of Award subject to the Employee’s election for the relevant Plan Year, the election will apply to the other Award as well, including but not limited to any individual discretionary award related thereto.

(b)  The Committee may permit an Eligible Employee to make an election to make other contributions under this Plan with compensation other than Base Compensation or Short Term Incentive Awards on such terms and conditions as such Committee may permit from time to time provided that any such election is made in accordance with Section 409A of the Code.

(c)  Notwithstanding anything to the contrary in this Plan, no election shall be effective to the extent it would permit an Employee Contribution or distribution to be made that is not in compliance with Section 409A of the Code.  To the extent such election related to Employee Contributions that complied with such statute and regulations, thereunder, that portion of the election shall remain valid, except as otherwise provided under this Plan.

(d)  To the extent permitted by Section 409A of the Code, AT&T may refuse or terminate, in whole or in part, any election to make contributions to the Plan at any time; provided, however, only the Committee may take such action with respect to persons who are Officer Level Employees.

(e)  In the event the Participant takes a hardship withdrawal pursuant to Treasury Regulation §1.401(k)−1 from a benefit plan qualified under the Code and sponsored by an Employer, any election to make Employee Contributions by such Participant shall be cancelled on a prospective basis, and the Participant shall not be permitted to make a new election with respect to Employee Contributions that would be contributed during the then current and immediately following calendar year.

(f)  To the extent a Participant makes contributions to the Plan where the payment of which would be deductible by AT&T under Section 162(m) of the Code without regard to the size of the distribution, such contributions and earnings thereon shall be distributed first.

(g)  With respect to a Plan Year, an Employee may elect to (1) make Employee Contributions of Base Compensation other than Annual Bonus to this Plan but only if the Employee elects to contribute at least 6% of Base Compensation other than Annual Bonus for the same Plan Year to the Stock Purchase and Deferral Plan and/or (2) make Employee Contributions of Annual Bonus to this Plan but only if the Employee elects to contribute at least 6% of Annual Bonus for the same Plan Year to the Stock Purchase and Deferral Plan.

4.2           Contributions to a Cash Deferral Account.

(a)  Employee Contributions shall be made pursuant to a proper election, only during the Participant’s lifetime; provided, however, with respect to Employee Contribution elections made prior to 2007, the Employee must remain an Eligible Employee while making any such contributions.  In the event of a Change in Control of an Employer, subsequent compensation from the Employer may not be contributed to the Plan.  The Employer may continue the then current elections of the participants under a subsequent plan in order to comply with applicable tax laws.

(b)  A Participant’s contributions shall be credited to the Participant’s Cash Deferral Account on the day the compensation – from which the contribution is to be deducted – is to be paid (“paid,” as used in this Plan, includes amounts contributed to the Plan that would have been paid were it not for an election under this Plan), as determined by the relevant Employer.  Earnings on each Cash Deferral Account shall be recorded on Participant’s statements quarterly.  The Committee may modify or change this paragraph (b) from time to time.

4.3           Earnings on Cash Deferral Accounts.

During a calendar year, the Participant’s Cash Deferral Account shall accrue interest on amounts held by such Account at the Plan Interest Rate for such year, compounded quarterly on the last day of each quarter.  Interest will accrue on unpaid amounts in the Cash Deferral Account from the date credited to such Account.

Article 5 − Distributions

5.1           Distributions of Cash Deferral Accounts.

(a)  Initial Election with Respect to a Cash Deferral Account.  At the time the Participant makes an election to make Employee Contributions with respect to a Cash Deferral Account, the Participant shall also elect the calendar year of the distribution of the Cash Deferral Account and the number of installments.  The Participant may elect either of the following:

(1)  Specified Date Distribution.  That the distribution of the Cash Deferral Account commence in the calendar year specified by the Participant, but no later than the 10th calendar year after the Plan Year the Cash Deferral Account commenced, in up to Ten (10) installments.

(2)  Retirement Distribution.  That the distribution of the Cash Deferral Account commence the calendar year following the calendar year of Retirement in up to (10) installments.  If the Participant Terminates Employment while not Retirement eligible, the distribution shall commence the calendar year following the calendar year of Termination of Employment, but shall be limited to five (5) installments.  This distribution alternative will not be available for Initial Elections made after 2007.

If no timely distribution election is made by the Participant, then the Participant will be deemed to have made an election to have the Cash Deferral Account distributed in a single installment in the first calendar year after the calendar year Employee Contributions were first made.

(b)  If an Employee elected a Specified Date Distribution for a Cash Deferral Account, the Employee may elect to delay the Specified Date Distribution commencement date and, as part of such delay election elect a new number of installments; provided, however, Termination of Employment will not accelerate the distribution, unlike the initial deferral election.  Unless otherwise provided by the Committee, the election of a new distribution commencement date for a Cash Deferral Account must be made on or after October 1, and on or before the last Business Day of the next following December, of the calendar year that is the second calendar year preceding the calendar year in which the distribution would otherwise commence.  To make this election, the Participant must be an Eligible Employee both on the September 30 immediately preceding such election and on the last day such an election may be made.  For example, an election to defer a scheduled distribution that would otherwise commence in 2010 must be made during the period from October 1, 2008, through the last business day of December 2008, and the Participant must be an Eligible Employee both on September 30, 2008, and the last business day of December 2008.  The new distribution election must delay commencement of the distribution by five (5) years.  An election to delay the Specified Date Distribution commencement date of a Cash Deferral Account may not be made in the same calendar year the election to establish the Cash Deferral Account is made.  Notwithstanding anything to the contrary in this Plan, (1) such election to delay the Specified Date Distribution commencement date must be made at least 12 months prior to the date of the first scheduled payment under the prior distribution election and (2) the election shall not take effect until at least 12 months after the date on which the election is made.

(c)  A Participant’s Cash Deferral Account shall be distributed to the Participant on March 10 (or as soon thereafter as administratively practicable, as determined by AT&T) of the calendar year elected by the Participant for the Account.  In the event the distribution is to be made to a “Specified Employee” as a result of the Participant’s Termination of Employment (other than as a result of a Change in Control), the distribution shall not occur until the later of such March 10 or six (6) months after the Termination of Employment, except it shall be distributed upon the Participant’s earlier death in accordance with this Plan.  The distributions shall continue annually on each successive March 10 (or such other date as determined by AT&T) until the number of installments elected by the Participant is reached.  In each installment, AT&T shall distribute to the Participant that portion of the Participant’s Cash Deferral Account that is equal to the total dollar amount of the Participant’s Account divided by the number of remaining installments.

(d)  The Committee may establish other distribution alternatives from time to time, but such alternatives may be offered no earlier than the next period in which a Participant may make an election to establish a Cash Deferral Account.

5.2           Death of the Participant.

In the event of the death of a Participant, notwithstanding anything to the contrary in this Plan, all undistributed Cash Deferral Accounts shall be distributed to the Participant’s beneficiary in accordance with the AT&T Rules for Employee Beneficiary Designations, as the same may be amended from time to time, within the later of 90 days following such determination or the end of the calendar year in which determination was made.

5.3           Unforeseeable Emergency Distribution.

If a Participant experiences an “Unforeseeable Emergency,” the Participant may submit a written petition to AT&T (the Committee in the case of Officer Level Employees), to receive a partial or full distribution of his Cash Deferral Account(s).  In the event that AT&T (the Committee in the case of Officer Level Employees), upon review of the written petition of the Participant, determines in its sole discretion that the Participant has suffered an “Unforeseeable Emergency,” AT&T shall make a distribution to the Participant from the Participant’s Cash Deferral Accounts, on a pro-rata basis, within the later of 90 days following such determination or the end of the calendar year in which determination was made, subject to the following:

(a)           “Unforeseeable Emergency” shall mean a severe financial hardship to the Participant resulting from an illness or accident of the Participant, the Participant’s legal spouse, the Participant’s beneficiary, or the Participant’s dependent (as defined in Code Section 152, without regard to Code Section 152(b)(1), (b)(2), and (d)(1)(B)); loss of the Participant’s property due to casualty; or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, all as determined in the sole discretion of the Committee.  Whether a Participant is faced with an Unforeseeable Emergency permitting a distribution is to be determined based on the relevant facts and circumstances of each case, but, in any case, a distribution on account of Unforeseeable Emergency shall not be made to the extent that such emergency is or may be relieved through reimbursement or compensation from insurance or otherwise, by liquidation of the Participant’s assets, to the extent the liquidation of such assets would not cause severe financial hardship, or by cessation of deferrals under the Plan.

(b)           The amount of a distribution to be made because of an Unforeseeable Emergency shall not exceed the amount reasonably necessary, as determined by AT&T (the Committee in the case of Officer Level Employees) in its sole discretion, to satisfy the emergency need (which may include amounts necessary to pay any Federal, state, local, or foreign income taxes or penalties reasonably anticipated to result from the distribution).  Determinations of the amount reasonably necessary to satisfy the emergency need shall take into account any additional compensation that is available if the plan provides for cancellation of a deferral election upon a payment due to an Unforeseeable Emergency.  The determination of amounts reasonably necessary to satisfy the Unforeseeable Emergency need is not required to, but may, take into account any additional compensation that, due to the Unforeseeable Emergency, is available under another nonqualified deferred compensation plan but has not actually been paid, or that is available due to the Unforeseeable Emergency under another plan that would provide for deferred compensation except due to the application of the effective date provisions under Treasury Regulation § 1.409A−6.

(c)           Upon such distribution on account of an Unforeseeable Emergency under this Plan, any election to make Employee Contributions by such Participant shall be immediately cancelled, and the Participant shall not be permitted to make a new election with respect to Employee Contributions that would be contributed during the then current and immediately following calendar year.

5.4           Ineligible Participant.

Notwithstanding any other provisions of this Plan to the contrary, if AT&T receives an opinion from counsel selected by AT&T, or a final determination is made by a Federal, state or local government or agency, acting within its scope of authority, to the effect that an individual’s continued participation in the Plan would violate applicable law, then such person shall not make further contributions to the Plan to the extent permitted by Section 409A of the Code.

Article 6 − Transition Provisions

6.1           2005 Cash Deferral Accounts.

Notwithstanding Article 4 to the contrary, if an Employee is an Eligible Employee on September 30, 2004, the Employee may make an election under Article 4 on or prior to December 15, 2004, with respect to the establishment of a Cash Deferral Account for the contribution of Base Compensation and/or Incentive Awards that would otherwise be paid during the period from January 1, 2005, through January 15, 2006, which shall be the Plan Year for such Cash Deferral Account.

6.2           2007 Amendments.

Amendments made to the Plan on November 15, 2007, shall be effective January 1, 2008, except for amendments to this Article 7, which shall be effective upon adoption.  Any Participants electing prior to November 15, 2007, to make Employee Contributions in 2008 shall have their elections canceled if they do not consent by December 14, 2007, to all prior amendments to this Plan and to the Stock Purchase and Deferral Plan.  Subject to the foregoing consent requirements, all Employee Contribution elections made prior to 2008, including but not limited to elections to contribute cash with respect to Performance Shares granted that would be distributed under the 2001 Incentive Plan or a successor plan, shall remain in force, subject to all other terms of the amended Plan.

6.3           2008 Amendments.  For the 2008 Plan Year, only Salary and Short Term Incentive Awards paid after Termination of Employment may be contributed to the Plan.

Article 7 − Discontinuation, Termination, Amendment.

7.1           AT&T’s Right to Discontinue Offering Cash Deferral Accounts.

The Committee may at any time discontinue offerings of Cash Deferral Accounts or contributions under the Plan.  Any such discontinuance shall have no effect upon existing Cash Deferral Accounts or the terms or provisions of this Plan as applicable to such Accounts.

7.2           AT&T’s Right to Terminate Plan.

The Committee may terminate the Plan at any time.  Upon termination of the Plan, contributions shall no longer be made under the Plan.

After termination of the Plan, Participants shall continue to earn interest on undistributed amounts and shall continue to receive all distributions under this Plan at such time as provided in and pursuant to the terms and conditions of Participant’s elections and this Plan.  Notwithstanding the foregoing, the termination of the Plan shall be made solely in accordance with Section 409A of the Code and in no event shall cause the accelerated distribution of any Account unless such termination is effected in accordance with Section 409A of the Code.

7.3           Amendment.

The Committee may at any time amend the Plan in whole or in part; provided, however, that no amendment, including but not limited to an amendment to this section, shall be effective, without the consent of a Participant, to alter, to the material detriment of such Participant, any of the Cash Deferral Accounts of the Participant, other than as provided elsewhere in this section.  For purposes of this section, an alteration to the material detriment of a Participant shall include, but not be limited to, a material reduction in the period of time over which the Participant’s Cash Deferral Account may be distributed to a Participant, any reduction in the amounts credited to the Participant’s Cash Deferral Accounts, or any reduction in the Plan Interest Rate (other than as it may fluctuate in accordance with its terms) for Cash Deferral Accounts previously elected by the Participant.  Any such consent may be in a writing, telecopy, or e-mail or in another electronic format.  An election to make Employee Contributions shall be conclusively deemed to be the consent of the Participant to any and all amendments to the Plan prior to such election, and such consent shall be a condition to making any election with respect to Employee Contributions.

The Plan is established in order to provide deferred compensation to a select group of management and highly compensated employees with in the meaning of Sections 201(2) and 301(a)(3) of ERISA.  To the extent legally required, the Code and ERISA shall govern the Plan, and if any provision hereof is in violation of an applicable requirement thereof, the Company reserves the right to retroactively amend the Plan to comply therewith to the extent permitted under the Code and ERISA.  The Company also reserves the right to make such other changes as may facilitate implementation of Section 409A of the Code.  Provided, however, that in no event shall any such amendments be made in violation of the requirements of Section 409A of the Code.

Article 8 − Miscellaneous

8.1           Tax Withholding.

Upon a distribution from a Participant’s Cash Deferral Account, AT&T shall withhold sufficient amounts to satisfy the minimum amount of Federal, state, and local taxes required by law to be withheld as a result of such distribution.

8.2           Loyalty Conditions for Officer Level Employees and Senior Managers.

Each Officer Level Employee or a Senior Manager who elects to make Employee Contributions under Section 4.1 of this Plan shall be subject to the agreements and conditions of this section.

(a)By making an Employee Contribution election under Section 4.1 of this Plan after September 1, 2009, a Participant acknowledges that AT&T would be unwilling to provide for such an election but for the loyalty conditions and covenants set forth in this section, and that 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.  Accordingly, as a condition to making an Employee Contribution election under Section 4.1 of this Plan after September 1, 2009, each such electing Participant is deemed to agree that he shall not, without obtaining the written consent of the Committee 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.

(b)Definitions.  For purposes of this section and of the Plan generally:

                                (i)an “Employer Business” shall mean AT&T Inc. and any of its Subsidiaries, or any business in which they or any affiliate of theirs has a substantial ownership or joint venture interest;

 (ii)“engaging in competition with AT&T” shall mean, while employed by AT&T or any of its Subsidiaries, or within two (2) years after 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 non-substantial 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 of, any person or entity that is engaged in competition with any Employer Business or that takes a position adverse to any Employer Business.

(iii)“engaging in conduct disloyal to AT&T” means, while employed by AT&T or any of its Subsidiaries, or within two (2) years after 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 any of its Subsidiaries during the one (1) year prior to the 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 or any of its Subsidiaries; (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 Participant’s Termination of Employment (regardless of the reason for that termination) to terminate, discontinue, renegotiate, reduce, or otherwise cease or modify its relationship with AT&T or any of its Subsidiaries; 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 the Participant’s Termination of Employment (regardless of the reason for that termination), 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” shall also mean, 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.

 (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.

(c)Equitable Relief.  The parties recognize that any Participant’s breach of any of the covenants in this section will cause irreparable injury to the 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 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 (including the accrual or granting of Share Units, Matching Share Units and Options) for all Participants.  Accordingly, in the event of a Participant’s actual or threatened breach of the covenants in this section, the 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.  AT&T 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.

(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 ability to make Employee Contribution elections under Section 4.1 of this Plan after September 1, 2009, that each and all of the following conditions apply to all such electing Participants:

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

8.3           Elections and Notices.

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

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

Notice to the Participant shall be deemed given when mailed (or sent by telecopy) to the Participant’s work or home address as shown on the records of AT&T or, at the option of AT&T, to the Participant’s e-mail address as shown on the records of AT&T.  It is the Participant’s responsibility to ensure that the Participant’s addresses are kept up to date on the records of AT&T.  In the case of notices affecting multiple Participants, the notices may be given by general distribution at the Participants’ work locations.

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

8.4           Unsecured General Creditor.

Participants and their beneficiaries, heirs, successors, and assigns shall have no legal or equitable rights, interest, or claims in any property or assets of any Employer.  No assets of any Employer shall be held under any trust for the benefit of Participants, their beneficiaries, heirs, successors, or assigns, or held in any way as collateral security for the fulfilling of the obligations of any Employer under this Plan.  Any and all of each Employer’s assets shall be, and remain, the general, unpledged, unrestricted assets of such Employer.  The only obligation of an Employer under the Plan shall be merely that of an unfunded and unsecured promise of AT&T to make distributions under and in accordance with the terms of the Plan.

8.5           Non-Assignability.

Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage, or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt, any Cash Deferral Account under the Plan, if any, or any part thereof, which are, and all rights to which are, expressly declared to be unassignable and non-transferable.  No part of  a distributable Cash Deferral Account shall, prior to actual distribution, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, nor be transferable by operation of law in the event of a Participant’s or any other person’s bankruptcy or insolvency.

8.6           Employment Not Guaranteed.

Nothing contained in this Plan nor any action taken hereunder shall be construed as a contract of employment or as giving any employee any right to be retained in the employ of an Employer or to serve as a director.

8.7           Errors.

At any time AT&T or an Employer may correct any error made under the Plan without prejudice to AT&T or any Employer.  Neither AT&T nor any Employer shall be liable for any damages resulting from failure to timely allow any contribution to be made to the Plan or for any damages resulting from the correction of, or a delay in correcting, any error made under the Plan.  In no event shall AT&T or any Employer be liable for consequential or incidental damages arising out of a failure to comply with the terms of the Plan.

8.8           Captions.

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

8.9           Governing Law.

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

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

8.10           Plan to Comply with Section 409A.

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.  Notwithstanding any provision to the contrary in this Plan, each provision in this Plan shall be interpreted to permit the deferral of compensation in accordance with Section 409A of the Code and any provision that would conflict with such requirements shall not be valid or enforceable.

8.11           Successors and Assigns.

This Plan shall be binding upon AT&T and its successors and assigns.

EX-10.T

Exhibit 10-t

AT&T INC.

CHANGE IN CONTROL SEVERANCE PLAN

Effective February 1, 2013

Article 1- Purpose

The purpose of the AT&T Inc. Change in Control Severance Plan (the “Plan”) is to foster the continuous employment of key management personnel of the Company and its Subsidiaries and to reinforce and encourage their continued attention and dedication to their duties in the face of potentially disturbing circumstances arising from the possibility of a Change in Control (as defined in Article 2) of the Company, although no such change is now apparent or contemplated.

Article 2- Definitions

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

“Base Salary” means the Participant’s annual rate of base salary in effect immediately prior to the occurrence of the circumstance giving rise to the Participant’s Termination of Employment, or, if greater, the Participant’s annual rate of base salary in effect immediately prior to the Change in Control.

“Board” means the Board of Directors of the Company and, after a Change in Control, the “board of directors” of the Ultimate Parent (as defined below under Change in Control).

“Bonus Amount” means a Participant’s target annual bonus for the fiscal year in which the Change in Control occurs or in which Participant’s Date of Termination occurs, whichever is greater; provided that, if a target annual bonus has not been established for the applicable fiscal year, then the target annual bonus established for the preceding fiscal year shall be substituted in lieu thereof.

“Cause” means (i) the willful and continued failure by a Participant to substantially perform his or her duties with the Company and its Subsidiaries (other than any such failure resulting from his or her incapacity due to physical or mental impairment, or any such actual or anticipated failure after the issuance of a notice of termination by him or her for Good Reason) after a written demand for substantial performance is delivered to the Participant by the Company which demand specifically identifies the manner in which the Company believes that he or she has not substantially performed his or her duties, or (ii) the willful engaging by a Participant in conduct which is demonstrably and materially injurious to the Company or any Subsidiary, monetarily or otherwise.  For purposes of this definition, no act, or failure to act, on a Participant’s part shall be deemed “willful” unless done, or omitted to be done, by the Participant not in good faith and without reasonable belief that his or her action or omission was in the best interest of the Company and its Subsidiaries.  Notwithstanding the foregoing, a Participant shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to him or her a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to the Participant and an opportunity for him or her, together with counsel, to be heard before the Board), finding that in the good faith opinion of the Board the Participant was guilty of the conduct set forth above in clauses (i) or (ii) of the first sentence of this definition and specifying the particulars thereof in detail.

“Change in Control” shall be deemed to have occurred if (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the shareowners of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the total voting power represented by the Company’s then outstanding voting securities, or (ii) during any period of two (2) consecutive years, individuals who at the beginning of such period constitute the Board of Directors and any new Director whose election by the Board of Directors or nomination for election by the Company’s shareowners was approved by a vote of at least two-thirds (2/3) of the Directors then still in office who either were Directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation (such post-merger surviving entity the “Ultimate Parent”), or the shareowners of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company’s assets.

“Committee” means the Human Resources Committee of the Board.

“Company” means AT&T Inc.

“Date of Termination” means the date of the Participant's Termination of Employment with the Company and its Subsidiaries as determined under Section 4.1 of the Plan.

“Disability” has the meaning ascribed under the relevant Employer’s long-term disability plan.

“Employee” means any person employed as an employee by an Employer and paid on an Employer’s employee payroll system, excluding persons hired for a fixed maximum term and excluding persons who are neither citizens nor permanent residents of the United States, all as determined by the Employer.  For purposes of this Plan, a person on a Leave of Absence who otherwise would be an Employee shall be deemed to be an Employee.

“Employer” means the Company or any of its Subsidiaries provided that, if an entity ceases to be a Subsidiary during the Termination Period, such entity shall continue to be an Employer and the Employee shall continue to be a Participant until the second anniversary of the Change in Control and, notwithstanding any other provision to the contrary, any benefits under the Plan shall be paid or provided by the Company.

“Exchange Act” means the Securities Exchange Act of 1934.

“Executive Officer” means a person who has been identified by the Company as an executive officer under Rule 3b-7 of the Securities Exchange Act of 1934 prior to a Change in Control.

“Good Reason” means, without the Participant’s express written consent, the occurrence of any of the following events after a Change in Control:  (i) the assignment to the Participant of any duties inconsistent with his or her title(s) or status immediately prior to the Change in Control, or a substantial adverse alteration in the nature or status of his or her responsibilities from those in effect immediately prior to the Change in Control; (ii) a reduction in the Participant’s annual base salary, target short-term or long term incentive award opportunity (including any current payments that may be made thereunder, such as the payment of dividend equivalents) as in effect immediately prior to the Change in Control, except for across-the-board salary reductions similarly affecting all officers of the Company and its Subsidiaries and all managers in equivalent positions of any person in control of the Company; (iii) the failure to pay to the Participant any portion of his or her current compensation or deferred compensation under any compensation or benefit program within seven (7) days of the date such payment is due; (iv)  the failure to continue to provide the Participant with benefits substantially similar to those enjoyed by him or her under the pension, life insurance, medical, health, accident and disability plans, or any fringe benefit material to the Participant that he or she was eligible for at the time of the Change in Control; the direct or indirect material reduction in any of such benefits; or the failure to provide the Participant with the number of paid vacation days to which he or she is entitled on the basis of his or her duration of service with the Company and its Subsidiaries, in accordance with the Employer's normal vacation policy in effect immediately prior to the Change in Control; (v) the failure to obtain a satisfactory agreement from any successor to assume and agree to perform this Plan, as contemplated in Article 7; or (vi) any purported termination of the Participant’s employment after a Change in Control which is not effected pursuant to a notice of termination satisfying the requirements of Sections 4.1 and 8.1 (for purposes of this Plan, no such purported termination shall be effective).

An isolated, insubstantial and inadvertent action taken in good faith implicating clauses (i), (iv), (v) or (vi) of this definition which is fully corrected by the Company prior to the Date of Termination specified in the notice of termination shall not constitute Good Reason.  A Participant’s right to terminate his or her employment for Good Reason shall not be affected by his or her incapacity due to physical or mental impairment.  A Participant’s continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder.

“Leave of Absence”shall mean when a Participant is absent from employment with an Employer on a leave of absence, military leave, or sick leave, where the leave is given in order to prevent a break in the continuity of term of employment, and permission for such leave is granted (and not revoked) in conformity with the rules of the Employer that employs the individual, as adopted from time to time and the Employee is reasonably expected to return to service.  Except as set forth below, the leave shall not exceed six (6) months for purposes of this Plan, and the Employee shall incur a Termination of Employment upon cessation of such leave if the Employee does not return to work prior to that time, unless the individual retains a right to reemployment under law or by contract.  A twenty-nine (29) month limitation shall apply in lieu of such six (6) month limitation if the leave is due to the Employee being "disabled" (within the meaning of Treasury Regulation §1.409A-3(i)(4)), and the Employee shall incur a Termination of Employment upon cessation of such leave.  A Leave of Absence shall not commence or shall be deemed to cease under the Plan where the Employee has incurred a Termination of Employment.

“Officer Level Employee” means any Executive Officer and any Employee who is an “officer level” Employee for compensation purposes as shown on the records of the Company and its Subsidiaries.

“Participant” means the CEO, each Officer Level Employee who had in effect on September 28, 2006 a Severance Benefits – Change in Control Agreement with the Company, and each other Officer Level Employee (i) who is designated from time to time in writing by the CEO and (ii) whose designation is evidenced in writing by a notification of participation to the Employee signed by the CEO.  A person shall cease to be a Participant upon (a) the Participant’s Termination of Employment prior to a Potential Change in Control or (b) the Board, the Committee or the CEO determining, in their sole discretion, that the person shall cease to qualify for benefits under this Plan (but any such determination made in respect of a Participant shall be considered an amendment of the Plan adverse to the interests of the affected Participant and is subject to the provisions of Section 8.5).  Notwithstanding the foregoing, only the Committee shall have the authority to exclude from participation or take any other action with respect to Executive Officers.

“Potential Change in Control” shall be deemed to have occurred if (i) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control or (ii)  the Board adopts a resolution to the effect that, for purposes of this Plan, a Potential Change in Control of the Company has occurred.

“Qualifying Termination” means a Participant’s Termination of Employment during the Termination Period (i) by the Employer other than for Cause or (ii) by the Participant for Good Reason.  Termination of Employment on account of death, Disability or Retirement shall not be treated as a Qualifying Termination.

“Retirement” means the Participant’s mandatory retirement in accordance with the Employer’s mandatory retirement age policy, if any, for officers as in effect immediately prior to a Change in Control or in accordance with any retirement arrangement established with the Participant’s consent with respect to him or her; provided, however, that a Participant's termination for Good Reason shall not constitute Retirement.

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

“Subsidiary” means any corporation, partnership, venture or other entity in which the Company holds, directly or indirectly, a fifty percent (50%) or greater ownership interest.  The Committee may, at its sole discretion, designate, on such terms and conditions as the Committee shall determine, any other corporation, partnership, limited liability company, venture or other entity a Subsidiary for purposes of this Plan.

“Termination of Employment” means the event where the Participant has a “separation from service,” as defined under Section 409A, with the Employer.

“Termination Period” means the period of time beginning with a Change in Control and ending on the second anniversary of such Change in Control.

Article 3- Effectiveness of the Plan

This Plan shall be effective as of January 1, 2007.  Nothing in this Plan shall be deemed to entitle any Participant to continued employment with any Employer, and if a Participant's employment with any Employer terminates prior to a Change in Control, the Participant shall have no rights under this Plan.

Article 4- Payments Upon a Qualifying Termination

4.1Termination of Employment.

 (a)Notice of Termination.  Any purported termination of a Participant’s employment during the Termination Period by an Employer or by a Participant shall be communicated by written notice of termination to the other party in accordance with this Section 4.1 and Section 8.1 (regarding notices).  For purposes of this Plan, a “notice of termination” shall mean a notice which shall indicate the specific termination provision in this Plan relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for the Participant’s Termination of Employment under the provision so indicated.  The failure by the Participant or the Employer to set forth in such notice any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Participant or the Employer hereunder or preclude the Participant or the Employer from asserting such fact or circumstance in enforcing the Participant’s or the Employer’s rights hereunder.

 (b)Date of Termination.  If a Participant has a Qualifying Termination, the Date of Termination shall be the date specified in the notice of termination (which, in the case of a termination other than for Cause or a termination for Good Reason shall not be less than fifteen (15) nor more than sixty (60) days from the date such notice is given).  If a Participant's Termination of Employment is for Cause, the Date of Termination shall not be less than thirty (30) days from the date notice is given.  In the event of a dispute arising out of the Participant’s Termination of Employment, the Date of Termination will be determined in accordance with Section 4.1(c).

 (c)Disputes Involving Termination.  If within fifteen (15) days after any notice of termination is given, or, if later, prior to the Date of Termination (as determined without regard to this provision), the party receiving such notice of termination notifies the other party that a dispute exists concerning whether the termination is a Qualifying Termination or for Cause, the Date of Termination for purposes of Section 4.2 hereof shall be the date on which the dispute is finally resolved either by mutual written agreement of the parties, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided, however, that if the dispute is not resolved prior to the end of the Termination Period, the Termination Period shall be extended so as not to deprive the Participant of the benefits under Section 4.2 in respect of such termination; provided further, that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. During the pendency of any such dispute (the “Dispute Period”), subject to Section 6.1, the Employer will (i) continue to pay the Participant his or her full Base Salary in accordance with the Company’s payroll practice in effect from time to time (provided that the amount paid in any calendar year shall be equal to the Participant’s annual rate of Base Salary or a proportionate fraction thereof with respect to portions of calendar years during the Dispute Period (other than amounts that are required to be paid in a subsequent calendar year pursuant to Section 6.1)), and (ii) continue the Participant as a participant in all Health Benefits as described in Section 4.2(c) of the Plan (subject to Section 6.2 of the Plan) on the same basis as provided under Section 4.2(c). Amounts paid under this provision are in addition to all other amounts due under this Plan and shall not be offset against or reduce any other amounts due under this Plan.

4.2       Severance Payments.

                             If the Participant has a Qualifying Termination, then subject to Schedule B to the Plan, the Company shall or shall cause the Employer to provide to the Participant:

 (a)his or her full base salary through the Date of Termination at the rate in effect at the time notice of termination is given, plus all other amounts to which he or she is entitled under any compensation plan in effect immediately prior to the Change in Control, at the time such payments are due; provided that, subject to the Participant’s execution of a Release in the form attached to this Plan as Schedule A (the “Release”) within forty-five (45) days of the Participant’s Date of Termination (and thereafter not revoking such Release), for purposes of determining the amount to which a Participant is entitled under the Financial Counseling Program, he or she shall be regarded as having retired under the terms of the program; and

 (b)subject to the Participant’s execution of a Release within forty-five (45) days of the Participant’s Date of Termination (and thereafter not revoking such Release), a lump sum cash payment equal to the result of multiplying (i) the sum of (A) the Participant’s Base Salary, plus (B) the Participant’s Bonus Amount by (ii) 2.99; provided, however, that if the amount of such payment cannot be finally determined on or before such day, the Participant shall be paid an estimate, as determined in good faith by the Company of the minimum amount of such payment and the remainder of such payment (together with interest at the rate provided in section 1274(b)(2)(B) of the Internal Revenue Code of 1986, as amended (the “Code”)) as soon as the amount thereof can be determined; provided further that, in the event that the amount of the estimated payment exceeds the amount subsequently determined to have been due, such excess shall be reimbursed by the Participant, payable on the fifth (5th) day after demand by the Company (together with interest at the rate provided in section 1274(b)(2)(B) of the Code); and

 (c)subject to the Participant’s execution of a Release within forty-five (45) days of the Participant’s Date of Termination (and thereafter not revoking such Release), if the Participant is not otherwise entitled to such benefits at no cost to him or her pursuant to the terms of such plans, subject to Section 6.2 of the Plan, for a thirty six (36) month period from the Date of Termination or until December 31 of the year in which the Participant reaches age sixty-five (65), whichever is the shorter period (the “Benefit Period”), life, health and dental benefits (including spouse and dependent coverage) (“Health Benefits”) substantially similar to those that he or she was receiving immediately prior to the Date of Termination and such benefits shall be provided at no cost to the Participant (or spouse and dependents), provided that, notwithstanding the foregoing, the Participant shall not be provided any Health Benefit pursuant to this Section 4.2(c) if an equivalent benefit is actually received by the Participant during the Benefit Period from another Employer following his or her Date of Termination and any such Health Benefit actually received by the Participant shall be reported by the Participant to the Company.

4.3   No Duplication of Benefits.  Except as otherwise expressly provided pursuant to this Plan, this Plan shall be construed and administered in a manner which avoids duplication of compensation and benefits which may be provided under any other plan, program, policy, or other arrangement or individual contract.  In the event a Participant is covered by any other plan, program, policy, individually negotiated agreement or other arrangement, in effect as of his or her Date of Termination, that may duplicate the payments and benefits provided for in this Article 4, the Company may reduce or eliminate the duplicative benefits provided for under the Plan but solely to the extent such reduction or elimination  does not cause the Participant to be subject to penalty taxes under Section 409A.

4.4   No Affect on Other Benefits.  This Plan does not abrogate any of the usual entitlements which a Participant has or will have, first, while a regular employee, and subsequently, after termination, and thus, subject to Section 4.3 of this Plan, a Participant shall be entitled to receive all benefits payable to him or her under each and every qualified plan, welfare plan and any other plan or program relating to benefits and deriving from his or her employment with the Company and it Subsidiaries, but solely in accordance with the terms and provisions thereof.

Article 5 – Withholding Taxes

The Company and its Subsidiaries may withhold from all payments due to the Participant (or his beneficiary or estate) hereunder all taxes which, by applicable federal, state, local or other law, are required to be withheld.

Article 6 - Certain Additional Agreements under Section 409A

6.1        Delay of Payment.  In the event that a payment to be made pursuant to Sections 4.1(c) or 4.2(b) or any other amounts under this Plan that constitutes non-qualified deferred compensation under Section 409A of the Code ("Section 409A") is to be made to a “Specified Employee,” such payment will be delayed for six (6) months after the Date of Termination if required in order to avoid additional tax under Section 409A and paid in a single lump sum on the first business day of the month following the end of such six (6) month period.  If a Participant who is a Specified Employee dies within six (6) months following such Termination of Employment, any such delayed payments shall not be further delayed, and shall be immediately payable within forty-five (45) daysto his or her estate in accordance with the applicable provisions of this Plan.

6.2           Health Benefits. Health Benefits shall be provided in such a manner that such benefits (and the costs and premiums thereof) are excluded from the Participant’s income for federal income tax purposes and, if the Company reasonably determines that providing continued coverage under one or more of its health care benefit plans contemplated herein could be taxable to the Participant, the Company shall provide such benefits at the level required hereby through the purchase of individual insurance coverage; provided, if the Company reasonably determines that any portion of the Health Benefits cannot be provided through the purchase of individual insurance coverage without penalty, such portion shall be made available on a taxable basis, but the Benefit Period shall be limited to the Participant’s maximum period of continuation coverage under section 4980B of the Code.

6.3           Cash Payments. Subject to the Participant’s execution of a Release within forty-five (45) days of the Participant’s Date of Termination (and thereafter not revoking such Release), the Company shall use its best efforts to pay, or shall use its best efforts to cause the Employer to pay, to the Participant the cash lump sum described in  Section 4.2(b) to be made, subject to Section 6.1 on the sixtieth (60th) day following the Participant’s Date of Termination.

6.4           No Adverse Action.  No Employer will take any action that would expose any payment or benefit to a Participant under this Plan to the additional tax imposed under Section 409A unless (i) the Employer is obligated to take the action under an agreement, plan or arrangement, (ii) a Participant requests the action, (iii) the Employer advises such Participant in writing that the action may result in the imposition of the additional tax and (iv) such Participant subsequently requests the action in a writing that acknowledges that he or she will be responsible for any effect of the action under Section 409A.

Article 7 - Successors; Binding Agreement

7.1           The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to unconditionally assume all of the obligations of the Employer hereunder.  Failure of the Company to obtain such assumption prior to the effectiveness of any such succession shall constitute Good Reason hereunder and shall entitle the Participants to compensation and other benefits in the same amount and on the same terms as the Participants would be entitled hereunder if they had a Qualifying Termination, except that for purposes of implementing the foregoing, the date on which any succession becomes effective shall be deemed the Date of Termination.

7.2           The benefits provided under this Plan shall inure to the benefit of and be enforceable by the Participant’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.  If the Participant shall die while any amounts would be payable to the Participant hereunder had the Participant continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Plan to such person or persons appointed in writing by the Participant to receive such amounts or, if no person is so appointed, to the Participant’s estate.

Article 8 – Miscellaneous

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

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

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

8.2           No Mitigation; Resolution of Disputes and Costs.

(a)          In no event shall the Participant be obligated to seek other employment or take other action by way of mitigation of the amounts payable to the Participant under any of the provisions of this Plan and, except as provided in Section 4.2(c), such amounts shall not be reduced whether or not the Participant obtains other employment.

(b)         Participants may submit claims for benefits by giving notice to the Company pursuant to Section 8.1.  If a Participant believes that he or she has not received coverage or benefits to which he or she is entitled under the Plan, the Participant may notify the Company in writing of a claim for coverage or benefits.  If the claim for coverage or benefits is denied in whole or in part, the Company shall notify the applicant in writing of such denial within thirty (30) days (which may be extended to sixty (60) days under special circumstances), with such notice setting forth: (i) the specific reasons for the denial; (ii) the Plan provisions upon which the denial is based; (iii) any additional material or information necessary for the applicant to perfect his or her claim; and (iv) the procedures for requesting a review of the denial.  Upon a denial of a claim by the Company, the Participant may:  (i) request a review of the denial by the Board or, where review authority has been so delegated, by such other person or entity as may be designated by the Board for this purpose; (ii) review any Plan documents relevant to his or her claim; and (iii) submit issues and comments to the Board or its delegate that are relevant to the review.  Any request for review must be made in writing and received by the Board or its delegate within sixty (60) days of the date the applicant received notice of the initial denial, unless special circumstances require an extension of time for processing.  The Board or its delegate will make a written ruling on the applicant’s request for review setting forth the reasons for the decision and the Plan provisions upon which the denial, if appropriate, is based.  This written ruling shall be made within thirty (30) days of the date the Board or its delegate receives the applicant’s request for review unless special circumstances require an extension of time for processing, in which case a decision will be rendered as soon as possible, but not later than sixty (60) days after receipt of the request for review.  All extensions of time permitted by this Section 8.2 will be permitted at the sole discretion of the Board or its delegate.  If the Board does not provide the Participant with written notice of the denial of his or her appeal, the Participant’s claim shall be deemed denied.

(c)          Notwithstanding anything in this Plan to the contrary, any court, tribunal or arbitration panel that adjudicates any dispute, controversy or claim arising between a Participant and any Employer, or any of their delegates or successors, in respect of a Participant’s Qualifying Termination, will apply a de novo standard of review to any determinations made by such person. Such de novo standard shall apply notwithstanding the grant of full discretion hereunder to any such person or characterization of any such decision by such person as final, binding or conclusive on any party.

(d)         If any contest or dispute shall arise under this Plan involving a Participant’s Termination of Employment or involving the failure or refusal of any Employer to perform fully in accordance with the terms hereof, the Company shall or shall cause the Employer to reimburse the Participant on a current basis for all reasonable legal fees and related expenses, if any, incurred by the Participant at any time from the Effective Date of this Plan through the Participant’s remaining lifetime (or, if longer, through the 20th anniversary of the Change in Control)in connection with such contest or dispute (regardless of the result thereof), together with interest at the rate provided in section 1274(b)(2)(B) of the Code, such interest to accrue thirty (30) days from the date the Company receives the Participant’s statement for such fees and expenses through the date of payment thereof, regardless of whether or not the Participant’s claim is upheld by a court of competent jurisdiction or an arbitration panel; provided, however, that the Participant shall be required to repay immediately any such amounts to the Employer to the extent that a court or an arbitration panel issues a final and non-appealable order setting forth the determination that the position taken by the Participant was frivolous or advanced by the Participant in bad faith.To comply with Section 409A, in no event shall the payments by the Employer under this Section 8.2(d) be made later than the end of the calendar year next following the calendar year in which such fees and expenses were incurred, provided, that the Participant shall have submitted an invoice for such fees and expenses at least ten (10) days before the end of the calendar year next following the calendar year in which such fees and expenses were incurred.  The amount of such legal fees and expenses that the Employer is obligated to pay in any given calendar year shall not affect the legal fees and expenses that the Employer is obligated to pay in any other calendar year, and the Participant’s right to have the Employer pay such legal fees and expenses may not be liquidated or exchanged for any other benefit.

8.3Survival.  The respective obligations and benefits afforded to the Company and the Participant as provided in Articles 4 (to the extent that payments or benefits are owed as a result of a Qualifying Termination that occurs during the term of this Plan), 5, 6, 7 and 8 shall survive the termination of this Plan.

8.4Governing Law; Validity.To the extent not preempted by Federal law, the Plan, and all benefits and agreements hereunder, and any and all disputes in connection therewith, shall be governed by and construed in accordance with the substantive laws of the State of Delaware, without regard to conflict or choice of law principles which might otherwise refer the construction, interpretation or enforceability of this Plan to the substantive law of another jurisdiction.

8.5Amendment and Termination.  The Board or the Committee may amend (and, by amendment, terminate) this Plan at any time; provided, however, that (i) no amendment that reduces or eliminates any benefit or other entitlement of any Participant or that is otherwise adverse to the interests of a Participant (an “Adverse Amendment”) may take effect prior to the beginning of any calendar year, and any such amendment shall be void and of no effect, unless the Participant was notified of such amendment by September 30 of the prior year, (ii) no Adverse Amendment may be adopted during the period of time beginning on a Potential Change in Control and ending on the earlier of (a) the termination of the agreement that constituted the Potential Change in Control and (b) the secondanniversary of the resulting Change in Control, without the Participant’s written consent, and (iii) no Adverse Amendment may be adopted during the period commencing on a Change in Control and ending on the second anniversary of the Change in Control without the Participant’s written consent.The restrictions on amendments set forth in the prior sentence shall not apply to any amendment adopted within the period specified in clauses (ii) or (iii), above, if the following three conditions are satisfied: (1) the amendments do not take effect until the expiration of the periods, as applicable, set forth in such clauses, (2) each adversely affected Participant receives written notice of the adoption of such amendments within ten (10) days of such adoption and (3) such written notice is provided at least ninety (90) days prior to such amendments taking effect.

8.6Interpretation and Administration.  The Plan shall be administered by the Board.  The Board may delegate any of its powers under the Plan to a committee thereof or prior to a Change in Control, to the CEO.  Unless otherwise provided in this Plan, actions of the Board or such committee shall be taken by a majority vote of its members.  All references to the “Board” herein shall be deemed to be references to such delegate, as appropriate.  The Board shall have the authority (i) to exercise all of the powers granted to it under the Plan, (ii) to construe, interpret and implement the Plan, (iii) to prescribe, amend and rescind rules and regulations relating to the Plan, (iv) to make all determinations necessary or advisable in administration of the Plan and (v) to correct any defect, supply any omission and reconcile any inconsistency in the Plan.

8.7Type of Plan.  This Plan is intended to be, and shall be interpreted (a) as an unfunded employee welfare plan under Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and Section 2520.104-24 of the Department of Labor Regulations, maintained primarily for the purpose of providing employee welfare benefits, to the extent that it provides welfare benefits, and under Sections 201, 301 and 401 of ERISA, as a plan that is unfunded and maintained primarily for the purpose of providing deferred compensation, to the extent that it provides such compensation, in each case for a select group of management or highly compensated employees and (b) to comply with the requirements of Section 409A of the Code.

8.8         Nonassignability.  Benefits under the Plan may not be sold, assigned, transferred, pledged, anticipated, mortgaged, or otherwise encumbered, transferred, hypothecated, or conveyed in advance of actual receipt of the amounts, if any, payable hereunder, or any part thereof by the Participant.

Schedule A

RELEASE AND WAIVER

I, ________________, hereby fully waive and forever release and discharge Company, AT&T, any and all other subsidiaries of Company and of AT&T, their officers, directors, agents, servants, employees, successors and assigns and any and all employee benefit plans maintained by AT&T or any subsidiary thereof and/or any and all fiduciaries of any such plan from any and all common law and/or statutory claims, causes of action or suits of any kind whatsoever arising from or in connection with my past employment by Company (and any AT&T subsidiary to the extent applicable) and/or my separation therefrom, including but not limited to claims, actions, causes of action or suits of any kind allegedly arising under the Employee Retirement Income Security Act (ERISA), as amended, 29 USC §§ 1001 et seq.; the Rehabilitation Act of 1973, as amended, 29 USC §§ 701 et seq.; the Civil Rights Acts of 1866 and 1870, as amended, 42 USC §§ 1981, 1982 and 1988; the Civil Rights Act of 1871, as amended, 42 USC §§ 1983 and 1985; the Civil Rights Act of 1964, as amended, 42 USC § 2000d et seq.; the Americans With Disabilities Act, as amended, 42 USC §§ 12101 et seq., and the Age Discrimination in Employment Act of 1967 (ADEA), as amended, 29 USC §§ 621 et seq., known and unknown. In addition, I, ___________, agree not to file any lawsuit or other claim seeking monetary damage or other relief in any state or federal court or with any administrative agency against any of the aforementioned parties in connection with or relating to any of the aforementioned matters. Provided, however, by executing this Release and Waiver, I, ________________, do not waive rights or claims that may arise after the date of execution; provided further, however, this Release and Waiver shall not affect my right to receive or enforce through litigation, any indemnification rights to which I am entitled as a result of my past employment by the Company or contract rights pursuant to the Agreement and Release and Waiver of Claims entered into contemporaneously herewith and, if applicable, any subsidiary of AT&T; and, provided further, this Release and Waiver shall not affect the ordinary distribution of benefits/entitlements, if any, to which I am entitled upon termination from Company; it being understood by me that said benefits/entitlements, if any, will be subject to and provided in accordance with the terms and conditions of their respective governing plan and this Agreement.

Schedule B

Limitation on Payments Under Certain Circumstances

(a)           The following terms shall have the meanings set forth below for purposes of this Schedule B to the Plan:

“Accounting Firm” shall mean a nationally recognized certified public accounting firm that is selected by the Company for purposes of making the applicable determinations hereunder and is reasonably acceptable to the Participant, which firm shall not, without the Participant’s consent, be a firm serving as accountant or auditor for the individual entity or group effecting the Change in Control.

“Excise Tax” means the excise tax imposed by Section 4999 of the Code, together with any interest or penalties imposed with respect to such excise tax.

“Net After-Tax Receipt” shall mean the present value (as determined in accordance with Sections 280G(b)(2)(A)(ii) and 280G(d)(4) of the Code) of a Payment net of all taxes imposed on the Participant with respect thereto under Sections 1 and 4999 of the Code and under applicable state and local laws, determined by applying the highest marginal rate under Section 1 of the Code and under state and local laws which applied to the Participant’s taxable income for the immediately preceding taxable year, or such other rate(s) as the Accounting Firm determined to be likely to apply to the Participant in the relevant tax year(s).

“Parachute Value” of a Payment means the present value as of the date of the change in control for purposes of Section 280G of the Code of the portion of such Payment that constitutes a “parachute payment” under Section 280G(b)(2) of the Code, as determined by the Accounting Firm for purposes of determining whether and to what extent the Excise Tax will apply to such Payment.

“Payment” means any payment or distribution in the nature of compensation (within the meaning of Section 280G(b)(2) of the Code) to or for the benefit of the Participant, whether paid or payable pursuant to this Plan or otherwise.

“Plan Payment” has the meaning set forth in Paragraph (b) of this Schedule B.

“Safe Harbor Amount” means (x) 3.0 times the Participant’s “base amount,” within the meaning of Section 280G(b)(3) of the Code, minus (y) $1.00.

“Underpayment” has the meaning set forth in Paragraph (d) of this Schedule B,

(b)           Notwithstanding any provision of the Plan to the contrary, in the event an Accounting Firm shall determine that receipt of all Payments would subject the Participant to the excise tax under Section 4999 of the Code, the Accounting Firm shall determine whether to reduce any of the Payments paid or payable pursuant to this Plan (the “Plan Payments”) so that the Parachute Value of all Payments, in the aggregate, equals the Safe Harbor Amount. The Plan Payments shall be so reduced only if the Accounting Firm determines that the Participant would have a greater “Net After-Tax Receipt” of aggregate Payments if the Plan Payments were so reduced.  If the Accounting Firm determines that the Participant would not have a greater “Net After-Tax Receipt” of aggregate Payments if the Plan Payments were so reduced, the Participant shall receive all Plan Payments to which the Participant is entitled hereunder.

(c)           If the Accounting Firm determines in accordance with Paragraph (b) of this Schedule B that the aggregate Plan Payments should be reduced so that the Parachute Value of all Payments, in the aggregate, equals the Safe Harbor Amount, the Company shall promptly give the Participant notice to that effect and a copy of the detailed calculation thereof. All determinations made by the Accounting Firm under this Schedule B shall be binding upon the Company and the Participant and shall be made as soon as reasonably practicable and in no event later than fifteen (15) days following the Date of Termination. For purposes of reducing the Plan Payments so that the Parachute Value of all Payments, in the aggregate, equals the Safe Harbor Amount, only amounts payable under this Plan (and no other Payments) shall be reduced.  The reduction of the Plan Payments, if applicable, shall be made by reducing the payments and benefits under the following sections in the following order: (1) any Plan Payments under Section 4.1(c), (2) any Plan Payments under Section 4.2(b), and (3) any Plan Payments under Section 6.2.  All fees and expenses of the Accounting Firm shall be borne solely by the Company.

(d)           As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that amounts will have been paid or distributed by the Company to or for the benefit of the Participant pursuant to this Plan which should have not been so paid or distributed (“Overpayment”) or that additional amounts which will have not been paid or distributed by the Company to or for the benefit of the Participant pursuant to this Plan could have been so paid or distributed (“Underpayment”), in each case, consistent with the calculation of the Safe Harbor Amount hereunder.  In the event that the Accounting Firm, based upon the assertion of the deficiency by the Internal Revenue Service against either the Company or the Participant which the Accounting Firm believes has a high probability of success, determines that an Overpayment has been made, the Participant shall pay promptly (and in no event later than sixty (60) days following the date on which the Overpayment is determined) pay any such Overpayment to the Company together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code; provided, however, that no amount shall be payable by the Participant to the Company if and to the extent such payment would not either reduce the amount on which the Participant is subject to tax under Section 1 and Section 4999 of the Code or generate a refund of such taxes. In the event that the Accounting Firm, based upon controlling precedent or substantial authority, determines that the Underpayment has occurred, any such Underpayment shall be paid promptly (and in no event later than sixty (60) days following the date on which the Underpayment is determined) by the Company to or for the benefit of the Participant together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code.

(e)           To the extent requested by the Participant, the Company shall cooperate with the Participant in good faith in valuing, and the Accounting Firm shall take into account the value of, services provided or to be provided by the Participant (including without limitation, the Participant’s agreeing to refrain from performing services pursuant to a covenant not to compete or similar covenant) before, on or after the date of a change in ownership or control of the Company (within the meaning of Q&A-2(b) of the final regulations under Section 280G of the Code), such Payments in respect of such services may be considered reasonable compensation within the meaning of Q&A-9 and Q&A-40 to Q&A-44 of the final regulations under Section 280G of the Code and/or exempt from the definition of the term “parachute payment” within the meaning of Q&A-2(a) of the final regulations under Section 280G of the Code in accordance with Q&A-5(a) of the final regulations under Section 280G of the Code.

EX-10.W

Exhibit 10-w

Administrative Plan

Effective January 31, 2013

The benefits under this Plan are offered by AT&T Inc. (“AT&T”) to persons who have been identified by AT&T as executive officers of AT&T under Rule 3b-7 of the Securities Exchange Act of 1934 (“Executive Officers”).

Administration of Plan.  The Plan or the benefits hereunder may be modified or terminated by the Human Resources Committee in its sole discretion at any time.

Except to the extent otherwise provided herein, the Vice President responsible for Human Resources (or the successor to such position) shall be the Administrator of the Plan and will administer the Plan, interpret, construe and apply its provisions in accordance with its terms.  The Administrator, in his or her sole discretion, may establish, adopt or revise rules, as he or she may deem necessary or advisable for the administration of the Plan, including the allocation or limitation of benefits.

The Administrator may adopt another plan or plans, not to exceed the benefits included herein, for the benefit of non Executive Officer employees or former employees of AT&T and/or its subsidiaries, as the Administrator may determine in his or her sole discretion and on such terms and conditions as the Administrator shall determine.  In addition, the Administrator may provide current or former non Executive Officer employees with:

(a) an amount equal to that necessary to offset the Federal, state and local income taxes, as well as associated employment taxes, of the recipient (including taxes on tax reimbursements) resulting from the benefits in such plan or plans, other than (1) the monthly automobile allowance, and (2) personal use of aircraft; and/or

(b) social club and country club memberships as approved by the CEO or the Administrator (without the limits otherwise provided in this Plan).

The benefit under (a), above, shall also apply to Executive Officers who retired prior to 2010.  The Administrator may, from time to time, revise the plan solely to increase the financial limits on benefits, not to exceed the corresponding proportional increase in the consumer price index from January 1, 2003, through the date of change.

All decisions of the Administrator shall be final and binding unless the Board of Directors or its delegate should determine otherwise.

No Employment Rights.  Nothing herein shall constitute a contract of continuing employment or in any manner obligate AT&T or any Executive Officer to continue the employment relationship of, or obligate an Executive Officer to continue in the service of AT&T or any Affiliate.

Non-Transferability.  No recipient of benefits under this Plan nor any other person shall have any right to sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey any of the benefits hereunder, or any part thereof, which are, and all rights to which are, expressly declared to be unassignable and non-transferable.

Notice.  Any notice required or permitted to be given to the Administrator under the Plan shall be sufficient if in writing and hand delivered, or sent by certified mail, to the principal office of AT&T, directed to the attention of the Senior Executive Vice President-Human Resources.  Any notice required or permitted to be given to any other person shall be sufficient if in writing and hand delivered, or sent by certified mail, to the person at the person's last known mailing address as reflected on the records of his or her employing company.  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.

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.

Applicable Law.  This Plan shall be governed and construed in accordance with the laws of the State of Texas to the extent not preempted by the Employee Retirement Income Security Act of 1974, as amended, and regulations thereunder ("ERISA").

Automobile.  Each Executive Officer may receive the use of a four-door automobile or an automobile allowance and expenses associated with the operation of the automobile.  The Administrator shall determine the amount of the allowance for each Executive Officer provided that the allowance shall not exceed $2,000 per month.

Communications.  Each Executive Officer may receive reasonable communications services including local, long distance, Internet, wireless, U-verse services (where available)  and related equipment.

Financial Counseling.  Executive Officers may receive income tax preparation services and financial planning services from a list of designated providers not to exceed $14,000 per year.

Estate Planning.  Executive Officers may receive estate planning documentation services not to exceed $10,000 per year.  The Estate Planning limit restarts in the event of a company-initiated relocation to another state.

Annual Limits.  Expenses will be charged against the annual limits for the calendar year based on the date of the invoice.    Clubs.  Executive Officers may receive social club and country club memberships (along with transfer fees) as approved by the CEO or the Administrator.  Executive officers, but not persons other than Executive Officers, shall be limited to transferable country club memberships and shall not receive other country club fees, including dues and assessments.

AT&T does not reimburse for any expenses incurred in connection with a membership in a club that discriminates in its membership policies based on race, creed, gender or ethnic origin.  The Administrator shall report annually to the Human Resources Committee any changes in memberships for the Chief Executive Officer.

Executive Protection.  Based upon the concern for the security of Executive Officers, the need to secure their optimum availability for business purposes and to permit uninterrupted communications between them, the Executive Officers are authorized to receive home security services, and, whenever feasible, to use AT&T provided aircraft in connection with business travel.  The Chief Executive Officer may use such aircraft for personal travel.  Other Executive Officers may also use such aircraft for personal travel where the Chief Executive Officer, in his or her sole discretion, deems such personal use appropriate.

Except where prohibited by law, Executive Officers shall be required to reimburse the Company for the incremental cost of personal use of AT&T provided aircraft.  For Executive Officers other than the Chief Executive Officer, the Chief Executive Officer may determine, in his or her sole discretion, that such reimbursement is not required.

Retirement.  Upon the Retirement of an Executive Officer, he or she may receive up to an additional amount for financial consulting reasonably in connection with his/her Retirement, as follows:  In any given year, 1. for retirements occurring from January 1 through June 30 (inclusive), the amount will be $20,000 in the calendar year of retirement; 2. for retirements occurring from July 1 through November 30 (inclusive), the amount will be $10,000 in the calendar year of retirement and $10,000 in the immediately following calendar year; and 3. for retirements occurring from December 1 through December 31 (inclusive), the amount will be $20,000 in the year following retirement.  A Retired Executive Officer shall continue to receive the communications benefits until death and his or her survivor shall receive the communications benefit for six (6) billing cycles.  After the Retirement of an Executive Officer on or before December 31, 2009, he or she shall continue to receive the financial counseling and estate planning benefits until his or her death.  Executive Officers that retire on or after January 1, 2010 shall continue to receive the financial counseling and estate planning benefits for up to 36 months following retirement or until the end of the year following the year of death, whichever occurs earlier.  After the death of an Executive Officer or Retired Executive Officer, his or her survivor shall receive the communications benefit for 6 billing cycles and shall receive the financial counseling and estate planning benefits for the remainder of the year of death and the immediately following calendar year.  In a Retired Executive Officer’s final calendar year of eligibility, the Annual Limits shall be pro-rated on a monthly basis, based on the number of full or partial months the Retired Executive Officer worked in the calendar year of Retirement divided by twelve (12).

Loyalty Conditions.

This Section applies to Executive Officers who are actively employed on or after January 1, 2010.

Executive Officers 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 below, 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 Executive Officers on or after January 1, 2010.  Accordingly, as a condition of receiving coverage and any Plan benefits on or after January 1, 2010, each Executive Officer 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.  Further, notwithstanding any other provision of this Plan, all coverage and benefits under this Plan on and after January 1, 2010 with respect to an Executive Officer and his or her Dependents shall be subject in their entirety to the enforcement provisions below if the Executive Officer, without the 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.

Definitions.  For purposes of this Section and of the Plan generally:

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;

“engaging in competition with AT&T” shall mean, while employed by an Employer Business or within two (2) years after the Executive Officer’s termination of employment, engaging by the Executive Officer 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.

“engaging in conduct disloyal to AT&T” means, while employed by an Employer Business or within two (2) years after the Executive Officer’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 Executive Officer’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 the Executive Officer had business contact on behalf of any Employer Business during the two (2) years prior to the termination of the Executive Officer’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 Executive Officer 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 Executive Officer’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.

“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 Executive Officer, 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 Executive Officer.  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 Executive Officer from a third party; (iii) was known to the Executive Officer prior to receipt from the Employer Business; or (iv) was independently developed by the Executive Officer 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 Executive Officer 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.

Forfeiture of Benefits.  Coverage and benefits under this Plan shall be forfeited and shall not be provided under this Plan for any period as to which the Administrator determines that, within the time period and without the written consent specified, the Executive Officer has been either engaging in competition with AT&T or engaging in conduct disloyal to AT&T.

Equitable Relief.  The parties recognize that any Executive Officer’s breach of any of the covenants in this Section 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 Executive Officer 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 Executive Officers.  Accordingly, in the event of an Executive Officer’s actual or threatened breach of the covenants herein, the Administrator, in addition to all other rights and acting as a fiduciary under ERISA on behalf of all Executive Officers, 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 Executive Officer from breaching the covenants in this Section.  In addition, AT&T shall pay for any Plan expenses that the Administrator incurs hereunder, and shall be entitled to recover from the Executive Officer its reasonable attorneys’ fees and costs incurred in obtaining such injunctive remedies.  To enforce its repayment rights with respect to an Executive Officer, the Plan shall have a first priority, equitable lien on all Plan benefits provided to or for the Executive Officer and his or her Dependents.  In the event the Administrator succeeds in enforcing the terms of this Article through a written settlement with the Executive Officer or a court order granting an injunction hereunder, the Executive Officer shall be entitled to collect Plan benefits prospectively, if the Executive Officer 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 Executive Officer), provided that the Executive Officer complies with said settlement or injunction.

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 Executive Officer’s accrual or receipt of benefits under the Plan after January 1, 2010 that each and all of the following conditions apply to all Executive Officers and to any benefits that are paid or are payable under the Plan:

(1)   To the maximum extent applicable ERISA shall control all issues and controversies hereunder, and the Administrator 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 to the extent it is applicable.

(3)   If the Administrator determines in its sole discretion either (I) that AT&T or its affiliate that employed the Executive Officer terminated the Executive Officer’s employment for cause, or (II) that equitable relief enforcing the Executive Officer’s covenants under this Section is either not reasonably available, not ordered by a court of competent jurisdiction, or circumvented because the Executive Officer has sued in state court, or has otherwise sought remedies not available under ERISA (to the extent applicable), then in any and all of such instances the Executive Officer shall not be entitled to collect any Plan benefits, and if any Plan benefits have been paid to the Executive Officer, the Executive Officer shall immediately repay all Plan benefits to the Plan (which shall be used to pay Plan administrative expenses or Plan benefits) upon written demand from the Administrator.

Furthermore, the Executive Officer 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.

