Exhibit 13

MANAGEMENT'S DISCUSSION AND ANALYSIS

INTRODUCTION
In 1999, we made  significant  strides to transform AT&T and deliver growth.  We
finalized  many of the  strategic  acquisitions  we  announced  in 1998 and made
additional investments to further support our facilities-based  growth strategy.
We continued to maintain the execution-focused culture of the new AT&T.

One of the most  dynamic  areas in 1999 was our  wireless  business.  Increasing
demand for wireless  services and the  continued  appeal of our Digital One Rate
(sm) plans drove Wireless  Services  revenue to grow  approximately  40% for the
year.  Throughout  1999 we continued to expand our  national  footprint.  In the
second quarter, we completed the acquisition of Vanguard Cellular Systems, which
was announced in 1998; in August we closed the acquisition of Honolulu Cellular;
and in October we announced the acquisition of American Cellular Corp. through a
newly created joint venture  between AT&T and Dobson  Communications.  We capped
off the year by  proposing  the  creation of a new class of tracking  stock that
will reflect the economic  performance  of the AT&T  Wireless  Group.  While the
Wireless  Group will  remain  part of AT&T,  the  separate  tracking  stock will
provide current  shareowners and future  investors with a security tied directly
to the performance of this business.

As we worked to grow our wireless  businesses in 1999,  we also started  putting
the bricks  and  mortar  around our  broadband  plans - a key  component  of our
overall   growth   strategy.   We   completed   our  $52  billion   merger  with
Tele-Communications, Inc. (TCI) in March, and quickly accelerated the upgrade of
the TCI cable plant,  which will enable us to develop additional revenue streams
from  any-distance  cable telephony,  high-speed data, and digital video. By the
end of 1999,  TCI,  renamed AT&T  Broadband,  was offering cable telephony in 16
cities   within   nine  pilot   markets,   digital-video   subscribers   totaled
approximately  1.8 million,  and more than 200,000  customers  had signed up for
high-speed  data  service.  To expand our  national  cable  network  beyond AT&T
Broadband's  systems,  we announced in May the $57 billion merger with MediaOne.
When the  merger  is  completed  in 2000,  we will  significantly  increase  our
presence  in major  metropolitan  markets  across  the  country  with  owned and
operated cable systems passing more than 26 million homes.

In addition to the accomplishments in our domestic growth  initiatives,  we also
made  significant  progress in our global  strategy.  Most notably,  we launched
Concert - a leading global  telecommunications  company  created  through AT&T's
joint venture with British  Telecommunications  plc (BT). Concert represents the
core of our global strategy and began serving multinational  business customers,
international  carriers and Internet service  providers in January 2000. As part
of our  relationship  with  Concert  and BT,  we also  made  several  in-country
facility-based  investments  during 1999,  including  AT&T Canada Corp.,  Rogers
Cantel in Canada,  and Japan  Telecom.  We also  completed  the  purchase of IBM
Global Network  Services and now provide data networking  services to businesses
around the world as AT&T Global Network Services (AGNS).

[Included in the 1999 Annual Report are pie charts entitled "Revenue
Diversification by Product." These charts depict revenue by product for 1998 and
1999.]

In addition to delivering on our domestic and global  strategic  objectives  for
1999, we also achieved the aggressive financial targets we set for the year. We

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delivered  revenue growth of 6.2% on a pro forma basis for the  acquisitions  of
AT&T Broadband and AGNS, hitting our targeted range of 5% to 7%. The majority of
the  increase  came from our  growth  businesses,  showing  the  success  of our
investment  strategy  as it  begins  to shift  our  revenue  base away from long
distance voice  revenue.  Just one year ago, long distance voice revenue was 75%
of our  total  revenue;  in 1999 it  dropped  to 62%.  While  long  distance  is
increasingly  becoming  a  commodity,  as  evidenced  by the  continued  pricing
pressures in the industry,  its current  profitability  supports  investments in
growth  businesses.  These  growth  businesses  in turn  will  support  the long
distance  business as we include  long  distance  as a component  of a bundle of
competitively priced services.

In order to become truly  competitive,  we must become the low-cost  provider in
the industry,  and  therefore,  we are continuing our efforts to reduce our cost
structure.  A year ago, we committed to reducing our 1999  selling,  general and
administrative  (SG&A)  expenses  to  23%  of  revenue.  We  beat  that  target,
delivering  an SG&A  expense-to-revenue  ratio  of  21.7%  for the  year,  which
translates into approximately $830 million of SG&A expense savings compared with
our  targets.  The  fourth  quarter  came in at just  21.2%.  That's a  dramatic
improvement from 1997, when the SG&A  expense-to-revenue  ratio for the year was
27.9%.  While we've been  successful in driving  costs out of the  business,  we
still have more to do. We will  continue to attack  costs and have  committed to
cutting $2 billion in costs by the end of 2000 by continuing  to streamline  our
SG&A expenses and by lowering our network  costs by moving more data,  voice and
wireless traffic onto our expanding network of global facilities.

Not surprisingly,  our success in growing revenue and shrinking costs allowed us
to deliver strong cash flow results in 1999, with cash from  operations  growing
to $11.6 billion - up 13.9% from 1998.  In 1999,  we generated  $18.3 billion of
reported EBITDA [earnings,  including other income  (expense),  before interest,
taxes, depreciation and amortization].

As  anticipated,  the positive impact of our revenue growth and cost controls on
earnings  per share was more than offset by the impact of shares  issued and the
franchise, goodwill and other purchased intangibles amortization associated with
our investments and acquisitions.  As a result,  earnings per diluted share were
10.3% below 1998.  We  undertook an  aggressive  stock  buyback  program to help
offset some of the dilutive impacts of these acquisitions,  and since the second
half  of  1998  we've  repurchased  nearly  220  million  shares,  at a cost  of
approximately  $10 billion.  In 2000, we plan to  repurchase  another 50 million
shares from Cox Communications, Inc., in exchange for cable properties and cash.

We've come a long way in 1999. As the following pages present in further detail,
we've made solid progress in our strategy to transform AT&T, and we've delivered
on our  commitments  for growth and expense  control.  There is still much to be
done, but we finished 1999 with pride in our  accomplishments  and confidence in
our ability to sustain the momentum and further accelerate our growth in 2000.

OVERVIEW
AT&T is among the world's  communications  leaders,  providing  voice,  data and
video telecommunications  services to large and small businesses,  consumers and
government  agencies.  We provide  domestic  and  international  long  distance,
regional,  local and wireless  communications  services,  cable  television  and
Internet  communication  services.  AT&T also  provides  billing,  directory and
calling-card services to support our communications business.

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MERGER WITH TCI
We completed the merger with TCI, renamed AT&T Broadband  (Broadband),  on March
9, 1999, in an all-stock  transaction  valued at approximately  $52 billion.  We
issued  approximately  664 million  shares,  of which 149 million were  treasury
shares that were repurchased in anticipation of the Broadband merger.

The  merger  was  recorded  under  the  purchase   method  of  accounting   and,
accordingly,  the results of Broadband  have been  included  with the  financial
results of AT&T since the date of acquisition.  Periods prior to the merger were
not restated to include the results of Broadband.

In connection with this transaction, we also issued a separate tracking stock to
reflect the  economic  performance  of Liberty  Media Group  (LMG),  Broadband's
former programming and technology investment businesses. We issued 1,140 million
shares of Liberty  Media  Group  Class A tracking  stock  (including  60 million
shares related to the conversion of convertible notes) and 110 million shares of
Liberty  Media  Group  Class B  tracking  stock.  We do not  have a  controlling
financial  interest in Liberty  Media Group for financial  accounting  purposes;
therefore,  our  ownership in LMG is reflected as an  investment  accounted  for
under the  equity  method in the AT&T  consolidated  financial  statements.  The
amounts  attributable to LMG are reflected as separate line items "Equity losses
from Liberty  Media Group" and  "Investment  in Liberty  Media Group and related
receivables, net" in the accompanying consolidated financial statements.

Broadband's cable and certain other operations, including its ownership interest
in  At  Home   Corporation   (Excite@Home)   and   Cablevision   Systems   Corp.
(Cablevision),  but excluding LMG, were combined with the existing operations of
AT&T to form the AT&T Common Stock Group (AT&T Group), the economic  performance
of which is represented by AT&T common stock. References to AT&T common stock do
not include the LMG tracking stock.

Ownership of shares of AT&T common stock or Liberty  Media Class A or B tracking
stock does not represent a direct legal  interest in the assets and  liabilities
of either of the groups, but an ownership of AT&T in total. Each of these shares
represents an interest in the economic  performance of the net assets of each of
these groups.  Accordingly,  the earnings and losses related to LMG are excluded
from earnings  available to AT&T Group,  and earnings and losses related to AT&T
Group are excluded from earnings available to LMG.

Because we account for LMG as an equity investment, revenue, operating expenses,
other income (expense),  interest expense and provision for taxes for AT&T Group
are the same as consolidated AT&T.

The  discussion  and  analysis  that  follows  provides  information  management
believes is relevant to an assessment and  understanding of AT&T's  consolidated
results of operations for the years ended December 31, 1999,  1998 and 1997, and
financial condition as of December 31, 1999 and 1998.

FORWARD-LOOKING STATEMENTS
Except  for  the  historical   statements  and  discussions   contained  herein,
statements contained herein constitute  "forward-looking  statements" within the
meaning of Section  27A of the  Securities  Act of 1933 and  Section  21E of the
Securities  Exchange  Act  of  1934,  including  statements   concerning  future
operating performance,  AT&T's share of new and existing markets,  AT&T's short-
and long-term  revenue and earnings  growth rates,  and general  industry growth
rates and AT&T's performance relative thereto. These forward-looking  statements
rely on a number of assumptions concerning future events, including the adoption

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and  implementation  of balanced  and  effective  rules and  regulations  by the
Federal  Communications   Commission  (FCC)  and  the  state  public  regulatory
agencies,  and AT&T's ability to achieve a significant market penetration in new
markets.   These   forward-looking   statements  are  subject  to  a  number  of
uncertainties and other factors,  many of which are outside AT&T's control, that
could cause  actual  results to differ  materially  from such  statements.  AT&T
disclaims any  intention or  obligation to update or revise any  forward-looking
statements, whether as a result of new information, future events or otherwise.

