FORM 10-Q

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



(Mark One)

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

                     For the quarterly period ended September 30, 1998

                                             or

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

                        For the transition period from       to     

                               Commission File Number 1-2346

                            SOUTHWESTERN BELL TELEPHONE COMPANY

                    Incorporated under the laws of the State of Missouri
                      I.R.S. Employer Identification Number 43-0529710

                          530 McCullough, San Antonio, Texas 78215
                              Telephone Number: (210) 821-4105


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

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



<PAGE>



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

SOUTHWESTERN BELL TELEPHONE COMPANY
------------------------------------------------------------------------------------
STATEMENTS OF INCOME
Dollars in millions
(Unaudited)
<CAPTION>
------------------------------------------------------------------------------------
                                        Three months ended       Nine months ended
                                            September 30,           September 30,
                                      ----------------------------------------------
                                           1998       1997        1998        1997
------------------------------------------------------------------------------------
<S>                                    <C>        <C>         <C>         <C>    
Operating Revenues
Local service                           $ 1,412    $ 1,337    $  4,192    $  3,898
Network access
  Interstate                                600        548       1,779       1,631
  Intrastate                                280        273         832         813
Long-distance service                       201        204         582         620
Other                                       325        266         882         743
------------------------------------------------------------------------------------
Total operating revenues                  2,818      2,628       8,267       7,705
------------------------------------------------------------------------------------

Operating Expenses
Cost of services and products             1,097      1,002       3,188       2,910
Selling, general and administrative         472        485       1,386       1,525
Depreciation and amortization               513        475       1,489       1,440
------------------------------------------------------------------------------------
Total operating expenses                  2,082      1,962       6,063       5,875
------------------------------------------------------------------------------------
Operating Income                            736        666       2,204       1,830
------------------------------------------------------------------------------------

Other Income (Expense)
Interest expense                            (94)       (85)       (276)       (254)
Other income (expense) - net                 (3)        11         (11)         12
------------------------------------------------------------------------------------
Total other income (expense)                (97)       (74)       (287)       (242)
------------------------------------------------------------------------------------

Income Before Income Taxes                  639        592       1,917       1,588
------------------------------------------------------------------------------------

Income Taxes                                236        218         710         591
------------------------------------------------------------------------------------

Net Income                              $   403    $   374    $  1,207    $    997
------------------------------------------------------------------------------------

See Notes to Financial Statements.
</TABLE>


<PAGE>

<TABLE>

SOUTHWESTERN BELL TELEPHONE COMPANY
------------------------------------------------------------------------------------
BALANCE SHEETS
Dollars in millions
<CAPTION>
------------------------------------------------------------------------------------
                                                   September 30,       December 31,
                                                   --------------      -------------
                                                            1998               1997
------------------------------------------------------------------------------------
<S>                                                  <C>                   <C> 
Assets                                               (Unaudited)
Current Assets
Cash and cash equivalents                             $        64          $      79
Accounts receivable - net of allowances for
  uncollectibles of $47 and $33                             1,860              1,819
Prepaid expenses                                              315                156
Deferred charges                                               40                 39
Deferred income taxes                                         178                192
Other current assets                                          182                167
------------------------------------------------------------------------------------
Total current assets                                        2,639              2,452
------------------------------------------------------------------------------------
Property, Plant and Equipment - at cost                    32,373             31,011
 Accumulated depreciation and amortization                 19,345             18,460
------------------------------------------------------------------------------------
Property, Plant and Equipment - Net                        13,028             12,551
------------------------------------------------------------------------------------
Other Assets                                                   16                 11
------------------------------------------------------------------------------------
Total Assets                                          $    15,683          $  15,014
------------------------------------------------------------------------------------

Liabilities and Shareowner's Equity
Current Liabilities
Intercompany loans                                    $     1,828          $     473
Current portion of long-term obligations                      112                172
------------------------------------------------------------------------------------
Debt maturing within one year                               1,940                645
Accrued taxes                                                 548                442
Accounts payable and accrued liabilities                    2,079              2,599
------------------------------------------------------------------------------------
Total current liabilities                                   4,567              3,686
------------------------------------------------------------------------------------
Long-Term Debt                                              4,358              4,824
------------------------------------------------------------------------------------

Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes                                         529                383
Postemployment benefit obligation                           2,542              2,574
Unamortized investment tax credits                            201                224
Other noncurrent liabilities                                  259                305
------------------------------------------------------------------------------------
Total deferred credits and other noncurrent liabilities     3,531              3,486
------------------------------------------------------------------------------------

Shareowner's Equity
Common stock - one share, no par value                          1                  1
Paid-in surplus                                             2,545              2,745
Retained earnings                                             681                272
------------------------------------------------------------------------------------
Total shareowner's equity                                   3,227              3,018
------------------------------------------------------------------------------------
Total Liabilities and Shareowner's Equity             $    15,683          $  15,014
------------------------------------------------------------------------------------

See Notes to Financial Statements.
</TABLE>


<PAGE>


<TABLE>

SOUTHWESTERN BELL TELEPHONE COMPANY
------------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
Dollars in millions, increase (decrease) in cash
and cash equivalents
(Unaudited)
<CAPTION>
------------------------------------------------------------------------------------
                                                                Nine months ended
                                                                  September 30,
                                                               ---------------------
                                                                  1998       1997
------------------------------------------------------------------------------------
<S>                                                          <C>        <C>
Operating Activities
Net income                                                   $   1,207  $     997
Adjustments to reconcile net income to net cash
 provided by operating activities:
  Depreciation and amortization                                  1,489      1,440
  Provision for uncollectible accounts                              97         87
  Amortization of investment tax credits                           (23)       (24)
  Deferred income tax expense                                      161        109
  Other - net                                                     (879)      (220)
------------------------------------------------------------------------------------
Total adjustments                                                  845      1,392
------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities                        2,052      2,389
------------------------------------------------------------------------------------

Investing Activities
Construction and capital expenditures                           (1,885)    (1,890)
------------------------------------------------------------------------------------
Net Cash Used in Investing Activities                           (1,885)    (1,890)
------------------------------------------------------------------------------------

Financing Activities
Net change in short-term borrowings with original
 maturities of three months or less                              1,356        238
Issuance of other short-term borrowings                              -        120
Repayment of other short-term borrowings                             -       (195)
Issuance of long-term debt                                         196        487
Repayment of long-term debt                                       (736)      (101)
Dividends paid                                                  (1,098)    (1,175)
Equity received from parent                                        100        155
------------------------------------------------------------------------------------
Net Cash Used in Financing Activities                             (182)      (471)
------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents               (15)        28
------------------------------------------------------------------------------------
Cash and cash equivalents beginning of year                         79         69
------------------------------------------------------------------------------------
Cash and Cash Equivalents End of Period                      $      64  $      97
------------------------------------------------------------------------------------

Cash paid during the nine months ended September 30 for:
   Interest                                                  $     287   $    237
   Income taxes                                              $     495   $    370

See Notes to Financial Statements.
</TABLE>


<PAGE>

<TABLE>

SOUTHWESTERN BELL TELEPHONE COMPANY

--------------------------------------------------------------------------
STATEMENT OF SHAREOWNER'S EQUITY

Dollars in millions
(Unaudited)
<CAPTION>
----------------------------------------------------------------------------

                                          Common      Paid-in      Retained
                                           Stock      Surplus      Earnings
----------------------------------------------------------------------------
<S>                                    <C>          <C>          <C>      
Balance, December 31, 1997             $       1    $   2,745    $     272
Net income                                     -            -        1,207
Dividend to shareowner                         -         (300)        (798)
Equity received from parent                    -          100            -
----------------------------------------------------------------------------
Balance, September 30, 1998            $       1    $   2,545    $     681
----------------------------------------------------------------------------

See Notes to Financial Statements.
</TABLE>

                              * * * *

<TABLE>

SELECTED FINANCIAL AND OPERATING DATA

<CAPTION>
At September 30, or for the nine months then ended:      1998          1997
                                                       -------       -------
<S>                                                    <C>           <C>