EX-12

											EXHIBIT 12
AT&T INC.
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
Dollars in Millions
			Year Ended December 31,
			2012		2011		2010		2009				2008 1
Earnings:
	Income (loss) from continuing operations before income taxes		$	10,439	$	6,716	$	18,238	$	18,518		$	(4,572)
	Equity in net income of affiliates included above			(752)		(784)		(762)		(734)			(819)
	Fixed charges			4,943		4,900		4,786		5,071			4,943
	Distributed income of equity affiliates			137		161		161		317			164
	Interest capitalized			(263)		(162)		(772)		(740)			(659)
		Earnings, as adjusted	$	14,504	$	10,831	$	21,651	$	22,432		$	-
Fixed Charges:
	Interest expense		$	3,444	$	3,535	$	2,994	$	3,368		$	3,369
	Interest capitalized			263		162		772		740			659
	Dividends on preferred securities			-		-		-		-			4
	Portion of rental expense representative of interest factor			1,236		1,203		1,020		963			911
		Fixed Charges	$	4,943	$	4,900	$	4,786	$	5,071		$	4,943
	Ratio of Earnings to Fixed Charges			2.93		2.21		4.52		4.42			-
1 Earnings were not sufficient to cover fixed charges in 2008. The deficit was $943.

EX-13

Selected Financial and Operating Data
Dollars in millions except per share amounts
At December 31 and for the year ended:	2012			2011			2010			2009			2008
Financial Data
Operating revenues	$	127,434		$	126,723		$	124,280		$	122,513		$	123,443
Operating expenses	$	114,437		$	117,505		$	104,707		$	101,513		$	125,133
Operating income (loss)	$	12,997		$	9,218		$	19,573		$	21,000		$	(1,690	)
Interest expense	$	3,444		$	3,535		$	2,994		$	3,368		$	3,369
Equity in net income of affiliates	$	752		$	784		$	762		$	734		$	819
Other income (expense) - net	$	134		$	249		$	897		$	152		$	(332	)
Income tax expense (benefit)	$	2,900		$	2,532		$	(1,162	)	$	6,091		$	(2,210	)
Net Income (Loss)	$	7,539		$	4,184		$	20,179		$	12,447		$	(2,364	)
Less: Net Income Attributable to Noncontrolling Interest	$	(275	)	$	(240	)	$	(315	)	$	(309	)	$	(261	)
Net Income (Loss) Attributable to AT&T	$	7,264		$	3,944		$	19,864		$	12,138		$	(2,625	)
Earnings (Loss) Per Common Share:
Net Income (Loss) Attributable to AT&T	$	1.25		$	0.66		$	3.36		$	2.06		$	(0.44	)
Earnings (Loss) Per Common Share - Assuming Dilution:
Net Income (Loss) Attributable to AT&T	$	1.25		$	0.66		$	3.35		$	2.05		$	(0.44	)
Total assets1	$	272,315		$	270,442		$	269,473		$	268,312		$	264,700
Long-term debt	$	66,358		$	61,300		$	58,971		$	64,720		$	60,872
Total debt	$	69,844		$	64,753		$	66,167		$	72,081		$	74,990
Construction and capital expenditures	$	19,728		$	20,272		$	20,302		$	17,294		$	20,290
Dividends declared per common share	$	1.77		$	1.73		$	1.69		$	1.65		$	1.61
Book value per common share	$	16.61		$	17.85		$	18.94		$	17.28		$	16.35
Ratio of earnings to fixed charges2		2.93			2.21			4.52			4.42			-
Debt ratio		43.0	%		38.0	%		37.1	%		41.4	%		43.8	%
Weighted-average common shares outstanding (000,000)		5,801			5,928			5,913			5,900			5,927
Weighted-average common shares outstanding with dilution (000,000)		5,821			5,950			5,938			5,924			5,958
End of period common shares outstanding (000,000)		5,581			5,927			5,911			5,902			5,893
Operating Data
Wireless subscribers (000)3		106,957			103,247			95,536			85,120			77,009
In-region network access lines in service (000)		31,887			36,734			41,883			47,534			53,604
Broadband connections (000)4		16,390			16,427			16,309			15,789			15,077
Number of employees		241,810			256,420			266,590			282,720			302,660
1  Prior-period amounts are restated to conform to current-period reporting methodology.
2  Earnings were not sufficient to cover fixed charges in 2008. The deficit was $943.
3  The number presented represents 100% of AT&T Mobility wireless subscribers.
4  Broadband connections include in-region DSL lines, in-region U-verse High Speed Internet access, and satellite broadband.

1 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Dollars in millions except per share amounts

For ease of reading, AT&T Inc. is referred to as “we,” “AT&T” or the “Company” throughout this document, and the names of the particular subsidiaries and affiliates providing the services generally have been omitted. AT&T is a holding company whose subsidiaries and affiliates operate in the communications services industry in both the United States and internationally, providing wireless and wireline telecommunications services and equipment. You should read this discussion in conjunction with the consolidated financial statements and accompanying notes. A reference to a “Note” in this section refers to the accompanying Notes to Consolidated Financial Statements. In the tables throughout this section, percentage increases and decreases that are not considered meaningful are denoted with a dash.

RESULTS OF OPERATIONS

Consolidated Results  Our financial results are summarized in the table below. We then discuss factors affecting our overall results for the past three years. These factors are discussed in more detail in our “Segment Results” section. We also discuss our expected revenue and expense trends for 2013 in the “Operating Environment and Trends of the Business” section.

							Percent Change
	2012		2011		2010			2012 vs. 2011		2011 vs. 2010
Operating Revenues	$	127,434	$	126,723	$	124,280		0.6	%	2.0	%
Operating expenses
Cost of services and sales		55,215		54,836		50,257		0.7		9.1
Selling, general and administrative		41,079		41,382		34,986		(0.7	)	18.3
Impairment of intangible assets		-		2,910		85		-		-
Depreciation and amortization		18,143		18,377		19,379		(1.3	)	(5.2	)
Total Operating Expenses		114,437		117,505		104,707		(2.6	)	12.2
Operating Income		12,997		9,218		19,573		41.0		(52.9	)
Interest expense		3,444		3,535		2,994		(2.6	)	18.1
Equity in net income of affiliates		752		784		762		(4.1	)	2.9
Other income (expense) – net		134		249		897		(46.2	)	(72.2	)
Income from continuing operations before    income taxes		10,439		6,716		18,238		55.4		(63.2	)
Income from continuing operations		7,539		4,184		19,400		80.2		(78.4	)
Net Income Attributable to AT&T	$	7,264	$	3,944	$	19,864		84.2	%	(80.1	)%

Overview

Operating income increased $3,779, or 41.0%, in 2012 and decreased $10,355, or 52.9%, in 2011. Our operating margin was 10.2% in 2012, compared to 7.3% in 2011 and 15.7% in 2010. Operating revenues and expenses for 2012 reflect only a partial year’s results for our sold Advertising Solutions segment, as discussed below. Operating income for 2012 reflects continued growth in wireless service and equipment revenue driven mostly by data revenue growth and increased revenues from AT&T U-verse® (U-verse) services and strategic business services, partially offset by a decline in voice revenues and higher wireless handset subsidies and commissions. Our 2012 operating income also reflects a noncash charge of $9,994 from actuarial losses related to pension and postemployment benefit plans. Operating income for 2011 and 2010 included actuarial losses of $6,280 and $2,521, respectively. Operating income in 2011 also reflected charges of $4,181 related to our decision to terminate the acquisition of T-Mobile USA, Inc. (T-Mobile) and noncash charges of $2,910 related to impairments of directory intangible assets.

Operating revenues increased $711, or 0.6%, in 2012 and $2,443, or 2.0%, in 2011. The increases in 2012 and 2011 are primarily due to growth in wireless service and equipment revenues and higher wireline data revenues from U-verse and strategic business services. Growth in the wireless subscriber base and the increasing percentage of subscribers using smartphones also contributed to the revenue increase in 2011. These increases were partially offset by continued declines in wireline voice revenues for both years. The sale of our Advertising Solutions segment in May 2012 reduced revenues $2,244.

Revenue growth continues to be tempered by declines in our voice revenues. During 2012, total switched access lines decreased 13.2%. 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 and wireline data revenues should customers choose us as their wireless provider, and for customers with our U-verse service, as their VoIP provider.

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 increased $379, or 0.7%, in 2012 and $4,579, or 9.1%, in 2011. The increase in 2012 resulted from increased wireline costs attributable to growth in U-verse subscribers, higher wireless handset costs related to strong smartphone sales and a higher actuarial loss on benefit plans. These increases were partially offset by lower traffic compensation costs and other nonemployee-related expenses. The sale of our Advertising Solutions segment reduced cost of services and sales expenses $787 in 2012.

Excluding the increase of $1,668 related to the actuarial loss, expense increases in 2011 were primarily due to higher wireless handset costs from strong smartphone sales, partially offset by lower financing-related costs associated with our pension and postretirement benefits (referred to as Pension/OPEB expenses) and other employee-related expenses.

Selling, general and administrative expenses decreased $303, or 0.7%, in 2012 and increased $6,396, or 18.3%, in 2011. The 2012 expense decrease was primarily due to $4,181 in 2011 expenses related to the termination of the T-Mobile merger, offset by a larger actuarial loss of $3,454 and higher wireless commissions and administrative costs. The sale of our Advertising Solutions segment reduced selling, general and administrative expenses $705 in 2012.

The 2011 expenses increased by $2,091 related to the actuarial loss, charges associated with the T-Mobile payment, and higher commissions paid on smartphone sales, slightly offset by lower severance accruals, Pension/OPEB financing costs and other employee-related charges.

Impairment of intangible assets  In 2011, we recorded noncash charges for impairments in our Advertising Solutions segment, which consisted of a $2,745 goodwill impairment and a $165 impairment of a trade name. The 2010 impairment of $85 was for the impairment of a trade name.

Depreciation and amortization expense decreased $234, or 1.3%, in 2012 and $1,002, or 5.2%, in 2011 due to lower amortization of intangibles for customer lists related to acquisitions, offset by increased depreciation associated with ongoing capital spending for network upgrades and expansion. The sale of our Advertising Solutions segment reduced depreciation and amortization expense $280 in 2012.

Interest expense decreased $91, or 2.6%, in 2012 and increased $541, or 18.1%, in 2011. The decrease in interest expense for 2012 was primarily due to lower average interest rates and average debt balances, partially offset by a net charge of $176 related to call premiums paid and swap gains realized for early debt redemptions and debt exchange fees.

The increase in interest expense for 2011 was primarily due to lower interest capitalized on wireless spectrum that we used to support our Long Term Evolution (LTE) technology, partially offset by a decrease in our average debt balances.

Equity in net income of affiliates decreased $32, or 4.1%, in 2012 and increased $22, or 2.9%, in 2011. Decreased equity in net income of affiliates in 2012 was due to lower earnings from América Móvil, S.A. de C.V. (América Móvil), and increased expenses in our mobile payment joint venture with other wireless carriers, marketed as the Isis Mobile WalletTM (ISIS). These decreases were partially offset by earnings from YP Holdings LLC (YP Holdings). The 2011 increase was due to improved results at América Móvil, partially offset by lower results from Télefonos de México, S.A. de C.V. (Telmex).

Other income (expense) – net We had other income of $134 in 2012, $249 in 2011 and $897 in 2010. Results for 2012 included interest and dividend income of $61, leveraged lease income of $55 and net gains on the sale of investments of $74. This income was partially offset by $57 of investment impairments.

Other income for 2011 included interest and dividend income of $73, leveraged lease income of $80 and net gains on the sale of investments of $97. Results for 2010 included a gain on the exchange of Telmex Internacional, S.A.B. de C.V. (Telmex Internacional) shares for América Móvil shares of $658, interest and dividend income of $71, leveraged lease income of $66, and net gains on the sale of investments of $197, partially offset by $98 of investment impairments.

3 

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

Income tax expense increased $368 in 2012 and $3,694 in 2011. The 2012 increase is primarily due to an increase in income before income taxes. The 2011 increase is primarily due to the goodwill impairment, which was not deductible, and a settlement with the Internal Revenue Service related to a restructuring of our wireless operations, which lowered our 2010 income taxes by $8,300. Offsetting these year-over-year increases were decreases due to lower income before income taxes in 2011 and a $995 charge to income tax expense in 2010 to reflect the deferred tax impact of enacted U.S. healthcare legislation (see Note 10). Our effective tax rate was 27.8% in 2012, 37.7% in 2011 and (6.4)% in 2010.

Income from discontinued operations, net of tax  In the third quarter of 2010, we sold our subsidiary Sterling Commerce Inc. (Sterling). Income from discontinued operations in 2010 was $779, including a gain of $769.

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 operating segments based on segment income before income taxes. We make our capital allocation 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 postemployment benefits, interest expense and other income (expense) – net, are managed only on a total company basis and are, accordingly, reflected only in consolidated results. Therefore, these items are not included in each segment’s percentage of our total segment income. Each segment’s percentage of total segment operating revenue and income calculations is derived from our segment results table in Note 3, and may total more than 100 percent due to losses in one or more segments. At December 31, 2012, we had three reportable segments: (1) Wireless, (2) Wireline and (3) Other. Our operating results prior to May 9, 2012, also included Advertising Solutions, which was a reportable segment. On May 8, 2012, we completed the sale of our Advertising Solutions segment and received a 47 percent equity interest in the new entity YP Holdings (see Note 4).

The Wireless segment accounted for approximately 52% of our 2012 total segment operating revenues as compared to 50% in 2011 and 70% of our 2012 total segment income as compared to 96% in 2011. This segment uses our nationwide network to provide consumer and business customers with wireless voice and advanced data communications services. This segment includes our portion of the results from our mobile payment joint venture ISIS, which is accounted for as an equity investment.

The Wireline segment accounted for approximately 47% of our total segment operating revenues in both 2012 and 2011 and 30% of our 2012 total segment income as compared to 44% in 2011. This segment uses our regional, national and global network to provide consumer and business customers with landline voice and data communications services, U-verse high-speed broadband, video, 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 home monitoring business moved to our Other 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 included our directory operations, which published Yellow and White Pages directories and sold directory advertising, Internet-based advertising and local search through May 8, 2012 (see Note 4).

The Other segment accounted for less than 1% of our 2012 and 2011 total segment operating revenues. Since segment operating expenses exceeded revenue in both years, a segment loss was incurred in both 2012 and 2011. This segment includes our portion of the results from our international equity investments, our 47 percent equity interest in YP Holdings, and costs to support corporate-driven activities and operations. Also included in the Other segment are impacts of corporate-wide decisions for which the individual operating segments are not being evaluated. 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.

The following sections discuss our operating results by segment. 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.

4 

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

We discuss capital expenditures for each segment in “Liquidity and Capital Resources.”

Wireless
Segment Results
									Percent Change
	2012			2011			2010		2012 vs. 2011			2011 vs.  2010
Segment operating revenues
Service	$	59,186		$	56,726		$	53,510		4.3	%		6.0	%
Equipment		7,577			6,489			4,991		16.8			30.0
Total Segment Operating Revenues		66,763			63,215			58,501		5.6			8.1
Segment operating expenses
Operations and support		43,296			41,282			36,185		4.9			14.1
Depreciation and amortization		6,873			6,329			6,498		8.6			(2.6)
Total Segment Operating Expenses		50,169			47,611			42,683		5.4			11.5
Segment Operating Income		16,594			15,604			15,818		6.3			(1.4)
Equity in Net Income (Loss) of Affiliates		(62	)		(29	)		9		-			-
Segment Income	$	16,532		$	15,575		$	15,827		6.1	%		(1.6)	%

The following table highlights other key measures of performance for the Wireless segment:
	2012		2011		2010			2012 vs. 2011			2011 vs. 2010
Wireless Subscribers (000)1	106,957		103,247		95,536			3.6	%		8.1	%
Gross Subscriber Additions (000)2	20,770		23,869		22,879			(13.0)			4.3
Net Subscriber Additions (000)2	3,764		7,699		8,853			(51.1)			(13.0)
Total Churn4	1.35	%	1.37	%	1.31	%	(2) BP			6 BP
Postpaid Subscribers (000)	70,497		69,309		68,041			1.7	%		1.9	%
Net Postpaid Subscriber Additions (000)2	1,438		1,429		2,153			0.6			(33.6)
Postpaid Churn4	1.09	%	1.18	%	1.09	%	(9) BP			9 BP
Prepaid Subscribers (000)	7,328		7,225		6,524			1.4	%		10.7	%
Net Prepaid Subscriber Additions (000)2	128		674		952			(81.0)			(29.2)
Reseller Subscribers (000)	14,875		13,644		11,645			9.0			17.2
Net Reseller Subscriber Additions (000)2	1,027		1,874		1,140			(45.2)			64.4
Connected Device Subscribers (000)3	14,257		13,069		9,326			9.1			40.1
Net Connected Device Subscriber Additions (000)	1,171		3,722		4,608			(68.5)	%		(19.2)	%
1  Represents 100% of AT&T Mobility wireless subscribers.
2  Excludes merger and acquisition-related additions during the period.
3  Includes data-centric devices such as eReaders, tablets, automobile monitoring systems, and fleet management.
4  Calculated by dividing the aggregate number of wireless subscribers who canceled service during a period divided by the total number of wireless subscribers at the beginning of that period. The churn rate

for the period is equal to the average of the churn rate for each month of that period.

5 

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

Wireless Subscriber Relationships

As the wireless industry continues to mature, we believe that future wireless growth will increasingly depend on our ability to offer innovative services 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 handset 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 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 2012, we continued to see an increasing use of smartphones by our postpaid subscribers. Of our total postpaid subscriber base, 66.8% (or 47.1 million subscribers) use smartphones, up from 56.8% (or 39.4 million subscribers) a year earlier and 42.7% (or 29.1 million subscribers) two years ago. As is common in the industry, most of our subscribers’ phones are designed to work only with our wireless technology, requiring subscribers who desire to move to a new carrier with a different technology to purchase a new device. 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 migrate to a different 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.

Our postpaid subscribers typically sign a two-year contract, which includes discounted handsets and early termination fees. As of December 31, 2012, about 90% of our postpaid smartphone subscribers are on FamilyTalk® plans (family plans), Mobile Share plans or business discount plans (discount plans), which provide for service on multiple devices 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 on these and other qualifying 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 (usage-based data plans) to attract a wide variety of subscribers and to differentiate us from our competitors. Our postpaid subscribers on data plans increased 11.4% year over year. A growing percentage of our postpaid smartphone subscribers are on usage-based data plans, with 67.4% (or 31.7 million subscribers) on these plans as of December 31, 2012, up from 56.0% (or 22.1 million subscribers) as of December 31, 2011, and 31.2% (or 9.1 million subscribers) as of December 31, 2010. More than 75% of subscribers on tiered data plans have chosen the higher-tiered plans. In August 2012, we launched new Mobile Share data plans (which allow postpaid subscribers to share data at discounted prices among devices covered by their plan), and sales results have been strong, with approximately 25% of Mobile Share subscribers choosing plans of 10 gigabytes or higher. Such offerings are intended to encourage existing subscribers to upgrade their current services and/or add connected devices, attract subscribers from other providers, and minimize subscriber churn.

As of December 31, 2012, 54.7% of our postpaid smartphone subscribers use a 4G-capable device (i.e., a device that would operate on our HSPA+ or 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 long-term spectrum solution will require that the Federal Communications Commission (FCC) make new or existing spectrum available to the wireless industry to meet the expanding needs of our subscribers. We will continue to attempt to address spectrum and capacity constraints on a market-by-market basis.

Wireless Metrics

Subscriber Additions As of December 31, 2012, we served 107 million wireless subscribers, an increase of 3.6% from 2011. We continue to see a declining rate of growth in the industry’s subscriber base compared to prior years, as reflected in a 13.0% decrease in gross subscriber additions (gross additions) in 2012 after a 4.3% increase in 2011. Gross additions in 2012 and 2011 reflected higher activations of postpaid smartphones and sales of tablets and other data-centric devices compared to prior years.

6 

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

Lower net subscriber additions (net additions) in 2012 were primarily attributable to lower net connected device and reseller additions when compared to the prior year, which reflected higher churn rates for customers not using such devices (zero-revenue customers). Lower net prepaid additions in 2012 reflected a decrease in net prepaid tablet additions, as the introduction of our Mobile Share plans has accelerated a shift from prepaid to postpaid tablet subscribers. A relatively flat rate of growth in net postpaid additions in 2012 and decline in 2011 reflected slowing growth in the industry’s subscriber base. Lower net postpaid additions in 2011, compared to 2010, also reflected higher postpaid churn attributable in part to integration efforts connected to a prior merger.

Average service revenue per user (ARPU) – Postpaid increased 1.9% in 2012 and 1.8% in 2011, driven by increases in data services ARPU of 13.9% in 2012 and 15.3% in 2011, reflecting greater use of smartphones and data-centric devices by our subscribers.

The growth in postpaid data services ARPU in 2012 and 2011 was partially offset by a 5.7% decrease in postpaid voice and other service ARPU in 2012 and a 5.3% decrease in 2011. Voice and other service ARPU declined due to lower access and airtime charges, triggered in part by postpaid subscribers on our discount plans, and lower roaming revenues.

ARPU – Total declined 1.6% in 2012 and 3.8% in 2011, 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 11.1% in 2012 and 9.8% in 2011, reflecting increased 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 9.7% in 2012 and 10.9% in 2011 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. The total and postpaid churn rates were down slightly in 2012, reflecting popularity of our discount plans. Total and postpaid churn increased in 2011, reflecting integration efforts from a prior merger and higher connected device churn rates. Reseller subscribers have traditionally had the lowest churn rate among our wireless subscribers; however, in 2012, the disconnection of zero-revenue customers has caused our total churn rate to increase.

Operating Results

Segment operating income margin was 24.9% in 2012, compared to 24.7% in 2011 and 27.0% in 2010. Our Wireless segment operating income increased $990, or 6.3%, in 2012 and decreased $214, or 1.4%, in 2011. The operating income and margin increase in 2012 reflected continuing data revenue growth and operating efficiencies, partially offset by the high subsidies associated with growing smartphone sales. The margin decrease in 2011 reflected higher equipment and selling costs associated with higher smartphone sales and handset upgrades, partially offset by higher data revenues generated by our postpaid subscribers. While we subsidize the sales prices of various smartphones, we expect to recover that cost over time from increased usage of the devices, especially data usage by the subscriber.

Service revenues are comprised of local voice and data services, roaming, long distance and other revenue. Service revenues increased $2,460, or 4.3%, in 2012 and $3,216, or 6.0%, in 2011. The increases consisted of the following:

·   Data service revenues increased $3,926, or 17.8%, in 2012 and $3,824, or 21.0%, in 2011. The increases were primarily due to the increased number of subscribers using smartphones and data-centric devices, such as eReaders, tablets, and mobile navigation devices. Data service revenues accounted for approximately 43.8% of our wireless service revenues in 2012, compared to 38.8% in 2011 and 34.0% in 2010.

·   Voice and other service revenues decreased $1,466, or 4.2%, in 2012 and $608, or 1.7%, in 2011. While the number of wireless subscribers increased 3.6% in 2012, and 8.1% in 2011, these revenues continued to decline due to voice access and usage declines, as noted in the ARPU and subscriber relationships discussions above.

7 

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

Equipment revenues increased $1,088, or 16.8%, in 2012 and $1,498, or 30.0%, in 2011. The increase in 2012 was primarily due to a year-over-year increase in smartphone sales as a percentage of total device sales to postpaid subscribers, partially offset by lower device upgrades. 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 in 2012. The increase in 2011 was primarily due to the launch of a new iPhone model, which resulted in even higher iPhone sales and upgrades compared to the 2010 launch.

Operations and support expensesincreased $2,014, or 4.9%, in 2012 and $5,097, or 14.1%, in 2011. The increase in 2012 was primarily due to the following:

·   Commission expenses increased $636 due to a year-over-year increase in smartphone sales as a percentage of total device sales, partially offset by the overall decline in handset upgrade activity and total device sales.

·   Selling expenses (other than commissions) and administrative expenses increased $532 due primarily to a $181 increase in information technology costs in conjunction with ongoing support systems development, $137 increase in employee-related costs, $99 increase in nonemployee-related costs, and $89 increase in bad debt expense, partially offset by a $57 decline in advertising costs.

·   Equipment costs increased $501, reflecting sales of the more expensive smartphones, partially offset by the overall decline in upgrade activity and total device sales.

·   Network system, interconnect, and long-distance costs increased $202 primarily due to higher network traffic, personnel-related network support costs and cell site related costs in conjunction with our network enhancement efforts and storm costs.

·   Universal Service Fund (USF) fees increased $166 primarily due to USF rate increases. A majority of USF fees are recovered and reported as revenues.

·   Handset insurance cost increased $141 due to claims on more expensive devices.

Partially offsetting these increases, incollect roaming fees decreased $115 primarily due to rate declines and lower roaming use associated with the integration of previously acquired subscribers into our network.

The increase in 2011 was primarily due to the following:

·   Higher volumes of smartphone sales and handset upgrades, as well as handsets provided to former Alltel Wireless (Alltel) subscribers, increased equipment costs $2,816 and related commission expenses $1,079.

·   Network system, interconnect, and long-distance costs increased $1,356 due to higher network traffic, higher recurring personnel-related network support costs in conjunction with our network enhancement efforts, and higher leasing costs.

·   Selling expenses (other than commissions) increased $288 due to higher payroll and benefit costs and a $136 increase in bad debt expense, partially offset by lower advertising and costs associated with customer billing functions.

Partially offsetting these increases in 2011 were the following:

·   Incollect roaming, handset insurance costs, and USF fees decreased $220 primarily due to lower usage and claims on less expensive devices, less the impact of a USF rate increase. A majority of USF fees are recovered and reported as revenues.

·   Administrative expenses decreased $177 due to lower payroll, legal and operating tax costs, and a reclassification of shared information technology costs.

Depreciation and amortization expenses increased $544, or 8.6%, in 2012 and decreased $169, or 2.6%, in 2011. In 2012, depreciation expense increased $855, or 15.5%, primarily due to ongoing capital spending for network upgrades and expansion and the reclassification of shared information technology costs partially offset by certain network assets becoming fully depreciated. Amortization expense decreased $311, or 38.9%, primarily due to lower amortization of intangibles for customer lists related to acquisitions.

Amortization expense decreased $519, or 39.4%, in 2011 primarily due to lower amortization of intangibles for customer lists related to acquisitions. Depreciation expense increased $350, or 6.8%, in 2011 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.

Equity in net income (loss) of affiliates for the Wireless segment includes expenses for ISIS, our mobile payment joint venture with Verizon and T-Mobile.

8 

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

Wireline
Segment Results
								Percent Change
	2012			2011		2010		2012 vs. 2011			2011 vs. 2010
Segment operating revenues
Data	$	31,798		$	29,560	$	27,512		7.6	%		7.4	%
Voice		22,619			25,126		28,332		(10.0	)		(11.3	)
Other		5,150			5,454		5,917		(5.6	)		(7.8	)
Total Segment Operating Revenues		59,567			60,140		61,761		(1.0	)		(2.6	)
Segment operating expenses
Operations and support		41,207			41,360		41,879		(0.4	)		(1.2	)
Depreciation and amortization		11,123			11,615		12,372		(4.2	)		(6.1	)
Total Segment Operating Expenses		52,330			52,975		54,251		(1.2	)		(2.4	)
Segment Operating Income		7,237			7,165		7,510		1.0			(4.6	)
Equity in Net Income of Affiliates		(2	)		-		11		-			-
Segment Income	$	7,235		$	7,165	$	7,521		1.0	%		(4.7	)%

Operating Results

Our Wireline segment operating income margin was 12.1% in 2012, compared to 11.9% in 2011 and 12.2% in 2010. Our Wireline segment operating income increased $72, or 1.0%, in 2012 and decreased $345, or 4.6%, in 2011. The increases in operating income and margins in 2012 reflect increases in data revenue growth and lower depreciation and amortization expense, partially offset by continued 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 us as their wireless provider.

Data revenues increased $2,238, or 7.6%, in 2012 and $2,048, or 7.4%, in 2011. Data revenues accounted for approximately 53% of wireline operating revenues in 2012, 49% in 2011 and 45% in 2010. Data revenues include IP, strategic business and traditional data services.

·   IP data revenues (excluding strategic business services below) increased $2,023, or 15.0%, in 2012 and $1,863, or 16.0%, in 2011 primarily driven by higher U-verse penetration. In 2012 and 2011, U-verse video revenues increased $1,057 and $1,206, broadband high-speed Internet access revenue increased $605 and $365 and U-verse voice revenue increased $251 and $286, respectively. The increases in IP data revenues reflect 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 to our U-verse Voice and from DSL to our U-verse High Speed Internet access offerings. At December 31, 2012, more residential customers subscribed to our U-verse High Speed Internet services than our traditional DSL offering.

·   Strategic business services, which include Ethernet, Virtual Private Networks (VPN), Hosting, IP Conferencing and application services, increased $753, or 13.5%, in 2012 and $854, or 18.1%, in 2011. These increases were driven by increased VPN revenues, which contributed additional revenues of $431 and $563 and Ethernet revenues, which increased by $286 and $218 in 2012 and 2011.

·   Traditional data revenues, which include transport (excluding Ethernet) and packet-switched data services, decreased $538, or 5.1%, in 2012 and $669, or 6.0%, in 2011. These decreases were 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.

9 

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

Voice revenues decreased $2,507, or 10.0%, in 2012 and $3,206, or 11.3%, in 2011 primarily due to declining demand for traditional voice services by our consumer and business customers. Included in voice revenues are revenues from local voice, long distance (including international) and local wholesale services. Voice revenues do not include VoIP revenues, which are included in data revenues.

·   Local voice revenues decreased$1,526, or 9.9%, in 2012 and $2,067, or 11.8%, in 2011. The decrease in 2012 and 2011was driven primarily by a 13.2% and 12.3% decline in switched access lines. We expect our local voice revenue to continue to be negatively affected by competition from alternative technologies and continued declines in switched access lines.

·   Long-distance revenues decreased $965, or 11.2%, in 2012 and $1,066, or 11.0%, in 2011. Lower demand for long-distance service from global businesses and consumer customers decreased revenues $799 in 2012 and $822 in 2011. Additionally, expected declines in the number of national mass-market customers decreased revenues $165 in 2012 and $235 in 2011.

Other operating revenues decreased $304, or 5.6%, in 2012 and $463, or 7.8%, in 2011. Major items included in other operating revenues are integration services and customer premises equipment, government-related services and outsourcing, which account for approximately 60% of total other revenue in the years reported.

Operations and support expenses decreased $153, or 0.4%, in 2012 and $519, or 1.2%, in 2011. 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 2012 decrease was primarily due to lower employee-related expense of $470, reflecting ongoing workforce reduction initiatives, decreased traffic compensation expense of $281 and lower nonemployee-related expense of $172. These decreases were partially offset by increased cost of sales, primarily related to U-verse related expenses of $538 and increased USF fees of $254.

The 2011 decrease was primarily due to lower traffic compensation expense of $423, decreased employee-related expense of $401, reflecting ongoing workforce reduction initiatives, lower bad debt expense of $216 due to lower revenue from business customers and improvements in cash collections, and decreased USF fees of $71. These decreases were partially offset by increased cost of sales, primarily related to U-verse related expenses of $451 and increased contract services of $217.

Depreciation and amortization expenses decreased $492, or 4.2%, in 2012 and $757, or 6.1%, in 2011. Both decreases were primarily related to lower amortization of intangibles for customer lists associated with acquisitions.

10 

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

Supplemental Information

Wireline Broadband, Telephone and Video Connections Summary

Our broadband, switched access lines and other services provided by our local exchange telephone subsidiaries at December 31, 2012, 2011, and 2010 are shown below and trends are addressed throughout this segment discussion.

				Percent Change
(in 000s)	2012	2011	2010	2012 vs. 2011		2011 vs. 2010
Total Wireline Broadband Connections1,2	16,390	16,427	16,309	(0.2)	%	0.7	%
U-verse video	4,536	3,791	2,987	19.7		26.9
Satellite service3	1,600	1,765	1,930	(9.3)		(8.5)
Video Connections	6,136	5,556	4,917	10.4		13.0
Total Retail Consumer Voice Connections4	18,614	21,232	24,195	(12.3)		(12.2)
Switched Access Lines
Retail consumer	15,709	18,954	22,515	(17.1)		(15.8)
Retail business5	14,274	15,656	17,053	(8.8)		(8.2)
Retail Subtotal5	29,983	34,610	39,568	(13.4)		(12.5)
Wholesale Subtotal5	1,854	2,077	2,252	(10.7)		(7.8)
Total Switched Access Lines6	31,887	36,734	41,883	(13.2)	%	(12.3)	%
1  Total wireline broadband connections include DSL, U-verse High Speed Internet and satellite broadband.
2  Includes U-verse High Speed Internet connections of 7,716 at December 31, 2012, 5,223 at December 31, 2011, and 3,278 at December 31, 2010.
3  Satellite service includes connections under our agency and resale agreements.
4  Includes consumer U-verse VoIP connections of 2,905 at December 31, 2012, 2,278 at December 31, 2011, and 1,680 at December 31, 2010.
5  Prior-period amounts restated to conform to current-period reporting methodology.
6  Total switched access lines include access lines provided to private payphone service providers of 50 at December 31, 2012,47 at December 31, 2011, and 63 at December 31, 2010.

Advertising Solutions
Segment Results
							Percent Change
	2012		2011		2010		2012 vs. 2011			2011 vs. 2010
Total Segment Operating Revenues	$	1,049	$	3,293	$	3,935		(68.1)	%		(16.3)	%
Segment operating expenses
Operations and support		773		2,265		2,584		(65.9)			(12.3)
Impairment of intangible assets		-		2,910		-		-			-
Depreciation and amortization		106		386		497		(72.5)			(22.3)
Total Segment Operating Expenses		879		5,561		3,081		(84.2)			80.5
Segment Income (Loss)	$	170	$	(2,268)	$	854		-			-

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. We hold a 47 percent interest in the new entity, YP Holdings.

11 

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

Other
Segment Results
									Percent Change
	2012			2011			2010		2012 vs. 2011			2011 vs. 2010
Total Segment Operating Revenues	$	55		$	75		$	83		(26.7)	%		(9.6)	%
Total Segment Operating Expenses		1,065			5,078			2,171		(79.0)			-
Segment Operating Loss		(1,010	)		(5,003	)		(2,088)		79.8			-
Equity in Net Income of Affiliates		816			813			742		0.4			9.6
Segment Loss	$	(194	)	$	(4,190	)	$	(1,346)		95.4	%		-

The Other segment includes our portion of the results from our international equity investments, our 47 percent equity interest in YP Holdings, and costs to support corporate-driven activities and operations. Also included in the Other segment are impacts of corporate-wide decisions for which the individual operating segments are not being evaluated.

Segment operating revenues decreased $20, or 26.7%, in 2012 and $8, or 9.6%, in 2011. The decrease was primarily due to reduced revenues from leased equipment programs.

Segment operating expenses decreased $4,013, or 79.0%,in 2012 and increased $2,907 in 2011. The decrease in 2012 related to charges incurred in 2011 related to the termination of the T-Mobile acquisition. Increased operating expense in 2011 included $4,432 of charges related to T-Mobile, including $4,181 resulting from our termination of the acquisition, which were partially offset by lower severance charges, reduced Pension/OPEB financing costs and lower employee-related expenses.

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

		2012		2011			2010
América Móvil	$	686	$	720		$	560
YP Holdings		130		-			-
Telmex1		-		95			150
Telmex Internacional2		-		-			34
Other		-		(2	)		(2)
Other Segment Equity in Net Income of Affiliates	$	816	$	813		$	742
1  Acquired by América Móvil in November 2011.
2  Acquired by América Móvil in June 2010.

Equity in net income of affiliates increased $3, or 0.4%, in 2012 and $71, or 9.6%, for 2011. Increased equity in net income of affiliates in 2012 was due to earnings at YP Holdings, offset by lower results at América Móvil.

OPERATING ENVIRONMENT AND TRENDS OF THE BUSINESS

2013 Revenue Trends  We expect our operating environment in 2013 to remain challenging as current economic conditions continue and competition remains strong. Despite these challenges, we expect our consolidated operating revenues in 2013 to grow, reflecting continuing growth in our wireless data and IP-related wireline data services, including U-verse. We expect our primary driver of growth to be wireless services, especially in sales of and increases in data usage on smartphones and emerging devices (such as tablets, eReaders and mobile navigation devices). We expect that all our major customer categories will continue to increase their use of Internet-based broadband/data services. We expect continuing declines in traditional access lines and in traditional telephone service revenues. Where available, our U-verse services have proved effective in stemming access line losses, and we expect to continue to expand our U-verse service offerings in 2013.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

2013 Expense Trends  We expect a stable consolidated operating income margin in 2013 with expanding wireless margins being offset by wireline margin pressure as a result of our IP broadband expansion project (see Project VIP in “Other Business Matters”). Expenses related to growth areas of our business, including wireless data, U-verse, and strategic business services, will apply some pressure to our operating income margin.

Market Conditions  During 2012, the securities and fixed income markets and the banking system in general continued to stabilize. The ongoing weakness in the general economy has also affected our customer and supplier bases. We saw lower demand from our business customers. Some of our suppliers continue to experience increased financing and operating costs. These negative economic trends were partially offset by continued growth in our wireless data and IP-related services. While the economy may have stabilized, we do not expect a return to historical growth levels during 2013. Should the economy instead deteriorate further, we likely will experience further pressure on pricing and margins as we compete for both wireline and wireless customers who have less discretionary income. We also may experience difficulty purchasing equipment in a timely manner or maintaining and replacing equipment under warranty from our suppliers.

Included on our consolidated balance sheets are assets held by benefit plans for the payment of future benefits. During 2013, we are required to make contributions in the amount of approximately $300 to our pension plans. Our pension plans are subject to funding requirements of the Employee Retirement Income Security Act of 1974, as amended (ERISA). A weakness in the equity, fixed income and real asset markets could require us in future years to make contributions to the pension plans in order to maintain minimum funding requirements as established by ERISA. Investment returns on these assets depend largely on trends in the U.S. securities markets and the U.S. economy. In addition, our policy of recognizing actuarial gains and losses related to our pension and other postretirement plans in the period in which they arise subjects us to earnings volatility caused by changes in market conditions. Changes in our discount rate, which are tied to changes in the bond market and changes in the performance of equity markets, may have significant impacts on the fair value of pension and other postretirement plans at the end of 2013 (see “Accounting Policies and Estimates”).

OPERATING ENVIRONMENT OVERVIEW

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

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

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

We provide wireless services in robustly competitive markets, but those services are subject to substantial and increasing governmental regulation. Wireless communications providers must obtain licenses from the FCC to provide communications services at specified spectrum frequencies within specified geographic areas and must comply with the FCC rules and policies governing the use of the spectrum. The FCC has recognized that the explosive growth of bandwidth-intensive wireless data services requires the U.S. Government to make more spectrum available. In February 2012, Congress authorized the FCC to conduct an “incentive auction,” to make available for wireless broadband use certain spectrum that is currently used by broadcast television licensees. The FCC has initiated a proceeding to establish rules that would govern this process. It also initiated a separate proceeding to review its policies governing mobile spectrum holdings and consider whether there should be limits on the amount of spectrum a wireless service provider may possess. We seek to ensure that we have the opportunity, through the incentive auction and otherwise, to obtain the spectrum we need to provide our customers with high-quality service. While wireless communications providers’ prices and service offerings are generally not subject to state regulation, states sometimes attempt to regulate or legislate various aspects of wireless services, such as in the area of consumer protection.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

Expected Growth Areas

We expect our wireless services and wireline IP-data products to remain the most significant growth portions of our business and have also discussed trends affecting the segments in which we report results for these products (see “Wireless Segment Results” and “Wireline Segment Results”). Over the next few years, we expect our growth to come from: (1) our wireless service and (2) data/broadband, through existing and new services. We expect that our previous acquisitions will enable us to strengthen the reach and sophistication of our network facilities, increase our large-business customer base and enhance the opportunity to market wireless services to that customer base. Whether, or the extent to which, growth in these areas will offset declines in other areas of our business is not known.

Wireless  Wireless is our fastest-growing revenue stream and we expect to deliver continued revenue growth in the coming years. We are in a period of rapid growth in wireless data usage and believe that there are substantial opportunities available for next-generation converged services that combine wireless, broadband, voice and video. For example, we are preparing to launch our innovative home monitoring service (Digital Life), ISIS and other car-related security and entertainment services.

We cover most major metropolitan areas of the United States with our Universal Mobile Telecommunications System/High-Speed Downlink Packet Access (HSPA) and HSPA+ network technology, with HSPA+ providing 4G speeds when combined with our upgraded backhaul. At the end of 2012, over 90 percent of our data traffic was carried over this enhanced backhaul. Our network provides superior mobile broadband speeds for data and video services, as well as operating efficiencies using the same spectrum and infrastructure for voice and data on an IP-based platform. Our wireless network also relies on digital transmission technologies known as GSM, General Packet Radio Services and Enhanced Data rates for GSM Evolution (EDGE) for data communications. As of December 31, 2012, we served 107 million subscribers. We have also begun transitioning our network to next generation LTE technology and expect this network to cover approximately 300 million people in the United States and to be largely complete by the end of 2014. We continue to expand the number of locations, including airports and cafés, where customers can access broadband Internet connections using wireless fidelity (local radio frequency commonly referred to as Wi-Fi) technology.

As the wireless industry continues to mature, we believe that future wireless growth will increasingly depend on our ability to offer innovative data services and a wireless network that has sufficient spectrum and capacity to support these innovations and make them available to more subscribers. We are facing significant spectrum and capacity constraints on our wireless network in certain markets. We expect such constraints to increase and expand to additional markets in the coming years. While we are continuing to invest significant capital in expanding our network capacity, our capacity constraints could affect the quality of existing voice and data services and our ability to launch new, advanced wireless broadband services, unless we are able to obtain more spectrum. Any long-term spectrum solution will require that the FCC make new or existing spectrum available to the wireless industry to meet the expanding needs of our subscribers. We will continue to attempt to address spectrum and capacity constraints on a market-by-market basis. To that end, we signed nearly 50 deals to acquire spectrum during 2012 (some pending regulatory review). Much of the recently acquired spectrum came from an innovative solution in which we obtained FCC approval to use WCS spectrum for mobile broadband for the first time.

U-verse Services  During 2012, we continued to expand our offerings of U-verse High Speed Internet and TV services. As of December 31, 2012, we are marketing U-verse services to approximately 24.5 million customer locations (locations eligible to receive U-verse service). As of December 31, 2012, we had 8.0 million total U-verse subscribers (high-speed Internet and video), including 7.7 million Internet and 4.5 million video subscribers (subscribers to both services are only counted once in the total). As part of Project VIP (see “Other Business Matters”), we plan to expand our U-verse services to approximately 8.5 million additional customer locations.

We believe that our U-verse TV service is a “video service” under the Federal Communications Act. However, some cable providers and municipalities have claimed that certain IP services should be treated as a traditional cable service and therefore subject to the applicable state and local cable regulation. Certain municipalities have delayed our requests to offer this service or have refused us permission to use our existing or new right-of-ways to deploy or activate our U-verse-related equipment, services and products, resulting in litigation. 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.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

REGULATORY DEVELOPMENTS

Set forth below is a summary of the most significant regulatory proceedings that directly affected our operations during 2012. Industry-wide regulatory developments are discussed above in Operating Environment Overview. While these issues may apply only to certain subsidiaries, the words “we,” “AT&T” and “our” are used to simplify the discussion. The following discussions are intended as a condensed summary of the issues rather than as a comprehensive legal analysis and description of all of these specific issues.

International Regulation Our subsidiaries operating outside the United States are subject to the jurisdiction of regulatory authorities in the market where service is provided. Our licensing, compliance and advocacy initiatives in foreign countries primarily enable the provision of enterprise (i.e., large-business) services. AT&T is engaged in multiple efforts with foreign regulators to open markets to competition, reduce network costs and increase our scope of fully authorized network services and products.

Federal RegulationA summary of significant 2012 federal regulatory developments follows.

Intercarrier Compensation/Universal Service  In October 2011, the FCC adopted an order fundamentally overhauling its high-cost universal service program, through which it disburses approximately $4,500 per year to carriers providing telephone service in high-cost areas, and its existing intercarrier compensation (ICC) rules, which govern payments between carriers for the exchange of traffic. The order adopts rules to address immediately certain practices that artificially increase ICC payments, as well as other practices to avoid such payments. The order also establishes a new ICC regime that will result in the elimination of virtually all terminating switched access charges and reciprocal compensation payments over a six-year transition. In the order, the FCC also repurposed its high-cost universal service program to encourage providers to deploy broadband facilities in unserved areas. To accomplish this goal, the FCC 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.

Transition to IP-Based Network  In conjunction with Project VIP (see “Other Business Matters”), AT&T filed a petition with the FCC asking it to open a proceeding to facilitate the “telephone” industry’s transition from traditional transmission platforms and services to all IP-based networks and services. Our petition asks the FCC to conduct trial runs of the transition to next-generation services, including the upgrading of traditional telephone facilities and offerings and their replacement with IP-based alternatives. The objective of the trials is to inform policymakers and other stakeholders regarding the technological and policy dimensions of the IP transition and, in the process, identify the regulatory reforms needed to promote consumer interests and preserve private incentives to upgrade America’s broadband infrastructure. We expect to transition customers to an all IP-based network by 2020.

COMPETITION

Competition continues to increase for telecommunications and information services. Technological advances have expanded the types and uses of services and products available. In addition, lack of or a reduced level of regulation of comparable alternatives (e.g., cable, wireless and VoIP providers) has lowered costs for these alternative communications service providers. As a result, we face heightened competition as well as some new opportunities in significant portions of our business.

15 

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

Wireless

We face substantial and increasing competition in all aspects of our wireless business. Under current FCC rules, multiple licensees, including six or more PCS licensees, two cellular licensees and one or more enhanced specialized mobile radio licensee may operate in each of our service areas, which results in the potential presence of multiple competitors. Our competitors include companies such as Verizon Wireless, Sprint Nextel Corp., T-Mobile, Metro PCS and Cricket, a larger number of regional providers of cellular, PCS and other wireless communications services and resellers of those services. In addition, we face competition from providers who offer voice, text messaging and other services as applications on data networks. More than 97 percent of the U.S. population lives in areas with at least three mobile telephone operators, and 90 percent of the population lives in areas with at least five competing carriers.

The FCC may develop rules to auction or otherwise make available additional spectrum to the wireless industry. The FCC has indicated it plans to conduct an auction in 2014 under which up to 120 MHz of UHF TV spectrum could be reallocated for mobile wireless use. In addition, the FCC is required by law to auction up to 65 MHz of additional wireless spectrum in 2015. The FCC has yet to develop the rules under which this spectrum might be available. We may experience significant competition from companies that provide similar services using other communications technologies and services. While some of these technologies and services are now operational, others are being developed or may be developed. We compete for customers based principally on service/device offerings, price, call quality, coverage area and customer service.

Wireline

Our wireline subsidiaries expect continued competitive pressure in 2013 from multiple providers, including wireless, cable and other VoIP providers, interexchange carriers and resellers. In addition, economic pressures are forcing customers to terminate their traditional local wireline service and use competitive wireless and Internet-based services, intensifying a pre-existing trend toward wireless and Internet use. In most markets, we compete, often on pricing of bundled services, with large cable companies, such as Comcast Corporation, Cox Communications Inc. and Time Warner Cable Inc., for local, high-speed Internet, video and voice services customers and other smaller telecommunications companies for both long-distance and local services customers.

Our wireline subsidiaries generally remain subject to regulation for wholesale services by state regulatory commissions for intrastate services and by the FCC for interstate services. Under the Telecom Act, companies seeking to interconnect to our wireline subsidiaries’ networks and exchange local calls enter into interconnection agreements with us. Any unresolved issues in negotiating those agreements are subject to arbitration before the appropriate state commission. These agreements (whether fully agreed-upon or arbitrated) are then subject to review and approval by the appropriate state commission.

Our wireline subsidiaries operate under state-specific forms of regulation for retail services that were either legislatively enacted or authorized by the appropriate state regulatory commission. Most states deregulate the competitive services; impose price caps for some services where the prices for these services are not tied to the cost of providing the services or to rate-of-return requirements; or adopt a regulatory framework that incorporates deregulation and price caps. Some states may impose minimum customer service standards with required payments if we fail to meet the standards.

We continue to lose access lines due to competitors (e.g., wireless, cable and VoIP providers) who can provide comparable services at lower prices because they are not subject to traditional telephone industry regulation (or the extent of regulation is in dispute), utilize different technologies, or promote a different business model (such as advertising based) and consequently have lower cost structures. In response to these competitive pressures, for several years we have utilized a bundling strategy that rewards customers who consolidate their services (e.g., long-distance telephone, high-speed Internet, wireless and video) with us. We continue to focus on bundling wireline and wireless services, including combined packages of minutes and video service through our U-verse service and our relationships with satellite television providers. We will continue to develop innovative products that capitalize on our IP-based network (e.g., see Project VIP in “Other Business Matters”).

Additionally, we provide local, domestic intrastate and interstate, international wholesale networking capacity, and switched services to other service providers, primarily large Internet Service Providers using the largest class of nationwide Internet networks (Internet backbone), wireless carriers, Competitive Local Exchange Carriers, regional phone Incumbent Local Exchange Carriers, cable companies and systems integrators. These services are subject to additional competitive pressures from the development of new technologies and the increased availability of domestic and international transmission capacity. The introduction of new products and service offerings and increasing satellite, wireless, fiber-optic and cable transmission capacity for services similar to those provided by us continues to provide competitive pressures. We face a number of international competitors, including Orange Business Services, British Telecom, SingTel and Verizon Communications Inc., as well as competition from a number of large systems integrators, such as HP Enterprise Services.

16 

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

ACCOUNTING POLICIES AND STANDARDS

Critical Accounting Policies and Estimates  Because of the size of the financial statement line items they relate to or the extent of judgment required by our management, some of our accounting policies and estimates have a more significant impact on our financial statements than others. The following policies are presented in the order in which the topics appear in our consolidated statements of income.

Allowance for Doubtful Accounts  We maintain an allowance for doubtful accounts for estimated losses that result from the failure of our customers to make required payments. When determining the allowance, we consider the probability of recoverability based on past experience, taking into account current collection trends as well as general economic factors, including bankruptcy rates. Credit risks are assessed based on historical write-offs, net of recoveries, and an analysis of the aged accounts receivable balances with reserves generally increasing as the receivable ages. Accounts receivable may be fully reserved for when specific collection issues are known to exist, such as pending bankruptcy or catastrophes. The analysis of receivables is performed monthly, and the allowances for doubtful accounts are adjusted through expense accordingly. A 10% change in the amounts estimated to be uncollectible would result in a change in the provision for uncollectible accounts of approximately $112.

Pension and Postretirement Benefits  Our actuarial estimates of retiree benefit expense and the associated significant weighted-average assumptions are discussed in Note 11. Our assumed discount rate of 4.30% at December 31, 2012, reflects the hypothetical rate at which the projected benefit obligations could be effectively settled or paid out to participants. We determined our discount rate based on a range of factors, including a yield curve composed of the rates of return on several hundred high-quality, fixed income corporate bonds available at the measurement date and the related expected duration for the obligations. These bonds were all rated at least Aa3 or AA- by one of the nationally recognized statistical rating organizations, denominated in U.S. dollars, and neither callable, convertible nor index linked. For the year ended December 31, 2012, we decreased our discount rate by 1.00%, resulting in an increase in our pension plan benefit obligation of $7,030 and an increase in our postretirement benefit obligation of $4,546. For the year ended December 31, 2011, we decreased our discount rate by 0.50%, resulting in an increase in our pension plan benefit obligation of $3,384 and an increase in our postretirement benefit obligation of $2,114.

Our expected long-term rate of return on plan assets assumption was 8.25% for the year ended December 31, 2012. In 2013, due to the continued uncertainty in the securities markets, the U.S. economy and the plans’ asset mix, we have lowered our expected long-term rate of return on plan assets to 7.75%. Our expected return on plan assets is calculated using the actual fair value of plan assets. If all other factors were to remain unchanged, we expect that a 0.50% decrease in the actual long-term rate of return would cause 2013 combined pension and postretirement cost to increase $260, which under our accounting policy would be recognized in the current year as part of our fourth-quarter remeasurement of our retiree benefit plans.

We recognize actual gains and losses on pension and postretirement plan assets immediately in our operating results. These gains and losses are generally measured annually as of December 31 and accordingly will normally be recorded during the fourth quarter, unless an earlier remeasurement is required. Should actual experience differ from actuarial assumptions, the projected pension benefit obligation and net pension cost and accumulated postretirement benefit obligation and postretirement benefit cost would be affected in future years. Note 11 also discusses the effects of certain changes in assumptions related to medical trend rates on retiree healthcare costs.

Depreciation  Our depreciation of assets, including use of composite group depreciation and estimates of useful lives, is described in Notes 1 and 5. We assign useful lives based on periodic studies of actual asset lives. Changes in those lives with significant impact on the financial statements must be disclosed, but no such changes have occurred in the three years ended December 31, 2012. However, if all other factors were to remain unchanged, we expect that a one-year increase in the useful lives of our plant in service would result in a decrease of approximately $2,479 in our 2012 depreciation expense and that a one-year decrease would result in an increase of approximately $3,648 in our 2012 depreciation expense.

17 

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

Asset Valuations and Impairments  We account for acquisitions completed after 2008 using the acquisition method. We allocate the purchase price to the assets acquired and liabilities assumed based on their estimated fair values. The estimated fair values of intangible assets acquired are based on the expected discounted cash flows of the identified customer relationships, patents, trade names and FCC licenses. In determining the future cash flows, we consider demand, competition and other economic factors.

Customer relationships, which are finite-lived intangible assets, are primarily amortized using the sum-of-the-months-digits method of amortization over the period in which those relationships are expected to contribute to our future cash flows. The sum-of-the-months-digits method is a process of allocation and reflects our belief that we expect greater revenue generation from these customer relationships during the earlier periods after acquisition. Amortization of other intangibles, including patents and certain trade names, is determined using the straight-line method of amortization over the expected remaining useful lives.

Goodwill, wireless FCC licenses and other trade names are not amortized but tested annually for impairment. We conduct our impairment tests as of October 1. We test goodwill on a reporting unit basis, and our reporting units coincide with our segments, except for certain operations in our Other segment. If, due to changes in how we manage the business, we move a portion of a reporting unit to another reporting unit, we determine the amount of goodwill to reallocate to the new reporting unit based on the relative fair value of the portion of the business moved and the portion of the business remaining in the reporting unit. The goodwill impairment test is a two-step process. The first step involves determining the fair value of the reporting unit and comparing that measurement to the book value. If the fair value exceeds the book value, then no further testing is required. If the fair value is less than the book value (i.e., an indication of impairment exists), then we perform the second step.

In the second step, we determine the fair values of all of the assets and liabilities of the reporting unit, including those that may not be currently recorded. The difference between the sum of all of those fair values and the overall reporting unit’s fair value is a new implied goodwill amount, which we compare to the recorded goodwill. If implied goodwill is less than the recorded goodwill, then we record an impairment of the recorded goodwill. The amount of this impairment may be more or less than the difference between the overall fair value and book value of the reporting unit. It may even be zero if the fair values of other assets are less than their book values.

As shown in Note 6, all of our goodwill resides in the Wireless and Wireline segments. For each of those segments, we assess their fair value using an income approach (also known as a discounted cash flow) and a market multiple approach. The income approach utilizes a 10-year cash flow projection with a perpetuity value discounted using an appropriate Weighted Average Cost of Capital (WACC) rate for each reporting unit. The market multiple approach uses a multiple of a company’s Earnings Before Interest, Taxes, and Depreciation and Amortization expenses (EBITDA). We determined the multiples of the publicly traded companies whose services are comparable to those offered by the segment and then calculated a weighted-average of those multiples. Using those weighted averages, we then calculated fair values for each of those segments. In 2012, the calculated fair value of the reporting unit exceeded book value in all circumstances and no additional testing was necessary. In the event of a 10% drop in the fair values of the reporting units, the fair values would have still exceeded the book values of the reporting units and additional testing would still have not been necessary. As a result of our 2011 impairment test, we recorded a goodwill impairment charge in the Advertising Solutions segment due to declines in the value of our directory business and that industry (see Note 6). We also recorded a corresponding impairment to an indefinite-lived trade name used by the former Advertising Solutions segment.

Wireless FCC licenses are tested for impairment on an aggregate basis, consistent with the management of the business on a national scope. As in prior years, we performed our test of the fair values of FCC licenses using a discounted cash flow model (the Greenfield Approach). The Greenfield Approach assumes a company initially owns only the wireless FCC licenses, and then makes investments required to build an operation comparable to the one that currently utilizes the licenses. We utilized a 17-year discrete period to isolate cash flows attributable to the licenses, including modeling the hypothetical build-out. The projected cash flows are based on certain financial factors, including revenue growth rates, EBITDA margins and churn rates. For impairment testing purposes, we assumed wireless revenue growth to trend down from our 2012 growth rate of 5.6% to a long-term growth rate that reflects expected long-term inflation trends. We assumed our churn rates will decline in 2013 from our rate of 1.35% in 2012, in line with expected trends in the industry but at a rate comparable with industry-leading churn. EBITDA margins were assumed to continue to trend at least 40%.

18 

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

This model then incorporates cash flow assumptions regarding investment in the network, development of distribution channels and the subscriber base, and other inputs for making the business operational. We based the assumptions, which underlie the development of the network, subscriber base and other critical inputs of the discounted cash flow model, on a combination of average marketplace participant data and our historical results, trends and business plans. We also used operating metrics such as capital investment per subscriber, acquisition costs per subscriber, minutes of use per subscriber, etc., to develop the projected cash flows. Since we included the cash flows associated with these other inputs in the annual cash flow projections, the present value of the unlevered free cash flows of the segment, after investment in the network, subscribers, etc., is attributable to the wireless FCC licenses. The terminal value of the segment, which incorporates an assumed sustainable growth rate, is also discounted and is likewise attributed to the licenses. We used a discount rate of 9%, based on the optimal long-term capital structure of a market participant and its associated cost of debt and equity, to calculate the present value of the projected cash flows. This discount rate is also consistent with rates we use to calculate the present value of the projected cash flows of licenses acquired from third parties.

If either the projected rate of long-term growth of cash flows or revenues declined by 1%, or if the discount rate increased by 1%, the fair values of the wireless FCC licenses, while less than currently projected, would still be higher than the book value of the licenses. The fair value of the licenses exceeded the book value by more than 25%.

We review customer relationships and other long-lived assets for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable over the remaining life of the asset or asset group. To determine that the asset is recoverable, we verify that the expected undiscounted future cash flows directly related to that asset exceed its book value.

We evaluate our investments to determine whether market declines are temporary and accordingly reflected in accumulated other comprehensive income, or other-than-temporary and recorded as an expense in other income (expense) in the consolidated income statements. This evaluation is based on the length of time and the severity of decline in the investment’s value. In 2011 and 2010, we identified an other-than-temporary decline in the value of immaterial equity method investments and various cost investments.

Income Taxes  Our estimates of income taxes and the significant items giving rise to the deferred assets and liabilities are shown in Note 10 and reflect our assessment of actual future taxes to be paid on items reflected in the financial statements, giving consideration to both timing and probability of these estimates. Actual income taxes could vary from these estimates due to future changes in income tax law or the final review of our tax returns by federal, state or foreign tax authorities.

We use our judgment to determine whether it is more likely than not that we will sustain positions that we have taken on tax returns and, if so, the amount of benefit to initially recognize within our financial statements. We regularly review our uncertain tax positions and adjust our unrecognized tax benefits (UTBs) in light of changes in facts and circumstances, such as changes in tax law, interactions with taxing authorities and developments in case law. These adjustments to our UTBs may affect our income tax expense. Settlement of uncertain tax positions may require use of our cash.

OTHER BUSINESS MATTERS

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, contended that the cash reimbursement formerly paid to retirees living outside their company’s local service area, for telephone service they purchased from another provider, was a “defined benefit plan” within the meaning of ERISA. In January 2011, the trial court entered a final judgment 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. In July 2012, Plaintiffs filed a petition for a writ of certiorari in the U.S. Supreme Court, which was denied in October 2012, thereby ending the litigation.

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 and the United States filed motions 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 U.S. Supreme Court. The plaintiffs in two of the three cases filed petitions for rehearing with the Ninth Circuit Court of Appeals, both of which were denied. The plaintiffs in the third case did not file a petition in either court. In October 2012, the U.S. Supreme Court denied the remaining plaintiffs’ petition, thereby ending the litigation.

19 

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. In October 2012, the Circuit Court in St. Louis, Missouri, to which the case had been transferred, granted preliminary approval to a settlement in which we receive a complete release of claims from members of the settlement class. Under the settlement, our liability to the class and its counsel is capped at approximately $150, the amount that was collected from customers but not owed or remitted to the government. The court has scheduled a final fairness hearing in February 2013, at which time the Court will consider, among other things, whether the settlement should be finally approved.

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 our financial statements. In October 2012, the court granted preliminary approval of the settlement in Luque, and the final approval hearing is scheduled for April 5, 2013. The parties anticipate filing the Motion for Preliminary Approval in Lawson in the first quarter of 2013.

Project VIP  In November 2012, we announced plans to significantly expand and enhance our wireless and wireline broadband networks to support future IP data growth and new services. As part of Project Velocity IP (VIP), we plan to expand our deployment of LTE wireless technology and deploy additional technology to further improve wireless spectrum efficiencies. To that end, we expect to cover at least 250 million people in the United States by year-end 2013 and approximately 300 million people in the United States by the end of 2014. In addition, we plan to expand our wireline IP broadband network to additional residential and small-business customer locations to cover approximately 75 percent of all such customer locations in our 22-state wireline service area by year-end 2015. This project is intended to support new revenue opportunities in four key areas: wireless, strategic network services, network managed (“cloud”) services and security as well as continued growth in existing wireless, U-verse and IP-related business services. We expect capital expenditures in the $21,000 range for 2013, and 2014 and 2015 to each be approximately $22,000, and then decrease to pre-Project VIP levels.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

Atlantic Tele-Network, Inc. Transaction  On January 22, 2013, we announced an agreement to acquire Atlantic Tele-Network, Inc.’s (ATNI) U.S. retail wireless operations, operated under the Alltel brand, for $780 in cash. Under the terms of the agreement, we will acquire wireless properties, including licenses, network assets, retail stores and approximately 585,000 subscribers. The transaction is subject to review by the FCC and the Department of Justice (DOJ) and to other customary closing conditions and is expected to close in the second half of 2013.

