UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

      ---------------------------------------------------------------------


                                    FORM 10-Q

         (Mark One)


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

                  For the quarterly period ended June 30, 2004

                                       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 1-8607


                              BELLSOUTH CORPORATION
             (Exact name of registrant as specified in its charter)


                 Georgia                                 58-1533433
        (State of Incorporation)                      (I.R.S. Employer
                                                     Identification Number)


      1155 Peachtree Street, N. E.,                      30309-3610
            Atlanta, Georgia                             (Zip Code)
(Address of principal executive offices)


                   Registrant's telephone number 404-249-2000


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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes __X__ No ___


At July 29, 2004, 1,830,737,118 common shares were outstanding.


<PAGE>







                                Table of Contents


Item                                                               Page
                                     Part I

1.  Financial Statements
        Consolidated Statements of Income ...................        3
        Consolidated Balance Sheets .........................        4
        Consolidated Statements of Cash Flows ...............        5
        Consolidated Statements of Shareholders' Equity
           And Comprehensive Income .........................        6
        Notes to Consolidated Financial Statements ..........        7

2.  Management's Discussion and Analysis of Financial
      Condition and Results of Operations ...................       19

3.  Qualitative and Quantitative Disclosures about Market
      Risk...................................................       31

4.  Controls and Procedures..................................       31

                                     Part II

2.  Changes in Securities, Use of Proceeds and Issuer
      Purchases of Equity Securities ........................       34

4.  Submission of Matters to a Vote of Security Holders......       34

6.  Exhibits and Reports on Form 8-K ........................       35




<PAGE>



PART I - FINANCIAL INFORMATION

BELLSOUTH CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
                                    For the Three Months      For the Six Months
                                       Ended June 30,            Ended June 30,
                                      2003          2004       2003        2004
                                       (As                      (As
                                     Adjusted                 Adjusted
                                     - Note C)                - Note C)
----------------------------------- ----------- ----------    ---------  -------
Operating Revenues:
    Communications group               $ 4,545    $ 4,562     $ 9,053    $ 9,047
    Advertising and publishing             520        507       1,014        986
    All other                               14         14          26         26
                                    ----------- ----------    ---------  -------
        Total Operating Revenues         5,079      5,083      10,093     10,059

Operating Expenses:
    Cost of services and products
      (excludes depreciation and
      amortization shown
      separately below)                  1,765      1,789       3,440      3,587
    Selling, general, and
      administrative expenses              989        930       1,908      1,839
    Depreciation and amortization          953        914       1,902      1,812
    Provisions for restructuring            18          8         138         21
                                    ----------- ----------    ---------  -------
        Total Operating Expenses         3,725      3,641       7,388      7,259

Operating income                         1,354      1,442       2,705      2,800
Interest expense                           233        211         491        426
Net earnings (losses) of equity
  affiliates                               177        151         348        255
Gain on sale of operations                   -          -           -        462
Other income (expense), net                121         73         197        137
                                    ----------- ----------    ---------  -------

Income from Continuing Operations
  Before Income Taxes, Discontinued
  Operations and Cumulative Effect
  of Changes in Accounting
  Principle                              1,419      1,455       2,759      3,228
Provision for Income Taxes                 511        516       1,001      1,139
                                    ----------- ----------    ---------  -------
Income from Continuing Operations
  Before Discontinued Operations
  and Cumulative Effect of Changes
  in Accounting Principle                  908        939       1,758      2,089
Income (Loss) from Discontinued
  Operations, Net of Tax                    43         57         108        506
                                    ----------- ----------    ---------  -------
Income Before Cumulative Effect of
  Changes in Accounting Principle          951        996       1,866      2,595
Cumulative Effect of Changes in
  Accounting Principle, Net of Tax           -          -         315          -
                                    ----------- ----------    ---------  -------

         Net Income                      $ 951      $ 996     $ 2,181    $ 2,595
                                    =========== ==========    =========  =======


Weighted-Average Common Shares
  Outstanding:
    Basic                                1,847      1,832       1,853      1,832
    Diluted                              1,851      1,836       1,856      1,837
Dividends Declared Per Common Share     $ 0.23     $ 0.27      $ 0.44     $ 0.52

Basic Earnings Per Share:
    Income from Continuing
      Operations Before
      Discontinued Operations and
      Cumulative Effect of Changes
      in Accounting Principle           $ 0.49     $ 0.51      $ 0.95     $ 1.14
    Income (Loss) from Discontinued
      Operations, Net of Tax              0.02       0.03        0.06       0.28
    Cumulative Effect of Accounting
      Changes, Net of Tax                    -          -        0.17          -
                                    ----------- ----------    ---------  -------
    Net Income                          $ 0.51     $ 0.54      $ 1.18     $ 1.42
                                    =========== ==========    =========  =======
Diluted Earnings Per Share:
    Income from Continuing
      Operations Before
      Discontinued Operations and
      Before Cumulative Effect of
      Changes in Accounting
      Principle                         $ 0.49     $ 0.51      $ 0.95     $ 1.14
    Income (Loss) from Discontinued
      Operations, Net of Tax              0.02       0.03        0.06       0.28
    Cumulative Effect of Accounting
      Changes, Net of Tax                    -          -        0.17          -
                                    ----------- ----------    ---------  -------
    Net Income*                         $ 0.51     $ 0.54      $ 1.18     $ 1.41
                                    =========== ==========    =========  =======
*Net income per share does not sum due to rounding

              The accompanying notes are an integral part of these
                       consolidated financial statements.


<PAGE>



BELLSOUTH CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)



                                               December 31,         June 30,
                                                   2003               2004
                                           -------------------------------------
                                                                   (unaudited)
ASSETS
Current Assets:
   Cash and cash equivalents..............   $        4,556     $         6,216
   Accounts receivable, net of
     allowance for uncollectibles of
     $496 and $338........................            2,870               2,436
   Material and supplies..................              375                 319
   Other current assets ..................            1,048                 870
   Assets of discontinued operations......               --               3,928
                                              ----------------   ---------------
      Total current assets................            8,849              13,769
                                              ----------------   ---------------

Investments and advances..................            8,552               8,638
Property, plant and equipment, net........           23,807              22,104
Deferred charges and other assets.........            5,855               6,033
Goodwill..................................              342                 249
Intangible assets, net....................            2,297               1,501
                                              ----------------   ---------------
       Total assets.......................   $       49,702     $        52,294
                                              ================   ===============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
     Debt maturing within one year........   $        3,491     $         3,262
     Accounts payable.....................            1,339                 883
     Other current liabilities............            3,628               3,301
     Liabilities of discontinued
       operations.........................               --               2,469
                                              ----------------   ---------------
       Total current liabilities .........            8,458               9,915
                                              ----------------   ---------------

Long-term debt ...........................           11,489              10,341
                                              ----------------   ---------------

Noncurrent liabilities:
     Deferred income taxes................            5,349               6,180
     Other noncurrent liabilities.........            4,694               4,342
                                              ----------------   ---------------
       Total noncurrent liabilities.......           10,043              10,522
                                              ----------------   ---------------

Shareholders' equity:
     Common stock, $1 par value (8,650
       shares authorized; 1,830 and
       1,831 shares outstanding)..........            2,020               2,020
     Paid-in capital......................            7,729               7,748
     Retained earnings....................           16,540              18,126
     Accumulated other comprehensive
       income (loss)......................             (585)               (460)
     Shares held in trust and treasury....           (5,992)             (5,918)
                                              ----------------   ---------------
             Total shareholders' equity...           19,712              21,516
                                              ----------------   ---------------

       Total liabilities and
         shareholders' equity.............   $       49,702     $        52,294
                                              ================   ===============



              The accompanying notes are an integral part of these
                       consolidated financial statements.


<PAGE>



BELLSOUTH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(Unaudited)


                                                     For the Six Months
                                                       Ended June 30,
                                                   2003              2004
                                             -----------------------------------
Cash Flows from Operating Activities:          As Adjusted
                                                - Note C)
Income from continuing operations
  before discontinued operations and
  cumulative effect of changes in
  accounting principles  .................   $        1,758     $         2,089
Adjustments to reconcile income to
  cash provided by operating
  activities from continuing
  operations:
    Depreciation and amortization.........            1,902               1,812
    Provision for uncollectibles..........              287                 195
    Net losses (earnings) of equity
      affiliates..........................             (348)               (255)
    Net (gains) losses on sale or
      impairment of equity securities.....                8                   3
    Deferred income taxes and
      investment tax credits..............              506                 603
    Pension income........................             (267)               (242)
    Pension settlement (gains) losses.....               87                  --
    Stock-based compensation expense......               60                  58
    Gain on sale of operations............               --                (462)
Net Change in:
    Accounts receivable and other
      current assets......................               63                (124)
    Accounts payable and other current
      liabilities.........................              124                  84
    Deferred charges and other assets.....              131                 (77)
    Other liabilities and deferred
      credits.............................              (36)                 20
Other reconciling items, net..............               12                  93
                                                 --------------   --------------
    Net cash provided by operating
      activities from continuing
      operations .........................            4,287               3,797
                                                 ==============   ==============

Cash Flows from Investing Activities:
Capital expenditures......................           (1,265)             (1,366)
Proceeds from sale of operations .........               --                 525
Proceeds from sale of debt and equity
  securities..............................               26                  34
Investments in debt and equity
  securities..............................              (21)               (416)
Proceeds from repayment of loans and
  advances................................            1,899                 109
Settlement of derivatives on advances ....             (352)                (17)
Other investing activities, net...........               (1)                  5
                                                 --------------   --------------
    Net cash provided by (used in)
      investing activities from
      continuing operations ..............              286              (1,126)
                                                 ==============   ==============

Cash Flows from Financing Activities:
Net borrowings (repayments) of
  short-term debt.........................             (398)               (339)
Proceeds from the issuance of
  long-term debt .........................               --                 696
Repayments of long-term debt..............           (1,556)               (221)
Dividends paid............................             (759)               (914)
Purchase of treasury shares...............             (322)                (99)
Other financing activities, net...........               22                  51
                                                 --------------   --------------
    Net cash used in financing
      activities from continuing
      operations .........................           (3,013)               (826)
                                                 ==============   ==============

Net increase (decrease) in cash and
  cash equivalents from continuing
  operations..............................            1,560               1,845
Net increase (decrease) in cash and
  cash equivalents from discontinued
  operations..............................               80                (185)
                                                 --------------   --------------
      Net increase (decrease) in cash
        and cash equivalents..............            1,640               1,660
Cash and cash equivalents at beginning
  of period...............................            2,482               4,556
                                                 --------------   --------------
Cash and cash equivalents at end of
  period .................................       $    4,122        $      6,216
                                                 ==============   ==============

              The accompanying notes are an integral part of these
                       consolidated financial statements.


<PAGE>



BELLSOUTH CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(IN MILLIONS)
(Unaudited)

<TABLE>
<CAPTION>

                                           Number of Shares                                  Amount
                                           ------------------    -------------------------------------------------------------------
                                                       (a)                                    Accum.    (a)
                                                     Shares                                   Other    Shares
                                                     Held in                                  Compre-  Held in
                                                     Trust                                    hensive  Trust      Guarantee
                                             Common  and           Common  Paid-in  Retained  Income   and        of ESOP
                                              Stock  Treasury       Stock  Capital  Earnings  (Loss)   Treasury   Debt        Total
<S>                                        <C>      <C>        <C>      <C>      <C>       <C>      <C>        <C>      <C>
 Balance at December 31, 2002                 2,020    (160)      $ 2,020  $ 7,546  $ 14,531  $ (740)  $ (5,372)  $  (79)  $ 17,906



 Net Income                                                                            2,181                                  2,181
 Other comprehensive income, net of tax
      Foreign currency translation
         adjustment (b)                                                                          (45)                           (45)
      Net unrealized losses on
         securities                                                                               28                             28
      Net unrealized gains on
         derivatives (c)                                                                         (22)                           (22)
 Total comprehensive income (d)                                                                                               2,142
 Dividends declared                                                                     (815)                                  (815)
 Share issuances for employee benefit
    plans                                                 2                    (15)      (42)                79                  22
 Purchase and sales of treasury stock
    by grantor trust                                                                    (112)               112                  --
 Purchase of treasury stock                             (15)                                               (322)               (322)
 Stock-based compensation                                                       67                                               67
 Tax benefit related to stock options                                           22                                               22
 ESOP activities and related tax benefit                                                   1                          34         35

 Balance at June 30, 2003                     2,020    (173)      $ 2,020  $ 7,620  $ 15,744  $ (779)  $ (5,503)   $ (45)  $ 19,057






 Balance at December 31, 2003                 2,020    (190)      $ 2,020  $ 7,729  $ 16,540  $ (585)  $ (5,992)   $  --   $ 19,712


 Net Income                                                                            2,595                                  2,595
 Other comprehensive income, net of tax
      Foreign currency translation
         adjustment(b)                                                                            92                             92
      Net unrealized losses on securities                                                         10                             10
      Net unrealized gains on
         derivatives (c)                                                                          23                             23
 Total comprehensive income (d)                                                                                               2,720
 Dividends declared                                                                     (946)                                  (946)
 Purchase and sales of treasury stock by
    grantor trust                                                                2                           (2)                 --
 Purchase of treasury stock                              (4)                                                (99)                (99)
 Share issuances for employee benefit
    plans                                                 5                    (61)      (63)               175                  51
 Stock-based compensation                                                       62                                               62
 Tax benefit related to stock options                                           16                                               16

 Balance at June 30, 2004                     2,020    (189)      $ 2,020  $ 7,748  $ 18,126  $ (460)  $ (5,918)   $  --   $ 21,516


<FN>

(a)      Trust and treasury shares are not considered to be outstanding for
         financial reporting purposes. As of June 30, 2003, there were
         approximately 49 shares held in trust and 124 shares held in treasury.
         As of June 30, 2004, there were approximately 26 shares held in trust
         and 163 shares held in treasury.
(b)      Net unrealized foreign currency translation adjustments include
         realized losses of $86 in 2003 and realized gains of $13 in 2004.
(c)      Net unrealized gains on derivatives include adjustments for realized
         gains of $20 in 2003 and $3 in 2004.
(d)      Total comprehensive income was $1,031 for second quarter 2003 and
         $1,007 for second quarter 2004.


</FN>
</TABLE>



              The accompanying notes are an integral part of these
                       consolidated financial statements.

<PAGE>



BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND AS OTHERWISE INDICATED)
(Unaudited)


NOTE A - PREPARATION OF INTERIM FINANCIAL STATEMENTS

In this report, BellSouth Corporation and its subsidiaries are referred to as
"we" or "BellSouth."

The accompanying unaudited consolidated financial statements have been prepared
based upon Securities and Exchange Commission (SEC) rules that permit reduced
disclosure for interim periods. In our opinion, these statements include all
adjustments necessary for a fair presentation of the results of the interim
periods presented. All adjustments are of a normal recurring nature unless
otherwise disclosed. Revenues, expenses, assets and liabilities can vary during
each quarter of the year. Therefore, the results and trends in these interim
financial statements may not be the same as those for the full year. For a more
complete discussion of our significant accounting policies and other
information, you should read this report in conjunction with the consolidated
financial statements included in our latest annual report on Form 10-K, as
modified by the current report on Form 8-K dated July 30, 2004.

Certain amounts within the prior year's information have been reclassified to
conform to the current year's presentation.