  Debt ratio........................................    66.12%       66.70%
  Network access lines in service (000).............    16,335       15,556
  Access minutes of use (000,000)...................    47,011       44,229
  Resold lines (000)................................       460          154
  Number of employees...............................    50,640       50,870

</TABLE>



<PAGE>


SOUTHWESTERN BELL TELEPHONE COMPANY

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Dollars in millions

1. BASIS OF  PRESENTATION  Southwestern  Bell  Telephone  Company  (SWBell) is a
   wholly-owned  subsidiary  of SBC  Communications  Inc.  (SBC).  The financial
   statements have been prepared by SWBell pursuant to the rules and regulations
   of the  Securities  and  Exchange  Commission  (SEC) and,  in the  opinion of
   management,  include all  adjustments  (consisting  only of normal  recurring
   accruals)  necessary  to present  fairly the results for the interim  periods
   shown.  Certain  information and footnote  disclosures,  normally included in
   financial   statements   prepared  in  accordance  with  generally   accepted
   accounting  principles,  have been condensed or omitted  pursuant to such SEC
   rules and regulations.  Certain  reclassifications have been made to the 1997
   consolidated financial statements to conform with the 1998 presentation.  The
   results for the interim periods are not necessarily indicative of results for
   the full year. The financial  statements  contained  herein should be read in
   conjunction  with the  financial  statements  and notes  thereto  included in
   SWBell's  1997 Annual  Report on Form 10-K filed with the SEC.  Comprehensive
   income for SWBell is the same as net income for all periods presented.

2. COMPLETION  OF MERGER On April 1, 1997,  SBC and Pacific  Telesis Group (PAC)
   completed the merger of an SBC subsidiary with PAC, in a transaction in which
   each  outstanding  share of PAC common  stock was  exchanged  for 1.4629 of a
   share of SBC common stock  (equivalent to  approximately  626 million shares;
   both the exchange ratio and shares issued have been restated to reflect SBC's
   first quarter 1998 two-for-one  stock split,  effected in the form of a stock
   dividend).  With the merger, PAC became a wholly-owned subsidiary of SBC. The
   transaction  was  accounted  for as a pooling  of  interests  and a  tax-free
   reorganization.

   Post-merger initiatives
   During the second quarter of 1997, SBC announced several strategic  decisions
   resulting  from the merger  integration  process that began with the April 1,
   1997 closing of its merger with PAC. The decisions resulted from an extensive
   review of operations  throughout the merged  company and include  significant
   integration  of  operations  and  consolidation  of some  administrative  and
   support functions.  In connection with these  initiatives,  SWBell recognized
   several  charges  during the second  quarter.  The  charges  related to these
   initiatives  totaled $141 ($87 after tax). At September 30, 1998 and December
   31, 1997,  remaining  accruals for anticipated cash  expenditures  related to
   these items were  approximately $39 and $78. Following is a discussion of the
   most significant of these charges.

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


<PAGE>


SOUTHWESTERN BELL TELEPHONE COMPANY

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


   SWBell  recognized a charge of approximately  $57 ($36 net of tax) during the
   second quarter of 1997 in connection with these initiatives.  This charge was
   comprised mainly of postemployment benefits,  primarily related to severance.
   Other charges arising out of the merger related to relocation, retraining and
   other effects of consolidating certain operations are being recognized in the
   periods those charges are incurred.  These charges totaled $5 ($4 net of tax)
   in the third quarter of 1997.

   Impairments/asset  valuation As a result of SBC's merger  integration  plans,
   strategic review of domestic operations and organizational alignments, SWBell
   reviewed  the  carrying  value of  related  long-lived  assets.  This  review
   included estimating  remaining useful lives and cash flows. Where this review
   indicated  impairment,  discounted  cash flows  related to those  assets were
   analyzed  to  determine  the amount of the  impairment.  As a result of these
   reviews,  in the second  quarter  of 1997  SWBell  wrote off some  assets and
   recognized impairments to the value of other assets with a combined charge of
   $84 ($51 after tax),  including the write off of voice dial  equipment  which
   will be discontinued.