CONSOLIDATED RESULTS OF OPERATIONS
For the Years Ended December 31,          1999      1998     1997
Dollars in millions
(except per share amounts)

Operating income                       $10,859    $7,487   $6,836

Operating income margin                   17.4%     14.1%   13.3%

Income from continuing operations       $3,428    $5,235   $4,249

Net income                              $3,428    $6,398   $4,415

Per AT&T Group common share - basic:
  Income from continuing operations     $ 1.77    $ 1.96   $ 1.59
  Income from discontinued operations        -         -     0.03
  Gains on sales of discontinued
   operations                                -      0.48     0.03
  Extraordinary loss                         -      0.05        -
  AT&T Group earnings                   $ 1.77    $ 2.39  $  1.65

Per AT&T Group common share - diluted:
  Income from continuing operations     $ 1.74    $ 1.94   $ 1.59
  Income from discontinued operations        -         -     0.03
  Gains on sales of discontinued
   operations                                -      0.48     0.03
  Extraordinary loss                         -      0.05        -
  AT&T Group earnings                   $ 1.74    $ 2.37   $ 1.65

Liberty Media Group loss per share:
  Basic and diluted                     $ 1.61    $    -    $   -

Our results include certain items that affect  comparability  from year to year.
We  quantify  the  impact of these  items in order to explain  our  results on a
comparable  basis.  These items include the 1999  acquisitions  of Broadband and
AT&T Global  Network  Services  (AGNS),  net  restructuring  and other  charges,
significant  gains on sales of businesses  [discussed in other income  (expense)
discussion] and the impact of a change in tax rules. The net  restructuring  and
other charges, gains on sales of businesses,  change in tax rules and the impact
of our investments in Excite@Home and Cablevision are  collectively  referred to
as "restructuring  and other charges,  and certain gains and losses." We discuss
our  results  excluding  the  impact  of  our  investments  in  Excite@Home  and
Cablevision since these businesses have financial information publicly available
and their results can be reviewed independently of AT&T's results.

<PAGE>

Following is a summary of the approximate diluted earnings per share (EPS)
impact of the above items for 1999 and 1998:
 ..Net restructuring and other charges of $0.37 in 1999 and $0.59 in 1998;
 ..Gains on sales of businesses of $0.07 in 1999 and $0.18 in 1998;
 ..A loss of $0.18 reflecting the earnings impact of our investments in
      Excite@Home and Cablevision in 1999; and
 ..A $0.02 benefit in 1999 from changes in tax rules with respect to the
      utilization of acquired net operating losses.

Operating  income,  on a reported  basis,  increased 45.0% in 1999 compared with
1998; excluding net restructuring and other charges,  operating income increased
23.6%.  Operating income margin  (operating  income as a percent of revenue) was
17.4% in 1999 compared with 14.1% in 1998.  Operating  income margin,  excluding
net  restructuring  and other charges,  was 19.8% in 1999 compared with 18.8% in
1998. These  operational  improvements  were due to revenue growth and operating
expense efficiencies.

EPS from  continuing  operations  attributable  to AT&T Group on a diluted basis
declined  10.3% in 1999 to $1.74,  compared with 1998. The decline was primarily
due to the impact of the Broadband and AGNS  acquisitions,  including the impact
of shares issued and equity losses of  Excite@Home  and  Cablevision.  Partially
offsetting these declines was increased income from the remaining operations due
to  revenue  growth  and  operating  expense  efficiencies  as well as lower net
restructuring and other charges.  Excluding the restructuring and other charges,
and  certain  gains  and  losses,  EPS was $2.20 per  diluted  share in 1999,  a
decrease of 6.4%,  or $0.15,  over the prior year.  The decrease in  operational
earnings  in 1999  was  primarily  due to the  impacts  of the  acquisitions  of
Broadband and AGNS.

Excluding the impacts of both Broadband and AGNS,  operational  EPS for 1999 was
$3.08,  an increase of 31.1%,  or $0.73,  compared  with 1998.  The increase was
primarily due to higher revenue combined with improving  margins  resulting from
cost efficiencies.

Operating  income,  on a reported  basis,  increased  9.5% in 1998 compared with
1997;  excluding net  restructuring,  exit and other charges,  in 1998 and 1997,
operating income increased 42.2%.

Results for 1997 include net restructuring and other charges,  and a gain from a
sale of a  business,  which  resulted in an  approximate  $0.01 EPS benefit on a
diluted basis. In addition,  1998 included a benefit from the 1998 adoption of a
new accounting standard related to the capitalization of internal-use  software.
EPS from continuing  operations was $1.94 per diluted share in 1998, an increase
of 22.0% from 1997.  Excluding the impact of the 1998 and 1997 restructuring and
other charges,  and certain gains and losses, EPS was $2.30 per diluted share in
1998,  an  increase  of $0.72,  or  45.6%,  compared  with  1997.  Cost  control
initiatives  and higher  revenue  were the  primary  drivers of the  operational
increases.

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For the Years Ended December 31,              1999      1998      1997
Dollars in millions
REVENUE
Business Services                          $25,102   $23,611   $22,331
Consumer Services                           21,972    22,885    23,690
Wireless Services                            7,627     5,406     4,668
Broadband                                    4,871         -         -
Other and Corporate                          2,819     1,321       888
Total revenue                              $62,391   $53,223   $51,577

Total revenue  increased  17.2%,  or $9,168  million,  in 1999 compared with the
prior year.  Revenue for 1999  included  Broadband  and AGNS  revenue from their
respective  dates of  acquisition.  Excluding the impact of these  acquisitions,
1999 revenue  increased  5.8% to $56,307  million.  This  increase was fueled by
growth in wireless,  business  data,  business  domestic long distance voice and
outsourcing revenue,  partially offset by the continued decline of consumer long
distance  voice  revenue.  Adjusting  1999 and 1998 to  reflect  the  revenue of
Broadband  and AGNS for a full  year in both  periods,  1999 pro  forma  revenue
increased 6.2% to $64,141 million from $60,394 million in 1998.

Long  distance  voice  revenue  as  a  percent  of  total  revenue  declined  to
approximately 62% in 1999,  compared with  approximately 75% and 79% in 1998 and
1997,  respectively.  We expect this  percentage to continue to decline as data,
Internet, wireless and outsourcing revenue continue to grow and as long distance
prices continue to decrease, resulting in a more diversified portfolio.

Total revenue in 1998 increased $1,646 million, or 3.2%, compared with 1997, led
by business data, wireless and outsourcing revenue.  Improvements in these areas
were partially offset by a decline in consumer long distance revenue and reduced
revenue due to the sale of AT&T Solutions Customer Care (ASCC) in 1998.

Revenue by segment is discussed in more detail in the segment results section.

OPERATING EXPENSES
For the year,  operating expenses totaled $51,532 million,  an increase of 12.7%
from $45,736 million in 1998. In 1998,  operating  expenses  increased 2.2% from
$44,741 million in 1997.  Operating expenses for 1999 reflect Broadband and AGNS
expenses from their  respective  dates of  acquisition.  In addition,  operating
expenses  in  1999  and  1998  included   $1,506  million  and  $2,514  million,
respectively, of net restructuring and other charges. Operating expenses in 1997
included a $160 million charge to exit the two-way messaging business and a $100
million benefit from the reversal of pre-1995 restructuring reserves.  Excluding
the impact of the  acquisitions of Broadband and AGNS and net  restucturing  and
other charges, 1999 operating expenses increased $198 million, or 0.5%, and 1998
operating expenses decreased 2.8%.

[Included in the 1999 Annual Report are pie charts entitled "Margin and Expenses
as a Percent of Revenue." These charts depict margin and expenses (excluding net
restructuring and other charges) as a percent of revenue for 1997 and 1999.]

For the Years Ended December 31,        1999      1998      1997
Dollars in millions
Access and other interconnection     $14,686   $15,328   $16,350

Access  and other  interconnection  expenses  are the  charges we pay to connect
calls on the  facilities of local exchange  carriers and other domestic  service
providers, and fees we pay foreign telephone companies (international

<PAGE>

settlements) to connect calls made to foreign countries. These charges represent
payments to these  carriers for shared and  dedicated  facilities  and switching
equipment used to connect our network with their networks.  These costs declined
$642  million,  or 4.2%, in 1999 and $1,022  million,  or 6.3%, in 1998 compared
with the prior year. These declines were primarily driven by mandated reductions
in per-minute access rates in 1999 and 1998 and lower  international  settlement
rates resulting from our negotiations with international carriers. Additionally,
we continue to manage these costs through more efficient  network  usage.  These
reductions were partially  offset by volume growth,  increased  per-line charges
(Primary   Interexchange   Carrier   Charges)   and   Universal   Service   Fund
contributions.  Since most of these charges are passed  through to the customer,
the per-minute  access-rate reductions and the increases in per-line charges and
the Universal  Service Fund have generally  resulted in an offsetting  impact on
revenue.  Broadband  and AGNS do not have any access  and other  interconnection
expenses, therefore the results are the same excluding Broadband and AGNS.

For the Years Ended December 31,          1999      1998      1997
Dollars in millions
Network and other costs of services    $14,385   $10,495   $10,038

Network and other costs of services  expenses include the costs of operating and
maintaining our networks, costs to support our outsourcing contracts,  fees paid
to other wireless carriers for the use of their networks (off-network  roaming),
the provision for uncollectible receivables, programming and licensing costs for
cable services, costs of wireless handsets sold and other service-related costs.
These costs  increased  $3,890  million,  or 37.1%,  in 1999 compared with 1998,
largely  due  to  the  Broadband   and  AGNS   acquisitions.   Excluding   these
acquisitions,  network costs increased $428 million,  or 4.1%, in 1999, a slight
improvement  compared  with the 4.5%  increase  in 1998.  The  growing  wireless
subscriber base primarily drove the increase in both years, largely attributable
to the success of AT&T  Digital One Rate  service,  which has resulted in higher
off-network  roaming charges,  costs of handsets and provision for uncollectible
receivables.  The  increase  in costs of handsets  reflects  not only the higher
number of handsets sold, but the increased cost per unit as customers migrate or
sign up for digital  service.  Costs to support growth in outsourcing  contracts
also  contributed to the increase.  Partially  offsetting the 1999 increase were
network cost-control  initiatives,  lower per-call compensation expense due to a
favorable FCC ruling in 1999, lower provision for  uncollectible  receivables in
Consumer and Business  Services and lower gross receipts and property taxes. The
1998  increase  was  partially  offset  by  lower  provision  for  uncollectible
receivables in Business Services, lower expenses as a result of the sale of ASCC
in the first quarter of 1998 and the impact of a 1997 charge to  write-down  the
two-way messaging business.

For the Years Ended December 31,           1999       1998      1997
Dollars in millions
Selling, general and administrative     $13,516    $12,770   $14,371

Selling,  general and administrative  (SG&A) expenses increased $746 million, or
5.8%,  in 1999  compared  with 1998.  This increase was due to the Broadband and
AGNS  acquisitions.  Excluding  these  expenses,  SG&A  expenses  declined  $529
million,  or 4.2%.  Reductions  in consumer  long  distance  acquisition-program
spending  resulted in lower marketing and sales  expenses.  In 1999 we continued
our  efforts  to  achieve  a  best-in-class   cost  structure  with  companywide
cost-control  initiatives,  which  yielded an improving  cost  structure.  These
decreases were partially offset by increased costs in Wireless Services to

<PAGE>

support the growing  subscriber base. SG&A expenses as a percent of revenue were
21.7% in 1999,  24.0% in 1998 and 27.9% in 1997.  We expect  SG&A  expenses as a
percent of revenue to continue to decline as we continue to focus on controlling
our expenses and prioritizing our spending.  In addition, we expect to realize a
larger  pension  credit in 2000 resulting from a higher pension trust asset base
and  an  increase  in  the  discount  rate  used  to  measure  the  pension  and
postretirement obligations.

