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.]

<PAGE>

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
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.

<PAGE>

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.

<PAGE>

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 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    $    -    $   -



<PAGE>

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.

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%.

<PAGE>

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.

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.

<PAGE>

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
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.

<PAGE>

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
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).

<PAGE>

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

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.

<PAGE>

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.

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.

<PAGE>

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.

<PAGE>

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

<PAGE>

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.

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.

<PAGE>

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
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.

<PAGE>

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
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

<PAGE>

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).

<TABLE>
<CAPTION>

For the Years Ended December 31,                        1999          1998          1997
Dollars in millions
<S>                                                  <C>           <C>           <C>
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
</TABLE>

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.

<PAGE>

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

<PAGE>

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.

<TABLE>
<CAPTION>

For the Years Ended December 31,                        1999         1998          1997
Dollars in millions
<S>                                                  <C>          <C>           <C>
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
</TABLE>

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.

<TABLE>
<CAPTION>

For the Years Ended December 31,                        1999          1998          1997
Dollars in millions
<S>                                                  <C>           <C>           <C>
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
</TABLE>

<PAGE>

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.
(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.

<PAGE>

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.

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.

<PAGE>

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
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.

<PAGE>

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.

<TABLE>
<CAPTION>

For the Years Ended December 31,                         1999       1998       1997
Dollars in millions
<S>                                                   <C>        <C>           <C>
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
</TABLE>

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.

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.

<PAGE>

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
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.

<PAGE>

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.

<TABLE>
<CAPTION>

For the Years Ended December 31,                       1999       1998      1997
Dollars in millions
<S>                                                  <C>        <C>        <C>
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
</TABLE>

<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.

<PAGE>

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

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.

<PAGE>

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-
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.

<PAGE>

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
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.

<PAGE>

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.]

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.

<PAGE>

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
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

<PAGE>

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.

LEGISLATIVE AND REGULATORY DEVELOPMENTS
The  Telecommunications  Act of 1996  was  designed  to  foster  local  exchange
competition  by  establishing a regulatory  framework to govern new  competitive
entry   in  local   and   long   distance   telecommunications   services.   The
Telecommunications Act also permits Regional Bell Operating Companies (RBOCs) to
provide  interexchange  services  originating  in any state in its region  after
demonstrating  to the FCC that such  provision  is in the  public  interest  and
satisfying the conditions for developing  local  competition  established by the
Telecommunications Act.

<PAGE>

A number of court decisions in 1997 severely  restricted  implementation  of the
Telecommunications  Act and delayed local service  competition.  Recent rulings,
however,  have  upheld  the  Telecommunications  Act.  Despite  these  favorable
rulings,  there  can be no  assurance  that  the  prices  and  other  conditions
established  in each state will provide for  effective  local  service entry and
competition or provide AT&T with new market opportunities.

In July 1997, the United States Court of Appeals for the Eighth Circuit  vacated
the pricing  rules that the FCC had  adopted to  implement  the  sections of the
local  competition  provisions  of  the  Telecommunications  Act  applicable  to
interconnection  with local exchange  carrier (LEC) networks and the purchase of
unbundled  network  elements and wholesale  services from LECs. In October 1997,
the Eighth Circuit  vacated an FCC Rule that had prohibited  incumbent LECs from
separating  network  elements that are combined in the LECs' network,  except at
the request of the competitor purchasing the elements. These decisions increased
the difficulty and costs of providing  competitive local service through the use
of unbundled network elements purchased from the incumbent LECs.

On December 31, 1997, the U.S. District Court for the Northern District of Texas
issued a memorandum opinion and order holding that the Telecommunications  Act's
restrictions on the provision of in-region,  interLATA  service by the RBOCs are
unconstitutional. AT&T and other carriers (collectively, "intervenors") filed an
appeal  with the  United  States  Court of  Appeals  for the Fifth  Circuit.  On
February 11,  1998,  the  District  Court  suspended  the  effectiveness  of its
December 31 memorandum opinion and order pending appeal.

On September 4, 1998,  the United  States Court of Appeals for the Fifth Circuit
rejected  arguments that the  Telecommunications  Act is  unconstitutional,  and
reversed the district court's contrary opinion. On December 22, 1998, the United
States Court of Appeals for the District of Columbia  Circuit rejected a similar
challenge to the constitutionality of the Telecommunications Act. On January 19,
1999,  the United States  Supreme Court denied  petitions  filed by the RBOCs to
review the decision of the Fifth Circuit Court of Appeals.

On January 25, 1999, the United States Supreme Court issued a decision reversing
the Eighth Circuit Court of Appeals' holding that the FCC lacks  jurisdiction to
establish  pricing  rules  applicable  to  interconnection  and the  purchase of
unbundled  network  elements,  and the Court of Appeals'  decision to vacate the
FCC's rule prohibiting  incumbent LECs from separating network elements that are
combined in the LECs' networks. The effect of the Supreme Court's decision is to
reinstate  the FCC's rules  governing  pricing and the  separation  of unbundled
network  elements.  The Eighth  Circuit  Court of Appeals  will now consider the
incumbent  LECs' claims that although the FCC has  jurisdiction to adopt pricing
rules, the rules it adopted are not consistent with the applicable provisions of
the Act. The Supreme Court also vacated the FCC's rule  identifying and defining
the  unbundled  network  elements  that  incumbent  LECs  are  required  to make
available to new  entrants,  and directed  the FCC to  re-examine  this issue in
light of the standards mandated by the Telecommunications Act.

<PAGE>

In  response  to  the  Supreme   Court's   decision,   the  FCC   completed  its
re-examination  and released an order  identifying  and  defining the  unbundled
network  elements  that  incumbent  LECs are  required to make  available to new
entrants.  That order  readopted  the original  list of  elements,  with certain
exceptions. An association of incumbent LECs has appealed the FCC's order to the
United States Court of Appeals for the District of Columbia  Circuit,  and asked
the  Court to hear the  appeal  on an  expedited  basis.  A number  of  parties,
including AT&T and other  incumbent  LECs, have petitioned the FCC to reconsider
and/or  clarify  its  order.  The FCC has moved to hold the  appeal in  abeyance
pending its disposition of the reconsideration petitions.

In view of the proceedings pending before the Eighth Circuit,  D.C. Circuit, FCC
and state public utility commissions,  there can be no assurance that the prices
and other conditions  established in each state will provide for effective local
service entry and competition or provide AT&T with new market opportunities.

In  December  1999,  Bell  Atlantic  obtained  approval  to offer long  distance
telecommunications  service  in New  York  State,  the  first  time an RBOC  had
received this approval  under the  Telecommunications  Act. Bell Atlantic  began
offering combined local and long distance service in January 2000.

In January 2000, SBC Communications, Inc., filed with the FCC an application for
authorization to offer long distance  telecommunications service in Texas. Under
the  Telecommunications  Act,  the FCC is  required  to issue a decision  on the
application by April 2000.

COMPETITION

AT&T  currently  faces  significant  competition  and expects  that the level of
competition will continue to increase.  The Telecommunications Act permits RBOCs
to provide interLATA  interexchange services after demonstrating to the FCC that
such  provision is in the public  interest and  satisfying  the  conditions  for
developing  local  competition  established by the  Telecommunications  Act. The
RBOCs have petitioned the FCC for permission to provide interLATA  interexchange
services in one or more states  within their home  markets;  to date the FCC has
granted only one petition. In December 1999, Bell Atlantic became the first RBOC
to obtain FCC  approval  to provide  long  distance  in a state  within its home
territory,  in New York. In January 2000, SBC  Communications,  Inc., applied to
the FCC for authorization to provide long distance service in Texas; by law, the
FCC is required to rule on the application in April 2000.

To the extent that the RBOCs obtain  in-region  interLATA  authority  before the
Telecommunications   Act's   checklist   of   conditions   has  been   fully  or
satisfactorily   implemented  and  adequate   facilities-based   local  exchange
competition   exists,   there  is  a  substantial   risk  that  AT&T  and  other
interexchange  service  providers  would be at a  disadvantage  to the  RBOCs in
providing both local service and combined service packages. Because it is widely
anticipated  that  substantial  numbers of long distance  customers will seek to
purchase local,  interexchange  and other services from a single carrier as part
of a combined-or full-service package, any competitive  disadvantage,  inability
to  profitably  provide  local  service  at  competitive  rates,  or  delays  or
limitations in providing local service or combined-service packages is likely to
adversely  affect  AT&T's  future  revenue  and  earnings.   In  addition,   the
simultaneous   entrance  of  numerous  new  competitors  for  interexchange  and
combined-service  packages is likely to adversely  affect  AT&T's long  distance
revenue and could adversely affect earnings.

<PAGE>

SIX-YEAR SUMMARY OF SELECTED FINANCIAL DATA (UNAUDITED)
AT&T Corp. and Subsidiaries
Dollars in millions (except per share amounts)

<TABLE>
<CAPTION>

                                                 1999(1),(2)   1998(2)      1997       1996       1995(2)     1994
<S>                                              <C>           <C>          <C>        <C>        <C>         <C>
RESULTS OF OPERATIONS
Revenue                                          $62,391       $53,223      $51,577    $50,688    $48,449     $46,063
Operating income                                  10,859         7,487        6,836      8,709      5,169       7,393
Income from continuing operations                  3,428         5,235        4,249      5,458      2,981       4,230

EARNINGS PER COMMON SHARE AT&T Group income from continuing operations:

  Basic(2)                                       $  1.77       $  1.96      $1.59      $ 2.07     $  1.15     $  1.65
  Diluted(2)                                        1.74          1.94       1.59        2.07        1.14        1.64
Dividends declared per AT&T Group common share      0.88          0.88       0.88        0.88        0.88        0.88
Liberty Media Group loss(3):
  Basic and diluted                                 1.61             -          -           -           -           -

ASSETS AND CAPITAL
Property, plant and equipment, net               $39,618       $26,903    $24,203     $20,803     $16,453     $14,721
Total assets-continuing operations               169,406        59,550     59,994      55,838      54,365      47,926
Total assets                                     169,406        59,550     61,095      57,348      62,864      57,817
Long-term debt                                    21,591         5,556      7,857       8,878       8,913       9,138
Total debt                                        34,224         6,727     11,942      11,351      21,081      18,720
Mandatorily redeemable preferred securities        1,626             -          -           -           -           -
Shareowners' equity                               78,927        25,522     23,678      21,092      17,400      18,100
AT&T Group book value per common share             12.64          9.70       8.82        7.92        6.64        7.02
AT&T Group debt ratio(4)                           44.3%         20.9%      33.5%       35.0%       54.8%       50.8%
Gross capital expenditures                        13,511         7,981      7,714       7,084       4,659       3,504

OTHER INFORMATION
Operating income as a percent of revenue            17.4%         14.1%     13.3%       17.2%       10.7%       16.1%
Income from continuing operations
  attributable to AT&T Group as a
  percent of revenue                                 8.7%          9.8%      8.2%       10.8%        6.2%        9.2%
Return on average common equity-AT&T Group          15.2%         25.3%     19.7%       27.1%        0.4%       29.5%
EBIT(5)                                           $10,358        $8,734    $7,279      $9,114      $5,439      $7,450
EBITDA(5)                                          18,292        13,415    11,327      11,995       8,112       9,914
Employees-AT&T Group continuing operations        147,800       107,800   130,800     128,700     126,100     116,400
Data at year-end:
  AT&T stock price per share(6)                     50.81         50.50     40.87       27.54       29.60       22.97
  Liberty Media Group A stock price per share       56.81             -         -           -           -           -
  Liberty Media Group B stock price per share       68.75             -         -           -           -           -
</TABLE>

1. In connection with the Tele-Communications, Inc. merger, which was completed
   March 9, 1999, AT&T issued separate tracking stock for Liberty Media Group
   (LMG). LMG is accounted for as an equity investment. AT&T Group refers to
   results excluding LMG.

2. Income from continuing  operations  attributable to AT&T Group included a net
   expense consisting of restructuring and other charges,  and certain gains and
   losses of $1.5 billion, $1.1 billion and $2.0 billion in 1999, 1998 and 1995,
   respectively.

3. No dividends have been declared for LMG tracking stock.

4. Debt ratio reflects debt as a percent of total capital (debt plus equity). In
   1999  debt  included  $1.6  billion  of  mandatorily   redeemable   preferred
   securities and equity included $5.0 billion of convertible securities.

5. EBIT [earnings,  including other income (expense), before interest and taxes]
   and EBITDA (EBIT plus  depreciation and  amortization) for 1999 included $2.1
   billion  and $1.7  billion,  respectively,  of a net  expense  consisting  of
   restructuring  and other  charges,  and certain  gains and  losses.  EBIT and
   EBITDA included $1.7 billion and $3.0 billion of a net expense  consisting of
   restructuring  and other  charges,  and certain gains and losses for 1998 and
   1995, respectively.

6. AT&T Group  earnings per share amounts and stock prices have been restated to
   reflect the April 1999 three-for-two stock split.

<PAGE>

REPORT OF MANAGEMENT
Management is responsible for the preparation,  integrity and objectivity of the
consolidated  financial statements and all other financial  information included
in this report.  Management  is also  responsible  for  maintaining  a system of
internal controls as a fundamental requirement for the operational and financial
integrity of results. The financial  statements,  which reflect the consolidated
accounts of AT&T Corp. and subsidiaries  (AT&T) and other financial  information
shown,   were  prepared  in  conformity  with  generally   accepted   accounting
principles.  Estimates  included  in the  financial  statements  were  based  on
judgments of qualified  personnel.  To maintain its system of internal controls,
management  carefully  selects key personnel and establishes the  organizational
structure to provide an appropriate division of responsibility. We believe it is
essential to conduct  business  affairs in accordance  with the highest  ethical
standards as set forth in the AT&T Code of Conduct.  These  guidelines and other
informational programs are designed and used to ensure that policies,  standards
and managerial  authorities  are understood  throughout  the  organization.  Our
internal  auditors  monitor  compliance with the system of internal  controls by
means of an annual plan of internal  audits.  On an ongoing basis, the system of
internal  controls is reviewed,  evaluated  and revised as necessary in light of
the results of constant management  oversight,  internal and independent audits,
changes in AT&T's business and other  conditions.  Management  believes that the
system of internal controls,  taken as a whole,  provides  reasonable  assurance
that (1)  financial  records are  adequate  and can be relied upon to permit the
preparation  of financial  statements  in  conformity  with  generally  accepted
accounting  principles,  and (2) access to assets occurs only in accordance with
management's authorizations.