NOTE B - EARNINGS PER SHARE

Basic earnings per share is computed on the weighted-average number of common
shares outstanding during each period. Diluted earnings per share is based on
the weighted-average number of common shares outstanding plus net incremental
shares arising out of employee stock options and benefit plans. The following is
a reconciliation of the weighted-average share amounts (in millions) used in
calculating earnings per share:


                                        For the Three Months  For the Six Months
                                           Ended June 30,        Ended June 30,
                                            2003    2004          2003     2004

Basic common shares outstanding            1,847   1,832         1,853    1,832
Incremental shares from stock options and
   benefit plans                               4       4             3        5
                                           -----   -----         -----    -----
Diluted common shares outstanding          1,851   1,836         1,856    1,837
                                           =====   =====         =====    =====

The earnings amounts used for per-share calculations are the same for both the
basic and diluted methods. Outstanding options to purchase 80 million shares for
the three months and six months ended June 30, 2004 were not included in the
computation of diluted earnings per share because the exercise price of these
options was greater than the average market price of the common stock or the
effect was anti-dilutive. Outstanding options to purchase 95 million shares for
the three months ended June 30, 2003 and 91 million shares for the six months
ended June 30, 2003 were also not included in the computation of diluted
earnings per share because the exercise price of these options was greater than
the average market price of the common stock or the effect was anti-dilutive.

NOTE C - DISCONTINUED OPERATIONS

In March 2004, we signed an agreement with Telefonica Moviles, the wireless
affiliate of Telefonica, S.A. (Telefonica), to sell all our interests in our
Latin American operations. Cash proceeds at closing are expected to be $4.4
billion. Net cash inflow will be $3.4 billion after consideration of the $1
billion of cash held in these operations that will transfer to Telefonica at
closing. Based on the net book value of our investment and the anticipated
proceeds, we expect to record an after-tax gain of approximately $1.5 billion at
the closing of the transaction. The transaction is subject to governmental
approvals and other closing conditions. It is expected to close in stages as
closing conditions are satisfied, with the closings expected to occur in the
second half of 2004.

In accordance with Statement of Financial Accounting Standards (SFAS) No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," we have
classified the results of our Latin American segment as discontinued operations.
The presentation of discontinued operations includes revenues and expenses of
the Latin American operations as one line item on the income statement.
Beginning with the second quarter of 2004, long-lived assets of the Latin
America group ceased to be depreciated (amortized) in accordance with SFAS No.
144.

Summary Financial Information

The assets and liabilities of our Latin American operations are aggregated and
presented as current assets and current liabilities in the consolidated balance
sheet at June 30, 2004. Additional detail related to the assets and liabilities
of our discontinued operations follows:


<PAGE>

BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND AS OTHERWISE INDICATED)
(Unaudited)

NOTE C - DISCONTINUED OPERATIONS (Continued)


     At June 30, 2004:
     Current assets (excluding cash of $1,010)                   $ 1,383
     Property, plant and equipment, net                            1,309
     Investments and advances                                        274
     Intangible assets, net                                          930
     Other non-current assets                                         32
                                                              --------------
                                                              --------------
            Total Assets                                         $ 3,928
                                                              ==============

     Current liabilities                                         $ 1,660
     Long-term debt                                                  430
     Other non-current liabilities                                   379
                                                              --------------
                                                              --------------
           Total Liabilities                                     $ 2,469
                                                              ==============

Summarized results of operations for the discontinued operations are as follows:

                                  For the Three Months       For the Six Months
                                      Ended June 30,            Ended June 30,
                                      --------------            --------------
                                    2003         2004         2003         2004
     Operating revenue             $ 563         $679      $ 1,072      $ 1,356
     Operating income               $ 81         $212        $ 110        $ 283
     Income before income taxes     $ 54         $109        $ 103        $ 153
     Provision (benefit) for
       income taxes                 $ 11         $ 52        $  (5)       $(353)
     Net income from discontinued
       operations                   $ 43         $ 57        $ 108        $ 506

Tax over Book Basis Differential

Our tax basis in the Latin America investments exceeds the book basis by
approximately $1.7 billion. No US tax benefit was previously recognized on
losses generated by the Latin American operations due to the essentially
permanent duration of those investments. The agreement with Telefonica provides
evidence that the temporary difference will reverse in the foreseeable future
and, accordingly, in the first quarter of 2004 we recorded a $424 tax benefit in
accordance with SFAS No. 109, "Accounting for Income Taxes." Tax expense of $8
was booked related to additional basis differential created in second quarter
2004 adjusting the year-to-date benefit to $416. In addition, a tax benefit of
$184 has been recorded for the year-to-date period directly to equity, related
to the cumulative currency translation balance associated with the discontinued
operations.

Buyout of Minority Partners

In March and April 2004, we purchased interests and other rights of minority
partners in Argentina, Ecuador and Colombia. These purchases bring our ownership
interest to 100% in Argentina and Ecuador and to 77.6% in Colombia. The
aggregate purchase price of these acquisitions, including payment of minority
shareholder loans, was $177. The assignment of the purchase price to the
estimated fair values of assets acquired and liabilities assumed resulted in an
increase to intangible assets of $55 and an increase to goodwill of $81. In
connection with the purchase of our minority partner in Argentina, the
consideration paid exceeded the fair value by approximately $33. Accordingly,
this amount was recognized as a charge to income/loss from discontinued
operations in the second quarter.

Put-Call Arrangements

We own a 78.2% interest in Telcel, our Venezuelan operation. Telcel's other
major shareholder holds an indirect 21% interest in Telcel. Under a Stock
Purchase Agreement, that shareholder has the right to initiate a process that
could require us to purchase (the puts), and we have the right to initiate a
process that could require that shareholder to sell (the calls) to us, the
shareholder's interest in Telcel. Notice of the initiation of the process with
respect to approximately half of that shareholder's interest was to be given in
2000 and notice with respect to the remaining balance was to be given in 2002.
If we exercise our call right, we would purchase that shareholder's interest at
between 100% and 120% of its appraised fair value. If we are required to
purchase the interest (the puts), we would do so at between 80% and 100% of
appraised fair value.

In 2000, the shareholder initiated a process for appraising the value of
approximately half of its interest in Telcel, but the process was not completed.
The shareholder also has sent a letter purporting to exercise the balance of the
puts under the Stock Purchase Agreement. We are currently in arbitration with
the shareholder over alleged breaches by BellSouth and the shareholder of the
Stock Purchase Agreement, including the timing of the valuation and whether the
process was properly initiated in 2000. The shareholder is seeking damages and
specific performance, and BellSouth is seeking, among other things, unspecified
damages and a ruling that it has not breached the Stock Purchase Agreement in
any

<PAGE>

BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND AS OTHERWISE INDICATED)
(Unaudited)

NOTE C - DISCONTINUED OPERATIONS (Continued)

respect. The arbitration also relates to an alleged oral agreement to buy out
the shareholder's entire interest in Telcel, which agreement we argue does not
exist. Hearings on these matters occurred in January and April 2004. If the
arbitration panel rules against BellSouth, it is possible that the appraised
fair value of the shareholder's interest in Telcel could be substantially in
excess of current value. At this time, the likely outcome of this arbitration
cannot be predicted, nor can a reasonable estimate of the amount of loss, if
any, be made.

We are the majority shareholder in BellSouth Colombia, a wireless operator in
Colombia. We have agreed with our partner to a put and call agreement whereby we
can acquire, or could be compelled by our partner to acquire, additional shares
of the Colombian operation currently held by our partner for a price equal to
the appraised fair value. Under the remaining put/call option, the residual
balance of our partner's shares can be called by us or put to us beginning in
2006 until 2009. We cannot predict if either party will exercise its rights
under this put/call option provision. Upon completion of the pending acquisition
of our Colombian operations by Telefonica Moviles, the shareholders agreement
will be assigned to Telefonica and all of our obligations under the shareholders
agreement will cease.

Venezuela Currency

We consolidate the operations of Telcel in Venezuela. There are currency
restrictions in place in Venezuela that limit our ability to physically convert
local currency to US Dollars. Because of the currency controls, we are
accumulating significant balances in Bolivars held in local banks. We are
utilizing available alternatives in order to convert the currency into US
Dollars when possible.

Due to the currency controls, there is no free market currency exchange rate.
Therefore, in preparing our consolidated financial statements, we used the
exchange rate established by the Venezuelan government of 1,920 Bolivars to the
US Dollar to translate the local currency financial statements into our
reporting currency, the US Dollar. When the Bolivar resumes trading on the open
market, the exchange rate may be different from the rate set by the government.
A significant devaluation of the local currency would result in a decline in
revenues and, to a lesser extent, operating expenses when reported in the US
Dollar. To the extent permissible by regulatory and market conditions, a portion
of the effect of a devaluation could be offset by local rate increases. As an
example, a devaluation in the Venezuelan currency from the average rate used in
our financial statements to 3,000 Bolivars to the US Dollar would equate to a
decrease in revenues of approximately $203 for the six months ended June 30,
2004, not taking into consideration any potential impacts from offsetting local
rate increases. Such a change in the exchange rate would also result in a
reduction in the company's net assets of approximately $192, which would be
reported as a reduction in shareholders' equity through the cumulative foreign
currency translation adjustment. Because certain expenses are settled in US
Dollars, determination of the net income impact of such a devaluation is not
practicable.

We are monitoring the situation, but continue to believe it is temporary in
nature. Therefore, we have continued to consolidate the financial statements of
this operation in accordance with SFAS No. 94, "Consolidation of All
Majority-Owned Subsidiaries." In the event the currency restrictions are deemed
other-than-temporary, we would cease to consolidate this operation and would
reflect the investment using the cost method of accounting.

Colombia Debt Restructure

On March 19, 2004, our Colombian operation completed the refinancing of its
senior secured debt. According to the terms of the refinancing, (1) the maturity
was extended from 2005 to 2007, (2) on a pro rata basis with our partner, we
agreed to provide support in the aggregate amount of $70 for 30 months and (3)
we and our partner pledged 100% of the capital stock of the Colombian operations
as security for the loan. As of June 30, 2004, BellSouth's consolidated balance
sheet reflects the $139 remaining investment in the loan participation agreement
and the debt of $477 as assets and liabilities of discontinued operations.

NOTE D - EMPLOYEE BENEFIT PLANS

Substantially all of our employees are covered by noncontributory defined
benefit pension plans, as well as postretirement health and life insurance
welfare plans ("other benefits").

The following details pension and postretirement benefit costs included in
operating expenses (in cost of sales and selling, general and administrative
expenses) in the accompanying Consolidated Statements of Income. We account for
these costs in accordance with SFAS No. 87, "Employers' Accounting for Pensions"
and SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." Components of net periodic benefit costs for the three months and six
months ended June 30 were as follows:



<PAGE>

BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND AS OTHERWISE INDICATED)
(Unaudited)

NOTE D - EMPLOYEE BENEFIT PLANS (Continued)

                                    Pension Benefits          Other Benefits
                                 ----------------------  -----------------------
                                 ----------------------  -----------------------
                                  For the Three Months     For the Three Months
                                     Ended June 30,           Ended June 30,
                                 ----------------------  -----------------------
                                 ----------- ----------  ------------ ----------
                                    2003         2004        2003          2004
                                    ----         ----        ----          ----
Service cost                        $ 45         $ 44        $ 12         $ 12
Interest cost ...................    186          174         120          108
Expected return on plan assets ..   (347)        (329)        (78)         (80)
Amortizations:
  Unrecognized net obligation ...     (1)          --          18           18
  Unrecognized prior service cost    (10)         (11)         41           40
  Unrecognized (gain) loss.......     (7)           1          27           24
                                 ----------- ----------  ------------ ----------
                                 ----------- ----------  ------------ ----------
Net periodic benefit cost
  (income) .............            (134)        (121)        140          122
                                 ----------- ----------  ------------ ----------
                                 ----------- ----------  ------------ ----------

  Settlements ...................     20           --          --           --
                                 ----------- ----------  ------------ ----------
                                 ----------- ----------  ------------ ----------
Net periodic benefit cost
  (income), adjusted....          $ (114)      $ (121)        $140        $122
                                 =========== ==========  ============ ==========

                                    Pension Benefits          Other Benefits
                                 ----------------------  -----------------------
                                 ----------------------  -----------------------
                                   For the Six Months        For the Six Months
                                     Ended June 30,           Ended June 30,
                                 ----------------------  -----------------------
                                 ----------- ----------  ------------ ----------
                                    2003         2004        2003          2004
                                    ----         ----        ----          ----
Service cost ....................   $ 91         $ 88        $ 25         $ 23
Interest cost ...................    371          348         241          216
Expected return on plan assets ..   (693)        (659)       (156)        (160)
Amortizations:
  Unrecognized net obligation ...     (2)          --          36           43
  Unrecognized prior service cost    (20)         (22)         81           93
  Unrecognized (gain) loss.......    (14)           3          54           45
                                 ----------- ----------  ------------ ----------
                                 ----------- ----------  ------------ ----------
Net periodic benefit cost
  (income) ..                       (267)        (242)        281          260
                                 ----------- ----------  ------------ ----------
                                 ----------- ----------  ------------ ----------

  Settlements .................       89           --          --           --
                                 ----------- ----------  ------------ ----------
                                 ----------- ----------  ------------ ----------
Net periodic benefit cost
  (income), adjusted.....         $ (178)      $ (242)       $281       $ 260
                                 =========== ==========  ============ ==========

In 2003, lump-sum distributions from the pension plans exceeded the settlement
threshold equal to the sum of the service cost and interest cost components of
net periodic pension cost resulting in a charge to income of $89. Of the $89 in
pension settlement charges, $87 was recognized in operating results because a
portion of the settlement charges was capitalized in connection with labor
related to network construction.

Medicare Prescription Drug Subsidy

In December 2003, the Medicare Prescription Drug Act was signed into law. The
Act allows companies that provide certain prescription drug benefits for
retirees to receive a federal subsidy beginning in 2006. We accounted for the
government subsidy provided for in the Medicare Act in the calculation of our
2003 retiree medical obligation, resulting in a reduction to the liability of
$575. We had previously accounted for the subsidy provided under the Act as a
plan amendment under SFAS No. 106. Effective January 1, 2004, we changed the
method to treat the subsidy as an actuarial gain. The cumulative effect of the
change in method was $6. This change did not affect the retiree medical
obligation.

Employer Contributions

For the quarter ended June 30, 2004 we made no contributions to our pension
plans and anticipate no funding for the remainder of 2004. As of June 30, 2004,
we have contributed $253 to fund other benefits (primarily retiree medical) and
expect to contribute an additional $120 to $170 of funding for other benefits
during the remainder of 2004.

Cash-Balance Pension Plan

In July 2003, a Federal district court in Illinois ruled that the benefit
formula used in International Business Machines Corporation's cash balance
pension plan violated the age discrimination provisions of ERISA. The IBM
decision conflicts with decisions of at least two other district courts,
including most recently a June 2004 decision of the federal district court in
Maryland in a case involving ARINC, Inc. Proposed regulations validating the
cash balance design were recently withdrawn by the Treasury Department while
Congress considers legislative action to clarify the legal status of cash
balance plans under age discrimination rules. At this time, it is unclear what
effect, if any, these decisions or Congressional action may have on our
tax-qualified cash balance pension plans or our financial condition.

<PAGE>

BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND AS OTHERWISE INDICATED)
(Unaudited)

NOTE E - INVESTMENTS AND ADVANCES

Cingular

We own an approximate 40% economic interest in Cingular, a joint venture with
SBC Communications. Because we exercise influence over the financial and
operating policies of Cingular, we use the equity method of accounting for this
investment. The following table presents summarized financial information of
Cingular for the periods indicated.