Spectrum Acquisitions  On January 24, 2013, we acquired NextWave Wireless Inc. (NextWave), which holds wireless licenses in the Wireless Communication Services (WCS) and Advanced Wireless Service (AWS) bands. We acquired all the equity and purchased a portion of the debt of NextWave for $600. Certain of NextWave’s assets were distributed to the holders of its debt in redemption of the remainder of that debt. During January 2013, we have also closed approximately $400 of other wireless spectrum acquisitions from various companies.

On January 25, 2013, we announced an agreement to acquire spectrum in the 700 MHz B band from Verizon Wireless for $1,900 in cash and an assignment of AWS spectrum licenses in five markets. The 700 MHz licenses to be acquired by AT&T cover 42 million people in 18 states. The transaction is subject to review by the FCC and DOJ. We expect to close the transaction in the second half of 2013.

Labor Contracts  As of January 31, 2013, we employed approximately 242,000 persons. Approximately 55 percent of our employees are represented by the Communications Workers of America (CWA), the International Brotherhood of Electrical Workers or other unions. Contracts covering approximately 77,000 (as of December 31, 2012) employees expired during 2012 and we have reached new contracts covering approximately 57,000 of those employees. Contracts covering wireline employees in California, Connecticut and Nevada expired in April 2012 and remain subject to negotiation. In addition, during 2012, we entered into a new national four-year contract covering only benefits with the approximately 40,000 employees in our mobility business; contracts covering wages and other non-benefit working terms for these mobility employees are structured on a regional basis and one regional contract for 20,000 employees expired during February 2013. Contracts covering approximately 30,000 non-mobility employees will expire during 2013, including approximately 20,000 wireline employees in our five-state Southwest region. On February 6, 2013, we announced a tentative agreement with the CWA covering the wireline employees in our Southwest region; this agreement is subject to ratification by these employees. After expiration of the current agreements, work stoppages or labor disruptions may occur in the absence of new contracts or other agreements being reached.

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

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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 $4,868 in cash and cash equivalents available at December 31, 2012. Cash and cash equivalents included cash of $482 and money market funds and other cash equivalents of $4,386. Cash and cash equivalents increased $1,823 since December 31, 2011. During 2012, cash inflows were primarily provided by cash receipts from operations, a net increase in our long-term debt and cash received from the sale of our Advertising Solutions segment. These inflows were largely offset by cash used to meet the needs of the business, including but not limited to, payment of operating expenses, funding capital expenditures, dividends to stockholders, stock repurchases and the acquisition of wireless spectrum. We discuss many of these factors in detail below.

Cash Provided by or Used in Operating Activities

During 2012, cash provided by operating activities was $39,176, compared to $34,743 in 2011. Higher operating cash flows in 2012 are due to non-recurring payments made in the prior year, including a $3,000 merger breakup fee to Deutsche Telekom AG (Deutsche Telekom) and a contribution to our pension plan of $1,000, as well as improvements in inventory and working capital management during 2012.

During 2011, cash provided by operating activities was $34,743 compared to $35,222 in 2010. Our lower operating cash flows reflected the payment of $3,000 cash to Deutsche Telekom and a contribution to our pension plan of $1,000 partially offset by decreased tax payments of $3,506. Operating cash in 2011 was also positively affected by our decision to pay approximately $2,500 of retiree postretirement expenses from plan assets, as opposed to our prior-year election to pay these out of corporate funds.

Cash Used in or Provided by Investing Activities

During 2012, cash used in investing activities consisted primarily of:

·   $19,465 in capital expenditures, excluding interest during construction.

·   $263 in interest during construction.

·   $691 purchase of spectrum licenses.

During 2012, cash provided by investing activities consisted primarily of:

·   $740 from the sale of our Advertising Solutions segment.

·   $65 from the sale of securities, net of investments.

Virtually all of our capital expenditures are spent on our wireless and wireline networks, our U-verse services and support systems for our communications services. Capital expenditures, excluding interest during construction, decreased $645 from 2011 and decreased $544 when including interest during construction. Capital spending in our Wireless segment, excluding capitalized interest during construction, represented 55% of our total spending and increased10% in 2012. The Wireline segment, which includes U-verse services, represented 45% of the total capital expenditures, excluding interest during construction, and decreased 15% in 2012. Wireless expenditures were primarily used for network capacity expansion, integration and upgrades to our HSPA network and the deployment of LTE equipment.

We expect that our capital expenditures during 2013 will be in the $21,000 range. This amount may change if the regulatory environment becomes more unfavorable for investment. We expect increases in our Wireless segment and stable investments in our Wireline segment. The amount of capital investment is influenced by demand for services and products, continued growth and regulatory considerations.

Cash Used in or Provided by Financing Activities

We paid dividends of $10,241 in 2012, $10,172 in 2011, and $9,916 in 2010, primarily reflecting dividend rate increases and partially offset by the decline in shares outstanding due to our repurchases during 2012. In November 2012, our Board of Directors approved a 2.3% increase in the quarterly dividend from $0.44 to $0.45 per share. This follows a 2.3% dividend increase approved by our Board in December 2011. Dividends declared by our Board of Directors totaled $1.77 per share in 2012, $1.73 per share in 2011, and $1.69 per share in 2010. 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.

22 

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

In 2012, in response to lower market interest rates, we undertook several activities related to our long-term debt. During 2012, we received net proceeds of $13,486 from the issuance of $13,569 in long-term debt with an average weighted maturity of approximately 12 years and an average interest rate of 2.54%. We redeemed $8,083 in borrowing, including $6,200 in early redemptions, with an average interest rate of 5.58%. Debt issued included:

·   $1,000 of 0.875% global notes due 2015.

·   $1,000 of 1.6% global notes due 2017.

·   $1,000 of 3% global notes due 2022.

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

·   $1,150 of 1.7% global notes due 2017.

·   $850 of 3% global notes due 2022.

·   €1,000 of 1.875% global notes due 2020 (equivalent to $1,290 when issued).

·   $1,000 of 0.8% global notes due 2015.

·   $1,500 of 1.4% global notes due 2017.

·   $1,500 of 2.625% global notes due 2022.

·   €1,000 of 3.55% global notes due 2032 (equivalent to $1,300 when issued).

During 2012, cash paid to redeem debt totaled $8,733 and consisted of $650 for a debt exchange and the following repayments:

·   $1,835 in repayments of long-term debt with a weighted-average interest rate of 5.40%.

·   $2,500 for the early redemption of the AT&T Inc. 4.95% global notes originally due in November 2013.

·   $1,500 for the early redemption of the AT&T Inc. 6.7% notes originally due in November 2013.

·   $1,200 for the early redemption of the AT&T Inc. 6.375% notes originally due in November 2056.

·   $1,000 for the early redemption of the AT&T Inc. 4.85% global notes originally due in February 2014.

·   $48 in repayments of capitalized leases.

During 2012, we completed a private debt exchange covering $4,099 of various notes with stated rates of 6.00% to 8.75% for $1,956 in new 4.3% AT&T Inc. global notes due 2042 and $3,044 in new 4.35% AT&T Inc. global notes due 2045 plus a $650 cash payment.

On February 12, 2013, we issued $1,000 of 0.900% global notes due 2016 and $1,250 of floating rate notes due in 2016. The floating rate for the note is based upon the three-month London Interbank Offered Rate (LIBOR), reset quarterly, plus 38.5 basis points.

At December 31, 2012, we had $3,486 of debt maturing within one year, substantially all of which was 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 that may be put back to us each April until maturity in 2021.

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

In December 2010, our Board of Directors authorized the repurchase of up to 300 million shares of AT&T common stock. We began buying back stock under this program in the first quarter of 2012. In July 2012, the Board of Directors authorized the repurchase of an additional 300 million shares. As of December 31, 2012, we have repurchased 371 million shares totaling $12,752. During the fourth-quarter 2012, we completed the repurchase of shares authorized by the Board of Directors in December 2010 and continued to repurchase shares under the July 2012 authorization. We expect to continue repurchasing our common stock and plan to complete repurchases under the July 2012 authorization as early as mid-year.

We plan to fund our 2013 financing activities through a combination of cash from operations and debt issuances. The timing and mix of debt issuance will be guided by credit market conditions and interest rate trends. The emphasis of our financing activities will be the payment of dividends, subject to approval by our Board of Directors, the repayment of debt and share repurchases.

Credit Facilities

On December 11, 2012, we amended and extended for an additional one-year term our existing $5,000, four-year revolving credit agreement (Four-Year Agreement) with a syndicate of banks until December 2016. We also entered into a new $3,000, five-year revolving credit agreement (Five-Year Agreement), with a syndicate of banks, to replace our expiring 364-day revolving credit agreement. In the event advances are made under either agreement, those advances would be used for general corporate purposes. Advances are not conditioned on the absence of a material adverse change. All advances must be repaid no later than the date on which lenders are no longer obligated to make any advances under each agreement. Under each agreement, we can terminate, in whole or in part, amounts committed by the lenders in excess of any outstanding advances; however, we cannot reinstate any such terminated commitments. At December 31, 2012, we had no advances outstanding under either agreement and were in compliance with all covenants under each agreement.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

Advances under both agreements would bear interest, at AT&T's option, either:

·   at a variable annual rate equal to (1) the highest of:  (a) the base (or prime) rate of the bank affiliate of Citibank, N.A. which is serving as administrative agent under the Agreement, (b) 0.50% per annum above the Federal funds rate, and (c) the LIBOR applicable to U.S. dollars for a period of one month plus 1.00% per annum, plus (2) an applicable margin, as set forth in the Agreement (Applicable Margin); or

·   at a rate equal to:  (i) the LIBOR for a period of one, two, three or six months, as applicable, plus (ii) the Applicable Margin.

The Applicable Margin for both agreements will equal 0.565% per annum if our unsecured long-term debt is rated at least A+ by Standard & Poor’s (S&P) or Fitch, Inc. (Fitch) or A1 by Moody’s Investors Service (Moody’s). The Applicable Margin will be 0.680% per annum if our unsecured long-term debt ratings are A or A2 and will be 0.910% per annum in the event our unsecured long-term debt ratings are A- and A3 (or below). In the event that AT&T’s unsecured long-term debt ratings are split by S&P, Moody’s and Fitch, then the Applicable Margin will be determined by the highest of the three ratings, except that in the event the lowest of such ratings is more than one level below the highest of the ratings then the Applicable Margin will be determined based on the level that is one level above the lowest of such ratings.

Under each agreement AT&T will pay a facility fee of 0.060%, 0.070% or 0.090% per annum, depending on AT&T’s credit rating, of the amount of lender commitments.

Both agreements contain a negative pledge covenant, which requires that, if at any time AT&T or a subsidiary pledges assets or otherwise permits a lien on its properties, advances under the agreement will be ratably secured, subject to specified exceptions. Both agreements also contain a financial ratio covenant that provides that AT&T will maintain, as of the last day of each fiscal quarter, a debt-to-EBITDA (earnings before interest, income taxes, depreciation and amortization, and other modifications described in the agreements) ratio of not more than 3.0 to 1, for the four quarters then ended.

Defaults under both agreements, which would permit the lenders to accelerate required repayment and which would increase the Applicable Margin by 2.00% per annum, include:

·   We fail to pay principal or interest, or other amounts under the agreement beyond any grace period.

·   We fail to pay when due other debt of $400 or more that results in acceleration of that debt (commonly referred to as cross-acceleration) or a creditor commences enforcement proceedings within a specified period after a money judgment of $400 or more has become final.

·   A person acquires beneficial ownership of more than 50% of AT&T common shares or more than a majority of AT&T’s directors change in any 24-month period other than as elected by the remaining directors (commonly referred to as a change in control).

·   Material breaches of representations or warranties in the agreement.

·   We fail to comply with the negative pledge or debt-to-EBITDA ratio covenants under the agreement.

·   We fail to comply with other covenants under the agreement for a specified period after notice.

·   We fail to make certain minimum funding payments under ERISA.

·   Our bankruptcy or insolvency.

Both the Five-Year Agreement and the Four-Year Agreement contain provisions permitting subsidiaries to be added as additional borrowers, with or without a guarantee by AT&T Inc. The terms of the guarantee are set forth in the agreements.

Four-Year Agreement

The obligations of the lenders under the Four-Year Agreement to provide advances will terminate on December 11, 2016, unless prior to that date either:  (i) AT&T and, if applicable, a Co-Borrower, reduces to $0 the commitments of the lenders under the Agreement or (ii) certain events of default occur. The Agreement also provides that AT&T and lenders representing more than 50% of the facility amount may agree to extend their commitments under the Four-Year Agreement for two additional one-year periods beyond the December 11, 2016, termination date, under certain circumstances. We also can request the lenders to further increase their commitments (i.e., raise the available credit) up to an additional $2,000 provided no event of default has occurred.

24 

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

Five-Year Agreement

The obligations of the lenders under the Five-Year Agreement to provide advances will terminate on December 11, 2017, unless prior to that date either:  (i) AT&T, and if applicable, a Co-Borrower, reduce to $0 the commitments of the lenders, or (ii) certain events of default occur. We and lenders representing more than 50% of the facility amount may agree to extend their commitments for two one-year periods beyond the December 11, 2017, termination date, under certain circumstances. We also can request the lenders to further increase their commitments (i.e., raise the available credit) up to an additional $2,000 provided no event of default has occurred.

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. At December 31, 2012, our debt ratio was 43.0%, compared to 38.0% at December 31, 2011, and 37.1% at December 31, 2010. The debt ratio is affected by the same factors that affect total capital, and reflects our recent debt issuances and stock repurchases. Total capital decreased $8,011 in 2012 compared to a decrease of $7,567 in 2011. The 2012 capital decrease was primarily due to the stock repurchases of $12,752, which increased our debt ratio in 2012.

A significant amount of our cash outflows are related to tax items and benefits paid for current and former employees. Total taxes incurred, collected and remitted by AT&T during 2012, 2011, and 2010 were $19,703, $19,224 and $24,614. These taxes include income, franchise, property, sales, excise, payroll, gross receipts and various other taxes and fees. Total health and welfare benefits provided to certain active and retired employees and their dependents totaled $5,300 in 2012, with $1,842 paid from plan assets. Of those benefits, $4,427 related to medical and prescription drug benefits. During 2012, we paid $5,729 of pension benefits out of plan assets.

In October 2012, we filed an application with the U.S. Department of Labor (DOL) for approval to contribute a preferred equity interest in our Mobility business to the trust used to pay pension benefits under plans sponsored by AT&T. The preferred interest does not have any voting rights, has a fair market value estimated at $9,500 and a liquidation value of $8,000 and is entitled to receive cumulative cash distributions of $560 per annum. So long as we make the distributions, we will have no limitations on our ability to declare a dividend or repurchase shares.

At December 31, 2012, the present value of AT&T’s pension liabilities exceeded the fair value of trust assets by approximately $13,851. The preferred equity interest is estimated to be valued at $9,500 upon contribution and will significantly improve the funding for the plans, enhancing the strength of the trust for AT&T’s employees and retirees. Prior to the contribution of the preferred interest, the estimated required contribution for 2013 is approximately $300. We will continue to work with the DOL to obtain approval before the end of 2013. If we receive DOL approval before the due date, including extensions, for our 2012 income tax return, we expect to deduct the contribution on our 2012 return. Our current income tax liability at December 31, 2012, reflects a deduction for the pension contribution.

CONTRACTUAL OBLIGATIONS, COMMITMENTS AND CONTINGENCIES

Current accounting standards require us to disclose our material obligations and commitments to making future payments under contracts, such as debt and lease agreements, and under contingent commitments, such as debt guarantees. We occasionally enter into third-party debt guarantees, but they are not, nor are they reasonably likely to become, material. We disclose our contractual long-term debt repayment obligations in Note 8 and our operating lease payments in Note 5. Our contractual obligations do not include expected pension and postretirement payments as we maintain pension funds and Voluntary Employee Beneficiary Association trusts to fully or partially fund these benefits (see Note 11). In the ordinary course of business, we routinely enter into commercial commitments for various aspects of our operations, such as plant additions and office supplies. However, we do not believe that the commitments will have a material effect on our financial condition, results of operations or cash flows.

Our contractual obligations as of December 31, 2012, are in the following table. The purchase obligations that follow are those for which we have guaranteed funds and will be funded with cash provided by operations or through incremental borrowings. The minimum commitment for certain obligations is based on termination penalties that could be paid to exit the contract. Since termination penalties would not be paid every year, such penalties are excluded from the table. Other long-term liabilities were included in the table based on the year of required payment or an estimate of the year of payment. Such estimate of payment is based on a review of past trends for these items, as well as a forecast of future activities. Certain items were excluded from the following table, as the year of payment is unknown and could not be reliably estimated since past trends were not deemed to be an indicator of future payment.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

Substantially all of our purchase obligations are in our Wireline and Wireless segments. The table does not include the fair value of our interest rate swaps. Our capital lease obligations and bank borrowings have been excluded from the table due to the insignificant amounts of such obligations at December 31, 2012. Many of our other noncurrent liabilities have been excluded from the following table due to the uncertainty of the timing of payments, combined with the absence of historical trending to be used as a predictor of such payments. Additionally, certain other long-term liabilities have been excluded since settlement of such liabilities will not require the use of cash. However, we have included, in the following table, obligations that primarily relate to benefit funding due to the certainty of the timing of these future payments. Our other long-term liabilities are: deferred income taxes (see Note 10) of $28,491; postemployment benefit obligations of $41,392; and other noncurrent liabilities of $11,592, which included deferred lease revenue from our agreement with American Tower Corp. of $420 (see Note 14).

	Payments Due By Period
	Total			Less than 1 Year			1-3 Years			3-5 Years			More than 5 Years
Contractual Obligations
Long-term debt obligations1		$	71,035		$	3,475		$	10,302		$	9,680		$	47,578
Interest payments on long-term debt			60,174			3,446			6,503			5,670			44,555
Operating lease obligations			24,065			2,706			5,102			4,502			11,755
Unrecognized tax benefits2			2,945			258			-			-			2,687
Purchase obligations3			9,560			3,744			3,890			1,469			457
Retirement benefit funding obligation4			300			300			-			-			-
Total Contractual Obligations		$	168,079		$	13,929		$	25,797		$	21,321		$	107,032

1 Represents principal or payoff amounts of notes and debentures at maturity or, for putable debt, the next put opportunity.

2 The noncurrent portion of the UTBs is included in the “More than 5 Years” column, as we cannot reasonably estimate the timing or amounts of additional cash payments, if any, at this time.

See Note 10 for additional information.

3 We calculated the minimum obligation for certain agreements to purchase goods or services based on termination fees that can be paid to exit the contract. If we elect to exit these contracts, termination fees

for all such contracts in the year of termination could be approximately $898 in 2013, $989 in the aggregate for 2014 and 2015, $467 in the aggregate for 2016 and 2017, and $352 in the aggregate thereafter.

Certain termination fees are excluded from the above table, as the fees would not be paid every year and the timing of such payments, if any, is uncertain.

4 Required contribution to our pension plans (see Note 11). Future required pension funding will be determined in accordance with ERISA regulations.

MARKET RISK

We are exposed to market risks primarily from changes in interest rates and foreign currency exchange rates. These risks, along with other business risks, impact our cost of capital. It is our policy to manage our debt structure and foreign exchange exposure in order to manage capital costs, control financial risks and maintain financial flexibility over the long term. In managing market risks, we employ derivatives according to documented policies and procedures, including interest rate swaps, interest rate locks, foreign currency exchange contracts and combined interest rate foreign currency contracts (cross-currency swaps). We do not use derivatives for trading or speculative purposes. We do not foresee significant changes in the strategies we use to manage market risk in the near future.

Interest Rate Risk

The majority of our financial instruments are medium- and long-term fixed-rate notes and debentures. Changes in interest rates can lead to significant fluctuations in the fair value of these instruments. The principal amounts by expected maturity, average interest rate and fair value of our liabilities that are exposed to interest rate risk are described in Notes 8 and 9. In managing interest expense, we control our mix of fixed and floating rate debt, principally through the use of interest rate swaps. We have established interest rate risk limits that we closely monitor by measuring interest rate sensitivities in our debt and interest rate derivatives portfolios.

All our foreign-denominated debt has been swapped from fixed-rate foreign currencies to fixed-rate U.S. dollars at issuance through cross-currency swaps, removing interest rate risk and foreign currency exchange risk associated with the underlying interest and principal payments. Likewise, periodically we enter into interest rate locks to partially hedge the risk of increases in the benchmark interest rate during the period leading up to the probable issuance of fixed-rate debt. We expect gains or losses in our cross-currency swaps and interest rate locks to offset the losses and gains in the financial instruments they hedge.

26 

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

Following are our interest rate derivatives subject to material interest rate risk as of December 31, 2012. The interest rates illustrated below refer to the average rates we expect to pay based on current and implied forward rates and the average rates we expect to receive based on derivative contracts. The notional amount is the principal amount of the debt subject to the interest rate swap contracts. The fair value asset (liability) represents the amount we would receive (pay) if we had exited the contracts as of December 31, 2012.

	Maturity
															Fair Value
	2013		2014		2015		2016		2017		Thereafter		Total		December 31, 2012
Interest Rate Derivatives
Interest Rate Swaps:
Receive Fixed/Pay
Variable Notional
Amount Maturing	$	-	$	500	$	1,500	$	-	$	-	$	1,000	$	3,000	$	287
Weighted-Average
Variable Rate Payable1		1.3%		1.3%		1.6%		2.5%		3.1%		3.5%
Weighted-Average
Fixed Rate Receivable		4.0%		3.9%		4.5%		5.6%		5.6%		5.6%

1 Interest payable based on current and implied forward rates for One, Three, or Six Month LIBOR plus a spread ranging between approximately 4 and 275 basis points.

Foreign Exchange Risk

We are exposed to foreign currency exchange risk through our foreign affiliates and equity investments in foreign companies. We do not hedge foreign currency translation risk in the net assets and income we report from these sources. However, we do hedge a large portion of the exchange risk involved in anticipation of highly probable foreign currency-denominated transactions and cash flow streams, such as those related to issuing foreign-denominated debt, receiving dividends from foreign investments, and other receipts and disbursements.

Through cross-currency swaps, all our foreign-denominated debt has been swapped from fixed-rate foreign currencies to fixed-rate U.S. dollars at issuance, removing interest rate risk and foreign currency exchange risk associated with the underlying interest and principal payments. We expect gains or losses in our cross-currency swaps to offset the losses and gains in the financial instruments they hedge.

In anticipation of other foreign currency-denominated transactions, we often enter into foreign exchange forward contracts to provide currency at a fixed rate. Our policy is to measure the risk of adverse currency fluctuations by calculating the potential dollar losses resulting from changes in exchange rates that have a reasonable probability of occurring. We cover the exposure that results from changes that exceed acceptable amounts.

For the purpose of assessing specific risks, we use a sensitivity analysis to determine the effects that market risk exposures may have on the fair value of our financial instruments and results of operations. To perform the sensitivity analysis, we assess the risk of loss in fair values from the effect of a hypothetical 10% depreciation of the U.S. dollar against foreign currencies from the prevailing foreign currency exchange rates, assuming no change in interest rates. For foreign exchange forward contracts outstanding at December 31, 2012, the change in fair value was immaterial. Furthermore, because our foreign exchange contracts are entered into for hedging purposes, we believe that these losses would be largely offset by gains on the underlying transactions.

27 

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

STOCK PERFORMANCE GRAPH

The comparison above assumes $100 invested on December 31, 2007, in AT&T common stock, Standard & Poor’s 500 Index (S&P 500), and Standard & Poor's 500 Integrated Telecom Index (S&P 500 Integrated Telecom). Total return equals stock price appreciation plus reinvestment of dividends.

28 

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

RISK FACTORS

In addition to the other information set forth in this document, including the matters contained under the caption “Cautionary Language Concerning Forward-Looking Statements,” you should carefully read the matters described below. We believe that each of these matters could materially affect our business. We recognize that most of these factors are beyond our ability to control and therefore we cannot predict an outcome. Accordingly, we have organized them by first addressing general factors, then industry factors and, finally, items specifically applicable to us.

A worsening U.S. economy would magnify our customers’ and suppliers’ current financial difficulties and could materially adversely affect our business.

We provide services and products to consumers and large and small businesses in the United States and to larger businesses throughout the world. Current economic conditions in the United States have adversely affected our customers’ demand for and ability to pay for existing services, especially local landline service, and their interest in purchasing new services. Our suppliers are also facing higher financing and operating costs. Should these current economic conditions worsen, we likely would experience both a decrease in revenues and an increase in certain expenses, including expenses relating to bad debt and equipment and software maintenance. We also may incur difficulties locating financially stable equipment and other suppliers, thereby affecting our ability to offer attractive new services. We are also likely to experience greater pressure on pricing and margins as we continue to compete for customers who would have even less discretionary income. While our largest business customers have been less affected by these adverse changes in the U.S. economy, if the continued adverse economic conditions in the United States, Europe and other foreign markets persist or worsen, those customers would likely be affected in a similar manner.

Adverse changes in medical costs and the U.S. securities markets and a further decline in interest rates could materially increase our benefit plan costs.

Our costs to provide current benefits and funding for future benefits are subject to increases, primarily due to continuing increases in medical and prescription drug costs, and can be affected by lower returns on funds held by our pension and other benefit plans, which are reflected in our financial statements for that year. Investment returns on these funds depend largely on trends in the U.S. securities markets and the U.S. economy. We have experienced historically low interest rates during the last several years and we expect these rates to continue at similarly low levels for the next several years; this has led to both lower investment returns on our plan assets and to higher funding obligations. It is also unclear how many provisions of the new national healthcare law will apply to us since many regulations implementing the law have not been finalized. In calculating the costs included on our financial statements of providing benefits under our plans, we have made certain assumptions regarding future investment returns, medical costs and interest rates. If actual investment returns, medical costs and interest rates are worse than those previously assumed, our costs will increase.

The Financial Accounting Standards Board (FASB) requires companies to recognize the funded status of defined benefit pension and postretirement plans as an asset or liability in our statement of financial position and to recognize changes in that funded status in the year in which the changes occur. We have elected to reflect the annual adjustments to the funded status in our consolidated statement of income. Therefore, an increase in our costs or adverse market conditions will have a negative effect on our operating results.

Adverse changes in global financial markets could limit our ability and our larger customers' ability to access capital or increase the cost of capital needed to fund business operations.

The continuing instability in the global financial markets has resulted in periodic volatility in the credit, currency, equity and fixed income markets. Volatility has limited, in some cases severely, companies’ access to the credit markets, leading to higher borrowing costs for companies or, in some cases, the inability of these companies to fund their ongoing operations. As a result, our larger customers, who tend to be heavy users of our data and wireless services, may be forced to delay or reduce or be unable to finance purchases of our products and services and may delay payment or default on outstanding bills to us. In addition, we contract with large financial institutions to support our own treasury operations, including contracts to hedge our exposure on interest rates and foreign exchange and the funding of credit lines and other short-term debt obligations, including commercial paper. These financial institutions also face new capital-related and other regulations in the United States and Europe, as well as ongoing legal and financial issues concerning their loan portfolios, which may hamper their ability to provide credit or raise the cost of providing such credit. A company’s cost of borrowing is also affected by evaluations given by various credit rating agencies and these agencies have been applying tighter credit standards when evaluating a company’s debt levels and future growth prospects. While we have been successful in continuing to access the credit and fixed income markets when needed, adverse changes in the financial markets could render us either unable to access these markets or able to access these markets only at higher interest costs and with restrictive financial or other conditions, severely affecting our business operations.

29

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

Changes in available technology could increase competition and our capital costs.

The telecommunications industry has experienced rapid changes in the past several years. The development of wireless, cable and IP technologies has significantly increased the commercial viability of alternatives to traditional wireline telephone service and enhanced the capabilities of wireless networks. In order to remain competitive, we are deploying a more sophisticated wireline network and continue to deploy a more sophisticated wireless network, as well as research other new technologies. We expect our recently announced plans to significantly expand and enhance our wireless and wireline IP broadband networks will result in increased capital expenditures and increased debt levels as these plans are implemented. If the new technologies we have adopted or on which we have focused our research efforts fail to be cost-effective and accepted by customers, our ability to remain competitive could be materially adversely affected.

Changes to federal, state and foreign government regulations and decisions in regulatory proceedings could materially adversely affect us.

Our wireline subsidiaries are subject to significant federal and state regulation while many of our competitors are not. In addition, our subsidiaries and affiliates operating outside the United States are also subject to the jurisdiction of national and supranational regulatory authorities in the market where service is provided. Our wireless subsidiaries are regulated to varying degrees by the FCC and some state and local agencies. Adverse rulings by the FCC relating to broadband issues could impede our ability to manage our networks and recover costs and lessen incentives to invest in our networks. The development of new technologies, such as IP-based services, also has created or potentially could create conflicting regulation between the FCC and various state and local authorities, which may involve lengthy litigation to resolve and may result in outcomes unfavorable to us. In addition, increased public focus on potential global climate changes has led to proposals at state, federal and foreign government levels to increase regulation on various types of emissions, including those generated by vehicles and by facilities consuming large amounts of electricity. We do not expect these proposals to have a material adverse impact on our operating results, and they could create increased demand for communications services as companies seek to reduce emissions.

Continuing growth in our wireless services will depend on continuing access to adequate spectrum, deployment of new technology and offering attractive services to customers.

The wireless industry is undergoing rapid and significant technological changes and a dramatic increase in usage, in particular demand for and usage of data and other non-voice services. We must continually invest in our wireless network in order to continually improve our wireless service to meet this increasing demand and remain competitive. Improvements in our service depend on many factors, including continued access to and deployment of adequate spectrum. We must maintain and expand our network capacity and coverage as well as the associated wireline network needed to transport voice and data between cell sites. To this end, we have announced plans to accelerate our deployment of LTE wireless technology and deploy other technology advancements in order to further improve network quality and the efficient use of our spectrum.

Network service enhancements and product launches may not occur as scheduled or at the cost expected due to many factors, including delays in determining equipment and handset operating standards, supplier delays, increases in network equipment and handset component costs, regulatory permitting delays for tower sites or enhancements or labor-related delays. Deployment of new technology also may adversely affect the performance of the network for existing services. If the FCC does not fairly allocate sufficient spectrum to allow the wireless industry in general, and the Company in particular, to increase its capacity or if we cannot acquire needed spectrum or deploy the services customers desire on a timely basis without burdensome conditions or at adequate cost while maintaining network quality levels, then our ability to attract and retain customers, and therefore maintain and improve our operating margins, could be materially adversely affected.

30 

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

Increasing competition for wireless customers could adversely affect our operating results.

We have multiple wireless competitors in each of our service areas and compete for customers based principally on service/device offerings, price, call quality, coverage area and customer service. In addition, we are facing growing competition from providers offering services using alternative wireless technologies and IP-based networks as well as traditional wireline networks. We expect market saturation to continue to cause the wireless industry’s customer growth rate to moderate in comparison with historical growth rates, leading to increased competition for customers. We also expect that our customers’ growing demand for data services will place constraints on our network capacity. This competition and our capacity issues will continue to put pressure on pricing and margins as companies compete for potential customers. Our ability to respond will depend, among other things, on continued improvement in network quality and customer service and effective marketing of attractive products and services, and cost management. These efforts will involve significant expenses and require strategic management decisions on, and timely implementation of, equipment choices, network deployment and management, and service offerings.

Increasing costs in our wireline operations could adversely affect wireline operating margins.

We expect our operating costs, including customer acquisition and retention costs will continue to put pressure on pricing, margins and customer retention levels. A number of our competitors that rely on alternative technologies (e.g., wireless, cable and VoIP) and business models (e.g., advertising-supported) are typically subject to less (or no) regulation than our wireline subsidiaries and therefore are able to operate with lower costs. These competitors also have cost advantages compared to us, due in part to operating on newer, more technically advanced and lower-cost networks and a nonunionized workforce, lower employee benefits and fewer retirees (as most of the competitors are relatively new companies). Over time these cost disparities could require us to evaluate the strategic worth of various wireline operations. To this end, we have begun initiatives at both the state and federal levels to obtain regulatory approvals, where needed, to transition services from our older copper-based network to an advanced IP-based network. If we do not obtain regulatory approvals for this transition or obtain approvals with onerous conditions attached, we could experience significant cost and competitive disadvantages.

The continued success of our U-verse services initiative will depend on the development of attractive and profitable broadband and video service offerings; the extent to which regulatory, franchise fees and build-out requirements apply to this initiative; the availability of content on reasonable terms and conditions, including price, and the availability and reliability of the various technologies required to provide such offerings.

Telecommunications technology has shifted from the traditional circuit- and wire-based technology to IP-based technology. IP-based technology can transport voice and data, as well as video, from both wired and wireless networks. IP-based networks also potentially cost less to operate than traditional networks. Our competitors, many of which are newer companies, are deploying this IP-based technology. In order to continue to offer attractive and competitively priced services, we have deployed a new broadband network to offer IP-based voice, data and video services. Should regulatory requirements change, our deployment could be limited to only those geographical areas where regulation is not burdensome. In addition, should the delivery of services expected to be deployed on our network be delayed due to technological or regulatory constraints, performance of suppliers, or other reasons, or the cost of providing such services, including the availability and cost of content for our video offerings, becomes higher than expected, customers may decide to purchase services from our competitors, which would adversely affect our revenues and margins, and such effects could be material.

Unfavorable litigation or governmental investigation results could require us to pay significant amounts or lead to onerous operating procedures.

We are subject to a number of lawsuits both in the United States and in foreign countries, including, at any particular time, claims relating to antitrust; patent infringement; wage and hour; personal injury; and our advertising, sales and billing and collection practices. We also spend substantial resources complying with various government standards, which may entail related investigations. As we deploy newer technologies, especially in the wireless area, we also face current and potential litigation relating to alleged adverse health effects on customers or employees who use such technologies including, for example, wireless handsets. We may incur significant expenses defending such suits or government charges and may be required to pay amounts or otherwise change our operations in ways that could materially adversely affect our operations or financial results.

31 

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

Equipment failures, natural disasters, computer hacking and terrorist acts may materially adversely affect our operations.

Major equipment failures or natural disasters, including severe weather, computer hacking, terrorist acts or other breaches of network or IT security that affect our wireline and wireless networks, including telephone switching offices, microwave links, third-party-owned local and long-distance networks on which we rely, our cell sites or other equipment, or our customer account support and information systems, could have a material adverse effect on our operations. While we have been subject to security breaches or cyber attacks, these did not result in a material adverse effect on our operations. Our inability to operate our wireline, wireless or customer-related support systems as a result of such events, even for a limited time period, could result in significant expenses, potential legal liability or a loss of customers or impair our ability to attract new customers, any of which could have a material adverse effect on our business, results of operations and financial condition.

A majority of our workforce is represented by labor unions. Absent the successful negotiation of agreements that either expired during 2012 or are scheduled to expire during 2013, we could experience lengthy work stoppages.

A majority of our employees are represented by labor unions as of year-end 2012. Labor contracts covering many of the employees either will expire during 2013 or expired during 2012 and remain subject to negotiation. We experienced a work stoppage in 2004 when the contracts involving our wireline employees expired, and we may experience additional work stoppages in 2013. A work stoppage could adversely affect our business operations, including a loss of revenue and strained relationships with customers, and we cannot predict the length of any such strike. We cannot predict the new contract provisions or the impact of any new contract on our financial condition.

32 

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 United States 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, interconnection obligations, transitioning from legacy technologies to IP-based infrastructure, 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, and the sunset of the traditional copper-based network services and regulatory obligations.

·   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.

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

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

33 

AT&T Inc.
Consolidated Statements of Income
Dollars in millions except per share amounts
	2012			2011			2010
Operating Revenues
Wireless service	$	59,186		$	56,726		$	53,510
Data		31,798			29,560			27,512
Voice		22,619			25,126			28,332
Directory		1,049			3,293			3,935
Other		12,782			12,018			10,991
Total operating revenues		127,434			126,723			124,280
Operating Expenses
Cost of services and sales (exclusive of depreciation
and amortization shown separately below)		55,215			54,836			50,257
Selling, general and administrative		41,079			41,382			34,986
Impairment of intangible assets		-			2,910			85
Depreciation and amortization		18,143			18,377			19,379
Total operating expenses		114,437			117,505			104,707
Operating Income		12,997			9,218			19,573
Other Income (Expense)
Interest expense		(3,444	)		(3,535	)		(2,994	)
Equity in net income of affiliates		752			784			762
Other income (expense) – net		134			249			897
Total other income (expense)		(2,558	)		(2,502	)		(1,335	)
Income from Continuing Operations Before Income Taxes		10,439			6,716			18,238
Income tax (benefit) expense		2,900			2,532			(1,162	)
Income from Continuing Operations		7,539			4,184			19,400
Income from Discontinued Operations, net of tax		-			-			779
Net Income		7,539			4,184			20,179
Less: Net Income Attributable to Noncontrolling Interest		(275	)		(240	)		(315	)
Net Income Attributable to AT&T	$	7,264		$	3,944		$	19,864
Basic Earnings Per Share from Continuing Operations
Attributable to AT&T	$	1.25		$	0.66		$	3.23
Basic Earnings Per Share from Discontinued Operations
Attributable to AT&T		-			-			0.13
Basic Earnings Per Share Attributable to AT&T	$	1.25		$	0.66		$	3.36
Diluted Earnings Per Share from Continuing Operations
Attributable to AT&T	$	1.25		$	0.66		$	3.22
Diluted Earnings Per Share from Discontinued Operations
Attributable to AT&T		-			-			0.13
Diluted Earnings Per Share Attributable to AT&T	$	1.25		$	0.66		$	3.35
The accompanying notes are an integral part of the consolidated financial statements.

34 

AT&T Inc.
Consolidated Statements of Comprehensive Income
Dollars in millions
	2012			2011			2010
Net income	$	7,539		$	4,184		$	20,179
Other comprehensive income, net of tax:
Foreign currency translation adjustments (includes $0, $(1) and $3       attributable to noncontrolling interest), net of taxes of $48, $66 and $146		87			122			274
Net unrealized gains (losses) on available-for-sale securities:
Unrealized gains (losses), net of taxes of $64, $(21), and $(12)		118			(41	)		(22	)
Reclassification adjustment realized in net income, net of taxes of          $(36), $(29) and $7		(68	)		(54	)		14
Net unrealized gains (losses) on cash flow hedges:
Unrealized gains (losses), net of taxes of $154, $(140) and $(182)		283			(256	)		(334	)
Reclassification adjustment included in net income, net of taxes          of $15, $8 and $7		28			15			12
Defined benefit postretirement plans:
Net actuarial loss from equity method investees arising during period,          net of taxes of $(32), $0 and $0		(53	)		-			-
Net prior service credit arising during period, net of taxes of $1,378,          $699 and $298		2,249			1,140			487
Amortization of net prior service credit included in net income,          net of taxes of $(361), $(282) and $(243)		(588	)		(460	)		(396	)
Other		-			1			2
Other comprehensive income		2,056			467			37
Total comprehensive income		9,595			4,651			20,216
Less: Total comprehensive income attributable to noncontrolling interest		(275	)		(239	)		(318	)
Total Comprehensive Income Attributable to AT&T	$	9,320		$	4,412		$	19,898
The accompanying notes are an integral part of the consolidated financial statements.

35 

AT&T Inc.
Consolidated Balance Sheets
Dollars in millions except per share amounts
	December 31,
	2012			2011
Assets
Current Assets
Cash and cash equivalents	$	4,868		$	3,045
Accounts receivable - net of allowances for doubtful accounts of $547 and $878		12,657			13,231
Prepaid expenses		1,035			1,102
Deferred income taxes		1,036			1,470
Other current assets		3,110			4,137
Total current assets		22,706			22,985
Property, Plant and Equipment – Net		109,767			107,087
Goodwill		69,773			70,842
Licenses		52,352			51,374
Customer Lists and Relationships – Net		1,391			2,757
Other Intangible Assets – Net		5,032			5,212
Investments in and Advances to Equity Affiliates		4,581			3,718
Other Assets		6,713			6,467
Total Assets	$	272,315		$	270,442
Liabilities and Stockholders’ Equity
Current Liabilities
Debt maturing within one year	$	3,486		$	3,453
Accounts payable and accrued liabilities		20,911			19,956
Advanced billing and customer deposits		3,808			3,872
Accrued taxes		1,026			1,003
Dividends payable		2,556			2,608
Total current liabilities		31,787			30,892
Long-Term Debt		66,358			61,300
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes		28,491			25,748
Postemployment benefit obligation		41,392			34,011
Other noncurrent liabilities		11,592			12,694
Total deferred credits and other noncurrent liabilities		81,475			72,453
Stockholders’ Equity
Common stock ($1 par value, 14,000,000,000 authorized at December 31, 2012
and 2011: issued 6,495,231,088 at December 31, 2012 and 2011)		6,495			6,495
Additional paid-in capital		91,038			91,156
Retained earnings		22,481			25,453
Treasury stock (913,836,325 at December 31, 2012 and 568,719,202
at December 31, 2011, at cost)		(32,888	)		(20,750	)
Accumulated other comprehensive income		5,236			3,180
Noncontrolling interest		333			263
Total stockholders’ equity		92,695			105,797
Total Liabilities and Stockholders’ Equity	$	272,315		$	270,442
The accompanying notes are an integral part of the consolidated financial statements.

36 

AT&T Inc.
Consolidated Statements of Cash Flows
Dollars in millions
	2012			2011			2010
Operating Activities
Net income	$	7,539		$	4,184		$	20,179
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		18,143			18,377			19,379
Undistributed earnings from investments in equity affiliates		(615	)		(623	)		(603	)
Provision for uncollectible accounts		1,117			1,136			1,334
Deferred income tax expense and noncurrent       unrecognized tax benefits		1,285			2,937			(3,280	)
Net (gain) loss from sale of investments, net of impairments		(19	)		(89	)		(802	)
Impairment of intangible assets		-			2,910			85
Actuarial loss on pension and postretirement benefits		9,994			6,280			2,521
Income from discontinued operations		-			-			(779	)
Changes in operating assets and liabilities:
Accounts receivable		(1,365	)		(1,164	)		(101	)
Other current assets		1,017			(397	)		(185	)
Accounts payable and accrued liabilities		1,798			(341	)		(1,230	)
Retirement benefit funding		-			(1,000	)		-
Other - net		282			2,533			(1,296	)
Total adjustments		31,637			30,559			15,043
Net Cash Provided by Operating Activities		39,176			34,743			35,222
Investing Activities
Construction and capital expenditures:
Capital expenditures		(19,465	)		(20,110	)		(19,530	)
Interest during construction		(263	)		(162	)		(772	)
Acquisitions, net of cash acquired		(828	)		(2,368	)		(2,906	)
Dispositions		812			1,301			1,830
Sales (purchases) of securities, net		65			62			(100	)
Other		(1	)		27			29
Net Cash Used in Investing Activities		(19,680	)		(21,250	)		(21,449	)
Financing Activities
Net change in short-term borrowings with original maturities of    three months or less		1			(1,625	)		1,592
Issuance of long-term debt		13,486			7,936			2,235
Repayment of long-term debt		(8,733	)		(7,574	)		(9,294	)
Purchase of treasury stock		(12,752	)		-			-
Issuance of treasury stock		477			237			50
Dividends paid		(10,241	)		(10,172	)		(9,916	)
Other		89			(451	)		(516	)
Net Cash Used in Financing Activities		(17,673	)		(11,649	)		(15,849	)
Net increase (decrease) in cash and cash equivalents		1,823			1,844			(2,076	)
Cash and cash equivalents beginning of year		3,045			1,201			3,277
Cash and Cash Equivalents End of Year	$	4,868		$	3,045		$	1,201
The accompanying notes are an integral part of the consolidated financial statements.

37 

AT&T Inc.
Consolidated Statements of Changes in Stockholders’ Equity
Dollars and shares in millions except per share amounts
	2012			2011			2010
	Shares	Amount		Shares	Amount		Shares	Amount
Common Stock
Balance at beginning of year	6,495	$	6,495	6,495	$	6,495	6,495	$	6,495
Issuance of stock	-		-	-		-	-		-
Balance at end of year	6,495	$	6,495	6,495	$	6,495	6,495	$	6,495
Additional Paid-In Capital
Balance at beginning of year		$	91,156		$	91,731		$	91,707
Issuance of treasury stock			120			132			159
Share-based payments			(78)			(118)			(130)
Share of equity method investee capital    transactions			(160)			(290)			-
Change related to acquisition of interests    held by noncontrolling owners			-			(299)			(5)
Balance at end of year		$	91,038		$	91,156		$	91,731
Retained Earnings
Balance at beginning of year		$	25,453		$	31,792		$	21,944
Net income attributable to AT&T ($1.25,    $0.66 and $3.35 per diluted share)			7,264			3,944			19,864
Dividends to stockholders ($1.77, $1.73    and $1.69 per share)			(10,196)			(10,244)			(9,985)
Other			(40)			(39)			(31)
Balance at end of year		$	22,481		$	25,453		$	31,792
Treasury Stock
Balance at beginning of year	(568)	$	(20,750)	(584)	$	(21,083)	(593)	$	(21,260)
Repurchase of common stock	(371)		(12,752)	-		-	-		-
Issuance of treasury stock	25		614	16		333	9		177
Balance at end of year	(914)	$	(32,888)	(568)	$	(20,750)	(584)	$	(21,083)
The accompanying notes are an integral part of the consolidated financial statements.

38 

AT&T Inc.
Consolidated Statements of Changes in Stockholders’ Equity (continued)
Dollars and shares in millions except per share amounts
	2012		2011		2010
	Amount		Amount		Amount
Accumulated Other Comprehensive Income    Attributable to AT&T, net of tax:
Balance at beginning of year	$	3,180	$	2,712	$	2,678
Other comprehensive income    attributable to AT&T		2,056		468		34
Balance at end of year	$	5,236	$	3,180	$	2,712
Noncontrolling Interest:
Balance at beginning of year	$	263	$	303	$	425
Net income attributable to noncontrolling    interest		275		240		315
Distributions		(205)		(220)		(278)
Acquisition of interests held by    noncontrolling owners		-		(59)		(162)
Translation adjustments attributable to    noncontrolling interest, net of taxes		-		(1)		3
Balance at end of year	$	333	$	263	$	303
Total Stockholders’ Equity at beginning of year	$	105,797	$	111,950	$	101,989
Total Stockholders’ Equity at end of year	$	92,695	$	105,797	$	111,950
The accompanying notes are an integral part of the consolidated financial statements.

39 

Notes to Consolidated Financial Statements

Dollars in millions except per share amounts

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation  Throughout this document, AT&T Inc. is referred to as “AT&T,” “we” or the “Company.” The consolidated financial statements include the accounts of the Company and our majority-owned subsidiaries and affiliates. Our subsidiaries and affiliates operate in the communications services industry both domestically and internationally, providing wireless communications services, local exchange services, long-distance services, data/broadband and Internet services, video services, telecommunications equipment, managed networking and wholesale services. During 2012, we sold our Advertising Solutions segment (see Note 4).

All significant intercompany transactions are eliminated in the consolidation process. Investments in partnerships and less than majority-owned subsidiaries where we have significant influence are accounted for under the equity method. Earnings from certain foreign equity investments accounted for using the equity method are included for periods ended within up to one month of our year end (see Note 7). We also record our proportionate share of our equity method investees’ other comprehensive income (OCI) items, including actuarial gains and losses on pension and other postretirement benefit obligations.

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

Income Taxes  We provide deferred income taxes for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the computed tax basis of those assets and liabilities. We provide valuation allowances against the deferred tax assets for which the realization is uncertain. We review these items regularly in light of changes in federal and state tax laws and changes in our business.

We report, on a net basis, taxes imposed by governmental authorities on revenue-producing transactions between us and our customers in our consolidated statements of income.

Cash and Cash Equivalents  Cash and cash equivalents include all highly-liquid investments with original maturities of three months or less. The carrying amounts approximate fair value. At December 31, 2012, we held $482 in cash and $4,386 in money market funds and other cash equivalents.

Revenue Recognition  Revenues derived from wireless, local telephone, long distance, data and video services are recognized when services are provided. This is based upon either usage (e.g., minutes of traffic/bytes of data processed), period of time (e.g., monthly service fees) or other established fee schedules. Our wireless service revenues are billed either in advance, arrears or are prepaid.

We record an estimated revenue reduction for future adjustments to customer accounts, other than bad debt expense, at the time revenue is recognized based on historical experience. Service revenues also include billings to our customers for various regulatory fees imposed on us by governmental authorities. Cash incentives given to customers are recorded as a reduction of revenue. When required as part of providing service, revenues and associated expenses related to nonrefundable, upfront service activation and setup fees are deferred and recognized over the associated service contract period or customer life. Associated expenses are deferred only to the extent of such deferred revenue. For contracts that involve the bundling of services, revenue is allocated to the services based on their relative selling price, subject to the requirement that revenue recognized is limited to the amounts already received from the customer that are not contingent upon the delivery of additional products or services to the customer in the future. We record the sale of equipment to customers as gross revenue when we are the primary obligor in the arrangement, when title is passed and when the products are accepted by customers. For agreements involving the resale of third-party services in which we are not considered the primary obligor of the arrangement, we record the revenue net of the associated costs incurred. For contracts in which we provide customers with an indefeasible right to use network capacity, we recognize revenue ratably over the stated life of the agreement.

Traffic Compensation Expense  We use various estimates and assumptions to determine the amount of traffic compensation expenses recognized during any reporting period. Switched traffic compensation costs are accrued utilizing estimated rates and volumes by product, formulated from historical data and adjusted for known rate changes. Such estimates are adjusted monthly to reflect newly available information, such as rate changes and new contractual agreements. Bills reflecting actual incurred information are generally not received within three months subsequent to the end of the reporting period, at which point a final adjustment is made to the accrued switched traffic compensation expense. Dedicated traffic compensation costs are estimated based on the number of circuits and the average projected circuit costs.

40 

Notes to Consolidated Financial Statements (continued)

Dollars in millions except per share amounts

Allowance for Doubtful Accounts  We record an expense to maintain an allowance for doubtful accounts for estimated losses that result from the failure or inability of our customers to make required payments. When determining the allowance, we consider the probability of recoverability of accounts receivable based on past experience, taking into account current collection trends as well as general economic factors, including bankruptcy rates. Credit risks are assessed based on historical write-offs, net of recoveries, as well as an analysis of the aged accounts receivable balances with allowances generally increasing as the receivable ages. Accounts receivable may be fully reserved for when specific collection issues are known to exist, such as pending bankruptcy or catastrophes.

Inventory  Inventories, which are included in “Other current assets” on our consolidated balance sheets, were $1,036 at December 31, 2012, and $1,188 at December 31, 2011. Wireless handsets and accessories, which are valued at the lower of cost or market (determined using current replacement cost) were $888 as of December 31, 2012, and $1,082 as of December 31, 2011. The remainder of our inventory includes new and reusable supplies and network equipment of our local telephone operations, which are stated principally at average original cost, or specific costs in the case of large individual items. Inventories of our other subsidiaries are stated at the lower of cost or market.

Property, Plant and Equipment  Property, plant and equipment is stated at cost, except for assets acquired using acquisition accounting, which are initially recorded at fair value (see Note 5). The cost of additions and substantial improvements to property, plant and equipment is capitalized. The cost of maintenance and repairs of property, plant and equipment is charged to operating expenses. Property, plant and equipment costs are depreciated using straight-line methods over their estimated economic lives. Certain subsidiaries follow composite group depreciation methodology. Accordingly, when a portion of their depreciable property, plant and equipment is retired in the ordinary course of business, the gross book value is reclassified to accumulated depreciation, and no gain or loss is recognized on the disposition of these assets.

Property, plant and equipment is reviewed for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. We recognize an impairment loss when the carryingamount of a long-lived asset is not recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset.

The fair value of a liability for an asset retirement obligation is recorded in the period in which it is incurred if a reasonable estimate of fair value can be made. In periods subsequent to initial measurement, we recognize period-to-period changes in the liability resulting from the passage of time and revisions to either the timing or the amount of the original estimate. The increase in the carrying value of the associated long-lived asset is depreciated over the corresponding estimated economic life.

Software Costs  It is our policy to capitalize certain costs incurred in connection with developing or obtaining internal-use software. Capitalized software costs are included in “Property, Plant and Equipment” on our consolidated balance sheets and are primarily amortized over a three-year period. In addition, there is certain network software that allows the equipment to provide the features and functions unique to the AT&T network, which we include in the cost of the equipment categories for financial reporting purposes.

41 

Notes to Consolidated Financial Statements (continued)

Dollars in millions except per share amounts

Goodwill and Other Intangible Assets  AT&T has four major classes of intangible assets: goodwill, Federal Communications Commission (FCC) licenses, other indefinite-lived intangible assets, made up predominately of the AT&T brand, and various other finite-lived intangible assets.

Goodwill represents the excess of consideration paid over the fair value of net assets acquired in business combinations. FCC licenses provide us with the exclusive right to utilize certain radio frequency spectrum to provide wireless communications services. While FCC licenses are issued for a fixed period of time (generally 10 years), renewals of FCC licenses have occurred routinely and at nominal cost. Moreover, we have determined that there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful lives of our FCC licenses. We acquired the rights to the AT&T and other brand names in previous acquisitions. We have the effective ability to retain these exclusive rights permanently at a nominal cost.

Goodwill, FCC licenses and other indefinite-lived intangible assets are not amortized but are tested at least annually for impairment. The testing is performed on the value as of October 1 each year, and compares the book value of the assets to their fair value. Goodwill is tested by comparing the book value of each reporting unit, deemed to be our principal operating segments (Wireless and Wireline), to the fair value of those reporting units calculated under a discounted cash flow approach as well as a market multiple approach. FCC licenses are tested for impairment on an aggregate basis, consistent with the management of the business on a national scope. We perform our test of the fair values of FCC licenses using a discounted cash flow model. Brand names are tested by comparing the book value to a fair value calculated using a discounted cash flow approach on a presumed royalty rate derived from the revenues related to the brand name. The fair value measurements used are considered Level 3 under the Fair Value Measurement and Disclosure framework (see Note 9).

Intangible assets that have finite useful lives are amortized over their useful lives (see Note 6). Customer lists and relationships are amortized using primarily the sum-of-the-months-digits method of amortization over the expected period in which those relationships are expected to contribute to our future cash flows. The remaining finite-lived intangible assets are generally amortized using the straight-line method of amortization.

Advertising Costs  We expense advertising costs for advertising products and services or for promoting our corporate image as we incur them (see Note 14).

Foreign Currency Translation  We are exposed to foreign currency exchange risk through our foreign affiliates and equity investments in foreign companies. Our foreign subsidiaries and foreign investments generally report their earnings in their local currencies. We translate our share of their foreign assets and liabilities at exchange rates in effect at the balance sheet dates. We translate our share of their revenues and expenses using average rates during the year. The resulting foreign currency translation adjustments are recorded as a separate component of accumulated other comprehensive income (accumulated OCI) in the accompanying consolidated balance sheets. We do not hedge foreign currency translation risk in the net assets and income we report from these sources. However, we do hedge a portion of the foreign currency exchange risk involved in anticipation of highly probable foreign currency-denominated transactions, which we explain further in our discussion of our methods of managing our foreign currency risk (see Note 9).

Employee Separations  We established obligations for expected termination benefits provided under existing plans to former or inactive employees after employment but before retirement. At December 31, 2012, we had severance accruals of $120 and at December 31, 2011, we had severance accruals of $335. The decline was primarily due to payments during the year.

Pension and Other Postretirement Benefits  See Note 11 for a comprehensive discussion of our pension and postretirement benefit expense, including a discussion of the actuarial assumptions and our policy for recognizing the associated gains and losses.

42 

Notes to Consolidated Financial Statements (continued)

Dollars in millions except per share amounts

NOTE 2. EARNINGS PER SHARE

A reconciliation of the numerators and denominators of basic earnings per share and diluted earnings per share for income from continuing operations for the years ended December 31, 2012, 2011 and 2010, are shown in the table below:

Year Ended December 31,	2012			2011			2010
Numerators
Numerator for basic earnings per share:
Income from continuing operations	$	7,539		$	4,184		$	19,400
Income attributable to noncontrolling interest		(275	)		(240	)		(315	)
Income from continuing operations attributable to AT&T		7,264			3,944			19,085
Dilutive potential common shares:
Other share-based payment		12			11			11
Numerator for diluted earnings per share	$	7,276		$	3,955		$	19,096
Denominators (000,000)
Denominator for basic earnings per share:
Weighted-average number of common shares outstanding		5,801			5,928			5,913
Dilutive potential common shares:
Stock options		3			4			3
Other share-based payment (in shares)		17			18			22
Denominator for diluted earnings per share		5,821			5,950			5,938
Basic earnings per share from continuing operations attributable to AT&T	$	1.25		$	0.66		$	3.23
Basic earnings per share from discontinued operations attributable to AT&T		-			-			0.13
Basic earnings per share attributable to AT&T	$	1.25		$	0.66		$	3.36
Diluted earnings per share from continuing operations attributable to AT&T	$	1.25		$	0.66		$	3.22
Diluted earnings per share from discontinued operations attributable to AT&T		-			-			0.13
Diluted earnings per share attributable to AT&T	$	1.25		$	0.66		$	3.35

At December 31, 2012, 2011 and 2010, we had issued and outstanding options to purchase approximately 17 million, 66 million, and 130 million shares of AT&T common stock. The exercise prices of 3 million, 40 million, and 100 million shares in 2012, 2011, and 2010 were above the average market price of AT&T stock for the respective periods. Accordingly, we did not include these amounts in determining the dilutive potential common shares. At December 31, 2012, the exercise prices of 14 million vested stock options were below market price.

43 

Notes to Consolidated Financial Statements (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 operating segments based on segment income before income taxes. We make our capital allocation 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 postemployment benefits, interest expense and other income (expense) – net, are managed only on a total company basis and are, accordingly, reflected only in consolidated results. Therefore, these items are not included in each segment’s reportable results. The customers and long-lived assets of our reportable segments are predominantly in the United States. At December 31, 2012, we had three reportable segments: (1) Wireless, (2) Wireline and (3) Other. Our operating results prior to May 9, 2012, also included Advertising Solutions, which was a reportable segment. On May 8, 2012, we completed the sale of our Advertising Solutions segment and received a 47 percent equity interest in the new entity YP Holdings LLC (YP Holdings) (see Note 4).

The Wireless segment uses our nationwide network to provide consumer and business customers with wireless voice and advanced data communications services. This segment includes our portion of the results from our mobile payment joint venture marketed as the Isis Mobile WalletTM (ISIS), which is accounted for as an equity investment.

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® high-speed broadband, video 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 home monitoring business moved to our Other 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 included our directory operations, which published Yellow and White Pages directories and sold directory advertising and Internet-based advertising and local search through May 8, 2012 (see Note 4).

The Other segment includes our portion of the results from our international equity investments, our 47 percent equity interest in YP Holdings, and costs to support corporate-driven activities and operations. Also included in the Other segment are impacts of corporate-wide decisions for which the individual operating segments are not being evaluated. 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.

44 

Notes to Consolidated Financial Statements (continued)

Dollars in millions except per share amounts

Segment Results, including a reconciliation to AT&T consolidated results, for 2012, 2011, and 2010 are as follows:
At December 31, 2012 and for the year ended							Advertising Solutions									Consolidated  Results
	Wireless			Wireline						Other			Consolidations
Total segment operating revenues	$	66,763		$	59,567		$	1,049		$	55		$	-		$	127,434
Operations and support expenses		43,296			41,207			773			1,024			9,994			96,294
Depreciation and amortization expenses		6,873			11,123			106			41			-			18,143
Total segment operating expenses		50,169			52,330			879			1,065			9,994			114,437
Segment operating income (loss)		16,594			7,237			170			(1,010	)		(9,994	)		12,997
Interest expense		-			-			-			-			3,444			3,444
Equity in net income (loss) of affiliates		(62	)		(2	)		-			816			-			752
Other income (expense) – net		-			-			-			-			134			134
Segment income (loss) before    income taxes	$	16,532		$	7,235		$	170		$	(194	)	$	(13,304	)	$	10,439
Segment Assets	$	132,556		$	134,386		$	-		$	10,728		$	(5,355	)	$	272,315
Investments in and advances    to equity method affiliates		41			-			-			4,540			-			4,581
Expenditures for additions    to long-lived assets		10,795			8,914			13			6			-			19,728
At December 31, 2011 and for the year ended							Advertising Solutions									Consolidated  Results
	Wireless			Wireline						Other			Consolidations
Total segment operating revenues	$	63,215		$	60,140		$	3,293		$	75		$	-		$	126,723
Operations and support expenses		41,282			41,360			5,175			5,031			6,280			99,128
Depreciation and amortization expenses		6,329			11,615			386			47			-			18,377
Total segment operating expenses		47,611			52,975			5,561			5,078			6,280			117,505
Segment operating income (loss)		15,604			7,165			(2,268	)		(5,003	)		(6,280	)		9,218
Interest expense		-			-			-			-			3,535			3,535
Equity in net income (loss) of affiliates		(29	)		-			-			813			-			784
Other income (expense) – net		-			-			-			-			249			249
Segment income (loss) before    income taxes	$	15,575		$	7,165		$	(2,268	)	$	(4,190	)	$	(9,566	)	$	6,716
Segment Assets	$	127,466		$	133,904		$	2,982		$	10,530		$	(4,440	)	$	270,442
Investments in and advances    to equity method affiliates		20			-			-			3,698			-			3,718
Expenditures for additions    to long-lived assets		9,765			10,449			29			29			-			20,272
For the year ended December 31, 2010							Advertising Solutions									Consolidated  Results
	Wireless			Wireline						Other			Consolidations
Total segment operating revenues	$	58,501		$	61,761		$	3,935		$	83		$	-		$	124,280
Operations and support expenses		36,185			41,879			2,584			2,159			2,521			85,328
Depreciation and amortization expenses		6,498			12,372			497			12			-			19,379
Total segment operating expenses		42,683			54,251			3,081			2,171			2,521			104,707
Segment operating income (loss)		15,818			7,510			854			(2,088	)		(2,521	)		19,573
Interest expense		-			-			-			-			2,994			2,994
Equity in net income of affiliates		9			11			-			742			-			762
Other income (expense) – net		-			-			-			-			897			897
Segment income (loss) before    income taxes	$	15,827		$	7,521		$	854		$	(1,346	)	$	(4,618	)	$	18,238

45 

Notes to Consolidated Financial Statements (continued)

Dollars in millions except per share amounts

NOTE 4. ACQUISITIONS, DISPOSITIONS AND OTHER ADJUSTMENTS

Acquisitions

Spectrum Acquisitions  During 2012, we acquired $855 of wireless spectrum from various companies. During 2011, we acquired $33 of wireless spectrum from various companies, not including the Qualcomm spectrum purchase discussed in the following paragraph.