  The Audit Committee of the Board of Directors,  which is composed of directors
who are not employees, meets periodically with management, the internal auditors
and the  independent  accountants  to review the manner in which these groups of
individuals  are performing  their  responsibilities  and to carry out the Audit
Committee's  oversight  role with  respect to  auditing,  internal  controls and
financial  reporting matters.  Periodically,  both the internal auditors and the
independent  accountants meet privately with the Audit Committee and have access
to its individual members at any time.

  The consolidated  financial statements in this annual report have been audited
by  PricewaterhouseCoopers  LLP,  Independent  Accountants.  Their  audits  were
conducted in accordance with generally  accepted auditing  standards and include
an  assessment  of  the  internal  control  structure  and  selective  tests  of
transactions. Their report follows.

C. Michael Armstrong                      Charles H. Noski
Chairman of the Board,                    Senior Executive Vice President,
Chief Executive Officer                   Chief Financial Officer



<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareowners of AT&T Corp.:  In our opinion,  based
on our audits and the report of other auditors,  the  accompanying  consolidated
balance  sheets and the related  consolidated  statements of income,  changes in
shareowners'  equity and of cash flows present fairly, in all material respects,
the financial position of AT&T Corp. and its subsidiaries (AT&T) at December 31,
1999 and 1998, and the results of their operations and their cash flows for each
of the three years ended  December  31,  1999,  in  conformity  with  accounting
principles  generally accepted in the United States.  These financial statements
are the responsibility of AT&T's management; our responsibility is to express an
opinion on these financial  statements based on our audits. We did not audit the
financial  statements of Liberty Media Group, an equity method  investee,  which
was acquired by AT&T on March 9, 1999.  AT&T's financial  statements  include an
investment of $38,460 million as of December 31, 1999, and an equity method loss
of $2,022 million,  for the year ended December 31, 1999.  Those statements were
audited by other auditors whose report thereon has been furnished to us, and our
opinion  expressed  herein,  insofar as it relates to the amounts  included  for
Liberty  Media Group,  as of and for the year ended  December 31, 1999, is based
solely on the report of the other  auditors.  We  conducted  our audits of these
statements  in  accordance  with auditing  standards  generally  accepted in the
United  States,  which  require  that we plan and  perform  the  audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the  amounts  and  disclosures  in  the  financial  statements,   assessing  the
accounting  principles  used and significant  estimates made by management,  and
evaluating the overall  financial  statement  presentation.  We believe that our
audits  and the  report of other  auditors  provide a  reasonable  basis for the
opinion expressed above.

PricewaterhouseCoopers LLP
March 9, 2000

<PAGE>

CONSOLIDATED STATEMENTS OF INCOME
                                                   AT&T CORP. AND SUBSIDIARIES
<TABLE>
<CAPTION>

                                                For the Years Ended December 31,
Dollars in millions (except per share amounts)    1999          1998          1997
<S>                                            <C>           <C>           <C>
Revenue                                        $62,391       $53,223       $51,577

Operating Expenses

Access and other interconnection                14,686        15,328        16,350

Network and other costs of services             14,385        10,495        10,038

Selling, general and administrative             13,516        12,770        14,371

Depreciation and other amortization              6,138         4,378         3,728

Amortization of goodwill, franchise costs
 and other purchased intangibles                 1,301           251           254

Net restructuring and other charges              1,506         2,514             -
Total operating expenses                        51,532        45,736        44,741

Operating income                                10,859         7,487         6,836

Equity losses from Liberty Media Group           2,022             -             -
Other income(expense)                             (501)        1,247           443

Interest expense                                 1,651           427           307

Income from continuing operations before
  income taxes                                   6,685         8,307         6,972

Provision for income taxes                       3,257         3,072         2,723

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

Discontinued Operations
Income from discontinued operations
  (net of taxes of $6 and $50)                       -            10           100

Gains on sales of discontinued operations
  (net of taxes of $799 and $43)                     -         1,290            66

Income before extraordinary loss                 3,428         6,535         4,415

Extraordinary loss (net of taxes of $80)             -           137             -

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

Per AT&T 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 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       $     -        $    -
</TABLE>

The notes are an integral part of the consolidated financial statements.

<PAGE>

CONSOLIDATED BALANCE SHEETS
                                                     AT&T CORP. AND SUBSIDIARIES
                                                            At December 31,
Dollars in millions                                         1999      1998

ASSETS

Cash and cash equivalents                               $  1,024   $ 3,160

Receivables, less allowances of $1,507 and $1,060         10,453     9,055

Deferred income taxes                                      1,287     1,310

Other current assets                                       1,120       593

TOTAL CURRENT ASSETS                                      13,884    14,118

Property, plant and equipment, net                        39,618    26,903

Franchise costs, net of accumulated
  amortization of $697                                    32,693         -

Licensing costs, net of accumulated
  amortization of $1,491 and $1,266                        8,548     7,948

Goodwill, net of accumulated amortization
  of $363 and $226                                         7,445     2,205

Investment in Liberty Media Group and related

 receivables, net                                         38,460         -

Other investments                                         19,366     4,434

Prepaid pension costs                                      2,464     2,074

Other assets                                               6,928     1,868

TOTAL ASSETS                                            $169,406   $59,550

                                   (CONTINUED)

<PAGE>

CONSOLIDATED BALANCE SHEETS (CONTINUED)
                                                     AT&T CORP. AND SUBSIDIARIES
                                                            At December 31,
Dollars in millions                                         1999      1998

LIABILITIES

Accounts payable                                         $ 6,771   $ 6,226
Payroll and benefit-related liabilities                    2,651     1,986
Debt maturing within one year                             12,633     1,171
Dividends payable                                            703       581
Other current liabilities                                  5,449     5,478

TOTAL CURRENT LIABILITIES                                 28,207    15,442

Long-term debt                                            21,591     5,556
Long-term benefit-related liabilities                      3,964     4,255
Deferred income taxes                                     24,199     5,453
Other long-term liabilities and deferred credits           3,801     3,213

TOTAL LIABILITIES                                         81,762    33,919

Minority Interest in Equity of Consolidated

  Subsidiaries                                             2,391       109
Company-Obligated Convertible Quarterly Income
  Preferred Securities of Subsidiary Trust Holding

  Solely Subordinated Debt Securities of AT&T              4,700         -
Subsidiary-Obligated Mandatorily Redeemable Preferred
  Securities of Subsidiary Trusts Holding Solely
  Subordinated Debt Securities of an AT&T

  Subsidiary                                               1,626         -

SHAREOWNERS' EQUITY Common Stock:
 AT&T Common Stock, $1 par value, authorized
   6,000,000,000  shares;  issued and outstanding  3,196,436,757  shares (net of
   287,866,419  treasury shares) at December 31, 1999, and 2,630,391,784  shares
   (net of 80,222,341

   treasury shares) at December 31, 1998                  3,196     2,630
 Liberty  Media  Group  Class  A  Tracking  Stock,  $1  par  value,   authorized
   2,500,000,000 shares; issued and outstanding 1,156,778,730 shares at

   December 31, 1999                                      1,157         -
 Liberty Media Group Class B Tracking Stock, $1 par
   value, authorized 250,000,000 shares; issued
   and outstanding 108,421,114 shares at
   December 31, 1999                                        108         -
Additional paid-in capital                               60,792    15,195
Guaranteed ESOP obligation                                  (17)      (44)
Retained earnings                                         6,712     7,800
Accumulated other comprehensive income                    6,979       (59)

TOTAL SHAREOWNERS' EQUITY                                78,927    25,522

TOTAL LIABILITIES AND SHAREOWNERS' EQUITY              $169,406   $59,550


The notes are an integral part of the consolidated financial statements.

<PAGE>

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY
                                              AT&T CORP. AND SUBSIDIARIES
<TABLE>
<CAPTION>

                                           For the Years Ended December 31,
Dollars in millions                    1999              1998              1997
<S>                                  <C>             <C>               <C>
AT&T Common Shares

  Balance at beginning of year       $2,630          $  2,684          $  2,662

  Shares issued (acquired), net:

    Under employee plans                  -                 2                 2

    For acquisitions                    566               (56)               19

    Other                                 -                 -                 1

Balance at end of year                3,196             2,630             2,684

Liberty Media Group
Class A Tracking Stock

  Balance at beginning of year            -                 -                 -
  Shares issued, net:
    For acquisitions                  1,140                 -                 -
    Other                                17                 -                 -
Balance at end of year                1,157                 -                 -

Liberty Media Group Class B
Tracking Stock

  Balance at beginning of year            -                 -                 -
  Shares issued (acquired), net:

    For acquisitions                    110                 -                 -
    Other                                (2)                -                 -
Balance at end of year                  108                 -                 -

Additional Paid-In Capital

  Balance at beginning of year       15,195            17,121            16,624

  Shares issued (acquired), net:

    Under employee plans                431                67                (8)

    Under shareowner plans                -                 -                 9

    For acquisitions                 43,675            (2,105)              117

    Other                               339               112               379

  Common stock warrants issued          306                 -                 -
  Gain on issuance of common stock
    by affiliates                       667                 -                 -
  Other                                 179                 -                 -
Balance at end of year               60,792            15,195            17,121

Guaranteed ESOP Obligation
  Balance at beginning of year          (44)              (70)              (96)

  Amortization                           27                26                26

Balance at end of year                  (17)              (44)              (70)

Retained Earnings
  Balance at beginning of year        7,800             3,981             1,902

  Net income                          3,428             6,398             4,415

  Dividends declared                 (2,807)           (2,230)           (2,145)

  Treasury shares issued at less
    than cost                        (1,709)             (370)             (187)

  Other changes                           -                21                (4)

Balance at end of year                6,712             7,800             3,981
</TABLE>

                                   (CONTINUED)

<PAGE>

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY (CONTINUED)
                                             AT&T CORP. AND SUBSIDIARIES
<TABLE>
<CAPTION>
                                           For the Years Ended December 31,

Dollars in millions                       1999          1998          1997
<S>                                        <C>           <C>            <C>
Accumulated Comprehensive Income
  Balance at beginning of year             (59)          (38)            -
  Other comprehensive income             7,038           (21)          (38)

Balance at end of year                   6,979           (59)          (38)

Total Shareowners' Equity              $78,927       $25,522       $23,678

Summary of Total Comprehensive Income:
Net income                             $ 3,428        $6,398        $4,415

Other comprehensive income [net of
  taxes of $4,600, $(53) and $(24)]      7,038           (21)          (38)

Comprehensive Income                   $10,466        $6,377        $4,377
</TABLE>

  AT&T  accounts for  treasury  stock as retired  stock,  and as of December 31,
1999, had 288 million  treasury shares of which 216 million shares were owned by
Tele-Communications,  Inc.,  subsidiaries  and 70 million  shares related to the
purchase of AT&T shares  previously  owned by Liberty  Media Group.  We have 100
million authorized shares of preferred stock at $1 par value. No preferred stock
is currently issued or outstanding.

The notes are an integral part of the consolidated financial statements.

<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                 AT&T CORP. AND SUBSIDIARIES
<TABLE>
<CAPTION>
                                               For the Years Ended December 31,
Dollars in millions                                 1999       1998       1997
<S>                                                 <C>        <C>        <C>
OPERATING ACTIVITIES
Net income                                      $  3,428   $  6,398   $  4,415

Deduct: Income from discontinued operations            -         10        100

        Gains on sales of discontinued operations      -      1,290         66

Add:    Extraordinary loss on retirement of debt       -        137          -

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

Adjustments to reconcile net income to net cash
  provided by operating activities of continuing
  operations:

    Gains on sales of businesses and investments    (682)      (959)      (208)

    Net restructuring and other charges            1,209      2,362          -

    Depreciation and amortization                  7,439      4,629      3,982

    Provision for uncollectibles                   1,416      1,389      1,522

    Equity losses from Liberty Media Group         2,022          -          -
    Net losses (earnings) from other equity
      investments                                  1,155         68        (31)

    Increase in accounts receivable               (2,891)    (1,577)    (1,034)

    Increase (decrease) in accounts payable          116       (467)       125

    Net change in other operating assets and
      liabilities                                 (1,180)         5       (832)

    Other adjustments for noncash items, net        (397)      (468)       728

NET CASH PROVIDED BY OPERATING ACTIVITIES OF
  CONTINUING OPERATIONS                           11,635     10,217      8,501

INVESTING ACTIVITIES
Capital expenditures and other additions         (14,306)    (7,817)    (7,604)

Proceeds from sale or disposal of property, plant
  and equipment                                      286        104        169

Decrease (increase) in other receivables              17      6,403       (465)

Net acquisitions of licenses                          (6)       (97)      (435)

Sales of marketable securities                         -      2,003        479

Purchases of marketable securities                     -     (1,696)      (345)

Equity investment distributions and sales          1,875      1,516        583

Equity investment contributions and purchases     (8,121)    (1,281)      (484)

(Aquisitions) dispositions of businesses
  including cash acquired in acquisitions         (6,711)     4,507      1,507

Other investing activities, net                      (77)       (60)      (160)

NET CASH (USED IN) PROVIDED BY INVESTING
 ACTIVITIES OF CONTINUING OPERATIONS             (27,043)     3,582     (6,755)
</TABLE>

                                   (CONTINUED)

<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                                                  AT&T CORP. AND SUBSIDIARIES
<TABLE>
<CAPTION>
                                                For the Years Ended December 31,
Dollars in millions                            1999          1998          1997
<S>                                                <C>         <C>        <C>
FINANCING ACTIVITIES
Proceeds from long-term debt issuances        8,396            17             -
Retirements of long-term debt                (2,774)       (2,610)         (737)

Issuance of convertible securities            4,638             -             -
Issuance of common shares                         -            32           240

Net acquisition of treasury shares           (4,624)       (3,321)          (69)

Dividends paid on common stock               (2,712)       (2,187)       (2,142)

Distributions on trust preferred securities    (254)            -             -
Increase (decrease) in short-term borrowings,
  net                                        10,238        (3,033)        1,114

Other financing activities, net                 364            53            54

NET CASH PROVIDED BY (USED IN) FINANCING
  ACTIVITIES OF CONTINUING OPERATIONS        13,272       (11,049)       (1,540)

Net cash provided by (used in) discontinued
  operations                                      -            92           (84)

Net (decrease) increase in cash and cash
  equivalents                                (2,136)        2,842           122

Cash and cash equivalents at beginning
  of year                                     3,160           318           196

Cash and cash equivalents at end of year   $  1,024      $  3,160       $   318
</TABLE>

The notes are an integral part of the consolidated financial statements.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AT&T CORP. AND SUBSIDIARIES (AT&T)
Dollars in millions unless otherwise noted (except per share amounts)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION

The consolidated  financial statements include all majority-owned and controlled
subsidiaries.  Investments in majority-owned subsidiaries where control does not
exist and  investments  in which we exercise  significant  influence  but do not
control (generally a 20% to 50% ownership  interest) are accounted for under the
equity method of accounting.  This  represents the majority of our  investments.
Investments  in which we have less than a 20%  ownership  interest  and in which
there is no  significant  influence  are  accounted for under the cost method of
accounting.