3. SOFTWARE  COSTS  SWBell  currently  expenses  costs as incurred  for software
   purchased  or  developed  for  internal  use,  except for  initial  operating
   software  costs,  which are  capitalized  and amortized over the lives of the
   associated  hardware.  The American Institute of Certified Public Accountants
   has issued a Statement  of Position  (SOP) that  requires  capitalization  of
   certain  computer  software  expenditures  beginning  in 1999,  with  earlier
   adoption permitted.

   SWBell did not elect to early adopt the provisions of the SOP.  Management is
   currently  evaluating the impact of the change in accounting  required by the
   SOP and  anticipates  it will be less than $100.  With  comparable  levels of
   software  expenditures,  the  SOP  would  tend  to  increase  net  income  in
   comparison  with SWBell's  current method of accounting  for software  costs.
   However,  the  increases  would  be  largest  in the  year of  adoption  with
   diminishing levels of increases  compared with current accounting  throughout
   the amortization  period.  Consequently,  given otherwise  comparable  income
   levels excluding software,  and otherwise  comparable software  expenditures,
   the  effect of the SOP  would be to  increase  income  in the first  year and
   decrease income in each subsequent year until the number of years affected by
   the SOP equals the amortization period.



<PAGE>


SOUTHWESTERN BELL TELEPHONE COMPANY

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

RESULTS OF OPERATIONS

Overview  Financial results for Southwestern Bell Telephone Company (SWBell) for
the first nine months of 1998 and 1997 are summarized as follows:

---------------------------------------------------------------------------
                                                   Nine-Month Period
                                              -----------------------------
                                                                   Percent
                                                   1998     1997   Change
---------------------------------------------------------------------------
Operating revenues                             $  8,267 $  7,705      7.3%
Operating expenses                             $  6,063 $  5,875      3.2%
Net income                                     $  1,207 $    997     21.1%
===========================================================================

SWBell's net income for the first nine months of 1997 includes after-tax charges
of $143  reflecting  strategic  initiatives  resulting  from SBC  Communications
Inc.'s (SBC)  comprehensive  review of  operations  of the merged  company,  the
impact of several  regulatory  rulings and ongoing merger initiatives during the
first nine months of 1997.  Excluding  these 1997 charges,  SWBell  reported net
income of $1,207 for the first nine  months of 1998,  5.9% higher than the first
nine months of 1997 net income of $1,140.

Excluding these charges,  the primary factor contributing to the increase in net
income  during the first nine  months of 1998 was growth in demand for  services
and products.

Operating Revenues SWBell's operating revenues for the first nine months of 1997
reflect  reductions of $67 related primarily to the impact of several regulatory
rulings  during the second  quarter of 1997.  Excluding  these  items,  SWBell's
operating  revenues  increased $495, or 6.4%, for the first nine months of 1998.
Components of operating  revenues for the first nine months of 1998 and 1997 are
as follows:

----------------------------------------------------------------------------
                                               Nine-Month Period
                                              ------------------------------
                                                                     Percent
                                                  1998     1997      Change
----------------------------------------------------------------------------
Local service                                 $  4,192  $ 3,898         7.5%
Network access:
   Interstate                                    1,779    1,631         9.1
   Intrastate                                      832      813         2.3
Long-distance service                              582      620        (6.1)
Other                                              882      743        18.7
-------------------------------------------------------------------
     Total                                    $ 8,267   $ 7,705         7.3%
============================================================================


