<PAGE>



                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                   FORM 10-K
                            ----------------------
           (X)  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                            ----------------------
                  For The Fiscal Year Ended December 31, 1996
                                      or
         ( )  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

                         Commission File Number 1-8609

                             PACIFIC TELESIS GROUP

 A Nevada Corporation                       I.R.S. Employer Number 94-2919931

              130 Kearny Street, San Francisco, California 94108

                     Telephone - Area Code (415) 394-3000
                             --------------------

          Securities registered pursuant to Section 12(b) of the Act:

     (Title of Each Class)       (Name of Each Exchange on which Registered)
Common Stock, $.10 Par Value with           New York Stock Exchange
Preferred Stock Purchase Rights             Pacific Stock Exchange
                                            Chicago Stock Exchange

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

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

Based on the composite closing sales price on February 28, 1997, the aggregate
market value of all voting stock held by nonaffiliates was $17,560,697,619.

At February 28, 1997, 428,309,698 common shares were outstanding.


                      DOCUMENTS INCORPORATED BY REFERENCE
No documents are incorporated by reference herein.











                                    <PAGE>

                               TABLE OF CONTENTS

Item Description                                                     Page
---- -----------                                                     ----


                                    PART I

1.   Business .....................................................  1

2.   Properties ................................................... 14

3.   Legal Proceedings ............................................ 15

4.   Submission of Matters to a Vote of Security Holders .......... 15

                                    PART II

5.   Market for Registrant's Common Equity and Related Stockholder
     Matters ...................................................... 15

6.   Selected Financial Data ...................................... 18

7.   Management's Discussion and Analysis of Financial Condition
     and Results of Operations .................................... 20

8.   Financial Statements and Supplementary Data .................. 48

9.   Changes in and Disagreements With Accountants on Accounting
     and Financial Disclosure...................................... 95

                                   PART III

10.  Directors and Executive Officers of Registrant ............... 96

11.  Executive Compensation ....................................... 99

12.  Security Ownership of Certain Beneficial Owners
     and Management................................................112

13.  Certain Relationships and Related Transactions ...............113

                                    PART IV

14.  Exhibits, Financial Statement Schedule and Reports
     on Form 8-K ..................................................114




















                                    <PAGE>

                                    PART I

Item 1. Business.

GENERAL

Pacific  Telesis(R) Group (the  "Corporation") was incorporated  in 1983 under
the laws of  the State of  Nevada and has its  principal executive offices  at
130 Kearny   Street,  San Francisco,   California   94108  (telephone   number
(415) 394-3000).

The Corporation is one of seven regional holding companies  ("RHCs") formed in
connection with the 1984 divestiture  by AT&T Corp. ("AT&T") of its  22 wholly
owned  operating  telephone companies  ("BOCs") pursuant  to a  consent decree
settling antitrust  litigation (the "Consent  Decree") approved by  the United
States District Court for the District of Columbia.

The  Corporation  includes  a  holding company,  Pacific  Telesis;  two  BOCs,
Pacific Bell(R)  and  Nevada Bell  (the  "Telephone  Companies"); and  certain
diversified subsidiaries, all described more fully below.  The holding company
provides financial, strategic planning,  and general administrative  functions
on its own behalf and on behalf of its subsidiaries.

PLANNED MERGER WITH SBC COMMUNICATIONS INC.

On April 1, 1996,  SBC Communications Inc. ("SBC") and the Corporation jointly
announced a definitive agreement whereby the Corporation will become a wholly-
owned  subsidiary of SBC.  Under terms  of the merger agreement, each share of
Pacific Telesis common stock will be exchanged for 0.733 shares  of SBC common
stock,  par value $1.00 per share,  subject to adjustment.  The transaction is
intended to be  accounted for as a pooling  of interests and to be  a tax-free
reorganization.   The merger is  subject to certain  conditions and regulatory
approvals.  The merger has been approved by the shareowners of the Corporation
and  SBC, the Federal Communications Commission ("FCC") and the Public Service
Commission of Nevada ("PSCN").  The U.S. Department of Justice concluded  that
the merger does  not violate the antitrust laws.   In addition, the California
State  Attorney General has  told the  California Public  Utilities Commission
("CPUC")  that the  merger  will not  hurt competition  in  California and  is
consistent  with  emerging  trends.   On  February  21,  1997, two  California
administrative law  judges ("ALJs") issued  a proposed decision  approving the
merger but with a number of conditions, including payments to  customers of up
to  $750   million   and   funding   for  consumer   education   efforts   and
telecommunications   services  in  underserved   California  communities  (the
"community partnership commitment"). An  alternate proposed decision, authored
by two  Commissioners, which calls for  more than $286 million  in payments to
California customers  and other conditions, was released on March 17, 1997.  A
second alternate decision, released by a third Commissioner later the same day
would  reduce the  payments called  for  by the  ALJs' proposal  to over  $523
million  and impose  conditions  in addition  to those  imposed  by the  ALJs'
proposed decision.  Both of the proposed alternate decisions include the $54.7
million  community  partnership commitment.    The  five-member Commission  is
expected  to issue  its decision  on March  31, 1997  by adopting  one of  the
proposed   decisions.    If  the   Commission  determines,  however,  to  make
substantive  changes  on March  31st,  additional  CPUC proceedings  would  be
required,  which would have  the effect of  deferring the final  decision.  If
approval from the CPUC is granted, the transaction is expected  to close early

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                                    <PAGE>

in the second quarter of 1997.  Details of the proposed merger with SBC appear
in  Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A").

SBC  is  a   holding  company  whose   subsidiaries  and  affiliates   operate
predominately in the communications services industry.  SBC's subsidiaries and
affiliates  provide landline  and  wireless  telecommunications  services  and
equipment,  directory advertising, publishing  and cable  television services.
Southwestern  Bell Telephone  Company is  SBC's largest  subsidiary, providing
telecommunications  services   in  Texas,  Missouri,   Oklahoma,  Kansas   and
Arkansas.*
-------------------------------------------
* SBC is subject to the informational reporting requirements of the Securities
  Exchange Act of 1934, as amended, and in accordance therewith files reports,
  including  reports on  Form  8-K which  present proforma  combined condensed
  financial  statements of SBC and the Corporation, proxy statements and other
  information  with  the Securities  and  Exchange Commission  ("SEC").   Such
  reports,  proxy statements and other information may be inspected and copied
  at the  public reference  facilities maintained  by  the SEC  at Room  1024,
  Judiciary Plaza, 450  Fifth Street, N.W., Washington, D.C. 20549, and at the
  SEC's regional  offices located  at 7  World Trade  Center, 13th  Floor, New
  York,  New York  10019  and Northwestern  Atrium  Center, 500  West  Madison
  Street, Suite 1400, Chicago, Illinois 60661.  Copies of such material may be
  obtained by mail  from the Public Reference Section of  the SEC at Judiciary
  Plaza, 450 Fifth Street,  N.W. Washington, D.C. 20549, at  prescribed rates.
  The SEC maintains a  World Wide Web site at http://www.sec.gov that contains
  reports, proxy  and information  statements and other  information regarding
  entities that file electronically with the SEC, including SBC.  In addition,
  reports,  proxy statements  and  other  information  concerning SBC  may  be
  inspected at  the offices  of the  following  stock exchanges  on which  the
  common  stock of  SBC is  traded:   the New  York Stock  Exchange, 20  Broad
  Street, New York, New York 10005;  the Chicago Stock Exchange, One Financial
  Place, 440 South La  Salle Street, Chicago, Illinois 50504; and  the Pacific
  Stock  Exchange,  301 Pine  Street, San  Francisco,  California 94104.   The
  Corporation  does  not   assume  any  responsibility  for  the  accuracy  or
  completeness of the  information concerning SBC contained  in such documents
  and does  not warrant that there  have not occurred events  not yet publicly
  disclosed concerning SBC included therein.


THE TELEPHONE COMPANIES AND THEIR SUBSIDIARIES

Nevada Bell and  Pacific Bell and its wholly owned  subsidiaries, Pacific Bell
Directory, Pacific  Bell Information  Services, Pacific Bell  Mobile Services,
Pacific Bell Internet Services, Pacific  Bell Network Integration, and others,
provide a variety of communications and information services in California and
Nevada.  These services include:   (1) dialtone and usage  services, including
local service (both exchange and private line), message toll services within a
service  area, Wide Area Toll  Service ("WATS")/800 services  within a service
area, Centrex service (a  central office-based switching service)  and various
special  and custom  calling  services; (2)  exchange access  to interexchange
carriers and information service providers for the origination and termination
of  switched and  non-switched  (private line)  voice  and data  traffic;  (3)
personal  communications  services  ("PCS"),  a  new  generation  of  wireless
services;   (4) billing  services for  interexchange carriers  and information
service  providers;  (5)  various  operator  services;  (6)  installation  and

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                                    <PAGE>

maintenance of  customer premises wiring; (7)  public communications services;
(8) directory  advertising; (9) selected  information services, such  as voice
mail; (10) Internet access; and (11) network integration services.

Pacific Bell Directory ("Directory")  publishes the Pacific Bell  SMART Yellow
Pages(R).    It  is the  oldest  and  largest  publisher  of Yellow  Pages  in
California  and is  among the largest  Yellow Pages  publishers in  the United
States.   As part of  its ongoing small  business advocacy efforts,  Directory
produces  an award-winning  publication  in partnership  with  the U.S.  Small
Business Administration.   "Small Business  Success," now in  its ninth  year,
addresses topics of importance to entrepreneurs.

Pacific Bell  Information Services ("PBIS") provides  business and residential
voice  mail and other selected information services.  Current products include
The  Message  Center(SM)  for  home  use,  Pacific  Bell  Voice  Mail(SM)  for
businesses  and  Pacific Bell  Call  Management(SM),  a  service that  handles
incoming  business calls  and connects  computer databases  to  answer routine
customer questions.

In 1995,  Pacific Telesis  Mobile Services, a  wholly owned subsidiary  of the
Corporation, obtained two  licenses to  offer PCS services  in California  and
Nevada from the  FCC.   Pacific Bell  Mobile Services  ("PBMS") is  designing,
constructing, managing, and  marketing services  for the  network, which  will
incorporate  the Global  System  for Mobile  Communications ("GSM")  standard,
widely used  internationally.  PCS is  a 100 percent  digital wireless service
which  the  Corporation  believes  will  offer  superior  sound  quality,  and
protection from  eavesdropping and  cloning.   PBMS phones  for PCS  feature a
built-in pager and answering machine.  PBMS began  providing service in August
1996  at the Republican National Convention in California and launched service
in  Las Vegas, Nevada in  February 1997. The  Corporation expects a widespread
offering of PCS service in most of California and Nevada by mid-1997.

Pacific Bell Internet Services ("PBI") was formed  in 1995 to provide Internet
access  services  to a  broad range  of customers  in  California.   PBI began
providing Internet access to large businesses in the third quarter of 1995 and
to residential  customers in May  1996.  PBI  was one  of the fastest  growing
internet  service providers in California in 1996,  and has offered service in
Nevada since October 1996 as Nevada Bell Internet Services.

Pacific Bell Network  Integration ("PBNI") began assisting  customers with the
implementation of information  technology networks in  mid-1996.  PBNI  offers
network design,  installation and maintenance,  as well as  network management
and consulting services.  In December 1996, Pacific Bell unveiled its new ISDN
Home Pack(TM), one  of the nation's first  fully integrated ISDN and  Internet
packages.    The  package  includes Internet  access  through  Pacific  Bell's
Internet  service network, a  terminal adapter and  Internet browser software.
PBI handles the Internet access and customized software of the  package.  PBNI
is responsible for integrating  the whole package and managing delivery of the
hardware and software components.

OTHER SUBSIDIARIES AND PACIFIC BELL FOUNDATION

Pacific Bell  Communications ("PBCOM")  was formed in  1995 to compete  in the
long distance market  as permitted  under the Telecommunications  Act of  1996
(the "Telecommunications Act").  Both federal and state approvals are required
before PBCOM  will be able to  offer long-distance service.   In addition, the

                                       3








                                    <PAGE>

Telephone  Companies  must  separately  meet  certain requirements,  including
compliance with  a competitive  checklist specified in  the Telecommunications
Act.  However, management expects  to fulfill those requirements in  the first
half of 1997.  PBCOM is seeking approval from state public utility commissions
in California and  Nevada for certification  to provide long-distance  service
between and within service areas.

Pacific  Telesis  Enterprises   is  the  holding  company  for  certain  other
subsidiaries that are pursuing entry  into competitive and/or emerging markets
such as video services,  both wireless and wireline, and  Internet information
and  shopping services.    Pacific Telesis  Enhanced  Services was  formed  to
provide support functions to certain other subsidiaries thereby allowing these
subsidiaries to focus on service and customer development.

Pacific Bell Video Services ("PBVS") was formed to provide video services.  In
1996, PBVS started testing  its wireless digital television service,  which it
plans to launch  in the Los Angeles and  Orange County areas in the  Spring of
1997.  The  Corporation currently provides analog  wireless television service
to over  46,000 video customers  in portions of  Riverside and San  Bernardino
counties.   In September 1996,  PBVS started delivering cable television  over
an advanced wireline communications network in San Jose, California.

Pacific  Bell Interactive  Media  ("PBIM") was  formed  to develop  and  offer
California specific  information, activity, and shopping  opportunities on the
Internet.   In 1996, PBIM launched  At Hand(SM), an Internet  web site through
which California merchants  and consumers may distribute, receive and exchange
information in one of the Internet's most dynamic markets.  Categories such as
Entertainment  and Leisure,  Sports  and Real  Estate  provide users  with  an
intimate look  at restaurants,  golf  courses, state  parks, multiple  listing
entries, and other advertiser provided content.    In 1997, PBIM will continue
to add to its merchant directory  listings.

PacTel Capital Resources ("PTCR") has issued commercial paper  and medium-term
notes guaranteed by  the Corporation  from time to  time since 1987.   In  the
future, PTCR may also provide funding and other forms of financial support for
its other affiliates.

PacTel  Capital  Funding may  issue guarantees  and  other forms  of financial
support for its affiliates and third parties.

PacTel  Re  Insurance Company,  Inc. reinsures  policies of  outside insurance
companies  covering  workers'  compensation,   general  liability,  and   auto
liability  exposures of the  Corporation and its  subsidiaries and affiliates.
The  subsidiary also  issues policies  of property  insurance directly  to the
Corporation's subsidiaries and engages in property reinsurance transactions in
insurance markets worldwide.

Pacific Telesis Group -  Washington represents the Corporation's interests  in
Washington, D.C. before the three branches  of the federal government. It also
acts as a liaison with other telecommunications companies, trade associations,
government agencies, and a wide variety of interest groups.

Pacific  Bell  Foundation,  a   private  foundation  organized  under  section
501(c)(3)  of  the  Internal  Revenue  Code, makes  grants  in  the  areas  of
education,  health and welfare, cultural, community, and civic activities.  As
of  December 31,  1996,  Pacific Bell  Foundation  had  total  assets with  an

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                                    <PAGE>

estimated market value of $60 million.

RESEARCH AND DEVELOPMENT

Bell Communications Research, Inc.  ("Bellcore") furnishes the BOCs, including
the  Telephone Companies, with technical and  consulting assistance to support
their provision  of exchange telecommunications and  exchange access services.
Each of the  other six RHCs  and Pacific Bell hold  one-seventh of the  voting
stock of  Bellcore.  On  November 20, 1996,  Bellcore's owners entered  into a
stock purchase  agreement with Science  Applications International Corporation
for the  sale of their  ownership interests in  Bellcore.  The sale,  which is
subject  to regulatory  approvals  and other  conditions,  is expected  to  be
completed  by the  end of  1997.   Pacific Bell  and the  other six  RHCs have
established the  National Telecommunications Alliance Inc.  which will succeed
Bellcore  as a  central point  for  coordinating the  efforts of  the RHCs  in
meeting national security and emergency preparedness requirements.

In  addition,  the  Corporation  conducts  research  and  development  through
Pacific Bell and through Telesis Technologies Laboratory Inc.,  a wholly owned
subsidiary  of  the  Corporation.    The  Corporation  spent  approximately $5
million, $16 million and $52 million  in 1996, 1995 and 1994, respectively, on
research and development activities.

FINANCING ACTIVITIES OF THE CORPORATION

See "Item 7. MD&A- Liquidity and Financial Condition," and "Item  8," Notes I,
J and  K to the 1996 Consolidated Financial Statements  on pages 41 through 83
for additional discussion of the Corporation's financing activities, which are
incorporated herein by reference.

PRINCIPAL SERVICES

The Telephone  Companies  accounted  for  the majority  of  the  Corporation's
operating   revenues  in  1996,  1995  and   1994.    The  operations  of  the
Corporation's domestic and international  cellular, paging, and other wireless
operations, which  were spun off effective April 1, 1994, have been classified
separately  within   the  Corporation's  financial  statements   as  "spun-off
operations" and are excluded from the amounts of revenues and  expenses of the
Corporation's  "continuing  operations."  For  these  reasons,  the  following
discussion  focuses  on  selected  operating  information  for  the  Telephone
Companies.   Additional  information regarding  revenues, operating  profit or
loss,  and  assets of  the Corporation,  relating  primarily to  the Telephone
Companies,  is included  in  "Item 8. Financial  Statements and  Supplementary
Data" starting on page 48.













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                                    <PAGE>

Significant components of the Corporation's operating revenues are depicted in
the chart below:
                                            % of Total Operating Revenues*
                                            ------------------------------
Revenues by Major Category                       1996    1995     1994
--------------------------------------------------------------------------
Local Service
     Recurring ..............................     27%     28%      22%
     Other Local ............................     15%     15%      15%
Network Access
     Carrier Access Charges .................     20%     20%      18%
     End User & Other .......................      7%      7%       7%

Toll Service
     Message Toll Service ...................     12%     12%      21%
     Other ..................................      1%      1%       1%

Other Service Revenues
     Directory Advertising ..................     11%     11%      11%
     Other ..................................      7%      6%       5%
                                             -----------------------------
TOTAL ......................................     100%    100%     100%
==========================================================================

The  percentages  of  the  Corporation's operating  revenues  attributable  to
interstate and intrastate telephone operations are displayed below:

                                            % of Total Operating Revenues*
                                            ------------------------------
                                                 1996    1995     1994

Interstate telephone operations ............      20%     20%      17%
Intrastate telephone operations ............      80%     80%      83%
                                            ------------------------------
TOTAL ......................................     100%    100%     100%
==========================================================================
*  Excludes revenues of spun-off operations.




















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                                    <PAGE>

REGULATION

TELECOMMUNICATIONS ACT OF 1996

The  Telecommunications Act  became  effective  on  February  8,  1996.    The
Telecommunications  Act  provides  that  any conduct  or  activity  previously
subject to the Consent Decree occurring after February 8, 1996 will be subject
to  the Communications Act of  1934 (the "Communications  Act"), as amended by
the Telecommunications Act, not the Consent Decree.  (The terms of the Consent
Decree,  with  certain exceptions,  applied generally  to  all BOCs  and their
affiliates.)  The  Telecommunications  Act  is  the  broadest  reform  of  the
telecommunications   industry   since    the   Communications   Act.       The
Telecommunications Act essentially  opens all  telecommunications markets  and
prohibits  the states from continuing  or establishing any  barriers to entry.
Once the  new law is fully  implemented, consumers will have  many new options
for  their local telephone, long-distance, and cable television services.  The
Telecommunications Act will affect the Corporation as described below.

The Telephone Companies may request authorization from the FCC to provide out-
of-region  interLATA  service and  may  provide  certain incidental  interLATA
services immediately.   Before the  Telephone Companies can  provide interLATA
service that originates in  California or Nevada, their local markets  must be
open  to competition, they must  unbundle their networks  to other competitors
and  they  must  comply  with  the  terms  and  conditions  of  a "competitive
checklist" specified in  the Telecommunications Act.  The  Telephone Companies
must individually request  authority to offer in-region interLATA service from
the FCC.  This service must initially be offered through a separate affiliate.
The separate affiliate requirement expires three years  after approval, unless
extended by the FCC.

The Telephone Companies may only  engage in electronic publishing disseminated
by means  of their  basic telephone  service through  a separate  affiliate or
joint  venture.   Joint  marketing of  electronic  publishing services  by the
electronic  publishing affiliate  and the  Telephone Companies  is prohibited,
with the exception of nonexclusive inbound telemarketing and nondiscriminatory
teaming or business  arrangements.  The restrictions  on electronic publishing
expire in early 2000.

The Telecommunications Act allows for the continued provision by the Telephone
Companies of intraLATA information services (other than electronic publishing)
and  intraLATA Internet access. The Telecommunications Act also allows for the
provision  by the  Telephone  Companies of  interLATA information  storage and
retrieval   services  provided  by  a  separate  affiliate  to  and  from  the
Corporation's databases.   Full interLATA information services may be provided
through  a separate affiliate once the Telephone Companies obtain authority to
provide interLATA services originating in their states.

The  Telephone Companies may provide  a variety of  video programming services
directly to subscribers  in their  service areas under  regulations that  will
vary  according to  the type  of services  that are  provided.   The Telephone
Companies may provide video services over wireless cable, as a common carrier,
as  a cable  system operator,  as "interactive on-demand  services," or  as an
"open video system."   Interactive on-demand services would allow unscheduled,
point-to-point  video  programming  over  the  Telephone  Companies'  switched
networks  on  an on-demand  basis.   An "open  video  system" would  allow the
Telephone Companies to select programming for a certain number  of channels if

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                                    <PAGE>

demand exceeds capacity.  An "open video system" approved by the FCC  would be
subject to reduced regulatory burdens.

Subject to certain conditions, the Telecommunications Act allows the Telephone
Companies to collaborate with manufacturers of telecommunications and customer
premises  equipment during the design  and development phases.   The Telephone
Companies may also  engage in research  and enter into  royalty agreements  in
connection with the manufacturing  of telecommunications and customer premises
equipment.   The  Telephone Companies  may manufacture  telecommunications and
customer premises equipment, subject to  certain restrictions, once they  have
obtained authority to provide interLATA services originating in their  states.
Such  manufacturing may  be  done only  through  a  separate affiliate.    The
separate affiliate  requirement expires three years  after obtaining interLATA
authority, unless extended by the FCC.

FEDERAL REGULATION

The  Telephone  Companies are  subject  to the  jurisdiction  of the  FCC with
respect  to interstate access charges  and other interstate  services. The FCC
prescribes  a Uniform System of Accounts and interstate depreciation rates for
operating  telephone   companies.    The  FCC   also  prescribes  "separations
procedures,"  which are used to  allocate  plant  investment, expenses, taxes,
and reserves between interstate services under the jurisdiction of the FCC and
intrastate services  under the  jurisdiction of state  regulatory authorities.
The Telephone Companies are also required to file tariffs with the FCC for the
services  they provide.    In addition,  the  FCC establishes  procedures  for
allocating costs and revenues between regulated and unregulated activities.

Beginning in  1991, the  FCC  adopted a  price cap  system of  incentive-based
regulation  for Local  Exchange  Companies ("LECs"),  including the  Telephone
Companies. Pacific  Bell's access  rates were  retargeted to  an 11.25 percent
rate of  return on rate base  assets.  The  FCC's price cap system  provides a
formula  for  adjusting  rates  annually  for  changes  in  inflation  less  a
productivity  factor  and  changes in  certain  costs  that  are triggered  by
administrative,  legislative, or  judicial action  beyond the  control  of the
LECs.

In March 1995, the  FCC adopted new  interim price cap  rules that govern  the
prices  that the  larger  LECs,  including  the  Telephone  Companies,  charge
Interexchange Carriers ("IECs") for  access to local telephone networks.   The
interim rules  require LECs  to adjust  their  maximum prices  for changes  in
inflation,  productivity, and  certain costs  beyond the  control of  the LEC.
Under the interim plan, LECs may  choose from three productivity factors: 4.0,
4.7, or 5.3 percent.  Election of the 5.3 percent  productivity factor permits
the  LEC  to  retain all  of  its  earnings,  whereas  election of  the  lower
productivity factors requires earnings above  certain thresholds to be  shared
with  customers.    The  Telephone  Companies  have  chosen  the  5.3  percent
productivity factor, which enables  them to retain all of their earnings after
July 1, 1996.

The revised FCC  price cap plan was intended to be  an interim plan that would
be revised in 1996. However, with the passage of the Telecommunications Act of
1996, the FCC is conducting further proceedings to address various pricing and
productivity  issues,  and  is  performing  a  broader  review  of  price  cap
regulation in a competitive environment.


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                                    <PAGE>

The FCC  is examining universal  service and access charge  rules during 1997.
Although  the  Joint Federal-State  Board  on Universal  Service  has recently
recommended  a system  that  identifies  cost  subsidies  in  connection  with
implementing  a plan  for universal  service, no  recommendation has  yet been
issued  as to the size or method of  recovery of the necessary subsidies.  The
Corporation expects FCC orders on  universal service and access reform in  May
1997.

In  August 1996,  the FCC  released a  decision (the  "Interconnection Order")
establishing   guidelines    to   implement   certain    provisions   of   the
Telecommunications Act  which set  rules for opening  local telecommunications
markets to full competition.  The Interconnection Order laid out how new local
exchange  competitors may  connect to  local networks  and set  guidelines and
prices for network components and resold services. The Corporation, along with
other  local  telephone  companies,  the National  Association  of  Regulatory
Utility  Commissioners and several state PUCs including the CPUC, appealed the
Interconnection  Order to a  federal court.    On  October 15,  1996, the U.S.
Court  of  Appeals for  the  Eighth Circuit  (the  "Eighth Circuit")  issued a
partial stay of the Interconnection Order, staying the operation and effect of
the pricing provisions and the so-called "pick and choose" rule  (the FCC rule
allowing new entrants  to "pick  and choose" individual  terms different  from
existing interconnection agreements), but allowing the non-pricing elements of
the order to go  into effect.  Upon consideration  of a petition filed  by the
FCC and  certain other  parties, the U.S.  Supreme Court  issued a  memorandum
decision  on November 12,  1996 refusing to  overturn the stay  imposed by the
Eighth Circuit.

The   Interconnection   Order   also   addressed   the   issue   of   wireless
interconnection, or  the arrangements  under  which LECs  are compensated  for
interconnecting  with  and terminating  traffic  for  commercial mobile  radio
service  ("CMRS")  providers  (including  cellular,  PCS  and  paging).    The
Interconnection Order ruled  that CMRS  providers are  entitled to  reciprocal
compensation   arrangements   for   transport   and   termination   of   local
telecommunications traffic.

In  December 1996, the FCC released a decision (the "Non-accounting Safeguards
Order")  establishing  rules to  implement  safeguards  other than  accounting
requirements that will apply when BOCs offer interLATA service that originates
in  their regions.   The Corporation, together with  another RHC, appealed one
aspect of the Non-accounting Safeguards Order to the U.S. Court of Appeals for
District of Columbia Circuit  (the "D.C. Circuit").  In  February, the parties
to the appeal  petitioned the D.C. Circuit  to summarily reverse,  or expedite
its review  of, the  Non-accounting Safeguards  Order to  the extent  that the
order prohibits a BOC  from providing interLATA facilities or services  to its
separate affiliate offering interLATA service within the BOC region.   In late
February the FCC  requested that the D.C.  Circuit remand the case to  the FCC
for further  consideration of  the  issues raised  in the  appeal.   The  D.C.
Circuit now has both the Corporation's and the FCC's requests under review.

See  "FCC  Regulatory  Framework  Review," "FCC  Recommendation  on  Universal
Service," and "FCC  Interconnection Order" on pages 26 through  27 in "Item 7.
MD&A"  for additional information on the regulation of the Telephone Companies
by the FCC.




                                       9








                                    <PAGE>

STATE REGULATION

As  a provider of telecommunications  services in California,  Pacific Bell is
subject  to  regulation by  the CPUC  with  respect to  intrastate  prices and
services, intrastate depreciation rates, the issuance of securities, and other
matters.   The Public Service  Commission of Nevada  ("PSCN") regulates Nevada
Bell on similar issues.

The incentive-based regulatory framework adopted by the CPUC in 1989 is a form
of "price cap" regulation, which calls  for Pacific Bell's sharing of earnings
with customers at  certain earnings levels.   All earnings below 11.5  percent
are retained by  Pacific Bell.  Earnings between 11.5  percent, which the CPUC
set as Pacific  Bell's benchmark  rate-of-return, and 15.0 percent  are to  be
shared  equally  between  Pacific Bell  and  its  customers.   Earnings  above
15.0 percent are to be  shared 70.0 percent and  30.0 percent between  Pacific
Bell and its customers, respectively.

Under  "price cap"  regulation, the CPUC  requires Pacific  Bell to  submit an
annual price  cap filing to  determine prices for  categories of services  for
each  new  year.   Price  adjustments reflect  the  effects of  any  change in
inflation  less a  productivity  factor as  well  as adjustments  for  certain
exogenous cost  changes.  In  December 1995, the  CPUC issued an  order in its
second  review  of  the  incentive-based  regulatory  framework.    The  order
suspended use of the "inflation minus productivity" component of the price cap
formula for 1996 through 1998.  This  action freezes the price caps on most of
Pacific Bell's regulated services  for three years except for  adjustments due
to  exogenous  cost  changes or  price  changes  approved  through the  CPUC's
application  process.   The  Corporation continues  to  believe that  the CPUC
should permanently eliminate sharing, earnings caps, and all other vestiges of
rate-of-return regulation.

In December 1996, the CPUC adjusted Pacific Bell's rates due to exogenous cost
changes  by an annual revenue reduction of approximately $66 million effective
January 1, 1997.

Effective January 1,  1995, the  CPUC authorized toll  services competition.
Management  estimates that, as a result of official competition and unofficial
competitive losses in prior years, Pacific  Bell currently serves less than 50
percent of the business  toll market.  The CPUC has  also ordered Pacific Bell
to offer expanded  interconnection to  competitive access providers.     These
competitors are allowed to  carry the intrastate portion of  long-distance and
local  toll calls  between  Pacific Bell's  central offices  and long-distance
carriers.  As  a result of  the CPUC order,  competitors may choose  to locate
their transmission facilities within or near Pacific Bell's central offices.

The CPUC authorized facilities-based  local competition effective January 1996
and resale competition effective March 1996.  Interim rules addressing several
issues, including  pricing, resale,  number portability, interconnection   and
the  provisioning of  essential network  functions to  competitors, have  been
adopted  by the CPUC.   Since the  CPUC's authorization  of local competition,
Pacific Bell  has negotiated interconnection  with more than  twenty different
new  entrants  by   early  March  1997,  and  has   completed  interconnection
arbitration proceedings  with the three largest  interexchange carriers, AT&T,
MCI Communications Corp. and  Sprint Corp.  As a result of these voluntary and
arbitrated  agreements,  Pacific Bell  is offering  interconnection, unbundled
network  elements, and resold services under the CPUC's interim pricing rules.

                                      10








                                    <PAGE>

These  interconnection  agreements  allow  immediate  competitive  entry  into
Pacific Bell's local markets.

In early February 1997,  the CPUC had authorized about 90 companies, including
large   and  well-capitalized   long-distance  carriers,   competitive  access
providers, cable  television companies and  other local exchange  providers to
begin  providing local  phone service in  California.   All of  Pacific Bell's
customers have  already chosen  a long-distance  company, and these  companies
have established  widespread customer awareness through  extensive advertising
campaigns over several years.  Since customers may select a competitor for all
their telecommunications services, local  exchange competition may affect toll
and access revenues as well as local service revenues.

The  CPUC issued its final decision on  universal service on October 25, 1996,
establishing an annual California universal service fund of approximately $352
million.  Customers of all telecommunications providers will contribute to the
preservation of affordable telephone  service via a 2.87 percent  surcharge on
all bills for  telecommunications services  provided in California.   The  new
program went  into effect on February 1,  1997.  Pacific Bell  expects to draw
approximately $305 million annually from the universal service fund.  However,
to preserve revenue neutrality, as required by the CPUC decision, Pacific Bell
will  reduce  its prices  for  certain  services to  reduce  revenues  by $305
million.   On March 6, 1997,  Pacific Bell filed its  price reduction proposal
with the  CPUC.  Pending consideration  of that proposal by  the CPUC, Pacific
Bell  will reduce  its revenues  by $305  million by  applying a  surcredit to
customers' bills.

In  April  1995,  the  PSCN  approved  a plan  redesigning  telecommunications
regulation in the State of Nevada.  The new  plan will remove barriers to toll
and  local competition in Nevada  but will also allow Nevada  Bell to keep any
productivity gains by eliminating the current customer sharing provision.  The
new plan required a rate case to determine initial pricing,  which Nevada Bell
filed in March  1996.  In August 1996, the PSCN redesigned Nevada Bell's rates
by  increasing prices for monthly residential flat rate service while reducing
prices  for intra-service area toll call services and business basic services.
Pricing flexibility  is based on the nature and competitive environment of the
service.  Prices for basic service are capped for the three year period of the
plan.   The  plan  does not  prohibit or  require  presubscription and  allows
interconnection  where technologically  feasible. The  Plan will  be effective
January 1,  1997 and is estimated to  decrease annual revenue by approximately
$13 million.

See "CPUC Local  Services Competition," "CPUC Decision on  Universal Service,"
"CPUC Regulatory  Framework Review",  "PSCN Regulatory Review,"  "CPUC Revenue
Rebalancing Shortfall" and "Competitive Risk" on pages 27 through  30 in "Item
7. MD&A," below, for additional information on the regulation of the Telephone
Companies  by  the CPUC  and  PSCN.   See  also  Notes  G and  O  to  the 1996
Consolidated Financial Statements on pages 73 and 87 for a discussion of other
CPUC proceedings.

CHANGING INDUSTRY ENVIRONMENT

With  increasing competition  for existing  services and  the  introduction of
local  services  competition in  California  effective  January 1,  1996,  the
Telephone Companies face an increasingly competitive marketplace.  In response
to the competitive challenge, management has developed several key  strategies

                                      11








                                    <PAGE>

intended to provide a consistent, integrated focus  for management's decisions
and actions.  These overarching strategies are to strengthen the Corporation's
core  telecommunications business,  develop new  markets and  promote balanced
public policy reform.

A strong core  business provides  the essential foundation  to pursue  future-
oriented opportunities.   To strengthen the  core telecommunications business,
management will continue  to upgrade network  and systems capability,  improve
customer  service  and efficiency,  and  retain  and expand  existing  markets
through product and  channel innovation.   See "Strengthen  Core Business"  on
pages 21 through 24 in "Item 7. MD&A" for additional information.

As  competition  increases  in   its  core  telecommunications  business,  the
Corporation will rely  increasingly on  developing new markets  to create  new
revenue sources.  Toward  that end, the Corporation  is actively creating  and
pursuing  markets in  long-distance  services, PCS,  Internet access,  network
integration,  digital  wireless  television   and  certain  new    information
services.   See "New Markets"  on pages  24 through 25  in "Item 7.  MD&A" for
additional information.

Telecommunications  policy reform  has  been, and  will  continue to  be,  the
subject  of much debate in  Congress, the California  Legislature, the courts,
the FCC, the  CPUC, and the  PSCN.  Management  supports public policy  reform
that  promotes fair competition and ensures  that responsibility for universal
service  is shared  by all  who seek  to provide  telecommunications services.
Competition  will bring  great  benefits  to  customers  by  giving  them  the
opportunity  to choose  among service  providers for  their telecommunications
needs.   See "Public  Policy" on pages  26 through  29 in  "Item 7. MD&A"  for
additional information.

COMPETITION

Regulatory,  legislative,  and  judicial  actions,  as  well  as  advances  in
technology, have expanded  the types of available communications  products and
services and the number of companies offering such services.  Various forms of
competition, including price and service competition, are growing steadily and
are  already  having  an effect  on  the  Telephone Companies'  earnings.   An
increasing amount of this competition is from large companies with substantial
capital,  technological,  and  marketing resources.    Currently,  competitors
primarily consist of interexchange carriers, competitive access providers, and
wireless  companies.  The Telephone Companies also face competition from cable
television  companies  and  others.    Although  the  Corporation   will  face
significant  competition  in its  provision  of  telephone  and new  services,
management believes that  the Corporation  has a reputation  for high  quality
services and that the key strategies outlined above will  provide an effective
competitive response.

