<PAGE>

                                     FORM 10-Q

                                   United States
                        SECURITIES AND EXCHANGE COMMISSION
                              Washington, D.C. 20549


(Mark One)

     |X|          Quarterly Report Pursuant to Section 13 or 15(d) of the
                          Securities Exchange Act of 1934

                 For the quarterly period ended September 30, 1997

                                        or

      |_|         Transition Report Pursuant to Section 13 or 15(d) of the
                          Securities Exchange Act of 1934

                   For the transition period from       to

                           Commission File Number 1-8609

                               PACIFIC TELESIS GROUP

                Incorporated under the laws of the State of Nevada
                 I.R.S. Employer Identification Number 94-2919931

                130 Kearny Street, San Francisco, California 94108
                         Telephone Number: (415) 394-3000


THE REGISTRANT,  A WHOLLY-OWNED SUBSIDIARY OF SBC COMMUNICATIONS INC., MEETS THE
CONDITIONS SET FORTH IN GENERAL  INSTRUCTION H(1)(a) AND (b) OF FORM 10-Q AND IS
THEREFORE  FILING THIS FORM WITH REDUCED  DISCLOSURE  FORMAT PURSUANT TO GENERAL
INSTRUCTION H(2).

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


<PAGE>





PART I - FINANCIAL INFORMATION
Item 1.  Financial Statements
<TABLE>

PACIFIC TELESIS GROUP
---------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
Dollars in millions
(Unaudited)
---------------------------------------------------------------------------------------
<CAPTION>
                                                   ------------------------------------
                                                     Three months        Nine months
                                                         ended              ended
                                                     September 30,      September 30,
                                                 --------------------------------------
                                                    1997      1996      1997    1996
---------------------------------------------------------------------------------------
<S>                                               <C>      <C>       <C>      <C> 
Operating Revenues
Local service                                    $   1,172 $   1026  $  3,316 $  3,021
Network access:
  Interstate                                           470      462     1,299    1,381
  Intrastate                                           195      177       600      543
Long-distance service                                  305      330       912      969
Directory advertising                                  240      210       867      795
Other                                                  154      151       469      430
---------------------------------------------------------------------------------------
Total operating revenues                             2,536    2,356     7,463    7,139
---------------------------------------------------------------------------------------

Operating Expenses
Cost of services and products                        1,090      902     3,080    2,637
Selling, general and administrative                    491      463     2,747    1,341
Depreciation and amortization                          487      470     1,962    1,399
---------------------------------------------------------------------------------------
Total operating expenses                             2,068    1,835     7,789    5,377
---------------------------------------------------------------------------------------
                                                                     
Operating Income (Loss)                                468      521      (326)   1,762
---------------------------------------------------------------------------------------

Other Income (Expense)
Interest expense                                      (126)     (78)     (335)    (265)
Other income (expense)- net                            (11)     (17)      (73)     (38)
---------------------------------------------------------------------------------------
Total other income (expense)                          (137)     (95)     (408)    (303)
---------------------------------------------------------------------------------------

Income (Loss) Before Income Taxes and Cumulative
  Effect of Accounting Changes                         331      426      (734)   1,459
---------------------------------------------------------------------------------------
Income Taxes                                           128      167      (189)     593
---------------------------------------------------------------------------------------

Income (Loss) Before Cumulative Effect of
  Accounting Changes                                   203      259      (545)     866
Cumulative Effect of Accounting Changes, net of tax      -        -       322       85
---------------------------------------------------------------------------------------
Net Income (Loss)                                $     203 $    259  $   (223)$    951
---------------------------------------------------------------------------------------
<FN>

See Notes to Consolidated Financial Statements.

</FN>
</TABLE>


<PAGE>


PACIFIC TELESIS GROUP
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
Dollars in millions except per share amounts
--------------------------------------------------------------------------------
                                                    September 30,   December 31,
                                                   -----------------------------
                                                             1997           1996
--------------------------------------------------------------------------------
Assets                                                 (Unaudited)
Current Assets
Cash and cash equivalents                                $     58        $   72
Accounts receivable - net of allowances for
  uncollectibles of $244 and $163                           2,328         2,109
Prepaid expenses                                               62            52
Deferred income taxes                                         598           144
Deferred charges                                               27            45
Other current assets                                           65            52
--------------------------------------------------------------------------------
Total current assets                                        3,138         2,474
--------------------------------------------------------------------------------
Property, Plant and Equipment - at cost                    30,011        29,032
  Less: Accumulated depreciation and amortization          17,857        16,959
--------------------------------------------------------------------------------
Property, Plant and Equipment - Net                        12,154        12,073
--------------------------------------------------------------------------------
Intangible Assets - Net of Accumulated
  Amortization of $275 and $4                                 873         1,108
--------------------------------------------------------------------------------
Other Assets                                                1,017           953
--------------------------------------------------------------------------------
Total Assets                                             $ 17,182      $ 16,608
--------------------------------------------------------------------------------