<PAGE>


SOUTHWESTERN BELL TELEPHONE COMPANY

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

RESULTS OF OPERATIONS - Continued


      Local  service  revenues  increased  in the first nine  months of 1998 due
      primarily  to  increases  in demand  totaling  more than  $261,  including
      increases in access lines,  vertical services,  and data-related  services
      revenues. The number of access lines increased by 5.0% since September 30,
      1997, of which nearly 70% was due to growth in Texas. Approximately 30% of
      access line growth was due to sales of additional access lines to existing
      residential  customers.  Vertical services revenues,  which include custom
      calling  services,  call control  options,  Caller ID and other  services,
      increased  by 14%  totaling  more than $700 for the first  nine  months of
      1998.  Local service  revenues also  increased with the  introduction  and
      deployment of extended  local area service plans in 1998 by  approximately
      $27,  resulting  in a shift of revenue  from  long-distance  service.  The
      overall increase to total operating  revenues  resulting from introduction
      of  the  plans  was  approximately  $19.  Additionally,  Federal  payphone
      deregulation  implemented  in April 1997 caused local service  revenues to
      increase by approximately $50 and interstate network access to decrease by
      approximately  $12;  the  overall  impact was an increase of nearly $39 in
      total operating revenues. This payphone-related  increase included a third
      quarter 1998 decrease of  approximately  $21 to recognize  revenues  based
      upon  actual  volumes  compared to  previously  estimated  volumes.  These
      increases were partially offset by a reduction of approximately $58 due to
      cellular  interconnection  rates in the third  quarter of 1997;  the lower
      interconnection rate reductions were in effect for all of 1998.

      Network access Interstate network access revenues for 1997 reflect charges
      of $52 due to the  adverse  impacts of several  regulatory  issues.  These
      issues  include  among other items,  recovery of certain  employee-related
      expenses and the productivity  factor  adjustment in the Federal price cap
      filing.  Without these impacts,  total interstate  network access revenues
      increased  $96,  or 5.7% in the first nine  months of 1998 due  largely to
      increases  in  demand  for  access  services  by  interexchange  carriers,
      including  special access,  and growth in revenues from end-user  charges,
      attributable  to an  increasing  access line base  totaling  approximately
      $163. Also  contributing to the increase was the absence of  approximately
      $35 of the 1997 revenue  offset  required  for net payments for  long-term
      support  which were  designed to subsidize  universal  service,  discussed
      further in  operations  and  support  below.  Partially  offsetting  these
      increases were the effects of the annual rate  reduction of  approximately
      $85 related to the Federal productivity factor adjustment, as discussed in
      SWBell's  1997 Annual  Report on Form 10-K and  payphone  deregulation  of
      approximately $12 referred to above in local service.

      Intrastate  network access revenues  increased  slightly in the first nine
      months  of  1998  as  increases  in  demand  totaling  approximately  $29,
      including  usage by alternative  intraLATA  toll carriers,  were partially
      offset by net price  decreases of  approximately  $9  resulting  from 1997
      state regulatory rate orders.

      Long-distance  service revenues decreased in the first nine months of 1998
      due to the effect of price  competition  from  alternative  intraLATA toll
      carriers  and  regulatory   rate  orders   totaling   approximately   $29.
      Additionally,  the  introduction  and  deployment  of extended  area local
      service plans reduced  long-distance service revenues by approximately $8;
      the  amount  of  increase  is  somewhat  greater  than  the  reduction  in
      long-distance revenue.

      Other operating revenues for 1997 reflect charges of $11 due to the impact
      of several  regulatory  issues.  Excluding these impacts,  other operating
      revenues  increased  $128,  or 16.9% in the  first  nine  months  of 1998.
      Approximately  67% of  this  increase  was  due to  increased  demand  for
      nonregulated  services and  products,  including  consumer  equipment  and
      network  integration  services.  Also contributing by approximately 14% to
      the  overall  increase  was  the  repricing  of  maintenance  and  trouble
      diagnosis  services  related  to inside  wire  located  on the  customers'
      premises, effective June of 1998.



