<PAGE>

                                   FORM 10-Q


                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D. C. 20549


         (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 
                        SECURITIES EXCHANGE ACT OF 1934


               For the quarterly period ended September 30, 1995


                                      OR


         ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934


                         Commission File Number 1-8609


                             PACIFIC TELESIS GROUP


                        I.R.S. Employer No. 94-2919931


                             A Nevada Corporation


              130 Kearny Street, San Francisco, California 94108


                     Telephone - Area Code (415) 394-3000



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    .
                                               ---      ---


   At October 31, 1995, 428,434,672 common shares were outstanding.

















                                    <PAGE>


                    PACIFIC TELESIS GROUP AND SUBSIDIARIES

                              TABLE OF CONTENTS


                                                                         Page 
                                                                        Number
                                                                        ------


PART I.  FINANCIAL INFORMATION
------------------------------

Item 1.  Financial Statements

           Review Report of Independent Accountants ..............      1  

           Condensed Consolidated Statements of Income ...........      2  

           Condensed Consolidated Balance Sheets .................      4  

           Condensed Consolidated Statements of
               Shareowners' Equity ...............................      5  

           Condensed Consolidated Statements of Cash Flows .......      6  

           Notes to Condensed Consolidated Financial Statements ..      8  

Item 2.  Management's Discussion and Analysis of Results of 
           Operations and Financial Condition ....................     15  




PART II. OTHER INFORMATION
--------------------------

Item 6.  Exhibits and Reports on Form 8-K.........................     38  


SIGNATURE.........................................................     39  
























                                    <PAGE>

PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements


                   REVIEW REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareowners of Pacific Telesis Group:

We  have reviewed  the accompanying  condensed consolidated  balance sheet  of
Pacific  Telesis Group  and  Subsidiaries as  of September  30,  1995 and  the
related condensed consolidated statements  of income for the three-  and nine-
month  periods  ended  September   30,  1995  and  1994,  and   the  condensed
consolidated  statements of shareowners' equity  and cash flows  for the nine-
month periods ended September 30,  1995 and 1994.  These  financial statements
are the responsibility of the Corporation's management.

We  conducted our  review  in accordance  with  standards established  by  the
American  Institute  of Certified  Public Accountants.    A review  of interim
financial information consists  principally of applying  analytical procedures
to  financial data and making  inquiries of persons  responsible for financial
and  accounting matters.   It  is substantially  less in  scope than  an audit
conducted  in  accordance  with  generally accepted  auditing  standards,  the
objective of  which is the  expression of an  opinion regarding  the financial
statements taken as a whole.  Accordingly, we do not express such an opinion.

Based  on our  review, we  are not  aware of  any material  modifications that
should be made to the accompanying condensed consolidated financial statements
for them to be in conformity with generally accepted accounting principles.  

As discussed  in Note C on  page 9, the Corporation's  Pacific Bell subsidiary
discontinued application of Statement of Financial Accounting Standards No. 71
effective third quarter 1995.

We have  previously audited,  in accordance with  generally accepted  auditing
standards,  the  consolidated balance  sheet  of  Pacific  Telesis  Group  and
Subsidiaries  as of December 31, 1994, and the related consolidated statements
of income,  shareowners' equity, and cash  flows for the year  then ended (not
presented herein); and in our report dated February 23, 1995,  we expressed an
unqualified  opinion  on  those consolidated  financial  statements.    In our
opinion, the information set forth  in the accompanying condensed consolidated
balance  sheet as  of December  31, 1994,  is fairly  stated, in  all material
respects, in relation to the consolidated balance sheet from which it has been
derived.

/s/Coopers & Lybrand L.L.P.
San Francisco, California

November 14, 1995









                                       1








                                    <PAGE>


                    PACIFIC TELESIS GROUP AND SUBSIDIARIES
                  CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                  (Unaudited)


                             For the 3 Months Ended   For the 9 Months Ended
                                   September 30,            September 30,
(Dollars in millions,        ----------------------   ----------------------
except per share amounts)           1995     1994         1995         1994
----------------------------------------------------------------------------
OPERATING REVENUES
Local service....................$   963   $  875      $ 2,858       $2,576
Network access:
  Interstate.....................    427      400        1,297        1,209
  Intrastate.....................    180      192          525          534
Toll service.....................    311      498          926        1,502
Other service revenues...........    394      364        1,154        1,058
                                 -------   ------      -------       ------
TOTAL OPERATING REVENUES.........  2,275    2,329        6,760        6,879
                                 -------   ------      -------       ------
OPERATING EXPENSES
Cost of products and services....    403      464        1,329        1,415
Customer operations and 
  selling expenses...............    477      452        1,352        1,336
General, administrative, and
  other expenses.................    348      314          990          956
Property and miscellaneous taxes.     46       46          146          140
Depreciation and amortization....    471      450        1,405        1,334
                                 -------   ------      -------       ------
TOTAL OPERATING EXPENSES.........  1,745    1,726        5,222        5,181
                                 -------   ------      -------       ------
OPERATING INCOME.................    530      603        1,538        1,698
Interest expense.................    117      107          350          336
Miscellaneous income.............     21       12           65           36
                                 -------   ------      -------       ------
INCOME FROM CONTINUING OPERATIONS
 BEFORE INCOME TAXES AND 
 EXTRAORDINARY ITEM                  434      508        1,253        1,398
Income taxes.....................    159      194          436          524
                                 -------   ------      -------       ------
INCOME FROM CONTINUING OPERATIONS
 BEFORE EXTRAORDINARY ITEM.......    275      314          817          874
Income from spun-off operations,
  net of tax (Note B)............      -        -            -           23
                                 -------   ------      -------       ------
INCOME BEFORE EXTRAORDINARY ITEM     275      314          817          897
Extraordinary item, net of tax 
  (Note C)....................... (3,360)       -       (3,360)           -
                                 --------  ------      --------      ------
NET INCOME (LOSS)................
                                 $(3,085)  $  314      $(2,543)      $  897
                                 ========  ======      ========      ======

                           (Continued on next page)



                                       2








                                    <PAGE>

                    PACIFIC TELESIS GROUP AND SUBSIDIARIES
                  CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                  (Unaudited)
                                  (Continued)


                             For the 3 Months Ended   For the 9 Months Ended
                                   September 30,            September 30,
(Dollars in millions,        ----------------------   ----------------------
except per share amounts)           1995     1994         1995         1994
----------------------------------------------------------------------------
Earnings (loss) per share:
 Income from continuing
  operations before 
  extraordinary item............  $ 0.64   $ 0.74       $ 1.92       $ 2.06
 Income from spun-off 
  operations....................       -        -            -         0.06
                                  ------   ------       ------       ------
 Income before extraordinary 
  item..........................    0.64     0.74         1.92         2.12
 Extraordinary item.............   (7.86)       -        (7.90)           -
                                  -------  ------       ------       ------
 Net income (loss)..............  $(7.22)  $ 0.74       $(5.98)      $ 2.12
                                  =======  ======       =======      ======

Dividends per share.............  $0.545   $0.545       $1.635       $1.635
Average shares outstanding
  (thousands)................... 427,421  424,065      425,184      423,937


The accompanying Notes are an integral part of the Condensed Consolidated
Financial Statements.

























                                       3








                                    <PAGE>

                    PACIFIC TELESIS GROUP AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                             

                                              September 30,       December 31,
(Dollars in millions)                             1995                1994    
---------------------------------------------------------------------------
ASSETS:                                         (Unaudited)

Cash and cash equivalents...................      $    72          $   135 
Accounts receivable -(net of allowances for
  uncollectibles of $137 and $134 in 1995 and 
  1994, respectively).......................        1,516            1,557 
Prepaid expenses and other current assets...        1,079            1,206 
                                                  -------          ------- 
Total current assets........................        2,667            2,898 
                                                  -------          ------- 
Property, plant, and equipment - at cost....       26,913           26,565 
  Less:  accumulated depreciation...........      (15,785)         (10,451)
                                                  -------          ------- 
Property, plant, and equipment - net........       11,128           16,114 
                                                  -------          ------- 
Deferred charges and other noncurrent assets        1,806            1,127 
                                                  -------          ------- 
TOTAL ASSETS................................      $15,601          $20,139 
                                                  =======          ======= 
LIABILITIES AND SHAREOWNERS' EQUITY:
 
Accounts payable and accrued liabilities....      $ 1,833          $ 1,907 
Debt maturing within one year...............          881              246 
Other current liabilities...................        1,178            1,330 
                                                  -------          ------- 
Total current liabilities...................        3,892            3,483 
                                                  -------          ------- 
Long-term obligations.......................        5,232            4,897 
                                                  -------          ------- 
Deferred income taxes.......................            -            1,673 
                                                  -------          ------- 
Other noncurrent liabilities and  
  deferred credits..........................        4,304            4,853 
                                                  -------          ------- 
Commitments and contingencies (Note D)......

Total shareowners' equity...................        2,173            5,233 
                                                  -------          ------- 
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY...      $15,601          $20,139 
                                                  =======          ======= 

The accompanying Notes are an integral part of the Condensed Consolidated
Financial Statements.







                                       4








                                    <PAGE>

                    PACIFIC TELESIS GROUP AND SUBSIDIARIES
          CONDENSED CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY
                                 (Unaudited)

                                                     For the 9 Months Ended
                                                           September 30,    
                                                     ----------------------
(Dollars in millions)                                      1995      1994
---------------------------------------------------------------------------
COMMON STOCK
  Balance at beginning of period......................   $   43    $   43 
                                                         ------    ------ 
  Balance at end of period............................       43        43 
                                                         ------    ------ 
ADDITIONAL PAID-IN CAPITAL
  Balance at beginning of period......................    3,493     6,372 
  Spin-off stock distribution (Note B)................        -    (2,901)
  Issuance of shares..................................        -        22 
  Acquisition of wireless cable company (Note E)......       (9)        - 
  Other changes.......................................       10        (4)
                                                         ------    ------ 
  Balance at end of period............................    3,494     3,489 
                                                         ------    ------ 
REINVESTED EARNINGS 
  Balance at beginning of period......................    2,257     2,040 
  Net income (loss)...................................   (2,543)      897 
  Dividends declared..................................     (696)     (693)
  Other changes.......................................        2       (12)
                                                         ------    ------ 
  Balance at end of period............................     (980)    2,232 
                                                         ------    ------ 
TREASURY STOCK
  Balance at beginning of period......................     (254)     (283)
  Issuance of shares..................................        -        29 
  Acquisition of wireless cable company (Note E)......      126         - 
                                                         ------    ------ 
  Balance at end of period............................     (128)     (254)
                                                         ------    ------ 
DEFERRED COMPENSATION - LESOP TRUST
  Balance at beginning of period......................     (306)     (386)
  Cost of trust shares allocated to employee accounts.       50        56 
                                                         ------    ------ 
  Balance at end of period............................     (256)     (330)
                                                         ------    ------ 
TOTAL SHAREOWNERS' EQUITY ............................   $2,173    $5,180 
                                                         ======    ====== 


The accompanying Notes are an integral part of the Condensed Consolidated
Financial Statements.