Qualcomm Spectrum Purchase  In December 2011, we completed our purchase of spectrum licenses in the Lower 700 MHz frequency band from Qualcomm Incorporated for approximately $1,925 in cash. The spectrum covers more than 300 million people total nationwide, including 12 MHz of Lower 700 MHz D and E block spectrum covering more than 70 million people in five of the top 15 metropolitan areas and 6 MHz of Lower 700 MHz D block spectrum covering more than 230 million people across the rest of the United States. We plan to deploy this spectrum as supplemental downlink capacity, using carrier aggregation technology once compatible handsets and network equipment are developed.

Wireless Properties Transactions  In June 2010, we acquired certain wireless properties, including FCC licenses and network assets, from Verizon Wireless for $2,376 in cash. The assets primarily represent former Alltel Wireless assets and served approximately 1.6 million subscribers in 79 service areas across 18 states.

Centennial  In December 2010, we completed our acquisition accounting of Centennial Communications Corporation (Centennial), which included net assets of $1,518 in goodwill, $655 in FCC licenses, and $449 in customer lists and other intangible assets.

Purchase of Wireless Partnership Minority Interest  In July 2011, we completed the acquisition of Convergys Corporation’s minority interests in the Cincinnati SMSA Limited Partnership and an associated cell tower holding company for approximately $320 in cash.

Subsequent and Pending Acquisitions

Subsequent Spectrum Acquisitions  On January 24, 2013, we completed the acquisition of NextWave Wireless Inc. (NextWave), which holds wireless licenses in the Wireless Communication Services and Advanced Wireless Service (AWS) bands. We acquired all the equity and purchased a portion of the debt of NextWave for $600. In addition, certain of NextWave’s assets were distributed to the holders of its debt in redemption of the remainder of that debt. During January 2013, we have also closed approximately $400 of other wireless spectrum acquisitions from various companies.

Atlantic Tele-Network  On January 22, 2013, we announced an agreement to acquire Atlantic Tele-Network’s (ATNI) U.S. retail wireless operations for $780 in cash, which covers approximately 4.6 million people in primarily rural areas across six states – Georgia, Idaho, Illinois, North Carolina, Ohio and South Carolina. The acquisition includes spectrum in the 700 MHz, 850 MHz and 1900 MHz bands and is largely complementary to our existing network. The transaction is subject to regulatory approval and we expect it to close in the second half of 2013.

Purchase of Spectrum from Verizon  On January 25, 2013, we agreed to acquire spectrum in the 700MHz B band from Verizon Wireless for $1,900 in cash and the assignment of AWS spectrum in five markets. This transaction is subject to regulatory approval and we expect it to close in the second half of 2013.

Dispositions

Advertising Solutions  On May 8, 2012, we completed the sale of our Advertising Solutions segment to an affiliate of Cerberus Capital Management, L.P. for approximately $740 in cash after closing adjustments, a $200 note and a 47 percent equity interest in the new entity, YP Holdings. Our operating results include the results of the Advertising Solutions segment through May 8.

Tender of Telmex Shares  In August 2011, the Board of Directors of América Móvil, S.A. de C.V. (América Móvil) approved a tender offer for the remaining outstanding shares of Télefonos de México, S.A. de C.V. (Telmex) that were not already owned by América Móvil. We tendered all of our shares of Telmex for $1,197 of cash. Telmex was accounted for as an equity method investment (see Note 7).

Sale of Sterling Operations  In May 2010, we entered into an agreement to sell our Sterling Commerce Inc. (Sterling) subsidiary and changed our reporting for Sterling to discontinued operations. In August 2010, we completed the sale and received net proceeds of approximately $1,400.

46 

Notes to Consolidated Financial Statements (continued)

Dollars in millions except per share amounts

During the second quarter of 2010, we accounted for Sterling as a discontinued operation. We determined that the cash inflows under a transition services agreement and our cash outflows under an enterprise license agreement did not constitute significant continuing involvement with Sterling’s operations after the sale.

The following table includes Sterling’s operating results, which are presented in the “Income From Discontinued Operations, net of tax” line item on the consolidated statements of income. These operating results were reported in our Other segment through August 27, 2010:

Operating revenues	$	349
Operating expenses		327
Operating income		22
Income before income taxes		18
Income tax expense		8
Income from discontinued operations during phase-out period		10
Gain on disposal of discontinued operations		769
Income from discontinued operations, net of tax	$	779

Centennial  In August 2010, we sold operations in eight service areas in Louisiana and Mississippi, as required by the Department of Justice (DOJ), for $273 in cash.

Other Dispositions  In 2010, we also sold our domestic Japanese outsourcing services company for $109.

Other

T-Mobile  In March 2011, we agreed to acquire from Deutsche Telekom AG (Deutsche Telekom) all shares of T-Mobile USA, Inc. (T-Mobile) for approximately $39,000, subject to certain adjustments. In December 2011, in light of opposition to the merger from the DOJ and FCC, we and Deutsche Telekom agreed to terminate the transaction. Pursuant to the purchase agreement, we paid a breakup fee of $3,000, entered into a broadband roaming agreement and transferred certain wireless spectrum with a book value of $962. These agreement termination charges were included in “Selling, general and administrative” expenses in our Other segment.

NOTE 5. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is summarized as follows at December 31:

	Lives (years)		2012		2011
Land		-	$	1,689	$	1,689
Buildings and improvements		10-45		28,939		28,054
Central office equipment1		3-10		86,185		83,824
Cable, wiring and conduit		10-50		80,338		78,431
Other equipment		5-20		61,387		53,104
Software		3-5		7,957		10,041
Under construction		-		4,412		5,136
				270,907		260,279
Accumulated depreciation and amortization				161,140		153,192
Property, plant and equipment - net			$	109,767	$	107,087
1  Includes certain network software.

Our depreciation expense was $16,933 in 2012, $16,368 in 2011 and $16,402 in 2010. Depreciation expense included amortization of software totaling $2,130 in 2012, $2,243 in 2011 and $2,515 in 2010.

Certain facilities and equipment used in operations are leased under operating or capital leases. Rental expenses under operating leases were $3,709 for 2012, $3,610 for 2011, and $3,060 for 2010. At December 31, 2012, the future minimum rental payments under noncancelable operating leases for the years 2013 through 2017 were $2,706, $2,616, $2,486, $2,337, and $2,165, with $11,755 due thereafter. Certain real estate operating leases contain renewal options that may be exercised. Capital leases are not significant.

47 

Notes to Consolidated Financial Statements (continued)

Dollars in millions except per share amounts

NOTE 6. GOODWILL AND OTHER INTANGIBLE ASSETS

Changes in the carrying amounts of goodwill, by segment (which is the same as the reporting unit for Wireless, Wireline and Advertising Solutions), for the years ended December 31, 2012 and 2011, were as follows:

	Wireless			Wireline		Advertising Solutions			Other			Total
Balance as of January 1, 2011	$	35,755		$	31,670	$	5,731		$	445		$	73,601
Goodwill acquired		5			-		-			-			5
Impairments		-			-		(2,745	)		-			(2,745	)
Other		(5	)		1,968		(1,927	)		(55	)		(19	)
Balance as of December 31, 2011		35,755			33,638		1,059			390			70,842
Goodwill acquired		13			5		-			-			18
Other		35			327		(1,059	)		(390	)		(1,087	)
Balance as of December 31, 2012	$	35,803		$	33,970	$	-		$	-		$	69,773

In 2011, we recorded a $2,745 impairment in the Advertising Solutions segment, triggered by declining revenues in our directory business and the directory industry as a whole. Changes to goodwill during 2011 also included a $1,927 reclassification of goodwill from the Advertising Solutions segment to the Wireline segment to align certain advertising operations with our U-verse business, which operates the media platform for those advertising operations. Changes to goodwill during 2012 primarily resulted from the sale of the Advertising Solutions segment (see Note 4). Changes in goodwill during 2012 also included a reclassification of goodwill due to segment reclassification to better align goodwill with operations.

Our other intangible assets are summarized as follows:

	December 31, 2012				December 31, 2011
Other Intangible Assets	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Amortized intangible assets:
Customer lists and relationships:
AT&T Mobility LLC	$	6,760	$	6,335	$	6,845	$	5,906
BellSouth Corporation		5,825		4,994		9,205		7,686
AT&T Corp.		2,490		2,356		2,483		2,205
Other		351		350		350		329
Subtotal		15,426		14,035		18,883		16,126
Other		304		174		485		258
Total	$	15,730	$	14,209	$	19,368	$	16,384

Indefinite-lived intangible assets not subject to amortization:
Licenses	$	52,352	$	51,374
Trade names		4,902		4,985
Total	$	57,254	$	56,359

Amortized intangible assets are definite-life assets, and as such, we record amortization expense based on a method that most appropriately reflects our expected cash flows from these assets. Intangible assets that have finite useful lives are amortized over their useful lives, a weighted-average of 8.5 years (8.4 years for customer lists and relationships and 12.1 years for other). Customer lists and relationships are amortized using primarily the sum-of-the-months-digits method of amortization over the expected period in which those relationships are expected to contribute to our future cash flows. The remaining finite-lived intangible assets are generally amortized using the straight-line method of amortization. Amortization expense for definite-life intangible assets was $1,210 for the year ended December 31, 2012, $2,009 for the year ended December 31, 2011, and $2,977 for the year ended December 31, 2010. Amortization expense is estimated to be $667 in 2013, $348 in 2014, $218 in 2015, $123 in 2016, and $57 in 2017. In 2012, we wrote off approximately $191 in fully amortized intangible assets (primarily patents) and $3,187 of customer lists due to the sale of our Advertising Solutions segment (see Note 4). We review other amortizing intangible assets for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable over the remaining life of the asset or asset group.

48 

Notes to Consolidated Financial Statements (continued)

Dollars in millions except per share amounts

We review indefinite-lived intangible assets for impairment annually (see Note 1). Licenses include wireless FCC licenses of $52,318 at December 31, 2012 and $51,358 at December 31, 2011, that provide us with the exclusive right to utilize certain radio frequency spectrum to provide wireless communications services.

We recorded a $165 impairment in 2011 and an $85 impairment in 2010 for a trade name.

NOTE 7. EQUITY METHOD INVESTMENTS

Investments in partnerships, joint ventures and less than majority-owned subsidiaries in which we have significant influence are accounted for under the equity method.

Our investments in equity affiliates primarily include international equity investments, and our 47 percent equity interest in YP Holdings. As of December 31, 2012, our investments in equity affiliates included a 9.55 percent interest in América Móvil, primarily a wireless provider in Mexico with telecommunications investments in the United States and Latin America. We are a member of a consortium that holds all of the class AA shares of América Móvil stock, representing voting control of the company. Another member of the consortium has the right to appoint a majority of the directors of América Móvil.

Telmex Transaction  During 2011, the Board of Directors of América Móvil approved and completed a tender offer for the remaining outstanding shares of Telmex that were not already owned by América Móvil. In conjunction with the tender of our shares, we have recorded our portion of América Móvil’s resulting equity adjustments.

Telmex Internacional  On June 11, 2010, as part of a tender offer from América Móvil, we exchanged all our shares in Telmex Internacional, S.A.B. de C.V. (Telmex Internacional) for América Móvil L shares at the offered exchange rate of 0.373, which resulted in a pretax gain of $658. The exchange was accounted for at fair value. In addition, we paid $202 to purchase additional shares of América Móvil L shares to maintain our ownership percentage at a pretransaction level.

The following table is a reconciliation of our investments in equity affiliates as presented on our consolidated balance sheets:

	2012			2011
Beginning of year	$	3,718		$	4,515
Additional investments		405			35
Equity in net income of affiliates		752			784
Dividends received		(137	)		(161	)
Dispositions		-			(660	)
Currency translation adjustments		95			(515	)
América Móvil equity adjustments		(260	)		(171	)
Other adjustments		8			(109	)
End of year	$	4,581		$	3,718

Undistributed earnings from equity affiliates were $6,375 and $5,760 at December 31, 2012 and 2011.

At December 31, 2012 the fair value of our investment in América Móvil, based on the equivalent value of América Móvil L shares was $8,380.

49 

Notes to Consolidated Financial Statements (continued)

Dollars in millions except per share amounts

NOTE 8. DEBT

Long-term debt of AT&T and its subsidiaries, including interest rates and maturities, is summarized as follows at December 31:

				2012		2011
Notes and debentures
		Interest Rates	Maturities1
		0.80% – 2.99%	2012 – 2022	$	13,969	$	5,500
		3.00% – 4.99%	2012 – 2045		14,590		8,659
		5.00% – 6.99%	2012 – 2095		35,226		41,390
		7.00% – 9.10%	2012 – 2097		7,059		8,471
		Other			2		3
Fair value of interest rate swaps recorded in debt					267		445
					71,113		64,468
Unamortized (discount) premium - net					(1,535)		46
Total notes and debentures					69,578		64,514
Capitalized leases					265		239
Total long-term debt, including current maturities					69,843		64,753
Current maturities of long-term debt					(3,485)		(3,453)
Total long-term debt				$	66,358	$	61,300
1	Maturities assume putable debt is redeemed by the holders at the next opportunity.

Current maturities of long-term debt include debt that may be put back to us by the holders in 2013. We have $1,000 of annual put reset securities that may be put each April until maturity in 2021. If the holders do not require us to repurchase the securities, the interest rate will be reset based on current market conditions. Likewise, we have an accreting zero-coupon note that may be redeemed each May, until maturity in 2022. If the zero-coupon note (issued for principal of $500 in 2007) is held to maturity, the redemption amount will be $1,030.

Debt maturing within one year consisted of the following at December 31:

			2012		2011
Current maturities of long-term debt		$	3,485	$	3,453
Bank borrowings1			1		-
Total		$	3,486	$	3,453
1	Outstanding balance of short-term credit facility of a foreign subsidiary.

Debt Refinancing

During 2012, we received net proceeds of $13,486, from the issuance of $13,569 in long-term debt with an average weighted maturity of approximately 12 years and an average interest rate of 2.54%. We redeemed $8,083 in borrowing, including $6,200 in early redemptions, with an average interest rate of 5.58%.

Debt Exchange

During 2012, we completed a private debt exchange covering $4,099 of various notes with stated rates of 6.00% to 8.75% for $1,956 in new 4.3% AT&T Inc. global notes due 2042 and $3,044 in new 4.35% AT&T Inc. global notes due 2045 plus a $650 cash payment.

As of December 31, 2012 and 2011, we were in compliance with all covenants and conditions of instruments governing our debt. Substantially all of our outstanding long-term debt is unsecured. Maturities of outstanding long-term notes and debentures, as of December 31, 2012, and the corresponding weighted-average interest rate scheduled for repayment are as follows:

		2013			2014			2015			2016			2017			Thereafter
Debt repayments1		$	3,475		$	3,788		$	6,514		$	4,923		$	4,757		$	47,578
Weighted-average interest rate			4.9	%		5.2	%		3.2	%		3.7	%		2.5	%		5.5	%
1	Debt repayments assume putable debt is redeemed by the holders at the next opportunity.

50 

Notes to Consolidated Financial Statements (continued)

Dollars in millions except per share amounts

Credit Facilities

On December 11, 2012, we amended and extended for an additional one-year term our existing $5,000, four-year revolving credit agreement (Four-Year Agreement) with a syndicate of banks until December 2016. We also entered into a new $3,000, five-year revolving credit agreement (Five-Year Agreement), with a syndicate of banks, to replace our expiring 364-day revolving credit agreement. In the event advances are made under either agreement, those advances would be used for general corporate purposes. Advances are not conditioned on the absence of a material adverse change. All advances must be repaid no later than the date on which lenders are no longer obligated to make any advances under each agreement. Under each agreement, we can terminate, in whole or in part, amounts committed by the lenders in excess of any outstanding advances; however, we cannot reinstate any such terminated commitments. At December 31, 2012, we had no advances outstanding under either agreement and were in compliance with all covenants under each agreement.

Advances under both agreements would bear interest, at AT&T's option, either:

·   at a variable annual rate equal to (1) the highest of:  (a) the base (or prime) rate of the bank affiliate of Citibank, N.A. which is serving as administrative agent under the Agreement, (b) 0.50% per annum above the Federal funds rate, and (c) the London Interbank Offered Rate (LIBOR) applicable to U.S. dollars for a period of one month plus 1.00% per annum, plus (2) an applicable margin, as set forth in the Agreement (Applicable Margin); or

·   at a rate equal to:  (i) the LIBOR for a period of one, two, three or six months, as applicable, plus (ii) the Applicable Margin.

The Applicable Margin for both agreements will equal 0.565% per annum if our unsecured long-term debt is rated at least A+ by Standard & Poor’s (S&P) or Fitch, Inc. (Fitch) or A1 by Moody’s Investors Service (Moody’s). The Applicable Margin will be 0.680% per annum if our unsecured long-term debt ratings are A or A2 and will be 0.910% per annum in the event our unsecured long-term debt ratings are A- and A3 (or below). In the event that AT&T’s unsecured long-term debt ratings are split by S&P, Moody’s and Fitch, then the Applicable Margin will be determined by the highest of the three ratings, except that in the event the lowest of such ratings is more than one level below the highest of the ratings then the Applicable Margin will be determined based on the level that is one level above the lowest of such ratings.

Under each agreement AT&T will pay a facility fee of 0.060%, 0.070% or 0.090% per annum, depending on AT&T’s credit rating, of the amount of lender commitments.

Both agreements contain a negative pledge covenant, which requires that, if at any time AT&T or a subsidiary pledges assets or otherwise permits a lien on its properties, advances under the agreement will be ratably secured, subject to specified exceptions. Both agreements also contain a financial ratio covenant that provides that AT&T will maintain, as of the last day of each fiscal quarter, a debt-to-EBITDA (earnings before interest, income taxes, depreciation and amortization, and other modifications described in the agreements) ratio of not more than 3.0 to 1, for the four quarters then ended.

Defaults under both agreements, which would permit the lenders to accelerate required repayment and which would increase the Applicable Margin by 2.00% per annum, include:

·   We fail to pay principal or interest, or other amounts under the agreement beyond any grace period.

·   We fail to pay when due other debt of $400 or more that results in acceleration of that debt (commonly referred to as cross-acceleration) or a creditor commences enforcement proceedings within a specified period after a money judgment of $400 or more has become final.

·   A person acquires beneficial ownership of more than 50% of AT&T common shares or more than a majority of AT&T’s directors change in any 24-month period other than as elected by the remaining directors (commonly referred to as a change in control).

·   Material breaches of representations or warranties in the agreement.

·   We fail to comply with the negative pledge or debt-to-EBITDA ratio covenants under the agreement.

·   We fail to comply with other covenants under the agreement for a specified period after notice.

·   We fail to make certain minimum funding payments under the Employee Retirement Income Security Act of 1974, as amended (ERISA).

·   Our bankruptcy or insolvency.

51 

Notes to Consolidated Financial Statements (continued)

Dollars in millions except per share amounts

Both the Five-Year Agreement and the Four-Year Agreement contain provisions permitting subsidiaries to be added as additional borrowers, with or without a guarantee by AT&T Inc. The terms of the guarantee are set forth in the agreements.

Four-Year Agreement

The obligations of the lenders under the Four-Year Agreement to provide advances will terminate on December 11, 2016, unless prior to that date either:  (i) AT&T and, if applicable, a Co-Borrower, reduces to $0 the commitments of the lenders under the Agreement or (ii) certain events of default occur. The Agreement also provides that AT&T and lenders representing more than 50% of the facility amount may agree to extend their commitments under the Four-Year Agreement for two additional one-year periods beyond the December 11, 2016 termination date, under certain circumstances. We also can request the lenders to further increase their commitments (i.e., raise the available credit) up to an additional $2,000 provided no event of default has occurred.

Five-Year Agreement

The obligations of the lenders under the Five-Year Agreement to provide advances will terminate on December 11, 2017, unless prior to that date either:  (i) AT&T, and if applicable, a Co-Borrower, reduce to $0 the commitments of the lenders, or (ii) certain events of default occur. We and lenders representing more than 50% of the facility amount may agree to extend their commitments for two one-year periods beyond the December 11, 2017, termination date, under certain circumstances. We also can request the lenders to further increase their commitments (i.e., raise the available credit) up to an additional $2,000 provided no event of default has occurred.

NOTE 9. FAIR VALUE MEASUREMENTS AND DISCLOSURE

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

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

Level 2 Inputs to the valuation methodology include:

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

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

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

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

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

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

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

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.

52 

Notes to Consolidated Financial Statements (continued)

Dollars in millions except per share amounts

Long-Term Debt and Other Financial Instruments

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

	December 31, 2012				December 31, 2011
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Notes and debentures	$	69,578	$	81,310	$	64,514	$	73,738
Bank borrowings		1		1		-		-
Investment securities		2,218		2,218		2,092		2,092

The carrying value of debt with an original maturity of less than one year approximates market value. The fair value measurement used for notes and debentures are considered Level 2.

Investment Securities

Our investment securities include equities, fixed income bonds and other securities. A substantial portion of the fair values of our available-for-sale securities 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 OCI. Unrealized losses that are considered other than temporary are recorded in “Other income (expense) – net” with the corresponding reduction to the carrying basis of the investment. Fixed income investments of $86 have maturities of less than one year, $280 within one to three years, $210 within three to five years, and $261 for five or more years, which approximate fair value.

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

Our investment securities 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.

53 

Notes to Consolidated Financial Statements (continued)

Dollars in millions except per share amounts

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

	December 31, 2012
	Level 1		Level 2			Level 3		Total
Available-for-Sale Securities
Domestic equities	$	873	$	-		$	-	$	873
International equities		469		-			-		469
Fixed income bonds		-		837			-		837
Asset Derivatives1
Interest rate swaps		-		287			-		287
Cross-currency swaps		-		752			-		752
Foreign exchange contracts		-		1			-		1
Liability Derivatives1
Cross-currency swaps		-		(672	)		-		(672	)
	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,other current assets.

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 years ended December 31, 2012, and December 31, 2011, no ineffectiveness was measured.

54 

Notes to Consolidated Financial Statements (continued)

Dollars in millions except per share amounts

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 years ended December 31, 2012, and December 31, 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 consolidated other income/expense. 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 portion of the exchange risk involved in anticipation of highly probable foreign currency-denominated transactions. In anticipation of these transactions, we often enter into foreign exchange contracts to provide currency at a fixed rate. Some of these instruments are designated as cash flow hedges while others remain nondesignated, largely based on size and duration. Gains and losses at the time we settle or take delivery on our designated foreign exchange contracts are amortized into income in the same period the hedged transaction affects earnings, except where an amount is deemed to be ineffective, which would be immediately reclassified to other income (expense) on the consolidated income statement. In the years ended December 31, 2012, and December 31, 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 December 31, 2012, we had posted collateral of $22 (a deposit asset) and held collateral of $543 (a receipt liability). Under the agreements, if our credit rating had been downgraded one rating level by Moody’s and Fitch before the final collateral exchange in December, we would have been required to post additional collateral of $120. At December 31, 2011, we had posted collateral of $98 and had no held collateral. 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.

55 

Notes to Consolidated Financial Statements (continued)

Dollars in millions except per share amounts

Following is the notional amount of our outstanding derivative positions at December 31:

	2012		2011
Interest rate swaps	$	3,000	$	8,800
Cross-currency swaps		12,071		7,502
Interest rate locks		-		800
Foreign exchange contracts		51		207
Total	$	15,122	$	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
For the years ended December 31,	2012				2011				2010
Interest rate swaps (Interest expense):
Gain (Loss) on interest rate swaps		$	(179	)		$	10			$	125
Gain (Loss) on long-term debt			179				(10	)			(125	)

In addition, the net swap settlements that accrued and settled in the periods above were offset against interest expense.

Cash Flow Hedging Relationships
For the year ended December 31,	2012			2011			2010
Cross-currency swaps:
Gain (Loss) recognized in accumulated OCI	$	432		$	(219	)	$	(201	)
Interest rate locks:
Gain (Loss) recognized in accumulated OCI		-			(167	)		(320	)
Interest income (expense) reclassified from    accumulated OCI into income		(43	)		(23	)		(19	)
Foreign exchange contracts:
Gain (Loss) recognized in accumulated OCI		5			(10	)		5

The balance of the unrealized derivative gain (loss) in accumulated OCI was $(110) at December 31, 2012, $(421) at December 31, 2011, and $(180) at December 31, 2010.

56 

Notes to Consolidated Financial Statements (continued)

Dollars in millions except per share amounts

NOTE 10. INCOME TAXES

Significant components of our deferred tax liabilities (assets) are as follows at December 31:

	2012			2011
Depreciation and amortization	$	41,411		$	39,367
Intangibles (nonamortizable)		1,874			1,897
Employee benefits		(13,350	)		(14,950	)
Net operating loss and other carryforwards		(2,167	)		(1,502	)
Other – net		(1,199	)		(1,451	)
Subtotal		26,569			23,361
Deferred tax assets valuation allowance		886			917
Net deferred tax liabilities	$	27,455		$	24,278
Net long-term deferred tax liabilities	$	28,491		$	25,748
Less: Net current deferred tax assets		(1,036	)		(1,470	)
Net deferred tax liabilities	$	27,455		$	24,278

At December 31, 2012, we had combined net operating and capital loss carryforwards (tax effected) for federal income tax purposes of $780 and for state and foreign income tax purposes of $956, expiring through 2031. Additionally, we had state credit carryforwards of $431, expiring primarily through 2032.

We recognize a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion, or all, of a deferred tax asset will not be realized. Our valuation allowances at December 31, 2012 and 2011, relate primarily to state net operating loss and state credit carryforwards.

We recognize the financial statement effects of a tax return position when it is more likely than not, based on the technical merits, that the position will ultimately be sustained. For tax positions that meet this recognition threshold, we apply our judgment, taking into account applicable tax laws and our experience in managing tax audits and relevant GAAP, to determine the amount of tax benefits to recognize in our financial statements. For each position, the difference between the benefit realized on our tax return and the benefit reflected in our financial statements is recorded on our consolidated balance sheets as an unrecognized tax benefit (UTB). We update our UTBs at each financial statement date to reflect the impacts of audit settlements and other resolution of audit issues, expiration of statutes of limitation, developments in tax law and ongoing discussions with taxing authorities. A reconciliation of the change in our UTB balance from January 1 to December 31 for 2012 and 2011 is as follows:

Federal, State and Foreign Tax	2012			2011
Balance at beginning of year	$	4,541		$	4,360
Increases for tax positions related to the current year		791			217
Increases for tax positions related to prior years		991			848
Decreases for tax positions related to prior years		(1,426	)		(1,066	)
Lapse of statute of limitations		(29	)		-
Settlements		(75	)		182
Balance at end of year		4,793			4,541
Accrued interest and penalties		977			1,312
Gross unrecognized income tax benefits		5,770			5,853
Less: Deferred federal and state income tax benefits		(610	)		(797	)
Less: Tax attributable to timing items included above		(2,448	)		(2,331	)
Total UTB that, if recognized, would impact the
effective income tax rate as of the end of the year	$	2,712		$	2,725

Periodically we make deposits to taxing jurisdictions which reduce our UTB balance but are not included in the reconciliation above. The amount of deposits that reduced our UTB balance was $2,372 at December 31, 2012, and $2,508 at December 31, 2011.

57 

Notes to Consolidated Financial Statements (continued)

Dollars in millions except per share amounts

Accrued interest and penalties included in UTBs were $977 as of December 31, 2012, and $1,312 as of December 31, 2011. We record interest and penalties related to federal, state and foreign UTBs in income tax expense. The net interest and penalty expense (benefit) included in income tax expense was $(74) for 2012, $(65) for 2011, and $(194) for 2010.

We file income tax returns in the U.S. federal jurisdiction and various state, local and foreign jurisdictions. As a large taxpayer, our income tax returns are regularly audited by the Internal Revenue Service (IRS) and other taxing authorities. The IRS has completed field examinations of our tax returns through 2008. All audit periods prior to 2003 are closed for federal examination purposes. We are engaged with the IRS Appeals Division in resolving issues related to our 2003 through 2008 returns; we are unable to estimate the impact the resolution of these issues may have on our UTBs.

The components of income tax (benefit) expense are as follows:

	2012			2011			2010
Federal:
Current	$	451		$	(420	)	$	307
Deferred – net		2,256			2,555			(2,105	)
		2,707			2,135			(1,798	)
State, local and foreign:
Current		702			23			141
Deferred – net		(509	)		374			495
		193			397			636
Total	$	2,900		$	2,532		$	(1,162	)

A reconciliation of income tax expense (benefit) and the amount computed by applying the statutory federal income tax rate (35%) to income from continuing operations before income taxes is as follows:

	2012			2011			2010
Taxes computed at federal statutory rate	$	3,654		$	2,351		$	6,383
Increases (decreases) in income taxes resulting from:
State and local income taxes – net of federal income tax benefit		85			210			441
Goodwill Impairment		-			961			-
Healthcare Reform Legislation		-			-			917
IRS Settlement – 2008 Wireless Restructuring		-			-			(8,300	)
Other – net		(839	)		(990	)		(603	)
Total	$	2,900		$	2,532		$	(1,162	)
Effective Tax Rate		27.8	%		37.7	%		(6.4	) %

In March 2010, comprehensive healthcare reform legislation, which included a change in the tax treatment related to Medicare Part D subsidies, was enacted. We recorded a $995 charge to income tax expense in our consolidated statement of income during the first quarter of 2010 and increased our deferred income taxes liability balance to reflect the impact of this change.

In September 2010, we reached a settlement with the IRS on tax basis calculations related to a 2008 restructuring of our wireless operations. The IRS settlement resolved the uncertainty regarding the amount and timing of amortization deductions related to certain of our wireless assets. We recorded an $8,300 reduction to income tax expense in our consolidated statement of income during the third quarter of 2010 and corresponding decreases of $6,760 to our net noncurrent deferred income tax liabilities and $1,540 to other net tax liabilities to reflect the tax benefits of the settlement. The IRS settlement resulted in a reduction to our UTBs for tax positions related to prior years of $1,057, which also reduced the total amount of UTBs that, if recognized, would impact the effective tax rate.

58 

Notes to Consolidated Financial Statements (continued)

Dollars in millions except per share amounts

NOTE 11. PENSION AND POSTRETIREMENT BENEFITS

Pension Benefits and Postretirement Benefits

Substantially all of our U.S. employees are covered by one of our noncontributory pension and death benefit plans. Our newly hired management employees participate in a cash balance pension program, while longer-service management employees participate in a pension program that has a traditional pension formula (i.e., a stated percentage of employees’ adjusted career income) and a frozen cash balance, or a program that has a defined lump sum formula. Nonmanagement employees’ pension benefits are generally calculated using one of two formulas: benefits are based on a flat dollar amount per year according to job classification or are calculated under a cash balance plan that is based on an initial cash balance amount and a negotiated annual pension band and interest credits. Most nonmanagement employees can elect to receive their pension benefits in either a lump sum payment or an annuity.

We also provide a variety of medical, dental and life insurance benefits to certain retired employees under various plans and accrue actuarially determined postretirement benefit costs as active employees earn these benefits.

During 2012, approximately 90,000 collectively bargained employees ratified new agreements. For the vast majority of covered employees, the agreements provided for a pension band increase of 1 percent for each year of the agreement. These agreements also provide for continued health care coverage with a modest increase to employee costs over the agreement term. There were also modest increases to retiree costs for continued health care coverage for retirees.

During 2012, we transferred the funding of the payment of postretirement death benefits not already in the Voluntary Employee Benefit Association (VEBA) trust from the pension trust to the postretirement VEBA trust.

In 2011, we announced that beginning in 2013, as a result of federal healthcare reform, we would begin contracting with a Medicare Part D plan on a group basis to provide prescription drug benefits to certain Medicare eligible retirees. This plan change resulted in the adoption of plan amendments during the fourth quarter of 2011, and will allow the Company to be eligible for greater Medicare Part D plan subsidies over time.

Obligations and Funded Status

For defined benefit pension plans, the benefit obligation is the “projected benefit obligation,” the actuarial present value, as of our December 31 measurement date, of all benefits attributed by the pension benefit formula to employee service rendered to that date. The amount of benefit to be paid depends on a number of future events incorporated into the pension benefit formula, including estimates of the average life of employees/survivors and average years of service rendered. It is measured based on assumptions concerning future interest rates and future employee compensation levels.

For postretirement benefit plans, the benefit obligation is the “accumulated postretirement benefit obligation,” the actuarial present value as of a date of all future benefits attributed under the terms of the postretirement benefit plan to employee service rendered to the valuation date.

The following table presents this reconciliation and shows the change in the projected benefit obligation for the years ended December 31:

	Pension Benefits				Postretirement Benefits
	2012		2011		2012		2011
Benefit obligation at beginning of year	$	56,110	$	53,917	$	34,953	$	36,638
Service cost - benefits earned during the period		1,216		1,186		336		362
Interest cost on projected benefit obligation		2,800		2,958		1,725		2,051
Amendments		(905)		-		(2,768)		(1,830)
Actuarial loss		6,707		2,972		4,844		478
Special termination benefits		12		27		5		4
Benefits paid		(5,729)		(4,950)		(2,608)		(2,750)
Transfer for sale of Advertising Solutions segment		(149)		-		(207)		-
Plan transfers		(1,151)		-		1,151		-
Benefit obligation at end of year	$	58,911	$	56,110	$	37,431	$	34,953

59 

Notes to Consolidated Financial Statements (continued)

Dollars in millions except per share amounts

The following table presents the change in the value of plan assets for the years ended December 31 and the plans’ funded status at December 31:

		Pension Benefits				Postretirement Benefits
		2012		2011		2012		2011
Fair value of plan assets at beginning of year		$	45,907	$	47,621	$	9,890	$	12,747
Actual return on plan assets			5,041		2,238		1,266		(224)
Benefits paid1			(5,729)		(4,950)		(1,842)		(2,633)
Contributions			3		1,000		-		-
Transfer for sale of Advertising Solutions segment			(165)		-		(19)		-
Other			3		(2)		-		-
Fair value of plan assets at end of year			45,060		45,907		9,295		9,890
Unfunded status at end of year2		$	(13,851)	$	(10,203)	$	(28,136)	$	(25,063)
1	At our discretion, certain postretirement benefits may be paid from AT&T cash accounts, which does not reduce VEBA assets.
	Future benefit payments may be made from VEBA trusts and thus reduce those asset balances.
2	Funded status is not indicative of our ability to pay ongoing pension benefits or of our obligation to fund retirement trusts.
	Required pension funding is determined in accordance with ERISA regulations.

Amounts recognized on our consolidated balance sheets at December 31 are listed below:

		Pension Benefits				Postretirement Benefits
		2012		2011		2012		2011
Current portion of employee benefit obligation1		$	-	$	-	$	(2,116)	$	(2,288)
Employee benefit obligation2			(13,851)		(10,203)		(26,020)		(22,775)
Net amount recognized		$	(13,851)	$	(10,203)	$	(28,136)	$	(25,063)
1	Included in “Accounts payable and accrued liabilities.”
2	Included in “Postemployment benefit obligation.”

Prior service credits included in our accumulated OCI that have not yet been recognized in net periodic benefit cost were $1,035 for pension and $7,688 for postretirement benefits at December 31, 2012, and $149 for pension and $5,896 for postretirement benefits at December 31, 2011.

The accumulated benefit obligation for our pension plans represents the actuarial present value of benefits based on employee service and compensation as of a certain date and does not include an assumption about future compensation levels. The accumulated benefit obligation for our pension plans was $57,010 at December 31, 2012, and $53,640 at December 31, 2011.

Net Periodic Benefit Cost and Other Amounts Recognized in Other Comprehensive Income

Our combined net pension and postretirement cost recognized in our consolidated statements of income was $10,257, $7,288 and $3,750 for the years ended December 31, 2012, 2011 and 2010. A portion of pension and postretirement benefit costs is capitalized as part of the benefit load on internal construction and capital expenditures, providing a small reduction in the net expense recorded.

The following tables present the components of net periodic benefit obligation cost and other changes in plan assets and benefit obligations recognized in OCI:

60 

Notes to Consolidated Financial Statements (continued)

Dollars in millions except per share amounts

Net Periodic Benefit Cost
		Pension Benefits						Postretirement Benefits
		2012		2011		2010		2012		2011		2010
Service cost – benefits earned    during the period		$	1,216	$	1,186	$	1,075	$	336	$	362	$	348
Interest cost on projected benefit    obligation			2,800		2,958		3,150		1,725		2,051		2,257
Expected return on assets			(3,520)		(3,690)		(3,775)		(811)		(1,040)		(943)
Amortization of prior service    cost (credit)			(15)		(15)		(16)		(927)		(694)		(624)
Actuarial (gain) loss			5,206		4,498		1,768		4,247		1,672		510
Net pension and postretirement    cost1		$	5,687	$	4,937	$	2,202	$	4,570	$	2,351	$	1,548
1	During 2012, 2011 and 2010, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 reduced postretirementbenefit cost by $142, $280 and $237. This effect is included in several
	line items above.

Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income
	Pension Benefits						Postretirement Benefits
	2012		2011		2010		2012		2011		2010
Prior service (cost) credit	$	559	$	-	$	-	$	1,686	$	1,134	$	459
Amortization of prior service cost    (credit)		(10)		(10)		(10)		(575)		(430)		(388)
Total recognized in other    comprehensive (income) loss    (net of tax)	$	549	$	(10)	$	(10)	$	1,111	$	704	$	71

The estimated prior service credits that will be amortized from accumulated OCI into net periodic benefit cost over the next fiscal year is $94 for pension and $1,049 for postretirement benefits.

Assumptions

In determining the projected benefit obligation and the net pension and postemployment benefit cost, we used the following significant weighted-average assumptions:

	2012			2011			2010
Discount rate for determining projected benefit obligation at December 31		4.30	%		5.30	%		5.80	%
Discount rate in effect for determining net cost		5.30	%		5.80	%		6.50	%
Long-term rate of return on plan assets		8.25	%		8.25	%		8.50	%
Composite rate of compensation increase for determining projected benefit    obligation		3.00	%		4.00	%		4.00	%
Composite rate of compensation increase for determining net pension    cost (benefit)		4.00	%		4.00	%		4.00	%

Uncertainty in the securities markets and U.S. economy could result in investment returns less than those assumed. Should the securities markets decline or medical and prescription drug costs increase at a rate greater than assumed, we would expect increasing annual combined net pension and postretirement costs for the next several years. Should actual experience differ from actuarial assumptions, the projected pension benefit obligation and net pension cost and accumulated postretirement benefit obligation and postretirement benefit cost would be affected in future years.

Our expected return on plan assets is calculated using the actual fair value of plan assets. We recognize actual gains and losses on pension and postretirement plan assets immediately in our operating results. These gains and losses are measured annually as of December 31 and accordingly will be recorded during the fourth quarter, unless earlier remeasurements are required.

61 

Notes to Consolidated Financial Statements (continued)

Dollars in millions except per share amounts

Discount Rate  Our assumed discount rate of 4.30% at December 31, 2012, reflects the hypothetical rate at which the projected benefit obligations could be effectively settled or paid out to participants. We determined our discount rate based on a range of factors, including a yield curve composed of the rates of return on several hundred high-quality, fixed income corporate bonds available at the measurement date and the related expected duration for the obligations. These bonds were all rated at least Aa3 or AA- by one of the nationally recognized statistical rating organizations, denominated in U.S. dollars, and neither callable, convertible nor index linked. For the year ended December 31, 2012, we decreased our discount rate by 1.00%, resulting in an increase in our pension plan benefit obligation of $7,030 and an increase in our postretirement benefit obligation of $4,546. For the year ended December 31, 2011, we decreased our discount rate by 0.50%, resulting in an increase in our pension plan benefit obligation of $3,384 and an increase in our postretirement benefit obligation of $2,114.

Expected Long-Term Rate of Return  Our expected long-term rate of return on plan assets reflects the average rate of earnings expected on the funds invested, or to be invested, to provide for the benefits included in the projected benefit obligations. Our expected long-term rate of return on plan assets assumption was 8.25% for the year ended December 31, 2012. In 2013, due to the continued uncertainty in the securities markets, the U.S. economy and the plans’ asset mix, we have lowered our expected long-term rate of return on plan assets to 7.75%. In setting the long-term assumed rate of return, management considers capital markets future expectations and the asset mix of the plans’ investments. Actual long-term return can, in relatively stable markets, also serve as a factor in determining future expectations. We consider many factors that include, but are not limited to, historical returns on plan assets, current market information on long-term returns (e.g., long-term bond rates) and current and target asset allocations between asset categories. The target asset allocation is determined based on consultations with external investment advisers. If all other factors were to remain unchanged, we expect that a 0.50% decrease in the actual long-term rate of return would cause 2013 combined pension and postretirement cost to increase $260. However, any differences in the rate and actual returns will be included with the actuarial gain or loss recorded in the fourth quarter when our plans are remeasured.

Composite Rate of Compensation Increase  Our expected composite rate of compensation increase cost of 3.00% in 2013 and 4.00% in 2012 reflects the long-term average rate of salary increases. Based on historic salary increase experience and management’s expectations of future salary increases, we reduced our expected composite rate of compensation increase assumption from 4.00% to 3.00% in 2013.

Healthcare Cost Trend  Our healthcare cost trend assumptions are developed based on historical cost data, the near-term outlook and an assessment of likely long-term trends. In addition to the healthcare cost trend in 2012, we assumed an annual 3.00% growth in administrative expenses and an annual 3.00% growth in dental claims. For 2013, we have assumed an annual 2.50% growth in administrative expenses. Our assumed annual healthcare cost trend rate for 2013 and 2012 is 5.00% and our ultimate trend rate is 5.00%.

A one percentage-point change in the assumed combined medical and dental cost trend rate would have the following effects:

	One Percentage-		One Percentage-
	Point Increase		Point Decrease
Increase (decrease) in total of service and interest cost components	$	260	$	(208	)
Increase (decrease) in accumulated postretirement benefit obligation		3,676		(3,362	)

Plan Assets

Plan assets consist primarily of private and public equity, government and corporate bonds, and real assets (real estate and natural resources). The asset allocations of the pension plans are maintained to meet ERISA requirements. Any plan contributions, as determined by ERISA regulations, are made to a pension trust for the benefit of plan participants. We have a required contribution to our pension plans for 2013 of approximately $300.

In October 2012, we filed an application with the U.S. Department of Labor (DOL) for approval to make a voluntary contribution of a preferred equity interest in our Mobility business to the trust used to pay qualified pension benefits, under plans sponsored by AT&T. The preferred equity interest is estimated to be valued at $9,500 upon contribution. We anticipate approval in 2013, and expect to make the contribution at that time. As currently proposed, the preferred equity interest will not be included in plan assets in our consolidated financial statements upon contribution, but will constitute a qualified plan asset for ERISA funding purposes. Final determination of whether it will qualify as a plan asset for financial reporting purposes is subject to the final terms of the preferred equity interest.

62 

Notes to Consolidated Financial Statements (continued)

Dollars in millions except per share amounts

We maintain VEBA trusts to partially fund postretirement benefits; however, there are no ERISA or regulatory requirements that these postretirement benefit plans be funded annually.

The principal investment objectives are to ensure the availability of funds to pay pension and postretirement benefits as they become due under a broad range of future economic scenarios, to maximize long-term investment return with an acceptable level of risk based on our pension and postretirement obligations, and to be broadly diversified across and within the capital markets to insulate asset values against adverse experience in any one market. Each asset class has broadly diversified characteristics. Substantial biases toward any particular investing style or type of security are sought to be avoided by managing the aggregation of all accounts with portfolio benchmarks. Asset and benefit obligation forecasting studies are conducted periodically, generally every two to three years, or when significant changes have occurred in market conditions, benefits, participant demographics or funded status. Decisions regarding investment policy are made with an understanding of the effect of asset allocation on funded status, future contributions and projected expenses. The current asset allocation policy and risk level for the pension plan and VEBA assets are based on a study completed and approved during 2011.

The plans’ weighted-average asset targets and actual allocations as a percentage of plan assets, including the notional exposure of future contracts by asset categories at December 31, are as follows:

	Pension Assets									Postretirement (VEBA) Assets
	Target					2012		2011		Target					2012		2011
Equity Securities:
Domestic	25	%	-	35	%	26	%	24	%	32	%	-	42	%	37	%	39	%
International	10	%	-	20	%	16		15		28	%	-	38	%	33		31
Fixed income securities	30	%	-	40	%	34		34		19	%	-	29	%	24		21
Real assets	6	%	-	16	%	11		11		0	%	-	6	%	1		1
Private equity	4	%	-	14	%	13		13		0	%	-	9	%	4		5
Other	0	%	-	5	%	-		3		0	%	-	7	%	1		3
Total						100	%	100	%						100	%	100	%

At December 31, 2012, AT&T securities represented less than 0.5% of assets held by our pension plans and VEBA trusts.

Investment Valuation

Investments are stated at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. See “Fair Value Measurements” for further discussion.

Investments in securities traded on a national securities exchange are valued at the last reported sales price on the last business day of the year. If no sale was reported on that date, they are valued at the last reported bid price. Investments in securities not traded on a national securities exchange are valued using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Shares of registered investment companies are valued based on quoted market prices, which represent the net asset value of shares held at year-end. Over-the-counter (OTC) securities and government obligations are valued at the bid price or the average of the bid and asked price on the last business day of the year from published sources where available and, if not available, from other sources considered reliable. Depending on the types and contractual terms of OTC derivatives, fair value is measured using valuation techniques, such as the Black-Scholes option pricing model, simulation models or a combination of various models.

Common/collective trust funds, pooled separate accounts, and other commingled (103-12) investment entities are valued at quoted redemption values that represent the net asset values of units held at year-end which management has determined approximates fair value.

63 

Notes to Consolidated Financial Statements (continued)

Dollars in millions except per share amounts

Alternative investments, including investments in private equity, real estate, natural resources (included in real assets), mezzanine and distressed debt (included in partnerships/joint ventures), limited partnership interest, fixed income securities and hedge funds do not have readily available market values. These estimated fair values may differ significantly from the values that would have been used had a ready market for these investments existed, and such differences could be material. Alternative investments not having an established market are valued at fair value as determined by the investment managers. Private equity, mezzanine and distressed investments are often valued initially by the investment managers based upon cost. Thereafter, investment managers may use available market data to determine adjustments to carrying value based upon observations of the trading multiples of public companies considered comparable to the private companies being valued. Such market data used to determine adjustments to accounts for cash flows and company-specified issues include current operating performance and future expectations of the investments, changes in market outlook, and the third-party financing environment. Private equity partnership holdings may also include publicly held equity investments in liquid markets that are marked-to-market at quoted public values, subject to adjustments for large positions held. Real estate and natural resource direct investments are valued either at amounts based upon appraisal reports prepared by independent third-party appraisers or at amounts as determined by internal appraisals performed by the investment manager, which have been agreed to by an external valuation consultant. Fixed income securities valuation is based upon pricing provided by an external pricing service when such pricing is available. In the event a security is too thinly traded or narrowly held to be priced by such a pricing service, or the price furnished by such external pricing services is deemed inaccurate, the managers will then solicit broker/dealer quotes (spreads or prices). In cases where such quotes are available, fair value will be determined based solely upon such quotes provided. Managers will typically use a pricing matrix for determining fair value in cases where an approved pricing service or a broker/dealer is unable to provide a fair valuation for specific fixed-rate securities such as many private placements. New fixed-rate securities will be initially valued at cost at the time of purchase. Thereafter, each bond will be assigned a spread from a pricing matrix that will be added to current Treasury rates. The pricing matrix derives spreads for each bond based on external market data, including the current credit rating for the bonds, credit spreads to Treasuries for each credit rating, sector add-ons or credits, issue specific add-ons or credits as well as call or other options.

Purchases and sales of securities are recorded as of the trade date. Realized gains and losses on sales of securities are determined on the basis of average cost. Interest income is recognized on the accrual basis. Dividend income is recognized on the ex-dividend date.

Non-interest bearing cash and overdrafts are valued at cost, which approximates fair value.

Fair Value Measurements

See Note 9 “Fair Value Measurements and Disclosure” for a discussion of fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.

64 

Notes to Consolidated Financial Statements (continued)

Dollars in millions except per share amounts

The following table sets forth by level, within the fair value hierarchy, the pension and postretirement assets and liabilities at fair value as of December 31, 2012:

Pension Assets and Liabilities at Fair Value as of December 31, 2012
	Level 1		Level 2		Level 3		Total
Non-interest bearing cash	$	144	$	-	$	-	$	144
Interest bearing cash		56		235		-		291
Foreign currency contracts		-		1		-		1
Equity securities:
Domestic equities		8,291		-		-		8,291
International equities		6,361		29		-		6,390
Fixed income securities:
Asset-backed securities		-		543		14		557
Mortgage-backed securities		-		2,324		-		2,324
Collateralized mortgage-backed securities		-		311		-		311
Collateralized mortgage obligations/REMICS		-		523		1		524
Other Corporate and other bonds and notes		140		4,903		600		5,643
Government and municipal bonds		50		5,301		-		5,351
Private equity funds		-		-		5,797		5,797
Real estate and real assets		-		-		4,766		4,766
Commingled funds		-		4,927		426		5,353
Securities lending collateral		868		1,930		1		2,799
Receivable for variation margin		72		-		-		72
Assets at fair value		15,982		21,027		11,605		48,614
Investments sold short and other liabilities at fair value		563		7		-		570
Total plan net assets at fair value	$	15,419	$	21,020	$	11,605	$	48,044
Other assets (liabilities)1								(2,984	)
Total Plan Net Assets							$	45,060
1  Other assets (liabilities) include amounts receivable, accounts payable and net adjustment for securities lending payable.

Postretirement Assets and Liabilities at Fair Value as of December 31, 2012
	Level 1		Level 2		Level 3		Total
Interest bearing cash	$	169	$	243	$	-	$	412
Equity securities:
Domestic equities		2,575		-		-		2,575
International equities		2,685		1		-		2,686
Fixed income securities:
Asset-backed securities		-		29		-		29
Collateralized mortgage-backed securities		-		79		-		79
Collateralized mortgage obligations		-		46		-		46
Other Corporate and other bonds and notes		1		383		17		401
Government and municipal bonds		22		598		-		620
Commingled funds		82		2,038		4		2,124
Private equity assets		-		-		343		343
Real assets		-		-		110		110
Securities lending collateral		544		81		-		625
Assets at fair value		6,078		3,498		474		10,050
Total plan net assets at fair value	$	6,078	$	3,498	$	474	$	10,050
Other assets (liabilities)1								(755	)
Total Plan Net Assets							$	9,295
1  Other assets (liabilities) include amounts receivable, accounts payable and net adjustment for securities lending payable.

65 

Notes to Consolidated Financial Statements (continued)

Dollars in millions except per share amounts

The tables below set forth a summary of changes in the fair value of the Level 3 pension and postretirement assets for the year ended December 31, 2012:

Pension Assets	Equities			Fixed Income Funds			Private Equity Funds			Real Estate and Real Assets			Total
Balance at beginning of year	$	4		$	824		$	5,931		$	5,213		$	11,972
Realized gains (losses)		(1	)		16			459			165			639
Unrealized gains (losses)		1			33			32			10			76
Transfers in		-			120			12			24			156
Transfers out		-			(2	)		-			-			(2	)
Purchases		-			142			610			918			1,670
Sales		(4	)		(91	)		(1,247	)		(1,564	)		(2,906	)
Balance at end of year	$	-		$	1,042		$	5,797		$	4,766		$	11,605

Postretirement Assets	Fixed Income Funds			Private Equity  Funds			Real Assets			Total
Balance at beginning of year	$	24		$	437		$	124		$	585
Realized gains (losses)		-			58			16			74
Unrealized gains (losses)		-			(39	)		(5	)		(44	)
Purchases		-			20			33			53
Sales		(3	)		(133	)		(58	)		(194	)
Balance at end of year	$	21		$	343		$	110		$	474

66 

Notes to Consolidated Financial Statements (continued)

Dollars in millions except per share amounts

The following tables set forth by level, within the fair value hierarchy, the pension and postretirement assets and liabilities at fair value as of December 31, 2011:

Pension Assets and Liabilities at Fair Value as of December 31, 2011
	Level 1		Level 2		Level 3		Total
Non-interest bearing cash	$	64	$	1	$	-	$	65
Interest bearing cash		1		-		-		1
Foreign currency contracts		-		6		-		6
Equity securities:
Domestic equities		8,299		5		-		8,304
International equities		5,873		62		4		5,939
Fixed income securities:
Asset-backed securities		-		413		8		421
Mortgage-backed securities		-		3,038		-		3,038
Collateralized mortgage-backed securities		-		316		-		316
Collateralized mortgage obligations/REMICS		-		490		-		490
Other Corporate and other bonds and notes		105		5,386		420		5,911
Government and municipal bonds		71		4,695		-		4,766
Private equity funds		-		1		5,931		5,932
Real estate and real assets		-		10		5,213		5,223
Commingled funds		-		6,092		393		6,485
Securities lending collateral		1,295		2,879		3		4,177
Assets at fair value		15,708		23,394		11,972		51,074
Investments sold short and other liabilities at fair value		600		6		-		606
Total plan net assets at fair value	$	15,108	$	23,388	$	11,972	$	50,468
Other assets (liabilities)1								(4,561	)
Total Plan Net Assets							$	45,907
1  Other assets (liabilities) include amounts receivable, accounts payable and net adjustment for securities lending payable.

Postretirement Assets and Liabilities at Fair Value as of December 31, 2011
	Level 1		Level 2		Level 3		Total
Interest bearing cash	$	30	$	340	$	-	$	370
Equity securities:
Domestic equities		2,964		1		-		2,965
International equities		2,579		1		-		2,580
Fixed income securities:
Asset-backed securities		-		51		-		51
Collateralized mortgage-backed securities		-		60		-		60
Collateralized mortgage obligations		-		28		-		28
Other Corporate and other bonds and notes		-		334		19		353
Government and municipal bonds		48		619		-		667
Commingled funds		175		2,245		5		2,425
Private equity assets		-		3		437		440
Real assets		-		-		124		124
Securities lending collateral		780		108		-		888
Receivable for foreign exchange contracts		3		-		-		3
Assets at fair value		6,579		3,790		585		10,954
Foreign exchange contracts payable		3		-		-		3
Liabilities at fair value		3		-		-		3
Total plan net assets at fair value	$	6,576	$	3,790	$	585	$	10,951
Other assets (liabilities)1								(1,061	)
Total Plan Net Assets							$	9,890
1  Other assets (liabilities) include amounts receivable, accounts payable and net adjustment for securities lending payable.

67 

Notes to Consolidated Financial Statements (continued)

Dollars in millions except per share amounts

The tables below set forth a summary of changes in the fair value of the Level 3 pension and postretirement assets for the year ended December 31, 2011:

Pension Assets	Equities			Fixed Income Funds			Private Equity Funds			Real Estate and Real Assets			Total
Balance at beginning of year	$	-		$	441		$	5,617		$	4,570		$	10,628
Realized gains (losses)		(1	)		17			164			2			182
Unrealized gains (losses)		1			(6	)		448			666			1,109
Transfers in		3			393			-			-			396
Purchases		1			95			844			859			1,799
Sales		-			(116	)		(1,142	)		(884	)		(2,142	)
Balance at end of year	$	4		$	824		$	5,931		$	5,213		$	11,972

Postretirement Assets	Fixed Income Funds			Private Equity Funds			Real Assets			Total
Balance at beginning of year	$	45		$	496		$	157		$	698
Realized gains (losses)		-			70			(28	)		42
Unrealized gains (losses)		-			(23	)		31			8
Purchases		8			175			53			236
Sales		(29	)		(281	)		(89	)		(399	)
Balance at end of year	$	24		$	437		$	124		$	585

Estimated Future Benefit Payments

Expected benefit payments are estimated using the same assumptions used in determining our benefit obligation at December 31, 2012. Because benefit payments will depend on future employment and compensation levels, average years employed, average life spans, and payment elections, among other factors, changes in any of these factors could significantly affect these expected amounts. The following table provides expected benefit payments under our pension and postretirement plans:

	Pension Benefits		Postretirement Benefits		Medicare Subsidy Receipts
2013	$	4,697	$	2,371	$	(18	)
2014		4,395		2,249		(20	)
2015		4,282		2,180		(23	)
2016		4,215		2,131		(26	)
2017		4,169		2,076		(30	)
Years 2018 - 2022		20,286		9,924		(195	)

Supplemental Retirement Plans

We also provide certain senior- and middle-management employees with nonqualified, unfunded supplemental retirement and savings plans. While these plans are unfunded, we have assets in a designated nonbankruptcy remote trust that are independently managed and used to provide for these benefits. These plans include supplemental pension benefits as well as compensation-deferral plans, some of which include a corresponding match by us based on a percentage of the compensation deferral.

We use the same significant assumptions for the discount rate and composite rate of compensation increase used in determining the projected benefit obligation and the net pension and postemployment benefit cost. The following tables provide the plans’ benefit obligations and fair value of assets at December 31 and the components of the supplemental retirement pension benefit cost. The net amount recorded as “Other noncurrent liabilities” on our consolidated balance sheets at December 31, 2012, was $2,456 and $2,294 at December 31, 2011.

68 

Notes to Consolidated Financial Statements (continued)

Dollars in millions except per share amounts

The following table provides information for our supplemental retirement plans with accumulated benefit obligations in excess of plan assets:

	2012		2011
Projected benefit obligation	$	(2,456)	$	(2,294)
Accumulated benefit obligation		(2,392)		(2,223)
Fair value of plan assets		-		-

The following tables present the components of net periodic benefit cost and other changes in plan assets and benefit obligations recognized in OCI:

Net Periodic Benefit Cost	2012		2011		2010
Service cost – benefits earned during the period	$	10	$	14	$	12
Interest cost on projected benefit obligation		116		126		134
Amortization of prior service cost (credit)		-		2		2
Actuarial (gain) loss		230		81		186
Net supplemental retirement pension cost	$	356	$	223	$	334
Other Changes Recognized in    Other Comprehensive Income	2012		2011		2010
Prior service (cost) credit	$	(1)	$	6	$	(5)
Amortization of prior service cost (credit)		-		1		(2)
Total recognized in other comprehensive (income) loss (net of tax)	$	(1)	$	7	$	(7)

The estimated prior service credit for our supplemental retirement plan benefits that will be amortized from accumulated OCI into net periodic benefit cost over the next fiscal year is $1.

Deferred compensation expense was $118 in 2012, $96 in 2011 and $96 in 2010. Our deferred compensation liability, included in “Other noncurrent liabilities,” was $1,061 at December 31, 2012, and $1,010 at December 31, 2011.

Contributory Savings Plans

We maintain contributory savings plans that cover substantially all employees. Under the savings plans, we match in cash or company stock a stated percentage of eligible employee contributions, subject to a specified ceiling. There are no debt-financed shares held by the Employee Stock Ownership Plans, allocated or unallocated.

Our match of employee contributions to the savings plans is fulfilled with purchases of our stock on the open market or company cash. Benefit cost is based on the cost of shares or units allocated to participating employees’ accounts and was $634, $636 and $607 for the years ended December 31, 2012, 2011 and 2010.

NOTE 12. SHARE-BASED PAYMENTS

We account for our share-based payment arrangements based on the fair value of the awards on their respective grant date, which may affect our ability to fully realize the value shown on our consolidated balance sheets of deferred tax assets associated with compensation expense. We record a valuation allowance when our future taxable income is not expected to be sufficient to recover the asset. Accordingly, there can be no assurance that the current stock price of our common shares will rise to levels sufficient to realize the entire tax benefit currently reflected on our consolidated balance sheets. However, to the extent we generate excess tax benefits (i.e., that additional tax benefits in excess of the deferred taxes associated with compensation expense previously recognized) the potential future impact on income would be reduced.

At December 31, 2012, we had various share-based payment arrangements, which we describe in the following discussion. The compensation cost recognized for those plans was included in operating expenses in our consolidated statements of income. The total income tax benefit recognized in the consolidated statements of income for share-based payment arrangements was $195 for 2012, compared to $187 for 2011 and $196 for 2010.

69 

Notes to Consolidated Financial Statements (continued)

Dollars in millions except per share amounts

Under our various plans, senior and other management employees and nonemployee directors have received nonvested stock and stock units. We grant performance stock units, which are nonvested stock units, based upon our stock price at the date of grant and award them in the form of AT&T common stock and cash at the end of a three-year period, subject to the achievement of certain performance goals. We treat the cash portion of these awards as a liability. We grant forfeitable restricted stock and stock units, which are valued at the market price of our common stock at the date of grant and vest typically over a two- to seven-year period. We also grant other nonvested stock units and award them in cash at the end of a three-year period, subject to the achievement of certain market based conditions. As of December 31, 2012, we were authorized to issue up to 111 million shares of common stock (in addition to shares that may be issued upon exercise of outstanding options or upon vesting of performance stock units or other nonvested stock units) to officers, employees and directors pursuant to these various plans.