Liabilities and Shareowner's Equity
Current Liabilities
Debt maturing within one year                            $  1,457       $   613
Accrued taxes                                               1,069           103
Accounts payable and accrued liabilities                    2,904         2,811
--------------------------------------------------------------------------------
Total current liabilities                                   5,430         3,527
--------------------------------------------------------------------------------
Long-Term Debt                                              5,403         5,424
--------------------------------------------------------------------------------

Deferred Credits and Other Noncurrent Liabilities
Postemployment benefit obligation                           2,438         2,250
Unamortized investment tax credits                            209           243
Other noncurrent liabilities                                  630         1,391
--------------------------------------------------------------------------------
Total deferred credits and other noncurrent liabilities     3,277         3,884
--------------------------------------------------------------------------------

Commitments and contingencies
Corporation-obligated mandatorily redeemable
preferred securities of subsidiary trusts*                  1,000         1,000
--------------------------------------------------------------------------------

Shareowner's Equity
Common stock (par value of $1 and                                           
  $.10 at September 30, 1997 and 1996)                         -             43
Capital in excess of par value                             2,892          3,501
Retained earnings (deficit)                                 (702)          (479)
Deferred compensation - LESOP                               (118)          (161)
Treasury shares (at cost)                                      -           (131)
--------------------------------------------------------------------------------
Total shareowner's equity                                  2,072          2,773
--------------------------------------------------------------------------------
Total Liabilities and Shareowner's Equity               $ 17,182       $ 16,608
--------------------------------------------------------------------------------
* The trusts contain assets of $1,030 in principal amount of the Subordinated
Debentures of Pacific Telesis Group
See Notes to Consolidated Financial Statements.


<PAGE>


PACIFIC TELESIS GROUP
------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in millions, increase (decrease) in cash and cash equivalents
(Unaudited)
------------------------------------------------------------------------------
                                                         Nine months ended
                                                           September 30,
                                                       -----------------------
                                                            1997       1996
------------------------------------------------------------------------------
Operating Activities
Net income (loss)                                      $     (223) $      951
Adjustments to reconcile net income (loss) to net cash
  provided by operating activities:
  Depreciation and amortization                             1,962       1,399
  Undistributed earnings from investments in equity                      
    affiliates                                                  9          28
  Provision for uncollectible accounts                        204         130
  Amortization of investment tax credits                      (34)        (36)
  Deferred income taxes                                      (336)        149
  Cumulative effect of accounting changes, net of tax        (322)        (85)
  Other - net                                                 401        (762)
------------------------------------------------------------------------------
Total adjustments                                           1,884         823
------------------------------------------------------------------------------
Net Cash Provided by Operating Activities                   1,661       1,774
------------------------------------------------------------------------------

Investing Activities
Construction and capital expenditures                      (1,822)     (1,680)
Investments in affiliates                                     (16)        (35)
Dispositions                                                    -          48
Acquisitions                                                    -        (180)
------------------------------------------------------------------------------
Net Cash Used in Investing Activities                      (1,838)     (1,847)
------------------------------------------------------------------------------

Financing Activities
Net change in short-term borrowings with original
  maturities of three months or less                          213      (1,045)
Issuance of other short-term borrowings                       610           -
Issuance of long-term debt                                      -         700
Repayment of long-term debt                                    (5)        (18)
Issuance of trust originated preferred securities               -       1,000
Issuance of treasury shares                                     -          37
Equity received from parent                                   130           -
Dividends paid                                               (785)       (601)
Other                                                           -           5
------------------------------------------------------------------------------
Net Cash Provided by Financing Activities                     163          78
------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents          (14)          5
------------------------------------------------------------------------------
Cash and cash equivalents beginning of year                    72          76
------------------------------------------------------------------------------
Cash and Cash Equivalents End of Period                $       58  $       81
------------------------------------------------------------------------------

Cash paid during the nine months ended September 30 for:
   Interest                                            $      354  $      291
   Income taxes, net of refunds                        $     (456) $      366

See Notes to Consolidated Financial Statements.


<PAGE>


<TABLE>
                                                   

PACIFIC TELESIS GROUP
----------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF SHAREOWNER'S EQUITY
Dollars in millions
(Unaudited)
<CAPTION>
----------------------------------------------------------------------------------------------------------
                                                                                  Deferred
                                                                                Compensation
                                                    Capital in   Retained        Leveraged
                                           Common   Excess of    Earnings         Employee           Treasury
                                           Shares   Par Value    (Deficit)          Stock             Shares
                                                                                  Ownership
                                                                                    Trust
----------------------------------------------------------------------------------------------------------
<S>                                      <C>         <C>          <C>            <C>           <C>            
Balance, December 31, 1996               $     43    $  3,501     $   (479)      $     (161)   $    (131)
Net income (loss)                               -           -         (223)               -            -
Dividends to parent                             -        (511)           -                -            -
Dividends to shareowners                        -        (140)           -                -            -
Reduction of debt associated with
  Employee Stock Ownership Plans                -           -            -               43            -
Recapitalization of Common and                             
  Treasury Shares                             (43)         (88)          -                -          131                     
 Net equity received from parent                -          130           -                -
----------------------------------------------------------------------------------------------------------
Balance, September 30, 1997              $      -    $  2,892     $   (702)      $     (118)   $       -
----------------------------------------------------------------------------------------------------------
<FN>