                                       5








                                    <PAGE>

                    PACIFIC TELESIS GROUP AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)


                                                     For the 9 Months Ended
                                                           September 30,    
                                                     ----------------------
(Dollars in millions)                                       1995     1994
---------------------------------------------------------------------------
CASH FROM (USED FOR) OPERATING ACTIVITIES:
Net income (loss).................................       $(2,543)  $  897 
Adjustments to net income (loss):
  (Income)from spun-off operations (Note B).......             -      (23)
  Extraordinary item (Note C).....................         3,360        - 
  Depreciation and amortization...................         1,405    1,334 
  Deferred income taxes...........................            50       (3)
  Changes in operating assets and liabilities:
    Accounts receivable...........................            43      (12)
    Prepaid expenses and other current assets.....           (46)      17 
    Deferred charges and other noncurrent assets..           135        2 
    Accounts payable and accrued liabilities......             4      104 
    Other current liabilities.....................            23       (4)
    Noncurrent liabilities and deferred credits...          (438)     (66)
  Other adjustments, net..........................           (11)     (84)
                                                          ------   ------ 
Cash from continuing operations...................         1,982    2,162 
Cash from spun-off operations.....................             -       18 
                                                          ------   ------ 
Cash from operating activities....................         1,982    2,180 
                                                          ------   ------ 
CASH FROM (USED FOR) INVESTING ACTIVITIES:
Additions to property, plant, and equipment.......        (1,308)  (1,060)
Investment in PCS licenses........................          (656)       - 
Other investing activities, net...................           (13)      27 
                                                          ------   ------ 
Cash used by continuing operations................        (1,977)  (1,033)
Cash used by spun-off operations..................             -     (332)
                                                          ------   ------ 
Cash used for investing activities ...............        (1,977)  (1,365)
                                                          ------   ------ 

                          (Continued on next page)














                                       6








                                    <PAGE>

                    PACIFIC TELESIS GROUP AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)
                                  (Continued)

                                                     For the 9 Months Ended
                                                           September 30,    
                                                     ----------------------
(Dollars in millions)                                      1995      1994
---------------------------------------------------------------------------
CASH FROM (USED FOR) FINANCING ACTIVITIES:
Proceeds from issuance of common and treasury shares..       67       124 
Proceeds from issuance of long-term debt..............        -        10 
Retirements of long-term debt.........................     (261)       (1)
Dividends paid........................................     (693)     (676)
Increase (Decrease) in short-term borrowings, net.....      821      (588)
Other financing activities, net.......................       (2)      (16)
                                                          -----     ----- 
Cash used by continuing operations....................      (68)   (1,147)
Cash from spun-off operations.........................        -        39 
                                                          -----     ----- 
Cash used for financing activities....................      (68)   (1,108)
                                                          -----     ----- 
Net cash used for all activities......................      (63)     (293)
Less spun-off operations..............................        -      (275)
                                                          -----     ----- 
Decrease in cash and cash equivalents.................      (63)      (18)
Cash and cash equivalents at January 1................      135        69 
                                                          -----     ----- 
Cash and cash equivalents at September 30.............    $  72     $  51 
                                                          =====     ===== 
Cash payments for:
  Interest............................................    $ 382     $ 371 
  Income taxes........................................    $ 359     $ 527 
----------------------------------------------------------------------------

The accompanying Notes are an integral part of the Condensed Consolidated
Financial Statements.



















                                       7








                                    <PAGE>

                    PACIFIC TELESIS GROUP AND SUBSIDIARIES
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)


A.   BASIS OF PRESENTATION

     The Condensed  Consolidated Financial Statements include  the accounts of
     Pacific Telesis  Group (the  "Corporation") and  its wholly  and majority
     owned  subsidiaries.    The   Corporation  includes  a  holding  company,
     Pacific Telesis;  its  telephone  subsidiaries:  Pacific  Bell  (and  its
     subsidiaries,  Pacific Bell Directory, Pacific Bell Information Services,
     Pacific Bell  Mobile Services,  and Pacific  Bell Internet  Services) and
     Nevada Bell (the "Telephone Companies"); and several other units.

     The  Condensed Consolidated  Financial Statements  have been  prepared in
     accordance  with the rules and regulations of the Securities and Exchange
     Commission ("SEC") applicable to  interim financial information.  Certain
     information and  footnote disclosures  included  in financial  statements
     prepared in accordance with generally accepted accounting principles have
     been  condensed or omitted in  these interim statements  pursuant to such
     SEC  rules and  regulations.   Management recommends  that these  interim
     financial statements be read  in conjunction with both  the Corporation's
     1994  annual  report  on Form  10-K  and its  1995  Proxy  Statement that
     includes the  audited 1994 financial statements.  Effective third quarter
     1995, the Corporation's  Pacific Bell subsidiary  discontinued accounting
     under Statement  of Financial  Accounting Standards  No. 71  ("SFAS 71"),
     "Accounting  for  the  Effects of  Certain  Types  of  Regulation."   The
     Corporation's  Nevada   Bell  subsidiary  continues  to   apply  SFAS  71
     accounting.  (See  Note C  - "Discontinuance of  Regulatory Accounting  -
     SFAS 71" on page 9.)

     In  management's opinion, the Condensed Consolidated Financial Statements
     include all adjustments (consisting of only normal recurring adjustments,
     except for the extraordinary  charge of $3.4 billion associated  with the
     discontinuance of SFAS 71 at Pacific Bell as stated  in Note C on page 9)
     necessary  to  present  fairly  the  financial  position and  results  of
     operations  for each  interim  period shown.  The Condensed  Consolidated
     Financial Statements  have been  reviewed by  Coopers  & Lybrand  L.L.P.,
     independent accountants.  Their report is on page 1.
 
     The Corporation's previous interest in the operating results  of wireless
     operations  which  were spun  off effective  April  1, 1994,  is reported
     separately as "spun-off  operations." (See Note B - "Spun-off Operations"
     following.)   These operations are  excluded from the  prior year amounts
     reported  for  the  Corporation's  revenues and  expenses  which  reflect
     "continuing operations."  The Corporation's prior year statement of  cash
     flows has been reclassified to include separately the cash flows of spun-
     off operations to conform to the current presentation.  Amounts presented
     for  spun-off operations  have been  prepared solely  for the  purpose of
     reporting Pacific Telesis Group results.






                                       8








                                    <PAGE>

                    PACIFIC TELESIS GROUP AND SUBSIDIARIES
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

A. BASIS OF PRESENTATION (CONTINUED)

     Intangible Assets and Capitalized Interest

     Included  in deferred charges and other noncurrent assets is $696 million
     representing the  amounts paid  for two Personal  Communications Services
     ("PCS") licenses recorded at cost.  Interest related to these licenses is
     capitalized  as part  of  their cost.    In addition,  costs to  relocate
     incumbent  microwave users  will be  capitalized as  part of  the license
     acquisition cost.  These costs will be  amortized over 40  years once the
     PCS system is in  service.  Management anticipates a  widespread offering
     of PCS services in early 1997.

B. SPUN-OFF OPERATIONS

     Effective  April 1,  1994, the  Corporation spun  off to  shareowners its
     domestic  and   international  cellular,   paging,  and  other   wireless
     operations in a one-for-one stock distribution of its 86 percent interest
     in  AirTouch  Communications,  Inc.   A  stock  distribution payable  was
     recorded  during  first quarter  1994 as  a  stock dividend  from paid-in
     capital at  the carrying amount of the net assets of spun-off operations.
     As  a  result, the  Corporation's  shareowners'  equity  was  reduced  by
     $2.9 billion  in the first quarter of 1994. The stock distribution itself
     was a noncash  transaction which  did not affect  the Corporation's  cash
     flow statement.

C. DISCONTINUANCE OF REGULATORY ACCOUNTING - SFAS 71

     Effective third  quarter 1995, the Corporation's  Pacific Bell subsidiary
     discontinued its application of SFAS 71 in accordance with the provisions
     of  Statement  of  Financial   Accounting  Standards  ("SFAS")  No.  101,
     "Accounting  for  the Discontinuance  of  Application  of FASB  Statement
     No. 71."  As a result, the Corporation recorded a non-cash, extraordinary
     charge of $3.4 billion, or $7.86 per share, during third quarter which is
     net  of a  deferred  income tax  benefit  of $2.4  billion.   The  charge
     includes a  write-down of net telephone plant  and the elimination of net
     regulatory assets as summarized in the following table.
  
     ($ millions)                                Pre-Tax     After-Tax 
     ------------------------------------------------------------------------
        Increase in telephone plant and equipment                       
          accumulated depreciation............... $4,819        $2,714  
        Elimination of net regulatory assets.....    962           646  
                                                  ------        ------  
       Total....................................  $5,781        $3,360  
     ========================================================================







                                       9








                                    <PAGE>

C.   DISCONTINUANCE OF REGULATORY ACCOUNTING - SFAS 71 (continued)

     The  Telephone Companies  have  historically accounted  for the  economic
     effects  of  regulation in  accordance with  the  provisions of  SFAS 71.
     Under SFAS 71, the  Telephone Companies have depreciated  telephone plant
     using lives  prescribed  by regulators  and, as  a result  of actions  of
     regulators, have  deferred recognizing  certain costs or  have recognized
     certain liabilities  (referred to as "regulatory  assets" and "regulatory
     liabilities").

     Effective third  quarter 1995,  management determined that,  for external
     financial   reporting  purposes,   it  is   no  longer   appropriate  for
     Pacific Bell to use  the special  SFAS 71 accounting  rules for  entities
     subject to traditional  regulation.  Management's  decision to change  to
     the general  accounting rules used  by competitive enterprises  was based
     upon an assessment of the emerging competitive environment in California.
     Pacific  Bell's prices  for its  products and  services are  being driven
     increasingly by market forces instead of regulation.

     The $4.8 billion increase in Pacific Bell's accumulated depreciation  for
     its telephone  plant reflects the  adoption of new,  shorter depreciation
     lives.  The estimated useful  lives historically prescribed by regulators
     did not  keep up  with  the rapid  pace of  technology.   Pacific  Bell's
     previous and new asset lives are compared in the following table.


     Asset Lives (in years)
     --------------------------------------------------------------------
                                                             Old      New
                                                             ---      ---
     Copper.............................................   19-26       14 
     Digital Switches...................................    16.5       10
     Digital Circuits...................................9.6-11.5        8
     Fiber..............................................   28-30       20
     Conduit............................................      59       50
  =======================================================================





















                                      10








                                    <PAGE>

C. DISCONTINUANCE OF REGULATORY ACCOUNTING - SFAS 71 (continued)

     The discontinuance of SFAS  71 for external financial reporting  purposes
     also required  the elimination of  Pacific Bell's net  regulatory assets,
     which  totaled  $962  million.   Regulators  sometimes  include costs  in
     allowable costs for ratemaking purposes in a period other than the period
     in which those costs would be charged to expense under general accounting
     rules.  The accounting  for these  timing differences  created regulatory
     assets  and  regulatory  liabilities  on Pacific  Bell's  balance  sheet.
     Details  of  Pacific  Bell's  net  regulatory  assets   which  have  been
     eliminated are displayed in the following table.
                                                              
     ($ millions)                                                      
     ------------------------------------------------------------------------
     Regulatory assets (liabilities) due to:
        Deferred pension costs*..................   $460                
        Unamortized debt redemption costs**......    337                
        Deferred compensated absence costs*......    206                
        Unamortized purchases of property, plant,
           and equipment under $500.............      82                
        Deferred income taxes***.................   (159) 
        Other....................................     36                
                                                    ----                      
       Total....................................    $962                
     ========================================================================
       *      Previously included  primarily in  "deferred  charges and  other
              noncurrent assets" in the Corporation's balance sheets.
       **     Previously included in "long-term obligations."
       ***    Previously  included in "other  current liabilities"  and "other
              noncurrent liabilities and deferred credits."