<PAGE>


Operating Expenses Components of operating expenses for the first nine months of
1998 and 1997 are as follows:

---------------------------------------------------------------------------
                                                   Nine-Month Period
                                              -----------------------------
                                                                    Percent
                                                  1998     1997     Change
---------------------------------------------------------------------------
Operations and support                        $  4,574  $   4,435      3.1%
Depreciation and amortization                    1,489      1,440      3.4
------------------------------------------------------------------
  Total                                       $  6,063  $   5,875      3.2%
===========================================================================

SWBell manages its financial and business operations  excluding special one-time
or  unusual  charges  and  refers  to  these  adjusted   results  as  normalized
operations.  As  discussed  in  Note 2 to  the  financial  statements,  SWBell's
operating  expenses in the first nine months of 1997 reflect $152 of adjustments
for charges related to SBC's strategic  initiatives,  a comprehensive  review of
operations of the merged company,  the impact of several  regulatory rulings and
ongoing merger  integration  costs.  Excluding these 1997 adjustments,  SWBell's
normalized operating expenses increased $340, or 5.9%, for the first nine months
of 1998.

      Operations   and  Support   Components  of  operations   and  support  and
      normalizing  adjustments for the first nine months of 1998 and 1997 are as
      follows:

---------------------------------------------------------------------------
                                                   Nine-Month Period
                                              -----------------------------
                                                                    Percent
                                                 1998      1997     Change
---------------------------------------------------------------------------
Cost of services and products                 $  3,188  $   2,910      9.6%
Selling, general and administrative              1,386      1,525     (9.1)
---------------------------------------------------------------------------
  Total operations and support                   4,574      4,435      3.1%
Adjustments                                        -         (115)     -
---------------------------------------------------------------------------
  Normalized operations and support           $  4,574  $   4,320      5.9%
===========================================================================

      Operations  and  support   consists  of  all  operating   expenses  except
      depreciation  and  amortization.  Operations and support  expenses for the
      first nine  months of 1997  reflect  $115 of the  adjustments  referred to
      above.

      Excluding these adjustments,  normalized  operations and support increased
      $254, or 5.9%, in the first nine months of 1998 due primarily to increases
      in merger  implementation  costs in 1998 of approximately $121,  increased
      costs  associated  with  reciprocal  compensation  for the  termination of
      Internet traffic of approximately  $60, and increases in universal service
      fund (USF) charges of approximately  $64 that were previously  reported as
      an offset against network access revenues. The current USF system assesses
      charges,  recorded as expense,  and any amounts to be received separately.
      Previously,  a net  payment  or receipt  for  long-term  support  would be
      recorded as an offset to (or increase in) revenue.  Also  contributing  to
      the  increase  in  operations  and  support  were  increases  in wages and
      salaries of approximately  $23,  operating taxes of approximately $27, and
      materials  of   approximately   $35.   Additionally   increases   totaling
      approximately  $33 in uncollectible  expense and costs associated with the
      Texas and Oklahoma USFs contributed to the increase.  These increases were
      partially  offset by reductions in use of contract labor of  approximately
      $67 and net  reductions to benefits,  agent  commissions  and research and
      development  costs  totaling  approximately  $66. Costs incurred for local
      number portability were comparable for the first nine months of each year.

      Depreciation   and   amortization   Summarization   of  depreciation   and
      amortization expense and normalizing adjustments for the first nine months
      of 1998 and 1997 is as follows:

---------------------------------------------------------------------------
                                                   Nine-Month Period
                                              -----------------------------
                                                                    Percent
                                                  1998     1997     Change
---------------------------------------------------------------------------
Depreciation and amortization                 $   1,489 $   1,440      3.4%
Adjustments                                        -          (37)     -
---------------------------------------------------------------------------
  Normalized depreciation and amortization    $   1,489 $   1,403      6.1%
===========================================================================

      Depreciation  and  amortization for the first nine months of 1997 reflects
      one-time  charges of $37 for the write off of voice dial  equipment  which
      was   discontinued.   Excluding  these   adjustments,   depreciation   and
      amortization increased $86 for the first nine months of 1998 due primarily
      to increased  depreciation  expense of $64 resulting  from growth in plant
      levels. The remainder of the increase was due to rate variances related to
      the net impact of revised composite rates.

Interest  expense  increased  $22,  or 8.7%,  for the first nine months of 1998,
primarily due to increased average long-term borrowings.