See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<TABLE>
                                                * * * *
SELECTED  FINANCIAL AND  OPERATING  DATA At September 30, or for the nine months
then ended:
<CAPTION>
                                                                                    1997           1996
                                                                                 ------------------------
  <S>                                                                                <C>           <C>   
  Return on weighted average shareowners' equity * ...........................       -25.96%      44.98%
  Debt ratio .................................................................        69.07%      61.44%
  Network access lines in service (000).......................................       16,909       16,320
  Access minutes of use (000,000).............................................       52,745       48,274
  Cellular customers (000)....................................................          266            -
  Number of employees.........................................................       52,880       48,430
<FN>

*Calculated using Income Before Cumulative Effect of Accounting Changes.
</FN>

</TABLE>

<PAGE>


PACIFIC TELESIS GROUP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Dollars in millions

1. BASIS  OF  PRESENTATION  The  consolidated  financial  statements  have  been
   prepared by Pacific Telesis Group (PAC) pursuant to the rules and regulations
   of the  Securities  and  Exchange  Commission  (SEC) and,  in the  opinion of
   management,  include all  adjustments  (consisting  only of normal  recurring
   accruals)  necessary  to present  fairly the results for the interim  periods
   shown.  Certain  information and footnote  disclosures,  normally included in
   financial   statements   prepared  in  accordance  with  generally   accepted
   accounting  principles,  have been condensed or omitted  pursuant to such SEC
   rules and regulations.  Certain  reclassifications have been made to the 1996
   consolidated financial statements to conform with the 1997 presentation.  The
   results for the interim periods are not necessarily indicative of results for
   the full year. The consolidated  financial statements contained herein should
   be read in conjunction with the consolidated  financial  statements and notes
   thereto  included  in PAC's 1996  Annual  Report on Form 10-K (the Form 10-K)
   filed with the SEC.

2. CONSOLIDATION The consolidated  financial  statements include the accounts of
   PAC and its majority-owned subsidiaries.  PAC's subsidiaries include, but are
   not limited to, Pacific Bell (PacBell,  which also includes its subsidiaries)
   and  Nevada  Bell,  which  are  collectively  referred  to as  the  Telephone
   Companies. PAC is a wholly-owned subsidiary of SBC Communications Inc. (SBC).
   During the third  quarter of 1997,  PAC's  commercial  paper was  replaced by
   intercompany  loans from SBC.  Intercompany  loans as of  September  30, 1997
   totaled  $743.  All  significant   intercompany   transactions   between  PAC
   subsidiaries  are  eliminated in the  consolidation  process.  Investments in
   partnerships,  joint ventures and less than  majority-owned  subsidiaries are
   principally accounted for under the equity method.

3. COMPLETION OF MERGER On April 1, 1997, PAC and SBC completed the merger of an
   SBC subsidiary with PAC, in a transaction in which each outstanding  share of
   PAC common  stock was  exchanged  for 0.73145 of a share of SBC common  stock
   (equivalent to approximately 313 million shares). With the merger, PAC became
   a wholly-owned subsidiary of SBC. The transaction was accounted for by SBC as
   a pooling of  interests  and a tax-free  reorganization.  PAC  exchanged  the
   outstanding  common stock at the date of merger with SBC stock,  issued 1,000
   shares of $1 par stock and retired the treasury stock.

   Conforming Accounting Changes
   PAC's results include merger  transaction costs and the effects of changes to
   conform accounting  methodologies between PAC and SBC for, among other items,
   pensions,   postretirement   benefits  and  merger   transaction  costs.  The
   accounting  changes  resulted in a net benefit  recorded by PAC in the second
   quarter of 1997,  retroactive  to January 1, 1997 as a  cumulative  effect of
   accounting  changes of $322,  net of deferred  taxes of $221,  and  increased
   income  before  cumulative  effect of  accounting  changes for the first nine
   months of 1997 by $33. Had these changes been adopted  January 1, 1996,  they
   would have increased income before cumulative effect of accounting changes by
   $51, net of taxes of $35 for the nine months ended  September  30, 1996.  The
   changes in accounting for pension and  postretirement  benefits were to adopt
   SBC's  methodology of amortizing gains and losses on assets held within those
   benefit plans. The change in accounting for merger  transaction  costs was to
   conform to SBC's policy of  recognizing  these costs as incurred  rather than
   deferring until the pooling of interests is effective.  Also, PAC recorded in
   the second  quarter of 1997 the  present  value of amounts to be  returned to
   California  and Nevada  ratepayers as a condition of the merger of $281 ($176
   net of tax).