                                      December 31, 2003     June 30, 2004
    Balance Sheet Information:
    Current assets                          $ 3,300           $ 2,445
    Noncurrent assets                       $22,226           $23,608
    Current liabilities                     $ 3,187           $ 3,089
    Noncurrent liabilities                  $13,196           $13,241
    Minority interest                        $  659            $  660
    Members' capital                        $ 8,484           $ 9,063

                                    For the Three Months     For the Six Months
                                       Ended June 30,           Ended June 30,
                                      2003      2004           2003       2004
                                      ----      ----           ----       ----
    Income Statement Information:
    Operating revenues             $ 3,874   $ 4,155        $ 7,512    $ 8,097
    Operating income                $  756    $  680        $ 1,472    $ 1,239
    Net income                      $  410    $  351         $  829     $  578

As of June 30, 2004, our book investment exceeded our proportionate share of the
net assets of Cingular by $229.

On February 17, 2004, Cingular announced an agreement to acquire AT&T Wireless,
which will create the largest wireless carrier in the United States. The
acquisition, which is subject to the approvals of federal regulatory authorities
and to other customary closing conditions, is expected to be completed in the
fourth quarter of 2004.

Sonofon

On February 12, 2004, we closed on a previously announced agreement to sell our
interest in Danish wireless provider, Sonofon, for 3.68 billion Danish Kroner to
Telenor ASA. We received 3.05 billion Danish Kroner, or $525, for our 46.5%
equity stake and 630 million Danish Kroner, or $109, for our shareholder loan
and accrued interest, reduced by a settlement of $17 associated with foreign
currency swap contracts. As a result of these transactions, we recorded a gain
of $462, or $295 net of tax, which included the recognition of cumulative
foreign currency translation gains of $13.

NOTE F - DEBT

Issuance

On June 22, 2004, we sold $700 of 30-year, 6.55 percent notes, due June 15,
2034, at a discounted rate of 99.367 percent, resulting in net proceeds of $696.
In addition, we incurred debt issuance costs of $6 related to this transaction.

Early Redemption

In June 2004, we announced our intention to redeem $517 of 40-year, 7.375
percent quarterly interest bonds, due August 1, 2039, on August 1, 2004. The
redemption price will be 100 percent of the principal amount, but will result in
an estimated loss of $16, or $11 net of tax, due to the remaining discount that
will be fully expensed. As of June 30, 2004, this debt is classified as current
maturities of long-term debt in our balance sheet.

NOTE G - PURCHASE OF TREASURY SHARES

During second quarter 2004, we purchased 3.9 million shares of our common stock
for an aggregate cost of $99. There were no purchases in first quarter 2004. For
the six months ended June 30, 2003, we purchased 14.8 million shares of our
common stock for an aggregate cost of $322. There were no purchases during
second quarter 2003, however $67 of first quarter 2003 purchases settled in
April 2003.

<PAGE>

BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND AS OTHERWISE INDICATED)
(Unaudited)

NOTE H - WORKFORCE REDUCTION AND RESTRUCTURING

Based on ongoing challenges in the telecom industry, continued economic
pressures, the uncertainty resulting from Federal Communications Commission
(FCC) regulatory rulings, as well as productivity improvements, we have made
adjustments to our force levels to match lower demand. During the first half of
2004, we initiated a workforce reduction of approximately 1,100 positions,
primarily in network operations where the volume of work continues to decline.
Charges in earnings have been recognized in accordance with the provisions of
SFAS No. 112, "Employers Accounting for Postemployment Benefits" and consisted
primarily of cash severance, outplacement and payroll taxes under pre-existing
separation pay plans.

The following table summarizes activity associated with the workforce reduction
and restructuring liability for the six months ended June 30, 2004:

                                          Type of Cost
                                ------------------------------
                                   Employee         Other Exit
                                 Separations           Costs             Total

   Balance at December 31, 2003      $ 66                $ 6              $ 72
   Additions                           33                 --                33
   Deductions                         (64)                (5)              (69)
                                     -----               ----             -----
   Balance at June 30, 2004          $ 35                $ 1              $ 36
                                     =====               ====             =====

The $33 in additions to the accrual associated with employee separations relates
to accruals for estimated payments for the current year workforce reductions.
Deductions to the accrual of $64 consist of $52 in cash severance payments and
$12 for adjustment to the accrual due to estimated demographics being different
than actual demographics of employees that separated from the Company.
Deductions from the accrual for other exit costs consist primarily of changes to
prior estimates.

NOTE I - SEGMENT INFORMATION

As a result of the pending sale of our Latin American operations, we now have
three reportable operating segments: (1) Communications group; (2) Domestic
wireless (representing our 40% interest in Cingular); and (3) Advertising and
publishing.

The following table provides information for each operating segment:

                                    For the Three Months      For the Six Months
                                       Ended June 30,           Ended June 30,
                                    --------------------      ------------------
                                      2003        2004         2003        2004
                                      ----        ----         ----        ----
  Communications group
  External revenues                $ 4,545     $ 4,562      $ 9,053     $ 9,097
  Intersegment revenues                 41          41          109          81
                                   -------     -------      -------     -------
      Total segment revenues         4,586       4,603        9,162       9,178
  Segment operating income           1,162       1,192        2,412       2,362
      Segment net income               679         702        1,388       1,389

  Domestic wireless
  Total segment revenues           $ 1,549     $ 1,662      $ 3,004     $ 3,239
  Segment operating income             303         272          589         496
      Segment net income               104          89          205         148

  Advertising and publishing
  External revenues                  $ 520       $ 507      $ 1,014       $ 986
  Intersegment revenues                  5           4            9           7
                                     -----       -----      -------       -----
      Total segment revenues           525         511        1,023         993
  Segment operating income             252         247          495         486
      Segment net income               157         150          306         297



<PAGE>

BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND AS OTHERWISE INDICATED)
(Unaudited)

NOTE I - SEGMENT INFORMATION (Continued)

RECONCILIATION TO CONSOLIDATED FINANCIAL INFORMATION
                                    For the Three Months      For the Six Months
                                       Ended June 30,           Ended June 30,
                                    --------------------      ------------------
                                      2003        2004         2003        2004
                                      ----        ----         ----        ----
  Operating revenues
  Total reportable segments        $ 6,660     $ 6,776     $ 13,189    $ 13,410
  Cingular proportional
    consolidation                   (1,549)     (1,662)      (3,004)     (3,239)
  South Carolina settlement              -           -            -         (50)
  Corporate, eliminations and
    other                              (32)        (31)         (92)        (62)
                                   --------    --------    ---------   ---------
  Total consolidated               $ 5,079     $ 5,083     $ 10,093    $ 10,059
                                   ========    ========    =========   =========

  Operating income
  Total reportable segments        $ 1,717     $ 1,711      $ 3,496     $ 3,344
  Cingular proportional
    consolidation                     (303)       (272)        (589)       (496)
  South Carolina settlement              -           -            -         (53)
  Restructuring charge                   -          (8)         (54)        (21)
  Pension settlement loss              (20)          -          (87)          -
  Corporate, eliminations and
    other                              (40)         11          (61)         26
                                   --------    --------     --------    --------
  Total consolidated               $ 1,354     $ 1,442      $ 2,705     $ 2,800
                                   ========    ========     ========    ========

  Net Income
  Total reportable segments          $ 940       $ 941      $ 1,899     $ 1,834
  Net gain (loss) on sale of
    operations                           -           -            -         295
  South Carolina settlement              -           -            -         (33)
  Net losses on sale or impairment
    of securities                       (5)          -           (5)         (4)
  Cumulative effect of changes in
    accounting principle                 -           -          315           -
  Restructuring charge                   -          (6)         (33)        (14)
  Pension settlement loss              (12)          -          (53)          -
  Discontinued operations               43          57          108         506
  Corporate, eliminations and
    other                              (15)          4          (50)         11
                                   --------    --------     --------    --------
  Total consolidated                 $ 951       $ 996      $ 2,181     $ 2,595
                                   ========    ========     ========    ========

Reconciling items are transactions or events that are included in reported
consolidated results but are excluded from segment results due to their
nonrecurring or nonoperational nature.

NOTE J - RELATED PARTY TRANSACTIONS

We have made advances to Cingular that totaled $3,812 at June 30, 2004. We also
generate revenues from Cingular for the provision of local interconnect, long
distance services and sales agency fees from Cingular.

                                    For the Three Months      For the Six Months
                                       Ended June 30,           Ended June 30,
                                    --------------------      ------------------
                                      2003        2004         2003        2004
                                      ----        ----         ----        ----

  Interest income on advances         $ 71        $ 56        $ 141       $ 113
  Revenues                           $ 103       $ 129        $ 201       $ 246

In addition, we have receivables and payables incurred in the ordinary course of
business recorded in our balance sheets as follows:

                                  December 31, 2003        June 30, 2004
                                 ---------------------    ----------------
   Receivable from Cingular             $  57                    $66
   Payable to Cingular                  $  33                    $28

<PAGE>

BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND AS OTHERWISE INDICATED)
(Unaudited)

NOTE K - CONTINGENCIES

GUARANTEES

In most of our sale and divestiture transactions, we indemnify the purchaser for
various items including labor and general litigation as well as certain tax
matters. Generally, the terms last one to five years for general and specific
indemnities and, in some cases, for the statutory review periods for tax
matters. The events or circumstances that would require us to perform under the
indemnity are transaction and circumstance specific. We regularly evaluate the
probability of having to incur costs associated with these indemnities and have
accrued for expected losses that are probable. In addition, in the normal course
of business, we indemnify counterparties in certain agreements. The nature and
terms of these indemnities vary by transaction. Historically, we have not
incurred significant costs related to performance under these types of
indemnities.

RECIPROCAL COMPENSATION

Following the enactment of the Telecommunications Act of 1996, our telephone
company subsidiary, BellSouth Telecommunications, Inc. (BST), and various
competitive local exchange carriers (CLECs) entered into interconnection
agreements providing for, among other things, the payment of reciprocal
compensation for local calls initiated by the customers of one carrier that are
completed on the network of the other carrier. These agreements were the subject
of litigation before various regulatory commissions. After an FCC ruling in
April 2001 prescribing new rates, BellSouth settled its claims with competitors
for traffic occurring through mid-June 2001, and entered into agreements that
contained the FCC rates for traffic occurring from mid-June 2001 forward. The
District of Columbia Circuit Court of Appeals, in the second quarter of 2002,
remanded the ruling to the FCC to implement a rate methodology consistent with
the Court's opinion. The FCC's previous rules and rates remain in effect while
it reconsiders them. If the FCC redefines the rate methodology in a manner that
increases the prescribed rates and requires retroactive application, payments to
CLECs could be material to our results of operations.

LEGAL PROCEEDINGS

Employment Claim
On April 29, 2002 five African-American employees filed a putative class action
lawsuit, captioned Gladys Jenkins et al. v. BellSouth Corporation, against the
Company in the United States District Court for the Northern District of
Alabama. The complaint alleges that BellSouth discriminated against current and
former African-American employees with respect to compensation and promotions in
violation of Title VII of the Civil Rights Act of 1964 and 42 USC Section 1981.
Plaintiffs purport to bring the claims on behalf of two classes: a class of all
African-American hourly workers employed by BellSouth at any time since April
29, 1998, and a class of all African-American salaried workers employed by
BellSouth at any time since April 29, 1998 in management positions at or below
Job Grade 59/Level C. The plaintiffs are seeking unspecified amounts of back
pay, benefits, punitive damages and attorneys' fees and costs, as well as
injunctive relief. At this time, the likely outcome of the case cannot be
predicted, nor can a reasonable estimate of the amount of loss, if any, be made.

Securities Claim
From August through October 2002 several individual shareholders filed
substantially identical class action lawsuits against BellSouth and three of its
senior officers alleging violations of the federal securities laws. The cases
have been consolidated in the United States District Court for the Northern
District of Georgia and are captioned In re BellSouth Securities Litigation.
Pursuant to the provisions of the Private Securities Litigation Reform Act of
1995, the court has appointed a Lead Plaintiff. The Lead Plaintiff filed a
Consolidated and Amended Class Action Complaint on or about July 15, 2003 and
named four outside directors as additional defendants. The Consolidated and
Amended Class Action Complaint alleges that during the period November 7, 2000
through February 19, 2003, the Company (1) overstated the unbilled receivables
balance of its advertising and publishing subsidiary; (2) failed to properly
implement SAB 101 with regard to its recognition of advertising and publishing
revenues; (3) improperly billed CLECs to inflate revenues, (4) failed to take a
reserve for refunds that ultimately came due following litigation over late
payment charges and (5) failed to properly write down goodwill of its Latin
American operations. The plaintiffs are seeking an unspecified amount of
damages, as well as attorneys' fees and costs. At this time, the likely outcome
of the case cannot be predicted, nor can a reasonable estimate of loss, if any,
be made.

In February 2003, a similar complaint was filed in the Superior Court of Fulton
County, Georgia on behalf of participants in BellSouth's Direct Investment Plan
alleging violations of Section 11 of the Securities Act. Defendants removed this
action to federal court pursuant to the provisions of the Securities Litigation
Uniform Standards Act of 1998. On or about July 3, 2003, the federal court
issued a ruling that the case should be remanded to Fulton County Superior
Court. The plaintiffs are seeking an unspecified amount of damages, as well as
attorneys' fees and costs. At this time, the likely outcome of the case cannot
be predicted, nor can a reasonable estimate of loss, if any, be made.


<PAGE>

BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND AS OTHERWISE INDICATED)
(Unaudited)

NOTE K - CONTINGENCIES (Continued)

In September and October 2002 three substantially identical class action
lawsuits were filed in the United States District Court for the Northern
District of Georgia against BellSouth, its directors, three of its senior
officers, and other individuals, alleging violations of the Employee Retirement
Income Security Act (ERISA). The cases have been consolidated and on April 21,
2003, a Consolidated Complaint was filed. In January 2004, a fourth ERISA class
action lawsuit was filed in the same court. The plaintiffs, who seek to
represent a putative class of participants and beneficiaries of BellSouth's
401(k) plans (the "Plans"), allege in the Consolidated Complaint that the
company and the individual defendants breached their fiduciary duties in
violation of ERISA, by among other things, (1) failing to provide accurate
information to the Plans' participants and beneficiaries; (2) failing to ensure
that the Plans' assets were invested properly; (3) failing to monitor the Plans'
fiduciaries; (4) failing to disregard Plan directives that the defendants knew
or should have known were imprudent and (5) failing to avoid conflicts of
interest by hiring independent fiduciaries to make investment decisions. The
plaintiffs are seeking an unspecified amount of damages, injunctive relief,
attorneys' fees and costs. Certain underlying factual allegations regarding
BellSouth's advertising and publishing subsidiary and its Latin American
operation are substantially similar to the allegations in the putative
securities class action captioned In re BellSouth Securities Litigation, which
is described above. At this time, the likely outcome of the cases cannot be
predicted, nor can a reasonable estimate of loss, if any, be made.

Antitrust Claims
In December 2002, a consumer class action alleging antitrust violations of
Section 1 of the Sherman Antitrust Act was filed against BellSouth, Verizon, SBC
and Qwest in Federal Court in the Southern District of New York. The complaint
alleged that defendants conspired to restrain competition by "agreeing not to
compete with one another and otherwise allocating customers and markets to one
another." The plaintiffs are seeking an unspecified amount of treble damages and
injunctive relief, as well as attorneys' fees and expenses. In October 2003, the
district court dismissed the complaint for failure to state a claim and the case
is now on appeal.

OTHER CLAIMS

We are subject to claims arising in the ordinary course of business involving
allegations of personal injury, breach of contract, anti-competitive conduct,
employment law issues, regulatory matters and other actions. BST is also subject
to claims attributable to pre-divestiture events involving environmental
liabilities, rates, taxes, contracts and torts. Certain contingent liabilities
for pre-divestiture events are shared with AT&T Corp. While complete assurance
cannot be given as to the outcome of these claims, we believe that any financial
impact would not be material to our results of operations, financial position or
cash flows.

