<PAGE>   1
<TABLE>
<S>    <C>
---------------------------------------------------------
 2     SELECTED FINANCIAL DATA

---------------------------------------------------------
 2     Selected Five-Year Consolidated Data

---------------------------------------------------------
 5     Selected Five-Year Proportionate Data
---------------------------------------------------------

---------------------------------------------------------
 9     MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL
       CONDITION & RESULTS OF OPERATIONS
---------------------------------------------------------

---------------------------------------------------------
25     CONSOLIDATED FINANCIAL STATEMENTS

---------------------------------------------------------
25     Report of Management

---------------------------------------------------------
26     Report of Independent Accountants

---------------------------------------------------------
27     Consolidated Statements of Income for the years
       ended December 31, 1998, 1997, and 1996

---------------------------------------------------------
28     Consolidated Balance Sheets as of December 31,
       1998 and 1997

---------------------------------------------------------
29     Consolidated Statements of Stockholders' Equity
       for the years ended December 31, 1998, 1997, and
       1996

---------------------------------------------------------
30     Consolidated Statements of Cash Flows for the
       years ended December 31, 1998, 1997, and 1996

---------------------------------------------------------
31     Notes to Consolidated Financial Statements

---------------------------------------------------------
53     Selected Proportionate Financial Data
</TABLE>


                                       -1-
<PAGE>   2

SELECTED FINANCIAL DATA 
SELECTED FIVE-YEAR CONSOLIDATED DATA
AIRTOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
(Dollars in millions, except per share amounts)
 
<TABLE>
<CAPTION>
                                                                           For the Year Ended December 31
                                                         -------------------------------------------------------------------
                                                           Pro Forma (a)                        Historical
                                                         ------------------   ----------------------------------------------
                  OPERATING RESULTS                        1998      1997     1998(a)   1997(b)   1996(b)    1995    1994(c)
<S>                                                      <C>        <C>       <C>       <C>       <C>       <C>      <C>
----------------------------------------------------------------------------------------------------------------------------
Operating revenues                                       $  5,542   $ 5,034   $5,181    $3,594    $2,252    $1,619   $1,247
Operating income                                         $    982   $   843   $  946    $  706    $  281    $  113   $   73
Equity in net income of unconsolidated wireless
  systems                                                $    357   $    81   $  393    $  200    $  133    $  152   $  110
Interest:
Expense                                                  $   (168)  $  (174)  $ (145)   $  (90)   $  (52)   $  (13)  $  (10)
Income                                                   $     23   $    18   $   23    $   18    $   14    $   35   $   55
Income before preferred dividends                        $    710   $   365   $  725    $  448    $  199    $  132   $   98
Preferred dividends                                      $    140   $   139   $  117    $   54    $   20    $   --   $   --
Net income applicable to common stockholders             $    570   $   226   $  608    $  394    $  179    $  132   $   98
Per share data:
Income before preferred dividends
Basic                                                    $   1.24   $  0.65   $ 1.30    $ 0.89    $ 0.40    $ 0.27   $ 0.20
Diluted                                                  $   1.22   $  0.65   $ 1.28    $ 0.89    $ 0.40    $ 0.27   $ 0.20
Net income applicable to common stockholders
Basic                                                    $   1.00   $  0.40   $ 1.09    $ 0.78    $ 0.36    $ 0.27   $ 0.20
Diluted                                                  $   0.98   $  0.40   $ 1.07    $ 0.78    $ 0.36    $ 0.27   $ 0.20
</TABLE>
 
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                      For the year Ended December 31
                                                                              ----------------------------------------------
                  CASH FLOW DATA                                              1998(a)   1997(b)   1996(b)   1995     1994(c)
<S>                                                                           <C>       <C>       <C>       <C>      <C>
----------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities                                          $ 1,856   $ 1,335   $   775   $   322  $  118
Cash flows from investing activities                                          $(1,656)  $(1,097)  $(1,175)  $(1,362) $ (472)
Cash flows from financing activities                                          $  (159)  $  (260)  $   346   $   694  $  132
</TABLE>

<TABLE>
<CAPTION>
                                                                                               December 31
                                                                              ----------------------------------------------
                  BALANCE SHEET DATA                                          1998(a)     1997     1996(b)    1995    1994(c)
<S>                                                                           <C>       <C>       <C>       <C>      <C>
----------------------------------------------------------------------------------------------------------------------------
Investments in unconsolidated wireless systems                                $ 3,491   $ 2,068    $ 1,992  $ 3,076  $1,698
Intangible assets, net                                                        $ 8,513   $ 3,297    $ 3,409  $   606  $  471
Total assets                                                                  $17,553   $ 8,970    $ 8,524  $ 5,648  $4,488
Long-term debt, including current portion                                     $ 2,746   $ 1,419    $ 1,669  $   906  $  130
Redeemable preferred stock                                                    $ 1,574   $    --    $    --  $    --  $   --
Total stockholders' equity                                                    $ 9,325   $ 5,529    $ 5,062  $ 3,751  $3,459
Working capital (deficit)                                                     $  (220)  $  (254)   $  (120) $    19  $  736
Capital expenditures and capital calls, excluding
  acquisitions (d)                                                            $ 1,398   $ 1,023    $   903  $   665  $  443
</TABLE>
--------------------------------------------------------------------------------

                                      -2-
<PAGE>   3
SELECTED FINANCIAL DATA
(Dollars in millions)

<TABLE>
<CAPTION>
U.S. CELLULAR OPERATIONS
                                                                           For the Year Ended December 31
                                                         -------------------------------------------------------------------
                                                           Pro Forma (a)                        Historical
                                                         ------------------   ----------------------------------------------
                  GAAP FINANCIAL DATA                      1998      1997     1998(a)    1997     1996(b)    1995    1994(c)
<S>                                                      <C>        <C>       <C>       <C>       <C>       <C>      <C>
----------------------------------------------------------------------------------------------------------------------------
Service and other revenues                               $  3,874   $ 3,621   $3,538    $2,351    $1,634    $1,145   $  875
Equipment sales                                               224       295      198       125        60        44       46
----------------------------------------------------------------------------------------------------------------------------
Operating revenues                                          4,098     3,916    3,736     2,476     1,694     1,189      921
----------------------------------------------------------------------------------------------------------------------------
Operating expenses before
  depreciation and amortization                             2,398     2,360    2,185     1,452     1,055       771      584
Depreciation and amortization expenses                        860       780      748       381       240       128      130
----------------------------------------------------------------------------------------------------------------------------
Operating income                                         $    840   $   776   $  803    $  643    $  399    $  290   $  207 
============================================================================================================================
Equity in net income (loss) of
  unconsolidated wireless systems (e)                    $    (77)  $  (125)  $  (41)   $    1    $  151    $  188   $  125
----------------------------------------------------------------------------------------------------------------------------
Distributions received from equity investees                                  $  133    $  105    $  140    $  104   $   80
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL OPERATIONS
                                                                                      For the Year Ended December 31
                                                                              ----------------------------------------------
                  GAAP FINANCIAL DATA                                          1998     1997(b)    1996(b)   1995    1994(c)
<S>                                                                           <C>       <C>       <C>       <C>      <C>
----------------------------------------------------------------------------------------------------------------------------
Service and other revenues                                                    $   935   $   685    $   190  $   133  $   76
Equipment sales                                                                    89        66         22       19       7
----------------------------------------------------------------------------------------------------------------------------
Operating revenues                                                              1,024       751        212      152      83
----------------------------------------------------------------------------------------------------------------------------
Operating expenses before
  depreciation and amortization expenses                                          674       551        239      214     140
Depreciation and amortization expenses                                            112        85         34       27      22
----------------------------------------------------------------------------------------------------------------------------
Operating income (loss)                                                       $   238   $   115    $   (61) $   (89) $  (79)
============================================================================================================================
Equity in net income (loss) of
  unconsolidated wireless systems                                             $   434   $   199    $   (18) $   (36) $  (15)
----------------------------------------------------------------------------------------------------------------------------
Distributions received from equity
  investees                                                                   $   258   $   279    $    --  $    --  $   --
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
U.S. PAGING OPERATIONS
                                                                                      For the Year Ended December 31
                                                                              ----------------------------------------------
                  GAAP FINANCIAL DATA                                          1998      1997       1996     1995    1994(c)
<S>                                                                           <C>       <C>       <C>       <C>      <C>
----------------------------------------------------------------------------------------------------------------------------
Service and other revenues                                                    $   371   $   330    $   293  $   220  $  184
Equipment sales                                                                    48        39         50       45      43
----------------------------------------------------------------------------------------------------------------------------
Operating revenues                                                                419       369        343      265     227
----------------------------------------------------------------------------------------------------------------------------
Operating expenses before
  depreciation and amortization expenses                                          296       261        255      190     160
Depreciation and amortization expenses                                             80        74         64       43      37
----------------------------------------------------------------------------------------------------------------------------
Operating income (loss)                                                       $    43   $    34    $    24  $    32  $   30
============================================================================================================================
</TABLE>
---------------
(a) In April 1998, AirTouch Communications, Inc. and its subsidiaries (the
    "Company"), completed its acquisition of the U.S. cellular business and the
    25% PrimeCo Personal Communications, L.P. ("PrimeCo") interest of MediaOne
    Group, Inc. (formerly U S WEST Media Group). The selected pro forma
    consolidated data reflect the merger as if it had been effective at the
    beginning of each period presented and after giving effect to the purchase
    method of accounting and other merger-related adjustments. The selected pro
    forma consolidated data is intended for informational purposes only and is
    not necessarily indicative of the future results of operations of the
    combined Company or the results of operations of the combined Company that
    would have actually occurred. See Note G, "Partnerships and Acquisitions,"
    to the Consolidated Financial Statements for further information.
 
(b) In December 1996, the Company obtained a controlling interest in Telecel
    Communicacoes Pessoias, S.A. ("Telecel"). The Company consolidated Telecel's
    Balance Sheet as of December 31, 1996, and began consolidating Telecel's
    results of operations on January 1, 1997. In August 1996, the Company
    completed its acquisition of Cellular Communications, Inc. See Note G,
    "Partnerships and Acquisitions," to the Consolidated Financial Statements
    for further information.
 
(c) Prior to April 1, 1994, the Company was an 86.1% owned subsidiary of Pacific
    Telesis Group ("Telesis") (now SBC Communications). On April 1, 1994, the
    Company spun off from Telesis. Prior to December 3, 1993, the Company was
    100% owned by Telesis.
 
(d) For the year ended December 31. These amounts do not include the cost of
    acquiring licenses.

(e) U.S. Cellular Operations include equity losses in PrimeCo.


                                      -3-
<PAGE>   4
SELECTED FINANCIAL DATA
(Dollars in millions)
<TABLE>
<CAPTION>
FINANCIAL INFORMATION FOR UNCONSOLIDATED WIRELESS SYSTEMS UNDER THE 
EQUITY METHOD (a)
                                                                                     For the Year Ended December 31
                                                                              ----------------------------------------------
                  UNITED STATES                                                 1998      1997       1996     1995    1994
<S>                                                                           <C>       <C>       <C>       <C>      <C>
----------------------------------------------------------------------------------------------------------------------------
Operating revenues or equity in net
  income of partnership                                                       $ 1,211   $   899    $ 1,168  $ 1,281  $1,166
Operating income (loss)                                                       $  (125)  $  (232)   $   190  $   420  $  298
============================================================================================================================

Net income (loss)                                                             $  (130)  $  (238)   $   205  $   411  $  285
Other partners' and stockholders' share of net income (loss)                      (99)     (243)        59      213     154
----------------------------------------------------------------------------------------------------------------------------
Company's share of net income (loss)                                              (31)        5        146      198     131
Amortization of intangibles and other adjustments                                 (10)       (4)         5      (10)     (6)
----------------------------------------------------------------------------------------------------------------------------
Equity in net income (loss) of unconsolidated wireless systems                $   (41)  $     1    $   151  $   188  $  125
============================================================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                                     For the Year Ended December 31
                                                                              ----------------------------------------------
                  INTERNATIONAL                                                 1998      1997       1996     1995    1994
<S>                                                                           <C>       <C>       <C>       <C>      <C>
----------------------------------------------------------------------------------------------------------------------------
Operating revenues or equity in net
  income of partnership                                                       $13,471   $ 8,886    $ 7,419  $ 3,684  $1,401
Operating income (loss)                                                       $ 2,638   $ 1,225    $  (251) $  (497) $ (251)
============================================================================================================================
Net income (loss)                                                             $ 1,364   $   330    $  (760) $  (539) $ (155)
Other partners' and stockholders' share of net income (loss)                      900       107       (764)    (519)    144
----------------------------------------------------------------------------------------------------------------------------
Company's share of net income (loss)                                              464       223          4      (20)    (11)
Amortization of intangibles and other adjustments                                 (30)      (24)       (22)     (16)     (4)
----------------------------------------------------------------------------------------------------------------------------
Equity in net income (loss) of unconsolidated wireless systems                $   434   $   199    $   (18) $   (36) $  (15)
============================================================================================================================
</TABLE>


(a) The results reflect a 50% interest in PrimeCo beginning in April 1998, due 
    to the MediaOne Group acquisition and a 25% interest for results prior to 
    that date. Telecel results are included in 1996, only, as the Company began
    consolidating Telecel's  results of operations in January 1997. The results
    also include operations of CCI and New Par through August 15, 1996.

                                      -4-
<PAGE>   5
SELECTED FINANCIAL DATA                  
SELECTED FIVE-YEAR PROPORTIONATE DATA
--------------------------------------------------------------------------------

NON GAAP SUPPLEMENTAL PROPORTIONATE FINANCIAL DATA

     The following table is presented on a proportionate basis. Proportionate 
presentation is not permitted by generally accepted accounting principles 
("GAAP") and is not intended to replace the consolidated operating results 
prepared and presented in accordance with GAAP. However, since significant 
wireless systems in which the Company has an interest are not consolidated, 
proportionate information is provided as supplemental data to facilitate a more 
detailed understanding and assessment of consolidated operating results 
prepared and presented in accordance with GAAP.

     GAAP requires consolidation of wireless systems controlled by the Company 
and the equity method of accounting for wireless systems in which the Company 
has significant influence but not a controlling interest. Proportionate 
presentation is a pro rata consolidation, which reflects the Company's share of 
revenues and expenses in both its consolidated and unconsolidated wireless 
systems. Proportionate results are calculated by multiplying the Company's 
ownership interest in each wireless system by each system's total operating 
results, and accordingly should not be compared with GAAP consolidated results 
of any company. 

     Net income under either GAAP or proportionate presentation is the same.

     Proportionately reported amounts include results from the Company's equity 
investees, which the Company does not control. The Company does not have 
control over the revenues, expenses or cash flows of its equity investees that 
are reported in proportionate results and is only entitled to cash from 
dividends received from these entities. The Company does not own the underlying 
assets of its equity investees.

     A list of the Company's equity investments and its ownership interests is 
set forth in Note F, "Investments in Unconsolidated Wireless Systems," to the 
Company's Consolidated Financial Statements for the year ended December 31, 
1998. In the United States, the Company is a joint and equal owner with AT&T in 
CMT Partners and with Bell Atlantic in PrimeCo, the Company's most significant 
U.S. equity investments. Internationally, the degree of control of the 
Company's equity investees varies from venture to venture. Although the Company 
generally has significant contractual governance rights over these entities, it
does not control them. No person owns a majority of any of the Company's
international equity investees, with the exception of its investment in Germany,
where Mannesmann AG is the majority owner; Italy, where Omnitel Sistemi
Radiocellulari Italiani is the indirect majority owner; Belgium, where Belgacom
is the majority owner; Romania, where Telesystem International Wireless is the
majority owner; and India, where RPG Enterprises is the majority owner. In each
of those investees, the Company, or in the case of Italy, the Company's
majority-owned venture, has significant contractual rights regarding approval of
the business plan, which governs capital investments and use of cash flows.


                                      -5-


 
<PAGE>   6
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
TOTAL COMPANY (1)                                                                                    
(Dollars in millions and operating data in thousands)                         For the Year Ended December 31
                                                              ----------------------------------------------------------------
                                                               Pro Forma (2)                      Historical
                                                              ---------------   ----------------------------------------------
                PROPORTIONATE FINANCIAL DATA                   1998     1997     1998     1997       1996       1995     1994
                ----------------------------                  ------   ------   ------   ------   ----------   ------   ------
                                                                   
<S>                                                           <C>      <C>      <C>      <C>      <C>          <C>      <C>
Service and other revenues..................................  $7,530   $6,094   $7,204   $4,907     $3,925     $2,679   $1,799
Operating expenses before depreciation and amortization
  expenses (3)..............................................   4,714    3,958    4,506    3,171      2,801      1,976    1,293
                                                              ------   ------   ------   ------    -------     ------    -----
Operating cash flow (4).....................................   2,816    2,136    2,698    1,736      1,124        703      506
Depreciation and amortization expenses......................   1,441    1,218    1,319      789        603        406      334
                                                              ----------------------------------------------------------------
Operating income............................................   1,375      918    1,379      947        521        297      172
Interest and other income (expenses)........................    (162)    (184)    (139)    (106)       (21)         8       26
Income taxes................................................    (503)    (369)    (515)    (393)      (301)      (173)    (100)
                                                              ----------------------------------------------------------------
Income before preferred dividends...........................     710      365      725      448        199        132       98
Preferred dividends.........................................     140      139      117       54         20         --       --
                                                              ----------------------------------------------------------------
Net income applicable to common stockholders................  $  570   $  226   $  608   $  394     $  179     $  132   $   98
                                                              ================================================================
Operating cash flow margin (5)..............................    37.4%    35.1%    37.5%    35.4%      28.6%      26.2%    28.1%
</TABLE>
 
<TABLE>
<CAPTION>
                                                                                     December 31
                                                          ------------------------------------------------------------------
                                                            Pro Forma (2)                       Historical
                                                          -----------------   ----------------------------------------------
              PROPORTIONATE OPERATING DATA                 1998      1997      1998      1997      1996      1995      1994
              ----------------------------                -------   -------   -------   -------   -------   -------   ------
<S>                                                       <C>       <C>       <C>       <C>       <C>       <C>       <C>
Cellular and PCS POPs (6) (7)...........................  235,857   214,691   235,857   180,032   178,317   164,908   99,508
Cellular and PCS subscribers (6)........................   14,072    10,002    14,072     7,536     5,146     3,059    1,948
Paging units in service (8).............................    3,504     3,188     3,504     3,188     2,886     2,474    1,647
        Total proportionate customers...................   17,576    13,190    17,576    10,724     8,032     5,533    3,595
Cellular and PCS subscriber net adds in period,
  excluding acquisitions (6)............................    3,970     2,921     3,895     2,336     1,625       974      713
Paging units in service net adds in period excluding
  acquisitions (8)......................................      315       297       315       297       535       477      378
Proportionate capital expenditures......................    1,785     1,718     1,705     1,366       N/A       N/A      N/A
</TABLE>
 
U.S. CELLULAR OPERATIONS(1)
<TABLE>
<CAPTION>
                                                                                For the Year Ended December 31
(Dollars in millions, except per unit data and                -------------------------------------------------------------------
operating data in thousands)                                    Pro Forma (2)                       Historical
                                                              -----------------   -----------------------------------------------
                PROPORTIONATE FINANCIAL DATA                   1998      1997      1998      1997      1996      1995      1994
                ----------------------------                  -------   -------   -------   -------   -------   -------   -------
                                                               
                                                                                          
<S>                                                           <C>       <C>       <C>       <C>       <C>       <C>       <C>
Service and other revenues----------------------------------  $3,831    $3,516    $3,524    $2,363    $1,984    $1,523    $1,160
                                                              ------------------------------------------------------------------
Cost of revenues--------------------------------------------     393       349       364       236       222       188       136
Selling and customer operations expenses (3)----------------   1,461     1,377     1,341       902       781       591       423
General, administrative, and other expenses-----------------     261       255       238       169       160       139       122
                                                              ------------------------------------------------------------------
Operating cash flow (4)-------------------------------------   1,716     1,535     1,581     1,056       821       605       479
Depreciation and amortization expenses----------------------     855       775       747       388       292       189       186
                                                              ------------------------------------------------------------------
Operating income--------------------------------------------  $  861    $  760    $  834    $  668    $  529    $  416    $  293
                                                              ==================================================================
Operating cash flow margin (5)------------------------------    44.8%     43.7%     44.9%     44.7%     41.4%     39.7%     41.3%
</TABLE>
 

<TABLE>
<CAPTION>
                                                                                     December 31
                                                         -------------------------------------------------------------------
                                                           Pro Forma (2)                       Historical
                                                         -----------------   -----------------------------------------------
             PROPORTIONATE OPERATING DATA                 1998      1997      1998      1997      1996      1995      1994
             ----------------------------                -------   -------   -------   -------   -------   -------   -------
<S>                                                      <C>       <C>       <C>       <C>       <C>       <C>       <C>
Cellular POPs (7)--------------------------------------   67,560    63,794    67,560    43,364    43,364    37,739    35,390
Cellular subscribers-----------------------------------    7,915     6,683     7,915     4,309     3,403     2,262     1,560
Cellular subscriber net adds in period, excluding
  acquisitions-----------------------------------------    1,129     1,408     1,082       906       770       591       514
Monthly average revenue per unit-----------------------  $ 44.11   $ 50.20   $ 44.47   $ 52.58   $ 61.42   $ 69.76   $ 77.96
Monthly cash cost per unit-----------------------------  $ 24.35   $ 28.29   $ 24.52   $ 29.08   $ 36.00   $ 42.05   $ 45.77
Proportionate capital expenditures---------------------  $   784   $   723   $   719   $   488   $   408   $   475   $   297
</TABLE>

See footnotes on page 8.

                                      -6-

 
<PAGE>   7
SELECTED FINANCIAL DATA
U.S. PCS OPERATIONS(1) (6) (9)
 
<TABLE>
<CAPTION>
                                                                             For the Year Ended December 31
(Dollars in millions, except per unit data and               -------------------------------------------------------------
operating data in thousands)                                    Pro Forma (2)                    Historical
                                                              -----------------   -----------------------------------------
                PROPORTIONATE FINANCIAL DATA                   1998      1997      1998      1997     1996    1995    1994
                ----------------------------                  ------   --------   ------   --------   -----   -----   -----
<S>                                                           <C>      <C>        <C>      <C>        <C>     <C>     <C>
Service and other revenues..................................  $ 197    $    68    $ 177    $    34    $  1    $  --   $  --
Operating expenses before depreciation and amortization
  expenses(3)...............................................    297        228      259        114      41       --      --
                                                              -------------------------------------------------------------
Operating cash flow (4).....................................   (100)      (160)     (82)       (80)    (40)      --      --
Depreciation and amortization expenses......................    107         78       94         35       6       --      --
                                                              -------------------------------------------------------------
Operating income............................................  $(207)   $  (238)   $(176)   $  (115)   $(46)   $  --   $  --
                                                              =============================================================
Operating cash flow margin (5)                                (50.8%)   (235.3%)  (46.3%)   (235.3%)  N.M        --      --
</TABLE>
 
<TABLE>
<CAPTION>
                                                                                       December 31
                                                             ---------------------------------------------------------------
                                                               Pro Forma (2)                     Historical
                                                             -----------------   -------------------------------------------
               PROPORTIONATE OPERATING DATA                   1998      1997      1998      1997      1996     1995     1994
               ----------------------------                  -------   -------   -------   -------   ------   -------   ----
<S>                                                          <C>       <C>       <C>       <C>       <C>      <C>       <C>
PCS POPs (6)(7)............................................   29,520    28,458    29,520    14,229   14,229    14,300    --
PCS subscribers (6)........................................      422       184       422        92        9        --    --
PCS subscriber net adds in period, excluding acquisitions
  (6)......................................................      241       166       213        83        9        --    --
Monthly average revenue per unit                             $ 58.05   $ 61.97   $ 57.47   $ 61.97     N.M    $    --    $--
Monthly cash cost per unit                                   $ 87.52   $207.79   $ 84.09   $207.79     N.M    $    --    $--
</TABLE>
 
INTERNATIONAL OPERATIONS(1)
 
<TABLE>
<CAPTION>
(Dollars in millions, except per unit data and                        For the Year Ended December 31
        operating data in thousands)                       ------------------------------------------------
                                                             1998       1997       1996      1995     1994
              PROPORTIONATE FINANCIAL DATA                 --------   --------   --------   ------   ------
              ----------------------------  
                                                                     
<S>                                                        <C>        <C>        <C>        <C>      <C>
Service and other revenues...............................   $3,128     $2,181     $1,640     $918     $435
Operating expenses before depreciation and amortization
  expenses(3)............................................    1,926      1,452      1,319      794      405
                                                            ------     ------     ------     ----     ----
Operating cash flow (4)..................................    1,202        729        321      124       30
Depreciation and amortization expenses...................      386        283        226      154       96
                                                            ----------------------------------------------
Operating income (loss)..................................   $  816     $  446     $   95     $(30)    $(66)
                                                            ======     ======     ======     ====     ====
Operating cash flow margin (5)...........................     38.4%      33.4%      19.6%    13.5%     6.9%
                                                            ------     ------     ------     ----     ----
</TABLE>
 
<TABLE>
<CAPTION>
                                                                   December 31
                                               ---------------------------------------------------
        PROPORTIONATE OPERATING DATA             1998       1997       1996       1995      1994
        ----------------------------           --------   --------   --------   --------   -------
<S>                                            <C>        <C>        <C>        <C>        <C>
Cellular POPs (7)............................   138,777    122,439    120,724    112,869    64,118
Cellular subscribers.........................     5,735      3,135      1,734        797       388
Cellular subscriber net adds in period,
  excluding acquisitions.....................     2,600      1,347        846        383       199
Monthly average revenue per unit.............  $  61.22   $  79.45   $ 114.81   $ 138.72   $152.08
Monthly cash cost per unit...................  $  37.70   $  52.90   $  92.34   $ 119.99   $141.59
Proportionate capital expenditures...........  $    680   $    680        N/A        N/A       N/A
                                               --------   --------   --------   --------   -------
</TABLE>
---------------
See footnotes on page 8.
                                      -7-

<PAGE>   8
SELECTED FINANCIAL DATA
U.S. PAGING OPERATIONS (10)

<TABLE>
<CAPTION>
(Dollars in millions, except per unit                             For the Year Ended December 31
data and operating data in thousands)                         -------------------------------------
                                                              1998    1997    1996    1995    1994
                       FINANCIAL DATA                         -----   -----   -----   -----   -----
                       --------------                        
                                                              
<S>                                                           <C>     <C>     <C>     <C>     <C>
Service and other revenues (11).............................  $373    $330    $297    $226    $189
Operating expenses before depreciation and amortization
  expenses..................................................   250     222     209     151     122
                                                              ----    ----    ----    ----    ----
Operating cash flow (4).....................................   123     108      88      75      67
Depreciation and amortization expenses......................    80      74      64      43      37
                                                              ----    ----    ----    ----    ----
Operating income............................................  $ 43    $ 34    $ 24    $ 32    $ 30
                                                              ====    ====    ====    ====    ====
Operating cash flow margin (5)..............................  33.0%   32.7%   29.6%   33.2%   35.4%
</TABLE>
 
<TABLE>
<CAPTION>
                                                                       December 31
                                                        ------------------------------------------
                    OPERATING DATA                       1998     1997     1996     1995     1994
                    --------------                      ------   ------   ------   ------   ------
<S>                                                     <C>      <C>      <C>      <C>      <C>
Paging units in service...............................   3,422    3,101    2,850    2,338    1,525
Paging units in service net adds in period, excluding
  acquisitions........................................     321      246      512      463      358
Monthly average revenue per unit......................  $ 9.62   $ 9.22   $ 9.38   $10.34   $11.40
Monthly cash cost per unit............................  $ 6.45   $ 6.20   $ 6.82   $ 7.38   $ 7.87
Capital expenditures..................................  $   82   $   67   $   98   $   72   $   61
                                                        ------   ------   ------   ------   ------
</TABLE>
 
---------------
Footnotes:
 
N/A Information not available.
 