<PAGE>


PACIFIC TELESIS GROUP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)- Continued
Dollars in millions

   Post-merger initiatives
   During  the second  quarter  1997,  PAC  recorded  after-tax  charges of $1.4
   billion  related to SBC's June 19,  1997  announcement  of several  strategic
   decisions  resulting from the merger integration  process that began with the
   April 1 closing of its merger with PAC,  which  included $108 ($65 after tax)
   of charges related to recent regulatory rulings and $281 ($176 after tax) for
   the  present  value of  amounts  to be  returned  to  California  and  Nevada
   ratepayers  as a condition  of the merger.  The  decisions  resulted  from an
   extensive  review of  operations  throughout  the merged  company and include
   significant   integration   of   operations   and   consolidation   of   some
   administrative and support functions.

   Following is a discussion of the most significant of these charges.

   Reorganization  SBC will  centralize  several key functions that will support
   the  operations  of PacBell and two other SBC  subsidiaries,  Nevada Bell and
   Southwestern  Bell Telephone  Company  (SWBell),  including network planning,
   strategic  marketing and  procurement.  It is also  consolidating a number of
   corporate-wide  support  activities,   including  research  and  development,
   information  technology,  financial  transaction  processing  and real estate
   management.  PacBell,  Nevada Bell and SWBell will continue as separate legal
   entities.  These initiatives will result in the creation of some jobs and the
   elimination  and realignment of others,  with many of the affected  employees
   changing job  responsibilities  and in some cases assuming positions in other
   locations.

   PAC  recognized a charge of  approximately  $238 ($149 net of tax) during the
   second quarter of 1997 in connection with these initiatives.  This charge was
   comprised mainly of post-employment benefits, primarily related to severance,
   and costs  associated  with  closing  down  duplicate  operations,  primarily
   contract  cancellations.  Other charges  arising out of the merger related to
   relocation,  retraining and other effects of consolidating certain operations
   are being recognized in the periods those charges are incurred.

   Impairments/asset  valuation As a result of SBC's merger  integration  plans,
   strategic review of domestic  operations and organizational  alignments,  PAC
   reviewed  the  carrying  values of related  long-lived  assets.  This  review
   included  estimating  remaining  useful lives and cash flows and  identifying
   assets to be abandoned.  Where this review indicated  impairment,  discounted
   cash flows  related to those assets were  analyzed to determine the amount of
   the impairment.  As a result of these reviews,  PAC wrote off some assets and
   recognized impairments to the value of other assets with a combined charge of
   $842  ($591  after  tax)  recorded  in the  second  quarter  of  1997.  These
   impairments  and writeoffs  related to the wireless  digital TV operations in
   southern  California,  certain  analog  switching  equipment  in  California,
   certain  rural and other  telecommunications  equipment  in Nevada,  selected
   wireless equipment,  duplicate or obsolete equipment, cable within commercial
   buildings in California, certain nonoperating plant and other assets.

   Video curtailment/purchase  commitments SBC also announced it is scaling back
   its limited direct investment in video services. As part of this curtailment,
   PAC has halted construction on the Advanced  Communications  Network (ACN) in
   California.  As part of an  agreement  with the ACN vendor,  PAC will pay the
   liabilities of the ACN trust that owns and finances ACN  construction,  incur
   costs to shut down all construction  previously conducted under the trust and
   receive certain  consideration  from the vendor.  In the second quarter,  PAC
   recognized  its net  expense of $553 ($346 after tax)  associated  with these
   activities.  During the third quarter of 1997, PAC recorded the corresponding
   short-term debt of $610  previously  incurred by the ACN trust on its balance
   sheet.

   Additionally,   PAC  will  curtail  several  other  video-related  activities
   including  substantially  scaling back its  involvement  in the Tele-TV joint
   venture and evaluating its option to invest in cable television operations in
   Chicago. The collective impact of these decisions resulted in a charge of $89
   ($56 after tax) in the second quarter of 1997.

4. CUMULATIVE EFFECT OF CHANGE IN DIRECTORY ACCOUNTING Prior to January 1, 1996,
   Pacific Bell Directory (a subsidiary of PacBell and an indirect subsidiary of
   PAC) recognized  revenues and expenses  related to publishing  directories in
   California using the "amortization" method, under which revenues and expenses
   were recognized over the lives of the directories,  generally one year. Under
   the new "issue basis" method,  revenues and expenses are recognized  when the
   directories are issued. The change to the issue basis method was made because
   it is the method  generally  followed in the  publishing  industry and better
   reflects the operating activity of the business.

   The change was adopted during fourth  quarter 1996. The cumulative  after-tax
   effect of applying the change in method to prior years was  recognized  as of
   January  1,  1996 as a  one-time,  non-cash  gain  applicable  to  continuing
   operations of $85. The gain is net of deferred  taxes of $58. The first three
   quarters of 1996 were restated in the Form 10-K to reflect the new method.

5.  COMMITMENTS AND CONTINGENCIES

   Purchase   Commitments  As  of  September  30,  1997,  PacBell  had  purchase
   commitments  of about  $220  remaining  in  connection  with  its  previously
   announced program for deploying an all digital  switching  platform with ISDN
   and SS-7 capabilities.