FOREIGN CURRENCY TRANSLATION
For operations  outside the United States that prepare  financial  statements in
currencies other than the U.S. dollar,  we translate income statement amounts at
average  exchange rates for the year, and we translate assets and liabilities at
year-end exchange rates. We present these translation adjustments as a component
of accumulated other comprehensive  income within shareowners' equity. Gains and
losses from foreign currency transactions are included in results of operations.

REVENUE RECOGNITION
We recognize  long  distance,  local and wireless  services  revenue  based upon
minutes of traffic  processed or contracted  fee schedules.  Cable  installation
revenue is  recognized in the period the  installation  services are provided to
the  extent of direct  selling  costs.  Any  remaining  amount is  deferred  and
recognized  over the  estimated  average  period that  customers are expected to
remain connected to the cable  distribution  systems.  We recognize products and
other services revenue when the products are delivered and accepted by customers
and when services are provided in accordance with contract terms.

ADVERTISING AND PROMOTIONAL COSTS
We expense costs of advertising and  promotions,  including cash incentives used
to acquire  customers,  as incurred.  Advertising and promotional  expenses were
$1,804, $1,920 and $1,995 in 1999, 1998 and 1997, respectively.

INVESTMENT TAX CREDITS
We amortize  investment  tax credits as a reduction to the  provision for income
taxes over the useful lives of the assets that produced the credits.

CASH EQUIVALENTS
We consider all highly liquid investments with original  maturities of generally
three months or less to be cash equivalents.

<PAGE>

PROPERTY, PLANT AND EQUIPMENT
We state property,  plant and equipment at cost and determine depreciation based
upon the assets'  estimated  useful lives using either the group or unit method.
The useful lives of communications  and network equipment range from three to 15
years. The useful lives of other equipment ranges from three to seven years. The
useful lives of buildings and improvements  range from 10 to 40 years. The group
method  is used for most  depreciable  assets,  including  the  majority  of the
communications and network equipment.  When we sell or retire assets depreciated
using the group method, the cost is deducted from property,  plant and equipment
and charged to accumulated depreciation,  without recognition of a gain or loss.
The unit method is primarily used for large computer systems and support assets.
When we sell assets that were depreciated  using the unit method, we include the
related gains or losses in other income(expense).

  We use accelerated  depreciation methods primarily for certain high-technology
computer-processing    equipment   and   digital    equipment    used   in   the
telecommunications  network,  except for switching  equipment  placed in service
before  1989,  where a  straight-line  method  is  used.  All  other  plant  and
equipment,  including  capitalized  software,  is depreciated on a straight-line
basis.

LICENSING COSTS
Licensing  costs are costs incurred to develop or acquire  cellular and personal
communications services (PCS) licenses. Generally,  amortization begins with the
commencement  of service to customers  and is computed  using the  straight-line
method over periods of 35 or 40 years.

FRANCHISE COSTS
Franchise   costs  include  the  value   attributed  to  agreements  with  local
authorities  that  allow  access to homes in cable  service  areas  acquired  in
connection  with  a  business  combination.  Such  amounts  are  amortized  on a
straight-line basis over 40 years.

GOODWILL

Goodwill is the excess of the  purchase  price over the fair value of net assets
acquired  in  business  combinations  accounted  for as  purchases.  We amortize
goodwill on a straight-line basis over the periods benefited,  ranging from five
to 40 years.

SOFTWARE CAPITALIZATION
In 1998,  AT&T adopted  Statement of Position  (SOP) 98-1,  "Accounting  for the
Costs  of  Computer  Software  Developed  or  Obtained  for  Internal  Use."  In
accordance with this standard,  certain direct development costs associated with
internal-use  software  are  capitalized,  including  external  direct  costs of
material and  services,  and payroll  costs for  employees  devoting time to the
software  projects.  These  costs  are  included  within  other  assets  and are
amortized  over a period not to exceed  five years  beginning  when the asset is
substantially  ready for use.  Costs  incurred  during the  preliminary  project
stage, as well as maintenance and training costs, are expensed as incurred. AT&T
also capitalizes initial operating-system software costs and amortizes them over
the life of the associated hardware.

  AT&T also  capitalizes  costs  associated  with the development of application
software incurred from the time  technological  feasibility is established until
the software is ready to provide service to customers.  These  capitalized costs
are included in property,  plant and equipment  and are amortized  over a useful
life not to exceed five years.

<PAGE>

VALUATION OF LONG-LIVED ASSETS
Long-lived  assets  such as  property,  plant and  equipment,  licensing  costs,
franchise costs, goodwill,  investments and software are reviewed for impairment
whenever  events or changes in  circumstances  indicate that the carrying amount
may not be recoverable.  If the total of the expected future  undiscounted  cash
flows is less than the carrying  amount of the asset,  a loss is recognized  for
the difference between the fair value and carrying value of the asset.

DERIVATIVE FINANCIAL INSTRUMENTS
We  use  various   financial   instruments,   including   derivative   financial
instruments, for purposes other than trading. We do not use derivative financial
instruments for  speculative  purposes.  Derivatives,  used as part of our risk-
management strategy, must be designated at inception as a hedge and measured for
effectiveness  both at  inception  and on an  ongoing  basis.  Gains and  losses
related to qualifying  hedges of foreign  currency firm commitments are deferred
in  current  assets or  liabilities  and  recognized  as part of the  underlying
transactions as they occur. All other foreign  exchange  contracts are marked to
market on a current basis and the  respective  gains or losses are recognized in
other income(expense). Interest rate differentials associated with interest rate
swaps used to hedge AT&T's debt  obligations  are recorded as an  adjustment  to
interest payable or receivable with the offset to interest expense over the life
of the swaps. If we terminate an interest rate swap agreement,  the gain or loss
is deferred and amortized over the remaining  life of the liability.  Cash flows
from financial instruments are classified in the Consolidated Statements of Cash
Flows  under the same  categories  as the cash  flows from the  related  assets,
liabilities or anticipated transactions.

USE OF ESTIMATES
The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent assets and liabilities at the date of the financial  statements,  and
revenue and expenses  during the period  reported.  Actual  results could differ
from those estimates.  Estimates are used when accounting for certain items such
as long-term  contracts,  allowance  for  doubtful  accounts,  depreciation  and
amortization,   employee  benefit  plans,  taxes,   restructuring  reserves  and
contingencies.

CONCENTRATIONS

As of  December  31,  1999,  we do not have  any  significant  concentration  of
business transacted with a particular  customer,  supplier or lender that could,
if suddenly  eliminated,  severely impact our operations.  We also do not have a
concentration of available sources of labor, services,  franchises,  or licenses
or other  rights  that  could,  if  suddenly  eliminated,  severely  impact  our
operations. We invest our cash with several high-quality credit institutions.

ISSUANCE OF COMMON STOCK BY AFFILIATES
Changes in our  proportionate  share of the underlying equity of a subsidiary or
equity  method  investee,  which result from the issuance of  additional  equity
securities  by  such  entity,  are  recognized  as  increases  or  decreases  to
additional  paid-in  capital  in the  Consolidated  Statements  of  Shareowners'
Equity.

RECLASSIFICATIONS AND RESTATEMENTS
We  reclassified  certain  amounts  for  previous  years to  conform to the 1999
presentation.  In addition, we restated prior years' share and per share amounts
to reflect the April 1999 three-for-two split of AT&T's common stock.

<PAGE>

2. SUPPLEMENTARY FINANCIAL INFORMATION

SUPPLEMENTARY INCOME STATEMENT INFORMATION
For the Years Ended December 31,                 1999     1998     1997
INCLUDED IN SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES

Research and development expenses            $    550  $   513   $  633

OTHER INCOME (EXPENSE)
Interest income                              $    147  $   322   $   59
Minority interests in earnings (losses) of
  subsidiaries                                    (23)      34      (12)
Distributions on trust preferred securities      (254)       -        -
Net (earnings) losses from equity              (1,155)     (68)      31
investments
Officers' life insurance                           71       63       68
Gains on sales of businesses and investments      682      959      208
Miscellaneous, net                                 31      (63)      89
Total other income (expense)                 $   (501) $ 1,247   $  443

DEDUCTED FROM INTEREST EXPENSE
Capitalized interest                         $    143  $   197   $  254

SUPPLEMENTARY BALANCE SHEET INFORMATION
At December 31,                                  1999     1998
PROPERTY, PLANT AND EQUIPMENT
Communications, network and other equipment  $ 60,985 $ 44,806
Buildings and improvements                      8,104    7,098
Land and improvements                             586      373
Total property, plant and equipment            69,675   52,277
Accumulated depreciation                      (30,057) (25,374)
Property, plant and equipment, net           $ 39,618 $ 26,903

SUPPLEMENTARY SHAREOWNERS' EQUITY INFORMATION
For the Years Ended December 31,                 1999     1998     1997
Net foreign currency translation adjustment
  [net of taxes of $87, $(3),$(18)]            $  148  $    (5)  $  (20)
Net revaluation of investments [net of
  taxes of $4,506, $(35), $(6)]                 6,878      (25)      (4)
Net minimum pension liability adjustment
  [net of taxes of $7, $(15), $0]                  12        9      (14)
Other comprehensive income                   $  7,038  $   (21)  $  (38)

In 1999,  other  comprehensive  income  included  Liberty Media Group's  foreign
currency  translation  adjustments  totaling $60, net of applicable  taxes,  and
revaluation  of Liberty Media  Group's  available-for-sale  securities  totaling
$6,497, net of applicable taxes.

SUPPLEMENTARY CASH FLOW INFORMATION
For the Years Ended December 31,                 1999     1998     1997
Interest payments net of
  amounts capitalized                        $  1,311  $   422   $  250
Income tax payments                             3,906    2,881    2,416



<PAGE>

3. MERGER WITH TELE-COMMUNICATIONS, INC. (TCI)

  The merger with TCI,  renamed AT&T  Broadband  (Broadband),  was  completed on
March 9, 1999, in an all-stock  transaction valued at approximately $52 billion.
Each share of TCI Group Series A common stock was converted  into 1.16355 shares
of AT&T  common  stock,  and each share of TCI Group  Series B common  stock was
converted  into 1.27995 shares of AT&T common stock.  AT&T issued  approximately
664  million  shares  of  AT&T  common  stock  in  the  transaction,   of  which
approximately  149  million  were  treasury  shares.  The  total  shares  had an
aggregate market value of approximately $27 billion. Certain subsidiaries of TCI
held TCI Group  Series A common  stock,  which was  converted  into 216  million
shares of AT&T common stock. These  subsidiaries  continue to hold these shares,
which are reflected as treasury stock in the accompanying  Consolidated  Balance
Sheet at December 31, 1999. In addition, TCI simultaneously combined its Liberty
Media  Group  programming  business  with  its  TCI  Ventures  Group  technology
investments business,  forming Liberty Media Group (LMG). In connection with the
closing,  AT&T issued a separate  tracking stock in exchange for the TCI Liberty
Media Group and TCI Ventures Group tracking shares  previously  outstanding.  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.  The aggregate
market value of shares issued in conjunction  with the merger was  approximately
$23  billion.  The tracking  stock is designed to reflect the separate  economic
performance  of LMG.  AT&T does not have a  controlling  financial  interest for
financial accounting purposes in LMG; therefore,  our investment in LMG has been
reflected  as an  investment  accounted  for  under  the  equity  method  in the
accompanying 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.  As a separate tracking stock,
all of the  earnings or losses  related to LMG are  excluded  from the  earnings
available to the holders of AT&T common stock, referred to as AT&T Group.

  In general,  the holders of shares of Liberty Media Group Class A common stock
and  Liberty  Media Group  Class B common  stock will vote  together as a single
class with the holders of shares of AT&T common  stock on all matters  presented
to such stockholders.  Each share of Liberty Media Group Class A common stock is
entitled to  three-fortieths  of a vote,  and each share of Liberty  Media Group
Class B common  stock is entitled to  three-fourths  of a vote.  The AT&T common
stock continues to have one vote per share.

  The merger was  accounted  for 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.  The  operating  results  of
Broadband  have  been  included  in  the  accompanying   consolidated  financial
statements  at their  preliminary  fair value  since  March 1, 1999,  the deemed
effective date of acquisition for accounting purposes. The impact of the results
from  March 1, - March 9,  1999,  were  deemed  immaterial  to our  consolidated
results. Periods prior to the merger were not restated to include the results of
Broadband.  The $52 billion  aggregate  value assigned to Broadband's net assets
was composed of AT&T common stock of  approximately  $27 billion,  Liberty Media
Group tracking stock of approximately $23 billion, and assumption of convertible
notes and preferred stock of approximately $2 billion.