[Included  in the 1999 Annual  Report is a bar graph  entitled  "Cost  Structure
Improvements - SG&A Expenses as a Percent of Revenue" showing SG&A expenses as a
percent of revenue for the eight quarters ended December 31, 1999.]

SG&A expenses declined $1,601 million, or 11.1%, in 1998 compared with 1997. The
decrease was primarily  due to savings from  cost-control  initiatives,  such as
headcount  reductions  and a $221  million  SG&A  expense  benefit from the 1998
adoption of a new  accounting  pronouncement  related to the  capitalization  of
internal-use  software  (Statement of Position 98-1).  Also  contributing to the
decrease in SG&A expenses was a decline in marketing and sales costs relating to
lower  customer  acquisition  costs in Consumer  Services.  These  declines were
partially  offset by increases in wireless  customer  acquisition  and migration
costs and increased  costs  associated  with preparing our computer  systems for
conversion of the calendar to the Year 2000 (Y2K project).

Also included in SG&A expenses were $550 million,  $513 million and $633 million
of research and development (R&D) expenses in 1999, 1998 and 1997, respectively.
R&D  expenditures  are mainly for work on advanced  communications  services and
projects aimed at Internet protocol (IP) services.  The increase in R&D expenses
in 1999 was due to costs associated with launching  Concert,  the acquisition of
Broadband  and  development  spending on business  data  services  and IP. These
increases were largely offset by lower R&D spending on development  projects for
consumer  products.  The  decline in R&D  expenses in 1998 was mainly due to the
redeployment of resources in support of the Y2K project.

For the Years Ended December 31,         1999       1998      1997
Dollars in millions
Depreciation and other amortization    $6,138     $4,378    $3,728

Depreciation and other amortization expenses increased $1,760 million, or 40.2%,
in 1999.  Approximately  one-half of the increase was due to the acquisitions of
Broadband  and  AGNS.  Excluding  these  acquisitions,  depreciation  and  other
amortization  expenses increased $879 million,  or 20.1%, in 1999.  Depreciation
and other  amortization  expenses  increased  $650  million,  or 17.4%,  in 1998
compared  with  1997.  Growth  in the  depreciable  asset  base  resulting  from
continued  infrastructure  investment  drove the  increase in both years.  Total
capital  expenditures  for 1999, 1998 and 1997 were $13.5 billion,  $8.0 billion
and $7.7 billion,  respectively.  Approximately  three-quarters  of 1999 capital
expenditures  focused on our growth  businesses  of broadband,  data,  wireless,
local and AT&T  Solutions.  More than half of the capital  expenditures  in 1998
were related to the long distance network, including the completion of the SONET
(Synchronous  Optical Network)  buildout.  These  expenditures  expanded network
capacity,  reliability and efficiency.  In addition,  in 1998 we invested in our
local network to expand our  switching  and  transport  capacity and invested to
expand our wireless footprint.

For the Years Ended December 31,                1999       1998      1997
Dollars in millions
Amortization of goodwill, franchise costs
and other purchased intangibles               $1,301     $  251    $  254

<PAGE>

Amortization  of  goodwill,  franchise  costs  and other  purchased  intangibles
increased  $1,050  million  in 1999  compared  with  1998  primarily  due to the
acquisition  of  Broadband  and,  to a  lesser  extent,  AGNS.  Franchise  costs
represent the value  attributable to the agreement with local  authorities  that
allow access to homes in Broadband's service areas. Other purchased  intangibles
arising  from  business  combinations  primarily  included  customer  lists  and
licenses.  In addition to the  amortization of goodwill  reflected here, we also
have amortization of goodwill  associated with our  nonconsolidated  investments
recorded as a component of other income  (expense).  This  amortization  totaled
$495 million, $52 million and $66 million in 1999, 1998 and 1997, respectively.

Net Restructuring and Other Charges

During 1999, we recorded $1,506 million of net  restructuring and other charges,
which had an approximate $0.37 impact on earnings per diluted share.

A  $594  million  in-process   research  and  development  charge  was  recorded
reflecting  the  estimated  fair value of research and  development  projects at
Broadband,  as of the  date  of the  acquisition,  which  had  not  yet  reached
technological  feasibility or that have no alternative  future use. The projects
identified   related   to   Broadband's   efforts   to  offer   voice  over  IP,
product-integration  efforts for advanced set-top devices,  cost-savings efforts
for cable  telephony  implementation  and  in-process  research and  development
related to Excite@Home.  We estimated the fair value of in-process  research and
development  for each project  using an income  approach,  which was adjusted to
allocate fair value based on the project's percentage of completion.  Under this
approach,  the present value of the anticipated  future benefits of the projects
was determined using a discount rate of 17%. For each project, the resulting net
present  value was  multiplied  by a percentage  of  completion  based on effort
expended to date versus projected costs to complete.

The  charge  associated  with  voice  over IP  technology,  which  allows  voice
telephony  traffic to be digitized and transmitted in IP data packets,  was $225
million as of the date of the acquisition.  Current voice over IP equipment does
not yet  support  many of the  features  required to connect  customer  premises
equipment to traditional phone networks.  Further technical  development is also
needed  to  ensure   voice   quality   that  is   comparable   to   conventional
circuit-switched  telephony  and  to  reduce  the  power  consumption  of the IP
telephony equipment.  We anticipate that we will test IP telephony equipment for
field deployment in late 2000.

The charge associated with Broadband's  product-integration efforts for advanced
set-top devices, which will enable us to offer next-generation digital services,
was  $114  million  as of the date of  acquisition.  The  associated  technology
consists of the development  and  integration  work needed to provide a suite of
software  tools to run on the  digital  set-top  box  hardware  platform.  It is
anticipated that field trials will begin in mid 2000 for next-generation digital
services.

The charge associated with Broadband's  cost-savings efforts for cable telephony
implementation  was $101  million as of the date of the  acquisition.  Telephony
cost  reductions  primarily  consist of cost savings from the  development  of a
"line of power switch," which allows Broadband to cost effectively provide power
for customer telephony equipment through the cable plant. This device will allow
us to provide  line-powered  telephony  without  burying  the cable line to each
house.  The device currently  requires further  development in order to reach an
acceptable level of reliability. We expect to test and deploy devices by the end
of 2000.

<PAGE>

Additionally,   the  in-process  research  and  development  charge  related  to
Excite@Home  was valued at $154 million.  During the second  quarter of 1999, we
ceased to consolidate  Excite@Home and began to account for our investment under
the equity method of accounting  due to certain  corporate  governance  changes,
which  resulted  in AT&T no longer  holding a  controlling  financial  interest.
Accordingly, we will no longer report on the in-process research and development
projects of Excite@Home.

Although  there are  significant  technological  issues to  overcome in order to
successfully  complete the acquired  in-process  research  and  development,  we
expect successful  completion.  We estimate the costs to complete the identified
projects  will not have a  material  impact on our  results of  operations.  If,
however,  we are  unable to  establish  technological  feasibility  and  produce
commercially viable products/services,  then anticipated incremental future cash
flows attributable to expected profits from such new  products/services  may not
be realized.

A $531 million asset  impairment  charge was primarily  recorded in  association
with the planned disposal of wireless network equipment resulting from a program
to increase capacity and operating  efficiency of our wireless network.  As part
of a multivendor  program,  contracts are being executed with certain vendors to
replace  significant  portions of our wireless  infrastructure  equipment in the
western United States and the  metropolitan  New York markets.  The program will
provide Wireless Services with the newest  technology  available and allow us to
evolve  to  new,  third-generation  digital  technology,  with  high-speed  data
capabilities.

The planned disposal of the existing wireless infrastructure  equipment required
an evaluation of asset  impairment  in  accordance  with  Statement of Financial
Accounting Standards (SFAS) No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived  Assets to Be Disposed Of" to write-down  these assets
to their fair value, which was estimated by discounting the expected future cash
flows of these assets through the date of disposal. Since the assets will remain
in service  from the date of the  decision  to  dispose  of these  assets to the
disposal  date,  the remaining net book value of the assets will be  depreciated
over this period.

A $145 million charge for  restructuring  and exit costs was recorded as part of
AT&T's  initiative  to  reduce  costs  by $2  billion  by the end of  2000.  The
restructuring  and exit plans primarily  focus on the  maximization of synergies
through  headcount  reductions  in Business  Services  and  network  operations,
including the consolidation of customer-care and call centers.

Included  in the  exit  costs  was $142  million  of cash  termination  benefits
associated  with the  separation  of  approximately  2,800  employees as part of
voluntary  and  involuntary  termination  plans.  Approximately  one-half of the
separations were management employees and one-half were nonmanagement employees.
Approximately 1,700 employee separations related to involuntary terminations and
approximately  1,100  related  to  voluntary  terminations.  Nearly  80%  of the
affected  employees  have left their  positions as of December 31, 1999, and the
remaining employees will leave the company in early 2000.  Termination  benefits
of $40  million  were paid in the fourth  quarter of 1999.  This cash outlay was
primarily  funded  through  cash  from  operations.  The  balance  of  the  cash
termination payments are expected to be paid in the first quarter of 2000.

The restructuring initiative is projected to yield cash savings of approximately
$250 million per year, as well as EBIT [earnings, including other

<PAGE>

income  (expense),  before  interest and taxes]  savings of  approximately  $200
million in 2000 and nearly $400 million per year thereafter. We expect increased
spending in growth  businesses  will largely offset these cash and EBIT savings.
The EBIT savings, primarily attributable to reduced personnel-related  expenses,
will be realized in SG&A expenses and network and other costs of services.  EBIT
savings in 2000 are expected to be partially offset by accelerated  depreciation
expense. However, depreciation expense in subsequent years will be lower related
to the 1999 write-off of Wireless Services' assets.

In addition,  our continuing efforts to reduce costs by $2 billion by the end of
2000 and the planned merger with MediaOne may require  further  charges for exit
and  separation  plans,  which we expect to have  finalized in the first half of
2000.

We also recorded net losses of $307 million  related to the  government-mandated
disposition  of  certain  international  businesses  that  would  have  competed
directly  with  Concert,  and $50 million  related to a  contribution  agreement
Broadband  entered  into with  Phoenixstar,  Inc.,  that  requires  Broadband to
satisfy  certain  liabilities  owed by  Phoenixstar  and its  subsidiaries.  The
remaining  obligation  under this  contribution  agreement  is $26  million.  In
addition,  we recorded  benefits of $121 million  related to the  settlement  of
pension  obligations  for former  employees who accepted  AT&T's 1998  voluntary
retirement incentive program (VRIP) offer.

During 1998, we recorded $2,514 million of net  restructuring and other charges,
which had an approximate $0.59 impact on earnings per diluted share. The bulk of
the charge was  associated  with a plan to reduce  headcount by 15,000 to 18,000
over two years as part of our overall cost-reduction program. In connection with
this plan, the VRIP was offered to eligible management employees.  Approximately
15,300 management  employees accepted the VRIP offer. A restructuring  charge of
$2,724  million was composed of $2,254  million and $169 million for pension and
postretirement  special-termination  benefits,  respectively,  $263  million  of
curtailment  losses  and $38  million  of other  administrative  costs.  We also
recorded charges of $125 million for related facility costs and $150 million for
executive-separation  costs.  These charges were partially offset by benefits of
$940 million as we settled pension  benefit  obligations for 13,700 of the total
VRIP  employees.  In addition,  the VRIP charges  were  partially  offset by the
reversal  of $256  million of 1995  business  restructuring  reserves  primarily
resulting from the overlap of VRIP on certain 1995 projects.