   Property Tax Investigation In 1992, a settlement  agreement was reached among
   the State Board of Equalization,  all California counties, the State Attorney
   General,  and 28 utilities,  including PacBell, on a specific methodology for
   valuing  utility  property  for  property  tax purposes for a period of eight
   years.  The  California   Public  Utilities   Commission   (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 of
   annual  property tax savings should be treated as an exogenous cost reduction
   in PacBell's annual price cap filings.  These  intervenors have also asserted
   that past property tax savings  totaling as much as  approximately  $85 as of
   September  30,  1997,  plus  interest,   should  be  returned  to  customers.
   Management believes that, under the CPUC's regulatory framework, any property
   tax savings  should be treated  only as a  component  of the  calculation  of
   shareable earnings and not as an exogenous cost. In an Interim Opinion issued
   in June 1995,  the CPUC  decided  to defer a final  decision  on this  matter
   pending  resolution  in a separate  proceeding  of the criteria for exogenous
   cost treatment under its regulatory framework.  To date the CPUC has taken no
   further action on this issue.


<PAGE>


PACIFIC TELESIS GROUP

Item 2. Management's Discussion and Analysis of Financial Condition and Results 
of Operations
Dollars in millions

RESULTS OF OPERATIONS

Overview  Financial  results for Pacific  Telesis Group (PAC) for the first nine
months of 1997 and 1996 are summarized as follows:

------------------------------------------------------------------------
                                               Nine-Month Period
------------------------------------------------------------------------
                                                                Percent
                                          1997       1996       Change
------------------------------------------------------------------------
Operating revenues                    $   7,463   $  7,139          4.5%
Operating expenses                    $   7,789   $  5,377         44.9
Income (loss) before cumulative
effect of accounting changes          $    (545)  $    866          -
Cumulative effect of accounting        
change                                $     322   $     85          -     
Net income (loss)                     $    (223)  $    951          -
========================================================================

Net loss for the nine months ended  September 30, 1997 includes a cumulative net
benefit  of  $322  resulting  from  accounting  changes  related  to  conforming
accounting between PAC and SBC Communications Inc. (SBC) for, among other items,
pensions and postretirement  benefits.  The first nine months of 1996 included a
cumulative  effect of a change in accounting for directory  publishing  revenues
and expenses.

PAC's  nine-month loss before  cumulative  effect of accounting  changes of $545
includes after-tax charges of approximately  $1.4 billion  reflecting  strategic
initiatives  resulting  from SBC's  comprehensive  review of  operations  of the
merged  company,  the impact of  several  regulatory  rulings  during the second
quarter of 1997, costs incurred for customer number portability since the merger
and charges for ongoing merger integration costs,  primarily related to movement
of employees.  Excluding  these items,  PAC reported  income  before  cumulative
effect of  accounting  changes  of $865  approximately  equal to the first  nine
months of 1996 income before  cumulative  effect of accounting  changes of $866.
PAC currently  anticipates  incurring  additional  after-tax charges for ongoing
merger  integration  costs,  primarily  related to  movement of  employees,  and
customer number portability of $120 to $170 during the remainder of 1997.

Excluding these charges,  the primary factors affecting income before cumulative
effect of accounting changes during the first nine months of 1997 were growth in
demand for services and products at Pacific Bell  (PacBell,  which also includes
its  subsidiaries)  and a first  quarter  1997  $90  after-tax  settlement  gain
associated with lump-sum  pension  payments that exceeded the projected  service
and interest  costs for 1996  retirements.  These  increases were offset by rate
reductions  from price cap filings and increased  expenses at PacBell  including
expenses  for  the  introduction  of  Personal   Communications  Services  (PCS)
operations in California and Nevada.



<PAGE>


PACIFIC TELESIS GROUP

Item 2. Management's Discussion and Analysis of Financial Condition and Results 
of Operations
Dollars in millions

RESULTS OF OPERATIONS-Continued

Revenues  PAC's  operating  revenues  for the first nine months of 1997  reflect
reductions of $121 related primarily to the impact of several regulatory rulings
during the second  quarter  of 1997.  Excluding  these  items,  PAC's  operating
revenues increased $445, or 6.2%. Components of operating revenues for the first
nine months of 1997 and 1996 are as follows:

------------------------------------------------------------------------
                                               Nine-Month Period
------------------------------------------------------------------------
                                                                Percent
                                          1997         1996      Change
------------------------------------------------------------------------
Local service                         $   3,316    $   3,021        9.8%
Network access
  Interstate                              1,299        1,381       -5.9
  Intrastate                                600          543       10.5
Long-distance service                       912          969       -5.9
Directory advertising                       867          795        9.1
Other                                       469          430        9.1
--------------------------------------------------------------
       Total                          $   7,463    $   7,139        4.5%
========================================================================