NOTE L - SUBSIDIARY FINANCIAL INFORMATION

We have fully and unconditionally guaranteed all of the outstanding debt
securities of BST, which is a 100% owned subsidiary of BellSouth. In accordance
with SEC rules, BST is no longer subject to the reporting requirements of the
Securities Exchange Act of 1934, and we are providing the following unaudited
condensed consolidating financial information. BST is listed separately because
it has debt securities, registered with the SEC, that we have guaranteed. The
BST and Parent columns reflect the application of equity method accounting for
investments in their subsidiaries. The Other column represents all other wholly
owned subsidiaries excluding BST and BST subsidiaries. The Adjustments column
includes the necessary amounts to eliminate the intercompany balances and
transactions between BST, Other and Parent and to consolidate wholly owned
subsidiaries to reconcile to our consolidated financial information.



<PAGE>

BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND AS OTHERWISE INDICATED)
(Unaudited)

NOTE L - SUBSIDIARY FINANCIAL INFORMATION (Continued)

Condensed Consolidating Statements of Income
<TABLE>
<CAPTION>
                                                                    For the Three Months Ended June 30, 2003
                                                  ------------------------------------------------------------------------------
                                                        BST             Other           Parent      Adjustments      Total
                                                  ------------------------------------------------------------------------------
<S>                                             <C>              <C>               <C>           <C>           <C>
Total operating revenues ........................  $    4,335       $    1,393        $     --      $   (649)     $  5,079
Total operating expenses ........................       3,705            1,045              15        (1,040)        3,725
                                                    -------------    -------------     -----------   -----------   ----------
Operating income (loss) .........................         630              348             (15)          391         1,354
Interest expense ................................         135               14             147           (63)          233
Equity in earnings ..............................         287              183             973        (1,266)          177
Other income (expense), net .....................         (21)              90              52            --           121
                                                    -------------    -------------     -----------   -----------   ----------
Income from continuing operations before income
  taxes, discontinued operations, and cumulative
  effect of changes in accounting principle               761              607             863          (812)        1,419
Provision (benefit) for income taxes ............         178              216             (45)          162           511
                                                    -------------    -------------     -----------   -----------   ----------
Income from continuing operations before
  discontinued operations and cumulative effect
  of changes in accounting principle.............         583              391             908          (974)          908
Discontinued operations, net of tax..............          --               43              43           (43)           43
Cumulative effect of changes in accounting
  principle,  net of tax.........................          --               --              --            --            --
                                                    -------------    -------------     -----------   -----------   ----------
Net income (loss) ...............................  $      583       $      434        $    951      $ (1,017)     $    951
                                                    =============    =============     ===========   ===========   ==========
</TABLE>

<TABLE>
<CAPTION>

                                                                    For the Three Months Ended June 30, 2004
                                                  ------------------------------------------------------------------------------
                                                        BST             Other           Parent      Adjustments      Total
                                                  ------------------------------------------------------------------------------
<S>                                             <C>              <C>               <C>           <C>           <C>
Total operating revenues ........................  $    4,243       $    1,599        $     --      $   (759)     $  5,083
Total operating expenses ........................       3,691            1,121            (13)        (1,158)        3,641
                                                    -------------    -------------     -----------   -----------   ----------
Operating income ................................         552              478              13           399         1,442
Interest expense ................................         124                4             136           (53)          211
Equity in earnings ..............................         275              154             980        (1,258)          151
Other income (expense), net .....................           5               45              41           (18)           73
                                                    -------------    -------------     -----------   -----------   ----------
Income from continuing operations before income
  taxes, discontinued operations, and cumulative
  effect of changes in accounting principle......         708              673             898          (824)        1,455
Provision (benefit) for income taxes ............         157              241             (41)          159           516
                                                    -------------    -------------     -----------   -----------   ----------
Income from continuing operations before
  discontinued operations and cumulative effect
  of changes in accounting principle.............         551              432             939          (983)          939
Discontinued operations, net of tax..............          --               57              57           (57)           57
Cumulative effect of changes in accounting
  principle,  net of tax.........................          --               --              --            --            --
                                                    -------------    -------------     -----------   -----------   ----------
Net income (loss) ...............................  $      551       $      489        $    996      $ (1,040)     $    996
                                                    =============    =============     ===========   ===========   ==========
</TABLE>

<TABLE>
<CAPTION>

                                                                     For the Six Months Ended June 30, 2003
                                                  ------------------------------------------------------------------------------
                                                        BST             Other           Parent      Adjustments      Total
                                                  ------------------------------------------------------------------------------
<S>                                             <C>              <C>               <C>           <C>           <C>
Total operating revenues ........................  $    8,732       $    2,660        $     --      $ (1,299)     $ 10,093
Total operating expenses ........................       7,444            1,959              36        (2,051)        7,388
                                                    -------------    -------------     -----------   -----------   ----------
Operating income (loss) .........................       1,288              701             (36)          752         2,705
Interest expense ................................         281               45             297          (132)          491
Equity in earnings ..............................         536              362           1,905        (2,455)          348
Other income (expense), net .....................         (21)             141             106           (29)          197
                                                    -------------    -------------     -----------   -----------   ----------
Income from continuing operations before income
  taxes, discontinued operations, and cumulative
  effect of changes in accounting principle......       1,522            1,159           1,678        (1,600)        2,759
Provision (benefit) for income taxes ............         371              404             (80)          306         1,001
                                                    -------------    -------------     -----------   -----------   ----------
Income from continuing operations before
  discontinued operations and cumulative effect
  of changes in accounting principle.............       1,151              755           1,758        (1,906)        1,758
Discontinued operations, net of tax..............          --              108             108          (108)          108
Cumulative effect of changes in accounting
  principle,  net of tax.........................         816             (501)            315          (315)          315
                                                    -------------    -------------     -----------   -----------   ----------
Net income (loss) ...............................  $    1,967       $      362        $  2,181      $ (2,329)     $  2,181
                                                    =============    =============     ===========   ===========   ==========
</TABLE>



<PAGE>

BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND AS OTHERWISE INDICATED)
(Unaudited)

NOTE L - SUBSIDIARY FINANCIAL INFORMATION (Continued)

Condensed Consolidating Statements of Income (Continued)
<TABLE>
<CAPTION>

                                                                     For the Six Months Ended June 30, 2004
                                                  ------------------------------------------------------------------------------
                                                        BST             Other           Parent      Adjustments      Total
                                                  ------------------------------------------------------------------------------
<S>                                             <C>              <C>               <C>           <C>           <C>
Total operating revenues ........................  $     8,431      $    3,116        $     --      $(1,488)      $10,059
Total operating expenses ........................        7,334           2,195             (19)      (2,251)        7,259
                                                    -------------    -------------     -----------   -----------   ----------
Operating income ................................        1,097             921              19          763         2,800
Interest expense ................................          248              10             275         (107)          426
Equity in earnings ..............................          531             257           2,176       (2,709)          255
Other income (expense), net .....................            4             567              64          (36)          599
                                                    -------------    -------------     -----------   -----------   ----------
Income from continuing operations before income
  taxes, discontinued operations, and cumulative
  effect of changes in accounting
  principle............................                  1,384           1,735           1,984       (1,875)        3,228
Provision (benefit) for income taxes ............          309             628            (105)         307         1,139
                                                    -------------    -------------     -----------   -----------   ----------
Income from continuing operations before                 1,075           1,107           2,089       (2,182)        2,089
  discontinued operations and cumulative effect
  of changes in accounting principle
Discontinued operations, net of tax..............           --             506             506         (506)          506
Cumulative effect of changes in accounting
  principle,  net of tax.........................           --              --              --           --            --
                                                    -------------    -------------     -----------   -----------   ----------
Net income (loss) ...............................  $     1,075      $    1,613        $  2,595      $(2,688)      $ 2,595
                                                    =============    =============     ===========   ===========   ==========
</TABLE>

Condensed Consolidating Balance Sheets
<TABLE>
<CAPTION>

                                               December 31, 2003                                     June 30, 2004

                               --------------------------------------------------- -------------------------------------------------

                                  BST      Other    Parent    Adjust-     Total       BST      Other    Parent    Adjust-    Total
                                                               ments                                               ments
                               ---------------------------------------- ---------- ---------------------------------------- --------
<S>                          <C>       <C>       <C>      <C>         <C>        <C>       <C>       <C>      <C>        <C>

ASSETS
Current assets:
Cash and cash equivalents ....     $  5   $ 1,190   $ 3,227    $  134     $4,556       $ 32   $ 1,090   $ 5,040      $ 54   $ 6,216
Accounts receivable, net .....       68     1,143     3,204    (1,545)     2,870         73       920     2,505    (1,062)    2,436
Other current assets .........      393       831        81       118      1,423        450       615        11       113     1,189
Assets of discontinued
  operations .................       --        --        --        --         --         --     3,928        --       ---     3,928
                               ---------------------------------------- ---------- ---------------------------------------- --------

Total current assets .........      466     3,164     6,512    (1,293)     8,849        555     6,553     7,556      (895)   13,769
                               ---------------------------------------- ---------- ---------------------------------------- --------

Investments and advances .....    3,464     7,913    22,609   (25,434)     8,552      3,424     7,141    23,891   (25,818)    8,638
Property, plant and equipment,
  net ........................   21,818     1,947         4        38     23,807     21,458       609         3        34    22,104
Deferred charges and other
  assets .....................    5,029       287        72       467      5,855      5,158       282        96       497     6,033
Intangible assets, net .......    1,036     1,460         5       138      2,639      1,002       616         6       126     1,750
                               ---------------------------------------- ---------- ---------------------------------------- --------

Total assets .................  $31,813   $14,771   $29,202  $(26,084)   $49,702    $31,597   $15,201   $31,552  $(26,056)  $52,294
                               ======================================== ========== ======================================== ========

LIABILITIES AND SHAREHOLDERS'
  EQUITY
Current liabilities:
Debt maturing within one year   $ 2,454     $ 920   $ 2,470   $(2,353)   $ 3,491     $2,349    $ (180)   $2,659   $(1,566)  $ 3,262
Other current liabilities ....    3,942     1,724       916    (1,615)     4,967      3,958     1,239       903    (1,916)    4,184
Liabilities of discontinued
  operations..................       --        --        --        --         --         --     2,469        --        --     2,469
                               ---------------------------------------- ---------- ---------------------------------------- --------

Total current liabilities ....    6,396     2,644     3,386    (3,968)     8,458      6,307     3,528     3,562    (3,482)    9,915
                               ---------------------------------------- ---------- ---------------------------------------- --------

Long-term debt ...............    4,970       845     6,301      (627)    11,489      4,360       110     6,474      (603)   10,341
                               ---------------------------------------- ---------- ---------------------------------------- --------

Noncurrent liabilities:
Deferred income taxes ........    4,408     1,519      (751)      173      5,349      4,872     1,622      (550)      236     6,180
Other noncurrent liabilities .    2,991     1,074       554        75      4,694      2,975       792       550        25     4,342
                               ---------------------------------------- ---------- ---------------------------------------- --------

Total noncurrent liabilities .    7,399     2,593      (197)      248     10,043      7,847     2,414        --       261    10,522
                               ---------------------------------------- ---------- ---------------------------------------- --------

Shareholders' equity..........   13,048     8,689    19,712   (21,737)    19,712     13,083     9,149    21,516   (22,232)   21,516
                               ---------------------------------------- ---------- ---------------------------------------- --------

Total liabilities and
  shareholders' equity .......  $31,813   $14,771   $29,202  $(26,084)   $49,702    $31,597   $15,201   $31,552  $(26,056)  $52,294
                               ======================================== ========== ======================================== ========

</TABLE>



<PAGE>

BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND AS OTHERWISE INDICATED)
(Unaudited)

NOTE L - SUBSIDIARY FINANCIAL INFORMATION (Continued)

Condensed Consolidating Cash Flow Statements
<TABLE>
<CAPTION>
                                                                     For the Six Months Ended June 30, 2003
                                                 -------------------------------------------------------------------------------

                                                       BST            Other          Parent       Adjustments      Total
                                                   -----------      --------      ----------  -----------------  ---------
<S>                                              <C>             <C>            <C>            <C>            <C>
Cash flows from continuing operations:
  Cash flows from operating activities ........     $  3,367        $  887         $ 2,344         $ (2,311)      $ 4,287
  Cash flows from investing activities ........       (1,365)         (189)            683            1,157           286
  Cash flows from financing activities ........       (2,002)         (722)         (1,430)           1,141        (3,013)
Cash flows from discontinued operations .......           --            80              --               --            80
                                                   -----------      --------      ----------      -----------    ----------


Net (decrease) increase in cash ...............     $     --        $   56         $ 1,597         $    (13)      $ 1,640
                                                   ===========     =========      ==========      ===========    ==========

</TABLE>


<TABLE>
<CAPTION>

                                                                     For the Six Months Ended June 30, 2004
                                                 -------------------------------------------------------------------------------

                                                       BST            Other          Parent       Adjustments      Total
                                                   -----------      --------      ----------  -----------------  ---------
<S>                                              <C>            <C>             <C>             <C>            <C>
Cash flows from continuing operations:
  Cash flows from operating activities ........     $  3,020        $   78         $ 1,846         $ (1,147)      $ 3,797
  Cash flows from investing activities ........       (1,329)          188             698             (683)       (1,126)
  Cash flows from financing activities ........       (1,664)         (181)           (731)           1,750          (826)
Cash flows from discontinued operations........           --          (185)             --               --          (185)
                                                   -----------     ---------      ----------      -----------    ----------


Net (decrease) increase in cash ...............     $     27        $ (100)        $ 1,813          $   (80)      $ 1,660
                                                   ===========     =========      ==========      ===========    ==========

</TABLE>






<PAGE>

(Dollars in Millions, Except Per Share Amounts and as Otherwise Indicated)


                              BELLSOUTH CORPORATION
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

For a more complete understanding of our industry, the drivers of our business
and our current period results, you should read the following Management's
Discussion and Analysis of Financial Condition and Results of Operations in
conjunction with our latest annual report on Form 10-K, as amended by the
current report on Form 8-K dated July 30, 2004, and our other filings with the
SEC.

Overview

We are a Fortune 100 company with annual revenues of over $20 billion. Our core
business is wireline communications and our largest customer segment is the
retail consumer. We have significant interests in wireless communications
through our ownership of approximately 40 percent of Cingular Wireless
(Cingular), the nation's second largest wireless company. We also operate one of
the largest directory advertising businesses in the United States. The great
majority of our revenues are generated based on monthly recurring services.

We operate much of our business in one of the country's strongest regional
economies, where the population is increasing, real income growth is outpacing
the national average and a diverse mix of businesses require advanced
information and communication technology solutions. The Southeast is a net
migration region, with positive net migration averaging almost 500 thousand
annually. The region's real income is expected to grow 10 to 15 percent faster
than the national average in the next five years.

REGULATION AND COMPETITION

The Telecommunications Act of 1996 required local telephone companies to open
their existing facilities to use by competitors on "non-discriminatory" terms
and prices under what is referred to as an unbundled network element platform,
or UNE-P. This requirement has distorted the competitive landscape by allowing
competitors to rent access lines at deeply discounted rates that are generally
below our historical cost. Utilizing UNE-P, competitors are able to market
telephone service and generate reasonable margins with little to no capital
investment at risk.