     The $460 million regulatory asset for deferred pension costs reflected an
     order by  the California  Public Utilities Commission  ("CPUC") requiring
     Pacific Bell to use the "aggregate cost method" for regulatory accounting
     purposes  for   its  intrastate   operations.    This   regulatory  asset
     represented  differences between Pacific  Bell's intrastate pension costs
     calculated  using  this actuarial  method,  subject  to Internal  Revenue
     Service and other limitations, and costs determined under the  provisions
     of  SFAS No. 87,  "Employers' Accounting for Pensions,"  and SFAS No. 88,
     "Employers'  Accounting  for  Settlements  and  Curtailments  of  Defined
     Benefit Pension Plans and for Termination Benefits."

     Previously,  when debt was  refinanced before maturity,  Pacific Bell had
     amortized to expense any difference between net book value and redemption
     price evenly over the term of  the replacing issue in accordance with the
     ratemaking  treatment of such costs by regulators.  The above unamortized
     debt  redemption  costs of  $337  million represented  costs  deferred in
     accordance with  the previous ratemaking  treatment.  The  elimination of
     the $337 million  unamortized debt redemption costs  balance for external
     reporting  purposes  has  resulted in  a  corresponding  increase in  the
     Corporation's reported amount of long-term obligations.






                                      11








                                    <PAGE>

C.   DISCONTINUANCE OF REGULATORY ACCOUNTING - SFAS 71 (continued)

     In  prior  years,  the CPUC  and  the  Federal  Communications Commission
     ("FCC")  changed the  required accounting  for the  costs of  compensated
     absences, such as vacation days, from a cash basis to an accrual basis. A
     transition  liability for earned but unused  compensated absence days was
     being amortized  to expense  over periods prescribed  by each  regulator.
     However,  the  CPUC  had  required  Pacific  Bell  to  recognize  certain
     compensated  absence costs  on a  cash basis  for ratemaking.   The above
     regulatory asset of $206 million for compensated absences reflected those
     costs which were deferred in accordance with this ratemaking treatment.

     In 1989  and  1990, respectively,  the  FCC and  the  CPUC increased  the
     threshold  for  directly  expensing  purchases of  property,  plant,  and
     equipment from  $200 to  $500.   Purchases of less  than $500  which were
     previously  capitalized  were being  amortized  to  expense over  periods
     prescribed by regulators.

     Specific  provisions  of SFAS  No. 109,  "Accounting  for Income  Taxes,"
     requires regulated companies to record a regulatory asset or a regulatory
     liability when recognizing deferred  income taxes if it is  probable that
     these  deferred  taxes would  be  reflected  in future  rates.    The net
     regulatory liability for deferred  income taxes reflected this regulatory
     treatment.

     Due to  its discontinued  application of  SFAS 71,  Pacific Bell will  no
     longer  account  for the  economic  effects  of regulation  for  external
     financial  reporting  purposes.  Pacific  Bell's   reported  depreciation
     expense  will be based on  estimated economic asset  lives. Pension costs
     for both  intrastate and interstate  operations will be  determined under
     SFAS No. 87 and SFAS  No. 88. Capitalized interest cost will  be reported
     as a  cost of telephone plant  and equipment and a  reduction in interest
     expense, as required by  SFAS No. 34, "Capitalization of  Interest Cost."
     Prior  to the  discontinuance  of  SFAS  71,  Pacific  Bell  recorded  an
     allowance  for  funds  used  during  construction,  which  included  both
     interest and equity return components,  as a cost of plant and as an item
     of  miscellaneous income.   Pacific Bell's  accounting and  reporting for
     regulatory purposes  are not affected by the  discontinued application of
     SFAS 71 for external financial reporting purposes.

D.   COMMITMENTS AND CONTINGENCIES

     Broadband Network

     In  December 1994,  Pacific  Bell contracted  for the  purchase of  up to
     $2 billion  of  broadband  network   facilities  which  will  incorporate
     emerging  technologies.   Pacific  Bell  is committed  to  purchase these
     facilities in 1998 if they meet certain quality and performance criteria.









                                      12








                                    <PAGE>


D.   COMMITMENTS AND CONTINGENCIES (continued)

     Revenues Subject to Refund

     In  1992,  the  CPUC  issued  a  decision  adopting,  with  modification,
     SFAS No. 106,  "Employers' Accounting  for Postretirement  Benefits Other
     than Pensions,"  for regulatory  accounting purposes.   Annual price  cap
     decisions by  the CPUC granted Pacific  Bell $100 million in  each of the
     years   1995  and  1994  for  partial  recovery  of  higher  costs  under
     SFAS No. 106.   However, the CPUC in October 1994 reopened the proceeding
     to  determine  the  criteria for  exogenous  cost  treatment  and whether
     Pacific Bell should continue  to recover these  costs.  The CPUC's  order
     held that related revenues  collected after October 12, 1994  are subject
     to refund. 

     Beginning August  1, 1995, approximately $25 million  annually of 1993-94
     postretirement benefits  costs are  being recovered subject  to potential
     refund  in the  interstate  jurisdiction.    The  FCC  is  examining  the
     appropriateness  of this cost recovery  in a new  proceeding.  Management
     believes postretirement benefits costs  are appropriately recoverable  in
     Pacific Bell's price cap filings, but is unable to predict the outcome of
     the CPUC's or FCC's proceedings.

     Purchase Options

     In  June 1990,  Prime Cable  of Chicago,  Inc. ("Prime  Cable"), acquired
     certain  Chicago  cable  television  properties   from  Group  W.     The
     Corporation,  through its  PTCB subsidiary, holds  options to  purchase a
     75 percent  interest in  Prime Cable.   TC Cable,  Inc. ("TC  Cable") now
     holds this interest.   PacTel Capital Funding, a wholly  owned subsidiary
     of the  Corporation, has guaranteed bank  financing used by TC  Cable and
     its  parent corporation to acquire  this interest.   The guarantees cover
     initial  loan amounts of $60 million as  well as interest accruing on the
     loans  which will  be added  to the  outstanding loan  balances up  to an
     aggregate of $136 million.  In  management's opinion, the likelihood that
     the Corporation will  be required  to pay principal  or interest on  this
     debt under these guarantees is remote.



















                                      13








                                    <PAGE>

                    PACIFIC TELESIS GROUP AND SUBSIDIARIES
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

E.   ACQUISITIONS

     In  July  1995, the  Corporation  acquired 100  percent  of the  stock of
     Cross Country Wireless Inc.  ("CCW") to provide wireless cable service in
     southern California.   The  Corporation now  has existing  wireless cable
     operations with over 40,000 video customers in  Riverside, California and
     holds  licenses  and  rights  to  provide  wireless  video  services   in
     Los Angeles,  Orange County, and San Diego.  The transaction involved the
     exchange of approximately $120  million of Pacific Telesis Group treasury
     stock,  or about  4.4 million shares,  for the outstanding  stock of CCW.
     The Corporation also assumed  approximately $55 million of CCW  debt that
     was retired during the  third quarter of 1995.   By the end of  1996, the
     Corporation  plans to offer more than 100 channels of digital programming
     in the Los Angeles, Orange County, and San Diego areas which  can deliver
     high quality digital picture with CD-quality sound  to approximately five
     million households.  The actual number of subscribers cannot be predicted
     at this time. 

F.   SUBSEQUENT EVENT

     On October  17, 1995, Pacific  Telesis Financing  I, II and  III (the    
     "Trusts") were established as Delaware statutory business trusts.  All of
     the common securities of the Trusts  will be directly or indirectly owned
     by  the Corporation.   In October  1995, the  Corporation and  the Trusts
     filed a shelf registration with the  SEC to sell up to $1 billion  of the
     Trusts'  preferred  securities  to the  public.    The  Trusts' preferred
     securities are subject to  a guarantee from the Corporation  as described
     in  the registration statement. Each  Trust was formed  for the exclusive
     purpose of issuing preferred and common securities representing undivided
     beneficial  interests in the Trusts  and investing the  proceeds from the
     sale  of   the  preferred  securities  in   unsecured  subordinated  debt
     securities  of the Corporation.   The registration statement  has not yet
     been declared effective by the SEC.  Such offerings will  be made only by
     means of a prospectus and the proceeds will be used for general corporate
     purposes.   


















                                      14








                                    <PAGE>

 Item 2.  MANAGEMENT'S DISCUSSION  AND ANALYSIS  OF RESULTS OF  OPERATIONS AND
 FINANCIAL CONDITION

 RESULTS OF OPERATIONS

 The  following discussions  and  data compare  the  results of  operations of
 Pacific Telesis  Group (the  "Corporation")  for  the three-  and  nine-month
 periods  ended  September  30,  1995  to  the  same  periods in  1994.    The
 Corporation's  previous  interests  in  the  operating  results  of  wireless
 operations  which  were  spun  off  to  shareowners  on  April  1,  1994  are
 classified separately as "spun-off operations" in  the accompanying financial
 statements. (See Note A - "Basis of  Presentation" on page 8.)   The spun-off
 operations  are  excluded from  the  reported  amounts of  the  Corporation's
 revenues and  expenses.   The Corporation's  "continuing operations"  include
 Pacific Bell and  Nevada Bell (the "Telephone Companies"), along with several
 other  units.    Results  for the  first  nine  months  of  1995 may  not  be
 indicative of results for the full year.
   
 A summary of selected operating data is shown below:

                               For the 3  Months Ended  For the 9 Months Ended

                                    September 30,           September 30,
                               ----------------------  ----------------------
                                                  %                      %
 Selected Operating Data*        1995   1994  Change    1995   1994  Change
 ----------------------------------------------------------------------------
 Return on shareowners'
   equity (%)................. -246.3   24.1      -    -64.5   22.7      - 
 Operating ratio (%)..........   76.7   74.1      -     77.3   75.3      - 
 Revenues per average employee  
   ($ thousands)..............     45     44     2.3     133    128     3.9
 Total employees 
   at September 30.............49,976 53,162    -6.0       -      -      - 
 Telephone Companies employees per 
   ten thousand access lines
   at September 30**..........   29.8   32.8    -9.1       -      -      - 
 ----------------------------------------------------------------------------
  * continuing operations
 **  excludes  Pacific  Bell  Directory  and   Pacific  Bell  Mobile  Services
 employees

 Earnings
 --------
 The  Corporation  reported  losses  for  the  three-  and  nine-months  ended
 September 30,  1995 of $3,085 and $2,543 million, respectively, or losses per
 share of $7.22  and $5.98, respectively.  The  reported losses reflect a non-
 cash,   extraordinary  charge   to  net  income   during  third   quarter  of
 $3.4 billion, after  taxes, or $7.86 per  share. The charge results  from the
 discontinued  application by  the Corporation's  Pacific  Bell subsidiary  of
 special accounting  rules for entities subject  to traditional regulation and
 its change to the general  accounting rules used by  competitive enterprises.
 As  a result of this extraordinary charge,  the Corporation expects to record
 a net loss for the year. (See "Extraordinary Item" on page 23.)