N.M. Information not meaningful.
 
(1) Reflects financial and operating data of systems in which AirTouch
    Communications, Inc. and its subsidiaries (the "Company") own an interest,
    multiplied by the Company's ownership interest, exclusive of cost-based
    investments and certain equity-based investments that are not material to
    the information presented.
 
(2) In April 1998, the Company completed its acquisition of the U.S. cellular
    business and the 25% PrimeCo Personal Communications, L.P. ("PrimeCo")
    interest of MediaOne Group, Inc. (formerly U S WEST Media Group). The
    selected pro forma data reflect the merger as if it had been effective at
    the beginning of each period presented, and after giving effect to the
    purchase method of accounting and other merger-related adjustments. The
    selected pro forma data is intended for informational purposes only and is
    not necessarily indicative of the future results of operations of the
    combined Company or the results of operations of the combined Company that
    would have actually occurred. See Note G, "Partnerships and Acquisitions,"
    to the Consolidated Financial Statements for further information.
 
(3) Includes net losses on handsets sold.
 
(4) "Operating cash flow" is "Operating income" plus "Depreciation and
    amortization expenses" and is not the same as cash flow from operating
    activities in the Company's Consolidated Statements of Cash Flows.
    Proportionate operating cash flow represents the Company's ownership
    interests in the respective entities' operating cash flows. As such,
    proportionate operating cash flow does not represent cash available to the
    Company.
 
(5) "Operating cash flow margin" is calculated by dividing "Operating cash flow"
    by "Service and other revenues."
 
(6) PCS data relates to PrimeCo, a U.S. personal communications services ("PCS")
    business in which the Company had a 50% interest at December 31, 1998 and a
    25% interest at December 31, 1997, 1996, 1995, and 1994. For the pro forma
    data, the Company's ownership interest in PrimeCo is 50% for all periods
    presented. Because PrimeCo does not own 100% of all its markets, the
    Company's share of PrimeCo's operating results is slightly less than its
    ownership interest.
 
(7) POPs are the estimated market population multiplied by the Company's
    ownership interest in a licensee operating in that market and includes
    markets of certain cost-based and equity-based investments not included in
    proportionate operating results.
 
(8) Includes both U.S. and International paging units in service.
 
(9) Operations began in the fourth quarter of 1996.
 
(10) U.S. Paging Operations are wholly owned by the Company and include
     operations in Canada, which are not material to the information presented.
 
(11) Includes gains and losses on equipment sales.


                                      -8-


<PAGE>   9
MANAGEMENT'S DISCUSSION & ANALYSIS
 
GENERAL
 
     Management's Discussion and Analysis is intended to assist in the
understanding and assessment of the significant changes and trends related to
the results of operations and financial condition of AirTouch Communications,
Inc., together with its subsidiaries and partnerships (collectively, the
"Company" or "AirTouch"). This discussion and analysis should be read in
conjunction with the Company's Consolidated Financial Statements and
accompanying Notes.
 
     Private Securities Litigation Reform Act Safe Harbor Statement. In addition
to historical information, this Management's Discussion and Analysis includes
certain forward-looking statements regarding events and financial trends that
may affect the Company's future operating results and financial position. Such
forward-looking statements are often identified by the words "estimate,"
"project," "intend," "plan," "expect," "believe," or similar expressions. These
statements are subject to risks and uncertainties that could cause actual
results to differ materially. Such factors include: a change in economic
conditions in the various markets served by the Company's operations, which
would adversely affect the level of demand for wireless services; intensified
competitive activity requiring reduced pricing or new product offerings or
resulting in an increased rate of customers terminating service ("churn"),
slower customer growth as customers choose to receive service from other
providers, and higher customer selling costs; declining average revenue per
customer due to declining rates; growth in customers and usage driving increased
investment in network capacity; the impact of new business opportunities
requiring significant up-front investments; the impact on capital spending from
the deployment of new technologies; the possibility that technologies will not
perform according to expectations or that vendor performance will not meet
requirements; and higher than anticipated costs associated with correcting the
year 2000 issue.
 
     These and other factors related to the business are described in the
Company's Securities and Exchange Commission ("SEC") filings, including its Form
10-K under "Investment Considerations." Readers are cautioned not to place undue
reliance on these forward-looking statements, which are valid as of the date of
this filing. The Company has no obligation to publicly release the results of
any revisions to these forward-looking statements to reflect events or
circumstances after the date of this filing.
 
VODAFONE MERGER
 
     On January 15, 1999, AirTouch Communications and Vodafone Group Plc
("Vodafone") announced a definitive agreement to merge. Under the terms of the
definitive agreement, which has been unanimously approved by each company's
Board of Directors, owners of AirTouch common stock will be entitled to receive
five Vodafone ordinary shares in the form 0.5 of a Vodafone American Depository
share and $9 in cash, without interest, for each share of AirTouch common stock
held at closing, subject to rebalancing between stock and cash under certain
circumstances.
 
     The merger is subject to the approval of the stockholders of Vodafone and
AirTouch, customary government and regulatory authority approvals, and the
receipt of opinions from tax counsel that the stock portion of the merger
consideration will be tax-free to the U.S. holders of AirTouch common stock. The
merger is expected to close in the third quarter of 1999. For more details of
the merger, please see the Company's Current Report on Form 8-K filed January
19, 1999.
 
MEDIAONE GROUP MERGER
 
     In April 1998, the Company acquired the U.S. cellular business and the 25%
PrimeCo Personal Communications, L.P. ("PrimeCo") interest of MediaOne Group,
Inc. (formerly U S WEST Media Group). The Company issued approximately 59.4
million shares of common stock having a fair market value of $2.9 billion on the
date of issuance, approximately $1.6 billion of dividend-bearing redeemable
preferred stock with a 5.143% coupon, and assumed approximately $1.4 billion of
debt associated with the acquired businesses. The Company also granted MediaOne
Group, Inc. registration rights with respect to the common stock and preferred
stock issued.
 
     In September 1998, MediaOne Group, Inc. returned approximately 0.1 million
shares of common stock as a purchase price adjustment.
 
     For a more detailed discussion of the MediaOne transaction, please see the
Company's Current Report on Form 8-K/A-1 dated April 6, 1998, and Note G,
"Partnerships and Acquisitions," to the Consolidated Financial Statements.


                                      -9-


<PAGE>   10
MANAGEMENT'S DISCUSSION & ANALYSIS

BASIS OF PRESENTATION

CONSOLIDATION VS. THE EQUITY METHOD

     In accordance with generally accepted accounting principles ("GAAP"), the
Company consolidates the revenues and expenses of its controlled subsidiaries
and partnerships. The Company uses the equity method to record the operating
results of entities in which it has significant influence, but does not have a
controlling interest. Consolidated operating revenues and expenses in 1998
included results of all of the Company's major U.S. partnerships (with the
exception of CMT Partners and PrimeCo), all U.S. paging markets, Europolitan
Holdings AB ("Europolitan"), the Company's cellular system in Sweden, and
Telecel Communicacoes Pessoais, S.A. ("Telecel"), its wireless system in
Portugal. In April 1998, the Company began consolidating the operating revenues
and expenses of its cellular businesses acquired from MediaOne Group.
 
     In December 1996, the Company consolidated Telecel's balance sheet,
subsequent to acquiring a controlling interest. Telecel's operating results and
cash flows were included beginning in 1997. The Company began consolidating the
results of its Great Lakes market (cellular properties in Michigan and Ohio,
including Detroit, Cleveland, and Columbus), in August 1996. On that date, the
Company completed its acquisition of the remaining capital stock of Cellular
Communications, Inc. ("CCI") that it did not already own. For further
information regarding this acquisition, see "Cellular Communications, Inc.
Merger" and Note G, "Partnerships and Acquisitions," to the Consolidated
Financial Statements.
 
COMPOSITION OF OPERATING REVENUES AND EXPENSES
 
     Operating revenues include cellular and paging service revenues, as well as
equipment sales. Cellular service revenues consist primarily of charges for air
time use, monthly network access fees, and roaming-in charges. Roaming-in refers
to use of the Company's wireless networks by customers of other cellular or
personal communication services ("PCS") carriers. Paging service revenues
consist primarily of paging service charges and rentals of paging units in the
United States. Equipment sales consist of revenues from sales of cellular
telephones, pagers, and accessories. Equipment sales are not a primary part of
the Company's cellular or paging businesses. Rather, the Company offers cellular
and paging equipment at competitive prices, which are often at or below cost, as
an incentive for new customers to subscribe to its cellular and paging services.
 
     Operating expenses include: cost of revenues; selling and customer
operations expenses; general, administrative, and other expenses; and
depreciation and amortization expenses. Cost of revenues consists primarily of
cellular and paging network operating costs, interconnection fees assessed by
local exchange carriers, net roaming-out charges, and cost of equipment and
accessories sold. Interconnection costs have fixed and variable components. The
fixed component of interconnection costs consists of monthly flat-rate fees for
facilities leased from local exchange carriers. The variable component of
interconnection costs, which fluctuates in relation to the level of cellular
calls and paging messages, consists of per-minute use fees charged by local
exchange carriers for cellular calls or paging messages terminating on their
networks. Net roaming-out charges represent the cost of the subsidized roaming
activity by the Company's customers on other cellular and PCS operators'
networks.
 
     Selling and customer operations expenses consist primarily of commissions;
salaries, wages, and related benefits for sales and customer service personnel;
and billing, advertising, and promotional expenses. General, administrative, and
other expenses consist primarily of salaries, wages, and related benefits for
general and administrative personnel, bad debt, year 2000 remediation costs, and
other overhead expenses. Depreciation and amortization charges consist primarily
of depreciation recorded for the Company's cellular and paging networks and
amortization of intangibles such as wireless license costs, subscriber lists,
and goodwill.
 

                                      -10-


<PAGE>   11
MANAGEMENT'S DISCUSSION & ANALYSIS

RESULTS OF OPERATIONS
 
     The following discussions compare the results of operations for the year
ended December 31, 1998 to 1997 and 1997 to 1996. The operating results of these
periods are not necessarily indicative of operating results in future periods.
The following comparative information should be read in conjunction with the
Consolidated Financial Statements and accompanying Notes for each period
discussed as well as the information presented in all other sections of
Management's Discussion and Analysis.
 
1998 VS. 1997

CONSOLIDATED RESULTS OF OPERATIONS

     Net income increased 54% for the year ended December 31, 1998, as compared
to 1997 primarily due to the growth in earnings from the Company's
unconsolidated wireless systems and the acquisition of MediaOne Group's cellular
businesses.

     Consolidated operating revenues and operating income increased primarily
due to the MediaOne Group merger, as well as subscriber growth in the U.S. and
international cellular markets. Increased demand for wireless services worldwide
drove subscriber growth.
 
     Equity in net income of unconsolidated wireless systems increased primarily
due to the strong operating results of the Company's unconsolidated
international wireless systems. Increased profitability at CMT Partners also
contributed to the increase. These increases are discussed in the U.S. Cellular
and International Operations' discussions. Increased ownership in the operating
losses of PrimeCo partially offset the increase. In April 1998, the Company
increased its ownership of PrimeCo from 25% to 50% in its transaction with
MediaOne Group.
 
     The Company's unconsolidated ventures distributed $391 million of cash 
dividends for the year ended December 31, 1998, up slightly from 1997's amount 
of $383 million.

     Interest expense and preferred dividends increased primarily due to debt
and redeemable preferred stock issued in connection with the MediaOne Group
merger.
 
 
     CONSOLIDATED RESULTS OF OPERATIONS -- PRO FORMA

     The consolidated operating results for the year ended December 31, 1998,
were not comparable to 1997 because they included the operating results of the
cellular markets acquired from MediaOne Group in April 1998. Given the
significance of this transaction, the Company believes it is more meaningful to
discuss operating results on a pro forma basis, as if the transaction had
occurred on January 1, 1997. The following discussion is based on the pro forma
results presented below. The pro forma results of operations are not necessarily
indicative of the future results of operations of the Company or the results of
operations of the combined Company that would have actually occurred.

    Pro Forma Consolidated Results of Operations (GAAP-Basis)
 
<TABLE>
<CAPTION>
                                                For the Year
                                                    Ended
                                                 December 31
                                               ---------------
                                                1998     1997
(Dollars in millions)                          ------   ------
<S>                                            <C>      <C>
Operating revenues...........................  $5,542   $5,034
                                               ------   ------
Operating expenses before depreciation and
  amortization expenses......................   3,498    3,245
Depreciation and amortization expenses.......   1,062      946
                                               ------   ------
        Total operating expenses.............   4,560    4,191
                                               ------   ------
Operating income.............................     982      843
Equity in net income (loss) of unconsolidated
  wireless systems...........................     357       81
Minority interests in net (income) loss of
  consolidated wireless systems..............    (189)    (161)
Interest and miscellaneous income
  (expense)..................................    (133)    (156)
                                               ------   ------
Income before income taxes and preferred
  dividends..................................   1,017      607
Income taxes.................................     307      242
                                               ------   ------
Income before preferred dividends............     710      365
Preferred dividends..........................    (140)    (139)
                                               ------   ------
Net income applicable to common
  stockholders...............................  $  570   $  226
                                               ======   ======
</TABLE>

     Net income increased 152% for the year ended December 31, 1998, due to
strong operating results from the international, U.S. cellular, and U.S. paging
operations, including the operations of the Company's unconsolidated wireless 
systems. These results were due to substantial subscriber growth in our
international and U.S. cellular operations, as well as improved margins per
customer.

     For the year ended December 31, 1998, operating revenues increased 10% and
operating income increased 16%. These increases were primarily the result of
subscriber growth in the Company's international and U.S. cellular markets.
 
     The equity in net income of unconsolidated wireless systems increased
primarily due to strong subscriber growth in the Company's unconsolidated
international ventures. Increased profitability at CMT Partners and decreased
losses at PrimeCo also contributed to the increase. These increases are
discussed in the U.S. Cellular and International Operations' discussions.
 
     The effective tax rate calculated by dividing "Income taxes" by "Income
before income taxes and preferred dividends" is not a meaningful measure of the


                                      -11-


<PAGE>   12
MANAGEMENT'S DISCUSSION & ANALYSIS

Company's income tax trends. The primary reason for this was that the Company's
"Income before income taxes and preferred dividends" included equity earnings
from its unconsolidated international wireless systems, which were recorded net
of applicable local taxes. No U.S. taxes were provided on these earnings, as the
Company believes these earnings will be indefinitely invested overseas. See Note
L, "Income Taxes" for a reconciliation of the federal statutory tax rate to the
Company's effective tax rate.
 
     In 1998, the Company's international operations experienced substantially
higher growth rates and benefits from economies of scale than the more
established U.S. cellular or U.S. paging operations. As a result, international
operations contributed approximately 68% of the Company's net income before
preferred dividends for the year ended December 31, 1998, as compared to 58% for
the year ended December 31, 1997.
 
U.S. CELLULAR OPERATIONS

     Discussions of results of operations for U.S. cellular include equity
earnings in PrimeCo.

 
<TABLE>
<CAPTION>
                                                               For the Year
                                                                   Ended
U.S. Cellular Operating Results (GAAP-Basis)                    December 31
                                                              ---------------
                                                               1998     1997
(Dollars in millions)                                         ------   ------
<S>                                                           <C>      <C>
Service and other revenues..................................  $3,538   $2,351
Equipment sales.............................................     198      125
                                                              ------   ------
Operating revenues..........................................   3,736    2,476
                                                              ------   ------
Operating expenses before depreciation and amortization
  expenses..................................................   2,185    1,452
Depreciation and amortization expenses......................     748      381
                                                              ------   ------
Operating income............................................  $  803   $  643
                                                              ------   ------
Equity in net income (loss) of unconsolidated wireless
  systems (a)...............................................  $  (41)  $    1
                                                              ======   ======
</TABLE>
 
U.S. CELLULAR OPERATIONS -- PRO FORMA
 
     As previously discussed, the Company believes it is more meaningful to
discuss U.S. cellular operating results on a pro forma basis, which assumes the
acquisition of MediaOne's wireless businesses had been effective January 1,
1997.
 
Pro forma operating results were:
 
<TABLE>
<CAPTION>
                                                               For the Year
                                                                   Ended
Pro Forma U.S. Cellular Operating Results (GAAP-Basis)         December 31
                                                              ---------------
                                                               1998     1997
                                                              ------   ------
(Dollars in millions)              
<S>                                                           <C>      <C>
Service and other revenues..................................  $3,874   $3,621
Equipment sales.............................................     224      295
                                                              ------   ------
Operating revenues..........................................   4,098    3,916
                                                              ------   ------
Operating expenses before depreciation and amortization
  expenses..................................................   2,398    2,360
Depreciation and amortization expenses......................     860      780
                                                              ------   ------
Operating income............................................  $  840   $  776
                                                              ------   ------
Equity in net income (loss) of unconsolidated wireless
  systems (a)...............................................  $  (77)  $ (125)
                                                              ======   ======
</TABLE>
 
(a) U.S. Cellular Operations include equity earnings in PrimeCo.
 
     The increase in the Company's U.S. cellular operating revenues for the year
ended December 31, 1998, was primarily the result of a 16% annual growth in
subscribers, partially offset by a decrease in the average revenue per customer.
Average revenue per customer (excluding revenue from equipment sales) decreased
12% for the year ended December 31, 1998. Although average revenue per customer
decreased in 1998, it did so at a slower rate than in 1997, as usage per
customer increased. Usage increased in 1998 in response to lower per minute
rates available through the bundled minute plans (subscribers pay a fixed
monthly fee for access and a fixed number of minutes), longer battery life, and
increased availability of digital handsets. Revenue per minute of use also
decreased 16% for the comparable period. The relatively large decrease in
revenue per minute of use reflects the increasing popularity of bundled minute
plans. Decreases in both average revenue per customer and average revenue per
minute were caused by rate reductions and discounts offered to both new and
existing customers in response to increased competition.
 
     Competition intensified as the newer entrants aggressively built-out their
networks and expanded their regional and national coverage. The Company's
strategy is to offer excellent customer service by offering customers a choice
of service and handset pricing that is attractive to customers in different
market segments and that is competitive with those being offered by other
providers in that specific market.
 
     The intense competition in the U.S. cellular and PCS markets will continue
to lead to price decreases and reduced customer growth rates. This will lower
revenue per minute of use and will continue to lower 


                                      -12-


<PAGE>   13
MANAGEMENT'S DISCUSSION & ANALYSIS

average revenue per customer. However, lower costs and other factors should
increase usage as customers shift their calling from landline to wireless
networks.
 
     A recent trend in the U.S. wireless industry is to offer one rate price
plans, which include roaming and long distance at no extra charge. The Company
has responded with regional one rate plans that meet the needs of a large
portion of its customers who roam. As the Company and other wireless operators
seek to be profitable with these one rate plans, reciprocal roaming rates
between wireless operators will be negotiated to result in lower rates. In 1998,
the Company's roaming-in revenues were 9.5% of service and other revenues as
compared to 8.7% in 1997. Roaming-in revenues will likely decrease in the near
term unless increased usage offsets the lower rates. Although lower roaming
rates will decrease the direct cost of roaming-out, net roaming-out expense may
not decrease depending on whether roaming activity or the subsidy that the
Company provides on roaming-out activity increases. The Company is also focused
on maximizing roaming activity with its partners. The Company will manage
roaming activity by utilizing technology that is expected to be available in the
near term. Such technology includes the ability to pre-program handsets with
preferred roaming carriers and tri-mode handsets, which will allow roaming by
the Company's cellular customers on its PCS networks.
 
     The improvement of operating margins and operating cash flow margins
(operating margins excluding the effect of depreciation and amortization
expenses) resulted from a decrease in the average cash cost per customer
(including the loss on equipment sales) of 13% for the year ended December 31,
1998, which exceeded the decrease in average revenue per customer. This decrease
resulted from several factors, including lower selling costs per customer,
reduction of fraud, greater volume purchasing discounts in many areas of the
business, and increased economies of scale attributable to subscriber growth,
partially offset by the cost of increased monthly churn. Higher churn means
additional selling costs have to be incurred to maintain the customer base.
Churn increased in 1998 to 2.2% from 2% for 1997. This increase is attributable
to increasing competition. In the highly competitive U.S. wireless market, there
can be no assurance that the Company's U.S. cellular operations will be able to
maintain margins by continuing to decrease average cost per customer faster than
average revenue per customer decreases.

     Depreciation and amortization expenses increased 10% for the year ended
December 31, 1998. The increase was primarily due to depreciation of larger
property, plant, and equipment balances associated with the continued build-out
of the Company's cellular networks. See the "Consolidated Expenditures" section
for additional discussion regarding the Company's capital expenditures.
 
     The equity in net loss of unconsolidated wireless systems decreased
primarily due to stronger operating results of CMT Partners and reduced net
losses from PrimeCo. Stronger operating results at CMT Partners were driven by
growth in subscribers, increased roaming-in revenues, and increased margins from
lowering average cost per customer faster than average revenue per customer
decreased. Decreased losses at PrimeCo were due to improving economies of scale,
driven by growth in subscribers. The Company's equity investees are impacted by 
similar industry trends and competitive forces as the Company's consolidated 
markets.
 
U.S. PAGING OPERATIONS
 
     All U.S. paging markets are wholly owned by the Company. U.S. paging
operations include operations in Canada, which are not material to the
information presented.
 
  U.S. Paging Operating Results (GAAP-Basis)
 
<TABLE>
<CAPTION>
                                      For the Year
                                          Ended
                                       December 31
                                      -------------
                                      1998    1997
                                      -----   -----
(Dollars in millions)
<S>                                   <C>     <C>
Service and other revenues..........  $371    $330
Equipment sales.....................    48      39
                                      -----   -----
Operating revenues..................   419     369
                                      -----   -----
Operating expenses before
  depreciation and amortization
  expenses..........................   296     261
Depreciation and amortization
  expenses..........................    80      74
                                      -----   -----
Operating income....................  $ 43    $ 34
                                      =====   =====
Operating cash flow (a).............  $123    $108
Operating cash flow margin (b)......    29%     29%
                                      -----   -----
</TABLE>
 
(a) Operating cash flow is operating income plus depreciation and amortization
    and is not the same as cash flow from operating activities.
 
(b) Operating cash flow margins in the GAAP presentation above differ from the
    same margins presented in "Selected Proportionate Financial Data" because
    costs of equipment sales are included in operating expenses in this
    presentation in accordance with GAAP, rather than being presented as a
    reduction to service and other revenues as is done in the proportionate
    presentation for U.S. paging.
 