A judicial decision that became effective in mid-June invalidated certain FCC
rules that governed the provision of wholesale access to our network by local
service competitors. We have begun the process of reforming our contracts with
competitors to reflect the court's decision. We also await new rules from the
FCC that must reflect the court's decision. In addition, we have offered
competitors commercial and tariffed services that would replace the services
required by the invalidated rules for longer terms at market-based prices. The
development of revised and new contracts with competitors will take at least
several months. As a result of these changes in regulatory policy governing
local telephone service, AT&T announced it will no longer be competing for
residential local and standalone long distance customers. They stated that
service will continue for existing residential customers; however, they will no
longer be investing to acquire new customers in this segment.


We also have a pending reconsideration request on the architectural requirements
related to fiber deployment for broadband before the FCC. In addition, the FCC
is reviewing UNE pricing rules, including an evaluation of the total element
long run incremental cost (TELRIC) methodology, access charge reform and
potential regulation of voice over Internet protocol (VoIP).

ACQUISITIONS AND DISPOSITIONS

On February 17, 2004, Cingular announced an agreement to acquire AT&T Wireless,
which will create the largest wireless carrier in the United States. The
acquisition, which is subject to the approvals of federal regulatory authorities
and to other customary closing conditions, is expected to be completed in the
fourth quarter of 2004.

On March 5, 2004, we signed an agreement with Telefonica Moviles, the wireless
affiliate of Telefonica, S.A., to sell all our interests in our Latin American
operations. The transaction is subject to governmental approvals and other
closing conditions. It is expected to close in stages as closing conditions are
satisfied, with the closings expected to occur in the second half of 2004.

HIGHLIGHTS AND OUTLOOK

Consolidated revenues for the first half of 2004 were essentially flat compared
to the first half of 2003 reflecting top line pressures caused by the loss of
1.6 million retail access lines to UNE-P competitors and technology
substitution. Revenue contraction due to line loss and pricing pressures was
offset by solid revenue growth in long distance and DSL. Through the first half
of the year, we added approximately 1.2 million long distance customers to total
5.1 million at June 30, 2004, while net new DSL subscriber additions of 276,000
brought our total to 1.7 million. Our cost structure is heavily weighted towards
labor and depreciation. In the Communications group, we adjust our workforce as
market share of access lines shifts. Since the beginning of 2001, we reduced our
workforce in this group by 14,600 employees or 20%. In the first half of

<PAGE>

(Dollars in Millions, Except Per Share Amounts and as Otherwise Indicated)

2004, we announced that the needs of the business would require additional force
reductions of nearly 1,100 employees. Maintaining operating margins going
forward will be challenging as competition intensifies and we are forced to
achieve continued increases in productivity. While there have been some
encouraging developments on the regulatory front, there will be other events
(healthcare costs, roll-out of VoIP telephony by cable providers) that will put
pressure on margins.

Approximately 45,000 of our employees are represented by the Communications
Workers of America (CWA). The largest collective bargaining agreements between
the CWA and our subsidiaries are due to expire on August 7, 2004. We are
currently in negotiations with the union on new contracts. We can provide no
assurance that we will be able to complete new agreements with the union prior
to the expiration of the contracts or that we will not be competitively
disadvantaged if we are unable to do so. We have put into place contingency
plans to maintain all essential service functions in the event of a work
stoppage.


Despite the lack of growth in the traditional business, cash flows were strong
in the first half of 2004 as we delivered $2.4 billion in operating free cash
flow from continuing operations (cash flow from operating activities less
capital expenditures). During the quarter, we increased the quarterly cash
dividend by eight percent to 27 cents per common share.

--------------------------------------------------------------------------------
Consolidated Results of Operations
--------------------------------------------------------------------------------

Key financial and operating data for the three and six months ended June 30,
2003 and 2004 are set forth below. All references to earnings per share are on a
diluted basis. The discussion of consolidated results should be read in
conjunction with the more detailed discussion of results by segment directly
following this section.

Following generally accepted accounting principles (GAAP), our financial
statements reflect results for the Latin American operations as Discontinued
Operations. The operational results and other activity, including the tax over
book basis gain, associated with the Latin American segment have been presented
on one line item in the income statement separate from Continuing Operations.

<TABLE>
<CAPTION>

                                                           For the Three Months                  For the Six Months
                                                              Ended June 30,           %           Ended June 30,           %
                                                            2003         2004       Change       2003         2004       Change
-------------------------------------------------------- ------------ ----------- ----------- ------------ ----------- -----------
-------------------------------------------------------- ------------ ----------- ----------- ------------ ----------- -----------
<S>                                                     <C>           <C>          <C>        <C>          <C>       <C>
Results of operations:


Total operating revenues                                     $ 5,079      $5,083        0.1%     $ 10,093     $10,059     -0.3%

Operating expenses
  Cost of services and products                                1,765       1,789        1.4%        3,440       3,587      4.3%
  Selling, general, and administrative expenses                  989         930       -6.0%        1,908       1,839     -3.6%
  Depreciation and amortization                                  953         914       -4.1%        1,902       1,812     -4.7%
  Provision for restructuring                                     18           8      -55.6%          138          21    -84.8%
                                                               -----       -----                    -----       -----
    Total operating expenses                                   3,725       3,641       -2.3%        7,388       7,259     -1.7%
Operating income                                               1,354       1,442        6.5%        2,705       2,800      3.5%
Interest expense                                                 233         211       -9.4%          491         426    -13.2%
Net (losses) earnings of equity affiliates                       177         151      -14.7%          348         255    -26.7%
Gain (loss) on sale of operations                                  -           -        0.0%            -         462        *
Other income (expense), net                                      121          73      -39.7%          197         137    -30.5%
                                                               -----       -----                    -----       -----
Income from continuing operations before income taxes
  and cumulative effect of changes in accounting
  principle, net of tax                                        1,419       1,455        2.5%        2,759       3,228     17.0%
Provision for income taxes                                       511         516        1.0%        1,001       1,139     13.8%
                                                               -----       -----                    -----       -----
Income from continuing operations before discontinued
  operations and cumulative effect of changes in
  accounting principle                                           908         939        3.4%        1,758       2,089     18.8%
Income from discontinued operations, net of tax                   43          57       32.6%          108         506        *
Income before cumulative effect of changes in
  accounting principle                                           951         996        4.7%        1,866       2,595     39.1%
                                                               -----       -----                    -----       -----
Cumulative effect of changes in accounting principle,
  net of tax                                                       -           -        0.0%          315           -   -100.0%

                                                               -----       -----                    -----       -----
Net (loss) income                                              $ 951       $ 996        4.7%      $ 2,181     $ 2,595     19.0%
                                                               =====       =====                  =======     =======

*  Not meaningful
</TABLE>

<PAGE>

(Dollars in Millions, Except Per Share Amounts and as Otherwise Indicated)

Operating Revenues

Consolidated revenues were essentially flat during the second quarter and the
year-to-date periods in 2004 compared to the corresponding periods in 2003.
Communications group revenues increased $17 in the second quarter but were down
slightly in the year-to-date period. Year-to-date 2004 revenues reflect the
impact of a $50 customer refund accrual recorded during the first quarter 2004
associated with a settlement agreement with the South Carolina Consumer
Advocate. Absent the accrual, revenues would have increased $46. Growth in both
periods reflect the impact of revenue declines associated with competitive line
losses and related pricing pressures offset by growth in DSL and long distance.
Beyond our traditional wireline business, Advertising and publishing group
revenues were down $28 in the year-to-date period compared to the corresponding
period in 2003 impacted by a reduction in print revenues due to lower overall
spending by our advertisers.

Operating Expenses

The $84 decline in operating expenses in the second quarter of 2004 as compared
to the second quarter 2003 is primarily attributable to reductions in
uncollectible expense, access fees paid to other carriers and lower depreciation
and amortization expense attributable to the declines in capital expenditures
partially offset by increases in the costs of goods for the provision of long
distance services associated with the growth in subscribers, higher labor costs
and advertising costs. These expenses are discussed in greater detail in our
Communications group segment results section.

Year-to-date operating expenses declined $129 as compared to the prior year. In
addition to the factors affecting the second quarter comparison, the
year-to-date 2004 comparison is favorably impacted by $117 in restructuring
charges taken in the prior year.

Interest Expense

Interest expense decreased $22 for the second quarter and $65 for the
year-to-date period compared to the same periods in the prior year. Interest
expense related to interest-bearing debt was down $19 for the second quarter and
down $38 in the year-to-date period, compared to the same periods in the prior
year, reflecting lower average debt balances caused by scheduled maturities and
early redemptions in 2003. The remaining variances relate to interest accruals
on other liabilities and contingencies.

Net earnings (losses) of equity affiliates
<TABLE>
<CAPTION>
                                              For the Three Months                     For the Six Months
                                                 Ended June 30,                          Ended June 30,
                                                2003         2004        Change        2003         2004        Change
                                            ------------ ------------- ------------ ------------ ------------ ------------
                                            ------------ ------------- ------------ ------------ ------------ ------------
<S>                                        <C>         <C>          <C>          <C>          <C>           <C>
     Cingular                                 $  166       $  141       $ (25)       $  331       $  236        $  (95)
     Other equity investees                       11           10          (1)           17           19             2
                                            ------------ ------------- ------------ ------------ ------------ ------------
                                            ------------ ------------- ------------ ------------ ------------ ------------
     Total                                    $  177       $  151       $ (26)       $  348       $  255        $  (93)
                                            ------------ ------------- ------------ ------------ ------------ ------------
</TABLE>

Earnings from Cingular in the 2004 periods were lower compared to the same
periods in 2003 primarily due to significant growth in customers and the costs
related to that growth.

Gain (loss) on sale of operations

The gain on sale of operations in 2004 relates to the sale of our interest in
Danish wireless provider, Sonofon, for 3.68 billion Danish Kroner to Telenor
ASA. We received 3.05 billion Danish Kroner, or $525, for our 46.5% equity stake
and 630 million Danish Kroner, or $109, for our shareholder loan and accrued
interest, reduced by a settlement of $17 associated with foreign currency swap
contracts. As a result of these transactions, we recorded a gain of $462, or
$295 net of tax, which included the recognition of cumulative foreign currency
translation gains of $13.

Other income (expense), net
<TABLE>
<CAPTION>
                                              For the Three Months                    For the Six Months
                                                 Ended June 30,                          Ended June 30,
                                               2003          2004        Change        2003         2004        Change
                                            ------------ ------------- ------------ ------------ ------------ ------------
                                            ------------ ------------- ------------ ------------ ------------ ------------
<S>                                       <C>            <C>         <C>         <C>           <C>         <C>
     Interest Income                          $  90          $  70       $ (20)      $  174        $  139       $  (35)
     Foreign currency transaction gains
       (losses)                                  25              -         (25)          29            (1)         (30)
     Other, net                                   6              3          (3)          (6)           (1)           5
                                            ------------ ------------- ------------ ------------ ------------ ------------
                                            ------------ ------------- ------------ ------------ ------------ ------------
     Total Other Income (Expense), net        $ 121          $  73       $ (48)      $  197        $  137       $  (60)
                                            ------------ ------------- ------------ ------------ ------------ ------------
</TABLE>

The decrease in interest income reflects a lower rate on our advance to Cingular
and to a lesser extent the loss of income on an advance to Dutch
telecommunications provider Royal KPN N.V. (KPN) due to early repayment in 2003.
Foreign currency transaction gains in 2003 relate primarily to the advance to
KPN.

<PAGE>

(Dollars in Millions, Except Per Share Amounts and as Otherwise Indicated)

Provision for income taxes

The provision for income taxes increased $5 in the second quarter of 2004 as
compared to the second quarter of 2003 while the effective tax rate declined to
35.5% from 36.0% in the second quarter of 2003. The provision increased $138 in
the year-to-date period in 2004 compared to the corresponding period in 2003.
The effective tax rate decreased to 35.3% in the year-to-date period in 2004
from 36.3% in the year-to-date period in 2003. The lower effective tax rates in
2004 were impacted by a favorable permanent difference for the Medicare Part D
subsidy and a true up of taxes payable associated with divested operations.

Income (loss) from discontinued operations, net of tax

Income from discontinued operations, net of tax, increased $14 in the second
quarter of 2004 compared to the same period in 2003 primarily due to improved
operating income in 2004. The improvement in operating income was primarily due
to the cessation of depreciation and amortization expense in the second quarter
2004 for the assets of the discontinued operations as required by GAAP as well
as strong revenue growth in the region. In addition, income from discontinued
operations in the second quarter of 2003 included a $73 loss, net of tax, on the
sale of Brazil. Partially offsetting these improvements were foreign exchange
losses of $34 in second quarter 2004 compared to foreign exchange gains of $73
in second quarter 2003. In addition, second quarter 2004 included a loss of $33
related to the purchase of additional ownership share in Argentina.

Income from discontinued operations, net of tax, increased $398 in the
year-to-date-period 2004 compared to the same period in 2003 primarily due to a
$416 tax benefit recorded in 2004 related to excess tax basis over book basis in
our Latin America investments. No US tax benefit has previously been recognized
on losses generated by the Latin American operations due to the essentially
permanent duration of those investments. The sale agreement with Telefonica
provides evidence that the temporary difference will reverse in the foreseeable
future and, accordingly, we recorded a $416 tax benefit in accordance with SFAS
No. 109. Excluding this tax adjustment, income from discontinued operations, net
of tax, would have been flat.

From an operational perspective, these operations experienced strong growth in
both customers and revenue. Operating revenue in the Latin America operations
for the year-to-date period in 2004 increased $284 or 26.5% over year-to-date
2003 due to strong growth in customers and traffic throughout the portfolio.
End-of-period customers increased 29% and total billed minutes of use increased
34% compared to last year. Operating income in the Latin American operations
also increased due to the strength in business volumes as well as the cessation
of depreciation and amortization expense in second quarter 2004.

Cumulative effect of changes in accounting principle

Asset Retirement Obligations

Effective January 1, 2003, we adopted SFAS No. 143, "Accounting for Asset
Retirement Obligations" (SFAS No. 143). In connection with the adoption of this
standard, we recorded the cumulative effect of accounting change that increased
2003 net income by $816.

Revenue Recognition for Publishing Revenues

Effective January 1, 2003, we changed our method for recognizing revenues and
expenses related to our directory publishing business from the publication and
delivery method to the deferral method. The cumulative effect of the change in
accounting method is reflected in the income statement as a decrease to 2003 net
income of $501.

--------------------------------------------------------------------------------
Results by Segment
--------------------------------------------------------------------------------
Our reportable segments reflect strategic business units that offer similar
products and services and/or serve similar customers. We have three reportable
operating segments:

o        Communications group;
o        Domestic wireless; and
o        Advertising and publishing.

Management evaluates the performance of each business unit based on net income,
exclusive of internal charges for use of intellectual property and adjustments
for unusual items that may arise. Unusual items are transactions or events that
are included in reported consolidated results but are excluded from segment
results due to their nonrecurring or nonoperational nature. In addition, when
changes in our business affect the comparability of current versus historical
results, we will adjust historical operating information to reflect the current
business structure. See Note I for a reconciliation of segment results to the
unaudited consolidated financial information.

<PAGE>

(Dollars in Millions, Except Per Share Amounts and as Otherwise Indicated)

The following discussion highlights our performance in the context of these
segments. For a more complete understanding of our industry, the drivers of our
business, and our current period results, you should read this discussion in
conjunction with our consolidated financial statements, including the related
notes.

--------------------------------------------------------------------------------
Communications Group
--------------------------------------------------------------------------------

The Communications group includes our core domestic businesses including: all
domestic wireline voice, data, broadband, e-commerce, long distance, Internet
services and advanced voice features. The group provides these services to an
array of customers, including residential, business and wholesale.