                                      15








                                    <PAGE>


 Earnings  for the  first  nine  months  of  1995 decreased  $3.4  billion  in
 comparison to  the same  period last  year reflecting  this year's  one-time,
 extraordinary third quarter  charge.  Revenue shortfalls also  contributed to
 the decline  in earnings.   Demand  growth as  a result of  the January  1995
 intra-service area toll  ("local toll") price  reductions fell  far short  of
 the  level  anticipated   by  the  California  Public   Utilities  Commission
 ("CPUC").  As  a result, the revenue neutrality  intended by the CPUC's price
 rebalancing order was not achieved.  Price cap revenue reductions  ordered by
 the CPUC  and the  Federal Communications Commission  ("FCC") further reduced
 earnings. Additional  pressure on  earnings resulted  from incremental  labor
 expense associated with the severe storms in early 1995. Last year's  results
 included a one-time after-tax charge of about  $29 million for a CPUC  refund
 order.  Management believes 1995  earnings without one-time charges  could be
 about ten percent  less than 1994  due primarily to  the revenue  rebalancing
 shortfall. (See "Revenue Rebalancing Shortfall Filing" on page 31.)

 Volume Indicators 
 ------------------
                            For the 3 Months Ended   For the 9 Months Ended
                                 September 30,            September 30,   
                            ----------------------   -----------------------
                                                %                        %  
 Volume Indicators            1995    1994  Change    1995   1994    Change
 ---------------------------------------------------------------------------
 Customer switched access
   lines in service at
   September 30 (thousands). 15,640  15,223    2.7       -       -        -
 Carrier access minutes-
   of-use (millions)........ 15,037  13,554   10.9  44,083  39,968     10.3
   Interstate...............  8,252   7,982    3.4  24,505  23,693      3.4
   Intrastate...............  6,785   5,572   21.8  19,578  16,275     20.3
 Toll messages (millions)...  1,243   1,137    9.3   3,639   3,355      8.5
 ---------------------------------------------------------------------------

 The total  number of  access lines  in service  grew to  15,640 thousand,  an
 increase  of 2.7  percent for  the twelve  months ended  September  30, 1995.
 This  is slightly below  the 2.8  percent increase  for the same  period last
 year.  The  growth rate in business access  lines was 4.4 percent  this year,
 up from 4.1 percent  last year. The growth in  business access lines reflects
 increased employment  levels in California.  Pacific Bell's business  Centrex
 lines grew 12.1 percent  during the same  period as  businesses continued  to
 link  multiple locations  and improve  disaster  preparedness. The  number of
 ISDN  lines  in  service for  the  Telephone  Companies  grew to  43,195,  an
 increase of 125.4 percent for the twelve months  ended September 30, 1995, as
 customers  demanded  faster  data  transmission  and   Internet  access.  The
 residential access  line growth rate declined  to 1.8 percent  for the twelve
 months ended  September 30, 1995,  from 2.0 percent  last year.  Last  year's
 figure included the  results of  a second line  sales promotion.   The  lower
 residential growth  rate compared to the  business growth  rate reflects weak
 residential construction in California.






                                      16








                                    <PAGE>

 Access   minutes-of-use  represent   the  volume   of   traffic  carried   by
 interexchange carriers over  the Telephone Companies' local  networks.  Total
 access minutes-of-use for  the nine months ended September 30, 1995 increased
 by 10.3  percent over the  same period  last year.   The  increase in  access
 minutes-of-use was primarily attributable  to economic growth and the  effect
 of toll  services competition.  In  California, the  official introduction of
 toll services  competition  in January  1995  had  the effect  of  increasing
 intrastate access minutes-of-use.   Pacific Bell provides  access service  to
 competitors who complete local toll calls over Pacific Bell's network.

 Toll messages are  comprised of Message Telecommunications  Service, Optional
 Calling Plans, WATS and terminating 800 messages.   For the nine months ended
 September 30,  1995, toll messages  increased by  8.5 percent compared  to an
 increase of 4.6  percent for the corresponding period  in 1994.  The increase
 was  driven primarily  by  economic  growth as  well  as  lower prices.    In
 California on January  1, 1995, Pacific Bell  lowered the price of  its local
 toll services by  an average of 40 percent.  Pacific Bell also began offering
 new  discount calling  plans.   Residential  customers receive  an  automatic
 15 percent off toll  charges above five  dollars per  month while  businesses
 receive an automatic 20  percent off toll charges  over $15 per month.   High
 volume customers can  receive even larger  discounts.   Price decreases  have
 stimulated  demand  slightly but  the  increase  falls  far  short of  levels
 included in the CPUC's order.  (See also "Competitive Risk" on page 35.)  


 Operating Revenues
 ------------------
                             For the 3 Months Ended    For the 9 Months Ended
                                  September 30,             September 30,
                             ----------------------    ----------------------
 ($ millions)                 1995   1994   Change     1995    1994  Change
 ----------------------------------------------------------------------------
 Total operating revenues.. $2,275 $2,329   -$54     $6,760  $6,879  -$119
                                           -2.3%                     -1.7%
 ----------------------------------------------------------------------------

 Revenues for  the  three- and  nine-months  ended  September 30,  1995,  were
 reduced from the same periods last year primarily because demand growth as  a
 result of  lower  prices was  lower than  assumed in  the CPUC-ordered  price
 rebalancing.  Revenues  were  also  reduced  because  of  price  cap  revenue
 reductions  ordered  by the  CPUC  under incentive-based  regulation and  the
 effects of toll services competition.















                                      17








                                    <PAGE>

 Effective  January  1,  1995, the  CPUC  allowed long-distance  companies and
 others to  officially  compete with  Pacific  Bell  in providing  local  toll
 services  in California.   That decision also  rebalanced prices  for most of
 Pacific  Bell's  regulated  services  so  that   Pacific  Bell  could  remain
 competitive in the  new environment.  The  CPUC intended this decision  to be
 initially  revenue neutral.    Revenue reductions  due  to lower  prices were
 intended to  be offset  by  other price  increases and  by increased  network
 usage generated by  the lower prices.   Although  Pacific Bell observed  some
 increased usage during the three-  and nine-months ended September  30, 1995,
 calling volumes were  far below levels forecasted  by the CPUC and  far below
 levels necessary to achieve  revenue neutrality.   (See "Revenue  Rebalancing
 Shortfall Filing" on page 31.)

 The decreases  in total operating revenues  from price  rebalancing and price
 cap orders for the three- and  nine-months ended September 30, 1995, compared
 to  1994,  were   partially  offset  by   $92  million   and  $237   million,
 respectively, in  revenues from increased customer  demand.   The increase in
 customer  demand resulted both from general economic growth and the effect of
 price rebalancing.

 The revenue decreases were also partially offset by  a CPUC-ordered refund in
 the  second  quarter of  1994 related  to past  problems with  Pacific Bell's
 payment  processing system.    Due to  the  1994 refund,  miscellaneous other
 service  revenues  for  the  nine-month  period  ending September  30,  1995,
 increased  $27 million  compared  to last  year.   Factors  affecting revenue
 changes are summarized in the following tables.

                Third Quarter 1995 versus Third Quarter 1994
               ----------------------------------------------
                                                                   Total
                                      Price                       change
                          Price       Cap               Customer    from
 ($ millions)           rebalancing   order     Misc.     demand    1994
 ----------------------------------------------------------------------------
 Local service.............  $ 87      -$31       $25       $ 7      $88
 Network access
   Interstate..............     3       -18        18        24       27
   Intrastate..............   -48        -3       -15        54      -12
 Toll service..............  -154       -12       -10       -11     -187
 Other service revenues....     4        -1         9        18       30
                            -----     -----     -----     -----    -----
 Total operating revenues.. -$108      -$65       $27       $92     -$54
 ============================================================================














                                      18








                                    <PAGE>

                First 9 Months 1995 versus First 9 Months 1994
                ---------------------------------------------- 
                                                                   Total
                                      Price                       change
                          Price       Cap               Customer    from
 ($ millions)           rebalancing   order     Misc.     demand    1994
 -----------------------------------------------------------------------
 Local service.............  $289     -$ 93      $ 62      $ 24     $282
 Network access
   Interstate..............    16       -18        31        59       88
   Intrastate..............  -171       -12        13       161       -9
 Toll service..............  -454       -37       -23       -62     -576
 Other service revenues....    12        -1        30        55       96
                            -----     -----     -----     -----    -----
 Total operating revenues.. -$308     -$161      $113      $237    -$119
 =======================================================================

 The increases in revenues due to customer demand  in the above tables reflect
 growth in  key volume   indicators.   The  increases in  customer demand  for
 local service revenues is  the result  of growth in  access lines and  custom
 calling services generated by the improved economy in California. 

 Increases  in  interstate  network access  revenues  due  to customer  demand
 reflect increased  interexchange carrier  access minutes-of-use,  as well  as
 increased  access lines.    Demand-related  increases in  intrastate  network
 access  revenues  also result  from  growth  in  access  minutes-of-use.   At
 Pacific Bell,  the official  introduction of  competition in  the local  toll
 market in January 1995 had the effect of increasing access usage revenues.

 The  decreases in  customer demand-related  toll  service revenues  primarily
 results  from competition (see "Competitive Risk" on  page 35).  In addition,
 Pacific Bell has lost and continues to lose WATS and 800 service business  to
 interexchange carriers  who have the competitive  advantage of  being able to
 offer these  services  both within  and  between  service areas.    Partially
 offsetting these  reductions  for  the three-  and  nine-month  periods  were
 increased usage revenues resulting from general economic growth.

 Demand-related increases  in other  service revenues  reflect the  continuing
 success of  the  Telephone  Companies'  voice  mail  products  and  directory
 operations.

















                                      19








                                    <PAGE>

Operating Expenses
------------------
                          For the 3 Months Ended   For the 9 Months Ended
                                September 30,            September 30,
                          ----------------------    ---------------------
($ millions)                 1995    1994  Change     1995    1994 Change
-------------------------------------------------------------------------
Total operating expenses.. $1,745  $1,726    $19    $5,222  $5,181   $41
                                            1.1%                    0.8%
-------------------------------------------------------------------------

Total  operating expenses for the  three- and nine-months  ended September 30,
1995,  increased when  compared  with 1994  reflecting increased  depreciation
expense, costs resulting from severe storm damage in early 1995, and increased
customer  education and  software  expenses.   These  expenses were  partially
offset  by the  Corporation's continuing  cost  reduction efforts  and reduced
settlements expense as displayed in the tables below.

