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 June 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         Six months ended
                                           June 30,                   June 30,
                                     -----------------------------------------------
                                          1998       1997         1998        1997
------------------------------------------------------------------------------------
<S>                                    <C>        <C>         <C>         <C>    
Operating Revenues
Local service                          $ 1,414    $ 1,307     $  2,780    $  2,561
Network access
  Interstate                               600        518        1,179       1,083
  Intrastate                               280        270          552         540
Long-distance service                      192        205          381         416
Other                                      289        242          557         477
------------------------------------------------------------------------------------
Total operating revenues                 2,775      2,542        5,449       5,077
------------------------------------------------------------------------------------

Operating Expenses
Cost of services and products            1,066        970        2,091       1,908
Selling, general and administrative        483        615          914       1,040
Depreciation and amortization              496        503          976         965
------------------------------------------------------------------------------------
Total operating expenses                 2,045      2,088        3,981       3,913
------------------------------------------------------------------------------------
Operating Income                           730        454        1,468       1,164
------------------------------------------------------------------------------------

Other Income (Expense)
Interest expense                           (93)       (85)        (182)       (169)
Other income (expense) - net                 2          1           (8)          1
------------------------------------------------------------------------------------
Total other income (expense)               (91)       (84)        (190)       (168)
------------------------------------------------------------------------------------

Income Before Income Taxes                 639        370        1,278         996
------------------------------------------------------------------------------------

Income Taxes                               237        142          474         373
------------------------------------------------------------------------------------

Net Income                             $   402    $   228     $    804    $    623
------------------------------------------------------------------------------------

See Notes to Financial Statements.
</TABLE>


<PAGE>


<TABLE>
SOUTHWESTERN BELL TELEPHONE COMPANY
------------------------------------------------------------------------------------
BALANCE SHEETS
Dollars in millions
------------------------------------------------------------------------------------
<CAPTION>
                                                        June 30,       December 31,
                                                   --------------     --------------
                                                            1998               1997
------------------------------------------------------------------------------------
<S>                                                  <C>                 <C> 
Assets                                               (Unaudited)
Current Assets
Cash and cash equivalents                            $        65          $      79
Accounts receivable - net of allowances for
  uncollectibles of $46 and $33                            1,841              1,819
Prepaid expenses                                             278                156
Deferred charges                                              47                 39
Deferred income taxes                                        286                192
Other current assets                                         149                167
------------------------------------------------------------------------------------
Total current assets                                       2,666              2,452
------------------------------------------------------------------------------------
Property, Plant and Equipment - at cost                   31,986             31,011
 Accumulated depreciation and amortization                19,101             18,460
------------------------------------------------------------------------------------
Property, Plant and Equipment - Net                       12,885             12,551
------------------------------------------------------------------------------------
Other Assets                                                  10                 11
------------------------------------------------------------------------------------
Total Assets                                         $    15,561          $  15,014
------------------------------------------------------------------------------------

Liabilities and Shareowner's Equity
Current Liabilities
Intercompany loans                                   $     1,399          $     473
Current portion of long-term obligations                      58                172
------------------------------------------------------------------------------------
Debt maturing within one year                              1,457                645
Accrued taxes                                                712                442
Accounts payable and accrued liabilities                   2,148              2,599
------------------------------------------------------------------------------------
Total current liabilities                                  4,317              3,686
------------------------------------------------------------------------------------
Long-Term Debt                                             4,585              4,824
------------------------------------------------------------------------------------

Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes                                        506                383
Postemployment benefit obligation                          2,532              2,574
Unamortized investment tax credits                           208                224
Other noncurrent liabilities                                 289                305
------------------------------------------------------------------------------------
Total deferred credits and other noncurrent liabilities    3,535              3,486
------------------------------------------------------------------------------------

Shareowner's Equity
Common stock - one share, no par value                         1                  1
Paid-in surplus                                            2,845              2,745
Retained earnings                                            278                272
------------------------------------------------------------------------------------
Total shareowner's equity                                  3,124              3,018
------------------------------------------------------------------------------------
Total Liabilities and Shareowner's Equity            $    15,561          $  15,014
------------------------------------------------------------------------------------

