FORM 10-K/A

                       SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON, DC 20549

              (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

                       THE SECURITIES EXCHANGE ACT OF 1934

                   For The Fiscal Year Ended December 31, 2000

                                       OR

            ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

              For The Transition Period From _________ to _________

                          Commission File Number 1-1105

                                   AT&T CORP.

          A NEW YORK                                     I.R.S. EMPLOYER
          CORPORATION                                     NO. 13-4924710

            32 Avenue of the Americas, New York, New York 10013-2412
                          Telephone Number 212-387-5400

Securities  registered  pursuant  to  Section  12(b)  of the Act:  See  attached
SCHEDULE A.

Securities registered pursuant to Section 12(g) of the Act:  None.

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

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation S-K is not con-tained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

At February 28, 2001, the aggregate  market value of voting common stock held by
non-affiliates  was  approximately   $129.7  billion.   At  February  28,  2001,
3,807,460,036  shares of AT&T common stock,  362,750,025 shares of AT&T Wireless
Group  tracking  stock,  2,363,738,198  shares  of Class A Liberty  Media  Group
tracking  stock and  206,221,288  shares of Class B Liberty Media Group tracking
stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

(1) Portions of the registrant's definitive proxy statement dated March 29, 2001
issued in connection with the annual meeting of shareholders (Part III)
<PAGE>
                                   SCHEDULE A

           Securities registered pursuant to Section 12(b) of the Act:

                                                    Name of each exchange on
          Title of each class                           which registered

Common Shares                                  #      New York, Boston, Chicago,
   (Par Value $1 Per Share)                    ####   Philadelphia and Pacific
                                               #      Stock Exchanges

AT&T Wireless Group Tracking Stock             #
    (common, Par Value $1 Per Share)           #
                                               #
Class A Liberty Media Group Tracking           ####     New York Stock Exchange
   Shares (common, Par Value $1 Per Share)     #
                                               #
Class B Liberty Media Group Tracking           #
   Shares (common, Par Value $1 Per Share)     #


Thirty-Five Year 5-1/8% Debentures, due        #
  April 1, 2001                                #
                                               #
Ten Year 7-1/8% Notes, due January 15, 2002    #
                                               #
Three Year 61/2% Notes due September 15, 2002  #
                                               #
Five Year 5 5/8% Notes due March 15, 2004      #
                                               #
Ten Year 6-3/4% Notes, due April 1, 2004       #
                                               #
Ten Year 7% Notes, due May 15, 2005            #
                                               #
Twelve Year 7-1/2% Notes, due June 1, 2006     ######   New York Stock Exchange
                                               #
Twelve Year 7-3/4% Notes, due March 1, 2007    #
                                               #
Ten Year 6% Notes due March 15, 2009           #
                                               #
Thirty Year 8-1/8% Debentures, due             #
  January 15, 2022                             #
                                               #
Thirty Year 8.35% Debentures, due              #
  January 15, 2025                             #
                                               #
Thirty-Two Year 8-1/8% Debentures, due         #
  July 15, 2024                                #
                                               #
Thirty Year 61/2% Notes due March 15, 2029     #
                                               #
Forty Year 8-5/8% Debentures, due              #
  December 1, 2031                             #
<PAGE>
PART I

ITEM 1.  BUSINESS.


GENERAL

         AT&T Corp. was  incorporated in 1885 under the laws of the State of New
York and has its principal  executive offices at 32 Avenue of the Americas,  New
York, New York 10013-2412 (telephone number 212-387-5400).

         AT&T is among the world's communications leaders, providing voice, data
and video communications  services to large and small businesses,  consumers and
government   entities.   AT&T  and  its   subsidiaries   furnish   domestic  and
international  long  distance,   regional,  local  and  wireless  communications
services,  cable (broadband)  television and Internet  communications  services.
AT&T also provides billing,  directory, and calling card services to support its
communications business.

         AT&T's  primary  lines of  business  are  business  services;  consumer
services;  broadband services; and wireless services. In addition,  AT&T's other
lines of business include network  management and professional  services through
AT&T Solutions and international operations and ventures.

         Internet  users can access  information  about AT&T and its services at
www.att.com. Our web site is not a part of this Form 10-K.

         AT&T has four classes or series of common stock outstanding. Throughout
this document:

          o    AT&T  Wireless   Group  refers  to  the   business,   assets  and
               liabilities  whose  financial  performance  and economic value we
               intend to reflect in the AT&T Wireless Group Tracking Stock;

          o    Liberty   Media  Group  refers  to  the   business,   assets  and
               liabilities  whose  financial  performance  and economic value we
               intend to reflect in the Liberty Media Group tracking stock;

          o    AT&T,  the Company or the AT&T Common  Stock Group  refers to the
               business,  assets and liabilities whose financial performance and
               economic  value is not  reflected  in either of the two  tracking
               stocks and that we intend to reflect in the Common Stock; and

          o    AT&T Corp. refers to the combined legal entity.


RESTRUCTURING

         On October 25, 2000,  AT&T Corp.  announced  its intention to split-off
the AT&T Wireless Group from AT&T. In addition,  AT&T announced its intention to
fully  separate,  or issue  separate  tracking  stocks  intended  to reflect the
financial  performance  and economic value of, each of AT&T's other major units:
AT&T Broadband,  AT&T Business Services and AT&T Consumer  Services.  AT&T Corp.
also  announced its plan to distribute  all the common stock it holds in Liberty
Media  Corporation in exchange for all the  outstanding  shares of Liberty Media
Group tracking stock.
<PAGE>

         AT&T Corp.  expects the  separations of AT&T Wireless Group and Liberty
Media  Corporation to occur around the middle of 2001.  Later in the year,  AT&T
Corp.  plans to create and issue new  tracking  stocks  intended  to reflect the
financial performance and economic value of the AT&T Broadband unit and the AT&T
Consumer  Services  unit.  Within  about a year after the  issuance of these new
tracking stocks,  AT&T Broadband is expected to be fully separated from the rest
of  AT&T.  Upon  that  separation,  the  AT&T  Business  Services  unit  and the
separately  tracked AT&T Consumer  Services unit would  constitute  one publicly
traded company,  and AT&T Broadband would constitute a separate  publicly traded
company.  The various elements of the plan are not conditioned on the successful
completion  of all  elements  of the plan.  Many of these  steps,  however,  are
subject to conditions,  including IRS rulings,  shareholder  approvals and other
uncertainties.  If we fail to satisfy  any  conditions,  or if other  unforeseen
events  intervene,  some or all of our currently  planned steps could occur on a
different  timetable or on different  terms than we  currently  contemplate,  or
might not occur at all.

         AT&T Wireless Group is a part of AT&T Corp. However, in connection with
AT&T Corp.'s  restructuring  plan, subject to specified  conditions,  AT&T Corp.
intends to  split-off  AT&T  Wireless  Group from AT&T  Corp.  These  conditions
include  the  receipt of a favorable  ruling on the  split-off  from the IRS and
satisfaction of conditions contained in AT&T's new $25 billion credit agreement,
including the repayment of AT&T Wireless  Group's  intercompany  obligations  to
AT&T.

         AT&T Corp.  expects that this split-off would be  accomplished  through
the following steps, any or all of which may be effected simultaneously:

               o    Transfer all of the assets and  liabilities of AT&T Wireless
                    Group to AT&T Wireless Services, Inc.

               o    Mandatorily exchange, in accordance with the terms of AT&T's
                    charter,  all issued and outstanding shares of AT&T Wireless
                    Group  tracking  stock for shares of AT&T Wireless  Services
                    common stock.

               o    Mandatorily   convert  DoCoMo's   interest  in  AT&T  Corp.,
                    including  its  warrants,   into  shares  of  AT&T  Wireless
                    Services common stock, or in the case of the warrants,  into
                    warrants to purchase AT&T Wireless Services common stock.

               o    Distribute  on a pro rata basis to  holders  of AT&T  common
                    stock all  shares  of AT&T  Wireless  Services  held by AT&T
                    other than any of these  shares  retained  by AT&T or shares
                    subject to certain adjustment arrangements.

         After the  mandatory  exchange is  completed,  holders of AT&T Wireless
Group  tracking stock who do not hold shares of AT&T common stock will no longer
be  shareholders  of AT&T.  In the  mandatory  exchange,  those  holders of AT&T
Wireless  Group  tracking  stock  will  receive  shares of common  stock of AT&T
Wireless Services.

         AT&T has  announced  its  intention  to retain up to $3  billion of the
shares of AT&T Wireless Services, Inc. for its own account for sale, exchange or
monetization  within  six  months of the  split-off,  subject  to  receipt  of a
satisfactory IRS ruling. AT&T Corp. does not plan to seek any vote of holders of
AT&T common stock or AT&T  Wireless  Group  tracking  stock for the split-off of
AT&T Wireless Services from AT&T Corp.
<PAGE>
DEVELOPMENT OF BUSINESS DURING PAST FIVE YEARS

         Separation

         In  1996  AT&T   separated  its  business  into  three   publicly  held
stand-alone   companies:   the  current  AT&T,  focused  on  communications  and
information   services;   Lucent   Technologies   Inc.   (Lucent),   focused  on
communications  systems and technology;  and NCR Corporation  (NCR),  focused on
transaction-intensive  computing. AT&T distributed to its shareowners all of the
shares AT&T owned of Lucent on  September  30, 1996 and all of the shares of NCR
on December 31, 1996.

         Asset Sales

         Following  the  separation,  AT&T  focused on its core  businesses  and
disposed of assets and businesses that were not strategic. In October 1996, AT&T
completed the sale of its majority interest in AT&T Capital Corporation (leasing
services business).  In 1997, AT&T completed the sales of AT&T Skynet (satellite
services),  AT&T Tridom (satellite data and video communications  services), and
its  submarine  systems  business,   as  well  as  its  investment  in  DirectTV
(direct-broadcast  television service and DSS equipment business).  In addition,
in 1998 AT&T sold AT&T  Universal  Card  Services,  Inc.  (credit card  services
business),  American Transtech Inc. (customer care services),  its investment in
LIN  Television  Corporation  (commercial  television  broadcasting),   and  its
investment in SmarTone  Telecommunications  Holdings  Limited (a wireless  joint
venture in Hong Kong).  In 1999,  AT&T sold its interest in Wood-TV  (commercial
television   broadcasting),   AT&T  Language  Line  Services   (over  the  phone
interpretation    business)    and   ACC    Corp.'s    operations    in   Europe
(telecommunications services).

         TCG Acquisition

         During  1998,  AT&T  engaged  in a series of  transactions  to  further
transform  the Company from one  dominated by a single  product,  domestic  long
distance  telecommunications,  to a fully  integrated,  any distance,  broadband
communications  service  provider.  In July 1998, AT&T completed the merger with
Teleport  Communications  Group  (TCG)  pursuant  to which each share of TCG was
exchanged for AT&T Common Stock in an all-stock transaction. TCG was the largest
competitive  local  exchange  carrier  (CLEC)  in the  United  States,  offering
comprehensive   telecommunications   services  in  major  metropolitan   markets
throughout the United States.

         TCI Acquisition

         On   March   9,   1999,    AT&T    completed   the    acquisition    of
Tele-Communications,  Inc. (TCI) in a merger.  In the merger,  AT&T acquired all
the  business and assets of the TCI Group (now  referred to as AT&T  Broadband),
which  consisted  primarily  of  TCI's  domestic  cable  and  telecommunications
operations,  as well as TCI's interest in At Home  Corporation  (Excite@Home) in
exchange for approximately 664 million shares of Common Stock. AT&T Common Stock
continues to represent an interest in the business and assets of the  historical
AT&T together with those assets acquired in the merger.

         In  addition,  at the time of the merger  TCI  combined  Liberty  Media
Group, its programming  arm, and TCI Ventures Group, its technology  investments
unit, to form the new Liberty Media Group.  The  shareowners  of the new Liberty
Media Group were issued separate  tracking stock rather than traditional  Common
Stock by AT&T Corp.  in exchange for the shares held in Liberty  Media Group and
TCI Ventures  Group.  Under the tracking  stock  arrangement,  the Liberty Media

<PAGE>

Group's earnings and losses are excluded from earnings  available to the holders
of Common Stock and the Liberty Media Group's  businesses and assets are managed
by a separate  operating Board of Directors.  As a result,  although the Liberty
Media Group is wholly owned by AT&T Corp.,  it is accounted for as an investment
under the equity method of accounting in the consolidated  financial  statements
of AT&T Corp. since AT&T does not have a "controlling financial interest" in the
Liberty Media Group.

         IBM Global Network Acquisition

         On April 30, 1999, AT&T completed the first phase of its acquisition of
the IBM Global Network  business  (renamed AT&T Global Network Services or AGNS)
by obtaining the IBM Global Network  assets in the United  States.  The non-U.S.
assets were  acquired  in phases  throughout  1999 and during the first  quarter
2000. 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. At
the time of  acquisition,  AGNS served the networking  needs of several  hundred
large global companies,  tens of thousands of mid-sized businesses and more than
one million individual Internet users in 59 countries.

         Vanguard Acquisition

         On  May  3,  1999,  AT&T  acquired  Vanguard  Cellular  Systems,   Inc.
(Vanguard),  an independent operator of wireless telephone systems in the United
States  with over  700,000  subscribers  and which  operates  in markets  with a
population  of  approximately  6.9  million.  Vanguard  served 26 markets in the
Eastern United States.  Consummation of the acquisition resulted in the issuance
of  approximately  12.6  million  shares of AT&T common stock and the payment of
approximately $485 million in cash.

         Comcast Corporation Exchange

         On May 4, 1999,  AT&T  and Comcast announced  an agreement to  exchange
various cable systems, designed to improve each company's geographic coverage by
better clustering its systems. On January 2, 2001 AT&T and Comcast completed the
transfer of cable systems serving a total of nearly 1.5 million customers.  With
the  completion  of this  transaction,  Comcast  assumed the  ownership  of AT&T
Broadband systems serving about 773,000 customers in the areas of Avalon,  N.J.;
Detroit, Mich.; Naples and Fort Myers, Fla.; Pottsville, Penn.; Royal Oak, Mich;
and Washington,  D.C. AT&T Broadband  assumed  ownership of select Comcast cable
systems serving  approximately  700,000 customers in the areas of Atlanta,  Ga.;
Broward County, Fla.; Chicago, Ill.; Longmont,  Colo.;  Sacramento,  Calif.; and
Westmoreland, Penn.


         Cox Communications, Inc. Exchange

         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  million  in  other   consideration,   including  cash.  The
transaction is valued at approximately  $2.7 billion.  The transaction closed in
March 2000.
<PAGE>

         Concert

         On  January  5,  2000  AT&T  and  British  Telecommunications  plc (BT)
announced the financial closure of a global venture to serve the  communications
needs  of  multinational  companies  and  the  international  calling  needs  of
businesses  around the world.  The venture,  named Concert,  is owned equally by
AT&T and BT and combined  transborder  assets and  operations  of each  company,
including their existing  international  networks,  their international traffic,
their transborder  products for business customers -- including an expanding set
of Concert  services  -- and AT&T and BT's  multinational  accounts  in selected
industry sectors.

         MediaOne Group, Inc. Acquisition

         On June 15, 2000,  AT&T  completed a merger with MediaOne  Group,  Inc.
(MediaOne) in a cash and stock transaction  valued at approximately $45 billion.
At the  time  of the  acquisition,  MediaOne  was one of the  largest  broadband
communications companies in the United States. For each share of MediaOne stock,
MediaOne shareholders received, in the aggregate, 0.95 of a share of AT&T common
stock and $36.27 per share in cash, consisting of $30.85 per share as stipulated
in the  merger  agreement  and  $5.42  per share  based on  AT&T's  stock  price
preceding  the  merger,  which was below a  predetermined  amount.  AT&T  issued
approximately  603 million  shares of common stock,  of which  approximately  60
million were treasury  shares.  The AT&T shares had an aggregate market value of
approximately $21 billion and cash payments totaled approximately $24 billion.

         Wireless Acquistions

         On June 19, 2000, the AT&T Wireless Group  announced that it had signed
definitive agreements to acquire wireless systems in the San Francisco Bay Area,
San Diego and Houston for $3.3 billion in cash. On September 29, 2000,  the AT&T
Wireless Group  completed the  acquisition of the wireless  system in San Diego,
for  approximately  $500 million in cash.  On June 29, 2000,  the AT&T  Wireless
Group  completed the  acquisition  of Vodafone  Airtouch  plc's 50%  partnership
interest in CMT Partners  (the Bay Area  Properties),  which holds a controlling
interest in five Bay Area markets  including  San  Francisco  and San Jose,  for
approximately  $1.8 billion in cash,  thereby  giving the AT&T Wireless  Group a
100%  ownership  interest in this  partnership.  On December 29, 2000,  the AT&T
Wireless  Group  completed the  acquisition of the Houston  wireless  system for
approximately $984 million in cash.

         At Home Corporation

         On August 28, 2000, AT&T and Excite@Home announced shareholder approval
of a new  board of  directors  and  governance  structure  for  Excite@Home  and
completion of the extension of distribution contracts with AT&T, Cox and Comcast
Corporation  (Comcast).  AT&T was  given the  right to  designate  six of the 11
Excite@Home board members. In addition,  Excite@Home converted  approximately 50
million of AT&T's  Series A shares  into  Series B shares,  each of which has 10
votes.  As a result  of these  governance  changes,  AT&T  gained a  controlling
interest and began consolidating  Excite@Home's  results upon the closing of the
transaction on September 1, 2000. As of December 31, 2000,  AT&T had, on a fully
diluted basis,  approximately 23% of the economic interest and 74% of the voting
interest in Excite@Home.
<PAGE>

         In exchange  for Cox and Comcast  relinquishing  their rights under the
shareholder agreement, AT&T granted put options to Cox and Comcast on a combined
total of 60.4  million  shares of  Excite@Home  Series A common  stock.  The put
options  provide Cox and  Comcast  with the right to convert  their  Excite@Home
shares  into  either  AT&T stock or cash at their  option,  at any time  between
January 1, 2001 and June 4, 2002, at the higher of (i) $48 per share or (ii) the
30 day average trading price at the time of exercise  (beginning 15 trading days
prior to the  exercise  date and ending 15 days after the  exercise  date).  The
maximum  amount  that  AT&T  would  be  required  to pay in  cash  or  stock  is
approximately  $2.9 billion based on the $48 strike price.  In January 2001, Cox
and Comcast  exercised their put options in exchange for AT&T common stock. AT&T
is currently in discussions  to  renegotiate  the terms of the put options which
may result in a change to the number of shares.

         Also, in connection with the distribution agreements through 2008, AT&T
obtained the right to purchase up to approximately 25 million Excite@Home Series
A shares and 25 million Series B shares. In addition,  Cox and Comcast will each
receive new  warrants  to purchase  two Series A shares for each home its system
passes.  These warrants will vest in installments  every six months beginning in
June  2001,  and be fully  vested  in June  2006,  if Cox and  Comcast  elect to
continue their extended distribution agreements through that period.

         AB Cellular

         On December 29, 2000,  AT&T Wireless  completed the  disposition of its
equity  interest in AB Cellular to  BellSouth.  Prior to this date,  AT&T held a
55.62% equity interest in AB Cellular,  which was formed in 1998 with BellSouth,
with each party having a 50% voting interest. AB Cellular owned,  controlled and
supervised wireless properties in Los Angeles, Houston and Galveston.  BellSouth
exercised an option available to them,  which resulted in AB Cellular  redeeming
AT&T's interest in AB Cellular in exchange for 100% of the net assets of the Los
Angeles property.

BUSINESS SERVICES

                  Business Services provides a variety of global  communications
services to large domestic and multinational businesses,  small and medium-sized
businesses,  and government  agencies.  Business units within this group provide
regular  and  custom  voice  services  (including  local,  long  distance,   and
international outbound,  800, 877, and 888 and 900 services),  Data and Internet
Protocol Services  (including private line, frame relay,  asynchronous  transfer
mode services) as well as hosting, outsourcing and other consulting services.

                  Business Services has a dedicated sales force through which it
markets its voice and data communication  services.  Sales forces  predominantly
are  divided  into  geographic  markets,  and in each  market  focus  on  large,
multinational   corporations,   small  businesses,   government   markets,   and
value-added  resellers and other  wholesalers.  Business  Services  employs full
service  support teams to provide  significant  customer  support and service to
ensure  customer  satisfaction  and  retention.  A small  number  of its  larger
accounts are served directly by Concert, with Business Services as an underlying
supplier to Concert.

                  Business Services offers its regulated  services in most cases
in accordance  with  applicable  tariffs  filed with the Federal  Communications
Commission  (FCC) and  various  states.  Rates can vary by a number of  factors,
including  the volume and nature of service  committed to AT&T.  AT&T expects to
offer its  interstate  services  on a  detariffed  basis  later this year.  AT&T

<PAGE>

Business Services offers voice and data services individually and in combination
with other offerings.  Through combined offerings,  AT&T provides customers with
benefits such as single billing,  unified services for  multilocation  companies
and customized calling plans.

            Voice Services

            Long distance voice services. Business Services' voice communication
offerings   include  the   traditional   "one  plus"  dialing  of  domestic  and
international long distance for customers that select AT&T as their primary long
distance carrier.

            Business Services also  offers  toll free (800,  888 or 877) inbound
service,  where the  receiving  party pays for the call.  This is used in a wide
variety of  applications,  many of which generate  revenue for the user (such as
reservation  centers or  customer  service  centers).  AT&T  offers a variety of
features to enhance  customers'  toll free  service,  including  call routing by
origination point and time of day routing.

            Business Services also offers a variety of calling cards which allow
the user to  place  calls  from  virtually  anywhere  in the  world.  Additional
features  include  prepaid  calling  cards,  conference  calling,  international
origination, information service access (such as weather or stock quotes), speed
dialing and voice messaging.

            Business Local Services.  Local  carriers   provide  local exchange,
exchange access, toll, and resold services;  sell, install and maintain customer
premises equipment;  and provide operator and directory services. The market for
local exchange  services  consists of a number of distinct  service  components.
These   service   components   are   defined  by  specific   regulatory   tariff
classifications  including:  (i) local network services, which generally include
basic dial tone charges and private line services; (ii) network access services,
which consist of access charges received by local exchange  carriers (LECs) from
long distance  carriers for the local transport and termination  portion of long
distance  telephone calls;  (iii) long distance network services,  which include
the  variable  portion  of  charges  received  by local  exchange  carriers  for
intra-LATA long distance calls; and (iv) additional value added services such as
caller  identification,  call waiting,  call  forwarding,  three way calling and
voice mail.

            AT&T    Business       Local's    customers      are     principally
telecommunications-intensive    businesses,    healthcare,    and    educational
institutions,  governmental  agencies,  long  distance  carriers and  resellers,
Internet service  providers,  disaster  recovery service  providers and wireless
communications and financial services companies. AT&T Business Local's centrally
managed  customer care and support  operations  are designed to  facilitate  the
installation  of new  services  and the  processing  of orders for  changes  and
upgrades in customer services.

            With a direct sales  force  in  each  of its  markets, AT&T Business
Local  initially  targets  the  large  telecommunications-intensive   businesses
concentrated  in the major  metropolitan  markets  served by its networks.  AT&T
Business Local also serves small- and medium-sized business customers.

            AT&T Business Local generally offers its services in accordance with
applicable  tariffs  filed  with  state  regulatory   agencies  (for  intrastate
services).  AT&T  Business  Local  typically  offers local  service as part of a
package of services,  which can include any combination of other AT&T offerings.

<PAGE>

Customers  also  choose  among  analog,  digital  voice-only  and  ISDN  Centrex
telephone lines to their desktops.  AT&T owns, houses, manages and maintains the
switch,  while customers  retain control over network  configurations,  allowing
customers to add, delete and move lines as needed. For local service,  customers
are billed a fixed charge plus usage.

            Data and Internet Services

            Business  Services' data services  include  private line and special
access services that use high-capacity digital circuits to carry voice, data and
video   (or   multimedia)   transmission   from   point-to-point   in   multiple
configurations.  These  services  provide  high-volume  customers  with a direct
connection  to an AT&T switch  instead of switched  access shared by many users.
These services permit  customers to create internal  computer  networks,  access
external  computer  networks  and the  Internet,  as well as reduce  originating
access costs.

            Enhanced Data  Communications.  Enhanced  data  services consist  of
interexchange   data  networks   utilizing  packet  switching  and  transmission
technologies  and  application  services,  such as Internet  access and Web Site
hosting and  management,  which utilize the frame relay  network.  Enhanced data
services enable customers to economically and securely transmit large volumes of
data typically  sent in bursts from one site to another.  Enhanced data services
are utilized for local area network (LAN) interconnection, remote site, point of
sale and branch office communications solutions.

            AT&T utilizes  both IP  and ATM systems.    Both  technologies offer
significant  efficiencies  over  circuit  switched  systems  which use a single,
dedicated  circuit to complete each  transmission.  ATM switching is also a more
efficient  method  of  switching  and   transmitting   comingled  or  multimedia
information. The packet switching technology breaks up a transmission into short
pieces, or packets,  which are encoded and transmitted with other packets on the
same circuit, and reassembled at the desired destination. ATM differs from IP in
that the data packets used in ATM (called cells) are one size (53 bytes) whereas
in IP the data packets vary in length.  Also,  whereas ATM  establishes  virtual
circuits to ensure that the  information  sent is reassembled at its destination
in its proper  sequence,  IP ships each packet of information to its destination
by a different  path.  While AT&T will  continue to have both circuit and packet
switching  and  transmission  technologies  for some  time,  significant  future
capital expenditures are not scheduled for circuit switching.

                  AT&T  Business  Internet  Services.   AT&T  WorldNet  Business
Services provides IP connectivity and IP value-added  services,  messaging,  and
electronic  commerce  services  to  businesses.  AT&T  offers  Managed  Internet
Services,  which  gives  customers  dedicated,  high-speed  access to the public
Internet for business  applications  at a variety of speeds and types of access,
as well as Business Dial Service,  a dial-up version of Internet access designed
to meet the needs of small- and medium-sized businesses.

                  AT&T Virtual Private  Network (VPN) Service allows  businesses
to obtain remote access to e-mail,  order entry systems,  employee  directories,
human resources and other databases, or to create an Intranet and extranets with
their clients,  suppliers and business partners, and enables customers to tailor
their  VPNs  to  accommodate   specific   business   applications,   performance
requirements or the need to integrate with existing data networks.

                  AT&T Web  Services  are a family of  hosting  and  transaction
services and platforms serving the web needs of thousands of businesses.  Offers

<PAGE>

include AT&T Shared  Hosting  Services,  an  economical  way for  businesses  to
establish a presence on the World Wide Web, and AT&T  Enhanced  Web  Development
Package  for  businesses  that want to  create  web sites  that  require  higher
performance and can support greater user demand.  AT&T Dedicated Hosting Service
provides  customizable and pre-packaged  Web hosting  solutions.  AT&T SecureBuy
Service  provides  the  backoffice  infrastructure  required  to  electronically
process  credit  card  transactions  online,  high-speed  links  into two of the
leading credit card processing  services,  and management reports that measure a
site's success.