           Third Quarter 1995 versus Third Quarter 1994
           ---------------------------------------------
                          Pacific Bell Expenses
                         (excluding subsidiaries)
                       ---------------------------------              Total
                                                               Other Change
                        Salaries  Employee Settle-               PTG   From
($ millions)             & Wages  Benefits   ments   Misc.  Entities   1994
---------------------------------------------------------------------------
Cost of products & 
  services...............   -$22      -$13    -$23    -$ 9       $ 6   -$61
Customer operations &
  selling expenses.......     -6         -       -      34        -3     25
General, admin. & other
  expenses...............     -8        11       -     -17        48     34
Property & misc. taxes...      -         -       -       1        -1      -
Depreciation & 
  amortization...........      -         -       -      17         4     21
                           -----     -----   -----   -----     -----  -----
Total operating expenses.   -$36      -$ 2    -$23     $26       $54   $ 19
===========================================================================


















                                      20








                                    <PAGE>


          First 9 Months 1995 versus First 9 Months 1994
          ----------------------------------------------
                          Pacific Bell Expenses
                         (excluding subsidiaries)
                       ---------------------------------              Total
                                                               Other Change
                        Salaries  Employee Settle-               PTG   From
($ millions)             & Wages  Benefits   ments   Misc.  Entities   1994
---------------------------------------------------------------------------
Cost of products & 
  services...............   -$ 4      -$20    -$58    -$14       $10   -$86
Customer operations &
  selling expenses.......     -7       -13       -      29         7     16
General, admin. & other
  expenses...............    -24        14       -     -12        56     34
Property & misc. taxes...      -         -       -       6         -      6
Depreciation & 
  amortization...........      -         -       -      66         5     71
                           -----     -----   -----   -----     -----  -----
Total operating expenses.   -$35      -$19    -$58     $75       $78    $41
===========================================================================

Pacific Bell's salary  and wage expense for the  three- and nine-month periods
ending September  30, 1995,  decreased compared  to the same  periods in  1994
primarily  due to  force reduction.   Force  reduction savings  were partially
offset by  higher overtime expense  for storm and  flood repairs in  the first
half of 1995.  Pacific  Bell's lower employee benefits expense for  the three-
and  nine-month periods  in 1995  compared to  1994 was  primarily due  to the
Corporation's   ongoing  health   care   cost-reduction   efforts.     Certain
nonrecurring adjustments in the  third quarter of 1994 partially  offset these
decreases.   

Pacific  Bell's settlements expense for  the three- and  nine-month periods in
1995  compared to  1994  decreased primarily  due  to the  CPUC-ordered  price
rebalancing which  eliminated reimbursements  to certain other  local exchange
carriers for calls terminating in their territories. 

Pacific Bell's  miscellaneous customer operations and selling expenses for the
three- and nine-month periods in 1995 compared to 1994 increased primarily due
to customer education expenses in the third quarter of 1995.

Pacific  Bell's depreciation expense  increased for the  three- and nine-month
periods in 1995  compared to 1994 primarily  due to higher depreciation  rates
ordered by  the CPUC effective  January 1,  1995, and  higher telephone  plant
balances.

The Corporation's other entities' general and administrative expense increased
for the three- and nine-month  periods in 1995 compared to 1994  primarily due
to increased software expense in the third quarter of 1995.







                                      21








                                    <PAGE>

Interest Expense
----------------
                            For the 3 Months Ended    For the 9 Months Ended
                                 September 30,             September 30,
                            ----------------------    ----------------------
($ millions)                  1995   1994   Change     1995    1994  Change
---------------------------------------------------------------------------
Interest expense..........    $117   $107      $10     $350    $336     $14
                                              9.3%                     4.2%
---------------------------------------------------------------------------

Interest  expense  increased for  the three-  and  nine-month periods  in 1995
compared to 1994  primarily due to interest adjustments  on capital leases and
the discontinuance of the amortization of gains on certain investments.  These
increases were  partially  offset  by  interest expense  associated  with  the
retirement  of medium  term notes  in 1995  and last  year's interest  expense
associated with a CPUC refund order. 

Miscellaneous Income
--------------------
                            For the 3 Months Ended    For the 9 Months Ended
                                 September 30,             September 30,
                            ----------------------    ----------------------
($ millions)                  1995   1994   Change     1995    1994  Change
----------------------------------------------------------------------------
Miscellaneous Income.....      $21    $12       $9      $65     $36     $29
                                             75.0%                    80.6%
----------------------------------------------------------------------------

Miscellaneous  income increased for the three-month period in 1995 compared to
1994 primarily due to a change in  the FCC calculation of "Allowance for Funds
Used  During Construction"  and  unrealized gains  on  trust assets  under  an
executive  compensation deferral plan.  These  unrealized gains will fluctuate
throughout the year and may be offset by unrealized losses depending on market
conditions. The increase for  the nine-month period  in 1995 compared to  1994
included interest  income of $25 million  from a tax refund  received in first
quarter 1995 related to prior years.  These increases were partially offset by
the Corporation's equity losses of its joint ventures.

Income Taxes
------------
                            For the 3 Months Ended    For the 9 Months Ended
                                 September 30,             September 30,
                            ----------------------    ----------------------
($ millions)                  1995   1994   Change     1995    1994  Change
----------------------------------------------------------------------------
Income Taxes.............     $159   $194     -$35     $436    $524    -$88
                                            -18.0%                   -16.8%
-----------------------------------------------------------------------------

The decrease  in income tax expense  for the three- and  nine-month periods in
1995 compared  to 1994  was primarily due  to lower pre-tax  income and  a tax
refund received in first quarter 1995.




                                      22








                                    <PAGE>

Extraordinary Item
------------------

The Telephone Companies  historically have accounted for  the economic effects
of  regulation in  accordance with  the provisions  of Statement  of Financial
Accounting  Standards No.  71  ("SFAS 71"),  "Accounting  for the  Effects  of
Certain Types of  Regulation."  Under  SFAS 71, the  Telephone Companies  have
depreciated telephone plant  using lives  prescribed by regulators  and, as  a
result of other actions of regulators, have deferred recognizing certain costs
or have recognized certain liabilities (referred to as "regulatory assets" and
"regulatory liabilities").

Effective  third  quarter  1995,  management  determined  that,  for  external
financial reporting  purposes, it is no longer appropriate for Pacific Bell to
continue to use  the special SFAS 71 accounting rules  for entities subject to
traditional  regulation.  Management's  decision  to  change  to  the  general
accounting  rules used by competitive enterprises was based upon an assessment
of  the emerging competitive environment in California.  Pacific Bell's prices
for its products and  services are being driven increasingly  by market forces
instead of regulation.

The  discontinued application of SFAS  71 required Pacific  Bell, for external
financial  reporting  purposes,  to write  down  the  carrying  amount of  its
telephone plant and to eliminate its  regulatory assets and liabilities.  As a
result,   the  Corporation  recorded   in  third  quarter   1995  a  non-cash,
extraordinary charge of  $3.4 billion, or $7.86  per share, which is  net of a
deferred income tax  benefit of $2.4 billion.  The  telephone plant write-down
portion   of  the  charge  reflects  a  pre-tax  increase  in  Pacific  Bell's
accumulated depreciation  of approximately  $4.8 billion to  recognize shorter
estimated  lives in  a  competitive market.    The extraordinary  charge  also
includes  a pre-tax  adjustment of  $962 million  to eliminate  Pacific Bell's
regulatory  assets  and  liabilities.  The  discontinuance   of  SFAS  71  for
Pacific Bell was  made in accordance  with Statement  of Financial  Accounting
Standards  No.  101, "Accounting  for  the  Discontinuance  of Application  of
FASB Statement No. 71."  The Corporation's Nevada Bell subsidiary continues to
apply SFAS 71  accounting.  If Nevada  Bell were to  discontinue SFAS 71,  the
financial  impact  would  not have  a  material  effect  on the  Corporation's
earnings.   (See also  Note C  - "Discontinuation  of Regulatory  Accounting -
SFAS 71" on page 9.)

In future years, the discontinuance of SFAS 71 by Pacific Bell is not expected
to materially  affect the Corporation's  depreciation expense,  net income  or
cash  flow. This  action  will  not  affect  Pacific  Bell's  planned  network
investments. The discontinuance  of SFAS 71  by Pacific Bell  is a change  for
external financial reporting purposes only and has no effect on its customers.












                                      23








                                    <PAGE>

Status of Reserves
------------------

As previously  reported, Pacific Bell  established a restructuring  reserve at
the end of  1993 to provide for  the incremental cost of  force reductions and
other related  costs to restructure  its internal  business processes  through
1997.     After  new  hires,  net  force  loss  for  Pacific  Bell  (excluding
subsidiaries) was  approximately 1,700 for the  first nine months of  1995.  A
total of $215 million  was charged to the reserve in the  first nine months of
1995  primarily for  reengineering  projects.   As  of September 30,  1995,  a
balance of $619 million remained in the restructuring reserve.

Pacific Bell continues to  refine its reengineering and force  reduction plans
in  order to  maximize cost savings.   Management expects  fourth quarter 1995
charges  to the  reserve  to exceed  the  $108 million  charged  in the  third
quarter.   Actual charges  to the reserve  in 1995 are not  expected to differ
materially from the previous estimate of $386 million.

During the second quarter of 1995, Pacific Bell announced that it will further
consolidate  its  network operations  centers to  two  by first  quarter 1996,
rather than  four centers as previously  announced.  This move  is expected to
result  in investment  savings of  $20 million  during 1995  without affecting
customer service.

In  December 1994, the Corporation's real estate subsidiary sold substantially
all of its assets for approximately $160 million which included $43 million in
notes secured by four of the properties.  In March and April of 1995, defaults
on  the secured notes  resulted in the  return of  the four properties  to the
Corporation.    The Corporation  is  in the  process  of selling  the returned
properties.   Management believes the $46 million reserve balance at September
30, 1995 is adequate to cover potential losses on the disposal of the 
remaining assets.


LIQUIDITY AND FINANCIAL CONDITION

The  Corporation defines  liquidity as  its ability  to generate  resources to
finance  business  expansion,  construct   capital  assets,  pay  its  current
obligations, and pay dividends.  The  Corporation has been meeting most of its
liquidity needs from internally  generated funds.  The Corporation  expects to
continue to meet the majority of its liquidity needs from internally generated
funds, but can also obtain external  financing through the issuance of  common
stock and short- and long-term debt, if needed.

Short-term  borrowings are  available  under a  commercial  paper program  and
through uncommitted unused lines of credit.  These lines of credit are subject
to continued review by the  lending banks.  At September 30,  1995, the unused
lines of credit available totaled approximately $2.6 billion.









                                      24








                                    <PAGE>

For longer term borrowings, Pacific Bell has remaining authority from the CPUC
to  issue  up  to $1.25 billion  of  long- and  intermediate-term  debt.   The
proceeds  may be  used to  redeem maturing  debt and  to refinance  other debt
issues.  Pacific Bell has remaining authority from the Securities and Exchange
Commission  ("SEC") to issue up to $650 million of long- and intermediate-term
debt  through a  shelf registration  filed in  April 1993.   In  addition, the
Corporation's PacTel  Capital Resources  ("PTCR") subsidiary may  issue up  to
$192 million  of medium-term notes through  a shelf registration  on file with
the SEC.

In October 1995, the Corporation and Pacific Telesis Financing   I, II and III
(the "Trusts"), each Trust a Delaware statutory business trust,  filed a shelf
registration with the  SEC to sell up  to $1 billion of  the Trusts' preferred
securities  to the public.  The Trusts'  preferred securities are subject to a
guarantee from  the Corporation as  described in  the registration  statement.
(See Note F - "Subsequent Event" on page  14.)  Each Trust was formed for  the
exclusive  purpose of  issuing  preferred and  common securities  representing
undivided beneficial interests in  the Trusts and investing the  proceeds from
the sale of the preferred securities in unsecured subordinated debt securities
of  the  Corporation. The  registration statement  has  not yet  been declared
effective  by  the SEC.    Such offerings  will be  made  only by  means  of a
prospectus and the proceeds will  be used for general corporate purposes.   In
November 1995, Standard  & Poor's  Corporation ("S&P")  and Moody's  Investors
Services, Inc. ("Moody's") assigned preliminary ratings of Single-A  ("A") and
(P) "al", respectively to the preferred securities. 