Other income  (expense) - net was a net expense of $11 for the first nine months
of 1998 which  included  $15 of call  premiums and  unamortized  discount on the
early  extinguishment of $600 of debentures and notes.  Other income (expense) -
net was a net  income of $12 for the  first  nine  months of 1997 and  reflected
royalty payments received from a software affiliate.

Income Taxes for the first nine months of 1997 reflect the tax effect of charges
for  strategic   initiatives   resulting  from  SBC's  comprehensive  review  of
operations of the merged company and the impact of several  regulatory  rulings.
Excluding these items, income taxes for the first nine months of 1997 would have
been  $668.  Income  taxes for the first  nine  months of 1998 were  higher  due
primarily to higher income before income taxes.


<PAGE>


SOUTHWESTERN BELL TELEPHONE COMPANY

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


OPERATING ENVIRONMENT AND TRENDS OF THE BUSINESS

COMPETITIVE AND REGULATORY ENVIRONMENT

Telecommunications  Act of 1996 In July  1997,  SBC  brought  suit in the United
States District Court for the Northern District of Texas (U.S.  District Court),
seeking a declaration that parts of the  Telecommunications Act of 1996 (Telecom
Act) are  unconstitutional  on the  grounds  that they  improperly  discriminate
against  SWBell  by  imposing  restrictions  that  prohibit  SWBell by name from
offering  interLATA  long-distance  and other services that other Local Exchange
Carriers (LECs) are free to provide.  The suit challenged only those portions of
the Telecom Act that exclude SWBell from competing in certain lines of business.
On December 31, 1997, the U.S. District Court ruled in favor of SBC and declared
certain  sections of the Telecom Act  unconstitutional,  thereby allowing SBC to
enter interLATA long-distance in SWBell's operating areas. On September 4, 1998,
the United States Court of Appeals for the Fifth Circuit (5th Circuit)  reversed
this  decision and ruled that the  challenged  provisions of the Telecom Act are
constitutional.  In October  1998,  SBC asked the United  States  Supreme  Court
(Supreme Court) to hear an appeal of the 5th Circuit decision. The Supreme Court
has not yet determined if it will hear this appeal.  If it decides to accept the
case, a decision would not likely be until 1999.

Interconnection Reciprocal compensation is billed to SWBell by Competitive Local
Exchange  Carriers (CLECs) for the termination of certain local exchange traffic
to CLEC customers. SBC believes that under the Telecom Act the state commissions
only have  authority to order  reciprocal  compensation  for intrastate or local
traffic,  while only the Federal  Communications  Commission (FCC) has authority
over  interstate  and  interexchange  traffic,  which is where SBC believes most
Internet traffic  terminates.  Several state commissions have taken the position
that  Internet  communications  is  intrastate or local traffic and have ordered
SWBell to pay reciprocal  compensation  to certain CLECs.  The question  whether
Internet  communications  should be classified as local/intrastate or interstate
traffic  for  reciprocal  compensation  purposes is the subject of a pending FCC
proceeding  and the FCC is  expected  to rule on this issue in the near  future.
SWBell has been recording amounts sought by certain CLECs for the termination of
Internet traffic to Internet Service Providers as they have been billed.

Long-distance   Application   SBC   continues  to  seek  entry  into   interLATA
long-distance by requesting favorable  recommendation from state commissions and
approval from the FCC, and as necessary  through the courts.  In September 1998,
the Texas Public Utility  Commission (TPUC) released a status report on SWBell's
checklist  compliance efforts.  The TPUC reported that SWBell has settled nearly
half of the  issues  raised,  but more  collaboration  is needed  to settle  the
remaining recommendations. Additional collaborative sessions are scheduled, with
a  proposed  decision  and vote by the TPUC on  whether  to  recommend  SWBell's
in-region interLATA long-distance application to the FCC expected by early 1999.