Also  included  in the 1998 net  restructuring  and  other  charges  were  asset
impairment  charges totaling $718 million,  of which $633 million was related to
our  decision  not to  pursue  Total  Service  Resale  (TSR) as a local  service
strategy. We also recorded an $85 million asset impairment charge related to the
write-down of unrecoverable assets in certain international  operations in which
the carrying value is no longer supported by future cash flows.  This charge was
made in  connection  with the  review of  certain  operations  that  would  have
competed directly with Concert.

Additionally,  $85 million of  merger-related  expenses were recorded in 1998 in
connection with the Teleport  Communications  Group Inc. (TCG) merger, which was
accounted for as a pooling of interests.  Partially  offsetting these charges in
1998 was a $92 million reversal of the 1995 restructuring reserve. This reversal
reflects reserves that were no longer deemed necessary.  The reversal  primarily
included  separation costs attributed to projects completed at a cost lower than
originally   anticipated.   Consistent  with  the  three-year   plan,  the  1995
restructuring initiatives were substantially completed by the end of 1998.

<PAGE>

For the Years Ended December 31,            1999      1998      1997
Dollars in millions
Other income (expense)                     $(501)   $1,247      $443

Other  income  (expense)  was an expense of $501 million in 1999  compared  with
income of $1,247 million in 1998. The significant  decrease is due to higher net
losses from investments,  largely due to Excite@Home and Cablevision,  and lower
gains on sales.  Gains on sales in 1999 included $153 million from Language Line
Services,  $88 million  from WOOD-TV and $110 million from the sale of a portion
of our ownership  interest in AT&T Canada.  Gains on sales in 1998 included $350
million from AT&T  Solutions  Customer  Care,  $317 million from LIN  Television
Corp.  (LIN-TV)  and $103  million  from  SmarTone  Telecommunications  Holdings
Limited  (SmarTone).  Distributions  on trust  preferred  securities in 1999 and
higher  interest  income in 1998 as a result of the proceeds  received  from the
sale of Universal Card Services (UCS) also contributed to the decrease.

Other income (expense)  increased $804 million in 1998 due primarily to gains on
sales in 1998 as well as increased  interest  income on our higher cash balance.
These increases were partially offset by lower earnings from equity  investments
and a gain in 1997 on the sale of AT&T Skynet Satellite Services (Skynet) of $97
million.

For the Years Ended December 31,         1999       1998        1997
Dollars in millions
EBIT                                  $10,358     $8,734      $7,279

EBIT  increased  $1,624  million,  or  18.6%,  in  1999.  EBIT was  impacted  by
restructuring  and other charges,  and certain gains and losses,  as well as the
acquisitions of Broadband and AGNS. Excluding these items, EBIT increased $2,805
million,  or 26.8%,  to $13,283 million in 1999. The improvement in EBIT was due
to increased  revenue  combined with an improving cost structure.  EBIT for 1998
increased $1,455 million, or 20.0%.  Excluding  restructuring and other charges,
and certain gains and losses,  EBIT increased  $3,037  million,  or 41.9%.  This
increase in EBIT was driven by higher  revenue,  the benefit of our SG&A expense
cost-cutting initiatives and lower international settlement rates.

For the Years Ended December 31,         1999       1998        1997
Dollars in millions
Interest expense                       $1,651       $427        $307

Interest  expense  increased $1,224 million in 1999 due to a higher average debt
balance  associated  with  our  acquisitions,  including  debt  outstanding  for
Broadband at the date of acquisition. Interest expense increased $120 million in
1998. After the sale of UCS on April 2, 1998,  interest expense  associated with
debt previously attributed to UCS was reclassified from discontinued  operations
to  continuing  operations  since  we did  not  retire  all of this  debt.  This
reclassification is the primary reason for the increase in 1998.

For the Years Ended December 31,         1999         1998        1997
Dollars in millions
Provision for income taxes             $3,257       $3,072      $2,723

The effective  income tax rate is the provision for income taxes as a percent of
income from continuing  operations before income taxes. The effective income tax
rate was 48.7% in 1999,  37.0% in 1998 and 39.0% in 1997.  The effective  income
tax rate for AT&T Group was 37.4% in 1999,  37.0% in 1998 and 39.0% in 1997. The
1999 effective tax rate for AT&T Group was impacted by the in-process research

<PAGE>

and development  charge,  which was not tax deductible,  and a change in the net
operating loss utilization tax rules that resulted in a $75 million reduction in
the valuation  allowance  and the income tax  provision.  In addition,  the 1999
effective   tax  rate   reflects  tax  benefits   associated   with   investment
dispositions, legal entity restructurings and other tax planning strategies. The
effective  tax rate for 1998 was  impacted  by the  pooling of TCG's  historical
results,  which did not include tax benefits on preacquisition  losses,  and the
effects  of  certain   foreign  legal  entity   restructurings   and  investment
dispositions.

Discontinued  Operations Pursuant to Accounting  Principles Board Opinion No. 30
"Reporting  the Results of  Operations - Reporting  the Effects of Disposal of a
Segment of a Business,  and  Extraordinary,  Unusual and Infrequently  Occurring
Events and Transactions," the consolidated  financial statements of AT&T reflect
the  dispositions of UCS, which was sold on April 2, 1998, and AT&T's  submarine
systems  business  (SSI),  which  was  sold  on July 1,  1997,  as  discontinued
operations.  Accordingly,  the revenue,  costs and  expenses,  and cash flows of
these  businesses  have  been  excluded  from  the  respective  captions  in the
Consolidated Statements of Income and Consolidated Statements of Cash Flows, and
have been reported through their respective dates of disposition as "Income from
discontinued  operations,"  net of  applicable  income  taxes;  and as "Net cash
provided by (used in)  discontinued  operations."  As of December 31, 1998,  all
businesses previously reported as discontinued operations have been disposed of;
therefore,  there was no impact to the  Consolidated  Balance Sheets  presented.
Gains   associated  with  these  sales  are  recorded  as  "Gains  on  sales  of
discontinued operations," net of applicable taxes.

Extraordinary Items
In August 1998, AT&T extinguished $1,046 million of TCG's debt. The $217 million
pretax loss on the early extinguishment of debt was recorded as an extraordinary
loss. The after-tax impact was $137 million, or $0.05 per diluted share.

[Included  in the  1999  Annual  Report  is a bar  graph  entitled  "Revenue  by
Segment." The graph depicts  revenue of Business  Services,  Consumer  Services,
Wireless  Services,  and Other and Corporate for the three-years  ended December
31, 1999. It also depicts the revenue of Broadband for 1999.]

SEGMENT RESULTS

In support of the  services we provide,  we segment our results by the  business
units that support our primary lines of business:  Business  Services,  Consumer
Services,   Wireless  Services  and  Broadband.  A  fifth  category,  Other  and
Corporate,  comprises  the results of all other  units of AT&T Group,  including
corporate  staff  functions.   We  supplementally  discuss  AT&T  Solutions  and
International  Operations and Ventures, which are both included in the Other and
Corporate category. Although not a segment, we also discuss the results of LMG.

The discussion of segment results includes  revenue;  earnings,  including other
income (expense),  before interest and taxes (EBIT);  earnings,  including other
income  (expense),   before  interest,   taxes,  depreciation  and  amortization
(EBITDA);  total assets;  and capital  additions.  The  discussion of EBITDA for
Wireless  Services and Broadband is modified to exclude other income  (expense).
Total  assets  for  each  segment  include  all  assets,   except   intercompany
receivables.  Prepaid pension assets and  corporate-owned  or leased real estate
are  generally  held at the  corporate  level and  therefore are included in the
Other and Corporate group. Shared network assets are allocated to the segments

<PAGE>

and reallocated each January,  based on two years of volumes.  Capital additions
for each segment include capital expenditures for property, plant and equipment,
acquisitions of licenses, additions to nonconsolidated investments, increases in
franchise costs and additions to internal-use software.

EBIT is the primary  measure used by AT&T's chief  operating  decision makers to
measure  AT&T's  operating  results  and to measure  segment  profitability  and
performance.  AT&T  calculates  EBIT  as  operating  income  plus  other  income
(expense).  In  addition,  management  also uses  EBITDA as a measure of segment
profitability  and  performance,  and is defined as EBIT plus  depreciation  and
amortization. Interest and taxes are not factored into the profitability measure
used by the chief operating decision makers;  therefore,  trends for these items
are discussed on a consolidated basis. Management believes EBIT is meaningful to
investors  because it provides  analysis  of  operating  results  using the same
measures used by AT&T's chief operating decision makers and provides a return on
total capitalization  measure. We believe EBITDA is meaningful to investors as a
measure of each segment's liquidity  consistent with the measure utilized by our
chief  operating  decision  makers.  In addition,  we believe that both EBIT and
EBITDA allow investors a means to evaluate the financial results of each segment
in  relation  to AT&T.  Our  calculation  of EBIT and  EBITDA  may or may not be
consistent  with the  calculation of these  measures by other public  companies.
EBIT and EBITDA should not be viewed by investors as an alternative to generally
accepted  accounting  principles  (GAAP)  measures  of income  as a  measure  of
performance or to cash flows from operating,  investing and financing activities
as a measure  of  liquidity.  In  addition,  EBITDA  does not take into  account
changes in certain assets and liabilities that can affect cash flow.

Reflecting the dynamics of our business,  we  continually  review our management
model and structure.  In 2000, we anticipate changes to our segments as follows:
The  Business  Services  segment will be expanded to include the results of AT&T
Solutions,  and Broadband  results will be expanded to include the operations of
MediaOne upon the completion of the merger.  The Wireless  Services segment will
be expanded  to include  fixed  wireless  technology  and certain  international
wireless investments.

BUSINESS SERVICES
Our Business Services segment offers a variety of global communications services
including  long  distance,  local  and  data  and IP  networking  to  small  and
medium-sized  businesses,   large  domestic  and  multinational  businesses  and
government agencies.  Business Services is also a provider of voice, data and IP
transport to service resellers (wholesale services).

For the Years Ended December 31,                   1999       1998       1997
Dollars in millions
External revenue                                $23,540    $22,706    $21,520
Internal revenue                                  1,562        905        811
  Total revenue                                  25,102     23,611     22,331
EBIT                                              6,131      5,007      4,047
EBITDA                                            9,079      7,395      5,902
Capital additions                                 7,145      5,952      4,547

At December 31,                                    1999       1998
Total assets                                    $25,107    $21,415

<PAGE>

REVENUE
In 1999,  Business Services revenue grew $1,491 million, or 6.3%, driven by data
and IP services, domestic long distance voice services and local services. Total
calling  volumes  increased  approximately  25% for the  year.  Revenue  in 1998
increased $1,280 million, or 5.7%, led by growth in data services.