In October 1995, the Corporation and  the Los Angeles Times announced that the
two  companies  will  discontinue  their  equally  owned  joint  venture,  ESS
Ventures.   The joint  venture  was created  to explore  and offer  electronic
shopping services.  The Corporation and  the Los Angeles Times have decided to
independently  develop  their  own services.    The  financial  impact of  the
discontinuance  of  ESS Ventures  will  not  have  a  material effect  on  the
Corporation's earnings.

In  July  1995,  the  Corporation  acquired  100  percent  of  the  stock   of
Cross Country  Wireless   ("CCW")  to   provide  wireless  cable   service  in
Southern California.    The  Corporation   now  has  existing  wireless  cable
operations with over 40,000 video customers in Riverside, California and holds
licenses  and  rights  to provide  wireless  video  services  in Los  Angeles,
Orange County,  and San  Diego.   The  transaction  involved the  exchange  of
approximately $120 million of  Pacific Telesis Group treasury stock,  or about
4.4 million  shares, for the outstanding  stock of CCW.   The Corporation also
assumed approximately  $55 million  of CCW  debt that  was retired  during the
third  quarter of 1995.   By the end  of 1996, the Corporation  plans to offer
more  than   100  channels   of  digital   programming  in   the  Los Angeles,
Orange County,  and San  Diego areas  which can  deliver high  quality digital
picture with CD-quality sound  to approximately five million households.   The
actual  number  of  subscribers  cannot  be  predicted  at  this  time.    The
Corporation continues to  evaluate opportunities to expand  its wireless video
services offerings.







                                      25








                                    <PAGE>

In  September 1995, management  announced a  strategy whereby  the Corporation
will  focus on  wireless  digital  television  in Southern  California,  where
wireline video technology construction  will slow, and accelerate construction
of its advanced communication network in the San Francisco Bay Area.  The plan
will reduce capital needs by as much as $1 billion over the next five years.

In September 1995,  TELE-TV, of which  the Corporation is  a one-third  owner,
announced it had selected Thomson Consumer Electronics as its wireless set-top
box supplier.  The contract will include building three million set-top boxes,
valued at more than $1 billion over the course of three years. 

In June 1995, the Corporation paid  the remaining $557 million balance for the
two licenses it had acquired to offer personal communications services ("PCS")
in  California  and  Nevada.   The  licenses  totaled  $696  million of  which
20 percent had been paid by March 1995 including a $56 million deposit made in
1994.  These payments  were made  from a  combination of  internally generated
funds  and  external financing.    The Corporation  anticipates  financing the
build-out of the  PCS network, including  a five year, $300  million agreement
with  Ericsson  for  network  equipment,  from  a  combination  of  internally
generated funds and external financing.

In May 1995, Duff and Phelps, Inc. lowered the rating of Pacific Bell's  bonds
from  Double-A ("AA")  to  Double-A-Minus ("AA-").    At September  30,  1995,
Pacific Bell had approximately $5 billion of long- and  intermediate-term debt
outstanding.  The rating  action reflected price cap revenue  reductions, toll
services   competition,  and   proposed  interim   rules  on   local  services
competition.    The  rating  action  also  reflected  the  expected  financing
requirements  of the Corporation's  broadband and  PCS networks.  In addition,
Moody's  has changed  its outlook  on the  long-term debt  of Pacific  Bell to
"negative"  from  "stable,"  citing   concerns  about  risks  associated  with
deployment  of the broadband network  and potential pressure  on the financial
profile  and performance  of Pacific  Bell.   Moody's also  expressed concerns
about   the  timetable   for   the  introduction   of   competition  for   all
telecommunications  services  in  California  and  the  risk  that  the  rules
governing the competitive environment will be unbalanced.

In  August  1995,  S&P removed  bond  and  commercial  paper  ratings  of  the
Corporation, PacTel  Capital Resources,  and Pacific Bell  from "CreditWatch,"
where they were  placed in May 1995  following the release by the  CPUC of its
proposed interim rules  on local services  competition.  S&P  stated that  the
long-term rating outlook for the above entities is negative.

Cash  from   continuing   operations  for   operating   activities   decreased
$180 million for the  nine months ended  September 30,  1995, compared to  the
same period in 1994.  The decrease was primarily due to  timing differences in
the payment of accounts payable  and other liabilities and the trend  in lower
revenues.  The decrease  in cash flow was  partially offset by tax  refunds of
$152 million received in 1995.









                                      26








                                    <PAGE>

Cash  used  by  continuing   operations  for  investing  activities  increased
$944 million  for the nine  months ended September  30, 1995, compared  to the
same  period  in  1994.    The  increase was  primarily  due  to  payments  of
$656 million  on the PCS licenses  and the associated  capitalized interest in
1995.  In  addition,  the  increase  also   reflects  the  Corporation's  1995
investments in the TELE-TV joint venture  with Bell Atlantic and NYNEX and the
recently disbanded LA Times  joint venture.  The Telephone  Companies invested
about $1.2 billion  for their networks for  the first nine months  of 1995 and
now  expect  to invest  about $1.8 billion  for  the year  excluding broadband
costs.  

Cash  used  by  continuing   operations  for  financing  activities  decreased
$1,079 million for the  nine months ended September 30,  1995, compared to the
same period  in 1994.   The  decrease primarily reflects  reduced payments  of
short-term  borrowings in  1995 and  an increase  in short-term  borrowings of
approximately $820 million.  In 1994, the Corporation substantially repaid its
balance of short-term  borrowings during the  first half of  the year.   These
decreases  were  partially offset  by the  retirement,  primarily by  PTCR, of
approximately $260 million of long-term debt in 1995.

Significant changes in certain  balance sheet items occurred primarily  due to
the discontinuance  of SFAS 71.   (See NOTE C -  "Discontinuance of Regulatory
Accounting - SFAS 71" on page 9.)  Accumulated depreciation on telephone plant
increased due  to the  discontinuance of  SFAS 71. A  portion of  the deferred
income  tax  benefit associated  with the  SFAS  71 charge  increased deferred
charges and other noncurrent assets along with the reclassification of certain
other  deferred  taxes.   Deferred charges  and  other noncurrent  assets also
increased  due to the  Corporation's investment  in PCS  licenses (see  Note A
under "Intangible Assets  and Capitalized  Interest" on page  9).   Offsetting
these increases  was the  elimination of  regulatory  assets due  to SFAS  71.
Long-term  obligations   increased  primarily   due  to  the   elimination  of
unamortized  debt  redemption  costs  associated with  the  discontinuance  of
SFAS 71.   Shareowners'  equity  and the  Corporation's deferred  income taxes
liability  decreased due to the  extraordinary charge associated  with SFAS 71
net of related tax benefit.

The Corporation's debt ratio  changed to 73.8 percent  at September 30,  1995,
from 49.6  percent at December  31, 1994,  primarily due to  the extraordinary
charge,  which  decreased shareowners'  equity,  and  increases in  short-term
borrowings of approximately $820  million in 1995.  Pre-tax  interest coverage
was negative for the first  nine months in 1995 compared to 5.2  times for the
same period  in 1994.   This decrease was  due primarily to  the Corporation's
reported loss in third quarter 1995.

For  third  quarter  1995,  the  Pacific  Telesis  Group  Board  of  Directors
maintained the Corporation's dividend at $0.545 per share.











                                      27








                                    <PAGE>

LABOR AGREEMENT

On  August 8,  1995, the  Telephone Companies  reached a  tentative three-year
agreement with  the Communications Workers  of America which  represents about
33,000  employees.   The agreement  was ratified  by the  union membership  in
September 1995.  The new agreement  features a 10.5 percent wage increase over
three  years,  a 14  percent  pension increase,  a  $16  million training  and
retraining program,    a  new voluntary  early  retirement  option,  continued
employment  security  and improved  health  benefits.   Agreements  were  also
reached with two other unions.   Management estimates that the agreements will
result  in increased  costs of  approximately $550  million over  three years.
This estimate  does not include  savings which  may result  from future  force
reductions.  In October 1995, the Corporation began offering the new voluntary
early retirement option to certain non-management employees.


PENDING REGULATORY ISSUES

Telecommunications Legislation
------------------------------
In June 1995,  the U.S. Senate approved a telecommunications  bill which would
ease  certain  restrictions imposed  by the  Communications  Act of  1934, the
1982 Consent Decree  and the 1984 Cable  Act.  Among the  provisions, the bill
would allow telephone companies  and cable television companies to  compete in
each others' markets.  In  August 1995, similar legislation was passed  by the
House of  Representatives.  In October  1995, the bills went  to conference to
reconcile the  differences.   Management believes that  the telecommunications
reform  legislation pending  before Congress  is a  balanced plan  that, after
reconciliation and if enacted, would begin to offer consumers the  benefits of
real competition.   The President of the U. S. has  indicated that he may veto
the legislation unless certain changes are made.  

Calling Party Identification
----------------------------
In  May 1995,  the  FCC established  national  rules affecting  how  telephone
companies,  including  the  Telephone   Companies,  may  offer  calling  party
identification services  ("Caller  ID").   Caller  ID displays  the  telephone
number  of  the calling  party  on  a device  that  attaches  to a  customer's
telephone unless  it is  blocked by  the calling party.  Caller ID  is already
available in  most other states but has not been  offered in California due to
CPUC blocking requirements that  make the service uneconomic to  provide.  The
FCC  ruling preempts certain of  the CPUC's restrictions  which made providing
Caller ID uneconomic.  In June 1995, the CPUC appealed the FCC's ruling to the
U.S. Court of Appeals for the Ninth Circuit.  The appeal is pending.













                                      28








                                    <PAGE>

FCC Regulatory Framework Review
--------------------------------

In March 1995,  the FCC adopted  new interim price  cap rules that  govern the
prices  that  the  larger  local  exchange carriers  ("LECs"),  including  the
Telephone  Companies, charge  interexchange  carriers ("IECs")  for access  to
local telephone networks.

The interim rules  require LECs to adjust their maximum  prices for changes in
inflation,  productivity  and certain  costs beyond  the  control of  the LEC.
Under the interim plan, LECs may choose  from three productivity factors: 4.0,
4.7, or 5.3 percent.  Election of the 5.3 percent  productivity factor permits
the  LEC to retain  all of its  earnings whereas the  other lower productivity
factors require earnings to be shared with customers.  In adopting the interim
plan,  the  FCC required  LECs to  prospectively  reduce their  price  caps by
0.7 percent for each  year the LEC elected the lower  3.3 percent productivity
factor during  1991-94.   For  Pacific Bell  this resulted  in  a 2.1  percent
reduction.   Likewise, Nevada Bell  will have a  1.4 percent reduction  due to
selecting the  3.3  percent  productivity factor  in  two prior  years.    The
Telephone  Companies have formally contested these reductions as well as other
adjustments associated with the interim plan  in the U.S. Court of Appeals for
the District of  Columbia (the "Court").  In August 1995,  the Court agreed to
expedite review of these adjustments. 