     Operating revenues increased 14% due primarily to a 10% annual growth in
paging units in service and a 4% increase in the average revenue per unit in
service. The Company's strategy is to shift its growth to the higher revenue
retail and direct channels from the reseller channel. Operating margins
increased slightly from 9% to 10% and operating cash flow margins (operating
margins excluding the effect of 


                                      -13-


<PAGE>   14
MANAGEMENT'S DISCUSSION & ANALYSIS

depreciation and amortization) remained stable at 29%.
 
     The Company acquired one nationwide and three regional licenses for
narrowband PCS in 1994. The Company's narrowband spectrum will allow it to offer
its own value-added services such as acknowledgment paging, remote monitoring,
and customized information services. The Federal Communications Commission
("FCC") requires licensees to build-out and achieve certain coverage of the
licensed areas by September 1999. The Company expects to meet this requirement.
When commercial services begin, estimated to be in the second half of 1999, the
costs of the license and build-out will be depreciated. Accordingly,
depreciation and amortization expenses are expected to increase from 1998
levels.
 
INTERNATIONAL OPERATIONS
 
International Operating Results (GAAP-Basis)
 
<TABLE>
<CAPTION>
                                                               For the Year
                                                                   Ended
                                                                December 31
                                                               ------------
(Dollars in millions)                                          1998     1997
                                                              ------   ------
<S>                                                           <C>      <C>
Service and other revenues..................................  $  935   $  685
Equipment sales.............................................      89       66
                                                              ------   ------
Operating revenues..........................................   1,024      751
                                                              ------   ------
Operating expenses before depreciation and amortization
  expenses..................................................     674      551
Depreciation and amortization expenses......................     112       85
                                                              ------   ------
Operating income............................................  $  238   $  115
                                                              ======   ======
Equity in net income (loss) of unconsolidated wireless
  systems...................................................  $  434   $  199
                                                              ------   ------
</TABLE>
 
     Telecel and Europolitan, the Company's consolidated international wireless
operations, experienced substantially higher growth rates than the Company's
U.S. cellular operations. For the year ended December 31, 1998, the consolidated
international wireless operations were 18% of the Company's operating revenues,
as compared to 15% for 1997 and 24% of the Company's operating income, as
compared to 14% for 1997.
 
     Operating revenues for the Company's international wireless operations
increased 36% for the year ended December 31, 1998. The increase was primarily
due to a 70% annual growth in subscribers. Prepaid customers represented 81% of
the annual growth and 53% of total combined subscribers as of December 31, 1998.
Prepaid pricing plans have created a convenient and inexpensive way for
customers to obtain wireless service by eliminating monthly access or service
charges. In addition to revenues generated directly from subscribers,
international ventures generate revenue from non-subscribers since all incoming
calls to subscribers are billed to the person originating the call. This billing
practice is commonly referred to as calling party pays. The increase in
operating revenues resulting from the subscriber growth was partially offset by
a 30% decrease in average revenue per customer for the year ended December 31,
1998.
 
     Operating margins increased almost 8% in 1998 due to a decrease in average
cash cost per customer of 38%, which exceeded the decrease in average revenue
per customer. The decrease in average cash cost per customer was due to
increased economies of scale and lower selling costs of prepaid plans. Although
revenues from prepaid plans were generally lower than from non-prepaid plans,
the lower overall selling costs of these plans and the growth generated by these
plans enabled this segment of the subscriber base to be profitable.
 
     Depreciation and amortization expenses increased 31% for the year ended
December 31, 1998. The increase was due to depreciation of larger property,
plant, and equipment balances associated with the continued build-out of
Europolitan and Telecel's cellular networks. The Company will continue to spend
significant capital during 1999 to increase capacity in line with the increased
usage driven by higher subscribers. Consequently, depreciation and amortization
expenses will continue to increase.
 
     Equity in net income of international unconsolidated wireless systems
increased 119%. This significant increase was primarily due to strong subscriber
growth and increased profitability as more ventures benefited from economies of
scale. The increase would have been 111% without the favorable impacts of
foreign currency exchange rates for the year ended December 31, 1998, as
compared to 1997. The most significant contributor to this increase was 
Mannesmann Mobilfunk GmbH ("MMO"), the German wireless system operated by
Mannesmann AG. MMO subscribers increased by approximately 70% over 1997, as new
competition drove prices lower and stimulated demand. Operating margins remained
stable at 38%. Increasing competition will continue to drive prices lower in the
foreseeable future, and there is no guarantee that MMO will be able to maintain
margins. The Company received gross distributions of profits from MMO of $258
million in 1998, slightly less than 1997's amount of $279 million.
 
     The Company's international operations, including those operated by its 
joint venture partners face increasing competition, especially in Europe, as
competitors launch new service. New competition has driven prices down and
stimulated demand. The Company's international ventures achieved increased
margins from reduced average cash cost per customer as the ventures reaped
greater benefits from economies of scale. The improved economies of scale,
record low churn, and lower selling costs per customer have resulted in average
cash cost per customer decreasing at a greater rate than average revenue per
customer decreased. However, there can be no assurances that the Company's 


                                      -14-


<PAGE>   15
MANAGEMENT'S DISCUSSION & ANALYSIS

international ventures will be able to continue this trend.
 
Other Matters Affecting International Operations

     Foreign Currencies Exchange Rate Fluctuations. Foreign currency exchange
rates may be material to the Company's results of operations. A significant
weakening against the dollar of the currency of a country where the Company
generates revenues and earnings may adversely impact the Company's results,
although foreign exchange rate fluctuations in 1998 favorably impacted 1998's
results. A similar weakening against the dollar of the currency of a country
from where the Company receives a distribution can also adversely impact cash
flows, since the Company does not control the timing of its distributions from
its foreign equity investees. Conversely, any weakening of the dollar against
such currency could have an adverse impact on cash flows if the Company is
obligated to make significant foreign currency denominated capital investments
in such a country. The Company attempts to mitigate the effect of certain
foreign currency fluctuations through the use of foreign currency contracts and
foreign currency denominated credit arrangements.
 
     The Company engages in risk management activities to hedge foreign currency
denominated investments and firm capital commitments. The Company does not
engage in speculative foreign exchange activities. See "Market Risk" for
additional information.
 
     The Company's equity investments in foreign wireless systems are viewed as
long-term assets valued in the local currency, translated into U.S. dollars, and
reported in the Company's financial statements. The Company hedges a portion of
these investments with forward foreign currency exchange contracts and foreign
currency denominated loans. These hedges are in accordance with the Company's
objective to offset the U.S. dollar values of foreign currency denominated
assets with foreign currency denominated liabilities. The accounting treatment
is described in Note A, "Summary of Significant Accounting Policies," to the
Consolidated Financial Statements.
 
     Almost all of the Company's economic hedges qualify as hedges under
accounting rules. Non-qualifying hedges relate to cost method investments that
do not qualify for hedge accounting or mismatches between the hedge instruments
and the hedged investments due to equity losses of foreign wireless systems
during start-up. All gains and losses pertaining to hedges that do not qualify
for hedge accounting are included in net income.
 
     Deferred Taxes. International equity in net income of unconsolidated
wireless systems includes tax benefits of $30 million in both 1998 and 1997.
These tax benefits are recorded in "Equity in net income (loss) of
unconsolidated wireless systems" in the Consolidated Statements of Income. The
tax benefits represent future benefits that the international unconsolidated
wireless systems will receive by deducting net operating losses from future
taxable income. At December 31, 1998, the Company's proportionate share of
deferred tax assets of its international equity investees was $138 million,
which was offset by a valuation allowance of $73 million. While the Company
believes it is more likely than not that the net deferred tax assets will be
fully realized, there can be no assurance this will happen. Certain factors
beyond the control of the equity investees and the Company, such as
deteriorating local economic conditions, increasing competition, and changes in
tax laws, may affect the future timing and amounts of taxable income.
 

                                      -15-


<PAGE>   16
MANAGEMENT'S DISCUSSION & ANALYSIS

1997 VS. 1996
 
CONSOLIDATED RESULTS OF OPERATIONS
 
     Net income increased 120% for the year ended December 31, 1998, as 
compared to 1997 primarily due to the increased ownership of the Great Lakes
market during 1997, and the equity earnings from the Company's unconsolidated
equity wireless systems.

     Improvements in consolidated operating income resulted primarily from
increases in the operating income of U.S. cellular and international operations.
As indicated in the individual discussions of U.S. cellular and international
operations, the increase in consolidated operating income resulted from
consolidation during 1997 of the Great Lakes market and Telecel, as well as
substantial subscriber growth in both U.S. and international cellular markets.
 
     The decrease in U.S. equity in net income of unconsolidated wireless
systems was attributable to consolidation of the Great Lakes market in August
1996, (see "Cellular Communications, Inc. Merger") and increased operating
losses of PrimeCo associated with the start-up phase of the PCS business.
Decreases due to consolidation of the Great Lakes market and increased losses of
PrimeCo were partially offset by improved operating results of CMT Partners,
AirTouch's cellular joint venture operating primarily in the San Francisco Bay
Area. The improvements in international equity in net income (loss) of
unconsolidated wireless systems were due primarily to improved profitability
resulting from substantial growth in the subscriber base and, secondarily, to
favorable adjustments resulting from changes in estimates based on the Company's
assessment of various tax positions recorded in 1997.
 
     The Company's unconsolidated ventures distributed $383 million of cash 
dividends for the year ended December 31, 1997, up significantly from 1996's 
amount of $140 million.

     The increases in interest expense resulted from higher average debt
balances and a reduction in capitalized interest as the related assets under
construction were placed in service.
 
     The decrease in miscellaneous income was primarily attributable to a $56
million gain recorded during 1996 for the sale of Dansk Mobiltelefon AB ("DMT"),
an investment held by Europolitan. Net of minority interest and taxes, the sale
of DMT resulted in a $6 million increase in consolidated net income.
 
     As mentioned previously, the effective tax rate calculated by dividing
"Income taxes" by "Income before income taxes and preferred dividends" is not a
meaningful measure of the Company's income tax trends. The most significant
reason for this was that the Company's "Income before income taxes and preferred
dividends" included equity earnings from its unconsolidated international
wireless systems, which were recorded net of applicable local taxes. No U.S.
taxes were provided for on these earnings, as the Company believes these
earnings will be indefinitely invested overseas. See Note L, "Income Taxes" for
a reconciliation of the federal statutory tax rate to the Company's effective
tax rate.
 
U.S. CELLULAR OPERATIONS
 
     Discussions of results of operations for U.S. cellular include equity
earnings in PrimeCo.
 
  U.S. Cellular Operating Results (GAAP-Basis)
 
<TABLE>
<CAPTION>
                                                                  For the Year Ended
                                                                      December 31
                                                              ---------------------------
                                                                  Actual           Pro
                                                              ---------------   Forma (b)
                                                               1997     1996      1996
                                                              ------   ------   ---------
(Dollars in millions)
<S>                                                           <C>      <C>      <C>
Service and other revenues..................................  $2,351   $1,634    $2,092
Equipment sales.............................................     125       60        81
                                                              ------   ------   ---------
Operating revenues..........................................   2,476    1,694     2,173
                                                              ------   ------   ---------
Operating expenses before depreciation and amortization
  expenses..................................................   1,452    1,055     1,301
Depreciation and amortization expenses......................     381      240       350
                                                              ------   ------   ---------
Operating income............................................  $  643   $  399    $  522
                                                              ======   ======   =========
Equity in net income (loss) of unconsolidated wireless
  systems (a)...............................................  $    1   $  151    $   57
                                                              ------   ------   ---------
</TABLE>
 
(a) U.S. Cellular Operations include equity earnings in PrimeCo.
 
(b) Adjusted to present results as if the Great Lakes market had been wholly
    owned and consolidated during the year ended December 31, 1996.
 
     Cellular Communications, Inc. Merger. In August 1996, AirTouch acquired the
remaining 63% of CCI's capital stock that it did not already hold. As a result
of the acquisition, AirTouch owns 100% of CCI and New Par, the equally owned
partnership between the Company and CCI that operated cellular properties in
Michigan and Ohio prior to the merger. Accordingly, the operating results of CCI
and New Par (referred to elsewhere in Management's Discussion and Analysis as
the "Great Lakes" market) are reflected in equity earnings at the Company's
ownership interest prior to the merger and in consolidated results at 100%
thereafter. Since the actual results of operations for the years ended December
31, 1997 and 1996, are not comparable, pro forma results for the year ended
December 31, 1996, are included in the preceding table to reflect results as if
the Great Lakes market had been wholly owned and consolidated during all of
1996.
 
     U.S. Cellular Operations -- 1997 vs. Pro Forma 1996. The improvement in
U.S. cellular consolidated operating revenues during the year ended December 31,
1997, was due to an approximate 30% increase in total minutes of use
attributable primarily to a 26% increase in subscribers, partially offset by an


                                      -16-


<PAGE>   17
MANAGEMENT'S DISCUSSION & ANALYSIS

approximate 14% decline in average revenue per minute of use. The average
revenue per customer declined approximately 13% comparing the year ended
December 31, 1997, to the year ended December 31, 1996.
 
     The Company achieved customer growth in its consolidated markets through
advertising and by continuing to offer competitive incentive programs such as
waived service establishment charges, discounted monthly access fees, discounted
cellular handsets, discounted air time packages, promotional air time credits at
the beginning of service contracts, options to purchase bundled minutes of use
at fixed monthly rates, and reduced or fixed rates for off-peak usage and
roaming.
 
     The declines in average revenue per customer and average revenue per minute
of use were primarily attributable to continued penetration of consumer markets
and to rate reductions and discounts offered to new and existing customers in
response to increasing competition. Consumer usage patterns contributed to
declines in average revenue per customer because consumers typically use their
telephones more during lower-rate, off-peak calling periods. Declines in average
revenue per customer and average revenue per minute of use were partially offset
by a slight increase in minutes of use per customer during 1997, as compared to
the prior year.
 
     U.S. cellular operating margins increased from 24% during 1996 to 26%
during 1997. Operating cash flow margins (operating margins excluding the effect
of depreciation and amortization expenses) increased from 40% during 1996 to 41%
during 1997. Improvements in operating margins despite a 14% decline in average
revenue per minute of use resulted from a greater decline of 16% in the average
cash cost per minute of use (including the loss on equipment sales).
 
     The average revenue per customer declined 13%, while the average cash cost
per customer (including the loss on equipment sales) declined 15%. Declining
cash cost per customer and per minute of use reflect the Company's continuing
efforts to reduce cash cost more rapidly than the related declines in average
revenue per customer and average revenue per minute of use. Decreases in average
cash cost resulted from several factors, including increased economies of scale,
reductions in roaming fraud, a reduction in interconnection rates, declines in
handset costs and reductions in handset subsidies offered to customers, and a
shift in customer acquisitions to lower-cost direct sales channels.
 
     The Company has also reduced the rate at which customers discontinue
service ("churn") by continually improving customer service and increasing its
focus on customer incentive programs designed to retain existing customers,
which is significantly less expensive than replacing customers who discontinue
service.
 
     Depreciation and amortization increased 9%, due primarily to depreciation
of significantly larger property, plant, and equipment balances associated with
analog network expansion and digital cellular deployment across all consolidated
markets.
 
     The decrease in U.S. cellular and PCS equity in net income of
unconsolidated wireless systems resulted from larger losses from PrimeCo for its
first full year of operations. PrimeCo launched service in November 1996.
Partially offsetting these losses were the improved operating results of CMT
Partners. Consistent with the Company's consolidated U.S. markets, CMT Partners
achieved increased earnings through substantial customer growth and significant
reductions in the average cash cost per customer, partially offset by declines
in average revenue per customer.
 
U.S. PAGING OPERATIONS
 
     All U.S. paging markets are wholly owned by the Company. U.S. paging
operations include operations in Canada, which are not material to the
information presented.
 
  U.S. Paging Operating Results (GAAP-Basis)
 
<TABLE>
<CAPTION>
                                                              For the Year
                                                                  Ended
                                                               December 31
                                                              -------------
                                                              1997    1996
                                                              -----   -----
(Dollars in millions)
<S>                                                           <C>     <C>
Service and other revenues..................................  $330    $293
Equipment sales.............................................    39      50
                                                              -----   -----
Operating revenues..........................................   369     343
                                                              -----   -----
Operating expenses before depreciation and amortization
  expenses..................................................   261     255
Depreciation and amortization expenses......................    74      64
                                                              -----   -----
Operating income............................................  $ 34    $ 24
                                                              =====   =====
Operating cash flow (a).....................................  $108    $ 88
Operating cash flow margin (b)..............................    29%     26%
                                                              -----   -----
</TABLE>
 
(a) Operating cash flow is operating income plus depreciation and amortization
    and is not the same as cash flow from operating activities.
 
(b) Operating cash flow margins in the GAAP presentation above differ from the
    same margins presented in "Selected Proportionate Financial Data" because
    costs of equipment sales are included in operating expenses in this
    presentation in accordance with GAAP, rather than being presented as a
    reduction to service and other revenues as is done in the proportionate
    presentation for U.S. paging.


                                      -17-


<PAGE>   18
MANAGEMENT'S DISCUSSION & ANALYSIS

     Operating revenues increased approximately 8%, due primarily to a 9%
increase in paging units in service, partially offset by an approximate 3%
decline in the average revenue per unit in service. Increased revenues
associated with subscriber growth were also offset by declines in pager sales
attributable to decreases in the number of units in service added. Operating
cash flow margins (operating margins excluding the effect of depreciation and
amortization) increased from 26% to 29%, due to increased service and other
revenues and lower costs of paging equipment sales attributable to declines in
units in service added, partially offset by moderate increases in network
operating costs necessary to serve the expanded customer base. Increased service
and other revenues resulted from growth in paging units in service, a shift from
paging service sold at wholesale rates through resellers to service sold
directly by the Company or through retail sales channels, and retail service
price increases in selected markets. Increased depreciation and amortization
resulted from expansion of paging networks and higher depreciation of more
expensive leased alphanumeric pagers, which comprised a larger percentage of
leased pagers during 1997.
 
INTERNATIONAL OPERATIONS
 
  International Operating Results (GAAP-Basis)
 
<TABLE>
<CAPTION>
                                                                For the Year Ended
                                                                    December 31
                                                              -----------------------
                                                                Actual         Pro
                                                              -----------   Forma (a)
                                                              1997   1996     1996
                                                              ----   ----   ---------
(Dollars in millions)
<S>                                                           <C>    <C>    <C>
Service and other revenues..................................  $685   $190     $521
Equipment sales.............................................    66     22       62
                                                              ----   ----   ---------
Operating revenues..........................................   751    212      583
                                                              ----   ----   ---------
Operating expenses before depreciation and amortization
  expenses..................................................   551    239      479
Depreciation and amortization expenses......................    85     34       68
                                                              ----   ----   ---------
Operating income (loss).....................................  $115   $(61)    $ 36
                                                              ====   ====   =========
Equity in net income (loss) of unconsolidated wireless
  systems...................................................  $199   $(18)    $(42)
                                                              ----   ----   ---------
</TABLE>
 
(a) Adjusted to present results for the year ended December 31, 1996, as if
    Telecel had been consolidated and the Company's ownership interest in
    Telecel had been 51 percent and the Company's 1997 ownership interests in
    its unconsolidated wireless systems had been the ownership interests during
    the corresponding periods of 1996.
 
  International Investment Ownership Increases.
 
     Actual consolidated international operating results presented in the
preceding table for the year ended December 31, 1996, reflect the operations of
Europolitan, the Company's 51 percent-owned cellular system in Sweden. On
December 31, 1996, the Company consolidated Telecel, its cellular system in
Portugal, subsequent to acquiring a 51 percent controlling interest.
Accordingly, consolidated international operating results presented in the
preceding table for the year ended December 31, 1997, reflect the operations of
both Telecel and Europolitan. Operating results for other international markets
are reflected in equity in net income (loss) of unconsolidated wireless systems
during all periods presented. Since the actual results of operations for each
period are not comparable, pro forma results for the year ended December 31,
1996, are included in the preceding table to reflect results as described in
footnote (a) to the preceding table.
 
     International Operations -- 1997 vs. Pro Forma 1996. The increase in
operating revenues resulted primarily from an 80% increase in Europolitan and
Telecel's combined average subscribers, partially offset by a 25% decrease in
Europolitan and Telecel's combined average revenue per customer and unfavorable
changes in foreign exchange rates compared to the U.S. Dollar. If foreign
exchange rates had remained constant, operating revenues would have increased
46%. Operating margins improved from 6% during 1996 to 15% during 1997, due
primarily to substantial subscriber growth and rapidly declining cash cost per
customer as Europolitan and Telecel's operations continued to gain operating
scale. If foreign exchange rates had remained constant, operating income would
have increased 344%.
 
     Improvement in equity in net income (loss) of unconsolidated wireless
systems was due to improved operating results in Europe and Japan. Improved
results in these wireless systems resulted primarily from increasing economies
of scale and continued subscriber growth, partially offset by overall declines
in the average revenue per customer. The most significant contributor to the 
increase was MMO, where subscribers increased by approximately 53% over 1996.
Operating margins improved from 31% to 38% in 1997 due to average cost per
customer decreasing faster than average revenue per customer decreased. In
addition, the Company recognized certain favorable adjustments resulting from
changes in estimates based on the Company's assessment of various tax positions.
Improvements were also partially offset by unfavorable movements in all foreign
currency exchange rates.

                                      -18-


<PAGE>   19
MANAGEMENT'S DISCUSSION & ANALYSIS

CONTINGENCIES
 
     The Company is party to various legal proceedings, including antitrust
litigation. See Note N, "Commitments and Contingencies," to the Consolidated
Financial Statements for a detailed discussion.
 
CONVERSION TO THE EURO
 
     A new common currency, the "Euro," was introduced on January 1, 1999. The
eleven participating European Union ("EU") member countries established fixed
conversion rates between their existing currencies and the Euro. The Company has
consolidated and equity investments in a number of the participating EU
countries: Portugal, Germany, Italy, Spain, and Belgium. The Company also has a
consolidated interest in Sweden, which has not yet adopted the Euro. The Euro
became available for non-cash transactions as of January 1, 1999. The Euro will
be phased in over a transition period culminating on January 1, 2002. The
amounts expended by the Company's majority-owned European operations to date for
the conversion to the Euro have not been material to the Company's financial
position or results of operations. Estimated costs of conversion prior to
January 1, 2002, are not available.
 
     The conversion to the Euro is a critical element in the EU's plan to create
one integrated market encompassing the economies of its member states. This
could have longer-term competitive implications for the Company's European
operations. The Company is currently unable to predict the ultimate financial
impact of the conversion on its operations.
 
YEAR 2000 READINESS
 
  Issues for AirTouch
 
     Many of the Company's systems are affected by the year 2000 issue, which
refers to the inability of computerized systems and embedded technology to
process dates or operate beyond December 31, 1999. The Company has implemented a
comprehensive plan to address the year 2000 issue in the mission critical
systems of its consolidated markets. Mission critical systems are those whose
failure poses a risk of disruption to the Company's ability to provide wireless
services, to collect revenues, to meet safety standards, or to comply with legal
requirements. These include, among others, systems that constitute the Company's
wireless networks, billing systems, and customer care systems.
 
  State of Readiness
 
     The Company's plan to address the year 2000 issue consists of five phases:
(1) the complete inventory of all mission critical systems employed in the
Company's consolidated markets and the identification of hardware, software, and
embedded technology that are affected by the year 2000 issue; (2) analysis and
design of (or interaction with third party suppliers regarding) modifications
for each affected component; (3) creation and testing of the modifications; (4)
implementation of the modifications on a company-wide basis; and (5) testing of
the interface between systems. The Company's plan addresses both information
technology ("IT") and technology embedded in equipment and other infrastructure.
 
     The plan is being implemented under the oversight of an executive steering
committee that includes the Company's President and Chief Operating Officer and
Executive Vice President and Chief Financial Officer. The Company currently
employs over 200 full-time contractors and employees implementing the plan. The
Company's executive steering committee is regularly updated by an independent
consultant who reviews the adequacy of the Company's processes and methodologies
for assessing the costs and risks associated with the year 2000 issue and by the
Company's internal audit group that independently verifies the project status.
 
     The Company has completed phases one and two of its plan. It has completed
approximately three-quarters of phases three and four and is on target to have
them substantially completed by mid-1999. The Company is also conducting phase
five work and is on target for substantial completion by mid-1999. If the
Company discovers that certain components have not been sufficiently modified,
then it will have to repeat phases two through five with respect to such
components.
 
     Based on the current progress of the Company's year 2000 efforts and on the
assumption that third parties will meet their commitments, the Company believes
that it can prevent serious disruption to the mission critical systems of its
consolidated markets.
 
     The Company is also monitoring the progress of its significant
unconsolidated ventures in addressing their mission critical systems through its
positions on the governing boards of such entities and, in some cases, through
review of the subsidiary's remediation plans.
 