Telephone Services Competition

The  characteristics  of  the California  market  make  it  attractive to  new
competitors.  Pacific Bell's business and residence revenues and profitability
are concentrated  among a small  portion of its  customer base and  geographic
areas.   Competitors  need  only serve  selected  portions of  Pacific  Bell's
service area to  compete for the majority of its  business and residence usage
revenues.  High-margin customers  are clustered in high-density areas  such as
Los  Angeles and  Orange County, the  San Francisco  Bay Area,  San Diego, and

                                      12








                                    <PAGE>

Sacramento.   California is also attractive because  it  has one of the lowest
switched access  rates in the country.   By combining the  low switched access
rate and  discounted resale rates, competitors have the ability to price their
services at relatively low  rates while maintaining high margins.   Reselling,
particularly  under Pacific  Bell's  discounted rates,  allows competitors  to
offer local service with little or no investment.

As in California, Nevada  Bell's market is also vulnerable  to competition and
competitors  are expected  to  target the  high-usage, high-profit  customers.
These   customers  are   geographically   concentrated  in   the   Reno/Sparks
metropolitan area and business parks.

See  "CPUC  Local Services  Competition" and  "Competitive  Risk" on  pages 27
through 30  in "Item 7. MD&A", and "Item 8.",  Note P to the 1996 Consolidated
Financial  Statements  on  page  89  for  additional  information  on  current
developments in telephone services competition.

Directory Advertising

Other  producers of  printed  directories  offer  products that  compete  with
certain Pacific Bell SMART Yellow Pages  products.  Competition is not limited
to other printed directories, but includes newspapers, radio, television, and,
increasingly,  direct  mail and  directories offered  over  the Internet.   In
addition, new  advertising and information  products may  compete directly  or
indirectly with  the SMART  Yellow  Pages.   With  the introduction  of  local
exchange competition,  Pacific Bell  Directory will  have to acquire  listings
from  other providers for its products, and competing directory publishers may
ally themselves with other telecommunications providers.

Video Services and Wireless Digital Television

The  Corporation  faces competition  in the  provision  of video  services and
wireless  digital  television from  existing  cable  television and  satellite
providers, and wireless, long-distance, and other telephone companies.

Internet Access

The Corporation faces  competition in  the provision of  Internet access  from
established Internet  access providers,  cable television,  long-distance, and
other telephone companies.

Network Integration

The  Corporation faces  competition in  the provision  of  network integration
services primarily  from value  added distributors with  professional services
and network management capability,  including large telecommunication services
providers.

PCS

The Corporation faces significant competition in the provision of PCS services
from the holders of  the other wireless licenses in  the Corporation's service
areas, including established providers of cellular service.




                                      13








                                    <PAGE>

Long Distance

The Corporation faces competition in the long distance market from established
long-distance   service   providers   including   AT&T,   MCI   Communications
Corporation, and Sprint Corporation.   In addition, the Corporation  will face
competition  from  competitive access  providers, cable  television, wireless,
long-distance and other telephone companies.

EMPLOYEES

As  of  December  31, 1996,  the  Corporation  and  its subsidiaries  employed
48,330 persons.   About 66 percent  of the  employees of  the Corporation  are
represented by  unions.   In August 1995,  the Telephone  Companies reached  a
three year agreement with Communications Workers of America ("CWA"), which was
ratified by the  union membership.  At December 31,  1996, the CWA represented
about 31,000 employees.   The agreement features a 10.5  percent wage increase
over three  years, a 14 percent  pension increase, a $16  million training and
retraining  program,  a  new  voluntary early  retirement  option,  employment
security, and improved health benefits.  Agreements were also reached with two
other  unions.    Management estimates  that  the  agreements  will result  in
increased  costs of  approximately $550 million  over three years  from August
1995.


FORWARD-LOOKING STATEMENTS

When  used in this Form 10-K, the words "expects", "anticipates", "estimates",
"believes"  and  words  of  similar  import  may  constitute  "forward-looking
statements"  within the meaning of Section 17A  of the Securities Act of 1933,
as amended.  Such statements, which include statements contained in "Business"
and  "MD&A"  concerning  projections  of  revenue  growth  and  statements  of
management's objectives and  expectations as  to levels  of expenditures,  are
subject   to  risks  and  uncertainties,  including   those  set  forth  under
"Competitive  Risk" and  "Regulation" and  elsewhere in  this Form  10-K, that
could cause actual  results to differ materially from  those projected.  These
forward-looking statements speak only as of the date of this Form 10 - K.  The
Corporation  expressly disclaims  any  obligation or  undertaking to  publicly
release any  updates or revisions to any  forward-looking statements contained
herein to reflect  any change  in the Corporation's  expectations with  regard
thereto or any change in events, conditions or circumstances on which any such
statement is based.


Item 2. Properties.

As of December 31, 1996, the properties of the Telephone Companies represented
substantially all plant, property, and equipment of the Corporation.

The   properties  of  the  Telephone  Companies  do  not  lend  themselves  to
description   by    character   and   location   of    principal   units.   At
December 31, 1996,  the percentage  distribution of  total telephone  plant by
major category for the Telephone Companies was as follows:





                                      14








                                    <PAGE>

                                                     Pacific   Nevada
Telecommunications Property, Plant and Equipment     Bell      Bell
---------------------------------------------------------------------------
Land and buildings (occupied principally
by central offices) ...............................  10%        7%

Cable and conduit .................................  40%       53%

Central office equipment ..........................  35%       33%

Other .............................................  15%        7%
                                                    ----      ----
Total ............................................. 100%      100%
===========================================================================

At  December 31,  1996, the  percent utilization  of central  office equipment
capacity  for Pacific Bell  and Nevada Bell  was approximately  90 percent and
94 percent, respectively.

Substantially  all  of  the  installations  of  central  office  equipment and
administrative offices are in buildings and  on land owned by the Corporation.
Many  garages, business offices, and  telephone service centers  are in rented
quarters.

As  of December  31, 1996,  about 25  percent of the  network access  lines of
Pacific Bell  were in Los  Angeles and vicinity and  about 25 percent  were in
San Francisco and vicinity.   On that date, about 86  percent of Nevada Bell's
network access  lines  were in  Reno and  vicinity.   The Telephone  Companies
provided approximately 76 percent and 27 percent of the total  access lines in
California  and Nevada,  respectively, on  December 31,  1996.   The Telephone
Companies do not  furnish local service in certain sizable areas of California
and Nevada which are served by nonaffiliated telephone companies.

Item 3.  Legal Proceedings.

Not Applicable.

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

No matter was submitted for a vote of security holders during the fourth
quarter of the year covered by this report.

                                    PART II

Item 5.  Market  for  Registrant's  Common  Equity  and  Related   Stockholder
Matters.

DESCRIPTION OF COMMON STOCK, DIVIDEND AND MARKET INFORMATION

All shares of common stock, par value $0.10 per share ("Common Stock"), of the
Corporation are entitled to participate equally in dividends.  Each shareowner
has one vote for each share registered in the shareowner's name. All shares of
Common Stock  would rank equally on  liquidation.  Owners of  shares of Common
Stock have no preemptive or cumulative voting rights.

At   February  28,  1997,  there  were   659,994  holders  of  record  of  the

                                      15








                                    <PAGE>

Corporation's Common  Stock.  At  February 28,  1997, the high  and low  sales
price for  the Corporation's  Common Stock based  on New  York Stock  Exchange
Composite Transactions was $41.25 and $39.875, respectively.

The  markets  for trading  in  the Common  Stock  are the  New  York, Pacific,
Chicago, Swiss, and London Stock Exchanges.

The Corporation from time to time purchases shares  of its Common Stock on the
open market or through  privately negotiated purchases and holds  these shares
as treasury stock.

All shares of Common Stock are fully paid and nonassessable.

Information regarding dividends paid on the Common Stock for 1996 and 1995 and
the quarterly high and  low sales prices of  the Common Stock during 1996  and
1995 are included below.

---------------------------------------------------------------------------
STOCK TRADING ACTIVITY AND DIVIDENDS PAID
                                                                    Payment
1996                                 High         Low  Dividends       Date
---------------------------------------------------------------------------

First Quarter...................  $35.250     $25.875     $0.545     5/1/96
Second Quarter*.................  $34.750     $31.500     $0.315     8/1/96
Third Quarter*..................  $35.250     $31.750     $0.315    11/1/96
Fourth Quarter*.................  $39.000     $32.875     $0.315     2/3/97
---------------------------------------------------------------------------
                                                                    Payment
1995                                 High         Low  Dividends       Date
---------------------------------------------------------------------------

First Quarter...................  $31.250     $28.000     $0.545     5/1/95
Second Quarter..................  $31.250     $25.625     $0.545     8/1/95
Third Quarter...................  $30.875     $25.625     $0.545    11/1/95
Fourth Quarter..................  $34.375     $29.125     $0.545     2/1/96
---------------------------------------------------------------------------
(Stock  trading activity:    based  on New  York  Stock  Exchange -  Composite
Transactions)

*  Under the terms of  the merger agreement with SBC  Communications Inc., the
   Corporation reduced the  quarterly dividend to $0.315 per share.  (See Note
   O to the 1996 Consolidated Financial Statements on page 87.)


Dividends

The  record date is set by the Pacific Telesis Group Board of Directors at the
time  it declares  a dividend.   Quarterly  reports are  mailed with  dividend
checks.

Stock Listing

New York, Pacific, Chicago exchanges           PAC
London, Swiss exchanges                        Pacific Telesis
Newspaper stock tables                         Pac Telesis

                                      16








                                    <PAGE>


The  declaration and  timing of  all dividends  are at  the discretion  of the
Corporation's Board  of Directors  and are  dependent  upon the  Corporation's
earnings and  financial requirements,  general business conditions,  and other
factors; there  can be  no assurances  as to  the amount  or frequency  of any
future dividends on the Common Stock.

Under the merger agreement with SBC, Pacific Telesis may not pay a dividend in
excess of 73.3% of SBC's dividend.
















































                                      17








                                    <PAGE>

Item 6.  Selected Financial Data

                    PACIFIC TELESIS GROUP AND SUBSIDIARIES
                     SELECTED FINANCIAL AND OPERATING DATA

(Dollars in millions,
except per share amounts)             1996    1995    1994    1993    1992
--------------------------------------------------------------------------
RESULTS OF OPERATIONS
Operating revenues..............   $ 9,588 $ 9,042 $ 9,235 $ 9,244 $ 9,108
Operating expenses..............     7,390   7,031   7,041   8,582   7,025
Operating income................     2,198   2,011   2,194     662   2,083
Income from continuing
  operations....................     1,057   1,048   1,136     191   1,173
Income (loss) from spun-off
  operations....................         -       -      23      29     (31)
Extraordinary item, net of tax..         -  (3,360)      -       -       -
Cumulative effect of accounting
  changes, net of tax...........        85       -       -  (1,724)      -
Net income (loss)...............   $ 1,142 $(2,312) $1,159 $(1,504) $1,142
--------------------------------------------------------------------------
EARNINGS (LOSS) PER SHARE
Income from continuing
  operations....................   $  2.47 $  2.46 $  2.68 $  0.46 $  2.91
Income (loss) from spun-off
  operations....................         -       -    0.05    0.07   (0.08)
Extraordinary item..............         -   (7.89)      -       -       -
Cumulative effect of
  accounting changes............      0.20       -       -   (4.16)      -
Net income (loss)...............   $  2.67 $ (5.43) $ 2.73 $ (3.63) $ 2.83
--------------------------------------------------------------------------
OTHER FINANCIAL AND OPERATING DATA
Dividends per share.............   $  1.49 $  2.18 $  2.18 $  2.18 $  2.18
Total assets***.................   $16,608 $15,841 $20,139 $23,437 $21,849
Net assets of spun-off
  operations....................   $     - $     - $     - $ 2,874 $   745
Shareowners' equity.............   $ 2,773 $ 2,190 $ 5,233 $ 7,786 $ 8,251

Continuing Operations**:
Book value per share............   $  6.47 $  5.11 $ 12.34 $ 11.61 $ 18.53
Return on equity (%)............      46.0   -51.3    22.0   -26.3    16.1
Return on capital (%)...........      17.2   -18.0    14.3    -8.6    12.0
Debt maturing within one year...   $   613 $ 1,530 $   246 $   595 $ 1,158
Long-term obligations...........   $ 5,424 $ 4,737 $ 4,897 $ 5,129 $ 5,207
Debt ratio (%)..................      61.5    74.1    49.6    53.8    45.9
Capital expenditures............   $ 2,753 $ 2,961 $ 1,684 $ 1,886 $ 1,852
Cash from operating activities..   $ 2,592 $ 2,769 $ 2,947 $ 2,727 $ 2,807
Total employees at December 31..    48,330  48,889  51,590  55,355  57,023
--------------------------------------------------------------------------


                           (Continued on next page)





                                      18








                                    <PAGE>

                    PACIFIC TELESIS GROUP AND SUBSIDIARIES
                     SELECTED FINANCIAL AND OPERATING DATA
                                  (Continued)

(Dollars in millions,
except per share amounts)             1996    1995    1994    1993    1992
--------------------------------------------------------------------------
Volume Indicators:
Toll messages (millions); 1994*      5,176   4,819   4,473   4,251   4,145
Carrier access minutes-of-use
  (millions);  1994*............    64,635  59,193  52,370  49,674  46,800
Customer switched access lines
  in service at December 31
  (thousands); 1994-95*.........    16,427  15,767  15,307  14,873  14,551
--------------------------------------------------------------------------
*   Restated.
**  Excludes spun-off operations.
*** Includes net assets of spun-off operations for the years 1992-1993.

During  fourth  quarter 1996,  Pacific Bell  Directory  changed its  method of
recognizing  directory publishing  revenues  and  related  expenses  effective
January 1, 1996  to a preferable  method. The  cumulative after-tax effect  of
applying the new method to prior years is recognized as of January 1,  1996 as
a  one-time, non-cash gain applicable to continuing operations of $85 million,
or $0.20  per share. The first three quarters of 1996 were restated to reflect
the new method.  (See "Cumulative Effect of Accounting Change" under Note A on
page 62.)

Effective  third  quarter 1995,  for  external  financial reporting  purposes,
Pacific  Bell discontinued  the application  of SFAS  71, "Accounting  for the
Effects of Certain Types  of Regulation," an accounting standard  for entities
subject to traditional  regulation.  As a result, during  1995 the Corporation
recorded a non-cash, extraordinary charge of $3.4 billion, or $7.89 per share,
which is net of a deferred income tax benefit of $2.4 billion.  As a result of
the extraordinary charge, the Corporation's shareowners' equity was reduced by
$3.4 billion.   (See  Note  C -  "Discontinuance  of Regulatory  Accounting  -
SFAS 71" on page 64.)

Effective April  1,  1994, the  Corporation spun  off to  its shareowners  its
domestic and international cellular, paging,  and other wireless operations in
a  one-for-one  stock  distribution  of  its  86  percent  interest  in  these
operations.   As  a result,  the Corporation's  total assets  and shareowners'
equity  were each  reduced by  $2.9 billion  during 1994.   The  Corporation's
previous  interests  in  the operating  results  and  net  assets of  spun-off
operations  are  classified separately  and  excluded  from the  Corporation's
revenues,  expenses, and  other amounts  presented for  continuing operations.
(See "Spun-off Operations" under Note A on page 60.)

Results  for 1993  reflect  restructuring charges  which  reduced income  from
continuing operations by $861 million, or  $2.08 per share.  Results for  1993
also reflect the cumulative after-tax effects of applying new accounting rules
for postretirement and postemployment benefits to prior years.





                                      19








                                    <PAGE>

Item 7.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations

OVERVIEW

Pacific  Telesis(R)  Group (the  "Corporation")  includes  a holding  company,
Pacific Telesis,  and  its telephone  subsidiaries:  Nevada Bell  and  Pacific
Bell(R) (which  when  used  herein includes  its  subsidiaries:  Pacific  Bell
Directory, Pacific  Bell Information  Services, Pacific Bell  Mobile Services,
Pacific Bell Internet Services, Pacific Bell Network  Integration, and others)
hereinafter referred to  as the  Telephone Companies.   Other Pacific  Telesis
subsidiaries include Pacific Telesis Enterprises, Pacific Bell Communications,
and several other  subsidiaries that provide video,  communications, and other
services.  The  Telephone Companies provide  local exchange services,  network
access, local toll services,  directory advertising, Internet access, Personal
Communications  Services   ("PCS")  and   selected  information   services  in
California and Nevada.

The Corporation's primary financial  goal is to build long-term  value for its
shareowners.  Management's business  strategies of expanding and strengthening
the  core telecommunications  business, developing  new markets  and promoting
public  policy  reform  have returned  the  Corporation  to  solid growth  and
continue  to  build value  not  only for  its  shareowners, but  also  for its
customers and employees.

To further enhance shareowner,  customer and employee value,  and to meet  the
challenges  of our  dramatically  changing industry,  the  Board of  Directors
announced  a  plan on  April 1,  1996 to  merge  with SBC  Communications Inc.
("SBC").

PLANNED MERGER

The decision to  merge with SBC was based on a comprehensive evaluation of the
economic,   financial,   regulatory   and   technological   factors   in   the
telecommunications industry.   Management believes that the combined financial
resources, access to  national and international markets,  and technologies of
the combined companies will better  enable them to take full advantage  of the
growth opportunities  provided by  the  Telecommunications Act  of 1996.  This
combination  will  better  position  the Corporation  in  today's  competitive
telecommunications environment.   The merger is based  on growth opportunities
which  will  bring at  least  1,000  new jobs  to  the  combined companies  in
California, as  well as  the headquarters of  four of the  combined companies'
operations.

The merger  has been approved by  the shareowners of the  Corporation and SBC,
the  Federal   Communications  Commission  ("FCC")  and   the  Public  Service
Commission of  Nevada ("PSCN").  The U.S. Department of Justice concluded that
the merger does  not violate the antitrust laws.   In addition, the California
State Attorney  General has  told the  California Public  Utilities Commission
("CPUC") that  the  merger will  not  hurt competition  in California  and  is
consistent  with  emerging  trends.   On  February  21,  1997, two  California
administrative  law judges issued a proposed decision approving the merger but
with  a  number  of  conditions,  including payment  of  up  to  $750 million.
Management  does not  agree  with  the level  of  payment  or the  restrictive
conditions and intends  to work  towards their  reduction or  elimination.   A
proposed  decision by the administrative law judges  is not binding.  The CPUC

                                      20








                                    <PAGE>

is expected  to review  the full case  and the  proposed decision and  issue a
final  decision by March 31, 1997.   Depending on the final CPUC decision, the
merger could close in early second quarter. (See "Merger Agreement" under Note
O on page 87.)

Management believes the merger will broaden investors' options by creating one
of  the  nation's  largest   national  and  international   telecommunications
businesses.    The merger  will  enhance  competition  in  the  communications
industry and position  the combined companies to  continue to grow  and pursue
new opportunities in these increasingly competitive markets.

KEY STRATEGIES

With  increasing competition for existing  services, the opening  of local and
toll  services   competition  in  California,   and  the   enactment  of   the
Telecommunications  Act  of  1996,   the  Corporation  faces  an  increasingly
competitive  marketplace.    Management's  key strategies  provided  a  strong
response  to the  competitive  challenge, as  reflected  by the  Corporation's
strong growth in revenues  for 1996. The business strategies  of expanding and
strengthening the core telecommunications business, developing new markets and
promoting public policy  reform further  the Corporation's goal  of being  the
customers' first choice for their telecommunications needs.

Strengthen Core Business
------------------------

A strong core  business provides  the essential foundation  to pursue  future-
oriented opportunities.  To strengthen  the core telecommunications  business,
management will continue  to upgrade network  and systems capability,  improve
customer  service  and  efficiency, and  retain  and  expand  existing markets
through product and channel innovation.

Upgrade Network and Systems Capabilities

In order  to offer the  products and services  customers want, now  and in the
future,  the Telephone Companies continue to invest heavily in improvements to
the core telecommunications networks. The Telephone Companies spent a total of
$2.5  billion primarily  on the telecommunications  networks during  1996. The
focus  of  these investments  has been  in  the advanced  digital technologies
discussed below.  These technologies enable the Telephone Companies to provide
new products and services, increase network  quality and reliability, increase
transmission speed, and reduce costs.

                                                              December 31
                                                              -----------
Technology Deployment                                          1996  1995
-------------------------------------------------------------------------
Access lines served by digital switches......................   80%   73%
Access lines with SS-7 capability............................   98%   98%
Access lines with ISDN accessibility.........................   90%   85%
Miles of installed optical fiber (thousands).................   541   482
-------------------------------------------------------------------------

Digital switches and optical fiber, a technology using thin filaments of glass
or  other transparent materials to  transmit coded light  pulses, increase the
capacity and reliability of transmitted data while reducing maintenance costs.

                                      21








                                    <PAGE>

Signaling  System  7 ("SS-7")  permits faster  call  setup and  custom calling
services.   Integrated Services  Digital Network ("ISDN")  allows simultaneous
transmission of  voice, data,  and  video over  a  single telephone  line.  In
addition, the  Telephone Companies  are deploying Synchronous  Optical Network
("SONET")  interfaces  within   the  fiber  infrastructure.     SONET  is   an
international standard for high-speed fiber optics transmission.

In December 1994, Pacific Bell contracted for the purchase of up to $2 billion
of Advanced Communications Network  ("ACN") facilities, which incorporated new
technologies.  During 1995,  the ability to deploy the  facilities outstripped
the  ACN  vendors'  ability  to  deliver  necessary  products  and   software.
Accordingly,  management decided  to  suspend construction  at certain  sites,
which reduced the expected cost to less  than $700 million.  If ACN facilities
meet certain quality  and performance criteria  (the "Network Test"),  Pacific
Bell  is committed to purchase the ACN  facilities in 1998.  If ACN facilities
fail  the Network Test,  Pacific Bell  will not  be committed  to buy  the ACN
facilities but might be liable to reimburse the principal ACN  vendor for some
construction costs up to $300 million.  If competition or other factors affect
Pacific  Bell's ability  to recover  its investment  in these  facilities, the
value of the ACN facilities could be materially impaired.

Improve Customer Service and Efficiency

The Corporation also has invested in its networks to enhance service  quality,
key to  winning and keeping customers in a competitive market.  According to a
1996 telecommunications study  performed by  J. D. Power  and Associates,  the
Corporation  ranked  second in  customer  satisfaction  for local  residential
telephone service.  The Corporation  is in a service industry and  the quality
of  service provided is still the most  essential part of what the Corporation
sells.

In  April  1996, the  Corporation introduced  a  Pacific Bell  Awards program,
designed  to  reward customers  for continuing  to choose  Pacific Bell.   The
program  offers  rewards from  more than  20  partners that  include airlines,
computer companies and  restaurants.   The Pacific Bell  Awards program  helps
promote  brand  name  and  also  encourages  customers  to  subscribe  to  the
Corporation's new products and services such as wireless PCS and Digital TV.

Recognizing the diversity of  our customers, the Corporation provides  service
in multiple languages to  many bilingual or non-English speaking  customers in
California,  particularly those linked to  the Pacific Rim  and to Central and
South America.   The number of  customers whose service was  provided in other
languages  has  grown  by   129  percent  since  1990,  contributing   to  the
Corporation's revenues.    Strong  brand name  recognition  and  an  excellent
reputation in many  ethnic market  segments will enhance  opportunity for  the
Corporation when it enters the long distance business.

Superior service  is delivered  by employees  in  the Corporation's  workforce
whose capabilities and cultures match the diversity and demands of the market.
In 1996, the U.S. Department of Labor also recognized this  effort and honored
the  Corporation with  its  Opportunity 2000  award  for fostering  employment
opportunities and employee diversity.

To  prosper in  a competitive  environment, the  Corporation must  continue to
provide  outstanding  customer  service   while  improving  efficiency.    The
Corporation's  core  process   reengineering  ("CPR")  projects,   implemented

                                      22








                                    <PAGE>

primarily  at Pacific Bell, have  resulted in better,  faster customer service
with greater efficiency.  CPR is a method for achieving significant  increases
in  performance by  rethinking  basic business  processes  and systems.    For
example, Pacific Bell reduced the number of network operations centers from 25
to two.  The new centers, which  were fully operational in early 1996, require
fewer employees to  operate than the  old centers and  each serves as a  fully
operational backup  for the other.  And in 1995, Pacific Bell created customer
service  centers  to improve  the response  to  service activation  and repair
calls.   With  many functions  consolidated in  the centers,  significant time
savings and  service  improvements have  been achieved  by reducing  hands-off
between  functional work  groups.  Reengineering  processes and  other efforts
contributed to the improvement in efficiency  as measured by the change in the
Telephone Companies' employees per  10,000 access lines  to 26.6 in 1996  from
28.8 in 1995.


Retain and Expand Existing Markets

Stimulating  usage of the Telephone  Companies' existing networks  is the most
cost effective way  to increase revenues.   The Corporation is  increasing its
use of alternative sales channels and targeted advertising to stimulate usage.
Focus  areas   include  high-growth  data  markets,   voice  mail,  additional
residential lines, and custom calling services.

The market for high-speed  data transmission, or the Pacific  Bell FasTrak(SM)
data services, grew rapidly in 1996 due to focused marketing campaigns and the
improved economy.   The Telephone  Companies' ISDN volumes  in 1996  increased
92.4 percent  from 1995.  Volumes for other FasTrak data services increased as
follows for 1996 over the prior year:  Frame Relay increased 111.5 percent and
Switched  Multimegabit Data  Service ("SMDS")  increased 60.3 percent.   Frame
Relay technology  allows a customer to  transmit 126 pages of  data per second
and enables the  customer to move data quickly between  widely dispersed local
area networks. SMDS  allows users to buy whatever bandwidth  they need, and to
upgrade it later if desired.

In  December 1996,  Pacific Bell  began testing  the delivery  of Asynchronous
Transfer  Mode ("ATM")  high-speed  data to  the  desktop over  the  telephone
network  using Asymmetric Digital Subscriber Line ("ADSL") technology.  ATM is
considered the multimedia switching  technology of the future.   ATM functions
over ADSL, a technology  that delivers higher bandwidth over  copper telephone
lines.  Pacific Bell  has been conducting a  limited ADSL trial in San  Ramon,
California since the fall of 1996.

Changes  in  technology and  telecommuting  are fueling  increased  demand for
additional  telephone   lines  in   the  home.     The   Corporation  provides
approximately 2 million  residential access lines that are  in addition to the
customer's  primary line.  Customers want extra  lines for  data transmission,
Internet access, fax machines,  and convenience. Similarly, demand for  custom
calling services, such as call waiting, grew more than 11.1 percent in 1996 as
customers  asked for greater convenience and more control over their telephone
communications.   Caller ID, another  custom calling service,  was launched in
July 1996 and displays  the telephone number of the calling  party on a device
that attaches to, or is part of, a customer's telephone.

The  success of  the  Corporation's voice  mail  products continued  in  1996.
Customers  value such  features as the  ability of  the service  to answer the

                                      23








                                    <PAGE>

phone even when they are on the line. They also like remote  message retrieval
features  and the  reliability of  the network.  Voice mailbox  equivalents in
service increased 18 percent in 1996 to about 1.7 million.

Capital expenditures for the Corporation in 1997 are forecast to be about $2.5
billion.   This amount includes  approximately $2.0 billion  primarily for the
cost  of upgrading  and maintaining  the  core telecommunications  network and
system  capabilities.   The  remainder of  this  amount includes  the  cost of
building  the PCS  network and  constructing the  wireless digital  television
network as described below.

New Markets
-----------

As  competition  intensifies  in  its core  telecommunications  business,  the
Corporation  will rely increasingly on developing new products and services to
create  new revenue sources.   Toward  that end,  the Corporation  is actively
creating and  pursuing markets in  PCS, Internet access,  network integration,
digital wireless television, long-distance, and other information services.

In November  1996, Pacific Bell Mobile  Services ("PBMS") launched PCS  in San
Diego, California,  and in February 1997,  in Las Vegas, Nevada.   Unlike most
cellular service, PCS  is a  digital wireless service,  offers superior  sound
quality,  and protection  from  eavesdropping and  cloning.  The network  will
incorporate the Global System for Mobile Communications ("GSM") standard which
is widely  used in Europe.  PBMS  phones for PCS feature  a built-in pager and
answering  machine.   PBMS  is  selling PCS  as  an  off-the-shelf product  in
approximately  100 retail stores  across San Diego County  and about 60 retail
stores in Las Vegas.  PBMS plans to offer PCS service in San Francisco and Los
Angeles  in the  second  quarter of  1997.   Management  expects  a widespread
offering  of  PCS  service  in  most of  California  and  Nevada  by mid-1997.
Although  management  anticipates significant  competition,  particularly from
established  cellular  companies,  it  believes that  digital  technology  and
Pacific Bell's reputation for superior service will position our offering well
with the customer.

Pacific  Bell Internet Services  ("PBI") provides Internet  access services to
business customers and in May 1996 rolled out its service to consumers.  It is
estimated that between 30 and 40 percent of all Internet traffic originates or
terminates  in  California.   In  1996, PBI  added  over  65,000 customers  in
California  and  Nevada.  Pacific Bell  Network  Integration  ("PBNI"), a  new
business  initiated in  mid-1996,  was formed  to  assist customers  with  the
implementation  of information technology  networks by providing state-of-the-
art network management and consulting services. In November 1996, Pacific Bell
unveiled its new ISDN Home Pack(TM), the nation's first  fully integrated ISDN
and  Internet package.  The  package includes Internet  access through Pacific
Bell's  Internet  Service  network,  a  digital  modem  and  Internet  browser
software.   PBI handles  the Internet  access and  customized software of  the
package.  PBNI  is responsible for integrating the whole  package and managing
delivery of the hardware and software components.

In  1996, Pacific  Bell Interactive  Media ("PBIM")  launched Pacific  Bell At
Hand(SM),  an  Internet web  site  (www.athand.com)  designed  with  focus  on
California.    California  merchants  and consumers  distribute,  receive  and
exchange  information  in  one  of   the  Internet's  most  dynamic   markets.
Categories  such as Entertainment and  Leisure, Sports and  the newly released

                                      24








                                    <PAGE>

Real Estate provide users an intimate look at restaurants, golf courses, state
parks,  multiple listing entries, and  other advertiser provided  content.  In
1997, PBIM will continue to add to its merchant directory lineup.

In 1996, Pacific  Bell Video  Services ("PBVS") started  testing its  wireless
digital television service in the Los Angeles area. Technology and programming
market  trials were  completed successfully.   PBVS plans  to move  forward in
Spring  1997 with  a commercial launch  in the  Los Angeles  and Orange County
areas.  The Corporation currently  provides analog wireless television service
to over  46,000 video  customers in  portions of  Riverside and  San Bernadino
counties.   In September 1996,  PBVS started delivering  cable television over
the Advanced Communications Network in San Jose, California.

In response  to the Telecommunications Act  of 1996, the  Corporation formed a
new  subsidiary,  Pacific  Bell  Communications ("PBCOM"),  to  provide  long-
distance  telephone service.   (See  "Telecommunications Legislation"  on page
26.)   PBCOM  has filed  applications  in  California and  Nevada  to  provide
competitive long-distance telephone service  between and within service areas.
Both federal  and state  approvals are  needed  before PBCOM  may enter  these
markets.   The Telephone Companies  must separately comply  with a competitive
checklist mandated by law to enable PBCOM to enter the long distance business.
By  mid-February 1997, Pacific Bell  had 26 interconnection  agreements with a
wide  range of companies, of  which ten met the  FCC's 14-point checklist.  In
addition,  six agreements  with  cellular service  providers had  been signed.
PBCOM  is required to have independent network capabilities, operating support
systems, other  support systems and customer  care/billing center capabilities
separate  from the Telephone Companies,  which PBCOM is  currently building or
acquiring.    As  a  result of  significant  progress  in  complying  with the
competitive checklist,  the Corporation intends to make  a filing with the FCC
during  the first half  of 1997  to seek approval  to enter  the long distance
market.

Management sees these new markets as attractive investment  opportunities even
though substantial start-up costs will be incurred.























                                      25








                                    <PAGE>

Public Policy
-------------

Telecommunications  policy reform  has  been, and  will  continue to  be,  the
subject  of much debate in  Congress, the California  Legislature, the courts,
the FCC,  the CPUC, and  the PSCN.   Management supports public  policy reform
that promotes  fair  competition  and  ensures  that  the  responsibility  for
universal  service is  shared by  all who  seek to  provide telecommunications
services.

Telecommunications Legislation

In February  1996, the  Telecommunications Act of  1996 was  signed into  law,
easing certain  restrictions imposed by the Communications Act of 1934 and the
1984 Cable Act, and replacing the  1982 Consent Decree.  Among the provisions,
the  new  law allows  telephone companies  and  cable television  companies to
compete  in  each  others' markets,  and  permits  the  former Bell  Operating
Companies to apply  to the FCC  for authority to offer  long-distance service,
subject to  certain  conditions.   Once  the  new law  is  fully  implemented,
consumers will have many new options for their local telephone, long-distance,
and cable television services.  (See "FCC Recommendation on Universal Service"
and "FCC Interconnection Order" below.)


FCC Recommendation on Universal Service

In  November 1996,  the Joint  Federal-State Board  on Universal  Service (the
"Board")  issued  a  recommendation  on  how  to  implement  sections  of  the
Telecommunications  Act of  1996 regarding universal  service.   Generally the
plan  creates a system that  identifies cost subsidies  in rural and high-cost
areas.    However,  the  Board  deferred a  recommendation  on  how  large the
subsidies  should be.  The Board also  recommended creation of a $2.25 billion
fund for providing discounted services to  schools and libraries.  The FCC has
until May 1997 to issue a final decision on this matter.

FCC Interconnection Order

In  August 1996,  the FCC  released a  decision (the  "Interconnection Order")
establishing guidelines to implement the Telecommunications Act of 1996, which
sets rules for  opening local telecommunications markets  to full competition.
The Interconnection Order lays  out how long distance companies  and other new
competitors may connect to local networks  and sets guidelines and prices  for
network  components.    Management  believes that  the  Interconnection  Order
undermines the intent  of the Telecommunications Act  of 1996 by, among  other
things,  denying states  a  role in  managing  and  setting prices  for  local
markets.  Management is also concerned that the order requires local telephone
companies to offer wholesale network services at unrealistically low prices.

The  Corporation, along  with other  local telephone  companies, the  National
Association of Regulatory Utility Commissioners and  state PUCs, including the
CPUC, appealed the  Interconnection Order to a federal court.   On October 15,
1996,  the  U.S. Court  of  Appeals  for the  Eighth  Circuit  (the "Court  of
Appeals") issued a  partial stay of the  Interconnection Order that  stays the
operation and effect of the pricing provisions and the "pick and choose" rule,
but allows the non-pricing elements of  the order to go into effect.  The U.S.
Supreme Court  issued a memorandum  decision on November 12,  1996 refusing to

                                      26








                                    <PAGE>

overturn the stay imposed by  the Court of Appeals.   The Court of Appeals  is
expected to issue a decision by mid-1997.

The   Interconnection   Order   also   addressed   the   issue   of   wireless
interconnection,  or  the arrangements  under  which  local exchange  carriers
("LECs") are compensated for interconnecting with and terminating  traffic for
commercial mobile  radio service  ("CMRS") providers (including  cellular, PCS
and paging).  The Interconnection Order ruled that CMRS providers are entitled
to reciprocal compensation arrangements for transport and termination of local
telecommunications traffic. On November 1, 1996, the Court of Appeals lifted a
part of the stay described above with respect to the  non-price aspects of the
FCC's reciprocal compensation  rules for CMRS providers.  As  a result of this
order, Pacific Bell is currently renegotiating its CMRS contracts and by early
February  1997, had signed agreements  with six CMRS  providers, including the
major California providers.

FCC Regulatory Framework Review

The FCC adopted  new interim price  cap rules in  1995 that govern the  prices
that the larger LECs, including the Telephone Companies, charge  interexchange
carriers for  access to local telephone  networks.  The interim  rules require
the LECs to adjust their maximum prices for changes in inflation, productivity
and certain costs beyond the control of the LEC.  Under the interim plan, LECs
may  choose  from three  productivity  factors:    4.0, 4.7  or  5.3  percent.
Election of  the 5.3 percent productivity factor permits the LEC to retain all
of its earnings, whereas the other lower productivity factors require earnings
to be shared with customers.  As in 1995, the Telephone Companies  again chose
the  5.3 percent productivity factor  that will enable  them to  retain all of
their earnings effective  July 1, 1996.   The higher  productivity factor  was
chosen because  management  believes  that it  will  be more  than  offset  by
elimination of the sharing mechanism.