During the first half of 2004, the Communications group continued to emphasize
interLATA long distance and FastAccess(R) DSL, encouraging customers to purchase
packages containing multiple telecommunications services. We also continued to
experience the loss of retail access lines due to competition and technology
substitution, and we expect these trends to continue during the remainder of
2004.
<TABLE>
<CAPTION>

                                                         For the Three Months                  For the Six Months
                                                             Ended June 30,           %           Ended June 30,           %
                                                            2003        2004        Change       2003        2004        Change
 --------------------------------------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>         <C>           <C>       <C>          <C>          <C>
 Segment operating revenues:
   Voice                                                   $3,171      $3,153        -0.6%     $ 6,334      $6,322        -0.2%
    Data                                                    1,065       1,116         4.8%       2,155       2,208         2.5%
    Other                                                     350         334        -4.6%         673         648        -3.7%
                                                            -----       -----                    -----       -----
        Total segment operating revenues                    4,586       4,603         0.4%       9,162       9,178         0.2%
 Segment operating expenses:
    Cost of services and products                           1,712       1,730         1.1%       3,337       3,475         4.1%
    Selling, general, and administrative expenses             768         778         1.3%       1,532       1,550         1.2%
    Depreciation and amortization                             944         903        -4.3%       1,881       1,791        -4.8%
                                                            -----       -----                    -----       -----
        Total segment operating expenses                    3,424       3,411        -0.4%       6,750       6,816         1.0%
 Segment operating income                                   1,162       1,192         2.6%       2,412       2,362        -2.1%
 --------------------------------------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------------------------------------
 Segment net income                                         $ 679       $ 702         3.4%      $1,388      $1,389         0.1%
 --------------------------------------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------------------------------------

 Segment net income including unusual items                 $ 656       $ 697         6.3%      $2,107      $1,342       -36.3%

 --------------------------------------------------------------------------------------------------------------------------------
 Key Indicators (000s except where noted)
 --------------------------------------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------------------------------------

  Switched access lines(1):
     Residential retail:
          Primary                                                                               12,836      11,876        -7.5%
          Additional                                                                             1,758       1,447       -17.7%
                                                                                                 -----       -----
     Total Retail Residence                                                                     14,594      13,323        -8.7%
     Residential wholesale:
          Resale                                                                                   238         127       -46.6%
          UNE-P                                                                                  1,369       2,149        57.0%
                                                                                                 -----       -----
     Total Wholesale Residence                                                                   1,607       2,276        41.6%
                                                                                                 -----       -----
       Total Residence                                                                          16,201      15,599        -3.7%

     Business retail                                                                             5,542       5,282        -4.7%
     Business wholesale

          Resale                                                                                    75          63       -16.0%
          UNE-P                                                                                    634         740        16.7%
                                                                                                   ---         ---
      Total Wholesale Business                                                                     709         803        13.3%

     Other Retail/Wholesale Lines (primarily public)                                               166         102       -38.6%
                                                                                                   ---         ---

     Total Switched Access Lines (2)                                                            22,618      21,786        -3.7%
  ISDN line equivalents
      Residence                                                                                     16          11       -31.3%
      Business                                                                                   1,516       1,477        -2.6%
                                                                                                 -----       -----
      Total ISDN Adjusted Access lines in Service                                               24,150      23,274        -3.6%

 DSL customers                                                                                   1,225       1,738        41.9%
 Long distance customers                                                                         2,786       5,131        84.2%
 Access minutes of use (millions)                          23,053      22,753        -1.3%      45,848      46,046         0.4%

 Capital expenditures                                       $ 665       $ 713         7.2%      $1,231      $1,325         7.6%
 --------------------------------------------------------------------------------------------------------------------------------

 (1) Prior period operating data are often revised at later dates to reflect
updated information. The above information reflects the latest data available
for the periods indicated.
 (2) In the first quarter 2004, we augmented our presentation of access lines
from only an ISDN adjusted method to also disclosing an actual reported basis.
The ISDN adjusted amounts are also provided in the table above for comparison
purposes to peer companies.
</TABLE>

<PAGE>

(Dollars in Millions, Except Per Share Amounts and as Otherwise Indicated)

Segment operating revenues

Voice

Voice revenues decreased $18 in the second quarter and decreased $12
year-to-date when compared to the same periods in 2003 driven primarily by
continued access line loss offset by the growth in interLATA long distance.
Total switched access lines declined 832,000 or 3.7% for the year-to-date period
with retail line losses being partially offset by increases in wholesale lines.
The access line decline was the result of continued share loss and technology
substitution.

Wholesale lines, which consist primarily of unbundled network element - platform
(UNE-P) lines, totaled over 3 million at June 30, 2004, up 780,000 lines year
over year. The vast majority of the quarterly UNE-P additions were residential.
When lines over which we provide retail services are converted to UNE-P, we lose
revenue and margin. On average, the revenue from our provision of UNE-P does not
permit us to recover the fully allocated costs we incur to provide it. To
mitigate this loss, we are actively seeking reform of the pricing rules that
regulators use to set UNE-P prices. We also continue to actively market our own
retail services and bundles.

In efforts to combat share loss, we continue to grow our package services.
BellSouth AnswersSM is our signature residential package that combines wireline,
wireless and Internet services. The package combines the Complete Choice calling
plan of local service and multiple convenience calling features with BellSouth
Long Distance, BellSouth FastAccess(R)DSL or dial-up Internet, and Cingular
Wireless services. In April 2004, we began adding DIRECTV(R) digital satellite
television service to the BellSouth AnswersSM bundles through our web channel to
enhance the effectiveness of our bundle. We ended the quarter with more than 3.7
million residential packages, representing a 31% penetration of our retail
primary line residence base. Over 80% of Answers customers have long distance in
their package and over 40% have either DSL or dial-up Internet.

Long distance voice revenue increased $147 in the second quarter and $320
year-to-date when compared to the same periods in 2003, driven primarily by
growth in interLATA and wireless long distance. InterLATA revenues increased
$157 in the second quarter and $323 year-to-date when compared to the same
periods in 2003. Substantial interLATA growth reflects continued large market
share gains driven by marketing efforts and unlimited minute offers. At June 30,
2004, we had 5.1 million long distance customers, a penetration rate of 39% of
primary residential access lines and 48% of mass-market small business accounts.
We also continued to grow our long distance offerings in complex business. We
recorded $49 in complex long distance revenue in the second quarter of 2004
compared to $13 in the same quarter of 2003. Revenue from wholesale long
distance services provided to Cingular increased $13 for the second quarter and
$25 year-to-date when compared to the same periods in 2003. This increase was
caused by higher volumes associated with the proliferation of wireless package
plans that include long distance.

Switched access revenues are down in the second quarter and year-to-date when
compared to the same periods in 2003 due to volume and rate decreases. Switched
access rates were lower due to effects of the CALLs program, an FCC access
reform initiative. The decline in rates, however, is substantially offset by
higher subscriber line charges which are also included in voice revenues.
Switched access MOUs decreased 1.3% compared to the second quarter of 2003. The
decrease is due to the impact of access line loss and the continuing shift of
wholesale lines from resale to UNE-P and alternative communications services,
primarily wireless and e-mail.

Data

Data revenues increased $51 in the second quarter and $53 year-to-date when
compared to the same period in 2003. Data revenues were driven by strong growth
from the sale of FastAccess(R) DSL service partially offset by decreases in
revenue from other data products. Combined wholesale and retail DSL revenues
were up $68 in the second quarter and $125 year-to-date when compared to the
same periods in 2003 due primarily to a larger customer base. As of June 30,
2004, we had over 1.7 million DSL customers, an increase of over 500 thousand
customers compared to June 30, 2003.

Retail data services grew 12.7% in the second quarter and grew 13.0%
year-to-date when compared to the corresponding periods in 2003 driven primarily
by the growth from the sale of FastAccess(R) DSL service. During the second
quarter of 2004 we added 126 thousand net retail customers and, on a
year-to-date basis, we added 283 thousand net retail customers. We offer three
broadband speeds to meet the varying needs of our mass market customers. The
original version - BellSouth FastAccess(R) DSL Ultra- runs at speeds of up to
1.5 megabits. Since mid-2003, we have offered a lower speed version - BellSouth
FastAccess(R) DSL Lite - running at speeds up to 256 kilobits. DSL Lite
accounted for about one-third of second quarter 2004 gross additions. In April
2004, we began offering Fast Access DSL Xtreme, delivering download speeds of up
to 3.0 megabits and upload speeds of up to 384 kilobits. We believe our
broadband offers are among the most competitively priced in our markets. Retail
customer additions were offset somewhat by wholesale disconnects as we continue
to see a shift in customer mix to retail. Revenue from other retail data
products was flat for both the quarter and year-to-date periods.

Revenues from the sale of wholesale data transport services to other
communications providers, including long distance companies and CLECs, declined
2.9% in the second quarter and declined 7.3% year-to-date when compared to the
same

<PAGE>

(Dollars in Millions, Except Per Share Amounts and as Otherwise Indicated)

periods in 2003, primarily due to the lingering impacts of soft enterprise
demand and continued network consolidation by large inter-exchange carriers.

Other

Other communications revenue decreased $16 in the second quarter and decreased
$25 year-to-date when compared to the same periods in 2003 primarily due to the
phase-out of our payphone business.

Segment operating expenses

Cost of services and products

Cost of services and products of $1,730 in second quarter and $3,475
year-to-date increased $18 and $138, respectively, from the same periods in
2003. Cost of services increase for second quarter was impacted by increases of
$45 in costs of goods for the provision of long distance services; increases in
salary and wages of $6 impacted by pay increases and a change in employee mix
slightly offset by lower average workforce, offset by decreases of $34 in access
fees due to volume declines, settlements and significant reductions of customer
name dipping (CNAM). Cost of services increase year-to-date was impacted by
increases of $115 in costs of goods for the provision of long distance services;
increases of $35 in contract services related to network planning projects and
equipment installations; increases in labor costs of $32 impacted by salary
increases, and a change in employee mix slightly offset by lower average
workforce, and decreases of $51 in access fees due to volume declines,
settlements and significant reductions of CNAM.

Selling, general, and administrative expenses

Selling, general, and administrative expenses of $778 in second quarter and
$1,550 year-to-date increased $10 and $18, respectively, from the same periods
in 2003. The second quarter increase reflects an additional $34 in corporate
affiliate billings, an increase of $24 in salary and wage expense driven by
incentive awards and pay increases partially offset by lower headcount, and
increased advertising expense of $20 in response to consumer competitive
campaigns. The increases were substantially offset by the decrease in the
provision for uncollectibles of $39 driven by continued improvement in our
collection process, a $20 reserve adjustment and improved economic conditions.
The year-to-date increase reflects an increase of $45 in salary and wage expense
driven by incentive awards and pay increases partially offset by lower
headcount, an increase in advertising expense of $14 in response to consumer
competitive campaigns and to a lesser extent increased corporate affiliate
billings. These increases were substantially offset by the decrease in the
provision for uncollectibles of $61 driven by the reasons impacting the quarter
periods described above, and a decrease in rent, fees, and sales commissions.

Depreciation and amortization

Depreciation and amortization expense decreased $41 during second quarter and
$90 year-to-date when compared to the same periods in 2003. The primary driver
of the year-over-year decline in depreciation expense relates to lower
depreciation rates under the group life method of depreciation. The lower
depreciation rates were precipitated primarily by the reductions in capital
expenditures over the past several years. Amortization expense increased due to
higher levels of capitalized software.

Unusual items excluded from segment net income

Unusual items that were excluded from this segment's net income consisted of the
following: for second quarter, unusual items of $(5) for severance costs; for
year-to-date 2004, unusual items of $(47) for the South Carolina regulatory
settlement and severance; for second quarter 2003, unusual items of $(23)
related to severance costs, pension settlement losses, and costs associated with
the early extinguishment of debt; for year-to-date 2003, special items of $719
for the cumulative effect of change in accounting principle related to the
adoption of FAS 143 offset by restructuring charges and costs associated with
the early extinguishment of debt.

--------------------------------------------------------------------------------
Domestic Wireless
--------------------------------------------------------------------------------

We own an approximate 40% economic interest in Cingular, a joint venture with
SBC Communications. Because we exercise influence over the financial and
operating policies of Cingular, we use the equity method of accounting for this
investment. Under the equity method of accounting, we record our proportionate
share of Cingular's earnings in our consolidated statements of income. These
earnings are included in the caption "Net earnings (losses) of equity
affiliates." For management purposes, we evaluate our Domestic wireless segment
based on our proportionate share of Cingular's results. Accordingly, results for
our Domestic wireless segment reflect the proportional consolidation of
approximately 40% of Cingular's results.

<PAGE>

(Dollars in Millions, Except Per Share Amounts and as Otherwise Indicated)

Data revenue played an increasingly important role in revenue composition in
2003 and early 2004, and those impacts are expected to continue to increase
through the remainder of 2004. Further, competition continues to be intense,
with up to six competitors in most of the significant domestic wireless markets.
Cingular's pending acquisition of AT&T Wireless, which is expected to close in
the fourth quarter of 2004, will significantly impact the results of our
wireless segment effective with the closing.

<TABLE>
<CAPTION>

                                                           For the Three Months                  For the Six Months
                                                               Ended June 30,           %           Ended June 30,           %
                                                              2003        2004       Change        2003        2004       Change
 ---------------------------------------------------------------------------------------------------------------------------------
 ---------------------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>          <C>         <C>          <C>         <C>         <C>
 Segment operating revenues:
    Service revenues                                         $1,447      $1,521        5.1%       $2,804      $2,944        5.0%
    Equipment revenues                                          102         141       38.2%          200         295       47.5%
        Total segment operating revenues                      1,549       1,662        7.3%        3,004       3,239        7.8%
 Segment operating expenses:
    Cost of services and products                               536         579        8.0%        1,023       1,163       13.7%
    Selling, general, and administrative expenses               507         585       15.4%          994       1,133       14.0%
    Depreciation and amortization                               203         226       11.3%          398         447       12.3%
        Total segment operating expenses                      1,246       1,390       11.6%        2,415       2,743       13.6%
 Segment operating income                                       303         272      -10.2%          589         496      -15.8%
 ---------------------------------------------------------------------------------------------------------------------------------
 ---------------------------------------------------------------------------------------------------------------------------------
 Segment net income                                           $ 104        $ 89      -14.4%        $ 205        $148      -27.8%
 ---------------------------------------------------------------------------------------------------------------------------------
 ---------------------------------------------------------------------------------------------------------------------------------

 Segment net income including unusual items                   $ 104        $ 89      -14.4%        $ 205        $148      -27.8%


 Key Indicators:
 ---------------------------------------------------------------------------------------------------------------------------------
 ---------------------------------------------------------------------------------------------------------------------------------
 Cellular/PCS Customers (000s)                                                                     9,056      10,018       10.6%
 Wireless service average monthly revenue per customer
      - Cellular/PCS                                        $ 53.12      $50.32       -5.3%       $51.95      $49.15       -5.4%
 Capital Expenditures                                         $ 267       $ 313       17.2%        $ 398        $447       12.3%
 ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>


Segment operating revenues

Cingular's cellular/PCS customers at June 30, 2004 increased 11% compared to
June 30, 2003. Net cellular/PCS additions in the second quarter of 2004
decreased 21% compared to second quarter of 2003 and increased 35% in the
year-to-date period 2004 as compared to 2003. During the second quarter 2004,
Cingular's postpaid and reseller customer bases increased compared to prior
year. Postpaid gross additions were 78% of all gross additions for the second
quarter of 2004 and were 74% of all gross additions for the year-to-date period
2004.

The cellular/PCS churn rate was 2.7% in both the second quarter of 2004 and the
year-to-date period 2004 compared with a 2.5% churn rate in the second quarter
of 2003 and 2.6% in the year-to-date period 2003. To date, wireless local number
portability has not materially impacted Cingular's customer churn rate.