The compensation cost that we have charged against income for our share-based payment arrangements was as follows:

	2012		2011		2010
Performance stock units	$	397	$	388	$	411
Restricted stock and stock units		102		91		85
Other nonvested stock units		12		4		11
Other		-		6		6
Total	$	511	$	489	$	513

A summary of option activity as of December 31, 2012, and changes during the year then ended, is presented below (shares in millions):

Options	Shares			Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value1
Outstanding at January 1, 2012		66		$	30.62		1.99	$	148
Exercised		(18	)		-
Forfeited or expired		(31	)		-
Outstanding at December 31, 2012		17			27.38		4.53		123
Exercisable at December 31, 2012		17		$	27.37		4.51	$	123
1  Aggregate intrinsic value includes only those options with intrinsic value (options where the exercise price is below the market price).

It is our policy to satisfy share option exercises using our treasury stock. Cash received from stock option exercises was $517 for 2012, $250 for 2011 and $55 for 2010.

A summary of the status of our nonvested stock units as of December 31, 2012, and changes during the year then ended is presented as follows (shares in millions):

Nonvested Stock Units	Shares			Weighted-Average Grant-Date Fair Value
Nonvested at January 1, 2012		27		$	26.53
Granted		13			30.18
Vested		(13	)		25.87
Forfeited		(1	)		28.32
Nonvested at December 31, 2012		26		$	28.55

As of December 31, 2012, there was $314 of total unrecognized compensation cost related to nonvested share-based payment arrangements granted. That cost is expected to be recognized over a weighted-average period of two years. The total fair value of shares vested during the year was $333 for 2012, compared to $360 for 2011 and $397 for 2010.

70 

Notes to Consolidated Financial Statements (continued)

Dollars in millions except per share amounts

NOTE 13. STOCKHOLDERS’ EQUITY

Stock Repurchase Program  From time to time, we repurchase shares of common stock for distribution through our employee benefit plans or in connection with certain acquisitions. In December 2010, 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 2012 and completed the purchase of authorized shares that year. In July 2012, the Board of Directors authorized the repurchase of an additional 300 million shares, under which we are currently purchasing shares. For the year ended December 31, 2012, we had repurchased approximately 371 million shares totaling $12,752 under these authorizations. We expect to continue repurchasing our common stock and plan to complete the repurchases under the July 2012 authorization as early as mid-year.

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

Authorized Shares  There are 14 billion authorized common shares of AT&T stock and 10 million authorized preferred shares of AT&T stock. As of December 31, 2012 and 2011, no preferred shares were outstanding.

Dividend Declarations  In November 2012, the Company declared an increase in its quarterly dividend to $0.45 per share of common stock. In December 2011, the Company declared a quarterly dividend of $0.44 per share of common stock, which reflected an increase from the $0.43 quarterly dividend declared in December 2010.

NOTE 14. ADDITIONAL FINANCIAL INFORMATION

	December 31,
Consolidated Balance Sheets		2012		2011
Accounts payable and accrued liabilities:
Accounts payable	$	12,076	$	10,485
Accrued payroll and commissions		2,332		2,170
Current portion of employee benefit obligation		2,116		2,288
Accrued interest		1,588		1,576
Other		2,799		3,437
Total accounts payable and accrued liabilities	$	20,911	$	19,956

Consolidated Statements of Income		2012		2011		2010
Advertising expense	$	2,910	$	3,135	$	2,982
Interest expense incurred	$	3,707	$	3,697	$	3,766
Capitalized interest		(263)		(162)		(772)
Total interest expense	$	3,444	$	3,535	$	2,994

Consolidated Statements of Cash Flows		2012		2011		2010
Cash paid during the year for:
Interest	$	3,696	$	3,722	$	3,882
Income taxes, net of refunds		458		32		3,538

Consolidated Statements of Changes in
Stockholders’ Equity		2012		2011		2010
Foreign currency translation adjustment	$	(284)	$	(371)	$	(494)
Net unrealized gains (losses) on available-for-sale securities		272		222		316
Net unrealized gains (losses) on cash flow hedges		(110)		(421)		(180)
Defined benefit postretirement plans		5,358		3,750		3,070
Accumulated other comprehensive income	$	5,236	$	3,180	$	2,712

71 

Notes to Consolidated Financial Statements (continued)

Dollars in millions except per share amounts

Labor Contracts  As of January 31, 2013, we employed approximately 242,000 persons. Approximately 55 percent of our employees are represented by the Communications Workers of America (CWA), the International Brotherhood of Electrical Workers or other unions. Contracts covering approximately 77,000 (as of December 31, 2012) employees expired during 2012 and we have reached new contracts covering approximately 57,000 of those employees. Contracts covering wireline employees in California, Connecticut and Nevada expired in April 2012 and remain subject to negotiation. In addition, during 2012, we entered into a new national four-year contract covering only benefits with the approximately 40,000 employees in our mobility business; contracts covering wages and other non-benefit working terms for these mobility employees are structured on a regional basis and one regional contract for 20,000 employees expired during February 2013. Contracts covering approximately 30,000 non-mobility employees will expire during 2013, including approximately 20,000 wireline employees in our five-state Southwest region. On February 6, 2013, we announced a tentative agreement with the CWA covering the wireline employees in our Southwest region; this agreement is subject to ratification by these employees. After expiration of the current agreements, work stoppages or labor disruptions may occur in the absence of new contracts or other agreements being reached.

American Tower Corp. Agreement  In August 2000, we reached an agreement with American Tower Corp. (American Tower) under which we granted American Tower the exclusive rights to lease space on a number of our communications towers. In exchange, we received a combination of cash and equity instruments as complete prepayment of rent with the closing of each leasing agreement. The value of the prepayments was recorded as deferred revenue and recognized in income as revenue over the life of the leases. The balance of deferred revenue was $420 in 2012, $450 in 2011, and $480 in 2010.

No customer accounted for more than 10% of consolidated revenues in 2012, 2011 or 2010.

NOTE 15. CONTINGENT LIABILITIES

We are party to numerous lawsuits, regulatory proceedings and other matters arising in the ordinary course of business. In evaluating these matters on an ongoing basis, we take into account amounts already accrued on the balance sheet. In our opinion, although the outcomes of these proceedings are uncertain, they should not have a material adverse effect on our financial position, results of operations or cash flows.

We have contractual obligations to purchase certain goods or services from various other parties. Our purchase obligations are expected to be approximately $3,744 in 2013, $3,890 in total for 2014 and 2015, $1,469 in total for 2016 and 2017 and $457 in total for years thereafter.

See Note 9 for a discussion of collateral and credit-risk contingencies.

72 

Notes to Consolidated Financial Statements (continued)

Dollars in millions except per share amounts

NOTE 16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

The following tables represent our quarterly financial results:

		2012 Calendar Quarter
		First		Second		Third		Fourth2		Annual
Total Operating Revenues		$	31,822	$	31,575	$	31,459	$	32,578	$	127,434
Operating Income (Loss)			6,101		6,817		6,037		(5,958)		12,997
Net Income (Loss)			3,652		3,965		3,701		(3,779)		7,539
Net Income (Loss) Attributable to AT&T			3,584		3,902		3,635		(3,857)		7,264
Basic Earnings (Loss) Per Share
Attributable to AT&T1		$	0.60	$	0.67	$	0.63	$	(0.68)	$	1.25
Diluted Earnings (Loss) Per Share
Attributable to AT&T1		$	0.60	$	0.66	$	0.63	$	(0.68)	$	1.25
Stock Price
High		$	31.97	$	36.00	$	38.58	$	38.43
Low			29.02		29.95		34.24		32.71
Close			31.23		35.66		37.70		33.71
1	Quarterly earnings per share impacts may not add to full-year earnings per share impacts due to the difference in weighted-average common shares for the quarters versus the weighted-average common
	shares for the year.
2	Includes an actuarial loss on pension and postretirement benefit plans (Note 11).

		2011 Calendar Quarter
		First		Second		Third		Fourth2		Annual
Total Operating Revenues		$	31,247	$	31,495	$	31,478	$	32,503	$	126,723
Operating Income (Loss)			5,808		6,165		6,235		(8,990)		9,218
Net Income (Loss)			3,468		3,658		3,686		(6,628)		4,184
Net Income (Loss) Attributable to AT&T			3,408		3,591		3,623		(6,678)		3,944
Basic Earnings (Loss) Per Share
Attributable to AT&T1		$	0.57	$	0.60	$	0.61	$	(1.12)	$	0.66
Diluted Earnings (Loss) Per Share
Attributable to AT&T1		$	0.57	$	0.60	$	0.61	$	(1.12)	$	0.66
Stock Price
High		$	30.97	$	31.94	$	31.78	$	30.30
Low			27.20		29.91		27.29		27.41
Close			30.61		31.41		28.52		30.24
1	Quarterly earnings per share impacts may not add to full-year earnings per share impacts due to the difference in weighted-average common shares for the quarters versus theweighted-average common
	shares for the year.
2	Includes an actuarial loss on pension and postretirement benefit plans (Note 11), T-Mobile breakup fee (Note 4) and impairment of intangible assets (Note 6).

73 

Report of Management

The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles. The integrity and objectivity of the data in these financial statements, including estimates and judgments relating to matters not concluded by year end, are the responsibility of management, as is all other information included in the Annual Report, unless otherwise indicated.

The financial statements of AT&T Inc. (AT&T) have been audited by Ernst & Young LLP, Independent Registered Public Accounting Firm. Management has made available to Ernst & Young LLP all of AT&T’s financial records and related data, as well as the minutes of stockholders’ and directors’ meetings. Furthermore, management believes that all representations made to Ernst & Young LLP during its audit were valid and appropriate.

Management maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by AT&T is recorded, processed, summarized, accumulated and communicated to its management, including its principal executive and principal financial officers, to allow timely decisions regarding required disclosure, and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms.

Management also seeks to ensure the objectivity and integrity of its financial data by the careful selection of its managers, by organizational arrangements that provide an appropriate division of responsibility and by communication programs aimed at ensuring that its policies, standards and managerial authorities are understood throughout the organization.

The Audit Committee of the Board of Directors meets periodically with management, the internal auditors and the independent auditors to review the manner in which they are performing their respective responsibilities and to discuss auditing, internal accounting controls and financial reporting matters. Both the internal auditors and the independent auditors periodically meet alone with the Audit Committee and have access to the Audit Committee at any time.

Assessment of Internal Control

The management of AT&T is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) or 15d-15(f) under the Securities Exchange Act of 1934. AT&T’s internal control system was designed to provide reasonable assurance to the company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements.

AT&T management assessed the effectiveness of the company’s internal control over financial reporting as of December 31, 2012. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework. Based on its assessment, AT&T management believes that, as of December 31, 2012, the Company’s internal control over financial reporting is effective based on those criteria.

Ernst & Young LLP, the independent registered public accounting firm that audited the financial statements included in this Annual Report, has issued an attestation report on the company’s internal control over financial reporting.

/s/ Randall Stephenson                                                                     /s/ John J. Stephens

Randall Stephenson                                                                           John J. Stephens

Chairman of the Board,                                                                           Senior Executive Vice President and

Chief Executive Officer and President                                                   Chief Financial Officer

74 

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of AT&T Inc.

We have audited the accompanying consolidated balance sheets of AT&T Inc. (the Company) as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2012. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2012 and 2011, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 22, 2013 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Dallas, Texas

February 22, 2013

75 

Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting

The Board of Directors and Stockholders of AT&T Inc.

We have audited AT&T Inc.’s (the Company) internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report of Management. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2012 and our report dated February 22, 2013 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Dallas, Texas

February 22, 2013

76 

EX-21

Exhibit 21

PRINCIPAL SUBSIDIARIES OF

AT&T INC., AS OF DECEMBER 31, 2012

2012 AT&T INC. REPORT TO STOCKHOLDERS

SECURITIES AND EXCHANGE COMMISSION ("SEC")

FORM 10-K filed February 22, 2013

Legal Name	State of Incorporation/Formation	Conducts Business Under
Illinois Bell Telephone Company	Illinois	AT&T Illinois; AT&T Wholesale
Indiana Bell Telephone Company, Incorporated	Indiana	AT&T Indiana; AT&T Wholesale
Michigan Bell Telephone Company	Michigan	AT&T Michigan; AT&T Wholesale
Nevada Bell Telephone Company	Nevada	AT&T Nevada; AT&T Wholesale
Pacific Bell Telephone Company	California	AT&T California; AT&T Wholesale; AT&T DataComm
AT&T International, Inc.	Delaware	AT&T International
SBC Internet Services, LLC	California	AT&T Internet Services
SBC Long Distance, LLC	Delaware	AT&T Long Distance
AT&T Teleholdings, Inc.	Delaware	AT&T Midwest; AT&T West; AT&T East
Southwestern Bell Telephone Company	Delaware	AT&T Arkansas; AT&T Kansas; AT&T Missouri; AT&T Oklahoma; AT&T Texas; AT&T Southwest; AT&T DataComm; AT&T Wholesale
The Ohio Bell Telephone Company	Ohio	AT&T Ohio; AT&T Wholesale
The Southern New England Telephone Company	Connecticut	AT&T Connecticut
Wisconsin Bell, Inc.	Wisconsin	AT&T Wisconsin; AT&T Wholesale

AT&T Corp.	New York	AT&T Corp.; ACC Business; AT&T Wholesale; Lucky Dog Phone Co.; AT&T Business Solutions; AT&T Advanced Solutions
AT&T Communications of New York, Inc.	New York	same
Teleport Communications New York	New York	same
BellSouth Corporation	Georgia	AT&T South
BellSouth Telecommunications, LLC	Georgia	AT&T Alabama AT&T Florida AT&T Georgia AT&T Kentucky AT&T Louisiana AT&T Mississippi AT&T North Carolina AT&T South Carolina AT&T Tennessee AT&T Southeast
AT&T Mobility LLC	Delaware	AT&T Mobility
AT&T Mobility II LLC	Delaware	AT&T Mobility
New Cingular Wireless Services, Inc.	Delaware	AT&T Mobility

EX-23

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in this Annual Report (Form 10-K) of AT&T Inc. (AT&T) of our reports dated February 22, 2013, with respect to the consolidated financial statements of AT&T and the effectiveness of internal control over financial reporting of AT&T, included in the 2012 Annual Report to Stockholders of AT&T.

Our audits also included the financial statement schedule of AT&T listed in Item 15(a). This schedule is the responsibility of AT&T's management. Our responsibility is to express an opinion based on our audits. In our opinion, as to which the date is February 22, 2013, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We consent to the incorporation by reference of our reports dated February 22, 2013, with respect to the consolidated financial statements and schedule of AT&T and the effectiveness of internal control over financial reporting of AT&T included in this Annual Report (Form 10-K) of AT&T for the year ended December 31, 2012, in the following Registration Statements:

(1) Registration Statement (Form S-8 No. 333-34062) pertaining to the Stock Savings Plan,

(2) Registration Statement (Form S-8 No. 333-95887) pertaining to the 1995 Management Stock Option Plan,

(3) Registration Statement (Form S-8 No. 333-54398) pertaining to the 1996 Stock and Incentive Plan and the 2001 Incentive Plan,

(4) Registration Statement (Form S-8 No. 333-120894) pertaining to the AT&T Stock Purchase and Deferral Plan and Cash Deferral Plan,

(5) Registration Statement (Form S-8 No. 333-129814) pertaining to the AT&T Savings Plan and certain other plans,

(6) Registration Statement (Form S-3 No. 333-165543) of AT&T and the related Prospectuses,

(7) Registration Statement (Form S-8 No. 333-135517) pertaining to the 2006 Incentive Plan,

(8) Registration Statement (Form S-8 No. 333-139749) pertaining to the BellSouth Retirement Savings Plan and certain other  BellSouth plans,

(9) Registration Statement (Form S-8 No. 333-173078) pertaining to the AT&T Savings Plan, AT&T Savings and Security Plan, AT&T Long Term Savings and Security Plan, AT&T Retirement Savings Plan, AT&T Puerto Rico Savings Plan, AT&T Puerto Rico Retirement Savings Plan, AT&T of Puerto Rico, Inc. Long Term Savings and Security Plan, and the BellSouth Savings and Security Plan,

(10) Registration Statement (Form S-8 No. 333-152822) pertaining to the AT&T Non-Employee Director Stock Purchase Plan, and

(11) Registration Statement (Form S-8 No. 333-173079) pertaining to the AT&T 2011 Incentive Plan

/s/ Ernst & Young LLP

Dallas, Texas

February 22, 2013

EX-24

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

THAT, AT&T INC., a Delaware corporation, hereinafter referred to as the “Corporation,” proposes to file with the Securities and Exchange Commission at Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and

NOW, THEREFORE, each of the undersigned hereby constitutes and appoints Jonathan P. Klug, John J. Stephens, Paul W. Stephens, Wayne Watts, or any one of them, all of the City of Dallas and State of Texas, the attorneys for the undersigned and in the undersigned’s name, place and stead, and in the undersigned’s office and capacity in the Corporation, to execute and file such annual report, and thereafter to execute and file any amendment or amendments thereto, hereby giving and granting to said attorneys full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and concerning the premises, as fully to all intents and purposes as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof.

IN WITNESS WHEREOF, each of the undersigned has hereunto set his or her hand the date set forth opposite their name.

February 1, 2013	/s/ Randall L. Stephenson
Date	Randall L. Stephenson Chairman of the Board, Chief Executive Officer and President

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

THAT, AT&T INC., a Delaware corporation, hereinafter referred to as the “Corporation,” proposes to file with the Securities and Exchange Commission at Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and

NOW, THEREFORE, each of the undersigned hereby constitutes and appoints Randall L. Stephenson, Jonathan P. Klug, John J. Stephens, Paul W. Stephens, Wayne Watts, or any one of them, all of the City of Dallas and State of Texas, the attorneys for the undersigned and in the undersigned’s name, place and stead, and in the undersigned’s office and capacity in the Corporation, to execute and file such annual report, and thereafter to execute and file any amendment or amendments thereto, hereby giving and granting to said attorneys full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and concerning the premises, as fully to all intents and purposes as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof.

IN WITNESS WHEREOF, each of the undersigned has hereunto set his or her hand the date set forth opposite their name.

February 1, 2013	/s/ Gilbert F. Amelio
Date	Gilbert F. Amelio Director

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

THAT, AT&T INC., a Delaware corporation, hereinafter referred to as the “Corporation,” proposes to file with the Securities and Exchange Commission at Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and

NOW, THEREFORE, each of the undersigned hereby constitutes and appoints Randall L. Stephenson, Jonathan P. Klug, John J. Stephens, Paul W. Stephens, Wayne Watts, or any one of them, all of the City of Dallas and State of Texas, the attorneys for the undersigned and in the undersigned’s name, place and stead, and in the undersigned’s office and capacity in the Corporation, to execute and file such annual report, and thereafter to execute and file any amendment or amendments thereto, hereby giving and granting to said attorneys full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and concerning the premises, as fully to all intents and purposes as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof.

IN WITNESS WHEREOF, each of the undersigned has hereunto set his or her hand the date set forth opposite their name.

February 1, 2013	/s/ Reuben V. Anderson
Date	Reuben V. Anderson Director

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

THAT, AT&T INC., a Delaware corporation, hereinafter referred to as the “Corporation,” proposes to file with the Securities and Exchange Commission at Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and

NOW, THEREFORE, each of the undersigned hereby constitutes and appoints Randall L. Stephenson, Jonathan P. Klug, John J. Stephens, Paul W. Stephens, Wayne Watts, or any one of them, all of the City of Dallas and State of Texas, the attorneys for the undersigned and in the undersigned’s name, place and stead, and in the undersigned’s office and capacity in the Corporation, to execute and file such annual report, and thereafter to execute and file any amendment or amendments thereto, hereby giving and granting to said attorneys full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and concerning the premises, as fully to all intents and purposes as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof.

IN WITNESS WHEREOF, each of the undersigned has hereunto set his or her hand the date set forth opposite their name.

February 1, 2013	/s/ James H. Blanchard
Date	James H. Blanchard Director

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

THAT, AT&T INC., a Delaware corporation, hereinafter referred to as the “Corporation,” proposes to file with the Securities and Exchange Commission at Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and

NOW, THEREFORE, each of the undersigned hereby constitutes and appoints Randall L. Stephenson, Jonathan P. Klug, John J. Stephens, Paul W. Stephens, Wayne Watts, or any one of them, all of the City of Dallas and State of Texas, the attorneys for the undersigned and in the undersigned’s name, place and stead, and in the undersigned’s office and capacity in the Corporation, to execute and file such annual report, and thereafter to execute and file any amendment or amendments thereto, hereby giving and granting to said attorneys full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and concerning the premises, as fully to all intents and purposes as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof.

IN WITNESS WHEREOF, each of the undersigned has hereunto set his or her hand the date set forth opposite their name.

February 1, 2013	/s/ Jaime Chico Pardo
Date	Jaime Chico Pardo Director

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

THAT, AT&T INC., a Delaware corporation, hereinafter referred to as the “Corporation,” proposes to file with the Securities and Exchange Commission at Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and

NOW, THEREFORE, each of the undersigned hereby constitutes and appoints Randall L. Stephenson, Jonathan P. Klug, John J. Stephens, Paul W. Stephens, Wayne Watts, or any one of them, all of the City of Dallas and State of Texas, the attorneys for the undersigned and in the undersigned’s name, place and stead, and in the undersigned’s office and capacity in the Corporation, to execute and file such annual report, and thereafter to execute and file any amendment or amendments thereto, hereby giving and granting to said attorneys full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and concerning the premises, as fully to all intents and purposes as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof.

IN WITNESS WHEREOF, each of the undersigned has hereunto set his or her hand the date set forth opposite their name.

February 1, 2013	/s/ Scott T. Ford
Date	Scott T. Ford Director

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

THAT, AT&T INC., a Delaware corporation, hereinafter referred to as the “Corporation,” proposes to file with the Securities and Exchange Commission at Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and

NOW, THEREFORE, each of the undersigned hereby constitutes and appoints Randall L. Stephenson, Jonathan P. Klug, John J. Stephens, Paul W. Stephens, Wayne Watts, or any one of them, all of the City of Dallas and State of Texas, the attorneys for the undersigned and in the undersigned’s name, place and stead, and in the undersigned’s office and capacity in the Corporation, to execute and file such annual report, and thereafter to execute and file any amendment or amendments thereto, hereby giving and granting to said attorneys full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and concerning the premises, as fully to all intents and purposes as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof.

IN WITNESS WHEREOF, each of the undersigned has hereunto set his or her hand the date set forth opposite their name.

February 1, 2013	/s/ James P. Kelly
Date	James P. Kelly Director

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

THAT, AT&T INC., a Delaware corporation, hereinafter referred to as the “Corporation,” proposes to file with the Securities and Exchange Commission at Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and

NOW, THEREFORE, each of the undersigned hereby constitutes and appoints Randall L. Stephenson, Jonathan P. Klug, John J. Stephens, Paul W. Stephens, Wayne Watts, or any one of them, all of the City of Dallas and State of Texas, the attorneys for the undersigned and in the undersigned’s name, place and stead, and in the undersigned’s office and capacity in the Corporation, to execute and file such annual report, and thereafter to execute and file any amendment or amendments thereto, hereby giving and granting to said attorneys full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and concerning the premises, as fully to all intents and purposes as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof.

IN WITNESS WHEREOF, each of the undersigned has hereunto set his or her hand the date set forth opposite their name.

February 1, 2013	/s/ Jon C. Madonna
Date	Jon C. Madonna Director

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

THAT, AT&T INC., a Delaware corporation, hereinafter referred to as the “Corporation,” proposes to file with the Securities and Exchange Commission at Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and

NOW, THEREFORE, each of the undersigned hereby constitutes and appoints Randall L. Stephenson, Jonathan P. Klug, John J. Stephens, Paul W. Stephens, Wayne Watts, or any one of them, all of the City of Dallas and State of Texas, the attorneys for the undersigned and in the undersigned’s name, place and stead, and in the undersigned’s office and capacity in the Corporation, to execute and file such annual report, and thereafter to execute and file any amendment or amendments thereto, hereby giving and granting to said attorneys full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and concerning the premises, as fully to all intents and purposes as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof.

IN WITNESS WHEREOF, each of the undersigned has hereunto set his or her hand the date set forth opposite their name.

February 1, 2013	/s/ Michael B. McCallister
Date	Michael B. McCallister Director

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

THAT, AT&T INC., a Delaware corporation, hereinafter referred to as the “Corporation,” proposes to file with the Securities and Exchange Commission at Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and

NOW, THEREFORE, each of the undersigned hereby constitutes and appoints Randall L. Stephenson, Jonathan P. Klug, John J. Stephens, Paul W. Stephens, Wayne Watts, or any one of them, all of the City of Dallas and State of Texas, the attorneys for the undersigned and in the undersigned’s name, place and stead, and in the undersigned’s office and capacity in the Corporation, to execute and file such annual report, and thereafter to execute and file any amendment or amendments thereto, hereby giving and granting to said attorneys full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and concerning the premises, as fully to all intents and purposes as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof.

IN WITNESS WHEREOF, each of the undersigned has hereunto set his or her hand the date set forth opposite their name.

February 1, 2013	/s/ John B. McCoy
Date	John B. McCoy Director

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

THAT, AT&T INC., a Delaware corporation, hereinafter referred to as the “Corporation,” proposes to file with the Securities and Exchange Commission at Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and

NOW, THEREFORE, each of the undersigned hereby constitutes and appoints Randall L. Stephenson, Jonathan P. Klug, John J. Stephens, Paul W. Stephens, Wayne Watts, or any one of them, all of the City of Dallas and State of Texas, the attorneys for the undersigned and in the undersigned’s name, place and stead, and in the undersigned’s office and capacity in the Corporation, to execute and file such annual report, and thereafter to execute and file any amendment or amendments thereto, hereby giving and granting to said attorneys full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and concerning the premises, as fully to all intents and purposes as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof.

IN WITNESS WHEREOF, each of the undersigned has hereunto set his or her hand the date set forth opposite their name.

February 1, 2013	/s/ Joyce M. Roché
Date	Joyce M. Roché Director

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

THAT, AT&T INC., a Delaware corporation, hereinafter referred to as the “Corporation,” proposes to file with the Securities and Exchange Commission at Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and

NOW, THEREFORE, each of the undersigned hereby constitutes and appoints Randall L. Stephenson, Jonathan P. Klug, John J. Stephens, Paul W. Stephens, Wayne Watts, or any one of them, all of the City of Dallas and State of Texas, the attorneys for the undersigned and in the undersigned’s name, place and stead, and in the undersigned’s office and capacity in the Corporation, to execute and file such annual report, and thereafter to execute and file any amendment or amendments thereto, hereby giving and granting to said attorneys full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and concerning the premises, as fully to all intents and purposes as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof.

IN WITNESS WHEREOF, each of the undersigned has hereunto set his or her hand the date set forth opposite their name.

February 1, 2013	/s/ Matthew K. Rose
Date	Matthew K. Rose Director

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

THAT, AT&T INC., a Delaware corporation, hereinafter referred to as the “Corporation,” proposes to file with the Securities and Exchange Commission at Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and

NOW, THEREFORE, each of the undersigned hereby constitutes and appoints Randall L. Stephenson, Jonathan P. Klug, John J. Stephens, Paul W. Stephens, Wayne Watts, or any one of them, all of the City of Dallas and State of Texas, the attorneys for the undersigned and in the undersigned’s name, place and stead, and in the undersigned’s office and capacity in the Corporation, to execute and file such annual report, and thereafter to execute and file any amendment or amendments thereto, hereby giving and granting to said attorneys full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and concerning the premises, as fully to all intents and purposes as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof.

IN WITNESS WHEREOF, each of the undersigned has hereunto set his or her hand the date set forth opposite their name.

February 1, 2013	/s/ Laura D’Andrea Tyson
Date	Laura D’Andrea Tyson Director

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Randall Stephenson, certify that:

1.   I have reviewed this report on Form 10-K of AT&T Inc.;

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

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: February 22, 2013

/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-K of AT&T Inc.;

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

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: February 22, 2013

/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 Annual Report on Form 10-K for the year ended December 31, 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.

February 22, 2013	February 22, 2013
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 (Tables)

12 Months Ended

Dec. 31, 2012

Pension And Postretirement Benefits

Schedule Of Plan Obligations In Excess Of Plan Assets

	Pension Benefits				Postretirement Benefits
	2012		2011		2012		2011
Benefit obligation at beginning of year	$	56,110	$	53,917	$	34,953	$	36,638
Service cost - benefits earned during the period		1,216		1,186		336		362
Interest cost on projected benefit obligation		2,800		2,958		1,725		2,051
Amendments		(905)		-		(2,768)		(1,830)
Actuarial loss		6,707		2,972		4,844		478
Special termination benefits		12		27		5		4
Benefits paid		(5,729)		(4,950)		(2,608)		(2,750)
Transfer for sale of Advertising Solutions segment		(149)		-		(207)		-
Plan transfers		(1,151)		-		1,151		-
Benefit obligation at end of year	$	58,911	$	56,110	$	37,431	$	34,953

		Pension Benefits				Postretirement Benefits
		2012		2011		2012		2011
Current portion of employee benefit obligation1		$	-	$	-	$	(2,116)	$	(2,288)
Employee benefit obligation2			(13,851)		(10,203)		(26,020)		(22,775)
Net amount recognized		$	(13,851)	$	(10,203)	$	(28,136)	$	(25,063)
1	Included in "Accounts payable and accrued liabilities."
2	Included in "Postemployment benefit obligation."

	2012		2011
Projected benefit obligation	$	(2,456)	$	(2,294)
Accumulated benefit obligation		(2,392)		(2,223)
Fair value of plan assets		-		-

Schedule Of Defined Benefit Plan And Postretirement Benefits Disclosure

		Pension Benefits				Postretirement Benefits
		2012		2011		2012		2011
Fair value of plan assets at beginning of year		$	45,907	$	47,621	$	9,890	$	12,747
Actual return on plan assets			5,041		2,238		1,266		(224)
Benefits paid1			(5,729)		(4,950)		(1,842)		(2,633)
Contributions			3		1,000		-		-
Transfer for sale of Advertising Solutions segment			(165)		-		(19)		-
Other			3		(2)		-		-
Fair value of plan assets at end of year			45,060		45,907		9,295		9,890
Unfunded status at end of year2		$	(13,851)	$	(10,203)	$	(28,136)	$	(25,063)
1	At our discretion, certain postretirement benefits may be paid from AT&T cash accounts, which does not reduce
	VEBA assets. Future benefit payments may be made from VEBA trusts and thus reduce those asset balances.
2	Funded status is not indicative of our ability to pay ongoing pension benefits or of our obligation to fund retirement trusts.
	Required pension funding is determined in accordance with ERISA regulations.

Net Periodic Benefit Cost
		Pension Benefits						Postretirement Benefits
		2012		2011		2010		2012		2011		2010
Service cost – benefits earned during the period		$	1,216	$	1,186	$	1,075	$	336	$	362	$	348
Interest cost on projected benefit obligation			2,800		2,958		3,150		1,725		2,051		2,257
Expected return on assets			(3,520)		(3,690)		(3,775)		(811)		(1,040)		(943)
Amortization of prior service cost (credit)			(15)		(15)		(16)		(927)		(694)		(624)
Actuarial (gain) loss			5,206		4,498		1,768		4,247		1,672		510
Net pension and postretirement cost1		$	5,687	$	4,937	$	2,202	$	4,570	$	2,351	$	1,548
1	During 2012, 2011 and 2010, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 reduced postretirement
	benefit cost by $142, $280 and $237. This effect is included in several line items above.

Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income
	Pension Benefits						Postretirement Benefits
	2012		2011		2010		2012		2011		2010
Prior service (cost) credit	$	559	$	-	$	-	$	1,686	$	1,134	$	459
Amortization of prior service cost (credit)		(10)		(10)		(10)		(575)		(430)		(388)
Total recognized in other comprehensive (income) loss (net of tax)	$	549	$	(10)	$	(10)	$	1,111	$	704	$	71

Net Periodic Benefit Cost	2012		2011		2010
Service cost – benefits earned during the period	$	10	$	14	$	12
Interest cost on projected benefit obligation		116		126		134
Amortization of prior service cost (credit)		-		2		2
Actuarial (gain) loss		230		81		186
Net supplemental retirement pension cost	$	356	$	223	$	334
Other Changes Recognized in Other Comprehensive Income	2012		2011		2010
Prior service (cost) credit	$	(1)	$	6	$	(5)
Amortization of prior service cost (credit)		-		1		(2)
Total recognized in other comprehensive (income) loss (net of tax)	$	(1)	$	7	$	(7)

Schedule Of Assumptions In Determining The Projected Benefit Obligation And Net Pension And Postretirement Benefit Cost

	2012		2011		2010
Discount rate for determining projected benefit obligation at December 31	4.30	%	5.30	%	5.80	%
Discount rate in effect for determining net cost	5.30	%	5.80	%	6.50	%
Long-term rate of return on plan assets	8.25	%	8.25	%	8.50	%
Composite rate of compensation increase for determining projected benefit obligation	3.00	%	4.00	%	4.00	%
Composite rate of compensation increase for determining net pension cost (benefit)	4.00	%	4.00	%	4.00	%

The Effect Of A One Percentage-Point Change In The Assumed Combined Medical And Dental Cost Trend Rate

		One Percentage-		One Percentage-
		Point Increase		Point Decrease
Increase (decrease) in total of service and interest cost components	$	260	$	(208)
Increase (decrease) in accumulated postretirement benefit obligation		3,676		(3,362)

Schedule Of Defined Benefit Plan Targeted And Actual Plan Asset Allocations

	Pension Assets									Postretirement (VEBA) Assets
	Target					2012		2011		Target					2012		2011
Equity Securities:
Domestic	25	%	-	35	%	26	%	24	%	32	%	-	42	%	37	%	39	%
International	10	%	-	20	%	16		15		28	%	-	38	%	33		31
Fixed income securities	30	%	-	40	%	34		34		19	%	-	29	%	24		21
Real assets	6	%	-	16	%	11		11		0	%	-	6	%	1		1
Private equity	4	%	-	14	%	13		13		0	%	-	9	%	4		5
Other	0	%	-	5	%	-		3		0	%	-	7	%	1		3
Total						100	%	100	%						100	%	100	%

Schedule Of Fair Value Of Pension And Postretirement Assets And Liabilities By Level

Pension Assets and Liabilities at Fair Value as of December 31, 2012
		Level 1		Level 2		Level 3		Total
Non-interest bearing cash		$	144	$	-	$	-	$	144
Interest bearing cash			56		235		-		291
Foreign currency contracts			-		1		-		1
Equity securities:
Domestic equities			8,291		-		-		8,291
International equities			6,361		29		-		6,390
Fixed income securities:
Asset-backed securities			-		543		14		557
Mortgage-backed securities			-		2,324		-		2,324
Collateralized mortgage-backed securities			-		311		-		311
Collateralized mortgage obligations/REMICS			-		523		1		524
Other Corporate and other bonds and notes			140		4,903		600		5,643
Government and municipal bonds			50		5,301		-		5,351
Private equity funds			-		-		5,797		5,797
Real estate and real assets			-		-		4,766		4,766
Commingled funds			-		4,927		426		5,353
Securities lending collateral			868		1,930		1		2,799
Receivable for variation margin			72		-		-		72
Assets at fair value			15,982		21,027		11,605		48,614
Investments sold short and other liabilities at fair value			563		7		-		570
Total plan net assets at fair value		$	15,419	$	21,020	$	11,605	$	48,044
Other assets (liabilities)1									(2,984)
Total Plan Net Assets								$	45,060
1	Other assets (liabilities) include amounts receivable, accounts payable and net adjustment for securities lending payable.

Postretirement Assets and Liabilities at Fair Value as of December 31, 2012
		Level 1		Level 2		Level 3		Total
Interest bearing cash		$	169	$	243	$	-	$	412
Equity securities:
Domestic equities			2,575		-		-		2,575
International equities			2,685		1		-		2,686
Fixed income securities:
Asset-backed securities			-		29		-		29
Collateralized mortgage-backed securities			-		79		-		79
Collateralized mortgage obligations			-		46		-		46
Other Corporate and other bonds and notes			1		383		17		401
Government and municipal bonds			22		598		-		620
Commingled funds			82		2,038		4		2,124
Private equity assets			-		-		343		343
Real assets			-		-		110		110
Securities lending collateral			544		81		-		625
Assets at fair value			6,078		3,498		474		10,050
Total plan net assets at fair value		$	6,078	$	3,498	$	474	$	10,050
Other assets (liabilities)1									(755)
Total Plan Net Assets								$	9,295
1	Other assets (liabilities) include amounts receivable, accounts payable and net adjustment for securities lending payable.

Pension Assets and Liabilities at Fair Value as of December 31, 2011
		Level 1		Level 2		Level 3		Total
Non-interest bearing cash		$	64	$	1	$	-	$	65
Interest bearing cash			1		-		-		1
Foreign currency contracts			-		6		-		6
Equity securities:
Domestic equities			8,299		5		-		8,304
International equities			5,873		62		4		5,939
Fixed income securities:
Asset-backed securities			-		413		8		421
Mortgage-backed securities			-		3,038		-		3,038
Collateralized mortgage-backed securities			-		316		-		316
Collateralized mortgage obligations/REMICS			-		490		-		490
Other Corporate and other bonds and notes			105		5,386		420		5,911
Government and municipal bonds			71		4,695		-		4,766
Private equity funds			-		1		5,931		5,932
Real estate and real assets			-		10		5,213		5,223
Commingled funds			-		6,092		393		6,485
Securities lending collateral			1,295		2,879		3		4,177
Assets at fair value			15,708		23,394		11,972		51,074
Investments sold short and other liabilities at fair value			600		6		-		606
Total plan net assets at fair value		$	15,108	$	23,388	$	11,972	$	50,468
Other assets (liabilities)1									(4,561)
Total Plan Net Assets								$	45,907
1	Other assets (liabilities) include amounts receivable, accounts payable and net adjustment for securities lending payable.

Postretirement Assets and Liabilities at Fair Value as of December 31, 2011
		Level 1		Level 2		Level 3		Total
Interest bearing cash		$	30	$	340	$	-	$	370
Equity securities:
Domestic equities			2,964		1		-		2,965
International equities			2,579		1		-		2,580
Fixed income securities:
Asset-backed securities			-		51		-		51
Collateralized mortgage-backed securities			-		60		-		60
Collateralized mortgage obligations			-		28		-		28
Other Corporate and other bonds and notes			-		334		19		353
Government and municipal bonds			48		619		-		667
Commingled funds			175		2,245		5		2,425
Private equity assets			-		3		437		440
Real assets			-		-		124		124
Securities lending collateral			780		108		-		888
Receivable for foreign exchange contracts			3		-		-		3
Assets at fair value			6,579		3,790		585		10,954
Foreign exchange contracts payable			3		-		-		3
Liabilities at fair value			3		-		-		3
Total plan net assets at fair value		$	6,576	$	3,790	$	585	$	10,951
Other assets (liabilities)1									(1,061)
Total Plan Net Assets								$	9,890
1	Other assets (liabilities) include amounts receivable, accounts payable and net adjustment for securities lending payable.

Summary of Changes In The Fair Value Of The Level 3 Pension And Postretirement Assets

Pension Assets		Equities		Fixed Income Funds		Private Equity Funds		Real Estate and Real Assets		Total
Balance at beginning of year	$	4	$	824	$	5,931	$	5,213	$	11,972
Realized gains (losses)		(1)		16		459		165		639
Unrealized gains (losses)		1		33		32		10		76
Transfers in		-		120		12		24		156
Transfers out		-		(2)		-		-		(2)
Purchases		-		142		610		918		1,670
Sales		(4)		(91)		(1,247)		(1,564)		(2,906)
Balance at end of year	$	-	$	1,042	$	5,797	$	4,766	$	11,605

Postretirement Assets		Fixed Income Funds		Private Equity Funds		Real Assets		Total
Balance at beginning of year	$	24	$	437	$	124	$	585
Realized gains (losses)		-		58		16		74
Unrealized gains (losses)		-		(39)		(5)		(44)
Purchases		-		20		33		53
Sales		(3)		(133)		(58)		(194)
Balance at end of year	$	21	$	343	$	110	$	474

Pension Assets	Equities		Fixed Income Funds		Private Equity Funds		Real Estate and Real Assets		Total
Balance at beginning of year	$	-	$	441	$	5,617	$	4,570	$	10,628
Realized gains (losses)		(1)		17		164		2		182
Unrealized gains (losses)		1		(6)		448		666		1,109
Transfers in		3		393		-		-		396
Purchases		1		95		844		859		1,799
Sales		-		(116)		(1,142)		(884)		(2,142)
Balance at end of year	$	4	$	824	$	5,931	$	5,213	$	11,972

Postretirement Assets	Fixed Income Funds		Private Equity Funds		Real Assets		Total
Balance at beginning of year	$	45	$	496	$	157	$	698
Realized gains (losses)		-		70		(28)		42
Unrealized gains (losses)		-		(23)		31		8
Purchases		8		175		53		236
Sales		(29)		(281)		(89)		(399)
Balance at end of year	$	24	$	437	$	124	$	585

Estimated Future Benefit Payments

	Pension Benefits		Postretirement Benefits		Medicare Subsidy Receipts
2013	$	4,697	$	2,371	$	(18)
2014		4,395		2,249		(20)
2015		4,282		2,180		(23)
2016		4,215		2,131		(26)
2017		4,169		2,076		(30)
Years 2018 - 2022		20,286		9,924		(195)

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Goodwill And Other Intangible Assets (Schedule Of Amortized Intangible Assets) (Details) (USD $) In Millions, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
AT&T Mobility LLC [Member]
Finite Lived Intangible Assets [Line Items]
Gross carrying amount	$ 6,760	$ 6,845
Accumulated amortization	6,335	5,906
BellSouth Corporation [Member]
Finite Lived Intangible Assets [Line Items]
Gross carrying amount	5,825	9,205
Accumulated amortization	4,994	7,686
AT&T Corp [Member]
Finite Lived Intangible Assets [Line Items]
Gross carrying amount	2,490	2,483
Accumulated amortization	2,356	2,205
Other Customer Lists And Relationships [Member]
Finite Lived Intangible Assets [Line Items]
Gross carrying amount	351	350
Accumulated amortization	350	329
Other Intangible Assets Subtotal [Member]
Finite Lived Intangible Assets [Line Items]
Gross carrying amount	15,426	18,883
Accumulated amortization	14,035	16,126
Other Intangible Assets [Member]
Finite Lived Intangible Assets [Line Items]
Gross carrying amount	304	485
Accumulated amortization	174	258
Customer Lists And Relationships [Member]
Finite Lived Intangible Assets [Line Items]
Gross carrying amount	15,730	19,368
Accumulated amortization	$ 14,209	$ 16,384

XML

Acquisitions, Dispositions And Other Adjustments (Narrative) (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended			4 Months Ended	5 Months Ended	12 Months Ended			1 Months Ended					12 Months Ended			1 Months Ended						1 Months Ended		12 Months Ended		1 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	May 08, 2012 Advertising Solutions [Member]	May 31, 2012 Advertising Solutions [Member]	Dec. 31, 2013 Atlantic Tele Network [Member] Pending Approval [Member]	Jan. 31, 2013 Atlantic Tele Network [Member] Pending Approval [Member]	Jan. 22, 2013 Atlantic Tele Network [Member] Pending Approval [Member]	Dec. 31, 2010 Centennial [Member]	Aug. 31, 2010 Centennial [Member]	Jul. 31, 2011 Convergys [Member]	Jan. 24, 2013 Next Wave [Member]	Jan. 31, 2013 Other Acquisitions [Member]	Dec. 31, 2012 Other Acquisitions [Member]	Dec. 31, 2011 Other Acquisitions [Member]	Dec. 31, 2010 Other Dispositions [Member]	Dec. 31, 2011 Qualcomm [Member]	Aug. 31, 2010 Sterling [Member]	May 31, 2010 Sterling [Member]	Mar. 31, 2012 T Mobile [Member]	Dec. 31, 2011 T Mobile [Member]	Mar. 31, 2011 T Mobile [Member]	Aug. 31, 2011 Telmex [Member]	Jun. 30, 2010 Verizon Alltel [Member]	Dec. 31, 2013 Verizon Alltel [Member]	Jan. 25, 2013 Verizon Alltel [Member]	Jan. 25, 2013 Verizon Alltel [Member] Pending Approval [Member]	May 08, 2012 YP Holdings LLC [Member]
Significant Acquisitions and Disposals [Line Items]
Purchase price - noncontrolling interest buyouts											$ 320
Acquisition agreement date								Jan. 22, 2013																		Jan. 25, 2013
Acquisition period						Dec. 31, 2013			Dec. 31, 2010		Jul. 31, 2011	Jan. 24, 2013					Dec. 31, 2011							Jun. 30, 2010	Dec. 31, 2013
Acquisition agreement period																				Mar. 31, 2011
Spectrum licenses subject to transfer under purchase agreement																					962
Contract Termination date																					2011-12-31
Number of subscribers acquired in business combination																								1,600,000
Number of service areas acquired in business combination																								79
Number of states of operation for acquired business							6																	18
Closing date of acquisition completion of accounting						Dec. 31, 2013			Dec. 31, 2010		Jul. 31, 2011	Jan. 24, 2013					Dec. 31, 2011							Jun. 30, 2010	Dec. 31, 2013
Wireless spectrum purchases									655								1,925
Approximate purchase price - business combination							780					600										39,000		2,376
Merger termination fees expensed during the period																					3,000
Number of customers served																	300,000,000
Qualcomm 12 MHz of lower 700 MHz D and E block license spectrum people coverage, range minimum (in millions)																	70
Qualcomm 6 MHz of lower 700 MHz D block spectrum license people coverage, range minimum (in millions)																	230
Qualcomm lower 700 MHz frequency license purchase agreement description																	five of the top 15 metropolitan areas
Service areas										8																	5
Initiation of buyers purchase of AT&Ts interest in an equity method investment																			2010-05-31				2011-08-31
Total sales price (U.S. dollars) of the company's investment in subsidiary				740						273								1,400					1,197
Spectrum acquired during period													400	855	33												1,900
Customer lists and other intangible assets									449
Goodwill									1,518
Type of noncash consideration from sale of subsidiary				note
Cash from sale of subsidiary	812	1,301	1,830													109
Note from sale of subsidiary					$ 200
Equity interest in new company																												47.00%
Date of sale of subsidiary				May 08, 2012
Disposal period of subsidiary/assets										Aug. 31, 2010						Dec. 31, 2010		Aug. 31, 2010
Potential customers in service area								4,600,000

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Income Taxes (Narrative) (Details) (USD $) In Millions, unless otherwise specified	1 Months Ended	3 Months Ended		9 Months Ended	12 Months Ended
	Sep. 30, 2010	Sep. 30, 2010	Mar. 31, 2010	Sep. 30, 2010	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Income Taxes
Change in healthcare legislation - signed into law			2010-03-31
Charge to Income Tax Expense - effect of new legislation			$ 995
Date of tax settlement with IRS	2010-09-30
Income tax settlement - reduction in tax adjustment on income tax expense		8,300
Income tax settlement - decrease of tax adjustment on net noncurrent deferred income tax liabilities	6,760	6,760		6,760
Income tax settlement - decrease of tax adjustment on other net tax liabilities	1,540	1,540		1,540
Income tax settlements - reduction of unrecognized tax benefits prior year				1,057
Combined net operating and capital loss carryforwards (tax effected) for federal income tax purposes					780
Combined net operating and capital loss carryforwards (tax effected) for state and foreign income tax purposes					956
Expiration year of operating and capital loss carryforwards					Dec. 31, 2031
Tax credit carryforwards					431
Year through which tax credit carryforwards expire					Dec. 31, 2032
Net deposits to various taxing jurisdictions					2,372	2,508
Accrued interest and penalties included in unrecognized tax benefits balance at year end					977	1,312
Net interest and penalty expense (benefit) included in income tax expense					$ (74)	$ (65)	$ (194)
Field examinations of tax returns - most recent year completed by IRS					2008
All audit periods prior to this year are closed for federal examination purposes					2003
Period Start [Member]
Income Tax Years [Line Items]
Tax return year(s) subject to resolution with IRS Appeals Division					2003
Period End [Member]
Income Tax Years [Line Items]
Tax return year(s) subject to resolution with IRS Appeals Division					2008

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Goodwill And Other Intangible Assets (Schedule Of Indefinite-Life Intangible Assets Not Subject To Amortization) (Details) (USD $) In Millions, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Indefinite-lived Intangible Assets [Line Items]
Gross carrying amount	$ 57,254	$ 56,359
Licenses [Member]
Indefinite-lived Intangible Assets [Line Items]
Gross carrying amount	52,352	51,374
Trade Name [Member]
Indefinite-lived Intangible Assets [Line Items]
Gross carrying amount	$ 4,902	$ 4,985

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Pension And Postretirement Benefits (Employee Benefit Obligation Amounts Recognized) (Details) (USD $) In Millions, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Pension Benefit [Member]
Defined Benefit Plan Disclosure [Line Items]
Current portion of employee benefit obligation	$ 0	$ 0
Employee benefit obligation	(13,851)	(10,203)
Net amount recognized	(13,851)	(10,203)
Postretirement Benefit [Member]
Defined Benefit Plan Disclosure [Line Items]
Current portion of employee benefit obligation	(2,116)	(2,288)
Employee benefit obligation	(26,020)	(22,775)
Net amount recognized	(28,136)	(25,063)
Supplemental Retirement Plans [Member]
Defined Benefit Plan Disclosure [Line Items]
Employee benefit obligation	$ 2,456	$ 2,294

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Segment Information (Summary Of Operating Revenues And Expenses By Segment) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Segment Reporting Information [Line Items]
Total segment operating revenues	$ 32,578	$ 31,459	$ 31,575	$ 31,822	$ 32,503	$ 31,478	$ 31,495	$ 31,247	$ 127,434	$ 126,723	$ 124,280
Operations and support expenses									96,294	99,128	85,328
Depreciation and amortization expenses									18,143	18,377	19,379
Total segment operating expenses									114,437	117,505	104,707
Segment operating income (loss)	(5,958)	6,037	6,817	6,101	(8,990)	6,235	6,165	5,808	12,997	9,218	19,573
Interest expense									3,444	3,535	2,994
Equity in net income of affiliates									752	784	762
Other income (expense) - net									134	249	897
Segment income (loss) before income taxes									10,439	6,716	18,238
Segment assets	272,315				270,442				272,315	270,442
Investments in and advances to equity method affiliates	4,581				3,718				4,581	3,718	4,515
Expenditures for additions to long-lived assets									19,728	20,272
Wireless [Member]
Segment Reporting Information [Line Items]
Total segment operating revenues									66,763	63,215	58,501
Operations and support expenses									43,296	41,282	36,185
Depreciation and amortization expenses									6,873	6,329	6,498
Total segment operating expenses									50,169	47,611	42,683
Segment operating income (loss)									16,594	15,604	15,818
Interest expense									0	0	0
Equity in net income of affiliates									(62)	(29)	9
Other income (expense) - net									0	0	0
Segment income (loss) before income taxes									16,532	15,575	15,827
Segment assets	132,556				127,466				132,556	127,466
Investments in and advances to equity method affiliates	41				20				41	20
Expenditures for additions to long-lived assets									10,795	9,765
Wireline [Member]
Segment Reporting Information [Line Items]
Total segment operating revenues									59,567	60,140	61,761
Operations and support expenses									41,207	41,360	41,879
Depreciation and amortization expenses									11,123	11,615	12,372
Total segment operating expenses									52,330	52,975	54,251
Segment operating income (loss)									7,237	7,165	7,510
Interest expense									0	0	0
Equity in net income of affiliates									(2)	0	11
Other income (expense) - net									0	0	0
Segment income (loss) before income taxes									7,235	7,165	7,521
Segment assets	134,386				133,904				134,386	133,904
Investments in and advances to equity method affiliates	0				0				0	0
Expenditures for additions to long-lived assets									8,914	10,449
Advertising Solutions [Member]
Segment Reporting Information [Line Items]
Total segment operating revenues									1,049	3,293	3,935
Operations and support expenses									773	5,175	2,584
Depreciation and amortization expenses									106	386	497
Total segment operating expenses									879	5,561	3,081
Segment operating income (loss)									170	(2,268)	854
Interest expense									0	0	0
Equity in net income of affiliates									0	0	0
Other income (expense) - net									0	0	0
Segment income (loss) before income taxes									170	(2,268)	854
Segment assets	0				2,982				0	2,982
Investments in and advances to equity method affiliates	0				0				0	0
Expenditures for additions to long-lived assets									13	29
Other Segment [Member]
Segment Reporting Information [Line Items]
Total segment operating revenues									55	75	83
Operations and support expenses									1,024	5,031	2,159
Depreciation and amortization expenses									41	47	12
Total segment operating expenses									1,065	5,078	2,171
Segment operating income (loss)									(1,010)	(5,003)	(2,088)
Interest expense									0	0	0
Equity in net income of affiliates									816	813	742
Other income (expense) - net									0	0	0
Segment income (loss) before income taxes									(194)	(4,190)	(1,346)
Segment assets	10,728				10,530				10,728	10,530
Investments in and advances to equity method affiliates	4,540				3,698				4,540	3,698
Expenditures for additions to long-lived assets									6	29
Consolidations [Member]
Segment Reporting Information [Line Items]
Total segment operating revenues									0	0	0
Operations and support expenses									9,994	6,280	2,521
Depreciation and amortization expenses									0	0	0
Total segment operating expenses									9,994	6,280	2,521
Segment operating income (loss)									(9,994)	(6,280)	(2,521)
Interest expense									3,444	3,535	2,994
Equity in net income of affiliates									0	0	0
Other income (expense) - net									134	249	897
Segment income (loss) before income taxes									(13,304)	(9,566)	(4,618)
Segment assets	(5,355)				(4,440)				(5,355)	(4,440)
Investments in and advances to equity method affiliates	0				0				0	0
Expenditures for additions to long-lived assets									$ 0	$ 0

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Property, Plant And Equipment (Tables)

12 Months Ended

Dec. 31, 2012

Property, Plant And Equipment

Summary Of Property, Plant And Equipment

		Lives (years)		2012		2011
Land		-	$	1,689	$	1,689
Buildings and improvements		10-45		28,939		28,054
Central office equipment1		3-10		86,185		83,824
Cable, wiring and conduit		10-50		80,338		78,431
Other equipment		5-20		61,387		53,104
Software		3-5		7,957		10,041
Under construction		-		4,412		5,136
				270,907		260,279
Accumulated depreciation and amortization				161,140		153,192
Property, plant and equipment - net			$	109,767	$	107,087
1	Includes certain network software.

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Pension And Postretirement Benefits (Net Periodic Benefit Cost) (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Defined Benefit Plan Disclosure [Line Items]
Actuarial (gain) loss	$ 9,994	$ 6,280	$ 2,521
Net periodic benefit cost	10,257	7,288	3,750
Pension Benefit [Member]
Defined Benefit Plan Disclosure [Line Items]
Service cost - benefits earned during the period	1,216	1,186	1,075
Interest cost on projected benefit obligation	2,800	2,958	3,150
Expected return on assets	(3,520)	(3,690)	(3,775)
Amortization of prior service cost (credit)	(15)	(15)	(16)
Actuarial (gain) loss	5,206	4,498	1,768
Net periodic benefit cost	5,687	4,937	2,202
Postretirement Benefit [Member]
Defined Benefit Plan Disclosure [Line Items]
Service cost - benefits earned during the period	336	362	348
Interest cost on projected benefit obligation	1,725	2,051	2,257
Expected return on assets	(811)	(1,040)	(943)
Amortization of prior service cost (credit)	(927)	(694)	(624)
Actuarial (gain) loss	4,247	1,672	510
Net periodic benefit cost	4,570	2,351	1,548
Reduction of postretirement benefit cost due to the Medicare Prescription Drug, Improvement, and Modernization Act of 2003	142	280	237
Supplemental Retirement Plans [Member]
Defined Benefit Plan Disclosure [Line Items]
Service cost - benefits earned during the period	10	14	12
Interest cost on projected benefit obligation	116	126	134
Amortization of prior service cost (credit)	0	2	2
Actuarial (gain) loss	230	81	186
Net periodic benefit cost	$ 356	$ 223	$ 334

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Income Taxes (Components of Income Tax Expense) (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Income Taxes
Current, federal	$ 451	$ (420)	$ 307
Deferred - net, federal	2,256	2,555	(2,105)
Total federal income tax	2,707	2,135	(1,798)
Current, state, local and foreign	702	23	141
Deferred - net, state, local and foreign	(509)	374	495
Total state, local and foreign income tax	193	397	636
Total	$ 2,900	$ 2,532	$ (1,162)

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Share-Based Payments (Compensation Cost And Valuation Assumption) (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Share-Based Payment
Performance stock units	$ 397	$ 388	$ 411
Restricted stock and stock units	102	91	85
Other nonvested stock units	12	4	11
Other	0	6	6
Total	$ 511	$ 489	$ 513

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Equity Method Investments (Reconciliation Of Investments In Equity Affiliates) (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Equity Method Investments
Beginning of year	$ 3,718	$ 4,515
Additional investments	405	35
Equity in net income of affiliates	752	784	762
Dividends received	(137)	(161)
Dispositions	0	(660)
Currency translation adjustments	95	(515)
America Movil equity adjustments	(260)	(171)
Other adjustments	8	(109)
End of year	$ 4,581	$ 3,718	$ 4,515

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Pension And Postretirement Benefits (Change In The Projected Benefit Obligation) (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Pension Benefit [Member]
Defined Benefit Plan Disclosure [Line Items]
Benefit obligation at beginning of year	$ 56,110	$ 53,917
Service cost - benefits earned during the period	1,216	1,186	1,075
Interest cost on projected benefit obligation	2,800	2,958	3,150
Amendments	(905)	0
Actuarial loss	6,707	2,972
Special termination benefits	12	27
Benefits paid	(5,729)	(4,950)
Transfer for sale of Advertising Solutions segment	(149)	0
Plan transfers	(1,151)	0
Benefit obligation at end of year	58,911	56,110	53,917
Postretirement Benefit [Member]
Defined Benefit Plan Disclosure [Line Items]
Benefit obligation at beginning of year	34,953	36,638
Service cost - benefits earned during the period	336	362	348
Interest cost on projected benefit obligation	1,725	2,051	2,257
Amendments	(2,768)	(1,830)
Actuarial loss	4,844	478
Special termination benefits	5	4
Benefits paid	(2,608)	(2,750)
Transfer for sale of Advertising Solutions segment	(207)	0
Plan transfers	1,151	0
Benefit obligation at end of year	37,431	34,953	36,638
Supplemental Retirement Plans [Member]
Defined Benefit Plan Disclosure [Line Items]
Service cost - benefits earned during the period	10	14	12
Interest cost on projected benefit obligation	$ 116	$ 126	$ 134

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Pension And Postretirement Benefits (Estimated Future Benefit Payments) (Details) (USD $) In Millions, unless otherwise specified	Dec. 31, 2012
Defined Benefit Plan Disclosure [Line Items]
Estimated Medicare subsidy receipts year - 2013	$ (18)
Estimated Medicare subsidy receipts year - 2014	(20)
Estimated Medicare subsidy receipts year - 2015	(23)
Estimated Medicare subsidy receipts year - 2016	(26)
Estimated Medicare subsidy receipts year - 2017	(30)
Estimated Medicare subsidy receipts year - Years 2018 - 2022	(195)
Pension Benefit [Member]
Defined Benefit Plan Disclosure [Line Items]
Estimated future benefit payments under our pension and postretirement plans - 2013	4,697
Estimated future benefit payments under our pension and postretirement plans - 2014	4,395
Estimated future benefit payments under our pension and postretirement plans - 2015	4,282
Estimated future benefit payments under our pension and postretirement plans - 2016	4,215
Estimated future benefit payments under our pension and postretirement plans - 2017	4,169
Estimated future benefit payments under our pension and postretirement plans - Years 2018 - 2022	20,286
Postretirement Benefit [Member]
Defined Benefit Plan Disclosure [Line Items]
Estimated future benefit payments under our pension and postretirement plans - 2013	2,371
Estimated future benefit payments under our pension and postretirement plans - 2014	2,249
Estimated future benefit payments under our pension and postretirement plans - 2015	2,180
Estimated future benefit payments under our pension and postretirement plans - 2016	2,131
Estimated future benefit payments under our pension and postretirement plans - 2017	2,076
Estimated future benefit payments under our pension and postretirement plans - Years 2018 - 2022	$ 9,924

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Pension and Postretirement Benefits (Weighted Average Assumptions - Projected Benefit Obligation And Net Pension And Postemployment Benefit Cost) (Details)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Pension And Postretirement Benefits
Discount rate for determining projected benefit obligation at December 31		4.30%	5.30%	5.80%
Discount rate in effect for determining net cost		5.30%	5.80%	6.50%
Long-term rate of return on plan assets	7.75%	8.25%	8.25%	8.50%
Composite rate of compensation increase for determining projected benefit obligation	3.00%	3.00%	4.00%	4.00%
Composite rate of compensation increase for determining net pension cost (benefit)		4.00%	4.00%	4.00%

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Pension And Postretirement Benefits (Accumulated Benefit Obligations In Excess Of Plan Assets) (Details) (USD $) In Millions, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Pension And Postretirement Benefits
Supplemental retirement plan - projected benefit obligation	$ (2,456)	$ (2,294)
Supplemental retirement plan - Accumulated benefit obligation	(2,392)	(2,223)
Supplemental retirement plan - Fair value of plan assets	$ 0	$ 0

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Pension And Postretirement Benefits (Change In The Value Of Plan Assets And The Plans' Funded Status) (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Pension Benefit [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets at beginning of year	$ 45,907	$ 47,621
Actual return on plan assets	5,041	2,238
Change in fair value of plan assets - benefits paid	(5,729)	(4,950)
Contributions	3	1,000
Transfer for sale of Advertising Solutions segment	(165)	0
Other	3	(2)
Fair value of plan assets at end of year	45,060	45,907
Unfunded status at end of year	(13,851)	(10,203)
Postretirement Benefit [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets at beginning of year	9,890	12,747
Actual return on plan assets	1,266	(224)
Change in fair value of plan assets - benefits paid	(1,842)	(2,633)
Contributions	0	0
Transfer for sale of Advertising Solutions segment	(19)	0
Other	0	0
Fair value of plan assets at end of year	9,295	9,890
Unfunded status at end of year	$ (28,136)	$ (25,063)

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Income Taxes (Components Of Deferred Tax Liabilities (Assets)) (Details) (USD $) In Millions, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Income Taxes
Depreciation and amortization	$ 41,411	$ 39,367
Intangibles (nonamortizable)	1,874	1,897
Employee benefits	(13,350)	(14,950)
Net operating loss and other carryforwards	(2,167)	(1,502)
Other - net	(1,199)	(1,451)
Subtotal	26,569	23,361
Deferred tax assets valuation allowance	886	917
Net deferred tax liabilities	27,455	24,278
Net long-term deferred tax liabilities	28,491	25,748
Less: Net current deferred tax assets	(1,036)	(1,470)
Net deferred tax liabilities	$ 27,455	$ 24,278

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Quarterly Financial Information (Unaudited)

12 Months Ended

Dec. 31, 2012

Quarterly Financial Information (Unaudited)

Quarterly Financial Information (Unaudited)

NOTE 16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

The following tables represent our quarterly financial results:

		2012 Calendar Quarter
		First		Second		Third		Fourth2		Annual
Total Operating Revenues		$	31,822	$	31,575	$	31,459	$	32,578	$	127,434
Operating Income (Loss)			6,101		6,817		6,037		(5,958)		12,997
Net Income (Loss)			3,652		3,965		3,701		(3,779)		7,539
Net Income (Loss) Attributable to AT&T			3,584		3,902		3,635		(3,857)		7,264
Basic Earnings (Loss) Per Share Attributable
to AT&T1		$	0.60	$	0.67	$	0.63	$	(0.68)	$	1.25
Diluted Earnings (Loss) Per Share Attributable
to AT&T1		$	0.60	$	0.66	$	0.63	$	(0.68)	$	1.25
Stock Price
High		$	31.97	$	36.00	$	38.58	$	38.43
Low			29.02		29.95		34.24		32.71
Close			31.23		35.66		37.70		33.71
1	Quarterly earnings per share impacts may not add to full-year earnings per share impacts due to the difference in weighted-average
	common shares for the quarters versus the weighted-average common shares for the year.
2	Includes an actuarial loss on pension and postretirement benefit plans (Note 11).