      Local  service  revenues  increased  for the first nine months of 1997 due
      primarily to increases in demand,  including increases in access lines and
      vertical services  revenues.  The number of access lines increased by 3.6%
      since September 30, 1996, with approximately 46% of access line growth due
      to the sales of additional access lines to existing residential customers.
      Vertical services revenues,  which include custom calling options,  Caller
      ID and other  enhanced  services,  increased by  approximately  14%. Local
      service  revenues also reflect the  implementation  of the California High
      Cost Fund (CHCFB) that went into effect  February 1, 1997.  The California
      Public Utilities  Commission  (CPUC) has stated that the CHCFB is intended
      to  directly  subsidize  the  provision  of service to high cost areas and
      allow PacBell to set competitive rates for other services. The rebalancing
      provisions of the CHCFB  resulted in a shift of  equivalent  revenues from
      intraLATA  long-distance  and intrastate  network access revenues to local
      service  revenues in the first nine months of 1997.  This shift is subject
      to final  CPUC  approval,  expected  in the second  quarter  of 1998.  For
      further  information  on the  operations of the CHCFB,  see the discussion
      under the heading  "State  Regulation"  on page 10 of PAC's Annual  Report
      Form 10-K dated  December  31, 1996 and the  discussion  under the heading
      "Regulatory  Environment-California" on page 10 of SBC's Current Report on
      Form 8-K dated May 8, 1997.  Additionally,  Federal payphone  deregulation
      increased local service and decreased  other operating  revenues and, to a
      lesser extent,  long-distance  service and interstate  network access; the
      overall impact was a slight  increase in total  operating  revenues.  Rate
      reductions  due to CPUC price cap orders  partially  offset  increases  in
      local service revenues. Wireless revenues also contributed to the increase
      in local service revenues due to product  introduction of PCS in the first
      nine months of 1997.

      Network Access  Interstate  network access revenues  decreased $134 in the
      first nine months of 1997 due to one-time charges.  These one-time charges
      include  billing claim  settlements  related to the Percentage  Interstate
      Usage (PIU) factor in California  and several  Federal  regulatory  issues
      including  end-user  charges,  800 data base charges,  recovery of certain
      employee-related  expenses and the retroactive  effect of the productivity
      factor  adjustment  mandated in the July 1, 1997 Federal price cap filing.
      While the change in PIU factor in  California,  which is used to  allocate
      network access revenues between  interstate and intrastate  jurisdictions,
      also had the effect of increasing  intrastate network access revenues,  it
      resulted in a slight  decline in total network  access  revenues.  Without
      these  impacts,  interstate  access  revenues  increased in the first nine
      months of 1997 due to demand for access services by interexchange carriers
      and growth in revenues from end-user charges attributable to an increasing
      access line base. Partially offsetting these increases were the effects of
      PacBell's rate reduction related to the productivity factor adjustment and
      revenue sharing adjustments made in 1996.

      Intrastate  network access revenues  increased in the first nine months of
      1997 due primarily to the PIU settlements described above.  Excluding this
      impact, intrastate network access revenues increased slightly in the first
      nine months of 1997 as increases in demand, including usage by alternative
      intraLATA toll carriers were partially  offset by the effects of the CHCFB
      discussed above in Local Service.

      Long-Distance Service revenues decreased for the first nine months of 1997
      primarily  due to the  effects  of the  CHCFB  discussed  above  and  rate
      reductions due to CPUC price cap orders  partially  offset by increases in
      demand resulting from California's growing economy.

      Directory advertising revenues increased for the first nine months of 1997
      due mainly to the  publication  of books not  published  in 1996 and, to a
      lesser extent, increased demand.

      Other operating  revenues  increased for the first nine months of 1997 due
      primarily to increased equipment sales at Pacific Bell Mobile Services and
      increased  demand  for  PacBell's   nonregulated  products  and  services.
      Revenues from new business initiatives, primarily voice messaging services
      and Internet  services,  also  contributed  to the increase.  Results also
      reflect the impact of payphone deregulation as described in Local Service.

Expenses  PAC's  operating  expenses  for the first nine months of 1997  reflect
approximately  $2 billion of charges  related to  strategic  initiatives  from a
comprehensive  review of operations of the merged company, the impact of several
regulatory  rulings  during  the  second  quarter  of  1997  (see  Note 3 to the
financial statements),  costs incurred for customer number portability since the
merger and  charges  for  ongoing  merger  integration  costs.  Excluding  these
charges, operating expenses increased $434 or 8.1% over the first nine months of
1996.  Components  of  operating  expenses for the first nine months of 1997 and
1996 are as follows:

------------------------------------------------------------------------
                                               Nine-Month Period
                                          ------------------------------

                                                               Percent
                                             1997       1996   Change
-----------------------------------------------------------------------
Cost of services and products             $  3,080  $  2,637      16.8%
Selling, general and administrative          2,747     1,341     104.8
Depreciation and amortization                1,962     1,399      40.2
----------------------------------------- ---------------------
  Total                                   $  7,789  $  5,377      44.9%
=======================================================================