<PAGE>

  Approximately  $19 billion of the purchase price of $52 billion was attributed
to  franchise  costs and is being  amortized  on a  straight-line  basis over 40
years.  Franchise costs represent the value  attributable to the agreements with
local franchise  authorities that allow access to homes in our broadband service
areas.  Pursuant to Statement of Financial  Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes," AT&T recorded an approximate $12 billion deferred
tax  liability  in  connection  with this  franchise  intangible,  which is also
included in franchise  costs.  We do not expect that this deferred tax liability
will  ever be  paid.  This  deferred  tax  liability  is  being  amortized  on a
straight-line  basis over 40 years and is included in the  provision  for income
taxes.  Also included in the $52 billion  purchase price was  approximately  $11
billion related to nonconsolidated investments, approximately $5 billion related
to property,  plant and  equipment  and  approximately  $11 billion of Broadband
long-term debt. In addition, our investment in LMG was recorded at approximately
$34  billion,  including  approximately  $11 billion of  goodwill  that is being
amortized  on a  straight-line  basis  over 20 years as a  component  of "Equity
losses from Liberty Media Group."

  We may make additional  refinements to the allocation of the purchase price in
the first  quarter  of 2000 as the  related  appraisals  of  certain  assets and
liabilities are finalized.

  Following  is a summary of the pro forma  results of AT&T as if the merger had
closed effective January 1, 1998:

                                             (Unaudited)
Shares in millions

For the Years Ended December 31,             1999      1998
Revenue                                   $63,332   $59,426
Income from continuing operations           2,856     3,829
Net income                                  2,856     4,992
Weighted-average AT&T Group common shares   3,181     3,146
Weighted-average AT&T Group common shares
  and potential common shares               3,299     3,251
Weighted-average Liberty Media Group

 Shares                                     1,259     1,190
Basic earnings per AT&T common share:
  Income from continuing operations       $  1.60   $  1.31
  AT&T Group earnings                     $  1.60   $  1.68
Diluted earnings per AT&T common share:
  Income from continuing operations       $  1.55   $  1.27
  AT&T Group earnings                     $  1.55   $  1.63
Liberty Media Group loss per share:

  Basic and diluted                       $  1.78   $  0.25

Pro  forma  data may not be  indicative  of the  results  that  would  have been
obtained  had these  events  actually  occurred at the  beginning of the periods
presented, nor does it intend to be a projection of future results.

<PAGE>

4. OTHER MERGERS, ACQUISITIONS, VENTURES, DISPOSITIONS AND DISCONTINUED
   OPERATIONS

ACC EUROPE
On  November  5,  1999,  AT&T sold ACC Corp.  (ACC) in Europe,  including  ACC's
principal  operations in the United Kingdom as well as ACC's operating companies
in France, Germany and Italy, to WORLDxCHANGE  Communications.  We were required
to dispose of this  investment  pursuant to a government  mandate since it would
have  competed   directly  with  Concert,   our  global   venture  with  British
Telecommunications plc (BT). The transaction resulted in a pretax loss of $179.

MEDIAONE GROUP, INC.
On October 21, 1999,  shareholders of MediaOne Group, Inc. (MediaOne),  voted in
favor of the proposed merger between AT&T and MediaOne, pursuant to a definitive
merger agreement entered into on May 6, 1999. Under the agreement, each MediaOne
shareholder  is  entitled  to  elect to  receive  either  cash or AT&T  stock in
exchange for their MediaOne shares, subject to the limitation that the aggregate
consideration  will  consist of $30.85 per share in cash plus 0.95 of a share of
AT&T stock for every MediaOne share.  In addition,  the cash portion of the AT&T
offer will be  increased to offset up to a 10% decline in AT&T's  closing  stock
price of $57 per share on April 21, 1999, the date the offer was extended.  This
will maintain a value of $85 per share for every MediaOne share, provided AT&T's
stock trades between $57 per share and $51.30 per share.  The additional  amount
of cash that may be received is limited to $5.42 per share.  AT&T estimates that
we will issue  approximately 600 million shares in the transaction.  The merger,
which remains subject to regulatory and other approvals, is expected to close in
the  second  quarter  of 2000.  Comcast  Corporation  (Comcast)  received a $1.5
billion breakup fee in conjunction  with the termination of MediaOne's  previous
merger agreement with Comcast.  MediaOne  received the funds to pay the break-up
fee in the form of a note payable to AT&T.

COX COMMUNICATIONS, INC.
On July 6, 1999, AT&T and Cox  Communications,  Inc. (Cox),  signed an agreement
whereby AT&T would redeem approximately 50.3 million shares of AT&T common stock
held by Cox in  exchange  for cable  television  systems  serving  approximately
312,000 customers, our interest in certain investments and approximately $750 in
other consideration,  including cash. Based on the closing price of AT&T's stock
on July 6, 1999, the transaction is valued at  approximately  $2.8 billion.  The
transaction  is  subject  to  receipt of  necessary  government  and  regulatory
approvals and is expected to close by the end of the first quarter of 2000.

COMCAST CORPORATION
On May 4, 1999,  AT&T and Comcast  announced an  agreement  to exchange  various
cable systems to improve each company's geographic coverage by better clustering
its  systems.  The  agreement  will  result  in a net  addition  to  Comcast  of
approximately 750,000 subscribers. Because Comcast will receive more subscribers
than it is contributing in the exchange, it will pay AT&T consideration having a
value of  approximately  $4,500 per added  subscriber  for a total value of $3.0
billion  to $3.5  billion.  Also,  Comcast  has  agreed  to  offer  AT&T-branded
telephony in all of its markets,  subject to certain  conditions.  The foregoing
agreements  are subject to completion of the proposed  AT&T/MediaOne  merger and
other regulatory and legal approvals.

<PAGE>

IBM GLOBAL NETWORK
On April 30, 1999,  AT&T  completed its  acquisition  of the IBM Global  Network
business  (renamed AT&T Global  Network  Services or AGNS) and its assets in the
United States. The non-U.S.  acquisitions  occurred in phases throughout 1999 as
legal and regulatory requirements were met in each of the countries in which the
business  operates.  Under the terms of the agreement,  AT&T acquired the global
network of IBM, and the two companies  entered into outsourcing  agreements with
each other.  IBM is outsourcing a significant  portion of its global  networking
needs  to AT&T,  and AT&T is  outsourcing  certain  applications-processing  and
data-center-management operations to IBM. As of December 31, 1999, a total of 71
countries have been transferred from IBM to AT&T,  representing more than 99% of
the contract  revenue.  We are  awaiting  regulatory  approval in the  remaining
countries  and expect to be providing  service in a total of 81 countries by the
end of the first quarter of 2000.  The  acquisition  has been accounted for as a
purchase.  Accordingly,  the operating results of AGNS have been included in the
accompanying  consolidated  financial  statements since the date of acquisition.
The pro forma impact of AGNS on historical AT&T results is not material.

TELEPORT COMMUNICATIONS GROUP INC.
On July 23, 1998, AT&T completed the merger with Teleport  Communications  Group
Inc.  (TCG)  pursuant to an agreement  and plan of merger dated January 8, 1998.
Each share of TCG common stock was  exchanged  for 1.4145  shares of AT&T common
stock, resulting in the issuance of 272.4 million shares in the transaction. The
merger was  accounted  for as a pooling of interests,  and  accordingly,  AT&T's
results of  operations,  financial  position  and cash flows  were  restated  to
reflect the merger.  In 1998,  we  recognized  $85 of  merger-related  expenses.
Premerger TCG revenue was $455 and $494,  and net losses were $118 and $223, for
the six months  ended June 30, 1998,  and for the year ended  December 31, 1997,
respectively.  Elimination  entries  between AT&T and TCG were not material.  On
April 22,  1998,  TCG  purchased  ACC for an  aggregate  value of  approximately
$1,100, including approximately $700 in goodwill.

OTHER DISPOSITIONS
On March 3, 1998,  AT&T sold its 45% common  share  interest  in LIN  Television
Corp., a subsidiary of LIN Broadcasting  Company,  for $742 to Hicks, Muse, Tate
and Furst Inc. We recognized a pretax gain of $317.  Also on March 3, 1998, AT&T
sold AT&T Solutions Customer Care to MATRIXX Marketing Inc., a teleservices unit
of Cincinnati  Bell, for $625.  AT&T recognized a pretax gain of $350 in 1998 on
the sale.

DISCONTINUED OPERATIONS
On July 1,  1997,  AT&T  sold  its  submarine  systems  business  (SSI)  to Tyco
International Ltd. for $850, resulting in an after-tax gain of $66, or $0.03 per
diluted share.

  On April 2, 1998, AT&T sold AT&T Universal Card Services Inc. (UCS) for $3,500
to Citigroup,  Inc. The after-tax  gain  resulting  from the disposal of UCS was
$1,290, or $0.48 per diluted share. Included in the transaction was a cobranding
and joint-marketing  agreement. In addition, we received $5,722 in settlement of
receivables from UCS.

  The  consolidated  financial  statements of AT&T have been restated to reflect
the dispositions of SSI and UCS. 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 the dates of disposition as "Income
from discontinued  operations," net of applicable income taxes, and as "Net cash
provided by (used in) discontinued  operations" for all periods presented. 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 reflected as
"Gains on sales of discontinued operations," net of applicable income taxes.

<PAGE>

 Summarized financial information for discontinued operations was as follows:

          For the Years Ended December 31,    1998       1997
            Revenue                           $365     $1,942
            Income before income taxes          16        150
            Net income                          10        100

  No interest  expense was allocated to discontinued  operations in 1998 or 1997
due to the immateriality of the amounts;  however,  UCS recorded direct interest
expense  of $85 and $297 in 1998 and 1997,  respectively,  primarily  related to
amounts payable to AT&T.

5. EARNINGS PER COMMON SHARE AND POTENTIAL COMMON SHARE

Basic earnings per share (EPS) for AT&T Group for the years 1999,  1998 and 1997
were computed by dividing earnings available to AT&T Group common shareowners by
the  weighted-average  number of common shares  outstanding of AT&T Group during
the period. In March 1999, our board of directors declared a three-for-two split
of AT&T common stock,  paid on April 15, 1999, to shareowners of record on March
31, 1999.  Share (except shares  authorized) and per share amounts were restated
to reflect the stock split on a retroactive basis.

  Diluted EPS for AT&T Group was computed by dividing earnings available to AT&T
Group common  shareowners,  adjusted for the  conversion of  securities,  by the
weighted-average  number of common shares and dilutive  potential  common shares
outstanding  of  AT&T  Group  during  the  period,  assuming  conversion  of the
potential  common  shares at the  beginning  of the  periods  presented.  Shares
issuable upon conversion of preferred stock of  subsidiaries,  convertible  debt
securities of subsidiary,  stock options and other performance  awards have been
included in the diluted  calculation  of  weighted-average  shares to the extent
that  the  assumed  issuance  of  such  shares  would  have  been  dilutive,  as
illustrated  below. The quarterly income preferred  securities were antidilutive
and were  excluded  from the  computation  of diluted EPS.  Computed on a yearly
basis,  the  dividends  would  have  had an  after-tax  impact  to  earnings  of
approximately  $160.  Assuming the conversion of the  securities,  the dividends
would no longer be included in other income  (expense) and the securities  would
convert into 66.667 million shares of AT&T common stock.

  Income from  continuing  operations  for 1999 of $3,428  included  income from
continuing  operations  attributable  to AT&T  Group of $5,450 as well as losses
from LMG of $2,022.

  A reconciliation  of the income and share components for the basic and diluted
EPS calculations with respect to AT&T Group continuing operations is as follows:

Shares in millions

For the Years Ended December 31,          1999       1998       1997
Income from continuing operations
 attributable to AT&T Group             $5,450     $5,235     $4,249
Income impact of assumed conversion of
 preferred stock of subsidiary              26          -          -
Income from continuing operations
 attributable to AT&T Group adjusted
 for conversion of securities           $5,476     $5,235     $4,249
AT&T Group weighted-average common
 shares                                  3,082      2,676      2,671
Stock options                               35         24         12
Preferred stock of subsidiary               33          -          -
Convertible debt securities of
 subsidiary                                  2          -          -
AT&T Group weighted-average common
 shares and potential common
 shares                                  3,152      2,700      2,683


<PAGE>

  Basic EPS for LMG from the date of acquisition  through December 31, 1999, was
computed  by  dividing   the  loss   available   to  LMG   shareowners   by  the
weighted-average number of shares outstanding of LMG of 1.259 billion. Since LMG
had a loss, the impact of any potential shares would have been antidilutive, and
therefore are not factored into the diluted calculations.  There were 48 million
potentially dilutive LMG securities outstanding at December 31, 1999.

  On  September  27,  1999,  LMG  announced  that the board of directors of AT&T
approved the repurchase from time to time of up to 135 million shares of Liberty
Media Group Class A or Class B tracking stock.

6. NET RESTRUCTURING AND OTHER CHARGES

During 1999, we recorded $1,506 of net restructuring and other charges.
  A $594 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 acquisition, which have not yet reached technological feasibility or
that  have no  alternative  future  use.  The  projects  identified  related  to
Broadband's    efforts   to   offer   voice   over   Internet   protocol   (IP),
product-integration  efforts for  advanced  set-top  devices  that would  enable
Broadband to offer  next-generation  digital services,  cost-savings efforts for
cable telephony  implementation and in-process  research and development related
to Excite@Home.  Although there are significant technological issues to overcome
to successfully complete the acquired in-process research and development,  AT&T
expects successful completion.  We currently anticipate that (i) we will test IP
telephony  equipment for field  deployment in late 2000,  (ii) field trials will
begin in mid 2000 for  next-generation  digital services,  and (iii) testing and
deployment  devices  with  respect  to  AT&T's  cost-savings  efforts  for cable
telephony  implementation  will occur by the end of 2000. If,  however,  AT&T is
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 asset  impairment  charge was recorded  primarily  associated  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 it to
evolve  to  new,   third-generation  digital  technology,   which  will  provide
high-speed data capabilities.

  The  planned  disposal  of  the  existing  wireless  infrastructure  equipment
required an  evaluation  of asset  impairment  in  accordance  with 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 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.

<PAGE>

  Included in the exit costs was $142 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 were paid in
the fourth quarter of 1999. This cash outlay was funded  primarily  through cash
from operations.  The balance of the cash termination payments is expected to be
paid in the first quarter of 2000.

 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.