Data services,  which is the  transportation of data rather than voice along our
network,  grew at a  high-teens  rate in 1999 and at a mid-teens  rate for 1998.
Growth in each  period  was led by the  continued  strength  of frame  relay and
high-speed  private  line,  both  of  which  are  high-speed   data-transmission
services.  On average in 1999, we added  approximately  230 more net frame ports
per month as compared with 1998. Also  contributing  to the revenue  increase in
1999 was significant  growth in IP services,  such as AT&T WorldNet Services and
virtual private network (VPN) services.

Long  distance  voice revenue grew at a low  single-digit  rate in both 1999 and
1998.  The continued  strength of volumes,  as evidenced by a high-teens  growth
rate for 1999 and a near-teens  growth rate for 1998, was largely mitigated by a
declining  average  price per minute.  The average price per minute has declined
due to  competitive  forces  within the industry  that are expected to continue.
Also  impacting the average price per minute was a change in product mix,  which
in 1999 was largely attributable to an increase in our wholesale business sales,
which  had a lower  rate  per  minute.  Revenue  in 1998 was  also  impacted  by
reductions in access costs that were passed on to customers in the form of lower
rates.

Local voice service revenue grew more than 50% in 1999.  During 1999, AT&T added
more than 626,000  access lines,  with the total reaching 1.3 million by the end
of the year.  Access lines enable AT&T to provide  local service to customers by
allowing  direct  connection from customer  equipment to the AT&T network.  AT&T
serves more than 36,000 buildings in 89 metropolitan  statistical  areas (MSAs),
with just over 5,800 of the buildings on-network  (buildings where AT&T owns the
fiber that runs into the building).  At the end of 1998, we served approximately
20,000 buildings in 83 MSAs, with about 5,200 buildings on-network.

[Included in the 1999 Annual Report is a bar graph entitled  "Access Lines." The
graph depicts the number of access lines for the eight quarters ended  December,
31 1999.]

Business Services  internal revenue  increased $657 million,  or 72.5%, in 1999.
The increase is the result of greater sales of business  long distance  services
to other AT&T units, primarily AT&T Solutions (including the impact of AGNS) and
Wireless Services, which resell such services to their external customers.

EBIT/EBITDA
EBIT rose $1,124 million, or 22.5%, and EBITDA grew $1,684 million, or 22.8%, in
1999.  Excluding 1999  restructuring  and exit costs,  EBIT  increased  24.4% to
$6,226 million and EBITDA  increased  24.1% to $9,174  million.  These increases
were driven by revenue growth  combined with margin  improvement  resulting from
ongoing  cost-control  initiatives.  The increase in EBIT was offset somewhat by
increased  depreciation  and  amortization  expenses  resulting  from  increased
capital expenditures aimed at data, IP and local services.

EBIT increased $960 million,  or 23.7%, and EBITDA increased $1,493 million,  or
25.3%,  in 1998. The increases were driven by growth in revenue and the benefits
reaped from cost-cutting initiatives. Partly offsetting the increase in EBIT and
EBITDA in 1998 was the gain on the sale of Skynet, recorded in 1997. In

<PAGE>

addition,  the EBIT improvements were partially offset by increased depreciation
and  amortization  expenses  correlated to the continued  high levels of capital
expenditures.

OTHER ITEMS
Capital additions  increased $1,193 million and $1,405 million in 1999 and 1998,
respectively.  Spending in all periods reflects  Business  Services'  portion of
AT&T's  investment  to enhance our long  distance  network  (including  the data
network) and spending on AT&T's local network.

Total assets increased $3,692 million,  or 17.2%, at December 31, 1999, compared
with  December 31, 1998.  The increase  was  primarily  due to net  increases in
property, plant and equipment as a result of capital additions.

CONSUMER SERVICES
Our Consumer  Services  segment  provides to residential  customers a variety of
any-distance   communications  services  including  long  distance,  local  toll
(intrastate  calls outside the  immediate  local area) and Internet  access.  In
addition,  Consumer Services provides prepaid  calling-card and operator-handled
calling  services.  Local phone service is also provided in certain  areas.  The
costs associated with the development of fixed wireless  technology are included
in the Consumer Services segment results.

For the Years Ended December 31,                 1999        1998        1997
Dollars in millions

Revenue                                       $21,972     $22,885     $23,690
EBIT                                            7,968       6,568       4,922
EBITDA                                          8,845       7,298       5,694
Capital additions                                 859         526       1,010

At December 31,                                  1999        1998
Total assets                                  $ 6,823     $ 6,561

REVENUE
In 1999,  Consumer  Services revenue  decreased $913 million,  or 4.0%, on a mid
single-digit decline in volumes.  Revenue in 1998 fell $805 million, or 3.4%, on
a low single-digit decline in volumes. Excluding AT&T WorldNet Services, revenue
decreased  4.4% for 1999 and was down 3.8% in 1998.  The  declines in both years
reflect the ongoing  competitive  nature of the consumer long distance industry,
which has resulted in pricing pressures and a loss of customers. Also negatively
impacting revenue growth was product substitution and market migration away from
direct dial and calling card to rapidly growing wireless services.  The entry of
the Regional Bell Operating  Companies  (RBOCs) into the long distance market is
expected to increase competitive pressures in 2000.

Demonstrating our commitment to providing customers with choice,  simplicity and
competitive  rates,  we  introduced  in August 1999 the AT&T One Rate(R) 7 cents
offer,  a simple,  convenient  calling  plan that allows  customers to make long
distance calls 24 hours a day, seven days a week for 7 cents a minute. The offer
has been extremely well received.  At the end of 1999, we had enrolled more than
5.0 million customers,  with more than 60% of those customers electing to bundle
their  7-cent  long  distance  with  AT&T's  local toll  service.  Approximately
one-third  of the  customers  enrolled  in the  7-cent  plan  were new AT&T long
distance customers.

<PAGE>

AT&T WorldNet  Services  revenue  increased  41.2% to $301 million in 1999,  and
78.9% to $213  million  in 1998.  AT&T  WorldNet  Services  served  1.5  million
residential  customers as of December 31, 1999,  an increase of 29.5% over 1998.
At December 31, 1998,  AT&T  WorldNet  Services  served 1.1 million  residential
customers, an increase of 22.3% over 1997.

EBIT/EBITDA
EBIT grew $1,400 million, or 21.3%, and EBITDA grew $1,547 million, or 21.2%, in
1999.  Adjusted  to  exclude  the  1999  gain on the sale of the  Language  Line
Services business and 1999 restructuring and exit costs, EBIT increased 19.1% to
$7,823 million,  and EBITDA  increased  19.2% to $8,700 million.  On this basis,
EBIT margin improved to 35.6% in 1999 from 28.7% in the prior year. The EBIT and
EBITDA  growth for the year is  reflective  of ongoing  cost-reduction  efforts,
particularly  in  marketing  spending,  as well as lower  negotiated  settlement
rates.

For 1998, EBIT increased  $1,646 million,  or 33.4%, and EBITDA increased $1,604
million,  or 28.2%.  These  increases  were  primarily  driven by  reduced  SG&A
expenses,  largely due to AT&T's focus on high-value customers, which has led to
lower spending on customer-acquisition and retention programs.

OTHER ITEMS
Capital additions  increased $333 million,  or 63.3%, in 1999,  primarily due to
increased  spending on internal-use  software to add more  functionality  to our
services,  in support of AT&T WorldNet Services  subscriber growth and for fixed
wireless equipment.  In 1998, capital additions declined $484 million, or 47.9%.
The decrease was primarily due to a decrease in the allocation of shared network
assets due to lower consumer volumes as a percent of total volumes.

Total assets grew $262  million,  or 4.0%,  during  1999.  The increase in total
assets was  primarily  associated  with the purchase of SmarTalk  Tele-Services,
Inc., in 1999. Also  contributing to the growth were capital  additions,  offset
somewhat by lower accounts receivable, as a result of lower revenue.

WIRELESS SERVICES
Our  Wireless  Services  segment  offers  wireless  voice and data  services and
products  to  customers  in our 850  megahertz  (cellular)  and  1900  megahertz
(Personal  Communications  Services,  or PCS)  markets.  Wireless  Services also
includes certain  interests in partnerships and affiliates that provide wireless
services  in the United  States  and  internationally,  aviation  communications
services and the results of our messaging  business through the October 2, 1998,
date of sale.

For the Years Ended December 31,                 1999        1998       1997
Dollars in millions

Revenue                                       $ 7,627     $ 5,406    $ 4,668
EBIT                                             (474)        182        366
EBITDA excluding other income (expense)           640         947        964
Capital additions                               2,598       2,321      2,071

At December 31,                                  1999        1998
Total assets                                  $22,478     $19,115

REVENUE
Wireless  Services revenue grew $2,221 million,  or 41.1%, in 1999 compared with
1998. Wireless Services' 1999 results include Vanguard Cellular Systems, Inc.

<PAGE>

(Vanguard),  since  its  acquisition  in May  1999,  and  1998  results  include
Wireless'  messaging  business  until its sale on October 2, 1998.  Adjusted  to
exclude  both  Vanguard  and the  messaging  business,  revenue  grew to  $7,304
million,  up  39.0%  for the  year.  The  strength  in  revenue  was  driven  by
consolidated  subscriber  growth and higher  average  monthly  revenue  per user
(ARPU), which demonstrates the continued successful execution of AT&T's wireless
strategy of  targeting  and  retaining  high-value  subscribers,  expanding  our
national  wireless  footprint,  focusing on digital  service and offering simple
rate plans.

AT&T Digital One Rate service,  the first national,  one-rate  wireless  service
plan that eliminated  separate roaming and long distance charges,  significantly
contributed to the increases in both  subscribers  and ARPU. For 1999,  ARPU was
approximately $66, an increase of 14.2% over 1998. Consolidated subscribers grew
33.4%  to  approximately  9.6  million  at  December  31,  1999.  This  included
approximately  700,000  subscribers from our acquisition of Vanguard and 125,000
subscribers  from our August 1999  acquisition  of Honolulu  Cellular  Telephone
Company (Honolulu).  Total subscribers,  including  partnership markets in which
AT&T does not own a controlling interest, were nearly 12.2 million at the end of
1999.  We continue to rapidly  migrate  customers to digital  service,  which we
believe improves capital  efficiency,  lowers network operating costs and allows
us to offer higher quality  services.  At the end of 1999, 79.2% of consolidated
subscribers were being provided digital service,  compared with 60.7% at the end
of 1998. Including partnership markets, digital subscribers represented 77.1% of
customers, compared with 54.9% at the end of 1998.

[Included  in the 1999  Annual  Report is bar graph  entitled  "Average  Monthly
Revenue per User (ARPU) and  Consolidated  Subscribers."  The graph depicts ARPU
and consolidated subscribers for each quarter of 1998 and 1999.]

Wireless  Services  revenue grew $738 million,  or 15.8%,  in 1998.  Adjusted to
exclude the messaging business, 1998 revenue increased 17.2% compared with 1997.
The increase  was  primarily  driven by the strong  response to AT&T Digital One
Rate service,  which was rolled out in May 1998, and a full-year  impact in 1998
of eight new 1900  megahertz  markets  that were  launched in the second half of
1997.