The  revised FCC price cap plan was intended  to be an interim plan that would
be revised in 1996.   However, with the passage of the  Telecommunications Act
of 1996, the FCC is conducting further proceedings to address various  pricing
and  productivity issues,  and is  performing a  broader  review of  price cap
regulation  in a competitive environment.  Additionally, the FCC has indicated
that  it will  also  examine universal  service  (see "FCC  Recommendation  on
Universal Service" on page 26) and access charge rules during 1997.

Management continues  to believe  that the  FCC  should adopt  pure price  cap
regulation and eliminate the productivity factor, sharing and earnings cap.


CPUC Local Services Competition

The  CPUC  authorized facilities-based  local  services competition  effective
January  1996 and  resale competition  effective March  1996.   Several issues
still need  to  be resolved  before  the CPUC  issues  final rules  for  local
competition.  These issues  include final  rates for  resale, presubscription,
implementation  of number  portability  and LEC  provisioning  and pricing  of
essential network functions to  competitors.  In order to  provide services to
resellers, Pacific Bell will use operating support systems currently in place,
and  it  is  also   building  electronic  ordering  systems  and   a  customer
care/billing center.  Costs to implement local  competition, especially number
portability,  will be  material and  it is  uncertain whether  regulators will

                                      27








                                    <PAGE>

allow for recovery of these costs.   The CPUC expects to issue final  rules on
presubscription  in early 1997 and final rates  and rules for all other issues
in late 1997.

Management believes that  all markets should be open to  all competitors under
the  same rules at the same time, and that a truly open competitive market, in
which  the  Corporation can  compete  without  restrictions, offers  long-term
opportunity to build the business and maximizes benefit for the consumer.

CPUC Decision on Universal Service

The CPUC issued  its final decision on universal service  on October 25, 1996,
establishing an annual California universal service fund of approximately $352
million.  Customers of all telecommunications providers will contribute to the
preservation of affordable telephone  service via a 2.87 percent  surcharge on
all bills for  telecommunications services  provided in California.   The  new
program went into effect on February 1, 1997.

Management  is concerned  that the  decision underestimates  the true  cost of
providing universal telephone service.  While  $305 million of the total  $352
million is expected to be paid to Pacific Bell initially, this is far short of
Pacific  Bell's  estimate of  the true  cost  of providing  universal service.
Pacific Bell developed a Cost  Proxy Model to calculate the cost of service in
California.  That model estimated the  average cost of providing service to be
$27 per line  per month.  The CPUC  uses the model in a modified  form for the
new program, but has determined that the  average cost is only $20.30 per line
per  month.    The  universal  service fund  provides  full  funding  for  the
difference between the adopted CPUC  cost and price only for those  lines with
costs above $20.30.  Pacific Bell's price for basic service, including federal
charges,  is $14.75.  Lines  that cost more than $14.75,  but less than $20.30
will not  receive any funding.   About 25 percent of  Pacific Bell's residence
primary lines qualify for funding.

In order  to ensure revenue  neutrality, Pacific  Bell must  reduce its  rates
dollar  for dollar for any funds it  receives from the newly created universal
service fund.   This reduction will  initially be accomplished by  means of an
across-the-board surcredit  on  all of  Pacific Bell's  products and  services
except for residential basic exchange services.  The order allows Pacific Bell
to  file an application to replace the initial across-the-board surcredit with
permanent  price  reductions for  those  services  that previously  subsidized
universal services.

The final decision also establishes a discount program for schools, libraries,
certain   community-based  organizations   and  municipal-   and  county-owned
hospitals and clinics.  Carriers providing services at a discounted price will
be  reimbursed from a newly created California Teleconnect Fund. This discount
program will be funded by a separate surcharge of 0.41 percent on the bills of
customers of all telecommunications carriers in California.

CPUC Regulatory Framework Review

In December  1995, the CPUC  issued an order in  its review of  the regulatory
framework  in California.   The  order suspended  use of the  "inflation minus
productivity" component of the price cap  formula for 1996 through 1998.  This
action freezes the price caps on most of Pacific Bell's regulated services for
the  years 1996 through 1998 except for  adjustments due to exogenous costs or

                                      28








                                    <PAGE>

price  changes approved through the  CPUC's application process.   In December
1996, the CPUC adjusted Pacific Bell's rates due to exogenous  cost changes by
an  annual revenue reduction of approximately $66 million effective January 1,
1997.

Management  continues to believe  that the  CPUC should  adopt pure  price cap
regulation and  permanently eliminate  sharing, earnings caps,  and all  other
vestiges of rate-of-return regulation.

PSCN Regulatory Review

The PSCN  approved a "Plan  of Alternative Regulation"  ("the Plan")  in April
1995  redesigning telecommunications regulation in  the State of  Nevada.  The
Plan will remove  barriers to toll  and local competition  in Nevada but  will
also  allow Nevada  Bell to  keep any  productivity gains  by  eliminating the
current customer  sharing provision.  The Plan is optional and required a rate
case  to determine initial pricing.   In March 1996, Nevada  Bell filed a rate
case  to enter  the  Plan.   In  August  1996, the  PSCN  redesigned rates  by
increasing  the monthly residential  flat rate  service while  reducing intra-
service  area toll  call services  and business  basic prices.   The  Plan was
effective  January 1,  1997 and  is estimated  to decrease  annual revenue  by
approximately  $13 million.  The  PSCN also increased  depreciation rates that
are  estimated to  increase annual  depreciation expense  by about  $5 million
beginning in January 1997.

COMPETITIVE RISK

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

Effective January 1,  1995, the  CPUC authorized toll  services competition.
Management estimates that share losses since  January 1, 1995 have been in the
five to  six percent range.  However, this loss  combined with losses prior to
the official  opening of this  market has resulted  in Pacific Bell  currently
serving less than 50 percent  of the business toll market.  In April 1995, the
CPUC  also  ordered   Pacific  Bell  to  offer  expanded   interconnection  to
competitive  access providers.   These  competitors are  allowed to  carry the
intrastate  portion of  long-distance  and local  toll  calls between  Pacific
Bell's central offices and long distance carriers.  Competitors may choose  to
locate  their transmission  facilities within or  near Pacific  Bell's central
offices.

Effective January 1, 1996, the CPUC authorized local exchange competition.  By
early February 1997,  the CPUC  had authorized about  90 companies,  including
large  and   well-capitalized  long  distance   carriers,  competitive  access
providers,  and  cable television  companies  to begin  providing  local phone
service in California,  and 38  additional applications were  pending.   These
companies are prepared  to compete in  major local  exchange markets and  many
have  already deployed  switches or  other facilities.  All of  Pacific Bell's

                                      29








                                    <PAGE>

customers have already  chosen a  long distance company,  and these  companies
have established  widespread customer awareness through  extensive advertising
campaigns over several years.

Local exchange  competition may affect  toll and  access revenues, as  well as
local service revenues, since customers may select a  competitor for all their
telecommunications services.  Local exchange competition may also affect other
service  revenues as Pacific Bell Directory will have to acquire listings from
other  providers for its products, and competing directory publishers may ally
themselves with other telecommunications  providers.  Management estimates the
CPUC's proposed local competition rules could materially reduce revenue growth
for Pacific Bell's regulated California operations by late 1997.

The  characteristics  of  the California  market  make  it  attractive to  new
competitors. Pacific Bell's business  and residence revenues and profitability
are concentrated  among a small  portion of  its customer base  and geographic
areas.   Competitors  need  only serve  selected  portions of  Pacific  Bell's
service area to  compete for the majority of its  business and residence usage
revenues.  High-margin customers  are clustered in high-density areas  such as
Los  Angeles and  Orange County, the  San Francisco  Bay Area,  San Diego, and
Sacramento. California  is also attractive  because it  has one of  the lowest
switched access  rates in the country.   By combining the  low switched access
rates and discounted resale rates, competitors have the ability to price their
services  below   Pacific  Bell's  prices  while   maintaining  high  margins.
Reselling  allows  competitors  to offer  local  services  with  little or  no
investment.

Management believes that now that our markets are open to all competitors, the
Corporation should  be granted access to markets  that are currently closed to
LECs.  A  truly open competitive market, in which  the Corporation can compete
without restrictions, offers  long-term opportunity to build  the business and
maximizes benefits for consumers.   Management believes its key  strategies of
strengthening  the  core  business  by  upgrading  its  network   and  systems
capabilities, improving customer  service and  efficiency, expanding  existing
markets,  developing  new markets  and  promoting public  policy  reform, will
provide a strong response to its competitive challenge.  (See "Key Strategies"
on page 21.)

In Nevada,  the PSCN   issued a  ruling opening the  local exchange  market to
competition.  It includes  requirements that  the LECs  allow interconnection,
unbundling, interim  number portability  and resale. Current  PSCN proceedings
are addressing  pricing, interconnection  and other local  competition issues.
At  least two  long distance  carriers have  requested resale  of Nevada  Bell
services,  and  two competitive  access  providers have  entered  the Northern
Nevada  market,  with the  express intent  of  providing an  alternative basic
business  service to high-margin  customers.  Further,  long distance carriers
can now transport toll calls both within and between service  areas, and there
is  evidence that  such  transport is  increasing  at a  rapid  rate.   As  in
California,   Nevada  Bell's   market  is   attractive  to   new  competitors.
Competition  is  expected to  target  the  high-usage, high-profit  customers.
These   customers  are   geographically   concentrated   in  the   Reno/Sparks
metropolitan area and business parks.





                                      30








                                    <PAGE>

RESULTS OF OPERATIONS

The following  discussions and data summarize the results of operations of the
Corporation for  the periods 1996 compared to 1995, and 1995 compared to 1994.
The  Corporation's  previous interests  in the  operating results  of wireless
operations that were spun off to  shareowners on April 1, 1994, are classified
separately as "spun-off operations"  in the accompanying financial statements.
(See  Note B - "Spun-off Operations" on  page 63.) The spun-off operations are
excluded from the Corporation's results from continuing operations.

                                                  %              %
Operating Statistics                   1996  Change    1995 Change    1994
--------------------------------------------------------------------------
Capital expenditures ($ millions).    2,753    -7.0   2,961   75.8   1,684
Total employees at December 31....   48,330    -1.1  48,889   -5.2  51,590
Telephone Companies' employees
  at December 31*.................   43,713    -3.7  45,413   -6.2  48,404
Telephone Companies' employees per
  ten thousand access lines*......     26.6    -7.6    28.8   -8.9    31.6
--------------------------------------------------------------------------
*  Excludes Pacific Bell Directory and Pacific Bell Mobile Services
   employees.

Earnings
--------

Earnings  and earnings  per  share for  1996 were  $1,142  million and  $2.67,
respectively.  1996 earnings  included a one-time, non-cash after-tax  gain of
$85 million, or  $0.20 per share  associated with a  change in accounting  for
directory publishing  revenues and expenses, which was substantially offset by
a number  of other  one-time items.   (See  "Cumulative  Effect of  Accounting
Change"  under Note  A on page  62.)   Earnings for  1996 reflect  the revenue
growth from increased customer demand for local telephone  products associated
with  marketing efforts and  California's growing economy.   Earnings remained
stable despite substantial increases  in expenditures associated with entering
new   businesses,  increased   demand  and   regulatory  mandates   for  local
competition.

The Corporation reported a loss of $2,312  million for 1995, or loss per share
of $5.43.  Earnings and earnings per share  for 1995 before extraordinary item
were $1,048  million  and  $2.46, respectively.    The reported  loss  is  due
primarily  to  a non-cash,  extraordinary charge  to  net income  during third
quarter 1995  of $3.4 billion,  after taxes,  or $7.89  per share.  The charge
resulted  from the discontinued application  by the Corporation's Pacific Bell
subsidiary of  special accounting  rules for  entities subject  to traditional
regulation and Pacific  Bell's change to the general  accounting rules used by
competitive  enterprises.    (See  Note  C  -  "Discontinuance  of  Regulatory
Accounting - SFAS 71" on page 64.)

Revenue shortfalls also contributed to  the decline in 1995 earnings.   Demand
growth as  a result of the  January 1995 local toll price  reductions fell far
short  of the  level  anticipated by  the  CPUC.   As  a  result, the  revenue
neutrality  intended by the CPUC's  price rebalancing order  was not achieved.
(See "CPUC  Revenue Rebalancing  Shortfall" on  page 47.)   Price  cap revenue
reductions  ordered  by  the  CPUC  and  the  FCC  further  reduced  earnings.
Additional  pressure  on  earnings  resulted from  incremental  labor  expense

                                      31








                                    <PAGE>

associated with the severe storms in 1995.  Pressure on earnings was mitigated
by the Corporation's continuing cost containment initiatives.

Management  cannot predict the effects  on earnings for  1997 from competition
and issues remaining  to be resolved with the Telecommunications  Act of 1996.
Management  anticipates earnings dilution from the  development of new markets
and increased local competition, but believes that the California economy will
continue to  improve and  that our  history  of effective  cost controls  will
continue. (See "Planned Merger" through "Competitive Risk" on pages 20-30.)

Volume Indicators
-----------------
                                                  %              %
                                        1996 Change    1995 Change    1994
---------------------------------------------------------------------------
Switched access lines at Dec. 31
(thousands).......................    16,427    4.2 *15,767    3.0 *15,307
  Residence.......................    10,225    3.7  *9,862   *2.0  *9,670
  Business........................     5,986    5.2  *5,691    4.9   5,426
  Other...........................       216    0.9     214   *1.4    *211

  ISDN access lines at Dec. 31
   (thousands, included in above).       102   92.4      53  130.4      23

Total interexchange carrier access
minutes-of-use (millions).........    64,635    9.2  59,193  *13.0 *52,370
  Interstate......................    36,361   10.9  32,774   *7.2 *30,575
  Intrastate......................    28,274    7.0  26,419  *21.2 *21,795

Toll messages (millions)..........     5,176    7.4   4,819   *7.7  *4,473
Toll minutes-of-use (millions)....    15,935    9.5  14,547   *4.5 *13,917

Voice mailbox equivalents at Dec. 31
 (thousands)......................     1,714   18.0   1,453   27.0   1,144

Custom calling services at Dec. 31
 (thousands)......................     8,011   11.1  *7,211   *8.2  *6,666
---------------------------------------------------------------------------
*  Restated.

The  total number of  access lines in  service at  December 31, 1996,  grew to
16.427 million, an increase of 4.2  percent for the year, up from  3.0 percent
in 1995. The residential access line  growth rate increased to 3.7 percent for
1996, up from 2.0  percent in 1995 reflecting the growing  California economy.
The growth rate  in business access lines was 5.2 percent in 1995, up from 4.9
percent  in 1995.   The  growth  in business  access lines  reflects increased
employment levels in California.  The number of  ISDN lines in service grew to
102 thousand, an  increase of  92.4 percent for  1996, as customers  increased
telecommuting and demanded faster data transmission and Internet access.

Access minutes-of-use represent the volume of traffic carried by interexchange
carriers  over the Telephone Companies' local networks.  Total access minutes-
of-use for 1996  increased by 9.2 percent over  1995.  The increase  in access
minutes-of-use was primarily attributable to  economic growth. The growth rate
of 13.0 percent in 1995  was higher than 1996 due to the  introduction of toll
services competition in  1995.   In California, the  official introduction  of

                                      32








                                    <PAGE>

toll  services  competition  in January  1995  had  the  effect of  increasing
intrastate access minutes-of-use.  This phenomenon occurs because Pacific Bell
provides  access service  to competitors  who complete  local toll  calls over
Pacific Bell's network.

Toll messages  and minutes-of-use are comprised  of Message Telecommunications
Service  and Optional  Calling  Plans  ("local  toll") as  well  as  WATS  and
terminating  800  services.     In  1996,  toll  minutes-of-use  increased  by
9.5 percent compared to an increase of 4.5 percent for 1995.  The increase was
driven primarily by economic growth.

Management cannot predict the effects on volumes for 1997 from competition and
issues  remaining  to be  resolved with  the  Telecommunications Act  of 1996.
However,  management  believes that  the California  economy will  continue to
improve  and that  its business  strategies will  position the  Corporation to
compete  effectively  in  the  changing  telecommunications  industry.    (See
"Planned Merger" through "Competitive Risk" on pages 20-30.)


Operating Revenues
------------------

($ millions)                         1996  Change    1995   Change    1994
--------------------------------------------------------------------------
Total operating revenues......     $9,588    $546  $9,042    $-193  $9,235
                                             6.0%            -2.1%
--------------------------------------------------------------------------

Revenues  for 1996  increased from  1995 primarily  due to  increased customer
demand  driven by the expansion of business data services, strong usage levels
for new custom calling  services, increases in access line  and minutes-of-use
volumes,  and growth  in  directory advertising.  The Corporation's  marketing
efforts and California's growing economy contributed to the increased customer
demand.   Increases in 1996 revenues  were partially offset by  $50 million of
rate reductions due to FCC price cap orders. Revenues for the six months ended
June 30, 1996, decreased $60 million  due to the FCC price cap filing  for the
twelve months ending June 30, 1996. For the 1996 annual access tariffs filings
effective July 1, 1996, revenues increased approximately $10 million. The CPUC
price cap  order effective January  1, 1996, had  a minimal effect  on Pacific
Bell  revenues  due  to  an  order in  December  1995  suspending  use  of the
"inflation minus productivity"  component of  the price cap  formula for  1996
through 1998.  This action  freezes the price caps  on most of Pacific  Bell's
regulated  services through 1998 except for adjustments due to exogenous costs
or price changes approved  through the CPUC's application process.  (See "CPUC
Regulatory  Framework Review"  on page 28.)   Primary  factors affecting  1996
revenue changes from 1995 are summarized in the table below.











                                      33








                                    <PAGE>


CHANGE IN 1996 REVENUES FROM 1995:                                   Total
                                            Price                   Change
                                              Cap         Customer    from
($ millions)
                                           Orders    Misc.  Demand    1995
--------------------------------------------------------------------------
Local service.......................         $  -      $14    $205    $219
Network access:
 Interstate.........................          -50       37     140     127
 Intrastate.........................            -      -21      34      13
Toll service........................            -      -21      84      63
Other service revenues..............            -       24     100     124
                                            -----    -----   -----   -----
Total operating revenues............         $-50      $33    $563    $546
==========================================================================

Local service revenues include  basic monthly service fees and  usage charges.
Fees and charges for  custom calling services, coin phones,  installation, and
service  connections are  also included  in this category.   The  $205 million
increase in customer demand for local service is the result of the 4.2 percent
growth in access lines and the 11.1 percent growth in custom calling services,
such as call  waiting, generated  by the  improved economy  in California  and
effective marketing.

Network access  revenues  reflect charges  to  interexchange carriers  and  to
business  and residential  customers for  access to  the  Telephone Companies'
local  networks.   The  $140 million  increase  in interstate  network  access
revenues  due  to customer  demand  reflects  increased interexchange  carrier
access minutes-of-use, as  well as increased  access lines.   The $34  million
demand-related increase  in intrastate  network access revenues  also resulted
from growth in access minutes-of-use.

Toll service revenues include  charges for local toll as well  as 800 services
within service area boundaries.   The increase of $84 million in  toll service
revenues due to  customer demand was driven primarily  by increased local toll
usage  resulting from  California's  growing economy.    The customer  demand-
related  increases in local toll  service was partially  offset by competitive
losses in 800 services.  Interexchange carriers currently have the competitive
advantage of  being  able to  offer  these services  both within  and  between
service areas.

Other  service revenues  are generated  from a  variety of  services including
directory  advertising, information services,  PCS, Internet services, network
integration  and billing  and collection  services provided  by  the Telephone
Companies.   Increases  in  other  service  revenues  reflect  growth  in  the
Telephone  Companies' information  services and  directory advertising  due to
continued  growth in  the  California economy.    In addition,  other  service
revenues for Internet, network  integration and wireless cable increased  over
1995 primarily due to the introduction of these new services.

Total operating revenues  for 1995  were reduced from  1994 primarily  because
demand  growth as a  result of lower  prices due to  toll services competition
effective January  1, 1995,  was less than  assumed in the  CPUC-ordered price
rebalancing.  (See "CPUC Revenue Rebalancing Shortfall" on page 47.)  Revenues
were also  reduced because of price cap revenue reductions ordered by the CPUC
and  FCC under  incentive-based  regulation as  well  as the  effects of  toll

                                      34








                                    <PAGE>

services  competition.    The  decreases  in  total  operating  revenues  were
partially offset by a net increase in customer demand in 1995. The decrease in
1995 revenues  compared to 1994 was  lessened by a CPUC-ordered  refund of $27
million in 1994 related to Pacific Bell's payment processing system.

Management  cannot predict the effects  on revenues for  1997 from competition
and issues  remaining to be resolved with  the Telecommunications Act of 1996.
However,  management believes  that the  California economy  will  continue to
improve  and that  its business  strategies will  position the  Corporation to
compete  effectively  in  the  changing  telecommunications  industry.    (See
sections "Planned Merger" through "Competitive Risk" on pages 20-30.)


Operating Expenses
------------------

($ millions)                          1996  Change    1995  Change    1994
--------------------------------------------------------------------------
Total operating expenses......      $7,390    $359  $7,031    $-10  $7,041
                                              5.1%           -0.1%
--------------------------------------------------------------------------

The increase in total  operating expenses for 1996 reflects  the Corporation's
costs for increased demand for products and services, new business initiatives
and costs  incurred to prepare for local competition.  Increased expenses were
partially offset by  cost reductions from the Corporation's ongoing efficiency
efforts and savings due to changes  in employee benefit plans and benefit plan
assumptions.  Primary factors affecting expense changes are summarized below.

CHANGE IN 1996 OPERATING EXPENSES FROM 1995:

                            Pacific   Pacific                        Total
                              Bell*     Bell*   Pacific     Other   Change
                           Salaries  Employee     Bell*     PTG**     from
($ millions)                & Wages  Benefits     Misc.  Entities     1995
--------------------------------------------------------------------------
Cost of products and
  services..................... $38     $-121       $55       $32       $4
Customer operations and
  selling expenses.............   9       -74        26       116       77
General, administrative,
  and other expenses...........  27         4       178        63      272
Depreciation and amortization..   -         -        -3         9        6
                                ---      ----      ----      ----     ----
Total operating expenses....... $74     $-191      $256      $220     $359
==========================================================================
*  Excludes Pacific Bell subsidiaries.
** Includes Pacific Telesis Group and Pacific Bell subsidiaries.

At Pacific Bell,  excluding subsidiaries,  salary and  wage expense  increased
$74 million in 1996, primarily due to wage increases associated with new labor
agreements  effective  August 1995  and  overtime  due  to increased  business
volumes.   These increases were  somewhat offset by  force reduction programs.
(See  "Status of  Reserves"  on page  39.)  Salary and  wage  expense for  the
Corporation's  other entities increased $66  million in 1996  due primarily to
entry into new businesses.  Due to increased demand for  products and services

                                      35








                                    <PAGE>

and  entry into new businesses, management anticipates that the workforce will
increase in 1997 and related salary and wage expense will also increase.

At Pacific  Bell, excluding subsidiaries, employee  benefits expense decreased
$191 million  in 1996.  This decrease  was due primarily to  the net effect of
changes  in  employee  benefit plans  and  changes  in  employee benefit  plan
assumptions  and  the  discontinued  application  of  Statement  of  Financial
Accounting Standards No. ("SFAS")  71, "Accounting for the Effects  of Certain
Types  of Regulation,"  at Pacific  Bell.   (See Note  C -  "Discontinuance of
Regulatory  Accounting - SFAS  71" on page  64, Note F  - "Employee Retirement
Plans"  on  page 69  and  Note G  - "Other  Postretirement  and Postemployment
Benefits" on  page 73.)    Despite 1997  expected force  increases, management
anticipates  that the  changes  in employee  benefit  plans and  benefit  plan
assumptions will continue to produce savings in 1997.

At  Pacific  Bell,  excluding  subsidiaries,  the  increase  in  miscellaneous
expenses  in 1996  primarily  reflects costs  incurred  to prepare  for  local
competition,  increased costs  for software  and contract  services associated
with increased demand for products and services.

The Corporation's  other entities'  expenses increased  primarily  due to  new
business  initiatives, such as PCS, Internet access, long distance and network
integration.

Management anticipates total operating expenses to increase in 1997 due to new
business initiatives and  increased demand.   Also, costs  to implement  local
competition,  especially  number  portability,  will be  material  and  it  is
uncertain  whether regulators will  allow for recovery  of these  costs.  (See
"CPUC Local Services Competition" on page 27.) In addition, over  the next few
years,  management is expecting to incur additional expenditures to modify its
software to operate correctly for the year 2000.

The decrease in total  operating expenses for 1995 reflects  the Corporation's
cost  reduction efforts and reduced settlements expense.  These decreases were
largely offset by  increased depreciation expense, costs resulting from severe
storm damage in early 1995, and increased software expenses.

At Pacific Bell, excluding subsidiaries, salary and wage expense decreased $85
million in 1995, primarily  as a result of a net  workforce reduction of 3,114
employees.  The  effect of  Pacific Bell's declining  workforce was  partially
offset  in 1995 by increased overtime for storm and flood repairs and by a $29
million  increase related  to  higher compensation  rates.   The Corporation's
salary and wage expense was $2,215 million for 1995, a decrease of $56 million
from 1994.

At Pacific  Bell, excluding subsidiaries, employee  benefits expense decreased
$51  million in  1995 primarily  due to  the  Corporation's health  care cost-
reduction  efforts  and  Pacific   Bell's  force  reduction  programs.     The
Corporation's  employee benefits expense was $660 million for 1995, a decrease
of $36 million from 1994.







                                      36








                                    <PAGE>


Interest Expense
----------------
($ millions)                         1996  Change    1995  Change    1994
--------------------------------------------------------------------------
Interest expense..............       $341   $-101    $442    $-13    $455
                                           -22.9%           -2.9%
--------------------------------------------------------------------------

Interest  expense  decreased  in  1996  due  primarily  to  a  change  in  the
Corporation's  capital   structure  (see   Note  K   -  "Corporation-Obligated
Mandatorily Redeemable  Preferred Securities of Subsidiary Trusts" on page 83)
and a  change in  classification of  interest capitalized  during construction
from an item of  other income to  a reduction in interest  expense due to  the
discontinued  application  of  SFAS  71  at  Pacific Bell.    (See  Note  C  -
"Discontinuance of Regulatory Accounting - SFAS 71" on page 64.)

Interest expense decreased in 1995 primarily  due to a decrease in the balance
of long-term debt from 1994 and interest expense associated with a CPUC refund
order  in 1994.   These  decreases were  partially offset by  interest expense
associated with increased short-term borrowings, adjustments on capital leases
and the completion of amortization of gains on certain investments.

Other Income (Expense) - Net
----------------------------

($ millions)                         1996  Change    1995  Change    1994
--------------------------------------------------------------------------
Other income (expense)-net.......... $-59   $-101     $42    $-13     $55
                                          -240.5%          -23.6%
--------------------------------------------------------------------------

Other income (expense)-net  decreased in  1996 primarily  due to  a change  in
classification of  interest capitalized  during construction from  an item  of
other income  to a  reduction of interest  expense, interest  income from  tax
refunds received in 1995 of  approximately $30 million and in  1996, dividends
paid on  Trust Originated Preferred Securities ("TOPrS").  (See Note K - "Cor-
poration-Obligated Mandatorily Redeemable  Preferred Securities of  Subsidiary
Trusts" on page 83.)  These decreases were partially offset by bond redemption
costs  incurred  in   1995  associated  with  Pacific   Bell's  redemption  of
debentures.

Other income (expense)-net decreased in 1995 primarily due to equity losses of
joint ventures  and  bond  redemption costs  associated  with  Pacific  Bell's
redemption  of debentures.  These decreases were partially offset by increased
interest income of approximately $30 million from tax refunds received in 1995
related to prior years and unrealized gains on trust assets under an executive
compensation deferral plan.   These unrealized gains will fluctuate  over time
and may be offset by unrealized losses depending on market conditions.








                                      37








                                    <PAGE>

Income Taxes
------------

($ millions)                         1996  Change    1995  Change    1994
--------------------------------------------------------------------------
Income taxes........................ $741    $178    $563    $-95    $658
                                            31.6%          -14.4%
Effective tax rate (%).............. 41.2            34.9            36.7
--------------------------------------------------------------------------

Income tax expense increased for 1996 primarily  due to higher pre-tax income,
tax adjustments and tax refunds received  in 1995.  Effective January 1, 1997,
California's maximum statutory tax rate will decrease from 9.3 percent to 8.84
percent.   Due to this rate  reduction, at December 31,  1996, the Corporation
revalued its net deferred tax assets.  This revaluation increased state income
tax expense  $16 million for 1996, which contributed to the overall income tax
expense increase for 1996.

The decrease in income tax expense for 1995 was primarily due to lower pre-tax
income and tax refunds received in that year.

Cumulative Effect of Accounting Change
--------------------------------------

During fourth quarter  1996, Pacific Bell Directory ("Directory")  changed its
method  of  recognizing directory  publishing  revenues  and related  expenses
effective  January 1,  1996.   Directory  previously  recognized revenues  and
expenses related  to  publishing using  the  "amortized" method,  under  which
revenues  and  expenses were  recognized over  the  lives of  the directories,
generally one year.  Under the new "issue basis" method, revenues and expenses
will be recognized  when the directories are issued.  The cumulative after-tax
effect  of applying the new method to prior  years is recognized as of January
1, 1996 as  a one-time, non-cash gain  applicable to continuing operations  of
$85 million,  or $0.20 per share.   The gain is  net of deferred  taxes of $58
million.  The first  three quarters of 1996 were  restated to reflect the  new
method.    Management  believes  this change  to  the  issue  basis method  is
preferable  because  it is  the method  generally  followed in  the publishing
industry and  better reflects the  operating activity  of the business.   This
accounting change is  not expected to have a significant  net income effect on
future periods.  (See "Cumulative Effect of Accounting Change" under Note A on
page 62.)

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

Effective  third  quarter 1995,  for  external  financial reporting  purposes,
Pacific Bell discontinued the  application of SFAS 71, an  accounting standard
for entities subject to traditional regulation.  As a result, during 1995, the
Corporation  recorded  a non-cash,  extraordinary,  after-tax  charge of  $3.4
billion,  or  $7.89  per share.    The  Corporation's  Nevada Bell  subsidiary
continues to apply SFAS 71 accounting,  but is evaluating its continued use as
competition  in its  markets increases.   If Nevada  Bell were  to discontinue
application  of  SFAS  71  it  would  not  have  a  material   effect  on  the
Corporation's  financial  statements.    (See  Note  C  -  "Discontinuance  of
Regulatory Accounting - SFAS 71" on page 64.)


                                      38








                                    <PAGE>

Adoption of New Accounting Standard
-----------------------------------

SFAS  128, "Earnings  per  Share," requires  dual  presentation of  basic  and
diluted    earnings  per  share  ("EPS")  by  entities  with  complex  capital
structures.   This new  rule is effective for  financial statements issued for
periods ending after  December 15, 1997.   Diluted EPS reflects  the potential
dilution of securities that could share in the earnings of an entity, which is
similar to the fully diluted EPS   under current accounting rules.  Currently,
the Corporation discloses  only basic  EPS because primary  and fully  diluted
EPS,  under  current  accounting  rules,  have  an  immaterial  effect.    The
Corporation  will adopt  SFAS  128  in  its  December  31,  1997  consolidated
financial  statements but expects  that the presentation  will be the  same as
under the  current rules.   Therefore, SFAS  128 is  not expected to  have any
significant impact on the Corporation's financial statements.

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

The Corporation has established a number of reserves to record  the effects of
discontinuing and restructuring certain parts of its business.

In 1991, a  $203 million reserve  was established for  the cost of  management
force reduction programs through  1994. A balance  of $77 million remained  at
the  end of  1993. An  additional $1,020  million  reserve was  established in
December  1993 to record the  incremental cost of  force reductions associated
with  restructuring  Pacific  Bell's  business processes  through  1997.  This
restructuring  was expected  to  allow Pacific  Bell  to eliminate  more  than
14,000 employee  positions  from  1994  through 1997.  After  considering  new
positions  expected   to  be  created,   a  net  reduction   of  approximately
10,000 positions  was anticipated.  In  addition, Pacific  Bell has  relocated
employees  in   conjunction  with  consolidating  business   offices,  network
facilities, installation and collection centers, and other operations.

Pacific Bell's gross  force reductions under the restructuring plan, excluding
subsidiaries, totaled 4,142 employees  in 1996.  Total gross  force reductions
for the first three years of the plan, 1994 through 1996, totaled 14,181.  Net
force reductions were 1,926 for 1996 and 9,168 for the  three-year period 1994
through 1996.   The pace  of net  force loss moderated  in 1996 due  to strong
volume growth at Pacific Bell.

Annual cash savings  are expected to reach  approximately $1 billion  when the
restructuring  is completed  in 1997.   In  1996, expense  savings due  to the
restructuring  totaled approximately  $757 million  primarily from  savings in
labor costs due to cumulative force reductions since restructuring began.

Charges to the restructuring  reserve in 1996 totaled $131  million, including
cash  outlays  of $195  million and  a  $64 million  non-cash  charge reversal
described  below.    In  1995,  Pacific  Bell  charged  $219  million  to  the
restructuring  reserve  for  the  cost  through 1997  of  enhanced  retirement
benefits negotiated  in the 1995  union contracts.   These costs will  be paid
from   pension  fund  assets  and  do  not  require  current  outlays  of  the
Corporation's funds.   Based on its experience,  in 1996 Pacific  Bell revised
its estimate  of these retirement costs.   Consequently, $64 million  of these
1995  non-cash charges were  reversed in  1996.   There was  no effect  on net
income from  either the  1995  charge or  the 1996  change  in this  estimate.

                                      39








                                    <PAGE>

Management expects to use the remaining reserve balance during 1997.

In fourth quarter 1996, the  Corporation established a reserve of  $43 million
to  reflect the  restructuring of  portions of  its video-related  businesses.
Other  reserves were recorded in 1993, 1992,  and 1990 related to the spun-off
operations and  the Corporation's withdrawal  from, or  restructuring of,  its
real  estate, cable, and  customer premises equipment  businesses.  Management
believes the  $116 million balance in  these reserves remaining at  the end of
1996 is adequate.  (See Note D - "Restructuring Charges and Other Reserves" on
page 66.)

The table below sets forth the status and activity of these reserves.

($ millions)                                       1996     1995     1994
--------------------------------------------------------------------------
Reserve for force reductions and restructuring:
Balance - beginning of year..................      $228    $ 819   $1,097
Additions....................................         -        -        -
Charges: cash outlays........................      -195     -372     -216
         non-cash............................        64     -219      -62
                                                  -------------------------
Balance - end of year........................      $ 97    $ 228   $  819
                                                  =========================
Other reserves:
Balance - beginning of year..................       $98    $ 119   $  428
Additions....................................        43        -        -
Charges: cash outlays........................        -2       -6      -61
         non-cash............................       -23      -15     -248
                                                  -------------------------
Balance - end of year........................      $116    $  98   $  119
===========================================================================


























                                      40








                                    <PAGE>

LIQUIDITY AND FINANCIAL CONDITION

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

Short-term borrowings  are  available under  a  commercial paper  program  and
through uncommitted unused lines of credit.  These lines of credit are subject
to continued  review by the lending  banks.  At December 31,  1996, the unused
lines of credit available totaled approximately $2.8 billion.

For longer-term borrowings, in February 1997, the CPUC approved Pacific Bell's
application to issue up  to $1.75 billion of long- and  intermediate-term debt
and preferred securities. The proceeds may be used to redeem maturing debt, to
refinance  other  debt issues  and  to  finance construction  expenditures  or
acquisition of property.  The CPUC's authorization is in effect until the full
$1.75 billion has been issued.  Pacific Bell also has remaining authority from
the Securities and Exchange Commission ("SEC")  to issue up to $150 million of
long- and intermediate-term debt  through a shelf registration filed  in April
1993.    In  addition, the  Corporation's  PacTel  Capital Resources  ("PTCR")
subsidiary may issue  up to $192 million of medium-term  notes through a shelf
registration on file with the SEC.