   The following  table displays the activity and balances of the  restructuring
reserve account from January 1, 1998, to December 31, 1999:

                        Jan. 1,                      Dec. 31,
                        1998          1998            1998
Type of Cost          Balance Additions  Deductions  Balance
Employee separations    $413    $150       $(445)      $118
Facility closings        434     125        (190)       369
Other                     60       -         (30)        30
Total                   $907    $275       $(665)      $517


                        Jan. 1,                      Dec. 31,
                        1999          1999            1999
Type of Cost          Balance Additions  Deductions  Balance
Employee separations    $118    $142       $(110)      $150
Facility closings        369       -        (130)       239
Other                     30       3         (12)        21
Total                   $517    $145       $(252)      $410

Deductions reflect cash payments of $209 and $245 and noncash utilization of $43
and $420 for  1999  and  1998,  respectively.  Noncash  utilization  included  a
reversal in 1998 of $348 related to the 1995  restructuring  plan. Other noncash
utilization   included  deferred   severance   payments   primarily  related  to
executives.

We  also  recorded  net  losses  of  $307  related  to  the  government-mandated
disposition  of  certain  international  businesses  that  would  have  competed
directly  with  Concert and $50 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. In addition,  we recorded benefits of
$121 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 of net  restructuring  and other charges.  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 was  composed of $2,254 and $169 for pension and
postretirement  special-termination benefits,  respectively, $263 of curtailment
losses and $38 of other  administrative  costs. We also recorded charges of $125
for  related  facility  costs  and $150 for  executive-separation  costs.  These
charges were partially  offset by benefits of $940 as we settled pension benefit
obligations of 13,700 of the total VRIP employees. In addition, the VRIP charges
were  partially  offset by the reversal of $256 of 1995  business  restructuring
reserves  primarily  resulting  from  the  overlap  of VRIP  with  certain  1995
restructuring initiatives.

<PAGE>

  Also  included  in the 1998 net  restructuring  and other  charges  were asset
impairment  charges totaling $718, of which $633 was related to our decision not
to pursue  Total  Service  Resale  (TSR) as a local  service  strategy.  We also
recorded  an  $85  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 an ongoing review associated with certain  operations that would
have competed directly with Concert.

  Additionally,   $85  of  merger-related  expenses  was  recorded  in  1998  in
connection  with  the  TCG  merger  which  was  accounted  for as a  pooling  of
interests.  Partially  offsetting  these  charges was a $92 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 at the end of 1998.

7. INVESTMENT IN LIBERTY MEDIA GROUP

As a result of the acquisition of Broadband,  we acquired Liberty Media Group, a
wholly-owned  investment  accounted  for under the equity  method  (see Note 3).
Summarized results of operations for Liberty Media Group were as follows:

For the 10 Months Ended December 31,     1999
Revenue                              $    729
Operating loss                          2,214
Net loss                                2,022

At December 31,                          1999
Current assets                       $  3,387
Noncurrent assets                      55,297
Current liabilities                     3,370
Noncurrent liabilities                 16,853
Minority interests                          1


8. OTHER INVESTMENTS

We have investments in various companies and partnerships that are accounted for
under  the  equity  method  and  included  within  "Other  investments"  in  the
accompanying  Consolidated Balance Sheets. Under the equity method,  investments
are stated at initial cost and are adjusted for subsequent contributions and our
share of earnings,  losses and distributions.  At December 31, 1999 and 1998, we
had equity investments (other than LMG) of $18,454 and $4,257, respectively. The
carrying  value of  these  investments  exceeded  our  share  of the  underlying
reported net assets by approximately  $12,530 and $564, at December 31, 1999 and
1998,  respectively.  The goodwill is being  amortized over periods ranging from
seven to 40 years.  Amortization  of goodwill of $495, $52 and $66 in 1999, 1998
and 1997, respectively, was reflected as a component of other income(expense) in
the accompanying Consolidated Statements of Income.

<PAGE>

  Ownership of significant equity investments was as follows:

At December 31,                                 1999         1998
AB Cellular                                    55.62%(a)    55.62%
Cablevision Systems Corporation                32.04%(b)        -
At Home Corporation                            25.00%(c)        -
Lenfest Communications, Inc.                   50.00%(d)        -
Time Warner Texas                              50.00%           -
Bresnan Communications Group LLC               50.00%           -
Insight Midwest LP                             50.00%           -
Rogers Cantel Mobile Communications, Inc.      16.65%(e)        -
Century-TCI California, LP                     25.00%           -
Kansas City Cable Partners                     50.00%           -
Parnassos, LP                                  33.33%           -

(a) Voting interest in AB Cellular was 50% at December 31, 1999 and 1998. (b) At
December 31, 1999, we owned 48,942,172 shares of Cablevision Systems Corporation
Class A common  stock,  which had a closing  market price of $75.50 per share on
that date.

(c) During  1999,  At Home  Corporation  issued  shares of its common  stock for
various  acquisitions,  including Excite,  Inc.  (Excite).  As a result of these
transactions,  AT&T's  economic  interest  in At Home  Corporation  (Exite@Home)
decreased from 38% to 25% following these mergers. Due to the resulting increase
in Excite@Home's  equity,  net of the dilution of AT&T's  ownership  interest in
Excite@Home,  AT&T recorded an increase to additional paid-in capital of $527 in
1999. At December 31, 1999, we owned  63,720,000  shares of Excite@Home  Class A
common  stock,  which had a closing  market  price of $42.875  per share on that
date.

(d)  In  the  first   quarter  of  2000,   we  sold  our   interest  in  Lenfest
Communications, Inc., to Comcast (see Note 20). (e) This investment is accounted
for under the equity method  because of our ability to elect certain  members of
the  board of  directors  of this  entity,  which we  believe  provides  us with
significant influence.

Summarized  unaudited combined financial  information for investments  accounted
for under the equity method was as follows:

For the Years Ended December 31,        1999       1998       1997
Revenue                              $10,433     $4,144     $4,132
Operating income (loss)               (1,542)       268        121
Income (loss) from continuing
 operations before extraordinary
 items and cumulative effect of a
 change in accounting principle       (2,771)       156         68
Net income (loss)                     (3,005)        65         24

At December 31,                         1999       1998
Current assets                       $ 5,160     $2,610
Noncurrent assets                     21,066      7,345
Current liabilities                    4,554      1,674
Noncurrent liabilities                17,896      1,435
Redeemable preferred stock             1,095        595
Minority interests                     1,824          3


<PAGE>

We also have  investments  accounted  for under the cost  method of  accounting.
Under this method,  investments  are stated at cost, and earnings are recognized
to the extent  distributions  are received from the accumulated  earnings of the
investee.   Distributions   received  in  excess  of  accumulated  earnings  are
recognized as a reduction of our investment  balance.  These investments,  which
are covered under the scope of SFAS No. 115 "Accounting for Certain  Investments
in Debt and Equity Securities," are classified as  "available-for-sale"  and are
carried  at fair  value  with any  unrealized  gain or loss,  net of tax,  being
included  within  other  comprehensive  income as a  component  of  shareowners'
equity.

9. DEBT OBLIGATIONS

DEBT MATURING WITHIN ONE YEAR
At December 31,                               1999        1998
Commercial paper                            $5,974      $    -
Short-term notes                             5,000           -
Currently maturing long-term debt            1,355       1,083
Other                                          304          88
Total debt maturing within one year        $12,633      $1,171
Weighted-average interest rate of
  short-term debt                              5.3%        5.6%

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-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 existing $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.

LONG-TERM OBLIGATIONS
At December 31,                               1999        1998
DEBENTURES AND NOTES (a)(b)
Interest Rates (c)      Maturities
4.38% - 6.00%           2001-2014          $ 5,251     $   900
6.34% - 7.50%           2000-2029            8,068       2,234
7.53% - 8.50%           2000-2026            4,762       2,583
8.60% - 11.13%          2000-2031            3,763         748
Variable rate           2000-2054              867          98
Total debentures and notes                  22,711       6,563
Other                                          362          94
Unamortized discount, net                     (127)        (18)
Total long-term obligations                 22,946       6,639
Less: Currently maturing long-term debt      1,355       1,083
Net long-term obligations                  $21,591      $5,556

(a) In August 1998, AT&T extinguished  $1,046 of TCG debt resulting in a loss of
$217,  which was recorded as an  extraordinary  loss.  The after-tax  impact was
$137, or $0.05 per diluted share.

(b) Included in these balances was $815 representing the remaining excess of the
fair value over the  recorded  value of debt in  connection  with the  Broadband
acquisition.  The  excess is being  amortized  over the  remaining  lives of the
underlying debt obligations.

(c) The actual interest paid on our debt  obligations may have differed from the
stated amount due to our entering  into  interest rate swap  contracts to manage
our exposure to interest rate risk and our strategy to reduce finance costs (see
Note 11).

<PAGE>

  On January 26, 1999,  AT&T filed a registration  statement with the Securities
and Exchange  Commission (SEC) for the offering and sale of up to $10 billion of
notes and  warrants to purchase  notes,  resulting  in a total  available  shelf
registration  of $13.1  billion.  On March 26,  1999,  AT&T issued $8 billion in
notes. We received net proceeds of  approximately  $7.9 billion from the sale of
the notes.  The  proceeds  were  utilized to repay  commercial  paper  issued in
connection  with the Broadband  merger and toward  funding the share  repurchase
program.  On  September  14,  1999,  AT&T  completed  a $450  bond  offering  in
connection with the same registration statement.  The proceeds from the issuance
were utilized for general corporate purposes.

  This table shows the  maturities at December 31, 1999, of the $22,946 in total
long-term obligations:

        2000     2001     2002     2003     2004     Later Years
      $1,355   $1,158   $1,574   $1,616   $2,815         $14,428

10. OTHER SECURITIES

PREFERRED STOCK OF SUBSIDIARIES
Prior to the  Broadband  merger,  TCI issued  Class B 6%  Cumulative  Redeemable
Exchangeable  Junior preferred stock (Class B preferred  stock).  There were 1.6
million  shares  outstanding  as of December 31,  1999,  net of shares held by a
subsidiary, out of an authorized 1.7 million shares.

  Dividends accrue  cumulatively (but without  compounding) at an annual rate of
6% of the  stated  liquidation  value of $100  per  share,  whether  or not such
dividends are declared or funds are legally  available for payment of dividends.
Accrued  dividends are payable  annually on March 1 of each year in cash or AT&T
stock,  or any  combination of the foregoing,  at the sole discretion of the TCI
board of  directors.  Dividends  accrued  on shares of Class B  preferred  stock
aggregated approximately $8 at December 31, 1999.

  Class B  preferred  stock  and  accumulated  dividends  are  reflected  within
"Minority  Interest in Equity of Consolidated  Subsidiaries" in the accompanying
Consolidated Balance Sheets and aggregated $152 at December 31, 1999.

  Subsequent  to December  31,  1999,  the TCI board of  directors  approved the
redemption of Class B preferred  stock.  On February 22, 2000,  all  outstanding
shares of Class B preferred stock were redeemed at $105.88 per share.

  Prior to the  Broadband  merger,  TCI Pacific  Communications  Inc.  (Pacific)
issued 5% Class A Senior Cumulative  Exchangeable preferred stock, which remains
outstanding.  There  were 6.3  million  shares  authorized  and  outstanding  at
December 31, 1999.  Each share is  exchangeable,  from and after August 1, 2001,
for  approximately  6.3  shares  of  AT&T  common  stock,   subject  to  certain
antidilution adjustments.  Additionally, Pacific may elect to make any dividend,
redemption or liquidation  payment in cash,  shares of AT&T common stock or by a
combination of the foregoing.  The Pacific  preferred stock is reflected  within
"Minority  Interest in Equity of Consolidated  Subsidiaries" in the accompanying
Consolidated  Balance Sheets and  aggregated  $2.1 billion at December 31, 1999.
There  were no accrued  dividends  on shares of  Pacific  preferred  stock as of
December 31, 1999.

COMPANY-OBLIGATED CONVERTIBLE QUARTERLY INCOME PREFERRED SECURITIES OF
SUBSIDIARY TRUST HOLDING SOLELY SUBORDINATED DEBT SECURITIES OF AT&T AND RELATED
WARRANTS

  On June 16, 1999, AT&T Finance Trust I (AT&T Trust), a wholly-owned subsidiary
of AT&T,  completed  the private sale of 100 million  shares of 5.0%  cumulative
quarterly income preferred  securities (the quarterly  preferred  securities) to
Microsoft Corporation (Microsoft). Proceeds of the issuance were invested by the
AT&T Trust in Junior Subordinated Debentures (the Debentures) issued by AT&T due
2029, which represent the sole assets of the AT&T Trust.

<PAGE>

  The quarterly preferred  securities pay dividends at an annual rate of 5.0% of
the  liquidation  preference of $50 per security and are convertible at any time
prior to  maturity  into  66.667  million  shares of AT&T  common  stock and are
subject to mandatory  redemption upon repayment of the Debentures at maturity or
their  earlier  redemption.  The  conversion  feature can be  terminated,  under
certain conditions, after three years.

  The  Debentures  will make a  quarterly  payment  in arrears of 62.5 cents per
security on the last day of March,  June,  September  and December of each year.
AT&T  has the  right  to  defer  such  interest  payments  up to 20  consecutive
quarters;  as a  consequence,  quarterly  dividend  payments  on  the  quarterly
preferred securities can be deferred by the AT&T Trust during any such interest-
payment period.  If AT&T defers any interest  payments,  we may not, among other
things,  pay any  dividends on our common stock until all interest in arrears is
paid to the AT&T Trust.

  Dividends on the quarterly preferred securities were $140 for the period ended
December  31,  1999,  and  are  reported  within  other  income(expense)  in the
accompanying Consolidated Statements of Income.

  On June 16, 1999, AT&T also issued to Microsoft 40 million  warrants,  each to
purchase  one share of AT&T common  stock at a price of $75 per share at the end
of three years. Alternatively, the warrants are exercisable on a cashless basis.
If the warrants are not exercised on the  three-year  anniversary of the closing
date, the warrants expire.

  A discount on the  quarterly  preferred  securities  equal to the value of the
warrants of $306 was recognized and is being  amortized over the 30-year life of
the quarterly  preferred  securities as a component of other  income(expense) in
the accompanying Consolidated Statements of Income.