As of  December  31,  1998,  we had 7.2  million  consolidated  subscribers,  an
increase of 20.3% from December 31, 1997. Digital subscribers  represented 60.7%
of the consolidated  subscribers,  up from 29.3% at December 31, 1997. Including
partnership  markets,  54.9% of the 9.6  million  total  subscribers  were being
provided digital service at December 31, 1998.

EBIT/EBITDA
During  1999,  EBIT  decreased  $656  million.  Excluding a $529  million  asset
impairment  charge  recorded  in 1999,  and the gain on the sale of  SmarTone in
1998,  EBIT  decreased  $24 million,  or 31.4%,  for the year.  This decline was
primarily driven by higher network  operations  costs,  principally  off-network
roaming expenses as well as greater customer-acquisition and customer-care costs
associated  with the  rapid  growth  of  subscribers.  Higher  depreciation  and
amortization of a larger  wireless asset base,  coupled with lower earnings from
our equity investments,  also contributed to the EBIT decline.  These impacts to
EBIT were partly offset by revenue growth.

<PAGE>

EBITDA,  excluding  other  income  (expense),  decreased  $307  million in 1999.
EBITDA,  excluding  other  income  (expense)  and the asset  impairment  charge,
increased $222 million,  or 23.4%. On this basis,  EBITDA was favorably impacted
by revenue growth,  partially offset by higher off-network roaming expenses,  as
well as the rise in  customer-acquisition  and customer-care spending related to
subscriber growth.

Off-network  roaming  expenses  continue  to  negatively  impact  AT&T  Wireless
Services' results.  However,  compared with 1998, our average incollect rate per
minute has  declined  18.2%.  The  decline in  incollect  rates is  expected  to
continue in 2000. Initiatives have been introduced to address off-network costs,
including  aggressively  capturing  more  minutes  on the AT&T  network  through
capital  expansion  within existing and new markets,  acquisitions and affiliate
launches.  Intercarrier roaming rates have declined significantly as a result of
renegotiated  roaming  agreements  and the  deployment  of  Intelligent  Roaming
Database  (IRDB)  technology,  which assists in  identifying  favorable  roaming
partners in areas not included in our wireless network.

In 1998, EBIT decreased  50.1%,  and EBITDA,  excluding other income  (expense),
fell 1.8%.  Adjusted  to  exclude  the 1998 gain on the sale of  SmarTone  and a
charge in 1997 related to the write-down of our two-way messaging business, EBIT
fell $447 million,  or 84.8%. The decline in EBIT was primarily  attributable to
higher costs associated with a growing subscriber base, higher  depreciation and
amortization  expenses due to our growing asset base and lower earnings from our
equity  investments.  These declines were partially offset by growth in revenue.
EBITDA,  excluding other income (expense) and the 1997 two-way messaging charge,
declined $97 million, or 9.3%,  primarily due to greater costs associated with a
growing subscriber base partially offset by revenue growth.

OTHER ITEMS
Capital  additions  increased  by $277 million in 1999 and $250 million in 1998.
The buildout of the 1900 megahertz markets was substantially  completed in 1997.
Since then,  spending has focused on increasing  the capacity and quality of our
national  wireless  network in existing  markets as well as the expansion of our
national footprint.

Total assets  increased $3,363 million,  or 17.6%,  from December 31, 1998. This
increase  was  primarily  due to increases in  goodwill,  licensing  costs,  and
property,  plant and equipment  associated with our acquisitions of Vanguard and
Honolulu.  Capital expenditures and increased accounts receivable resulting from
the growth in revenue also contributed to the 1999 increase in total assets.

BROADBAND
Our Broadband  segment offers a variety of services  through our cable broadband
network,  including  traditional  analog video and new services  such as digital
cable and AT&T@Home, our high-speed cable Internet access service. Also included
in this segment are the operations associated with developing and installing the
infrastructure that supports broadband telephony.

For the 10 Months Ended December 31,            1999
Dollars in millions
Revenue                                      $ 4,871
EBIT                                          (2,276)
EBITDA excluding other income (expense)          645
Capital additions                              4,759

At December 31,                                 1999
Total assets                                 $56,536

REVENUE
From the date of acquisition  through December 31, 1999,  Broadband  revenue was
$4,871 million. Broadband ended the year with 11.4 million basic cable

<PAGE>

customers,  passing  approximately 19.7 million homes, and had approximately 1.8
million digital-cable customers.  Broadband's high-speed cable Internet service,
AT&T@Home, ended 1999 with approximately 207,000 customers.

Broadband's  telephony pilot market initiatives are progressing on schedule.  As
of the end of 1999, we had introduced  broadband  telephony service to customers
in 16 cities within nine pilot markets and had nearly 8,300 broadband  telephony
customers.  The markets  include the  California Bay Area  (including  Fremont),
Chicago,  Dallas,  Denver,  Pittsburgh,  Seattle,  Salt Lake City, St. Louis and
Portland, Oregon.

EBIT/EBITDA
Since the date of acquisition, EBIT for 1999 was a deficit of $2,276 million and
EBITDA,  excluding  other  income  (expense),  was  $645  million.  Included  in
Broadband's  results was a $594  million  in-process  research  and  development
charge and a $50 million  charge  relating to a contribution  agreement  entered
into by Broadband to satisfy certain  liabilities of  Phoenixstar.  In addition,
our  equity  ownership  in  Excite@Home  and  Cablevision   negatively  impacted
Broadband's 1999 EBIT by $942 million.

OTHER ITEMS
Broadband's  capital  additions for 1999,  since the date of  acquisition,  were
$4,759 million. In 1999, spending was largely directed toward cable-distribution
systems,  focusing  on the  upgrade  of cable  plants.  Capital  additions  also
included contributions to various nonconsolidated investments.

OTHER AND CORPORATE
This group reflects the results of AT&T  Solutions,  our outsourcing and network
management  business,  International  Operations and Ventures,  other  corporate
operations,  corporate staff  functions and elimination of transactions  between
segments. Included in AT&T Solutions are the results of AGNS, which was acquired
for cash in phases throughout 1999.

For the Years Ended December 31,                  1999       1998      1997
Dollars in millions

Revenue                                        $ 2,819    $ 1,321   $   888
EBIT                                              (991)    (3,023)   (2,056)
EBITDA                                            (273)    (2,547)   (1,587)
Capital additions                                1,798        779     1,055

At December 31,                                   1999       1998
Total assets                                   $20,002    $12,459

REVENUE
For 1999, revenue increased $1,498 million, or 113.4%.  Excluding the results of
AGNS,  the  majority of which was  acquired in April 1999,  revenue for the year
increased  $285  million,  or 21.5%.  The increase was  primarily  driven by the
continued  strength  of AT&T  Solutions'  outsourcing  business,  and  growth in
International  Operations and Ventures. These increases were partially offset by
the increase in the  elimination  of  intercompany  revenue and the sale of AT&T
Solutions  Customer Care (ASCC) in 1998.  The  elimination of revenue and profit
generated by the sale of services  between  segments is primarily  the result of
sales of business  long  distance  services  to other AT&T units.  For the year,
intercompany  revenue  eliminated was $1,585 million,  an increase of 62.5% from
1998. This increase can be attributed to the rise in Business Services' sales to
AT&T Solutions (including the impact of AGNS) and Wireless Services.

<PAGE>

Revenue  increased  $433 million,  or 48.8%,  in 1998.  This revenue  growth was
primarily due to increases in  International  Operations and Ventures,  and AT&T
Solutions, partially offset by revenue of ASCC, which we sold in 1998.

EBIT/EBITDA
EBIT and EBITDA deficits in 1999 improved $2,032 million,  or 67.2%,  and $2,274
million,  or 89.3%,  respectively.  Adjusted  to exclude the impacts of gains on
sales of AT&T  Canada and  WOOD-TV in 1999 and ASCC and LIN-TV in 1998,  and net
restructuring  and  other  charges  in both 1999 and 1998,  EBIT  improved  $217
million,  or 18.6%,  to a deficit of $959  million in 1999.  On the same  basis,
EBITDA  improved  $460  million,  or 65.8%,  to a deficit of $240  million.  The
increases can be  attributed to  improvements  in the operating  performance  of
International  Operations  and  Ventures,  benefits  from  ongoing  cost-control
initiatives and the sales of miscellaneous investments. Negatively impacting the
improvements  in EBIT and  EBITDA was less  interest  income due to a lower cash
balance and distributions on trust preferred securities.

In 1998, the EBIT and EBITDA deficits  increased 47.1% and 60.8%,  respectively,
over 1997. Adjusted to exclude restructuring and other charges recorded in 1998,
gains on the 1998 sales of ASCC and LIN-TV  and the 1997  restructuring  reserve
reversal,  EBIT improved $980 million, or 45.4%, to a deficit of $1,176 million,
and EBITDA  improved  $987  million,  or 58.4%,  to a deficit of $700 million in
1998.  This was primarily due to lower corporate  overhead  related to headcount
reductions and lower employee benefit costs,  higher interest income  associated
with a larger cash balance,  and  improvements  in the operating  performance of
AT&T Solutions and International Operations and Ventures.

OTHER ITEMS
Capital additions increased $1,019 million in 1999 and decreased $276 million in
1998.  Additional  spending in 1999  reflected  increased  international  equity
investments  that support our global  strategy.  The decrease in 1998  reflected
fewer international equity investments compared with 1997.

Total assets increased $7,543 million at December 31, 1999, primarily due to the
acquisition of AGNS.

SUPPLEMENTAL DISCLOSURES

AT&T SOLUTIONS
AT&T Solutions is composed of the Solutions  outsourcing unit, the internal AT&T
Information  Technology  Services  unit and the  recently  acquired  AT&T Global
Network Services (AGNS). The results of AT&T Solutions are included in the Other
and Corporate group.

For the Years Ended December 31,                    1999      1998      1997
Dollars in millions
Revenue                                           $3,120    $1,098     $ 824
EBIT                                                 (12)       31      (151)
EBITDA                                               482       307       135
Capital additions                                    384       280       289

At December 31,                                     1999      1998
Total assets                                      $7,064   $ 1,023

REVENUE
AT&T  Solutions  revenue for 1999 rose $2,022  million,  or 184.1%.  Adjusted to
exclude the impact of the acquisition of AGNS, revenue grew $531 million, or

<PAGE>

48.3%,  to $1,629  million.  For 1998  revenue  grew  33.2% to  $1,098  million.
Throughout both 1999 and 1998,  revenue strength was associated with the signing
of new  contracts  as well as the  expansion  of  services  provided to existing
clients.

AT&T Solutions,  with more than 30,000 clients,  including IBM, CitiGroup,  Bank
One,  McGraw-Hill,  United  Health Group,  Textron,  JP Morgan,  Merrill  Lynch,
MasterCard International and the State of Texas General Services Commission, has
the potential for more than $11 billion in outsourcing  revenue over the life of
signed  contracts.  During the fourth  quarter of 1999,  AT&T  Solutions  signed
multimillion dollar contracts with General Motors and Delphi Automotive Systems.
Also, in January 2000,  AT&T Solutions  signed a contract with Acer, the world's
third-largest  manufacturer of personal  computers,  its first global  agreement
with a non-U.S.-based multinational corporation.