                                      -19-


<PAGE>   20
MANAGEMENT'S DISCUSSION & ANALYSIS

  Dependence on Third Parties
 
     Much of the technology employed in the Company's mission critical systems
was purchased from third parties. The Company is dependent on those third
parties to assess the impact of the year 2000 on their technology and to take
any necessary corrective action. The Company is monitoring the progress of these
third parties and, in selected cases, has reviewed their modification and test
plans. The Company has received information for all of its supplied products
regarding the impact of the year 2000 issue and the vendors' plans to correct
them. The Company is selectively conducting tests to determine whether certain
suppliers have accurately assessed and addressed the impact of the year 2000 on
their products.
 
     The ability of the Company to complete its remediation plan and avoid
disruption of its service is dependent on its suppliers delivering the necessary
modifications to their products by the projected delivery dates.
 
     Management believes that the original manufacturers of handsets and pagers
are primarily liable for failures of such products. Based on representations
made by such manufacturers, the Company does not expect significant disruption
to its customers as a result of handset or pager failure. However, in the event
of such product failures, the Company could experience service revenue loss and
incur additional costs to furnish customers with temporary or permanent
replacement equipment to prevent further service revenue loss.
 
     The Company's systems are interconnected with numerous networks and systems
operated by third parties, including landline telecommunications networks,
long-distance networks, the networks of other wireless service providers, and
networks operated by utilities. The operators of these networks are responsible
for addressing the year 2000 issue in their own systems. The ability of the
Company's systems to operate, including the ability of the Company to provide
wireless service, is dependent upon these third party networks and systems being
year 2000 compliant. Of this, there can be no assurance.
 
     The Company has taken an active role with industry groups to develop
procedures to test the interconnection among different wireless networks and
between certain wireless networks and landline telecommunications networks. A
set of successful tests led by the Cellular Telecommunications Industry
Association took place at the end of 1998. Additional testing is being conducted
during the first half of 1999.
 
  Costs
 
     The Company incurred approximately $30 million in incremental consolidated
pre-tax expenses through the end of 1998 for the year 2000 program. Prior to
1999, the Company did not comprehensively track non-incremental costs, which
consist primarily of time spent on year 2000 efforts by employees not dedicated
to the year 2000 project. The Company plans to incur approximately $50 million
in total pre-tax expenses in 1999, including incremental and non-incremental,
for its remediation and testing of its consolidated mission critical systems.
The majority of the remaining expenses will be incurred in the first half of
1999. Additionally, the Company will incur capitalized costs that represent
ongoing investments in new systems and system upgrades, the timing of which is
being accelerated in order to facilitate year 2000 compliance. These capitalized
costs are not expected to have a material impact on the Company's financial
position or results of operations. The Company's cost estimate assumes that the
Company and its third party suppliers have accurately assessed the compliance of
the components and systems for which they are responsible and that they will
successfully remediate non-compliant components and systems. Because of the
complexity of year 2000 remediation, actual costs may vary from this estimate.
 
     The Company redeployed employees to address the year 2000 issue resulting
in delays of other non-critical IT projects. The costs expected to be incurred
in 1999 for these employees are included in the estimated costs. The Company
does not expect the delay in these non-critical IT projects to have an adverse
effect on its results of operations or financial condition.
 
  Business Continuity Plans
 
     The Company's business continuity plan is currently under development for
year 2000 issues. The first phase is to analyze mission critical business
functions, such as billing and customer care systems, and determine the risks of
failure based on the number and complexity of the year 2000 modifications to the
systems supporting those functions. The second phase is to prepare and implement
alternatives for those business functions that are most susceptible to
disruption and the final phase will be to test these alternatives. The Company
is currently completing phases one and two and will be in a better position to
assess the most reasonably likely worst case scenario and the 


                                      -20-


<PAGE>   21
MANAGEMENT'S DISCUSSION & ANALYSIS

potential cost of the Company's business continuity plan at the end of these
phases, targeted for mid-1999. The Company is also developing processes intended
to quickly identify the cause of any disruptions to its mission critical systems
in the year 2000. There can be no assurance that these plans will successfully
avoid service disruption.
 
  Risks
 
     If the Company or its suppliers are unsuccessful in their efforts to
correct the Company's mission critical systems or if third parties with whom the
Company's systems interconnect do not correct their systems, the Company may
experience significant disruption to its operations. This could include the
disruption of the Company's ability to provide wireless service and to correctly
bill customers, resulting in potential revenue loss and increased costs. Such an
outcome could have a material adverse impact on the Company's financial
condition or results of operations.
 
MARKET RISK
 
  Interest and Foreign Exchange Rate Risks
 
     The Company is exposed to interest and foreign currency exchange rate
risks. In certain cases, the Company enters into derivative financial instrument
contracts to manage its exposure to such risks. With respect to foreign currency
exchange rate risk, the Company enters into foreign currency forward contracts
("forward contracts") to hedge its net investment in its international wireless
systems and to manage risks associated with firm capital commitments denominated
in foreign currencies. The Company has used interest rate swaps to convert
variable-rate debt to fixed-rate debt or to reduce interest rate risk associated
with anticipated future borrowings. At December 31, 1998, the Company did not
have any interest rate swaps. The Company does not enter any such arrangements
for purposes of trading or speculation. The nature of the Company's market risk
exposures and management's objectives and strategies with respect to managing
such exposures did not change in 1997 or 1998 and it does not anticipate any
changes in the near term.
 
     The Company uses a statistical modeling technique known as "value-at-risk"
("VAR") to compute required disclosures of the maximum probable loss, within a
certain confidence level, in the fair value of its financial instruments subject
to interest and foreign currency exchange rate risks. VAR amounts are
statistical estimates representing the maximum probable loss in fair value that
the Company could incur given a certain confidence level (i.e., with 95%
certainty, the value of the instruments included in the VAR model is not likely
to decrease more than the VAR amounts in the following table due to movements in
the relevant market rates). VAR amounts do not represent actual losses that may
be incurred by the Company. Although changes in market rates may adversely
impact the fair value of the Company's debt instruments, its risk is reduced
since the majority of the Company's existing debt bears interest at fixed rates.
Further, potential changes in the fair value of forward contracts, in most
cases, will be offset by changes in the fair value of the underlying asset
hedged by the forward contract.
 
     VAR may be calculated using several types of models. The Company uses the
"variance/co-variance" model, which calculates VAR based on the actual
historical volatility of the related interest and foreign exchange rates and the
actual historical correlation of such rates with one another. The Company's
calculations were based on the actual correlation of such rates observed during
the preceding twelve months, a 95% confidence level, and a one-year holding
period for each financial instrument (except for those instruments maturing
prior to the end of the one-year holding period). The model was applied to all
of the Company's debt instruments, redeemable preferred stock, and forward
contracts outstanding at December 31, 1998 and 1997. For VAR calculation
purposes, the Company's redeemable preferred stock was considered a debt
instrument.
 
     At December 31, 1997, the Company's financial instruments that were subject
to interest or foreign currency exchange rate risks included debt and forward
contracts. In 1998 it also included redeemable preferred stock. The fair market
value and the related VARs are presented in the following table:
 
<TABLE>
<CAPTION>
                                                                December 31
                                                              ---------------
                                                               1998     1997
                                                              ------   ------
(Dollars in millions)
<S>                                                           <C>      <C>
FAIR MARKET VALUE
Debt and redeemable preferred stock (a).....................  $4,611   $1,436
Foreign forward contracts...................................  $    2   $   60
FOREIGN EXCHANGE RATE VAR
Debt and redeemable preferred stock (a).....................  $   13   $   18
Foreign forward contracts...................................  $   55   $   49
INTEREST RATE VAR
Debt and redeemable preferred stock (a).....................  $  431   $   58
Foreign forward contracts...................................  $   25   $   53
</TABLE>
 
(a) Includes redeemable preferred stock only as of December 31, 1998.

                                      -21-


<PAGE>   22
MANAGEMENT'S DISCUSSION & ANALYSIS

     The increase in debt and redeemable preferred stock was primarily due to
the MediaOne Group merger. The debt was denominated in U.S. Dollars, Swedish
Krona, German Deutsche Marks, and Portuguese Escudos. The forward contracts were
denominated in German Deutsche Marks, Belgian Francs, Spanish Pesetas, Italian
Lira, and Portuguese Escudos (the "Euro" currencies, effective January 1, 1999),
Swedish Krona, and Korean Won. The Company liquidated its Japanese Yen
denominated debt and forward contracts in 1998. See Note E, "Financial
Instruments" for further information on the Company's forward contracts and Note
I, "Debt and Credit Facilities," to the Consolidated Financial Statements for
further detailed information concerning the Company's debt instruments and
credit facilities.
 
     The average, high, and low VAR values with respect to foreign exchange rate
risk and interest rate risk for the Company's debt and redeemable preferred
stock and forward contracts held during the past year were:
 
<TABLE>
<CAPTION>
                                                               For the Year Ended
                                                               December 31, 1998
                                                              --------------------
                                                              Low     Avg    High
                                                              ----   -----   -----
<S>                                                           <C>    <C>     <C>
FOREIGN EXCHANGE RATE VAR...................................  $67    $ 72    $ 79
INTEREST RATE VAR...........................................  $50    $198    $456
</TABLE>
 
  Equity Price Risk
 
     At December 31, 1998, the Company held common stock in QUALCOMM, Inc. and
Leap Wireless International, Inc. ("Lwi"). Both companies' common stock is
publicly traded in U.S. equity markets and subject to equity price risks. In
accordance with Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," the investments are
reported at market value in the Company's financial statements. At December 31,
1998, the investments were valued at $56 million. The same investments at
December 31, 1997, would have been valued at $52 million. A 10% decrease in the
price of QUALCOMM, Inc. and Lwi stocks would result in a $5.6 million decrease
in the fair value of the Company's investment. During the first quarter of 1999,
the Company sold all of the Lwi common stock and all of the QUALCOMM, Inc.
common stock.
 
     The Company also holds certain cost-based investments in Mannesmann Arcor,
(a German landline telephone company), Globalstar L.P. (a satellite-based
wireless communications partnership), a Japanese long distance company, Japanese
cellular properties, smaller U.S. cellular properties, and other small
investments. At December 31, 1998 and 1997, investments in these entities
totaled $147 million and $110 million, respectively, and were reported in
"Investments in unconsolidated wireless systems," in the Company's Consolidated
Balance Sheets. These investments also expose the Company to risk of loss;
however, it is not practical to estimate the fair value of these investments as
quoted market prices are not available and alternative information for
estimating such fair value is not readily available to the Company. Accordingly,
the Company has not provided information concerning sensitivity to relevant
market rates for these investments.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     The Company defines liquidity as its ability to generate resources to
finance business expansion, construct capital assets, and meet its current
obligations. The Company requires substantial capital to operate and expand its
existing wireless systems, to construct new wireless systems, and to acquire
interests in existing wireless systems.
 
1998 CAPITAL SPENDING, DEBT SERVICE, NET DISTRIBUTION, AND PREFERRED DIVIDEND
REQUIREMENTS
 
     In 1998, the Company made capital expenditures of $1,030 million for
additions to property, plant, and equipment, primarily to support customer
growth. The Company invested an additional $673 million in its unconsolidated
wireless systems to fund the expansion and build-out of cellular and PCS
networks and to increase its interest in certain systems. Cash payments for debt
service in 1998 were $153 million. The Company also paid $95 million in
dividends to holders of its preferred stock and $94 million in net distributions
to holders of minority interests of its consolidated wireless systems.
 
FUNDING OF 1998 CAPITAL SPENDING, DEBT SERVICE, NET DISTRIBUTION, AND PREFERRED
DIVIDEND REQUIREMENTS
 
     Cash flows from operations of $1.9 billion, combined with proceeds from the
issuance of common stock pursuant to stock option exercises and net proceeds
from other investing and financing activities, were sufficient to fund capital
requirements, preferred dividend obligations, and net distributions to minority
partners. Cash flow from operations includes distributions of $391 million 
received from unconsolidated equity investees.

                                      -22-


<PAGE>   23
MANAGEMENT'S DISCUSSION & ANALYSIS

FUTURE FUNDING REQUIREMENTS
 
     The Company will continue to make substantial expenditures to expand its
existing wireless business and, potentially, to expand into new markets. Planned
1999 capital expenditures for existing operations are approximately $1.8
billion. This amount does not include expenditures for new investment
opportunities.
 
CONSOLIDATED EXPENDITURES
 
     The Company plans to incur significant capital expenditures in its
consolidated markets to expand its digital wireless networks and maintain its
analog networks. Both of the Company's consolidated international cellular
operations, Telecel and Europolitan, operate on a digital standard known as GSM.
GSM is the prevailing digital standard in Europe. The Company's U.S. cellular
consolidated markets operate on the Code Division Multiple Access ("CDMA")
digital standard. The Company believes that digital cellular technology offers
certain advantages over analog technology, including increased capacity, greater
call privacy, superior voice quality, enhanced services, reduced susceptibility
to fraud, longer battery life for handsets, and opportunity to provide improved
data transmissions. By the end of 1998, a significant portion of U.S. customers'
peak time usage was on digital networks, as customers took advantage of its
enhanced capabilities.
 
     Although the Company will invest the majority of its future capital in
digital technology, the Company believes that in the United States both analog
and digital technologies will coexist until such time that technologies to
bridge the different digital standards become widely available. The Company will
maintain its analog networks to meet the continued demand for analog service and
to allow roaming on its analog networks. Analog networks provide the only common
roaming platform currently available throughout the United States.
 
     At December 31, 1998, the Company was committed to spend $223 million for
the acquisition of property, plant, and equipment for its consolidated
operations. In addition to these commitments, the Company plans to make
additional capital expenditures in 1999 of approximately $1.1 billion to
increase the capacity of its consolidated wireless networks. At December 31,
1998, the Company had also committed to spend approximately $100 million for the
purchase of cellular handsets, pagers, and other items.
 
     In February 1999, the Company signed a multi-year $500 million contract
with Nortel Networks to expand and upgrade its digital cellular networks. The
previously mentioned $1.1 billion plan for consolidated wireless networks
includes the anticipated 1999 portion of this contract.
 
     In addition, the FCC has adopted rules requiring carriers such as the
Company to provide customers in the United States with local number portability
by November 24, 2002. Local number portability is the ability for customers to
retain their telephone numbers should they choose to switch landline or wireless
carriers. Providing this functionality will result in additional capital
requirements and operating expenses in future years. The Company does not expect
these costs to have a material impact on its results of operations or liquidity.
 
     The Company will also be required to upgrade its wireless networks in the
U.S. to provide certain functionality to authorized law enforcement agencies.
The FCC has adopted rules requiring wireless carriers to electronically provide
"Emergency 911" authorities with the physical location of wireless callers
requesting emergency assistance. In addition, the Communications Assistance Law
Enforcement Act ("CALEA") will require the Company to provide law enforcement
agencies with certain network functionality and other assistance in criminal
investigations, including digital wiretapping capabilities. The FCC rules
concerning "Emergency 911" services and CALEA both require the responsible
government agencies to reimburse the Company for costs incurred to upgrade its
networks and to provide ongoing assistance to law enforcement agencies; however,
the Company can provide no assurance that all such costs will be recoverable.
 
UNCONSOLIDATED WIRELESS SYSTEMS
 
     In 1999, the Company plans to make additional capital contributions of
approximately $250 million to certain of its existing U.S. and international
unconsolidated wireless systems and to fund the continuing network build-out and
operating losses of wireless systems that have not achieved sufficient scale.
 
     In January 1999, the Company exercised an option to increase its indirect
ownership in Omnitel Pronto Italia, S.p.A., from 15.5 percent to 17.8 percent.
The Company continually evaluates opportunities to increase its ownership
interests in its existing international wireless systems and to acquire
interests in new international wireless licenses, either of which could result
in incremental capital commitments.
 

                                      -23-


<PAGE>   24
MANAGEMENT'S DISCUSSION & ANALYSIS

OTHER REQUIREMENTS
 
     In October 1997, the Company's Board of Directors authorized the repurchase
of up to $1 billion of AirTouch common and preferred stock. As of December 31,
1998, the Company had repurchased $170 million of its common stock under this
program. The Company may continue to buy shares on the open market based on
market conditions.
 
FINANCING SOURCES
 
     The Company's commercial paper program consists of the sale of discounted
notes that are exempt from registration under the Securities Act of 1933. In
1996, the Company's Board of Directors authorized the issuance of commercial
paper in amounts necessary to finance the Company's working capital
requirements. The amount outstanding under the commercial paper program,
together with all indebtedness incurred under the Company's $2 billion long-term
revolving credit facility (the "Facility"), may not exceed $2 billion. At
December 31, 1998, the amount available for borrowing under the Facility was
$1.25 billion.
 
     The planned merger with Vodafone triggered a "change of control" violation
of the Facility's covenants. The agreement has been amended so that "change in
control" occurs at the closing of the planned merger. During the first quarter
of 1999, the Company and Vodafone were in the process of securing a credit line
from a banking syndicate for funding up to $13 billion. Such funding will be
used to satisfy the cash portion of the planned merger as well as refinance
existing indebtedness, support commercial paper issuance, and provide the
combined company with working capital and funding for continued investment and
general corporate purposes. Should the planned merger be completed, it is likely
that the Facility will be refinanced under this new credit line.
 
     Other financing sources available to the Company include various forms of
debt and equity securities that may be registered with the SEC on Form S-3. At
December 31, 1998, the Company had an effective registration statement
permitting the issuance of $800 million of securities.
 
     In addition to these sources, the Company also has access to international
capital markets, as evidenced by the Company's issuance of 400 million Deutsche
Mark Eurobonds in July 1998. See Note I, "Debt and Credit Facilities" for
additional information.
 
FUNDING OF FUTURE REQUIREMENTS
 
     The Company anticipates cash flows from operations to be its primary source
of funding for capital requirements of its existing operations, debt service,
net distributions to minority partners, preferred dividends, and a certain level
of share buy-backs through the end of 1999. Cash flow from operations include
distributions from unconsolidated equity investees, the timing of which the
Company does not always control. Should additional funding be required due to
the award of one or more new international cellular licenses, new investment
opportunities, higher levels of AirTouch share buy-backs, or other unanticipated
events, the Company may raise the required funds through borrowings or public or
private sales of debt or equity securities. Such funding may be obtained through
borrowings under the Facility; through the Company's commercial paper program;
from additional securities; through the issuance of securities in a transaction
exempt from registration under the Securities Act of 1933; or a combination of
one or more of the foregoing. The Company believes that, in the event of such
requirements, it will be able to access the capital markets on terms and in
amounts adequate to meet its objectives. However, given the possibility of
changes in market conditions or other occurrences, there can be no certainty
that such funding will be available in quantities or on terms favorable to the
Company.


                                      -24-


<PAGE>   25
REPORT OF MANAGEMENT

To the Stockholders of AirTouch Communications, Inc.:
 
FINANCIAL STATEMENTS
 
     The management of AirTouch Communications, Inc. and its subsidiaries
prepared the accompanying Consolidated Financial Statements and is responsible
for their integrity and objectivity. The statements were prepared in accordance
with generally accepted accounting principles in the United States applied on a
consistent basis and are not misstated as a result of material fraud or error.
The Consolidated Financial Statements include amounts based on management's best
estimates and judgments, where necessary. Management also prepared the other
information in this annual report and is responsible for its accuracy and
consistency with the Consolidated Financial Statements.
 
     The Company's Consolidated Financial Statements have been audited by
PricewaterhouseCoopers LLP, independent accountants. Management has made
available to PricewaterhouseCoopers LLP all of the Company's financial records
and related data, as well as the minutes of meetings of the Board of Directors.
Furthermore, management believes that all of the representations made to
PricewaterhouseCoopers LLP during their audits were valid and appropriate.
 
INTERNAL CONTROL SYSTEM
 
     AirTouch Communications, Inc. and its subsidiaries maintain a system of
internal controls over financial reporting, one of the purposes of which is to
provide reasonable assurance to the Company's management and Board of Directors
regarding the preparation of reliable published financial statements. The Audit
and Investment Committee of the Board of Directors is responsible for overseeing
the Company's financial reporting process on behalf of the Board. During 1998,
the Audit and Investment Committee met regularly with management, internal
audit, and the independent accountants to review internal controls, accounting,
auditing, and financial reporting matters.
 
     The system of internal controls contains self-monitoring mechanisms and
actions are taken to correct deficiencies as they are identified. Even an
effective internal control system, no matter how well designed, has inherent
limitations - including the possibility of the circumvention or overriding of
controls and therefore can provide only reasonable assurance with respect to
financial statement preparation. Further, because of changes in conditions,
internal control system effectiveness may vary over time.
 
     The Company assessed its internal control system in its consolidated
operations throughout the year ended December 31, 1998. Criteria for effective
internal control over financial reporting described in Internal
Control -- Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission ("COSO") were considered in
management's control process assessments. To assess the internal control systems
in its unconsolidated partnerships and corporations, management relied on
reports issued by the Company's internal audit group and various external public
accountants who performed audits of those entities, where such reports were
available. Management believes that its overall system of internal control over
financial reporting was operating effectively at December 31, 1998.
 
                                          /s/ Sam Ginn
                                          Chairman and Chief Executive Officer

                                          /s/ Mohan Gyani
                                          Executive Vice President and Chief
                                          Financial Officer

                                          March 1, 1999


                                      -25-


<PAGE>   26
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of AirTouch Communications, Inc.:
 
     In our opinion, the accompanying Consolidated Balance Sheets and the
related Consolidated Statements of Income, of Stockholders' Equity, and of Cash
Flows present fairly, in all material respects, the financial position of
AirTouch Communications, Inc. and subsidiaries at December 31, 1998 and 1997,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
 
     Our audits were made for the purpose of forming an opinion on the
Consolidated Financial Statements taken as a whole. The Selected Proportionate
Financial Data (Proportionate Financial Data) for each of the three years in the
period ended December 31, 1998, appearing on page 63 is presented for additional
analysis and is not a required part of the basic financial statements. As
discussed on page 62, this Proportionate Financial Data has been prepared by the
Company to present financial information that, in the opinion of management, is
not provided by financial statements prepared in conformity with generally
accepted accounting principles. The Proportionate Financial Data reflects
selected operating data of the Company's consolidated and unconsolidated
investments using the proportionate method of accounting and is not a
presentation in accordance with generally accepted accounting principles. Such
Proportionate Financial Data for each of the three years in the period ended
December 31, 1998, determined on the basis of presentation described on page 62,
has been subjected to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the Consolidated Financial Statements taken as a whole.
 
/s/ PRICEWATERHOUSECOOPERS LLP

San Francisco, California
March 1, 1999


                                      -26-


<PAGE>   27
CONSOLIDATED STATEMENTS OF INCOME

  AirTouch Communications, Inc. and Subsidiaries
 
<TABLE>
<CAPTION>
                                                              For the Year Ended December 31
                                                              ------------------------------
                                                                1998       1997       1996
                                                              --------   --------   --------
(Dollars in millions, except per share information)
<S>                                                           <C>        <C>        <C>
Operating revenues..........................................  $  5,181   $  3,594   $  2,252
                                                              --------   --------   --------
Operating expenses:
Cost of revenues............................................     1,126        846        521
Selling and customer operations expenses....................     1,512        990        705
General, administrative, and other expenses.................       647        503        394
Depreciation and amortization expenses......................       950        549        351
                                                              --------   --------   --------
          Total operating expenses..........................     4,235      2,888      1,971
                                                              --------   --------   --------
Operating income............................................       946        706        281
Equity in net income (loss) of unconsolidated wireless
  systems:
U. S........................................................       (41)         1        151
International...............................................       434        199        (18)
Minority interests in net (income) loss of consolidated
  wireless systems..........................................      (179)      (119)       (95)
Interest:
Expense.....................................................      (145)       (90)       (52)
Income......................................................        23         18         14
Miscellaneous income (expense)..............................         3         (1)        67
                                                              --------   --------   --------
Income before income taxes and preferred dividends..........     1,041        714        348
Income taxes................................................       316        266        149
                                                              --------   --------   --------
Income before preferred dividends...........................       725        448        199
Preferred dividends.........................................       117         54         20
                                                              --------   --------   --------
Net income applicable to common stockholders................  $    608   $    394   $    179
                                                              ========   ========   ========
Net income applicable to common stockholders - per share
  Basic.....................................................  $   1.09   $   0.78   $   0.36
  Diluted...................................................  $   1.07   $   0.78   $   0.36
                                                              --------   --------   --------
Weighted average shares outstanding (in thousands)..........   555,995    503,883    500,051
                                                              --------   --------   --------
</TABLE>
 
   The accompanying Notes are an integral part of the Consolidated Financial
                                  Statements.