OTHER BUSINESS MATTERS

New Accounting  Standards In June 1998, the Financial Accounting Standards Board
issued  Statement No. 133,  "Accounting  for Derivative  Instruments and Hedging
Activities"  (FAS 133) which will require all  derivatives to be recorded on the
balance sheet at fair value,  and will require  changes in the fair value of the
derivatives to be recorded in net income or comprehensive  income.  FAS 133 must
be adopted  for years  beginning  after June 15,  1999,  with  earlier  adoption
permitted.  Management  is  currently  evaluating  the  impact of the  change in
accounting  required by FAS 133,  but is not able to quantify the effect at this
time.

See Note 3 to the Financial  Statements  for a discussion of the new  accounting
standard on software costs.

SBC's  Year  2000  Project  SBC  operates   numerous   date-sensitive   computer
applications  and systems  throughout its  businesses.  Since 1996, SBC has been
working to upgrade its networks and computer  systems to properly  recognize the
Year  2000  and  continue  to  process   critical   operational   and  financial
information.  Companywide  teams are in place to address and  resolve  Year 2000
issues and  processes  are  underway to evaluate  and manage the risks and costs
associated with preparing SBC's  date-impacted  systems and networks for the new
millennium.

SBC is using a  four-step  methodology  to address  the issue.  The  methodology
consists of inventory and assessment,  hardware and software fixes,  testing and
deployment.  SBC  measures  its  progress  by tracking  the number of  completed
hardware and software applications,  network components,  personal computers and
building facilities that can correctly process Year 2000 dates.

Inventory and  assessment is estimated to require 20% of the overall  effort and
includes  the  identification  of items (i.e.,  line-by-line  review of software
code, switch generics, vendor products, etc.) that could be impacted by the Year
2000 and the  determination  of the work effort required to get them ready.  The
inventory  and  assessment  phase has been  completed.  . This process  involved
reviewing  over 300  million  lines  of  software  code,  1,100  central  office
switches,  6,800 company  buildings,  conducting an inventory and  assessment of
100,000  personal  computers,  and  coordinating  with 1,200 suppliers of 12,000
products to obtain adequate  assurance they will be compliant with the Year 2000
or determine and address any appropriate contingency plans or back-up systems.

Making the hardware and software fixes is the second phase of the process and is
estimated to require 25% of the overall effort. This activity involves modifying
program code,  upgrading computer software and upgrading or replacing  hardware.
As of September 30, 1998, more than half of the hardware and software fixes were
accomplished.

Testing involves ensuring that hardware and software fixes will work properly in
1999 and  beyond  and  occurs  both  before  and after  deployment.  Testing  is
estimated to comprise 45% of the overall effort. Testing began early in 1998, is
approximately  one-third  complete,  and will continue through 1999 to allow for
thorough testing before the Year 2000. Any need for contingency plans or back-up
systems are being determined and addressed during the testing phase.

Deployment  involves  placing the "fixed"  systems  into a live  environment  to
ensure they are working properly. Additional testing is done after deployment as
well.  Deployment is estimated to require 10% of the overall effort. Nearly half
of the deployment phase was completed as of September 30, 1998.

SBC  expects  to spend  less than  $250  million  on the  entire  project,  with
approximately  $89 million  spent  through  September  30, 1998.  As testing and
hardware and software  fixes are estimated to require most of the  expenditures,
there is not a strict correlation between expenditures and project completion.

The activities involved in SBC's Year 2000 project necessarily involve estimates
and  projections,  as describe  above,  of activities and resources that will be
required in the future.  These  estimates and  projections  could change as work
progresses on the project.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There has been no material  change in the  reported  market  risks of  financial
instruments since the end of the most recent fiscal year.



<PAGE>


SOUTHWESTERN BELL TELEPHONE COMPANY

PART II - OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

(a)   Exhibits

      Exhibit 12  Computation of Ratios of Earnings to Fixed Charges.

      Exhibit 27  Financial Data Schedule.

(b)   Reports on Form 8-K

      There  were no reports on Form 8-K filed  during the third  quarter  ended
      September 30, 1998.




<PAGE>




                                         SIGNATURE


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

                                       Southwestern Bell Telephone Company




November 4, 1998                        /s/ Richard G. Lindner  
                                       -------------------------
                                       Richard G. Lindner
                                       Vice President and Chief Financial
                                       Officer