                  Other IP services AT&T offers let Web site visitors click on a
"call me now" icon if they wish to speak to a customer  service  agent;  connect
enterprise networks that use host or LAN-based and browser-based  e-mail systems
to AT&T's  value-added  messaging  services such as e-mail and fax; and enhanced
fax services.

                  Transport

                  Business Services is one of the leaders in providing wholesale
networking  services to other  carriers,  providing  both  network  capacity and
switched  services.  AT&T  offers  a  combination  of  high-volume  transmission
capacity,  conventional  dedicated line services and dedicated switched services
to  Internet  service  providers  (ISPs)  and  Tier 1 and Tier 2  carriers  on a
national or regional  basis,  as well as  switchless  resale  services to Tier 3
carriers.

                  Wholesale networking service is typically provided pursuant to
long-term service  agreements for terms of one year or longer.  These agreements
generally  provide for  payments at fixed rates based on the capacity and length
of the circuit used.  Customers are typically billed on a monthly basis and also
may incur an  installation  charge or certain  ancillary  charges for equipment.
After contract  expiration,  the contracts may be renewed or the services may be
provided on a month-to-month  basis.  Switched services agreements are generally
offered on a month-to-month  basis and the service is billed on a minutes-of-use
basis. More recently,  AT&T has also sold network capacity through  indefeasible
rights of use agreements under which capacity is furnished for contract terms as
long as 25 years.

CONSUMER SERVICES

         Long Distance Voice

         AT&T  is the  leading  provider  of  domestic  and  international  long
distance  service to residential  consumers in the United States.  AT&T provides
regular  and  custom  long  distance  communications  services  which it  offers
individually and in combination with other services.

         AT&T    provides    interstate    and    intrastate    long    distance
telecommunications   services  throughout  the  continental  United  States  and
provides, or joins in providing with other carriers, telecommunications services
to and from Alaska, Hawaii, Puerto Rico and the Virgin Islands and international
telecommunications  services to and from  virtually all nations and  territories
around  the  world.  Consumers  can use AT&T  domestic  and  international  long
distance  services by the  traditional  "one plus"  dialing of the desired  call
destination, by dial-up access or through the use of AT&T calling cards.

         AT&T  purchases  transport  services  from Concert for the delivery and
receipt of AT&T's  international  service.  In accordance  with the terms of the

<PAGE>

operating agreements Concert has with foreign carriers throughout the world, the
cost of  transporting  AT&T's  traffic is sensitive to changes in  international
settlement rates and international traffic routing patterns.

         In  the  continental   United  States,   AT&T  provides  long  distance
telecommunications   services  over  AT&T's  backbone   network.   International
telecommunications  services are provided by  submarine  cable  systems in which
AT&T holds investment positions, satellites and facilities of other domestic and
foreign carriers.

         AT&T markets its consumer long distance  services in a variety of ways,
including by means of  television  advertising,  direct mail  solicitations  and
telephonic solicitations, as well as through brand awareness.

         AT&T charges  customers based on applicable  tariffs filed with the FCC
and individual states. Customers select different services and from various rate
plans which  determine the price per minute that they pay on their long distance
calls.  Rates  typically  vary based on a variety of factors,  particularly  the
volume of usage and the day and time that calls are made.

         Consumer Local Services

         Local carriers  provide local exchange,  calling features (such as call
waiting and three-way  calling),  voice mail,  exchange access,  toll, and other
services,  including  operator and directory  assistance and emergency  services
(911/E-911). Increasingly, local carriers are adding high speed data services to
their offerings,  using digital subscriber loop ("DSL") technology. By attaching
extra  electronics  to both ends of a copper loop,  local carriers can transform
the loop into a broadband gateway capable of supporting  upstream and downstream
data feeds at high rates of speed.

         By the end of 2000, AT&T offered local service to residential customers
using non facilities-based  connectivity  (resold/combined incumbent LEC (ILECs)
networks and services) in 8 states, and offered facilities-based cable telephony
services in 16 states.  AT&T currently is testing DSL-based  offerings to add to
its package of services. Notwithstanding its substantial efforts, AT&T continues
to experience significant  difficulty entering local markets.  AT&T's ability to
purchase  combined  network  elements from the ILECs, one of the primary methods
AT&T intends to use to provide local service to residential customers, continued
to be severely hampered by, among other factors,  ILEC-sponsored  regulatory and
judicial actions,  and lack of operating interfaces necessary to process network
element orders with ILECs. Despite strong customer demand for competitive choice
in local markets outside of AT&T's cable footprint,  AT&T has suspended sales of
resold  local   service,   and   continues  to  provide   network   element  non
facilities-based  local  service only in New York and Texas.  AT&T will continue
its  regulatory  efforts to  improve  operating  margins in the states  where it
offers  non-facilities-based  local services, and will seek to open other states
to competitive opportunities (both for voice and data services) by improving the
rates, rules and operating interfaces that govern carrier relationships.

                  AT&T also has pursued  local entry by  transforming  the cable
footprint of one-way cable plant into a two-way,  broadband  network  capable of
meeting  the  full  spectrum  of  residential  customer   communications  needs,
including  a  richly  featured  all  distance  (i.e.,   local,   long  distance,
international)  voice telephony  offering.  AT&T uses existing  circuit switched
technology  to  provide  telephony  service  offers  over the cable  plant in 18
markets spanning 16 states. AT&T expects to begin to transition to an integrated
Internet  protocol (IP) packet data architecture by the end of 2003 that affords

<PAGE>

cost and feature benefits over the older circuit-switched technology.

                  In addition,  AT&T,  through AT&T Consumer Services as well as
its other  business  units,  may pursue other  economically  feasible  transport
options, including:

               o    Expanding AT&T's ability to offer the full range of consumer
                    services  beyond  our  existing  cable  footprint  through a
                    variety of partnership and investment initiatives;

               o    Continued investment in alternative narrowband, wideband and
                    broadband access technologies,  including the fixed wireless
                    technology that AT&T is currently testing in select markets,
                    and the  construction  of  dedicated,  high-capacity  access
                    facilities  to serve the  broadband  communication  needs of
                    residential  customers  living in  multiple  dwelling  units
                    (MDUs); and

               o    Using  combinations of ILEC unbundled network  elements,  as
                    well as ILEC  unbundled  loops  (which can be combined  with
                    switching,  transport and other network elements) to support
                    differentiated voice and data services.

                  AT&T uses the AT&T  Broadband  sales force actively to solicit
cable  customers  as local  service  customers.  AT&T intends to offer cable and
local  telephony  as a  services  package  to  those  customers  who  find  this
appealing.  AT&T will  market  local  service in other areas as it rolls out its
local telephony capabilities.

                  AT&T currently offers its local  subscribers a suite of offers
including  "blocks of time" for toll and long distance calls at a flat price, or
per minute charges using one of AT&T's competitive service offerings.

         AT&T WorldNet(R) Consumer Services

                  AT&T offers dial-up  Internet access to consumers  through its
award-winning  AT&T WorldNet  Services,  a leading  provider of Internet  access
service in the United States.  At December 31, 2000,  AT&T WorldNet  Service had
approximately 1.423 million customers.

                  In 1999, AT&T WorldNet  Service began offering members an AT&T
branded  search  engine as part of a redesign  of the  Company's  web site,  and
enhanced  several  other  subscriber  features,  including  increasing  the disk
storage  space for personal  web pages to 10  megabytes  for each e-mail id (six
e-mail ids per account,  60 megabytes of disk  storage) and providing a template
that helps members build personal web pages quickly and easily.

         In 2000, AT&T WorldNet  Service began offering members Internet service
that  includes a  persistently  present  toolbar that  displays  advertising  to
subscribers  even when they were on web sites other than those operated by AT&T.
This new service was marketed  directly by AT&T WorldNet  Service and indirectly
through several major distribution arrangements.

         J.D. Power and Associates  ranked AT&T WorldNet  Service #1 in Customer
Satisfaction among the largest national Internet Service Providers in their 2000
National Internet Service Provider Customer  Satisfaction StudySM based on 4,173
responses.  AT&T earned its top position of overall customer  satisfaction based
on seven factors, including speed/availability,  cost/billing/image, suitability

<PAGE>

of  services/content,   customer   care/technical   support,   e-mail  services,
navigation/access  to other portals and ease of use. In November,  PC World gave
AT&T WorldNet Service their Best Buy award,  noting AT&T's  outstanding  dial-up
speed,  high connection  success rate,  extras like multiple  e-mail boxes,  and
superior support.

         AT&T  WorldNet  Services   generates   revenues   principally   through
subscription and usage fees, as well as from electronic commerce and advertising
revenues.  AT&T  WorldNet  Service  offers a variety  of pricing  plan  options,
including  bundled  options with AT&T Long  Distance and AT&T  Wireless  offers.
Generally,  customers are charged a flat rate for a certain number of hours with
charges for each additional  hour of usage. In addition,  WorldNet offers a plan
without a usage restriction.

         AT&T WorldNet Service's  marketing programs are designed to attract and
retain profitable customers.  AT&T seeks to build brand recognition and customer
loyalty and to make it easy for  consumers to try, and stay with,  AT&T WorldNet
Service.  In addition to direct marketing  through brand name mass  advertising,
direct mail and magazine insert  promotions and bundling  offers,  AT&T WorldNet
Service  maintains a large  indirect  channel  marketing  effort.  Through  this
indirect  channel AT&T  WorldNet  Service  software is bundled in new  computers
produced by major manufacturers,  and is included on millions of software titles
published by  independent  software  vendors.  AT&T WorldNet  Service also has a
co-branded ISP offer enabling  businesses to offer  customers their own branded,
full-featured Internet access in affiliation with AT&T.

BROADBAND SERVICES

         AT&T Broadband offers a variety of services through its cable broadband
network,  including  traditional  analog video and new services  such as digital
cable,  AT&T@Home and RoadRunner  (which AT&T has agreed to divest, as described
below),  which offers high-speed cable Internet  service.  Also included in AT&T
Broadband  are the  operations  associated  with  developing  and  refining  the
infrastructure that support broadband telephony.

         Cable  television   systems  receive  video,  audio  and  data  signals
transmitted  by nearby  television  and radio  broadcast  stations,  terrestrial
microwave relay services and  communications  satellites.  Such signals are then
amplified and  distributed by coaxial cable and optical fiber to the premises of
customers who pay a fee for the service. In many cases, cable television systems
also originate and distribute local programming.

         At December  31,  2000 over 75% of AT&T  Broadband's  cable  television
systems had bandwidth capacities of at least 550 megahertz, with the majority of
the network upgraded to 750 megahertz.  The Company's cable  television  systems
generally carry up to 80 analog  channels.  Compressed  digital video technology
converts on average twelve analog signals (now used to transmit video and voice)
into a digital  format  and  compresses  such  signals  (which  is  accomplished
primarily by eliminating the redundancies in television  imagery) into the space
normally  occupied by one analog  signal.  The  digitally  compressed  signal is
uplinked to a satellite,  which retransmits the signal to a customer's satellite
dish or to a cable  system's  headend to be  distributed,  via optical fiber and
coaxial  cable,  to the  customer's  home. At the home, a set-top video terminal
converts the digital signal into analog  channels that can be viewed on a normal
television set.

         Domestic   Basic-TV  cable  customers  served  by  AT&T  Broadband  are
summarized as follows (amounts in millions):
<PAGE>

<TABLE>
<CAPTION>
                                                             Basic-TV customers at December 31,
                                                   ----------------------------------------------
                                                   2000       1999       1998       1997     1996
                                                   ----    --------   --------   --------  ------
<S>                                                <C>        <C>        <C>        <C>       <C>
Managed through AT&T Broadband's operating

   divisions                                       16.0       11.4       11.4       14.2      13.4
Other non-managed subsidiaries of AT&T Broadband
                                                    7.6        0.1        0.5        0.2       0.5
                                                   -----   -------    -------    -------   -------

                                                   23.6       11.5       11.9       14.4      13.9
                                                   ====    =======    =======    =======   =======
</TABLE>
         In  addition  to the above,  the FCC has taken the  position  that AT&T
Broadband is attributed  with the  subscribers of (i) Time Warner  Entertainment
and Time Warner, Inc. as a consequence of the acquisition of MediaOne,  Inc. and
(ii) various other  entities as a  consequence  of AT&T's  investments  in those
entities.  As of December 31, 2000 the  aggregate  attributable  subscribers  is
11.22 million.

         AT&T Broadband had  approximately  2.9 million  digital video customers
and 1.1 million high speed cable Internet customers through Excite@Home and Road
Runner as of December 31, 2000.

         AT&T Broadband  completed a significant  number of transactions in 2000
which substantially changed the size and profile of its cable system network.

         On January 18, 2000, a subsidiary of AT&T  Broadband sold its entire 50
percent interest in Lenfest Communications,  Inc. to a subsidiary of Comcast. In
consideration for its 50 percent interest,  AT&T Broadband  received  47,289,843
shares  of  Comcast  Special  Class A common  stock,  which had a value of $2.51
billion at the time of the transaction.

         On February 14, 2000, AT&T Broadband redeemed a portion of its interest
in Bresnan  for $285  million  in cash.  AT&T  Broadband  then  contributed  its
remaining  interest  in Bresnan to CC VIII,  LLC,  in  exchange  for a preferred
ownership interest.

         On March 15, 2000, AT&T Broadband  redeemed  approximately 50.3 million
shares of Common Stock held by Cox in exchange for stock of a subsidiary of AT&T
Broadband owning cable television systems serving over 300,000  customers,  AT&T
Broadband's interest in certain  investments,  and $750 million in other assets,
including cash. This transaction was valued at approximately $2.7 billion.

         On April 7, 2000, AT&T Broadband contributed 103,000 subscribers into a
joint  venture  with  Midcontinent  Communications,  Inc. in  exchange  for a 50
percent interest in Midcontinent Communications, a general partnership.

         On June 15, 2000,  MediaOne Group, Inc. merged into a direct subsidiary
of  AT&T  Broadband.   With  the  addition  of  MediaOne's  five  million  cable
subscribers,  AT&T  Broadband  became the  country's  largest  cable  television
operator.
<PAGE>

         Effective December 31, 2000, AT&T Broadband transferred systems serving
approximately  733,000 subscribers and located primarily in Michigan and Naples,
Florida,  to Comcast in  exchange  for  systems  serving  approximately  700,000
subscribers and located primarily in Florida and Chicago, Illinois.

         On January 5, 2001,  AT&T Broadband sold 99,000  subscribers to Insight
Communications, Inc. (Insight Communications). In a subsequent transaction, AT&T
Broadband contributed 250,000 additional  subscribers in the Illinois markets to
Insight Midwest,  L.P., and Insight  Communications also contributed  additional
subscribers.  Insight Midwest,  L.P.  remained a partnership owned 50 percent by
AT&T  Broadband  and 50 percent by Insight  Communications.  The expanded  joint
venture will continue to be managed by Insight Communications.

         Also on January 5, 2001, AT&T and Cablevision  announced the completion
of  two  separate   agreements  for  the  transfer  of  cable  systems.  In  the
transactions,  AT&T received cable systems serving 358,000 subscribers in Boston
and Eastern  Massachusetts.  In return,  Cablevision  acquired  systems  serving
approximately  130,000  subscribers  in  the  northern  New  York  suburbs,  and
approximately  $870 million in stock, or 44 million shares of AT&T common stock,
and approximately $300 million in cash.

         On February 27, 2001, AT&T Broadband  announced that AT&T Broadband had
entered into definitive asset purchase  agreements with Mediacom  Communications
Corporation  (Mediacom)  pursuant to which AT&T  Broadband will sell to Mediacom
cable  television  systems  serving about 840,000 basic  subscribers in Georgia,
Illinois, Iowa and Missouri, for $2.215 billion in cash.

         On February 28, 2001, AT&T Broadband  announced that AT&T Broadband and
Charter Communications, Inc. (Charter) had signed definitive agreements pursuant
to which (i) Charter will receive cable systems from AT&T serving  approximately
574,000 customers in the St. Louis area; areas of Auburn, Birmingham, Montgomery
and Selma,  Alabama;  and the Reno area of Nevada and California;  and (ii) AT&T
Broadband will receive $1.79 billion  consisting of Charter cable systems valued
at $249 million serving 62,000 customers in Miami Beach and Sebastian,  Florida;
up to $500 million in Charter common stock; and the balance in cash.

         The decline in total basic service  customers  between 1997 and 1998 is
attributable to certain  contribution  transactions entered into in 1998. In the
most  significant  of  these  transactions,  on March 4,  1998,  AT&T  Broadband
contributed  to  Cablevision  certain of its cable  television  systems  serving
approximately 830,000 customers in exchange for approximately 48.9 million newly
issued  Cablevision Class A common shares (the Cablevision  Transaction) and the
assumption of indebtedness.

         In addition to the Cablevision Transaction,  during 1998 AT&T Broadband
also  completed  eight  transactions  whereby AT&T Broadband  contributed  cable
television systems serving in the aggregate approximately 1,924,000 customers to
eight  separate  joint  ventures  (collectively,  the 1998  Joint  Ventures)  in
exchange  for  non-controlling  ownership  interests  in each of the 1998  Joint
Ventures,  and the  assumption  and  repayment  by the 1998  Joint  Ventures  of
indebtedness.

         AT&T Broadband  operates cable television systems throughout the United
States.

         Service Charges

         AT&T Broadband offers a limited "basic service" (primarily comprised of
local broadcast  signals and public,  educational and governmental  (PEG) access

<PAGE>

channels)  and a "standard  package"  (primarily  comprised of basic service and
specialized programming services, in such areas as health, family entertainment,
religion, news, weather, public affairs, education, shopping, sports and music).
The monthly fee for basic service generally ranges from $7.50 to $12.00, and the
monthly  service fee for the standard  package  generally  ranges from $22.50 to
$36.00. Many of the systems acquired in the MediaOne  acquisition also offered a
third tier of service which generally ranged from $2.00 to $6.00. AT&T Broadband
offers  "premium  services"  (referred  to in the cable  television  industry as
"Pay-TV" and "pay-per-view") to its customers. Such services consist principally
of feature films,  as well as live and taped sports  events,  concerts and other
programming.  AT&T  Broadband  also offers  Pay-TV  services  for a monthly fee.
Charges are usually  discounted  when  multiple  Pay-TV  services  are  ordered.
Customers may also elect to subscribe to digital video services  comprised of up
to 80 additional  video channels and between 10 and 30 additional audio channels
featuring additional specialized  programming and premium services at an average
incremental monthly charge of $10.00.

         As further  enhancements to their cable services,  for a monthly charge
customers  may generally  rent  converters  or  converters  with remote  control
devices,  as well as purchase a channel guide. Also a nonrecurring  installation
charge is usually charged.

         Monthly fees for basic services,  standard  package services and Pay-TV
services to commercial customers vary widely depending on the nature and type of
service.  Except  under the terms of certain  contracts  to  provide  service to
commercial  accounts,  customers  are free to  discontinue  service  at any time
without penalty.

         AT&T Broadband  also offers  AT&T@Home and Road Runner high speed cable
Internet services in some markets. Monthly charges for AT&T@Home and Road Runner
range from $29.95 to $49.95, which includes, under certain offerings, the charge
for rental of cable modem equipment.

         The Cable  Television  Consumer  Protection and Competition Act of 1992
(the   1992   Cable   Act)  and  the   Telecommunications   Act  of  1996   (the
Telecommunications  Act,  together  with the 1992  Cable Act,  the Cable  Acts),
established rules under which AT&T Broadband's basic service rates and equipment
and installation charges are regulated if the appropriate franchise authority is
certified.

         Local Franchises

         Cable television  systems  generally are constructed and operated under
the authority of nonexclusive  permits or  "franchises"  granted by local and/or
state governmental authorities.  Federal law, including the Cable Communications
Policy Act of 1984 (the 1984 Cable Act) and the 1992 Cable Act, limits the power
of  the  franchising   authorities  to  impose  certain  conditions  upon  cable
television operators as a condition of the granting or renewal of a franchise.

         Franchises  contain varying  provisions  relating to  construction  and
operation of cable television systems,  such as time limitations on commencement
and/or  completion of  construction;  quality of service,  including (in certain
circumstances) requirements as to the number of channels and broad categories of
programming  offered to  customers;  rate  regulation;  provision  of service to
certain  institutions;  provision of channels for public access; and maintenance
of insurance and/or indemnity bonds. AT&T Broadband's  franchises also typically
provide  for  periodic  payments of fees,  not to exceed 5% of  revenue,  to the
governmental  authority  granting the franchise.  Additionally,  many franchises

<PAGE>

require  payments  to the  franchising  authority  for the  funding  of  public,
educational and  governmental  access channels.  Franchises  usually require the
consent of the  franchising  authority prior to a transfer of the franchise or a
transfer or change in ownership or operating control of the franchisee.

         Subject to applicable  law, a franchise may be terminated  prior to its
expiration  date if the  cable  television  operator  fails to  comply  with the
material terms and conditions thereof.  Under the 1984 Cable Act, if a franchise
is lawfully terminated,  and if the franchising  authority acquires ownership of
the cable television system or effects a transfer of ownership to a third party,
such  acquisition or transfer must be at an equitable price or, in the case of a
franchise  existing  on the  effective  date of the 1984 Cable  Act,  at a price
determined in accordance with the terms of the franchise, if any.

         In connection with a renewal of a franchise,  the franchising authority
may require  the cable  operator to comply  with  different  and more  stringent
conditions than those originally imposed,  subject to the provisions of the 1984
Cable Act and other applicable federal, state and local law. The 1984 Cable Act,
as supplemented by the renewal provisions of the 1992 Cable Act,  establishes an
orderly  process for franchise  renewal which protects cable  operators  against
unfair denials of renewals when the operator's past performance and proposal for
future  performance  meet the standards  established by the 1984 Cable Act. AT&T
Broadband  believes  that its  cable  television  systems  generally  have  been
operated in a manner which  satisfies  such standards and allows for the renewal
of such franchises;  however,  there can be no assurance that the franchises for
such systems will be successfully renewed as they expire.

         Most of AT&T  Broadband's  present  franchises  had  initial  terms  of
approximately  10 to 15 years.  The  duration  of AT&T  Broadband's  outstanding
franchises  presently varies from a period of months to an indefinite  period of
time. More than fifteen hundred of AT&T Broadband's franchises expire within the
next three years.  This  represents more than 35% percent of the franchises held
by AT&T Broadband and involves over four million basic customers.

         Cable Telephony

         AT&T Broadband's telephony market initiatives progressed  substantially
in 2000.  As of December 31, 2000,  AT&T  Broadband  had  approximately  547,000
telephony  customers  in 17 markets.  The markets in which  Broadband  telephony
service is available are:  Atlanta,  Boston,  the California Bay Area,  Chicago,
Dallas, Denver, Detroit, Florida, Pittsburgh, Richmond, Seattle, Salt Lake City,
St. Louis, Southern California and Portland,  Oregon. AT&T Broadband's Telephony
offerings  include  AT&T  Digital  Phone local phone  service,  unlimited  local
calling, low in-state long distance calling rates, By the Minute (BTM) and Block
of Time (BOT) calling plans, up to 4 lines,  custom calling feature  selections,
and feature  packages.  The  features  available  are Call  Waiting,  Caller ID,
Anonymous Call Rejection,  Call Forwarding,  Custom Ring,  3-Way Calling,  Speed
Dialing, LD Alert,  Distinctive Call Ringing, and Voice Mail, among others. AT&T
Broadband  offers a variety of options  and  calling  plans with  various  price
points to meet our customer's  needs.  They range from basic one line service to
multiple lines with full feature functionality.

         Joint Ventures

         AT&T  Broadband  possesses a number of  investments  in  publicly  held
companies,  joint ventures or partnerships,  the three most significant of which
are At Home  Corporation,  Time Warner  Entertainment  Company,  L.P.,  and Road
Runner LLC.
<PAGE>

         At Home  Corporation.  At Home Corporation is a provider of content and
cable  internet  services over the cable  television  infrastructure  and leased
digital  telecommunication  lines to consumers and  businesses.  On September 1,
2000, Excite@Home converted approximately 50 million of the Excite@Home Series A
shares held by AT&T Broadband into Series B shares, each of which has ten votes.
As a result,  AT&T  Broadband has, on a fully diluted  basis,  approximately  23
percent of the  economic  interest  and 74 percent  of the  voting  interest  in
Excite@Home.  AT&T's interest reflects modifications to Excite@Home's governance
structure which were effective on September 1, 2000. Based upon these governance
changes, Excite@Home's financial results, which previously were accounted for by
AT&T as a  nonoperational  equity  investment  are now  fully  consolidated  and
included  in AT&T's  financial  results.  On January 12,  2001,  Comcast and Cox
exercised  their  right to sell a total of  approximately  60 million  shares of
Excite@Home  to  AT&T  as  part  of  the  agreement  to  reorganize  Excite@Home
governance.

         Time Warner  Entertainment  Company,  L.P.  ("TWE").  TWE is a Delaware
limited partnership that was formed in 1992 to own and operate substantially all
of the  business  of Warner  Bros.,  Home Box  Office  and the cable  television
businesses owned and operated by Time Warner prior to such time.  AT&T's current
interest  in TWE was  initially  acquired  by U S WEST,  Inc.  in 1993,  and was
acquired by AT&T in connection with its 2000 acquisition of MediaOne Group, Inc.
Currently, AT&T, through its wholly owned subsidiaries, owns general and limited
partnership  interests  in 25.51% of the pro rata  priority  capital  ("Series A
Capital") and residual equity capital ("Residual Capital") of TWE. The remaining
74.49%  limited  partnership  interests  in the  Series A Capital  and  Residual
Capital of TWE are held by  subsidiaries  of AOL Time  Warner  Inc.  AT&T has an
option to increase  its Series A Capital and  Residual  Capital  interests  from
25.51% to up to 31.84% in certain  events.  Subsidiaries of AOL Time Warner Inc.
act as the  general  partners  of TWE,  and  AT&T has  only  certain  protective
governance rights pertaining to certain limited  significant matters relating to
TWE.