                                      -27-


<PAGE>   28
CONSOLIDATED BALANCE SHEETS
 
  AirTouch Communications, Inc. and Subsidiaries
 
<TABLE>
<CAPTION>
                                                                December 31
                                                              ----------------
(Dollars in millions)                                           1998      1997
                                                              -------   ------
<S>                                                           <C>       <C>
ASSETS
Current assets:
Cash and cash equivalents...................................  $    44   $    1
Accounts receivable (net of allowance for uncollectibles of
  $65 and $44, respectively)................................      724      472
Inventories.................................................      143      106
Other receivables...........................................      225       44
Due from related parties....................................       59       48
Other current assets........................................      120       51
                                                              -------   ------
          Total current assets..............................    1,315      722
Property, plant, and equipment, net.........................    4,049    2,539
Investments in unconsolidated wireless systems..............    3,491    2,068
Intangible assets, net......................................    8,513    3,297
Deferred charges and other noncurrent assets................      185      344
                                                              -------   ------
          Total assets......................................  $17,553   $8,970
                                                              =======   ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade.....................................  $   493   $  244
Short-term borrowings.......................................       72       --
Current portion of long-term debt...........................       45       57
Other current liabilities...................................      925      675
                                                              -------   ------
          Total current liabilities.........................    1,535      976
Long-term debt..............................................    2,701    1,362
Deferred income taxes.......................................    1,839      711
Deferred credits............................................      152       86
                                                              -------   ------
          Total liabilities.................................    6,227    3,135
                                                              -------   ------
Commitments and contingencies
Minority interests in consolidated wireless systems.........      427      306
Class D and E redeemable preferred stock ($.01 par value;
  1.65 million shares authorized; 1.65 million shares issued
  and outstanding; redemption value $1.65 billion)..........    1,574       --
                                                              -------   ------
Stockholders' equity:
Preferred stock and additional paid-in capital ($.01 par
  value; 48.35 million shares authorized):
Series A (7 million shares authorized, no shares issued or         --       -- 
  outstanding)..............................................              
6.00% Class B Mandatorily Convertible (19 million shares
  authorized; 17.2 million shares issued and outstanding;
  liquidation value of $499)................................      500      500
4.25% Class C Convertible (13 million shares authorized,
  11.0 million shares issued and outstanding; liquidation
  value of $552)............................................      541      541
Common stock and additional paid in-capital ($.01 par value;
  1.1 billion shares authorized, 576.8 million shares issued
  and 572.4 million shares outstanding [net of 4.3 million
  treasury shares at cost of $207] at December 31, 1998;
  506.1 million shares issued and 505.5 million shares
  outstanding [net of 0.5 million treasury shares at cost of
  $11] at December 31, 1997)................................    7,255    4,079
Retained earnings...........................................    1,023      415
Accumulated other comprehensive income......................        8        1
Deferred compensation.......................................       (2)      (7)
                                                              -------   ------
          Total stockholders' equity........................    9,325    5,529
                                                              -------   ------
          Total liabilities and stockholders' equity........  $17,553   $8,970
                                                              =======   ======
</TABLE>
 
   The accompanying Notes are an integral part of the Consolidated Financial
                                  Statements.


                                      -28-


<PAGE>   29
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

  AirTouch Communications, Inc. and Subsidiaries
 
<TABLE>
<CAPTION>
                                             Class B     Class C
                                            Preferred   Preferred                           Accum.
                                              Stock       Stock      Common                  Other
                                               (a)         (a)      Stock (a)   Retained    Compre-   Compre-
                                               and         and         and      Earnings    hensive   hensive   Deferred
(Dollars in millions)                         APIC        APIC        APIC      (Deficit)   Income    Income     Comp.     Total
                                            ---------   ---------   ---------   ---------   -------   -------   --------   ------

<S>                                         <C>         <C>         <C>         <C>         <C>       <C>       <C>        <C>
December 31, 1995, balances...............    $ --        $ --       $3,882      $ (158)      $44                 $(17)    $3,751
Comprehensive income:
Income before preferred dividends.........                                          199                $199                   199
Other comprehensive income, net of tax:
Foreign currency translation loss.........                                                    (14)      (14)                  (14)
Unrealized holding loss on noncurrent
  available-for-sale securities, net......                                                     (3)       (3)                   (3)
                                                                                                       ----
Other comprehensive income, net of tax:...                                                              (17)
                                                                                                       ----
Comprehensive income (b)..................                                                             $182
                                                                                                       ====
Preferred stock issued....................     500         541                                                              1,041
Preferred stock dividends (a).............                                          (20)                                      (20)
Stock options issued for CCI merger.......                               17                                                    17
Shares issued (c).........................                               90                                                    90
Treasury shares (d).......................                               (2)                                                   (2)
Unearned compensation.....................                                                                         (13)       (13)
Compensation expense......................                                                                          16         16
                                              ---------------------------------------------------                 ---------------
December 31, 1996, balances...............     500         541        3,987          21        27                  (14)     5,062
Comprehensive income:
Income before preferred dividends.........                                          448                $448                   448
Other comprehensive income, net of tax:
Foreign currency translation loss.........                                                    (35)      (35)                  (35)
Unrealized holding gain on noncurrent
  available-for-sale securities, net......                                                      9         9                     9
                                                                                                       ----
Other comprehensive income, net of tax:...                                                              (26)
                                                                                                       ----
Comprehensive income (b)..................                                                             $422
                                                                                                       ====
Preferred stock dividends (a).............                                          (54)                                      (54)
Shares issued (c).........................                               99                                                    99
Treasury shares (d).......................                               (7)                                                   (7)
Unearned compensation.....................                                                                         (14)       (14)
Compensation expense......................                                                                          21         21
                                              ---------------------------------------------------                 --------------- 
December 31, 1997, balances...............     500         541        4,079         415         1                   (7)     5,529
Comprehensive income:
Income before preferred dividends.........                                          725                $725                   725
Other comprehensive income, net of tax:
Foreign currency translation gain.........                                                      8         8                     8
Unrealized holding loss on noncurrent
  available-for-sale securities, net......                                                     (1)       (1)                   (1)
                                                                                                       ----
Other comprehensive income, net of tax:...                                                                7
                                                                                                       ----
Comprehensive income (b)..................                                                             $732
                                                                                                       ==== 
Preferred stock dividends (a).............                                         (117)                                     (117)
Shares issued for acquisitions............                            3,116                                                 3,116
Shares issued (c).........................                              256                                                   256
Treasury shares (d).......................                             (196)                                                 (196)
Unearned compensation.....................                                                                         (34)       (34)
Compensation expense......................                                                                          39         39
                                              ----        ----       ------      ------       ---                 ----     ------
December 31, 1998, balances...............    $500        $541       $7,255      $1,023       $ 8                 $ (2)    $9,325
                                              ====        ====       ======      ======       ===                 ====     ======  
</TABLE>
 
(a) See Note J, "Capital Stock" to the Consolidated Financial Statements for
    additional information.
 
(b) See Note C, "Comprehensive Income" to the Consolidated Financial Statements
    for additional information.
 
(c) Shares issued under incentive and employee benefit programs, including
    related tax benefits of $38 million, $3 million, and $8 million in 1998,
    1997, and 1996, respectively. The 1998 amount includes proceeds from the
    sale of put options. See Note J, "Capital Stock" and Note L, "Income Taxes"
    to the Consolidated Financial Statements for additional information.
 
(d) Treasury share additions from the stock repurchase program and incentive
    plan forfeitures, net of shares reissued under incentive programs.
 
   The accompanying Notes are an integral part of the Consolidated Financial
                                  Statements.


                                      -29-


<PAGE>   30
CONSOLIDATED STATEMENTS OF CASH FLOWS

  AirTouch Communications, Inc. and Subsidiaries

<TABLE>
<CAPTION>
                                                              For the Year Ended December 31
                                                              ------------------------------
(Dollars in millions)                                            1998       1997       1996
                                                               --------   --------   --------
<S>                                                           <C>        <C>        <C>
Cash flows from operating activities:
Income before preferred dividends...........................  $   725    $   448    $   199
Adjustments to reconcile income before preferred dividends
  for items currently not affecting operating cash flows:
Depreciation, amortization, and other noncash charges.......      985        561        358
Equity in net (income) loss of unconsolidated wireless
  systems...................................................     (393)      (200)      (133)
Distributions received from equity investees................      391        383        140
Minority interests in net income (loss) of consolidated
  wireless systems..........................................      179        119         95
Deferred income tax (benefit) expense.......................       21         75         33
Loss (gain) on sale of assets and telecommunications
  interests.................................................       (1)         2        (60)
Changes in assets and liabilities:
Accounts receivable, net....................................      (82)       (69)        (7)
Other current assets and receivables........................     (190)       (87)        24
Deferred charges and other noncurrent assets................      (51)         9         61
Accounts payable and other current liabilities..............      250         91         26
Deferred credits and other liabilities......................       22          3         39
                                                              -------    -------    -------
Cash flows from operating activities........................    1,856      1,335        775
                                                              -------    -------    -------
Cash flows from investing activities:
Investments in unconsolidated wireless systems..............     (673)      (445)      (857)
Proceeds from sale of wireless systems......................       --         --        131
Additions to property, plant, and equipment.................   (1,030)      (683)      (480)
Proceeds from sale of property, plant, and equipment........       22         16         25
Maturity of available-for-sale securities...................       --          7         11
Other investing activities..................................       25          8         (5)
                                                              -------    -------    -------
Cash flows from investing activities........................   (1,656)    (1,097)    (1,175)
                                                              -------    -------    -------
Cash flows from financing activities:
Proceeds from issuing long-term debt and commercial paper...    2,671        406      2,323
Retirement of long-term debt and commercial paper...........   (2,703)      (627)    (1,991)
Distributions to minority interests of consolidated wireless
  systems...................................................      (97)       (71)       (56)
Contributions from minority interests of consolidated
  wireless systems..........................................        3          5          1
Proceeds from common shares issued..........................      161         90         82
Purchases of common stock...................................     (182)        (7)        (2)
Increase (decrease) in short-term borrowings................       68         --         --
Payment of preferred stock dividends........................      (95)       (54)        (7)
Other financing activities..................................       15         (2)        (4)
                                                              -------    -------    -------
Cash flows from financing activities........................     (159)      (260)       346
                                                              -------    -------    -------
Effect of exchange rate changes on cash and cash
  equivalents...............................................        2         (5)        (1)
Net change in cash and cash equivalents.....................       43        (27)       (55)
Beginning cash and cash equivalents.........................        1         28         83
                                                              -------    -------    -------
Ending cash and cash equivalents............................  $    44    $     1    $    28
                                                              =======    =======    =======
Supplemental information:
Cash payments for:
Interest....................................................  $   153    $   107    $    53
Income taxes................................................  $   232    $   154    $    54
Noncash financing activities:
Preferred stock and options issued for CCI Merger (a).......  $    --    $    --    $ 1,057
Preferred stock and common stock issued for MediaOne Group
  merger(a).................................................  $ 4,478    $    --    $    --
                                                              =======    =======    =======
</TABLE>
 
(a) See Note G, "Partnerships and Acquisitions" for additional information.
 
   The accompanying Notes are an integral part of the Consolidated Financial
                                  Statements.


                                      -30-


<PAGE>   31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Presentation
 
     AirTouch Communications, Inc., along with its subsidiaries, unconsolidated
partnerships, and corporations (collectively referred to herein as the
"Company"), provide wireless telecommunications services in the United States,
Europe, Asia, and North Africa. The Company's business units are AirTouch
Cellular, AirTouch Paging, and AirTouch International. These business units
provide cellular and paging services. The majority of the Company's revenues are
provided by its U.S. cellular operations, AirTouch Cellular.
 
     The Consolidated Financial Statements include the accounts of the Company,
its subsidiaries, and partnerships in which the Company has a direct controlling
interest. All significant intercompany balances and transactions have been
eliminated.
 
     In April 1998, the Company completed its acquisition of the U.S. cellular
properties of MediaOne Group, Inc. (formerly U S WEST Media Group). Accordingly,
the Company began consolidating the results of operations of the U.S. cellular
properties acquired. See Note G, "Partnerships and Acquisitions -- MediaOne
Group Merger," for further information. The Company also acquired the 25%
interest in PrimeCo Personal Communications, Inc. ("PrimeCo") of MediaOne Group,
Inc. bringing its interest in PrimeCo to 50%.
 
     In January 1997, the Company began consolidating the results of operations
of Telecel Communicacoes Pessoias, S.A. ("Telecel"), its cellular system in
Portugal, after obtaining a controlling interest.
 
     In August 1996, the Company completed its acquisition of Cellular
Communications, Inc. ("CCI"). Prior to the acquisition, the Company used the
equity method of accounting to report the results of both CCI and New Par, an
equally owned partnership with CCI. Since the merger, CCI and New Par have been
consolidated in the Company's Consolidated Financial Statements. See Note G,
"Partnerships and Acquisitions -- CCI Merger," for further information.
 
     In January 1996, the Company sold its vehicle location and fleet tracking
services business, AirTouch Teletrac.
 
     The Consolidated Financial Statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") applicable in the United
States. Conformity with GAAP requires the use of estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from these estimates.
 
Cash Equivalents
 
     Cash equivalents are short-term, highly liquid, held-to-maturity
investments with original maturities of 90 days or less from the date of
purchase.

Inventories
 
     Inventories are stated at cost or the lower of cost or market. Cost is
determined using either the first-in first-out or average method. Market is
determined using replacement cost in accordance with industry standards.
 
Foreign Currency Translation and Transactions
 
     Results of operations for international investments are translated using
average exchange rates during the period, while assets and liabilities are
translated using end-of-period rates. The resulting foreign exchange gains or
losses are accumulated in the "Cumulative translation adjustment" ("CTA")
account, a component of "Accumulated other comprehensive income" in
Stockholders' Equity. All gains and losses resulting from foreign currency
transactions are included in operations.
 
Financial Instruments
 
     Foreign currency and interest rate fluctuations expose the Company to
market risks. The Company enters into foreign currency hedging activities to
reduce currency exposures to its long-term investments in international wireless
systems. The Company hedges a portion of these investments with long-dated
forward foreign currency exchange contracts ("forward contracts"). In addition,
the Company enters into forward contracts to reduce exposures of firm capital
commitments denominated in foreign currencies. The Company also enters into
interest rate swap agreements to manage its exposure to fluctuations in interest
rates in an effort to minimize its cost of funds. The Company uses swap
agreements to effectively convert existing variable rate debt to fixed rate and
to reduce the interest rate risk for future borrowings. The Company does not
hold or issue financial instruments for trading or speculative purposes.
 
     Foreign currency hedges. Under a forward contract, the Company exchanges
foreign currency for equivalent U.S. Dollars at a specified rate and amount at a
stated future date. Gains or losses associated with forward contracts that are
considered economic 


                                      -31-


<PAGE>   32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

hedges ("qualifying hedges") of net foreign investments are recorded in the CTA
account, with a corresponding adjustment to a deferred asset or liability
account. Cash flows resulting from such hedges are reported in the Statements of
Cash Flows in investing activities. Gains and losses upon termination of net
investment hedges are recorded in the CTA account. Gains and losses related to
qualifying hedges of firm commitments are deferred and are recognized as
adjustments of carrying amounts when the hedged transactions occur. Cash flows
resulting from these hedges are reported in the Statements of Cash Flows in the
same category as the cash flows from the items being hedged. Gains or losses on
forward contracts that do not qualify as hedges are recorded in "Miscellaneous
income (expense)" in the Consolidated Statements of Income.
 
     Interest rate hedges. Under an interest rate swap, the Company exchanges
interest payments at specified intervals over a defined term. Interest payments
are calculated by reference to the notional amount of the instrument based on
the fixed and variable terms of the swap agreement. The Company adjusts interest
expense for the net interest received or paid as part of the interest rate swap.
The Company amortizes the fair value of forward interest rate swaps used to
hedge future borrowings over the term of the related debt when incurred. Cash
flows resulting from such hedges are reported in the Statements of Cash Flows in
operating activities. Also, gains or losses on termination of interest rate
swaps are deferred and amortized over the remaining term of the related debt.
 
Property, Plant, and Equipment
 
     The Company records assets of businesses purchased at their fair values on
the date of acquisition. All other property, plant, and equipment are recorded
at cost. Depreciation is computed using the straight-line method over the
estimated useful life of the asset. Land is not depreciated. Gains and losses on
disposals are included in income at amounts equal to the difference between the
net book value of the disposed assets and the proceeds received upon disposal.
Expenditures for replacements and betterments are capitalized, while
expenditures for maintenance and repairs are charged against earnings as
incurred. Assets under construction are not depreciated until placed in service.
Interest cost incurred during the construction period is capitalized, as
discussed below in "Capitalized Interest."
 
Intangible Assets
 
     The Company uses modeling techniques on new acquisitions and long-range
business plans, revised annually, to assess whether a revision of the existing
estimated useful lives of intangible assets is necessary.
 
     Goodwill. The excess of the purchase price paid over the fair value of net
assets acquired in business combinations is recorded as goodwill and is
amortized over its expected useful period, generally 40 years, using the
straight-line method.
 
     FCC licenses. The Federal Communications Commission ("FCC") issues cellular
licenses that enable U.S. cellular carriers to provide service in specific
Cellular Geographic Service Areas. A cellular license is issued conditionally
for ten years. Historically, the FCC has routinely granted license renewals to
licensees that have complied with applicable rules, policies, and the
Communications Act of 1934, as amended. The Company believes it has complied and
intends to continue to comply with these standards.
 
     The Company amortizes FCC licenses for U.S. cellular and paging operations
and those acquired through business combinations using the straight-line method
over 40 years.
 
     Other intangible assets. Other intangible assets primarily include
international cellular and paging licenses, subscriber lists, and favorable
lease agreements. These intangible assets are amortized on a straight-line basis
over the lives which the Company expects to be benefited, which range from two
to 30 years.
 
Valuation of Long-Lived Assets
 
     The Company periodically evaluates the carrying value of long-lived assets
and certain identifiable intangibles for impairment, when events and
circumstances indicate that the book value of an asset may not be recoverable.
An impairment loss is recognized whenever the review demonstrates that the book
value of a long-lived asset is not recoverable.
 
Investments in Unconsolidated Wireless Systems
 
     The Company uses the equity method to account for investments in all U.S.
cellular markets and international markets in which it has significant influence
but does not have a direct controlling interest, including those investments in
which the Company's ownership percentage may be less than 20%. The Company uses
the cost method to account for limited partnership interests and other
unconsolidated wireless system investments in which it has a minor interest and
does not exercise significant influence.
 

                                      -32-


<PAGE>   33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Earnings Per Share
 
     Basic earnings per share ("EPS") is calculated as net income applicable to
common stockholders divided by the weighted average common shares outstanding.
Diluted EPS is calculated as net income applicable to common stockholders
divided by the sum of the weighted average common shares outstanding and any
common stock equivalents ("CSEs"). CSEs related to stock options, determined
using the treasury stock method, had a dilutive impact on EPS for 1998 and no
impact on EPS for 1997 or 1996. CSEs related to convertible debt, determined
using the "if converted" method, had no impact on EPS for 1998, 1997, or 1996.
CSEs related to convertible Class B and Class C preferred stock, also determined
using the "if converted" method, had an anti-dilutive impact on earnings per
share for 1998, 1997, and 1996, and therefore, were not included in the
calculation of diluted earnings per share.
 

<TABLE>
<CAPTION>
                                                                   December 31, 1998
                                                              ---------------------------
(In millions, except per share amounts)                       Income   Shares   Per Share
---------------------------------------                       ------   ------   ---------
<S>                                                           <C>      <C>      <C>
Basic EPS:
Net income applicable to common stockholders................   $608    556.0      $1.09
Effect of Dilutive CSEs:
Stock options...............................................             9.8
                                                               ----    -----      -----
Dilutive EPS:
Net income applicable to common stockholders................   $608    565.8      $1.07
                                                               ====    =====      =====
</TABLE>
 
<TABLE>
<CAPTION>
                                                                   December 31, 1997
                                                              ---------------------------
(In millions, except per share amounts)                       Income   Shares   Per Share
---------------------------------------                       ------   ------   ---------
<S>                                                           <C>      <C>      <C>
Basic EPS:
Net income applicable to common stockholders................   $394    503.9      $0.78
Effect of Dilutive CSEs:
Stock options...............................................             3.6
Convertible debt............................................             0.3
                                                               ----    -----      -----
Dilutive EPS:
Net income applicable to common stockholders................   $394    507.8      $0.78
                                                               ====    =====      =====
</TABLE>
 
<TABLE>
<CAPTION>
                                                                   December 31, 1996
                                                              ---------------------------
(In millions, except per share amounts)                       Income   Shares   Per Share
---------------------------------------                       ------   ------   ---------
<S>                                                           <C>      <C>      <C>
Basic EPS:
Net income applicable to common stockholders................   $179    500.1      $0.36
Effect of Dilutive CSEs:
Stock options...............................................             1.7
Convertible debt............................................             1.5
                                                               ----    -----      -----
Dilutive EPS:
Net income applicable to common stockholders................   $179    503.3      $0.36
                                                               ====    =====      =====
</TABLE>
 
Capitalized Interest
 
     The Company capitalizes interest related to the construction of significant
additions to property, plant, and equipment and on start-up investments in
unconsolidated wireless systems accounted for under the equity method of
accounting until their principal operations commence. The Company amortizes
these costs over the related assets' estimated useful lives. Total interest
incurred was $169 million, $103 million, and $83 million for 1998, 1997, and
1996, respectively, of which $24 million, $13 million, and $31 million was
capitalized in 1998, 1997, and 1996, respectively.
 
Advertising Expense
 
     The Company primarily expenses advertising costs as incurred. Advertising
expense was $270 million in 1998, $178 million in 1997, and $107 million in
1996.
 
B. ACCOUNTING CHANGES
 
     In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and hedging
activities. SFAS No. 133 requires the recognition of all derivatives as either
assets or liabilities and the measurement of those instruments at fair value.
Consistent with the requirements of the Statement, the Company will adopt SFAS
No. 133 effective January 1, 2000. Based on the Company's derivative instruments
at December 31, 1998, the implementation of SFAS No. 133 will not have a
material impact on the Company's financial position or results of operations.
 
     In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." SFAS No. 132 requires certain
disclosures by employers that sponsor defined benefit pension plans and defined
benefit postretirement plans. Effective with the issuance of the 1998
Consolidated Financial Statements, the Company implemented the provisions of
SFAS No. 132. The implementation of SFAS No. 132 did not have an impact on the
Company's financial position or results of operations. See Note M, "Employee
Benefits" for further information.
 
     Effective with the issuance of its 1998 Consolidated Financial Statements,
the Company also implemented the provisions of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131 establishes
standards for reporting information about operating segments in annual 


                                      -33-


<PAGE>   34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

financial statements and requires reporting of selected information in interim
reports. The implementation of SFAS No. 131 did not have an impact on the
Company's financial position or results of operations. See Note Q, "Segment
Information" for further information.
 
     Effective with the issuance of its first quarter 1998 financial statements,
the Company implemented the provisions of SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and displaying
comprehensive income and its components in a full set of financial statements.
The implementation of SFAS No. 130 did not have an impact on the Company's
financial position or results of operations. See Note C, "Comprehensive Income"
and the Company's Consolidated Statements of Stockholders' Equity for further
information.
 
     Effective with the issuance of the 1997 Consolidated Financial Statements,
the Company implemented the provisions of SFAS No. 128, "Earnings Per Share."
SFAS No. 128 requires the Company to replace the traditional EPS disclosures
with a dual presentation of "Basic" and "Diluted" EPS. Implementation of SFAS
No. 128 did not have an impact on the Company's financial position or results of
operations or on previously reported EPS.
 
C. COMPREHENSIVE INCOME
 
     With the issuance of its first quarter 1998 financial statements, the
Company implemented the provisions of SFAS No. 130, "Reporting Comprehensive
Income." For the Company, comprehensive income includes: income before preferred
dividends; unrealized gains (losses) on available-for-sale securities;
cumulative translation adjustments; and minimum pension liability adjustments.
The Company reported "Comprehensive Income" and "Accumulated other comprehensive
income" in its Consolidated Statements of Stockholders' Equity.
 
     The taxes allocated to each component of "Accumulated other comprehensive
income" were:
 
<TABLE>
<CAPTION>
                                                                          Tax
                                                              Before    Benefit    Net of
(Dollars in millions)                                          Tax     (Expense)    Tax
---------------------                                         ------   ---------   ------
<S>                                                           <C>      <C>         <C>
1996
Foreign currency translation loss...........................   $(31)     $ 17       $(14)
Unrealized holding loss on securities.......................     (5)        2         (3)
                                                               ----      ----       ---- 
Other comprehensive income (a)..............................   $(36)     $ 19       $(17)
                                                               ====      ====       ====
1997
Foreign currency translation loss...........................   $(62)     $ 27       $(35)
Unrealized holding gain on securities.......................     14        (5)         9
                                                               ----      ----       ---- 
Other comprehensive income (a)..............................   $(48)     $ 22       $(26)
                                                               ====      ====       ====
1998
Foreign currency translation gain...........................   $ 27      $(19)      $  8
Unrealized holding loss on securities.......................     (2)        1         (1)
                                                               ----      ----       ---- 
Other comprehensive income (a)..............................   $ 25      $(18)      $  7
                                                               ====      ====       ====
</TABLE>
 
---------------
(a) The Company had no significant reclassification adjustments.
 