See Notes to Financial Statements.
</TABLE>


<PAGE>



SOUTHWESTERN BELL TELEPHONE COMPANY
-----------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
Dollars in millions, increase (decrease) in cash and cash equivalents
(Unaudited)
-----------------------------------------------------------------------------
                                                          Six months ended
                                                               June 30,
                                                         --------------------
                                                            1998      1997
-----------------------------------------------------------------------------
Operating Activities
Net income                                             $     804  $    623
Adjustments to reconcile net income to net cash
 provided by operating activities:
  Depreciation and amortization                              976       965
  Provision for uncollectible accounts                        63        59
  Amortization of investment tax credits                     (16)      (16)
  Deferred income tax expense                                 26        69
  Other - net                                               (486)     (218)
-----------------------------------------------------------------------------
Total adjustments                                            563       859
-----------------------------------------------------------------------------
Net Cash Provided by Operating Activities                  1,367     1,482
-----------------------------------------------------------------------------

Investing Activities
Construction and capital expenditures                     (1,246)   (1,251)
-----------------------------------------------------------------------------
Net Cash Used in Investing Activities                     (1,246)   (1,251)
-----------------------------------------------------------------------------

Financing Activities
Net change in short-term borrowings with original
 maturities of three months or less                          926       492
Issuance of other short-term borrowings                        -       120
Repayment of other short-term borrowings                       -      (195)
Issuance of long-term debt                                   195         -
Repayment of long-term debt                                 (558)       (1)
Dividends paid                                              (798)     (807)
Equity received from parent                                  100       155
-----------------------------------------------------------------------------
Net Cash Used in Financing Activities                       (135)     (236)
-----------------------------------------------------------------------------
Net decrease in cash and cash equivalents                    (14)       (5)
-----------------------------------------------------------------------------
Cash and cash equivalents beginning of year                   79        69
-----------------------------------------------------------------------------
Cash and Cash Equivalents End of Period                $      65  $     64
-----------------------------------------------------------------------------

Cash paid during the six months ended June 30 for:
   Interest                                            $     194  $    169
   Income taxes                                        $     151  $    128

See Notes to Financial Statements.


<PAGE>


SOUTHWESTERN BELL TELEPHONE COMPANY
--------------------------------------------------------------------------
STATEMENT OF SHAREOWNER'S EQUITY

Dollars in millions
(Unaudited)
----------------------------------------------------------------------------

                                          Common      Paid-in     Retained
                                          Stock       Surplus     Earnings
----------------------------------------------------------------------------
Balance, December 31, 1997             $       1    $   2,745   $     272
Net income                                     -            -         804
Dividend to shareowner                         -            -        (798)
Equity received from parent                    -          100           -
----------------------------------------------------------------------------
Balance, June 30, 1998                 $       1    $   2,845   $     278
----------------------------------------------------------------------------

See Notes to Financial Statements.

                             * * * *


SELECTED FINANCIAL AND OPERATING DATA

At June 30, or for the six months then ended:            1998          1997
                                                       -------       -------

  Debt ratio..........................................   65.92%       66.22%
  Network access lines in service (000)...............   16,144       15,345
  Access minutes of use (000,000).....................   30,865       29,136
  Resold lines (000)..................................      393           77
  Number of employees.................................   50,830       50,670





<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.  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
   subsidiaries)  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.

   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.

   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
  
 
<PAGE>


SOUTHWESTERN BELL TELEPHONE COMPANY

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

   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, but is not able to quantify the effect at this time.  The SOP would tend
   to cause an increase in net income in the first year of adoption.