         On February 28, 2001, AT&T submitted a request to TWE,  pursuant to the
TWE partnership  agreement,  that TWE  reconstitute  itself as a corporation and
register  for sale in an  initial  public  offering  an  amount  of  partnership
interests  held by AT&T (up to the full  amount held by AT&T)  determined  by an
independent  investment  banking  firm  so  as  to  provide  sufficient  trading
liquidity  and  minimize  the  initial  public  offering  discount,  if any (the
"Registrable Amount").  Under the TWE partnership agreement,  upon such request,
AT&T and Time  Warner  Inc.  are to cause an  independent  investment  banker to
determine  both the  Registrable  Amount and the price at which the  Registrable
Amount  could  be  sold in a  public  offering  (the  "Appraised  Value").  Upon
determination  of the Registrable  Amount and the Appraised Value, TWE may elect
not to register  such  interests but instead to allow AT&T the option to require
that TWE purchase the  Registrable  Amount at the  Appraised  Value,  subject to
certain  adjustments.  If AT&T does put the Registrable Amount to TWE under such
circumstances,  TWE may call the remainder of AT&T's  interest in TWE at a price
described  in the TWE  partnership  agreement.  If TWE  elects to  register  the
interests,  TWE may have an option to purchase such interests  immediately prior
to the time such public offering would otherwise have been declared effective by
the Securities  and Exchange  Commission at the proposed  public  offering price
less underwriting fees and discounts,  if the proposed public offering price (as
determined  by the  managing  underwriter)  is less than 92.5% of the  Appraised
Value. If at the conclusion of this process, AT&T has any remaining interests in
TWE,  AT&T will have the right to request  registration  of such  interests  for
public sale within 60 days of July 1, 2002.
<PAGE>

         Road Runner LLC. Road Runner LLC is a limited  liability company formed
in  1998  by  affiliates  of  MediaOne  Group,  Time  Warner,  Advance/Newhouse,
Microsoft  and Compaq,  for purposes of  developing  and  distributing  internet
services  over  the  cable  television  infrastructure.  AT&T  acquired  a 25.1%
interest in Road Runner as part of its 2000 acquisition of MediaOne Group,  Inc.
As a condition to its approval of AT&T's acquisition of MediaOne, the Department
of Justice required that AT&T agree to divest its ownership its interest in Road
Runner within certain  specified time frames  specified.  AT&T,  Time Warner and
Advance Newhouse approved a resolution of the Members'  Committee of Road Runner
effective  December 29, 2000,  declaring the  dissolution  of Road Runner.  As a
result of such resolution,  Road Runner commenced the winding up of its business
in accordance with its organizational documents, which winding up is expected to
be completed approximately March 31, 2001. AT&T has a 31.4% residual interest in
all Road  Runner  assets and  liabilities  following  the  winding  up. AT&T has
entered into a Transitional  Affiliation Agreement with an affiliate of AOL Time
Warner  effective  December 15, 2000,  under which AT&T will receive  transition
support services sufficient to provide uninterrupted  internet service to AT&T's
existing Road Runner subscribers.

WIRELESS SERVICES

The AT&T Wireless Group Tracking Stock

         On April 27, 2000,  AT&T  created a new class of stock and  completed a
public stock offering of 360 million shares,  which  represented  15.6%, of AT&T
Wireless  Group  tracking  stock at a price of $29.50 per  share.  This stock is
intended  to track  the  financial  performance  and  economic  value of  AT&T's
wireless  services.  The net  proceeds  to AT&T  after  deducting  underwriter's
discount and related fees and expenses,  were $10.3 billion. AT&T allocated $7.0
billion  of the net  proceeds  to AT&T  Wireless  Group,  which  were  used  for
acquisitions,  network expansion, capital expenditures and for general corporate
purposes.  The  remaining net proceeds of $3.3 billion were utilized by AT&T for
general  corporate  purposes.  Holders of AT&T Wireless Group tracking stock are
entitled to one-half of a vote per share. The AT&T Wireless Group tracking stock
is listed on the New York Stock Exchange under the symbol "AWE."

         AT&T Wireless  Group tracking stock is designed to reflect the separate
economic  performance of the AT&T Wireless Group.  Except as described below, we
attribute all of AT&T's current wireless  operations to the AT&T Wireless Group,
including:

     o    all mobile and fixed wireless licenses,

     o    all wireless  networks,  operations,  cell sites,  retail  operations,
          wireless customer care facilities and customer location assets, and

     o    interests in  partnerships  and affiliates  providing  wireless mobile
          communications in the United States and internationally.

          The AT&T Common Stock Group retains:

     o    existing   and   future    wireless    activities   that   stem   from
          country-specific  joint venture  relationships  that are predominantly
          non-wireless, and

     o    incidental  wireless  capabilities  or links in any  backbone or other
          communications network that is predominantly non-wireless.
<PAGE>

         We  currently  intend,  until  and  through  the  date of the  proposed
split-off, to include all future wireless activities in the AT&T Wireless Group.
Our board of directors may, however, in its discretion,  but subject to the AT&T
Wireless  Group policy  statement,  direct new businesses and assets to the AT&T
Wireless  Group  or the  AT&T  Common  Stock  Group or  dispose  of or  transfer
businesses or assets of either group.

         Please see Exhibit (99)a to this Form 10-K for supplemental information
concerning the AT&T Wireless Group.

Business of the AT&T Wireless Group

         AT&T Wireless Group is one of the largest wireless service providers in
the United States. AT&T Wireless Group seeks to provide high quality, innovative
wireless  services  and to  expand  its  customer  base and  revenue  stream  by
attracting subscribers who are heavy users of communication  services. As of, or
for the year ended, December 31, 2000, AT&T Wireless Group had:

     o    15.2 million consolidated subscribers,

     o    $10.4 billion of combined revenues, and

     o    $1.6 billion of combined operational EBITDA.

         AT&T Wireless Group operates one of the largest U.S.  digital  wireless
networks.  As of December 31, 2000,  AT&T Wireless  Group and its affiliates and
partners  held 850  megahertz and 1900  megahertz  licenses to provide  wireless
services  covering  98%  of  the  U.S.  population.  As of  December  31,  2000,
approximately 77% of the U.S. population was covered by at least 30 megahertz of
wireless  spectrum owned by AT&T Wireless Group, its affiliates or its partners.
At the end of 2000, AT&T Wireless  Group's  networks and those of its affiliates
and partners operated in markets  including over 76% of the U.S.  population and
in 49 of the 50 largest U.S. metropolitan areas. AT&T Wireless group supplements
its operations  with roaming  agreements that allow its subscribers to use other
providers' wireless services in regions where it does not have operations.  With
these  roaming  agreements,  AT&T  Wireless  Group  is able to  offer  customers
wireless services covering over 95% of the U.S. population.  AT&T Wireless Group
plans to continue to increase  its  coverage  and the quality of its services by
expanding  its  footprint  and the  capacity of its network  through new network
construction, acquisitions, and partnerships with other wireless providers.

         Services and products

         AT&T  Wireless  Group  offers a variety of services  for both voice and
data communications.  Service can include wireless voice transmission as well as
custom calling  services for digital  services,  such as extended  battery life,
message  waiting  indicator,  text  messaging and caller ID. AT&T Wireless Group
also offers a variety of other enhanced  features,  including enhanced directory
assistance,  which enables callers to be connected to the party whose number was
sought without hanging up and redialing.

         As a packet-switched  data network,  AT&T Wireless Group's current data
network takes  advantage of the fact that with many data  applications,  data is
sent in bursts with intermittent quiet periods, which allows many users to share
the  network  channel.  As a result,  relative  to data  services  carried  over
circuit-switched  analog or digital  wireless  networks,  AT&T Wireless  Group's
packet-switched  data service is a significantly  more  cost-effective  means of
sending data for the majority of applications  because it allows a channel to be
shared by many users. For example, for many applications,  AT&T Wireless Group's
packet-switched  data network allows it to offer its customers  unlimited usage,
most often for a flat monthly  fee.  This makes the data service on this network
service attractive for a variety of new applications.
<PAGE>

         AT&T  Wireless  Group has  created  applications  and offers  using the
cellular  digital  packet  data  network for  businesses,  public  agencies  and
consumers. To date, corporations and public agencies have been significant users
of AT&T Wireless Group's packet data service. These customers typically use this
service to carry industry-specific  applications.  Examples of such applications
include public safety applications,  dispatch applications, wireless credit card
validation and automated vehicle location services.  New devices are driving the
development  of broader  applications  targeted to  consumers.  Users may access
these  applications with hand held devices,  like the Palm Vx, as well as phones
and laptop computers.

         For hand  held  devices,  AT&T  Wireless  Group  now has  access to new
CDPD-standard  modems  that  work  with the Palm Vx  device.  Users  can  access
Internet-based  information  from devices  equipped with these modems. A leading
example of this is the OmniSky service available for the Palm Vx. With a Palm Vx
equipped with a modem that connects to AT&T Wireless Group's current packet data
network,  an  OmniSky  subscriber  can access  email as well as several  hundred
content  providers  that have  created  information  specifically  for hand held
devices.

         AT&T Wireless  Group offers a variety of products as complements to its
wireless  service,  including  handsets  and  accessories,   such  as  chargers,
headsets,  belt clips,  faceplates and  batteries.  As part of its basic service
offering,  AT&T Wireless Group  provides  easy-to-use,  interactive  menu-driven
handsets that can be activated over the air. These  handsets  primarily  feature
word prompts and menus rather than numeric codes to operate  handset  functions.
Some handsets  allow mobile access to the Internet.  In addition,  AT&T Wireless
Group offers tri-mode  handsets,  which are handsets  compatible with analog and
digital networks, the latter with 850 and 1900 megahertz frequencies and service
modes.  Tri-mode  handsets permit customers to roam across a variety of wireless
networks and incorporate AT&T Wireless Group's  proprietary  intelligent roaming
data  base  system,  which is  designed  to  provide  service  in more  areas at
favorable  roaming rates. AT&T Wireless Group offers its customers use of Nokia,
Ericsson, Mitsubishi and Motorola handsets.

         AT&T  Wireless  Group  markets  its  wireless  services  in its managed
markets under the AT&T brand name. It markets wireless  services to business and
residential  customers  through a direct  sales  force of 2,100,  through  sales
points of presence in approximately 520 AT&T Wireless Group company-owned stores
located  in 37  states,  and  kiosks  and other  customer  points  of  presence,
including the Internet and inbound call centers,  and through local and national
non-affiliated  retailers  throughout the United States.  AT&T's sales force may
sell wireless services to business and residential  customers as part of bundled
offerings with services of AT&T when agreed upon by the companies. AT&T Wireless
Group also relies upon dealers to market its services in some locations.

         AT&T Wireless  Group  charges may include fees for service  activation,
monthly access,  per-minute  airtime and  customer-calling  features,  which may
include a fixed  number of  minutes  or packets of data per month at a set price
and generally offers a variety of pricing options, most of which combine a fixed
monthly  access  fee for a fixed  number  of  minutes  or  packets  of data  and
additional  charges for usage in excess of those  allotted.  Customers  may also
incur long distance and roaming fees.  AT&T Wireless  Group manages its exposure
to bad debt by  reviewing  prospective  customers  for  creditworthiness  and by
deactivating accounts which reach a specific date past due.

 In calendar year 2000,  AT&T Wireless Group adjusted its credit  policies to be
more competitive,  thereby  increasing the number of customers with lower credit
ratings.  AT&T Wireless Group expects that this may result in an increase in the
number of deactivations and, consequently, churn.
<PAGE>

         Fixed Wireless

         Fixed wireless service  provides  customers with high speed packet data
channel  which  can be used  by up to  five  data  devices  simultaneously  (for
example,  five  personal  computers  simultaneously  accessing  the Internet) at
download speeds of up to one megabit per second. In addition, fixed wireless can
provide up to four lines of wireline quality voice  telephony,  including custom
calling features (e.g., call waiting,  caller ID, three-way  calling)  available
today over wireline  networks.  As of December 31, 2000, AT&T Wireless Group was
serving fixed  wireless  customers in Anchorage,  Alaska,  Dallas/Ft.  Worth and
Houston, Texas, and San Diego, California.

         Other assets

         The AT&T  Wireless  Group  also  possesses  certain  other  assets  not
described above. The most significant of these assets include a number of equity
interests in domestic and international wireless operations and an air-to-ground
wireless operation.

         Domestically,  the AT&T  Wireless  Group  has  joint  ventures  with or
interests  in a  number  of  wireless  operators,  including  American  Cellular
Corporation,  Cincinnati  Bell  Wireless,  LLC,  Telecorp  PCS and  Triton  PCS.
Internationally, the AT&T Wireless Group owns one half of the 33.3% equity stake
in Rogers  Cantel it holds  jointly  with British  Telecommunications.  The AT&T
Wireless Group is the operating partner in wireless ventures in Colombia,  India
and Taiwan.  In 2000,  the AT&T Wireless  Group was also  allocated one half the
interest  that  AT&T  possesses  in Japan  Telecom,  which it  agreed to sell in
February 2001.

         The Aviation  Communications  Division (ACD) of the AT&T Wireless Group
provides air-to-ground communications services. A minority ownership interest in
ACD is held by Rogers  Cantel.  ACD owns and operates a network of  ground-based
and  airborne  telecommunications  equipment  and related  assets  that  deliver
digital telephone service to commercial and private aircraft in North America.

         Wireless network

         The AT&T  Wireless  Group's  ownership  position  in U.S.  markets  was
obtained through FCC auctions and the FCC lottery and settlement process as well
as through  acquisitions of, and purchases and exchanges of,  operating  systems
and licenses from or with other wireless service licensees.

         AT&T Wireless Group has made certain commitments to provide funding for
successful  bids  of  Alaska  Native  Wireless,  L.L.C.  for  the C and F  Block
reauction  (FCC Auction 35) which ended January 26, 2001.  At the  conclusion of
the auction,  Alaska Native Wireless was the high bidder on  approximately  $2.9
billion in licenses.  One auction  participant  challenged the qualifications of
Alaska Native Wireless to acquire "closed"  licenses,  which constituted most of
the licenses for which Alaska  Native  Wireless was the  successful  bidder.  In
addition,  the  trustee  in  NextWave  Telecom,  Inc.'s  Chapter  11  bankruptcy
proceeding,  and the unsecured creditors of NextWave,  are challenging the right
of the FCC to re-auction the 1900 megahertz  licenses that NextWave  acquired in
prior FCC  auctions but which were later  reclaimed by the FCC.  Either of these
proceedings  could  result in a delay in the  grant of  licenses  to  successful
bidders or revocation of any licenses, including those won or acquired by Alaska
Native  Wireless.  AT&T Wireless Group has committed to provide  funding of $2.6
billion in exchange for a combination of a  non-controlling  equity interest and
debt  securities  of  Alaska  Native  Wireless  to fund  its  purchase  of these

<PAGE>

licenses. AT&T Wireless Group's own spectrum,  together with the spectrum of its
affiliates and the spectrum on which Alaska Native  Wireless was the high bidder
in the recently  completed  FCC spectrum  auction,  would be sufficient to serve
over 85 of the  top 100  markets  with  AT&T  Wireless  Group's  selected  third
generation technology, UMTS. Although Alaska Native Wireless is obligated to use
technology  that is compatible  and  interoperable  with AT&T  Wireless  Group's
digital mobile wireless network,  no commitments have been made by Alaska Native
Wireless to AT&T Wireless  Group  concerning  the deployment of the licenses for
which it was high bidder,  and not all  affiliates may be obligated to implement
AT&T  Wireless  Group's  third  generation  technology  strategy.  Under certain
conditions,  and in  addition to other  means by which they may  transfer  their
interests,  the other owners of Alaska Native Wireless have the right to require
us to purchase their equity  interests.  If this right were exercised five years
after license grant,  the price could be as much as  approximately  $950 million
and would be  payable,  at our option,  in cash or  marketable  securities.  The
amount would be less if the right were exercised earlier. Formal grant to Alaska
Native Wireless of the licenses successfully bid upon in the auction has not yet
occurred and is subject to administrative procedures.

         Mobile voice network

         Coverage.  As of December 31, 2000,  the AT&T  Wireless  Group's  built
network,  including  partnership and affiliate markets,  covered 98% of the U.S.
population,  including  operations  in 49 of the 50  largest  U.S.  metropolitan
areas.  The AT&T Wireless  operates  using both 850 megahertz and 1900 megahertz
licenses.  Where  agreements  are in place,  the AT&T Wireless  Group is able to
offer service to customers of other wireless  providers when they travel through
its service area,  and AT&T Wireless  Group  subscribers  can roam through other
wireless providers' service areas.

         Analog and digital  technologies.  The AT&T Wireless  Group offers both
analog and digital  service in its 850 megahertz  markets and digital service in
its 1900  megahertz  markets.  The AT&T  Wireless  Group  believes  that digital
technology   offers   many   advantages   over  analog   technology,   including
substantially  increased  network  capacity,   greater  call  privacy,  enhanced
services and features,  lower operating costs,  reduced  susceptibility to fraud
and the opportunity to provide improved data transmissions.  Moving customers to
digital  service has been a key component of the AT&T Wireless  Group's  overall
wireless  strategy.  Digital  service enables the AT&T Wireless Group to provide
added benefits and services to its customers,  including  extended battery life,
caller ID, text messaging and voicemail with message waiting indicator.

         TDMA network. The AT&T Wireless Group has chosen time division multiple
access  (TDMA)  technology  for its second  generation  voice  digital  network,
although  it does  operate  a small a number  of  markets  using  code  division
multiple  access (CDMA) that were operating that  technology  when AT&T Wireless
Group acquired  them.  TDMA permits the use of advanced  tri-mode  handsets that
allow for roaming across analog and digital systems and across 850 megahertz and
1900 megahertz  spectrums.  TDMA digital technology allows for enhanced services
and features, such as short alphanumeric message service, extended battery life,
added call  security  and  improved  voice  quality.  TDMA's  hierarchical  cell
structure enables the AT&T Wireless Group to enhance network coverage with lower
incremental  investment  through the deployment of micro and pico, as opposed to
macro,  cell sites.  This enables the AT&T  Wireless  Group to offer  customized
billing options and to track billing information per individual cell site, which
is  practical  for advanced  wireless  applications  such as fixed  wireless and
wireless office  applications.  TDMA served an estimated 35 million  subscribers
worldwide and 18 million  subscribers  in North America as of December 31, 1999,

<PAGE>

according to the Universal Wireless Communications Consortium, an association of
TDMA service  providers  and  manufacturers.  TDMA  equipment is available  from
leading  telecommunication  vendors such as Lucent, Ericsson and Nortel Networks
Corporation.  A number of other  wireless  service  providers  have  chosen code
division mobile access (CDMA) or global system for mobile  communications  (GSM)
as their current  digital  wireless  technology.  AT&T Wireless Group intends to
deploy an overlay  of GSM  technology  to its TDMA  network as part of its third
generation  development  strategy,  which will use a different  technology  (see
below).

         CDPD network.  The AT&T Wireless Group's CDPD network  currently covers
104 million POPs, which  represents over 60% of its built network,  and its CDPD
customers  can roam on the CDPD  networks of other  wireless  providers,  which,
together,  cover an  additional 74 million  POPs.  CDPD is an industry  standard
using Internet Protocol, which allows most applications written for the Internet
as well as many  corporate  applications  to run  efficiently  over the  network
without  modification.  Using CDPD, data files and transactions are divided into
small  packets  and  sent  on  a  dedicated  wireless  channel.   In  many  data
applications,  data is sent in bursts with  intermittent  quiet periods.  Packet
transmission  technologies take advantage of this fact and allow user data to be
efficiently carried on the same network channel.  As a result,  relative to data
services carried over circuit-switched  analog or digital wireless networks, the
AT&T  Wireless  Group's  packet-switched  CDPD service is a  significantly  more
cost-effective means of sending data for the majority of applications because it
allows many users to share the same channel.

         Third generation  development strategy.  Third generation  technologies
will allow  carriers to provide  high-speed  wireless  packet data  services and
ultimately voice services using Internet Protocol.  AT&T Wireless Group believes
that a sound third  generation  strategy  should allow the wireless  provider to
achieve a pervasive  footprint quickly and cost effectively.  In addition,  AT&T
Wireless Group believes third generation  networks that achieve global economies
of scale and allow for global  roaming will have a significant  advantage.  AT&T
Wireless Group had originally  chosen TDMA-EDGE as its next generation  wireless
architecture.

         However,  in November 2000,  AT&T Wireless Group  announced that it has
selected for its eventual third generation  services the technological  standard
that is the same global  standard  that has been  selected by service  providers
throughout  Europe,  in Japan and in other  parts of the world.  This  standard,
known as UMTS (for universal mobile  telecommunications  system),  has generally
been  accepted as the  successor  technology  to the second  generation  digital
technology known as GSM. UMTS is also known as W-CDMA, or wideband code division
multiple  access.  Despite the similarity of the acronyms,  CDMA 2000 and W-CDMA
are not  compatible.  To accelerate the  availability  of enhanced data services
offerings, AT&T Wireless Group recently announced plans to deploy a GSM platform
for interim  improvements in wireless data capabilities on the evolutionary path
to  third  generation  services,  as well as  associated  voice  services.  This
platform  will be  deployed  as an  overlay  on  AT&T  Wireless  Group's  second
generation  voice  network.  GSM platform  deployment is planned to begin in the
second half of 2001.  AT&T  Wireless  Group plans to make interim  enhanced data
services  using GPRS  technology  deployed on the GSM network  starting in 2001.
Third  generation EDGE  technology  service is expected to be available in 2002.
AT&T Wireless Group currently  plans to deploy third  generation UMTS technology
beginning  in 2003,  depending  on the  availability  of network  equipment  and
customer devices. By making services on GPRS technology  available in 2001, AT&T
Wireless  Group expects to be able to make  enhanced data services  available to
customers earlier than its originally planned deployment of TDMA-EDGE in 2002.
<PAGE>

         Like AT&T Wireless Group's current packet data network,  the technology
standards AT&T Wireless Group has selected for its enhanced and third generation
data services  strategy are also Internet  Protocol  based.  AT&T Wireless Group
expects that all the  applications  developed and deployed today will migrate to
GPRS-based  and  eventually  to EDGE-based  services as customers  upgrade their
equipment to the new technologies to be deployed.  However,  when deployed using
GPRS and EDGE technologies, these applications are expected to operate at higher
speeds than current systems where deployed. This plan is expected to enable AT&T
Wireless Group to provide customers with earlier availability of a wide range of
data  service  offerings  on a broad  array of devices  (phones,  personal  data
assistants, or PDA's, laptops, etc.). AT&T Wireless Group plans to sell handsets
combining  its  current  TDMA  transmission  technology  and the GSM  technology
platform it plans to deploy with  enhanced  and third  generation  GPRS and EDGE
technologies,  which  would  provide  customers  the  benefit  of access to AT&T
Wireless  Group's  current  voice  network  as  well  as the  new  enhanced  and
high-speed  data  services  when  available.  Industry  specifications  for  the
combined  technology  handsets were jointly developed by the Universal  Wireless
Communications  Consortium  and the North  American GSM Alliance.  AT&T Wireless
Group is in discussions with manufacturers to develop such devices.  In November
2000,  AT&T  announced  nonbinding  letters  of  intent  with  Ericsson,  Lucent
Technologies,  Nokia and Nortel Networks for third generation  network equipment
and, in the case of Nokia and Ericsson,  for future generation wireless customer
terminals.  AT&T Wireless Group began  negotiating  definitive  agreements  with
these and other  vendors  during  the fourth  quarter  of 2000 and has  executed
several of these agreements.

DOCOMO STRATEGIC INVESTMENT

         On January 22,  2001 NTT  DoCoMo,  Inc.,  a leading  Japanese  wireless
communications company,  invested approximately $9.8 billion for shares of a new
class of AT&T preferred stock that are convertible  into  406,255,889  shares of
AT&T Wireless Group  tracking  stock that are intended to reflect  approximately
16% of the financial  performance  and economic value of AT&T Wireless Group. As
part of this investment, DoCoMo also received five-year warrants to purchase the
equivalent of an additional  41,748,273  shares of AT&T Wireless  Group tracking
stock at $35 per share, and DoCoMo and AT&T Wireless Services formed a strategic
alliance  to develop  the next  generation  of mobile  multimedia  services on a
global-standard,  high-speed  wireless network. Of the 406,255,889 AT&T Wireless
Group  tracking stock share  equivalents  issued to DoCoMo,  228,128,307  shares
represented new share equivalents at $27.00 each, and the remaining  178,127,582
share equivalents  represented a reduction of AT&T Common Stock Group's retained
portion of the value of AT&T Wireless  Group at $20.50 each.  Accordingly,  AT&T
Common  Stock  Group  retained  $3,651,615,431  of the  proceeds  of the  DoCoMo
investment and allocated $6,159,464,289 to AT&T Wireless Group.

         The following is a summary of the material provisions of the agreements
among  DoCoMo,  AT&T and AT&T  Wireless  Services,  and the terms of the  DoCoMo
Wireless  Tracking Stock. This summary is qualified in its entirety by reference
to the full text of these documents, which have been filed as exhibits to AT&T's
Form 8-K dated December 22, 2000.

         New Class of AT&T Wireless Group Tracking Stock

         DoCoMo  purchased  812,511.778  shares of a new class of AT&T preferred
stock,  par value $1.00,  that we call "DoCoMo  wireless  tracking  stock." Each
share of DoCoMo  wireless  tracking  stock is  convertible  at any time into 500
shares  of AT&T  Wireless  Group  tracking  stock  and has the same  voting  and
dividend rights as 500 shares of AT&T Wireless Group tracking stock.  The DoCoMo

<PAGE>

wireless tracking stock also has some additional rights not available to holders
of AT&T Wireless Group tracking stock. The following is a description of some of
the rights and features of the DoCoMo wireless tracking stock.

     o    Conversion.  DoCoMo can  convert  all,  and not less than all,  of its
          shares of DoCoMo  wireless  tracking  stock into AT&T  Wireless  Group
          tracking  stock  at a  ratio  of 500  shares  of AT&T  Wireless  Group
          tracking  stock for each  share of  DoCoMo  wireless  tracking  stock,
          subject to anti-dilution  protection.  If the split-off occurs,  then,
          immediately  before the  completion  of the  split-off,  each share of
          DoCoMo wireless  tracking stock  automatically  will be converted into
          500  shares  of  AT&T  Wireless  Group  tracking  stock,   subject  to
          anti-dilution  protection,  and  thereafter  be  exchanged on the same
          terms as all other shares of AT&T Wireless Group tracking stock in the
          split-off.

     o    Liquidation Preference.  The DoCoMo wireless tracking stock carries an
          aggregate  liquidation  preference of $3.65 billion in the event of an
          involuntary  liquidation or dissolution of AT&T, and holders of DoCoMo
          wireless tracking stock are entitled to participate in this preference
          in proportion to the number of shares they hold. The holders of shares
          of  DoCoMo   wireless   tracking   stock  also  will  be  entitled  to
          participate,  on an as-converted basis, in any additional  liquidation
          payments made to holders of AT&T Wireless Group tracking  stock,  less
          any amounts received out of the $3.65 billion liquidation  preference.
          The DoCoMo wireless tracking stock has no preference in the event of a
          voluntary  liquidation or dissolution of AT&T, but automatically would
          convert  into  shares  of  AT&T  Wireless  Group  tracking  stock  and
          participate  in any  liquidation  payments  made  to  holders  of AT&T
          Wireless Group tracking stock.

     o    Dividends.  Holders of DoCoMo wireless  tracking stock are entitled to
          participate,   on  an   as-converted   basis,   in  any  dividends  or
          distributions paid to holders of AT&T Wireless Group tracking stock.

     o    Voting Rights.  Holders of DoCoMo wireless tracking stock are entitled
          to vote  together  with  holders  of AT&T  common  shares and not as a
          separate  class.  Each  share of  DoCoMo  wireless  tracking  stock is
          entitled  to the  number of votes  that could be cast by the shares of
          AT&T  Wireless  Group  tracking  stock into which the DoCoMo  wireless
          tracking  stock  is  convertible.  Initially,  each  share  of  DoCoMo
          wireless tracking stock will be entitled to 250 votes.

     o    Redemption  at the Option of AT&T.  There are two  instances  in which
          AT&T may redeem  all,  and not less than all,  of the shares of DoCoMo
          wireless  tracking  stock and  warrants  owned by  DoCoMo at  DoCoMo's
          original  purchase  price plus a  predetermined  rate.  First,  if the
          proposed split-off does not occur before April 26, 2002 and thereafter
          AT&T  redeems  all  AT&T  Wireless  Group  tracking  stock,  AT&T  may
          concurrently  redeem the DoCoMo wireless tracking stock. In this case,
          if AT&T  announces  a sale of all or  substantially  all the assets of
          AT&T Wireless Group within a year of redemption and then completes the
          sale, DoCoMo will be entitled to receive a payment equal to the excess
          of the value from that sale that would have been  attributable  to the
          DoCoMo wireless tracking stock over the redemption  price.  Second, if
          specified   adverse  tax  events  occur  before  the  split-off   and,
          thereafter,  all AT&T Wireless Group tracking stock is redeemed,  AT&T
          may concurrently redeem the DoCoMo wireless tracking stock on the same

<PAGE>

          terms as described  above.  In either case, if AT&T  splits-off all or
          substantially  all of the assets of AT&T Wireless  Group within a year
          of  redeeming  the DoCoMo  wireless  tracking  stock,  DoCoMo  will be
          entitled to reinvest  in the spun off entity at the  redemption  price
          and otherwise on terms comparable to those set forth in the agreement.

     o    Transfer.   Shares  of  DoCoMo   wireless   tracking   stock  are  not
          transferable  other  than  by  conversion  into  AT&T  Wireless  Group
          tracking stock or redemption by AT&T.