Segment operating revenues grew $113 during the second quarter of 2004 and $235
in the year-to-date period as compared to the same periods in 2003. Service
revenues increased $74 in the second quarter of 2003 and $140 in the
year-to-date period, driven by the increase in the average subscriber base for
both periods offset by lower average revenue per user (ARPU) for both periods.
ARPU for cellular/PCS customers declined $2.80 in both the second quarter and
year-to-date periods when compared to the corresponding period in the prior
year. The decrease in ARPU is related to several items including the increase in
customers on FamilyTalk(R) plans and the success of the RollOver Minutes
program. Additionally, ARPU decreased due to reductions in revenues from roaming
when compared to the second quarter of 2003 and to the year-to-date period 2003,
reflecting a reduction in roaming rates with major roaming partners to support
all-inclusive rate plans. Also, outcollect roaming revenue dropped as other
carriers continue to build out and/or better utilize their own networks.
Partially offsetting these decreases were increases in service revenue including
an increase in Universal Service Fund (USF) regulatory fees and a 60% increase
in data revenues from the second quarter of 2003 and a 45% increase in data
revenues from the year-to-date period 2003, reflective of higher penetration and
usage of SMS short messaging data services with Cingular's cellular/PCS
customers as well as revenue increases related to its Mobitex data network.

Equipment revenues increased $39 in the second quarter of 2004 and $95 in the
year-to-date period 2004 compared to the same periods in 2003 due to higher unit
sales. Handset sales were impacted by postpaid/prepaid customer gross additions
during the quarter and year-to-date periods and increased upgrade activity as a
result of Cingular's GSM conversions and a move towards higher functionality
handsets for the year-to-date period.

<PAGE>

(Dollars in Millions, Except Per Share Amounts and as Otherwise Indicated)

Segment operating expenses

Cost of services and products

Cost of services and products increased $43 during the second quarter of 2004
and $140 during the year-to-date period 2004 compared to the same 2003 periods.
Cingular's expense growth was driven by customer gross additions during the
quarter and year-to-date periods, and by upgrade activity and by increased
expenses related to USF/regulatory fees for the year-to-date period.
Additionally, a 29.7% second quarter increase and a 31.1% year-to-date increase
in system minutes of use on the network and associated network system expansion
costs resulted in higher quarter-over-quarter and higher year-to-date over
year-to-date expenses.

Selling, general, and administrative expenses

Selling, general, and administrative expenses increased $78 in the second
quarter of 2004 and increased $139 year-to-date 2004 when compared to the same
periods in 2003, due to higher commissions expense as a result of higher gross
additions, increased advertising and promotion costs, increased uncollectibles
expense and higher customer service as a result of customer retention and other
service improvement initiatives.

Depreciation and amortization

Depreciation and amortization increased $23 in the second quarter of 2004 and
increased $49 in the year-to-date period 2004 when compared to the same periods
in 2003. The increase in depreciation expense of $23 for the second quarter of
2004 and $49 for the year-to-date period 2004 was attributable to higher levels
of gross property, plant and equipment, including Cingular's GSM network
overlay. Amortization expense was flat compared to the same periods in 2003.

Unusual items excluded from segment net income

There were no unusual items that were excluded from this segment's net income.

--------------------------------------------------------------------------------
Advertising and Publishing
--------------------------------------------------------------------------------

Our Advertising and publishing segment is comprised of companies in the U.S.
that publish, print, sell advertising in and perform related services concerning
alphabetical and classified telephone directories and electronic media
offerings.

While revenue growth for the first half of 2004 continued to reflect a decline,
stronger demand in advertising has helped increase contract sales for
directories sold during 2004. Although the improving demand should result in
higher advertising spending, we expect continued competitive pressure to impact
volumes and pricing.

<TABLE>
<CAPTION>

                                                         For the Three Months                For the Six Months
                                                            Ended June 30,         %           Ended June 30,          %
                                                           2003        2004     Change        2003        2004      Change
 ------------------------------------------------------------------------------------------------------------------------------
 ------------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>        <C>       <C>        <C>            <C>       <C>
 Segment operating revenues                                $525       $ 511      -2.7%      $1,023        $993       -2.9%
 Segment operating expenses:
    Cost of services and products                            82          90       9.8%         160         170        6.3%
    Selling, general, and administrative expenses           184         167      -9.2%         354         323       -8.8%
    Depreciation and amortization                             7           7       0.0%          14          14        0.0%
                                                            ---         ---                    ---         ---
         Total segment operating expenses                   273         264      -3.3%         528         507       -4.0%
 Segment operating income                                   252         247      -2.0%         495         486       -1.8%
 ------------------------------------------------------------------------------------------------------------------------------
 ------------------------------------------------------------------------------------------------------------------------------
 Segment net income                                        $157       $ 150      -4.5%        $306        $297       -2.9%
 ------------------------------------------------------------------------------------------------------------------------------
 ------------------------------------------------------------------------------------------------------------------------------

 Segment net income (loss) including unusual items         $156        $150      -3.8%      $ (199)      $ 297      249.2%
 Capital expenditures                                      $  5        $  6      20.0%      $   12       $  14       16.7%
 ------------------------------------------------------------------------------------------------------------------------------
</TABLE>


Segment operating revenues

Segment operating revenues decreased $14 from second quarter 2003 to second
quarter 2004, and decreased $30 on a year-to-date basis. The decreases include a
reduction in print revenues, partially offset by an increase in electronic media
revenues. Sales agency commission revenues were flat quarter-over-quarter but
decreased slightly for the year-to-date period 2004 compared to the year-to-date
period 2003 as the result of a discontinued line of business. The print revenue
decline between periods was primarily driven by the amortization of revenues
from directories issued in the latter half of 2003. The decline in revenues from
2003 directories was attributable to the lingering effects of weak economic
conditions in 2003 that affected the directory advertising environment, and the
continued impact of online and offline media competition. Revenues from
directories issued in the first half of 2004 were flat when compared to their
2003 issues,

<PAGE>

(Dollars in Millions, Except Per Share Amounts and as Otherwise Indicated)

attributable to the factors discussed previously. Based on recent directory
sales volumes, revenues from directories to be issued in the second half of 2004
are expected to show positive growth over their previous issues.

Segment operating expenses

Cost of services and products increased $8 from second quarter 2003 to second
quarter 2004 and $10 on a year-to-date basis. These increases primarily reflect
the impact of increased distribution volumes. Selling, general, and
administrative expenses decreased $17 quarter-over-quarter and $31
year-over-year. Uncollectible expense drove this reduction, decreasing $10 for
the quarter and $31 for the year-to-date period. The decrease reflects the
impact of improved collection performance between periods. Variable costs
associated with selling also decreased as the result of the reduction in
revenues. Partially offsetting these decreases was increased spending for
advertising in response to a more competitive environment. Depreciation and
amortization expenses were flat between periods.

Unusual items excluded from segment net income

Unusual items that were excluded from this segment's net income consisted of the
following: in second quarter 2003, special items of $(1) related to severance
costs and pension settlement losses; in year-to-date 2003, special items of
$(505) included the cumulative effect of change in accounting principle and
severance and pension costs.

--------------------------------------------------------------------------------
Liquidity and Financial Condition
--------------------------------------------------------------------------------


Net cash provided by (used for):
                                    For the Six Months
                                      Ended June 30,
                                      2003       2004           Change
   ------------------------------- ---------- ---------- -------------------
   ------------------------------- ---------- ---------- --------- ---------
   Continuing Operations
        Operating activities.....    $4,287     $3,797      $(490)   -11.4%
        Investing activities.....      $286    $(1,126)   $(1,412)       *
        Financing activities.....   $(3,013)     $(826)    $2,187    72.6%
   Discontinued Operations              $80      $(185)     $(265)       *
   ------------------------------- ---------- ---------- --------- ---------
      *Not meaningful.

CONTINUING OPERATIONS

Net cash provided by operating activities

Cash generated by operations decreased $490 during the first half of 2004
compared to the prior year due primarily to higher income tax payments in 2004,
a previously accrued payment of approximately $81 to MCI WorldComm related to
its bankruptcy settlement, and lower operating margins before depreciation and
amortization in the Communications Group. Operating income excluding
depreciation and amortization in the Communications group decreased $140 in the
first half of 2004 compared to the same period in 2003.

Net cash used for investing activities

Capital expenditures

Capital expenditures consist primarily of (a) gross additions to property, plant
and equipment having an estimated service life of one year or more, plus
incidental costs of preparing the asset for its intended use, and (b) gross
additions to capitalized software. Our capital expenditures of $1,366 during the
first half of 2004 and $1,265 during the first half of 2003 were incurred to
support our wireline network, to promote the introduction of new products and
services and to increase operating efficiency and productivity. The increase in
capital expenditures compared to the prior period relates primarily to the
timing of capital projects and related expenditures as we expect spending in
2004 to be comparable to 2003.

Other investing activities

During the first half of 2004 we received $525 for the sale of our investment in
Sonofon and $109 for the repayment of our shareholder loan and accrued interest,
reduced by a settlement of $17 associated with currency swap contracts. In
addition, activity related to purchases and sales of debt and equity securities
resulted in a net cash outlay of $382.

During the first half of 2003, we received $1,450 in net proceeds resulting from
an early repayment by KPN of the entire outstanding balance of the loan we had
extended to them and the settlement of related currency swaps. In addition, we
sold our entire interest in two real estate partnerships for net proceeds of
$26. In conjunction with the sale, we received proceeds of $97 for the repayment
of loans we had extended to the partnerships. We also purchased equity
securities for a net expenditure of $21.

<PAGE>

(Dollars in Millions, Except Per Share Amounts and as Otherwise Indicated)

Net cash used for financing activities

During the first half of 2004 we utilized cash from operations to reduce
short-term borrowings by $339. We also issued $700 of new long-term debt to take
advantage of favorable interest rates. The proceeds were used to refinance $200
in maturing debt during the second quarter and will be used to refinance $500 of
callable debt in the third quarter. In addition, we paid dividends of 50 cents
per share totaling $914 and purchased 3.9 million shares of our common stock for
an aggregate of $99.

During the first half of 2003 we reduced short-term borrowings by $398 and
long-term borrowings by $1,556. In addition, we paid dividends of 41 cents per
share totaling $759 and purchased 14.8 million shares of our common stock for an
aggregate cost of $322.

DISCONTINUED OPERATIONS

In the first half of 2004, cash and cash equivalents decreased $185 primarily
due to $177 in expenditures related to the purchase of interests and other
rights of minority partners in Argentina, Colombia and Ecuador. In addition,
capital expenditures were $137 and distributions to minority partners were $55.
Year-to-date operating cash flow from discontinued operations of $224 was driven
by strong operational results.

In the first half of 2003, cash and cash equivalents increased $80
primarily due to operating cash flow from discontinued operations of $139. In
addition, investing cash flows included proceeds of $35 from the sale of
Colombian securities and $20 related to the sale of an equity investment in
Brazil. Partially offsetting these cash inflows were capital expenditures of
$95.

ANTICIPATED SOURCES AND USES OF FUNDS

Cash flows from operations are our primary source of cash for funding existing
operations, capital expenditures, debt interest and principal payments, and
dividend payments to shareholders. Should the need arise, however, we believe we
are well positioned to raise capital in the public debt markets. At June 30,
2004, our consolidated cash balance was $6,216, which includes approximately $1
billion related to our Latin American Discontinued Operations. At June 30, 2004,
our corporate debt rating was A1 from Moody's Investor Service and A+ from
Standard and Poor's. Our short-term credit rating at June 30, 2004 was P-1 from
Moody's and A-1 from Standard and Poor's. Moody's and Standard & Poor's have
placed our long-term and short-term ratings on negative credit watch due to the
pending acquisition by Cingular of AT&T Wireless. Our authorized commercial
paper program as of June 30, 2004 was $8.0 billion, with $1.1 billion
outstanding. We believe that we have ready access to the commercial paper market
in the event funding in excess of our operating cash flows is needed. We have a
syndicated line of credit in the amount of $1.5 billion in case we are unable to
access the commercial paper market. We do not have any balances outstanding
under the line of credit. We also have a registration statement on file with the
SEC under which $1.6 billion of long-term debt securities could be issued. In
addition, we filed a new shelf registration with the SEC on July 30, 2004 for
$6.95 billion of debt securities. This registration statement is not yet
effective. Our sources of funds -- primarily from operations and, to the extent
necessary, from readily available external financing arrangements -- are
sufficient to meet all current obligations on a timely basis. We believe that
these sources of funds will be sufficient to meet the operating needs of our
business for at least the next twelve months.

The Communications group and Advertising and publishing group generate
substantially all of our consolidated cash provided by operating activities.
These segments generate sufficient cash flow to fund operating, investing and
financing needs and dividend excess cash to BellSouth for corporate uses. The
Domestic Wireless segment, which consists entirely of our equity investment in
Cingular, typically has not relied on BellSouth for funding. Beginning on August
1, 2004, any cash needs not satisfied through Cingular's own operations will be
borrowed from BellSouth and SBC, on a pro rata basis. In addition, we are
committed to funding our pro rata share of Cingular's acquisition of AT&T
Wireless as described in the following paragraph. In July 2004, Cingular's Board
of Directors approved the termination of its bank credit facilities and its
intention to cease issuing commercial paper and long-term debt.

As previously disclosed, on February 17, 2004, Cingular announced an agreement
to acquire AT&T Wireless, which will create the largest wireless carrier in the
United States. We have committed to funding our proportionate share of the all
cash deal. Our funding requirement will be approximately $16 billion. Funding
will be achieved through a mix of existing cash on hand, cash generated from
operations prior to closing the transaction and asset sales. We plan to access
the public debt markets for the remainder. We currently anticipate our likely
external funding needs for this transaction to be in the $5 to $6 billion range.
However, due to the timing of the closing of the sale of our Latin American
operations and the timing of accessibility to cash held by AT&T Wireless, our
borrowings in the short term may exceed this range.

In March 2004, we signed an agreement with Telefonica Moviles, the wireless
affiliate of Telefonica, S.A. to sell all our interests in our Latin American
operations. Cash proceeds at closing are expected to be $4.4 billion. Net cash
inflow will be $3.4 billion after consideration of the $1 billion of cash held
in these operations that will transfer to Telefonica at closing. The transaction
is subject to governmental approvals and other closing conditions. It is
expected to close in

<PAGE>

(Dollars in Millions, Except Per Share Amounts and as Otherwise Indicated)

stages as closing conditions are satisfied, with the final closing expected to
occur in the second half of 2004. These net proceeds will be used to fund a
portion of the AT&T Wireless transaction described above, and are reflected in
our external borrowing estimate of the $5 to $6 billion range previously noted.

Debt Instruments

On March 19, 2004, our Colombian operation completed the refinancing of its
senior secured debt. According to the terms of the refinancing, (1) the maturity
was extended from 2005 to 2007, (2) on a pro rata basis with our partner, we
agreed to provide support in the aggregate amount of $70 for 30 months and (3)
we and our partner pledged 100% of the capital stock of the Colombian operations
as security for the loan. As of June 30, 2004, BellSouth's consolidated balance
sheet reflects the $139 remaining investment in the loan participation agreement
and the debt of $477 as assets and liabilities of discontinued operations.

--------------------------------------------------------------------------------
Market Risk
--------------------------------------------------------------------------------

For a complete discussion of our market risks, you should refer to the caption
"Quantitative and Qualitative Disclosure About Market Risk" in our 2003 annual
report on Form 10-K, as modified by the current report on Form 8-K dated July
30, 2004, and our other filings with the SEC. Our primary exposure to market
risks relates to unfavorable movements in interest rates and foreign currency
exchange rates. We do not anticipate any significant changes in our objectives
and strategies with respect to managing such exposures.