     The components of "Accumulated other comprehensive income" were:
 
<TABLE>
<CAPTION>
                                                        Unrealized
                                                           Gains
                                                        (Losses) on                   Minimum     Accum.
                                                        Available-    Cumulative      Pension     Other
                                                         For-Sale     Translation    Liability    Comp.
(Dollars in millions)                                   Securities    Adjustments   Adjustments   Income
---------------------                                   -----------   -----------   -----------   ------
<S>                                                     <C>           <C>           <C>           <C>
December 31, 1995, balances...........................      $28          $ 17           $(1)       $44
Foreign currency translation loss.....................                    (14)                     (14)
Unrealized holding loss on securities.................       (3)                                    (3)
                                                            ---          ----           ---        ---
December 31, 1996, balances...........................       25             3            (1)        27
Foreign currency translation loss.....................                    (35)                     (35)
Unrealized holding gain on securities.................        9                                      9
                                                            ---          ----           ---        ---
December 31, 1997, balances...........................       34           (32)           (1)         1
Foreign currency translation gain.....................                      8                        8
Unrealized holding loss on securities.................       (1)                                    (1)
                                                            ---          ----           ---        ---
DECEMBER 31, 1998, BALANCES............................     $33          $(24)          $(1)       $ 8
                                                            ===          ====           ===        ===
</TABLE>
 

                                      -34-


<PAGE>   35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

D. PROPERTY, PLANT, AND EQUIPMENT
 
     Property, plant, and equipment consisted of:
 
<TABLE>
<CAPTION>
                                                                               December 31
                                                               Lives(Years)  ---------------
(Dollars in millions)                                          Depreciable    1998     1997
---------------------                                          -----------   ------   ------
<S>                                                            <C>           <C>      <C>
Land........................................................        --       $   37   $   29
Buildings and leasehold improvements........................      5-50          495      214
Cellular plant and equipment................................      5-15        4,999    2,878
Pagers, paging terminals, and other paging equipment........      3-15          315      303
Other equipment and furniture...............................      2-10          689      542
Construction in progress....................................        --          390      194
                                                                             ------   ------
                                                                              6,925    4,160
Less: accumulated depreciation..............................                  2,876    1,621
                                                                             ------   ------
Property, plant, and equipment, net.........................                 $4,049   $2,539
                                                                             ======   ======
</TABLE>                                                                     
                                                                          
     Related depreciation expense was $653 million, $429 million, and $295
million in 1998, 1997, and 1996, respectively.
 
E. FINANCIAL INSTRUMENTS

Market Risk Management
 
     At December 31, 1998 and 1997, the Company held outstanding forward
contracts denominated in German Deutsche Marks ("DEM"), Belgian Francs, Spanish
Pesetas, Italian Lira, Portuguese Escudos, (the "Euro" currencies, effective
January 1, 1999), Swedish Krona, and Korean Won. The Company also held contracts
in Japanese Yen at December 31, 1997. These contracts had face amounts totaling
$649 million and $814 million at December 31, 1998 and 1997, respectively, with
maturities through 2004.
 
     The Company also enters into interest rate swap agreements to manage its
exposure to fluctuations in interest rates in an effort to minimize its cost of
funds. The Company uses swap agreements to effectively convert existing variable
rate debt to fixed rate and to reduce the interest rate risk for future
borrowings. At December 31, 1998 and 1997, the Company was not a party to any
interest rate or other swaps.
 
     In connection with the share repurchase program, the Company sold put
options, which give the purchaser the right to sell shares of the Company's
common stock to the Company at specified prices. The put option contracts allow
the Company to determine the method of settlement. In 1998, the Company received
$22.6 million in net proceeds from the sale of put options. At December 31,
1998, there were 3.6 million shares outstanding under put options, with strike
prices ranging from $51.39 to $55.86. The contracts mature from May 1999 through
February 2000.
 
Concentration of Credit Risk
 
     The off-balance-sheet risks in outstanding forward contracts involve the
risk of a counterparty not performing under the terms of the contract and the
risk associated with changes in market value. The Company monitors its
positions, the credit ratings of counterparties, and the level of contracts the
Company enters into with any one party. The counterparties to these contracts
are major financial institutions. The Company has a policy of entering into
contracts with parties that have at least an "AA-" (or equivalent) credit rating
as well as other stringent qualifications. Given the high level of credit
quality of its derivative counterparties, the Company does not require
collateral arrangements. The Company believes the probability of losses from
counterparty nonperformance is remote. Any such nonperformance would not have
any material adverse impact on the Company's financial position or results of
operations. The Company does not have any significant exposure to any individual
counterparty.
 

     Financial instruments that potentially subject the Company to
concentrations of credit risk are trade receivables and interest-bearing
investments. Due to the large volume and diversity of the Company's customer
base, concentrations of credit risk with respect to trade receivables are
limited. The Company avoids concentrations of credit risk in its
interest-bearing investment portfolio by investing in U.S. government
securities. The Company also avoids concentrations of credit risk by limiting
other investments in interest-bearing securities to instruments that are highly
rated by nationally recognized rating agencies.
 

                                      -35-


<PAGE>   36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  Fair Value
 
<TABLE>
<CAPTION>
                                                                            December 31
                                                           ---------------------------------------------
                                                                   1998                    1997
                                                           ---------------------   ---------------------
                                                           Carrying   Estimated    Carrying   Estimated
(Dollars in millions)                                        Value    Fair Value    Value     Fair Value
---------------------                                      --------   ----------   --------   ----------
<S>                                                        <C>        <C>          <C>        <C>
Financial assets:
Current assets...........................................   $  109      $  109      $    1      $    1
Noncurrent assets........................................   $   62      $   62      $   61      $   61
Investments at cost......................................   $  147         N/A      $  110         N/A
Forward foreign currency exchange contracts..............   $   20      $    2      $   86      $   60
Financial liabilities:
Current obligations......................................   $  182      $  182      $   57      $   57
Long.term debt, including leases.........................   $2,701      $2,818      $1,362      $1,393
Off-balance-sheet financial instruments..................   $   --      $    4      $   --      $    5
Redeemable preferred stock...............................   $1,574      $1,687      $   --      $   --
</TABLE>
 
N/A -- Not available
 
     The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
 
  Current assets
 
     Current assets include cash and cash equivalents as well as funds held in
escrow. Carrying amounts are a reasonable approximation of fair value due to the
short-term character of the items.
 
  Noncurrent assets
 
     Investments in shares and warrants of common stock are recorded at quoted
market prices.
 
  Investments at cost
 
     The fair value of investments at cost are not estimable because quoted
market prices are not available. Also, some of these ventures are in the
start-up phase; therefore, other valuation techniques are not appropriate.
Further, alternative information, which might be pertinent to estimating the
fair value of such investments, is not readily available to the Company.
 
  Forward foreign currency exchange contracts
 
     Fair value is based on the current market value for similar transactions
and is adjusted for the holding period.
 
  Current obligations
 
     Carrying amounts are a reasonable approximation of fair value due to the
short-term character of the securities and obligations.
 
  Long-term debt, including leases
 
     Fair value (for debt issues that are not quoted on an exchange) is
estimated using interest rates that are currently available to the Company for
issuance of similar debt.
 
  Off-balance-sheet financial instruments
 
     Off-balance-sheet financial instruments are guarantees issued by the
Company. Fair value is based on estimated fees to enter into similar
arrangements. Such guarantees issued by the Company include letters of
responsibility and letters of support for various credit facilities and
financing activities of certain of its subsidiaries and affiliates. See Note N,
"Commitments and Contingencies" for further information.
 
  Redeemable preferred stock

     Fair value is estimated using interest rates that are currently available
to the Company for similar instruments.
 

                                      -36-


<PAGE>   37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

F. INVESTMENTS IN UNCONSOLIDATED WIRELESS SYSTEMS
 
     The Company's investments in unconsolidated wireless systems consisted of:
 
<TABLE>
<CAPTION>
                                                                December 31
                                                              ---------------
(Dollars in millions)                                          1998     1997
---------------------                                         ------   ------
<S>                                                           <C>      <C>
Investments at equity.......................................  $3,344   $1,958
Investments at cost.........................................     147      110
                                                              ------   ------
                                                              $3,491   $2,068
                                                              ======   ======
</TABLE>
 

<TABLE>
<CAPTION>
                                                              Percentage
                                                                  of
                                                               Ownership
                                                              December 31
                                                              -----------
                                                              1998   1997
                                                              ----   ----
<S>                                                           <C>    <C>
EQUITY INVESTMENTS
U.S.:
  CMT Partners (California, Texas, Missouri, and Kansas)....  50.0%  50.0%
  Nevada RSA2 Ltd. Partnership (Lander, Nevada).............  50.0%  50.0%
  PrimeCo Personal Communications, L.P. (a).................  50.0%  25.0%
  TOMCOM, L.P. (a)..........................................  35.0%  35.0%
  Centel Cellular Company of Nevada Limited Partnership (Las
     Vegas, Nevada).........................................  27.8%  27.8%
International:
  Cellular Communications India Ltd. (India)................  49.0%  49.0%
  Northstar Paging Holdings Ltd. (Canada)...................  48.5%  48.5%
  Mannesmann Mobilfunk GmbH (Germany).......................  34.8%  34.8%
  Misrfone (Egypt)..........................................  30.0%    --
  Belgacom Mobile (Belgium).................................  25.0%  25.0%
  Globalstar de Mexico, S. de R. L. de C.V. (Mexico) (a)....  24.6%  24.6%
  Globalstar Canada Company (Canada) (a)....................  23.4%  23.4%
  Airtel Movil, S.A. (Spain)................................  21.7%  21.7%
  RPG Cellular Services Limited (India).....................  20.6%  20.0%
  Polkomtel S.A. (Poland)...................................  19.3%  19.3%
  Sistelcom-Telemensaje, S.A. (Spain) (a)...................  17.5%  17.5%
  Omnitel-Pronto Italia, S.p.A. (Italy) (a).................  15.5%  15.5%
  Tokyo Digital Phone Co. (Japan)...........................  15.0%  15.0%
  Kansai Digital Phone Co. (Japan)..........................  13.0%  13.0%
  Central Japan Digital Phone Co. (Japan)...................  13.0%  13.0%
  Shinsegi Mobile Telecommunication Co., Ltd. (South
     Korea).................................................  10.7%  10.7%
  MobiFon SA (Romania)......................................  10.0%  10.0%
COST INVESTMENTS
U.S.:
  GTE Mobilnet of Santa Barbara Limited Partnership.........  10.0%  10.0%
  Globalstar, L.P...........................................   5.2%   5.7%
  Cal-One Cellular Limited Partnership......................   5.6%   5.6%
  Fresno MSA Limited Partnership............................   1.1%   1.1%
International:
  Japan:
     International Digital Communications, Inc..............  10.0%  10.0%
     Digital TU-KA (b)......................................   4.5%   4.5%
  Germany:
     Mannesmann Arcor (a)...................................   3.4%   2.2%
</TABLE>
 
(a) Indirect ownership through a partially owned venture.
 
(b) Includes the Chugoku, Kyushu, Tohoku, Hokkaido, Hokuriku, and Shikoku
    regions.


                                      -37-


<PAGE>   38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     The Company had options to purchase additional interests, ranging from 6%
to 10%, in several of its international cellular consortia at December 31, 1998.
Options to increase its indirect ownership in Omnitel Pronto Italia, S.p.A. from
15.5% to 17.8% were exercised in January 1999. The Company expects to exercise
the remaining options in 1999.
 
     Condensed combined financial information for unconsolidated wireless
systems accounted for under the equity method:
 
<TABLE>
<CAPTION>
                                                           For the Year Ended December 31 (a)
                                                ---------------------------------------------------------
                                                      1998                1997                1996
                                                -----------------   -----------------   -----------------
                                                United    Inter-    United    Inter-    United    Inter-
(Dollars in millions)                           States   national   States   national   States   national
---------------------                           ------   --------   ------   --------   ------   --------
<S>                                             <C>      <C>        <C>      <C>        <C>      <C>
Operating revenues or equity in net income of
  partnership.................................  $1,211   $13,471    $ 899     $8,886    $1,168    $7,419
Operating income (loss).......................  $ (125)  $ 2,638    $(232)    $1,225    $  190    $ (251)
                                                ======   =======    =====     ======    ======    ======
Net income (loss).............................  $ (130)  $ 1,364    $(238)    $  330    $  205    $ (760)
Other partners' and stockholders' share of net
  income (loss)...............................     (99)      900     (243)       107        59      (764)
                                                ------   -------    -----     ------    ------    ------
Company's share of net income (loss)..........     (31)      464        5        223       146         4
Amortization of intangibles and other
  adjustments.................................     (10)      (30)      (4)       (24)        5       (22)
                                                ------   -------    -----     ------    ------    ------
Equity in net income (loss) of unconsolidated
  wireless systems............................  $  (41)  $   434    $   1     $  199    $  151    $  (18)
                                                ======   =======    =====     ======    ======    ======
</TABLE>
 
(a) The results reflect a 50% interest in PrimeCo beginning in April 1998, due
    to the MediaOne Group acquisition and a 25% interest for results prior to
    that date. Telecel results are included in 1996 only as the Company began
    consolidating Telecel's results of operations in January 1997. The results
    also include operations of CCI and New Par through August 15, 1996.
 
<TABLE>
<CAPTION>
                                                                           December 31
                                                         -----------------------------------------------
                                                                  1998                     1997
                                                         ----------------------   ----------------------
                                                         United                   United
(Dollars in millions)                                    States   International   States   International
---------------------                                    ------   -------------   ------   -------------
<S>                                                      <C>      <C>             <C>      <C>
Current assets.........................................  $  294      $3,708       $  249      $1,863
Noncurrent assets......................................   3,368      11,059        3,093       8,271
Current liabilities....................................    (496)     (5,684)        (466)     (4,006)
Noncurrent liabilities and minority interest...........    (418)     (5,827)        (345)     (4,139)
                                                         ------      ------       ------      ------
          Total partners' and stockholders' capital....   2,748       3,256        2,531       1,989
Other partners' and stockholders' share of capital.....   1,449       2,240        1,785       1,349
                                                         ------      ------       ------      ------
Company's share of capital.............................   1,299       1,016          746         640
Goodwill and other intangible items....................     513         516           72         500
                                                         ------      ------       ------      ------
Equity investments in unconsolidated wireless
  systems..............................................  $1,812      $1,532       $  818      $1,140
                                                         ======      ======       ======      ======
</TABLE>
 
     International equity in net income (loss) of unconsolidated wireless
systems includes tax benefits of $30 million, $30 million, and $10 million in
1998, 1997, and 1996, respectively. The related tax asset represents future
benefits that the entities will receive by deducting the net operating losses
from future taxable income. At December 31, 1998 and 1997, the Company's
proportionate share of deferred tax assets of its international equity
subsidiaries was $138 million and $161 million, respectively. These amounts were
offset by related proportionate valuation allowances of $73 million and $84
million, respectively.
 
     While the Company believes it is more likely than not that the net deferred
tax assets will be fully realized, there can be no assurance that this will
happen. Certain factors beyond the control of the entities and the Company, such
as deteriorating local economic conditions, increasing competition, and changes
in tax laws, may affect future timing and amounts of taxable income.
 

                                      -38-


<PAGE>   39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

G. PARTNERSHIPS AND ACQUISITIONS
 
  MediaOne Group Merger
 
     In April 1998, the Company completed the acquisition of the U.S. cellular
business and the 25% PrimeCo interest of MediaOne Group, Inc. (the "Merger").
The Company issued approximately 59.4 million shares of common stock having a
fair market value of $2.9 billion on the date of issuance, approximately $1.6
billion of dividend-bearing preferred stock with a 5.143% coupon, assumed
approximately $1.4 billion of debt associated with the acquired businesses, and
granted MediaOne Group registration rights with respect to the common stock and
preferred stock issued. No cash was acquired or paid in the Merger. In September
1998, MediaOne Group returned approximately 0.1 million shares of common stock
as a purchase price adjustment.
 
     The Merger was accounted for using the purchase method of accounting. There
were approximately $2.5 billion of identifiable intangible assets, which
primarily included FCC licenses of approximately $2.0 billion and customer lists
of approximately $0.4 billion. A deferred income tax liability of approximately
$1.0 billion was also recorded. The excess of the aggregate purchase price over
the final appraised fair value of the net assets acquired, plus the deferred
income tax liability, resulted in total goodwill of approximately $2.5 billion.
The identifiable intangible assets are amortized on a straight-line basis over
their estimated useful lives. Goodwill is amortized over 40 years.
 
     The following unaudited pro forma summary presents the Company's
consolidated results of operations as if the Merger occurred at the beginning of
the respective periods, after giving effect to certain adjustments including
amortization of goodwill and identifiable intangible assets, additional equity
losses of PrimeCo, increased interest expense for debt assumed in the Merger,
deductions for preferred stock dividends, and related income tax effects.
 
     The unaudited pro forma results were:
 
<TABLE>
<CAPTION>
                                                               For the Year
                                                                   Ended
                                                                December 31
(Dollars in millions, except per share amounts)                1998     1997
-----------------------------------------------               ------   ------
<S>                                                           <C>      <C>
Operating revenues..........................................  $5,542   $5,034
Net income applicable to common stockholders................  $  570   $  226
Net income applicable to common stockholders - per share
  Basic.....................................................  $ 1.00   $ 0.40
  Diluted...................................................  $ 0.98   $ 0.40
</TABLE>
 
     The pro forma results are not necessarily indicative of those that would
have actually occurred had the Merger taken place at the beginning of the
periods presented.
 
CCI MERGER
 
     In August 1996, the Company acquired the approximately 63% of CCI's
outstanding stock that it did not already own for approximately $1.6 billion.
The merger consideration consisted of $1.04 billion in AirTouch preferred
securities, $393 million in cash, AirTouch stock options valued at approximately
$17 million, and the assumption of $217 million of Zero Coupon Convertible
Subordinated Notes Due 1999.
 
     The Company accounted for the merger using the purchase method of
accounting and, accordingly, allocated the purchase price to the net assets
acquired based on their appraised fair values. The excess of the purchase price
over the final appraised fair values of net assets acquired was $1.1 billion.
The Company recorded the excess as goodwill and is amortizing it on a
straight-line basis over 40 years.
 
     Had the transaction occurred at the beginning of 1996, the operating
revenues, net income applicable to common stockholders, and basic and diluted
net income applicable to common stockholders per share would have been $2.7
billion, $125 million, and $0.25 per share, respectively.
 
H. INTANGIBLE ASSETS
 
     Intangible assets consisted of:
 
<TABLE>
<CAPTION>
                                                                December 31
                                                              ---------------
(Dollars in millions)                                          1998     1997
---------------------                                         ------   ------
<S>                                                           <C>      <C>
Goodwill....................................................  $4,705   $1,926
FCC licenses................................................   3,798    1,546
Other.......................................................     663      175
                                                              ------   ------
                                                               9,166    3,647
Less: accumulated amortization..............................     653      350
                                                              ------   ------
Intangible assets, net......................................  $8,513   $3,297
                                                              ======   ======
</TABLE>
 
     Related amortization expense was $297 million, $120 million, and $56
million in 1998, 1997, and 1996, respectively. The $5.5 billion increase in
gross intangible assets from 1997 to 1998 resulted from the Merger. See Note G,
"Partnerships and Acquisitions" for additional information.
 

                                      -39-


<PAGE>   40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

I. DEBT AND CREDIT FACILITIES

Short-Term Borrowings
 
     At December 31, 1998, Telecel held short-term borrowings of 7.3 billion
Escudos ($43 million) under its revolving credit facilities and commercial paper
of 5.0 billion Escudos ($29 million). Borrowings under the credit facilities and
commercial paper borrowings bear interest at the Lisbon Interbank Offered Rate
("LISBOR") plus a margin. The effective interest rate of these borrowings was
3.5%. Telecel maintains various revolving credit facilities, which provide for
borrowings of up to 10.3 billion Escudos ($60 million). At December 31, 1998,
the amount available for borrowing under these revolving credit facilities was
2.9 billion Escudos ($17 million).
 
Long-Term Debt 

     Long-term debt consisted of:
 
<TABLE>
<CAPTION>
                                                                December 31
                                                              ---------------
(Dollars in millions)                                          1998     1997
---------------------                                         ------   ------
<S>                                                           <C>      <C>
Corporate borrowings:
Revolving credit facility...................................  $  108   $  180
Commercial paper............................................     640       70
Notes, 6.65% due 2008 (a)...................................     499       --
Notes, 7.5% due 2006 (a)....................................     398      398
Notes, 7.125% due 2001......................................     250      250
Notes, 7.0% due 2003........................................     250      250
Notes, 6.35% due 2005.......................................     200       --
Eurobonds, 5.5% due 2008 (a) (b)............................     240       --
Other.......................................................      11       30
Europolitan borrowings......................................     101      148
Telecel borrowings..........................................      15       55
Other foreign currency borrowings...........................      23       23
Capital leases..............................................      11       15
                                                              ------   ------
          Total long-term debt..............................   2,746    1,419
Less: current portion.......................................      45       57
                                                              ------   ------
          Total long-term debt, net.........................  $2,701   $1,362
                                                              ======   ======
</TABLE>
 
(a) Net of discount.
 
(b) The Company issued 400 million DEM of 5.5% Eurobonds and received net
    proceeds of 397 million DEM ($223 million).
 
     At December 31, 1998, annual maturities of long-term debt were:
 
<TABLE>
<CAPTION>
(Dollars in millions)
<S>                                                           <C>
1999........................................................  $   45
2000........................................................     856
2001........................................................     253
2002........................................................       2
2003........................................................     250
Thereafter..................................................   1,340
                                                              ------
          Total long-term debt............................... $2,746
                                                              ====== 
</TABLE>
 
  Corporate Borrowings
 
     Revolving credit facility. The Company holds a $2 billion multi-currency
revolving credit facility (the "Facility") with a syndicate of banks. The
Facility expires in July 2000. Borrowings under the Facility are unsecured, bear
interest at the London Interbank Offered Rate ("LIBOR") plus a margin, which is
based on the Company's debt rating, and are available in U.S. Dollars or
selected foreign currencies. However, foreign borrowings may not exceed $300
million under the Facility. The Company pays a commitment fee, based on its
credit rating, on the unused portion of the Facility. Borrowings under the
Facility in 1998 were denominated in Deutsche Marks and the average balance
outstanding was $157 million. At December 31, 1998, the amount outstanding was
DEM 179 million ($108 million) and the weighted average Deutsche Mark interest
rate was 3.78%. At December 31, 1998, the amount available for borrowing under
the Facility was $1.25 billion. Commercial paper borrowings are supported by the
Facility and are deducted from the Facility in determining the amount available
for borrowing.
 
     The Facility contains covenants, which, among other restrictions, prohibit
the Company with respect to mergers and acquisitions. The planned merger with
Vodafone Group Plc ("Vodafone"), see Note P, "Subsequent Event," triggered a
"change of control" violation of the Facility's covenants. The agreement has
been amended so that "change in control" occurs at the closing of the planned
merger. During the first quarter of 1999, the Company and Vodafone were in the
process of securing a credit line from a banking syndicate for funding up to $13
billion. Such funding will be used to satisfy the cash portion of the planned
merger as well as refinance existing indebtedness, support commercial paper
issuance, and provide the combined company with working capital and funding for
continued investment and general corporate purposes. Should the planned merger
be completed, it is likely that the Facility will be refinanced under this new
credit line.
 
     At December 31, 1998, the Company was in compliance with all of its other
debt covenants.
 
     Commercial paper. The Company's commercial paper program consists of
discounted notes that are exempt from registration under the Securities Act of
1933. Under the terms of the program, the total amount outstanding, including
all indebtedness incurred under the Facility, may not exceed $2 billion. The
Company holds A-2 and P-2 prime commercial paper ratings from Standard and
Poor's Corporation and Moody's Investor 


                                      -40-


<PAGE>   41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Service, respectively. The agencies may revise or withdraw these ratings at any
time. The Company classifies commercial paper borrowings as long-term debt
because the Facility supports these borrowings. The 1998 weighted average
interest rate of commercial paper borrowings was 5.75% and the average amount
outstanding in 1998 was $697 million.
 
Europolitan Borrowings
 
     The Company's cellular subsidiary in Sweden, Europolitan Holdings AB, holds
borrowings outstanding under two long-term revolving credit facilities. One
credit agreement is a 200 million Krona ($25 million) revolving credit facility
due in December 1999 ("1999 Revolver"). Borrowings under the 1999 Revolver are
collateralized by Europolitan Holdings AB's equity shares in its wholly-owned
operating subsidiary. Borrowings under the 1999 Revolver bear interest at the
Stockholm Interbank Offered Rate plus a margin. At December 31, 1998, the
effective interest rate of the 1999 Revolver was 3.85% and the amount
outstanding was 132 million Krona ($16 million).
 
     The second credit facility is a 1.4 billion Krona ($174 million)
multi-currency revolving credit facility (the "Europolitan Revolver") with a
syndicate of financial institutions. The Company guarantees the Europolitan
Revolver. Borrowings under the Europolitan Revolver bear interest at LIBOR plus
a margin and are due in November 2000. At December 31, 1998, the effective
interest rate of the Europolitan Revolver was 3.675% and the amount outstanding
was 680 million Krona ($85 million). The Company pays a commitment fee on the
unused portion of the Europolitan Revolver.
 
     The planned merger with Vodafone also triggered a "change of control"
violation of the Europolitan Revolver because the Company is the guarantor. The
agreement has been amended so that "change in control" occurs at the closing of
the planned merger.
 
Telecel Borrowings
 
     At December 31, 1998, Telecel held bonds due in 1999. The bonds bear
interest at LISBOR plus a margin. The interest rate of these bonds was 4.6% and
the amount outstanding was 2.5 billion Escudos ($15 million).
 