         Warrants

         DoCoMo  has  acquired  83,496.546  warrants,  each of  which  initially
represents the right to purchase one share of DoCoMo wireless  tracking stock at
an exercise price of $17,500 per share,  or $35 per AT&T Wireless Group tracking
stock share equivalent,  subject to customary anti-dilution  adjustments.  These
warrants  may be  exercised  in any  amount  and at any  time  until  the  fifth
anniversary of the issuance of the warrants.  Upon transfer by DoCoMo to a third
party,  or if DoCoMo  converts  its  DoCoMo  wireless  tracking  stock into AT&T
Wireless Group tracking stock,  each of the warrants will be exercisable for 500
shares of AT&T Wireless  Group  tracking  stock at an exercise  price of $35 per
share,  and will no longer be exercisable  for DoCoMo  wireless  tracking stock.
After the split-off, each warrant will be exercisable for 500 shares of the AT&T
Wireless Services common stock at an exercise price of $35 per share, subject to
adjustments   to  reflect  the  exchange   ratio  and  customary   anti-dilution
adjustments.  The warrants are subject to the  transfer  restrictions  described
below.  The shares of DoCoMo  wireless  tracking stock issuable upon exercise of
the warrants,  and any shares of AT&T Wireless  Group  tracking stock into which
they are convertible, will represent new share equivalents.

         DoCoMo Investment Rights and Obligations

         In  addition to the rights  inherent  in the shares of DoCoMo  wireless
tracking  stock,  under  the  agreements,   DoCoMo  has  additional  rights  and
obligations  with respect to its  investment  in AT&T  Wireless  Group that will
continue even if DoCoMo  converts its shares of DoCoMo  wireless  tracking stock
into AT&T Wireless Group tracking stock or if the split-off is completed.

     o    Transfer  Restrictions.   Without  the  consent  of  AT&T  before  the
          split-off,  or AT&T  Wireless  Services  after the  split-off,  for 18
          months following the investment,  DoCoMo may not transfer any warrants
          or any shares of AT&T Wireless  Group  tracking stock or AT&T Wireless
          Services  common  stock  that it  receives  on  conversion  of  DoCoMo
          wireless  tracking  stock,  except if specified  events  occur.  Those
          events are:

          -    a sale  of all or  substantially  all of  AT&T  Wireless  Group's
               assets or business  through merger or other business  combination
               unless  AT&T  Wireless   Group   shareholders   continue  to  own
               two-thirds of the successor corporation;

          -    the acquisition or acquisitions of business or assets, other than
               radio spectrum rights,  by AT&T Wireless Group totaling more than
               $25 billion; or

          -    a tender  offer or exchange  offer  approved  by AT&T's  board of
               directors  or AT&T  Wireless  Services  board  of  directors,  as
               applicable.
<PAGE>

         In addition,  subject to a limited  exception,  without  AT&T's or AT&T
Wireless Group's  consent,  as the case may be, DoCoMo may not transfer any AT&T
Wireless  Group  securities to any person if after the transfer the  recipient's
interest  in AT&T  Wireless  would  exceed  6%,  or in the  case of  recipients,
principally financial institutions, who are eligible to report their interest on
Schedule 13G under the Securities Exchange Act, 10%.

         None of DoCoMo's  special rights are  transferable by DoCoMo along with
the shares,  except  that DoCoMo may  transfer  its demand  registration  rights
described below to any transferee of more than $1 billion of AT&T Wireless Group
securities,  and  DoCoMo  may  transfer  one  demand  registration  right  to  a
transferee of the warrants.  Any transfer of registration rights will be subject
to overall  limitations on the registration  rights and will not increase AT&T's
or AT&T Wireless Group's aggregate registration obligations.

          o    Repurchase Obligations.

               -    Failure to complete  split-off  within specified time frame.
                    If the  split-off is not  completed  by January 1, 2002,  or
                    March 15, 2002 if the reason it was not completed by January
                    1,  2002 was  that the  requisite  IRS  ruling  had not been
                    received and AT&T reasonably believes that it is possible to
                    obtain such a ruling by, or effect the  split-off  without a
                    ruling by, March 15, 2002 and is  continuing  to seek such a
                    ruling or to effect  the  split-off  without a ruling,  then
                    DoCoMo  may  require  AT&T  to  repurchase  DoCoMo  wireless
                    tracking stock,  or AT&T Wireless Group tracking stock,  and
                    warrants,  that DoCoMo still holds at that time. DoCoMo must
                    exercise this right within 30 days of the January 1 or March
                    15,  2002  trigger  date,   whichever  is  applicable.   The
                    repurchase  price will be DoCoMo's  original  purchase price
                    plus a predetermined  rate. This repurchase  obligation will
                    be  allocated  between  AT&T  and  AT&T  Wireless  Group  in
                    proportion to the  allocation of the proceeds  received from
                    the  investment.  Consequently,  AT&T Wireless Group will be
                    obligated to fund $6.2 billion of the repurchase price, plus
                    interest.  In lieu of receiving this  repurchase  price from
                    AT&T,  DoCoMo  will have the right to cause AT&T to register
                    for  public  sale all of the shares of AT&T  Wireless  Group
                    tracking stock  (including  shares that DoCoMo would hold if
                    it exercised its warrants and converted its shares of DoCoMo
                    wireless tracking stock), and thereafter DoCoMo will be able
                    to sell those shares and retain the proceeds  from that sale
                    or sales.

               -    Failure to meet technology  benchmarks within specified time
                    frame. In some  circumstances,  if by June 30, 2004 (1) AT&T
                    Wireless  Group fails to launch  service based on a wireless
                    communications   technology   known  as   universal   mobile
                    telecommunications   systems,   or  wideband  code  division
                    multiple  access,  in at least 13 of the top 50 U.S. markets
                    or (2) abandons  wideband code division  multiple  access as
                    its primary technology for third generation services, DoCoMo
                    may require  AT&T  before the  split-off,  or AT&T  Wireless
                    Services after the split-off, to repurchase the warrants and
                    DoCoMo  wireless  tracking  stock,  or AT&T  Wireless  Group
                    tracking stock, and the warrants that DoCoMo still holds (or
                    the AT&T Wireless Services common stock and related warrants

<PAGE>

                    if post  split-off).  The repurchase  price will be DoCoMo's
                    original  purchase  price plus  interest of a  predetermined
                    rate. Before the split-off,  the repurchase  obligation will
                    be  allocated  between  AT&T  and  AT&T  Wireless  Group  in
                    proportion to the  allocation of the proceeds  received from
                    the  investment,  which was  approximately  $3.6 billion for
                    AT&T and $6.2  billion for AT&T  Wireless  Group.  After the
                    split-off,  if DoCoMo  requires  repayment  because  of AT&T
                    Wireless Group's failure to commence service using an agreed
                    technology as described above,  AT&T Wireless  Services will
                    be  obligated  to fund the entire  amount of the  repurchase
                    obligation,  which is $9.8 billion, plus interest, with AT&T
                    being  secondarily  liable  for  up to  $3.6  billion,  plus
                    interest, if AT&T Wireless Services is unable to satisfy the
                    entire obligation. In lieu of paying all or a portion of the
                    repurchase  price,  AT&T or AT&T Wireless  Services,  as the
                    case may be, will have the right to cause DoCoMo to sell any
                    portion  of its  shares  in a  registered  sale,  and to pay
                    DoCoMo the difference  between the repurchase  price and the
                    proceeds from the registered sales.

               o    Standstill.  Until the fifth  anniversary  of the closing of
                    the investment,  DoCoMo, its controlled  subsidiaries,  when
                    acting on behalf  of  DoCoMo,  its  officers,  directors  or
                    agents,  or any  subsidiary  to which  DoCoMo has  disclosed
                    confidential  information  regarding its  investment may not
                    take a number of actions,  including the following,  without
                    AT&T's   consent  before  the  split-off  or  AT&T  Wireless
                    Services' consent after the split-off:

                    -    acquire or agree to acquire  any voting  securities  of
                         AT&T or AT&T  Wireless  Services,  except in connection
                         with  DoCoMo's  exercise  of  its  preemptive   rights,
                         conversion rights or warrants;

                    -    solicit proxies with respect to AT&T's or AT&T Wireless
                         Services' voting  securities or become a participant in
                         any  election  contest  relating to the election of the
                         directors of AT&T or AT&T Wireless Services;

                    -    call  or seek to  call a  meeting  of the  AT&T or AT&T
                         Wireless   Services    shareholders   or   initiate   a
                         shareholder proposal;

                    -    contest the validity of the standstill in a manner that
                         would lead to public disclosure;

                    -    form or  participate  in a group that would be required
                         to file a  Schedule  13D  with  the  SEC as a  "person"
                         within  the  meaning  of the  Section  13(d)(3)  of the
                         Securities Exchange Act; or

                    -    act in  concert  with any  person  for the  purpose  of
                         electing a transaction that would result in a change of
                         control of AT&T or AT&T Wireless Services.
<PAGE>

         After the fifth year anniversary of the investor agreement, DoCoMo will
continue to be subject to the  standstill for so long as DoCoMo has the right to
nominate  at least one  director.  However,  DoCoMo  will be  released  from the
standstill  91 days  after the  resignations  of all of its  representatives  on
AT&T's and AT&T Wireless  Services' board of directors,  as the case may be, all
of  DoCoMo's  nominated  AT&T  Wireless  Services  committee  members and all of
DoCoMo's nominated management. After these resignations,  AT&T Wireless may take
steps to terminate or sequester all of the other DoCoMo nominated employees.

         If NTT, which owns approximately  two-thirds of DoCoMo, or any of NTT's
subsidiaries  other than  DoCoMo  takes any action  contrary  to the  standstill
restrictions and the action leads to any vote of shareholders of AT&T before the
split-off or AT&T Wireless Services after the split-off, then DoCoMo either must
vote its  shares as the board of  directors  of AT&T or AT&T  Wireless  Services
directs,  or must  vote  its  shares  in  proportion  to the  votes  cast by the
shareholders that are not affiliated with either DoCoMo or NTT. In addition,  if
NTT or any of its  subsidiaries  commences  a  tender  offer  for  AT&T  or AT&T
Wireless  Services  securities,  DoCoMo  cannot  tender or  transfer  any of its
securities  into that offer until all of the  conditions to that offer have been
satisfied.

         The  standstill  provisions  described  above  will  terminate  in  the
following circumstances:

     -    a third party  unaffiliated  with AT&T Wireless  commences a tender or
          exchange offer of 15% of AT&T Wireless  Services'  outstanding  voting
          securities and AT&T Wireless Services does not publicly recommend that
          its shareholders reject to the offer;

     -    AT&T  Wireless  Services  enters into a definitive  agreement to merge
          into or sell all or  substantially  all of its assets to a third party
          unless AT&T Wireless Services  shareholders retain at least 50% of the
          economic and voting power of the surviving corporation; or

     -    AT&T Wireless  Services enters into a definitive  agreement that would
          result in any one person or groups of persons  acquiring more than 35%
          of the voting power of AT&T  Wireless  Services,  unless,  among other
          things, this person or group agrees to a standstill.

         The  standstill  provisions  terminate  with  respect to AT&T two years
after the split-off  (or, if sooner,  upon any of the foregoing  three events as
applied to AT&T).

     o    Registration  Rights.  Subject to certain  exceptions and  conditions,
          DoCoMo is entitled  to require  AT&T  before the  split-off,  and AT&T
          Wireless  Services  after the  split-off,  to register  shares of AT&T
          Wireless Group tracking stock or AT&T Wireless  Services  common stock
          on up to six occasions,  with each demand involving not less than $500
          million worth of shares.  DoCoMo cannot  exercise more than one demand
          right in any seven and a half month period. DoCoMo also is entitled to
          require  AT&T  or AT&T  Wireless  Services,  as the  case  may be,  to
          register  securities  for resale in an unlimited  number of incidental
          registrations, commonly known as piggy-back registrations. DoCoMo will
          cease to be entitled to these registration rights if it owns less than
          $1 billion of AT&T or AT&T Wireless Services  securities,  as the case
          may be,  and  securities  reflecting  less  than  2% of the  financial
          performance and economic value of AT&T Wireless Services.
<PAGE>

     o    Board  Representation.  Until the  split-off,  DoCoMo is  entitled  to
          nominate one  representative to the AT&T board of directors,  and that
          representative  also  will be a  member  of the  AT&T  Wireless  Group
          capital stock committee. After the split-off,  DoCoMo will be entitled
          to nominate a number of  representatives on the AT&T Wireless Services
          board of directors proportional to its economic interest acquired as a
          result of this  investment.  The DoCoMo nominees for these board seats
          must be senior  officers of DoCoMo that are  reasonably  acceptable to
          AT&T or AT&T Wireless  Services,  as the case may be. DoCoMo will lose
          these board  representation  rights if its  economic  interest in AT&T
          Wireless Services falls below 10% for 60 consecutive days. However, as
          long as it retains  62.5% of the shares of its original  investment or
          shares of AT&T Wireless  Group  tracking  stock into which such shares
          are convertible, DoCoMo will lose its board representation rights only
          if its economic  interest in AT&T Wireless Services falls below 8% for
          60 consecutive days.

     o    Management Rights. Before the split-off, DoCoMo is entitled to appoint
          one of its senior  executives  that is  reasonably  acceptable to AT&T
          Wireless  Group to AT&T Wireless  Group's senior  leadership  team. In
          addition, subject to AT&T Wireless Group's reasonable approval, DoCoMo
          can appoint between two and five of its employees as employees of AT&T
          Wireless  Group,   including  the   Manager-Finance  and  Director  of
          Technology. DoCoMo will lose these rights under the same circumstances
          as it would lose board representation rights.

     o    Right to Approve Specified Actions. Before the split-off, AT&T may not
          take any of the following actions without DoCoMo's prior approval:

          -    sell all or substantially all of AT&T Wireless Group's assets;

          -    sell all or  substantially  all of AT&T Wireless Group's business
               through  merger  or  other  business  combination,   unless  AT&T
               Wireless Group  shareholders  retain  two-thirds of the successor
               corporation;

          -    acquire  business or assets for AT&T Wireless  Group,  other than
               radio spectrum rights, in excess of $17 billion;

          -    subject to some exceptions,  issue any further economic interests
               or  rights to AT&T  Wireless  over 15% of AT&T  Wireless  Group's
               market capitalization as of the date of the letter agreement;

          -    subject to some  exceptions,  pay cash dividends to or repurchase
               AT&T Wireless Group tracking stock;

          -    amend AT&T's charter or by-laws so that the rights of the holders
               of DoCoMo wireless tracking stock would be adversely affected; or

          -    change the  split-off  related  agreements  so that AT&T Wireless
               Services  would be  materially  adversely  affected or enter into
               new, material contracts among affiliated parties that do not have
               arm's-length terms.

         After the  split-off,  AT&T  Wireless  Services may not take any of the
following actions without DoCoMo's prior approval:
<PAGE>

          -    change the scope of its business such that AT&T Wireless  Group's
               businesses  (including  those  in its  business  plan)  cease  to
               constitute the primary businesses of AT&T Wireless Services; or

          -    enter into a strategic alliance with another wireless operator so
               that the wireless  operator would own more than 15% but less than
               50% of the economic interest in AT&T Wireless Services.

         DoCoMo will lose these approval rights under the same  circumstances as
it would lose board representation rights.

          o    Preemptive  Rights.  DoCoMo has  limited  preemptive  rights that
               entitle it to  maintain  its  ownership  interest  by  purchasing
               shares  in some new  equity  issuances  by AT&T or AT&T  Wireless
               Services.  In the  event  of a new  equity  issuance  of the type
               covered by the preemptive right, then:

               -    if DoCoMo holds 12% or more of the economic interest of AT&T
                    Wireless  Services at the time of the new  issuance,  DoCoMo
                    may purchase a number of additional  shares that would bring
                    DoCoMo's economic interest back up to 16%; and

               -    if DoCoMo  holds less than 12% of the  economic  interest of
                    AT&T  Wireless  Services  at the  time of the new  issuance,
                    DoCoMo may purchase a number of additional shares that would
                    maintain  DoCoMo's  economic interest at the level it was at
                    just before the new issuance.

         In most cases, the purchase price for these  additional  shares will be
the  issuance  price.  DoCoMo will lose these  preemptive  rights under the same
circumstances as it would lose board representation rights.

         Strategic Alliance

         In connection  with  DoCoMo's  investment,  AT&T Wireless  Services and
DoCoMo  formed a strategic  alliance to develop  the next  generation  of mobile
multimedia  services on a  global-standard,  high-speed  wireless network.  AT&T
Wireless  Services  will create a new,  wholly owned  subsidiary  to develop and
encourage the development of multimedia content,  applications and services able
to be offered over AT&T Wireless  Services' current network,  as well as on new,
high-speed  wireless  networks  built to global  standards for third  generation
services. AT&T Wireless Services will contribute, among other things, its rights
to content and applications used in its PocketNet services to the new multimedia
subsidiary.  Both AT&T  Wireless  Services and DoCoMo plan to provide  technical
resources and support staffing. In addition, AT&T Wireless Services will be able
to license from DoCoMo,  without additional payment,  certain rights to DoCoMo's
"i-mode"   service,   which  provides  access  to  the  Internet  from  wireless
telephones, and related technology.

         The  strategic  alliance is  expected  to enable each of AT&T  Wireless
Services and DoCoMo to offer  market-appropriate  wireless services to customers
throughout  the United  States and Japan,  respectively.  In addition,  each has
agreed, subject to technical and commercial feasibility,  to recognize the other
as its  primary  and  preferred  roaming  partner  in  the  other  party's  home
territory.

         AT&T and AT&T  Wireless  Services  on the one hand,  and  DoCoMo on the
other hand,  have agreed to certain  non-competition  commitments  that restrict

<PAGE>

each other's ability to provide mobile wireless services in Japan and the United
States, respectively. They have also agreed to limit the extent to which AT&T or
AT&T Wireless  Services on the one hand,  and DoCoMo on the other hand,  will be
able to participate in certain mobile  multimedia  activities and investments in
each other's home territory.  Any such restrictions on AT&T would terminate upon
the earlier of a split-off  of AT&T  Wireless  Services or exercise by DoCoMo of
any put,  liquidation or registration right as a result of the non-occurrence of
such a split-off.  AT&T Wireless  Services and DoCoMo will generally be bound by
the non-competition  commitments until DoCoMo loses its board representation and
management  rights,  either due to any of the  events  described  under  "DoCoMo
Investment Rights and Obligations - Board Representation" and "DoCoMo Investment
Rights and Obligations  -Management Rights", or due to voluntary  relinquishment
of such rights by DoCoMo.

OTHER BUSINESSES

         AT&T Solutions

         AT&T Solutions,  established as a unit in 1995, provides clients with a
broad array of professional  services to satisfy  clients'  complete  networking
technology needs. AT&T Solutions' professional services range from consulting to
outsourcing  and management of highly complex global data networks.  The company
designs,  engineers  and  implements  seamless  solutions  for clients  that are
designed to maximize the competitive  advantage of  networking-based  electronic
commerce applications.  Working with best-in-breed partners, AT&T Solutions also
provides a full range of  custom,  managed  e-infrastructure,  web  hosting  and
high-availability services.

         AT&T Solutions'  Global  Enterprise  Management  System (GEMS) platform
offers global, end-to-end networking management capabilities that extend all the
way to the applications  domain. It also enables AT&T to consult with clients in
setting quality of service expectations and developing  customized service level
agreements  based  on  performance   requirements   for   individually   managed
applications, as well as the total networking environment.

         International

         AT&T has  established a number of  international  alliances to increase
the reach and scope of AT&T's services and network over time and has invested in
certain  countries  in order to increase  the range of  services  AT&T offers in
those countries,  such as Alestra in Mexico and AT&T Canada Corp. in Canada.  In
addition,  AT&T has an interest in Japan Telecom in Japan that, on February, 26,
2001, AT&T agreed to sell to the Vodafone Group plc.

                  On  January  6, 2000 AT&T and BT  created a global  venture to
serve the communications needs of multinational  companies and the international
calling needs of businesses  around the world.  The venture,  called Concert and
owned equally by AT&T and BT, combined transborder assets and operations of each
company,  including their existing international  networks,  their international
traffic,  their  transborder  products  for  business  customers -- including an
expanding set of Concert services -- and AT&T and BT's multinational accounts in
selected industry sectors.

                  On June 1,  1999,  AT&T  Canada  Corp.  merged  with  MetroNet
Communications Corp., Canada's largest competitive local exchange carrier. Under
the terms of the  merger  agreement,  AT&T  received  31  percent  of the equity
interest  and 23  percent  of the  voting  interest  in the  combined  entity in
exchange for AT&T Canada Corp.  and ACC  TelEnterprises  Ltd. In addition,  AT&T

<PAGE>

agreed  to  purchase  all of the  remaining  shares at the  greater  of the then
appraised fair market value or the accreted  minimum price,  which  initially is
C$37.50  accreting  after June 30,  2000 at a rate of 16% per annum,  compounded
quarterly.  If the acquisition is not completed by June 30, 2003,  those shares,
along with AT&T's shares, would be sold through an auction process and AT&T will
make whole the other  shareholders  for the amount they would have been entitled
to if AT&T had  purchased  the shares.  The  completion  of the  acquisition  is
subject to the  condition  that AT&T is  permitted  to acquire the shares  under
Canada's foreign ownership restrictions.  AT&T may acquire the shares prior to a
change in the ownership  restrictions  by developing a structure  that addresses
such ownership  restrictions.  On August 16, 1999, AT&T completed its sale to BT
of 30% of AT&T's  stake in AT&T Canada.  In addition,  BT has agreed to purchase
30% of the shares AT&T will be acquiring from the other stockholders, subject to
BT's right to cap its purchase at $1.65 billion.

         On August 28, 2000, AT&T established AT&T Latin America,  in connection
with the merger of Netstream,  a competitive  local exchange  company in Brazil,
and FirstCom,  a publicly  traded  company with  competitive  telecommunications
operations  in Chile,  Colombia  and Peru.  AT&T owns 58  percent  of AT&T Latin
America;  SL  Participacoes,  an  affiliate of Promon  Tecnologia,  which is the
former owner of Netstream,  owns 7 percent of AT&T Latin America, and the former
FirstCom  shareholders own 34 percent of AT&T Latin America,  on a fully diluted
basis.  Promon  Tecnologia  and the  former  FirstCom  shareholders  own Class A
shares,  and have one vote per  share;  AT&T owns  Class B shares,  and have ten
votes per share.

LEGISLATIVE AND REGULATORY DEVELOPMENTS

         Telecommunications Act of 1996

         In  February   1996,  the   Telecommunications   Act  became  law.  The
Telecommunications  Act,  among  other  things,  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 will permit the 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.

         In  August  1996,  the FCC  adopted  rules and  regulations,  including
pricing  rules  (the  "Pricing  Rules")  to  implement  the  local   competition
provisions of the  Telecommunications  Act,  including with respect to the terms
and conditions of interconnection  with LEC networks and the standards governing
the purchase of unbundled  network  elements and  wholesale  services from LECs.
These  implementing  rules rely on state public utilities  commissions (PUCs) to
develop the specific rates and procedures applicable to particular states within
the framework prescribed by the FCC.

         On July 18,  1997,  the United  States  Court of Appeals for the Eighth
Circuit  issued a decision  holding  that the FCC lacks  authority  to establish
pricing rules to implement the sections of the local  competition  provisions of
the  Telecommunications  Act applicable to interconnection with LEC networks and
the purchase of unbundled  network  elements and  wholesale  services from LECs.
Accordingly,  the Court  vacated  the rules  that the FCC had  adopted in August
1996,  and which had been stayed by the Court since  September  1996. On October
14,  1997,  the Eigth  Circuit  Court of  Appeals  vacated  an FCC Rule that had
prohibited  incumbent LECs from separating network elements that are combined in

<PAGE>

the LEC's  network,  except at the  request  of the  competitor  purchasing  the
elements.  This  decision  increased  the  difficulty  and  costs  of  providing
competitive  local  service  through  the  use  of  unbundled  network  elements
purchased from the incumbent LECs.

         On January 25, 1999,  the Unites States Supreme Court issued a decision
reversing  the  Eighth  Circuit  Court of  Appeal's  holding  that the FCC lacks
jurisdiction to establish  pricing rules applicable to  interconnection  and the
purchase of unbundled  network  elements,  and the Court of Appeal's decision to
vacate  the  FCC's  rule  prohibiting  incumbent  LECs from  separating  network
elements  that are  combined  in the LEC's  network.  The effect of the  Supreme
Court's  decision was to  reinstate  the FCC's rules  governing  pricing and the
separation of unbundled network elements.  The pricing issues were then remanded
to the Eighth  Circuit Court of Appeals to 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 reexamine this issue in light of the standards
mandated by the Act.