In December 1994, Pacific Bell contracted for the purchase of up to $2 billion
of Advanced Communications Network  ("ACN") facilities, which incorporated new
technologies.  During 1995,  the ability to deploy the  facilities outstripped
the  ACN   vendors'  ability  to  deliver  necessary  products  and  software.
Accordingly,  management decided  to  suspend construction  at certain  sites,
which reduced the expected cost to less than $700 million.   If ACN facilities
meet certain  quality and performance  criteria (the "Network  Test"), Pacific
Bell is committed to purchase  the ACN facilities in 1998.   If ACN facilities
fail the  Network Test, Pacific  Bell's will not  be committed to  buy the ACN
facilities but might be liable to  reimburse the principal ACN vendor for some
construction costs up to $300 million.  If competition or other factors affect
Pacific  Bell s ability  to recover  its investment  in these  facilities, the
value of the ACN facilities could be materially impaired.

In  1997,  the Corporation  anticipates  further investments  in  new business
initiatives  and expects to generate  the required funds  through internal and
external sources.

In  August  1996,  Moody's  Investors Services,  Inc.  ("Moody's")  downgraded
Pacific Bell's debentures  and notes to A1 from  Aa3, PTCR's medium-term notes
to A2 from A1, Pacific  Telesis Group's counterparty rating to A2  from A1 and
Pacific  Telesis Financing  I  and II  Trust  Originated Preferred  Securities
("TOPrS") to a2 from a1.  In addition, Moody's downgraded Pacific Bell's shelf
registration  of debt  securities  to  (P)A1  from  (P)Aa3  and  PTCR's  shelf
registration  of debt  securities to (P)A2  from (P)A1.   The  downgrades were
prompted by  Moody's concerns about the ability of Pacific Bell to continue to
generate the same  level of highly predictable  cash flows in  an increasingly
uncertain competitive and regulatory environment.

In  April 1996, reflecting the announcement  of the merger agreement with SBC,

                                      41








                                    <PAGE>

Standard & Poor's Corporation  revised the outlook on Pacific  Telesis Group's
corporate  credit  ratings, including  PTCR, to  stable  from negative.   (See
"Merger  Agreement" under Note  O on page  87.)  The outlook  for Pacific Bell
remains negative.  Also reflecting the merger agreement announcement, Duff and
Phelps Credit Rating Co. reaffirmed its  ratings of Duff 1+ and Double-A-Minus
("AA-") on Pacific Bell's commercial paper and debentures, respectively.

The   following  are  commercial  paper,  bond,  and  TOPrS  ratings  for  the
Corporation and its subsidiaries:

                                      Moody's     Standard &   Duff and
                                     Investors      Poor's  Phelps Credit
                                   Services, Inc.    Corp.     Rating Co.
                                   --------------  --------- ------------
Commercial Paper:
----------------------------------
Pacific Telesis Group.............        Prime-1        A-1            -
Pacific Bell......................        Prime-1       A-1+      Duff 1+
PacTel Capital Resources..........        Prime-1        A-1            -

Long- and Intermediate-Term Debt:
----------------------------------
Pacific Bell......................             A1        AA-          AA-
PacTel Capital Resources..........             A2         A+            -

TOPrS:
----------------------------------
Pacific Telesis Financing I and II             a2          A            -

The  above ratings reflect the views of the rating agencies and are subject to
change.    The  ratings   should  be  evaluated  independently  and   are  not
recommendations to buy, sell, or hold the securities of the Corporation.

During  1996 the Corporation entered  into sale and  leaseback arrangements to
finance  equipment  associated  with the  buildout  of its  PCS  network.   In
accordance  with generally  accepted accounting  principles, these  leases are
being classified as capital leases  in property, plant, and equipment.   As of
December 31, 1996,  the financing obtained under the leases  was $285 million.
Management expects the total financing  to reach about $350 million, of  which
approximately one-third  will be repaid in Japanese yen.  To hedge exposure to
foreign  currency  exchange fluctuations,  the  Corporation  has entered  into
foreign currency  forward contracts  to purchase yen  in amounts equal  to the
current  yen lease obligations when  they become due.  Gains  or losses due to
foreign currency rate  fluctuations on these  contracts and  on the yen  lease
obligations  offset each other in results  of operations.  Management does not
expect  to  realize  any  loss from  counterparty  nonperformance  under these
contracts.  (See Note J - "Financial Instruments" on page 81.)

The  Corporation holds an  equity swap contract  to hedge its  exposure to the
risk  of  market changes  related to  its  recorded liability  for outstanding
employee stock options of the spun-off operations' common stock and associated
stock   appreciation  rights.    (See  Note  H  -  "Stock  Options  and  Stock
Appreciation Rights" on page 76.)  Off-balance-sheet risk exists to the extent
the market  price of  the spun-off  operations' stock  rises above  the market
price reflected in  the liability's current carrying  value.  The equity  swap
was  entered into  to hedge this  exposure and  minimize the  impact of market

                                      42








                                    <PAGE>

fluctuations.    The equity  swap  itself  involves certain  off-balance-sheet
risks.  (See Note J - "Financial Instruments" on page 81.)


Cash From Operating Activities
------------------------------

($ millions)                           1996  Change    1995  Change   1994
--------------------------------------------------------------------------
Cash from operating activities
  of continuing operations....       $2,592   $-177  $2,769   $-178 $2,947
                                              -6.4%           -6.0%
--------------------------------------------------------------------------

The decrease in 1996  cash from operating activities of  continuing operations
is  primarily due to  entry into  new businesses.   In addition, a  tax refund
received  in 1996 of approximately $133 million  was $32 million less than tax
refunds and related interest income received in 1995.

The decrease in 1995  cash from operating activities of  continuing operations
is primarily due to timing differences in the payment of liabilities and lower
revenues.  The  decrease in cash flow was partially offset  by tax refunds and
associated interest income of approximately $165 million received in 1995.

Management is  unable to predict the impact that competition will have on cash
from operating activities of continuing operations in 1997.

Cash Used For Investing Activities
----------------------------------

($ millions)                           1996  Change    1995  Change   1994
--------------------------------------------------------------------------
Cash used by continuing operations
   for investing activities...........
                                     $2,648    $-26  $2,674  $1,172 $1,502
                                              -1.0%           78.0%
--------------------------------------------------------------------------

Cash used  by continuing  operations  for investing  activities decreased  $26
million in  1996.   During  1996, the  Corporation's investments  in the  core
telecommunications  network and PBMS' PCS network were slightly lower than the
Corporation's  investments in 1995 which included payments of $656 million for
PCS licenses.

Cash used by continuing operations for investing activities increased  in 1995
primarily due  to payments of  $656 million  for PCS  licenses and  associated
capitalized  interest.  In addition, the increase also reflects investments to
upgrade  the  core  telecommunications  network  and  the  Corporation's  1995
investments in joint ventures.

In 1996, the  Corporation made  capital expenditures  of about  $2.75 billion.
Management  currently anticipates capital spending in 1997 to reach about $2.5
billion.     (See  "Upgrade Network  and  Systems Capabilities"  on  page 21.)
Pacific Bell  has  purchase commitments  of  about $208  million  remaining in
connection with its previously announced  program for deploying an all-digital
switching platform with ISDN and SS-7 capabilities. (See Note O - "Commitments
and Contingencies" on page 87.)

                                      43








                                    <PAGE>


Cash From (Used For) Financing Activities
-----------------------------------------

($ millions)                           1996  Change   1995  Change    1994
--------------------------------------------------------------------------
Cash from (used by) continuing operations
   for financing activities.........    $52    $206  $-154  $1,225 $-1,379
                                             133.8%         -88.8%
--------------------------------------------------------------------------

Cash   from   continuing  operations   for   financing  activities   increased
$206 million  in  1996.    The  increase  reflects  the  proceeds  from  TOPrS
financing, long-term debt and leasing arrangements substantially offset by the
use  of these  funds to  reduce  the level  of short-term  borrowings.   Lower
dividend  payments also contributed to  the increase. The  Corporation sold $1
billion of TOPrS, $500 million at 7.56 percent in January 1996 through Pacific
Telesis  Financing I  and $500  million at  8.5 percent  in June  1996 through
Pacific Telesis Financing  II. The  proceeds were used  to retire  outstanding
short-term   indebtedness,   primarily  commercial   paper.     Under  certain
circumstances, dividends on TOPrS could be deferred for up to a period of five
years.  (See Note K  - "Corporation-Obligated Mandatorily Redeemable Preferred
Securities  of Subsidiary Trusts" on page  83.) In February 1996, Pacific Bell
issued $250  million of  5.875 percent debentures  due February  15, 2006.  In
August 1996,  Pacific Bell issued $250 million of 6.875 percent debentures due
August  15, 2006.   Neither  issue may  be redeemed  prior to  maturity.   The
proceeds from  the sale of  both issuances of  debentures were used  to reduce
short-term  debt   incurred  to   retire  Pacific  Bell   debentures  totaling
approximately $500 million redeemed in December 1995. In addition during 1996,
the  Corporation financed  $285 million  through its leasing  arrangements for
equipment purchases for  the PCS network.   Also, the Corporation  reduced its
second and third quarter 1996 dividends  to $0.315 per share which contributed
to the increase in cash flow in 1996.

In 1995, cash used by continuing operations for financing activities decreased
primarily  due  to  proceeds   from  short-term  borrowings  of  approximately
$1.5 billion.   Whereas,  in 1994,  the Corporation  substantially repaid  its
short-term borrowings.  The decrease was partially offset by the retirement of
approximately $800 million of long-term debt during 1995.


















                                      44








                                    <PAGE>


Long-term  borrowing activity,  excluding  spun-off  operations, included  the
following issuances and redemptions:

                                       Interest        Maturity  Principal
($ millions)                               Rate            Date     Amount
--------------------------------------------------------------------------
Issuances:
       1996.................   5.875% to 6.875%            2006     $  500
       1995.................                  -               -          -
       1994.................             6.960%            2006     $   10
Retirements:
       1996.................             8.650%            1996     $   15
       1995*................   7.625% to 9.320%    1995 to 2030     $  814
       1994.................             9.250%            2008     $   12
--------------------------------------------------------------------------
*  Amount  includes  approximately $55  million  of  debt  assumed  in the  CCW
   acquisition, which was  subsequently retired, and approximately $12  million
   of recall premium.

The Corporation's  debt ratio improved  to 61.5  percent at December  31, 1996
from 74.1 percent at December 31, 1995.  This improvement was primarily due to
the use of the  TOPrS proceeds to retire outstanding  short-term indebtedness.
Pre-tax interest coverage  was 6.7 times for 1996.   Pre-tax interest coverage
for 1995 was negative due to the Corporation's reported loss in 1995.

Pursuant to  the terms of the  merger agreement, the   Corporation reduced its
second,  third and fourth  quarter dividends to  $0.315 per share.   The lower
second and third  quarter dividends paid  in 1996 improved  1996 cash flow  by
approximately $195 million.  (See "Merger Agreement" under Note O on page 87.)



























                                      45








                                    <PAGE>

PENDING REGULATORY ISSUES

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

In May 1995, Pacific Bell filed an application with the CPUC  to eliminate the
USOA Turnaround  Adjustment  effective  January  1,  1995.    This  Turnaround
Adjustment  is a vestige of traditional rate-of-return regulation and has been
in effect since 1988.  Because of the adjustment, Pacific Bell's revenues were
reduced by over $23 million each year  from 1988 through 1995.  1996 and  1997
revenues are subject  to refund.  These  adjustments were intended to  reflect
annual  revenue requirement reductions resulting from the CPUC's adoption of a
capital-to-expense  accounting change  in  1988.   The  CPUC held  evidentiary
hearings in October  1995 addressing  whether the  USOA Turnaround  Adjustment
should  be eliminated.  The CPUC's Office  of Ratepayer Advocates has proposed
that  Pacific  Bell  be   ordered  to  permanently  reduce  its   revenues  by
$106 million  effective January 1, 1996.  Another intervenor has proposed that
Pacific Bell  should be ordered to  reduce its annual revenues  by $43 million
effective January 1,  1996, with  additional revenue reductions  of about  $11
million made on  a cumulative basis over  the next ten years. After  year ten,
the proposed revenue  reduction would  be about $155  million permanently  for
each year.  Management cannot predict the outcome of this matter.

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

In 1992,  the CPUC issued  a decision  adopting, with modification,  SFAS 106,
"Employers' Accounting  for Postretirement Benefits Other  than Pensions," for
regulatory  accounting purposes.    Annual price  cap  decisions by  the  CPUC
granted Pacific Bell approximately $100 million in each of the years 1993-1996
for partial  recovery of higher  costs under SFAS 106.   However, the  CPUC in
October 1994 reopened the  proceeding to determine the criteria  for exogenous
cost  treatment  and whether  Pacific Bell  should  continue to  recover these
costs.   The CPUC's order  held that related revenues  collected after October
12, 1994,  are subject to refund plus interest.   It is possible that the CPUC
could decide this issue in the  near term, and that the decision could  have a
material  adverse effect on Pacific Bell.   Related revenues subject to refund
totaled  about $221  million  at  December  31,  1996.    Management  believes
postretirement benefits costs are  appropriately recoverable in Pacific Bell's
price cap filings.

Other Billing and Collecting ("OB&C")
-------------------------------------

The FCC adopted  new rules for  recovery of OB&C  expenses which will go  into
effect mid-March 1997.  The new  rules shift an additional 25 percent of  OB&C
costs  from the  intrastate to the  interstate jurisdiction.   The shift could
result in revenue reductions  of approximately $40 million a year.  Management
is evaluating options to mitigate the effect on revenues.








                                      46








                                    <PAGE>


Property Tax Investigation
--------------------------

In  1992, a  settlement  agreement  was reached  between  the  State Board  of
Equalization,  all  California  counties,  the  State  Attorney  General,  and
28 utilities,  including Pacific Bell,  on a specific  methodology for valuing
utility property for property tax  purposes for a period of eight  years.  The
CPUC  opened an  investigation  to determine  if  any resulting  property  tax
savings should  be returned to customers.   Intervenors have asserted  that as
much as $20 million  of annual property  tax savings should  be treated as  an
exogenous cost  reduction in Pacific  Bell's annual price cap  filings.  These
intervenors have also asserted that past property tax savings totaling as much
as approximately $70 million as of December 31, 1996, plus  interest should be
returned  to customers. Management believes that,  under the CPUC's regulatory
framework, any property tax savings  should be treated only as a  component of
the calculation of shareable earnings not as an exogenous cost.  In an Interim
Opinion issued  in June 1995,  the CPUC decided to  defer a final  decision on
this  matter pending resolution of  the criteria for  exogenous cost treatment
under  its regulatory  framework.   The  criteria are  being  considered in  a
separate  proceeding  initiated for  rehearing  of  the CPUC's  postretirement
benefits other than  pensions decision discussed above.   It is possible  that
the CPUC could decide this issue in the near term, and that the decision could
have a material adverse effect on the Corporation.

CPUC Revenue Rebalancing Shortfall
----------------------------------

In September  1995, Pacific  Bell  filed with  the CPUC  for  $214 million  of
revenue increases.  The request was to compensate Pacific Bell for the revenue
shortfall  that  resulted   from  the  CPUC's  price   rebalancing  plan  that
accompanied  the  official  introduction   of  toll  services  competition  on
January 1, 1995.   Revenue reductions due to lower prices  were intended to be
offset by  other price increases  and by increased network  usage generated by
the lower prices.   Demand growth as a result  of local toll price  reductions
fell far short of the level anticipated by the CPUC.  As a result, the revenue
neutrality intended by the CPUC was not  achieved.  On February 19, 1997,  the
CPUC  denied  Pacific Bell's  petition.   Management  is  currently evaluating
whether to appeal the order.


SALE OF BELLCORE

In  November 1996,  the owners  of Bell  Communications  Research ("Bellcore")
reached an agreement to sell the company to Science Applications International
Corp.    Bellcore  is  a  leading  provider  of  communications  software  and
consulting services.   It is owned  by Pacific Bell and  six of the  telephone
regional holding companies formed  at the divestiture of  AT&T Corp. in  1984.
The  sale is expected to  be finalized by the end  of 1997 after obtaining the
necessary regulatory approvals.







                                      47








                                    <PAGE>

Item 8.  Financial Statements and Supplementary Data

                             REPORT OF MANAGEMENT

To the Shareowners of Pacific Telesis Group:

The  management  of Pacific  Telesis Group  is  responsible for  preparing the
accompanying  financial statements  and for  their integrity  and objectivity.
The  statements  have been  prepared  in  accordance with  generally  accepted
accounting  principles applied on  a consistent basis  and management believes
they are  not misstated due  to material fraud  or error.  In  instances where
exact measurement  is not possible,  the financial statements  include amounts
based  on management's best estimates and judgments.  Management also prepared
the other information in this  annual financial review and is  responsible for
its accuracy and consistency with the financial statements.

The  Corporation's financial statements have been audited by Coopers & Lybrand
L.L.P., independent  accountants, whose appointment  has been ratified  by the
shareowners.   Management has made  available to Coopers  & Lybrand L.L.P. all
the Corporation's financial records and related  data, as well as the  minutes
of shareowners' and directors' meetings. Furthermore, management believes that
all of its representations made to Coopers & Lybrand L.L.P. during their audit
are valid and appropriate.

Management has established  and maintains  a system of  internal control  that
provides  reasonable  assurance as  to the  integrity  and reliability  of the
financial  statements,  the protection  of  assets  from unauthorized  use  or
disposition,  and  the  prevention   and  detection  of  fraudulent  financial
reporting.  The system  of internal control provides for  appropriate division
of  responsibility and is documented  by written policies  and procedures that
are  communicated  to  employees  with  significant  roles  in  the  financial
reporting  process  and  are updated  as  necessary.   Management  continually
monitors the system of internal control for compliance, and maintains a strong
internal auditing program that independently assesses the effectiveness of the
internal controls and recommends improvements when necessary.  In addition, as
part  of  their audit  of the  Corporation's  financial statements,  Coopers &
Lybrand  L.L.P.  have  obtained  a sufficient  understanding  of  the internal
control structure to  determine the nature, timing, and extent  of audit tests
to  be  performed.   Management  has  considered  the  internal auditors'  and
Coopers & Lybrand L.L.P.'s recommendations concerning the Corporation's system
of  internal control and has taken actions that it believes are cost-effective
under  the circumstances  to respond  appropriately to  these recommendations.
Management believes  that  the Corporation's  system  of internal  control  is
adequate to accomplish the objectives discussed.

Management also  recognizes  its responsibility  to  foster a  strong  ethical
climate that enables the Corporation  to conduct its affairs according  to the
highest standards of personal  and corporate conduct.  This  responsibility is
characterized and  reflected in the  Corporation's code of  corporate conduct,
which  is  publicized  throughout  the  Corporation.    The  code  of  conduct
addresses, among  other things:   potential conflicts of  interest; compliance
with domestic  laws,  including those  relating  to foreign  transactions  and
financial disclosure; and the confidentiality of proprietary information.  The
Corporation maintains  a systematic  program to  assess compliance  with these
policies.


                                      48








                                    <PAGE>


The Audit Committee of  the Board of  Directors is responsible for  overseeing
the Corporation's  financial reporting  process on  behalf of the  Board.   In
fulfilling its responsibility, the Committee  recommends to the Board, subject
to  shareowner ratification,  the selection  of the  Corporation's independent
accountants.   During 1996,  the Committee  consisted of  four members  of the
Board who  were neither officers nor  employees of the Corporation.   It meets
regularly  with  representatives  of   management,  internal  audit,  and  the
independent accountants to review internal accounting controls and accounting,
auditing,  and financial reporting matters.   During 1996,  the Committee held
five  meetings.     The   Corporation's  internal  auditors   and  independent
accountants  periodically meet alone with the Committee to discuss the matters
previously noted and have direct access to it for private communication at any
time.


/s/ Philip J. Quigley
Chairman, President, and Chief Executive Officer



/s/ William E. Downing
Executive Vice President, Chief Financial Officer, and Treasurer

February 28, 1997
































                                      49








                                    <PAGE>

                      REPORT OF INDEPENDENT ACCOUNTANTS



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

We have  audited  the  consolidated financial  statements  and  the  financial
statement schedule of Pacific Telesis Group and Subsidiaries as listed in Item
14(a)  of this  Form  10-K.   These  financial  statements  and the  financial
statement schedule  are the responsibility of management.   Our responsibility
is  to express  an  opinion on  these financial  statements and  the financial
statement schedule based on our audits.

We  conducted  our  audits  in  accordance  with  generally accepted  auditing
standards.   Those  standards require  that we  plan and  perform an  audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting  the amounts and disclosures in the financial statements.  An audit
also  includes  assessing  the  accounting  principles  used  and  significant
estimates  made by  management, as  well as  evaluating the  overall financial
statement presentation.  We believe that our audits provide a reasonable basis
for our opinion.

In our  opinion, the financial statements referred to above present fairly, in
all material respects,  the consolidated financial position of Pacific Telesis
Group and Subsidiaries as of December  31, 1996 and 1995, and the consolidated
results  of their operations and their cash  flows for each of the three years
in the  period ended December 31, 1996,  in conformity with generally accepted
accounting principles.  In  addition, in our opinion, the  financial statement
schedule referred to above, when considered in relation to the basic financial
statements taken  as a whole, presents  fairly, in all material  respects, the
information required to be included therein.

As discussed in Note A to the Consolidated Financial Statements, Pacific Bell,
a  subsidiary  of Pacific  Telesis Group,  changed  its method  of recognizing
directory publishing revenues and related expenses effective  January 1, 1996.
Also  discussed  in  Note A,  Pacific  Bell  discontinued  its application  of
Statement of Financial Accounting Standards No. 71 during 1995.






/s/ Coopers & Lybrand L.L.P.

San Francisco, California
February 27, 1997








                                      50








                                    <PAGE>


                    PACIFIC TELESIS GROUP AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF INCOME


                                            For the Year Ended December 31
                                            ------------------------------
(Dollars in millions, except per share amounts)   1996      1995      1994
--------------------------------------------------------------------------
OPERATING REVENUES
Local service................................  $ 4,034   $ 3,815   $ 3,455
Network access:
  Interstate.................................    1,863     1,736     1,612
  Intrastate.................................      724       711       734
Toll service.................................    1,295     1,232     2,006
Other service revenues.......................    1,672     1,548     1,428
                                             -----------------------------
TOTAL OPERATING REVENUES.....................    9,588     9,042     9,235
--------------------------------------------------------------------------
OPERATING EXPENSES
Cost of products and services................    1,826     1,822     1,903
Customer operations and selling expenses.....    1,906     1,829     1,848
General, administrative, and other expenses..    1,788     1,516     1,503
Depreciation and amortization................    1,870     1,864     1,787
                                             -----------------------------
TOTAL OPERATING EXPENSES.....................    7,390     7,031     7,041
--------------------------------------------------------------------------
OPERATING INCOME.............................    2,198     2,011     2,194
Interest expense.............................      341       442       455
Other income(expense)-net....................      (59)       42        55
--------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS
  BEFORE INCOME TAXES........................    1,798     1,611     1,794
Income taxes.................................      741       563       658
--------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS............    1,057     1,048     1,136
Income from spun-off operations, net of
  income taxes of $29 (Notes A and B)........        -         -        23
--------------------------------------------------------------------------
INCOME BEFORE EXTRAORDINARY ITEM AND
  CUMULATIVE EFFECT OF ACCOUNTING CHANGE.....    1,057     1,048     1,159
Extraordinary item, net of tax (Note C)......        -    (3,360)        -
Cumulative effect of accounting change, net
  of tax (Note A)............................       85         -         -
                                             -----------------------------
NET INCOME (LOSS)............................  $ 1,142   $(2,312)  $ 1,159
==========================================================================


                           (Continued on next page)







                                      51








                                    <PAGE>


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


                                            For the Year Ended December 31
                                            ------------------------------
(Dollars in millions, except per share amounts)   1996      1995      1994
--------------------------------------------------------------------------
Earnings (loss) per share:
  Income from continuing operations..........  $  2.47   $  2.46   $  2.68
  Income from spun-off operations............        -         -      0.05
                                             -----------------------------
  Income before extraordinary item and
    cumulative effect of accounting change...     2.47      2.46      2.73
  Extraordinary item.........................        -     (7.89)        -
  Cumulative effect of accounting change.....     0.20         -         -
                                             -----------------------------
  Net income (loss)..........................  $  2.67   $ (5.43)  $  2.73
==========================================================================
Dividends per share..........................  $  1.49   $  2.18   $  2.18
Average shares outstanding (thousands).......  428,388   425,996   423,969
==========================================================================
The accompanying Notes are an integral part of the Consolidated Financial
Statements.































                                      52








                                    <PAGE>

                    PACIFIC TELESIS GROUP AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS

                                                          December 31
                                                  -------------------------
(Dollars in millions, except per share amounts)         1996          1995
---------------------------------------------------------------------------
ASSETS
Cash and cash equivalents........................    $    72       $    76
Accounts receivable - net of allowances
  for uncollectibles of $163 and $132............      1,982         1,505
Prepaid expenses and other current assets........        593         1,002
                                                  -------------------------
Total current assets.............................      2,647         2,583
                                                  -------------------------
Property, plant, and equipment - at cost.........     29,032        27,222
  Less:  accumulated depreciation................    (16,959)      (15,837)
                                                  -------------------------
Property, plant, and equipment - net.............     12,073        11,385
                                                  -------------------------
Other noncurrent and intangible assets...........      1,888         1,873
                                                  -------------------------
TOTAL ASSETS.....................................    $16,608       $15,841
===========================================================================
LIABILITIES AND SHAREOWNERS' EQUITY
Accounts payable and accrued liabilities.........    $ 2,187       $ 2,203
Debt maturing within one year....................        613         1,530
Other current liabilities........................        727           908
                                                  -------------------------
Total current liabilities........................      3,527         4,641
                                                  -------------------------
Long-term obligations............................      5,424         4,737
                                                  -------------------------
Other noncurrent liabilities and
  deferred credits...............................      3,884         4,273
                                                  -------------------------

                           (Continued on next page)



















                                      53








                                    <PAGE>


                    PACIFIC TELESIS GROUP AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                                  (Continued)

                                                           December 31
                                                  -------------------------
(Dollars in millions, except per share amounts)         1996          1995
---------------------------------------------------------------------------
LIABILITIES AND SHAREOWNERS' EQUITY (Continued)

Commitments and contingencies (Notes J and O)

Corporation-obligated mandatorily redeemable
  preferred securities of subsidiary trusts*
  (Note K).......................................      1,000             -
                                                  -------------------------
Common stock ($0.10 par value; 432,827,595
  shares issued; 428,312,698 and 428,434,672
  shares outstanding)............................         43            43
Additional paid-in capital.......................      3,501         3,498
Accumulated deficit..............................       (479)         (982)
Treasury stock, at cost (4,514,897 and 4,392,923
  shares)........................................       (131)         (127)
Deferred compensation - LESOP trust..............       (161)         (242)
                                                  -------------------------
Total shareowners' equity........................      2,773         2,190
                                                  -------------------------
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY........    $16,608       $15,841
===========================================================================
* The trusts contain assets of $1,030 million in principal amount
of the Subordinated Debentures of Pacific Telesis Group.

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






















                                      54








                                    <PAGE>


                    PACIFIC TELESIS GROUP AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY

                                             For the Year Ended December 31
                                             ------------------------------
(Dollars in millions, except per share amounts)   1996      1995      1994
---------------------------------------------------------------------------
COMMON STOCK
Balance at beginning of year.................   $   43    $   43    $   43
                                              -----------------------------
Balance at end of year.......................       43        43        43
---------------------------------------------------------------------------
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of year.................    3,498     3,493     6,372
Spin-off stock distribution (Note B).........        -         -    (2,901)
Issuance of shares...........................        -         -        22
Acquisition of wireless cable
  company (Note M)...........................        -        (9)        -
Other changes................................        3        14         -
                                              -----------------------------
Balance at end of year.......................    3,501     3,498     3,493
---------------------------------------------------------------------------
(ACCUMULATED DEFICIT) REINVESTED EARNINGS
Balance at beginning of year.................     (982)    2,257     2,040
Net income (loss)............................    1,142    (2,312)    1,159
Dividends declared ($1.49 per share in 1996;
  $2.18 per share in 1995 and 1994) (Note O).     (638)     (929)     (924)
Other changes................................       (1)        2       (18)
                                              -----------------------------
Balance at end of year.......................     (479)     (982)    2,257
---------------------------------------------------------------------------
TREASURY STOCK, AT COST
Balance at beginning of year.................     (127)     (254)     (283)
Issuance of shares...........................        -         -        29
Acquisition of wireless cable
  company (Note M)...........................       (3)      127         -
Reacquisition of shares.......................      (1)        -         -
                                              -----------------------------
Balance at end of year.......................     (131)     (127)     (254)
---------------------------------------------------------------------------
DEFERRED COMPENSATION
Balance at beginning of year.................     (242)     (306)     (386)
Cost of LESOP trust shares allocated
  to employee accounts (Note M)..............       81        64        80
                                              -----------------------------
Balance at end of year.......................     (161)     (242)     (306)
---------------------------------------------------------------------------
TOTAL SHAREOWNERS' EQUITY....................   $2,773    $2,190    $5,233
===========================================================================

                           (Continued on next page)





                                      55








                                    <PAGE>


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


                                             For the Year Ended December 31
                                             ------------------------------
(Shares in millions)                              1996     1995      1994
---------------------------------------------------------------------------

===========================================================================
COMMON SHARES AUTHORIZED AT DECEMBER 31......    1,100    1,100     1,100
===========================================================================
COMMON SHARES OUTSTANDING
Balance at beginning of year.................      428      424       423
Treasury shares reissued.....................        -        4         1
                                              -----------------------------
Balance at end of year.......................      428      428       424
===========================================================================
PREFERRED SHARES AUTHORIZED AT DECEMBER 31...       50       50        50
===========================================================================
The accompanying Notes are an integral part of the Consolidated Financial
Statements.

































                                      56








                                    <PAGE>

                    PACIFIC TELESIS GROUP AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                             For the Year Ended December 31
                                             ------------------------------
(Dollars in millions)                               1996     1995     1994
---------------------------------------------------------------------------
CASH FROM (USED FOR) OPERATING ACTIVITIES
Net income (loss)............................... $ 1,142  $(2,312) $ 1,159
Adjustments to reconcile net income (loss)
  to cash from operating activities:
  (Income) from spun-off operations.............       -        -      (23)
  Extraordinary item............................       -    3,360        -
  Cumulative effect of accounting change........     (85)       -        -
  Depreciation and amortization.................   1,870    1,864    1,787
  Changes in deferred income taxes..............     363       94       44
  Amortization of investment tax credits........     (49)     (53)     (63)
  Changes in operating assets and liabilities:
    Accounts receivable.........................    (156)      55      (17)
    Prepaid expenses and other current assets...     (66)     (60)     (17)
    Other noncurrent and intangible assets......     (95)     (34)      (4)
    Accounts payable and accrued liabilities....       4      297      195
    Other current liabilities...................     (84)     (33)       1
    Noncurrent liabilities and deferred credits.    (335)    (481)     (85)
  Other adjustments, net........................      83       72      (30)
                                                ---------------------------
Cash from continuing operations.................   2,592    2,769    2,947
Cash from spun-off operations...................       -        -       18
                                                ---------------------------
Cash from operating activities..................   2,592    2,769    2,965
---------------------------------------------------------------------------
CASH FROM (USED FOR) INVESTING ACTIVITIES
Additions to property, plant, and equipment.....  (2,454)  (2,002)  (1,631)
Investment in PCS licenses......................     (95)    (674)       -
Proceeds from disposals of assets of real
  estate subsidiary.............................      12       13      129
Net investment in spun-off operations (Note L)..       -        -       33
Other investing activities, net.................    (111)     (11)     (33)
                                                ---------------------------
Cash used by continuing operations..............  (2,648)  (2,674)  (1,502)
Cash used by spun-off operations................       -        -     (332)
                                                ---------------------------
Cash used for investing activities..............  (2,648)  (2,674)  (1,834)
---------------------------------------------------------------------------



                           (Continued on next page)









                                      57








                                    <PAGE>


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

                                             For the Year Ended December 31
                                             ------------------------------
(Dollars in millions)                               1996     1995     1994
---------------------------------------------------------------------------
CASH FROM (USED FOR) FINANCING ACTIVITIES
Proceeds from issuance of common
  and treasury shares...........................     111       74      140
Proceeds from issuance of long-term debt........     495        -       10
Retirements of long-term debt...................     (15)    (814)     (12)
Proceeds from issuance of trust originated
  preferred securities..........................   1,000        -        -
Proceeds from sale and leaseback transactions...     285        -        -
Dividends paid..................................    (736)    (927)    (907)
Increase (decrease) in short-term borrowings
  with original maturities of 90 days
  or less, net..................................    (982)   1,509     (588)
Other financing activities, net.................    (106)       4      (22)
                                                ---------------------------
Cash from (used by) continuing operations.......      52     (154)  (1,379)
Cash from spun-off operations...................       -        -       39
                                                ---------------------------
Cash from (used for) financing activities.......      52     (154)  (1,340)
---------------------------------------------------------------------------
Net cash used for all activities................      (4)     (59)    (209)
Less spun-off operations........................       -        -     (275)
                                                ---------------------------
Increase (decrease) in cash and
  cash equivalents..............................      (4)     (59)      66
Cash and cash equivalents at January 1..........      76      135       69
                                                ---------------------------
Cash and cash equivalents at December 31........ $    72  $    76  $   135
===========================================================================
The accompanying Notes are an integral part of the Consolidated Financial
Statements.


















                                      58








                                    <PAGE>


                    PACIFIC TELESIS GROUP AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The Consolidated Financial Statements include  the accounts of Pacific Telesis
Group (the "Corporation") and its wholly and majority-owned subsidiaries.  The
Corporation  includes a  holding company,  Pacific Telesis, and  its telephone
subsidiaries:  Nevada Bell  and Pacific Bell (which when used  herein includes
its subsidiaries, Pacific Bell  Directory, Pacific Bell Information  Services,
Pacific Bell Mobile  Services, Pacific  Bell Internet  Services, Pacific  Bell
Network  Integration, and  others)  hereinafter referred  to as  the Telephone
Companies.    Other  Pacific  Telesis  subsidiaries  include  Pacific  Telesis
Enterprises, Pacific Bell Communications,  and several other subsidiaries that
provide  video,   communications,  and   other  services.     All  significant
intercompany  balances and transactions  have been eliminated. Investments  in
partnerships, joint  ventures, and  less than majority-owned  subsidiaries are
principally accounted for under the equity method.  The consolidated financial
statements reflect  reclassifications made  to conform  with the  current year
presentation.    These  reclassifications   did  not  affect  net   income  or
shareowners' equity.

The Corporation's principal business, communications and information services,
accounts  for  substantially all  of its  revenues.   The  Telephone Companies
provide  local  exchange  services,   network  access,  local  toll  services,
directory advertising,  Internet access, and selected  information services in
California and Nevada.


Use of Estimates

The preparation of  financial statements in conformity with generally accepted
accounting principles  requires management  to make estimates  and assumptions
that  affect the amounts reported in the financial statements and accompanying
notes.  Actual results could differ from those estimates.


Regulatory Accounting

Effective  third  quarter 1995,  for  external  financial reporting  purposes,
Pacific  Bell  discontinued   the  application  of  Statement    of  Financial
Accounting Standards No. ("SFAS")  71, "Accounting for the Effects  of Certain
Types  of  Regulation,"  an  accounting  standard  for   entities  subject  to
traditional regulation. (See Note C - "Discontinuance of Regulatory Accounting
-  SFAS 71" on page 64.) Nevada Bell continues to apply SFAS 71 accounting but
is evaluating its continued applicability.  If Nevada Bell were to discontinue
application  of  SFAS  71  it  would  not  have  a  material   effect  on  the
Corporation's financial statements.






                                      59








                                    <PAGE>


A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)

Spun-off Operations

The Corporation's previous interests  in the operating results and  net assets
of wireless operations that were spun off effective April 1, 1994 are reported
separately as  spun-off operations.   (See Note B  - "Spun-off Operations"  on
page  63.)   These  operations  are  excluded from  amounts  reported for  the
Corporation's  revenues,  expenses,  assets,  and  liabilities  that   reflect
"continuing operations."  Amounts presented for spun-off operations have  been
prepared solely for the purpose of reporting Pacific Telesis Group results.