		2011 Calendar Quarter
		First		Second		Third		Fourth2		Annual
Total Operating Revenues		$	31,247	$	31,495	$	31,478	$	32,503	$	126,723
Operating Income (Loss)			5,808		6,165		6,235		(8,990)		9,218
Net Income (Loss)			3,468		3,658		3,686		(6,628)		4,184
Net Income (Loss) Attributable to AT&T			3,408		3,591		3,623		(6,678)		3,944
Basic Earnings (Loss) Per Share Attributable
to AT&T1		$	0.57	$	0.60	$	0.61	$	(1.12)	$	0.66
Diluted Earnings (Loss) Per Share Attributable
to AT&T1		$	0.57	$	0.60	$	0.61	$	(1.12)	$	0.66
Stock Price
High		$	30.97	$	31.94	$	31.78	$	30.30
Low			27.20		29.91		27.29		27.41
Close			30.61		31.41		28.52		30.24
1	Quarterly earnings per share impacts may not add to full-year earnings per share impacts due to the difference in weighted-average
	common shares for the quarters versus the weighted-average common shares for the year.
2	Includes an actuarial loss on pension and postretirement benefit plans (Note 11), T-Mobile breakup fee (Note 4) and impairment of
	intangible assets (Note 6).

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Property, Plant And Equipment (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Property, Plant and Equipment [Line Items]
Accumulated depreciation and amortization	161,140	153,192
Property, plant and equipment, gross	270,907	260,279
Property, plant and equipment - net	109,767	107,087
Land [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, gross	1,689	1,689
Land [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	0 years 0 months 0 days	0 years 0 months 0 days
Land [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	0 years 0 months 0 days	0 years 0 months 0 days
Buildings and Improvements [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, gross	28,939	28,054
Buildings and Improvements [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	10 years 0 months 0 days	10 years 0 months 0 days
Buildings and Improvements [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	45 years 0 months 0 days	45 years 0 months 0 days
Central Office Equipment [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, gross	86,185	83,824
Central Office Equipment [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	3 years 0 months 0 days	3 years 0 months 0 days
Central Office Equipment [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	10 years 0 months 0 days	10 years 0 months 0 days
Cable, Wiring And Conduit [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, gross	80,338	78,431
Cable, Wiring And Conduit [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	10 years 0 months 0 days	10 years 0 months 0 days
Cable, Wiring And Conduit [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	50 years 0 months 0 days	50 years 0 months 0 days
Other Equipment [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, gross	61,387	53,104
Other Equipment [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	5 years 0 months 0 days	5 years 0 months 0 days
Other Equipment [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	20 years 0 months 0 days	20 years 0 months 0 days
Software [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, gross	7,957	10,041
Software [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	3 years 0 months 0 days	3 years 0 months 0 days
Software [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	5 years 0 months 0 days	5 years 0 months 0 days
Under Construction [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, gross	4,412	5,136
Under Construction [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	0 years 0 months 0 days	0 years 0 months 0 days
Under Construction [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	0 years 0 months 0 days	0 years 0 months 0 days

XML

Quarterly Financial Information (Unaudited) (Tables)

12 Months Ended

Dec. 31, 2012

Quarterly Financial Information (Unaudited)

Quarterly Financial Results

		2012 Calendar Quarter
		First		Second		Third		Fourth2		Annual
Total Operating Revenues		$	31,822	$	31,575	$	31,459	$	32,578	$	127,434
Operating Income (Loss)			6,101		6,817		6,037		(5,958)		12,997
Net Income (Loss)			3,652		3,965		3,701		(3,779)		7,539
Net Income (Loss) Attributable to AT&T			3,584		3,902		3,635		(3,857)		7,264
Basic Earnings (Loss) Per Share Attributable
to AT&T1		$	0.60	$	0.67	$	0.63	$	(0.68)	$	1.25
Diluted Earnings (Loss) Per Share Attributable
to AT&T1		$	0.60	$	0.66	$	0.63	$	(0.68)	$	1.25
Stock Price
High		$	31.97	$	36.00	$	38.58	$	38.43
Low			29.02		29.95		34.24		32.71
Close			31.23		35.66		37.70		33.71
1	Quarterly earnings per share impacts may not add to full-year earnings per share impacts due to the difference in weighted-average
	common shares for the quarters versus the weighted-average common shares for the year.
2	Includes an actuarial loss on pension and postretirement benefit plans (Note 11).

		2011 Calendar Quarter
		First		Second		Third		Fourth2		Annual
Total Operating Revenues		$	31,247	$	31,495	$	31,478	$	32,503	$	126,723
Operating Income (Loss)			5,808		6,165		6,235		(8,990)		9,218
Net Income (Loss)			3,468		3,658		3,686		(6,628)		4,184
Net Income (Loss) Attributable to AT&T			3,408		3,591		3,623		(6,678)		3,944
Basic Earnings (Loss) Per Share Attributable
to AT&T1		$	0.57	$	0.60	$	0.61	$	(1.12)	$	0.66
Diluted Earnings (Loss) Per Share Attributable
to AT&T1		$	0.57	$	0.60	$	0.61	$	(1.12)	$	0.66
Stock Price
High		$	30.97	$	31.94	$	31.78	$	30.30
Low			27.20		29.91		27.29		27.41
Close			30.61		31.41		28.52		30.24
1	Quarterly earnings per share impacts may not add to full-year earnings per share impacts due to the difference in weighted-average
	common shares for the quarters versus the weighted-average common shares for the year.
2	Includes an actuarial loss on pension and postretirement benefit plans (Note 11), T-Mobile breakup fee (Note 4) and impairment of
	intangible assets (Note 6).

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Pension And Postretirement Benefits (Narrative) (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Defined Benefit Plan Disclosure [Line Items]
Discount rate for determining projected benefit obligation		4.30%	5.30%	5.80%
Decrease in discount rate over prior year		1.00%	0.50%
Combined net pension and postretirement cost		$ 10,257	$ 7,288	$ 3,750
Percentage decrease in the actual long-term rate of return used to report the impact of change on future combined net pension and postretirement cost		0.50%
Increase in plan benefit obligation as a result of the decreased discount rate	260
Long-term rate of return on plan assets	7.75%	8.25%	8.25%	8.50%
Estimated annual growth rate for health care cost		5.00%
Supplemental retirement plan - projected benefit obligation		2,456	2,294
AT&T securities held by pension plans (ownership percentage) below stated percentage		0.50%
Deferred compensation expense		118	96	96
Deferred compensation liability included in other noncurrent liabilities		1,061	1,010
Benefit cost of the contributory savings plans		634	636	607
AT&T securities held by postretirement plans (in VEBA Trust) (ownership percentage) below stated percentage		0.50%
Application Filing Date		Oct. 31, 2012
Expected Pension Contribution Year		Dec. 31, 2013
Estimated Future Pension Contribution	9,500
Composite rate of compensation increase for determining projected benefit obligation	3.00%	3.00%	4.00%	4.00%
Composite rate of compensation increase for determining net pension cost (benefit)		4.00%	4.00%	4.00%
Required contribution to our pension plans in 2013	300
Forecasting study - frequency (minimum)		2 years 0 months 0 days
Forecasting study - frequency (maximum)		3 years 0 months 0 days
Ratified Agreement [Member]
Defined Benefit Plan Disclosure [Line Items]
Number of collectively bargained employees under agreements ratified during period		90,000
Labor agreement ratifications in current year - annual pension band increase		1.00%
Pension Benefit [Member]
Defined Benefit Plan Disclosure [Line Items]
Amounts included in accumulated OCI - Prior service credit		1,035	149
Accumulated benefit obligation for pension plans		57,010	53,640
Prior service credits for pension, other postretirement, or supplemental retirement benefits that will be amortized from accumulated OCI into net periodic benefit cost over the next fiscal year	94
Combined net pension and postretirement cost		5,687	4,937	2,202
Increase in plan benefit obligation as a result of the decreased discount rate		7,030	3,384
Postretirement Benefit [Member]
Defined Benefit Plan Disclosure [Line Items]
Amounts included in accumulated OCI - Prior service credit		7,688	5,896
Prior service credits for pension, other postretirement, or supplemental retirement benefits that will be amortized from accumulated OCI into net periodic benefit cost over the next fiscal year	1,049
Combined net pension and postretirement cost		4,570	2,351	1,548
Increase in plan benefit obligation as a result of the decreased discount rate		4,546	2,114
Supplemental Retirement Plans [Member]
Defined Benefit Plan Disclosure [Line Items]
Prior service credits for pension, other postretirement, or supplemental retirement benefits that will be amortized from accumulated OCI into net periodic benefit cost over the next fiscal year	1
Combined net pension and postretirement cost		$ 356	$ 223	$ 334
Debt financed shares held By Employee Stock Ownership Plans		0
Administrative Expense [Member]
Defined Benefit Plan Disclosure [Line Items]
Estimated annual growth rate for health care cost	2.50%	3.00%
Dental Claims [Member]
Defined Benefit Plan Disclosure [Line Items]
Estimated annual growth rate for health care cost	3.00%	3.00%
Health Care Plan Provisions [Member]
Defined Benefit Plan Disclosure [Line Items]
Estimated annual health care cost trend rate for prior and current year	5.00%	5.00%

XML

Additional Financial Information (Narrative) (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended				1 Months Ended	12 Months Ended		1 Months Ended	12 Months Ended	1 Months Ended	12 Months Ended			1 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Jan. 31, 2013	Apr. 30, 2012 Expired Contract [Member] Ca Ct Nv Wireline [Member]	Dec. 31, 2012 Ratified Agreement [Member]	Dec. 31, 2012 Ratified Agreement [Member] Mobility [Member]	Jan. 31, 2013 Workforce Subject to Collective Bargaining Arrangements [Member]	Dec. 31, 2012 Workforce Subject to Collective Bargaining Arrangements Expiring within One Year [Member]	Feb. 28, 2013 Workforce Subject to Collective Bargaining Arrangements Expiring within One Year [Member] Mobility [Member]	Dec. 31, 2013 Workforce Subject to Collective Bargaining Arrangements Expiring within One Year [Member] Non Mobility [Member]	Dec. 31, 2012 Workforce Subject to Collective Bargaining Arrangements Expiring within One Year [Member] Tentative Agreement [Member] Southwest Wireline [Member]	Dec. 31, 2011 Workforce Subject to Collective Bargaining Arrangements Expiring within One Year [Member] Ratified Agreement [Member]	Aug. 31, 2000 American Tower Corporation Agreement [Member]	Dec. 31, 2012 American Tower Corporation Agreement [Member]	Dec. 31, 2011 American Tower Corporation Agreement [Member]	Dec. 31, 2010 American Tower Corporation Agreement [Member]
Additional Financial Information [Line Items]
Number of customers exceeding threshold for significance	0	0	0
Threshold for customer significance (as a percent of consolidated revenues) (in hundredths)	10.00%	10.00%	10.00%
Deferred Revenue, Description														In August 2000, we reached an agreement with American Tower Corp. (American Tower) under which we granted American Tower the exclusive rights to lease space on a number of our communications towers. In exchange, we received a combination of cash and equity instruments as complete prepayment of rent with the closing of each leasing agreement. The value of the prepayments was recorded as deferred revenue and recognized in income as revenue over the life of the leases.
Deferred Revenue															$ 420	$ 450	$ 480
Concentration Risk [Line Items]
Approximate number of persons employed at a point in time				242,000
Approximate number of persons employed during the period						90,000	40,000
Percentage of employees represented by CWA, IBEW, or other unions								55%
Number of employees under contracts where union may call a work stoppage									77,000	20,000	30,000	20,000	57,000
Relevant union contract expiration year					2012/04/30					2013/02/28	2013/12/31	2013/12/31	2012/12/31
New national labor contract for mobility employees (benefits only) - number of years							4 years 0 months 0 days
Number of states in Southwest region for wireline												5

XML

Fair Value Measurements And Disclosure (Tables)

12 Months Ended

Dec. 31, 2012

Fair Value Measurements And Disclosure

Long-Term Debt And Other Financial Instruments

	December 31, 2012				December 31, 2011
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Notes and debentures	$	69,578	$	81,310	$	64,514	$	73,738
Bank borrowings		1		1		-		-
Investment securities		2,218		2,218		2,092		2,092

Fair Value Leveling

		December 31, 2012
		Level 1		Level 2		Level 3		Total
Available-for-Sale Securities
Domestic equities		$	873	$	-	$	-	$	873
International equities			469		-		-		469
Fixed income bonds			-		837		-		837
Asset Derivatives1
Interest rate swaps			-		287		-		287
Cross-currency swaps			-		752		-		752
Foreign exchange contracts			-		1		-		1
Liability Derivatives1
Cross-currency swaps			-		(672)		-		(672)
		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,
	other current assets.

Notional Amount Of Outstanding Derivative Positions

	2012		2011
Interest rate swaps	$	3,000	$	8,800
Cross-currency swaps		12,071		7,502
Interest rate locks		-		800
Foreign exchange contracts		51		207
Total	$	15,122	$	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
For the years ended December 31,	2012		2011		2010
Interest rate swaps (Interest expense):
Gain (Loss) on interest rate swaps	$	(179)	$	10	$	125
Gain (Loss) on long-term debt		179		(10)		(125)

Cash Flow Hedging Relationships
For the year ended December 31,	2012		2011		2010
Cross-currency swaps:
Gain (Loss) recognized in accumulated OCI	$	432	$	(219)	$	(201)
Interest rate locks:
Gain (Loss) recognized in accumulated OCI		-		(167)		(320)
Interest income (expense) reclassified from accumulated OCI into income		(43)		(23)		(19)
Foreign exchange contracts:
Gain (Loss) recognized in accumulated OCI		5		(10)		5

XML

Goodwill And Other Intangible Assets (Narrative) (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Goodwill And Other Intangible Assets
Amortization expense for definite-life intangible assets for the year	$ 1,210	$ 2,009	$ 2,977
Estimated amortization expense in 2013	667
Estimated amortization expense in 2014	348
Estimated amortization expense in 2015	218
Estimated amortization expense in 2016	123
Estimated amortization expense in 2017	57
Impairment charge - trade name		165	85
Total impairment of indefinite-lived intangible assets	0	(2,910)	(85)
Write-offs of fully amortized finite-lived intangible assets	191
Goodwill - impairments		2,745
Finite Lived Intangible Assets [Line Items]
Finite-lived intangible assets - weighted average useful life	8 years 6 months 0 days
Licenses	52,352	51,374
Customer Lists And Relationships [Member]
Finite Lived Intangible Assets [Line Items]
Finite-lived intangible assets - weighted average useful life	8 years 4 months 24 days
Customer lists and relationships written off in sale	3,187
Other Intangible Assets [Member]
Finite Lived Intangible Assets [Line Items]
Finite-lived intangible assets - weighted average useful life	12 years 1 month 0 days
Wireless [Member]
Finite Lived Intangible Assets [Line Items]
Licenses	$ 52,318	$ 51,358

XML

Fair Value Measurements And Disclosure (Fair Value Leveling) (Details) (USD $) In Millions, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Interest Rate Swaps [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Asset Derivatives	$ 287	$ 521
Interest Rate Swaps [Member] | Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Asset Derivatives	0	0
Interest Rate Swaps [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Asset Derivatives	287	521
Interest Rate Swaps [Member] | Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Asset Derivatives	0	0
Cross-Currency Swaps [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Asset Derivatives	752	144
Liability Derivatives	(672)	(820)
Cross-Currency Swaps [Member] | Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Asset Derivatives	0	0
Liability Derivatives	0	0
Cross-Currency Swaps [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Asset Derivatives	752	144
Liability Derivatives	(672)	(820)
Cross-Currency Swaps [Member] | Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Asset Derivatives	0	0
Liability Derivatives	0	0
Interest Rate Locks [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Liability Derivatives		(173)
Interest Rate Locks [Member] | Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Liability Derivatives		0
Interest Rate Locks [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Liability Derivatives		(173)
Interest Rate Locks [Member] | Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Liability Derivatives		0
Foreign Exchange Contracts [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Asset Derivatives	1	2
Liability Derivatives		(9)
Foreign Exchange Contracts [Member] | Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Asset Derivatives	0	0
Liability Derivatives		0
Foreign Exchange Contracts [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Asset Derivatives	1	2
Liability Derivatives		(9)
Foreign Exchange Contracts [Member] | Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Asset Derivatives	0	0
Liability Derivatives		0
Domestic Equities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale Securities	873	947
Domestic Equities [Member] | Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale Securities	873	947
Domestic Equities [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale Securities	0	0
Domestic Equities [Member] | Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale Securities	0	0
International Equities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale Securities	469	495
International Equities [Member] | Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale Securities	469	495
International Equities [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale Securities	0	0
International Equities [Member] | Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale Securities	0	0
Fixed Income Bonds [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale Securities	837	562
Fixed Income Bonds [Member] | Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale Securities	0	0
Fixed Income Bonds [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale Securities	837	562
Fixed Income Bonds [Member] | Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale Securities	$ 0	$ 0

XML

Debt (Summary Of Long-Term Debt Of AT&T And Its Subsidiaries) (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Debt Instrument [Line Items]
Capitalized leases	265	239
Total long-term debt and capital lease obligations	69,843	64,753
Current maturities of long-term debt	(3,485)	(3,453)
Long-term debt and capital lease obligations (noncurrent)	66,358	61,300
Notes And Debentures [Member]
Debt Instrument [Line Items]
Carrying amount of notes and debentures	71,113	64,468
Unamortized (discount) premium - net	(1,535)	46
Total notes and debentures	69,578	64,514
Notes And Debentures Maturing Two Zero One Two Two Zero Two Two [Member]
Debt Instrument [Line Items]
Notes and debentures interest rates, Minimum	0.80%	0.80%
Notes and debentures interest rates, Maximum	2.99%	2.99%
Debt instrument, maturity date range, start	Dec. 31, 2013	Dec. 31, 2012
Debt instrument, maturity date range, end	Dec. 31, 2022	Dec. 31, 2022
Notes And Debentures Maturing Two Zero One Two Two Zero Two Two [Member] | Notes And Debentures [Member]
Debt Instrument [Line Items]
Carrying amount of notes and debentures	13,969	5,500
Notes And Debentures Maturing Two Zero One Two Two Zero Four Five [Member]
Debt Instrument [Line Items]
Notes and debentures interest rates, Minimum	3.00%	3.00%
Notes and debentures interest rates, Maximum	4.99%	4.99%
Debt instrument, maturity date range, start	Dec. 31, 2013	Dec. 31, 2012
Debt instrument, maturity date range, end	Dec. 31, 2045	Dec. 31, 2045
Notes And Debentures Maturing Two Zero One Two Two Zero Four Five [Member] | Notes And Debentures [Member]
Debt Instrument [Line Items]
Carrying amount of notes and debentures	14,590	8,659
Notes And Debentures Maturing Two Zero One Two Two Zero Nine Five [Member]
Debt Instrument [Line Items]
Notes and debentures interest rates, Minimum	5.00%	5.00%
Notes and debentures interest rates, Maximum	6.99%	6.99%
Debt instrument, maturity date range, start	Dec. 31, 2013	Dec. 31, 2012
Debt instrument, maturity date range, end	Dec. 31, 2095	Dec. 31, 2095
Notes And Debentures Maturing Two Zero One Two Two Zero Nine Five [Member] | Notes And Debentures [Member]
Debt Instrument [Line Items]
Carrying amount of notes and debentures	35,226	41,390
Notes And Debentures Maturing Two Zero One Two Two Zero Nine Seven [Member]
Debt Instrument [Line Items]
Notes and debentures interest rates, Minimum	7.00%	7.00%
Notes and debentures interest rates, Maximum	9.10%	9.10%
Debt instrument, maturity date range, start	Dec. 31, 2013	Dec. 31, 2012
Debt instrument, maturity date range, end	Dec. 31, 2097	Dec. 31, 2097
Notes And Debentures Maturing Two Zero One Two Two Zero Nine Seven [Member] | Notes And Debentures [Member]
Debt Instrument [Line Items]
Carrying amount of notes and debentures	7,059	8,471
Other Debt [Member] | Notes And Debentures [Member]
Debt Instrument [Line Items]
Carrying amount of notes and debentures	2	3
Fair value of interest rate swaps recorded in debt [Member] | Notes And Debentures [Member]
Debt Instrument [Line Items]
Carrying amount of notes and debentures	267	445

XML

Segment Information (Summary Of Operating Revenues And Expenses By Segment) (Narrative) (Details)	12 Months Ended
	Dec. 31, 2012	May 08, 2012 Advertising Solutions [Member]	May 08, 2012 YP Holdings LLC [Member]
Business Segment Disposal [Line Items]
Date of sale of subsidiary		May 08, 2012
Equity interest in new company			47.00%
Number of Reportable Segments	3

XML

Consolidated Statements Of Changes In Stockholders' Equity (Parenthetical) (USD $)	3 Months Ended									12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2010	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Consolidated Statements Of Changes In Stockholders' Equity
Net income attributable to AT&T, per diluted share	$ (0.68)	$ 0.63	$ 0.66	$ 0.60	$ (1.12)	$ 0.61	$ 0.60	$ 0.57		$ 1.25	$ 0.66	$ 3.35
Dividends to stockholders, per share	$ 0.45				$ 0.44				$ 0.43	$ 1.77	$ 1.73	$ 1.69

XML

Debt (Debt Maturing Within One Year) (Detail) (USD $) In Millions, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Calculation [Abstract]
Debt maturing within one year	$ 3,486	$ 3,453
Bank borrowings	1	0
Current maturities of long-term debt	$ 3,485	$ 3,453

XML

Valuation And Qualifying Accounts (Tables)

12 Months Ended

Dec. 31, 2012

Valuation And Qualifying Accounts

Allowance For Doubtful Accounts

COL. A	COL. B		COL. C			COL. D	COL. E
			Additions
			(1)	(2)	(3)
	Balance at		Charged to	Charged to
	Beginning of		Costs and	Other			Balance at End
	Period		Expenses (a)	Accounts (b)	Acquisitions	Deductions (c)	of Period
Year 2012	$	878	1,117	48	-	1,496	$	547
Year 2011	$	957	1,136	38	-	1,253	$	878
Year 2010	$	1,202	1,334	(28)	-	1,551	$	957
(a) Excludes direct charges and credits to expense on the consolidated statements of income and reinvested
earnings related to interexchange carrier receivables.
(b) Includes amounts previously written off which were credited directly to this account when recovered and
amounts related to long-distance carrier receivables which were billed by AT&T.
(c) Amounts written off as uncollectible, or related to divested entities.

XML

Pension And Postretirement Benefits (Policy)

12 Months Ended

Dec. 31, 2012

Pension And Postretirement Benefits

Plan assets and investment valuation

Our expected return on plan assets is calculated using the actual fair value of plan assets.

Recognition of actuarial gains and losses

We recognize actual gains and losses on pension and postretirement plan assets immediately in our operating results. These gains and losses are measured annually as of December 31 and accordingly will be recorded during the fourth quarter, unless earlier remeasurements are required.

Capitalization of benefit plan costs

A portion of pension and postretirement benefit costs is capitalized as part of the benefit load on internal construction and capital expenditures, providing a small reduction in the net expense recorded.

XML

Fair Value Measurements and Disclosure (Policy)

12 Months Ended

Dec. 31, 2012

Derivatives Policy [Abstract]

Derivatives netting policy

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.

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Valuation And Qualifying Accounts (Allowance For Doubtful Accounts) (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Valuation And Qualifying Accounts
Balance at Beginning of Period	$ 878	$ 957	$ 1,202
Charged to Costs and Expenses	1,117	1,136	1,334
Charged to Other Accounts	48	38	(28)
Acquisitions	0	0	0
Deductions	1,496	1,253	1,551
Balance at End of Period	$ 547	$ 878	$ 957

XML

Equity Method Investments (Narrative) (Details) (USD $) In Millions, unless otherwise specified			6 Months Ended			6 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Jun. 30, 2010 America Movil [Member]	Dec. 31, 2012 America Movil [Member]	Dec. 31, 2011 Telmex [Member]	Jun. 30, 2010 Telmex Internacional [Member]	Jun. 11, 2010 Telmex Internacional [Member]
Schedule of Equity Method Investments [Line Items]
Company's ownership interest in investee (in hundredths)				9.55%
Tender date for investment shares					2011-12-31		2010-06-11
Exchange rate for Internacional Shares (per share)						0.373
Gain on Internacional exchange						$ 658
Purchase price of additional shares			202
Undistributed earnings from equity affiliates	6,375	5,760
Fair value of equity method investment				$ 8,380

XML

Summary Of Significant Accounting Policies (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Finite Lived Intangible Assets [Line Items]
Severance accruals	$ 120	$ 335
Cash and cash equivalents - cash	482
Cash and cash equivalents - money market funds and other cash equivalents	4,386
Inventories	1,036	1,188
Inventories - wireless handsets and accessories	$ 888	$ 1,082
FCC licenses - typical term (in years)	10
Number of major classes of intangible assets	4
Software [Member]
Finite Lived Intangible Assets [Line Items]
Software, typical useful life (in years)	3 years 0 months 0 days

XML

Earnings Per Share (Tables)

12 Months Ended

Dec. 31, 2012

Earnings Per Share

Reconciliation Of The Numerators And Denominators Of Basic Earnings Per Share And Diluted Earnings Per Share

Year Ended December 31,	2012		2011		2010
Numerators
Numerator for basic earnings per share:
Income from continuing operations	$	7,539	$	4,184	$	19,400
Income attributable to noncontrolling interest		(275)		(240)		(315)
Income from continuing operations attributable to AT&T		7,264		3,944		19,085
Dilutive potential common shares:
Other share-based payment		12		11		11
Numerator for diluted earnings per share	$	7,276	$	3,955	$	19,096
Denominators (000,000)
Denominator for basic earnings per share:
Weighted-average number of common shares outstanding		5,801		5,928		5,913
Dilutive potential common shares:
Stock options		3		4		3
Other share-based payment (in shares)		17		18		22
Denominator for diluted earnings per share		5,821		5,950		5,938
Basic earnings per share from continuing operations attributable to AT&T	$	1.25	$	0.66	$	3.23
Basic earnings per share from discontinued operations attributable to AT&T		-		-		0.13
Basic earnings per share attributable to AT&T	$	1.25	$	0.66	$	3.36
Diluted earnings per share from continuing operations attributable to AT&T	$	1.25	$	0.66	$	3.22
Diluted earnings per share from discontinued operations attributable to AT&T		-		-		0.13
Diluted earnings per share attributable to AT&T	$	1.25	$	0.66	$	3.35

XML

Segment Information (Tables)

12 Months Ended

Dec. 31, 2012

Segment Information

Summary Of Operating Revenues And Expenses By Segment

Segment Results, including a reconciliation to AT&T consolidated results, for 2012, 2011, and 2010 are as follows:
At December 31, 2012 and for the year ended						Advertising Solutions						Consolidated Results
		Wireless		Wireline				Other		Consolidations
Total segment operating revenues	$	66,763	$	59,567	$	1,049	$	55	$	-	$	127,434
Operations and support expenses		43,296		41,207		773		1,024		9,994		96,294
Depreciation and amortization expenses		6,873		11,123		106		41		-		18,143
Total segment operating expenses		50,169		52,330		879		1,065		9,994		114,437
Segment operating income (loss)		16,594		7,237		170		(1,010)		(9,994)		12,997
Interest expense		-		-		-		-		3,444		3,444
Equity in net income (loss) of affiliates		(62)		(2)		-		816		-		752
Other income (expense) – net		-		-		-		-		134		134
Segment income (loss) before income taxes	$	16,532	$	7,235	$	170	$	(194)	$	(13,304)	$	10,439
Segment Assets	$	132,556	$	134,386	$	-	$	10,728	$	(5,355)	$	272,315
Investments in and advances to equity method affiliates		41		-		-		4,540		-		4,581
Expenditures for additions to long-lived assets		10,795		8,914		13		6		-		19,728
At December 31, 2011 and for the year ended						Advertising Solutions						Consolidated Results
		Wireless		Wireline				Other		Consolidations
Total segment operating revenues	$	63,215	$	60,140	$	3,293	$	75	$	-	$	126,723
Operations and support expenses		41,282		41,360		5,175		5,031		6,280		99,128
Depreciation and amortization expenses		6,329		11,615		386		47		-		18,377
Total segment operating expenses		47,611		52,975		5,561		5,078		6,280		117,505
Segment operating income (loss)		15,604		7,165		(2,268)		(5,003)		(6,280)		9,218
Interest expense		-		-		-		-		3,535		3,535
Equity in net income (loss) of affiliates		(29)		-		-		813		-		784
Other income (expense) – net		-		-		-		-		249		249
Segment income (loss) before income taxes	$	15,575	$	7,165	$	(2,268)	$	(4,190)	$	(9,566)	$	6,716
Segment Assets	$	127,466	$	133,904	$	2,982	$	10,530	$	(4,440)	$	270,442
Investments in and advances to equity method affiliates		20		-		-		3,698		-		3,718
Expenditures for additions to long-lived assets		9,765		10,449		29		29		-		20,272
For the year ended December 31, 2010						Advertising Solutions						Consolidated Results
		Wireless		Wireline				Other		Consolidations
Total segment operating revenues	$	58,501	$	61,761	$	3,935	$	83	$	-	$	124,280
Operations and support expenses		36,185		41,879		2,584		2,159		2,521		85,328
Depreciation and amortization expenses		6,498		12,372		497		12		-		19,379
Total segment operating expenses		42,683		54,251		3,081		2,171		2,521		104,707
Segment operating income (loss)		15,818		7,510		854		(2,088)		(2,521)		19,573
Interest expense		-		-		-		-		2,994		2,994
Equity in net income of affiliates		9		11		-		742		-		762
Other income (expense) – net		-		-		-		-		897		897
Segment income (loss) before income taxes	$	15,827	$	7,521	$	854	$	(1,346)	$	(4,618)	$	18,238

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Consolidated Statements 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, 2009	$ 101,989	$ 6,495	$ 91,707	$ 21,944	$ (21,260)	$ 2,678	$ 425
Balance at beginning of year (in shares) at Dec. 31, 2009		6,495			(593)
Issuance of shares - common stock (value)		0
Issuance of shares - common stock (in shares)		0
Repurchase of common stock	0				0
Repurchase of common stock (in shares)					0
Issuance of treasury stock			159		177
Issuance of treasury stock (in shares)					9
Share-based payments			(130)
Share of equity method investee capital transactions			0
Change related to acquisition of interests held by noncontrolling owners			(5)
Net income attributable to AT&T ($1.25, $0.66 and $3.35 per diluted share)	19,864			19,864
Dividends to stockholders ($1.77, $1.73 and $1.69 per share)				(9,985)
Other				(31)
Other comprehensive income (loss) attributable to AT&T						34
Net income attributable to noncontrolling interest	315						315
Distributions							(278)
Acquisition of interests held by noncontrolling owners							(162)
Translation adjustments attributable to noncontrolling interest, net of taxes	3						3
Balance at end of year at Dec. 31, 2010	111,950	6,495	91,731	31,792	(21,083)	2,712	303
Balance at end of year (in shares) at Dec. 31, 2010		6,495			(584)
Issuance of shares - common stock (value)		0
Issuance of shares - common stock (in shares)		0
Repurchase of common stock	0				0
Repurchase of common stock (in shares)					0
Issuance of treasury stock			132		333
Issuance of treasury stock (in shares)					16
Share-based payments			(118)
Share of equity method investee capital transactions			(290)
Change related to acquisition of interests held by noncontrolling owners			(299)
Net income attributable to AT&T ($1.25, $0.66 and $3.35 per diluted share)	3,944			3,944
Dividends to stockholders ($1.77, $1.73 and $1.69 per share)				(10,244)
Other				(39)
Other comprehensive income (loss) attributable to AT&T						468
Net income attributable to noncontrolling interest	240						240
Distributions							(220)
Acquisition of interests held by noncontrolling owners							(59)
Translation adjustments attributable to noncontrolling interest, net of taxes	(1)						(1)
Balance at end of year at Dec. 31, 2011	105,797	6,495	91,156	25,453	(20,750)	3,180	263
Balance at end of year (in shares) at Dec. 31, 2011		6,495			(568)
Issuance of shares - common stock (value)		0
Issuance of shares - common stock (in shares)		0
Repurchase of common stock	(12,752)				(12,752)
Repurchase of common stock (in shares)	371				(371)
Issuance of treasury stock			120		614
Issuance of treasury stock (in shares)					25
Share-based payments			(78)
Share of equity method investee capital transactions			(160)
Change related to acquisition of interests held by noncontrolling owners			0
Net income attributable to AT&T ($1.25, $0.66 and $3.35 per diluted share)	7,264			7,264
Dividends to stockholders ($1.77, $1.73 and $1.69 per share)				(10,196)
Other				(40)
Other comprehensive income (loss) attributable to AT&T						2,056
Net income attributable to noncontrolling interest	275						275
Distributions							(205)
Acquisition of interests held by noncontrolling owners							0
Translation adjustments attributable to noncontrolling interest, net of taxes	0						0
Balance at end of year at Dec. 31, 2012	$ 92,695	$ 6,495	$ 91,038	$ 22,481	$ (32,888)	$ 5,236	$ 333
Balance at end of year (in shares) at Dec. 31, 2012		6,495			(914)

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Acquisitions, Dispositions And Other Adjustments (Tables)

12 Months Ended

Dec. 31, 2012

Acquisitions, Dispositions And Other Adjustments

Operating Results Of Discontinued Operation

Operating revenues	$	349
Operating expenses		327
Operating income		22
Income before income taxes		18
Income tax expense		8
Income from discontinued operations during phase-out period		10
Gain on disposal of discontinued operations		769
Income from discontinued operations, net of tax	$	779

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Pension And Postretirement Benefits (Schedule Of Defined Benefit Plan Targeted And Actual Plan Asset Allocations) (Details)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Pension Assets [Member]
Defined Benefit Plan Disclosure [Line Items]
Actual plan asset allocation percentage	100.00%	100.00%
Pension Assets [Member] | Domestic Equity Securities [Member]
Defined Benefit Plan Disclosure [Line Items]
Targeted plan asset allocation percentage, Minimum	25.00%
Targeted plan asset allocation percentage, Maximum	35.00%
Actual plan asset allocation percentage	26.00%	24.00%
Pension Assets [Member] | Fixed Income Securities [Member]
Defined Benefit Plan Disclosure [Line Items]
Targeted plan asset allocation percentage, Minimum	30.00%
Targeted plan asset allocation percentage, Maximum	40.00%
Actual plan asset allocation percentage	34.00%	34.00%
Pension Assets [Member] | International Equity Securities [Member]
Defined Benefit Plan Disclosure [Line Items]
Targeted plan asset allocation percentage, Minimum	10.00%
Targeted plan asset allocation percentage, Maximum	20.00%
Actual plan asset allocation percentage	16.00%	15.00%
Pension Assets [Member] | Private Equity Funds [Member]
Defined Benefit Plan Disclosure [Line Items]
Targeted plan asset allocation percentage, Minimum	4.00%
Targeted plan asset allocation percentage, Maximum	14.00%
Actual plan asset allocation percentage	13.00%	13.00%
Pension Assets [Member] | Real Assets [Member]
Defined Benefit Plan Disclosure [Line Items]
Targeted plan asset allocation percentage, Minimum	6.00%
Targeted plan asset allocation percentage, Maximum	16.00%
Actual plan asset allocation percentage	11.00%	11.00%
Pension Assets [Member] | Other Assets [Member]
Defined Benefit Plan Disclosure [Line Items]
Targeted plan asset allocation percentage, Minimum	0.00%
Targeted plan asset allocation percentage, Maximum	5.00%
Actual plan asset allocation percentage	0.00%	3.00%
Postretirement Assets [Member]
Defined Benefit Plan Disclosure [Line Items]
Actual plan asset allocation percentage	100.00%	100.00%
Postretirement Assets [Member] | Domestic Equity Securities [Member]
Defined Benefit Plan Disclosure [Line Items]
Targeted plan asset allocation percentage, Minimum	32.00%
Targeted plan asset allocation percentage, Maximum	42.00%
Actual plan asset allocation percentage	37.00%	39.00%
Postretirement Assets [Member] | Fixed Income Securities [Member]
Defined Benefit Plan Disclosure [Line Items]
Targeted plan asset allocation percentage, Minimum	19.00%
Targeted plan asset allocation percentage, Maximum	29.00%
Actual plan asset allocation percentage	24.00%	21.00%
Postretirement Assets [Member] | International Equity Securities [Member]
Defined Benefit Plan Disclosure [Line Items]
Targeted plan asset allocation percentage, Minimum	28.00%
Targeted plan asset allocation percentage, Maximum	38.00%
Actual plan asset allocation percentage	33.00%	31.00%
Postretirement Assets [Member] | Private Equity Funds [Member]
Defined Benefit Plan Disclosure [Line Items]
Targeted plan asset allocation percentage, Minimum	0.00%
Targeted plan asset allocation percentage, Maximum	9.00%
Actual plan asset allocation percentage	4.00%	5.00%
Postretirement Assets [Member] | Real Assets [Member]
Defined Benefit Plan Disclosure [Line Items]
Targeted plan asset allocation percentage, Minimum	0.00%
Targeted plan asset allocation percentage, Maximum	6.00%
Actual plan asset allocation percentage	1.00%	1.00%
Postretirement Assets [Member] | Other Assets [Member]
Defined Benefit Plan Disclosure [Line Items]
Targeted plan asset allocation percentage, Minimum	0.00%
Targeted plan asset allocation percentage, Maximum	7.00%
Actual plan asset allocation percentage	1.00%	3.00%

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Share-Based Payment (Tables)

12 Months Ended

Dec. 31, 2012

Share-Based Payment

Compensation Cost

		2012		2011		2010
Performance stock units	$	397	$	388	$	411
Restricted stock and stock units		102		91		85
Other nonvested stock units		12		4		11
Other		-		6		6
Total	$	511	$	489	$	513

Summary Of Stock Option Activity

Options		Shares		Weighted- Average Exercise Price	Weighted-Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value1
Outstanding at January 1, 2012		66	$	30.62	1.99	$	148
Exercised		(18)		-
Forfeited or expired		(31)		-
Outstanding at December 31, 2012		17		27.38	4.53		123
Exercisable at December 31, 2012		17	$	27.37	4.51	$	123
1	Aggregate intrinsic value includes only those options with intrinsic value (options where the exercise price is
	below the market price).

Status Of Nonvested Stock Units Activity And Changes During Year

Nonvested Stock Units	Shares		Weighted-Average Grant-Date Fair Value
Nonvested at January 1, 2012	27	$	26.53
Granted	13		30.18
Vested	(13)		25.87
Forfeited	(1)		28.32
Nonvested at December 31, 2012	26	$	28.55

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Goodwill And Other Intangible Assets (Summary Of Changes In Carrying Amount Of Goodwill, By Segment) (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Segment Reporting Information [Line Items]
Beginning balance	$ 70,842	$ 73,601
Goodwill acquired	18	5
Goodwill impairment		(2,745)
Other	(1,087)	(19)
Ending balance	69,773	70,842
Wireless [Member]
Segment Reporting Information [Line Items]
Beginning balance	35,755	35,755
Goodwill acquired	13	5
Goodwill impairment		0
Other	35	(5)
Ending balance	35,803	35,755
Wireline [Member]
Segment Reporting Information [Line Items]
Beginning balance	33,638	31,670
Goodwill acquired	5	0
Goodwill impairment		0
Other	327	1,968
Ending balance	33,970	33,638
Advertising Solutions [Member]
Segment Reporting Information [Line Items]
Beginning balance	1,059	5,731
Goodwill acquired	0	0
Goodwill impairment		(2,745)
Other	(1,059)	(1,927)
Ending balance	0	1,059
Other Segment [Member]
Segment Reporting Information [Line Items]
Beginning balance	390	445
Goodwill acquired	0	0
Goodwill impairment		0
Other	(390)	(55)
Ending balance	$ 0	$ 390

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Income Taxes (Changes In Unrecognized Tax Benefits Balance For Federal State And Foreign Tax) (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Income Taxes
Unrecognized tax benefits - Balance at beginning of year	$ 4,541	$ 4,360
Unrecognized tax benefits - Increases for tax positions related to the current year	791	217
Unrecognized tax benefits - Increases for tax positions related to prior years	991	848
Unrecognized tax benefits - Decreases for tax positions related to prior years	(1,426)	(1,066)
Unrecognized tax benefits - lapse of statute of limitations	(29)	0
Unrecognized tax benefits - Settlements	(75)	182
Unrecognized tax benefits - Balance at end of year	4,793	4,541
Unrecognized tax benefits - Accrued interest and penalties	977	1,312
Gross unrecognized income tax benefits	5,770	5,853
Less: Deferred federal and state income tax benefits	(610)	(797)
Less: Tax attributable to timing items included above	(2,448)	(2,331)
Total UTB that, if recognized, would impact the effective income tax rate as of the end of the year	$ 2,712	$ 2,725

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Consolidated Statements Of Income (USD $) In Millions, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Operating Revenues
Wireless service	$ 59,186	$ 56,726	$ 53,510
Data	31,798	29,560	27,512
Voice	22,619	25,126	28,332
Directory	1,049	3,293	3,935
Other	12,782	12,018	10,991
Total operating revenues	127,434	126,723	124,280
Operating Expenses
Cost of services and sales (exclusive of depreciation and amortization shown separately below)	55,215	54,836	50,257
Selling, general and administrative	41,079	41,382	34,986
Impairment of intangible assets	0	2,910	85
Depreciation and amortization	18,143	18,377	19,379
Total operating expenses	114,437	117,505	104,707
Operating Income	12,997	9,218	19,573
Other Income (Expense)
Interest expense	(3,444)	(3,535)	(2,994)
Equity in net income of affiliates	752	784	762
Other income (expense) - net	134	249	897
Total other income (expense)	(2,558)	(2,502)	(1,335)
Income from Continuing Operations Before Income Taxes	10,439	6,716	18,238
Income tax (benefit) expense	2,900	2,532	(1,162)
Income from Continuing Operations	7,539	4,184	19,400
Income from Discontinued Operations, net of tax	0	0	779
Net Income	7,539	4,184	20,179
Less: Net Income Attributable to Noncontrolling Interest	(275)	(240)	(315)
Net Income Attributable to AT&T	$ 7,264	$ 3,944	$ 19,864
Basic Earnings Per Share from Continuing Operations Attributable to AT&T	$ 1.25	$ 0.66	$ 3.23
Basic Earnings Per Share from Discontinued Operations Attributable to AT&T	$ 0	$ 0	$ 0.13
Basic Earnings Per Share Attributable to AT&T	$ 1.25	$ 0.66	$ 3.36
Diluted Earnings Per Share from Continuing Operations Attributable to AT&T	$ 1.25	$ 0.66	$ 3.22
Diluted Earnings Per Share from Discontinued Operations Attributable to AT&T	$ 0	$ 0	$ 0.13
Diluted Earnings Per Share Attributable to AT&T	$ 1.25	$ 0.66	$ 3.35

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Earnings Per Share (Details) (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Earnings Per Share
Income from Continuing Operations									$ 7,539	$ 4,184	$ 19,400
Income attributable to noncontrolling interest									(275)	(240)	(315)
Income from continuing operations attributable to AT&T									7,264	3,944	19,085
Other share-based payment									12	11	11
Numerator for diluted earnings per share									$ 7,276	$ 3,955	$ 19,096
Weighted average number of common shares outstanding									5,801	5,928	5,913
Stock options									3	4	3
Other share-based payment (in shares)									17	18	22
Denominator for diluted earnings per share									5,821	5,950	5,938
Basic earnings per share from continuing operations attributable to AT&T									$ 1.25	$ 0.66	$ 3.23
Basic earnings per share from discontinued operations attributable to AT&T									$ 0	$ 0	$ 0.13
Basic Earnings Per Share Attributable to AT&T	$ (0.68)	$ 0.63	$ 0.67	$ 0.60	$ (1.12)	$ 0.61	$ 0.60	$ 0.57	$ 1.25	$ 0.66	$ 3.36
Diluted earnings per share from continuing operations attributable to AT&T									$ 1.25	$ 0.66	$ 3.22
Diluted earnings per share from discontinued operations attributable to AT&T									$ 0	$ 0	$ 0.13
Diluted Earnings Per Share Attributable to AT&T	$ (0.68)	$ 0.63	$ 0.66	$ 0.60	$ (1.12)	$ 0.61	$ 0.60	$ 0.57	$ 1.25	$ 0.66	$ 3.35
Stock options issued and outstanding	17				66				17	66	130
Stock options with exercise prices above average market price of company stock									3	40	100
Vested stock options with exercise prices below market price of company stock	14								14

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Additional Financial Information (Consolidated Statements Of Changes In Stockholders' Equity) (Details) (USD $) In Millions, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Additional Financial Information [Abstract]
Foreign currency translation adjustment	$ (284)	$ (371)	$ (494)
Unrealized gains (losses) on available-for-sale securities	272	222	316
Unrealized gains (losses) on cash flow hedges	(110)	(421)	(180)
Defined benefit postretirement plans	5,358	3,750	3,070
Accumulated other comprehensive income	$ 5,236	$ 3,180	$ 2,712

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Consolidated Balance Sheets (Parenthetical) (USD $) In Millions, except Share data, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Consolidated Balance Sheets
Allowances for doubtful accounts	$ 547	$ 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	913,836,325	568,719,202

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Additional Financial Information (Consolidated Statements Of Income) (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Additional Financial Information [Abstract]
Advertising expense	$ 2,910	$ 3,135	$ 2,982
Interest expense incurred	3,707	3,697	3,766
Capitalized interest	(263)	(162)	(772)
Total interest expense	$ 3,444	$ 3,535	$ 2,994

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Debt (Summary Of Long-Term Debt Of AT&T And Its Subsidiaries) (Detail) (USD $) In Millions, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Calculation [Abstract]
Total long-term debt and capital lease obligations	$ 69,843	$ 64,753
Capital Lease Obligations	$ 265	$ 239

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Quarterly Financial Information (Unaudited) (Quarterly Financial Results) (Details) (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended								8 Months Ended	12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Aug. 27, 2010	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Quarterly Financial Information (Unaudited)
Total Operating Revenues	$ 32,578	$ 31,459	$ 31,575	$ 31,822	$ 32,503	$ 31,478	$ 31,495	$ 31,247		$ 127,434	$ 126,723	$ 124,280
Operating Income (Loss)	(5,958)	6,037	6,817	6,101	(8,990)	6,235	6,165	5,808		12,997	9,218	19,573
Income (Loss) from Discontinued Operations									779	0	0	779
Net Income (Loss)	(3,779)	3,701	3,965	3,652	(6,628)	3,686	3,658	3,468		7,539	4,184	20,179
Income from Continuing Operations Attributable to AT&T										7,264	3,944	19,085
Net Income attributable to AT&T	$ (3,857)	$ 3,635	$ 3,902	$ 3,584	$ (6,678)	$ 3,623	$ 3,591	$ 3,408		$ 7,264	$ 3,944	$ 19,864
Basic Earnings Per Share from Continuing Operations Attributable to AT&T										$ 1.25	$ 0.66	$ 3.23
Basic Earnings Per Share from Discontinued Operations Attributable to AT&T										$ 0	$ 0	$ 0.13
Basic Earnings Per Share Attributable to AT&T	$ (0.68)	$ 0.63	$ 0.67	$ 0.60	$ (1.12)	$ 0.61	$ 0.60	$ 0.57		$ 1.25	$ 0.66	$ 3.36
Diluted Earnings Per Share from Continuing Operations Attributable to AT&T										$ 1.25	$ 0.66	$ 3.22
Diluted Earnings Per Share from Discontinued Operations Attributable to AT&T										$ 0	$ 0	$ 0.13
Diluted Earnings Per Share Attributable to AT&T	$ (0.68)	$ 0.63	$ 0.66	$ 0.60	$ (1.12)	$ 0.61	$ 0.60	$ 0.57		$ 1.25	$ 0.66	$ 3.35
Close	$ 33.71	$ 37.70	$ 35.66	$ 31.23	$ 30.24	$ 28.52	$ 31.41	$ 30.61		$ 33.71	$ 30.24
High
Sale of Stock Price Per Share [Line Items]
Stock Price Per Share	$ 38.43	$ 38.58	$ 36.00	$ 31.97	$ 30.30	$ 31.78	$ 31.94	$ 30.97		$ 38.43	$ 30.30
Low
Sale of Stock Price Per Share [Line Items]
Stock Price Per Share	$ 32.71	$ 34.24	$ 29.95	$ 29.02	$ 27.41	$ 27.29	$ 29.91	$ 27.20		$ 32.71	$ 27.41

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Equity Method Investments (Tables)

12 Months Ended

Dec. 31, 2012

Equity Method Investments

Reconciliation Of Investments In Equity Affiliates

		2012		2011
Beginning of year	$	3,718	$	4,515
Additional investments		405		35
Equity in net income of affiliates		752		784
Dividends received		(137)		(161)
Dispositions		-		(660)
Currency translation adjustments		95		(515)
América Móvil equity adjustments		(260)		(171)
Other adjustments		8		(109)
End of year	$	4,581	$	3,718

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Fair Value Measurements And Disclosure (Narrative) (Details) (USD $) In Millions, unless otherwise specified	1 Months Ended
	Feb. 29, 2012	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Fair Value Measurements And Disclosure
Fixed income investments - maturities under 1 year		$ 86
Fixed income investments - maturities between 1 to 3 years		280
Fixed income investments - maturities between 3 to 5 years		210
Fixed income investments - maturities for 5 or more years		261
Anticipated reclassification of holding gains (losses) during the next 12 months - cash flow hedges		45
Notional value of interest rate locks utilized	800
Collateral received from counterparty		543	0
Collateral submitted to counterparty		22	98
Collateral contingently payable to the counterparty		120
Unrealized derivative gain (loss) in accumulated OCI		$ (110)	$ (421)	$ (180)

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Stockholders' Equity

12 Months Ended

Dec. 31, 2012

Stockholder's Equity

Stockholders' Equity

NOTE 13. STOCKHOLDERS' EQUITY

Stock Repurchase Program From time to time, we repurchase shares of common stock for distribution through our employee benefit plans or in connection with certain acquisitions. In December 2010, 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 2012 and completed the purchase of authorized shares that year. In July 2012, the Board of Directors authorized the repurchase of an additional 300 million shares, under which we are currently purchasing shares. For the year ended December 31, 2012, we had repurchased approximately 371 million shares totaling $12,752 under these authorizations. We expect to continue repurchasing our common stock and plan to complete the repurchases under the July 2012 authorization as early as mid-year.

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

Authorized Shares There are14 billionauthorized common shares of AT&T stock and 10 million authorized preferred shares of AT&T stock. As of December 31, 2012 and 2011, no preferred shares were outstanding.

Dividend Declarations InNovember 2012, the Company declared an increase in its quarterly dividend to $0.45 per share of common stock. In December 2011, the Company declared aquarterly dividend of $0.44 per share of common stock, which reflected an increase from the $0.43 quarterly dividend declaredin December 2010.

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Debt (Tables)

12 Months Ended

Dec. 31, 2012

Debt

Summary Of Long-Term Debt Of AT&T And Its Subsidiaries

				2012		2011
Notes and debentures
		Interest Rates	Maturities1
		0.80% – 2.99%	2012 – 2022	$	13,969	$	5,500
		3.00% – 4.99%	2012 – 2045		14,590		8,659
		5.00% – 6.99%	2012 – 2095		35,226		41,390
		7.00% – 9.10%	2012 – 2097		7,059		8,471
		Other			2		3
Fair value of interest rate swaps recorded in debt					267		445
					71,113		64,468
Unamortized (discount) premium - net					(1,535)		46
Total notes and debentures					69,578		64,514
Capitalized leases					265		239
Total long-term debt, including current maturities					69,843		64,753
Current maturities of long-term debt					(3,485)		(3,453)
Total long-term debt				$	66,358	$	61,300
1	Maturities assume putable debt is redeemed by the holders at the next opportunity.

Debt Maturing Within One Year

			2012		2011
Current maturities of long-term debt		$	3,485	$	3,453
Bank borrowings1			1		-
Total		$	3,486	$	3,453
1	Outstanding balance of short-term credit facility of a foreign subsidiary.

Long-Term Debt - Scheduled Repayments

		2013			2014			2015			2016			2017			Thereafter
Debt repayments1		$	3,475		$	3,788		$	6,514		$	4,923		$	4,757		$	47,578
Weighted-average interest rate			4.9	%		5.2	%		3.2	%		3.7	%		2.5	%		5.5	%
1	Debt repayments assume putable debt is redeemed by the holders at the next opportunity.

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Contingent Liabilities (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012
Contingent Liabilities
Contractual purchase obligations for 2013	$ 3,744
Contractual purchase obligations for 2014 and 2015	3,890
Contractual purchase obligations for 2016 and 2017	1,469
Contractual purchase obligations for years after 2017	$ 457

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Contingent Liabilities

12 Months Ended

Dec. 31, 2012

Contingent Liabilities

Contingent Liabilities

NOTE 15. CONTINGENT LIABILITIES

We are party to numerous lawsuits, regulatory proceedings and other matters arising in the ordinary course of business. In evaluating these matters on an ongoing basis, we take into account amounts already accrued on the balance sheet. In our opinion, although the outcomes of these proceedings are uncertain, they should not have a material adverse effect on our financial position, results of operations or cash flows.

We have contractual obligations to purchase certain goods or services from various other parties. Our purchase obligations are expected to be approximately $3,744in 2013, $3,890 in total for 2014 and 2015, $1,469 in total for 2016 and 2017 and $457in total for years thereafter.

See Note 9 for a discussion of collateral and credit-risk contingencies.

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Fair Value Measurements And Disclosure (Notional Amount Of Our Outstanding Derivative Positions) (Details) (USD $) In Millions, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Derivative [Line Items]
Notional amount of outstanding derivative positions	$ 15,122	$ 17,309
Interest Rate Swaps [Member]
Derivative [Line Items]
Notional amount of outstanding derivative positions	3,000	8,800
Cross-Currency Swaps [Member]
Derivative [Line Items]
Notional amount of outstanding derivative positions	12,071	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	$ 51	$ 207

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Consolidated Statements Of Cash Flows (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Operating Activities
Net income	$ 7,539	$ 4,184	$ 20,179
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	18,143	18,377	19,379
Undistributed earnings from investments in equity affiliates	(615)	(623)	(603)
Provision for uncollectible accounts	1,117	1,136	1,334
Deferred income tax expense and noncurrent unrecognized tax benefits	1,285	2,937	(3,280)
Net (gain) loss from sale of investments, net of impairments	(19)	(89)	(802)
Impairment of intangible assets	0	2,910	85
Actuarial loss on pension and postretirement benefits	9,994	6,280	2,521
Income from discontinued operations	0	0	(779)
Changes in operating assets and liabilities:
Accounts receivable	(1,365)	(1,164)	(101)
Other current assets	1,017	(397)	(185)
Accounts payable and accrued liabilities	1,798	(341)	(1,230)
Retirement benefit funding	0	(1,000)	0
Other - net	282	2,533	(1,296)
Total adjustments	31,637	30,559	15,043
Net Cash Provided by Operating Activities	39,176	34,743	35,222
Investing Activities
Capital expenditures	(19,465)	(20,110)	(19,530)
Interest during construction	(263)	(162)	(772)
Acquisitions, net of cash acquired	(828)	(2,368)	(2,906)
Dispositions	812	1,301	1,830
Sales (purchases) of securities, net	65	62	(100)
Other	(1)	27	29
Net Cash Used in Investing Activities	(19,680)	(21,250)	(21,449)
Financing Activities
Net change in short-term borrowings with original maturities of three months or less	1	(1,625)	1,592
Issuance of long-term debt	13,486	7,936	2,235
Repayment of long-term debt	(8,733)	(7,574)	(9,294)
Purchase of treasury stock	(12,752)	0	0
Issuance of treasury stock	477	237	50
Dividends paid	(10,241)	(10,172)	(9,916)
Other	89	(451)	(516)
Net Cash Used in Financing Activities	(17,673)	(11,649)	(15,849)
Net increase (decrease) in cash and cash equivalents	1,823	1,844	(2,076)
Cash and cash equivalents beginning of year	3,045	1,201	3,277
Cash and Cash Equivalents End of Year	$ 4,868	$ 3,045	$ 1,201

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Consolidated Statements of Comprehensive Income (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Consolidated Statements Of Comprehensive Income [Abstract]
Net income	$ 7,539	$ 4,184	$ 20,179
Other comprehensive income, net of tax:
Foreign currency translation adjustments (includes $0, $(1) and $3 attributable to noncontrolling interest), net of taxes of $48, $66 and $146	87	122	274
Net unrealized gains (losses) on available-for-sale securities:
Unrealized gains (losses), net of taxes of $64, $(21), and $(12)	118	(41)	(22)
Reclassification adjustment realized in net income, net of taxes of $(36), $(29) and $7	(68)	(54)	14
Net unrealized gains (losses) on cash flow hedges:
Unrealized gains (losses), net of taxes of $154, $(140) and $(182)	283	(256)	(334)
Reclassification adjustment included in net income, net of taxes of $15, $8 and $7	28	15	12
Defined benefit postretirement plans:
Net actuarial loss from equity method investees arising during period, net of taxes of $(32), $0 and $0	(53)	0	0
Net prior service credit arising during period, net of taxes of $1,378, $699 and $298	2,249	1,140	487
Amortization of net prior service credit included in net income, net of taxes of $(361), $(282) and $(243)	(588)	(460)	(396)
Other	0	1	2
Other comprehensive income	2,056	467	37
Total comprehensive Income	9,595	4,651	20,216
Less: Total comprehensive income attributable to noncontrolling interest	(275)	(239)	(318)
Total Comprehensive Income Attributable to AT&T	$ 9,320	$ 4,412	$ 19,898

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Debt

12 Months Ended

Dec. 31, 2012

Debt

Debt

NOTE 8. DEBT

Long-term debt of AT&T and its subsidiaries, including interest rates and maturities, is summarized as follows at December31:

				2012		2011
Notes and debentures
		Interest Rates	Maturities1
		0.80% – 2.99%	2012 – 2022	$	13,969	$	5,500
		3.00% – 4.99%	2012 – 2045		14,590		8,659
		5.00% – 6.99%	2012 – 2095		35,226		41,390
		7.00% – 9.10%	2012 – 2097		7,059		8,471
		Other			2		3
Fair value of interest rate swaps recorded in debt					267		445
					71,113		64,468
Unamortized (discount) premium - net					(1,535)		46
Total notes and debentures					69,578		64,514
Capitalized leases					265		239
Total long-term debt, including current maturities					69,843		64,753
Current maturities of long-term debt					(3,485)		(3,453)
Total long-term debt				$	66,358	$	61,300
1	Maturities assume putable debt is redeemed by the holders at the next opportunity.

Current maturities of long-term debt include debt that may be put back to us by the holders in 2013. We have $1,000 of annual put reset securities that may be put each April until maturity in 2021. If the holders do not require us to repurchase the securities, the interest rate will be reset based on current market conditions. Likewise, we have an accreting zero-coupon note that may be redeemed each May, until maturity in 2022. If the zero-coupon note (issued for principal of $500 in 2007) is held to maturity, the redemption amount will be $1,030.

Debt maturing within one year consisted of the following at December 31:

			2012		2011
Current maturities of long-term debt		$	3,485	$	3,453
Bank borrowings1			1		-
Total		$	3,486	$	3,453
1	Outstanding balance of short-term credit facility of a foreign subsidiary.