      Cost of services and  products for the first nine months of 1997  reflects
      charges  of $56  relating  to  SBC's  strategic  initiatives,  operational
      reviews,  costs incurred for customer number  portability since the merger
      and ongoing merger  integration  costs.  Excluding these charges,  cost of
      services and products  increased  $387, or 14.7%, in the first nine months
      of  1997.  These  cost  increases  were  significantly   impacted  by  the
      introduction of PCS operations during 1997.  Additional increases were due
      primarily  to  increases  in  employee  compensation  including  increases
      related to force  additions and increases in contract  labor.  These costs
      were partially  offset by the conforming of accounting  methodologies  and
      assumptions  for pensions and  postretirement  benefits.  During the third
      quarter of 1997, pension  settlement gains previously  reported as cost of
      services  and  products  were   reclassified   to  selling,   general  and
      administrative  expense;  prior  quarters of 1997 were restated to reflect
      this reclassification.

      Selling,  general and administrative  expense for the first nine months of
      1997 reflects $1,406 of charges  relating to SBC's strategic  initiatives,
      operational  reviews and ongoing merger integration costs. As discussed in
      Note 3 to the financial statements,  the most significant of these charges
      included shutdown of the Advanced Communications Network, regulatory costs
      related to the  approval of the merger with SBC by  California  and Nevada
      regulators,  reorganization initiatives and write-offs related to wireless
      digital  TV.  Excluding  these  one-time  charges,  selling,  general  and
      administrative  expense  remained  unchanged  in the first nine  months of
      1997.  This  was  due  to  significant   increases   associated  with  the
      introduction of PCS  operations,  increases in employee  compensation  and
      contract  labor which were offset by a first quarter 1997 $152  settlement
      gain associated with lump-sum pension payments that exceeded the projected
      service and  interest  costs for 1996  retirements  and  reduced  expenses
      resulting from conforming of accounting  methodologies and assumptions for
      pensions and postretirement benefits.

      Depreciation  and  amortization for the first nine months of 1997 reflects
      charges totaling $516 to record  impairment of plant and  intangibles.  As
      discussed in Note 3 to the financial  statements,  the most significant of
      these  impairments  related  to the  wireless  digital  TV  operations  in
      southern  California,  certain analog  switching  equipment in California,
      certain rural and other  telecommunications  equipment in Nevada and cable
      within  commercial  buildings  in  California.  Excluding  these  charges,
      depreciation  and  amortization  increased  $47, or 3.4% in the first nine
      months of 1997. These increases were primarily due to overall higher plant
      levels partially offset by reduced  deprecation  beginning with the second
      quarter on analog switching equipment in California.

Interest Expense increased $70 or 26.4% for the first nine months of 1997 due to
interest of $27 associated  with second quarter  one-time  charges and increased
debt  levels  compared to the first nine months of 1996.  These  increases  were
somewhat offset by capitalized interest related to PCS construction.

Other Income  (Expense) - net was a net expense of $73 for the first nine months
of 1997.  The  increased  expenses  include  $30 in  expenses  related  to SBC's
strategic   initiatives,   primarily  writeoffs  of  nonoperating  plant.  Other
increases relate primarily to distributions  paid on an additional $500 of Trust
Originated  Preferred  Securities  sold by PAC in June 1996 and  recognition  of
investment returns on funds held in trust for deferred compensation.

Income taxes for the first nine months of 1997 reflect the tax effect of charges
for  strategic   initiatives   resulting  from  SBC's  comprehensive  review  of
operations of the merged  company and the impact of several  regulatory  rulings
during the second  quarter of 1997.  The  effective  tax rate on these items was
lower as a result of non-deductible  items included in the charges and valuation
adjustments to certain deferred tax assets.

Income taxes paid, net of refunds reflect the impact of reduced tax payments due
to merger-related  and integration costs incurred and the application of the SBC
tax sharing agreement.

Cumulative Effect of Accounting Changes, as discussed in Note 3 to the financial
statements,  include merger  transaction costs and the effect of changes applied
retroactively to conform accounting  methodologies between PAC and SBC effective
January 1, 1997. The cumulative  after-tax  effect of these one-time  changes is
$322.


<PAGE>


PACIFIC TELESIS GROUP

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Dollars in millions

OPERATING ENVIRONMENT AND TRENDS OF THE BUSINESS

COMPETITIVE AND REGULATORY ENVIRONMENT

State Interconnection  Agreements/ Reselling Developments PAC continues to enter
into interconnection agreements with companies desiring to provide local service
in its operating  territory.  Approximately 50  interconnection  agreements have
been reached, and most have been approved by the relevant state commission. AT&T
Corp. and other competitors are reselling PAC local exchange services, and as of
September 30, 1997 there were more than 180,000 access lines supporting services
resold by competitors.