Property, Plant, and Equipment

Property, plant, and equipment (which consists primarily of telecommunications
plant dedicated to providing telecommunications  services) is carried at cost.
The cost  of  self-constructed plant  includes  employee wages  and  benefits,
materials,  capitalized interest  during  the construction  period, and  other
costs.   Capital leases are  recorded at the  present value of  future minimum
lease payments.   Expenditures in excess of  $500 that increase the  capacity,
operating efficiency, or useful  life of an individual asset  are capitalized.
Expenditures for maintenance and repairs are charged to expense.

No   gain  or   loss  is   recognized  on   the  disposition   of  depreciable
telecommunications  plant.   At the  time of  retirement of  telecommunication
property,  plant, and equipment,  the original cost of  the plant retired plus
cost  of  removal  is  charged  to  accumulated  depreciation.     Accumulated
depreciation is credited with salvage value or insurance recovery, if any.

Depreciation  expense  is computed  using  the straight-line  method  based on
management's estimate  of economic lives  for various categories  of property,
plant, and equipment.

The  Telephone Companies continue to  invest heavily in  improvements to their
core telecommunications networks.  The  Corporation has also made  significant
investments  in Personal  Communications  Services ("PCS"),  Internet  access,
wireless  video  and  long  distance.    These  technologies  are  subject  to
technological risks and rapid market changes due to new products  and services
and  changing customer  demand.  These  changes may  result in  changes to the
estimated economic lives or net realizable value of these assets.

The Corporation carries catastrophic insurance coverage with large deductibles
on its telecommunications  switching and building assets,  and is self-insured
for its outside telecommunications plant.











                                      60








                                    <PAGE>


A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)

Intangible Assets and Capitalized Interest

Included  in   other  noncurrent  and   intangible  assets  is   $696  million
representing  the amounts  paid for  two PCS  licenses recorded  at cost.   In
addition,  interest  and  other costs  related  to  these  licenses are  being
capitalized during construction.  These costs will be amortized over 40 years.


Cash and Cash Equivalents

Cash  equivalents   include  all  highly  liquid   monetary  instruments  with
maturities  of ninety days  or less from  the date  of purchase.   In its cash
management  practices,  the  Corporation  maintains  zero-balance disbursement
accounts for  which  funds are  made  available as  checks are  presented  for
clearance.  Checks outstanding are included in accounts payable.


Income Taxes

Deferred income  taxes are provided  to reflect the  tax effects  of temporary
differences  between  the  carrying  amounts  of  assets  and liabilities  for
financial reporting purposes and the amounts used for tax purposes.

Investment tax  credits earned prior to their repeal by  the Tax Reform Act of
1986  are amortized as reductions in tax  expense over the lives of the assets
which gave rise to the credits.


Advertising Costs

Costs for advertising products and services or corporate image are expensed as
incurred.


Earnings Per Share

Earnings  (loss)  per share  calculations are  based  on the  weighted average
number  of common  shares  outstanding,  including  those  shares  held  by  a
leveraged employee stock ownership trust.


Computer Software Costs

The  costs of  computer software purchased  or developed for  internal use are
expensed  as incurred.  However,  initial operating system  software costs are
capitalized and amortized over the lives of the associated hardware.








                                      61








                                    <PAGE>


A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)

Change in Accounting for Postretirement and Postemployment Costs

Effective  January 1,  1993,  the Corporation  adopted  SFAS 106,  "Employers'
Accounting for  Postretirement Benefits  Other than Pensions,"  and SFAS  112,
"Employers'  Accounting  for Postemployment  Benefits."   (See  also Note  G -
"Other  Postretirement  and  Postemployment  Benefits"   on  page  73.)    The
cumulative after-tax  effects of applying  the new  rules to prior  years were
recognized by  one-time charges  applicable to continuing  operations totaling
$1.724  billion.   The charges  were net  of deferred  income tax  benefits of
$1.155 billion  and reduced earnings  applicable to continuing  operations for
1993 by $4.16 per share.   The annual periodic expense under SFAS 112 does not
differ materially from expense under the prior method.  (See "Revenues Subject
to Refund" in Note O on page 88.)


Change in Estimates

In 1996,  management amended the salaried  pension plan, which changed  from a
final pay plan to a cash  balance plan.  As a  result of the approval of  this
plan amendment, the Corporation  updated its actuarial assumptions  to reflect
changes in market interest rates and recent actuarial experience.  (See Note F
- "Employee  Retirement Plans" on page  69 and Note G  - "Other Postretirement
and Postemployment Benefits" on page 73.)

Stock-Based Compensation

Effective January 1, 1996, the Corporation adopted the disclosure requirements
of  SFAS 123,  "Accounting  for Stock-Based  Compensation."   The  Corporation
continues to  recognize compensation in accordance  with Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees."  (See Note H
- "Stock Options and Stock Appreciation Rights" on page 76.)

Cumulative Effect of Accounting Change

Effective  January 1,  1996, Pacific Bell  Directory ("Directory"),  a wholly-
owned  subsidiary of Pacific Bell, changed its method of recognizing directory
publishing  revenues and  related expenses.   Directory  previously recognized
revenues  and  expenses related  to publishing  using the  "amortized" method,
under  which revenues  and expenses   were  recognized over  the lives  of the
directories, generally one year.  Under the new "issue basis" method, revenues
and expenses will be recognized when the directories are issued.

Management  believes this  change  to the  issue  basis method  is  preferable
because  it is  the method generally  followed in the  publishing industry and
better reflects the operating activity of the business.









                                      62








                                    <PAGE>

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)

The cumulative after-tax  effect of applying the new method  to prior years is
recognized as  of January 1, 1996  as a one-time, non-cash  gain applicable to
continuing operations of $85 million, or  $0.20 per share.  The gain is net of
deferred taxes of $58 million.

The effect of applying the new method for the twelve months ended December 31,
1996 is  a non-cash  gain included  in income  before  extraordinary item  and
cumulative effect of accounting change of $3 million.  The total effect of the
change is a non-cash gain included in net income of $88 million.

Pro  forma results, assuming  the issue basis  method had been  applied during
prior periods, are as follows:

                                       For the Year Ended December 31
                                      --------------------------------
(Dollars in millions, except per
 share amounts)                          1996        1995         1994
----------------------------------------------------------------------
Pro Forma (Unaudited)
---------------------
Income before extraordinary item       $1,057      $1,061       $1,145
Earnings per share                      $2.47       $2.49        $2.70
Net income (loss)                      $1,057     $(2,299)      $1,145
Earnings (loss) per share               $2.47      $(5.40)       $2.70

As Reported
-----------
Income before extraordinary item       $1,057      $1,048       $1,159
Earnings per share                      $2.47       $2.46        $2.73
Net income (loss)                      $1,142     $(2,312)      $1,159
Earnings (loss) per share               $2.67      $(5.43)       $2.73

B.  SPUN-OFF OPERATIONS

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












                                      63








                                    <PAGE>

B.  SPUN-OFF OPERATIONS (Cont'd)

Under a  separation agreement,  any unrecorded non-tax  contingent liabilities
that become  certain after the spin-off date will be allocated based on origin
of the  claim, and acts  by, or benefits to,  the Corporation or  the spun-off
operations.    In  addition,  the  Corporation's  responsibilities  have  been
terminated  in  connection with  any  future  obligations  under the  spun-off
operations' joint  venture agreement  with Cellular Communications,  Inc., and
under various financial instrument contracts.

The Corporation's previous interests  in the net revenues and expenses  of the
spun-off  operations  prior to  April 1, 1994,  are  classified separately  as
income from spun-off operations in the income statement.

The components of income are summarized below:

  (Dollars in millions)                                          1994
  ---------------------------------------------------------------------
  Operating revenues......................................       $259
  Operating expenses......................................        225
                                                                -------
  Operating income........................................         34
  Other income/(expense)- net.............................         22
                                                                -------
  Income before income taxes..............................         56
  Income taxes............................................         29
                                                                -------
  Income before minority interest.........................         27
  Minority interest of other shareowners..................         (4)
                                                                -------
  Income from spun-off operations*........................       $ 23
  ======================================================================
  *  See  "Spun-off  Operations" in  Note  A  - on  page  60.  Amounts reflect
     operations through March 31, 1994.

The  Corporation's cash flow statement  for 1994 includes  separately the cash
flows of spun-off operations.


C.  DISCONTINUANCE OF REGULATORY ACCOUNTING - SFAS 71

Effective  third  quarter 1995,  for  external  financial reporting  purposes,
Pacific  Bell discontinued  the application  of SFAS  71, "Accounting  for the
Effects of Certain Types  of Regulation," an accounting standard  for entities
subject  to traditional regulation. As  a result, during  1995 the Corporation
recorded a non-cash, extraordinary, after-tax charge of $3.4 billion, or $7.89
per share, net of a deferred income tax benefit of $2.4 billion.   The  charge
includes  a  write-down of  net telephone  plant  and the  elimination  of net
regulatory assets as summarized in the following table.








                                      64








                                    <PAGE>

C. DISCONTINUANCE OF REGULATORY ACCOUNTING - SFAS 71 (Cont'd)

(Dollars in millions)                                Pre-Tax After-Tax
----------------------------------------------------------------------
Increase in telephone plant and equipment
  accumulated depreciation.....................       $4,819   $2,842
Elimination of net regulatory assets...........          962      518

                                                    ------------------
Total..........................................       $5,781   $3,360
======================================================================

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

Effective  third  quarter  1995,  management  determined  that,  for  external
financial reporting purposes, it was no longer appropriate for Pacific Bell to
use the special  SFAS 71  accounting rules for entities subject to traditional
regulation.  Management's decision to change to  the general  accounting rules
used  by competitive enterprises was based  upon an assessment of the emerging
competitive environment in California.  Pacific Bell's prices for its products
and  services  are  being driven  increasingly  by  market  forces instead  of
regulation.   Nevada  Bell  continues  to  apply SFAS  71  accounting  but  is
evaluating  its continued applicability.   If Nevada Bell  were to discontinue
application  of   SFAS  71  it  would  not  have  a  material  effect  on  the
Corporation's financial statements.

In  1995, the $4.8 billion increase in Pacific Bell's accumulated depreciation
for its telephone  plant reflects  the adoption of  new, shorter  depreciation
lives.  The estimated  useful lives historically prescribed by  regulators did
not keep up with the rapid pace of technology. Pacific Bell's previous and new
asset lives are compared in the following table.

Asset Lives (in years)                                   Old       New
------------------------------------------------------------------------
Copper cable......................................     19-26        14
Digital switches..................................      16.5        10
Digital circuits..................................  9.6-11.5         8
Fiber optic cable.................................     28-30        20
Conduit...........................................        59        50
------------------------------------------------------------------------

The discontinuance of  SFAS 71  for external financial  reporting purposes  in
1995 by  Pacific Bell also required  the elimination of  net regulatory assets
totaling $962 million.   Regulators sometimes include costs in allowable costs
for ratemaking purposes in a period other than the period in which those costs
would  be charged to  expense under general accounting  rules.  The accounting
for  these  timing  differences   created  regulatory  assets  and  regulatory
liabilities on Pacific Bell's balance sheet.





                                      65








                                    <PAGE>

C. DISCONTINUANCE OF REGULATORY ACCOUNTING - SFAS 71 (Cont'd)

Significant changes occurred in the Corporation's  balance sheet in 1995  as a
result of  the discontinuance  of SFAS  71.  Details  of Pacific  Bell's   net
regulatory assets that  have been  eliminated are displayed  in the  following
table.

(Dollars in millions)
------------------------------------------------------------------------
Regulatory assets/(liabilities) due to:
Deferred pension costs*......................................    $460
Unamortized debt redemption costs**..........................     337
Deferred compensated absence costs*..........................     206
Unamortized purchases of property, plant, and
  equipment under $500.......................................      82
Deferred income taxes***.....................................    (159)
Other........................................................      36
                                                                 ------
Total........................................................    $962
========================================================================
*    Previously included primarily in "Other noncurrent and intangible assets"
     in the Corporation's balance sheets.
**   Previously included in "Long-term obligations."
***  Previously included in "Other  current liabilities" and "Other noncurrent
     liabilities and deferred credits."

Due to the discontinued application of SFAS 71 in 1995, pension costs for both
intrastate  and  interstate  operations  are  now  determined under  SFAS  87,
"Employers' Accounting for Pensions," and SFAS 88, "Employers' Accounting  for
Settlements  and  Curtailments  of  Defined  Benefit  Pension  Plans  and  for
Termination Benefits."   Capitalized  interest cost is  reported as a  cost of
telephone  plant and  equipment and  as a  reduction in  interest expense,  as
required  by   SFAS  34, "Capitalization  of  Interest Cost."    Prior to  the
discontinuance of  SFAS 71,  Pacific Bell recorded an allowance for funds used
during  construction,   which  included   both  interest  and   equity  return
components,  as a  cost  of plant  and  as an  item  in miscellaneous  income.
Pacific  Bell's  accounting  and  reporting for  regulatory  purposes  are not
affected by the  discontinued application  of SFAS 71  for external  financial
reporting purposes.


D.  RESTRUCTURING CHARGES AND OTHER RESERVES

In 1991, a  $203 million reserve  was established for  the cost of  management
force reduction programs  through 1994.  A balance of  $77 million remained at
the end  of 1993.   An additional  $1,020 million reserve  was established  in
December  1993 to record the  incremental cost of  force reductions associated
with  restructuring Pacific  Bell's  business processes  through  1997.   This
reserve  is  to   cover  the  incremental  severance   costs  associated  with
terminating more than 14,000 employees from 1994 through 1997.   It is also to
cover  the incremental costs of consolidating  and streamlining operations and
facilities to  support  this downsizing  initiative.   The  remaining  reserve
balance   as  of  December 31, 1996  and  1995,  was  $97  and  $228  million,
respectively.



                                      66








                                    <PAGE>

D. RESTRUCTURING CHARGES AND OTHER RESERVES (Cont'd)

During 1993,  management completed  a reevaluation of  investment alternatives
relating  to its  1990 decision  to dispose  of its  real  estate subsidiary's
assets.   Based on this  reevaluation, the Corporation  recorded an additional
restructuring  reserve of  $347 million to  cover future  losses on  sales and
estimated operating losses.   In December 1994, the Corporation's  real estate
subsidiary  sold  substantially all  of  its  assets  for  approximately  $160
million.  Charges  to the reserve in  1994 totaled $287  million, $248 million
for losses on  sale of its assets and  $39 million for operating losses.   Net
charges both in 1996 and 1995 were $19 million.  Other  reserves were recorded
in 1993, 1992, and 1990 related  to the spun-off operations and the withdrawal
from,  or restructuring  of,  the Corporation's  cable  and customer  premises
equipment businesses. During 1996 the Corporation established a reserve of $43
million  to  reflect  the  restructuring  of  portions  of  its  video-related
businesses.  Management believes the $116 million balance in these reserves as
of December 31, 1996, is adequate.


E.  INCOME TAXES

The  components of income tax expense applicable to continuing operations each
year are as follows:

     (Dollars in millions)                             1996   1995    1994
     ----------------------------------------------------------------------
     Current:
       Federal........................................ $302   $408    $480
       State and local income taxes...................   80    115     142
                                                       --------------------
     Total current..................................... 382    523     622

     Deferred:
       Federal........................................  304     64      77
       State and local income taxes...................  103     29      22
                                                       --------------------
     Total deferred ................................... 407     93      99

     Amortization of investment tax credits - net...... (48)   (53)    (63)
                                                       --------------------
     Total income taxes................................$741   $563    $658

===========================================================================














                                      67








                                    <PAGE>

E.   INCOME TAXES (Cont'd)

Significant  components   of  the   Corporation's  deferred  tax   assets  and
liabilities are as follows:
                                                            December 31
                                                      ---------------------
     (Dollars in millions)                               1996       1995
     ----------------------------------------------------------------------
     Deferred tax assets/(liabilities) - due to:
       Depreciation and amortization................. $(1,072)   $(1,013)
       Postretirement and postemployment benefits....   1,007      1,042
       Restructuring reserves........................      38        116
       Customer rate reductions......................     113        133
       Other, net....................................     437        666
                                                        -------------------
     Net deferred tax assets* ....................... $   523    $   944
     =====================================================================
     * Reflects reclassification of certain  current and noncurrent amounts by
       federal  and state  tax jurisdiction  to a  net presentation.   Amounts
       include   both  current  and  noncurrent  portions.    (See  Note  Q  -
       "Additional Financial  Information" on page  91 for current  portion of
       deferred tax assets.)

In  1996 the  State of  California  reduced the  corporate tax  rate from  9.3
percent  to 8.84  percent, effective for  taxable years beginning  on or after
January 1, 1997.  In accordance with generally accepted accounting principles,
net deferred  tax assets  at December  31, 1996 were  revalued to  reflect the
lower tax  rate.  This revaluation increased state tax expense, net of federal
tax, and decreased net income $16 million, or $0.04 per share, in 1996.

An income  tax expense  related to  the cumulative  effect  of the  accounting
change in 1996 for the change in accounting for directory revenue and expenses
is  $58 million.  (See  Note A -  "Cumulative Effect of  Accounting Change" on
page 62.)

An income  tax benefit  related to  the extraordinary charge  in 1995  for the
discontinued  application of SFAS 71  for depreciated telephone  plant is $2.0
billion and for regulatory assets and  liabilities is $0.4 billion.  (See Note
C - "Discontinuance of Regulatory Accounting - SFAS 71" on page 64.)

The  reasons  for differences  each year  between the  Corporation's effective
income tax rate  and applying the statutory federal income  tax rate to income
from continuing operations before  income taxes are provided in  the following
reconciliation:













                                      68








                                    <PAGE>

E.  INCOME TAXES (Cont'd)

                                                      1996   1995   1994
     ----------------------------------------------------------------------
     Statutory federal income tax rate (%).......     35.0   35.0   35.0
     Increase/(decrease) in taxes resulting from:
        Amortization of investment tax credits...     (1.8)  (3.3)  (3.5)
        Plant basis differences - net of
          applicable depreciation................        -      -    0.3
        Interest during construction.............        -   (1.1)  (0.6)
        State income taxes - net of federal
          income tax benefit.....................      6.6    5.8    5.9
        Other....................................      1.4   (1.5)  (0.4)
                                                     ----------------------
     Effective income tax rate (%)...............     41.2   34.9   36.7

     ======================================================================

F.  EMPLOYEE RETIREMENT PLANS

Defined Benefit Plans

The Corporation provides pension,  death, and survivor benefits  under defined
benefit pension plans that cover substantially all employees.  Benefits of the
Pacific Telesis Group Pension Plan (for non-salaried employees) are based on a
flat dollar amount and vary according to job classification, age, and years of
service.  Benefits of  the  Pacific Telesis Group  Pension  Plan for  Salaried
Employees accrue  in a separate account balance based on a fixed percentage of
each employee's monthly salary with interest.

The Corporation is responsible  for contributing enough to the  pension plans,
while  the employee  is  still  working, to  ensure  that  adequate funds  are
available  to provide  the  benefit payments  upon the  employee's retirement.
These  contributions  are  made  to  an  irrevocable  trust  fund  in  amounts
determined using the  aggregate cost  actuarial method, one  of the  actuarial
methods  specified  by the  Employee Retirement  Income  Security Act  of 1974
("ERISA"), subject to ERISA and Internal Revenue Code limitations.




















                                      69








                                    <PAGE>


F. EMPLOYEE RETIREMENT PLANS (Cont'd)

The  Corporation  reports pension  costs  and  related obligations  under  the
provisions  of  SFAS  87  and  SFAS  88.    However,  prior  to  discontinuing
application  of SFAS  71 during  1995, Pacific  Bell recognized  pension costs
consistent with the methods adopted for ratemaking.  Nevada Bell  continues to
follow  the accounting method prescribed  by the Public  Service Commission of
Nevada.   Pension costs recognized by  Pacific Bell under SFAS  71 reflected a
California Public Utilities Commission  ("CPUC") order requiring the continued
use of the  aggregate cost  method for  intrastate operations  and an  Federal
Communications  Commission ("FCC") requirement to use  SFAS 87 and SFAS 88 for
interstate operations.  (See Note C - "Discontinuance of Regulatory Accounting
- SFAS 71" on page 64.)


Annual pension cost each year consisted of the following components:

     (Dollars in millions)                             1996   1995    1994
     ----------------------------------------------------------------------
     Service cost - benefits earned during year......
                                                    $   116  $ 149  $  198
     Interest cost on projected benefit obligations..   620    678     681
     Actual return on assets.........................(1,710)(2,215)   (173)
     Net amortization and deferral of items subject
       to delayed recognition*.......................   807  1,477    (601)
                                                       --------------------
     Net periodic pension cost under SFAS 87.........  (167)    89     105
     Adjustment to reflect differing regulatory
       treatment**...................................      -      -    (79)
                                                       --------------------
     Pension cost (credit) recognized................$ (167) $  89   $  26
     ======================================================================
     *   Under  SFAS 87,  differences  between actual  returns  and losses  on
         assets  and assumed returns, which are based on an expected long-term
         rate-of-return,  are  deferred  and included  with  "unrecognized net
         gain" (see  table below).  During 1994, actual returns were less than
         assumed  returns by  $551  million.   During  1996 and  1995,  actual
         returns  exceeded  assumed  returns   by  $891  and  $1,524  million,
         respectively.

     **  See Note C -  "Discontinuance of Regulatory Accounting -  SFAS 71" on
         page 64.  Regulatory assets due  to deferred pension costs were  $407
         as of December 31, 1994.














                                      70








                                    <PAGE>


F.  EMPLOYEE RETIREMENT PLANS (Cont'd)

The following table sets forth the status of the plans' assets and obligations
and the amounts recognized in the Corporation's consolidated balance sheets:

                                                            December 31
                                                     --------------------
     (Dollars in millions)                               1996       1995
     --------------------------------------------------------------------
     Plan assets at estimated fair value............  $11,445    $11,490
     Actuarial present value of projected benefit
       obligations*.................................    7,674     10,111
                                                     --------------------
     Plan assets in excess of projected benefit
       obligations..................................    3,771      1,379
     Less items subject to delayed recognition:
       Unrecognized net gain**......................   (4,328)    (2,179)
       Unrecognized transition amount***............     (368)      (412)
       Unrecognized prior service cost..............        6         42
                                                     --------------------
     Accrued pension cost liability recognized in
       the consolidated balance sheets..............   $  919    $ 1,170
     ====================================================================
     *   The  projected benefit obligation was increased $202 and $407 million
         at December 31, 1996  and 1995, respectively, for  the cost of  force
         reductions  anticipated to take place in 1996 and 1997 and recognized
         in the Corporation's financial statements under SFAS 88.

     **  Gains  or losses from actual returns on assets different than assumed
         returns,  as  well  as  from demographic  experience  different  than
         assumed  and  the  effects  of  changes  in  other  assumptions,  are
         recognized through amortization, over time, when the cumulative gains
         or losses exceed certain limits.

     *** A  $1,078 million  excess  of  the fair  value  of plan  assets  over
         projected benefit obligations as  of the January 1, 1987  adoption of
         SFAS 87  is being recognized through  amortization over approximately
         18 years.

The  assets  of  the plans  are  primarily  composed  of common  stocks,  U.S.
Government   and  corporate   obligations,  index   funds,  and   real  estate
investments.  The plans' projected benefit obligations for employee service to
date  reflect  management's expectations  of  the  effects  of  future  salary
progression and  benefit increases.   As  of December 31,  1996 and  1995, the
actuarial present values of the plans' accumulated  benefit obligations, which
do not anticipate  future salary  increases, were $7,443  and $9,122  million,
respectively.  Of these amounts, $6,904 and $7,997 million, respectively, were
vested.








                                      71








                                    <PAGE>


F. EMPLOYEE RETIREMENT PLANS (Cont'd)

Liabilities  and  expenses  for  employee  benefits  are  based  on  actuarial
assumptions.   The assumed discount rate used  to measure the present value of
benefit obligations was 7.5 percent and 7.25 percent at  December 31, 1996 and
1995,  respectively.   Due  to  the amendment  of  the  salaried pension  plan
discussed below,  1996 expense was  calculated using a  discount rate of  7.25
percent until  March.  The  remainder of 1996  expense was calculated  at 7.75
percent.    The  long-term  rate-of-return on  assets  assumed  in calculating
pension costs  was 9.0 percent  for 1996  and 8.0 percent  for 1995 and  1994.
These actuarial assumptions are subject to change over time,  which could have
a material impact on the Corporation's financial statements.

In March 1996,  management amended the salaried pension plan  from a final pay
plan to a cash balance plan effective July 1, 1996.  As a result of this  plan
amendment, in  second  quarter  1996 the  Corporation  updated  its  actuarial
assumptions to reflect changes in market interest rates and recent experience,
including a  change in its  assumption concerning future  ad hoc increases  in
pension benefits.  Taken together, the  change in plan design, discount  rate,
assumed long-term rate-of-return and other assumptions increased net income by
approximately $151 million,  or $0.35  per share,  during 1996.   An  enhanced
transition benefit,  based on frozen pay and service  as of June 30, 1996, was
established  to preserve benefits already accrued  by salaried employees under
the final  pay plan.  Effective January 1, 1995, the salaried pension plan was
amended to cap  net credited service for  pension benefits at 30  years or, if
greater,  the amount  of the  employee's  service on  January 1,  1995.   Upon
adoption, this amendment affected approximately 800 employees.

During  1996, 1995 and 1994, special pension benefits and cash incentives were
offered  in connection  with Pacific  Bell's restructuring  and related  force
reduction program.  Effective  October 1, 1995, pension benefit  increases may
be  offered  to  various groups  of  non-salaried  employees  under 1995  plan
amendments  which  increase benefits  for  specified  groups  who elect  early
retirement under incentive programs.  On March 28, 1994, Pacific Bell  offered
a special  pension benefit  that removed  any age discount  from pensions  for
management employees who  were eligible  to retire with  a service pension  on
that  date.   Also  during 1994,  pension benefit  increases  were offered  to
various  groups of  non-salaried  employees under  1992  plan amendments  that
increase  benefits  for specified  groups  who  elect early  retirement  under
incentive  programs.   Approximately  1,500,  1,900 and  3,400  employees left
Pacific  Bell during 1996, 1995 and 1994, respectively, under early retirement
or voluntary and involuntary severance programs.  Annual pension cost excludes
$(64), $219 and  $62 million of  additional pension  costs charged to  Pacific
Bell's restructuring reserve in 1996, 1995 and 1994, respectively.












                                      72








                                    <PAGE>

F. EMPLOYEE RETIREMENT PLANS (Cont'd)

The  Corporation has  entered into  labor negotiations  with union-represented
employees in the  past and expects to  do so in the future.   Pension benefits
have  been included in these  negotiations, and improvements  in benefits have
been made periodically.  Additionally, the Corporation has  increased benefits
to pensioners on  an ad  hoc basis.   While no assurance  can be offered  with
respect  to future  increases,  management's expectations  for future  benefit
increases,  other than ad hoc  increases, have been  considered in determining
pension costs.

Defined Contribution Plans

The  Corporation  sponsors  defined  contribution  retirement  plans  covering
substantially  all employees.  These  plans include the  Pacific Telesis Group
Supplemental Retirement  and  Savings Plan  for  Salaried Employees,  and  the
Pacific Telesis Group Supplemental Retirement and Savings Plan for Nonsalaried
Employees (collectively, the "Savings Plans").

The Corporation's contributions to the Savings  Plans are based on matching  a
portion of employee contributions.  All matching employer contributions to the
Savings  Plans  are made  through a  leveraged  employee stock  ownership plan
("LESOP")  trust (see "Employee Stock Ownership  Trust" in Note M on page 84).
Total  contributions  to these  plans,  including  contributions allocated  to
participant accounts through the  LESOP trust, were $65, $66,  and $66 million
in 1996, 1995, and 1994, respectively.  These amounts exclude costs applicable
to spun-off operations.

G.  OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS

Substantially  all  retirees  and  their  dependents  are  covered  under  the
Corporation's  plans  for  medical,   dental,  and  life  insurance  benefits.
Approximately  44,000 retirees were eligible to receive benefits as of January
1, 1996.   Currently, the  Corporation pays  the full cost  of retiree  health
benefits.   However,  by 1999, all  employees retiring  after 1990  will pay a
share of the  costs of medical coverage that exceeds  a defined dollar medical
cap.   Such future cost sharing provisions  have been reflected in determining
the Corporation's  postretirement benefit costs.  The  Corporation retains the
right, subject to applicable  legal requirements, to amend or  terminate these
benefits.

















                                      73








                                    <PAGE>

G.  OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS (Cont'd)

Effective January 1, 1993, the  Corporation adopted SFAS 106 on  an immediate-
recognition basis.  The standard requires that the cost of retiree benefits be
recognized in the  financial statements from an employee's date  of hire until
the employee becomes eligible for these benefits.  Previously, the Corporation
expensed retiree benefits  as they were  paid.  Immediate  recognition of  the
value  of prior benefits earned,  (the "transition obligation")  resulted in a
one-time,   non-cash   charge   applicable   to   continuing   operations   of
$1.573 billion,  or $3.80 per share.   The charge is  net of a deferred income
tax benefit of  $1.054 billion, which  will be recognized  over the  remaining
lives of the workforce.

The  Corporation's periodic  expense  under  SFAS 106  in  1996 and  1995,  as
displayed in  the table below, increased  from $106 million in  1992 under the
prior  method.    Because the  Telephone  Companies'  higher  costs are  being
partially  recovered  in revenues,  the  increased costs  have  not materially
affected reported earnings. (See "Change  in Accounting for Postretirement and
Postemployment Costs" in Note A on page 62.)  However, a CPUC  order held that
related revenues collected after October 12, 1994, are subject to refund. (See
"Revenues Subject to Refund" in Note O on page 88.)

The components of net periodic postretirement benefit cost are as follows:

     (Dollars in millions)                                   1996    1995
     ---------------------------------------------------------------------
     Service cost........................................... $ 45    $ 50
     Interest cost on accumulated postretirement
       benefit obligation...................................  239     262
     Actual return on plan assets........................... (187)   (250)
     Net amortization and deferral of items subject to
       delayed recognition..................................   70     176
                                                            --------------
     Net periodic postretirement benefit cost............... $167    $238
     =====================================================================

Both  Pacific Bell  and  Nevada  Bell  partially  fund  their  obligations  by
contributing  to Voluntary  Employees' Beneficiary  Association trusts.   Plan
assets  are invested  primarily  in  domestic  and  international  stocks  and
domestic investment-grade bonds.

















                                      74








                                    <PAGE>


G.  OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS (Cont'd)

In March 1996, in conjunction  with a change in the pension  plan assumptions,
management revised the assumed  discount rate used to measure  the accumulated
postretirement  benefit obligation and remeasured plan  assets.  These changes
did not have a material effect on 1996  net income.  In addition, in 1996  the
medical trend  rate decreased to  6.0 percent, which  increased net income  by
approximately $18 million,  or $0.04 per share,  during 1996 in  comparison to
1995.

The funded status of the plans follows:
                                                               December 31
                                                            ----------------
     (Dollars in millions)                                    1996    1995
     ----------------------------------------------------------------------
     Accumulated postretirement benefit obligation:
       Retirees............................................ $2,191  $2,311
       Eligible active employees...........................    253     222
       Other active employees..............................    766     788
                                                          ------------------
     Total accumulated postretirement benefit obligation...  3,210   3,321
     Less:
       Fair value of plan assets........................... (1,542) (1,246)
       Unrecognized net gain*..............................    434     167
       Unrecognized prior service cost.....................     37      39
                                                          ------------------
     Accrued postretirement benefit obligation recognized
       in the consolidated balance sheets.................. $2,139  $2,281
     ======================================================================
     * The unrecognized net gain is amortized over the expected future service
       lives  of  approximately  16  years and  reflects  differences  between
       actuarial  assumptions and  actual  experience.   It also  includes the
       impact of changes in actuarial assumptions.

Liabilities  and  expenses  for  employee  benefits  are  based  on  actuarial
assumptions.   The  assumed   discount   rate  to   measure  the   accumulated
postretirement  benefit  obligation  was  7.50  percent  and  7.25  percent at
December 31, 1996 and 1995, respectively.   The 1996 expense was calculated at
7.25  percent until March.   The remainder  of 1996 expense  was calculated at
7.75 percent.  The 1996 accrued postretirement benefit obligation and the 1997
expense are based on an  assumed annual increase in  health care costs of  6.0
percent.  Increasing the assumed  health care cost trend rates by  one percent
each  year would  increase the  December 31,  1996  accumulated postretirement
benefit obligation by $412 million and would increase the combined service and
interest  cost components of net periodic postretirement benefit cost for 1996
by $36 million. A 9.0 percent long-term rate-of-return on assets is assumed in
calculating  postretirement  benefit costs.  These  actuarial  assumptions are
subject to  change  over time,  which  could have  a  material impact  on  the
Corporation's financial statements.







                                      75








                                    <PAGE>


G.  OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS (Cont'd)

Effective January 1, 1993, the Corporation adopted SFAS 112 for accounting for
postemployment  benefits,  which  required  a  change  from  cash  to  accrual
accounting.    Postemployment  benefits  offered by  the  Corporation  include
workers compensation, disability benefits,  medical benefit continuation,  and
severance pay.   These benefits are  paid to former or  inactive employees who
terminate without  retiring.  A  one-time, non-cash charge  representing prior
benefits earned was  recorded in  1993, which reduced  earnings applicable  to
continuing operations by $151 million, or $0.36 per share.  The charge was net
of a deferred income tax benefit of $101 million. The  annual periodic expense
under SFAS 112 does not differ materially from expense under the prior method.

H.  STOCK OPTIONS AND STOCK APPRECIATION RIGHTS

Key  employees   of the   Corporation  have   outstanding  options   and stock
appreciation   rights   ("SARs")   that   were granted   under   the   Pacific
Telesis  Group 1994 Stock  Incentive Plan (the   "Stock Plan")  and a previous
plan (collectively, the  "Plans").  The Stock Plan was approved by shareowners
effective January 1, 1994.   The previous plan  expired December 31, 1993.   A
total of 21,000,000 shares of the Corporation's common stock was authorized by
the  Board of Directors (the "Board")  for grants of options, SARs, restricted
stock, and  stock units under  the Stock Plan.   As of December  31, 1996, the
remaining shares authorized were  9,002,950, including 91,000 remaining shares
separately authorized for grant to nonemployee directors of the Board.

Options  granted under the  Plans were granted  as nonqualified  options or as
incentive stock options, and  portions were granted in conjunction  with SARs.
The original  exercise price of each  outstanding option and SAR  was equal to
the fair market value of the Corporation's  common stock on the date of grant.
The  exercise prices of options and SARs outstanding  at the time of the spin-
off (see    Note  B -  "Spun-off  Operations" on  page  63) were  adjusted  as
described below.  The  exercise price of each option may be paid in cash or by
surrendering shares of  common stock already  owned by the  holder, or with  a
combination of cash and such  shares.  Options and associated  SARs ordinarily
become exercisable  at stated times beginning at least one year after the date
of grant.  The term of any option or SAR cannot exceed ten years.

Options and  SARs held by the  continuing employees of the  Corporation at the
time of the  spin-off were supplemented  with an equal  number of options  and
SARs for  common shares of spun-off  operations.  The exercise  prices for the
Corporation's outstanding options  and SARs were adjusted downward  to reflect
the  value  of the  supplemental spun-off  operations options  and SARs.   The
Corporation's  balance  sheet  reflects  a  related  liability  equal  to  the
difference between the current  market price of spun-off operations  stock and
the  exercise  prices of  the supplemental  options  outstanding.   (See "Off-
Balance-Sheet Risk" in Note J on page 82.)  As of December 31, 1996, 2,182,369
supplemental   spun-off  operations   options  and   SARs   were  outstanding.
Expiration  dates for the  supplemental options  and SARs  range from  1997 to
2003.






                                      76








                                    <PAGE>


H.   STOCK OPTIONS AND STOCK APPRECIATION RIGHTS (Cont'd)

Outstanding options and SARs of the Corporation that were held by employees of
the wireless operations at the spin-off date were replaced by options and SARs
for common shares  of spun-off  operations.  The  spun-off operations  assumed
liability for these replacement options and SARs.