Debt Refinancing

During 2012, we received net proceeds of $13,486, from the issuance of $13,569 in long-term debt with an average weighted maturity of approximately 12 years and an average interest rate of 2.54%. We redeemed $8,083 in borrowing, including $6,200 in early redemptions, with an average interest rate of 5.58%.

Debt Exchange

During 2012, we completed a private debt exchange covering $4,099 of various notes with stated rates of 6.00% to 8.75% for $1,956 in new 4.3% AT&T Inc. global notes due 2042 and $3,044 in new 4.35% AT&T Inc. global notes due 2045 plus a $650 cash payment.

As of December 31, 2012 and 2011, we were in compliance with all covenants and conditions of instruments governing our debt. Substantially all of our outstanding long-term debt is unsecured. Maturities of outstanding long-term notes and debentures, as of December 31, 2012, and the corresponding weighted-average interest rate scheduled for repayment are as follows:

		2013			2014			2015			2016			2017			Thereafter
Debt repayments1		$	3,475		$	3,788		$	6,514		$	4,923		$	4,757		$	47,578
Weighted-average interest rate			4.9	%		5.2	%		3.2	%		3.7	%		2.5	%		5.5	%
1	Debt repayments assume putable debt is redeemed by the holders at the next opportunity.

Credit Facilities

On December 11, 2012, we amended and extended for an additional one-year term our existing $5,000, four-year revolving credit agreement (Four-Year Agreement) with a syndicate of banks until December 2016. We also entered into a new $3,000, five-year revolving credit agreement (Five-Year Agreement), with a syndicate of banks, to replace our expiring 364-day revolving credit agreement. In the event advances are made under either agreement, those advances would be used for general corporate purposes. Advances are not conditioned on the absence of a material adverse change. All advances must be repaid no later than the date on which lenders are no longer obligated to make any advances under each agreement. Under each agreement, we can terminate, in whole or in part, amounts committed by the lenders in excess of any outstanding advances; however, we cannot reinstate any such terminated commitments. At December 31, 2012, we had no advances outstanding under either agreement and were in compliance with all covenants under each agreement.

Advances under both agreements would bear interest, at AT&T's option, either:

• at a variable annual rate equal to (1) the highest of: (a) the base (or prime) rate of the bank affiliate of Citibank, N.A. which is serving as administrative agent under the Agreement, (b) 0.50% per annum above the Federal funds rate, and (c) the London Interbank Offered Rate (LIBOR) applicable to U.S. dollars for a period of one month plus 1.00% per annum, plus (2) an applicable margin, as set forth in the Agreement (Applicable Margin); or
• at a rate equal to: (i) the LIBOR for a period of one, two, three or six months, as applicable, plus (ii) the Applicable Margin.

The Applicable Margin for both agreements will equal 0.565% per annum if our unsecured long-term debt is rated at least A+ by Standard & Poor's (S&P) or Fitch, Inc. (Fitch) or A1 by Moody's Investors Service (Moody's). The Applicable Margin will be 0.680% per annum if our unsecured long-term debt ratings are A or A2 and will be 0.910% per annum in the event our unsecured long-term debt ratings are A- and A3 (or below). In the event that AT&T's unsecured long-term debt ratings are split by S&P, Moody's and Fitch, then the Applicable Margin will be determined by the highest of the three ratings, except that in the event the lowest of such ratings is more than one level below the highest of the ratings then the Applicable Margin will be determined based on the level that is one level above the lowest of such ratings.

Under each agreement AT&T will pay a facility fee of 0.060%, 0.070% or 0.090% per annum, depending on AT&T's credit rating, of the amount of lender commitments.

Both agreements contain a negative pledge covenant, which requires that, if at any time AT&T or a subsidiary pledges assets or otherwise permits a lien on its properties, advances under the agreement will be ratably secured, subject to specified exceptions. Both agreements also contain a financial ratio covenant that provides that AT&T will maintain, as of the last day of each fiscal quarter, a debt-to-EBITDA (earnings before interest, income taxes, depreciation and amortization, and other modifications described in the agreements) ratio of not more than 3.0 to 1, for the four quarters then ended.

Defaults under both agreements, which would permit the lenders to accelerate required repayment and which would increase the Applicable Margin by 2.00% per annum, include:

• We fail to pay principal or interest, or other amounts under the agreement beyond any grace period.
• We fail to pay when due other debt of $400 or more that results in acceleration of that debt (commonly referred to as cross-acceleration) or a creditor commences enforcement proceedings within a specified period after a money judgment of $400 or more has become final.
• A person acquires beneficial ownership of more than 50% of AT&T common shares or more than a majority of AT&T's directors change in any 24-month period other than as elected by the remaining directors (commonly referred to as a change in control).
• Material breaches of representations or warranties in the agreement.
• We fail to comply with the negative pledge or debt-to-EBITDA ratio covenants under the agreement.
• We fail to comply with other covenants under the agreement for a specified period after notice.
• We fail to make certain minimum funding payments under the Employee Retirement Income Security Act of 1974, as amended (ERISA).
• Our bankruptcy or insolvency.

Both the Five-Year Agreement and the Four-Year Agreement contain provisions permitting subsidiaries to be added as additional borrowers, with or without a guarantee by AT&T Inc. The terms of the guarantee are set forth in the agreements.

Four-Year Agreement

The obligations of the lenders under the Four-Year Agreement to provide advances will terminate on December 11, 2016, unless prior to that date either: (i) AT&T and, if applicable, a Co-Borrower, reduces to $0 the commitments of the lenders under the Agreement or (ii) certain events of default occur. The Agreement also provides that AT&T and lenders representing more than 50% of the facility amount may agree to extend their commitments under the Four-Year Agreement for two additional one-year periods beyond the December 11, 2016 termination date, under certain circumstances. We also can request the lenders to further increase their commitments (i.e.,raise the available credit) up to an additional $2,000 provided no event of default has occurred.

Five-Year Agreement

The obligations of the lenders under the Five-Year Agreement to provide advances will terminate on December 11, 2017, unless prior to that date either: (i) AT&T, and if applicable, a Co-Borrower, reduce to $0 the commitments of the lenders, or (ii) certain events of default occur. We and lenders representing more than 50% of the facility amount may agree to extend their commitments for two one-year periods beyond the December 11, 2017, termination date, under certain circumstances. We also can request the lenders to further increase their commitments (i.e., raise the available credit) up to an additional $2,000 provided no event of default has occurred.

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Additional Financial Information (Consolidated Balance Sheets) (Details) (USD $) In Millions, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Additional Financial Information [Abstract]
Accounts payable	$ 12,076	$ 10,485
Accrued payroll and commissions	2,332	2,170
Current portion of employee benefit obligation	2,116	2,288
Accrued interest	1,588	1,576
Other	2,799	3,437
Total accounts payable and accrued liabilities	$ 20,911	$ 19,956

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Share-Based Payments (Summary Of Nonvested Stock Units Activity) (Details) (USD $) In Millions, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012
Share-Based Payment
Beginning balance - outstanding nonvested units	27
Granted - nonvested units (period)	13
Vested - nonvested units (period)	(13)
Forfeited - nonvested units (period)	(1)
Ending balance - outstanding nonvested units	26
Beginning balance - weighted average exercise price of outstanding nonvested units	$ 26.53
Weighted average exercise price - granted - nonvested units	$ 30.18
Weighted average exercise price - vested - nonvested units	$ 25.87
Weighted average exercise price - forfeited nonvested units	$ 28.32
Ending balance - weighted average exercise price of nonvested units	$ 28.55

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Document Entity Information (USD $) In Billions, except Share data in Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Feb. 20, 2013	Jun. 30, 2012
Document And Entity Information [Abstract]
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2012
Entity Registrant Name	AT&T Inc.
Entity Central Index Key	0000732717
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		5,492
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	FY
Entity Public Float			$ 207.0
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Well-known Seasoned Issuer	Yes

XML

Fair Value Measurements And Disclosure

12 Months Ended

Dec. 31, 2012

Fair Value Measurements And Disclosure

Fair Value Measurements And Disclosure

NOTE 9. FAIR VALUE MEASUREMENTS AND DISCLOSURE

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

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

Level 2       Inputs to the valuation methodology include:

• Quoted prices for similar assets and liabilities in active markets.
• Quoted prices for identical or similar assets or liabilities in inactive markets.
• Inputs other than quoted market prices that are observable for the asset or liability.
• Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

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

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

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

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:

	December 31, 2012				December 31, 2011
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Notes and debentures	$	69,578	$	81,310	$	64,514	$	73,738
Bank borrowings		1		1		-		-
Investment securities		2,218		2,218		2,092		2,092

The carrying value of debt with an original maturity of less than one year approximates market value. The fair value measurement used for notes and debentures are considered Level 2.

Investment Securities

Our investment securitiesinclude equities, fixed income bonds and other securities. A substantial portion of 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 OCI.Unrealized losses that are considered other than temporary are recorded in “Other income (expense) – net” with the corresponding reduction to the carrying basis of the investment. Fixed income investments of $86have maturities of less than one year, $280within one to three years, $210within three to five years, and $261for five or more years, which approximate fair value.

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

Our investment securities 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 December 31, 2012,and December 31, 2011:

		December 31, 2012
		Level 1		Level 2		Level 3		Total
Available-for-Sale Securities
Domestic equities		$	873	$	-	$	-	$	873
International equities			469		-		-		469
Fixed income bonds			-		837		-		837
Asset Derivatives1
Interest rate swaps			-		287		-		287
Cross-currency swaps			-		752		-		752
Foreign exchange contracts			-		1		-		1
Liability Derivatives1
Cross-currency swaps			-		(672)		-		(672)
		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,
	other current assets.

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 years ended December 31, 2012, and December 31, 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 years ended December 31, 2012, and December 31, 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 consolidated other income/expense. 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 portion of the exchange risk involved in anticipation of highly probable foreign currency-denominated transactions. In anticipation of these transactions, we often enter into foreign exchange contracts to provide currency at a fixed rate. Some of these instruments are designated as cash flow hedges while others remain nondesignated, largely based on size and duration. Gains and losses at the time we settle or take delivery on our designated foreign exchange contracts are amortized into income in the same period the hedged transaction affects earnings, except where an amount is deemed to be ineffective, which would be immediately reclassified to other income (expense) on the consolidated income statement. In the yearsended December 31, 2012, and December 31, 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 December 31, 2012, we had posted collateral of $22 (a deposit asset) and held collateral of $543 (a receipt liability). Under the agreements, if our credit rating had been downgraded one rating level by Moody's and Fitch before the final collateral exchange in December, we would have been required to post additional collateral of $120. At December 31, 2011, we had posted collateral of $98 and had no held collateral. 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 at December 31:

	2012		2011
Interest rate swaps	$	3,000	$	8,800
Cross-currency swaps		12,071		7,502
Interest rate locks		-		800
Foreign exchange contracts		51		207
Total	$	15,122	$	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
For the years ended December 31,	2012		2011		2010
Interest rate swaps (Interest expense):
Gain (Loss) on interest rate swaps	$	(179)	$	10	$	125
Gain (Loss) on long-term debt		179		(10)		(125)

In addition, the net swap settlements that accrued and settled in the periods above were offset against interest expense.

Cash Flow Hedging Relationships
For the year ended December 31,	2012		2011		2010
Cross-currency swaps:
Gain (Loss) recognized in accumulated OCI	$	432	$	(219)	$	(201)
Interest rate locks:
Gain (Loss) recognized in accumulated OCI		-		(167)		(320)
Interest income (expense) reclassified from accumulated OCI into income		(43)		(23)		(19)
Foreign exchange contracts:
Gain (Loss) recognized in accumulated OCI		5		(10)		5

The balance of the unrealized derivative gain (loss) in accumulated OCI was $(110) at December 31, 2012, $(421)at December 31, 2011, and $(180) at December 31, 2010.

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Pension And Postretirement Benefits (Other Changes Recognized in Other Comprehensive Income) (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Defined Benefit Plan Disclosure [Line Items]
Prior service (cost) credit, net of taxes	$ 2,249	$ 1,140	$ 487
Amortization of net prior service cost (credit), net of taxes	(588)	(460)	(396)
Pension Benefit [Member]
Defined Benefit Plan Disclosure [Line Items]
Prior service (cost) credit, net of taxes	559	0	0
Amortization of net prior service cost (credit), net of taxes	(10)	(10)	(10)
Total recognized in other comprehensive (income) loss (net of tax)	549	(10)	(10)
Postretirement Benefit [Member]
Defined Benefit Plan Disclosure [Line Items]
Prior service (cost) credit, net of taxes	1,686	1,134	459
Amortization of net prior service cost (credit), net of taxes	(575)	(430)	(388)
Total recognized in other comprehensive (income) loss (net of tax)	1,111	704	71
Supplemental Retirement Plans [Member]
Defined Benefit Plan Disclosure [Line Items]
Prior service (cost) credit, net of taxes	(1)	6	(5)
Amortization of net prior service cost (credit), net of taxes	0	1	(2)
Total recognized in other comprehensive (income) loss (net of tax)	$ (1)	$ 7	$ (7)

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Share-Based Payments (Summary Of Stock Option Activity) (Details) (USD $) In Millions, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Share-Based Payment
Beginning outstanding balance - stock options (period) (in shares)	66
Exercised - stock options (period) (in shares)	(18)
Forfeited or expired - stock options (period) (in shares)	(31)
Ending outstanding balance - (stock options) (in shares)	17	66
Ending exercisable balance - shares (stock options)	17
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Beginning of Period	$ 30.62
Weighted average exercise price - stock options exercised (period) (per share)	$ 0
Weighted average exercise price - stock options forfeited or expired (period) (per share)	$ 0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price, End of Period	$ 27.38	$ 30.62
Weighted average exercise price - ending exercisable balance (stock options) (per share)	$ 27.37
Weighted average remaining contractual term (years) - for stock options outstanding at beginning of year (in years)	4 years 6 months 11 days	1 year 11 months 26 days
Weighted average remaining contractual term (years) - for stock options outstanding at year end (in years)	4 years 6 months 11 days	1 year 11 months 26 days
Weighted average remaining contractual term (years) - for stock options exercisable at year end (in years)	4 years 6 months 4 days
Aggregate intrinsic value of stock options outstanding at beginning of year	$ 148
Aggregate intrinsic value of stock options outstanding at year end	123	148
Aggregate intrinsic value of stock options exercisable at year end	$ 123

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Consolidated Statements of Comprehensive Income (Parenthetical) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Consolidated Statements Of Comprehensive Income [Abstract]
Foreign currency translation adjustments, attributable to noncontrolling interest, net of taxes	$ 0	$ (1)	$ 3
Foreign currency translation adjustments, tax effect	48	66	146
Unrealized gains (losses) on available-for-sale securities, tax effect	64	(21)	(12)
Reclassification adjustment realized in net income on available-for-sale securities, tax effect	(36)	(29)	7
Unrealized gains (losses) on cash flow hedges, tax effect	154	(140)	(182)
Reclassification adjustment included in net income on cash flow hedges, tax effect	15	8	7
Net actuarial loss from equity method investees arising during period - tax	(32)	0	0
Net prior service credit (cost) arising during period - tax	1,378	699	298
Amortization of net prior service cost (credit) included in net income, tax effect	$ (361)	$ (282)	$ (243)

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Segment Information

12 Months Ended

Dec. 31, 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 operating segments based on segment income before income taxes. We make our capital allocation 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 postemployment benefits, interest expense and other income (expense) – net, are managed only on a total company basis and are, accordingly, reflected only in consolidated results. Therefore, these items are not included in each segment's reportable results. The customers and long-lived assets of our reportable segments are predominantly in the United States. At December 31, 2012, we had three reportable segments: (1) Wireless, (2) Wireline and (3) Other. Our operating results prior to May 9, 2012, also included Advertising Solutions, which was a reportable segment. On May 8, 2012, we completed the sale of our Advertising Solutions segment and received a 47 percent equity interest in the new entity YP Holdings LLC (YP Holdings)(see Note 4).

The Wireless segment uses our nationwide network to provide consumer and business customers with wireless voice and advanced data communications services. This segment includes our portion of the results from our mobile payment joint venture marketed as the Isis Mobile WalletTM (ISIS), which is accounted for as an equity investment.

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® high-speed broadband, videoand 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 home monitoring business moved to our Other 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 included our directory operations, which published Yellow and White Pages directories and sold directory advertising and Internet-based advertising and local search through May 8, 2012 (see Note4).

The Other segment includes our portion of the results from our international equity investments, our 47 percent equity interest in YP Holdings, and costs to support corporate-driven activities and operations. Also included in the Other segment are impacts of corporate-wide decisions for which the individual operating segments are not being evaluated.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.

Segment Results, including a reconciliation to AT&T consolidated results, for 2012, 2011, and 2010 are as follows:
At December 31, 2012 and for the year ended						Advertising Solutions						Consolidated Results
		Wireless		Wireline				Other		Consolidations
Total segment operating revenues	$	66,763	$	59,567	$	1,049	$	55	$	-	$	127,434
Operations and support expenses		43,296		41,207		773		1,024		9,994		96,294
Depreciation and amortization expenses		6,873		11,123		106		41		-		18,143
Total segment operating expenses		50,169		52,330		879		1,065		9,994		114,437
Segment operating income (loss)		16,594		7,237		170		(1,010)		(9,994)		12,997
Interest expense		-		-		-		-		3,444		3,444
Equity in net income (loss) of affiliates		(62)		(2)		-		816		-		752
Other income (expense) – net		-		-		-		-		134		134
Segment income (loss) before income taxes	$	16,532	$	7,235	$	170	$	(194)	$	(13,304)	$	10,439
Segment Assets	$	132,556	$	134,386	$	-	$	10,728	$	(5,355)	$	272,315
Investments in and advances to equity method affiliates		41		-		-		4,540		-		4,581
Expenditures for additions to long-lived assets		10,795		8,914		13		6		-		19,728
At December 31, 2011 and for the year ended						Advertising Solutions						Consolidated Results
		Wireless		Wireline				Other		Consolidations
Total segment operating revenues	$	63,215	$	60,140	$	3,293	$	75	$	-	$	126,723
Operations and support expenses		41,282		41,360		5,175		5,031		6,280		99,128
Depreciation and amortization expenses		6,329		11,615		386		47		-		18,377
Total segment operating expenses		47,611		52,975		5,561		5,078		6,280		117,505
Segment operating income (loss)		15,604		7,165		(2,268)		(5,003)		(6,280)		9,218
Interest expense		-		-		-		-		3,535		3,535
Equity in net income (loss) of affiliates		(29)		-		-		813		-		784
Other income (expense) – net		-		-		-		-		249		249
Segment income (loss) before income taxes	$	15,575	$	7,165	$	(2,268)	$	(4,190)	$	(9,566)	$	6,716
Segment Assets	$	127,466	$	133,904	$	2,982	$	10,530	$	(4,440)	$	270,442
Investments in and advances to equity method affiliates		20		-		-		3,698		-		3,718
Expenditures for additions to long-lived assets		9,765		10,449		29		29		-		20,272
For the year ended December 31, 2010						Advertising Solutions						Consolidated Results
		Wireless		Wireline				Other		Consolidations
Total segment operating revenues	$	58,501	$	61,761	$	3,935	$	83	$	-	$	124,280
Operations and support expenses		36,185		41,879		2,584		2,159		2,521		85,328
Depreciation and amortization expenses		6,498		12,372		497		12		-		19,379
Total segment operating expenses		42,683		54,251		3,081		2,171		2,521		104,707
Segment operating income (loss)		15,818		7,510		854		(2,088)		(2,521)		19,573
Interest expense		-		-		-		-		2,994		2,994
Equity in net income of affiliates		9		11		-		742		-		762
Other income (expense) – net		-		-		-		-		897		897
Segment income (loss) before income taxes	$	15,827	$	7,521	$	854	$	(1,346)	$	(4,618)	$	18,238

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Earnings Per Share

12 Months Ended

Dec. 31, 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 income from continuing operations for the years ended December 31, 2012, 2011 and 2010, are shown in the table below:

Year Ended December 31,	2012		2011		2010
Numerators
Numerator for basic earnings per share:
Income from continuing operations	$	7,539	$	4,184	$	19,400
Income attributable to noncontrolling interest		(275)		(240)		(315)
Income from continuing operations attributable to AT&T		7,264		3,944		19,085
Dilutive potential common shares:
Other share-based payment		12		11		11
Numerator for diluted earnings per share	$	7,276	$	3,955	$	19,096
Denominators (000,000)
Denominator for basic earnings per share:
Weighted-average number of common shares outstanding		5,801		5,928		5,913
Dilutive potential common shares:
Stock options		3		4		3
Other share-based payment (in shares)		17		18		22
Denominator for diluted earnings per share		5,821		5,950		5,938
Basic earnings per share from continuing operations attributable to AT&T	$	1.25	$	0.66	$	3.23
Basic earnings per share from discontinued operations attributable to AT&T		-		-		0.13
Basic earnings per share attributable to AT&T	$	1.25	$	0.66	$	3.36
Diluted earnings per share from continuing operations attributable to AT&T	$	1.25	$	0.66	$	3.22
Diluted earnings per share from discontinued operations attributable to AT&T		-		-		0.13
Diluted earnings per share attributable to AT&T	$	1.25	$	0.66	$	3.35

At December 31, 2012,2011 and 2010, we had issued and outstanding options to purchase approximately 17 million, 66 million, and 130million shares of AT&T common stock. The exercise prices of 3 million, 40 million, and100 million shares in 2012,2011, and 2010 were above the average market price of AT&T stock for the respective periods. Accordingly, we did not include these amounts in determining the dilutive potential common shares.At December 31, 2012, the exercise prices of 14 millionvested stock options were below market price.

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Additional Financial Information

12 Months Ended

Dec. 31, 2012

Additional Financial Information [Abstract]

Additional Financial Information

NOTE 14. ADDITIONAL FINANCIAL INFORMATION

	December 31,
Consolidated Balance Sheets		2012		2011
Accounts payable and accrued liabilities:
Accounts payable	$	12,076	$	10,485
Accrued payroll and commissions		2,332		2,170
Current portion of employee benefit obligation		2,116		2,288
Accrued interest		1,588		1,576
Other		2,799		3,437
Total accounts payable and accrued liabilities	$	20,911	$	19,956

Consolidated Statements of Income		2012		2011		2010
Advertising expense	$	2,910	$	3,135	$	2,982
Interest expense incurred	$	3,707	$	3,697	$	3,766
Capitalized interest		(263)		(162)		(772)
Total interest expense	$	3,444	$	3,535	$	2,994

Consolidated Statements of Cash Flows		2012		2011		2010
Cash paid during the year for:
Interest	$	3,696	$	3,722	$	3,882
Income taxes, net of refunds		458		32		3,538

Consolidated Statements of Changes in
Stockholders’ Equity		2012		2011		2010
Foreign currency translation adjustment	$	(284)	$	(371)	$	(494)
Net unrealized gains (losses) on available-for-sale securities		272		222		316
Net unrealized gains (losses) on cash flow hedges		(110)		(421)		(180)
Defined benefit postretirement plans		5,358		3,750		3,070
Accumulated other comprehensive income	$	5,236	$	3,180	$	2,712

Labor ContractsAs of January 31, 2013, we employed approximately 242,000 persons. Approximately 55 percent of our employees are represented by the Communications Workers of America (CWA), the International Brotherhood of Electrical Workers or other unions. Contracts covering approximately 77,000 (as of December 31, 2012) employees expired during 2012 and we have reached new contracts covering approximately 57,000 of those employees. Contracts covering wireline employees in California, Connecticut and Nevada expired in April 2012 and remain subject to negotiation. In addition, during 2012, we entered into a new national four-year contract covering only benefits with the approximately 40,000 employees in our mobility business; contracts covering wages and other non-benefit working terms for these mobility employees are structured on a regional basis and one regional contract for 20,000 employees expired during February 2013. Contracts covering approximately 30,000 non-mobility employees will expire during 2013, including approximately 20,000 wireline employees in our five-state Southwest region. On February 6, 2013, we announced a tentative agreement with the CWA covering the wireline employees in our Southwest region; this agreement is subject to ratification by these employees. After expiration of the current agreements, work stoppages or labor disruptions may occur in the absence of new contracts or other agreements being reached.

American Tower Corp. Agreement In August 2000, we reached an agreement with American Tower Corp. (American Tower) under which we granted American Tower the exclusive rights to lease space on a number of our communications towers. In exchange, we received a combination of cash and equity instruments as complete prepayment of rent with the closing of each leasing agreement. The value of the prepayments was recorded as deferred revenue and recognized in income as revenue over the life of the leases. The balance of deferred revenue was $420 in 2012, $450 in 2011, and $480 in 2010.

No customer accounted for more than 10% of consolidated revenues in 2012, 2011 or 2010.

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Income Taxes

12 Months Ended

Dec. 31, 2012

Income Taxes

Income Taxes

NOTE 10. INCOME TAXES

Significant components of our deferred tax liabilities (assets) are as follows at December 31:

		2012		2011
Depreciation and amortization	$	41,411	$	39,367
Intangibles (nonamortizable)		1,874		1,897
Employee benefits		(13,350)		(14,950)
Net operating loss and other carryforwards		(2,167)		(1,502)
Other – net		(1,199)		(1,451)
Subtotal		26,569		23,361
Deferred tax assets valuation allowance		886		917
Net deferred tax liabilities	$	27,455	$	24,278
Net long-term deferred tax liabilities	$	28,491	$	25,748
Less: Net current deferred tax assets		(1,036)		(1,470)
Net deferred tax liabilities	$	27,455	$	24,278

At December 31, 2012, we had combined net operating and capital loss carryforwards (tax effected) for federal income tax purposes of $780 and for state and foreign income tax purposes of $956, expiring through 2031. Additionally, we had state credit carryforwards of $431, expiring primarily through 2032.

We recognize a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion, or all, of a deferred tax asset will not be realized. Our valuation allowances at December 31, 2012 and 2011, relate primarily to state net operating loss and state credit carryforwards.

We recognize the financial statement effects of a tax return position when it is more likely than not, based on the technical merits, that the position will ultimately be sustained. For tax positions that meet this recognition threshold, we apply our judgment, taking into account applicable tax laws and our experience in managing tax audits and relevant GAAP, to determine the amount of tax benefits to recognize in our financial statements. For each position, the difference between the benefit realized on our tax return and the benefit reflected in our financial statements is recorded on our consolidated balance sheets as an unrecognized tax benefit (UTB). We update our UTBs at each financial statement date to reflect the impacts of audit settlements and other resolution of audit issues, expiration of statutes of limitation, developments in tax law and ongoing discussions with taxing authorities. A reconciliation of the change in our UTB balance from January 1 to December 31 for 2012 and 2011 is as follows:

Federal, State and Foreign Tax		2012		2011
Balance at beginning of year	$	4,541	$	4,360
Increases for tax positions related to the current year		791		217
Increases for tax positions related to prior years		991		848
Decreases for tax positions related to prior years		(1,426)		(1,066)
Lapse of statute of limitations		(29)		-
Settlements		(75)		182
Balance at end of year		4,793		4,541
Accrued interest and penalties		977		1,312
Gross unrecognized income tax benefits		5,770		5,853
Less: Deferred federal and state income tax benefits		(610)		(797)
Less: Tax attributable to timing items included above		(2,448)		(2,331)
Total UTB that, if recognized, would impact the
effective income tax rate as of the end of the year	$	2,712	$	2,725

Periodically we make deposits to taxing jurisdictions which reduce our UTB balance but are not included in the reconciliation above. The amount of deposits that reduced our UTB balance was $2,372 at December 31, 2012, and $2,508 at December 31, 2011.

Accrued interest and penalties included in UTBs were $977 as of December 31, 2012, and $1,312 as of December 31, 2011. We record interest and penalties related to federal, state and foreign UTBs in income tax expense. The net interest and penalty expense (benefit) included in income tax expense was $(74) for 2012, $(65) for 2011, and $(194) for 2010.

We file income tax returns in the U.S. federal jurisdiction and various state, local and foreign jurisdictions. As a large taxpayer, our income tax returns are regularly audited by the Internal Revenue Service (IRS) and other taxing authorities. The IRS has completed field examinations of our tax returns through 2008. All audit periods prior to 2003 are closed for federal examination purposes. We are engaged with the IRS Appeals Division in resolving issues related to our 2003 through 2008 returns; we are unable to estimate the impact the resolution of these issues may have on our UTBs.

The components of income tax (benefit) expense are as follows:

		2012		2011		2010
Federal:
Current	$	451	$	(420)	$	307
Deferred – net		2,256		2,555		(2,105)
		2,707		2,135		(1,798)
State, local and foreign:
Current		702		23		141
Deferred – net		(509)		374		495
		193		397		636
Total	$	2,900	$	2,532	$	(1,162)

A reconciliation of income tax expense (benefit) and the amount computed by applying the statutory federal income tax rate (35%) to income from continuing operations before income taxes is as follows:

		2012			2011			2010
Taxes computed at federal statutory rate	$	3,654		$	2,351		$	6,383
Increases (decreases) in income taxes resulting from:
State and local income taxes – net of federal income tax benefit		85			210			441
Goodwill Impairment		-			961			-
Healthcare Reform Legislation		-			-			917
IRS Settlement – 2008 Wireless Restructuring		-			-			(8,300)
Other – net		(839)			(990)			(603)
Total	$	2,900		$	2,532		$	(1,162)
Effective Tax Rate		27.8	%		37.7	%		(6.4)	%

In March 2010, comprehensive healthcare reform legislation, which included a change in the tax treatment related to Medicare Part D subsidies, was enacted. We recorded a $995 charge to income tax expense in our consolidated statement of income during the first quarter of 2010 and increased our deferred income taxes liability balance to reflect the impact of this change.

In September 2010, we reached a settlement with the IRS on tax basis calculations related to a 2008 restructuring of our wireless operations. The IRS settlement resolved the uncertainty regarding the amount and timing of amortization deductions related to certain of our wireless assets. We recorded an $8,300 reduction to income tax expense in our consolidated statement of income during the third quarter of 2010 and corresponding decreases of $6,760 to our net noncurrent deferred income tax liabilities and $1,540 to other net tax liabilities to reflect the tax benefits of the settlement. The IRS settlement resulted in a reduction to our UTBs for tax positions related to prior years of $1,057, which also reduced the total amount of UTBs that, if recognized, would impact the effective tax rate.

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Pension And Postretirement Benefits (Schedule Of Fair Value Of Pension And Postretirement Assets And Liabilities By Level) (Details) (USD $) In Millions, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Pension Assets And Liabilities Fair Value [Member]
Defined Benefit Plan Disclosure [Line Items]
Non-interest bearing cash	$ 144	$ 65
Interest bearing cash	291	1
Foreign currency contracts	1	6
Domestic equities	8,291	8,304
International equities	6,390	5,939
Fixed income securities - Asset-backed securities	557	421
Fixed income securities - Mortgage-backed securities	2,324	3,038
Fixed income securities - Collateralized mortgage-backed securities	311	316
Fixed income securities - Collateralized mortgage obligations/REMICS	524	490
Fixed income securities - Other corporate and other bonds and notes	5,643	5,911
Fixed income securities - Government and municipal bonds	5,351	4,766
Private equity funds	5,797	5,932
Real estate and real assets	4,766	5,223
Commingled funds	5,353	6,485
Securities lending collateral	2,799	4,177
Receivable for variation margin	72
Assets at fair value	48,614	51,074
Investments sold short and other liabilities	570	606
Total plan net assets at fair value	48,044	50,468
Other assets (liabilities)	(2,984)	(4,561)
Total Plan Net Assets	45,060	45,907
Pension Assets And Liabilities Fair Value [Member] | Level 1 [Member]
Defined Benefit Plan Disclosure [Line Items]
Non-interest bearing cash	144	64
Interest bearing cash	56	1
Foreign currency contracts	0	0
Domestic equities	8,291	8,299
International equities	6,361	5,873
Fixed income securities - Asset-backed securities	0	0
Fixed income securities - Mortgage-backed securities	0	0
Fixed income securities - Collateralized mortgage-backed securities	0	0
Fixed income securities - Collateralized mortgage obligations/REMICS	0	0
Fixed income securities - Other corporate and other bonds and notes	140	105
Fixed income securities - Government and municipal bonds	50	71
Private equity funds	0	0
Real estate and real assets	0	0
Commingled funds	0	0
Securities lending collateral	868	1,295
Receivable for variation margin	72
Assets at fair value	15,982	15,708
Investments sold short and other liabilities	563	600
Total plan net assets at fair value	15,419	15,108
Pension Assets And Liabilities Fair Value [Member] | Level 2 [Member]
Defined Benefit Plan Disclosure [Line Items]
Non-interest bearing cash	0	1
Interest bearing cash	235	0
Foreign currency contracts	1	6
Domestic equities	0	5
International equities	29	62
Fixed income securities - Asset-backed securities	543	413
Fixed income securities - Mortgage-backed securities	2,324	3,038
Fixed income securities - Collateralized mortgage-backed securities	311	316
Fixed income securities - Collateralized mortgage obligations/REMICS	523	490
Fixed income securities - Other corporate and other bonds and notes	4,903	5,386
Fixed income securities - Government and municipal bonds	5,301	4,695
Private equity funds	0	1
Real estate and real assets	0	10
Commingled funds	4,927	6,092
Securities lending collateral	1,930	2,879
Receivable for variation margin	0
Assets at fair value	21,027	23,394
Investments sold short and other liabilities	7	6
Total plan net assets at fair value	21,020	23,388
Pension Assets And Liabilities Fair Value [Member] | Level 3 [Member]
Defined Benefit Plan Disclosure [Line Items]
Non-interest bearing cash	0	0
Interest bearing cash	0	0
Foreign currency contracts	0	0
Domestic equities	0	0
International equities	0	4
Fixed income securities - Asset-backed securities	14	8
Fixed income securities - Mortgage-backed securities	0	0
Fixed income securities - Collateralized mortgage-backed securities	0	0
Fixed income securities - Collateralized mortgage obligations/REMICS	1	0
Fixed income securities - Other corporate and other bonds and notes	600	420
Fixed income securities - Government and municipal bonds	0	0
Private equity funds	5,797	5,931
Real estate and real assets	4,766	5,213
Commingled funds	426	393
Securities lending collateral	1	3
Receivable for variation margin	0
Assets at fair value	11,605	11,972
Investments sold short and other liabilities	0	0
Total plan net assets at fair value	11,605	11,972
Postretirement Assets And Liabilities Fair Value [Member]
Defined Benefit Plan Disclosure [Line Items]
Interest bearing cash	412	370
Domestic equities	2,575	2,965
International equities	2,686	2,580
Fixed income securities - Asset-backed securities	29	51
Fixed income securities - Collateralized mortgage-backed securities	79	60
Fixed income securities - Collateralized mortgage obligations/REMICS	46	28
Fixed income securities - Other corporate and other bonds and notes	401	353
Fixed income securities - Government and municipal bonds	620	667
Commingled funds	2,124	2,425
Private equity assets	343	440
Real assets	110	124
Securities lending collateral	625	888
Receivable for foreign exchange contracts		3
Assets at fair value	10,050	10,954
Foreign exchange contracts payable		3
Liabilities at fair value		3
Total plan net assets at fair value	10,050	10,951
Other assets (liabilities)	(755)	(1,061)
Total Plan Net Assets	9,295	9,890
Postretirement Assets And Liabilities Fair Value [Member] | Level 1 [Member]
Defined Benefit Plan Disclosure [Line Items]
Interest bearing cash	169	30
Domestic equities	2,575	2,964
International equities	2,685	2,579
Fixed income securities - Asset-backed securities	0	0
Fixed income securities - Collateralized mortgage-backed securities	0	0
Fixed income securities - Collateralized mortgage obligations/REMICS	0	0
Fixed income securities - Other corporate and other bonds and notes	1	0
Fixed income securities - Government and municipal bonds	22	48
Commingled funds	82	175
Private equity assets	0	0
Real assets	0	0
Securities lending collateral	544	780
Receivable for foreign exchange contracts		3
Assets at fair value	6,078	6,579
Foreign exchange contracts payable		3
Liabilities at fair value		3
Total plan net assets at fair value	6,078	6,576
Postretirement Assets And Liabilities Fair Value [Member] | Level 2 [Member]
Defined Benefit Plan Disclosure [Line Items]
Interest bearing cash	243	340
Domestic equities	0	1
International equities	1	1
Fixed income securities - Asset-backed securities	29	51
Fixed income securities - Collateralized mortgage-backed securities	79	60
Fixed income securities - Collateralized mortgage obligations/REMICS	46	28
Fixed income securities - Other corporate and other bonds and notes	383	334
Fixed income securities - Government and municipal bonds	598	619
Commingled funds	2,038	2,245
Private equity assets	0	3
Real assets	0	0
Securities lending collateral	81	108
Receivable for foreign exchange contracts		0
Assets at fair value	3,498	3,790
Foreign exchange contracts payable		0
Liabilities at fair value		0
Total plan net assets at fair value	3,498	3,790
Postretirement Assets And Liabilities Fair Value [Member] | Level 3 [Member]
Defined Benefit Plan Disclosure [Line Items]
Interest bearing cash	0	0
Domestic equities	0	0
International equities	0	0
Fixed income securities - Asset-backed securities	0	0
Fixed income securities - Collateralized mortgage-backed securities	0	0
Fixed income securities - Collateralized mortgage obligations/REMICS	0	0
Fixed income securities - Other corporate and other bonds and notes	17	19
Fixed income securities - Government and municipal bonds	0	0
Commingled funds	4	5
Private equity assets	343	437
Real assets	110	124
Securities lending collateral	0	0
Receivable for foreign exchange contracts		0
Assets at fair value	474	585
Foreign exchange contracts payable		0
Liabilities at fair value		0
Total plan net assets at fair value	$ 474	$ 585

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Goodwill And Other Intangible Assets

12 Months Ended

Dec. 31, 2012

Goodwill And Other Intangible Assets

Goodwill And Other Intangible Assets

NOTE 6. GOODWILL AND OTHER INTANGIBLE ASSETS

Changes in the carrying amounts of goodwill, by segment (which is the same as the reporting unit for Wireless, Wireline and Advertising Solutions), for the years ended December 31, 2012 and 2011, were as follows:

		Wireless		Wireline		Advertising Solutions		Other		Total
Balance as of January 1, 2011	$	35,755	$	31,670	$	5,731	$	445	$	73,601
Goodwill acquired		5		-		-		-		5
Impairments		-		-		(2,745)		-		(2,745)
Other		(5)		1,968		(1,927)		(55)		(19)
Balance as of December 31, 2011		35,755		33,638		1,059		390		70,842
Goodwill acquired		13		5		-		-		18
Other		35		327		(1,059)		(390)		(1,087)
Balance as of December 31, 2012	$	35,803	$	33,970	$	-	$	-	$	69,773

In 2011, we recorded a $2,745 impairment in the Advertising Solutions segment, triggered by declining revenues in our directory business and the directory industry as a whole. Changes to goodwill during 2011 also included a $1,927 reclassification of goodwill from the Advertising Solutions segment to the Wireline segment to align certain advertising operations with our U-verse business, which operates the media platform for those advertising operations. Changes to goodwill during 2012 primarily resulted from the sale of the Advertising Solutions segment (see Note 4). Changes in goodwill during 2012 also included a reclassification of goodwill due to segment reclassification to better align goodwill with operations.

Our other intangible assets are summarized as follows:

	December 31, 2012					December 31, 2011
Other Intangible Assets		Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Amortized intangible assets:
Customer lists and relationships:
AT&T Mobility LLC	$	6,760	$	6,335	$	6,845	$	5,906
BellSouth Corporation		5,825		4,994		9,205		7,686
AT&T Corp.		2,490		2,356		2,483		2,205
Other		351		350		350		329
Subtotal		15,426		14,035		18,883		16,126
Other		304		174		485		258
Total	$	15,730	$	14,209	$	19,368	$	16,384

Indefinite-lived intangible assets not subject to amortization:
Licenses	$	52,352	$	51,374
Trade names		4,902		4,985
Total	$	57,254	$	56,359

Amortized intangible assets are definite-life assets, and as such, we record amortization expense based on a method that most appropriately reflects our expected cash flows from these assets.Intangible assets that have finite useful lives are amortized over their useful lives, a weighted-average of 8.5 years (8.4 years for customer lists and relationships and 12.1 years for other). Customer lists and relationships are amortized using primarily the sum-of-the-months-digits method of amortization over the expected period in which those relationships are expected to contribute to our future cash flows. The remaining finite-lived intangible assets are generally amortized using the straight-line method of amortization.Amortization expense for definite-life intangible assets was $1,210 for the year ended December 31, 2012, $2,009 for the year ended December 31, 2011, and $2,977 for the year ended December 31, 2010. Amortization expense is estimated to be $667 in 2013, $348 in 2014, $218 in 2015, $123 in 2016, and $57 in 2017.In 2012, we wrote off approximately $191in fully amortized intangible assets (primarily patents) and $3,187 of customer lists due to the sale of our Advertising Solutions segment (see Note 4). We review other amortizing intangible assets for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable over the remaining life of the asset or asset group.

We review indefinite-lived intangible assets for impairment annually (see Note 1). Licenses include wireless FCC licenses of $52,318at December 31, 2012 and $51,358 at December 31, 2011, that provide us with the exclusive right to utilize certain radio frequency spectrum to provide wireless communications services.

We recorded a $165 impairment in 2011 and an $85 impairment in 2010 for a trade name.

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Debt (Summary Of Long-Term Debt Of AT&T And Its Subsidiaries) (Detail) (Alternative) (USD $) In Millions, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Calculation [Abstract]
Total long-term debt and capital lease obligations	$ 69,843	$ 64,753
Current maturities of long-term debt	3,485	3,453
Long-term debt and capital lease obligations (noncurrent)	$ 66,358	$ 61,300

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Acquisitions, Dispositions And Other Adjustments

12 Months Ended

Dec. 31, 2012

Acquisitions, Dispositions And Other Adjustments

Acquisitions, Dispositions And Other Adjustments

NOTE 4.ACQUISITIONS, DISPOSITIONS AND OTHER ADJUSTMENTS

Acquisitions

Spectrum AcquisitionsDuring 2012, we acquired $855 of wireless spectrum from various companies. During 2011, we acquired $33 of wireless spectrum from various companies, not including the Qualcomm spectrum purchase discussed in the following paragraph.

Qualcomm Spectrum Purchase InDecember 2011, we completed our purchase of spectrum licenses in the Lower 700 MHz frequency band from Qualcomm Incorporated for approximately $1,925 in cash. The spectrum covers more than 300 million people total nationwide, including 12 MHz of Lower 700 MHz D and E block spectrum covering more than 70 million people in five of the top 15 metropolitan areas and 6 MHz of Lower 700 MHz D block spectrum covering more than 230 million people across the rest of the United States. We plan to deploy this spectrum as supplemental downlink capacity, using carrier aggregation technology once compatible handsets and network equipment are developed.

Wireless Properties TransactionsInJune 2010, we acquired certain wireless properties, including FCC licenses and network assets, from Verizon Wireless for $2,376 in cash. The assets primarily represent former Alltel Wireless assets and served approximately 1.6 million subscribers in 79 service areas across 18 states.

Centennial InDecember 2010, we completed our acquisition accounting of Centennial Communications Corporation (Centennial), which included net assets of $1,518 in goodwill, $655 in FCC licenses, and $449 in customer lists and other intangible assets.

Purchase of Wireless Partnership Minority Interest In July 2011, we completed the acquisition of Convergys Corporation's minority interests in the Cincinnati SMSA Limited Partnership and an associated cell tower holding company for approximately $320 in cash.

Subsequent and Pending Acquisitions

Subsequent Spectrum Acquisitions On January 24, 2013, we completed the acquisition of NextWave Wireless Inc. (NextWave), which holds wireless licenses in the Wireless Communication Services and Advanced Wireless Service (AWS) bands. We acquired all the equity and purchased a portion of the debt of NextWave for $600. In addition, certain of NextWave's assets were distributed to the holders of its debt in redemption of the remainder of that debt. During January 2013, we have also closed approximately $400 of other wireless spectrum acquisitions from various companies.

Atlantic Tele-Network On January 22, 2013, we announced an agreement to acquire Atlantic Tele-Network's (ATNI) U.S. retail wireless operations for $780 in cash, which covers approximately 4.6 million people in primarily rural areas across six states – Georgia, Idaho, Illinois, North Carolina, Ohio and South Carolina. The acquisition includes spectrum in the 700 MHz, 850 MHz and 1900 MHz bands and is largely complementary to our existing network. The transaction is subject to regulatory approval and we expect it to close in the second half of 2013.

Purchase of Spectrum from Verizon On January 25, 2013, we agreed to acquire spectrum in the 700MHz B band from Verizon Wireless for $1,900 in cash and the assignment of AWS spectrum in five markets. This transaction is subject to regulatory approval and we expect it to close in the second half of 2013.

Dispositions

Advertising SolutionsOn May 8, 2012, we completed the sale of our Advertising Solutions segment to an affiliate of Cerberus Capital Management, L.P. for approximately $740 in cash after closing adjustments, a $200 note and a 47 percent equity interest in the new entity, YP Holdings. Our operating results include the results of the Advertising Solutions segment through May 8.

Tender of Telmex Shares In August 2011, the Board of Directors of AméricaMóvil, S.A. de C.V. (AméricaMóvil) approved a tender offer for the remaining outstanding shares of Télefonos de México, S.A. de C.V. (Telmex) that were not already owned by AméricaMóvil. We tendered all of our shares of Telmex for $1,197 of cash. Telmex was accounted for as an equity method investment (see Note 7).

Sale of Sterling Operations InMay 2010, we entered into an agreement to sell our Sterling Commerce Inc. (Sterling) subsidiary and changed our reporting for Sterling to discontinued operations. In August 2010, we completed the sale and received net proceeds of approximately $1,400.

During the second quarter of 2010, we accounted for Sterling as a discontinued operation. We determined that the cash inflows under a transition services agreement and our cash outflows under an enterprise license agreement did not constitute significant continuing involvement with Sterling's operations after the sale.

The following table includes Sterling's operating results, which are presented in the “Income From Discontinued Operations, net of tax” line item on the consolidated statements of income. These operating results were reported in our Other segment through August 27, 2010:

Operating revenues	$	349
Operating expenses		327
Operating income		22
Income before income taxes		18
Income tax expense		8
Income from discontinued operations during phase-out period		10
Gain on disposal of discontinued operations		769
Income from discontinued operations, net of tax	$	779

CentennialInAugust 2010, we sold operations in eight service areas in Louisiana and Mississippi, as required by the Department of Justice (DOJ), for $273 in cash.

Other Dispositions In2010, we also sold our domestic Japanese outsourcing services company for $109.

Other

T-Mobile In March 2011, we agreed to acquire from Deutsche Telekom AG (Deutsche Telekom) all shares of T-Mobile USA, Inc. (T-Mobile) for approximately $39,000, subject to certain adjustments. In December 2011, in light of opposition to the merger from the DOJ and FCC, we and Deutsche Telekom agreed to terminate the transaction. Pursuant to the purchase agreement, we paid a breakup fee of $3,000, entered into a broadband roaming agreement and transferred certain wireless spectrum with a book value of $962. These agreement termination charges were included in “Selling, general and administrative” expenses in our Other segment.

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Property, Plant And Equipment

12 Months Ended

Dec. 31, 2012

Property, Plant And Equipment

Property, Plant And Equipment

NOTE 5. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is summarized as follows at December 31:

		Lives (years)		2012		2011
Land		-	$	1,689	$	1,689
Buildings and improvements		10-45		28,939		28,054
Central office equipment1		3-10		86,185		83,824
Cable, wiring and conduit		10-50		80,338		78,431
Other equipment		5-20		61,387		53,104
Software		3-5		7,957		10,041
Under construction		-		4,412		5,136
				270,907		260,279
Accumulated depreciation and amortization				161,140		153,192
Property, plant and equipment - net			$	109,767	$	107,087
1	Includes certain network software.

Our depreciation expense was $16,933 in 2012,$16,368 in 2011 and $16,402 in 2010. Depreciation expense included amortization of software totaling $2,130 in 2012, $2,243 in 2011 and $2,515 in 2010.

Certain facilities and equipment used in operations are leased under operating or capital leases. Rental expenses under operating leases were $3,709 for 2012, $3,610 for 2011, and $3,060for 2010. At December 31, 2012, the future minimum rental payments under noncancelable operating leases for the years 2013through 2017 were $2,706, $2,616,$2,486, $2,337, and $2,165, with $11,755due thereafter. Certain real estate operating leases contain renewal options that may be exercised. Capital leases are not significant.

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Equity Method Investments

12 Months Ended

Dec. 31, 2012

Equity Method Investments

Equity Method Investments

NOTE 7. EQUITY METHOD INVESTMENTS

Investments in partnerships, joint ventures and lessthanmajority-owned subsidiaries in which we have significant influence are accounted for under the equity method.

Our investments in equity affiliates primarily include international equity investments, and our 47 percent equity interest in YP Holdings. As of December 31, 2012, our investments in equity affiliates included a 9.55 percent interest in AméricaMóvil, primarily a wireless provider in Mexico with telecommunications investments in the United States and Latin America. We are a member of a consortium that holds all of the class AA shares of AméricaMóvil stock, representing voting control of the company. Another member of the consortium has the right to appoint a majority of the directors of AméricaMóvil.

TelmexTransaction During2011, the Board of Directors of AméricaMóvilapproved and completed a tender offer for the remaining outstanding sharesof Telmexthat were not already owned by AméricaMóvil. In conjunction with the tender of our shares, we have recorded our portion of AméricaMóvil's resulting equity adjustments.

TelmexInternacional On June 11, 2010, as part of a tender offer from AméricaMóvil, we exchanged all our shares in TelmexInternacional, S.A.B. de C.V. (TelmexInternacional) for AméricaMóvil L shares at the offered exchange rate of 0.373, which resulted in a pretax gain of $658. The exchange was accounted for at fair value. In addition, we paid $202 to purchase additional shares of AméricaMóvil L shares to maintain our ownership percentage at a pretransaction level.

The following table is a reconciliation of our investments in equity affiliates as presented on our consolidated balance sheets:

		2012		2011
Beginning of year	$	3,718	$	4,515
Additional investments		405		35
Equity in net income of affiliates		752		784
Dividends received		(137)		(161)
Dispositions		-		(660)
Currency translation adjustments		95		(515)
América Móvil equity adjustments		(260)		(171)
Other adjustments		8		(109)
End of year	$	4,581	$	3,718

Undistributed earnings from equity affiliates were $6,375 and $5,760 at December 31, 2012 and 2011.

At December 31,2012 the fair value of our investment in AméricaMóvil, based on the equivalent value of AméricaMóvilL shareswas $8,380.

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Debt (Long-Term Debt - Scheduled Repayments) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012
Debt
Long-term debt repayments scheduled for 2013	$ 3,475
Long-term debt repayments scheduled for 2014	3,788
Long-term debt repayments scheduled for 2015	6,514
Long-term debt repayments scheduled for 2016	4,923
Long-term debt repayments scheduled for 2017	4,757
Long-term debt repayments scheduled for the period thereafter	$ 47,578
Weighted average interest rate of long-term debt repayment scheduled for 2013	4.90%
Weighted average interest rate of long-term debt repayment scheduled for 2014	5.20%
Weighted average interest rate of long-term debt repayment scheduled for 2015	3.20%
Weighted average interest rate of long-term debt repayment scheduled for 2016	3.70%
Weighted average interest rate of long-term debt repayment scheduled for 2017	2.50%
Weighted average interest rate of long-term debt repayment scheduled for the period thereafter	5.50%

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Pension And Postretirement Benefits (Fair Value Assets Measured On Recurring Basis Unobservable Input (Level 3) Reconciliation) (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Pension Assets [Member]
Defined Benefit Plan Disclosure [Line Items]
Balance, beginning of year	$ 11,972	$ 10,628
Realized gains (losses)	639	182
Unrealized gains (losses)	76	1,109
Transfers in	156	396
Transfers out	(2)
Purchases	1,670	1,799
Sales	(2,906)	(2,142)
Balance, end of year	11,605	11,972
Pension Assets [Member] | Equities [Member]
Defined Benefit Plan Disclosure [Line Items]
Balance, beginning of year	4	0
Realized gains (losses)	(1)	(1)
Unrealized gains (losses)	1	1
Transfers in	0	3
Transfers out	0
Purchases	0	1
Sales	(4)	0
Balance, end of year	0	4
Pension Assets [Member] | Fixed Income Funds [Member]
Defined Benefit Plan Disclosure [Line Items]
Balance, beginning of year	824	441
Realized gains (losses)	16	17
Unrealized gains (losses)	33	(6)
Transfers in	120	393
Transfers out	(2)
Purchases	142	95
Sales	(91)	(116)
Balance, end of year	1,042	824
Pension Assets [Member] | Private Equity Funds [Member]
Defined Benefit Plan Disclosure [Line Items]
Balance, beginning of year	5,931	5,617
Realized gains (losses)	459	164
Unrealized gains (losses)	32	448
Transfers in	12	0
Transfers out	0
Purchases	610	844
Sales	(1,247)	(1,142)
Balance, end of year	5,797	5,931
Pension Assets [Member] | Real Estate And Real Assets [Member]
Defined Benefit Plan Disclosure [Line Items]
Balance, beginning of year	5,213	4,570
Realized gains (losses)	165	2
Unrealized gains (losses)	10	666
Transfers in	24	0
Transfers out	0
Purchases	918	859
Sales	(1,564)	(884)
Balance, end of year	4,766	5,213
Postretirement Assets [Member]
Defined Benefit Plan Disclosure [Line Items]
Balance, beginning of year	585	698
Realized gains (losses)	74	42
Unrealized gains (losses)	(44)	8
Purchases	53	236
Sales	(194)	(399)
Balance, end of year	474	585
Postretirement Assets [Member] | Fixed Income Funds [Member]
Defined Benefit Plan Disclosure [Line Items]
Balance, beginning of year	24	45
Realized gains (losses)	0	0
Unrealized gains (losses)	0	0
Purchases	0	8
Sales	(3)	(29)
Balance, end of year	21	24
Postretirement Assets [Member] | Private Equity Funds [Member]
Defined Benefit Plan Disclosure [Line Items]
Balance, beginning of year	437	496
Realized gains (losses)	58	70
Unrealized gains (losses)	(39)	(23)
Purchases	20	175
Sales	(133)	(281)
Balance, end of year	343	437
Postretirement Assets [Member] | Real Assets [Member]
Defined Benefit Plan Disclosure [Line Items]
Balance, beginning of year	124	157
Realized gains (losses)	16	(28)
Unrealized gains (losses)	(5)	31
Purchases	33	53
Sales	(58)	(89)
Balance, end of year	$ 110	$ 124

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Fair Value Measurements And Disclosure (Long-Term Debt And Other Financial Instruments) (Details) (USD $) In Millions, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Schedule of Fair Value of Separate Accounts by Major Category of Investment [Line Items]
Bank borrowings	$ 1	$ 0
Carrying Amount [Member]
Schedule of Fair Value of Separate Accounts by Major Category of Investment [Line Items]
Notes and debentures	69,578	64,514
Bank borrowings	1	0
Investment securities	2,218	2,092
Fair Value [Member]
Schedule of Fair Value of Separate Accounts by Major Category of Investment [Line Items]
Notes and debentures	81,310	73,738
Bank borrowings	1	0
Investment securities	2,218	2,092
Fair Value [Member] | Level 2 [Member]
Schedule of Fair Value of Separate Accounts by Major Category of Investment [Line Items]
Notes and debentures	$ 81,310	$ 73,738

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Debt (Debt Maturing Within One Year) (Details) (USD $) In Millions, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Debt
Current maturities of long-term debt	$ 3,485	$ 3,453
Bank borrowings	1	0
Total	$ 3,486	$ 3,453

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Stockholder's Equity (Details) (USD $) In Millions, except Share data, unless otherwise specified	3 Months Ended			12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Jul. 31, 2012
Stockholder's Equity
Stock repurchase authorization (in shares)			300,000,000			300,000,000	300,000,000
Stock repurchases (in shares)				371,000,000
Stock repurchases during period				$ (12,752)	$ 0	$ 0
Authorized common shares (in shares)	14,000,000,000	14,000,000,000		14,000,000,000	14,000,000,000
Authorized preferred shares (in shares)	10,000,000			10,000,000
Preferred stock outstanding (in shares)	0	0		0	0
Quarterly dividend amount declared per common shares (per share)	$ 0.45	$ 0.44	$ 0.43	$ 1.77	$ 1.73	$ 1.69

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Goodwill And Other Intangible Assets (Tables)

12 Months Ended

Dec. 31, 2012

Goodwill And Other Intangible Assets

Summary Of Changes In Carrying Amount Of Goodwill, By Segment

		Wireless		Wireline		Advertising Solutions		Other		Total
Balance as of January 1, 2011	$	35,755	$	31,670	$	5,731	$	445	$	73,601
Goodwill acquired		5		-		-		-		5
Impairments		-		-		(2,745)		-		(2,745)
Other		(5)		1,968		(1,927)		(55)		(19)
Balance as of December 31, 2011		35,755		33,638		1,059		390		70,842
Goodwill acquired		13		5		-		-		18
Other		35		327		(1,059)		(390)		(1,087)
Balance as of December 31, 2012	$	35,803	$	33,970	$	-	$	-	$	69,773

Schedule Of Amortized Intangible Assets

	December 31, 2012					December 31, 2011
Other Intangible Assets		Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Amortized intangible assets:
Customer lists and relationships:
AT&T Mobility LLC	$	6,760	$	6,335	$	6,845	$	5,906
BellSouth Corporation		5,825		4,994		9,205		7,686
AT&T Corp.		2,490		2,356		2,483		2,205
Other		351		350		350		329
Subtotal		15,426		14,035		18,883		16,126
Other		304		174		485		258
Total	$	15,730	$	14,209	$	19,368	$	16,384

Schedule Of Indefinite-Life Intangible Assets Not Subject To Amortization

Indefinite-lived intangible assets not subject to amortization:
Licenses	$	52,352	$	51,374
Trade names		4,902		4,985
Total	$	57,254	$	56,359

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Property, Plant And Equipment (Narrative) (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Property, Plant and Equipment [Line Items]
Depreciation expense	$ 16,933	$ 16,368	$ 16,402
Operating leases, rent expense	3,709	3,610	3,060
Operating leases, future minimum payments due, current	2,706
Operating leases, future minimum payments, due in two years	2,616
Operating leases, future minimum payments, due in three years	2,486
Operating leases, future minimum payments, due in four years	2,337
Operating leases, future minimum payments, due in five years	2,165
Operating leases, future minimum payments, due thereafter	11,755
Software [Member]
Property, Plant and Equipment [Line Items]
Depreciation expense	$ 2,130	$ 2,243	$ 2,515

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Share-Based Payment

12 Months Ended

Dec. 31, 2012

Share-Based Payment

Share-Based Payment

NOTE 12. SHARE-BASED PAYMENTS

We account for our share-based payment arrangements based on the fair value of the awards on their respective grant date, which may affect our ability to fully realize the value shown on our consolidated balance sheets of deferred tax assets associated with compensation expense. We record a valuation allowance when our future taxable income is not expected to be sufficient to recover the asset. Accordingly, there can be no assurance that the current stock price of our common shares will rise to levels sufficient to realize the entire tax benefit currently reflected on our consolidated balance sheets. However, to the extent we generate excess tax benefits (i.e., that additional tax benefits in excess of the deferred taxes associated with compensation expense previously recognized) the potential future impact on income would be reduced.

At December 31, 2012, we had various share-based payment arrangements, which we describe in the following discussion. The compensation cost recognized for those plans was included in operating expenses in our consolidated statements of income. The total income tax benefit recognized in the consolidated statements of income for share-based payment arrangements was $195 for 2012, compared to $187 for 2011 and $196 for 2010.

Under our various plans, senior and other management employees and nonemployee directors have received nonvested stock and stock units. We grant performance stock units, which are nonvested stock units, based upon our stock price at the date of grant and award them in the form of AT&T common stock and cash at the end of a three-year period, subject to the achievement of certain performance goals. We treat the cash portion of these awards as a liability. We grant forfeitable restricted stock and stock units, which are valued at the market price of our common stock at the date of grant and vest typically over a two- to seven-year period. We also grant other nonvested stock units and award them in cash at the end of a three-year period, subject to the achievement of certain market based conditions. As of December 31, 2012, we were authorized to issue up to 111million shares of common stock (in addition to shares that may be issued upon exercise of outstanding options or upon vesting of performance stock units or other nonvested stock units) to officers, employees and directors pursuant to these various plans.

The compensation cost that we have charged against income for our share-based payment arrangements was as follows:

		2012		2011		2010
Performance stock units	$	397	$	388	$	411
Restricted stock and stock units		102		91		85
Other nonvested stock units		12		4		11
Other		-		6		6
Total	$	511	$	489	$	513

A summary of option activity as of December 31, 2012, and changes during the year then ended, is presented below (shares in millions):

Options		Shares		Weighted- Average Exercise Price	Weighted-Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value1
Outstanding at January 1, 2012		66	$	30.62	1.99	$	148
Exercised		(18)		-
Forfeited or expired		(31)		-
Outstanding at December 31, 2012		17		27.38	4.53		123
Exercisable at December 31, 2012		17	$	27.37	4.51	$	123
1	Aggregate intrinsic value includes only those options with intrinsic value (options where the exercise price is
	below the market price).

It is our policy to satisfy share option exercises using our treasury stock. Cash received from stock option exercises was $517 for 2012, $250 for 2011 and $55 for 2010.

A summary of the status of our nonvested stock units as ofDecember 31, 2012, and changes during the year then ended is presented as follows (shares in millions):

Nonvested Stock Units	Shares		Weighted-Average Grant-Date Fair Value
Nonvested at January 1, 2012	27	$	26.53
Granted	13		30.18
Vested	(13)		25.87
Forfeited	(1)		28.32
Nonvested at December 31, 2012	26	$	28.55

As of December 31, 2012, there was $314 of total unrecognized compensation cost related to nonvested share-based payment arrangements granted. That cost is expected to be recognized over a weighted-average period of two years. The total fair value of shares vested during the year was $333 for 2012, compared to $360 for 2011 and $397 for 2010.