J. CAPITAL STOCK
 
     Changes in equity security shares outstanding were:
 
<TABLE>
<CAPTION>
                                                               Class B     Class C
                                                              Preferred   Preferred   Common
(In millions)                                                   Stock       Stock     Stock
-------------                                                 ---------   ---------   ------
<S>                                                           <C>         <C>         <C>
Shares outstanding at December 31, 1995 (a).................      --          --      498.6
Acquisition of CCI..........................................    17.2        11.1         --
Incentive programs and employee benefits plans..............      --          --        3.8
Treasury stock activity (b).................................      --          --       (0.1)
                                                                ----        ----      -----
Shares outstanding at December 31, 1996 (a).................    17.2        11.1      502.3
Incentive programs and employee benefits plans..............      --          --        3.5
Treasury stock activity (b).................................      --          --       (0.3)
                                                                ----        ----      -----
Shares outstanding at December 31, 1997 (a).................    17.2        11.1      505.5
Acquisition of MediaOne.....................................      --          --       59.4
Acquisitions, other.........................................      --          --        5.2
Incentive programs and employee benefits plans..............      --          --        5.9
Preferred stock conversion..................................      --        (0.1)       0.1
Treasury stock activity (b).................................      --          --       (3.7)
                                                                ----        ----      -----
SHARES OUTSTANDING AT
DECEMBER 31, 1998 (a).......................................    17.2        11.0      572.4
                                                                ====        ====      =====
</TABLE>

(a) In addition to the common shares outstanding, a subsidiary of the Company
    owns 122,960 shares of its common stock; because the accounting treatment
    for subsidiary-held shares is similar to that for treasury stock, the
    subsidiary-held shares are not considered outstanding.
 
(b) Treasury share additions from the stock repurchase program and incentive
    plan forfeitures, net of shares reissued under incentive programs.
 
Preferred Stock

Preferred Stock Dividends were:
 
<TABLE>
<CAPTION>
(Dollars in millions)                                         1998   1997   1996
---------------------                                         ----   ----   ----
<S>                                                           <C>    <C>    <C>
Preferred stock:
Class B.....................................................  $ 30   $30    $11
Class C.....................................................    23    24      9
Class D.....................................................    32    --     --
Class E.....................................................    32    --     --
                                                              ----   ---    ---
          Total preferred dividends.........................  $117   $54    $20
                                                              ====   ===    ===
</TABLE>
 
     In connection with the acquisition of CCI described in Note G, the
Company's Board of Directors authorized 19 million shares of 6.00% Class B
Mandatorily Convertible Preferred Stock, Series 1996 ("Class B Preferred") and
13 million shares of 4.25% Class C Convertible Preferred Stock, Series 1996
("Class C Preferred"). Holders of Classes B and C Preferred receive cumulative
annual dividends of $1.74 and $2.125 per share, respectively, payable quarterly
in arrears.


                                      -41-


<PAGE>   42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Each share of the Class B Preferred mandatorily converts into Company
common stock on August 16, 1999 (or earlier in the case of certain mergers,
reorganizations, or asset sales). Each share of Class B Preferred mandatorily
converts into between 0.806 and one share of Company common stock, depending on
the common stock trading price at the time of conversion. Each Class B Preferred
share is also convertible at the option of the holder, at any time, into 0.806
of a share of Company common stock. Class B Preferred shares are not redeemable
by the Company.
 
     In the event of liquidation, whether voluntary or involuntary, the holders
of Class B Preferred will receive $29.00 per share and all accrued and unpaid
dividends. The holders of Class B Preferred vote together with the common
stockholders, on the basis of four-fifths of a vote for each share held.
 
     The Class C Preferred will mature on August 16, 2016, and the holders will
receive $50.00 per share and all accrued and unpaid dividends. Class C Preferred
shares are convertible, at the option of the holder, into 1.379 shares of the
Company's common stock. After August 16, 1999, the Company may convert the Class
C Preferred into shares of its common stock, if the common stock meets certain
minimum closing price requirements. After August 16, 2006, the Company may
redeem the Class C Preferred for cash or common stock. Therefore, for financial
reporting purposes, these shares are not considered to be mandatorily
redeemable.
 
     In the event of liquidation, whether voluntary or involuntary, the holders
of Class C Preferred are entitled to receive $50.00 per share and all accrued
and unpaid dividends. The holders of Class C Preferred are not entitled to vote
unless their dividends are in arrears and unpaid for six quarterly dividend
periods, in which case holders may vote for the election of two directors.
 
Redeemable Preferred Stock
 
     In connection with the acquisition of the U.S. cellular properties and the
additional 25% interest in PrimeCo of MediaOne Group, the Company issued 825,000
shares of 5.143% Class D Cumulative Preferred Stock, Series 1998 ("Class D
Preferred") and 825,000 shares of 5.143% Class E Cumulative Preferred Stock,
Series 1998 ("Class E Preferred"). These shares do not have any conversion
rights.
 
     Holders of the Classes D and E Preferred receive cumulative annual
dividends of $51.43 per share, payable quarterly in arrears. The holders of
Classes D and E Preferred have similar voting rights as the holders of Class C
Preferred in the event that the Company fails to pay dividends.
 
     The aggregate redemption value of the Classes D and E Preferred was $1.65
billion. The maturity date of the Class D Preferred is April 6, 2020, and the
Company may redeem it, in whole or in part, after April 7, 2018. The maturity
date of the Class E Preferred is April 7, 2018, with no early redemption. The
redemption price for the Classes D and E Preferred was $1,000 per share and all
accrued and unpaid dividends. In the event of the liquidation or dissolution of
the Company, holders of the Classes D and E Preferred would receive $1,000 per
share and all accrued and unpaid dividends.
 
     The Classes D and E Preferred were reported on the Consolidated Balance
Sheet at their fair values on April 6, 1998, the closing date of the Merger. The
difference between the fair value at that date and the redemption value is
approximately $77 million. This difference is being amortized and is reported as
incremental preferred dividends, using the interest method, over the maturity
periods of the Classes D and E Preferred.
 
Stock Repurchase and Put Options
 
     In October 1997, the Company's Board of Directors authorized the repurchase
of up to $1 billion of Company common and preferred stock. Accordingly, based on
market conditions, the Company buys its shares on the open market. As of
December 31, 1998, the Company had repurchased 3.2 million common shares under
this program for $170 million.
 
     In connection with the share repurchase program, the Company sold put
options, which give the purchaser the right to sell shares of the Company's
common stock to the Company at specified prices. The put option contracts allow
the Company to determine the method of settlement. In 1998, the Company received
$22.6 million in net proceeds from the sale of put options. At December 31,
1998, there were 3.6 million shares outstanding under put options, with strike
prices ranging from $51.39 to $55.86. The contracts mature from May 1999 through
February 2000.


                                      -42-


<PAGE>   43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stockholder Rights Plan
 
     The Company's stockholder rights plan provides for the distribution to
common stockholders of rights to purchase Series A Participating Preferred
Stock. These rights are only exercisable in certain circumstances where a party
acquires or attempts to acquire 10% or more of the Company's common stock. The
rights are not currently exercisable.
 
K. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
 
     The Company has reserved 56 million shares of common stock for its
Long-Term Stock Incentive Plan (the "Plan"). Awards to eligible employees under
the Plan may take the form of incentive ("ISOs") or non-qualified ("NSOs") stock
options, stock appreciation rights ("SARs"), restricted stock, stock units, or a
combination of these forms. The options granted to date have a term of up to ten
years and generally vest over three to four years of continuous employment. Some
of the options require that certain stock performance conditions be met before
vesting.
 
     The Plan requires that the exercise price equals the fair market value of
the stock at the grant date for ISOs and allows the discretion of the Company
for NSOs. The exercise price may be paid in cash or stock. The Company may
settle SARs in cash or stock at its discretion. The settlement of SARs issued in
conjunction with NSOs requires the related unexercised NSOs to be canceled.
Restricted stock is held in escrow until the vesting provisions are satisfied,
although such shares have full voting and other rights. Stock units represent
shares of common stock. Holders of stock units are not required to pay for such
units and have no voting or other rights as a stockholder. Although the Company
does not currently pay dividends on its common stock, stock units may have
dividend rights at the Company's discretion. Settlement of stock unit awards may
be in cash, shares, or a combination at the Company's discretion.
 
     In February 1998, the Company's Board of Directors approved a new
restricted stock incentive program for employees not eligible to receive stock
options. The program provided for vesting at the earlier of certain targets
related to the Company's common stock price or proportionate operating cash flow
or March 2, 2005. The Company issued approximately 702,250 shares under this
award in March and May of 1998. Shares under this program became vested on
January 14, 1999, when the target related to the Company's common stock price
was met.
 
     For the following pro forma disclosures required by SFAS No. 123,
"Accounting for Stock Based Compensation," the estimated fair value of options
is amortized to expense over the option's vesting period. The Company uses the
Black-Scholes option valuation model to estimate the fair value of each option
grant on the date of grant. The Black-Scholes model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. The model requires the input of highly subjective
assumptions including expected stock price volatility, which is subject to
change. For this reason, and because the fair value-based method of accounting
established by SFAS No. 123 has not been applied to options granted prior to
January 1, 1995, the resulting pro forma compensation costs are not necessarily
indicative of future costs.
 
     The following pro forma information has been prepared as if the Company had
accounted for its employee stock options using the fair value-based method of
accounting established by SFAS No. 123:
 
<TABLE>
<CAPTION>
                                                               For the Year Ended
                                                                   December 31
(Dollars in millions, except per share amounts)               1998    1997    1996
-----------------------------------------------               -----   -----   -----
<S>                                                           <C>     <C>     <C>
Net income applicable to common stockholders:
  As reported...............................................  $ 608   $ 394   $ 179
  Pro forma (a).............................................  $ 536   $ 357   $ 154
Net income applicable to common stockholders - per share
  Basic:
  As reported...............................................  $1.09   $0.78   $0.36
  Pro forma (a).............................................  $0.96   $0.71   $0.31
  Diluted:
  As reported...............................................  $1.07   $0.78   $0.36
  Pro forma (a).............................................  $0.96   $0.71   $0.31
</TABLE>
 
(a) Based on the following assumptions for grants in 1998, 1997, and 1996,
    respectively: risk-free weighted average interest rates of 5.5%, 6.2%, and
    6.0%; volatility factors of the expected market price of the Company's
    common stock of 30.3%, 29.8%, and 29.0%; and weighted average expected
    option lives of 4.2 years, 4.9 years, and 4.3 years.


                                      -43-


<PAGE>   44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Total compensation recognized under APB No. 25, "Accounting for Stock
Issued to Employees," was $38 million, $21 million, and $11 million for 1998,
1997, and 1996, respectively.
 
     There were 9 million shares available for future employee awards at
December 31, 1998. Summary employee award activity was:
 
<TABLE>
<CAPTION>
                                           1998                    1997                    1996
                                   ---------------------   ---------------------   ---------------------
                                                Weighted                Weighted                Weighted
                                                Average                 Average                 Average
                                                Exercise                Exercise                Exercise
                                     Shares      Price       Shares      Price       Shares      Price
                                   ----------   --------   ----------   --------   ----------   --------
<S>                                <C>          <C>        <C>          <C>        <C>          <C>
Outstanding, beginning of year...  21,035,283    $27.07    21,377,935    $27.62    12,618,329    $25.63
Stock options granted............  21,580,104    $50.23     2,746,983    $26.29    10,176,998    $29.48
Restricted stock granted.........     734,718        --        79,237        --       813,210        --
Stock units granted..............       3,965        --       418,333        --        59,532        --
Options exercised................  (3,674,175)   $25.38    (2,018,949)   $22.07      (585,251)   $16.26
Awards forfeited.................  (1,208,026)   $39.74    (1,458,410)   $32.52      (645,387)   $28.61
Restricted stock issued..........    (734,529)       --       (79,397)       --    (1,012,346)       --
Stock units issued...............     (21,043)       --       (30,449)       --       (47,150)       --
                                   --------------------------------------------------------------------
Outstanding, end of year.........  37,716,297    $40.11    21,035,283    $27.07    21,377,935    $27.62
                                   ====================================================================
Options exercisable..............  10,788,871    $26.90     9,053,724    $25.75     5,822,319    $23.27
</TABLE>
 
     Summary information concerning outstanding and exercisable employee stock
awards at December 31, 1998, was:
 
<TABLE>
<CAPTION>
                                    Weighted
                                    Average     Weighted                 Weighted
                                   Remaining    Average                  Average
    Range of          Number      Contractual   Exercise     Number      Exercise
Exercise Prices    Outstanding       Life        Price    Exercisable     Price
---------------    -----------   -----------   --------   -----------   --------
<S>                <C>           <C>            <C>        <C>           <C>
$00.00 - $ 00.00(a)    427,615      8.07 yrs      $00.00            --     $00.00
$17.47 - $ 30.25    13,658,901      4.45 yrs      $25.83     9,622,125     $26.01
$30.50 - $ 48.19     2,543,338      6.57 yrs      $38.50     1,105,497     $33.36
$49.31 - $ 59.85    21,086,443      6.36 yrs      $50.36        61,249     $49.88
                    ----------                              ---------- 
                    37,716,297                              10,788,871
                    ==========                              ==========
</TABLE>
 
(a) Relates to stock units granted under a fixed plan, which does not require
    the holders to pay for such units.
 
     Exercise prices of some options differ from the market price of the stock
on the grant date. The following table summarizes options on the grant date
using the Black-Scholes model:
 
<TABLE>
<CAPTION>
                                                    Exercise Price     Exercise Price     Exercise Price
                                                       Equal to         Greater Than        Less Than
                                                   Market Price (a)   Market Price (a)   Market Price (a)
                                                   ----------------   ----------------   ----------------
<S>                                                <C>                <C>                <C>
1998
Options granted..................................     21,580,104                 --            --
Weighted average exercise price..................    $     50.23                 --            --
Weighted average fair value......................    $     16.52                 --            --
1997
Options granted..................................      2,746,983                 --            --
Weighted average exercise price..................    $     26.29                 --            --
Weighted average fair value......................    $      9.59                 --            --
1996
Options granted..................................      8,503,618          1,673,380            --
Weighted average exercise price..................    $     26.13         $    46.52            --
Weighted average fair value......................    $      7.79         $     8.62            --
</TABLE>
 
(a) Represents the closing market price of the Company's common stock as quoted
    on the grant date.
 

                                      -44-


<PAGE>   45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     In connection with the Company's acquisition of CCI described in Note G,
"Partnerships and Acquisition," options to purchase CCI stock were converted
into options to purchase 1,924,001 shares of Company common stock (the "CCI
Options"). At the time of conversion, the CCI Options had a weighted average
exercise price of $20.24 per share and a weighted average fair value of $8.59
per share. There were 197,751 CCI Options outstanding and exercisable at
December 31, 1998.
 
     The Company also has reserved 2.4 million shares of common stock for its
Employee Stock Purchase Plan ("ESPP"). The ESPP provides employees with the
opportunity to share in the success of the Company by purchasing stock on
favorable terms and paying for such purchases through payroll deductions. Stock
purchases under the ESPP were 434,522 shares, 580,953 shares, and 429,981 shares
for 1998, 1997, and 1996, respectively. The estimated weighted average fair
value of the ESPP purchases was $11.94 per share in 1998, $5.88 per share in
1997, and $5.78 per share in 1996. The Company based its estimates on the
Black-Scholes model using the following assumptions for 1998, 1997, and 1996,
respectively: risk-free weighted average interest rates of 4.8%, 5.5%, and 5.1%,
volatility factors of the expected market price of the Company's common stock of
35.7%, 33.9%, and 29.7%, and an expected life of 90 days for each of the three
years.
 
L. INCOME TAXES
 
     The components of income tax expense for each of the three years ended
December 31 were:
 
<TABLE>
<CAPTION>
(Dollars in millions)                                         1998   1997   1996
---------------------                                         ----   ----   ----
<S>                                                           <C>    <C>    <C>
Current:
  Federal...................................................  $178   $ 80   $ 90
  State and other taxes.....................................    64     57     26
  Foreign...................................................    53     54     --
                                                              ------------------ 
          Total current.....................................   295    191    116
                                                              ------------------     
Deferred:
  Federal...................................................   (13)    78     49
  State and other taxes.....................................     4     (8)    --
  Foreign...................................................    30      5    (16)
                                                              ------------------
          Total deferred....................................    21     75     33
                                                              ------------------
          Total income taxes................................  $316   $266   $149
                                                              ==================
</TABLE>
 
     The domestic and foreign components of income (loss) before income taxes
and preferred dividends presented below for each of the three years ended
December 31, are on a legal entity basis and are not the same as the reporting
segments presented in Note Q, "Segment Information".
 
<TABLE>
<CAPTION>
(Dollars in millions)                                          1998    1997   1996
---------------------                                         ------   ----   ----
<S>                                                           <C>      <C>    <C>
U.S. operations.............................................  $  441   $423   $405
International operations....................................     600    291    (57)
                                                              --------------------
Income before income taxes and preferred dividends..........  $1,041   $714   $348
                                                              ====================
</TABLE>
 
     Significant components of the Company's deferred tax liabilities and assets
were:
 
<TABLE>
<CAPTION>
                                                               December 31
                                                              -------------
(Dollars in millions)                                          1998    1997
---------------------                                         ------   ----
<S>                                                           <C>      <C>
Deferred tax liabilities:
  Amortization..............................................  $1,495   $474
  Depreciation..............................................     264    192
  Investments in U.S. partnerships..........................      92     79
  Capitalized interest......................................      25     21
  Unrealized gains..........................................      15     28
  Foreign tax liabilities in consolidated subsidiaries......      13     --
  Other.....................................................       5      7
                                                              ------   ----
          Total.............................................   1,909    801
                                                              ------   ----
Deferred tax assets:
  Accruals deductible when paid.............................      54     22
  Accounts receivable.......................................      19     19
  Currency translation adjustment...........................      15     34
  Other.....................................................       3     33
  Foreign tax benefits in consolidated subsidiaries.........      --     20
                                                              ------   ----
          Total.............................................      91    128
Less: valuation allowance...................................       3      7
                                                              ------   ----
          Total, net........................................      88    121
                                                              ------   ----
          Total deferred taxes recorded in Consolidated
          Balance Sheets....................................  $1,821   $680
                                                              ------   ----                   
Current.....................................................  $  (18)  $(17)
Noncurrent..................................................   1,839    697
                                                              ------   ----
Net deferred tax liabilities................................  $1,821   $680
                                                              ======   ====
</TABLE>
 
     The Company believes it is more likely than not that it will generate
future taxable income sufficient to fully realize future benefits from the net
deferred tax assets of $88 million.
 
     At December 31, 1998, the Company had $7 million in net operating loss
carryforwards for foreign tax 


                                      -45-


<PAGE>   46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

reporting purposes, substantially all of which may be carried forward
indefinitely.
 
     The differences each year between the statutory federal income tax rate and
the effective income tax rate were:
 
<TABLE>
<CAPTION>
                                                              1998    1997   1996
                                                              -----   ----   ----
<S>                                                           <C>     <C>    <C>
Statutory federal income tax rate...........................   35.0%  35.0%  35.0%
Increase (decrease) in taxes resulting from:
     Equity in net income (loss) of certain unconsolidated
      wireless systems......................................  (14.7)  (9.8)  (0.2)
     State income taxes, net of federal tax benefit.........    4.3    4.3    4.3
     Nondeductible amortization.............................    3.7    2.1    3.2
     Tax impact of foreign income...........................    2.3    3.8   (0.9)
     Other..................................................   (0.2)   1.9    1.5
                                                              -----   ----   ----
Effective income tax rate...................................   30.4%  37.3%  42.9%
                                                              =====   ====   ====
</TABLE>
 
     At December 31, 1998, $93 million of deferred tax liabilities, related to
$780 million of cumulative unrepatriated earnings from the Company's
international interests, were excluded from recognition under SFAS No. 109,
"Accounting for Income Taxes," because such earnings are intended to be
reinvested indefinitely.
 
     For the years ended December 31, 1998 and 1997, consolidated net deferred
tax liabilities increased $19 million, and decreased $27 million, respectively,
due to amounts recorded directly to the CTA account. For the years ended
December 31, 1998 and 1997, consolidated net deferred tax liabilities decreased
$1 million and increased $5 million, respectively, due to amounts recorded
directly to other components of stockholders' equity.
 
M. EMPLOYEE BENEFITS

Defined Contribution Plan
 
     The Company sponsors a defined contribution plan (the "Retirement Plan"),
which covers substantially all full-time employees. The Company bases its
contributions to the Retirement Plan on a percentage of pay and on matching a
portion of employee contributions. The related expense was $39 million, $30
million, and $24 million in 1998, 1997, and 1996, respectively.
 
Defined Benefit Pension Plan and Other Post Retirement Benefits
 
     The Company maintains defined benefit plans (the "Pension Plans").
Individuals who were employees at December 31, 1986, and transferees from
Pacific Telesis Group, receive pension, death, and survivor benefits based on a
percentage of their final five-year average pay and years of service. In 1986,
the Company discontinued the accrual of service credit for Pension Plan
participants. Thus, pension benefits only increase as a participant's
compensation increases. The Pension Plans' assets are primarily composed of
mutual and index funds.
 
     The Company provides medical and dental benefits for eligible retired
employees and their eligible dependents and also provides life insurance
benefits to eligible retired employees (the "Postretirement Plan"). The Company
retains the right, subject to existing agreements and applicable legal
requirements, to amend or eliminate these postretirement benefits. The accrued
postretirement benefit obligation, which is principally unfunded, was recorded
in the Company's Consolidated Balance Sheets.
 
     In 1998, the Merger included the assumption of MediaOne Group's pension and
postretirement benefit plans' obligations.
 

                                      -46-


<PAGE>   47
   
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    

     The plans' assets and obligations were:
 
<TABLE>
<CAPTION>
                                                           Defined Benefit     Other Postretirement
                                                            Pension Plans            Benefits
                                                         -------------------   ---------------------
(Dollars in millions)                                    1998    1997   1996   1998    1997    1996
---------------------                                    -----   ----   ----   -----   -----   -----
<S>                                                      <C>     <C>    <C>    <C>     <C>     <C>
CHANGES IN BENEFIT OBLIGATION:
Benefit obligation at January 1........................  $  54   $ 52   $ 52   $ 20    $ 13    $ 15
Service cost...........................................     --     --     --      3       2       1
Interest cost..........................................      5      4      4      1       1       1
Amendments.............................................     --     --      1     --       2      --
Actuarial (gain) loss..................................     17      6     --      2       2      (4)
MediaOne Group merger..................................     36     --     --      7      --      --
Benefits paid..........................................     (4)    (8)    (5)    --      --      --
                                                         -----   ----   ----   ----    ----    ----
Benefit obligation at December 31......................  $ 108   $ 54   $ 52   $ 33    $ 20    $ 13
                                                         =====   ====   ====   ====    ====    ====
CHANGES IN PLANS' ASSETS:
Fair value of assets at January 1......................  $ 117   $ 99   $ 90   $ --    $ --    $ --
Actual return on plans' assets.........................     24     22     13     --      --      --
MediaOne Group merger..................................     19     --     --     --      --      --
Employer contributions.................................     --      4      1     --      --      --
                                                         -----   ----   ----   ----    ----    ----
Benefits paid..........................................     (4)    (8)    (5)    --      --      --
                                                         -----   ----   ----   ----    ----    ----
Fair value of assets at December 31....................  $ 156   $117   $ 99   $ --    $ --    $ --
                                                         =====   ====   ====   ====    ====    ====
FUNDED STATUS
Benefit obligation.....................................  $(108)  $(54)  $(52)  $(33)   $(20)   $(13)
Fair value of plans' assets............................    156    117     99     --      --      --
Unrecognized transition obligation (asset).............     (2)    (3)    (4)    --      --      --
Unamortized prior service cost.........................     (1)    (1)    (1)     2       2      --
Unrecognized net actuarial (gain) loss.................    (19)   (23)   (13)    (1)     (3)     (5)
                                                         -----   ----   ----   ----    ----    ----
Prepaid (accrued) benefit cost.........................  $  26   $ 36   $ 29   $(32)   $(21)   $(18)
                                                         =====   ====   ====   ====    ====    ====
WEIGHTED-AVERAGE ACTUARIAL ASSUMPTIONS:
Discount rate:
Net periodic cost......................................    7.0%   7.8%   7.3%   7.0%    7.8%    7.3%
Benefit obligation.....................................    6.5%   7.0%   7.8%   6.5%    7.0%    7.8%
Rate of compensation increase..........................    5.5%   5.5%   5.5%   5.5%    5.5%    5.5%
Expected long-term return on plan assets...............    8.5%   8.5%   8.5%   8.5%    8.5%    8.5%

COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost...........................................  $   1   $ --   $ --   $  3    $  2    $  1
Interest cost..........................................      5      4      4      2       1       1
Expected return on plans' assets.......................    (10)    (8)    (7)    --      --      --
Amortization of transition obligation (asset)..........     (1)    --     (1)    --      --      --
Amortization of unrecognized prior service cost........     17     --     --      7      --      --
Amortization of unrecognized net (gains) losses........     (1)    --      1     --      --      --
Recognized settlement (gain) loss......................     --      1     --     --      --      --
                                                         -----   ----   ----   ----    ----    ----
Net periodic benefit cost (income).....................  $  11   $ (3)  $ (3)  $ 12    $  3    $  2
                                                         =====   ====   ====   ====    ====    ====
</TABLE>
 

                                      -47-


<PAGE>   48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     The estimates of the other postretirement benefits also include an
escalation factor for anticipated increases in health care costs. The escalation
rate was 7.0% in 1998 and decreases to 5.0% by 2002; it remains at that level
thereafter. A one-percentage-point change in health care cost trend rates would
have the following effects:
 
<TABLE>
<CAPTION>
                                                                 1%         1%
(Dollars in millions)                                         Increase   Decrease
---------------------                                         --------   --------
<S>                                                           <C>        <C>
Effect on total service and interest cost components........   $  969    $  (742)
Effect on postretirement benefit obligation.................   $6,372    $(4,938)
</TABLE>
 
N. COMMITMENTS AND CONTINGENCIES 

CONTINGENCIES
 
     The Company is a defendant in various antitrust lawsuits filed in both
state and federal courts. In 1993, a class action complaint was filed in Orange
County Superior Court. The plaintiffs are alleging price fixing in the Los
Angeles cellular market. In 1994, a parallel class action complaint, filed in
Orange County Superior Court, was stayed pending the resolution of the 1993
case. In 1997, the Court approved a settlement of the 1993 case. Three
plaintiffs have filed an appeal challenging the adequacy of the settlement.
 