The  Corporation   applies  Accounting   Principles  Board  Opinion   No.  25,
"Accounting  for Stock Issued  to Employees,"  and related  interpretations in
accounting  for  its plans.   Accordingly,  no  compensation expense  has been
recognized for  its stock-based compensation  plans other than  for restricted
stock  and SARs  which totaled  about $2  and $1  million for  1996 and  1995,
respectively.

Had compensation cost for the Corporation's stock option plans been determined
based upon  the fair  value at  the grant date  for awards  under these  plans
consistent with the optional expense measurement method described in SFAS 123,
"Accounting for Stock-Based Compensation,"  the Corporation's net income would
have been reduced by approximately $3 million for 1996 and $1 million for 1995
with no per share effect for either year.  The pro forma effect on  net income
for 1996 and 1995 is not representative of the  pro forma effect on net income
in future  years  because  it  does not  take  into  consideration  pro  forma
compensation expense related to grants made prior to 1995.

The weighted-average  fair value,  on the  date of  grant, of options  granted
during 1996  and 1995  is estimated  at $2.92 and  $2.80, respectively.   Fair
value is  determined  using the  Black-Scholes option-pricing  model with  the
following   weighted-average  assumptions used  for grants  in 1996  and 1995,
respectively:  dividend yield  of 7.9 and 7.2 percent,  expected volatility of
23.4  and 17.0 percent,  risk-free interest rate  of 6.0 and  7.0 percent, and
expected lives of 5 years.

























                                      77








                                    <PAGE>

H.  STOCK OPTIONS AND STOCK APPRECIATION RIGHTS (Cont'd)

The following  table summarizes option and SAR activity during 1996, 1995, and
1994:

                         Weighted             Weighted             Weighted
                          Average              Average              Average
                              Per                  Per                  Per
                  1996     Share*       1995    Share*        1994   Share*
             ---------  ---------   -------- ---------   --------- --------
Shares is-
suable under
outstanding
options and
SARs at
January 1    9,512,848     $29.97 10,742,408   $29.42   6,185,201   $24.11

Options and
SARs
granted      5,514,800     $27.40    363,700   $29.39   7,215,800   $31.98

Options and
SARs
exercised   (1,459,477)    $27.50 (1,057,347)  $23.37  (1,255,080)  $23.75

Options and
SARs canceled
or forfeited  (429,050)    $28.64   (535,913)  $31.64      (9,520)  $25.22

Options and
SARs replaced
for employees
of spun-off
operations           -          -          -        -  (1,393,993)  $24.26
            -----------           -----------          -----------
Shares is-
suable under
outstanding
options and
SARs at
December 31 13,139,121     $29.21  9,512,848   $29.97  10,742,408   $29.42
============================================================================
Options and
SARs exer-
cisable at
December 31  7,928,221*    $30.41  5,773,723   $28.82   3,541,608  $ 24.21

* In  accordance  with the  1994  stock  plan; should  a  change  in ownership
  control of Pacific  Telesis Group occur, all 13,139,121 outstanding  options
  and SARs would become exercisable.







                                      78








                                    <PAGE>

H.  STOCK OPTIONS AND STOCK APPRECIATION RIGHTS (Cont'd)

The following  table summarizes information about options and SARs outstanding
at December 31, 1996:

                   Options and SARs Outstanding
    --------------------------------------------------------------------
          Range of         Weighted           Average Weighted Average
          Exercise           Number         Remaining   Exercise Price
            Prices      Outstanding              Life       Per Share*
    --------------    -------------     -------------       ----------
    $16.10 - 17.66          107,055        1.83 years          $ 17.59
    $25.53 - 33.87       13,032,066        7.71 years          $ 29.30
                      -------------
    $16.10 - 33.87       13,139,121        7.67 years          $ 29.21


                    Options Exercisable
    ---------------------------------------------------

          Range of                    Weighted Average
          Exercise            Number    Exercise Price
            Prices       Exercisable        Per Share*
    --------------      ------------  ----------------
    $16.10 - 17.66           107,055           $ 17.59
    $25.53 - 33.87         7,821,166           $ 30.59
                        ------------
    $16.10 - 33.87         7,928,221           $ 30.41
===========================================================================
* Exercise prices per share were  adjusted to reflect the spin-off of wireless
  operations on April 1, 1994.


























                                      79








                                    <PAGE>

I.  DEBT AND LEASE OBLIGATIONS

Long-term obligations  as of December 31, 1996 and 1995, consist of debentures
of $4,044 and $3,545  million, respectively, and corporate notes of $1,210 and
$1,279  million,  respectively.   Maturities and  interest rates  of long-term
obligations are summarized as follows:

                                                           December 31
                                                      ---------------------
     Maturities and Interest Rates                       1996       1995
     ----------------------------------------------------------------------
                                                     (Dollars in millions)

     1997                      8.990%  to   9.250%     $    -    $    69
     1999                                   4.625%        100        100
     2000                                   4.625%        125        125
     2001                                   8.700%        200        200
     2002-2043                 5.875%  to   9.500%      4,829      4,330
                                                        -------------------
                                                        5,254      4,824
     Long-term capital lease obligations                  277         18
     Unamortized discount - net of premium               (107)      (105)
                                                        -------------------
     Total long-term obligations                       $5,424     $4,737
     ======================================================================

In February 1997, the CPUC approved  Pacific Bell's application to issue up to
$1.75 billion of  long- and  intermediate-term debt and  preferred securities.
The  proceeds may  be used to  redeem maturing  debt, to  refinance other debt
issues and  to finance construction  expenditures or acquisition  of property.
The CPUC's  authorization is in effect  until the full $1.75  billion has been
issued.   Pacific Bell also  has remaining  authority from the  Securities and
Exchange  Commission  ("SEC")  to  issue  up  to $150  million  of  long-  and
intermediate-term debt through a  shelf registration filed in April  1993. The
Corporation's PacTel Capital Resources subsidiary may issue up to $192 million
of medium-term notes through a shelf registration on file with the SEC.

During 1996, the Corporation  entered into sale and leaseback  arrangements to
finance equipment  associated with  the buildout  of its PCS  network.   As of
December 31,  1996 the obligation remaining is $270 million.  These leases are
classified  as capital  leases  and  the  related  assets  are  classified  as
property, plant  and equipment.   (See "Off-Balance-Sheet  Risk" in Note  J on
page 82.)














                                      80








                                    <PAGE>


I. DEBT AND LEASE OBLIGATIONS (Cont'd)

As of  December 31, 1996 and 1995, the weighted-average interest rate on total
short-term borrowings was 7.05  percent and 5.91 percent, respectively.   Debt
maturing  within one  year  in  the  balance  sheets  consists  of  short-term
borrowings  and the portion of  long-term obligations that  matures within one
year as follows:
                                                             December 31
                                                          ----------------
     (Dollars in millions)                                1996       1995
     ----------------------------------------------------------------------
     Commercial paper...................................  $530     $1,416
     Notes payable to banks.............................     -         95
                                                          ----------------
     Total short-term borrowings........................   530      1,511
     Current maturities of long-term obligations........    83         19
                                                          ----------------
     Total debt maturing within one year................  $613     $1,530

===========================================================================

Lines of Credit

The  Corporation has various uncommitted  lines of credit  with certain banks.
These arrangements  do not  require compensating  balances or commitment  fees
and, accordingly, are subject to continued review by the lending institutions.
As  of December 31, 1996 and 1995,  the total unused lines of credit available
were approximately $2.8 and $2.7 billion, respectively.


J.  FINANCIAL INSTRUMENTS

The  following table presents the  estimated fair values  of the Corporation's
financial instruments:

                                       December 31, 1996 December 31, 1995
                                       ----------------- -----------------
                                               Estimated         Estimated
                                      Carrying      Fair  Carrying    Fair
     (Dollars in millions)              Amount     Value    Amount   Value
     ----------------------------------------------------------------------
     Cash and cash equivalents......... $   72    $   72    $   76  $   76
     Debt maturing within one year.....    613       613     1,530   1,530
     Deposit liabilities...............    269       269       358     358
     Long-term debt....................  5,147     5,157     4,719   5,021
     Trust originated preferred
      securities of mandatorily
      redeemable preferred stock(Note K) 1,000       990        -        -
     ======================================================================







                                      81








                                    <PAGE>


J.  FINANCIAL INSTRUMENTS (Cont'd)

The following methods and assumptions were used to estimate the fair values of
each category of financial instrument:

The fair values of cash  and cash equivalents, debt maturing within  one year,
and  deposit liabilities  approximate their  carrying amounts  because  of the
short-term maturities of these instruments.

The  fair  value  of  long-term  debt  issues  and  trust-originated preferred
securities was  estimated based on  the net present  value of  future expected
cash flows, which  were discounted  using current interest  rates and  current
market  prices. The carrying amounts of long-term debt include the unamortized
net discount.

Off-Balance-Sheet Risk

The Corporation  has entered into an equity swap contract to hedge exposure to
risk  of  market changes  related to  its  recorded liability  for outstanding
employee  stock options for common stock of spun-off operations and associated
SARs. (See Note H - "Stock Options and Stock Appreciation Rights" on page 76.)
The  Corporation plans to make open market  purchases of the stock of spun-off
operations  to satisfy its  obligation for options  that are exercised.   Off-
balance-sheet risk exists to the extent the market price of the stock of spun-
off  operations  rises above  the market  price  reflected in  the liability's
current  carrying value.   The  equity  swap was  entered into  to hedge  this
exposure  and  minimize  the impact  of  market  fluctuations.   The  contract
entitles  the Corporation  to receive  settlement payments  to the  extent the
price  of the  common stock  of spun-off operations  rises above  the notional
value of $23.74 per  share, but imposes an obligation to  make payments to the
extent  the price  declines below  this level.   The  swap also  obligates the
Corporation to make  a monthly payment  of a fee  based on  LIBOR.  The  total
notional amount  of the contract, $60  million and $77 million  as of December
31, 1996 and  1995 respectively, covers the approximate  number of the options
and  SARs outstanding  of spun-off operations  on that date.   The Corporation
plans to periodically adjust  downward the outstanding notional amount  as the
options and SARs are exercised.  The equity swap contract expires April 1999.

Both the equity swap and the Corporation's liability for the stock options and
SARs  of spun-off operations are carried in  the balance sheet at their market
values,  which were immaterial  as of December  31, 1996 and 1995.   Gains and
losses from quarterly market adjustments of the carrying amounts substantially
offset  in results  of operations.   As  of December  31, 1996  and 1995,  the
accounting loss that would be incurred from nonperformance by the counterparty
to  the equity swap  was $4 million  and $14 million,  respectively.  However,
management  does   not  expect   to   realize  any   loss  from   counterparty
nonperformance.









                                      82








                                    <PAGE>

J.  FINANCIAL INSTRUMENTS (Cont'd)

In 1996, the Corporation has  entered into sale and leaseback  arrangements to
finance equipment  associated with the  buildout of  its PCS network.   As  of
December 31, 1996, the amount outstanding  under these capital leases was $270
million, $88  million of  which  will be  repaid in  Japanese yen.   To  hedge
exposure  to  foreign  currency  exchange fluctuations,  the  Corporation  has
entered into foreign  currency forward  contracts to purchase  yen in  amounts
equal to the current  yen lease obligations when they  become due.  The  total
notional  amount of  the contracts,  which cover  both interest  and principal
payments, is $137 million as of December  31, 1996 and they expire June  2004.
Both  the forward  contracts  and  the  portion  of  the  Corporation's  lease
liability payable  in yen are  carried in  the balance sheet  at their  market
values.   Gains or losses due  to foreign currency rate  fluctuations on these
contracts and  on the yen  lease obligations offset  each other in  the income
statement. As of December 31, 1996, there was no accounting loss that would be
incurred  from nonperformance by the counterparties to the forward contracts.
Management   does  not   expect  to   realize  any   loss  from   counterparty
nonperformance under these contracts.


K.  CORPORATION-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF
    SUBSIDIARY TRUSTS

Pacific  Telesis  Financing  I  and II  (the  "Trusts")  were  formed for  the
exclusive  purpose of  issuing  preferred and  common securities  representing
undivided beneficial interests in  the Trusts and investing the  proceeds from
the sale  of  Trust Originated  Preferred  Securities ("TOPrS")  in  unsecured
subordinated debt securities of  the Corporation. Under certain circumstances,
dividends on TOPrS  could be deferred for up to a  period of five years. TOPrS
are subject to a limited guarantee from the Corporation.  The Corporation sold
$1  billion of  TOPrS, $500 million  at 7.56  percent in  January 1996 through
Pacific  Telesis Financing  I and  $500 million  at 8.5  percent in  June 1996
through Pacific Telesis Financing II.  Both issues of TOPrS were priced at $25
per share,  have an original  30-year maturity that  may be extended  up to 49
years  and are callable  five years after date  of sale at  par.  The proceeds
were used to retire short-term indebtedness, primarily commercial paper.

As  of  December  31,  1996, Pacific  Telesis  Financing  I  and  II contained
subordinated debt securities of the Corporation in principal amounts of $515.5
and $514.5 million, respectively, with interest rates of 7.56 and 8.5 percent,
respectively.















                                      83








                                    <PAGE>

L.  RELATED PARTY TRANSACTIONS

Spun-off operations repaid previous intercompany borrowings, which represented
a net  receivable balance of  $33 million  in 1994.   (See Note B  - "Spun-off
Operations" on page 63.)

The  Corporation   provided  certain   administrative  services  to   spun-off
operations  and charged for these services through 90 days following the April
1, 1994, spin-off date.

A  separation agreement for the  spin-off provided for  complete separation of
all  properties  of  the  spun-off  operations  from  the  Corporation.    The
Corporation's consolidated federal  income tax return for  1994 included spun-
off operations through the spin-off date.

M.  CAPITAL STOCK

Shareowners

As of January 31, 1997, the number of shareowners of record was 664,327.


Preferred Stock

The  Corporation's  Articles of  Incorporation  include  a  provision for  the
issuance  of up to 50,000,000 preferred shares  (par value $0.10 per share) in
one  or more  series with  full  or limited  voting powers  or without  voting
powers, and with such designations,  preferences, and rights as the Board  may
determine.


Treasury Stock

From time  to time, the Corporation  purchases shares of its  common stock and
holds  these shares  as treasury  stock. Treasury  stock that  is held  may be
reissued later  in connection with acquisitions,  the Corporation's shareowner
dividend reinvestment and stock purchase plan ("DRISPP"), and employee benefit
plans.

During  1996, the  Corporation  reacquired 121,974  treasury shares  primarily
related  to adjustments to the 1995 acquisition of Cross Country Wireless Inc.
("CCW").  (See  Note  N  -  "Acquisition"  on page  86.)    During  1995,  the
Corporation reissued  4,369,507 treasury shares, primarily  in connection with
the  acquisition of  CCW.   During  1994  the Corporation  reissued  1,006,122
treasury shares for the DRISPP and  employee benefit plans. As of December 31,
1996, 4,514,897  shares remained held as treasury stock pending their ultimate
disposition.










                                      84








                                    <PAGE>

M.  CAPITAL STOCK (Cont'd)


Employee Stock Ownership Trust

All  matching employer contributions  to the Savings Plans  are made through a
LESOP trust.  (See "Defined Contribution Plans" in Note F on page 73.)  During
1989,  Bankers Trust Company, as trustee of the Pacific Telesis Group Employee
Stock Ownership Plan Trust, purchased 13,900,000 of the Corporation's treasury
shares at a   price of $691,052,400 in exchange for a promissory note from the
trust to the Corporation.  The note payable by the trust is not reflected as a
liability  of  the Corporation  and the  remaining  cost of  unallocated trust
shares  is carried  as  a  reduction  of  shareowners'  equity  (as  "deferred
compensation").   Principal and  interest on  the note is  paid from  employer
contributions and dividends received by the trust.

The  following table summarizes the  Corporation's expense each  year from the
allocation of  shares held  by the  LESOP trust to  the accounts  of employees
participating in the Savings Plans:

     (Dollars in millions)                                 1996  1995 1994
     ----------------------------------------------------------------------
     Total compensation and interest expense recognized*... $57   $66  $60
     Interest expense portion**............................  15    23   19
     Other information:
       Employer contributions to trust.....................  99    60   77
       Dividends received by trust.........................  33    44   35
     ======================================================================
     *   Determined using  the  shares-allocated accounting  method and  after
         being reduced by dividends paid on shares held by the trust.

     **  The  Corporation's  LESOP interest  expense  is matched  by  an equal
         amount  of interest  income earned  on the  promissory note  from the
         trust and reflected in miscellaneous income.

Shares held by the LESOP  trust are released for allocation to the accounts of
employees  as employer matching contributions are earned.  The following table
summarizes the Corporation's shares held by the trust:
                                                         December 31
                                                  -------------------------
                                                        1996          1995
     ----------------------------------------------------------------------
     Shares allocated to employee accounts.......  5,755,053     8,238,685
     Shares committed to be allocated*...........    224,267       340,519
     Shares unallocated.......................... 12,442,831    11,228,756
                                                  -------------------------
     Total shares held by trust.................. 18,422,151    19,807,960
     ======================================================================

   * Represents employer  matching contributions earned by  employees, but not
     yet allocated to employee accounts.






                                      85








                                    <PAGE>

M. CAPITAL STOCK (Cont'd)

Statement of Position 93-6  ("SOP 93-6"), "Employers' Accounting for  Employee
Stock Ownership Plans," issued  by the American Institute of  Certified Public
Accountants,  established new  accounting  rules for  new  LESOP shares.    As
allowed  by  specific provisions  of SOP  93-6,  the Corporation  continues to
follow the prior rules in accounting for the LESOP trust.

Shareowner Rights Plan

During 1989, the Board adopted a shareowner rights plan to enhance its ability
to  protect the  shareowners'  interests if  the Corporation  is faced  with a
hostile  acquisition proposal.  Under the  terms of  the plan,  shareowners of
record  as of  October 10,  1989,  received one  right for  each share  of the
Corporation's common stock  held on that date.  Initially,  the rights are not
exercisable and trade automatically with the Corporation's common stock.  If a
takeover attempt occurred that satisfied the tests described in the plan, each
right (except  for rights  held by  the person or  group making  that takeover
attempt) would  become the right to purchase common stock at one-half its then
market  value  (or, at  the  Board's  discretion, could  be  exchanged for  an
additional share of common stock).  The rights  do not have any voting rights,
may be  redeemed under certain circumstances at $0.01 per right, and expire on
October 10, 1999.

N.  ACQUISITION

In July  1995, the  Corporation acquired 100  percent of  the stock of  CCW to
provide wireless television service in  Southern California.  The  acquisition
was accounted  for by  the  purchase method  of accounting.   The  acquisition
included existing  wireless cable operations with  over 40,000 video customers
in Riverside, California  and licenses  and rights to  provide wireless  video
services  in Los Angeles,  Orange  County, and  San  Diego.   The  transaction
involved  the exchange of approximately $120  million of Pacific Telesis Group
treasury stock, or about 4.4 million shares, for the outstanding stock of CCW.
The Corporation also assumed approximately $55 million of CCW debt, which  was
retired during the third quarter of 1995.





















                                      86








                                    <PAGE>

O.  COMMITMENTS AND CONTINGENCIES

Merger Agreement

On April 1, 1996, SBC Communications  Inc. ("SBC") and the Corporation jointly
announced a definitive agreement whereby the Corporation will become a wholly-
owned subsidiary of SBC.  Under  terms of the merger agreement, each share  of
Pacific Telesis common stock will be exchanged for 0.733 shares  of SBC common
stock,  subject  to adjustment.  On  July  31, 1996,  the  shareowners of  the
Corporation  and  SBC  approved  the transaction,  which  previously  had been
approved by  the respective Board of  Directors of each company.   Pursuant to
the merger  agreement, the Corporation's  quarterly dividend per  share cannot
exceed  0.733 of  SBC's  quarterly  dividend  per  share.    Accordingly,  the
Corporation reduced its  second, third  and fourth quarter  1996 dividends  to
$0.315 per share.

The  transaction is intended to be accounted for as a pooling of interests and
to  be a tax-free reorganization.   Adjustments typically  associated with the
pooling of interests method  are to conform accounting policies  of the merged
entities.  Management is unable to determine if these policy changes and other
merger-related adjustments will be material.

The merger  is subject to  certain conditions  and regulatory  approvals.   On
January 31, 1997, the FCC approved the merger, and in  November 1996, the U.S.
Department of  Justice announced  it had  concluded that the  merger does  not
violate  the  antitrust  laws   and  accordingly  that  it  was   closing  its
investigation into the merger. In December 1996, the Public Service Commission
of Nevada ("PSCN") approved the  merger with the stipulation that Nevada  Bell
customers be paid the greater of  $4 million or 2.0 percent of the  amount, if
any, ordered by the CPUC to be paid to Pacific Bell customers.  The payment to
Nevada Bell customers is conditioned  on closing of the merger.   In addition,
the  California State Attorney General has told  the CPUC that the merger will
not hurt competition in California and is consistent with emerging trends.

On September 30, 1996, the Office of Ratepayer Advocates ("ORA"), the consumer
interest  branch of  the CPUC, filed  testimony in the  CPUC merger proceeding
recommending  a  $2.1 billion  rebate to  customers  payable over  five years.
Management  does not  agree  with the  ORA's  recommendation and  believes  no
customer rebate or payment should be required in connection with the merger.

On  February 21,  1997,  two California  administrative  law judges  issued  a
proposed  decision approving  the  merger but  with  a number  of  conditions,
including payment of up  to $750 million.  Management does not  agree with the
level of payment  or the restrictive  conditions and  intends to work  towards
their reduction or elimination.  A proposed decision by the administrative law
judges is not binding.  The CPUC is  expected to review the full case and  the
proposed decision and issue a final decision by  March 31, 1997.  Depending on
the final CPUC decision, the merger could close in early second quarter.









                                      87








                                    <PAGE>

O. COMMITMENTS AND CONTINGENCIES (Cont'd)

Purchase Commitments

In December 1994, Pacific Bell contracted for the purchase of up to $2 billion
of Advanced Communications Network  ("ACN") facilities, which incorporated new
technologies.  During 1995,  the ability to deploy the  facilities outstripped
the  ACN  vendors'   ability  to  deliver  necessary  products  and  software.
Accordingly,  management decided  to  suspend construction  at certain  sites,
which reduced the expected cost  to less than $700 million.  If ACN facilities
meet certain quality  and performance criteria  (the "Network Test"),  Pacific
Bell is committed to purchase  the ACN facilities in 1998.  If  ACN facilities
fail the  Network Test,  Pacific Bell  will not  be committed  to buy  the ACN
facilities but might be liable to reimburse the principal ACN  vendor for some
construction costs up to $300 million.  If competition or other factors affect
Pacific  Bell's ability  to recover  its investment  in these  facilities, the
value of the ACN facilities could be materially impaired.

As of December 31, 1996,  Pacific Bell had purchase commitments of  about $208
million remaining  in connection  with  its previously  announced program  for
deploying an all digital switching platform with ISDN and SS-7 capabilities.

Purchase Options

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

Revenues Subject to Refund

In 1992, the CPUC issued a  decision adopting, with modification, SFAS 106 for
regulatory  accounting purposes.    Annual price  cap  decisions by  the  CPUC
granted Pacific  Bell approximately $100 million  in each of   the years 1993-
1997 for partial recovery of higher  costs under SFAS 106.  However,  the CPUC
in  October 1994  reopened  the  proceeding  to  determine  the  criteria  for
exogenous cost treatment and  whether Pacific Bell should continue  to recover
these costs.   The CPUC's  order held  that related  revenues collected  after
October 12, 1994, are subject to refund plus interest. It is possible that the
CPUC could decide  this issue in  the near term, and  that the decision  could
have a  material adverse  effect on  Pacific Bell.   Related revenues  totaled
about $221 million at  December 31, 1996.  Management  believes postretirement
benefits  costs  are appropriately  recoverable  in Pacific  Bell's  price cap
filings.






                                      88








                                    <PAGE>

O. COMMITMENTS AND CONTINGENCIES (Cont'd)

Property Tax Investigation

In  1992, a  settlement  agreement  was reached  between  the  State Board  of
Equalization,  all  California  counties,  the  State  Attorney  General,  and
28 utilities,  including Pacific Bell,  on a specific  methodology for valuing
utility property for property tax  purposes for a period of eight  years.  The
CPUC  opened an  investigation  to determine  if  any resulting  property  tax
savings should  be returned to customers.   Intervenors have asserted  that as
much as $20 million  of annual property  tax savings should  be treated as  an
exogenous cost  reduction in Pacific  Bell's annual price cap  filings.  These
intervenors have also asserted that past property tax savings totaling as much
as approximately $70 million as of December 31, 1996, plus  interest should be
returned  to customers.  Management believes that, under the CPUC's regulatory
framework, any property tax savings  should be treated only as a  component of
the calculation of shareable earnings not as an exogenous cost.  In an Interim
Opinion issued  in June 1995,  the CPUC decided to  defer a final  decision on
this  matter pending resolution of  the criteria for  exogenous cost treatment
under  its regulatory  framework.   The  criteria are  being  considered in  a
separate  proceeding  initiated for  rehearing  of  the CPUC's  postretirement
benefits other than  pensions decision discussed above.   It is possible  that
the CPUC could decide this issue in the near term, and that the decision could
have a material adverse effect on the Corporation.

P. COMPETITIVE RISK

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

Effective January 1,  1995, the  CPUC authorized toll  services competition.
Management estimates that share losses since  January 1, 1995 have been in the
five to  six percent range.  However, this loss  combined with losses prior to
the official  opening of this  market has resulted  in Pacific Bell  currently
serving less than 50 percent  of the business toll market.  In April 1995, the
CPUC  also  ordered   Pacific  Bell  to  offer  expanded   interconnection  to
competitive  access providers.   These  competitors are  allowed to  carry the
intrastate  portion of  long-distance  and local  toll  calls between  Pacific
Bell's central offices and  long distance carriers. Competitors may  choose to
locate  their transmission  facilities within or  near Pacific  Bell's central
offices.









                                      89








                                    <PAGE>

P. COMPETITIVE RISK (Cont'd)

Effective January 1, 1996, the CPUC authorized local exchange competition.  By
early February 1997,  the CPUC  had authorized about  90 companies,  including
large  and  well-capitalized   long  distance  carriers,   competitive  access
providers,  and cable  television  companies to  begin  providing local  phone
service in California,  and 38  additional applications were  pending.   These
companies are  prepared to compete  in major local  exchange markets and  many
have  already deployed  switches or  other facilities.  All of  Pacific Bell's
customers have already  chosen a  long distance company,  and these  companies
have established  widespread customer awareness through  extensive advertising
campaigns over several years.

Local  exchange competition  may affect toll  and access revenues,  as well as
local service revenues, since  customers may select a competitor for all their
telecommunications services.  Local exchange competition may also affect other
service revenues as Pacific Bell Directory will have  to acquire listings from
other  providers for its products, and competing directory publishers may ally
themselves with other telecommunications  providers.  Management estimates the
CPUC's proposed local competition rules could materially reduce revenue growth
for Pacific Bell's regulated California operations by late 1997.

The  characteristics  of  the California  market  make  it  attractive to  new
competitors. Pacific Bell's business  and residence revenues and profitability
are  concentrated among  a small portion  of its customer  base and geographic
areas.   Competitors  need  only serve  selected  portions of  Pacific  Bell's
service area to  compete for the majority of its  business and residence usage
revenues.  High-margin customers  are clustered in high-density areas  such as
Los  Angeles and  Orange County, the  San Francisco  Bay Area,  San Diego, and
Sacramento. California  is also attractive  because it has  one of the  lowest
switched access  rates in the country.   By combining the  low switched access
rates and discounted resale rates, competitors have the ability to price their
services below Pacific Bell's prices while maintaining high margins. Reselling
allows competitors to offer local services with little or no investment.

Management believes that now that our markets are open to all competitors, the
Corporation  should be granted access to markets  that are currently closed to
LECs.   A truly open competitive market,  in which the Corporation can compete
without restrictions, offers long-term  opportunity to build the business  and
maximizes benefits for consumers.   Management believes its key  strategies of
strengthening  the  core  business  by  upgrading   its  network  and  systems
capabilities, improving  customer service  and efficiency, expanding  existing
markets, developing  new  markets and  promoting  public policy  reform,  will
provide a strong response to its competitive challenge.













                                      90








                                    <PAGE>

P. COMPETITIVE RISK (Cont'd)

In  Nevada, the  PSCN issued  a ruling  opening the  local exchange  market to
competition.   It includes requirements  that the LECs  allow interconnection,
unbundling, interim number portability  and resale.  Current  PSCN proceedings
are addressing  pricing, interconnection  and other local  competition issues.
At least  two long  distance  carriers have  requested resale  of Nevada  Bell
services,  and  two competitive  access  providers have  entered  the Northern
Nevada  market,  with the  express intent  of  providing an  alternative basic
business  service to high-margin  customers.  Further,  long distance carriers
can now transport toll calls both within and between service  areas, and there
is  evidence  that  such transport  is  increasing at  a  rapid rate.    As in
California, Nevada Bell's market is attractive to new competitors. Competition
is  expected to target the high-usage, high-profit customers.  These customers
are  geographically  concentrated in  the  Reno/Sparks  metropolitan area  and
business parks.

Q.  ADDITIONAL FINANCIAL INFORMATION
                                                           December 31
                                                       --------------------
     (Dollars in millions)                               1996        1995
     ----------------------------------------------------------------------
     Prepaid expenses and other current assets:
       Prepaid directory expenses..................   $    50     $   320
       Miscellaneous prepaid expenses...............       47          38
       Notes and other receivables..................      127         101
       Inventory and supplies.......................       35          58
       Current deferred tax benefits................      144         300
       Deferred compensation trusts.................      172         152
       Other........................................       18          33
                                                       --------------------
     Total..........................................  $   593     $ 1,002
     ======================================================================
     Property, plant, and equipment - net:
       Land and buildings...........................  $ 2,868     $ 2,758
       Cable and conduit............................   11,531      11,175
       Central office equipment.....................   10,114       9,562
       Furniture, equipment, and other..............    3,135       2,917
       Construction in progress.....................    1,384         810
                                                       --------------------
                                                       29,032      27,222
       Less accumulated depreciation................  (16,959)    (15,837)
                                                       --------------------
     Total..........................................  $12,073     $11,385
     ======================================================================
     Other noncurrent and intangible assets:
       PCS licenses and costs.......................  $   826     $   730
       Other........................................    1,062       1,143
                                                       --------------------
     Total..........................................  $ 1,888     $ 1,873
     ======================================================================






                                      91








                                    <PAGE>


Q.  ADDITIONAL FINANCIAL INFORMATION (Cont'd)
                                                             December 31
                                                          ----------------
     (Dollars in millions)                                1996       1995
     ---------------------------------------------------------------------
     Accounts payable and accrued liabilities:
       Accounts payable:
         Trade.....................................     $  791     $  753
         Payroll...................................         31         56
         Checks outstanding........................        411        302
         Other:
           Incentive awards payable................        200        200
           Other...................................        359        429
       Interest accrued............................        135        124
       Advance billing and customers' deposits.....        260        339
                                                        ------------------
     Total.........................................     $2,187     $2,203
     =====================================================================
     Other current liabilities:
       Accrued compensated absences................     $  268     $  278
       Dividends payable...........................        135        234
       Restructuring and other reserves............        213        311
       Other.......................................        111         85
                                                        ------------------
     Total.........................................     $  727     $  908
     =====================================================================
     Other noncurrent liabilities and deferred credits:
       Unamortized investment tax credits..........     $  243     $  292
       Accrued pension cost liability..............        919      1,170
       Restructuring and other reserves............          -         15
       Accrued postretirement benefit obligation...      2,139      2,281
       Other.......................................        583        515
                                                        ------------------
     Total.........................................     $3,884     $4,273
     =====================================================================





















                                      92








                                    <PAGE>


Q.   ADDITIONAL FINANCIAL INFORMATION (Cont'd)

                                                        For the Year Ended
                                                            December 31
                                                    -----------------------
     (Dollars in millions)                           1996    1995     1994
     ----------------------------------------------------------------------
     Other service revenues:
       Directory Advertising...................... $1,071  $1,031   $1,003
       Other......................................    601     517      425
                                                    -----------------------
     Total........................................ $1,672  $1,548   $1,428
     ======================================================================
     Interest expense:
       Gross interest expense..................... $  455  $  480   $  455
       Less capitalized interest..................   (114)    (38)       -
                                                    -----------------------
     Net interest expense......................... $  341  $  442   $  455
     ======================================================================
     Other income(expense) - net:
       Interest income............................ $   27  $   62   $   29
       Dividends on preferred securities of
         subsidiary trusts........................    (60)      -        -
       Other......................................    (26)    (20)      26
                                                    -----------------------
     Total........................................ $  (59) $   42   $   55
     ======================================================================
     Advertising expense.......................... $  144  $   97   $   99
     ======================================================================
     CASH PAYMENTS FOR:
     Interest..................................... $  439  $  492   $  442
     Income taxes................................. $  453  $  530   $  737
     ======================================================================
     NON-CASH TRANSACTIONS:
     Spin-off stock distribution.................. $    -  $    -   $2,901
     Acquisition of CCW (Note N)
       Treasury shares (reacquired)issued......... $   (3) $  117   $    -
       Debt assumed............................... $    -  $   55   $    -
     Treasury shares reacquired................... $  ( 1) $    -   $    -
     ======================================================================


Major Customer

Substantially  all   of  the   Corporation's  operating  revenues   were  from
telecommunications  and  information services.    Approximately  7 percent,  9
percent, and 11 percent of these revenues were earned in 1996, 1995, and 1994,
respectively, for services provided to AT&T Corp.  No other customer accounted
for more than 10 percent of revenues.







                                      93








                                    <PAGE>


   -----------------------------------------------------------------------
   QUARTERLY FINANCIAL DATA
     (Unaudited)
                            (Dollars in millions, except per share amounts)
                            -----------------------------------------------
   1996                                  First*   Second* Third* Fourth**
   ------------------------------------------------------------------------
   Operating revenues..................   $2,378   $2,405 $ 2,356  $2,449
   Operating income....................      623      618     521     436
   Earnings:
     Income before cumulative effect of
       accounting change...............      316      291     259     191
     Cumulative effect of accounting
       change..........................       85        -        -      -
                                            -------------------------------
   Net income .........................   $  401   $  291    $259  $  191

   Earnings per share:
      Income before cumulative effect of
        accounting change...............  $ 0.74   $ 0.68  $ 0.60  $ 0.45
      Cumulative effect of accounting
       change..........................     0.20        -        -      -
                                            -------------------------------
   Net income..........................   $ 0.94   $ 0.68   $ 0.60 $ 0.45
   ------------------------------------------------------------------------
   1995                                    First   Second Third*** Fourth
   ------------------------------------------------------------------------
   Operating revenues..................   $2,254   $2,231 $ 2,275  $2,282
   Operating income....................      490      518     530     473
   Earnings (loss):
     Income before extraordinary item..      282      260     275     231
     Extraordinary item................        -        -  (3,360)      -
                                            -------------------------------
   Net income (loss)...................   $  282   $  260 $(3,085) $  231

   Earnings (loss) per share:
     Income before extraordinary item..   $ 0.67   $ 0.61 $  0.64  $ 0.54
     Extraordinary item................        -        -   (7.86)      -
                                            -------------------------------
   Net income (loss)...................   $ 0.67   $ 0.61 $ (7.22) $ 0.54

   =======================================================================














                                      94








                                    <PAGE>

QUARTERLY FINANCIAL DATA (Cont'd)
(Unaudited)

*   During fourth quarter 1996,  Pacific Bell Directory changed its  method of
    recognizing directory publishing  revenues and related  expenses effective
    January 1, 1996 to a preferable method. The cumulative after-tax effect of
    applying the new method to prior years is recognized as of January 1, 1996
    as  a one-time, non-cash gain  applicable to continuing  operations of $85
    million,  or  $0.20 per  share.  The  first three  quarters  of 1996  were
    restated to reflect the new method.  (See "Cumulative Effect of Accounting
    Change" under Note A on page 62.)

**  Fourth  quarter 1996  results  reflect a  number  of one-time  items  that
    reduced earnings by $91 million, or $0.21 per share.

*** Third  quarter 1995 results reflect an after-tax extraordinary charge as a
    result  of Pacific  Bell's discontinuance  of regulatory  accounting. (See
    Note C - "Discontinuance of Regulatory Accounting - SFAS 71" on page 64.)



Item 9.  Changes in and Disagreements With Accountants on Accounting and
         Financial Disclosure.