         In response to the Supreme  Court's  decision,  the FCC  completed  its
re-examination  of and released an order  identifying and defining the unbundled
network  elements  that  incumbent  LECs are  required to make  available to new
entrants.  That order  re-adopted  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 July 2000,  the Eighth  Circuit  issued a  decision  addressing  the
incumbent  LECs' claims that the FCC's pricing rules are not consistent with the
applicable  provisions of the Act. It rejected the  incumbent  LECs' claims that
the prices for network elements must be based on their "historical costs" rather
than, as the FCC had held, their "forward looking" costs. It also held, however,
that the FCC rule providing that  forward-looking  costs should be calculated on
the basis of the cost of the most  efficient  alternatives  was  contrary to the
Act.  The Eighth  Circuit  then stayed this ruling to enable the parties to seek
review before the Supreme  Court,  so the FCC's rules remain in effect until the
Supreme  Court  decides  the case.  The  Supreme  Court has agreed to review the
Eighth Circuit's decision, and a decision by the Supreme Court is anticipated by
the end of June 2002.  The Supreme Court will be  considering  both the claim of
AT&T, the FCC, and others that the Eighth Circuit erred by invalidating  the FCC
rule,  and the claim by the incumbent  LECs that the Eighth Circuit erred by not
requiring prices based on their historical cost.

         The Eighth Circuit also invalidated the FCC's rules setting the pricing
methodology  for resold  local  services.  That aspect of its  decision  was not
stayed, and will not be reviewed by the Supreme Court.

         In view of the  proceedings  pending before the Supreme  Court,  the DC
Circuit, FCC and state PUCs, 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.  The effect
of the most  recent  decision by the Eighth  Circuit is to  increase  the risks,
costs, difficulties, and uncertainty of entering local markets through using the

<PAGE>

incumbent  LECs'  facilities  and  services.   Notwithstanding  its  substantial
efforts,  AT&T  continues to experience  significant  difficulty  entering local
markets.  AT&T's ability to purchase  combined  network elements from the ILECs,
one of the  primary  methods  AT&T  intends to use to provide  local  service to
residential  customers,  continued  to be  severely  hampered  by,  among  other
factors,  ILEC-sponsored  regulatory and judicial actions, and lack of operating
interfaces  necessary  to process  network  element  orders with ILECs.  Despite
strong customer demand for competitive choice in local markets outside of AT&T's
cable footprint, AT&T has suspended sales of resold local service, and continues
to provide network element non  facilities-based  local service only in New York
and Texas.  AT&T will  continue  its  regulatory  efforts  to improve  operating
margins in the states where it offers  non-facilities-based  local services, and
will seek to open other states to competitive  opportunities (both for voice and
data  services) by improving  the rates,  rules and  operating  interfaces  that
govern carrier relationships.

         In December  1999,  Bell Atlantic (now  Verizon)  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 July 2000, SBC  Communications,  Inc. became the second RBOC to receive
such approval,  this time for the state of Texas,  and began providing  combined
local and long distance  service in July 2000. In January 2001, the FCC approved
SBC  Communications'  request for such  authority for the states of Oklahoma and
Kansas,  and pursuant to the terms of that  authority  SBC will be free to begin
providing  combined  local and long  distance  services in those states in March
2001.  In  January  2001,  Verizon  filed an  application  with the FCC for such
authority for the state of  Massachusetts.  This is Verizon's  second filing for
the state of  Massachusetts,  and the FCC is required to issue a decision on the
application in April 2001.

         Regulation of Rates

         AT&T  is  subject  to the  jurisdiction  of the  FCC  with  respect  to
interstate and international rates, lines and services,  and other matters. From
July 1989 to October 1995, the FCC regulated AT&T under a system known as "price
caps" whereby AT&T's prices, rather than its earnings,  were limited. On October
12, 1995,  recognizing a decade of enormous  change in the long distance  market
and finding  that AT&T  lacked  market  power in the  interstate  long  distance
market,  the FCC reclassified AT&T as a "non-dominant"  carrier for its domestic
interstate services. As a result, AT&T became subject to the same regulations as
its long  distance  competitors  for such  services.  Thus,  AT&T was no  longer
subject to price cap  regulation  for these  services,  was able to file tariffs
that are presumed lawful on one day's notice,  and was free of other regulations
and reporting requirements that apply only to dominant carriers.

                  In addition, on October 31, 1996, the FCC issued an order that
would have prohibited non-dominant carriers, including AT&T, from filing tariffs
for their domestic interstate services.  Non-dominant carriers,  including AT&T,
have begun  implementation  of  mechanisms  other than tariffs to establish  the
terms and  conditions  that  apply to  domestic,  interstate  telecommunications
services,  and by August 1, 2001 will have to use such  mechanisms for virtually
all domestic,  interstate  telecommunications  services.  In March 2001, the FCC
adopted an order applying detariffing requirements to international services.

                  Furthermore,  in  May  1997,  the  FCC  adopted  three  orders
relating to Price Caps, Access Reform,  and Universal Service that substantially
revised the level and  structure of access  charges that AT&T as a long distance

<PAGE>

carrier pays to incumbent LECs. Under the Price Cap Order, LECs were required to
reduce their price cap indices by 6.5 percent  annually,  less an adjustment for
inflation,  which has resulted in significant  reductions in access charges that
long distance companies pay to LECs. The Access Reform Order permitted increased
flat-rate  assessments  to  multiline  business  customers  and  to  residential
customers  other than for the primary  telephone  line.  AT&T has agreed to pass
through to  consumers  any  savings to AT&T as a result of these  access  charge
reforms. Consequently,  AT&T's results after June 1997 reflect lower revenue per
minute of usage and lower access and other  interconnection  costs per minute of
usage.

                  In May 2000, the FCC adopted the CALLS Order for the price cap
LECs which made additional  significant access and price cap changes.  The CALLS
Order reduced by $3.2 billion  during 2000 the  interstate  access  charges that
AT&T and other  long  distance  carriers  pay to these  LECs for access to their
networks,  and established  target access rates for these companies,  which over
the next two years will result in further  reductions,  albeit of a much smaller
magnitude.  Once the  target  rates are  reached,  the annual  price  reductions
required by the Price Cap Order no longer  apply.  In addition,  the CALLS Order
removed  implicit  subsidies  from  access  charges and  converted  them into an
explicit, portable subsidy administered as part of the universal service program
described below. Also, under CALLS, the caps on certain line-based costs that do
not vary with usage have been  increased  so that these  costs are  increasingly
recovered from end user customers. These restructurings allowed the reduction in
access charges  assessed on long distance  carriers on a usage basis. As part of
the  CALLS  Order,  AT&T  agreed  to  flowthrough  to  customers  access  charge
reductions  over the  five-year  life of the CALLS plan and made  certain  other
commitments  regarding the rate structure of certain  residential  long distance
offerings.

                  Under the August 1999 LEC Pricing Flexibility Order, which was
affirmed  by the D.C.  Circuit in February  2001,  the FCC  established  certain
triggers that enable the price cap LECs to obtain pricing  flexibility for their
interstates  access  services,  including  Phase II relief that  permits them to
remove  these  services  from  price cap  regulation.  Although  these  triggers
supposedly  indicate a competitive  presence  sufficient  to constrain  monopoly
pricing by the LECs, in fact,  they may allow for premature  deregulation  which
could force access rates upwards.

                  Finally, in the Universal Service Order, the FCC adopted a new
mechanism for funding universal service, which includes programs that defray the
costs of telephone service in high-cost areas, for low-income consumers, and for
schools,  libraries  and rural  health  care  providers.  Specifically,  the FCC
expanded the set of carriers that must contribute to support  universal  service
from only long distance  carriers to all carriers,  including LECs, that provide
interstate  telecommunications services. Similarly, the set of carriers eligible
for the  universal  service  support  has been  expanded  from  only LECs to any
eligible carrier providing local service to a customer,  including AT&T as a new
entrant in local markets.  The Universal  Service Order also adopted measures to
provide  discounts on  telecommunications  services,  Internet access and inside
wire to for eligible  schools and libraries and on  telecommunications  services
only for rural health care providers.

         AT&T remains  subject to the statutory  requirements of Title II of the
Communications  Act. AT&T must offer service under rates,  terms and  conditions
that are just, reasonable and not unreasonably discriminatory;  it is subject to
the FCC's  complaint  process,  and it must give notice to the FCC and  affected
customers  prior  to  discontinuance,   reduction,  or  impairment  of  service.

<PAGE>

Commitments  made by  AT&T to  address  concerns  that  had  been  raised  about
declaring AT&T to be non-dominant have been satisfied or otherwise expired.

         In  addition  to  the  matters  described  above  with  respect  to the
Telecommunications  Act, state public service commissions or similar authorities
having  regulatory  power over  intrastate  rates,  lines and services and other
matters regulate AT&T's local and intrastate communications services. The system
of regulation used in many states is rate-of-return regulation. In recent years,
many states have adopted  different  systems of  regulation,  such as:  complete
removal of rate-of-return regulation,  pricing flexibility rules, price caps and
incentive regulation.

         Wireless Regulatory Environment

         The FCC regulates the licensing, construction,  operation, acquisition,
sale and  resale of  wireless  systems  in the  United  States  pursuant  to the
Communications  Act of 1934 and the associated  rules,  regulations and policies
promulgated  by  the  FCC.  FCC  terminology  distinguishes  between  "cellular"
licenses, which utilize a frequency of 850 megahertz, and ""PCS" licenses, which
utilize a frequency of 1900 megahertz. The different types of licenses and their
associated systems may have differing technical characteristics.

         Licensing of wireless services systems

         AT&T Wireless  Group owns  protected  geographic  service area licenses
granted by the FCC to provide  cellular  service and PCS. It also owns  licenses
granted by the FCC to provide  point-to-multi-point  communications  services in
various bands, including significant licenses in the 37 to 39 gigahertz bands.

         A cellular system operates on one of two 25 megahertz  frequency blocks
that the FCC allocates for cellular radio service.  Cellular  systems  generally
are used for two-way  mobile voice  applications,  although they may be used for
data  applications and fixed wireless  services as well.  Cellular license areas
are  issued  for  either  metropolitan  service  areas or rural  service  areas.
Initially,  one of the two  cellular  licenses  available  in each  metropolitan
service  area or rural  service area was awarded to a local  exchange  telephone
company  by the  FCC,  while  the  other  license  was  awarded  either  through
competitive processes or lotteries.  Licenses were issued beginning in 1983, and
over the years numerous  license  transfers and corporate  reorganizations  have
obscured  the  original  pattern of  distributing  one set of  licenses to local
telephone  company  affiliates and the other to companies that do not have local
exchange service in the license area.

         A PCS system  operates on one of six  frequency  blocks  allocated  for
personal  communications  services.  PCS systems  generally are used for two-way
voice applications  although they may carry two-way data communications as well.
For the purpose of  awarding  PCS  licenses,  the FCC has  segmented  the United
States into 51 large regions called major trading areas,  which are comprised of
493 smaller regions called basic trading areas. The FCC awarded two PCS licenses
for each major trading area and four  licenses for each basic trading area.  The
two major trading area  licenses  authorize the use of 30 megahertz of spectrum.
One of the basic trading area licenses is for 30 megahertz of spectrum,  and the
other three are for 10 megahertz each. The FCC permits  licensees to split their
licenses  and assign a portion,  on either a geographic  or  frequency  basis or
both, to a third party.

         The FCC awarded  initial PCS licenses by auction.  Auctions  began with
the 30 megahertz major trading area licenses and concluded in 1998 with the last
of the basic trading area licenses.  However,  in March 1998, the FCC adopted an

<PAGE>

order that  allowed  financially  troubled  entities  that won PCS 30  megahertz
C-Block  licenses  at  auction to obtain  financial  relief  from their  payment
obligations  and to return some or all of their C-Block  licenses to the FCC for
reauctioning.  The FCC completed the reauction of the returned licenses in April
1999. In addition,  certain of the C-block  licenses are currently in bankruptcy
proceedings.  The FCC  cancelled  some of  these  licenses,  and  completed  the
reauction  of the  licenses  in  January  2001.  The FCC's  cancellation  of the
licenses has been challenged by one of the bankrupt  licensees,  and there is no
guarantee  that the  reauction  or the  award of any  licenses  pursuant  to the
reauction will not be affected by this challenge.

         Under the FCC's current spectrum  aggregation rules, no entity may hold
attributable interests, generally 20% or more of the equity of, or an officer or
director position with, the licensee,  in licenses for more than 45 megahertz of
PCS,  cellular  and certain  specialized  mobile radio  services  where there is
significant overlap in any geographic area.  Significant overlap will occur when
at least 10% of the  population  of the PCS licensed  service area is within the
cellular  and/or  specialized  mobile radio  service  area(s).  The FCC recently
increased this limit to 55 megahertz for rural areas. These spectrum aggregation
rules are subject to a pending FCC  proceeding  that could  revise or  eliminate
them.

         All wireless  licenses  have a 10-year  term,  at the end of which term
they must be  renewed.  The FCC will  award a renewal  expectancy  to a wireless
licensee that has provided substantial service during its past license term, and
has  substantially  complied  with  applicable  FCC rules and  policies  and the
Communications  Act.  Licenses  may be  revoked  for cause and  license  renewal
applications  denied if the FCC  determines  that a renewal  would not serve the
public  interest.  FCC rules provide that  competing  renewal  applications  for
licenses  will  be  considered  in  comparative  hearings,   and  establish  the
qualifications  for  competing  applications  and the standards to be applied in
hearings.

         All wireless  licenses must satisfy  specified  coverage  requirements.
Cellular  licenses were required,  during the five years  following the grant of
the  initial  license,  to  construct  their  systems to provide  service  (at a
specified signal  strength) to the territory  encompassed by their service area.
Failure to provide such coverage  resulted in reduction of the relevant  license
area by the FCC. All A, B and C block PCS licensees  must  construct  facilities
that offer  coverage to one-third of the  population  of the service area within
five years of the initial  license  grants and to two-thirds  of the  population
within ten years.  All D, E and F block PCS licensees must construct  facilities
that offer  coverage to  one-fourth  of the  population  of the licensed area or
"make a showing of substantial  service in their license area" within five years
of the original license grants.  Other  point-to-multi-point  licenses require a
showing of  substantial  service  at  renewal.  Licensees  that fail to meet the
coverage requirements may be subject to forfeiture of the license.

         In an effort to balance the competing  interests of existing  microwave
users in the PCS bands and newly authorized PCS licensees, the FCC has adopted a
transition  plan to relocate such microwave  operators to other spectrum  blocks
and a cost sharing plan so that if the relocation of an incumbent  benefits more
than one PCS licensee,  those  licensees will share the cost of the  relocation.
The transition period contemplates  negotiations between microwave licensees and
PCS  licensees  to  accomplish  the  transition  and to  govern  the  terms  and
conditions  of the  transition  of microwave  licensees  from the PCS  spectrum.
Generally,  there is a "voluntary"  negotiation  period  during which  incumbent
microwave  licensees can, but do not have to negotiate with PCS licensees.  This
is followed by a "mandatory" negotiation period during which incumbent microwave
licensees must negotiate in good faith with PCS licensees.
<PAGE>

         Wireless  systems are subject to certain FAA regulations  governing the
location,  lighting and construction of transmitter  towers and antennas and are
subject  to  regulation   under  federal   environmental   laws  and  the  FCC's
environmental  regulations.  State or local zoning and land use regulations also
apply to tower  siting  and  construction  activities.  We expect to use  common
carrier  point-to-point  microwave  facilities to connect certain  wireless cell
sites,  and to link them to the main  switching  office.  The FCC licenses these
facilities  separately  and they  are  subject  to  regulation  as to  technical
parameters and service.

         The Communications Act preempts state and local regulation of the entry
of, or the rates charged by, any provider of private  mobile radio service or of
commercial mobile radio service,  which includes PCS and cellular  service.  The
FCC does not regulate  commercial  mobile radio service or private  mobile radio
service rates.  However,  commercial  mobile radio service  providers are common
carriers and are required under the  Communications  Act to offer their services
to the public without  unreasonable  discrimination.  The FCC's rules  currently
require  providers  to  permit  others to resell  their  services  for a profit;
however, these rules will expire in 2002.

         Transfers and assignments of spectrum licenses

         Except for transfers of control or assignments  that are considered pro
forma, the Communications Act and FCC rules require the FCC's prior approval for
the  assignment  of a license or transfer of control of a licensee  for a PCS or
cellular system and other types of wireless licenses.  In addition,  the FCC has
established  transfer disclosure  requirements that require licensees who assign
or  transfer  control of a PCS  license  within the first  three  years of their
license terms to file associated sale contracts,  option agreements,  management
agreements  or other  documents  disclosing  the  total  consideration  that the
licensee  would receive in return for the transfer or assignment of its license.
Non-controlling  interests in an entity that holds an FCC license  generally may
be bought or sold without FCC approval subject to the FCC's spectrum aggregation
limits.  However,  notification  and  expiration or earlier  termination  of the
applicable  waiting  period  under  Section 7A of the  Clayton Act by either the
Federal Trade Commission or the Department of Justice may be required if we sell
or acquire interests over a certain size.  Approval by state or local regulatory
authorities  having  competent   jurisdiction  may  also  be  required  in  some
circumstances.

         Foreign ownership

         Under existing law, no more than 20% of an FCC licensee's capital stock
may be owned,  directly or  indirectly,  or voted by non-U.S.  citizens or their
representatives,  by a foreign government or its representatives or by a foreign
corporation.  If an FCC licensee is controlled by another entity, as is the case
with our ownership  structure,  up to 25% of that entity's  capital stock may be
owned or voted by  non-U.S.  citizens  or their  representatives,  by a  foreign
government or its representatives or by a foreign corporation. Foreign ownership
above the 25% level may be  allowed  should the FCC and such  higher  levels not
inconsistent  with the public interest.  The FCC has ruled that higher levels of
foreign ownership, even up to 100%, are presumptively consistent with the public
interest  with  respect  to  investors  from  certain  nations.  If our  foreign
ownership  were to exceed  the  permitted  level,  the FCC could  revoke our FCC
licenses,  although we could seek a declaratory ruling from the FCC allowing the
foreign  ownership  or take  other  actions  to  reduce  our  foreign  ownership
percentage in order to avoid the loss of our  licenses.  We have no knowledge of
any present foreign ownership in violation of these restrictions.
<PAGE>

         Recent regulatory developments

         The FCC has announced rules for making emergency 911 services available
by cellular, PCS and other commercial mobile radio service providers,  including
enhanced 911 services that provide the caller's  telephone number,  location and
other useful information. Commercial mobile radio service providers are required
to  take  actions   enabling   them  to  relay  a  caller's   automatic   number
identification  and  location  (initially  the  location  of the cell site first
transmitting the call, and ultimately by an approximation of the caller's actual
location) if requested to do so by a public safety  dispatch  agency.  Providers
may  use  either   network  or   handset-based   technologies   to  provide  the
approximation  of the caller's  actual  location.  There is no requirement  that
dispatch  agencies   reimburse  provider  for  their  costs  of  deploying  such
technologies. 911 service must be made available to users with speech or hearing
disabilities,  but this  requirement  does not  apply to  providers  of  digital
wireless  services until 2002.  Finally,  wireless handsets capable of receiving
analog  signals  must be able to complete 911 calls using the  strongest  analog
signal  available  to the caller,  even if the caller does not  subscribe to the
carrier providing the strongest signal.  State actions incompatible with the FCC
rules are subject to preemption by the FCC.

         On  August  8,  1996,  the FCC  released  its  order  implementing  the
interconnection  provisions of the Telecommunications  Act. Although many of the
provisions  of this order were struck down by the U.S.  Court of Appeals for the
Eighth Circuit,  on January 25, 1999, the U.S. Supreme Court reversed the Eighth
Circuit and upheld the FCC in all respects  material to our operations.  On June
10, 1999, the Eighth Circuit issued an order requesting briefs on certain issues
it did not  address in its  earlier  order,  including  the  pricing  regime for
interconnection.  While  appeals have been  pending,  the rationale of the FCC's
order has been  adopted by many states'  public  utility  commissions,  with the
result that the charges that  cellular  and PCS  operators  pay to  interconnect
their  traffic  to  the  public   switched   telephone   network  have  declined
significantly  from pre-1996  levels.  In July 2000, the Eighth Circuit rejected
certain aspects of the FCC's pricing  methodology,  but stayed its order pending
appeal by affected parties to the U.S. Supreme Court. The U.S. Supreme Court has
agreed to review this case.

         In  its   implementation  of  the   Telecommunications   Act,  the  FCC
established federal universal service requirements that affect commercial mobile
radio service operators.  Under the FCC's rules, commercial mobile radio service
providers are potentially  eligible to receive  universal  service subsidies for
the first time;  however,  they are also  required to  contribute to the federal
universal  service  fund and can be required to  contribute  to state  universal
funds.  Many states are moving forward to develop state  universal  service fund
programs. A number of these state funds require  contributions,  varying greatly
from state to state, from commercial mobile radio service  providers.  The FCC's
universal  service order was modified on appeal in the U.S. Court of Appeals for
the Fifth Circuit.  The court's ruling has had the effect of reducing commercial
mobile  radio  service  provider  support  payments  required  for  the  federal
universal  service  programs.  The U.S.  Supreme Court has agreed to address the
constitutionality  of the FCC's  universal  service  order,  in particular as it
affects the amount of funds to which  telephone  companies  are entitled to help
defray the costs of providing basic telephone service. The Court's determination
may also affect the FCC's interconnection pricing methodology.

         On August 1, 1996,  the FCC released a report and order  expanding  the
flexibility of cellular, PCS and other commercial mobile radio service providers
to provide fixed as well as mobile services.  These fixed services include,  but

<PAGE>

need not be limited to, wireless local loop services,  for example, to apartment
and office buildings, and wireless backup services to private branch exchange or
switchboards  and local area networks,  to be used in the event of interruptions
due to weather or other  emergencies.  If the fixed  services are provided as an
ancillary  service to a carrier's  mobility  services,  the FCC has decided that
such fixed services should be regulated as commercial mobile radio services. The
FCC declined to render a prospective  ruling on how fixed services provided on a
co-primary basis with mobility services should be regulated or if they should be
subjected  to  universal  service  obligations.  Rather,  it has  announced  its
intention  to decide  such  matters on a  case-by-case  basis  depending  on the
characteristics  of a  provider's  fixed  service  offering.  The FCC  has  been
presented  with one such case,  but has not yet ruled on it. It is unclear  what
effect, if any, such a ruling would have on the business of AT&T Wireless Group.

         The FCC has adopted  rules on telephone  number  portability  that will
enable  customers to migrate their  landline and cellular  telephone  numbers to
cellular or PCS providers and from a cellular or PCS provider to another service
provider. On February 8, 1999, the FCC extended the deadline for compliance with
this requirement to November 24, 2002,  subject to any later  determination that
number portability is necessary to conserve telephone numbers.  The FCC has also
adopted rules requiring  cellular and PCS providers to provide certain functions
to facilitate  electronic  surveillance by law enforcement officials by June 30,
2000. Carriers must be able to provide additional  surveillance  capabilities by
September 30, 2001.  AT&T Wireless  Group has sought  permission  for a flexible
deployment schedule from the FCC. The FCC has not ruled on the request and there
can be no assurance that the FCC will grant the request. In addition,  in August
2000, the U.S. Court of Appeals for the District of Columbia Circuit invalidated
some of these  rules and  remanded  them to the FCC for  further  consideration.
Various other petitions are pending before the FCC seeking suspension or further
extensions of the deadlines applicable to providing  surveillance  capabilities.
It is not known how the FCC will  revise  its rules or  whether  it will  extend
either or both of the  compliance  deadlines or what the scope of penalties  for
failing to comply may be.

         In 1997, the FCC determined  that the rate  integration  requirement of
the  Communications  Act applies to the  interstate,  interexchange  services of
commercial mobile radio service providers.  Rate integration  requires a carrier
to provide  service  between the  continental  U.S. and offshore U.S. states and
territories  under the same rate  structure  applicable  to service  between two
points  in the  continental  U.S.  The FCC  delayed  implementation  of the rate
integration  requirements  with respect to wide area rate plans we offer pending
further  reconsideration  of its rules.  The FCC also delayed the requirement to
integrate  commercial  mobile radio service long distance rates among commercial
mobile radio service  affiliates.  On December 31, 1998, the FCC reaffirmed,  on
reconsideration,   that  its  interexchange  rate  integration  rules  apply  to
interexchange  commercial  mobile radio service  services.  The FCC announced it
would initiate a further  proceeding to determine how  integration  requirements
apply to typical commercial mobile radio service  offerings,  including one-rate
plans.  In July 2000,  the U.S.  Court of Appeals  for the  District of Columbia
Circuit  reversed the FCC's holding that the  Communications  Act  unambiguously
extends rate integration to providers of commercial  mobile services.  The court
remanded the matter to the FCC for further consideration.  Pending conclusion of
this further  proceeding,  the rate  integration  requirement  does not apply to
commercial  mobile services.  To the extent that AT&T Wireless Group is required
to offer  services  subject  to the FCC's  rate  integration  requirements,  its
pricing  flexibility  will be  reduced.  We cannot  assure you that the FCC will
decline  to impose  rate  integration  requirements  on AT&T  Wireless  Group or
decline to require it to integrate  its  commercial  mobile  radio  service long
distance rates across its commercial mobile radio service affiliates.
<PAGE>

         In  1998,  the FCC  adopted  new  rules  limiting  the use of  customer
proprietary  network information by  telecommunications  carriers in marketing a
broad range of telecommunications  and other services to their customers and the
customers of affiliated companies.  The rules were struck down by the U.S. Court
of Appeals  for the Tenth  Circuit  in 1999,  and their  effectiveness  has been
stayed pending the court's review of a petition to the FCC for  reconsideration.
Even if the rules are  reinstated,  AT&T Wireless Group does not anticipate that
they will result in a  significant  adverse  impact on its  financial  position,
results of operation or liquidity.

         State commissions have become increasingly  aggressive in their efforts
to conserve numbering resources. Examples of state conservation methods include:
number  pooling,  number  rationing  and code  sharing.  A number of states have
petitioned the FCC for authority to adopt  "technology  specific"  overlays that
would require wireless  providers to obtain telephone  numbers out of a separate
area  code  and may  require  wireless  providers  to  change  their  customers'
telephone  numbers.  These  efforts may impact  wireless  service  providers  by
imposing additional costs or limiting access to numbering resources.

         The   FCC   has   adopted   detailed   billing   rules   for   landline
telecommunications  service  providers  and  applied a number of these  rules to
commercial  mobile radio  services  providers.  The FCC is  considering  whether
carriers  that  decide  to  pass  through  their  mandatory   universal  service
contributions   to  their  customers  should  be  required  to  provide  a  full
explanation  of the program,  and whether to ensure that the carriers  that pass
through their  contribution  do not recover amounts greater than their mandatory
contributions  from their  customers.  Adoption  of some of the FCC's  proposals
could increase the complexity of our billing  processes and restrict our ability
to bill customers for services in the most commercially advantageous way.

         The FCC has  adopted  an  order  that  determines  the  obligations  of
telecommunications  carriers to make their  services  accessible to  individuals
with disabilities.  The order requires  telecommunications services providers to
offer  equipment and services that are accessible to and useable by persons with
disabilities.  While the rules exempt  telecommunications  carriers from meeting
general  disability  access   requirements  if  such  results  are  not  readily
achievable,  it is not clear how liberally the FCC will construe this exemption.
Accordingly, the rules could require us to make material changes to our network,
product line, or services at our expense.