<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 six months of 1998 and 1997 are summarized as follows:

---------------------------------------------------------------------------
                                                    Six-Month Period
                                              -----------------------------
                                                                   Percent
                                                   1998     1997   Change
---------------------------------------------------------------------------
Operating revenues                             $  5,449 $  5,077      7.3%
Operating expenses                             $  3,981 $  3,913      1.7%
Net income                                     $    804 $    623     29.1%
===========================================================================

SWBell's net income for the first six months of 1997 includes  after-tax charges
of $139  reflecting  strategic  initiatives  resulting  from SBC  Communications
Inc.'s (SBC)  comprehensive  review of operations of the merged  company and the
impact  of  several  regulatory  rulings  during  the  second  quarter  of 1997.
Excluding  these 1997 charges,  SWBell reported net income of $804 for the first
six months of 1998,  5.5% higher than the first six months of 1997 net income of
$762.

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

Operating  Revenues SWBell's operating revenues for the first six 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  $305, or 5.9%, for the first six months of 1998.
Components  of operating  revenues for the first six months of 1998 and 1997 are
as follows:

----------------------------------------------------------------------------
                                                    Six Month Period
                                              ------------------------------
                                                                    Percent
                                                  1998     1997     Change
----------------------------------------------------------------------------
Local service                                 $  2,780  $ 2,561        8.6%
Network access:
   Interstate                                    1,179    1,083        8.9
   Intrastate                                      552      540        2.2
Long-distance service                              381      416       (8.4)
Other                                              557      477       16.8
-------------------------------------------------------------------
     Total                                    $  5,449  $ 5,077        7.3%
============================================================================

      Local  service  revenues  increased  in the first  six  months of 1998 due
      primarily  to  increases  in demand  totaling  more than  $176,  including
      increases in access lines and vertical  services  revenues.  The number of
      access lines  increased by 5.2% since June 30, 1997,  of which 69% 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 approximately
      15%  totaling  more than $460 for the first six  months of 1998.  Revenues
      also increased by the  introduction  and deployment of extended local area
      service  plans  in 1998 of  approximately  $16,  resulting  in a shift  of
      revenue from long-distance  service to local service. The overall increase
      in total operating   

<PAGE>


SOUTHWESTERN BELL TELEPHONE COMPANY

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

RESULTS OF OPERATIONS - Continued

      revenues   was    approximately  $7.   Additionally,   Federal    payphone
      deregulation implemented in April 1997 increased local service revenues by
      approximately   $59   and     decreased  interstate  network  access   by 
      approximately  $11; the overall  impact was an increase  of  approximately
      $48  in  total  operating  revenues.    These  increases  were  partially
      offset by  a  reduction  of approximately $44 in cellular interconnection 
      rates in the third quarter of 1997.

      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,   interstate  network  access  revenues
      increased  $44 in the first six months of 1998 due largely to increases in
      demand  for  access  services  by  interexchange  carriers  and  growth in
      revenues from end-user charges,  attributable to an increasing access line
      base totaling more than $108.  Also  contributing  to the increase was the
      absence of  approximately  $22 of the 1997 revenue offset required for net
      payments for long-term support which were designed to subsidize  universal
      service. This change is discussed further in Cost of services and products
      below.  Partially  offsetting these increases were the effects of the 1997
      rate reduction of  approximately  $70 related to the Federal  productivity
      factor  adjustment,  as discussed in SWBell's  1997 Annual  Report on Form
      10-K and payphone  deregulation of approximately  $11 referred to above in
      local service.

      Intrastate  network access  revenues  increased  slightly in the first six
      months  of  1998 as  increases  in  demand,  totaling  approximately  $17,
      including  usage by alternative  intraLATA  toll carriers,  were partially
      offset by net price  decreases of  approximately  $6  resulting  from 1997
      state regulatory rate orders.

      Long-distance  service revenues  decreased in the first six months of 1998
      due to the effect of price  competition  from  alternative  intraLATA toll
      carriers and regulatory rate orders totaling more than $21.  Additionally,
      the  introduction  and  deployment  of extended  area local  service plans
      reduced  long-distance  service revenues by approximately $9, as discussed
      in Local service above.