EBIT/EBITDA
For 1999, EBIT declined $43 million and EBITDA  improved $175 million.  Adjusted
to exclude the impact of AGNS, EBIT improved $61 million,  or 192.0%, and EBITDA
improved $85 million, or 27.4%. For 1998, EBIT improved $182 million, or 120.7%,
and EBITDA improved $172 million,  or 127.7%.  For both periods,  revenue growth
combined with margin improvement resulting from ongoing cost-control initiatives
drove the EBIT and EBITDA improvements.

OTHER ITEMS
Capital additions  increased $104 million in 1999 and declined slightly in 1998.
Increased  spending  in  1999  related  to  AGNS'  purchases  of  client-support
equipment.  Spending  in 1998 and 1997 was  directed  primarily  toward the AT&T
information-technology infrastructure.

Total  assets  increased  $6,041  million,  or 590.4%,  at  December  31,  1999,
primarily  due to  goodwill  and other  intangible  assets  associated  with the
purchase of AGNS and increased accounts receivable.

INTERNATIONAL OPERATIONS AND VENTURES
International  Operations  and Ventures  includes  AT&T's  consolidated  foreign
operations  such as frame relay  services in the United  Kingdom,  international
carrier  services  and  international   online  services.   However,   bilateral
international  long distance traffic is not included here; it is included in our
Business  and  Consumer  Services  segments.  The  earnings  or losses of AT&T's
nonconsolidated  international joint ventures and alliances,  such as Alestra in
Mexico, AT&T Canada Corp.,  Rogers Cantel in Canada and Japan Telecom,  are also
included.  The results of International  Operations and Ventures are included in
the Other and Corporate group.

For the Years Ended December 31,                  1999       1998       1997
Dollars in millions

Revenue                                         $1,228     $1,083      $ 712
EBIT                                              (316)      (333)      (399)
EBITDA                                            (252)      (264)      (338)
Capital additions                                1,095        155        496

At December 31,                                   1999       1998
Total assets                                    $2,777     $1,915

<PAGE>

REVENUE
International  Operations  and  Ventures  revenue grew $145  million,  or 13.5%,
during 1999 and $371 million, or 52.1%, in 1998.  International carrier services
and frame relay services volume increases drove revenue growth in both years. In
addition, nearly one-half of the revenue growth in 1998 can be attributed to the
1998  purchase of ACC Corp.  During  1998,  we  streamlined  our  operations  by
divesting certain nonstrategic businesses. Such streamlining, which continued in
1999,  along with the exit from  additional  businesses that would have competed
directly with Concert, negatively impacted our revenue growth in 1999.

EBIT/EBITDA
EBIT and EBITDA improved $17 million and $12 million, respectively, during 1999.
Excluding  restructuring and other charges, and certain gains and losses in 1999
and 1998,  EBIT improved $131 million,  or 52.9%,  to a deficit of $117 million,
and EBITDA improved $126 million, or 70.5%, to a deficit of $53 million, for the
year.  Such  improvements  can be attributed to the continued  restructuring  of
international operations, which included the disposition of certain nonstrategic
investments.  Also  contributing  to the  growth  was  the  improving  financial
performance in other ventures and alliances,  international carrier services and
frame relay services.  Negatively  impacting EBIT and EBITDA were costs incurred
during 1999 related to the launch of Concert.

EBIT improved $66 million and EBITDA  improved $74 million in 1998 compared with
1997.  Excluding an asset impairment charge recorded in 1998, EBIT improved $151
million,  or 38.0%,  to a deficit  of $248  million,  and EBITDA  improved  $159
million,  or 47.1%,  to a deficit of $179 million,  compared with 1997. The EBIT
and EBITDA  improvements  were  primarily  due to revenue  increases  and AT&T's
efforts to streamline its  international  operations and exit  nonstrategic  and
unprofitable businesses.

OTHER ITEMS
Capital  additions in 1999 increased $940 million over 1998, to $1,095  million,
driven by increased  investments in nonconsolidated  subsidiaries,  such as AT&T
Canada and Japan  Telecom.  Capital  additions  decreased  $341  million in 1998
compared with 1997. The decrease was primarily due to the high level of spending
in 1997, which was directed toward the funding of start-up ventures.

Total  assets were $2,777  million at December 31,  1999,  compared  with $1,915
million at December 31, 1998.  The increase was primarily due to  investments in
nonconsolidated  subsidiaries,  partially  offset by the  divestment  of certain
nonstrategic businesses.

LIBERTY MEDIA GROUP
Liberty  Media Group (LMG)  produces,  acquires and  distributes  entertainment,
educational and informational programming services through all available formats
and  media.  LMG is  also  engaged  in  electronic  retailing  services,  direct
marketing  services,   advertising  sales  relating  to  programming   services,
infomercials  and  transaction  processing.  Losses from LMG were $2,022 million
from the date of acquisition through December 31, 1999.

LIQUIDITY
For the Years Ended December 31,                  1999      1998       1997
Dollars in millions
CASH FLOW OF CONTINUING OPERATIONS:
  Provided by operating activities             $11,635   $10,217    $ 8,501
  (Used in) provided by investing activities   (27,043)    3,582     (6,755)
  Provided by (used in) financing activities    13,272   (11,049)    (1,540)

EBITDA                                         $18,292   $13,415    $11,327

<PAGE>

In 1999,  net cash provided by operating  activities  of  continuing  operations
increased  $1,418 million.  The increase was primarily  driven by an increase in
net income  excluding  the  noncash  impact of  depreciation  and  amortization,
restructuring  and other  charges,  and the  impact of  losses  from our  equity
investments.  Partially  offsetting  this  source was an  increase  in  accounts
receivable,  driven by higher revenue,  and an increase in our 1999 tax payments
primarily  related to the 1998 gain on the sale of UCS. The increase in net cash
provided by operating  activities  in 1998 was  primarily  due to an increase in
operational net income from continuing operations.

AT&T's investing activities resulted in a net use of cash of $27,043 million for
1999,  compared  with a net source of cash of $3,582  million  for 1998.  During
1999,  AT&T used $14.3  billion for capital  expenditures  and other  additions,
contributed  $5.5  billion of cash to LMG,  purchased  AGNS for $4.9 billion and
loaned $1.5 billion to MediaOne to pay termination  fees to Comcast  Corporation
(Comcast).  During 1998,  we received $5.7 billion as settlement of a receivable
in conjunction with the sale of UCS as well as $3.5 billion in proceeds from the
sale.  Also in 1998,  we received a total of $1.6  billion in proceeds  from the
sales of  LIN-TV,  ASCC and  SmarTone.  Our  capital  spending  of $7.8  billion
partially  offset  these 1998 sources of cash.  During 1997,  the primary use of
cash was in connection with capital spending of $7.6 billion.

During 1999,  net cash  provided by  financing  activities  was $13,272  million
compared  with cash used in financing  activities  of $11,049  million for 1998.
During 1999, AT&T received $8.4 billion in cash from 1999 bond issuances,  $10.2
billion from the issuance of  commercial  paper and  short-term  debt,  and $5.0
billion from the issuance of  convertible  securities  and warrants to Microsoft
Corporation  (Microsoft).  Significant  uses of cash were $3.9  billion  for the
repurchase of AT&T common stock, $2.8 billion to retire long-term debt, and $2.7
billion  to pay  dividends  on common  stock.  In 1998,  cash used in  financing
activities  was largely  attributable  to the pay down of  commercial  paper and
debt, and the repurchase of  approximately  $3 billion of AT&T common stock. The
AT&T common stock  repurchased in 1998 and 1999 was reissued in connection  with
the  Broadband  acquisition.  Cash  used in  financing  activities  in 1997  was
primarily for the payment of dividends on common stock.

AT&T has $4.6  billion  of  registered  notes and  warrants  to  purchase  notes
available  for  public  sale  under a  registration  statement  filed  with  the
Securities and Exchange Commission.  AT&T may sell notes under this registration
statement based on market conditions. The board of directors recently authorized
us to increase our long-term borrowing capacity by $10 billion. This would bring
total notes available for public or private sale to $14.6 billion. Proceeds from
the potential sale of private or publicly-placed notes and warrants will be used
for funding  investments  in  subsidiary  companies,  acquisitions  of licenses,
assets or  businesses  and general  corporate  purposes.  In  addition,  we will
receive funds from the initial public offering of AT&T Wireless  tracking stock,
which is expected to take place in the first half of 2000.

In 2000, we expect cash  generated  from  operations to be the primary source of
funding  for our  dividend  requirements  and  capital  expenditures.  Since the
majority of debt maturing  within one year is commercial  paper and debt with an
original  maturity of one year or less,  we expect to fund  repayments  of these
with other short-term borrowings.

At December 31, 1999,  we had a 364-day,  $7 billion  revolving-credit  facility
with a consortium of 42 lenders. We also had additional 364-day, revolving-

<PAGE>

credit  facilities of $3 billion.  These lines were for commercial paper back-up
and were  unused  at  December  31,  1999.  In  addition,  we had a $20  billion
commitment  from multiple  lenders with credit  agreements to be finalized  upon
consummation  of the  proposed  merger  with  MediaOne.  In  February  2000,  we
negotiated the syndication of a new 364-day, $10 billion facility.  As a result,
the $3 billion credit  facilities and the  commitments  associated  with the $20
billion  syndication   terminated.   Also  in  February  2000,  the  $7  billion
revolving-credit facility expired.

[Included  in the 1999 Annual  Report is a chart  entitled  "EBITDA."  The chart
depicts EBITDA on an as reported basis and an operational  basis, which excludes
restructuring  and other charges,  and certain gains and losses,  over the eight
quarters ended December 31, 1999.]

EBITDA  [earnings,  including other income  (expense),  before interest,  taxes,
depreciation and amortization] is a measure of our ability to generate cash flow
and should be  considered  in addition  to, but not as a substitute  for,  other
measures of financial performance reported in accordance with generally accepted
accounting  principles.  EBITDA increased  $4,877 million,  or 36.4%, to $18,292
million in 1999 compared with 1998.  EBITDA increased $2,088 million,  or 18.4%,
to  $13,415  million in 1998  compared  with 1997.  Excluding  Broadband,  AGNS,
restructuring and other charges, and certain gains and losses,  EBITDA increased
24.5% to $18,873  million in 1999 from $15,159 million in 1998. The increase was
primarily due to increased  revenue and an improving cost  structure.  Excluding
restructuring and other charges, and certain gains and losses,  EBITDA increased
33.2% in 1998  compared with 1997,  primarily as a result of our  cost-reduction
efforts coupled with higher revenue.

RISK MANAGEMENT
We are exposed to market  risk from  changes in  interest  and foreign  exchange
rates, as well as changes in equity prices associated with affiliate  companies.
On a limited basis, we use certain derivative financial  instruments,  including
interest  rate swaps,  options,  forwards,  equity  hedges and other  derivative
contracts,  to manage  these  risks.  We do not use  financial  instruments  for
trading  or  speculative  purposes.   All  financial  instruments  are  used  in
accordance with board-approved policies.