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Valuation And Qualifying Accounts

12 Months Ended

Dec. 31, 2012

Valuation And Qualifying Accounts

Valuation And Qualifying Accounts

Schedule II - Sheet 1

AT&T INC.

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

Allowance for Doubtful Accounts

Dollars in Millions

COL. A	COL. B		COL. C			COL. D	COL. E
			Additions
			(1)	(2)	(3)
	Balance at		Charged to	Charged to
	Beginning of		Costs and	Other			Balance at End
	Period		Expenses (a)	Accounts (b)	Acquisitions	Deductions (c)	of Period
Year 2012	$	878	1,117	48	-	1,496	$	547
Year 2011	$	957	1,136	38	-	1,253	$	878
Year 2010	$	1,202	1,334	(28)	-	1,551	$	957
(a) Excludes direct charges and credits to expense on the consolidated statements of income and reinvested
earnings related to interexchange carrier receivables.
(b) Includes amounts previously written off which were credited directly to this account when recovered and
amounts related to long-distance carrier receivables which were billed by AT&T.
(c) Amounts written off as uncollectible, or related to divested entities.

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Additional Financial Information (Consolidated Statements Of Cash Flows) (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Additional Financial Information [Abstract]
Interest	$ 3,696	$ 3,722	$ 3,882
Income taxes, net of refunds	$ 458	$ 32	$ 3,538

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Acquisitions, Dispositions And Other Adjustments (Operating Results Of Discontinued Operation) (Details) (USD $) In Millions, unless otherwise specified	8 Months Ended	12 Months Ended
	Aug. 27, 2010	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Acquisitions, Dispositions And Other Adjustments
Operating revenues	$ 349
Operating expenses	327
Operating income	22
Income before income taxes	18
Income tax expense	8
Income from discontinued operations during phase-out period	10
Gain on disposal of discontinued operations	769
Income from discontinued operations, net of tax	$ 779	$ 0	$ 0	$ 779

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Additional Financial Information (Tables)

12 Months Ended

Dec. 31, 2012

Additional Financial Information [Abstract]

Consolidated Balance Sheets

	December 31,
Consolidated Balance Sheets		2012		2011
Accounts payable and accrued liabilities:
Accounts payable	$	12,076	$	10,485
Accrued payroll and commissions		2,332		2,170
Current portion of employee benefit obligation		2,116		2,288
Accrued interest		1,588		1,576
Other		2,799		3,437
Total accounts payable and accrued liabilities	$	20,911	$	19,956

Consolidated Statements Of Income

Consolidated Statements of Income		2012		2011		2010
Advertising expense	$	2,910	$	3,135	$	2,982
Interest expense incurred	$	3,707	$	3,697	$	3,766
Capitalized interest		(263)		(162)		(772)
Total interest expense	$	3,444	$	3,535	$	2,994

Consolidated Statements Of Cash Flows

Consolidated Statements of Cash Flows		2012		2011		2010
Cash paid during the year for:
Interest	$	3,696	$	3,722	$	3,882
Income taxes, net of refunds		458		32		3,538

Consolidated Statements Of Changes In Stockholders Equity

Consolidated Statements of Changes in
Stockholders’ Equity		2012		2011		2010
Foreign currency translation adjustment	$	(284)	$	(371)	$	(494)
Net unrealized gains (losses) on available-for-sale securities		272		222		316
Net unrealized gains (losses) on cash flow hedges		(110)		(421)		(180)
Defined benefit postretirement plans		5,358		3,750		3,070
Accumulated other comprehensive income	$	5,236	$	3,180	$	2,712

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Consolidated Balance Sheets (USD $) In Millions, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Current Assets
Cash and cash equivalents	$ 4,868	$ 3,045
Accounts receivable - net of allowances for doubtful accounts of $547 and $878	12,657	13,231
Prepaid expenses	1,035	1,102
Deferred income taxes	1,036	1,470
Other current assets	3,110	4,137
Total current assets	22,706	22,985
Property, plant and equipment - net	109,767	107,087
Goodwill	69,773	70,842
Licenses	52,352	51,374
Customer Lists and Relationships - Net	1,391	2,757
Other Intangible Assets - Net	5,032	5,212
Investments in and Advances to Equity Method Affiliates	4,581	3,718
Other Assets	6,713	6,467
Total Assets	272,315	270,442
Current Liabilities
Debt maturing within one year	3,486	3,453
Accounts payable and accrued liabilities	20,911	19,956
Advanced billing and customer deposits	3,808	3,872
Accrued taxes	1,026	1,003
Dividends payable	2,556	2,608
Total current liabilities	31,787	30,892
Long-Term Debt	66,358	61,300
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes	28,491	25,748
Postemployment benefit obligation	41,392	34,011
Other noncurrent liabilities	11,592	12,694
Total deferred credits and other noncurrent liabilities	81,475	72,453
Stockholders' Equity
Common stock ($1 par value, 14,000,000,000 authorized at December 31, 2012 and 2011: issued 6,495,231,088 at December 31, 2012 and 2011)	6,495	6,495
Additional paid-in capital	91,038	91,156
Retained earnings	22,481	25,453
Treasury stock (913,836,325 at December 31, 2012 and 568,719,202 at December 31, 2011, at cost)	(32,888)	(20,750)
Accumulated other comprehensive income	5,236	3,180
Noncontrolling interest	333	263
Total stockholders' equity	92,695	105,797
Total Liabilities and Stockholders' Equity	$ 272,315	$ 270,442

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Share-Based Payments (Narrative) (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based payment arrangements Income tax benefits recognized	$ 195	$ 187	$ 196
Number of authorized shares of common stock for share-based payment arrangements (in shares)	111
Total unrecognized compensation cost related to nonvested share-based payment arrangements granted	314
Weighted-average period to recognize the cost (years) - nonvested units	1 year 11 months 26 days
Total fair value of shares vested during the year - nonvested units	333	360	397
Cash proceeds from exercise of stock options	$ 517	$ 250	$ 55
Performance Stock Units [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	3 years 0 months 0 days
Restricted Stock Units | Minimum Vesting Period [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	2 years 0 months 0 days
Restricted Stock Units | Maximum Vesting Period [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	7 years 0 months 0 days
Other Nonvested Stock Units [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	3 years 0 months 0 days

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Summary Of Significant Accounting Policies

12 Months Ended

Dec. 31, 2012

Summary Of Significant Accounting Policies

Summary Of Significant Accounting Policies

NOTE 1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation Throughout this document, AT&T Inc. is referred to as “AT&T,” “we” or the “Company.” The consolidated financial statements include the accounts of the Company and our majority-owned subsidiaries and affiliates. Our subsidiaries and affiliates operate in the communications services industry both domestically and internationally, providing wireless communications services, local exchange services, long-distance services,data/broadband and Internet services, video services, telecommunications equipment, managed networking and wholesale services.During 2012, we sold our Advertising Solutions segment (see Note 4).

All significant intercompany transactions are eliminated in the consolidation process. Investments in partnerships and less than majority-owned subsidiaries where we have significant influence are accounted for under the equity method. Earnings from certain foreign equity investments accounted for using the equity method are included for periods ended within up to one month of our year end (see Note 7). We also record our proportionate share of our equity method investees' other comprehensive income (OCI) items, including actuarial gains and losses on pension and other postretirement benefit obligations.

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

Income TaxesWe provide deferred income taxes for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the computed tax basis of those assets and liabilities. We provide valuation allowances against the deferred tax assets for which the realization is uncertain. We review these items regularly in light of changes in federal and state tax laws and changes in our business.

We report, on a net basis, taxes imposed by governmental authorities on revenue-producing transactions between us and our customers in our consolidated statements of income.

Cash and Cash Equivalents Cash and cash equivalents include all highly-liquid investments with original maturities of three months or less. The carrying amounts approximate fair value. At December 31, 2012, we held $482 in cash and $4,386in money market funds and other cash equivalents.

Revenue Recognition Revenues derived from wireless, local telephone, long distance, data and video services are recognized when services are provided. This is based upon either usage (e.g., minutes of traffic/bytes of data processed), period of time (e.g., monthly service fees) or other established fee schedules. Our wireless service revenues are billed either in advance, arrears or are prepaid.

We record an estimated revenue reduction for future adjustments to customer accounts, other than bad debt expense, at the time revenue is recognized based on historical experience. Service revenues also include billings to our customers for various regulatory fees imposed on us by governmental authorities. Cash incentives given to customers are recorded as a reduction of revenue. When required as part of providing service, revenues and associated expenses related to nonrefundable, upfront service activation and setup fees are deferred and recognized over the associated service contract period or customer life. Associated expenses are deferred only to the extent of such deferred revenue. For contracts that involve the bundling of services, revenue is allocated to the services based on their relative selling price, subject to the requirement that revenue recognized is limited to the amounts already received from the customer that are not contingent upon the delivery of additional products or services to the customer in the future. We record the sale of equipment to customers as gross revenue when we are the primary obligor in the arrangement, when title is passed and when the products are accepted by customers. For agreements involving the resale of third-party services in which we are not considered the primary obligor of the arrangement, we record the revenue net of the associated costs incurred. For contracts in which we provide customers with an indefeasible right to use network capacity, we recognize revenue ratably over the stated life of the agreement.

Traffic Compensation Expense We use various estimates and assumptions to determine the amount of traffic compensation expenses recognized during any reporting period. Switched traffic compensation costs are accrued utilizing estimated rates and volumes by product, formulated from historical data and adjusted for known rate changes. Such estimates are adjusted monthly to reflect newly available information, such as rate changes and new contractual agreements. Bills reflecting actual incurred information are generally not received within threemonths subsequent to the end of the reporting period, at which point a final adjustment is made to the accrued switched traffic compensation expense. Dedicated traffic compensation costs are estimated based on the number of circuits and the average projected circuit costs.

Allowance for Doubtful AccountsWerecord an expense to maintain an allowance for doubtful accounts for estimated losses that result from the failure or inability of our customers to make required payments. When determining the allowance, we consider the probability of recoverability of accounts receivable based on past experience, taking into account current collection trends as well as general economic factors, including bankruptcy rates. Credit risks are assessed based on historical write-offs, net of recoveries, as well as an analysis of the aged accounts receivable balances with allowances generally increasing as the receivable ages. Accounts receivable may be fully reserved for when specific collection issues are known to exist, such as pending bankruptcy or catastrophes.

Inventory Inventories, which are included in “Other current assets” on our consolidated balance sheets, were $1,036 at December 31, 2012, and $1,188at December 31, 2011. Wireless handsets and accessories, which are valued at the lower of cost or market (determined using current replacement cost) were $888 as of December 31, 2012, and $1,082 as of December 31, 2011. The remainder of our inventory includes new and reusable supplies and network equipment of our local telephone operations, which are stated principally at average original cost, or specific costs in the case of large individual items. Inventories of our other subsidiaries are stated at the lower of cost or market.

Property, Plant and Equipment Property, plant and equipment is stated at cost, except for assets acquired using acquisition accounting, which are initially recorded at fair value (see Note 5). The cost of additions and substantial improvements to property, plant and equipment is capitalized. The cost of maintenance and repairs of property, plant and equipment is charged to operating expenses. Property, plant and equipment costs are depreciated using straight-line methods over their estimated economic lives. Certain subsidiaries follow composite group depreciation methodology. Accordingly, when a portion of their depreciable property, plant and equipment is retired in the ordinary course of business, the gross book value is reclassified to accumulated depreciation, and no gain or loss is recognized on the disposition of these assets.

Property, plant and equipment is reviewed for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. We recognize an impairment loss when the carryingamount of a long-lived asset is not recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset.

The fair value of a liability for an asset retirement obligation is recorded in the period in which it is incurred if a reasonable estimate of fair value can be made. In periods subsequent to initial measurement, we recognize period-to-period changes in the liability resulting from the passage of time and revisions to either the timing or the amount of the original estimate. The increase in the carrying value of the associated long-lived asset is depreciated over the corresponding estimated economic life.

Software Costs It is our policy to capitalize certain costs incurred in connection with developing or obtaining internal-use software. Capitalized software costs are included in “Property, Plant and Equipment” on our consolidated balance sheets and are primarily amortized over a three-year period. In addition, there is certain network software that allows the equipment to provide the features and functions unique to the AT&T network, which we include in the cost of the equipment categories for financial reporting purposes.

Goodwill and Other Intangible Assets AT&T has four major classes of intangible assets: goodwill, Federal Communications Commission (FCC) licenses, other indefinite-lived intangible assets, made up predominately of the AT&T brand, and various other finite-lived intangible assets.

Goodwill represents the excess of consideration paid over the fair value of net assets acquired in business combinations. FCC licenses provide us with the exclusive right to utilize certain radio frequency spectrum to provide wireless communications services. While FCC licenses are issued for a fixed period of time (generally 10 years), renewals of FCC licenses have occurred routinely and at nominal cost. Moreover, we have determined that there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful lives of our FCC licenses. We acquired the rights to the AT&T and other brand names in previous acquisitions. We have the effective ability to retain these exclusive rights permanently at a nominal cost.

Goodwill, FCC licenses and other indefinite-lived intangible assets are not amortized but are tested at least annually for impairment. The testing is performed on the value as of October 1 each year, and compares the book value of the assets to their fair value.Goodwill is tested by comparing the book value of each reporting unit, deemed to be our principal operating segments (Wireless and Wireline), to the fair value of those reporting units calculated under a discounted cash flow approach as well as amarket multiple approach. FCC licenses are tested for impairment on an aggregate basis, consistent with the management of the business on a national scope. We perform our test of the fair values of FCC licenses using a discounted cash flow model. Brand names are tested by comparing the book value to a fair value calculated using a discounted cash flow approach on a presumed royalty rate derived from the revenues related to the brand name. The fair value measurements used are considered Level 3 under the Fair Value Measurement and Disclosure framework (see Note 9).

Intangible assets that have finite useful lives are amortized over their useful lives (see Note 6). Customer lists and relationships are amortized using primarily the sum-of-the-months-digits method of amortization over the expected period in which those relationships are expected to contribute to our future cash flows. The remaining finite-lived intangible assets are generally amortized using the straight-line method of amortization.

Advertising Costs We expense advertising costs for advertising products and services or for promoting our corporate image as we incur them (see Note 14).

Foreign Currency Translation We are exposed to foreign currency exchange risk through our foreign affiliates and equity investments in foreign companies. Our foreign subsidiaries and foreign investments generally report their earnings in their local currencies. We translate our share of their foreign assets and liabilities at exchange rates in effect at the balance sheet dates. We translate our share of their revenues and expenses using average rates during the year. The resulting foreign currency translation adjustments are recorded as a separate component of accumulated other comprehensive income (accumulated OCI) in the accompanying consolidated balance sheets. We do not hedge foreign currency translation risk in the net assets and income we report from these sources. However, we do hedge a portion of the foreign currency exchange risk involved in anticipation of highly probable foreign currency-denominated transactions, which we explain further in our discussion of our methods of managing our foreign currency risk (see Note 9).

Employee Separations We established obligations for expected termination benefits provided under existing plans to former or inactive employees after employment but before retirement. At December 31, 2012, we had severance accruals of $120 and at December 31, 2011, we had severance accruals of $335. The decline was primarily due to payments during the year.

Pension and Other Postretirement Benefits See Note 11 for a comprehensive discussion of our pension and postretirement benefit expense, including a discussion of the actuarial assumptions and our policy for recognizing the associated gains and losses.

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Debt (Narrative) (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended			11 Months Ended		11 Months Ended				11 Months Ended					12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Dec. 11, 2011 Four Year Agreement [Member]	Dec. 31, 2012 Four Year Agreement [Member]	Dec. 11, 2011 Four Year Agreement [Member] S&P A+/Fitch A+/Moody's A1 credit rating or better	Dec. 11, 2011 Four Year Agreement [Member] S&P A/Fitch A/Moody's A2 credit rating	Dec. 11, 2011 Four Year Agreement [Member] S&P A-/Fitch A-/Moody's A3 credit rating or below	Dec. 11, 2011 Four Year Agreement [Member] Default Scenario [Member]	Dec. 11, 2011 Five Year Agreement [Member]	Dec. 11, 2011 Five Year Agreement [Member] S&P A+/Fitch A+/Moody's A1 credit rating or better	Dec. 11, 2011 Five Year Agreement [Member] S&P A/Fitch A/Moody's A2 credit rating	Dec. 11, 2011 Five Year Agreement [Member] S&P A-/Fitch A-/Moody's A3 credit rating or below	Dec. 11, 2011 Five Year Agreement [Member] Default Scenario [Member]	Dec. 31, 2012 Four Point Three Percent Global Notes Due In Two Zero Four Two [Member] Replacement Debt [Member]	Dec. 31, 2012 Four Point Three Five Percent Global Notes Due In Two Zero Four Five [Member] Replacement Debt [Member]	Dec. 31, 2012 Various Notes [Member] Existing Debt [Member]	Dec. 31, 2012 Private Debt Exchange [Member] Existing Debt [Member]	Dec. 31, 2012 Zero Coupon [Member]	Dec. 31, 2022 Zero Coupon [Member]	Dec. 31, 2007 Zero Coupon [Member]
Debt Instrument [Line Items]
Annual put reset securities issued - principal amount	$ 1,000
Annual put reset securities issued - maturity date	2021-04-30
Debt instrument - principal amount	13,569																				500
Debt instrument - redemption amount	8,083																			1,030
Debt instruments - maturity date																			May 31, 2022
Debt instrument - proceeds from issuance	13,486	7,936	2,235												1,956	3,044
Debt instument - stated percentage rate															4.30%	4.35%
Repayment of long-term debt	(8,733)	(7,574)	(9,294)
Early redemption of long-term debt	6,200																4,099
Credit agreement - expiration date				Dec. 11, 2016						Dec. 11, 2017
Credit agreement - potential extension of term (years)				1						1
Credit agreement - potential additional extension of term (years)				2						2
Credit agreement - minimum amount of other debt that would trigger cross-default provisions if not paid when due and accelerated				400						400
Credit agreement - minimum amount of money judgment in favor of creditor that would trigger cross-default provisions				400						400
Credit agreement - change in control (beneficial ownership percentage) (in hundredths)				50.00%						50.00%
Credit agreement - minimum lender approval (percentage) for extension of term				50.00%						50.00%
Credit agreement - interest rate spread above Fed funds rate (in hundredths)				0.50%						0.50%
Credit agreement - base rate				EITHER 1) one-month, three-month, or six-month London interbank offered rate (LIBOR) OR 2) highest of Citibank prime rate, 0.5% premium above Fed funds rate, and one-month LIBOR plus 1.00%						EITHER 1) one-month, three-month, or six-month London interbank offered rate (LIBOR) OR 2) highest of Citibank prime rate, 0.5% premium above Fed funds rate, and one-month LIBOR plus 1.00%
Credit agreement - basis spread of variable rate				1.00%		0.565%	0.68%	0.91%	2.00%	1.00%	0.565%	0.68%	0.91%	2.00%
Credit agreement - minimum borrowing capacity				0						0
Credit agreement - term				4 years						5 years
Credit agreement - maximum borrowing capacity				5,000						3,000
Credit agreement - additional borrowing capacity beyond current limit				2,000						2,000
Credit agreement - advances outstanding					0					0
Ratio of debt to EBITDA covenant				3.0						3.0
Credit agreement - initiation date				Dec. 11, 2012
Credit agreement - change in control period (months)				24						24
New debt instruments - weighted average maturity period	12 years 0 months 0 days
Debt exchange - cash premium																		$ 650
Notes and debentures interest rates, Minimum																	6.00%
Notes and debentures interest rates, Maximum																	8.75%
Credit agreement - commitment fee percentage						0.06%	0.07%	0.09%			0.06%	0.07%	0.09%
Weighted average interest rate - for long-term debt redemptions during current period	5.58%
Weighted average interest rate - for long-term debt issuances (not from exchange) during period	2.54%

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Pension And Postretirement Benefits (One Percentage - Point Changed In Combined Medical And Dental Cost Trend Rate) (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012
Pension And Postretirement Benefits
Effect of one percentage-point increase on service and interest cost components	$ 260
Effect of one percentage-point decrease on service and interest cost components	(208)
Effect of one percentage-point increase on accumulated postretirement benefit obligation	3,676
Effect of one percentage-point decrease on accumulated postretirement benefit obligation	$ (3,362)

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Fair Value Measurements And Disclosure (Effect Of Derivatives On The Consolidated Statements Of Income) (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Fair Value Hedging Relationships [Member] | Interest Rate Swaps [Member] | Interest Expense [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Gain (Loss) on interest rate swaps	$ (179)	$ 10	$ 125
Gain (Loss) on long-term debt	179	(10)	(125)
Cash Flow Hedging [Member] | Cross-Currency Swaps [Member] | Other Income Expense [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Gain (Loss) recognized in accumulated Other Comprehensive Income	432	(219)	(201)
Cash Flow Hedging [Member] | Interest Rate Locks [Member] | Other Income Expense [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Gain (Loss) recognized in accumulated Other Comprehensive Income	0	(167)	(320)
Income (expense) reclassified from accumulated Other Comprehensive Income into income	(43)	(23)	(19)
Cash Flow Hedging [Member] | Foreign Exchange Contracts [Member] | Other Income Expense [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Gain (Loss) recognized in accumulated Other Comprehensive Income	$ 5	$ (10)	$ 5

XML

Summary Of Significant Accounting Policies (Policy)

12 Months Ended

Dec. 31, 2012

Summary Of Significant Accounting Policies

Basis Of Presentation

Basis of Presentation Throughout this document, AT&T Inc. is referred to as “AT&T,” “we” or the “Company.” The consolidated financial statements include the accounts of the Company and our majority-owned subsidiaries and affiliates. Our subsidiaries and affiliates operate in the communications services industry both domestically and internationally, providing wireless communications services, local exchange services, long-distance services,data/broadband and Internet services, video services, telecommunications equipment, managed networking and wholesale services.During 2012, we sold our Advertising Solutions segment (see Note 4).

All significant intercompany transactions are eliminated in the consolidation process. Investments in partnerships and less than majority-owned subsidiaries where we have significant influence are accounted for under the equity method. Earnings from certain foreign equity investments accounted for using the equity method are included for periods ended within up to one month of our year end (see Note 7). We also record our proportionate share of our equity method investees' other comprehensive income (OCI) items, including actuarial gains and losses on pension and other postretirement benefit obligations.

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

Employee Separations

Employee Separations We established obligations for expected termination benefits provided under existing plans to former or inactive employees after employment but before retirement. At December 31, 2012, we had severance accruals of $120 and at December 31, 2011, we had severance accruals of $335. The decline was primarily due to payments during the year.

Income Taxes

Income TaxesWe provide deferred income taxes for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the computed tax basis of those assets and liabilities. We provide valuation allowances against the deferred tax assets for which the realization is uncertain. We review these items regularly in light of changes in federal and state tax laws and changes in our business.

We report, on a net basis, taxes imposed by governmental authorities on revenue-producing transactions between us and our customers in our consolidated statements of income.

Cash And Cash Equivalents

Cash and Cash Equivalents Cash and cash equivalents include all highly-liquid investments with original maturities of three months or less. The carrying amounts approximate fair value. At December 31, 2012, we held $482 in cash and $4,386in money market funds and other cash equivalents.

Revenue Recognition

Revenue Recognition Revenues derived from wireless, local telephone, long distance, data and video services are recognized when services are provided. This is based upon either usage (e.g., minutes of traffic/bytes of data processed), period of time (e.g., monthly service fees) or other established fee schedules. Our wireless service revenues are billed either in advance, arrears or are prepaid.

We record an estimated revenue reduction for future adjustments to customer accounts, other than bad debt expense, at the time revenue is recognized based on historical experience. Service revenues also include billings to our customers for various regulatory fees imposed on us by governmental authorities. Cash incentives given to customers are recorded as a reduction of revenue. When required as part of providing service, revenues and associated expenses related to nonrefundable, upfront service activation and setup fees are deferred and recognized over the associated service contract period or customer life. Associated expenses are deferred only to the extent of such deferred revenue. For contracts that involve the bundling of services, revenue is allocated to the services based on their relative selling price, subject to the requirement that revenue recognized is limited to the amounts already received from the customer that are not contingent upon the delivery of additional products or services to the customer in the future. We record the sale of equipment to customers as gross revenue when we are the primary obligor in the arrangement, when title is passed and when the products are accepted by customers. For agreements involving the resale of third-party services in which we are not considered the primary obligor of the arrangement, we record the revenue net of the associated costs incurred. For contracts in which we provide customers with an indefeasible right to use network capacity, we recognize revenue ratably over the stated life of the agreement.

Traffic Compensation Expense

Traffic Compensation Expense We use various estimates and assumptions to determine the amount of traffic compensation expenses recognized during any reporting period. Switched traffic compensation costs are accrued utilizing estimated rates and volumes by product, formulated from historical data and adjusted for known rate changes. Such estimates are adjusted monthly to reflect newly available information, such as rate changes and new contractual agreements. Bills reflecting actual incurred information are generally not received within threemonths subsequent to the end of the reporting period, at which point a final adjustment is made to the accrued switched traffic compensation expense. Dedicated traffic compensation costs are estimated based on the number of circuits and the average projected circuit costs.

Allowance For Doubtful Accounts

Allowance for Doubtful Accounts We record an expense to maintain an allowance for doubtful accounts for estimated losses that result from the failure or inability of our customers to make required payments. When determining the allowance, we consider the probability of recoverability of accounts receivable based on past experience, taking into account current collection trends as well as general economic factors, including bankruptcy rates. Credit risks are assessed based on historical write-offs, net of recoveries, as well as an analysis of the aged accounts receivable balances with allowances generally increasing as the receivable ages. Accounts receivable may be fully reserved for when specific collection issues are known to exist, such as pending bankruptcy or catastrophes.

Inventory

Inventory Inventories, which are included in “Other current assets” on our consolidated balance sheets, were $1,036 at December 31, 2012, and $1,188at December 31, 2011. Wireless handsets and accessories, which are valued at the lower of cost or market (determined using current replacement cost) were $888 as of December 31, 2012, and $1,082 as of December 31, 2011. The remainder of our inventory includes new and reusable supplies and network equipment of our local telephone operations, which are stated principally at average original cost, or specific costs in the case of large individual items. Inventories of our other subsidiaries are stated at the lower of cost or market.

Property, Plant and Equipment

Property, Plant and Equipment Property, plant and equipment is stated at cost, except for assets acquired using acquisition accounting, which are initially recorded at fair value (see Note 5). The cost of additions and substantial improvements to property, plant and equipment is capitalized. The cost of maintenance and repairs of property, plant and equipment is charged to operating expenses. Property, plant and equipment costs are depreciated using straight-line methods over their estimated economic lives. Certain subsidiaries follow composite group depreciation methodology. Accordingly, when a portion of their depreciable property, plant and equipment is retired in the ordinary course of business, the gross book value is reclassified to accumulated depreciation, and no gain or loss is recognized on the disposition of these assets.

Property, plant and equipment is reviewed for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. We recognize an impairment loss when the carryingamount of a long-lived asset is not recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset.

The fair value of a liability for an asset retirement obligation is recorded in the period in which it is incurred if a reasonable estimate of fair value can be made. In periods subsequent to initial measurement, we recognize period-to-period changes in the liability resulting from the passage of time and revisions to either the timing or the amount of the original estimate. The increase in the carrying value of the associated long-lived asset is depreciated over the corresponding estimated economic life.

Software Costs

Software Costs It is our policy to capitalize certain costs incurred in connection with developing or obtaining internal-use software. Capitalized software costs are included in “Property, Plant and Equipment” on our consolidated balance sheets and are primarily amortized over a three-year period. In addition, there is certain network software that allows the equipment to provide the features and functions unique to the AT&T network, which we include in the cost of the equipment categories for financial reporting purposes.

Goodwill And Other Intangible Assets

Goodwill and Other Intangible Assets AT&T has four major classes of intangible assets: goodwill, Federal Communications Commission (FCC) licenses, other indefinite-lived intangible assets, made up predominately of the AT&T brand, and various other finite-lived intangible assets.

Goodwill represents the excess of consideration paid over the fair value of net assets acquired in business combinations. FCC licenses provide us with the exclusive right to utilize certain radio frequency spectrum to provide wireless communications services. While FCC licenses are issued for a fixed period of time (generally 10 years), renewals of FCC licenses have occurred routinely and at nominal cost. Moreover, we have determined that there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful lives of our FCC licenses. We acquired the rights to the AT&T and other brand names in previous acquisitions. We have the effective ability to retain these exclusive rights permanently at a nominal cost.

Goodwill, FCC licenses and other indefinite-lived intangible assets are not amortized but are tested at least annually for impairment. The testing is performed on the value as of October 1 each year, and compares the book value of the assets to their fair value.Goodwill is tested by comparing the book value of each reporting unit, deemed to be our principal operating segments (Wireless and Wireline), to the fair value of those reporting units calculated under a discounted cash flow approach as well as amarket multiple approach. FCC licenses are tested for impairment on an aggregate basis, consistent with the management of the business on a national scope. We perform our test of the fair values of FCC licenses using a discounted cash flow model. Brand names are tested by comparing the book value to a fair value calculated using a discounted cash flow approach on a presumed royalty rate derived from the revenues related to the brand name. The fair value measurements used are considered Level 3 under the Fair Value Measurement and Disclosure framework (see Note 9).

Intangible assets that have finite useful lives are amortized over their useful lives (see Note 6). Customer lists and relationships are amortized using primarily the sum-of-the-months-digits method of amortization over the expected period in which those relationships are expected to contribute to our future cash flows. The remaining finite-lived intangible assets are generally amortized using the straight-line method of amortization.

Advertising Costs

Advertising Costs We expense advertising costs for advertising products and services or for promoting our corporate image as we incur them (see Note 14).

Foreign Currency Translation

Foreign Currency Translation We are exposed to foreign currency exchange risk through our foreign affiliates and equity investments in foreign companies. Our foreign subsidiaries and foreign investments generally report their earnings in their local currencies. We translate our share of their foreign assets and liabilities at exchange rates in effect at the balance sheet dates. We translate our share of their revenues and expenses using average rates during the year. The resulting foreign currency translation adjustments are recorded as a separate component of accumulated other comprehensive income (accumulated OCI) in the accompanying consolidated balance sheets. We do not hedge foreign currency translation risk in the net assets and income we report from these sources. However, we do hedge a portion of the foreign currency exchange risk involved in anticipation of highly probable foreign currency-denominated transactions, which we explain further in our discussion of our methods of managing our foreign currency risk (see Note 9).

Pension And Other Postretirement Benefits

Pension and Other Postretirement Benefits See Note 11 for a comprehensive discussion of our pension and postretirement benefit expense, including a discussion of the actuarial assumptions and our policy for recognizing the associated gains and losses.

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Income Taxes (Reconciliation Of Income Tax Expense Based On Federal Statutory Rate To Amount Per Effective Tax Rate) (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Income Taxes
Taxes computed at federal statutory rate	$ 3,654	$ 2,351	$ 6,383
State and local income taxes - net of federal income tax benefit	85	210	441
Goodwill Impairment	0	961	0
Healthcare Reform Legislation	0	0	917
IRS Settlement - 2008 Wireless Restructuring	0	0	(8,300)
Other - net	(839)	(990)	(603)
Total	$ 2,900	$ 2,532	$ (1,162)
Effective Tax Rate	27.80%	37.70%	(6.40%)
Statutory federal income tax rate	35.00%

XML

Income Taxes (Tables)

12 Months Ended

Dec. 31, 2012

Income Taxes

Components Of Deferred Tax Liabilities (Assets)

		2012		2011
Depreciation and amortization	$	41,411	$	39,367
Intangibles (nonamortizable)		1,874		1,897
Employee benefits		(13,350)		(14,950)
Net operating loss and other carryforwards		(2,167)		(1,502)
Other – net		(1,199)		(1,451)
Subtotal		26,569		23,361
Deferred tax assets valuation allowance		886		917
Net deferred tax liabilities	$	27,455	$	24,278
Net long-term deferred tax liabilities	$	28,491	$	25,748
Less: Net current deferred tax assets		(1,036)		(1,470)
Net deferred tax liabilities	$	27,455	$	24,278

Changes In Unrecognized Tax Benefits Balance For Federal, State, And Foreign Tax

Federal, State and Foreign Tax		2012		2011
Balance at beginning of year	$	4,541	$	4,360
Increases for tax positions related to the current year		791		217
Increases for tax positions related to prior years		991		848
Decreases for tax positions related to prior years		(1,426)		(1,066)
Lapse of statute of limitations		(29)		-
Settlements		(75)		182
Balance at end of year		4,793		4,541
Accrued interest and penalties		977		1,312
Gross unrecognized income tax benefits		5,770		5,853
Less: Deferred federal and state income tax benefits		(610)		(797)
Less: Tax attributable to timing items included above		(2,448)		(2,331)
Total UTB that, if recognized, would impact the
effective income tax rate as of the end of the year	$	2,712	$	2,725

Components Of Income Tax Expense

		2012		2011		2010
Federal:
Current	$	451	$	(420)	$	307
Deferred – net		2,256		2,555		(2,105)
		2,707		2,135		(1,798)
State, local and foreign:
Current		702		23		141
Deferred – net		(509)		374		495
		193		397		636
Total	$	2,900	$	2,532	$	(1,162)

Reconciliation Of Income Tax Expense Based On Federal Statutory Rate To Amount Per Effective Tax Rate

		2012			2011			2010
Taxes computed at federal statutory rate	$	3,654		$	2,351		$	6,383
Increases (decreases) in income taxes resulting from:
State and local income taxes – net of federal income tax benefit		85			210			441
Goodwill Impairment		-			961			-
Healthcare Reform Legislation		-			-			917
IRS Settlement – 2008 Wireless Restructuring		-			-			(8,300)
Other – net		(839)			(990)			(603)
Total	$	2,900		$	2,532		$	(1,162)
Effective Tax Rate		27.8	%		37.7	%		(6.4)	%

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Pension And Postretirement Benefits

12 Months Ended

Dec. 31, 2012

Pension And Postretirement Benefits

Pension And Postretirement Benefits

NOTE 11.PENSION AND POSTRETIREMENT BENEFITS

Pension Benefits and Postretirement Benefits

Substantially all of our U.S. employees are covered by one of our noncontributory pension and death benefit plans. Our newly hired management employees participate in a cash balance pension program, while longer-service management employees participate in a pension program that has a traditional pension formula (i.e., a stated percentage of employees' adjusted career income) and a frozen cash balance, or a program that has a defined lump sum formula. Nonmanagement employees' pension benefits are generally calculated using one of two formulas: benefits are based on a flat dollar amount per year according to job classification or are calculated under a cash balance plan that is based on an initial cash balance amount and a negotiated annual pension band and interest credits. Most nonmanagement employees can elect to receive their pension benefits in either a lump sum payment or an annuity.

We also provide a variety of medical, dental and life insurance benefits to certain retired employees under various plans and accrue actuariallydetermined postretirement benefit costs as active employees earn these benefits.

During 2012, approximately 90,000 collectively bargained employees ratified new agreements. For the vast majority of covered employees, the agreements provided for a pension band increase of 1 percent for each year of the agreement. These agreements also provide for continued health care coverage with a modest increase to employee costs over the agreement term. There were also modest increases to retiree costs for continued health care coverage for retirees.

During 2012, we transferred the funding of the payment of postretirement death benefits not already in the Voluntary Employee Benefit Association (VEBA) trust from the pension trust to the postretirement VEBA trust.

In 2011, we announced that beginning in 2013, as a result of federal healthcare reform, we would begin contracting with a Medicare Part D plan on a group basis to provide prescription drug benefits to certain Medicare eligible retirees. This plan change resulted in the adoption of plan amendments during the fourth quarter of 2011, and will allow the Company to be eligible for greater Medicare Part D plan subsidies over time.

Obligations and Funded Status

For defined benefit pension plans, the benefit obligation is the “projected benefit obligation,” the actuarial present value, as of our December 31 measurement date, of all benefits attributed by the pension benefit formula to employee service rendered to that date. The amount of benefit to be paid depends on a number of future events incorporated into the pension benefit formula, including estimates of the average life of employees/survivors and average years of service rendered. It is measured based on assumptions concerning future interest rates and future employee compensation levels.

For postretirement benefit plans, the benefit obligation is the “accumulated postretirement benefit obligation,” the actuarial present value as of a date of all future benefits attributed under the terms of the postretirement benefit plan to employee service rendered to the valuation date.

The following table presents this reconciliation and shows the change in the projected benefit obligation for the years ended December 31:

	Pension Benefits				Postretirement Benefits
	2012		2011		2012		2011
Benefit obligation at beginning of year	$	56,110	$	53,917	$	34,953	$	36,638
Service cost - benefits earned during the period		1,216		1,186		336		362
Interest cost on projected benefit obligation		2,800		2,958		1,725		2,051
Amendments		(905)		-		(2,768)		(1,830)
Actuarial loss		6,707		2,972		4,844		478
Special termination benefits		12		27		5		4
Benefits paid		(5,729)		(4,950)		(2,608)		(2,750)
Transfer for sale of Advertising Solutions segment		(149)		-		(207)		-
Plan transfers		(1,151)		-		1,151		-
Benefit obligation at end of year	$	58,911	$	56,110	$	37,431	$	34,953

The following table presents the change in the value of plan assets for the years ended December 31 and the plans' funded status at December 31:

		Pension Benefits				Postretirement Benefits
		2012		2011		2012		2011
Fair value of plan assets at beginning of year		$	45,907	$	47,621	$	9,890	$	12,747
Actual return on plan assets			5,041		2,238		1,266		(224)
Benefits paid1			(5,729)		(4,950)		(1,842)		(2,633)
Contributions			3		1,000		-		-
Transfer for sale of Advertising Solutions segment			(165)		-		(19)		-
Other			3		(2)		-		-
Fair value of plan assets at end of year			45,060		45,907		9,295		9,890
Unfunded status at end of year2		$	(13,851)	$	(10,203)	$	(28,136)	$	(25,063)
1	At our discretion, certain postretirement benefits may be paid from AT&T cash accounts, which does not reduce
	VEBA assets. Future benefit payments may be made from VEBA trusts and thus reduce those asset balances.
2	Funded status is not indicative of our ability to pay ongoing pension benefits or of our obligation to fund retirement trusts.
	Required pension funding is determined in accordance with ERISA regulations.

Amounts recognized on our consolidated balance sheets at December 31 are listed below:

		Pension Benefits				Postretirement Benefits
		2012		2011		2012		2011
Current portion of employee benefit obligation1		$	-	$	-	$	(2,116)	$	(2,288)
Employee benefit obligation2			(13,851)		(10,203)		(26,020)		(22,775)
Net amount recognized		$	(13,851)	$	(10,203)	$	(28,136)	$	(25,063)
1	Included in "Accounts payable and accrued liabilities."
2	Included in "Postemployment benefit obligation."

Prior service credits included in our accumulated OCI that have not yet been recognized in net periodic benefit cost were $1,035for pension and $7,688 for postretirement benefits at December 31, 2012, and $149 for pension and $5,896 for postretirement benefits at December 31, 2011.

The accumulated benefit obligation for our pension plans represents the actuarial present value of benefits based on employee service and compensation as of a certain date and does not include an assumption about future compensation levels. The accumulated benefit obligation for our pension plans was $57,010 at December 31, 2012, and $53,640 at December 31, 2011.

Net Periodic Benefit Cost and Other Amounts Recognized in Other Comprehensive Income

Our combined net pension and postretirement cost recognized in our consolidated statements of income was $10,257, $7,288 and $3,750 for the years ended December 31, 2012,2011 and 2010.A portion of pension and postretirement benefit costs is capitalized as part of the benefit load on internal construction and capital expenditures, providing a small reduction in the net expense recorded.

The following tables present the components of net periodic benefit obligation cost and other changes in plan assets and benefit obligations recognized in OCI:

Net Periodic Benefit Cost
		Pension Benefits						Postretirement Benefits
		2012		2011		2010		2012		2011		2010
Service cost – benefits earned during the period		$	1,216	$	1,186	$	1,075	$	336	$	362	$	348
Interest cost on projected benefit obligation			2,800		2,958		3,150		1,725		2,051		2,257
Expected return on assets			(3,520)		(3,690)		(3,775)		(811)		(1,040)		(943)
Amortization of prior service cost (credit)			(15)		(15)		(16)		(927)		(694)		(624)
Actuarial (gain) loss			5,206		4,498		1,768		4,247		1,672		510
Net pension and postretirement cost1		$	5,687	$	4,937	$	2,202	$	4,570	$	2,351	$	1,548
1	During 2012, 2011 and 2010, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 reduced postretirement
	benefit cost by $142, $280 and $237. This effect is included in several line items above.

Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income
	Pension Benefits						Postretirement Benefits
	2012		2011		2010		2012		2011		2010
Prior service (cost) credit	$	559	$	-	$	-	$	1,686	$	1,134	$	459
Amortization of prior service cost (credit)		(10)		(10)		(10)		(575)		(430)		(388)
Total recognized in other comprehensive (income) loss (net of tax)	$	549	$	(10)	$	(10)	$	1,111	$	704	$	71

The estimated prior service credits that will be amortized from accumulated OCI into net periodic benefit cost over the next fiscal year is $94for pension and $1,049 for postretirement benefits.

Assumptions

In determining the projected benefit obligation and the net pension and postemployment benefit cost, we used the following significant weighted-average assumptions:

	2012		2011		2010
Discount rate for determining projected benefit obligation at December 31	4.30	%	5.30	%	5.80	%
Discount rate in effect for determining net cost	5.30	%	5.80	%	6.50	%
Long-term rate of return on plan assets	8.25	%	8.25	%	8.50	%
Composite rate of compensation increase for determining projected benefit obligation	3.00	%	4.00	%	4.00	%
Composite rate of compensation increase for determining net pension cost (benefit)	4.00	%	4.00	%	4.00	%

Uncertainty in the securities markets and U.S. economy could result in investment returns less than those assumed.Should the securities markets decline or medical and prescription drug costs increase at a rate greater than assumed, we would expect increasing annual combined net pension and postretirement costs for the next several years. Should actual experience differ from actuarial assumptions, the projected pension benefit obligation and net pension cost and accumulated postretirement benefit obligation and postretirement benefit cost would be affected in future years.

Our expected return on plan assets is calculated using the actual fair value of plan assets.We recognize actual gains and losses on pension and postretirement plan assets immediately in our operating results. These gains and losses are measured annually as of December 31 and accordingly will be recorded during the fourth quarter, unless earlier remeasurements are required.

Discount Rate Our assumed discount rate of 4.30% at December 31, 2012, reflects the hypothetical rate at which the projected benefit obligations could be effectively settled or paid out to participants. We determined our discount rate based on a range of factors, including a yield curve composed of the rates of return on several hundred high-quality, fixedincome corporate bonds available at the measurement date and the related expected duration for the obligations. These bonds were all rated at least Aa3 or AA- by one of the nationally recognized statistical rating organizations, denominated in U.S. dollars, and neither callable, convertible nor index linked. For the year ended December 31, 2012, we decreased our discount rate by 1.00%, resulting in an increase in our pension plan benefit obligation of $7,030 and an increase in our postretirement benefit obligation of $4,546. For the year ended December 31, 2011, we decreased our discount rate by 0.50%, resulting in an increase in our pension plan benefit obligation of $3,384 and an increase in our postretirement benefit obligation of $2,114.

Expected Long-Term Rate of Return Our expected long-term rate of return on plan assets reflects the average rate of earnings expected on the funds invested, or to be invested, to provide for the benefits included in the projected benefit obligations. Our expected long-term rate of return on plan assets assumption was 8.25% for the year ended December 31, 2012. In 2013, due to the continued uncertainty in the securities markets, the U.S. economy and the plans' asset mix, we have lowered our expected long-term rate of return on plan assets to 7.75%. In setting the long-term assumed rate of return, management considers capital markets future expectations and the asset mix of the plans' investments. Actual long-term return can, in relatively stable markets, also serve as a factor in determining future expectations. We consider many factors that include, but are not limited to, historical returns on plan assets, current market information on long-term returns (e.g., long-term bond rates) and current and target asset allocations between asset categories. The target asset allocation is determined based on consultations with external investment advisers. If all other factors were to remain unchanged, we expect that a 0.50% decrease in the actual long-term rate of return would cause 2013 combined pension and postretirement cost to increase $260. However, any differences in the rate and actual returns will be included with the actuarial gain or loss recorded in the fourth quarter when our plans are remeasured.

Composite Rate of Compensation Increase Our expected composite rate of compensation increase cost of 3.00% in 2013 and 4.00% in 2012 reflects the long-term average rate of salary increases. Based on historic salary increase experience and management's expectations of future salary increases, we reduced our expected composite rate of compensation increase assumption from 4.00% to 3.00% in 2013.

Healthcare Cost Trend Our healthcare cost trend assumptions are developed based on historical cost data, the near-term outlook and an assessment of likely long-term trends. In addition to the healthcare cost trend in 2012, we assumed an annual 3.00% growth in administrative expenses and an annual 3.00% growth in dental claims. For 2013, we have assumed an annual 2.50% growth in administrative expenses. Our assumed annual healthcare cost trend rate for 2013 and 2012 is 5.00% and our ultimate trend rate is 5.00%.

A one percentage-point change in the assumed combined medical and dental cost trend rate would have the following effects:

		One Percentage-		One Percentage-
		Point Increase		Point Decrease
Increase (decrease) in total of service and interest cost components	$	260	$	(208)
Increase (decrease) in accumulated postretirement benefit obligation		3,676		(3,362)

Plan Assets

Plan assets consist primarily of private and public equity, government and corporate bonds, and real assets (real estate and natural resources). The asset allocations of the pension plans are maintained to meet ERISA requirements. Any plan contributions, as determined by ERISA regulations, are made to a pension trust for the benefit of plan participants. We have a required contribution to our pension plans for 2013 of approximately $300.

In October 2012, we filed an application with the U.S. Department of Labor (DOL) for approval to make a voluntary contribution of a preferred equity interest in our Mobility business to the trust used to pay qualified pension benefits, under plans sponsored by AT&T. The preferred equity interest is estimated to be valued at $9,500 upon contribution. We anticipate approval in 2013, and expect to make the contribution at that time. As currently proposed, the preferred equity interest will not be included in plan assets in our consolidated financial statements upon contribution, but will constitute a qualified plan asset for ERISA funding purposes. Final determination of whether it will qualify as a plan asset for financial reporting purposes is subject to the final terms of the preferred equity interest.

We maintain VEBA trusts to partially fund postretirement benefits; however, there are no ERISA or regulatory requirements that these postretirement benefit plans be funded annually.

The principal investment objectives are to ensure the availability of funds to pay pension and postretirement benefits as they become due under a broad range of future economic scenarios, to maximize long-term investment return with an acceptable level of risk based on our pension and postretirement obligations, and to be broadly diversified across and within the capital markets to insulate asset values against adverse experience in any one market. Each asset class has broadly diversified characteristics. Substantial biases toward any particular investing style or type of security are sought to be avoided by managing the aggregation of all accounts with portfolio benchmarks. Asset and benefit obligation forecasting studies are conducted periodically, generally every two to three years, or when significant changes have occurred in market conditions, benefits, participant demographics or funded status. Decisions regarding investment policy are made with an understanding of the effect of asset allocation on funded status, future contributions and projected expenses. The current asset allocation policy and risk level for the pension plan and VEBA assets are based on a study completed and approved during 2011.

The plans' weighted-average asset targets and actual allocations as a percentage of plan assets, including the notional exposure of future contracts by asset categories at December 31,are as follows:

	Pension Assets									Postretirement (VEBA) Assets
	Target					2012		2011		Target					2012		2011
Equity Securities:
Domestic	25	%	-	35	%	26	%	24	%	32	%	-	42	%	37	%	39	%
International	10	%	-	20	%	16		15		28	%	-	38	%	33		31
Fixed income securities	30	%	-	40	%	34		34		19	%	-	29	%	24		21
Real assets	6	%	-	16	%	11		11		0	%	-	6	%	1		1
Private equity	4	%	-	14	%	13		13		0	%	-	9	%	4		5
Other	0	%	-	5	%	-		3		0	%	-	7	%	1		3
Total						100	%	100	%						100	%	100	%

At December 31, 2012, AT&T securities represented less than 0.5% of assets held by our pension plans and VEBA trusts.

Investment Valuation

Investments are stated at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. See “Fair Value Measurements” for further discussion.

Investments in securities traded on a national securities exchange are valued at the last reported sales price on the last business day of the year. If no sale was reported on that date, they are valued at the last reported bid price. Investments in securities not traded on a national securities exchange are valued using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Shares of registered investment companies are valued based on quoted market prices, which represent the net asset value of shares held at year-end. Over-the-counter (OTC) securities and government obligations are valued at the bid price or the average of the bid and asked price on the last business day of the year from published sources where available and, if not available, from other sources considered reliable. Depending on the types and contractual terms of OTC derivatives, fair value is measured using valuation techniques, such as the Black-Scholes option pricing model, simulation models or a combination of various models.

Common/collective trust funds, pooled separate accounts, and other commingled (103-12) investment entities are valued at quoted redemption values that represent the net asset values of units held at year-end which management has determined approximates fair value.

Alternative investments, including investments in private equity, real estate, natural resources (included in real assets), mezzanine and distressed debt (included in partnerships/joint ventures), limited partnership interest, fixed income securities and hedge funds do not have readily available market values. These estimated fair values may differ significantly from the values that would have been used had a ready market for these investments existed, and such differences could be material. Alternative investments not having an established market are valued at fair value as determined by the investment managers. Private equity, mezzanine and distressed investments are often valued initially by the investment managers based upon cost. Thereafter, investment managers may use available market data to determine adjustments to carrying value based upon observations of the trading multiples of public companies considered comparable to the private companies being valued. Such market data used to determine adjustments to accounts for cash flows and company-specified issues include current operating performance and future expectations of the investments, changes in market outlook, and the third-party financing environment. Private equity partnership holdings may also include publicly held equity investments in liquid markets that are marked-to-market at quoted public values, subject to adjustments for large positions held. Real estate and natural resource direct investments are valued either at amounts based upon appraisal reports prepared by independent third-party appraisers or at amounts as determined by internal appraisals performed by the investment manager, which have been agreed to by an external valuation consultant. Fixed income securities valuation is based upon pricing provided by an external pricing service when such pricing is available. In the event a security is too thinly traded or narrowly held to be priced by such a pricing service, or the price furnished by such external pricing services is deemed inaccurate, the managers will then solicit broker/dealer quotes (spreads or prices). In cases where such quotes are available, fair value will be determined based solely upon such quotes provided. Managers will typically use a pricing matrix for determining fair value in cases where an approved pricing service or a broker/dealer is unable to provide a fair valuation for specific fixed-rate securities such as many private placements. New fixed-rate securities will be initially valued at cost at the time of purchase. Thereafter, each bond will be assigned a spread from a pricing matrix that will be added to current Treasury rates. The pricing matrix derives spreads for each bond based on external market data, including the current credit rating for the bonds, credit spreads to Treasuries for each credit rating, sector add-ons or credits, issue specific add-ons or credits as well as call or other options.

Purchases and sales of securities are recorded as of the trade date. Realized gains and losses on sales of securities are determined on the basis of average cost. Interest income is recognized on the accrual basis. Dividend income is recognized on the ex-dividend date.

Non-interest bearing cash and overdrafts are valued at cost, which approximates fair value.

Fair Value Measurements

See Note 9 “Fair Value Measurements and Disclosure” for a discussion of fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.

The following table sets forth by level, within the fair value hierarchy, the pension and postretirement assets and liabilities at fair value as of December 31, 2012

Pension Assets and Liabilities at Fair Value as of December 31, 2012
		Level 1		Level 2		Level 3		Total
Non-interest bearing cash		$	144	$	-	$	-	$	144
Interest bearing cash			56		235		-		291
Foreign currency contracts			-		1		-		1
Equity securities:
Domestic equities			8,291		-		-		8,291
International equities			6,361		29		-		6,390
Fixed income securities:
Asset-backed securities			-		543		14		557
Mortgage-backed securities			-		2,324		-		2,324
Collateralized mortgage-backed securities			-		311		-		311
Collateralized mortgage obligations/REMICS			-		523		1		524
Other Corporate and other bonds and notes			140		4,903		600		5,643
Government and municipal bonds			50		5,301		-		5,351
Private equity funds			-		-		5,797		5,797
Real estate and real assets			-		-		4,766		4,766
Commingled funds			-		4,927		426		5,353
Securities lending collateral			868		1,930		1		2,799
Receivable for variation margin			72		-		-		72
Assets at fair value			15,982		21,027		11,605		48,614
Investments sold short and other liabilities at fair value			563		7		-		570
Total plan net assets at fair value		$	15,419	$	21,020	$	11,605	$	48,044
Other assets (liabilities)1									(2,984)
Total Plan Net Assets								$	45,060
1	Other assets (liabilities) include amounts receivable, accounts payable and net adjustment for securities lending payable.

Postretirement Assets and Liabilities at Fair Value as of December 31, 2012
		Level 1		Level 2		Level 3		Total
Interest bearing cash		$	169	$	243	$	-	$	412
Equity securities:
Domestic equities			2,575		-		-		2,575
International equities			2,685		1		-		2,686
Fixed income securities:
Asset-backed securities			-		29		-		29
Collateralized mortgage-backed securities			-		79		-		79
Collateralized mortgage obligations			-		46		-		46
Other Corporate and other bonds and notes			1		383		17		401
Government and municipal bonds			22		598		-		620
Commingled funds			82		2,038		4		2,124
Private equity assets			-		-		343		343
Real assets			-		-		110		110
Securities lending collateral			544		81		-		625
Assets at fair value			6,078		3,498		474		10,050
Total plan net assets at fair value		$	6,078	$	3,498	$	474	$	10,050
Other assets (liabilities)1									(755)
Total Plan Net Assets								$	9,295
1	Other assets (liabilities) include amounts receivable, accounts payable and net adjustment for securities lending payable.

The tables below set forth a summary of changes in the fair value of the Level 3 pension and postretirement assets for the year ended December 31, 2012:

Pension Assets		Equities		Fixed Income Funds		Private Equity Funds		Real Estate and Real Assets		Total
Balance at beginning of year	$	4	$	824	$	5,931	$	5,213	$	11,972
Realized gains (losses)		(1)		16		459		165		639
Unrealized gains (losses)		1		33		32		10		76
Transfers in		-		120		12		24		156
Transfers out		-		(2)		-		-		(2)
Purchases		-		142		610		918		1,670
Sales		(4)		(91)		(1,247)		(1,564)		(2,906)
Balance at end of year	$	-	$	1,042	$	5,797	$	4,766	$	11,605

Postretirement Assets		Fixed Income Funds		Private Equity Funds		Real Assets		Total
Balance at beginning of year	$	24	$	437	$	124	$	585
Realized gains (losses)		-		58		16		74
Unrealized gains (losses)		-		(39)		(5)		(44)
Purchases		-		20		33		53
Sales		(3)		(133)		(58)		(194)
Balance at end of year	$	21	$	343	$	110	$	474

The following tables set forth by level, within the fair value hierarchy, the pension and postretirement assets and liabilities at fair value as of December 31, 2011:

Pension Assets and Liabilities at Fair Value as of December 31, 2011
		Level 1		Level 2		Level 3		Total
Non-interest bearing cash		$	64	$	1	$	-	$	65
Interest bearing cash			1		-		-		1
Foreign currency contracts			-		6		-		6
Equity securities:
Domestic equities			8,299		5		-		8,304
International equities			5,873		62		4		5,939
Fixed income securities:
Asset-backed securities			-		413		8		421
Mortgage-backed securities			-		3,038		-		3,038
Collateralized mortgage-backed securities			-		316		-		316
Collateralized mortgage obligations/REMICS			-		490		-		490
Other Corporate and other bonds and notes			105		5,386		420		5,911
Government and municipal bonds			71		4,695		-		4,766
Private equity funds			-		1		5,931		5,932
Real estate and real assets			-		10		5,213		5,223
Commingled funds			-		6,092		393		6,485
Securities lending collateral			1,295		2,879		3		4,177
Assets at fair value			15,708		23,394		11,972		51,074
Investments sold short and other liabilities at fair value			600		6		-		606
Total plan net assets at fair value		$	15,108	$	23,388	$	11,972	$	50,468
Other assets (liabilities)1									(4,561)
Total Plan Net Assets								$	45,907
1	Other assets (liabilities) include amounts receivable, accounts payable and net adjustment for securities lending payable.

Postretirement Assets and Liabilities at Fair Value as of December 31, 2011
		Level 1		Level 2		Level 3		Total
Interest bearing cash		$	30	$	340	$	-	$	370
Equity securities:
Domestic equities			2,964		1		-		2,965
International equities			2,579		1		-		2,580
Fixed income securities:
Asset-backed securities			-		51		-		51
Collateralized mortgage-backed securities			-		60		-		60
Collateralized mortgage obligations			-		28		-		28
Other Corporate and other bonds and notes			-		334		19		353
Government and municipal bonds			48		619		-		667
Commingled funds			175		2,245		5		2,425
Private equity assets			-		3		437		440
Real assets			-		-		124		124
Securities lending collateral			780		108		-		888
Receivable for foreign exchange contracts			3		-		-		3
Assets at fair value			6,579		3,790		585		10,954
Foreign exchange contracts payable			3		-		-		3
Liabilities at fair value			3		-		-		3
Total plan net assets at fair value		$	6,576	$	3,790	$	585	$	10,951
Other assets (liabilities)1									(1,061)
Total Plan Net Assets								$	9,890
1	Other assets (liabilities) include amounts receivable, accounts payable and net adjustment for securities lending payable.

The tables below set forth a summary of changes in the fair value of the Level 3 pension and postretirement assets for the year ended December 31, 2011:

Pension Assets	Equities		Fixed Income Funds		Private Equity Funds		Real Estate and Real Assets		Total
Balance at beginning of year	$	-	$	441	$	5,617	$	4,570	$	10,628
Realized gains (losses)		(1)		17		164		2		182
Unrealized gains (losses)		1		(6)		448		666		1,109
Transfers in		3		393		-		-		396
Purchases		1		95		844		859		1,799
Sales		-		(116)		(1,142)		(884)		(2,142)
Balance at end of year	$	4	$	824	$	5,931	$	5,213	$	11,972

Postretirement Assets	Fixed Income Funds		Private Equity Funds		Real Assets		Total
Balance at beginning of year	$	45	$	496	$	157	$	698
Realized gains (losses)		-		70		(28)		42
Unrealized gains (losses)		-		(23)		31		8
Purchases		8		175		53		236
Sales		(29)		(281)		(89)		(399)
Balance at end of year	$	24	$	437	$	124	$	585

Estimated Future Benefit Payments

Expected benefit payments are estimated using the same assumptions used in determining our benefit obligation at December 31, 2012. Because benefit payments will depend on future employment and compensation levels, average years employed, average life spans, and payment elections, among other factors, changes in any of these factors could significantly affect these expected amounts. The following table provides expected benefit payments under our pension and postretirement plans:

	Pension Benefits		Postretirement Benefits		Medicare Subsidy Receipts
2013	$	4,697	$	2,371	$	(18)
2014		4,395		2,249		(20)
2015		4,282		2,180		(23)
2016		4,215		2,131		(26)
2017		4,169		2,076		(30)
Years 2018 - 2022		20,286		9,924		(195)

Supplemental Retirement Plans

We also provide certain senior- and middle-management employees with nonqualified, unfunded supplemental retirement and savings plans. While these plans are unfunded, we have assets in a designated nonbankruptcy remote trust that are independently managed and used to provide for these benefits. These plans include supplemental pension benefits as well as compensation-deferral plans, some of which include a corresponding match by us based on a percentage of the compensation deferral.

We use the same significant assumptions for the discount rate and composite rate of compensation increase used in determining the projected benefit obligation and the net pension and postemployment benefit cost. The following tables provide the plans' benefit obligations and fair value of assets at December 31 and the components of the supplemental retirement pension benefit cost. The net amount recorded as “Other noncurrent liabilities” on our consolidated balance sheets at December 31, 2012, was $2,456and $2,294 at December 31, 2011.

The following table provides information for our supplemental retirement plans with accumulated benefit obligations in excess of plan assets:

	2012		2011
Projected benefit obligation	$	(2,456)	$	(2,294)
Accumulated benefit obligation		(2,392)		(2,223)
Fair value of plan assets		-		-

The following tables present the components of net periodic benefit cost and other changes in plan assets and benefit obligations recognized in OCI:

Net Periodic Benefit Cost	2012		2011		2010
Service cost – benefits earned during the period	$	10	$	14	$	12
Interest cost on projected benefit obligation		116		126		134
Amortization of prior service cost (credit)		-		2		2
Actuarial (gain) loss		230		81		186
Net supplemental retirement pension cost	$	356	$	223	$	334
Other Changes Recognized in Other Comprehensive Income	2012		2011		2010
Prior service (cost) credit	$	(1)	$	6	$	(5)
Amortization of prior service cost (credit)		-		1		(2)
Total recognized in other comprehensive (income) loss (net of tax)	$	(1)	$	7	$	(7)

The estimated prior service credit for our supplemental retirement plan benefits that will be amortized from accumulated OCI into net periodic benefit cost over the next fiscal year is$1.

Deferred compensation expense was $118 in 2012,$96 in 2011 and $96 in 2010. Our deferred compensation liability, included in “Other noncurrent liabilities,” was $1,061 at December 31, 2012, and $1,010 at December 31, 2011.

Contributory Savings Plans

We maintain contributory savings plans that cover substantially all employees. Under the savings plans, we match in cash or company stock a stated percentage of eligible employee contributions, subject to a specified ceiling. There are no debt-financed shares held by the Employee Stock Ownership Plans, allocated or unallocated.

Our match of employee contributions to the savings plans is fulfilled with purchases of our stock on the open market or company cash. Benefit cost is based on the cost of shares or units allocated to participating employees' accounts and was $634,$636 and $607 for the years ended December 31, 2012,2011 and 2010.