         In June 1999, the FCC initiated an administrative rulemaking proceeding
to help  facilitate  the offering of calling party pays as an optional  wireless
service.  Under the calling party pays service,  the party placing the call to a
wireless customer pays the wireless airtime charges.  Most wireless customers in
the United States now pay both to place calls and to receive them. Adoption of a
calling  party pays system on a widespread  basis could make  commercial  mobile
radio   service   providers   more   competitive   with   traditional   landline
telecommunications providers for the provision of regular telephone service.

         The FCC has adopted  rules  specifying  standards and the methods to be
used in evaluating  radiofrequency  emissions  from radio  equipment,  including
network  equipment and handsets used in connection with commercial  mobile radio
service.  These rules were upheld on appeal by the U.S. Court of Appeals for the
Second Circuit.  The U.S.  Supreme Court declined to review the Second Circuit's
ruling.  AT&T Wireless  Group's network  facilities and the handsets it sells to
customers comply with these standards.
<PAGE>

         Media reports have suggested that some radio  frequency  emissions from
wireless  handsets may be linked to health concerns,  including the incidence of
cancer.  Although some studies have suggested that radio frequency emissions may
cause certain  biological  effects,  all of the expert reviews conducted to date
have  concluded  that the evidence does not support a finding of adverse  health
effects  but that  further  research is  appropriate.  Earlier  this year,  CTIA
entered into a Cooperative  Research and  Development  Agreement to sponsor such
research.

         Studies have shown that some hand-held digital telephones may interfere
with some medical devices,  including  hearing aids and pacemakers.  The FDA has
recently issued guidelines for the use of wireless phones by pacemaker  wearers.
Additional  studies are  underway to evaluate and improve the  compatibility  of
hearing aids and digital wireless phones.

         State and local regulation

         State and local governments are preempted from regulating either market
entry by, or the rates of, wireless  operators.  However,  state governments can
regulate other terms and conditions of wireless  service and several states have
imposed,  or have  proposed  legislation  that  will  impose,  various  consumer
protection regulations on the wireless industry. As noted above, States also may
impose  their own  universal  service  support  regimes  on  wireless  and other
telecommunications   carriers,  similar  to  the  requirements  that  have  been
established by the FCC and have been delegated  certain  authority by the FCC in
the area of number allocation and administration.  At the local level,  wireless
facilities  typically  are subject to zoning and land use  regulation.  However,
under the federal  Telecommunications  Act, neither local nor state  governments
may  categorically  prohibit  the  construction  of wireless  facilities  in any
community or  unreasonably  discriminate  against a carrier.  Numerous State and
local  jurisdictions  have considered  imposing  conditions on a driver's use of
wireless  technology  while  operating a motor vehicle,  and a few have actually
done so.

Cable Regulation and Legislation

         The operation of cable television  systems is extensively  regulated by
the  FCC,   some   state   governments   and   most   local   governments.   The
Telecommunications  Act altered the regulatory  structure governing the nation's
telecommunications  providers.  It removes  barriers to  competition in both the
cable television market and the local telephone  market.  Among other things, it
reduces the scope of cable rate regulation.

         The  Telecommunications  Act  required  the FCC to  implement  numerous
rulemakings,  some of which are still  subject  to court  challenges.  Moreover,
Congress and the FCC have frequently  revisited the subject of cable  television
regulation and may do so again.  Future legislative and regulatory changes could
adversely affect AT&T Broadband's  operations.  This section briefly  summarizes
key laws and  regulations  currently  affecting the growth and operation of AT&T
Broadband's cable systems.

         Cable Rate Regulation

         The 1992 Cable Act imposed an extensive rate  regulation  regime on the
cable  television  industry,  which  limited the ability of cable  companies  to
increase subscriber fees. Under that regime, all cable systems were subjected to
rate  regulation,  unless  they  face  "effective  competition"  in their  local
franchise  area.   Federal  law  now  defines   "effective   competition"  on  a
community-specific  basis as requiring  satisfaction of conditions not typically
satisfied in the current marketplace.
<PAGE>

         Although the FCC  establishes  all cable rate rules,  local  government
units  (commonly  referred to as local  franchising  authorities  or "LFAs") are
primarily  responsible for  administering  the regulation of the lowest level of
cable - the basic service tier ("BST"), which typically contains local broadcast
stations and PEG access channels.  Before an LFA begins BST rate regulation,  it
must certify to the FCC that it will follow  applicable  federal rules, and many
LFAs have  voluntarily  declined  to  exercise  this  authority.  LFAs also have
primary  responsibility for regulating cable equipment rates. Under federal law,
charges for various types of cable  equipment  must be unbundled from each other
and from monthly charges for programming services, and priced no higher than the
operator's actual cost, plus an 11.25% rate of return.

         The  FCC  historically   administered  rate  regulation  of  any  cable
programming service tiers ("CPST"), which typically contain  satellite-delivered
programming.  Under the Telecommunications  Act, however, the FCC's authority to
regulate CPST rates sunset on March 31, 1999.

         Cable Entry Into Telecommunications

         The  Telecommunications  Act  provides  that no state or local  laws or
regulations  may  prohibit  or have the effect of  prohibiting  any entity  from
providing any interstate or intrastate  telecommunications  service.  States are
authorized,  however, to impose "competitively  neutral" requirements  regarding
universal  service,  public safety and welfare,  service  quality,  and consumer
protection.  State and local  governments  also retain their authority to manage
the public  rights-of way.  Although the  Telecommunications  Act clarifies that
traditional  cable  franchise fees may be based only on revenues  related to the
provision of cable television  services,  it also provides that LFAs may require
reasonable,  competitively  neutral  compensation  for  management of the public
rights-of-way  when cable  operators  provide  telecommunications  service." The
Telecommunications  Act prohibits LFAs from requiring cable operators to provide
telecommunications  service or facilities  as a condition of a franchise  grant,
renewal  or  transfer,  except  that  LFAs  argue  they can seek  "institutional
networks" as part of such franchise negotiations.  The favorable pole attachment
rates  afforded  cable  operators  under federal law can be increased by utility
companies  owning the poles during a five year phase-in period beginning in 2001
if the cable  operator  provides  telecommunications  service,  as well as cable
service,  over its plant. The FCC clarified that a cable operator's provision of
cable Internet  service does not affect the favorable  pole rates,  but a recent
decision by the Eleventh  Circuit Court of Appeals  disagreed and suggested that
Internet  traffic is neither  cable service nor  telecommunications  service and
might leave cable  attachments  that carry Internet  traffic  ineligible for the
federal rate  structure.  This decision could lead to  substantial  increases in
pole attachment rates, and certain utilities have already proposed vastly higher
pole attachment  rates based in part on the existing court decision.  The United
States  Supreme  Court is now  reviewing  this  decision.  The Eleventh  Circuit
mandate has been stayed  pending  Supreme Court  action,  and a variety of cable
operators,  including AT&T  Broadband,  are challenging  certain  increased pole
attachment rates at the FCC.

         Cable entry into  telecommunications will be affected by the regulatory
landscape  now being  fashioned  by the FCC and state  regulators.  One critical
component of the  Telecommunications Act intended to facilitate the entry of new
telecommunications  providers (including cable operators) is the interconnection
obligation  imposed  on all  telecommunications  carriers.  This  requires,  for
example,  that the incumbent  local  telephone  company must allow new competing
telecommunications  providers  to  connect to the local  telephone  distribution
system. A number of implementation details are subject to ongoing regulatory and
judicial review, but the basic requirement is now well established.
<PAGE>

         Cable Systems Providing Internet Service

         Although there is at present no significant federal regulation of cable
system delivery of Internet services, and the Federal Communications  Commission
recently  issued  several  reports  finding  no  immediate  need to impose  such
regulation,  this situation may change as cable systems  expand their  broadband
delivery of Internet  services.  In particular,  proposals have been advanced at
the Federal  Communications  Commission  and Congress  that would  require cable
operators to provide  access to  unaffiliated  Internet  service  providers  and
online  service  providers.  The Federal Trade  Commission  and the FCC recently
imposed  certain open access  requirements  on Time Warner and AOL in connection
with their  merger,  but those  requirements  are not  applicable to other cable
operators.  Some states and local  franchising  authorities  are considering the
imposition of mandatory Internet access  requirements as part of cable franchise
renewals or transfers. In June 2000, the Ninth Circuit Court of Appeals rejected
an attempt by the City of Portland,  Oregon to impose mandatory  Internet access
requirements  on the local  cable  operator.  AT&T  Broadband  has  commenced  a
technical and operational  trial to test how multiple Internet service providers
can offer  high-speed,  always-on  cable  Internet  service  over a hybrid fiber
coaxial network.

         Telephone Company Entry Into Cable Television

         The  Telecommunications  Act  allows  telephone  companies  to  compete
directly with cable operators by repealing the historic telephone  company/cable
company cross-ownership ban and the FCC's video dial tone regulations. This will
allow LECs, including the RBOCs, to compete with cable operators both inside and
outside their telephone service areas. Because of their resources, LECs could be
formidable  competitors to traditional  cable  operators,  and certain LECs have
begun offering cable service.

         Under the Telecommunications Act, a LEC or other entity providing video
programming  to  customers  will be regulated as a  traditional  cable  operator
(subject to local franchising and federal  regulatory  requirements),  unless it
elects to provide its  programming  via an "open video system"  ("OVS").  It was
anticipated  that the primary  benefit of using an OVS  regulatory  model was to
avoid the need to obtain a local franchise prior to providing services. However,
a January 1999 federal court of appeals  decision held that OVS providers can be
required to obtain such a franchise. To be eligible for OVS status, the provider
cannot occupy more than one-third of the system's activated channels when demand
for channels  exceeds  supply.  Nor can it  discriminate  among  programmers  or
establish unreasonable rates, terms or conditions for service.

         Although LECs and cable operators can now expand their offerings across
traditional service boundaries,  the general  prohibitions remain on LEC buyouts
(i.e., any ownership interest  exceeding10 percent) of co-located cable systems,
cable operator buyouts of co-located LEC systems, and joint ventures among cable
operators and LECs in the same market. The Telecommunications Act provides a few
limited exceptions to this buyout prohibition.

         Electric Utility Entry Into
Telecommunications/Cable Television

         The  Telecommunications  Act provides that  registered  utility holding
companies and subsidiaries may provide telecommunications services,  information
services, and other services or products subject to the jurisdiction of the FCCs
notwithstanding  the public Utilities  Holding Company Act.  Electric  utilities
must  establish  separate  subsidiaries,  known  as  "exempt  telecommunications
companies" and must apply to the FCC for operating authority.  Again, because of
their  resources,   electric  utilities  could  be  formidable   competitors  to
traditional cable systems.
<PAGE>

         Cable Television Ownership Restrictions

         Pursuant  to  the  1992  Cable  Act,   the  FCC   adopted   regulations
establishing  a 30%  limit  on the  number  of  multichannel  video  subscribers
(including cable and DBS subscribers) nationwide that a cable operator may reach
through  cable  systems  in which it holds  an  attributable  interest,  with an
increase to 35% if the additional cable systems are minority controlled. The FCC
stayed the effectiveness of its ownership limits pending judicial review.

         The  Federal  Communications  Commission  directly  addressed  the  30%
ownership rule (and the applicable ownership attribution  standards) in its June
2000  ruling on AT&T's  merger with  MediaOne.  The FCC allowed the merger to go
forward,  but required  AT&T to elect one of three  divestiture  options to come
into  compliance  with the 30% ownership cap.  Compliance (or  arrangements  for
compliance) is required by May, 2001.

         The FCC previously adopted  regulations  limiting carriage by the cable
operator  of  national  programming  services  in which that  operator  holds an
attributable  interest  to 40% of the  activated  channels  on each of the cable
operator's systems.  The rules provide for the use of two additional channels or
a 45% limit,  whichever is greater,  provided that the additional channels carry
minority  controlled  programming  services.  The regulations  also  grandfather
existing carriage  arrangements which exceed the channel limits, but require new
channel  capacity to be devoted to unaffiliated  programming  services until the
system achieves compliance with the regulations.  These channel occupancy limits
apply only up to75 activated  channels on the cable system, and the rules do not
apply to local or regional programming services.

         In March, 2001, the D.C. Circuit Court of Appeals struck down the rules
adopted by the FCC pertaining to ownership and programming carriage and remanded
the issues  back to the FCC for  further  review.  The impact of this  decision,
including its impact on the MediaOne Order, is not yet known.

         The   Telecommunications   Act  eliminates  statutory  restrictions  on
broadcast/cable     cross-ownership     (including    broadcast    network/cable
restrictions),  but leaves in place existing FCC regulations  prohibiting  local
cross-ownership   between   television   stations   and   cable   systems.   The
Telecommunications   Act  leaves  in  place  existing   restrictions   on  cable
cross-ownership  with SMATV and MMDS  facilities,  but lifts those  restrictions
where the cable operator is subject to effective  competition.  In January 1995,
however,  the FCC adopted  regulations  which permit cable  operators to own and
operate SMATV systems within their franchise area,  provided that such operation
is consistent with local cable franchise requirements.

         Must Carry/Retransmission Consent

         The 1992 Cable Act contains broadcast signal carriage requirements that
allow local commercial  television  broadcast stations to elect once every three
years between  requiring a cable system to carry the station  ("must  carry") or
negotiating for payments for granting  permission to the cable operator to carry
the station  ("retransmission  consent").  Less popular stations typically elect
must carry, and more popular stations  typically elect  retransmission  consent.
Must  carry  requests  can dilute  the  appeal of a cable  system's  programming
offerings,  and retransmission  consent demands may require substantial payments
or other  concessions  (e.g. a requirement  that the cable system also carry the
local broadcaster's  affiliated cable programming service).  Either option has a
potentially adverse effect on AT&T Broadband's  business.  The burden associated
with must-carry  obligations could dramatically increase if television broadcast

<PAGE>

stations proceed with planned  conversions to digital  transmissions  and if the
FCC  determines  that cable  systems  must carry  simultaneously  all analog and
digital  signals  transmitted by the television  stations  during the multi-year
transition in which a single broadcast license is authorized to transmit both an
analog and a digital signal.  The FCC tentatively  decided against imposition of
dual digital and analog must carry in a January  2001 ruling.  At the same time,
however,  it initiated further  fact-gathering  which ultimately could lead to a
reconsideration of that tentative conclusion.

         Access Channels

         LFAs can include franchise  provisions requiring cable operators to set
aside certain channels for non-commercial  public,  educational and governmental
("PEG") access programming.  Federal law also requires a cable system with 36 or
more  channels to designate a portion of its activated  channel  capacity (up to
15%) for commercial  leased access by  unaffiliated  third parties.  The FCC has
adopted  rules  regulating  the  terms,  conditions  and  maximum  rates a cable
operator  may charge for use of this  designated  channel  capacity,  but use of
commercial leased access channels has been relatively limited.

         "Anti-Buy Through" Provisions

         Federal law requires each cable system to permit  customers to purchase
premium  or  pay-per-view  video  programming  offered  by  the  operator  on  a
per-channel  or a per-program  basis without the necessity of subscribing to any
tier of service  (other than the basic service tier) unless the system's lack of
addressable  converter boxes or other technological  limitations does not permit
it to do so. The  statutory  exemption  for cable  systems  that do not have the
technological  capability  to comply  expires in October  2002,  but the FCC may
extend that period if deemed necessary.

         Access to Programming

         To  spur  the   development  of  independent   cable   programmers  and
competition  to  incumbent   cable   operators,   the  1992  Cable  Act  imposed
restrictions on the dealings between cable operators and cable  programmers.  Of
special  significance from a competitive  business  posture,  the 1992 Cable Act
precludes  satellite  video  programmers  affiliated  with cable  operators from
favoring  cable  operators  over  competing   multichannel   video   programming
distributors  (such as DBS and MMDS  distributors).  This  provision  limits the
ability of vertically  integrated satellite cable programmers to offer exclusive
programming  arrangements  to AT&T  Broadband.  Both  Congress  and the FCC have
considered  proposals  that would  expand the program  access  rights of cable's
competitors,   including  the  possibility  of  subjecting  both   terrestrially
delivered video  programming  and video  programmers who are not affiliated with
cable  operators to all program access  requirements.  Pursuant to the Satellite
Home  Viewer  Improvement  Act,  the  FCC  has  adopted  regulations   governing
retransmission  consent  negotiations  between broadcasters and all multichannel
video programming distributors, including cable and DBS.

         Inside Wiring; Subscriber Access

         Federal  Communications  Commission  rules  require an incumbent  cable
operator upon expiration of a multiple  dwelling unit service  contract to sell,
abandon, or remove "home run" wiring that was installed by the cable operator in
a multiple  dwelling  unit  building.  These inside wiring rules are expected to
assist  building  owners in their attempts to replace  existing cable  operators
with new  programming  providers  who are  willing to pay the  building  owner a

<PAGE>

higher  fee,  where  such  a fee  is  permissible.  The  Federal  Communications
Commission  has also proposed  abrogating all exclusive  multiple  dwelling unit
service agreements held by incumbent operators, but allowing such contracts when
held  by  new  entrants.  In  another  proceeding,  the  Federal  Communications
Commission has preempted  restrictions  on the deployment of private  antenna on
rental  property  within the  exclusive  use of a tenant,  such as balconies and
patios.  This Federal  Communications  Commission ruling may limit the extent to
which  multiple  dwelling  unit owners may enforce  certain  aspects of multiple
dwelling unit agreements  which otherwise  prohibit,  for example,  placement of
digital  broadcast  satellite  receiver antennae in multiple dwelling unit areas
under the exclusive  occupancy of a renter.  These developments may make it more
difficult  for AT&T  Broadband  to provide  service in  multiple  dwelling  unit
complexes.

         Other Regulations of the Federal Communications
Commission

         In addition to the Federal Communications  Commission regulations noted
above,  there are other  regulations  of the Federal  Communications  Commission
covering such areas as:

     o    equal  employment  opportunity  (currently  suspended as a result of a
          judicial  ruling),
     o    subscriber privacy,
     o    programming practices, including, among other things:

          (1)  syndicated program exclusivity,  which requires a cable system to
               delete  particular  programming  offered  by a distant  broadcast
               signal carried on the system which duplicates the programming for
               which  a  local   broadcast   station   has   secured   exclusive
               distribution  rights,  (2) network  program  nonduplication,  (3)
               local sports  blackouts,  (4) indecent  programming,  (5) lottery
               programming,   (6)   political   programming,   (7)   sponsorship
               identification,  (8) children's programming  advertisements,  and
               (9) closed captioning,

     o    registration of cable systems and facilities licensing,
     o    maintenance of various records and public inspection files,
     o    aeronautical frequency usage,
     o    lockbox availability,
     o    antenna structure notification,
     o    tower marking and lighting,
     o    consumer protection and customer service standards,
     o    technical standards,
     o    consumer electronics equipment compatibility, and
     o    emergency alert systems.

         The  Federal  Communications   Commission  recently  ruled  that  cable
customers  must be allowed to purchase cable  converters  from third parties and
established a multi-year phase-in during which security  functions,  which would
remain in the  operator's  exclusive  control,  would be  unbundled  from  basic
converter  functions,  which could then be satisfied by third party vendors. The
first phase implementation date was July 1, 2000. Compliance was technically and
operationally  difficult in some locations,  so AT&T Broadband and several other
cable  operators  filed a request at the FCC that the  requirement  be waived in
those systems.  The request  resulted in a temporary  deferral of the compliance
deadline for those systems.
<PAGE>

         The FCC recently  initiated  an inquiry to determine  whether the cable
industry's  future  provision  of  interactive  services  should be  subject  to
regulations  ensuring equal access and competition  among service  vendors.  The
inquiry,  which  grew out of the  Commission's  review  of the  AOL-Time  Warner
merger, is in its earliest stages.

         The Federal Communications  Commission has the authority to enforce its
regulations  through the imposition of substantial  fines, the issuance of cease
and desist orders and/or the imposition of other administrative  sanctions, such
as the  revocation  of  Federal  Communications  Commission  licenses  needed to
operate   certain   transmission   facilities  used  in  connection  with  cable
operations.

         Copyright

         Cable  television  systems are subject to federal  copyright  licensing
covering  carriage of television and radio  broadcast  signals.  In exchange for
filing  certain  reports and  contributing  a percentage  of their  revenue to a
federal  copyright royalty pool (such percentage varies depending on the size of
the  system and the number of distant  broadcast  television  signals  carried),
cable operators can obtain blanket permission to retransmit copyrighted material
on  broadcast  signals.  The  possible   modification  or  elimination  of  this
compulsory copyright license is subject to continuing review and could adversely
affect AT&T  Broadband's  ability to obtain desired  broadcast  programming.  In
addition,  the cable industry pays music licensing fees to Broadcast Music, Inc.
and the  American  Society  of  Composers,  Authors  and  Publishers.  Copyright
clearances for  nonbroadcast  programming  services are arranged through private
negotiations.

         State and Local Regulation

         Cable   television   systems   generally   are  operated   pursuant  to
nonexclusive  franchises  granted  by a  municipality  or  other  state or local
government  entity.  The  Telecommunications  Act clarified that the need for an
entity  providing cable services to obtain a local  franchise  depends solely on
whether the entity  crosses  public  rights of way.  Federal  law now  prohibits
franchise  authorities from granting  exclusive  franchises or from unreasonably
refusing to award  additional  franchises  covering an existing  cable  system's
service area. Cable franchises generally are granted for fixed terms and in many
cases are terminable if the franchisee fails to comply with material provisions.
Non-compliance  by the cable operator with franchise  provisions may also result
in monetary penalties.

         The  terms  and   conditions  of  franchises   vary   materially   from
jurisdiction  to  jurisdiction.  Each franchise  generally  contains  provisions
governing cable operations,  service rates,  franchise fees, system construction
and  maintenance  obligations,  system  channel  capacity,  design and technical
performance,  customer service standards,  and  indemnification  protections.  A
number of  states  subject  cable  television  systems  to the  jurisdiction  of
centralized  state  governmental  agencies.   Although  LFAs  have  considerable
discretion  in  establishing   franchise   terms,   there  are  certain  federal
limitations.  For example,  LFAs cannot insist on franchise fees exceeding 5% of
the system's gross revenue, cannot dictate the particular technology used by the
system,  and cannot  specify  video  programming  other than  identifying  broad
categories of programming.

         Federal law contains renewal  procedures  designed to protect incumbent
franchisees  against  arbitrary  denials  of  renewal.  Even if a  franchise  is

<PAGE>

renewed,  the  franchise  authority  may seek to  impose  new and  more  onerous
requirements  such  as  significant  upgrades  in  facilities  and  services  or
increased franchise fees and funding for PEG channels as a condition of renewal.
Similarly,  if a franchise  authority's  consent is required for the purchase or
sale of a cable system or franchise,  such  authority may attempt to impose more
burdensome or onerous  franchise  requirements  in connection with a request for
consent.  Historically,  franchises  have been renewed for cable  operators that
have  provided  satisfactory  services and have complied with the terms of their
franchises.

         Proposed Changes in Regulation

         The regulation of cable  television  systems at the federal,  state and
local levels is subject to the  political  process and has been in constant flux
over the past decade.  Material  changes in the law and regulatory  requirements
must be anticipated and there can be no assurance that AT&T Broadband's business
will  not be  affected  adversely  by  future  legislation,  new  regulation  or
deregulation.

COMPETITION

         Competition in long distance and local  telecommunications  services is
based on price and  pricing  plans,  the  types of  services  offered,  customer
service,  access to customer premises, and communications  quality,  reliability
and  availability,  as well as, for business  customers,  the ability to provide
high quality data communication services and technical support. AT&T's principal
competitors include  MCIWorldcom,  Inc., Sprint  Corporation,  the RBOCs and GTE
Corporation. AT&T also experiences significant competition in long distance from
a number  of newer  entrants,  such as  Qwest,  and a large  number  of  smaller
entities,   including  dial  around  resellers.   In  addition,   long  distance
telecommunications  providers have been facing competition from  non-traditional
sources, including as a result of technological substitutions,  such as Internet
telephony, e-mail, and wireless services.

                  The ILECs have very  substantial  capital and other resources,
long standing  customer  relationships  and extensive  existing  facilities  and
network  rights-of-way and are AT&T's primary  competitors in the local services
market.  Additionally,  a number of long distance  telecommunication,  wireless,
cable and other  service  providers  have entered the local  services  market in
competition  with AT&T.  Some of these  actual and  potential  competitors  have
substantial  financial  and other  resources.  AT&T also  competes  in the local
services  market  with a number of CLECs,  a few of which  have  existing  local
networks and significant financial resources.

         Competition for subscribers  among wireless service  providers is based
principally  upon the services  and features  offered,  call  quality,  customer
service,  system  coverage and price.  AT&T Wireless  Group's ability to compete
successfully  will depend,  in part, on its ability to anticipate and respond to
various competitive factors affecting the industry,  including new services that
may be introduced, changes in consumer preferences, demographic trends, economic
conditions  and  pricing  strategies.   Increased  competitive  pressures,   the
introduction or popularity of new products and services, including prepaid phone
products, as well as a general softening of the economy,  could adversely affect
our results,  increase our churn and decrease our average revenue per user. AT&T
Wireless Group's primary national  competitors are Cingular,  Verizon  Wireless,
Nextel Communications, Inc., VoiceStream Communications and Sprint PCS.
<PAGE>

         In addition, the wireless communications industry has been experiencing
significant  consolidation  and  the  AT&T  Wireless  Group  expects  that  this
consolidation will continue.  The previously  announced,  or recently completed,
mergers or joint  ventures of Bell  Atlantic/GTE/Vodafone  AirTouch  (now called
Verizon),  SBC/Bell  South/Ameritech  (now called  Cingular) have created large,
well-capitalized  competitors with substantial financial,  technical,  marketing
and other resources to respond to AT&T Wireless Group's offerings.  In addition,
in July 2000,  VoiceStream  Communications  and  Deutsche  Telekom  announced  a
proposed  transaction.  These  mergers or ventures  have  caused  AT&T  Wireless
Group's ranking to decline to third in U.S. revenue and U.S.  subscriber  share.
In terms of U.S.  population covered by licenses,  or POPs, AT&T Wireless Group,
including  partnerships  and  affiliates,   ranks  third.  As  a  result,  these
competitors may be able to offer nationwide  services and plans more quickly and
more  economically than the AT&T Wireless Group and to obtain roaming rates that
are more favorable than those obtained by AT&T Wireless Group, and may be better
able to respond to offers of AT&T Wireless Group.

         AT&T  Wireless  Group's  cellular  operations  have always  experienced
direct  competition from the second cellular licensee in each market.  Beginning
in 1997, AT&T Wireless Group began experiencing  competition from as many as six
license  holders in certain  markets.  Competition  from new  providers  in AT&T
Wireless  Group's  markets will  continue to increase as the networks of license
holders  are built out over the next  several  years.  In  addition,  the FCC is
likely to offer  additional  spectrum for wireless mobile licenses in the future
using existing or new technologies.