No  disagreements  with  the  Corporation's  independent  accountants  on  any
accounting  or financial disclosure occurred during the period covered by this
report.






























                                      95








                                    <PAGE>

                                   PART III

Item 10.  Directors and Executive Officers of the Registrant.

DIRECTORS

The  Corporation's  Articles of  Incorporation  divide  the  Board into  three
approximately equal  classes of Directors serving  staggered three-year terms,
with  one class  of directors  elected at each  Annual Meeting.   The  term of
office of  the directors in  Class I (see  below) expires  at the 1997  annual
meeting of shareowners.  No date has  been set for the 1997 annual meeting and
it is not anticipated that such meeting will be held unless the closing of the
Corporation's pending  merger with SBC  is delayed substantially  beyond April
1997  or  unless the  Merger  Agreement is  terminated  for any  reason.   The
expiration  dates of the  terms of directors   in  Class II and  Class III are
noted below.  Pursuant to the  Merger Agreement, SBC has agreed to  appoint to
its board  of  directors at  the effective  time  of the  merger a  number  of
directors of the  Corporation equal  to approximately one-third  of the  total
number of SBC directors.

CLASS I - TERM EXPIRES AT 1997 ANNUAL MEETING OF SHAREOWNERS:

HERMAN E.  GALLEGOS, age 66,  is an  Independent Management  Consultant.   Mr.
Gallegos  was a Director of Gallegos  Institutional Investors Corporation from
May 1990 to  August 1994.  He  served as an alternate U.S.  Public Delegate to
the 4th United  Nations General Assembly  from 1994 to  1995.   He has been  a
Director of the  Corporation since December 1983.   He is a Director  of Union
Bank.

PHILIP  J. QUIGLEY,  age 54,  is Chairman  of the  Board, President  and Chief
Executive Officer  of the  Corporation and has  served in this  capacity since
April 1994.   Mr. Quigley served  as Group President  of the Corporation  from
1988 through March 1994  and President and Chief Executive Officer  of Pacific
Bell from 1987  through March 1994.   Mr. Quigley has  been a Director of  the
Corporation since January 1988.   He is  a Director of Wells  Fargo & Co.  and
Wells Fargo Bank, N.A.

TONI REMBE, age 60, is a Partner in the  law firm of Pillsbury Madison & Sutro
LLP,  San  Francisco, California.    Ms.  Rembe has  been  a  Director of  the
Corporation since  April 1991.   She is  a Director of  APL Limited,  Potlatch
Corporation and Transamerica Corporation.

S. DONLEY RITCHEY,  age 63, is Managing Partner of  Alpine Partners, Danville,
California.  Mr.  Ritchey was Chief  Executive Officer  of Lucky Stores,  Inc.
from 1980 to 1985 and Chairman of the Board from 1981 to 1986.  He has been  a
Director of the Corporation since January 1984.  He is a Director of McClatchy
Newspapers, Inc.

CLASS II - TERM EXPIRES AT 1998 ANNUAL MEETING OF SHAREOWNERS:

WILLIAM P. CLARK, age 65, is  Chief Executive Officer of Clark Companies, Paso
Robles,  California.   Mr.  Clark is  a  lawyer, rancher,  retired  California
Supreme Court Justice  and Former Secretary of the United States Department of
Interior.  Mr. Clark  has been a Director  of the Corporation since May  1985.
He is a Director of The Irish Investment Fund and Lawter International, Inc.


                                      96








                                    <PAGE>

MARY  S. METZ, age  59, is Dean  of University Extension  of the University of
California, Berkeley, and is President Emerita of Mills College.  Dr. Metz has
been  a Director  of the Corporation  since July 1986.   She is  a Director of
Longs Drug Stores  Corporation, Pacific  Gas and Electric  Company, and  Union
Bank.

RICHARD M.  ROSENBERG, age 66,  retired.   Mr. Rosenberg was  Chairman of  the
Board of  BankAmerica Corporation  from  January 1996  to May  1996.   He  was
Chairman of  the Board and Chief  Executive Officer from May  1990 to December
1995.   Mr. Rosenberg has  been a Director of  the Corporation since May 1994.
He is a Director of Airborne Freight Corporation, BankAmerica Corporation, K-2
Inc., Northrop Grumman Corporation and Potlatch Corporation.

CLASS III - TERM EXPIRES AT 1999 ANNUAL MEETING OF SHAREOWNERS:

GILBERT  F.  AMELIO, age  54, is  Chairman of  the  Board and  Chief Executive
Officer of Apple Computer, Inc., Cupertino, California, and has served in this
capacity since  February 1996.   Dr. Amelio was  Chairman of the  Board, Chief
Executive  Officer and  President of  National Semiconductor  Corporation from
1991 to 1996.  He has been a Director of the Corporation since September 1995.
He is a Director of Apple Computer, Inc.

FRANK  C.  HERRINGER,  age  54,  is  Chairman  of  the Board  of  Transamerica
Corporation,  San Francisco, California, and has served in this capacity since
January 1996,  and served  in the  capacity of President  and Chief  Executive
Officer of Transamerica Corporation since April 1991.  He has  been a Director
of the Corporation since January 1994.  Mr. Herringer is a Director of Charles
Schwab Corporation, Transamerica Corporation and Unocal Corporation.

LEWIS  E.  PLATT, age  55,  is  Chairman of  the  Board,  President and  Chief
Executive Officer of Hewlett-Packard  Company, Palo Alto, California.   He has
served as Chairman  since September 1995 and as President  and Chief Executive
Officer of Hewlett-Packard  Company since  November 1992.   Mr.  Platt was  an
Executive  Vice President  of Hewlett-Packard  Company  from May  1987 through
November 1992.  He has been a Director of the Corporation since February 1994.
He is a Director of Hewlett-Packard Company.

EXECUTIVE OFFICERS

The list below gives the names of executive officers as of February  28, 1997,
their present titles and the dates they were elected to these positions.

Name                Age       Title                                   Since

P. J. Quigley       54        Chairman of the Board, President
                              and Chief Executive Officer.........    4/94

D. W. Dorman*#      43        Chairman of the Board, President and
                              Chief Executive Officer- Pacific
                              Bell................................    2/96

W. E. Downing       57        Executive Vice President, Chief
                              Financial Officer and Treasurer.....    4/94

M. J. Fitzpatrick#  48        President and Chief Executive
                              Officer- Pacific Telesis Enterprises.   7/94

                                      97








                                    <PAGE>

J. R. Moberg*       61        Executive Vice President, Human
                              Resources...........................    9/87

R. W. Odgers        60        Executive Vice President, General
                              Counsel, External Affairs,
                              and Secretary.......................    3/88

R. L. Barada        52        Vice President-Corporate Strategy
                              and Development.....................    1/95

Messrs.  Quigley, Downing,  Moberg, Odgers, and  Barada have  held responsible
managerial positions  with the Corporation  or one of its  subsidiaries for at
least the past five years.

Mr.  Dorman joined  the Corporation  as Group  President and  Pacific  Bell as
President  and Chief  Executive  Officer  in July  1994.    In February  1996,
Mr. Dorman was  elected Chairman  of  the Board  of Pacific  Bell.   Prior  to
joining the Corporation, Mr.  Dorman was employed at Sprint  Corporation since
1981. Beginning  in 1984, he held  a series of leadership  positions at Sprint
Corporation, culminating as President, Business Services, from 1993 to 1994.

Mr.  Fitzpatrick joined  Pacific Bell  as Executive  Vice President  in August
1993.  In July 1994, Mr. Fitzpatrick became an Executive Vice President of the
Corporation.  He is  also the Enterprise  Group President of the  Corporation;
President and Chief  Executive Officer, Pacific Telesis Enterprises;  and Vice
President,  Pacific Telesis Shared Services.   Prior to  joining Pacific Bell,
Mr.  Fitzpatrick was  employed with  Network Systems  Corporation, a  computer
networking firm, where he became President in October 1991 and Chief Executive
Officer in April 1992.

Officers are not  elected for a fixed term, but serve at the discretion of the
Corporation's Board of Directors.
*  Also executive officers of Pacific Bell.
#  Messrs. Dorman  and  Fitzpatrick are  Group  President and  Executive  Vice
   President, respectively, of the Corporation.

SECTION 16(a)  BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Corporation's  executive officers and directors, and persons who own more than
10  percent of a registered  class of the  Corporation's equity securities, to
file reports of ownership on Forms 3, 4 and 5 with the Securities and Exchange
Commission  (the  "SEC").   Officers, directors  and  greater than  10 percent
shareowners are required  by SEC  regulation to furnish  the Corporation  with
copies of all Forms 3,4 and 5 they file.

Based solely on the  Corporation's review of the  copies of such forms  it has
received and  written representations from certain reporting persons that they
were not  required to file Forms 5 for specified fiscal years, the Corporation
believes that  all  of its  officers, directors  and greater  than 10  percent
beneficial owners  complied with all  filing requirements  applicable to  them
with  respect to transactions  during fiscal year  1996, except that  a Form 4
reporting two transactions was filed for Mr. Amelio a month after the date the
filing was due.



                                      98








                                                                <PAGE>

<TABLE>
Item 11.  Executive Compensation.

EXECUTIVE COMPENSATION

The following table discloses compensation received by the Corporation's Chairman of the Board, President and
Chief Executive Officer, and four other most highly paid executive officers (the "Named Executive Officers")
for the three fiscal years ended December 31,1996.
<CAPTION>
                                                                        SUMMARY COMPENSATION TABLE
                                                                           LONG TERM COMPENSATION
                                                                     -----------------------------------
                             ANNUAL COMPENSATION                              AWARDS            PAYOUTS
                             -------------------                     -----------------------------------
(A)                 (B)      (C)       (D)           (E)             (F)            (G)         (H)          (I)        (C+D+H)
                                                     OTHER           RESTRICTED                 LTIP         ALL OTHER  TOTAL
NAME &                       SALARY    BONUS         ANNUAL          STOCK AWARDS   OPTIONS/    PAYOUTS      COMP       CASH COMP
POSITION            YEAR       ($)      ($)@         COMP ($)            ($)*       SARs (#)      ($)        ($)**      ($)***
--------------------------------------------------------------------------------------------------------------------------------
<S>                 <C>      <C>       <C>           <C>            <C>             <C>         <C>          <C>       <C>
P. J. QUIGLEY       1996     731,250   937,840       338,363                        180,000     526,087      90,838    2,195,177
Chairman of the     1995     645,833   662,080       110,481                              0     304,011      47,984    1,611,924
Board,              1994     541,458   372,313        77,546                        210,000     424,008      74,925    1,337,779
President & CEO

D. W. DORMAN        1996     532,500   488,149        56,112                        108,000     280,725      53,054    1,301,374
President & CEO -   1995     475,625   562,238        50,136        1,387,500             0           0      46,864    1,037,863
Pacific Bell        1994     206,250   587,500        14,033                        100,000           0      22,500      793,750

M. J. FITZPATRICK   1996     433,750   342,910       109,665                         69,000     216,770      65,359      993,430
President & CEO -   1995     403,333   377,050        35,823                              0           0      43,382      780,383
PTE                 1994     366,875   230,500        13,425                         70,000           0      61,647      597,375

R. W. ODGERS        1996     361,250   361,340       317,203                         54,000     160,893      80,366      883,483
EVP, Genl Counsel,  1995     347,083   399,350        41,409                              0     176,450      36,287      922,883
Ext. Affs, Secy     1994     331,875   178,250        39,166                         70,000     239,616      59,153      749,741

J. R. MOBERG        1996     361,250   361,340       275,119                         54,000     160,893      91,951      883,483
EVP-Human-          1995     347,083   349,350        43,578                              0     176,450      51,654      872,883
Resources           1994     331,875   178,250        40,845                         70,000     239,616      92,001      749,741
================================================================================================================================

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                                                                <PAGE>

@   Includes special awards paid in April, 1996 to recognize significant shareholder value created between 1989-1994
    (Quigley - $230,000, Dorman - $0, Fitzpatrick - $15,000, Odgers - $127,500, Moberg - $127,500).

*   On July 23, 1995 Mr. Dorman was granted a restricted stock award of 50,000 shares.  On grant date, the Fair Market
    Value per share was $27.75.  The grant vests in one installment on July 23, 2000. Mr. Dorman has the same voting,
    dividend and other rights with respect to this restricted stock as the Corporation's other shareowners.  The value
    of Mr. Dorman's restricted stock as of December 31, 1996 was $1,837,500 (based on the closing price on the New York
    Stock Exchange Composite Transactions of the Corporation's Common Stock on December 31, 1996 of $36.75).

**  Includes "above-market" interest on deferred compensation paid in 1996 (Quigley - $61,588, Dorman - $254,
    Fitzpatrick - $6,636, Odgers - $49,134 and Moberg - $89,576) and company contributions under the Pacific Telesis
    Group Supplemental Retirement and Savings Plan for Salaried Employees, including a "make-up" match under the Executive
    Deferral Plan for amounts that were deferred and therefore not eligible for matching contributions under the Pacific
    Telesis Group Supplemental Retirement and Savings Plan for Salaried Employees earned in 1996 (Quigley - $29,250,
    Dorman - $21,300, Fitzpatrick - $17,350, Odgers - $14,450 and Moberg - $2,375).  Also includes executive relocation
    payments paid in 1996 to Messrs. Dorman and Fitzpatrick of $31,500 and $14,400 respectively and payments made in lieu
    of earned vacation not taken for Messrs. Fitzpatrick and Odgers in 1996 of $26,973 and $16,782 respectively.

*** Includes Salary, Bonus and LTIP Payouts and does not include Dividend Equivalents which are included under Column E.























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                                                                <PAGE>

                           AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR GRANTS

(A)                              (B)                           (C)                     (D)                      (E)
                                                                                   Number of              Value of
                                                                                   Unexercised            Unexercised
                                                                                   Options/SARs at        in-the-Money
                                                                                   FY-End (#)             Options/SARs at
                                                                                                          FY-End ($)

                            Shares Acquired               Value                    Exercisable/           Exercisable/
Name                        On Exercise (#)               Realized ($)             Unexercisable**        Unexercisable***
-----------------------------------------------------------------------------------------------------------------------------
<S>                         <C>                           <C>                      <C>                    <C>
P. J. Quigley               34,400 Shares*                497,824                 267,000/180,000         1,637,200/1,687,500

D. W. Dorman                No Exercises                      N/A                 100,000/108,000         600,000/    648,000

M. J. Fitzpatrick           15,000 Shares*                145,296                 85,000/  69,000         408,454/    648,000

R. W. Odgers                39,600 Shares*                578,503                 70,000/  54,000         332,500/    506,250

J. R. Moberg                33,600 Shares*                489,840                 70,000/  54,000         332,500/    506,250
-----------------------------------------------------------------------------------------------------------------------------
*    To reflect the spin-off of AirTouch Communications, Inc. ("AirTouch") on April 1, 1994, the exercise price of all
     outstanding options was adjusted and each outstanding option to purchase one share of the Corporation's Common Stock was
     supplemented with an option to purchase one share of AirTouch common stock.  The spread between the exercise price of
     the option and the market value of Common Stock that existed before the spin-off was allocated between the Corporation
     option and the new AirTouch option in the same ratio as the ratio between the market value of the Corporation's Common
     Stock and the market value of AirTouch common stock prior to the spin-off.  Therefore, the intrinsic value of the sum of
     both resulting options (the Corporation and AirTouch) remained the same.  The shares acquired on exercise reported above
     for 1996 were shares of AirTouch common stock acquired in the exercise of the options received in the manner described
     previously in this footnote.

As of December 31, 1996, the named executives held no AirTouch options.

**   All unexercisable options as of December 31, 1996 reflect options granted on March 22, 1996; a third become exercisable
     on March 22, 1997, a third on  March 22, 1998 and the remaining third on March 22, 1999.  All options become exercisable
     at the close of the proposed SBC merger.

***  Based on the closing price on the New York Stock Exchange-Composite Transactions of the Corporation's Common Stock on
     December 31, 1996 of $36.75 minus the exercise price.

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                                                                <PAGE>

                                                OPTION/SAR GRANTS IN LAST FISCAL YEAR

                                                                                               POTENTIAL
                                                                                               REALIZABLE VALUE AT
                                                                                               ASSUMED ANNUAL
                                                                                               RATES OF STOCK PRICE
                                                                                               APPRECIATION FOR
              INDIVIDUAL GRANTS                                                                OPTION TERM

                       NUMBER OF             % OF TOTAL
                       SECURITIES            OPTIONS/SARs          EXERCISE                       5% ($)           10% ($)
                       UNDERLYING            GRANTED TO            OR BASE                        PROJECTED        PROJECTED
                       OPTIONS/SARs          EMPLOYEES IN          PRICE          EXPIRATION      PTG PRICE        PTG PRICE
NAME                   GRANTED* (#)          FISCAL YEAR           ($/SH)         DATE            $44.59**         $71.00**
------------------------------------------------------------------------------------------------------------------------------
<S>                    <C>                   <C>                   <C>            <C>             <C>              <C>
P.J. QUIGLEY           180,000               3.28%                 $27.375         3/21/06        $3,098,700       $7,852,500

D.W. DORMAN            108,000               1.97%                 $27.375         3/21/06        $1,859,220       $4,711,500

M.J. FITZPATRICK        69,000               1.26%                 $27.375         3/21/06        $1,187,835       $3,010,125

R.W. ODGERS             54,000               0.98%                 $27.375         3/21/06          $929,610       $2,355,750

J.R. MOBERG             54,000               0.98%                 $27.375         3/21/06          $929,610       $2,355,750
------------------------------------------------------------------------------------------------------------------------------
















                                                                 102








                                                                <PAGE>

                                       LONG TERM INCENTIVE PLANS* - AWARDS IN LAST FISCAL YEAR

ESTIMATED FUTURE PAYOUTS
UNDER NON-STOCK PRICE-BASED PLANS

      (A)               (B)                 (C)                 (D)                  (E)                 (F)

                      NUMBER OF         PERFORMANCE
                      SHARES, UNITS     OR OTHER
                      **OR              PERIOD UNTIL
                      OTHER             MATURATION OR          THRESHOLD            TARGET              MAXIMUM
NAME                  RIGHTS(#)         PAYOUT                 (# of Units)         (# of Units)        (# of Units)
--------------------------------------------------------------------------------------------------------------------
<S>                   <C>               <C>                    <C>                  <C>                 <C>

P. J. Quigley         20,600            Three Years            5,150                20,600              41,200

D. W. Dorman          11,800            Three Years            2,950                11,800              23,600

M. J. Fitzpatrick      7,700            Three Years            1,925                 7,700              15,400

R. W. Odgers           5,800            Three Years            1,450                 5,800              11,600

J. R. Moberg           5,800            Three Years            1,450                 5,800              11,600
--------------------------------------------------------------------------------------------------------------------

*    All options were granted on March 22, 1996.  Options to purchase one-third of the total number of underlying
     shares become exercisable on each of March 22, 1997, 1998 and 1999.  All options will become exercisable at the
     close of the proposed SBC merger.

**   These are hypothetical values using assumed market price appreciation rates as prescribed by the SEC.

*    The Long Term Incentive Plan provides awards contingent upon the achievement of performance objectives set by the
     C&P Committee over a three-year period.  The above grants (Column B) are for the three-year performance cycle which
     will end December 31, 1998.  The measures of performance under this Plan are: (1) Cash Value Added averaged over the
     three years of the performance period; (2) Cumulative Revenue over the three-year period, and (3) Total Investor
     Return relative to the Total Investor Return of four comparator groups.  These comparator groups are the Regional
     Holding Companies, Independent Telecommunications Companies, California Utilities and the S&P 500.  The performance
     targets are set by the C&P Committee based on the performance levels projected in the Corporation's business plan.



                                                                 103








                                                                <PAGE>


Awards are denominated in shares of Common Stock and dividend equivalents are paid during the performance period.  At the end
of the period, awards may be paid either in shares of Common Stock or in cash (valued at the average price of the Common Stock
for a ten-day period in January).

** A unit is based on one share of Common Stock.


</TABLE>

































                                                                 104








                                    <PAGE>

PENSION PLANS

The  Corporation has  noncontributory  pension plans  (both tax-qualified  and
nonqualified)  for  salaried employees  that  provide  a monthly  pension  for
salaried employees, including officers.  The plans for salaried employees were
amended effective  July  1, 1996  to incorporate  a new  cash balance  benefit
formula,  increase the percentage of "Compensation" on which the benefit under
the  existing formula  is  based, and  freeze  the benefit  accrued  under the
existing formula  (the "transition  benefit") at June  30, 1996. The  new cash
balance benefit is equal to the balance in a hypothetical cash balance account
used to record an opening balance (the amount a participant would have accrued
as of June  30, 1996  if the cash  balance formula  had been in  place at  the
participant's hire date),  basic allocations  equal to 5%  of a  participant's
monthly  Compensation starting July 1,  1996, and monthly  interest credits on
the entire balance.   In addition, a supplementary allocation based on monthly
Compensation  is credited to each officer s hypothetical cash balance account.
The supplementary rate is designed  to provide each officer employed on  March
22, 1996 with  a certain level of the total benefit  that he or she would have
received  at age 65 under the pension plans  in effect before the July 1, 1996
amendment.  The  transition benefit under  the amended formula  is equal to  2
percent of  Compensation averaged over  the five  year period ending  June 30,
1996 multiplied  by the participant's years  of service at that  date (but not
more  than 30 years or, if greater,  the participant's service at December 31,
1994).   Depending  on the  time  remaining to  retirement, an  officer's cash
balance benefit may overtake his or her frozen transition benefit.

In addition  to the cash balance  benefit and transition benefit  provided for
all salaried employees employed on  March 21, 1996, the pension plans  offer a
minimum benefit and  a restoration  benefit for officers  who satisfy  certain
criteria.   An individual  who became  an officer before  January 25,  1992 is
eligible for  a minimum  benefit equal  to 45  percent of  his or  her average
Compensation for the five-year period ending  June 30, 1996, if the individual
completes 10 years of service as an officer and leaves the Corporation in good
standing  as an officer at age 55 or later.  The restoration benefit, which is
designed  to restore a percentage  of the early  retirement benefits available
under the pension plans before  the July 1, 1996 amendment, is provided for an
individual serving as an officer on March  22, 1996 who completes 10 years  of
officer  service and leaves the Corporation in  good standing as an officer at
age 55 or  later.  An officer hired after June  30, 1996, is eligible only for
the cash  balance benefit.  If an officer is  eligible for benefits under more
than one  formula, his or her  benefits are determined under  the formula that
provides the greatest benefit at termination of employment.

The  Compensation  for  purposes   of  determining  an  officer's  accelerated
transition benefit,  and the monthly Compensation-based  allocations under the
cash balance  benefit formula, is based  on the officer's base  salary and the
target  award under the Short Term Incentive  Plan ("STIP").  A participant is
fully vested  in his or  her pension after  completing five years  of service.
Payment of  a transition  benefit before  age 65  may be  subject to an  early
payment  discount,  depending  on   the  participant's  age  and   service  at
termination  of employment.   No early  payment discount  applies to  the cash
balance benefit, which a participant may elect to take at termination or as of
the first day of any later month.

Retirement  is  mandatory at  age 65  for officers  and other  senior managers
provided the individuals are covered by the provisions of  Section 12(c)(1) of

                                      105








                                    <PAGE>

the Age  Discrimination in Employment  Act of  1967, as amended  from time  to
time.

Pensions under the tax-qualified  plan may be paid as a life  annuity or joint
and survivor annuity or a lump sum  payment at retirement.  Pensions under the
qualified plan  are not subject to  offset or forfeiture.   Pensions under the
nonqualified plans  for officers  may  be paid  as life  annuities, joint  and
survivor  annuities, or ten-year certain  annuities, subject to the discretion
of the C&P  Committee to determine another form of  payment.  The nonqualified
pension   benefits  are  subject   to  forfeiture  or   reduction  in  certain
circumstances.

The annual average Compensation for the five-year period ending June 30,  1996
of Messrs. Quigley, Dorman, Fitzpatrick, Odgers, and Moberg, applicable to the
transition  benefit  formula is  $860,050,  $826,750,  $576,088, $486,250  and
$484,250 , respectively.  The credited years of service  at June 30, 1996 that
will be used in calculating the transition pension benefit of Messrs. Quigley,
Dorman, Fitzpatrick, Odgers, and Moberg, upon  retirement at age 65 are 28, 2,
3, 9  and 33, respectively.   Messrs. Quigley and Moberg  meet the eligibility
requirements  under all  benefit  formulas  available  to officers  under  the
pension plans,  and their benefits will  be determined under the  formula that
provides the greatest pension.    Assuming Mr. Odgers continues as  an officer
for  an additional year, he also  will meet the eligibility requirements under
all four  benefit formulas for officers.   The benefits of  Messrs. Dorman and
Fitzpatrick will be  determined under  the cash balance  benefit formula,  the
transition benefit formula or  restoration benefit formula, whichever provides
the greatest benefit formula at termination of employment.


The  following  table shows  the total  annual  straight life  annuity pension
benefits that  would be  received by an  executive officer of  the Corporation
retiring today at age 65 under the transition benefit formula in the qualified
and  nonqualified  plans.   It assumes  various specified  levels of  years of
service at June 30, 1996  and of average annual Compensation during  the five-
year period ending  June 30, 1996.  The benefits shown  in the table generally
are not subject to offsets for Social Security benefits or other payments.

Average

Annual Compensation
During Five-Year
Period Ending 6/30/96

                     Years of Service Prior to Retirement

                    15           20          25           30           35
$...400,000   $120,000     $160,000    $200,000     $240,000     $280,000
    550,000    165,000      220,000     275,000      330,000      385,000
    700,000    210,000      280,000     350,000      420,000      490,000
    850,000    255,000      340,000     425,000      510,000      595,000
  1,000,000    300,000      400,000     500,000      600,000      700,000
  1,150,000    345,000      460,000     575,000      690,000      805,000


The  1996 Compensation of  Messrs. Quigley,  Dorman, Fitzpatrick,  Odgers, and
Moberg,  for purposes of the monthly Compensation-based credits under the cash

                                      106








                                    <PAGE>

balance benefit formula  in the  qualified and nonqualified  pension plans  is
$1,291,250,  $849,500, $675,750,  $546,250,  and $546,250  respectively.   The
estimated annual  benefits payable as a single life annuity upon retirement at
age 65 for Messrs.  Quigley, Dorman, Fitzpatrick, Odgers, and Moberg under the
cash balance benefit formula  are $929,114, $750,550, $465,874,  $241,943, and
$324,573, respectively, assuming 8%  annual interest and 4 percent  annual pay
increases.

DIRECTOR COMPENSATION

For service on the Board during 1996, directors who are not employees received
an annual retainer of $25,000, a fee of $1,200 for each board meeting attended
and $600  for participating in board teleconferences, a fee of $1,000 for each
committee   meeting  attended   and  $500   for  participation   in  committee
teleconferences.   Chairmen of the Audit Committee, C&P Committee, and Finance
Committee of  the Board of Directors  each received an additional  retainer of
$5,000.  Other  nonemployee directors who  chair committees (Corporate  Public
Policy  Committee("CPCC"),  Nominating,  Pension and  Savings  Plan)  received
additional annual retainers  of $4,000.   Nonemployee directors  may elect  to
defer  the  receipt of  all or  a part  of  their fees  and retainers.   These
deferred amounts earn interest,  compounded annually, at a rate  determined by
the Board.  The  rate for 1996  was equal to  8.2 percent.   A trust has  been
established and assets  have been contributed  by the Corporation,  consisting
primarily of cash and other investments, from which benefits consisting of the
deferrals and earnings on such  deferrals described above may be paid.   Under
the  provisions of the trust, a committee  (consisting of the Chairman and all
vice-chairmen of the Corporation) is  required to issue irrevocable directions
to the trustee upon a change in control,  as defined in the trust.  Since  the
approval of the merger with SBC by shareowners constituted a change in control
for purposes  of the trust,  the committee issued  directions to the  trustee,
generally dealing with  the distribution  of trust assets,  which will  become
irrevocable upon the closing of the merger.

Directors  who are  also employees  of the  Corporation receive  no additional
remuneration  for serving  as directors  or  as members  of committees  of the
Board.   Directors are entitled to reimbursement for out-of-pocket expenses in
connection with attendance at board and committee meetings.

Nonemployee directors  are reimbursed for certain  telecommunications services
and   equipment.      The   average  cost   per   nonemployee   director   for
telecommunications  services and  equipment provided  during 1996  was $4,283.
Employee directors receive  similar services  and equipment as  part of  their
compensation as officers.  The Corporation also provided nonemployee directors
a  travel  accident  insurance policy  while  on  Corporation  business at  an
aggregate  cost of  $450  in 1996  and a  personal excess  liability insurance
policy at an aggregate cost of $4,450 in 1996.  Under the 1994 Stock Incentive
Plan  (the  "Stock  Plan"),  which was  approved  by  the  shareowners of  the
Corporation  at  the  1994  Annual Meeting,  incumbent  nonemployee  directors
receive an annual grant  of 2,000 NSOs, subject to  anti-dilution adjustments,
at the conclusion of each Annual Meeting so long  as they continue to serve on
the Board.  The exercise price for this annual stock option grant is  equal to
the fair market value of Common Stock on  the date of grant.  The NSOs  become
exercisable  one  year after  the  grant,  or earlier,  in  the  event of  the
director's death or total and permanent disability or in the event of a change
in  control of the Corporation.   Under the terms of the  Stock Plan, the NSOs
granted  to  nonemployee directors  became  exercisable upon  the  approval by

                                      107








                                    <PAGE>

shareowners of the merger with SBC, which was considered a "change in control"
under the Stock Plan.  The NSOs expire upon the earlier of (1) ten years after
the  date  of grant,  (2) 60 months after  the  termination of  the director's
service due  to retirement after serving  at least three years,  (3) 36 months
after the  termination of the  director's service  due to total  and permanent
disability,  (4) 12 months after  the  director's death,  or (5)  three months
after the  termination of the director's service for any other reason.

The Stock Plan  also provides for three annual grants of  400 shares of Common
Stock,  subject   to  anti-dilution  adjustments,   to  nonemployee  directors
appointed or elected  on or after  January 1, 1994. For nonemployee  directors
appointed  or elected after the 1994  Annual Meeting, the first grant occurred
or will occur upon such director's first appointment or election to the Board.
The second and  third such grants will occur  at the conclusion of  the Annual
Meeting of  Shareowners in each of  the two calendar years  next following the
calendar year  of the first such grant. All such shares granted to nonemployee
directors under the Stock Plan are 100 percent vested on the date of grant.

Finally,  the Corporation's Board may  implement provisions of  the Stock Plan
that permit a nonemployee director to elect to receive all or a portion of his
or her annual retainer and meeting fees in the form of NSOs or stock  units to
be issued  under the Stock  Plan, provided the  election is made  at least six
months before such fees are payable.

On  January  26,  1996, the  Corporation's  Board  approved  revisions to  the
Pacific Telesis  Group  Outside Directors'  Retirement  Plan (the  "Retirement
Plan").    These  revisions limit  participation  in  the  Retirement Plan  to
nonemployee  directors who  commenced service  prior to  January 26,  1996 and
limit  the  credit for  service  under the  Retirement  Plan  for purposes  of
calculating pension benefits to years of  service as of May 1, 1996. Effective
January 26, 1996, the Corporation's Board also  adopted a new plan which  will
provide  benefits for  nonemployee  directors at  retirement  in a  form  more
closely linked to  shareowners' interests.   Under the  Pacific Telesis  Group
Outside  Directors' Deferred  Stock Unit  Plan  (the "DSU  Plan"), nonemployee
directors who begin  service on or after January 26, 1996  will be granted 400
deferred stock units on the  date of the Annual Meeting of Shareowners in each
year  after completing  three years'  service. Each  unit represents  the cash
value of one share of Common Stock.  All nonemployee directors who had accrued
a  pension equal  to 100  percent of  the retainer  under the  Retirement Plan
elected  prior to May 2,  1996 to convert  the present value  of their accrued
pension under  the Retirement Plan to  deferred stock units under  the new DSU
Plan.

Nonemployee  directors  with  a  partial  accrued  pension  elected  prior  to
May 2, 1996 to no longer participate in the Retirement Plan and convert to the
DSU  Plan.   These  nonemployee directors  were  granted deferred  stock units
equivalent to  the present value of  their accrued pension  and future pension
accruals as of May 1, 1996.  The units attributable to the accrued pension are
fully vested, while the units attributable to future accruals vest pro rata in
annual increments  over the periods  from May  2, 1996, to  the date when  the
director completes seven years of service.

Dividend equivalents will accrue on all deferred stock units granted under the
DSU Plan.

Deferred   stock  units  will  normally  be  settled  as  soon  as  reasonably

                                      108








                                    <PAGE>

practicable after a director's  service terminates.  The deferred  stock units
will be settled by paying the director a lump sum in cash, unless the director
has made  a prior election to  receive five or ten  equal annual installments.
The  amount of  the cash  settlement will  be  equal to  the number  of vested
deferred  stock  units held  by the  director, including  dividend equivalents
converted  into  stock  units,   multiplied  by  the  closing  price   of  the
Corporation's  Common  Stock  for the  trading  day  coinciding  with or  next
preceding the director's last day of service.

EMPLOYMENT  CONTRACTS  AND  TERMINATION  OF EMPLOYMENT  OR  CHANGE  IN CONTROL
ARRANGEMENTS

The Corporation has entered into  employment agreements with certain officers,
including  Messrs.  Quigley,  Dorman,  Fitzpatrick, Odgers  and  Moberg  which
provide for payments in the event of an involuntary termination of employment.
Such  agreements do not  have a  fixed term and  may be terminated  upon three
years  notice.  The agreements will automatically terminate upon the voluntary
resignation of the officer.  The amount of the payments depends on whether the
involuntary termination occurs within three years after a "change in control."
For purposes  of the  agreements, shareowner approval  of the merger  with SBC
constituted a change in control.   If an officer's employment is involuntarily
terminated for some reason  other than cause, death or disability,  whether or
not there has  been a change  in control, the  Corporation will make  payments
that  include  (i)  a  lump  sum  cash  payment  equal  to (x)  1/12  of  base
compensation  in effect  on the  date of  termination,  multiplied by  (y) the
lesser  of 36 or the number of  months remaining until normal retirement date,
(ii) continuation of  life insurance and health benefits until  the earlier of
(a) the first anniversary of the date of termination, (b) death, or (c) normal
retirement  date, (iii) payment of 100% of  the Standard Award under the Short
Term Incentive Plan ("STIP")  applicable for the calendar year  of termination
and, if  all Units under the  Long Term Incentive Plan  ("LTIP") are forfeited
upon termination,  the Corporation will also  pay an amount equal  to the fair
market value  of a  share of  the Corporation's  Common Stock on  the date  of
termination multiplied  by the number of LTIP Units granted to the officer for
the performance period ending with the calendar year of termination, and  (iv)
compensation for any nonstatutory  stock options or SARs which  terminate upon
termination of employment  in an  amount equal to  the difference between  the
fair market value of the Corporation's Common Stock at the date of termination
and the option  price (in the case  of SARs, the difference  between such fair
market value and the option price at which the stock option related to the SAR
was granted). If an officer's employment is involuntarily terminated by reason
of death, disability or cause, no compensation is payable under the employment
agreement.

Such employment agreements  also provide that upon  an involuntary termination
(including a "constructive termination," which is defined as a material change
in  responsibilities,  a  material  reduction  in  salary  or  benefits  or  a
requirement  to relocate within three years after  a "change in control"), the
officer  shall  receive  a severance  payment,  in  addition  to the  payments
described in the preceding paragraph, when applicable, equal to the sum of (x)
an amount equal to 200% of the Standard Award (within the meaning of the STIP)
for the  officer's position rate  as of the date  of termination, plus  (y) an
amount equal  to (i)  the fair market  value of  a share of  the Corporation's
Common Stock  on the  date of  termination, multiplied by  (ii) the  number of
Units  (within the meaning  of the  LTIP) granted to  the officer for  the two
performance  periods ending with the two  calendar years following the year of

                                      109








                                    <PAGE>

termination.    In  addition,  the  officer  is  entitled  to three  years  of
continuation  coverage (or,  if  earlier,  until  normal retirement  date  (as
defined in  the agreement)  in  the basic  and  supplemental group  term  life
insurance plan  and the health care  plan for management employees  (as if the
officer were still an active employee).