The  FCC  plans  to  adopt permanent  rules  in  1996  following a  rulemaking
proceeding.  Management continues  to believe that the  FCC should adopt  pure
price  cap regulation  and  eliminate the  productivity  factor, sharing,  and
earnings caps.

The Telephone Companies' 1995  annual access filings implementing the  interim
rules  took effect  August 1,  1995.   As a  result, the  Telephone Companies'
revenues were reduced by approximately $126 million through June 30, 1996.  Of
this  amount, $72 million was reflected in  the Corporation's 1994 financials.
The Telephone Companies chose the 5.3 percent productivity factor that enables
them  to  retain  all of  their  earnings  after  July 1,  1995.    The higher
productivity factor was  chosen because  management believes that  it will  be
more than offset by elimination of the sharing mechanism.

Video Dialtone Applications Approval
------------------------------------

In July 1995,  the FCC approved Pacific  Bell's applications for  authority to
offer video  dialtone services in  specific locations  in four of  its service
areas.    The approval  allows  Pacific Bell  to begin  installing  the video-
specific components of  its advanced communications network.   Construction of
the video-specific elements of the network will give customers access to  such
interactive  services as  movies and television  shows on  demand, interactive
news,  tele-education,  home  shopping,  video  games,  community  information
listings, high-speed Internet access  and broadcast programming.  Construction
of the telephone portion of the network began in May 1994. 







                                      29








                                    <PAGE>

In September 1995, management announced it would concentrate deployment of the
advanced  communications network  in  the  San  Francisco  Bay  Area,  one  of
Pacific Bell's most competitive markets.  Management had previously planned to
build   an  advanced   communications  network   simultaneously  in   Southern
California.  The Corporation's  acquisition of Cross Country Wireless  Inc., a
company with rights to deliver  wireless digital television to more than  five
million  homes, allows the Corporation  to introduce services  more rapidly in
Southern  California  without  the  immediate  deployment  of  wireline  video
technology.

Pacific   Bell's  approved   video  dialtone   applications,  filed   in  late
December 1993,  cover approximately  1.3 million homes  throughout California.
With  this approval, Pacific Bell is  on track to be the  first company in the
United States to offer  a single full  service network, supporting  telephony,
data, and video.   Technology trials will be conducted  during the second half
of 1995 in the San  Francisco Bay Area, with paying customers  connected early
next year.  Interactive services  will be offered to consumers beginning  mid-
1996. 

Pacific  Bell has  selected  the state-of-the-art  hybrid fiber/coaxial  cable
architecture.   The technology is  cost effective  to deploy and  operate, and
allows Pacific Bell to achieve  significant operational savings.  Furthermore,
the architecture is flexible enough to meet customer needs today while network
capacity can be expanded easily as demand grows.

There are still critical  regulatory issues to resolve before Pacific Bell can
deliver the full benefits of the  "communications superhighway."  The FCC must
resolve  the issue  of whether  programming affiliates  of the  video dialtone
providers  will be  regulated  under cable  television  rules. While  a  cable
television system allows the owner sole discretion to determine programming, a
video dialtone platform is a common  carrier platform open to any  programmer.
Management believes  that telephone companies providing  video dialtone should
be regulated solely as  common carriers even if they provide  some programming
on the video dialtone platform.























                                      30








                                    <PAGE>

CPUC Annual Price Cap Filing
----------------------------

In October  1995, Pacific  Bell filed  its annual,  mandated price cap  advice
letter  filing  for 1996  with  the CPUC.    However, this  year's  filing was
complicated by  the fact that the  CPUC has not adopted  a productivity factor
for Pacific Bell for 1996 for use in  the price cap formula.  As a result, and
solely  at the CPUC's request, Pacific Bell  included in its price cap filing,
"for illustrative purposes only", the revenue decrease that would result using
the productivity factor of five  percent that had been adopted for use in 1994
and 1995.   The resulting "illustrative" revenue  decrease from our price  cap
filing would be $63  million, consisting of an illustrative  revenue reduction
of $116 million due to the "inflation minus productivity" portion of the price
cap formula  and a  proposed  revenue increase  of $53  million  due to  other
partially offsetting items.  The CPUC is currently examining whether to modify
or  eliminate  the "inflation  minus productivity"  portion  of the  price cap
formula and has indicated that it could  reach a decision by the end of  1995.
(See "CPUC Regulatory Framework Review" below.)

Uniform Systems of Account ("USOA") Turnaround Adjustment
---------------------------------------------------------

In May 1995, Pacific Bell  filed an application with the CPUC to eliminate the
USOA  Turnaround  Adjustment  effective  January  1,  1995.   This  Turnaround
adjustment  is a vestige of traditional rate-of-return regulation and has been
in effect since 1988.  Because of the adjustment, Pacific Bell's revenues have
been  reduced by  approximately  $23  million each  year  since  1988.   These
adjustments  were intended  to reflect  annual revenue  requirement reductions
resulting from  the CPUC's adoption of a  capital-to-expense accounting change
in  1988.   The CPUC  held evidentiary hearings  in September  1995 addressing
whether the USOA Turnaround adjustment should be eliminated.  Pacific Bell has
strongly recommended that this adjustment be discontinued effective January 1,
1995, which  would result in  a one-time revenue  increase to Pacific  Bell of
$23 million for 1995.  The CPUC's Division of Ratepayer Advocates has proposed
that  Pacific  Bell  be   ordered  to  permanently  reduce  its   revenues  by
$106 million  effective January  1,  1996.    AT&T  Corp.  has  proposed  that
Pacific Bell  should  be  ordered  to  reduce  its   revenues  permanently  by
$112 million over the next ten years and reduce its revenues  by an additional
$43 million on January  1, 1996.  Management is unable  to predict the outcome
of this matter.

Revenue Rebalancing Shortfall Filing
------------------------------------

In  September 1995, Pacific Bell filed  for $214 million of revenue increases.
The request was to address the revenue shortfall as a result of the CPUC price
rebalancing decision which  was intended  to be revenue  neutral.   Management
cannot predict the outcome of this matter.









                                      31








                                    <PAGE>

CPUC Regulatory Framework Review
--------------------------------
In  June 1995,  Pacific  Bell  filed  an  emergency  petition  with  the  CPUC
requesting  an expeditious  review of  its current  regulatory framework.   In
July 1995, the CPUC  granted Pacific  Bell's request and  announced the  first
phase of the review which is addressing three issues:

 1.  Should  the inflation minus productivity portion of the price cap formula
     be modified or eliminated?
 2.  Should the price cap formula  be applied to all of the services placed in
     the categories for non-competitive  and partially competitive services or
     only to services placed in the category for non-competitive services?
 3.  Should  any  modifications to  the  regulatory  framework be  ordered  in
     stages, contingent on reviewing milestones?

Management  believes that the  inflation minus productivity  factor portion of
the price cap formula should be eliminated.  As Pacific Bell operates under an
increasingly competitive environment, competition itself replaces the need for
formula based adjustments to rates.  The CPUC has indicated that it  wishes to
conclude  the first phase of its review by the end of 1995.  Management cannot
predict the future effect of the CPUC's review on revenues.

Depreciation Filing
-------------------

The CPUC evaluates and prescribes depreciation rates each year.  In June 1995,
Pacific Bell requested  technical changes which would result in  a $34 million
decrease  in annual depreciation  expense.   This request  was not  related to
management's  decision to  discontinue accounting under  SFAS 71  for external
financial   reporting  purposes.     In   November  1995,  the   CPUC  granted
Pacific Bell's  request  with  new  depreciation  rates  to  become  effective
January 1, 1996.

Local Services Competition
--------------------------

In July  1995, the CPUC issued initial rules opening the local exchange market
to  competition.   Facilities-based  competitive local  carriers ("CLCs")  are
authorized to begin providing  local phone service beginning January  1, 1996.
Those companies leasing lines for  resale will be able to offer  phone service
by  March  1, 1996.    No  CLC may  begin  operating  until all  certification
requirements  are  satisfied  and the  CPUC  grants  a  certificate of  public
convenience and  necessity.  As of  October 1995, 67 companies  had filed with
the CPUC for authority to offer local phone service in  Pacific Bell's service
areas.












                                      32








                                    <PAGE>

The  CPUC expects  to  resolve remaining  issues  and  issue final  rules  for
implementing full competition in  all California telecommunications markets by
January  1,  1997.    The  CPUC  has been  taking  testimony  and  is  holding
evidentiary  hearings   on  specific   unresolved  issues  related   to  local
competition.  These issues  include LEC pricing flexibility, resale  terms and
conditions  including prices,  points of  network interconnection,  prices for
interim  number portability  and whether the  rules provide  the LECs  with an
opportunity to earn a fair rate of return.

In October 1995  Pacific Bell  filed proposed guidelines  for selling  network
services and capabilities to CLCs.  The  proposal outlines plans for wholesale
pricing, universal service funding,  joint marketing and other concerns  which
management  believes  must  be  addressed  before  local  competition  can  be
introduced next year.  Pacific Bell has also filed testimony  showing that the
effect  of the  CPUC's initial  local competition  rules, taken  together with
possible  unfavorable  decisions on  other  pending  regulatory issues,  would
deprive Pacific Bell  of the opportunity to earn  a fair rate of return.   The
CPUC denied Pacific Bell's Application for Rehearing of the initial rules.

Although management supports the expansion of local telephone competition,  it
is concerned that  under the CPUC's initial rules competitors  will be able to
package and  resell local phone  service together with  long-distance service,
while Pacific Bell will still not be able to offer customers the same array of
services.  This  would be  a significant competitive  disadvantage to  Pacific
Bell since  it is prohibited by  the 1982 Consent Decree  from providing long-
distance service between service areas.

Universal Service
-----------------

In July 1995,  in connection with its local services competition decision, the
CPUC affirmed its commitment to universal service and proposed rules to assure
the continuation of affordable, high quality service in the coming competitive
local phone services market.  Universal service issues are  fundamental to the
ongoing  CPUC proceeding to allow local and long-distance companies to compete
in  providing basic  local phone  services, just  as  they already  compete in
providing local toll services.

The CPUC  has stated that  companies that want to  compete in the  local phone
services  market  will  have the  opportunities  as  well  as the  obligations
associated with  universal service.   Hearings have been  held to seek  public
comment  on  universal  service  in  California.    Management  believes  that
universal service  issues  should be  resolved  before resale  competition  is
authorized. Resale competition is currently scheduled to begin March 1, 1996.













                                      33








                                    <PAGE>

Revenues Subject to Refund
--------------------------

In 1992, the CPUC issued a decision adopting, with modification, SFAS No. 106,
"Employers' Accounting  for Postretirement Benefits Other  than Pensions," for
regulatory  accounting purposes.    Annual price  cap  decisions by  the  CPUC
granted Pacific  Bell $100  million in  each of  the years 1995  and 1994  for
partial recovery of  higher costs under  SFAS No. 106.   However, the CPUC  in
October 1994 reopened the  proceeding to determine the criteria  for exogenous
cost  treatment  and whether  Pacific Bell  should  continue to  recover these
costs.     The  CPUC's  order  held  that  related  revenues  collected  after
October 12, 1994 are subject to refund. 