                  Cable television  competes for customers in local markets with
other providers of entertainment, news and information. The competitors in these
markets include broadcast television and radio, newspapers,  magazines and other
printed material,  motion picture theatres, video cassettes and other sources of
information and entertainment  including  directly  competitive cable television
operations  and  internet  service  providers.  The Cable Acts are  designed  to
increase  competition in the cable  television  industry.  There are alternative
methods of distributing the same or similar video  programming  offered by cable
television  systems.  These include direct  broadcast  satellite,  known as DBS,
(allowing the subscriber to receive video services  directly via satellite using
a relatively  small dish),  telephone  networks  (whether it is through wireless
cable, or through upgraded telephone networks),  utility company networks,  MMDS
(which  deliver  programming   services  over  microwave  channels  received  by
customers with special antennas),  competitive,  non-exclusive franchises,  city
provided  cable  services,  SMATV systems (which  provide  multichannel  program
services directly to hotel, motel, apartment, condominium and similar multi-unit
complexes within a cable television  system's franchise area,  generally free of
any  regulation  by state and local  governmental  authorities).  In addition to
competition for customers, the cable television industry competes with broadcast
television,  radio,  the print  media  and  other  sources  of  information  and
entertainment for advertising revenue. Additionally, as AT&T Broadband begins to
offer new services such as high speed  Internet  access and telephone  services,
there will be significant  competition  from both the local telephone  companies
and new providers of such services.

         DBS has emerged as significant  competition  to cable systems.  The DBS
industry has grown rapidly over the last several years, far exceeding the growth
rate of the cable television  industry,  and now serves approximately 14 million
subscribers   nationwide  DBS  companies   historically   were  prohibited  from
retransmitting popular local broadcast programming, but a change to the existing
copyright laws in November 1999 eliminated this legal impediment.  DBS companies
now need to secure  retransmission  consent from the popular broadcast  stations

<PAGE>

they wish to carry,  and they will face mandatory  carriage  obligations of less
popular  broadcast  stations as of January 2002. In response to the legislation,
DirecTV,  Inc.  and  EchoStar  Communications  Corporation  already  have  begun
carrying the major network stations in the nation's top television markets. DBS,
however,  is  limited in the local  programming  it can  provide  because of the
current capacity limitations of satellite technology. It is, therefore, expected
that DBS companies  will offer local  broadcast  programming  only in the larger
U.S. markets for the foreseeable  future.  The DBS industry recently initiated a
judicial  challenge  to the  statutory  requirement  mandating  carriage of less
popular broadcast stations. This lawsuit alleges that the must carry requirement
(similar to the one already  applicable to cable  systems) is  unconstitutional.
EchoStar began providing  high-speed  Internet access in late 2000, and DirecTV,
who has partnered with AOL, reports that it will begin providing its own version
of  high-speed   Internet  access  shortly.   These  developments  will  provide
significant new competition to AT&T Broadband's  offering of high speed Internet
access.

         AT&T currently faces significant competition and expects that the level
of  competition  will  continue to  increase.  As  competitive,  regulatory  and
technological    changes   occur,    including    those    occasioned   by   the
Telecommunications Act, AT&T anticipates that new and different competitors will
enter and expand their positions in the communications  services markets.  These
may include entrants from other segments of the  communications  and information
services  industry  or  global  competitors   seeking  to  expand  their  market
opportunities.  Many such new  competitors  are  likely  to enter  with a strong
market  presence,   well  recognized  names  and  pre-existing  direct  customer
relationships.  The  Telecommunications Act has already had a significant impact
on the competitive environment.  Anticipating changes in the industry,  non-RBOC
LECs,  which  are  not  required  to  implement  the  Telecommunications   Act's
competitive  checklist  prior to offering  long  distance in their home markets,
have integrated  their local service  offerings with long distance  offerings in
advance  of AT&T  offering  combined  local and long  distance  service in these
areas,  and continue to adversely  affect AT&T's  revenues and earnings in these
service regions.

         In  addition,  the  Telecommunications  Act  permits  RBOCs to  provide
interLATA  interexchange  services  after  demonstrating  to the FCC  that  such
provision is in the public  interest,  and that it has satisfied 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  market;  to date the FCC has
granted four of these petitions. In December 1999, Verizon became the first RBOC
to  obtain  approval  to  provide  long  distance  in a state  within  its  home
territory,  in New York.  The FCC authorized  SBC  Communications,  Inc.'s Texas
application in April 2000. More recently, in February 2001, the FCC approved SBC
applications in Kansas and Oklahoma.

         To the  extent  that the RBOCs  obtain  in-region  interLATA  authority
before the  Telecommunications  Act's checklist of conditions have 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  could

<PAGE>

adversely  affect  AT&T's  future  revenue  and  earnings.  In  any  event,  the
simultaneous entrance of numerous new competitors for interexchange and combined
service  packages is likely to  adversely  affect  AT&T's  future long  distance
revenue  and  could  adversely   affect  future  earnings.   In  addition,   the
substitution  of data and  Internet  services  for voice  services  is likely to
depress earnings because of the smaller margin these services contain.

         Furthermore, in February 1997, a General Agreement on Trade in Services
(GATS) was reached under the World Trade  Organization.  The GATS,  which became
effective  January  1,  1998,  is  designed  to  open  each  country's  domestic
telecommunications  markets to foreign  competitors.  The GATS, and future trade
agreements,  may  accelerate  the  entrance  into the  U.S.  market  of  foreign
telecommunications  providers,  certain of whom are  likely to possess  dominant
home market positions in which there is not effective competition.  The GATS may
also  permit  AT&T's  entrance  into  other  markets  as only a small  number of
countries refused to eliminate their foreign ownership restrictions.

         In addition to the matters  referred to above,  various other  factors,
including technological hurdles,  market acceptance,  start-up and ongoing costs
associated  with  the  provision  of  new  services  and  local  conditions  and
obstacles, could adversely affect the timing and success of AT&T's entrance into
the local exchange  services market and AT&T's ability to offer combined service
packages that include local service.

EMPLOYEES

         At December 31, 2000 AT&T employed approximately 166,000 persons in its
operations, approximately 97% of whom are located domestically. About 22% of the
domestically  located  employees of AT&T are represented by unions.  Of those so
represented,  about 94% are represented by the Communications Workers of America
(CWA),  which is  affiliated  with the  AFL-CIO;  about 5% by the  International
Brotherhood of Electrical  Workers  (IBEW),  which is also  affiliated  with the
AFL-CIO.  In addition,  there is a very small  remainder  of domestic  employees
represented by other unions.  Labor  agreements with most of these unions extend
through May 2002.

         Of AT&T's employees,  approximately 29,000 persons were employed by the
AT&T Wireless Group in its operations,  virtually all of whom are located in the
United States.

SEGMENT, OPERATING REVENUE AND RESEARCH AND DEVELOPMENT
EXPENSE INFORMATION

         For information about the Company's  research and development  expense,
see Note 3 to the Consolidated  Financial  Statements included in Item 8 to this
Annual  Report.  For  information  about  the  consolidated  operating  revenues
contributed  by the Company's  major  classes of products and services,  see the
revenue tables and descriptions  following the caption "Segment  Results" in the
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations included in Item 7.

LIBERTY MEDIA GROUP

         The economic  performance  of the Liberty  Media Group are reflected in
the Liberty Media Group tracking stock. A description of the Liberty Media Group
is included as Exhibit (99)b to this Form 10-K.

<PAGE>

SPECIAL CONSIDERATIONS

         Investors should  carefully  consider the following  factors  regarding
their investment in AT&T Corp. securities,  including AT&T Common Stock and AT&T
Wireless Group Tracking Stock.

SPECIAL  CONSIDERATIONS  RELATING TO THE FACT THAT AT&T WIRELESS  GROUP TRACKING
STOCK IS A TRACKING STOCK

The market price of AT&T Common Stock,  AT&T Wireless  Group  tracking stock and
Liberty Media Group tracking stock may not reflect the financial performance and
economic  value of each  groups as we intend and may not  effectively  track the
separate performance of each group

         The market price of AT&T Common  Stock,  AT&T Wireless  Group  tracking
stock and Liberty  Media  Tracking  Stock may not in fact reflect the  financial
performance  and  economic  value of each  group as we  intend.  Holders of AT&T
Common  Stock,  AT&T  Wireless  Group  tracking  stock and  Liberty  Media Group
tracking  stock will continue to be common  shareholders  of AT&T Corp.  and, as
such,  will be subject to all risks  associated with an investment in AT&T Corp.
and all of its businesses, assets and liabilities. The performance of AT&T Corp.
as a whole may affect the market  price of each stock or the market  price could
more  independently  reflect  the  performance  of the  business  of each group.
Investors  may discount the value of each stock  because each group is part of a
common  enterprise  with the rest of the operations of AT&T Corp.  rather than a
stand-alone entity.

Holders of AT&T common stock,  AT&T Wireless  Group  tracking  stock and Liberty
Media Group  tracking  stock are  shareholders  of one company  and,  therefore,
financial impacts on one group could affect the other groups

         Holders of AT&T common stock,  AT&T Wireless  Group  tracking stock and
Liberty Media Group  tracking stock are all common  shareholders  of AT&T Corp.,
and are subject to risks  associated  with an investment in a single company and
all of AT&T  Corp.'s  businesses,  assets  and  liabilities.  Financial  effects
arising  from one  group  that  affect  AT&T  Corp.'s  consolidated  results  of
operations or financial  condition  could, if  significant,  affect the combined
results of  operations  or financial  position of the other groups or the market
price of the class of common shares  relating to the other groups.  In addition,
if AT&T Corp. or any of its subsidiaries were to incur significant  indebtedness
on behalf of a group,  including  indebtedness incurred or assumed in connection
with an  acquisition  or  investment,  it could affect the credit rating of AT&T
Corp. and its subsidiaries. This, in turn, could increase the borrowing costs of
the  other  groups  and AT&T  Corp.  as a whole.  Net  losses  of any  group and
dividends or  distributions  on shares of any class of common or preferred stock
will  reduce the funds of AT&T Corp.  legally  available  for  payment of future
dividends on each of AT&T common stock,  AT&T Wireless  Group tracking stock and
Liberty Media Group tracking  stock.  For these reasons,  you should read AT&T's
consolidated  financial  information together with the financial  information of
AT&T Wireless Group and Liberty Media Group.

 The  complex  nature of the terms of AT&T  Wireless  Group  tracking  stock and
Liberty Media Group tracking stock, or confusion in the marketplace about what a
tracking  stock is, could  adversely  affect the market  prices of AT&T Wireless
Group tracking stock or Liberty Media Group tracking stock

         Tracking  stocks,  like AT&T Wireless  Group tracking stock and Liberty
Media Group tracking stock, are more complex than  traditional  common stock and

<PAGE>

are not directly comparable to common stock of companies that have been spun off
by their  parent  companies.  The  complex  nature of the terms of the  tracking
stock, and the potential  difficulties investors may have in understanding these
terms, may adversely affect the market price of such tracking stock. Examples of
these terms include:

     o    discretion  of  AT&T's  board  of  directors  to  make  determinations
          affecting AT&T Wireless Group tracking stock,

     o    redemption  and  conversion  rights  in the  event  AT&T  disposes  of
          substantially all the assets attributed to AT&T Wireless Group,

     o    ability  of AT&T to convert  shares of AT&T  Wireless  Group  tracking
          stock into shares of AT&T common stock, or

     o    voting rights of AT&T Wireless  Group  tracking  stock,  Liberty Media
          Group tracking stock and AT&T common stock.

     Confusion in the marketplace  about what a tracking stock is and what it is
intended  to  represent  could also  adversely  affect the market  price of AT&T
Wireless Group tracking stock and Liberty Media Group tracking stock.

Holders  of AT&T  Wireless  Group  tracking  stock  will have  limited  separate
shareholder rights, and will have no additional rights specific to AT&T Wireless
Group, including direct voting rights

         Holders of AT&T Wireless  Group  tracking  stock do not have any direct
voting rights in AT&T Wireless Group, except to the extent required under AT&T's
charter or by New York law. Separate meetings for holders of AT&T Wireless Group
tracking stock are not held.  When a vote is taken on any matter as to which all
of our common  shares are voting  together as one class,  any class or series of
our common shares that is entitled to more than the number of votes  required to
approve  the matter  being voted upon is in a position to control the outcome of
the vote on that matter.

     Currently:
     o    each share of AT&T common stock has one vote,
     o    each share of Class B Liberty Media Group  tracking stock has 0.375 of
          a vote,
     o    each share of Class A Liberty Media Group tracking stock has 0.0375 of
          a vote and
     o    each share of AT&T Wireless Group tracking stock has 0.5 of a vote.

         The  voting  power of each class is  subject  to  adjustment  for stock
splits,  stock dividends and  combinations,  including any  distribution of AT&T
Wireless Group tracking stock to holders of AT&T common stock.

There is no board of  directors or  committee  that owes any separate  fiduciary
duties to holders of tracking stock,  apart from those owed to AT&T shareholders
generally

         AT&T does not have a separate  board of directors  to represent  solely
the interests of the holders of AT&T Wireless  Group  tracking  stock or Liberty
Media Group tracking  stock.  Each of AT&T Corp.'s board of directors,  the AT&T
Wireless Group capital stock committee and the Liberty Media Group capital stock
committee owes fiduciary  duties to AT&T Corp. and its  shareholders as a whole.
Consequently, there is no separate board of directors or committee that owes any
separate duties to the holders of tracking stock.
<PAGE>

Until the split-off, AT&T Wireless Group will be controlled by AT&T

         Subject to fiduciary  duties,  our policy  statements and inter-company
agreements,  our  board  of  directors  could  make  operational  and  financial
decisions or implement policies that affect disproportionately the businesses of
a group. These decisions could include:

     o    allocation of financing opportunities in the public markets,
     o    allocation of business opportunities, resources and personnel, and
     o    transfers  of  services,  including  sales  agency,  resale  and other
          arrangements,  funds or assets  between  groups and other  inter-group
          transactions

that,  in each  case,  may be  suitable  for one or more  groups.  Any of  these
decisions may benefit one group more than the other groups.

         In addition, AT&T Wireless Group is, and may continue to be, subject to
AT&T Corp.'s existing  agreements or arrangements with third parties and consent
decrees, as well as new agreements or decrees.  These agreements or arrangements
or  decrees  currently  may  benefit  AT&T  Wireless  Group,  as in the  case of
purchasing  arrangements,  or may have the effect of limiting or  impairing  its
business  opportunities.  For example, AT&T and British  Telecommunications  plc
have  entered  into a joint  venture  agreement  for  the  provision  of  global
communications  services.  As part of that joint venture agreement,  among other
things,  AT&T  has  agreed  to  various   restrictions  on  its  businesses  and
activities,   including  non-competition  provisions  and  exclusive  purchasing
requirements, all of which apply to AT&T Wireless Group.

Holders of tracking stock may have potentially  diverging interests from holders
of other classes of AT&T Corp. capital stock

         The  existence of separate  classes of our common stock could give rise
to  occasions  when the  interests  of the  holders of AT&T common  stock,  AT&T
Wireless Group tracking stock and/or Liberty Media Group tracking stock diverge,
conflict or appear to diverge or conflict.  Examples include  determinations  by
AT&T Corp.'s board of directors to:

     o    set priorities for use of capital and debt capacity,
     o    pay or omit the  payment  of  dividends  on AT&T  common  stock,  AT&T
          Wireless Group  tracking stock or Liberty Media Group tracking  stock,
          except where such dividends are required,
     o    redeem shares of AT&T Wireless Group tracking stock for shares of AT&T
          common stock or stock of qualifying subsidiaries of AT&T Corp.,
     o    approve dispositions of assets attributed to any group,
     o    allocate the proceeds of issuances  of AT&T  Wireless  Group  tracking
          stock either to AT&T Common Stock Group with a corresponding reduction
          in the AT&T Common Stock Group's retained  portion,  if any, or to the
          equity of AT&T Wireless Group,
     o    formulate public policy positions for AT&T,
     o    establish material commercial relationships between groups, and
     o    make  operational  and financial  decisions  with respect to one group
          that could be considered to be detrimental to another group.

         In addition,  decisions  regarding  distribution  and other  commercial
arrangements  between  the groups may affect  costs,  service  alternatives  and
marketing  approaches  for each  group.  When  making  decisions  with regard to
matters that create potential diverging  interests,  our board of directors will
act in accordance with:
<PAGE>

     o    the terms of AT&T  Corp.'s  charter,  the AT&T  Wireless  Group policy
          statement,   the  Liberty   Media  Group  policy   statement  and  the
          inter-group  agreement  between AT&T and Liberty  Media  Group,  which
          governs the  relationship  between AT&T Common Stock Group and Liberty
          Media Group, to the extent applicable, and

     o    its fiduciary duties, which require our board of directors to consider
          the impact of these decisions on all shareholders of AT&T Corp.

     Our board of directors also could,  from time to time, refer to the Liberty
Media Group  capital stock  committee and the AT&T Wireless  Group capital stock
committee  matters  involving any conflict,  and have those committees report to
our board of  directors on those  matters or decide those  matters to the extent
permitted by AT&T's by-laws and applicable law.

AT&T's board of  directors  may redeem  tracking  stock in exchange for stock of
another subsidiary

         AT&T Corp.'s charter provides that AT&T Corp. may, at any time,  redeem
all  outstanding  shares of AT&T Wireless  Group tracking stock or Liberty Media
Group tracking stock in exchange for a specified number of outstanding shares of
common stock of a subsidiary of AT&T Corp. that satisfies  certain  requirements
under the Internal Revenue Code and that holds,  directly or indirectly,  all of
the assets and  liabilities  of such group.  This type of redemption may only be
made on a pro rata basis, and must be tax free to the holders of tracking stock,
except  with  respect to any cash that  holders  receive  in lieu of  fractional
shares.

         If we  complete  the  proposed  split-off  of AT&T  Wireless  Group and
Liberty Media Group in the manner we  contemplate,  our Board of Directors  will
use this redemption right to exchange all shares of AT&T Wireless Group tracking
stock for shares of AT&T Wireless Services and all shares of Liberty Media Group
tracking  stock  for  shares  of  Liberty  Media  Corporation.   In  this  case,
shareholders  of AT&T  Wireless  Group  tracking  stock and Liberty  Media Group
tracking stock would no longer be shareholders of AT&T but would be shareholders
of a AT&T Wireless Services or Liberty Media Corporation, respectively.

 A decision by AT&T Corp.'s  board of directors to dispose of assets  attributed
to AT&T Wireless Group could have an adverse impact on the trading price of AT&T
Wireless Group tracking stock

         Assuming AT&T Wireless Group's assets represent less than substantially
all of the  properties  and  assets  of AT&T  Corp.  as a  whole,  our  board of
directors  could,  in its sole  discretion  and  without  shareholder  approval,
approve sales and other  dispositions of any amount of the properties and assets
of AT&T Wireless Group because the New York Business  Corporation Law, or NYBCL,
requires  shareholder  approval only for a sale or other  disposition  of all or
substantially all of the properties and assets of all of AT&T Corp.

         However,  in the event of a disposition of all or substantially  all of
the properties and assets  attributed to AT&T Wireless Group,  generally defined
as 80% or more of the fair value of that group,  AT&T will be required under its
charter to:

     o    convert each  outstanding  share of AT&T Wireless Group tracking stock
          into shares of AT&T common stock at a 10% premium, or
<PAGE>

     o    distribute  cash and/or  securities,  other than AT&T common stock, or
          other  property  equal to the fair value of the net proceeds from that
          disposition allocable to AT&T Wireless Group tracking stock, either by
          special  dividend or by redemption  of all or part of the  outstanding
          shares of AT&T Wireless Group tracking stock, or

     o    take a combination  of the actions  described in the preceding  bullet
          points  whereby AT&T Corp.  would convert some shares of AT&T Wireless
          Group tracking stock into AT&T common stock at a 10% premium and pay a
          dividend on the remaining shares of AT&T Wireless Group tracking stock
          or redeem all or part of the remaining  shares of AT&T Wireless  Group
          tracking  stock for cash and/or  property equal to the fair value of a
          portion  of the net  proceeds  of the  disposition  allocable  to AT&T
          Wireless Group tracking stock.

         Our board of  directors is not required to select the option that would
result  in the  distribution  with  the  highest  value to the  holders  of AT&T
Wireless Group  tracking  stock.  In addition,  under New York law, our board of
directors  could  decline to dispose of AT&T  Wireless  Group  assets  even if a
majority of the holders of AT&T  Wireless  Group  tracking  stock request such a
disposition.

AT&T Corp.  may take  positions  on public  policy or  regulatory  matters  that
benefit one group more than another

         Because of the nature of the businesses of AT&T Common Stock Group, and
AT&T Wireless Group, the groups may have diverging  interests as to the position
AT&T Corp. should take with respect to various  regulatory  issues. For example,
FCC regulations  that may advance the interests of one group may not advance the
interests of the other groups.  Under the AT&T Wireless Group policy  statement,
we will resolve material matters involving  potentially divergent interests in a
manner that our board of  directors,  or the AT&T  Wireless  Group capital stock
committee,  determines to be in the best  interests of AT&T Corp. and all of our
common shareholders after giving fair consideration to the potentially divergent
interests  and all other  relevant  interests  of the  holders  of the  separate
classes of our common shares.  Nevertheless,  our board of directors  could take
positions on any given issue that may benefit one group more than another.

The fiduciary  duties of our board of directors to more than one class of common
stock are not clear under New York law

         Although  we are not  aware of any legal  precedent  under New York law
involving the fiduciary  duties of directors of corporations  having two or more
classes  of common  stock,  or  separate  classes  or series of  capital  stock,
principles of Delaware law established in cases involving differing treatment of
two  classes  of  capital  stock or two  groups of  holders of the same class of
capital  stock  provide  that a board of  directors  owes an  equal  duty to all
shareholders  regardless  of class or  series,  and  does not have  separate  or
additional  duties to either group of  shareholders.  Under these  principles of
Delaware law and the related  principle  known as the "business  judgment rule,"
absent  abuse  of  discretion,   a  good  faith  business  decision  made  by  a
disinterested and adequately informed board of directors,  or a committee of the
board of  directors,  with respect to any matter having  disparate  impacts upon
holders of AT&T common stock,  AT&T  Wireless  Group  tracking  stock or Liberty
Media  Group   tracking  stock  would  be  a  defense  to  any  challenge  to  a
determination  made by or on behalf of the  holders  of any class of our  common
shares.  Nevertheless,  a New York court hearing a case involving this type of a
challenge  may decide to apply  principles  of New York law  different  from the

<PAGE>

principles of Delaware law  discussed  above,  or may develop new  principles of
law, in order to decide that case. Any future  shareholder  litigation  over the
meaning  or  application  of the  terms of the  tracking  stock  or our  board's
policies  may be costly and time  consuming  to AT&T,  AT&T  Wireless  Group and
Liberty Media Group.

Our board of  directors  has the  ability  to control  inter-group  transactions
between AT&T Common Stock Group and AT&T Wireless Group

         Our board of  directors  may decide to transfer  funds or other  assets
between  groups.  Transfers  of assets  from  AT&T  Common  Stock  Group to AT&T
Wireless Group that our board of directors  designates as an equity contribution
by AT&T Common Stock Group to AT&T Wireless  Group will result in an increase in
AT&T Common Stock Group's retained portion of the value of AT&T Wireless Group.

         Under the AT&T Wireless Group policy statement, AT&T Common Stock Group
may make  loans  to AT&T  Wireless  Group at  interest  rates  and on terms  and
conditions  substantially  equivalent  to  the  interest  rates  and  terms  and
conditions  that AT&T Wireless Group would be able to obtain from third parties,
including the public markets,  as a non-affiliate of AT&T without the benefit of
any guaranty by AT&T or any member of AT&T Common Stock Group. The AT&T Wireless
Group policy  statement  contemplates  that these terms will apply regardless of
the  interest  rates and terms and  conditions  on which AT&T or members of AT&T
Common  Stock Group may have  acquired the subject  funds.  We  anticipate  that
interest  rates payable by AT&T  Wireless  Group  initially  will be higher than
those payable by AT&T or the AT&T Common Stock Group.

         Any  increase in AT&T Common  Stock  Group's  retained  portion of AT&T
Wireless Group  resulting from an equity  contribution,  or any decrease in that
retained portion  resulting from a transfer of funds from AT&T Wireless Group to
AT&T Common Stock Group,  would be determined  by reference to the  then-current
market  value  of AT&T  Wireless  Group  tracking  stock.  Such an  increase  or
decrease, however, could occur at a time when those shares are considered under-
or  over-valued  and such a decrease could occur at a time when those shares are
considered under- or over-valued.

Our board of directors  may change the AT&T Wireless  Group Policy  Statement or
our By-Laws without shareholder approval

         The AT&T  Wireless  Group  policy  statement  governs the  relationship
between AT&T Common Stock Group and AT&T Wireless Group and AT&T Corp.'s by-laws
create a capital stock committee that oversees the  interaction  between the two
groups.  Our board of directors may modify,  suspend or rescind the policies set
forth in the policy  statement or make  additions or  exceptions to them, in the
sole discretion of our board of directors, without approval of our shareholders,
although there is no present intention to do so. Our board of directors may also
adopt  additional  policies,  depending  upon the  circumstances.  AT&T  Corp.'s
by-laws  may  similarly  be  modified,  suspended  or  rescinded.  Our  board of
directors  would  make any  determination  to modify,  suspend or rescind  these
policies  or our  by-laws,  or to make  exceptions  to them or adopt  additional
policies or by-laws,  including any decision that would have  disparate  impacts
upon holders of AT&T common stock and AT&T Wireless Group tracking  stock,  in a
manner  consistent with its fiduciary duties to AT&T Corp. and all of our common
shareholders  after  giving  fair  consideration  to the  potentially  divergent
interests  and all other  relevant  interests  of the  holders  of the  separate
classes of our common shares,  including the holders of AT&T common stock,  AT&T
Wireless Group tracking stock and Liberty Media Group tracking stock.
<PAGE>

It will be difficult  for a third party to acquire AT&T  Wireless  Group without
AT&T Corp.'s consent

         If  AT&T  Wireless  Group  were  an  independent   entity,  any  person
interested in acquiring it without  negotiation  with our management  could seek
control of the  outstanding  stock of that entity by means of a tender  offer or
proxy  contest.  Although AT&T Wireless  Group  tracking stock is a class of our
common shares that is intended to reflect the financial performance and economic
value of AT&T  Wireless  Group,  a person  interested  in  acquiring  only  AT&T
Wireless Group without  negotiation  with our management still would be required
to seek  control  of the  voting  power  represented  by all of the  outstanding
capital stock of AT&T Corp. entitled to vote on that acquisition,  including the
classes of common  shares  related to the other  groups.  As a result,  this may
discourage  potential  interested  bidders from seeking to acquire AT&T Wireless
Group.