      Other operating revenues for 1997 reflect charges of $11 due to the impact
      of several  regulatory  issues.  Excluding these impacts,  other operating
      revenues increased $69 in the first six months of 1998.  Approximately 75%
      of this increase was due to increased demand for nonregulated services and
      products.



<PAGE>


SOUTHWESTERN BELL TELEPHONE COMPANY

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

RESULTS OF OPERATIONS - Continued

Operating  Expenses SWBell's  operating expenses in the first six months of 1997
reflect  $147  of  charges  related  to  SBC's   strategic   initiatives  and  a
comprehensive review of operations of the merged company. Excluding these second
quarter of 1997 charges,  SWBell's  operating  expenses increased $215, or 5.7%,
for the first six months of 1998. Components of operating expenses for the first
six months of 1998 and 1997 are as follows:

---------------------------------------------------------------------------
                                                    Six-Month Period
                                              -----------------------------
                                                                    Percent
                                                1998      1997      Change
---------------------------------------------------------------------------
Cost of services and products                 $  2,091  $ 1,908        9.6%
Selling, general and administrative                914    1,040      (12.1)
Depreciation and amortization                      976      965        1.1
------------------------------------------------------------------
   Total                                      $  3,981  $ 3,913        1.7%
===========================================================================

      Cost of services and  products for the first six months of 1998  increased
      $183,  or 9.6%,  over the first six months of 1997.  This increase was due
      primarily as a result of increases in network  expansion and  maintenance,
      and additional  costs  associated  with  reciprocal  compensation  for the
      termination of Internet traffic (see Interconnection under the Competitive
      and Regulatory  Environment  section for further discussion) which totaled
      more than $74. Also  contributing to the increase were increased  expenses
      related to Federal Universal Service Fund charges  implemented  January 1,
      1998 of  approximately  $42,  which  replaced  the 1997 net  payments  for
      long-term  support and were accounted for as an offset against  interstate
      network access  revenues.  The current system assesses charges recorded as
      expense,  and any  amount to be  received  separately.  Previously,  a net
      payment  receipt for  long-term  support would be recorded as an offset to
      (or increase in) revenue.  Other factors increasing expenses were employee
      training,  merger  implementation  costs and right-to-use fees,  partially
      offset by reductions in employee benefit expenses, which resulted in a net
      increase of approximately  $36. Expenses related to implementing  customer
      number portability were comparable between 1998 and 1997.

      Selling,  general  and  administrative  expense  for the first six  months
      reflect  second  quarter 1997 one-time  charges of $110  including the $57
      charge  relating  to the  reorganization  (see  Note  2 to  the  financial
      statements).  Excluding these charges, selling, general and administrative
      expense  decreased  $16,  or 1.7%,  in the first six  months of 1998,  due
      primarily to reductions in contract labor, sales commissions and costs for
      research and development  services which totaled  approximately $94. These
      reductions  were  partially  offset  by an  increase  in costs  of  merger
      implementation,   other  costs   associated  with  the   consolidation  of
      operations   since  the  merger  and   increased   other  taxes   totaling
      approximately  $83. A lower level of expense has resulted during 1998 from
      merger initiatives that have already been implemented.

      Depreciation  and  amortization  for the first six months of 1997 reflects
      one-time  charges of $37 for the write off of voice dial  equipment  which
      was  discontinued.  Excluding this charge,  depreciation  and amortization
      increased $48, for the first six months of 1998 due primarily to increased
      depreciation  expense of $31 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.


<PAGE>


SOUTHWESTERN BELL TELEPHONE COMPANY

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

RESULTS OF OPERATIONS - Continued

Income Tax  expense  for the first six 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 six months of 1997 would have
been  $448.  Income  taxes  for the first six  months  of 1998 were  higher  due
primarily to higher income before income taxes.

OPERATING ENVIRONMENT AND TRENDS OF THE BUSINESS

COMPETITIVE AND REGULATORY ENVIRONMENT

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  Telecommunications  Act of 1996
the state  commissions only have authority to order reciprocal  compensation for
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.   The   question  of  whether   Internet
communications   should  be  classified  as  local  or  interstate  traffic  for
reciprocal  compensation purposes is the subject of a pending FCC proceeding and
the FCC is expected to rule on the issue in the near future.