Beginning  August  1,  1995,  approximately $25 million  annually  of  1993-94
postretirement benefits costs are being recovered subject to  potential refund
in the interstate  jurisdiction.  The FCC is examining  the appropriateness of
this  cost recovery in a  new proceeding.   Management believes postretirement
benefits  costs are  appropriately  recoverable in  Pacific  Bell's price  cap
filings,  but  is  unable  to  predict the  outcome  of  the  CPUC's  or FCC's
proceedings.

Public Service Commission of Nevada ("PSCN") Regulatory Review
--------------------------------------------------------------

On  April  24, 1995,  the PSCN  issued  a rule  redesigning telecommunications
regulation in the state of Nevada.  This rule includes  many reforms initiated
by an  industry coalition which  includes Nevada  Bell, Nevada IECs  and other
Nevada  LECs.   The  rule includes  compromises  reached with  other  parties,
including  the cable industry and the state  Office of Consumer Advocate.  The
new rule will remove barriers to toll and local competition in Nevada but will
also allow  Nevada Bell  to keep  any productivity  gains  by eliminating  the
current customer sharing provision.  The new plan is optional and will require
a rate case to determine initial pricing.  After adoption, pricing flexibility
is based on the nature and competitive environment of the service.  Prices for
basic  service are  capped during  a three or  five year  period based  on the
company's election.  The plan does not prohibit or require presubscription and
allows   interconnection  where   technologically  feasible.     Nevada   Bell
anticipates a complete rate redesign as part of a rate case which it will file
in first quarter of 1996, for rates  effective in the latter part of 1996 when
the  current plan  expires.   Nevada Bell  cannot predict  the outcome  of the
proceeding  but  believes that  competition  and  increased productivity  will
result in price reductions for customers.  















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                                    <PAGE>

Property Taxes
--------------

In  1992,  a  settlement agreement  was  reached  between the  State  Board of
Equalization,  all  California  counties,  the  State  Attorney  General,  and
28 utilities, including  Pacific Bell, on  a specific methodology  for valuing
utility property for property tax purposes.  The CPUC opened  an investigation
to determine  if any  resulting property  tax  savings should  be returned  to
customers.   Intervenors have asserted that  as much as $20  million of annual
property  tax savings  should be  treated as  an exogenous  cost reduction  in
Pacific Bell's annual price cap filings.  These intervenors have also asserted
that past property  tax savings totaling as much as  $60 million plus interest
should be returned to  customers.  Management  believes that under the  CPUC's
regulatory  framework, any  property tax savings  should only be  treated as a
component of the  calculation of  shareable earnings.   In an Interim  Opinion
issued in June 1995, the CPUC decided to defer a final decision on this matter
pending  resolution of  the criteria  for exogenous  cost treatment  under its
regulatory  framework.    The criteria  are  being  considered  in a  separate
proceeding initiated for rehearing of the CPUC's postretirement benefits other
than pensions decision.  


DISPOSITION OF BELLCORE

In  April 1995,  Bellcore announced  a decision  by its  owners to  pursue the
disposition of their interests in Bellcore.  Bellcore is a leading provider of
communications  software and consulting services.  It is owned by Pacific Bell
and six of the telephone regional holding companies  formed at the divestiture
of  AT&T  Corp. in  1984.    A final  decision  regarding  the disposition  of
interests and  the structure of such  a transaction has yet  to be determined.
Any transaction will be subject to necessary approvals. 


COMPETITIVE RISK

Regulatory,  legislative  and  judicial  actions,   as  well  as  advances  in
technology, have expanded the types  of available communications products  and
services and the number of companies offering such services.  Various forms of
competition are  growing  steadily and  are already  having an  effect on  the
Corporation's  earnings.   An increasing  amount of  this competition  is from
large  companies  with  substantial  capital,   technological,  and  marketing
resources.    Currently,  competitors   primarily  consist  of   interexchange
carriers, competitive  access  providers and  wireless  companies.   Soon  the
Corporation will  also face  competition from  cable television companies  and
others.












                                      35








                                    <PAGE>

Effective January  1,  1995, the  CPUC authorized  toll services  competition.
Toll service  revenues represented approximately 14 percent  of Pacific Bell's
total operating revenues  for the first nine months of 1995.  In May 1995, the
CPUC issued a decision  that requires Pacific Bell to permit Centrex customers
who purchase certain  optional routing  features to  route intra-service  area
calls to the toll carrier of their choice.  Since the official introduction of
competition in January 1995, management estimates that Pacific Bell lost about
five to six percent of the total local toll services market to other providers
by the end  of third quarter 1995.  Management estimates  that, as a result of
official  competition  and  unofficial  competitive  losses  in  prior  years,
Pacific Bell  currently serves  less  than 60  percent  of the  business  toll
market.    Changes  contemplated  by  the  CPUC  and  the effects  of  pending
legislation make it too early to predict  when, or at what level, market share
loss will stabilize.

The CPUC  has also ordered Pacific  Bell to offer expanded  interconnection to
competitive  access  providers. These  competitors  are allowed  to  carry the
intrastate   portion   of  long-distance   and   local   toll  calls   between
Pacific Bell's central offices and long-distance carriers.  As a result of the
CPUC  order, competitors  may choose to  locate their  transmission facilities
within or  near Pacific  Bell's central  offices.  Intrastate access  revenues
subject   to   increased  competition   represent   about   five  percent   of
Pacific Bell's total revenues. 

In addition,  the CPUC has  issued initial  rules to open  the local  exchange
market  to  competition beginning  January  1,  1996.    (See  "Local Services
Competition" on  page 32.)   Local service revenues  represented approximately
42 percent  of  Pacific Bell's  total operating  revenues  for the  first nine
months of 1995.   Local exchange  competition will also affect  network access
revenues as CLCs provide access services.  

Because of the unique  characteristics of the California market,  Pacific Bell
is  vulnerable to competition.  Pacific Bell's business and residence revenues
and profitability are highly concentrated among a portion of its customer base
and  geographic areas.   Competitors need only  serve portions of  our service
area to  compete for  the majority  of Pacific Bell's  business and  residence
usage revenues.   High-margin customers  are clustered in  high density  areas
such as Los Angeles and  Orange County, the San Francisco Bay Area,  San Diego
and Sacramento.

Competitors can be  expected to target  the high-usage, high-profit  customers
and can do this  by targeting only a small  part of our geographic area  and a
small part of  our customer  base.  Large  and well-capitalized  long-distance
carriers,  wireless   companies,  competitive   access  providers   and  cable
television companies are preparing to compete in major local exchange markets.
In some  cases they are already  deploying switches and other  facilities.  In
California,  cable television companies currently pass more than 90 percent of
Pacific Bell's residential customers.  Cable television companies have already
announced plans for major build-outs to  compete in the local exchange market.
All of Pacific Bell's  customers have already chosen a  long-distance company,
and  there  is  more  advertising  from  long-distance  companies   than  from
traditional local exchange companies including Pacific Bell.





                                      36








                                    <PAGE>

Market research has shown  that a substantial majority of  residence customers
prefer  using one  company for  all  telecommunications services.   This  is a
significant competitive disadvantage to Pacific Bell since it is prohibited by
the 1982 Consent  Decree from providing long-distance  service between service
areas.  Similar market research shows  that a substantial majority of business
customers  would  select  one of  the  major  long-distance  companies over  a
combination  of Pacific  Bell and  a long-distance  company because  using one
carrier would permit them to apply all of their traffic toward volume discount
plans offered by the long-distance companies.

For these  reasons, management believes that implementation  of local exchange
competition prior to the Telephone Companies being allowed to  enter the long-
distance market would provide already  strong competitors an unfair advantage.
Management also  believes that a truly open competitive market would allow for
the simultaneous entry of all telecommunications competitors into each others'
markets on  an equal  footing.   Although the  Telephone Companies  are facing
increasing competition for all  of their services, management believes  that a
truly  open competitive market, in  which the Telephone  Companies can compete
without restrictions, offers long-term opportunity to grow the business.






































                                      37








                                    <PAGE>

PART II.    OTHER INFORMATION

Item 6.     Exhibits and Reports on Form 8-K.

  (a)   Exhibits.

        Exhibits identified as on file with the SEC are incorporated herein by
        reference as exhibits hereto.


Exhibit
Number                            Description
-------                           -----------

   4a  Rights   Agreement,   dated  as   of   September   22,  1989,   between
       Pacific Telesis  Group  and The  First  National  Bank  of  Boston,  as
       successor Rights Agent, which includes as Exhibit B thereto the form of
       Rights Certificate  (Exhibits 1 and  2 to Form  SE filed  September 25,
       1989 as part of Form 8-A, File No. 1-8609).

   4b  No  instrument  which defines  the  rights  of  holders  of  long-  and
       intermediate-term debt of Pacific Telesis Group or its subsidiaries  is
       filed  herewith  pursuant to  Regulation  S-K,  Item 601(b)(4)(iii)(A).
       Pursuant to  this regulation, Pacific  Telesis Group  hereby agrees  to
       furnish a copy of any such instrument to the SEC upon request.

   11  Computation of Earnings per common share.

   15  Letter re unaudited interim financial information.

   27  Article 5 FDS for 3rd Quarter 1995 Form 10-Q.


The Corporation will furnish to  a security holder upon request a  copy of any
exhibit at cost.

   (b)   Reports on Form 8-K.
         --------------------

         Form 8-K, Date of Report  September 7, 1995, was filed with  the SEC,
         under Item 5, announcing the discontinuance of SFAS 71.
















                                      38








                                    <PAGE>


FORM 10-Q





                                  SIGNATURE
                                  ---------

Pursuant  to  the requirements  of the  Securities Exchange  Act of  1934, the
registrant  has duly  caused this  report to  be signed on  its behalf  by the
undersigned thereunto duly authorized.





                                      Pacific Telesis Group




                                      
                                 BY   /s/ W. E. Downing
                                      --------------------------
                                      W. E. Downing
                                      Executive Vice President -
                                      Chief Financial Officer & Treasurer


November 14, 1995

























                                      39








                                    <PAGE>

                                EXHIBIT INDEX

Exhibits  identified as  on  file  with the  SEC  are incorporated  herein  by
reference  as exhibits hereto.  All other exhibits are provided as part of the
electronic transmission.

Exhibit
Number                            Description
-------                           -----------

   4a   Rights   Agreement,  dated   as   of  September   22,  1989,   between
        Pacific Telesis  Group  and  The First  National  Bank  of  Boston, as
        successor Rights Agent, which  includes as Exhibit B thereto  the form
        of Rights Certificate (Exhibits 1 and 2 to Form SE filed September 25,
        1989 as part of Form 8-A, File No. 1-8609).

   4b   No  instrument  which  defines the  rights  of  holders  of long-  and
        intermediate-term debt of Pacific Telesis Group or its subsidiaries is
        filed herewith  pursuant to  Regulation  S-K, Item  601(b)(4)(iii)(A).
        Pursuant to this  regulation, Pacific Telesis  Group hereby agrees  to
        furnish a copy of any such instrument to the SEC upon request.

   11   Computation of Earnings per common share.

   15   Letter re unaudited interim financial information.

   27   Article 5 FDS for 3rd Quarter 1995 Form 10-Q.






























                                      40