     In 1994, two class action complaints also alleging price fixing were filed
against the Company, one in San Diego County Superior Court and one in the U.S.
District Court. The state case was dismissed. A settlement of the federal court
case was approved on November 28, 1998. Also, in 1994, a class action complaint
was filed against the Company in San Francisco County Superior Court alleging
price fixing. In 1996, an almost identical class action complaint was filed
against the Company in Alameda County Superior Court. The two cases were
consolidated and the court approved a settlement of the case in 1998. One
plaintiff has filed an appeal. The Company believes that the ultimate outcome of
these matters, in the aggregate, will not have a material adverse impact on its
financial position or results of operations.
 
     In July 1998, customers filed a complaint in Sacramento County Superior
Court against the Company and other cellular and PCS carriers challenging the
legality of certain billing practices and claiming that the practices are not
adequately disclosed in the California markets. This case was subsequently
dismissed with prejudice. The plaintiffs have filed a notice of appeal. In
August 1998, a complaint was filed against PrimeCo, an unconsolidated subsidiary
of the Company, in the Cook County Chancery Court. The plaintiffs are
challenging the legality of certain billing practices and claiming that the
practices are not adequately disclosed. The plaintiffs are seeking an 
unspecified amount of monetary damages and revisions of PrimeCo's billing
practices. Also, in August 1998, a second complaint was filed against PrimeCo in
the Cook County Chancery Court alleging certain deficiencies in PrimeCo's
network performance. The plaintiffs are seeking an unspecified amount of
monetary damages. These cases are in the preliminary phase. The Company is not
currently able to assess the impact, if any, of these cases on its financial
position or results of operations.
 
     In December 1998, a complaint was filed against the Company and other
cellular service providers in the Sacramento County Superior Court on behalf of
all individuals subscribing to service in the Sacramento area. The plaintiffs
claim that the defendants conspired to fix prices for cellular services. The
plaintiffs are seeking injunctive relief and damages in excess of $100 million.
This case is in the preliminary phase and the Company is not currently able to
assess the impact, if any, of this case on its financial position or results of
operations.
 
     On January 6, 1999, a class action was filed against the Company in Federal
Court for the Central District of California alleging claims under Section 10(b)
and 20(a) of the Securities Exchange Act, 15 U.S.C. 78j and 78t and Rule 10b-5.
The action was filed on behalf of individuals who sold AirTouch common stock or
call options or purchased put options on January 4, 1999. The plaintiffs claim
the Company's press release of January 3, 1999, was false and misleading because
it confirmed the Company was in merger discussions with Bell Atlantic but did
not disclose that it was in discussions with Vodafone. This case is in the
preliminary phase and the Company is not currently able to assess the impact, if
any, on its financial position or results of operations.
 
     Bell Atlantic filed an action against the Company on January 15, 1999, in 
the Federal District Court for the Northern District of California seeking an
injunction to void clauses of the TOMCOM, L.P. and PrimeCo partnership
agreements which restrict the partners' ability to compete against the
partnerships. The Company has filed a counterclaim against Bell Atlantic for
violations of the partnership agreements. The case is in the preliminary phase
and the Company is not currently able to assess the impact, if any, on its
financial position or results of operations.


                                      -48-


<PAGE>   49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     The Company is party to various other legal proceedings in the ordinary
course of business. The Company believes that the ultimate outcome of these
matters will not have a material adverse impact on its financial position or
results of operations.
 
Lease Commitments
 
     The Company leases various facilities and equipment under noncancelable
lease arrangements. Most leases contain renewal options for varying periods.
Related rent expense was $107 million, $83 million, and $76 million in 1998,
1997, and 1996, respectively.
 
     At December 31, 1998, future minimum lease payments under noncancelable
operating leases with an initial term of one year or more were:
 
<TABLE>
<CAPTION>
(Dollars in millions)
---------------------
<S>                                                           <C>
1999........................................................  $109
2000........................................................    92
2001........................................................    66
2002........................................................    48
2003........................................................    34
Thereafter..................................................   160
                                                              ----
          Total minimum lease payments......................  $509
                                                              ====
</TABLE>
 
Other Commitments
 
     In the ordinary course of business, the Company has issued letters of
responsibility and letters of support for performance guarantees, refundable
security deposits, and credit facilities of certain subsidiaries and affiliates
providing varying degrees of recourse to the Company. At December 31, 1998, the
Company's proportionate share under such arrangements was $223 million. The
Company believes it is remote that it will be required to pay under these
various arrangements.
 
     At December 31, 1998, the Company was committed to spend $323 million for
the acquisition of property, plant, and equipment and purchases of cellular
equipment and other items. In February 1999, the Company signed a multi-year
$500 million contract with Nortel Networks to expand and upgrade its digital
cellular networks.
 
O. OTHER CURRENT LIABILITIES
 
     Other current liabilities consisted of:
 
<TABLE>
<CAPTION>
                                                              December 31
                                                              -----------
(Dollars in millions)                                         1998   1997
---------------------                                         ----   ----
<S>                                                           <C>    <C>
Accrued liabilities.........................................  $199   $110
Taxes payable...............................................   198     78
Accrued compensation and benefits...........................   154    138
Advanced billing and customer deposits......................   142     77
Interest and dividends payable..............................    86     48
Accrued expenses............................................    64    161
Other accounts payable......................................    48     28
Other.......................................................    34     35
                                                              ----   ----
          Total current liabilities.........................  $925   $675
                                                              ====   ====
</TABLE>
 
P. SUBSEQUENT EVENT 

VODAFONE MERGER
 
     On January 15, 1999, AirTouch Communications and Vodafone announced a
definitive agreement to merge. Under the terms of the definitive agreement,
which has been unanimously approved by each company's Board of Directors, owners
of AirTouch common stock will be entitled to receive five Vodafone ordinary
shares in the form of 0.5 of a Vodafone American Depository share and $9.00 in
cash, without interest, for each share of AirTouch common stock held at closing,
subject to rebalancing between stock and cash under certain circumstances.
 
     The merger is subject to the approval of the stockholders of Vodafone and
AirTouch, customary government and regulatory authority approvals, and the
receipt of opinions from tax counsel that the stock portion of the merger
consideration will be tax-free to the U.S. holders of AirTouch common stock. The
merger is expected to close in the third quarter of 1999.
 

                                      -49-


<PAGE>   50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Q. SEGMENT INFORMATION
 
     The Company is organized on the basis of geography, products, and services.
The Company's segments are strategic business units that offer different
products and services in the same geographic location or similar products and
services in different geographic locations. Based on management's perspective,
the Company's reportable segments are U.S. Cellular Operations, U.S. Paging
Operations, and International Operations. U.S. Cellular and U.S. Paging
Operations provide wireless telecommunication services in the United States.
International Operations provide wireless telecommunication services in Europe,
Asia, and North Africa.
 
     The Company's business segment information was:
 
<TABLE>
<CAPTION>
                                                  U.S. (a)                     U.S. (b)   Corporate  
                                                  Cellular    International     Paging      and           Total 
(Dollars in millions)                            Operations    Operations     Operations   Other (c)     Company
---------------------                            ----------   -------------   ----------  ----------     ------- 
<S>                                              <C>          <C>             <C>         <C>            <C>
1998
Operating revenues.............................   $ 3,736        $1,024          $419      $   2         $ 5,181
Operating expenses before depreciation and                                                              
  amortization.................................     2,185           674           296        130           3,285
Depreciation and amortization expenses.........       748           112            80         10             950
                                                  --------------------------------------------------------------
Operating income (loss)........................       803           238            43       (138)            946
Equity in net income (loss) of unconsolidated                                                           
  wireless systems.............................       (41)          434            --         --             393
Minority interests in net income of                                                                     
  consolidated wireless systems................       (81)          (98)           --         --            (179)
Interest expense...............................       (74)          (19)           (1)       (51)           (145)
Interest income................................        21             2            --         --              23
Other..........................................        (7)            4            --          6               3
                                                  --------------------------------------------------------------
Income before income taxes and preferred                                                                
  dividends....................................       621           561            42       (183)          1,041
Income taxes...................................       295            78            19        (76)            316
                                                  --------------------------------------------------------------
Income before preferred dividends..............       326           483            23       (107)            725
Preferred dividends............................        --            --            --        117             117
                                                  --------------------------------------------------------------
Net Income applicable to common stockholders...   $   326        $  483          $ 23      $(224)        $   608
                                                  ==============================================================
Capital expenditures for property, plant, and                                                           
  equipment....................................   $   727        $  234          $ 82      $  41         $ 1,084
Investments in unconsolidated wireless                                                                  
  systems......................................   $ 1,814        $1,636          $ --      $  41         $ 3,491
          Total assets at year end.............   $13,949        $3,104          $477      $  23         $17,553
                                                  --------------------------------------------------------------
1997                                                                                                    
Operating revenues (d).........................   $ 2,476        $  751          $369      $  (2)        $ 3,594
Operating expenses before depreciation and                                                              
  amortization.................................     1,452           551           261         75           2,339
Depreciation and amortization expenses.........       381            85            74          9             549
                                                  --------------------------------------------------------------
Operating income (loss)........................       643           115            34        (86)            706
Equity in net income (loss) of unconsolidated                                                           
  wireless systems.............................         1           199            --         --             200
Minority interests in net income of                                                                     
  consolidated wireless systems................       (70)          (49)           --         --            (119)
Interest expense...............................       (54)          (24)           (2)       (10)            (90)
Interest income................................        16             2            --         --              18
Other..........................................        (9)            9            --         (1)             (1)
                                                  --------------------------------------------------------------
Income before income taxes and preferred                                                                
  dividends....................................       527           252            32        (97)            714
Income taxes...................................       227            42            13        (16)            266
                                                  --------------------------------------------------------------
Income before preferred dividends..............       300           210            19        (81)            448
Preferred dividends............................        --            --            --         54              54
Net Income applicable to common stockholders...   $   300        $  210          $ 19      $(135)        $   394
Capital expenditures for property, plant, and                                                           
  equipment....................................   $   466        $  182          $ 67      $  14         $   729
                                                  ==============================================================
Investments in unconsolidated wireless                                                                  
  systems......................................   $   819        $1,248          $  1      $  --         $ 2,068
          Total assets at year end.............   $ 6,084        $2,489          $470      $ (73)        $ 8,970
                                                  --------------------------------------------------------------

</TABLE>

(Table continues on page 50.)


                                      -50-


<PAGE>   51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                  U.S. (a)                     U.S. (b)   Corporate  
                                                  Cellular    International     Paging      and           Total 
(Dollars in millions)                            Operations    Operations     Operations   Other (c)     Company
---------------------                            ----------   -------------   ----------  ----------     ------- 
<S>                                              <C>          <C>             <C>         <C>            <C>
1996                                                                                              
Operating revenues.............................   $ 1,694        $  212          $343      $   3         $ 2,252 
Operating expenses before depreciation and                                                              
  amortization.................................     1,055           239           255         71           1,620
Depreciation and amortization expenses.........       240            34            64         13             351
                                                  --------------------------------------------------------------
Operating income (loss)........................       399           (61)           24        (81)            281
Equity in net income (loss) of unconsolidated                                                           
  wireless systems.............................       151           (18)           --         --             133
Minority interests in net income of                                                                     
  consolidated wireless systems................       (71)          (24)           --         --             (95)
Interest expense...............................       (49)          (25)           (2)        24             (52)
Interest income................................         9             3            --          2              14
Other..........................................        (2)           69            (1)         1              67
                                                  --------------------------------------------------------------
Income before income taxes and preferred                                                                
  dividends....................................       437           (56)           21        (54)            348
Income taxes...................................       179           (26)            9        (13)            149
                                                  --------------------------------------------------------------
Income before preferred dividends..............       258           (30)           12        (41)            199
Preferred dividends............................        --            --            --         20              20
                                                  --------------------------------------------------------------
Net Income applicable to common stockholders...   $   258        $  (30)         $ 12      $ (61)        $   179
                                                  ==============================================================
Capital expenditures for property, plant, and                                                           
  equipment....................................   $   340        $   89          $ 98      $  21         $   548
Investments in unconsolidated wireless                                                                  
  systems......................................   $   711        $1,281          $ --      $  --         $ 1,992
          Total assets at year end.............   $ 5,636        $2,320          $498      $  70         $ 8,524
                                                  --------------------------------------------------------------
</TABLE>

 
(a) U.S. Cellular Operations include the Company's equity earnings of and
    investment in PrimeCo.
 
(b) U.S. Paging Operations, which are wholly owned by the Company, include
    operations in Canada.
 
(c) Includes intercompany eliminations, primarily for interest and intercompany
    accounts receivable and payable.
 
(d) U.S. Paging Operations' revenues include intercompany sales of $1 million.
 
     Selected consolidated financial data for the Company's domestic and foreign
operations is presented below. Operating revenues represent sales to
unaffiliated customers; there were no sales or transfers between domestic and
foreign operations. Assets maintained for general corporate purposes are
included with U.S. operations.
 

<TABLE>
<CAPTION>
                                                                 International Operations
                                                            -----------------------------------
                                                  U.S.        Telecel      Europolitan
(Dollars in millions)                          Operations   Portugal (a)     Sweden      Other     Total
---------------------                          ----------   ------------   -----------   ------   -------
<S>                                            <C>          <C>            <C>           <C>      <C>
1998
Operating revenues...........................   $ 4,157         $641          $383       $   --   $ 5,181
Investments in unconsolidated wireless
  systems....................................   $ 1,855         $ --          $ --       $1,636   $ 3,491
Property, plant, and equipment, net and
  intangible assets, net.....................   $11,714         $450          $396       $    2   $12,562
                                                ---------------------------------------------------------
1997
Operating revenues...........................   $ 2,843         $478          $273       $   --   $ 3,594
Investments in unconsolidated wireless
  systems....................................   $   820         $ (2)         $ --       $1,250   $ 2,068
Property, plant, and equipment, net and
  intangible assets, net.....................   $ 5,134         $321          $374       $    7   $ 5,836
                                                ---------------------------------------------------------
1996
Operating revenues...........................   $ 2,040         $ --          $200       $   12   $ 2,252
Investments in unconsolidated wireless
  systems....................................   $   711         $  4          $ --       $1,277   $ 1,992
Property, plant, and equipment, net and
  intangible assets, net.....................   $ 5,035         $307          $385       $    4   $ 5,731
                                                ---------------------------------------------------------
</TABLE>
 

(a) In December 1996, the Company consolidated Telecel's balance sheet,
    subsequent to acquiring a controlling interest. Telecel's operating results
    and cash flows were included beginning in 1997.
 

                                      -51-


<PAGE>   52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

R. QUARTERLY FINANCIAL DATA (UNAUDITED)
 
<TABLE>
<CAPTION>
(Dollars in millions, except per share amounts)               First   Second (a)   Third    Fourth
-----------------------------------------------               -----   ----------   ------   ------
<S>                                                           <C>     <C>          <C>      <C>
1998
Operating revenues..........................................  $ 958     $1,348     $1,421   $1,454
Operating income............................................  $ 234     $  286     $  316   $  110
Income before preferred dividends...........................  $ 167     $  180     $  213   $  165
Preferred dividends.........................................  $  14     $   33     $   35   $   35
Net income applicable to common stockholders................  $ 153     $  147     $  178   $  130
Net income applicable to common stockholders - per share:
Basic.......................................................  $0.30     $ 0.26     $ 0.31   $ 0.23
Diluted.....................................................  $0.30     $ 0.25     $ 0.30   $ 0.22
</TABLE>
 
<TABLE>
<CAPTION>
                                                              First   Second   Third   Fourth
                                                              -----   ------   -----   ------
<S>                                                           <C>     <C>      <C>     <C>
1997
Operating revenues..........................................  $ 836   $ 901    $ 916   $ 941
Operating income............................................  $ 208   $ 199    $ 215   $  84
Income before preferred dividends...........................  $  77   $ 119    $ 141   $ 111
Preferred dividends.........................................  $  13   $  13    $  14   $  14
Net income applicable to common stockholders................  $  64   $ 106    $ 127   $  97
Net income applicable to common stockholders - per share:
Basic.......................................................  $0.13   $0.21    $0.25   $0.19
Diluted.....................................................  $0.13   $0.21    $0.25   $0.19
</TABLE>
 
(a) Operating revenues, operating income, and preferred dividends increased in
    the second quarter due to the MediaOne Group merger. See Note G,
    "Partnerships and Acquisitions" for additional information.
 

                                      -52-


<PAGE>   53
SELECTED PROPORTIONATE FINANCIAL DATA

NON GAAP SUPPLEMENTAL PROPORTIONATE FINANCIAL DATA

     The following table is presented on a proportionate basis. Proportionate 
presentation is not permitted by generally accepted accounting principles 
("GAAP") and is not intended to replace the consolidated operating results 
prepared and presented in accordance with GAAP. However, since significant 
wireless systems in which the Company has an interest are not consolidated, 
proportionate information is provided as supplemental data to facilitate a more 
detailed understanding and assessment of consolidated operating results 
prepared and presented in accordance with GAAP.

     GAAP requires consolidation of wireless systems controlled by the Company 
and the equity method of accounting for wireless systems in which the Company 
has significant influence but not a controlling interest. Proportionate 
presentation is a pro rata consolidation, which reflects the Company's share of 
revenues and expenses in both its consolidated and unconsolidated wireless 
systems. Proportionate results are calculated by multiplying the Company's 
ownership interest in each wireless system by each system's total operating 
results, and accordingly should not be compared with GAAP consolidated results 
of any company. 

     Net income under either GAAP or proportionate presentation is the same.

     Proportionately reported amounts include results from the Company's equity 
investees, which the Company does not control. The Company does not have 
control over the revenues, expenses or cash flows of its equity investees that 
are reported in proportionate results and is only entitled to cash from 
dividends received from these entities. The Company does not own the underlying 
assets of its equity investees.

     A list of the Company's equity investments and its ownership interests is 
set forth in Note F, "Investments in Unconsolidated Wireless Systems," to the 
Company's Consolidated Financial Statements for the year ended December 31, 
1998. In the United States, the Company is a joint and equal owner with AT&T in 
CMT Partners and with Bell Atlantic in PrimeCo, the Company's most significant 
U.S. equity investments. Internationally, the degree of control of the 
Company's equity investees varies from venture to venture. Although the Company 
generally has significant contractual governance rights over these entities, it
does not control them. No person owns a majority of any of the Company's
international equity investees, with the exception of its investment in Germany,
where Mannesmann AG is the majority owner; Italy, where Omnitel Sistemi
Radiocellulari Italiani is the indirect majority owner; Belgium, where Belgacom
is the majority owner; Romania, where Telesystem International Wireless is the
majority owner; and India, where RPG Enterprises is the majority owner. In each
of those investees, the Company, or in the case of Italy, the Company's
majority-owned venture, has significant contractual rights regarding approval of
the business plan, which governs capital investments and use of cash flows.


<TABLE>
<CAPTION>
                                                                 For the Year Ended
                                                                    December 31
                                                              ------------------------
(Dollars in millions)                                          1998     1997     1996
---------------------                                         ------   ------   ------
<S>                                                           <C>      <C>      <C>
TOTAL COMPANY (a)
Service and other revenues..................................  $7,204   $4,907   $3,925
Operating expenses before depreciation and amortization
  expenses (b)..............................................   4,506    3,171    2,801
                                                              ------   ------   ------
Operating cash flow (c).....................................   2,698    1,736    1,124
Depreciation and amortization expenses......................   1,319      789      603
                                                              ------   ------   ------
Operating income............................................   1,379      947      521
Interest and other income (expenses)........................    (139)    (106)     (21)
Income taxes................................................    (515)    (393)    (301)
                                                              ------   ------   ------
Income before preferred dividends...........................     725      448      199
Preferred dividends.........................................     117       54       20
                                                              ------   ------   ------
Net income applicable to common stockholders................  $  608   $  394   $  179
                                                              ======   ======   ======
Operating cash flow margin (d)..............................    37.5%    35.4%    28.6%
                                                              ------   ------   ------
</TABLE>

See footnotes on page 55.
                                      -53-
<PAGE>   54
SELECTED PROPORTIONATE FINANCIAL DATA
(Dollars in millions)

<TABLE>
<C>                                                           <S>      <S>      <S>
U.S. CELLULAR OPERATIONS
Service and other revenues..................................  $3,524   $2,363   $1,984
                                                              ------   ------   ------
Cost of revenues............................................     364      236      222
Selling and customer operations expenses (b)................   1,341      902      781
General, administrative, and other expenses.................     238      169      160
                                                              ------   ------   ------
Operating cash flow (c).....................................   1,581    1,056      821
Depreciation and amortization expenses......................     747      388      292
Operating income............................................  $  834   $  668   $  529
                                                              ======   ======   ======
Operating cash flow margin (d)..............................    44.9%    44.7%    41.4%
                                                              ------   ------   ------
U.S. PCS OPERATIONS (e)
Service and other revenues..................................  $  177   $   34   $    1
Operating expenses before depreciation and amortization
  expenses (b)..............................................     259      114       41
                                                              ------   ------   ------
Operating cash flow (c).....................................     (82)     (80)     (40)
Depreciation and amortization expenses......................      94       35        6
                                                              ------   ------   ------
Operating income (loss).....................................  $ (176)  $ (115)  $  (46)
                                                              ======   ======   ======
Operating cash flow margin (d)..............................   (46.3)% (235.3)%    N.M.
                                                              ------   ------   ------

INTERNATIONAL OPERATIONS
Service and other revenues..................................  $3,128   $2,181   $1,640
Operating expenses before depreciation and amortization
  expenses (b)..............................................   1,926    1,452    1,319
                                                              ------   ------   ------
Operating cash flow (c).....................................   1,202      729      321
Depreciation and amortization expenses......................     386      283      226
Operating income............................................  $  816   $  446   $   95
                                                              ======   ======   ======
Operating cash flow margin (d)..............................    38.4%    33.4%    19.6%
                                                              ------   ------   ------
U.S. PAGING OPERATIONS (f)
Service and other revenues (g)..............................  $  373   $  330   $  297
Operating expenses before depreciation and amortization
  expenses..................................................     250      222      209
                                                              ------   ------   ------
Operating cash flow (c).....................................     123      108       88
Depreciation and amortization expenses......................      80       74       64
                                                              ------   ------   ------
Operating income............................................  $   43   $   34   $   24
                                                              ======   ======   ======
Operating cash flow margin (d)..............................    33.0%    32.7%    29.6%
                                                              ------   ------   ------
</TABLE>

Footnotes:
 
N.M. Information not meaningful.

(a)  Reflects results of systems in which the Company owns an interest,
     multiplied by the Company's ownership interest, exclusive of cost-based
     investments and certain equity-based investments that are not material to
     the information presented.
 
(b)  Includes net losses on handsets sold.
 
(c)  Operating cash flow is operating income plus depreciation and amortization
     and is not the same as cash flow from operating activities in the Company's
     Consolidated Statements of Cash Flows. Proportionate operating cash flow
     represents the Company's ownership interests in the respective entities'
     operating cash flows. As such, proportionate operating cash flow does not
     represent cash available to the Company.
 
(d)  Operating cash flow margin is calculated by dividing "Operating cash flow"
     by "Service and other revenues."
 
(e)  PCS data relates to PrimeCo Personal Communications, L.P. ("PrimeCo"), a
     U.S. personal communications services ("PCS") business in which the Company
     had a 50% interest at December 31, 1998 and a 25% interest at December 31,
     1997 and 1996. Operations began in the fourth quarter of 1996.
 
(f)  U.S. Paging Operations are wholly owned by the Company and include
     operations in Canada, which are not material to the information presented.
 
(g)  Includes gains and losses on equipment sales.
 

                                      -54-