We use  interest  rate swaps to manage the impact of  interest  rate  changes on
earnings  and cash  flows  and also to lower our  overall  borrowing  costs.  We
monitor our interest rate risk on the basis of changes in fair value. Assuming a
10% downward  shift in interest  rates at December  31, 1999 and 1998,  the fair
value of interest rate swaps and the  underlying  hedged debt would have changed
by $3 million in both periods.  Assuming a 10% downward  shift in interest rates
at  December  31,  1999 and 1998,  the fair  value of  unhedged  debt would have
increased by $938 million and $290 million, respectively.

We use  forward  and  option  contracts  to reduce our  exposure  to the risk of
adverse changes in currency  exchange rates. We are subject to foreign  exchange
risk related to reimbursements to foreign telephone  companies for their portion
of the revenue billed by AT&T for calls placed in the United States to a foreign
country.  In addition,  we are also subject to foreign  exchange risk related to
other foreign-currency-denominated transactions. As of December 31, 1999, we had
a net unrealized  loss on forward  contracts of $27 million.  As of December 31,
1998,  we  had a  net  unrealized  gain  on  forward  contracts  of $9  million.
Unrealized gains and losses are calculated  based on the difference  between the
contract rate and the rate available to terminate the contracts. We monitor our

<PAGE>

foreign exchange rate risk on the basis of changes in fair value. Assuming a 10%
appreciation in the U.S. dollar at December 31, 1999 and 1998, the fair value of
these  contracts  would have  resulted in  additional  unrealized  losses of $29
million and $20 million, respectively.  Because these contracts are entered into
for hedging  purposes,  we believe that these losses would be largely  offset by
gains on the underlying firmly committed or anticipated transactions.

We use  equity  hedges  to manage  our  exposure  to  changes  in equity  prices
associated with stock appreciation  rights of affiliated  companies.  Assuming a
10% decrease in equity  prices of  affiliated  companies,  the fair value of the
equity hedge would have  decreased by $81 million.  Because these  contracts are
entered  into for hedging  purposes,  we believe that the decrease in fair value
would be largely offset by gains on the underlying transaction.

The changes in fair value, as discussed above,  assume the occurrence of certain
adverse  market  conditions.  They  do not  consider  the  potential  effect  of
favorable  changes in market  factors and do not represent  projected  losses in
fair  value  that we expect to incur.  Future  impacts  would be based on actual
developments  in global  financial  markets.  We do not foresee any  significant
changes in the strategies  used to manage interest rate risk,  foreign  currency
rate risk or equity price risk in the near future.

EURO CONVERSION
On January 1, 1999,  certain  members of the European  Union  established  fixed
conversion  rates between their  existing  currencies  and the European  Union's
currency (Euro).  The transition period is anticipated to extend through July 1,
2002. We have assessed the impact of the conversion on  information-  technology
systems,   currency   exchange  rate  risk,   derivatives  and  other  financial
instruments,  continuity  of  material  contracts  as  well  as  income  tax and
accounting  issues.  To date,  the  conversion has not had, nor do we expect the
conversion  during  the  transition  period to have,  a  material  effect on our
consolidated financial statements.

FINANCIAL CONDITION
At December 31,                              1999         1998
Dollars in millions
Total assets                              $169,406     $59,550
Total liabilities                           81,762      33,919
Total shareowners' equity                   78,927      25,522

Total  assets  increased  $109,856  million,  or 184.5%,  at December  31, 1999,
primarily  due to the impact of the  Broadband  acquisition,  which  resulted in
franchise costs; increased other investments including Cablevision,  Excite@Home
and  Lenfest  Communications,  Inc.;  and the  addition of  property,  plant and
equipment.   Property,  plant  and  equipment  also  increased  due  to  capital
expenditures made during the year. In addition,  assets increased due to Liberty
Media  Group,  which  is  recorded  as  an  equity  investment,   and  the  AGNS
acquisition,   which  resulted  in  increased  goodwill.  These  increases  were
partially  offset by a net decrease in cash,  which was used to  partially  fund
capital expenditures, the common stock repurchases and the purchase of AGNS.

[Included in the 1999 Annual Report is a bar graph entitled "Capital Investments
Support Growth  Opportunities."  The graph depicts our capital  investments  for
1998 and 1999 for data/IP, wireless, broadband, local and long distance.]

<PAGE>

Total liabilities at December 31, 1999,  increased  $47,843 million,  or 141.0%,
primarily due to the impact of the Broadband acquisition,  particularly debt and
deferred income taxes. In addition, we issued $8.5 billion of long-term debt and
$10.2 billion of short-term debt to fund acquisitions,  capital expenditures and
the common stock  repurchases.  These  increases  were  partially  offset by the
retirement of $2.8 billion of long-term debt.

At the  time  of the  acquisition,  TCI  had  mandatorily  redeemable  preferred
securities  that were issued  through a  subsidiary  trust and  preferred  stock
outstanding.  In June 1999,  Microsoft  Corporation  purchased  $5.0  billion of
quarterly convertible income preferred  securities,  which AT&T issued through a
subsidiary  trust.  These  securities  are  reflected  between  liabilities  and
shareowners' equity in the balance sheet. The preferred stock is recorded within
minority interest in equity of consolidated subsidiaries.

Total  shareowners'  equity was $78,927  million at  December  31,  1999.  Total
shareowners'  equity includes the equity  attributable to both AT&T common stock
and Liberty Media tracking  stock.  The AT&T common stock equity at December 31,
1999, was $40,406 million, an increase of 58.3% from $25,522 million at December
31, 1998.  This increase was primarily due to the issuance of shares  related to
Broadband, partially offset by shares repurchased. Liberty Media Group equity at
December 31, 1999, was $38,521 million.

The ratio of total debt to total AT&T Group  capital  (debt divided by debt plus
equity of AT&T Group) at December 31,  1999,  was 44.3%  compared  with 20.9% at
December 31, 1998. For purposes of this calculation,  debt included $1.6 billion
of redeemable preferred securities issued through a subsidiary trust of TCI, and
equity included $5.0 billion of convertible  preferred securities issued through
a  subsidiary  trust of AT&T.  The  increase  was  primarily  due to higher debt
partially offset by a higher equity base.

NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial  Accounting  Standards Board (FASB) issued Statement
of Financial  Accounting  Standard  (SFAS) No. 133,  "Accounting  for Derivative
Instruments and Hedging  Activities."  Among other provisions,  it requires that
entities  recognize  all  derivatives  as either  assets or  liabilities  in the
statement of financial  position and measure  those  instruments  at fair value.
Gains and losses resulting from changes in the fair values of those  derivatives
would be accounted  for  depending on the use of the  derivative  and whether it
qualifies for hedge accounting. The effective date for this standard was delayed
via the issuance of SFAS No. 137. The effective date for SFAS No. 133 is now for
fiscal  years  beginning  after  June  15,  2000,  though  earlier  adoption  is
encouraged and retroactive application is prohibited.  For AT&T, this means that
the standard  must be adopted no later than January 1, 2001.  Based on the types
of derivatives we currently have, we do not expect the adoption of this standard
will have a material impact on AT&T's results of operations,  financial position
or cash flows.

In  December  1999,  the SEC issued  Staff  Accounting  Bulletin  (SAB) No. 101,
"Revenue  Recognition in Financial  Statements,"  which must be adopted by March
31, 2000.  We are  currently  assessing  the impact of SAB 101 on our results of
operations.

YEAR 2000
AT&T's  Year 2000  (Y2K)  program  addressed  the use of  two-digit,  instead of
four-digit,  year fields in computer  systems.  If  computer  systems  could not
distinguish between the year 1900 and the year 2000, system failures or other

<PAGE>

computer  errors  could have  resulted.  The  potential  for failures and errors
spanned all aspects of our business,  including computer systems, voice and data
networks,  and  building   infrastructures.   We  also  needed  to  address  our
interdependencies  with our suppliers,  connecting carriers and major customers,
all of whom  faced the same  concern.  All  computer  systems  were  tested  and
repaired  as of  December  31,  1999,  and no major  Y2K-related  problems  were
reported  as the  calendars  rolled to January  1, 2000.  The cost of AT&T's Y2K
program was $725 million since inception in 1997. Total costs for 1999 were $275
million,  of which  approximately $45 million  represented  capital spending for
upgrading and replacing  noncompliant  computer  systems.  Less than half of the
1999  costs  represent  internal  information  technology  resources  that  were
redeployed  from other  projects and are expected to return to these projects in
2000.

SUBSEQUENT EVENTS

On January 5,  2000,  AT&T and  British  Telecommunications  plc (BT)  announced
financial  closure of Concert.  Concert began  operations in 2000 as the leading
global  telecommunications  company serving  multinational  business  customers,
international carriers and Internet service providers worldwide.

On January 18,  2000,  we sold our  ownership  in Lenfest  Communications,  Inc.
(Lenfest),  to a subsidiary of Comcast. In connection with the sale, we received
48,555,280 shares of Comcast Class Special A common stock,  which had a value of
$2,510 million at the date of disposition.

On  February 3, 2000,  a  registration  statement  was filed with the SEC for an
initial public offering of AT&T Wireless Group tracking stock.  The new tracking
stock will provide current shareowners and future investors with a security tied
directly to the economic performance of AT&T's Wireless business.  AT&T Wireless
Group  will  include  voice  and  data  mobility,  fixed  wireless  and  certain
international wireless investments.  At a special shareowner meeting in March, a
proposal  to create the  tracking  stock was  approved.  We intend to conduct an
initial  public  offering of AT&T Wireless  Group  tracking  stock in the second
quarter. A distribution, which may be in the form of a dividend, exchange offer,
or a combination of these, of the AT&T Wireless Group tracking stock is intended
to be made to shareowners of AT&T common stock sometime  thereafter.  Holders of
Liberty Media Group tracking stock will not be entitled to this distribution.

In February  2000,  AT&T entered into an agreement  with TeleCorp PCS,  Inc., to
swap certain  licenses that we currently own in the midwestern  United States as
well as cash of  approximately  $100 million in exchange for licenses in several
New England markets.  The transaction is expected to close in the fourth quarter
of 2000.

STOCK INFORMATION
AT&T (ticker  symbol "T") is listed on the New York Stock  Exchange,  as well as
the Boston,  Chicago,  Cincinnati,  Pacific and  Philadelphia  exchanges  in the
United States, and on stock exchanges in Brussels,  London, Paris and Geneva. As
of December 31, 1999, AT&T had 3.2 billion shares outstanding, held by more than
4.2 million  shareowners.  Liberty  Media Group Class A and Class B common stock
(ticker symbols "LMG.A" and "LMG.B"),  tracking stock of AT&T, are listed on the
New York Stock Exchange.  As of December 31, 1999, Liberty Media Class A had 1.2
billion shares outstanding, held by 5,902 shareowners; Liberty Media Class B had
108.4 million shares outstanding, held by 417 shareowners.