Without regard to  any other provision  of the employment  agreements, in  the
event  that the  Corporation's  auditors determine  that  any portion  of  the
payments to be  made under the agreement  is nondeductible by  the Corporation
because of  Code Section 280G of the Internal Revenue Code, payments under the
agreements will be reduced to the extent of the nondeductible amount.

In  addition to the provisions  of the employment  agreements described above,
the  Corporation has also entered  into a supplemental  benefit agreement with
Mr. Odgers under which,  if he voluntarily terminates his employment, he would
receive  a  pension  (payable  in  any   of  the  forms  available  under  the
nonqualified pension plans) equal to a percentage (increasing ratably for each
month of  employment, beginning with 35 percent  and ending with 45 percent in
the  event of  termination on  or after  October 1997)  of his  average annual
compensation  (including  base salary  and the  target  award under  the STIP)
during the  final five years  of employment.   The agreement  further provides
that  if  Mr.  Odgers is  involuntarily  terminated,  or  if  his position  or
compensation  is materially  reduced,  he would  receive  a pension  equal  to
45 percent of his  average annual compensation during his  final five years of
employment.  Any payments to  Mr. Odgers under this agreement would  be offset
by benefits payable to  him under the qualified and nonqualified pension plans
of  the Corporation described under  "Pension Plans" in  the above discussion.
In  addition to the provisions  of the employment  agreements described above,
the Corporation has agreed to provide certain supplemental pension benefits to
Mr. Dorman if he terminates employment after completing five years of service.
The  Corporation has  agreed  that Mr.  Dorman  would receive  a  supplemental
pension  benefit of 2.45 percent of his average annual compensation (including
base salary and the target award  under the STIP) during the final five  years
of employment  multiplied by his years of service.  Mr. Dorman's total pension
would be limited to  a maximum of 50 percent,  would be payable in any  of the
forms  available under  the  nonqualified  pension  plans  and  would  not  be
discounted for early payment.  Any payments to Mr. Dorman under this agreement
would  be  offset  by  benefits  payable   to  him  under  the  qualified  and
nonqualified pension  plans of the Corporation described under "Pension Plans"
in the above discussion.

In addition to  the agreements described above,  SBC Communications Inc.   has
entered  into a  retention  agreement with  Mr. Quigley  that  is intended  to
encourage  him to  remain employed  with the  Corporation during  the critical
transition  period  that would follow the close of the merger with SBC.  Under
this agreement, Mr. Quigley  has agreed to  continue serving as President  and
Chief  Executive  Officer  of the  Corporation  for  up  to thirty-six  months
following the merger unless extended by mutual agreement, but in no event less
than twelve  months following the  merger.   During such time  as Mr.  Quigley
continues to serve in those positions, he will also serve  as Vice Chairman of
SBC.   Mr. Quigley  will also  serve  on the  SBC Board  of Directors  and  be
appointed  to  appropriate  committees  of  that  Board.    If  Mr.  Quigley s
employment terminates  prior to  the end of  the thirty-six month  period, the
agreement provides that he will continue  to make himself available to provide
consulting  services  for SBC.    Upon Mr.  Quigley s retirement,  he  will be
entitled to the  severance payments under  his employment agreement  described

                                      110








                                    <PAGE>

above. Upon  his retirement, Mr.  Quigley also  will be  provided with  office
space  and secretarial  services as have  been provided  in the  past to other
former Chairmen of the Corporation upon their retirement.

In addition to  the agreements  described above, the  Corporation has  entered
into retention agreements with Messrs. Odgers and Moberg  that are intended to
encourage them to  remain employed  with the Corporation  during the  critical
transition  period that would follow the close of  the merger with SBC.  Under
this agreement, Mr.  Odgers has agreed to  continue working for  twelve months
following  the  merger  (unless  extended  or  otherwise   changed  by  mutual
agreement),  at which  time  he will  retire and  he will  be entitled  to the
severance payments under his  employment agreement described above.   However,
in no event will Mr. Odgers retirement date be earlier than November 17, 1997.
Upon  his retirement, Mr.  Odgers will be  entitled to have  the amount of his
nonqualified  pension payments  calculated using  the more  favorable interest
rate that  was applicable to  lump sum  pension cashout payments  during 1996,
under terms substantially similar to the Cashout Factor Extension Program that
was used during  1996 in order to  retain several hundred key  managers in the
Corporation  and its subsidiaries.   Following his retirement,  Mr. Odgers has
agreed to provide  consulting services in the  areas of regulatory,  legal and
external affairs  for an indefinite period  of time, pursuant to  an agreement
with the Corporation.   Under this consulting  agreement, Mr. Odgers would  be
paid a monthly retainer of $15,600, using a daily  rate of $2,600.   A similar
retention agreement has been entered into  with Mr. Moberg, under which he has
agreed  to continue working  during the twelve  months that would   follow the
closing  of the merger, at which time he  will retire (unless he retires at an
earlier  date  or  the  date  is  extended  or  otherwise  changed  by  mutual
agreement), and  he  will be  entitled  to the  severance payments  under  his
employment  agreement described  above.   Mr.  Moberg  will also  receive  the
cashout factor  extension program benefit  for officers upon  his termination.
Similarly, Mr. Moberg has agreed to provide certain consulting services to the
Corporation  related to  the  Telephone  Pioneers  of  America  for  a  period
beginning  upon  his retirement  and ending  June 30,  1999, and  will receive
compensation of $31,500 per month during the term of the agreement.

The Corporation also has an Executive Deferral Plan pursuant to which officers
may elect  to  defer  the  receipt of  all  or  a part  of  certain  specified
compensation payments (including base salary, STIP, LTIP and bonus  payments).
These  deferred amounts earn interest compounded annually at a rate determined
by the C&P Committee.  The  rate for 1996 was equal  to 8.2 percent.  A  trust
has  been established  and assets  have been  contributed by  the Corporation,
consisting of cash  and other  investments, from which  benefits for  officers
under the Executive Deferral  Plan may be paid.  This trust  requires that the
C&P Committee issue irrevocable  instructions to the trustee upon a  change in
control.  The shareowner approval of  the merger with SBC constituted a change
in  control  for purposes  of  the  trust.    The  C&P  Committee  has  issued
irrevocable  instructions   to  the   trustee,  generally  dealing   with  the
distribution  of  trust assets,  which become  effective  upon closing  of the
merger.  A similar trust (with the contribution of assets in a similar manner)
has also been established from which various nonqualified executive retirement
or pension  benefits may be paid.   This trust generally includes restrictions
regarding changes to the trust for three years following change in control and
includes a requirement  that the Corporation will contribute sufficient assets
to the trust  to fully fund  benefit payments upon  a change  in control.   No
additional  funding  was  required  following  the  change in  control,  which
occurred upon shareowner approval of the merger.

                                      111








                                    <PAGE>


COMPENSATION AND PERSONNEL COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The  members of  the  C&P Committee  during  1996 were:    Frank C. Herringer,
Lewis E.  Platt, Gilbert F. Amelio,  S. Donley Ritchey  and Richard Rosenberg.
No current  or former officer of  the Corporation serves on  the C&P Committee
and there were no "interlocks" as defined by the SEC in 1996.

Item 12.  Security Ownership of Certain Beneficial Owners and Management.

The following table sets forth the beneficial ownership of Common  Stock as of
February 28, 1997  by the directors, and the Named Executive Officers, and all
directors and executive officers  as a group (including shares  acquired under
the  Pacific Telesis  Group  Supplemental  Retirement  and  Savings  Plan  for
Salaried  Employees, the  Pacific  Telesis Group  Supplemental Retirement  and
Savings Plan for Salaried and Nonsalaried  Employees ("LESOP") and the ESOP as
of  December  31,  1996).    The  total  number  of  shares  of  Common  Stock
beneficially  owned  by the  group  is  less than  one  percent  of the  class
outstanding.

Name of Beneficial Owner    Amount and Nature of        Exercisable Options*
                            Beneficial Ownership
--------------------------------------------------------------------------
G. F. Amelio                  1,834                         2,000
W. P. Clark                   2,054 (1)                    10,000
D. W. Dorman                    173                       136,000
M. J. Fitzpatrick               258                       108,000
H. E. Gallegos                2,677                        10,000
F. C. Herringer               3,204 (1)(2)                  6,000
M. S. Metz                    2,575 (1)                    10,000
J. R. Moberg                  3,961                        88,000
R. W. Odgers                  2,442                        88,000
L. E. Platt                   1,222                         6,000
P. J. Quigley                 7,848 (1)                   327,000
T. Rembe                      2,344                         9,000
S. D. Ritchey                 3,711 (1)                    10,000
R. M. Rosenberg               2,200 (1)                     4,000

All directors and executive
officers as a group
(16 persons)                  38,829 (3)                  840,000


(1) Includes the following shares  of the Corporation's Common Stock  in which
    the  named  persons   share  voting  and  investment   power:  Mr.  Clark,
    600 shares;   Mr.  Herringer,   3,200   shares;   Dr. Metz,  348   shares;
    Mr. Quigley, 3,520 shares; Mr. Ritchey,  3,711 shares; and  Mr. Rosenberg,
    400 shares.

(2) Includes four shares  beneficially owned by  spouse, for which  beneficial
    ownership is disclaimed.

(3) Includes 640 shares  beneficially owned by a spouse and acquired under the
    Pacific  Telesis  Group  Supplemental  Retirement  and  Savings  Plan  for
    Salaried Employees, the Pacific  Telesis Group Supplemental Retirement and
    Savings Plan for  Salaried and  Nonsalaried Employees ("LESOP")   and  the

                                      112








                                    <PAGE>

    ESOP  (as of  December  31,  1996),  for  which  beneficial  ownership  is
    disclaimed.  See also Notes (1) and (2) above.

*   Includes options which are  exercisable within 60 days after  February 28,
    1997.

As of February 28, 1997,  there were no persons known to the Corporation to be
beneficial owners of more than five percent of the Corporation's Common Stock.

Item 13.  Certain Relationships and Related Transactions.

Members of Messrs. Gallegos' and Quigley's immediate families were employed by
Pacific  Bell,  a subsidiary  of the  Corporation, and  were  paid a  total of
$210,000  in 1996.    Amounts  paid  to  these  employees  are  comparable  to
compensation paid to other employees performing similar job functions.

In 1996, the Corporation and its subsidiaries obtained legal services from the
law firm of Pillsbury Madison & Sutro LLP, of which Ms. Rembe is a  member, on
terms  which the  Corporation believes  were as favorable  as would  have been
obtained from unaffiliated parties.





































                                      113








                                    <PAGE>

                                    PART IV

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K.

    (a)  Documents filed as part of the report:

          (1)  Financial Statements:                                   Page

               Report of Management ...............................     48

               Report of Independent Accountants ..................     50

               Financial Statements:

                    Consolidated Statements of Income .............     51

                    Consolidated Balance Sheets ...................     53

                    Consolidated Statements of Shareowners'
                      Equity ......................................     55

                    Consolidated Statements of Cash Flows .........     57

                    Notes to Consolidated Financial
                      Statements ..................................     59

                    Quarterly Financial Data ......................     94

          (2)  Financial Statement Schedule:

               II - Valuation and Qualifying Accounts ............     121

               Financial statement schedules other than listed above have been
               omitted either because the required information is contained in
               the Consolidated Financial Statements  and the notes thereto or
               because such schedules are not required or applicable.


          (3)  Exhibits:

               Exhibits identified in  parentheses below as  on file with  the
               SEC are  incorporated herein  by reference as  exhibits hereto.
               Unless  otherwise indicated, all  exhibits so  incorporated are
               from File No. 1-8609.  All management contracts or compensatory
               plans  or arrangements required to be filed as exhibits to this
               Form 10-K pursuant  to Item  14(c) are filed  as Exhibits  10aa
               through 10vv.

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

            2         Agreement  and  Plan  of Merger  among  Pacific  Telesis
                      Group, SBC  Communications, Inc. and  SBC Communications
                      (NVI, Inc.), dated  as of  April 1, 1996  (Exhibit 2  to
                      Form 8-K filed April 1, 1996).

                                      114








                                    <PAGE>

            3a        Articles  of Incorporation of  Pacific Telesis Group, as
                      amended  to June  17, 1988  (Exhibit 3a  to Registration
                      Statement No. 33-24765).

            3b        By-Laws of  Pacific Telesis  Group, as amended  April 1,
                      1996.

            4a        Rights  Agreement,  dated  as  of  September  22,  1989,
                      between  Pacific Telesis  Group and  The First  National
                      Bank  of  Boston,  as  successor  Rights  Agent,   which
                      includes  as  Exhibit  B  thereto  the  form  of  Rights
                      Certificate (Exhibits 1 and 2 to Form SE filed September
                      25, 1989 as part of Form 8-A).

                      4a(i)     Amendment  to Rights  Agreement,  dated as  of
                                April 1, 1996.

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

            10e       Separation  Agreement by and between the Corporation and
                      PacTel  Corporation dated  as  of October  7, 1993,  and
                      amended November 2, 1993 and March 25, 1994 (Exhibit 10e
                      to Form 10-K for 1993).

                      10e(i)    Amendment  No.  3   to  Separation   Agreement
                                effective as of April  1, 1994 (Exhibit 10e(i)
                                to Form 10-K for 1994).

            10aa      Pacific   Telesis  Group   Short  Term   Incentive  Plan
                      (Attachment A  to  Pacific Telesis  Group's  1995  Proxy
                      Statement,  including  Pacific   Telesis  Group's   1994
                      Consolidated Financial Statements filed March 13, 1995).

                      10aa(i)   Resolution   amending   the  Plan,   effective
                                November 15, 1996.

            10bb      Pacific  Telesis  Group  Senior  Management   Long  Term
                      Incentive Plan (Attachment A  to Pacific Telesis Group's
                      1995 Proxy Statement,  including Pacific Telesis Group's
                      1994  Consolidated Financial Statements  filed March 13,
                      1995).

            10cc      Pacific  Telesis  Group  Executive  Life  Insurance Plan
                      (Exhibit  10cc  to  Form  SE  filed March  27,  1987  in
                      connection with the Corporation's Form 10-K for 1986).

                      10cc(i)   Resolutions   amending  the   Plan,  effective
                                April 1,  1994 (Exhibit  10cc(i) to  Form 10-K
                                for 1993).


                                      115








                                    <PAGE>

            10dd      Pacific Telesis Group Executive Disability  and Survivor
                      Protection Plan, as amended  and restated effective July
                      1, 1995 (Exhibit 10dd to Form 10-K for 1995).

            10ee      Pacific Telesis Group Senior Management Transfer Program
                      (Exhibit 10ee to Registration Statement No. 2-87852).

            10ff      Pacific  Telesis  Group   Senior  Management   Financial
                      Counseling   Program   (Exhibit  10ff   to  Registration
                      Statement No. 2-87852).

            10gg      Pacific  Telesis Group  Deferred  Compensation Plan  for
                      Nonemployee Directors.

            10hh      Description  of  Pacific  Telesis Group  Directors'  and
                      Officers'  Liability Insurance Program  (Exhibit 10hh to
                      Form 10-K for 1993).

            10ii      Description   of   Pacific   Telesis   Group   Plan  for
                      Nonemployee   Directors'   Travel   Accident   Insurance
                      (Exhibit  10ii   to  Form SE  filed  March 26,  1990  in
                      connection with the Corporation's Form 10-K for 1989).

            10jj      Pacific   Telesis  Group   1994  Stock   Incentive  Plan
                      (Attachment A  to  Pacific  Telesis  Group's  1994 Proxy
                      Statement,  including  Pacific   Telesis  Group's   1993
                      Consolidated Financial Statements  filed March 11, 1994,
                      and amended March 14 and March 25, 1994).

                      10jj(i)   Resolutions   amending  the   Plan,  effective
                                January 1,  1995  (Attachment  A   to  Pacific
                                Telesis Group's 1995 Proxy Statement including
                                Pacific   Telesis   Group  1994   Consolidated
                                Financial Statements filed March 13, 1995).

            10kk      Pacific  Telesis  Group   Executive  Supplemental   Cash
                      Balance Pension Plan as amended and restated  as of July
                      1, 1996.

            10ll      Pacific Telesis Group Executive Deferral Plan as amended
                      and restated December 1, 1995 (Exhibit 10ll to Form 10-K
                      for 1995).

            10mm      Description of Pacific  Telesis Group Personal  Umbrella
                      Liability  Insurance  (Exhibit  10mm  to  Form  10-K for
                      1994).

            10nn      Pacific   Telesis   Group   1996    Executive   Deferred
                      Compensation Plan.

            10oo      Pacific Telesis Group  Outside Directors' Deferred Stock
                      Unit Plan (Exhibit 10oo to Form 10-K for 1995).

            10pp      Employment  Contracts  for  Certain Senior  Officers  of
                      Pacific  Telesis Group  (Exhibit 10pp  to Form  SE filed
                      March  23, 1989   in  connection with  the Corporation's

                                      116








                                    <PAGE>

                      Form 10-K for 1988).

                      10pp(i)   Schedule to  Exhibit 10pp (Exhibit  10pp(i) to
                                Form 10-K for 1993).

                      10pp(ii)  Employment   contracts   for  certain   senior
                                officers  of  Pacific  Telesis Group  (Exhibit
                                10pp(ii) to Form 10-K for 1993).

                      10pp(iii) Employment  contract  for  senior  officer  of
                                Pacific  Telesis  Group (Exhibit  10pp(iii) to
                                Form 10-Q for the  quarter ended September 30,
                                1994).

                      10pp(iv)  Employment   contract   for   certain   senior
                                officers  of  Pacific  Telesis Group  (Exhibit
                                10pp(iv) to Form 10-K for 1994).

                      10pp(v)   Supplemental  Benefit   Agreement  for  senior
                                officer  of  Pacific  Telesis  Group  (Exhibit
                                10pp(v) to Form 10-K for 1995).

                      10pp(vi)  Executive   supplemental   benefit   agreement
                                (Exhibit 10rr to Form 10-K for 1993).

                      10pp(vii) Agreements  for  certain  senior  officers  of
                                Pacific Telesis Group.

            10qq      Pacific   Telesis   Group   1996   Director's   Deferred
                      Compensation Plan.

            10rr      [Intentionally omitted]

            10ss      Pacific  Telesis  Group  Outside  Directors'  Retirement
                      Plan, as amended and restated effective January 26, 1996
                      (Exhibit 10ss to Form 10-K for 1995).

            10tt      Representative   Indemnity  Agreement   between  Pacific
                      Telesis Group  and certain of  its officers and  each of
                      its directors (Exhibit  10tt to Form SE  filed March 29,
                      1988 in connection with  the Corporation's Form 10-K for
                      1987).

            10uu      Trust   Agreement  between  Pacific  Telesis  Group  and
                      Bankers   Trust  Company,   as  successor   Trustee,  in
                      connection  with  the  Pacific  Telesis  Group Executive
                      Deferral Plan  (Exhibit 10uu to Form SE  filed March 23,
                      1989 in connection with  the Corporation's Form 10-K for
                      1988).

                      10uu(i)   Amendment to  Trust Agreement No.  1 effective
                                December 11, 1992 (Exhibit 10uu(i) to Form  SE
                                filed March  26, 1993  in connection  with the
                                Corporation's Form 10-K for 1992).

                      10uu(ii)  Amendment  to Trust Agreement No. 1, effective

                                      117








                                    <PAGE>

                                May  28, 1993 (Exhibit  10uu(ii) to  Form 10-K
                                for 1993).

                      10uu(iii) Amendment to Trust Agreement No.  1, effective
                                November  15,  1993   (Exhibit  10uu(iii)   to
                                Form 10-K for 1993).

                      10uu(iv)  Amendment  to Trust Agreement No. 1, effective
                                September 1, 1993 and November 22, 1996.

            10vv      Trust   Agreement  between  Pacific  Telesis  Group  and
                      Bankers   Trust  Company,   as  successor   Trustee,  in
                      connection  with  the  Pacific  Telesis  Group  Deferred
                      Compensation Plan for the Nonemployee Directors (Exhibit
                      10vv to Form SE filed March 23, 1989 in  connection with
                      the Corporation's Form 10-K for 1988).

                      10vv(i)   Amendment to  Trust Agreement No.  2 effective
                                December  11, 1992 (Exhibit 10vv(i) to Form SE
                                filed March 26,  1993 in  connection with  the
                                Corporation's Form 10-K for 1992).

                      10vv(ii)  Amendment  to Trust Agreement No. 2, effective
                                May 28,  1993 (Exhibit 10vv(ii)  to Form  10-K
                                for 1993).

            10ww      Trust Agreement No. 3  between Pacific Telesis Group and
                      Bankers   Trust   Company   in   connection   with   the
                      Corporation's  executive  supplemental pension  benefits
                      (Exhibit 10kk(iv) to Form 10-K for 1993).

                      10ww(i)   Amendment  to Trust Agreement No. 3, effective
                                November 22, 1996.

            11        Computation of Earnings per Common Share.

            12        Ratio of Earnings to Fixed Charges.

            18        Preferability Letter on Discretionary Accounting Change.

            21        Subsidiaries of Pacific Telesis Group.

            23        Consent of Independent Accountants.

            24        Powers of  Attorney executed by  Directors and  Officers
                      who signed this Form 10-K.

            27        Financial Data Schedule.

            99a       Annual Report on Form 11-K for the Pacific Telesis Group
                      Supplemental  Retirement and  Savings Plan  for Salaried
                      Employees for the year 1996 (To be filed as an amendment
                      within 180 days).

            99b       Annual Report on Form 11-K for the Pacific Telesis Group
                      Supplemental Retirement and Savings Plan for Nonsalaried

                                      118








                                    <PAGE>

                      Employees for the year 1996 (To be filed as an amendment
                      within 180 days).

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

  (b) Reports on Form 8-K:
        No reports on Form 8-K were filed in the fourth quarter of 1996.

















































                                      119








                                    <PAGE>

                                  SIGNATURES

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

                             PACIFIC TELESIS GROUP


                             BY /s/ William E. Downing
                                -------------------------
                                William E. Downing,
                                Executive Vice President,
                                Chief Financial Officer and Treasurer
                                (Principal Financial and Accounting Officer)

                             DATE:  March 31, 1997

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

Philip J. Quigley,*                Chairman of the Board, President and
                                   Chief Executive Officer

/s/ William E. Downing,            Executive Vice President,
                                   Chief Financial Officer and Treasurer

Gilbert F. Amelio,* Director       Lewis E. Platt,* Director

William P. Clark,* Director        Toni Rembe,* Director

Herman E. Gallegos,* Director      S. Donley Ritchey,* Director

Frank C. Herringer,* Director      Richard M. Rosenberg,* Director

Mary S. Metz,* Director



*BY    /s/ William E. Downing
       ------------------------------------
       William E. Downing, attorney-in-fact

DATE:  March 31, 1997












                                      120








                                    <PAGE>

                                                                  Sheet 1 of 3

                           PACIFIC TELESIS GROUP AND
                                 SUBSIDIARIES

                SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                             (Dollars in millions)

---------------------------------------------------------------------------
    COL. A         COL. B            COL. C           COL. D     COL. E
---------------------------------------------------------------------------

Allowance for Doubtful Accounts
-------------------------------
                                    Additions
                              --------------------
                                  (1)        (2)
                              Charged to   Charged
                 Balance at    Costs and  to Other             Balance at
                End of Prior   Expenses   Accounts  Deductions   End of
                   Period         (a)        (b)        (c)      Period
---------------------------------------------------------------------------
Year 1996           $132         $132       $217       $318       $163
Year 1995           $134         $167       $147       $316       $132
Year 1994           $138         $151       $143       $298       $134
===========================================================================

Reserve for Discontinuing Real Estate Operations
------------------------------------------------

                                    Additions

                             --------------------
                                  (1)        (2)
                 Balance at   Charged to   Charged             Balance at
                End of Prior   Costs and  to Other               End of
                   Period      Expenses   Accounts  Deductions   Period
---------------------------------------------------------------------------
Year 1996            $ 32         $  0        $0       $ 19       $ 13
Year 1995            $ 51         $  0        $0       $ 19       $ 32
Year 1994            $338         $  0        $0       $287       $ 51
===========================================================================



See accompanying notes on Sheet 3 of 3.












                                      121








                                    <PAGE>

                                                                  Sheet 2 of 3

                    PACIFIC TELESIS GROUP AND SUBSIDIARIES

                SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                             (Dollars in millions)


---------------------------------------------------------------------------
    COL. A         COL. B            COL. C           COL. D     COL. E
---------------------------------------------------------------------------

Reserve for Restructuring
-------------------------

                                    Additions
                              --------------------
                                  (1)        (2)
                 Balance at   Charged to   Charged             Balance at
                End of Prior   Costs and  to Other  Deductions   End of
                   Period      Expenses   Accounts      (d)      Period
---------------------------------------------------------------------------
Year 1996            $  228       $  0        $ 0       $131     $   97
Year 1995            $  819       $  0        $ 0       $591     $  228
Year 1994            $1,097       $  0        $ 0       $278     $  819
===========================================================================

Various Other Reserves
----------------------

                                    Additions
                              --------------------
                                  (1)
                              Charged to     (2)
                 Balance at    Costs and   Charged             Balance at
                End of Prior   Expenses   to Other               End of
                   Period         (e)     Accounts  Deductions   Period
---------------------------------------------------------------------------
Year 1996               $66       $ 43        $ 0        $ 6     $  103
Year 1995               $68       $  0        $ 0        $ 2     $   66
Year 1994               $90       $  0        $ 0        $22     $   68
===========================================================================



See accompanying notes on Sheet 3 of 3.











                                      122








                                    <PAGE>

                                                                  Sheet 3 of 3


                    PACIFIC TELESIS GROUP AND SUBSIDIARIES

                SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS




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(a)  Provision for uncollectibles includes certain direct write-off items
which are not reflected in this account.

(b)  Amounts in this column reflect items of uncollectible interstate and
intrastate accounts receivable purchased from and billed for AT&T and other
interexchange carriers under contract arrangements.

(c)  Amounts in this column reflect items written off, net of amounts
previously written off but subsequently recovered.

(d)  The 1996, 1995 and 1994 amounts reflect ($64), $219 and $62 million of
costs, respectively, for enhanced retirement benefits paid from pension fund
assets which do not require current outlays of the Corporation's funds.  The
1996 reversal of $64 million resulted from revised estimates of these
retirement costs.

(e)  In the fourth quarter 1996, the Corporation established a reserve of $43
million to reflect the restructuring of portions of its video-related
business.



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        TELESIS(R) is a registered trademark of Pacific Telesis Group.







































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                                    <PAGE>

                                 EXHIBIT INDEX

Exhibits  identified in  parentheses  below  as  on  file  with  the  SEC  are
incorporated  herein  by  reference  as exhibits  hereto.    Unless  otherwise
indicated,  all exhibits  so  incorporated  are from  File  No.  1-8609.   All
management  contracts or  compensatory  plans or  arrangements required  to be
filed  as exhibits  to this  Form 10-K  pursuant to  Item  14(c) are  filed as
Exhibits 10aa through 10ww.


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

       2       Agreement  and Plan of Merger among  Pacific Telesis Group, SBC
               Communications, Inc. and SBC  Communications (NVI, Inc.), dated
               as  of April  1, 1996  (Exhibit 2  to Form  8-K filed  April 1,
               1996).
       3a      Articles of Incorporation of  Pacific Telesis Group, as amended
               to June  17, 1988  (Exhibit  3a to  Registration Statement  No.
               33-24765).

       3b      By-Laws of Pacific Telesis Group, as amended April 1, 1996.

       4a      Rights  Agreement,  dated as  of  September  22, 1989,  between
               Pacific Telesis Group and The First National Bank of Boston, as
               successor Rights Agent, which includes as Exhibit B thereto the
               form of Rights Certificate  (Exhibits 1 and 2 to Form  SE filed
               September 25, 1989 as part of Form 8-A).

               4a(i)     Amendment to  Rights Agreement, dated as  of April 1,
                         1996.

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

       10e     Separation Agreement by and  between the Corporation and PacTel
               Corporation  dated as of October 7,  1993, and amended November
               2, 1993 and March 25, 1994 (Exhibit 10e to Form 10-K for 1993).

               10e(i)    Amendment No. 3 to Separation Agreement effective  as
                         of  April 1, 1994  (Exhibit 10e(i)  to Form  10-K for
                         1994).

       10aa    Pacific Telesis  Group Short Term Incentive  Plan (Attachment A
               to Pacific  Telesis  Group's 1995  Proxy  Statement,  including
               Pacific Telesis Group's  1994 Consolidated Financial Statements
               filed March 13, 1995).

               10aa(i)   Resolution amending the  Plan, effective November 15,
                         1996.


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                                    <PAGE>

       10bb    Pacific Telesis  Group  Senior Management  Long Term  Incentive
               Plan  (Attachment  A  to  Pacific Telesis  Group's  1995  Proxy
               Statement, including Pacific  Telesis Group's 1994 Consolidated
               Financial Statements filed March 13, 1995).

       10cc    Pacific Telesis Group  Executive Life  Insurance Plan  (Exhibit
               10cc to Form  SE filed March  27, 1987 in  connection with  the
               Corporation's Form 10-K for 1986).

               10cc(i)   Resolutions  amending  the  Plan, effective  April 1,
                         1994 (Exhibit 10cc(i) to Form 10-K for 1993).

       10dd    Pacific   Telesis  Group  Executive   Disability  and  Survivor
               Protection Plan, as amended and restated effective July 1, 1995
               (Exhibit 10dd to Form 10-K for 1995).

       10ee    Pacific   Telesis  Group  Senior  Management  Transfer  Program
               (Exhibit 10ee to Registration Statement No. 2-87852).

       10ff    Pacific  Telesis Group  Senior Management  Financial Counseling
               Program (Exhibit 10ff to Registration Statement No. 2-87852).

       10gg    Pacific   Telesis  Group   Deferred   Compensation   Plan   for
               Nonemployee Directors.

       10hh    Description of Pacific  Telesis Group Directors'  and Officers'
               Liability  Insurance  Program (Exhibit  10hh  to  Form 10-K for
               1993).

       10ii    Description  of  Pacific  Telesis Group  Plan  for  Nonemployee
               Directors' Travel  Accident Insurance (Exhibit  10ii to Form SE
               filed March 26, 1990 in  connection with the Corporation's Form
               10-K for 1989).

       10jj    Pacific Telesis Group 1994  Stock Incentive Plan  (Attachment A
               to Pacific  Telesis  Group's 1994  Proxy  Statement,  including
               Pacific Telesis Group's 1993 Consolidated  Financial Statements
               filed March 11, 1994, and amended March 14 and March 25, 1994).

               10jj(i)   Resolutions amending the  Plan, effective  January 1,
                         1995 (Attachment A  to Pacific  Telesis Group's  1995
                         Proxy Statement including  Pacific Telesis Group 1994
                         Consolidated  Financial  Statements  filed March  13,
                         1995).

       10kk    Pacific  Telesis  Group  Executive  Supplemental  Cash  Balance
               Pension Plan as amended and restated as of July 1, 1996.

       10ll    Pacific Telesis  Group Executive  Deferral Plan as  amended and
               restated December 1, 1995 (Exhibit 10ll to Form 10-K for 1995).

       10mm    Description   of  Pacific   Telesis  Group   Personal  Umbrella
               Liability Insurance (Exhibit 10mm to Form 10-K for 1994).

       10nn    Pacific  Telesis  Group  1996  Executive  Deferred Compensation
               Plan.

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                                    <PAGE>

       10oo    Pacific  Telesis Group Outside  Directors' Deferred  Stock Unit
               Plan (Exhibit 10oo to Form 10-K for 1995).

       10pp    Employment  Contracts for  Certain Senior  Officers of  Pacific
               Telesis Group (Exhibit 10pp to Form SE filed March 23, 1989  in
               connection with the Corporation's Form 10-K for 1988).

               10pp(i)   Schedule to Exhibit 10pp (Exhibit 10pp(i) to Form 10-
                         K for 1993).

               10pp(ii)  Employment contracts for  certain senior officers  of
                         Pacific  Telesis Group (Exhibit 10pp(ii) to Form 10-K
                         for 1993).

               10pp(iii) Employment  contract for  senior  officer of  Pacific
                         Telesis Group (Exhibit 10pp(iii) to Form 10-Q for the
                         quarter ended September 30, 1994).

               10pp(iv)  Employment  contract for  certain senior  officers of
                         Pacific Telesis Group (Exhibit 10pp(iv)  to Form 10-K
                         for 1994).

               10pp(v)   Supplemental  Benefit Agreement for senior officer of
                         Pacific Telesis  Group (Exhibit 10pp(v)  to Form 10-K
                         for 1995).

               10pp(vi)  Executive  supplemental  benefit  agreement  (Exhibit
                         10rr to Form 10-K for 1993).

               10pp(vii) Agreements  for certain  senior  officers of  Pacific
                         Telesis Group.

       10qq    Pacific  Telesis Group  1996  Director's Deferred  Compensation
               Plan.

       10rr    [Intentionally omitted]

       10ss    Pacific Telesis  Group Outside Directors'  Retirement Plan,  as
               amended and  restated effective January 26,  1996 (Exhibit 10ss
               to Form 10-K for 1995).

       10tt    Representative  Indemnity  Agreement  between  Pacific  Telesis
               Group and certain  of its  officers and each  of its  directors
               (Exhibit 10tt to  Form SE  filed March 29,  1988 in  connection
               with the Corporation's Form 10-K for 1987).

       10uu    Trust Agreement between Pacific Telesis Group and Bankers Trust
               Company, as  successor Trustee, in connection  with the Pacific
               Telesis Group Executive Deferral Plan  (Exhibit 10uu to Form SE
               filed March 23, 1989 in connection  with the Corporation's Form
               10-K for 1988).

               10uu(i)   Amendment to Trust Agreement No. 1 effective December
                         11, 1992 (Exhibit 10uu(i) to  Form SE filed March 26,
                         1993 in connection  with the Corporation's Form  10-K
                         for 1992).

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                                    <PAGE>

               10uu(ii)  Amendment to Trust Agreement No. 1, effective May 28,
                         1993 (Exhibit 10uu(ii) to Form 10-K for 1993).

               10uu(iii) Amendment   to  Trust  Agreement   No.  1,  effective
                         November 15, 1993 (Exhibit 10uu(iii) to Form 10-K for
                         1993).

               10uu(iv)  Amendment  to  Trust   Agreement  No.  1,   effective
                         September 1, 1993 and November 22, 1996.

       10vv    Trust Agreement between Pacific Telesis Group and Bankers Trust
               Company, as  successor Trustee, in connection  with the Pacific
               Telesis Group Deferred  Compensation Plan  for the  Nonemployee
               Directors  (Exhibit  10vv to  Form SE  filed March 23,  1989 in
               connection with the Corporation's Form 10-K for 1988).

               10vv(i)   Amendment to Trust Agreement No. 2 effective December
                         11, 1992 (Exhibit 10vv(i) to  Form SE filed March 26,
                         1993 in connection  with the Corporation's  Form 10-K
                         for 1992).

               10vv(ii)  Amendment to Trust Agreement No. 2, effective May 28,
                         1993 (Exhibit 10vv(ii) to Form 10-K for 1993).

       10ww    Trust Agreement No. 3 between Pacific Telesis Group and Bankers
               Trust  Company in  connection with the  Corporation's executive
               supplemental pension benefits  (Exhibit 10kk(iv)  to Form  10-K
               for 1993).

               10ww(i)   Amendment  to   Trust  Agreement  No.   3,  effective
                         November 22, 1996.

       11      Computation of Earnings per Common Share.

       12      Ratio of Earnings to Fixed Charges.

       18      Preferability Letter on Discretionary Accounting Change.

       21      Subsidiaries of Pacific Telesis Group.

       23      Consent of Independent Accountants.

       24      Powers  of  Attorney executed  by  Directors  and Officers  who
               signed this Form 10-K.

       27      Financial Data Schedule.

       99a     Annual  Report  on  Form 11-K  for  the  Pacific  Telesis Group
               Supplemental Retirement and Savings Plan for Salaried Employees
               for the  year  1996 (To  be filed  as an  amendment within  180
               days).

       99b     Annual Report  on  Form  11-K for  the  Pacific  Telesis  Group
               Supplemental  Retirement  and   Savings  Plan  for  Nonsalaried
               Employees for the year 1996 (To be filed as an amendment within
               180 days).

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