SUBSIDIARY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY
TRUSTS HOLDING SOLELY SUBORDINATED DEBT SECURITIES OF AN AT&T SUBSIDIARY
  Certain  subsidiary  trusts  of TCI  (TCI  Trusts)  had  preferred  securities
outstanding at December 31, 1999, as follows:

                                  Interest    Maturity    Current

Subsidiary Trust                    Rate        Date      Balance*
TCI Communications Financing I      8.72%       2045      $  528
TCI Communications Financing II    10.00%       2045         521
TCI Communications Financing III    9.65%       2027         360
TCI Communications Financing IV     9.72%       2036         217
Total                                                     $1,626

* In  connection  with the  acquisition  of  Broadband,  approximately  $160 was
allocated to the Trust Preferred Securities  representing the excess of the fair
market value over the recorded value at the date of  acquisition.  The excess is
being amortized over the remaining life of the Trust Preferred Securities, 28 to
46 years, and was $154 at December 31, 1999.

  The TCI Trusts  were  created for the  exclusive  purpose of issuing the Trust
Preferred  Securities  and  investing  the proceeds  thereof  into  Subordinated
Deferrable   Interest  Notes  (the   Subordinated   Debt   Securities)  of  TCI.
Subordinated  Debt  Securities have interest rates equal to the interest rate of
the  corresponding  Trust  Preferred  Securities and have maturity dates ranging
from 30 to 49 years from the date of  issuance.  The  preferred  securities  are
mandatorily  redeemable upon repayment of the  Subordinated  Debt Securities and
are callable by AT&T. The Financing I and II

<PAGE>

Trust  Preferred  Securities are callable at face value beginning in January and
May 2001, respectively. Financing III Trust Preferred Securities are callable at
104.825% of face value  beginning in March 2007.  Financing  IV Trust  Preferred
Securities are callable at face value  beginning in March 2002.  Upon redemption
of the  Subordinated  Debt  Securities,  the Trust Preferred  Securities will be
mandatorily  redeemable.  TCI  effectively  provides  a full  and  unconditional
guarantee of the TCI Trusts'  obligations under the Trust Preferred  Securities.
Subsequent   to  December  31,  1999,   AT&T  expects  to  provide  a  full  and
unconditional   guarantee   of  TCI's  Trust   Preferred   Securities   for  TCI
Communications Financing I, II and IV subsidiary trusts (see Note 12).

  Dividends accrued and paid on the Trust Preferred  Securities  aggregated $114
for the period from completion of the merger with TCI through December 31, 1999,
and are recorded within other  income(expense) in the accompanying  Consolidated
Statements  of Income.  AT&T has the right to defer  interest  payments up to 20
consecutive quarters; as a consequence, dividend payments on the Trust Preferred
Securities  can be  deferred by the TCI Trust  during any such  interest-payment
period.  If AT&T defers any interest  payments,  we may not, among other things,
pay any  dividends  on our common stock until all interest in arrears is paid to
the TCI Trusts.

11. FINANCIAL INSTRUMENTS

In the  normal  course  of  business,  we  use  various  financial  instruments,
including derivative financial instruments,  for purposes other than trading. We
do not use derivative  financial  instruments  for speculative  purposes.  These
instruments  include letters of credit,  guarantees of debt,  interest rate swap
agreements, foreign currency exchange contracts and equity hedges. Interest rate
swap  agreements and foreign  currency  exchange  contracts are used to mitigate
interest rate and foreign currency exposures. Equity hedges are used to mitigate
exposure to stock appreciation of affiliated companies.  Collateral is generally
not required for these types of instruments.

By their nature, all such instruments involve risk, including the credit risk of
nonperformance by counterparties,  and our maximum potential loss may exceed the
amount recognized in our balance sheet.  However, at December 31, 1999 and 1998,
in  management's  opinion there was no significant  risk of loss in the event of
nonperformance of the counterparties to these financial instruments.  We control
our  exposure  to credit  risk  through  credit  approvals,  credit  limits  and
monitoring procedures. We do not have any significant exposure to any individual
customer or counterparty,  nor do we have any major concentration of credit risk
related to any financial instruments.

LETTERS OF CREDIT
Letters of credit are  purchased  guarantees  that  ensure  our  performance  or
payment to third parties in accordance  with specified  terms and conditions and
do not create any additional risk to AT&T.

GUARANTEES OF DEBT
From  time to time,  we  guarantee  the  debt of our  subsidiaries  and  certain
unconsolidated joint ventures. Prior to the merger, Broadband had agreed to take
certain steps to support debt compliance with respect to obligations aggregating
$1,720  of  certain  cable  television  partnerships  in which  Broadband  has a
noncontrolling   ownership  interest.   Although  there  can  be  no  assurance,
management  believes that it will not be required to meet its obligations  under
such guarantees.  Additionally,  in connection with the restructuring of AT&T in
1996, we issued  guarantees  for certain debt  obligations of AT&T Capital Corp.
and NCR. The amount of guaranteed debt associated with our former  subsidiaries,
AT&T  Capital  Corp.  and NCR,  was $56 and $108 at December  31, 1999 and 1998,
respectively.

<PAGE>

INTEREST RATE SWAP AGREEMENTS
We enter into  interest rate swaps to manage our exposure to changes in interest
rates and to lower our overall costs of financing. We enter into swap agreements
to  manage  the  fixed/floating  mix of our debt  portfolio  in order to  reduce
aggregate risk to interest rate movements.  Interest rate swaps also allow us to
raise funds at floating  rates and  effectively  swap them into fixed rates that
are  lower  than  those  available  to us if  fixed-rate  borrowings  were  made
directly.  These agreements involve the exchange of floating-rate for fixed-rate
payments,  fixed-rate  for  floating-rate  payments or  floating-rate  for other
floating-rate  payments without the exchange of the underlying principal amount.
Fixed  interest rate  payments at December 31, 1999,  were at rates ranging from
6.05% to  9.47%.  Floating-rate  payments  are  based on  rates  tied to  London
Inter-Bank Offered Rate (LIBOR).

  The following  table  indicates the types of swaps in use at December 31, 1999
and 1998, and their weighted-average  interest rates. Average variable rates are
those in effect at the  reporting  date and may  change  significantly  over the
lives of the contracts.

                                               1999      1998
Fixed to variable swaps - notional amount    $1,800     $ 461
  Average receive rate                         6.89%     6.33%
  Average pay rate                             6.67%     5.31%

Variable to fixed swaps - notional amount    $  229     $ 241
  Average receive rate                         6.30%     4.92%
  Average pay rate                             6.77%     7.68%

Variable to variable swaps - notional amount $  495     $   -
  Average receive rate                         6.63%        -
  Average pay rate                             6.53%        -

  The weighted-average  remaining terms of the swap contracts were seven and two
years at December 31, 1999 and 1998, respectively.

FOREIGN EXCHANGE
We enter into foreign currency exchange contracts,  including forward and option
contracts,  to manage  our  exposure  to  changes in  currency  exchange  rates,
principally  European  Union's  currency  (Euro),  British  pounds  sterling and
Japanese yen. The use of these  derivative  financial  instruments  allows us to
reduce our  exposure  to the risk of adverse  changes in  exchange  rates on the
reimbursement  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 and
other  foreign  currency  payables  and  receivables.   These  transactions  are
generally  expected to occur in less than one year. In addition,  we are subject
to  foreign   exchange   risk  related  to  other   foreign-currency-denominated
transactions.

EQUITY HEDGES
We enter into equity  hedges to manage our exposure to changes in equity  prices
associated with stock appreciation rights of affiliated companies.

FAIR VALUES OF FINANCIAL  INSTRUMENTS INCLUDING DERIVATIVE FINANCIAL INSTRUMENTS
The  following  table  summarizes  the  notional  amounts of material  financial
instruments.  The  notional  amounts  represent  agreed-upon  amounts  on  which
calculations of dollars to be exchanged are based. They do not represent amounts
exchanged by the parties and, therefore,  are not a measure of our exposure. Our
exposure  is  limited to the fair value of the  contracts  with a positive  fair
value plus interest receivable, if any, at the reporting date.

<PAGE>

DERIVATIVES AND OFF BALANCE SHEET INSTRUMENTS

                                       1999          1998
                                     Contract/     Contract/
                                     Notional      Notional
                                      Amount        Amount

Interest rate swap agreements        $2,524          $702
Foreign exchange forward contracts    1,881           244
Equity hedges                           495             -
Letters of credit                       243           184
Guarantees of debt                    1,848           237

  The following  tables show the  valuation  methods,  the carrying  amounts and
estimated fair values of material financial instruments.

FINANCIAL INSTRUMENT                  VALUATION METHOD
Debt excluding capital leases         Market quotes or rates available
                                        to us for debt with similar
                                        terms and maturities
Letters of credit                     Fees paid to obtain the
                                        obligations

Guarantees of debt                    There are no quoted market prices
                                        for similar agreements available
Interest rate swap agreements         Market quotes obtained from dealers
Foreign exchange contracts            Market quotes
Equity hedges                         Market quotes
Preferred securities                  Market quotes*

*It is not practicable to estimate the fair market value of our $4,700 quarterly
preferred  securities.  There are no current  market  quotes  available  on this
private placement.

<TABLE>
<CAPTION>

                                    1999                           1998
                          Carrying         Fair          Carrying          Fair
                            Amount        Value            Amount         Value
<S>                        <C>          <C>                <C>           <C>
Debt excluding
  capital leases           $33,881      $32,565            $6,691        $7,136

Pacific preferred stock      2,121        1,929                 -             -
Subsidiary-obligated
  mandatorily redeemable
  preferred securities       1,626        1,527                 -             -
</TABLE>

<TABLE>
<CAPTION>

                                1999                            1998
                      Carrying          Fair           Carrying       Fair
                      Amount            Value          Amount         Value
                    Asset   Liab.   Asset  Liab.     Asset  Liab.   Asset Liab.
<S>                 <C>     <C>     <C>    <C>       <C>    <C>     <C>    <C>
Interest rate
  swap agreements   $ 28    $27     $  6   $29       $5     $13     $ -    $19

Foreign exchange
  forward contracts    -     26        1    28        7       7      13      4

Equity hedges        313      2      313     -        -       -       -      -
</TABLE>

<PAGE>

12. GUARANTEE OF PREFERRED SECURITIES

Prior to the  consummation  of the  Broadband  merger,  TCI  issued  mandatorily
redeemable preferred securities through subsidiary trusts that held subordinated
debt securities of TCI. Subsequent to December 31, 1999, AT&T expects to provide
a full and unconditional  guarantee on the outstanding  securities issued by TCI
Communications  Financing  I, II and IV (see Note 10).  At  December  31,  1999,
$1,266 of the guaranteed  redeemable preferred securities remained  outstanding.
Following  is a summary of the  results of TCI which have been  included  in the
financial  results  of AT&T  since  the  date  of  acquisition.  The  summarized
financial  information  included  transactions with AT&T that were eliminated in
consolidation.

For the 10 months ended    December 31, 1999
Revenue                               $4,870
Operating loss                         1,071
Loss before extraordinary items        4,211
Net loss                               4,220

At December 31,                         1999
Current assets                       $   468
Noncurrent assets                     93,798
Current liabilities                    2,814
Noncurrent liabilities                36,227
Minority interests                     2,175


13. PENSION, POSTRETIREMENT AND OTHER EMPLOYEE BENEFIT PLANS

We sponsor  noncontributory  defined benefit pension plans covering the majority
of our  employees.  Pension  benefits for management  employees are  principally
based on career-average pay. Pension benefits for occupational employees are not
directly  related to pay.  Pension trust  contributions  are made to trust funds
held for the sole benefit of plan  participants.  Our benefit  plans for current
and future retirees include  health-care  benefits,  life insurance coverage and
telephone concessions.

  The following  table shows the  components  of the net periodic  benefit costs
included in our Consolidated Statements of Income:

                                                             Postretirement
                                   Pension Benefits             Benefits

For the Years Ended              1999     1998     1997    1999    1998    1997
December 31,

Service cost benefits earned
 during the period             $  247   $  275    $ 305    $ 54   $  56    $ 56
Interest cost on benefit
 obligations                      919      940      946     324     322     278
Amortization of unrecognized
 prior service cost               159      135      114      13      (2)     39
Credit for expected return
 on plan assets                (1,458)  (1,570)  (1,371)   (200)   (173)   (120)
Amortization of transition

 asset                           (158)    (175)    (181)      -       -       -
Amortization of gains             (10)       -        -      (1)      -       -
Charges for special termination
 benefits                           -    2,254        -       5     169       -
Net curtailment losses              -      140        -       -     141       -
Net settlement (gains) losses    (121)    (921)       5       -       -       -
Net periodic benefit cost
 (credit)                      $ (422)  $1,078   $ (182)   $195   $ 513    $253



<PAGE>

  On January 26,  1998,  we offered a  voluntary  retirement  incentive  program
(VRIP)  to  employees  who were  eligible  participants  in the AT&T  Management
Pension Plan. Approximately 15,300 management employees accepted the VRIP offer.
In connection  with the VRIP, we recorded pretax charges in 1998 for pension and
postretirement   plan   special-termination   benefits   of  $2,254   and  $169,
respectively. We also recorded pension and postretirement plan pretax charges of
$120 and $143, respectively, which are included within net curtailment losses in
1998.  The  special-termination  benefits  reflect the value of pension  benefit
improvements and expanded eligibility for postretirement benefits. The VRIP also
permitted  employees to choose  either a total  lump-sum  distribution  of their
pension benefits or periodic future annuity payments.

  As of December 31, 1999, all 15,300 employees had terminated  employment under
the VRIP.  AT&T has settled the pension  obligations  covering  about  15,000 of
these  employees,  the remainder of which either chose to defer commencing their
pension benefits or elected to receive an annuity distribution. Lump-sum pension
settlements  totaling $5.2 billion,  including a portion of the  special-pension
termination benefits referred to above, resulted in settlement gains of $121 and
$940 recorded in 1999 and 1998, respectively.