In order to limit our risk from fluctuations in interest rates, we enter into
interest rate swap agreements to exchange fixed and variable rate interest
payment obligations without the exchange of the underlying principal amounts. In
first quarter 2004, we entered into an additional interest rate swap, bringing
the total notional value of our fair value hedges to $600. We did not enter into
any additional cash flow hedges.

--------------------------------------------------------------------------------
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
--------------------------------------------------------------------------------

Other than as set forth below, there are no material changes with respect to
off-balance sheet arrangements and aggregate contractual obligations as
presented in our 2003 Annual Report on Form 10-K, as modified by the current
report on Form 8-K dated July 30, 2004, and our other filings with the SEC.

Sales and other transaction taxes generally are required to be collected by the
vendor from the purchaser and remitted to the appropriate taxing authority. In
some instances, however, it is not clear whether the tax applies to a particular
transaction. When, as a purchaser, BellSouth wants to take the position that a
tax does not apply to a given transaction, it will request that the vendor not
bill the tax to BellSouth. As a condition of not billing the tax, vendors
sometimes request, and BellSouth generally agrees, to indemnify and hold the
vendor harmless in the event that the taxing authority asserts a claim against
the vendor for the tax. We believe any amounts subject to these types of
indemnification would not have a material impact on our results of operations,
financial position or cash flows.

Venezuelan put-call provision

We own a 78.2% interest in Telcel, our Venezuelan operation. Telcel's other
major shareholder holds an indirect 21% interest in Telcel. Under a Stock
Purchase Agreement, that shareholder has the right to initiate a process that
could require us to purchase (the puts), and we have the right to initiate a
process that could require that shareholder to sell (the calls) to us, the
shareholder's interest in Telcel. Notice of the initiation of the process with
respect to approximately half of that shareholder's interest was to be given in
2000 and notice with respect to the remaining balance was to be given in 2002.
If we exercise our call right, we would purchase that shareholder's interest at
between 100% and 120% of its appraised fair value. If we are required to
purchase the interest (the puts), we would do so at between 80% and 100% of
appraised fair value.

In 2000, the shareholder initiated a process for appraising the value of
approximately half of its interest in Telcel, but the process was not completed.
The shareholder also has sent a letter purporting to exercise the balance of the
puts under the Stock Purchase Agreement. We are currently in arbitration with
the shareholder over alleged breaches by BellSouth and the shareholder of the
Stock Purchase Agreement, including the timing of the valuation and whether the
process was properly initiated in 2000. The shareholder is seeking damages and
specific performance, and BellSouth is seeking, among other things, unspecified
damages and a ruling that it has not breached the Stock Purchase Agreement in
any respect. The arbitration also relates to an alleged oral agreement to buy
out the shareholder's entire interest in Telcel, which agreement we argue does
not exist. Hearings on these matters occurred in January and April 2004. If the
arbitration panel rules against BellSouth, it is possible that the appraised
fair value of the shareholder's interest in Telcel could be substantially in
excess of current value. At this time, the likely outcome of this arbitration
cannot be predicted, nor can a reasonable estimate of the amount of loss, if
any, be made.

<PAGE>

(Dollars in Millions, Except Per Share Amounts and as Otherwise Indicated)

Colombian Put-Call

We are the majority shareholder in BellSouth Colombia, a wireless operator in
Colombia. We have agreed with our partner to a put and call agreement whereby we
can acquire, or could be compelled by our partner to acquire, additional shares
of the Colombian operation currently held by our partner for a price equal to
the appraised fair value. Under the remaining put/call option, the residual
balance of our partner's shares can be called by us or put to us beginning in
2006 until 2009. We cannot predict if either party will exercise its rights
under this put/call option provision. Upon completion of the pending acquisition
of our Colombian operations by Telefonica Moviles, the shareholders agreement
will be assigned to Telefonica and all of our obligations under the shareholders
agreement will cease.

--------------------------------------------------------------------------------
Operating Environment
--------------------------------------------------------------------------------

Domestic Economic Trends

Real gross domestic product (GDP) grew at an average annual rate of 4.5 percent
in the first quarter of 2004, the third consecutive quarter of strong growth.
Business fixed investment spending, residential construction, government
purchases, personal consumption, and exports all contributed to the broad -based
growth. Nonagricultural employment increased by 1.25 million in the first half
of the year. Sustained expansion is expected in the second half of the year.

On average, the economy of the nine-state region tends to closely track the US
economy. Employment in the region near mid-year was 1.1 percent higher than in
the same period a year ago. A gain of 1.6 percent is anticipated for all of
2004. Residential construction activity has been very strong in the region as in
the nation. Housing starts are on pace to exceed 2003's level of 533 thousand.

Other Matters in the Domestic Business

In April 2004, MCI (formerly known as WorldCom) emerged from bankruptcy. As a
result, in the second quarter 2004, we made a net payment to MCI of
approximately $81 related to our previously accrued and disclosed settlement.

Legal Matters

We are involved in numerous legal proceedings associated with state and federal
regulatory matters. While complete assurance cannot be given as to the outcome
of these matters, we believe that any financial impact would not be material,
individually or in the aggregate, to our results of operations, financial
position or cash flows. See Note K to our consolidated interim financial
statements.

Item 3.  Qualitative and Quantitative Disclosures About Market Risk

See the caption labeled "Market Risk" in Management's Discussion and Analysis of
Financial Condition and Results of Operations.

Item 4.  Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms, and that such information is accumulated and communicated
to the management, including the Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure. Management necessarily applied its judgment in assessing the costs
and benefits of such controls and procedures, which, by their nature, can
provide only reasonable assurance regarding management's control objectives. We
also have investments in certain unconsolidated entities. As we do not control
or manage these entities, our disclosure controls and procedures with respect to
such entities are necessarily more limited than those we maintain with respect
to our consolidated subsidiaries.

The Company's management, including the Chief Executive Officer and Chief
Financial Officer, does not expect that our disclosure controls can prevent all
errors and all fraud. A control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. There are inherent limitations in all
control systems, including the realities that judgments in decision-making can
be faulty, and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of one or more
persons. The design of any system of controls also is based in part upon certain
assumptions about the likelihood of future events, and, while our disclosure
controls and procedures are designed to be effective under circumstances where
they should reasonably be expected to operate effectively, there can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions. Because of the inherent limitations

<PAGE>

(Dollars in Millions, Except Per Share Amounts and as Otherwise Indicated)

in any control system, misstatements due to error or fraud may occur and not be
detected.

As of the end of the period covered by this report, we carried out an
evaluation, under the supervision and with the participation of management,
including the Chief Executive Officer along with the Chief Financial Officer, of
the effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rules 13a-15(b) and 15d-15(b). Based upon
the foregoing, the Chief Executive Officer along with the Chief Financial
Officer concluded that our disclosure controls and procedures are effective at
providing reasonable assurance that all material information relating to
BellSouth (including consolidated subsidiaries) required to be included in our
Exchange Act reports is reported in a timely manner. In addition, based on such
evaluation we have identified no change in our internal control over financial
reporting that occurred during the fiscal quarter covered by this report that
has materially affected or is reasonably likely to materially affect, our
internal control over financial reporting.

<PAGE>

Cautionary Language Concerning Forward-Looking Statements

In addition to historical information, this document contains forward-looking
statements regarding events, financial trends and critical accounting policies
that may affect our future operating results, financial position and cash flows.
These statements are based on our assumptions and estimates and are subject to
risks and uncertainties. For these statements, we claim the protection of the
safe harbor for forward-looking statements provided by the Private Securities
Litigation Reform Act of 1995.

There are possible developments that could cause our actual results to differ
materially from those forecast or implied in the forward-looking statements. You
are cautioned not to place undue reliance on these forward- looking statements,
which are current only as of the date of this filing. We disclaim any intention
or obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.

While the below list of cautionary statements is not exhaustive, some factors,
in addition to those contained throughout this document, that could affect
future operating results, financial position and cash flows and could cause
actual results to differ materially from those expressed in the forward-looking
statements are:

    o   a change in economic conditions in domestic or international markets
        where we operate or have material investments which could affect demand
        for our services;

    o   changes in US or foreign laws or regulations, or in their
        interpretations, which could result in the loss, or reduction in value,
        of our licenses, concessions or markets, or in an increase in
        competition, compliance costs or capital expenditures;

    o   continued pressures on the telecommunications industry from a financial,
        competitive and regulatory perspective;

    o   the intensity of competitive activity and its resulting impact on
        pricing strategies and new product offerings;

    o   changes in the federal and state regulations governing the terms on
        which we offer wholesale services to our competitors;

    o   continued successful penetration of the interLATA long distance market;

    o   consolidation in the wireline and wireless industries in which we
        operate;

    o   higher than anticipated start-up costs or significant up-front
        investments associated with new business initiatives;

    o   the outcome of pending litigation;

    o   unanticipated higher capital spending from, or delays in, the deployment
        of new technologies;

    o   the impact of terrorist attacks on our business;

    o   the impact and the success of the wireless joint venture with SBC
        Communications, known as Cingular Wireless, including marketing and
        product development efforts, technological change, financial capacity
        and closing and integration of the pending acquisition of AT&T Wireless;

    o   Cingular Wireless' failure to realize, in the amounts and within the
        timeframe contemplated, the capital and expense synergies and other
        financial benefits expected from its proposed acquisition of AT&T
        Wireless as a result of technical, logistical, regulatory and other
        factors;

    o   the unwillingness of banks or other lenders to lend to our international
        operations or to restructure existing debt, particularly in Latin
        America; and

    o   continued deterioration in foreign currencies relative to the US Dollar
        in foreign countries in which we operate, particularly in Latin America.



<PAGE>




PART II -- OTHER INFORMATION

Item 2.  Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities

The following table contains information about our purchases of our equity
securities during April, May and June 2004.



Issuer Purchases of Equity Securities
                                               Total Number of   Approximate
                                               Shares Purchased  Dollar Value
                     Total Number  Average     as Part of a      that May Yet Be
                       of Shares   Price Paid  Publicly          Purchased Under
    Period          Purchased (1)  per Share   Announced Plan    the Plan (2)
    ------          -------------  ----------  ----------------  ---------------
April 1-30, 2004               --          --                --               --
May 1-31, 2004          3,887,200       25.37                --               --
June 1-30, 2004            12,943       25.03                --               --
------------------- -------------  ----------  ----------------  ---------------
Total                   3,900,143       25.37                --               --
(1)    Includes 12,943 shares purchased from employees to pay taxes related to
       the vesting of restricted shares, at an average of $25.03, and 3,887,200
       shares purchased from the external markets, at an average of $25.37.
       Excludes shares purchased from employees to pay taxes related to the
       exercise of stock options.
(2)    Our publicly announced stock repurchase program expired pursuant to its
       terms on December 31, 2003.

Item 4. Submission of Matters to a Vote of Security Holders


Our annual meeting of shareholders was held on April 26, 2004. The voting
results were as follows:

Number of Shares Outstanding as of Record Date:  1,869,138,851
Number of Shares Present:  1,569,137,733
Percent of Shares Present:  83.95%


Proposal Number 1:
Election of Directors
                                    For                       Withheld
James H. Blanchard                  1,502,820,251             66,317,482
Armando M. Codina                   1,505,653,931             63,483,802
Leo F. Mullin                       1,526,162,636             42,975,097

The terms of the following directors continued after the meeting:

F. Duane Ackerman
Reuben V. Anderson
J. Hyatt Brown
Kathleen F. Feldstein
James P. Kelly
Robin B. Smith
William S. Stavropoulos


Proposal Number 2:
Ratification of Independent Accountants

For                                 Against                   Abstain
---------------------------         -----------------         ------------------
1,508,001,380                       46,296,422                14,839,931


Proposal Number 3:
Approve Amendment to Elect Directors Annually

For                                 Against                   Abstain
---------------------------         -----------------         ------------------
1,516,533,760                       35,545,381                17,058,592

<PAGE>

Proposal Number 4:
Approving the Stock and Incentive Compensation Plan

For                Against          Abstain         Broker Non-Votes
--------------     ------------     -----------     ----------------
1,145,161,997      164,793,102      10,412,841      248,769,793


Proposal Number 5:
Shareholder Proposal re: Executive Compensation

For                Against          Abstain         Broker Non-Votes
------------       --------------   -----------     ----------------
169,008,940        1,115,827,061    35,531,939      248,769,793


Proposal Number 6:
Shareholder Proposal re: CEO Compensation

For                Against          Abstain         Broker Non-Votes
------------       --------------   -----------     ----------------
161,662,194        1,144,716,218    13,989,528      248,769,793


Proposal Number 7:
Shareholder Proposal re: Disclosure of Political Contributions

For               Against           Abstain         Broker Non-Votes
------------      --------------    -----------     ----------------
185,716,780       1,048,126,005     86,525,155      248,769,793


 Item 6. Exhibits and Reports on Form 8-K


(a) Exhibits:

     Exhibit
      Number
-------------------

          4a        No instrument which defines the rights of holders of our
                    long- and intermediate-term debt is filed herewith pursuant
                    to Regulation S-K, Item 601(b)(4)(iii)(A). Pursuant to this
                    regulation, we agree to furnish a copy of any such
                    instrument to the SEC upon request.

       10v-3        BellSouth Corporation Stock and Incentive Compensation Plan
                    as amended June 28, 2004.

        10pp        Revolving Credit Agreement by and Among BellSouth
                    Corporation, SBC Communications Inc. and Cingular Wireless
                    LLC, dated as of August 1, 2004.

          11        Computation of Earnings Per Common Share.

          12        Computation of Ratio of Earnings to Fixed Charges.

         31a        Section 302 certification of F. Duane Ackerman.

         31b        Section 302 certification of Ronald M. Dykes.

          32        Statement Required by 18 U.S.C. Section 1350, as adopted
                    pursuant to Section 906 of the Sarbanes-Oxley
                    Act of 2002.

(b) Reports on Form 8-K:

Date of Event              Subject

April 7, 2004              Announcing changes to composition of Board of
                           Directors and committees of our Board of Directors.

April 22, 2004             Press release announcing financial results for first
                           quarter of 2004.

June 22, 2004              Announcing issuance and sale of $700 million
                           aggregate principal amount of 6.55% Notes due 2034,
                           and filing certain related documents as exhibits.



<PAGE>



                                    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.



                                                       BELLSOUTH CORPORATION

                                                   By /s/ W. Patrick Shannon
                                                      ----------------------
                                                          W. PATRICK SHANNON
                                                    Vice President - Finance
                                              (Principal Accounting Officer)


July 30, 2004















































<PAGE>




                                  EXHIBIT INDEX

     Exhibit
     Number
     --------

     4a           No instrument which defines the rights of holders of our long-
                  and intermediate-term debt is filed herewith pursuant to
                  Regulation S-K, Item 601(b)(4)(iii)(A). Pursuant to this
                  regulation, we agree to furnish a copy of any such instrument
                  to the SEC upon request.

     10v-3        BellSouth Corporation Stock and Incentive Compensation Plan as
                  amended June 28, 2004.

     10pp         Revolving Credit Agreement by and Among BellSouth Corporation,
                  SBC Communications Inc. and Cingular Wireless LLC, dated as of
                  August 1, 2004.

     11           Computation of Earnings Per Common Share.

     12           Computation of Ratio of Earnings to Fixed Charges.

     31a          Section 302 certification of F. Duane Ackerman.

     31b          Section 302 certification of Ronald M. Dykes.

     32           Statement Required by 18 U.S.C. Section 1350, as adopted
                  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.