Federal  Interconnection In September 1997, 28 state  commissions,  the National
Association of Regulatory  Utilities  Commissioners  and the D.C. Public Service
Commission,  along with many companies who have Local Exchange  Carriers  (LECs)
including  SBC filed  petitions  to enforce the July 18, 1997 ruling of the U.S.
Court of Appeals  for the Eighth  Circuit in St.  Louis (8th  Circuit)  that the
right to set local exchange prices,  including the pricing  methodology used, is
reserved   exclusively  to  the  states.   The  petitions   respond  to  Federal
Communications  Commission's  (FCC)  rejection  of the  Ameritech  Corporation's
interLATA  long-distance  application  in Michigan in which the FCC stated it is
applying its own pricing  standards to interLATA  applications.  The petitioners
assert the FCC is  violating  state  authority.  On October  14,  1997,  the 8th
Circuit granted the LECs' petition for rehearing and ruled that they do not have
to deliver  network  elements to competitors  in anything other than  completely
unbundled form.

Payphone  Deregulation/Market  Price Adjustments Final price deregulation of the
payphone  industry  took  effect  October 7, 1997.  PAC raised  payphone  prices
throughout its operating territories,  beginning in October 1997. The new prices
are the  result of  federal  telecommunications  deregulation,  which  prohibits
subsidy of payphone  service  directly or indirectly from its telephone  service
operations and allows payphone providers to determine their own pricing.

Portions of the  Telecommunications  Act of 1996  Challenged  In July 1997,  SBC
brought  suit  against  the FCC in the  U.S.  District  Court  for the  Northern
District of Texas,  seeking a  declaration  that a portion of the Telecom Act is
unconstitutional on the grounds that it improperly  discriminates against SBC by
imposing  restrictions that prohibit SBC from offering  interLATA  long-distance
and other services that other LECs are free to provide. The suit challenges only
that  portion of the Telecom Act that  excludes  SBC from  competing  in certain
lines of  business.  SBC is  currently  awaiting a decision  by the court on its
motion for summary judgement.

California  Universal Service Rebalancing  Hearings related to the PacBell March
1997 filing to  permanently  reduce  certain toll and access rates and eliminate
universal  service  surcredits to ratepayers  for  rebalancing of the CHCFB were
held in October 1997 with a decision expected in the second quarter of 1998.

<PAGE>


PACIFIC TELESIS GROUP

Item 2. Management's Discussion and Analysis of Financial Condition and Results 
of Operations
Dollars in millions

OTHER BUSINESS MATTERS

Restructuring Reserve PAC established a restructuring reserve at the end of 1993
to  provide  for  the  incremental  cost of  force  reductions  associated  with
restructuring  business  processes  through 1997. A total of $62 in cash outlays
was charged to the reserve in the first nine months of 1997. As of September 30,
1997, $32 remained in the restructuring reserve.

Local  Number  Portability/Interconnection  Over  the  next  few  years,  PAC is
expecting to incur  significant  capital and software  expenditures for customer
number portability and  interconnection.  PAC expects capital costs and expenses
associated with customer number portability, which allows customers to switch to
local  competitors  and  keep  the same  phone  number  to total up to $600 on a
pre-tax  basis  over the next four  years.  Full  recovery  of  customer  number
portability  costs is required under the Telecom Act;  however,  the FCC has not
yet determined when or how those  significant  costs will be recovered.  PacBell
has filed a tariff with the FCC for recovery of these costs.  No action has been
taken by the FCC on this  tariff,  pending the issuance of its order on customer
number portability recovery.  PacBell is unable to predict the likelihood of the
FCC  permitting  the  tariff to become  effective.  Capital  costs and  expenses
associated  with  interconnection  will vary based on the number of  competitors
seeking  interconnection  and  customers  served  and  markets  entered by those
competitors.  Accordingly,  PAC is currently unable to reasonably estimate these
costs.

Video Purchase Option During the third quarter of 1997, SBC reached agreement to
sell  its  cable  television  properties  in  Montgomery  County,  Maryland  and
Arlington, Virginia, as well as PAC's Chicago purchase option.

CPUC Ruling A complaint  filed with the CPUC  challenged  PacBell's  practice of
charging to reconnect wires between the utility  terminal board and the customer
utility board in apartment buildings, claiming that the wiring between these two
points were part of PacBell's facilities.  On November 5, 1997, the CPUC ordered
PacBell to retroactively refund these charges dating from 1993. PacBell believes
it has  several  meritorious  defenses  and  plans  to file  for  rehearing  and
reconsideration  with the CPUC, and if  appropriate,  file for judicial  review.
Management is evaluating the order and while it is currently  unable to estimate
the specific amount of any refund that may be required,  it does not believe the
amount would be material.



<PAGE>


PACIFIC TELESIS GROUP

PART II - OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

(a)   Exhibits

      Exhibit 12    Computation of Ratios of Earnings to Fixed Charges.

      Exhibit 27    Financial Data Schedule.

(b)   Reports on Form 8-K

      There  were no reports on Form 8-K filed  during the third  quarter  ended
      September 30, 1997.

 .

<PAGE>





                                                 SIGNATURES

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




November 12, 1997                         /s/ Donald E. Kiernan
                                          Donald E. Kiernan
                                          Executive Vice President,
                                          Chief Financial Officer and Treasurer