  The following  tables  provide a  reconciliation  of the changes in the plans'
benefit  obligations  and fair value of assets for the years ended  December 31,
1999 and 1998,  and a statement  of the funded  status at December  31, 1999 and
1998, respectively:

<TABLE>
<CAPTION>

                               Pension Benefits         Postretirement Benefits
                              1999          1998           1999          1998
<S>                        <C>           <C>             <C>           <C>

Change in benefit
obligations:
Benefit obligation,
  beginning of year        $14,443       $14,481         $5,168        $4,356

Service cost                   247           275             54            56

Interest cost                  919           940            324           322

Plan amendments                558           324              4           (95)

Actuarial (gains) losses    (1,683)        1,609           (579)          258

Benefit payments            (1,062)         (770)          (334)         (227)

Special termination
  benefits                       -         2,254              5           169

Settlements                   (554)       (4,676)             -             -
Curtailment losses               -             6              -           329

Benefit obligation,
  end of year              $12,868       $14,443        $ 4,642       $ 5,168

Change in fair value of
plan assets:
Fair value of plan
  assets, beginning of
  year                     $18,567       $20,513        $ 2,476       $ 1,969

Actual return on plan
  assets                     4,133         3,375            385           437

Employer contributions          48           125            325           297

Benefit payments            (1,062)         (770)          (334)         (227)

Settlements                   (554)       (4,676)             -             -
Fair value of plan
  assets, end of year      $21,132       $18,567        $ 2,852       $ 2,476

At December 31,
Funded (unfunded) benefit
  obligation               $ 8,264       $ 4,124        $(1,790)      $(2,692)

Unrecognized net gain       (7,735)       (3,495)          (800)          (36)

Unrecognized transition
  asset                       (279)         (445)             -             -
Unrecognized prior service
  cost                       1,362           960             55            63

Net amount recorded        $ 1,612       $ 1,144        $(2,535)      $(2,665)
</TABLE>

  Our pension  plan assets  include $82 and $85 of AT&T common stock at December
31, 1999 and 1998, respectively.

<PAGE>

  The following table provides the amounts recorded in our Consolidated  Balance
Sheets:

<TABLE>
<CAPTION>

                                 Pension Benefits      Postretirement Benefits
At December 31,                 1999          1998        1999        1998
<S>                          <C>           <C>         <C>         <C>
Prepaid pension cost         $ 2,464       $ 2,074     $     -     $     -
Benefit related liabilities     (918)       (1,016)     (2,535)     (2,665)

Intangible asset                  46            47           -           -
Accumulated other
  comprehensive income            20            39           -           -
Net amount recorded          $ 1,612       $ 1,144     $(2,535)    $(2,665)
</TABLE>

  Our nonqualified  pension plan had an unfunded  accumulated benefit obligation
of $118 and $135 at December 31, 1999 and 1998, respectively. Our postretirement
health and telephone  concession  benefit plans had  accumulated  postretirement
benefit  obligations  of  $4,021  and  $4,461  at  December  31,  1999 and 1998,
respectively,  which  were in excess of plan  assets  of  $1,635  and  $1,408 at
December 31, 1999 and 1998, respectively.

  The  assumptions  used in the  measurement  of the pension and  postretirement
benefit obligations are shown in the following table:

At December 31,                     1999    1998    1997
Weighted-average assumptions:
Discount rate                      7.75%    6.5%    7.0%
Expected return on plan assets      9.5%    9.5%    9.0%
Rate of compensation increase       4.5%    4.5%    4.5%

  We assumed a rate of increase  in the per capita  cost of covered  health-care
benefits  (the  health-care  cost trend rate) of 6.6%.  This rate was assumed to
gradually  decline  after 1999 to 4.6% by 2009 and then  remain  level.  Assumed
health-care  cost trend rates have a significant  effect on the amounts reported
for the  health-care  plans. A one percentage  point increase or decrease in the
assumed  health-care cost trend rate would increase or decrease the total of the
service and interest-cost components of net periodic postretirement  health-care
benefit  cost by $11 and $9,  respectively,  and would  increase or decrease the
health-care  component of the accumulated  postretirement  benefit obligation by
$137 and $110, respectively.

  We also sponsor  savings  plans for the majority of our  employees.  The plans
allow employees to contribute a portion of their pretax and/or  after-tax income
in accordance with specified  guidelines.  We match a percentage of the employee
contributions up to certain limits. Our contributions  amounted to $234 in 1999,
$204 in 1998 and $201 in 1997.

14. STOCK-BASED COMPENSATION PLANS

Under the 1997 Long-term  Incentive Program (Program),  which was effective June
1, 1997,  and  amended on May 19,  1999,  we grant  stock  options,  performance
shares,  restricted  stock and other awards.  Under the Program,  there were 150
million  shares of common  stock  available  for  grant  with a maximum  of 22.5
million  common  shares that could be used for awards other than stock  options.
From the time the Program  became  effective  to the period  ended  December 31,
1999, there were  approximately  109 million shares granted and approximately 41
million  shares that  remained  available for grant.  Beginning  with January 1,
2000, the remaining shares available for grant at December 31 of the prior year,
plus 1.75% of the shares of AT&T common stock  outstanding  on January 1 of each
year, become available for grant. There is a maximum of 37.5 million shares that
may be used for awards other than stock options. The exercise price of any stock
option is equal to the stock  price when the option is granted.  Generally,  the
options vest over three years and are  exercisable  up to 10 years from the date
of grant. Under the 1987 Long-term Incentive

<PAGE>

Program, which expired in April 1997, we granted the same awards, and on January
1 of each  year,  0.6% of the  outstanding  shares of our  common  stock  became
available for grant.

  Under the Program, performance share units are awarded to key employees in the
form of either common stock or cash at the end of a three-year period,  based on
AT&T's total shareholder return and certain financial-performance targets. Under
the 1987  Long-term  Incentive  Program,  performance  share units with the same
terms  were also  awarded  to key  employees  based on  AT&T's  return-to-equity
performance compared with a target.

  On August 1, 1997,  substantially  all  employees  were granted a stock option
award to purchase 150 shares  representing  a total of 18.75  million  shares of
AT&T common stock.  The options vest after three years and are exercisable up to
10 years from the grant date.

  Under the AT&T 1996 Employee Stock  Purchase Plan (Plan),  which was effective
July 1, 1996, we are  authorized to sell up to 75 million shares of common stock
to our eligible employees. Under the terms of the Plan, employees may have up to
10% of their  earnings  withheld to purchase  AT&T's common stock.  The purchase
price of the stock on the date of exercise  is 85% of the  average  high and low
sale  prices of shares on the New York Stock  Exchange  for that day.  Under the
Plan, we sold  approximately 3 million shares to employees in both 1999 and 1998
and 6 million shares in 1997.

  We apply  Accounting  Principles  Board Opinion No. 25,  "Accounting for Stock
Issued to Employees," and related  interpretations  in accounting for our plans.
Accordingly,  no  compensation  expense has been  recognized for our stock-based
compensation  plans other than for our  performance-based  and restricted  stock
awards and stock appreciation rights (SARs).  Compensation costs charged against
income were $462, $157 and $110 in 1999, 1998 and 1997,  respectively.  In 1999,
costs  included $382 related to grants of SARs of affiliated  companies  held by
certain  employees  subsequent to the Broadband  merger. We also entered into an
equity hedge in 1999 to offset  potential future  compensation  costs associated
with these SARs. The 1999 income related to this hedge was $247.

A summary of option transactions is shown below:

                            Weighted-           Weighted-         Weighted-
                             Average             Average           Average
                            Exercise            Exercise           Exercise

Shares in Thousands      1999     Price     1998     Price      1997     Price
Outstanding at
 January 1,            131,904   $30.41    110,972   $24.77    76,466    $21.59

Options assumed in
 Broadband merger       11,770   $14.79          -        -         -         -

Options granted         47,927   $57.13     46,148   $41.69    57,465    $25.98

Options and SARs
 exercised             (17,858)  $22.87    (18,894)  $21.95   (16,652)   $16.34

Options canceled or
 forfeited              (4,980)  $42.44     (6,322)  $31.64    (6,307)   $26.73

At December 31:
Options outstanding    168,763   $37.42    131,904   $30.41   110,972    $24.77

Options exercisable     57,894   $28.21     35,472   $23.13    34,472    $22.17

Shares available for
 grant                  41,347              91,838            135,518





<PAGE>

All of the 11.8 million stock options  assumed in connection  with the Broadband
merger were in tandem with SARs. These SARs were subsequently  canceled on April
30, 1999.  During 1999,  386,000 SARs  (including  137,000 for  Broadband)  were
exercised. At December 31, 1999, there were no AT&T SARs outstanding.

The following table summarizes  information  about stock options  outstanding at
December 31, 1999:

                    Options Outstanding                    Options Exercisable

                    Number      Weighted-    Weighted-     Number      Weighted-
                  Outstanding    average      average    Exercisable    average
Range of          at Dec. 31,   Remaining    Exercise    at Dec. 31,    Exercise
Exercise Prices   1999 (in     Contractual     Price      1999 (in        Price
                  thousands)      Life                   thousands)

$ 4.36 - $18.08     14,316         5.2        $13.93        8,919        $14.54
$18.15 - $24.49     10,453         4.9        $23.21        9,240        $23.31
$24.50              16,388         7.6        $24.50           58        $24.50
$24.51 - $26.18      3,895         4.7        $24.90        3,534        $24.83
$26.21              19,398         7.1        $26.21       11,393        $26.21
$26.33 - $31.58     14,619         6.2        $29.89       11,473        $30.05
$32.19 - $42.04     12,247         8.4        $38.27        3,056        $37.77
$42.10              29,255         8.1        $42.10        9,026        $42.10
$42.19 - $59.75     18,967         9.5        $51.59        1,091        $49.66
$59.88              29,122         9.1        $59.88          104        $59.88
$61.03 - $62.13        103         9.1        $62.06            -        $62.06
                   168,763         7.6        $37.42       57,894        $28.21

AT&T has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for
Stock-Based  Compensation." If AT&T had elected to recognize  compensation costs
based on the fair value at the date of grant for awards in 1999,  1998 and 1997,
consistent  with the provisions of SFAS No. 123,  AT&T's net income and earnings
per AT&T  common  share  would  have been  reduced  to the  following  pro forma
amounts:

For the Years Ended December 31,                      1999       1998       1997

Income from continuing operations                   $3,171     $5,078     $4,158
Income from discontinued operations                      -          7         99
Gains on sales of discontinued operations                -      1,290         66
Extraordinary loss                                       -        137          -
Net income                                          $3,171     $6,238     $4,323

Earnings per AT&T Group common share - basic:

Continuing operations                               $ 1.68     $ 1.90     $ 1.56
Discontinued operations                                  -          -       0.03
Gains on sales of discontinued operations                -       0.48       0.03
Extraordinary loss                                       -       0.05          -
AT&T Group earnings                                 $ 1.68     $ 2.33     $ 1.62

Earnings per AT&T Group common share - diluted:

Continuing operations                               $ 1.65     $ 1.88     $ 1.55
Discontinued operations                                  -          -       0.03
Gains on sales of discontinued operations                -       0.48       0.03
Extraordinary loss                                       -       0.05          -
AT&T Group earnings                                 $ 1.65     $ 2.31     $ 1.61






<PAGE>

The  pro  forma  effect  on net  income  for  1999,  1998  and  1997  may not be
representative of the pro forma effect on net income of future years because the
SFAS No. 123 method of  accounting  for pro forma  compensation  expense has not
been applied to options granted prior to January 1, 1995.

  The  weighted-average  fair values at date of grant for options granted during
1999,  1998 and 1997  were  $15.64,  $9.75  and  $6.06,  respectively,  and were
estimated using the  Black-Scholes  option-pricing  model. The  weighted-average
risk-free  interest rates applied for 1999, 1998 and 1997 were 5.10%,  5.33% and
6.16%,  respectively.  The following assumptions were applied for 1999, 1998 and
1997,  respectively:  (i) expected  dividend yields of 1.7%, 2.1% and 2.2%, (ii)
expected  volatility rates of 28.3%, 23.8% and 21.8% and (iii) expected lives of
4.5 years.

15. INCOME TAXES

The following table shows the principal  reasons for the difference  between the
effective income tax rate and the U.S. federal statutory income tax rate:

For the Years Ended December 31,             1999     1998     1997
U.S. federal statutory income tax rate         35%      35%      35%
Federal income tax at statutory rate       $2,340   $2,908   $2,440
Amortization of investment tax credits        (10)     (14)     (16)
State and local income taxes, net of
  federal income tax effect                   210      201      183
Liberty Media Group losses                    708        -        -
In-process research and development
  write-off                                   208        -        -

Foreign rate differential                      90       63      117
Amortization of intangibles                    43       28       23
Taxes on repatriated and accumulated
  foreign income, net of tax credits          (45)     (36)     (32)
Research and other credits                    (64)     (91)     (86)
Valuation allowance                           (78)      37       77
Investment dispositions, acquisitions
  and legal entity restructuring              (94)    (153)      25
Other differences, net                        (51)     129       (8)
Provision for income taxes                 $3,257   $3,072   $2,723
Effective income tax rate                    48.7%*   37.0%    39.0%

*Includes the impact of LMG's losses, net of taxes,  reported as a separate line
item in AT&T's  Consolidated  Statements of Income.  AT&T Group's  effective tax
rate was 37.4%.

  The U.S. and foreign  components of income from continuing  operations  before
income taxes and the provision for income taxes are presented in this table:

For the Years Ended December 31,             1999     1998     1997
INCOME FROM CONTINUING OPERATIONS
  BEFORE INCOME TAXES
United States                              $6,467   $8,318   $7,090
Foreign                                       218      (11)    (118)
Total                                      $6,685   $8,307   $6,972



<PAGE>

PROVISION FOR INCOME TAXES
CURRENT

  Federal                                  $2,609   $2,908   $1,561
  State and local                             403      251      194
  Foreign                                     100       41       49
                                           $3,112   $3,200   $1,804
DEFERRED

  Federal                                  $  228  $ (172)   $  851
  State and local                             (81)     58        89
  Foreign                                       8        -       (5)
                                           $  155  $ (114)   $  935
Deferred investment tax credits               (10)    (14)      (16)
Provision for income taxes                 $3,257  $3,072    $2,723

  The current  income taxes payable  balance was $427 and $1,393 at December 31,
1999 and 1998, respectively.  The decrease in the 1999 balance was primarily due
to income taxes accrued in 1998 and paid in 1999 related to the sale of UCS.