State  commissions in Texas,  Missouri,  and Oklahoma have issued orders finding
that SWBell is required to pay CLECs reciprocal compensation for the termination
of Internet  traffic to Information  Service  Providers  (i.e.  Internet  Access
Service  Providers).  In June 1998, a U.S.  District Court in Texas affirmed the
Texas Public Utility  Commission's (TPUC)  determination,  and upheld payment of
reciprocal  compensation,  holding that the TPUC had jurisdiction over the local
portion of the traffic and the FCC over the Internet component.

Similar  treatment of Internet traffic has been applied in Missouri and Oklahoma
with respect to reciprocal compensation arrangements.  In Missouri, the Missouri
Public Service Commission has ordered that reciprocal  compensation for Internet
traffic  should be paid at least  until the FCC  decides  whether  such  traffic
should be considered local or interstate for purpose of reciprocal compensation.
SBC  has  sought  review  or  reconsideration  of  all  of  these  cases.  SBC's
subsidiaries have been recording amounts sought by the 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 response to a
July 1998 TPUC initial report,  SWBell has begun collaborative  efforts with the
TPUC and competitors to provide additional evidence regarding SWBell's checklist
compliance  efforts.  A final vote by the TPUC on whether to recommend  SWBell's
application to the FCC is expected by the end of 1998.

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) that will require all  derivatives  to be recorded on the
balance sheet at fair value,  and will require  changes in the fair value of the


<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 - Continued

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.

Employees  On May 22,  1998,  members of the  Communications  Workers of America
(CWA) ratified the tentative  labor  agreement that was reached on April 7, 1998
between  SWBell  and the CWA.  The new  agreement  covers  approximately  40,000
employees of SWBell  through  April 1, 2001.  Among other items,  the  agreement
specifies an 11% increase in wages over the life of the contract.

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.  SBC has formed  companywide teams to address and resolve Year 2000
issues,  and processes  have been  developed  to  evaluate and manage  the risks
and costs  associated with preparing all of its systems and applications for the
new millennium.

SBC is using a four-step  methodology for addressing the issue.  The methodology
includes  inventory and  assessment,  hardware and software  fixes,  testing and
deployment. SBC measures its progress by the number of systems addressed.

Inventory  and   assessment   includes  the   identification   of  items  (i.e.,
line-by-line  review of  software  code,  switch  generics,  etc.) that could be
impacted by the Year 2000 and the  determination  of the work effort required to
get them ready.  These  activities  are nearly  complete.  For all of SBC,  this
process  involves  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  its  900
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.

Hardware and software fixes are the  activities  that will be required to modify
program code,  upgrade computer software and upgrade or replace hardware.  As of
June 30, 1998,  nearly half of the systems to be  addressed by these  activities
were complete.

Testing involves ensuring that hardware and software fixes will work properly in
1999 and beyond and occurs both before and after deployment. Testing began early
in 1998 and will continue  through 1999 to allow for thorough testing before the
Year 2000. Any need for contingency plans or back-up systems would be determined
and addressed during the testing phase.

Deployment  is the  installation  of hardware and software  components in a live
environment. Nearly half of the systems deployment were completed as of June 30,
1998.

Total expenses for all of SBC's Year 2000 project have been estimated to be less
than $250, and SBC has incurred approximately $60 through June 30, 1998.


<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 - Continued

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


<PAGE>


SOUTHWESTERN BELL TELEPHONE COMPANY

PART II - OTHER INFORMATION

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.

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

      None.




<PAGE>




                                   SIGNATURES


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

                                       Southwestern Bell Telephone Company




August 13, 1998                         /s/ Richard G. Lindner
                                       -----------------------
                                       Richard G. Lindner
                                       Vice President and Chief Financial
                                       Officer (Principal Accounting/
                                       Financial Officer)