  Deferred  income tax liabilities are taxes we expect to pay in future periods.
Similarly,  deferred  income tax assets are recorded for expected  reductions in
taxes  payable  in future  periods.  Deferred  income  taxes  arise  because  of
differences in the book and tax bases of certain assets and liabilities.

  Deferred income tax liabilities and assets consist of the following:

At December 31,                                       1999     1998
LONG-TERM DEFERRED INCOME TAX LIABILITIES
  Property, plant and equipment                     $7,678   $7,324
  Investments                                        7,304        -
  Franchise costs                                   11,998        -
  Other                                              1,156      776
Total long-term deferred income tax liabilities    $28,136   $8,100

LONG-TERM DEFERRED INCOME TAX ASSETS
  Business restructuring                            $  120   $  134
  Net operating loss/credit carryforwards              710      495
  Employee pensions and other benefits, net          1,359    1,557
  Reserves and allowances                              376      126
  Investments                                            -       39
  Other                                              1,603      556
  Valuation allowance                                 (231)    (260)

Total net long-term deferred income tax assets      $3,937   $2,647
Net long-term deferred income tax liabilities      $24,199   $5,453

CURRENT DEFERRED INCOME TAX LIABILITIES
Total current deferred income tax liabilities       $  427   $  408

CURRENT DEFERRED INCOME TAX ASSETS
  Business restructuring                            $   47   $   79
  Employee pensions and other benefits                 562      346
  Reserves and allowances                              682      896
  Other                                                423      397

Total current deferred income tax assets            $1,714   $1,718
Net current deferred income tax assets              $1,287   $1,310


<PAGE>

  At December 31, 1999, we had net operating loss  carryforwards  (tax-effected)
for  federal  and state  income  tax  purposes  of $156 and $187,  respectively,
expiring  through  2014. We also had foreign net  operating  loss  carryforwards
(tax-effected)  of $78,  which have no  expiration  date.  In  addition,  we had
federal tax credit  carryforwards of $257, of which $183 have no expiration date
and  $74  expiring   through  2005.  We  had  state  tax  credit   carryforwards
(tax-effected) of $32 expiring through 2003.

  In connection with the Broadband merger, we acquired certain federal and state
net operating loss carryforwards  subject to a valuation  allowance of $124. If,
in the future,  the  realization of these  acquired  deferred tax assets becomes
more likely than not, any reduction of the associated  valuation  allowance will
be allocated to reduce franchise costs and other purchased intangibles.

16. COMMITMENTS AND CONTINGENCIES

In the normal  course of business we are subject to  proceedings,  lawsuits  and
other  claims,  including  proceedings  under  laws and  regulations  related to
environmental and other matters. Such matters are subject to many uncertainties,
and outcomes are not predictable with assurance.  Consequently, we are unable to
ascertain  the  ultimate  aggregate  amount of monetary  liability  or financial
impact with respect to these  matters at December 31, 1999.  These matters could
affect the operating results of any one quarter when resolved in future periods.
However,  we believe that after final  disposition,  any  monetary  liability or
financial  impact  to us  beyond  that  provided  for at  year-end  would not be
material to our annual consolidated financial statements.

  We lease  land,  buildings  and  equipment  through  contracts  that expire in
various years through 2047. Our rental expense under  operating  leases was $827
in 1999,  $742 in 1998 and $853 in 1997.  The  following  table shows our future
minimum lease payments due under noncancelable  operating leases at December 31,
1999. Such payments total $3,284. The total of minimum rentals to be received in
the future under noncancelable subleases as of December 31, 1999, was $285.

               2000     2001     2002     2003    2004    Later Years
              $ 675     $562     $445     $372    $302           $928

  We have an agreement with General Instrument Corporation to purchase a minimum
of 2.5 million set-top devices in 2000 at an average price of $318 per unit.

  Through a joint  venture (70% owned by AT&T and 30% owned by BT),  AT&T and BT
have a 31% ownership of AT&T Canada Corp. as a result of the merger between AT&T
Canada Corp. and MetroNet Communications,  Corp. In connection with this merger,
the AT&T and BT joint  venture  has the right to call,  or arrange  for  another
entity to call,  the  remaining  69% of AT&T Canada for the greater of Cdn$37.50
per  share  (accreting  4%  each  quarter   beginning  June  30,  2000)  or  the
then-appraised  fair market value. If we do not exercise our call rights by June
30,  2003,  the shares  would be put up for  auction,  and the AT&T and BT joint
venture would have to make the shareholders whole for the difference between the
proceeds  received in auction  and the  greater of the fair market  value or the
accreted  value.  The exact  timing of any  purchase  will  likely be  partially
dependent upon the future status of federal foreign ownership regulations.

<PAGE>

17. SEGMENT REPORTING

AT&T's  results  are  segmented  according  to the way we manage  our  business:
Business  Services,  Consumer  Services,  Wireless  Services and Broadband.  Our
Business  Services  segment offers a variety of global  communications  services
including long distance,  local, and data and Internet  protocol (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).  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.  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  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.  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.  The balance of AT&T Group's
operations  is  included in an "Other and  Corporate"  category.  This  category
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 the IBM Global  Network  (renamed
AT&T Global Network  Services,  or AGNS),  which was acquired for cash in phases
throughout  1999.  Liberty  Media Group  (LMG) is then added to AT&T  Group,  as
appropriate,  to reconcile  segment results to consolidated  AT&T. LMG is not an
operating  segment of AT&T  because AT&T does not have a  controlling  financial
interest in LMG for financial accounting purposes therefore, we account for this
investment under the equity method. Additionally, LMG's results are not reviewed
by the chief operating  decision-makers for purposes of determining resources to
be  allocated.  Total assets for our  reportable  segments  include all external
assets for each segment.  Prepaid pension assets and  corporate-owned  or leased
real estate are generally held at the corporate level. Shared network assets are
allocated  to the segments and  reallocated  each January  based on two years of
volumes. The accounting policies of the segments are the same as those described
in the summary of significant  accounting  policies (see Note 1). AT&T evaluates
performance based on several factors,  of which the primary financial measure is
earnings,  including  other  income(expense),  before interest and taxes (EBIT).
Generally, AT&T accounts for Business Services' intersegment  telecommunications
transactions at market prices.

<PAGE>

REVENUE

For the Years Ended December 31,          1999        1998         1997
Business Services external revenue     $23,540     $22,706      $21,520
Business Services internal revenue       1,562         905          811
Total Business Services revenue         25,102      23,611       22,331
Consumer Services external revenue      21,972      22,885       23,690
Wireless Services external revenue       7,627       5,406        4,668
Broadband external revenue               4,871           -            -
  Total reportable segments             59,572      51,902       50,689
Other and Corporate                      2,819       1,321          888
Total revenue                          $62,391     $53,223      $51,577

DEPRECIATION AND AMORTIZATION*
For the Years Ended December 31,          1999        1998         1997
Business Services                      $ 2,948     $ 2,388      $ 1,855
Consumer Services                          877         730          772
Wireless Services                        1,223       1,036          886
Broadband                                1,674           -            -
  Total reportable segments              6,722       4,154        3,513
Other and Corporate                        717         475          469
Total depreciation and amortization    $ 7,439     $ 4,629      $ 3,982

* Includes the  amortization  of goodwill,  franchise  costs and other purchased
intangibles.

EQUITY EARNINGS (LOSSES)
For the Years Ended December 31,          1999        1998         1997
Wireless Services                      $    74     $   108       $  222
Broadband                               (1,145)          -            -
  Total reportable segments             (1,071)        108          222
Other and Corporate                        (84)       (176)        (191)
Liberty Media Group                     (2,022)          -            -
Total equity earnings (losses)         $(3,177)    $   (68)      $   31

RECONCILIATION OF EARNINGS BEFORE INTEREST AND TAXES (EBIT) TO INCOME BEFORE
INCOME TAXES
For the Years Ended December 31,          1999        1998         1997
Business Services                      $ 6,131     $ 5,007      $ 4,047
Consumer Services                        7,968       6,568        4,922
Wireless Services                         (474)        182          366
Broadband                               (2,276)          -            -
  Total reportable segments' EBIT       11,349      11,757        9,335
Other and Corporate EBIT                  (991)     (3,023)      (2,056)
Liberty Media Group equity losses        2,022           -            -
Interest expense                         1,651         427          307
Total income before income taxes       $ 6,685     $ 8,307      $ 6,972


<PAGE>

ASSETS

At December 31,                           1999        1998         1997
Business Services                      $25,107     $21,415      $16,918
Consumer Services                        6,823       6,561        8,156
Wireless Services                       22,478      19,115       18,639
Broadband                               56,536           -            -
  Total reportable segments            110,944      47,091       43,713
Other and Corporate assets:
  Other segments                        11,045       4,165        4,336
  Prepaid pension costs                  2,464       2,074        2,156
  Deferred taxes                           899       1,156        1,106
  Net assets of discontinued operations      -           -        1,101
  Other corporate assets                 5,594       5,064        8,683
Investment in Liberty Media Group

  and related receivables, net          38,460           -            -
Total assets                          $169,406     $59,550      $61,095

EQUITY INVESTMENTS
At December 31,                           1999        1998         1997
Wireless Services                       $3,850     $ 3,735      $ 3,128
Broadband                               13,052           -            -
  Total reportable segments             16,902       3,735        3,128
Other and Corporate                      1,552         522          555
Liberty Media Group                     38,460           -            -
Total equity investments               $56,914     $ 4,257      $ 3,683

CAPITAL ADDITIONS
For the Years Ended December 31,          1999        1998         1997
Business Services                      $ 7,145     $ 5,952      $ 4,547
Consumer Services                          859         526        1,010
Wireless Services                        2,598       2,321        2,071
Broadband                                4,759           -            -
  Total reportable segments             15,361       8,799        7,628
Other and Corporate                      1,798         779        1,055
Total capital additions                $17,159     $ 9,578      $ 8,683

Geographic  information  is not  presented due to the  immateriality  of revenue
attributable to international customers.

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.

<PAGE>

18. QUARTERLY INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>

1999                                    First     Second       Third   Fourth
<S>                                   <C>        <C>         <C>      <C>
Revenue                               $14,096    $15,691     $16,270  $16,334

Operating income                        2,116      2,913       3,389    2,441

Income from continuing operations(1)    1,018      1,045       1,416      (51)

Net income                            $ 1,018    $ 1,045     $ 1,416    $ (51)

Per AT&T Group common share-basic(2):
Income from continuing operations     $   .39    $   .50     $   .51    $  .36

AT&T Group earnings                       .39        .50         .51       .36

Per AT&T Group common share-diluted(2):
Income from continuing operations     $   .38    $   .49     $   .50    $  .36

AT&T Group earnings                       .38        .49         .50       .36

Dividends declared per AT&T common
  shares                              $   .22    $   .22     $   .22    $  .22

Liberty Media Group loss per share(3):

  Basic and diluted2                  $   .05    $   .43     $   .17    $  .95

Stock price(2),(6):
AT&T common stock
  High                                $ 64.08    $ 63.00     $ 59.00    $61.00

  Low                                   50.58      50.06       41.81     41.50

  Quarter-end close                     53.20      55.81       43.50     50.81

Liberty Media Group Class A
  tracking stock
  High                                  29.06      37.03       39.69     56.81

  Low                                   25.88      26.25       30.88     35.88

  Quarter-end close                     26.30      36.75       37.31     56.81

Liberty Media Group Class B
  tracking stock
  High                                  29.13      37.25       39.75     68.75

  Low                                   26.13      27.38       32.00     38.63

  Quarter-end close                     26.88      37.25       39.75     68.75
</TABLE>

<PAGE>

<TABLE>
<CAPTION>

1998                                   First(4)  Second(5)    Third      Fourth
<S>                                   <C>        <C>         <C>        <C>

Revenue                               $12,831    $13,211     $13,653    $13,528

Operating income (loss)                 1,404       (459)      3,356      3,186

Income (loss) from continuing
  operations                            1,285       (161)      2,123      1,988

Income before extraordinary loss        1,295      1,129       2,123      1,988

Extraordinary loss                          -          -         137          -
Net income                            $ 1,295    $ 1,129     $ 1,986     $1,988

Per AT&T common share-basic:
Income (loss) from continuing
  operations                          $   .48    $  (.06)    $   .79     $  .76

Extraordinary loss                          -          -         .05          -
Net income                                .48        .42         .74        .76

Per AT&T common share-diluted:
Income (loss) from continuing
  operations                          $   .48    $  (.06)    $   .78     $  .75

Extraordinary loss                          -          -         .05          -
Net income                                .48        .42         .73        .75

Dividends declared                    $   .22    $   .22     $   .22     $  .22

AT&T Stock price(6):
  High                                $ 45.67    $ 44.92     $ 40.92     $52.67

  Low                                   38.25      37.42       32.25      37.46

  Quarter-end close                     43.83      38.08       38.95      50.50
</TABLE>

1. First and second  quarter  1999  amounts  were  restated  to reflect  changes
   resulting from the appraisal of Broadband.  The  restatement had no impact on
   net income or earnings per share.

2. Amounts have been restated to reflect the April 1999  three-for-two  split of
   AT&T's common stock and the June 1999 two-for-one  stock split of the Liberty
   Media Group tracking stock.

3. No dividends have been declared for Liberty Media Group.

4. First quarter 1998 included $10 of income from discontinued operations. This
   income had no material impact on earnings per share.

5. Second  quarter 1998  included a gain on sale of  discontinued  operations of
   $1,290, for an earnings per share impact of $0.48.

6. Stock prices obtained from the New York Stock Exchange Composite Tape.




<PAGE>

19. NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial  Accounting  Standards  Board (FASB) issued 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 of
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.

20. SUBSEQUENT EVENTS

On January 5, 2000, AT&T and 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 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 held 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 in  exchange  for  licenses  in several New
England  markets.  The transaction is expected to close in the fourth quarter of
2000.