Future sales of AT&T Wireless  Group  tracking stock and AT&T common stock could
adversely affect their respective market prices and the ability to raise capital
in the future

         Sales of substantial  amounts of AT&T Wireless  Group  tracking  stock,
including  any sale by AT&T of AT&T Wireless  Services  shares it retains in the
split-off,  and AT&T  common  stock in the public  market  could hurt the market
price of AT&T Wireless Group tracking stock. This also could hurt AT&T's ability
to raise capital in the future. The shares of AT&T Wireless Group tracking stock
that we sold to the  public in April  2000 and the shares  AT&T  Wireless  Group
tracking stock to be issued in the exchange offer AT&T expects to conduct in the
second quarter 2001 are or will be freely tradable without restriction under the
Securities  Act of 1933 by persons other than  "affiliates"  of AT&T, as defined
under the  Securities  Act. Any sales of  substantial  amounts of AT&T  Wireless
Group  tracking  stock  or  AT&T  common  stock  in the  public  market,  or the
perception that those sales might occur,  could materially  adversely affect the
market price of AT&T Wireless Group tracking stock.

         The approval of the  shareholders  of AT&T and AT&T Wireless Group will
not be solicited  for the  issuance of  authorized  but unissued  shares of AT&T
Wireless Group  tracking  stock unless this approval is deemed  advisable by our
board of  directors  or is  required  by  applicable  law,  regulation  or stock
exchange  listing  requirements.  The  issuance of those shares could dilute the
value of shares of AT&T Wireless Group tracking stock.

We do not expect to pay dividends on AT&T Wireless  Group tracking stock or AT&T
Wireless Services common stock

         Determinations  as to the  future  dividends  on  AT&T  Wireless  Group
tracking stock primarily will be based upon the financial condition,  results of
operations and business  requirements of AT&T Wireless Group and AT&T Corp. as a
whole.  We currently do not expect to pay any dividends on AT&T  Wireless  Group
tracking  stock  for the  foreseeable  future,  nor do we expect  AT&T  Wireless
Services to pay any  dividends on AT&T  Wireless  Services  common stock for the
foreseeable future following the split-off.

Changes in the tax law or in the interpretation of current tax law may result in
redemption of AT&T Wireless  Group tracking stock or may prevent us from issuing
further shares

         From time to time,  there  have  been  legislative  and  administrative
proposals that, if effective, would have resulted in the imposition of corporate
level or shareholder  level tax upon the issuance of tracking  stock.  As of the
date of this document, no such proposals are outstanding.
<PAGE>

         If there are adverse tax  consequences  associated with the issuance of
AT&T Wireless Group tracking  stock,  it is possible that we would cease issuing
additional  shares of AT&T Wireless Group tracking stock.  This could affect the
value of AT&T Wireless Group tracking stock then outstanding.

         Furthermore,  we are entitled to convert AT&T Wireless  Group  tracking
stock into AT&T common  stock at a premium of 10% if,  based upon the opinion of
tax counsel,  adverse U.S. federal income tax law  developments  related to AT&T
Wireless Group tracking stock occur.

In some instances,  we may optionally redeem AT&T Wireless Group tracking stock,
including as a result of an adverse tax law change

         Our board of directors  may, at any time after either the occurrence of
tax-related events, such as the ones described above, or May 2, 2002, redeem all
outstanding  shares of AT&T  Wireless  Group  tracking  stock for shares of AT&T
common stock at a 10% premium. We could decide to redeem shares of AT&T Wireless
Group tracking stock at a time when either or both of AT&T common stock and AT&T
Wireless Group tracking stock may be considered to be overvalued or undervalued.
In addition, a redemption at any premium would preclude holders of AT&T Wireless
Group tracking stock from retaining their  investment in a security  intended to
reflect  separately the economic  performance of AT&T Wireless  Group.  It would
also give holders of shares of converted  AT&T Wireless  Group tracking stock an
amount of  consideration  that may  differ  from the amount of  consideration  a
third-party  buyer pays or would pay for all or substantially  all of the assets
of the AT&T Wireless Group.

<PAGE>

If we liquidate  AT&T,  amounts  distributed  to holders of each class of common
stock may not bear any relationship to the value of the assets attributed to the
groups

         Under our charter,  we would  determine the  liquidation  rights of the
holders of the  respective  classes  of stock in  accordance  with each  group's
respective  market  capitalization  at the  time of  liquidation.  However,  the
relative market capitalization of each group may not correctly reflect the value
of the net assets  remaining and attributed to the groups after  satisfaction of
outstanding liabilities.

SPECIAL CONSIDERATIONS RELATING TO THE BUSINESS OF AT&T WIRELESS GROUP

 AT&T Wireless  Group may  substantially  increase its debt level in the future,
which could subject it to various  restrictions  and higher  interest  costs and
decrease its cash flow and earnings

         AT&T Wireless  Group may  substantially  increase its debt level in the
future, which could subject it to various restrictions and higher interest costs
and  decrease  its cash flow and  earnings.  It may also be  difficult  for AT&T
Wireless  Group to obtain all the  financing  it needs to fund its  business and
growth strategy on desirable  terms.  AT&T Wireless Group currently  anticipates
requiring  substantial  additional  financing for the foreseeable future to fund
capital  expenditures,  license  purchases  and costs and expenses in connection
with funding its  operations,  domestic and  international  investments  and its
growth strategy and in order to repay  indebtedness and preferred equity owed to
or held by AT&T and  affiliated  entities  at the time of the  split-off.  As of
December 31, 2000, the aggregate amount of this  intercompany debt and preferred
equity was approximately $5.4 billion.
<PAGE>

AT&T's  relationship  with DoCoMo contains  features that could adversely affect
the financial  condition of AT&T Wireless  Group or the way in which it conducts
its business

         The terms of the  DoCoMo  investment  enable  DoCoMo to  terminate  its
investment and require repayment of its $9.8 billion investment,  plus interest,
if AT&T Corp. does not complete the split-off of AT&T Wireless Services within a
specified  time frame or if by June 30, 2004 AT&T Wireless Group either fails to
commence  service  using  an  agreed  technology  in at  least  13 of the top 50
domestic markets or abandons wideband code division multiple access,  also known
as Universal Mobile  Telecommunications  System,  as its primary  technology for
third generation  services.  If AT&T must repay DoCoMo's  investment  before the
split-off,  AT&T  Wireless  Group will fund  approximately  $6.2  billion,  plus
interest.  After the  split-off,  if DoCoMo  requires  repayment,  AT&T Wireless
Services  will  fund  the  entire  repurchase  obligation.  If  DoCoMo  requires
repayment  of its  investment,  it may  also  terminate  the  technology  rights
provided to AT&T Wireless Group in connection with its investment.

         Before  the  split-off,  AT&T will need to obtain  DoCoMo's  consent in
order to undertake a number of business actions relating to AT&T Wireless Group.
After the split-off, AT&T Wireless Services will need to obtain DoCoMo's consent
in order to make any  fundamental  change in the  nature of its  business  or to
allow  another  wireless  operator to acquire more than 15% but less than 50% of
AT&T Wireless  Services'  equity.  These limitations could prevent AT&T Wireless
Group  or  AT&T  Wireless  Services  from  taking  advantage  of  some  business
opportunities or relationships that it might otherwise pursue.

AT&T Wireless Group has substantial capital requirements that it may not be able
to fund

         AT&T  Wireless  Group's  strategy  and business  plan will  continue to
require substantial capital, which AT&T Wireless Group may not be able to obtain
or to obtain on favorable  terms.  A failure to obtain  necessary  capital would
have a material  adverse effect on AT&T Wireless Group, and result in the delay,
change or abandonment of AT&T Wireless  Group's  development or expansion  plans
and the failure to meet regulatory build-out requirements.

         AT&T Wireless Group currently  estimates that its capital  expenditures
for the build out of its networks,  including  expenditures related to its fixed
wireless  operations  during 2001,  will total  approximately  $5.5 billion,  as
compared to $4.1 billion in 2000. AT&T Wireless Group expects these 2001 capital
expenditure amounts to include approximately $5 billion of mobility expenditures
and  approximately  $450 million for fixed  wireless.  AT&T Wireless  Group also
expects to incur  substantial  capital  expenditures in future years. The actual
amount of the funds required to finance this network build out and other capital
expenditures may vary materially from management's estimate. AT&T Wireless Group
has entered into various contractual commitments associated with the development
of its third generation  strategy totaling  approximately $2.1 billion as of the
dates the  agreements  were executed.  These include  purchase  commitments  for
network  equipment.  Additionally,  AT&T Wireless Group anticipates that it will
enter into material purchase commitments in the future.

         AT&T Wireless  Group also may require  substantial  additional  capital
for, among other uses, acquisitions of providers of wireless services,  spectrum
license  or  system  acquisitions,   system  development  and  network  capacity
expansion.  AT&T Wireless Group has also entered into agreements for investments
and ventures which have required or will require substantial capital,  including
agreements  to  invest  $2.6  billion  in  exchange  for  a  combination   of  a

<PAGE>

non-controlling  equity interest in and debt securities  issued by Alaska Native
Wireless,  which was the successful  bidder for licenses  costing  approximately
$2.9 billion in the recently concluded 1900 megahertz auction.  These agreements
also may contain provisions potentially requiring substantial additional capital
in future  circumstances,  such as allowing the other  investors to require AT&T
Wireless Group to purchase assets or investments.

The actual amount of funds necessary to implement AT&T Wireless Group's business
plan may  materially  exceed  current  estimates,  which  could  have a material
adverse  effect on AT&T  Wireless  Group's  financial  condition  and results of
operations

         The actual amount of funds necessary to implement AT&T Wireless Group's
business plan may materially exceed AT&T Wireless current estimates in the event
of various factors including:

     o    departures from AT&T Wireless Group's current business plan,
     o    unforeseen delays,
     o    cost overruns,
     o    unanticipated expenses,
     o    regulatory developments,
     o    engineering design changes, and
     o    technological and other risks.

If actual costs do materially exceed AT&T Wireless Group's current estimates for
these or other  reasons,  this  could  have a  material  adverse  effect on AT&T
Wireless Group's financial condition and results of operations.

AT&T Wireless Group's significant network build out
requirements may not be completed as planned

         AT&T Wireless Group needs to complete  significant  remaining build-out
activities,  including completion of regulatorily  required build-out activities
in some of its existing wireless markets. Failure or delay to complete the build
out of the network and launch  operations,  or increased costs of this build out
and launch of operations, could have a material adverse effect on the operations
and financial condition of AT&T Wireless Group.

         As AT&T  Wireless  Group  continues to build out its network,  it must,
among other things, continue to:

     o    lease,  acquire or otherwise  obtain  rights to a large number of cell
          and switch sites,

     o    obtain zoning  variances or other local  governmental  or  third-party
          approvals or permits for network construction,

     o    complete  the radio  frequency  design,  including  cell site  design,
          frequency planning and network optimization, for each of its markets,

     o    complete the fixed network  implementation,  which includes  designing
          and   installing   network   switching    systems,    radio   systems,
          interconnecting facilities and systems, and operating support systems,
          and

     o    expand and maintain  customer care,  network  management,  billing and
          other financial and management systems.
<PAGE>

         In addition,  over the next several years,  AT&T Wireless Group will be
implementing  upgrades to its network to access the next  generation  of digital
technology.  These  events may not occur in the time frame AT&T  Wireless  Group
assumes or that the FCC requires, or at the cost AT&T Wireless Group assumes, or
at all.  Additionally,  problems  in vendor  equipment  availability,  technical
resources  or  system  performance  could  delay the  launch of new or  expanded
operations  in new or  existing  markets  or  result in  increased  costs in all
markets.  AT&T  Wireless  Group  intends  to rely  on the  services  of  various
companies that are  experienced in design and build out of wireless  networks in
order to accomplish its build out schedule. However, AT&T Wireless Group may not
be able to obtain satisfactory  contractors on economically  attractive terms or
ensure that the contractors obtained will perform as expected.

AT&T Wireless Group's business and operations would be adversely  affected if it
fails to acquire  adequate  radio  spectrum  in FCC  auctions  or through  other
transactions

         AT&T Wireless Group's  domestic  business depends on the ability to use
portions of the radio  spectrum  licensed by the FCC. AT&T Wireless  Group could
fail to obtain sufficient spectrum capacity in new and existing markets, whether
through  FCC  auctions  or other  transactions,  in  order to meet the  expanded
demands  for  existing  services,  as well as to  enable  development  of  third
generation services. This type of a failure would have a material adverse impact
on the quality of AT&T  Wireless  Group's  services  and its ability to roll out
such future services in certain markets. AT&T Wireless Group intends to continue
to acquire  more  spectrum  through a  combination  of  alternatives,  including
participation in spectrum auctions, purchase of spectrum licenses from companies
that own them or purchase of these companies outright.

         As required by law, the FCC periodically conducts auctions for licenses
to use certain parts of the radio  spectrum.  The decision to conduct  auctions,
and the  determination  of what spectrum  frequencies will be made available for
auction,  are  provided  for by laws  administered  by the FCC.  The FCC may not
allocate spectrum  sufficient to meet the demands of all those wishing to obtain
licenses. Even if the FCC conducts further auctions in the future, AT&T Wireless
Group may not be successful  in those future  auctions in obtaining the spectrum
that  it  believes  is  necessary  to  implement  its  business  and  technology
strategies.

         AT&T  Wireless  Group may also seek to acquire radio  spectrum  through
purchases and swaps with other  spectrum  licensees or  otherwise,  including by
purchases of other licensees outright.  However,  AT&T Wireless Group may not be
able to acquire sufficient spectrum through these types of transactions,  and it
may not be able to complete any of these transactions on favorable terms.

AT&T Wireless  Group's  business and operations could be hurt if it is unable to
establish new affiliates to expand its digital network or if its existing or any
new  affiliates do not or cannot  develop  their systems in a manner  consistent
with AT&T Wireless Group's

         In order to  accelerate  the  build-out  of  widescale  coverage of the
United States by a digital mobile  wireless  network  operating on the technical
standards AT&T Wireless Group has adopted,  AT&T Wireless Group has entered into
affiliation agreements with other entities that provide wireless service or hold
spectrum licenses.  Through contractual arrangements between AT&T Wireless Group
and these affiliates, AT&T Wireless Group's customers are able to obtain service
in the affiliates' territories, and the affiliates' customers are able to obtain
service  in  AT&T  Wireless  Group's  territory.  In  all  markets  where  these

<PAGE>

affiliates  operate,  AT&T Wireless Group is at risk because it does not control
the  affiliates.  As a result,  these  affiliates are not obligated to implement
AT&T Wireless Group's third generation  strategy.  AT&T Wireless Group's ability
to provide service on a nationwide  level and to implement its third  generation
strategy  would  be  adversely  affected  if  these  affiliates  decide  not  to
participate in the further development of AT&T Wireless Group's digital network.

         AT&T Wireless Group may establish additional affiliate relationships to
accelerate  build-out of its digital mobile  network.  If AT&T Wireless Group is
unable to establish such affiliate relationships,  or if any such affiliates are
unable or do not develop their systems in a manner consistent with AT&T Wireless
Group's  network,  AT&T  Wireless  Group's  ability to service its customers and
expand  the  geographic  coverage  of its  digital  network  could be  adversely
affected.

If the FCC denies Alaska Native  Wireless'  application to acquire  licenses for
which it was the  successful  bidder in the recent  spectrum  auction or, in the
future,  revokes  licenses  awarded to Alaska  Native  Wireless,  AT&T  Wireless
Group's  ability to implement its third  generation  strategy could be adversely
affected or AT&T  Wireless  Group could  become  obligated to  repurchase  other
investors interests in Alaska Native Wireless

         AT&T Wireless Group has agreed to invest $2.6 billion in exchange for a
combination of a  non-controlling  equity interest in and debt securities issued
by Alaska Native Wireless,  which was the successful bidder for licenses costing
approximately $2.9 billion in the recently concluded 1900 megahertz auction. One
auction  participant has challenged the qualifications of Alaska Native Wireless
to acquire "closed"  licenses,  which constituted most of the licenses for which
Alaska Native  Wireless was the successful  bidder.  If the FCC determines  that
Alaska Native  Wireless was not qualified,  the FCC could refuse to grant Alaska
Native Wireless the closed licenses. If this occurs, it could have a significant
adverse impact on AT&T Wireless  Group's ability to provide or enhance  services
in key new and existing markets.

         The  Trustee  in  NextWave   Telecom,   Inc.'s  Chapter  11  bankruptcy
proceeding,  and the unsecured creditors of NextWave,  have commenced litigation
relating to the 1900 megahertz auction that could result in a delay in the grant
of licenses to successful bidders or revocation of any licenses, including those
won or acquired by Alaska Native  Wireless and cause Alaska  Native  Wireless to
postpone the development and use of any licenses  awarded to it. If this occurs,
it could have a significant  adverse  impact on AT&T  Wireless  Group's plans to
provide or enhance services in key new and existing markets.

         In specified circumstances,  if a winning bid of Alaska Native Wireless
in the recently  concluded 1900 megahertz spectrum auction is rejected or if any
license granted to it is revoked,  AT&T Wireless Group would become obligated to
compensate  other  investors  for making  capital  available to the venture.  In
specified  circumstances,  if the grant of those  licenses is  challenged,  AT&T
Wireless Group may be obligated to purchase the interests of other investors.


If AT&T Wireless Group is unable to reach  agreement with Alaska Native Wireless
regarding the  development  and use of licenses for which it was the  successful
bidder  in the  recent  spectrum  auction,  AT&T  Wireless  Group s  ability  to
implement its third generation strategy may be adversely affected

         AT&T Wireless Group has not reached any  agreements  with Alaska Native
Wireless as to whether it will  participate  in AT&T  Wireless  Group's  digital
mobile  wireless  network.  Alaska  Native  Wireless is not  obligated to use or

<PAGE>

develop  any  spectrum  it  acquires  in a  manner  which  will  further,  or be
consistent with, AT&T Wireless  Group's  strategic  objectives,  although Alaska
Native   Wireless  is  obligated  to  use  technology  that  is  compatible  and
interoperable  with AT&T Wireless  Group's digital mobile wireless  network.  If
Alaska Native  Wireless does not enter into  agreements with AT&T Wireless Group
regarding  the use and  development  of this  spectrum  similar  to  those  AT&T
Wireless Group has entered into with its affiliates for its existing network, it
could have a material adverse impact on the timing and cost of implementing AT&T
Wireless Group's third generation strategy.

Potential  acquisitions  may require AT&T  Wireless  Group to incur  substantial
additional debt and integrate new technologies,  operations and services,  which
may be costly and time consuming

         An element of AT&T Wireless  Group's strategy is to expand its network,
which AT&T Wireless Group may do through the  acquisition  of licenses,  systems
and wireless  providers.  These  acquisitions  may cause AT&T Wireless  Group to
incur  substantial  additional  indebtedness  to finance the  acquisitions or to
assume  indebtedness  of the  entities  that are  acquired.  In  addition,  AT&T
Wireless  Group  may  encounter   difficulties  in  integrating  those  acquired
operations  into  its  own  operations,  including  as  a  result  of  different
technologies,  systems, services or service offerings. These actions could prove
costly or time  consuming or divert  management's  attention from other business
matters.

Failure to develop future business  opportunities  may have an adverse effect on
AT&T Wireless Group's growth potential

         AT&T  Wireless   Group  intends  to  pursue  a  number  of  new  growth
opportunities, which involve new services for which there are no proven markets.
In addition,  the ability to deploy and deliver these services  relies,  in many
instances,  on new and  unproven  technology.  AT&T  Wireless  Group's  existing
technology  may not perform as expected and that AT&T Wireless  Group may not be
able to  successfully  develop new  technology to effectively  and  economically
deliver these services.  In addition,  these  opportunities  require substantial
capital  outlays and  spectrum  availability  to deploy on a large  scale.  This
capital or spectrum may not be available to support these services.

         Furthermore,  each of these  opportunities  entails additional specific
risks.  For  example,  the delivery of fixed  wireless  services  requires  AT&T
Wireless Group to provide installation and maintenance services,  which the AT&T
Wireless  Group has never provided  previously.  This will require AT&T Wireless
Group to hire, employ,  train and equip technicians to provide  installation and
repair  in each  market  served,  or rely on  subcontractors  to  perform  these
services.  AT&T  Wireless  Group  may not be able to hire and  train  sufficient
numbers of  qualified  employees  or  subcontract  these  services,  or do so on
economically  attractive  terms.  The success of wireless data services,  on the
other  hand,  is  substantially  dependent  on the  ability of others to develop
applications  for wireless  devices and to develop and manufacture  devices that
support  wireless  applications.  These  applications  or  devices  may  not  be
developed or developed in  sufficient  quantities  to support the  deployment of
wireless data services.

         These services may not be widely  introduced  and fully  implemented at
all or in a timely  fashion.  These services may not be successful when they are
in place, and customers may not purchase the services offered. If these services
are not successful or costs associated with implementation and completion of the
roll out of these services  materially exceed those currently  estimated by AT&T
Wireless Group, AT&T Wireless Group's financial condition and prospects could be
materially adversely affected.
<PAGE>

 AT&T Wireless Group faces substantial competition

         There is  substantial  competition  in the wireless  telecommunications
industry.  AT&T Wireless  Group expects  competition to intensify as a result of
the  entrance  of new  competitors  and  the  development  of new  technologies,
products  and  services.  Other  two-way  wireless  providers,  including  other
cellular and personal communications  services,  operators and resellers,  serve
each of the markets in which AT&T Wireless Group competes.

         A majority of markets  will have five or more  commercial  mobile radio
service  providers,  and all of the top 50  metropolitan  markets  have at least
four,  and in some  cases as many as seven  or more,  facilities-based  wireless
service   providers   offering   wireless   services   on   cellular,   personal
communications services or specialized mobile radio frequency.  Competition also
may increase to the extent that smaller, stand-alone wireless providers transfer
licenses to larger, better capitalized and more experienced wireless providers.

 Market prices for wireless services may decline in the future

         AT&T Wireless Group anticipates that market prices for two-way wireless
services generally will decline in the future due to increased  competition.  We
expect  significant  competition  among wireless  providers,  including from new
entrants, to continue to drive service and equipment prices lower. AT&T Wireless
Group also expects that there will be increases in advertising  and  promotional
spending, along with increased demands on access to distribution channels.

         All of this  may  lead  to  greater  choices  for  customers,  possible
consumer confusion,  and increasing  movement of customers between  competitors,
which we refer to as  "churn."  AT&T  Wireless  Group  may also  adopt  customer
policies or programs to be more  competitive,  which may also affect churn. AT&T
Wireless Group's ability to compete  successfully also will depend on marketing,
and on its  ability to  anticipate  and respond to various  competitive  factors
affecting the industry, including new services, changes in consumer preferences,
demographic  trends,  economic  conditions  and discount  pricing  strategies by
competitors.

Consolidation in the wireless  communications industry may adversely affect AT&T
Wireless Group

         The wireless communications industry has been experiencing  significant
consolidation  and AT&T  Wireless  Group  expects that this  consolidation  will
continue.  The previously  announced  mergers or joint ventures of Bell Atlantic
Corporation/GTE    Corporation/Vodafone    AirTouch,    now   called    Verizon,
SBC/BellSouth,   now  called  Cingular,  have  created  large,  well-capitalized
competitors with substantial financial, technical, marketing and other resources
to  respond to AT&T  Wireless  Group's  offerings.  In  addition,  in July 2000,
VoiceStream  Communications  and Deutsche Telekom  publicly  announced a planned
merger.

         These mergers or ventures have caused AT&T Wireless  Group's ranking to
decline to third in U.S.  revenue and U.S.  subscriber  share.  In terms of U.S.
population covered by licenses,  AT&T Wireless Group, including partnerships and
affiliates,  ranks third.  As a result,  these  competitors may be able to offer
nationwide  services  and plans more  quickly  and more  economically  than AT&T
Wireless  Group,  to obtain  roaming  rates that are more  favorable  than those
obtained by AT&T Wireless Group,  and may be better able to respond to offers of
AT&T Wireless Group.
<PAGE>

Significant  changes in the wireless industry could materially  adversely affect
AT&T Wireless Group

         The  wireless  communications  industry  is  experiencing   significant
technological  change.  This  change  includes  the  increasing  pace of digital
upgrades in existing  analog  wireless  systems,  evolving  industry  standards,
ongoing improvements in the capacity and quality of digital technology,  shorter
development  cycles for new products,  and  enhancements and changes in end-user
needs  and   preferences   and  increased   importance  of  data  and  broadband
capabilities.

         The pace and extent of customer  demand may not  continue to  increase,
and airtime and monthly recurring charges may continue to decline.  As a result,
the future  prospects of the industry and AT&T Wireless Group and the success of
its competitive services remain uncertain.  Also,  alternative  technologies may
develop for the  provision  of services to customers  that may provide  wireless
communications  service or alternative  service  superior to that available from
AT&T  Wireless  Group.   Technological  developments  may  therefore  materially
adversely affect AT&T Wireless Group.

Termination  or impairment of AT&T Wireless  Group's  relationship  with a small
number of key suppliers could adversely  affect AT&T Wireless  Group's  revenues
and results of operations

         AT&T Wireless Group has developed  relationships with a small number of
key  vendors,  including  Nokia  Mobile  Phones,  Inc.,  Telefonaktiebolaget  LM
Ericsson,  Mitsubishi Corporation and Motorola,  Inc. for its supply of wireless
handsets,  Lucent Technologies,  Inc., Nortel Networks, Inc., Ericsson and Nokia
Networks, Inc. for its supply of telecommunications infrastructure equipment and
Convergys Information  Management Group for its billing services.  AT&T Wireless
Group does not have operational or financial control over its key suppliers, and
has limited  influence  with respect to the manner in which these key  suppliers
conduct  their  businesses.  If these key  suppliers  were unable to honor their
obligations  to AT&T  Wireless  Group,  it could  disrupt  the  business of AT&T
Wireless Group and adversely impact its revenues and results of operations.

AT&T Wireless Group's  technology may not be competitive with other technologies
or be compatible with next generation technology

         There are three existing  digital  transmission  technologies,  none of
which is compatible with the others.  AT&T Wireless Group selected time division
multiple access technology for its second generation network because it believes
that this  technology  offers several  advantages  over other second  generation
technologies.  However,  a number of other wireless service providers chose code
division  multiple  access or global system for mobile  communications  as their
digital  wireless  technology.  For its path to the next generation  technology,
AT&T  Wireless  Group  has  chosen a global  system  for  mobile  communications
platform to make  available  enhanced data services  using general  packet radio
service technology,  and third generation capabilities using enhanced data rates
for global evolution and ultimately universal mobile telecommunications  systems
technologies.

         These  technologies  may not provide the advantages AT&T Wireless Group
expects. Other wireless providers have chosen a competing wideband technology as
their third generation  technology.  If the universal mobile  telecommunications
systems  does not gain  widespread  acceptance,  it would  materially  adversely
affect the business, financial condition and prospects of AT&T Wireless Group.
<PAGE>

         As  AT&T  Wireless  Group   implements  its  plans  for  deployment  of
technology  for  third  generation  capabilities,  it  will  continue  to  incur
substantial  costs associated with maintaining its time division multiple access
networks.  Also,  these networks are not  compatible,  and customers with phones
that  operate on one network  will not  initially be able to use those phones on
the other  network.  There are risks  inherent in the  development  of new third
generation  equipment and AT&T Wireless Group may face unforeseen costs,  delays
or problems that may have a material adverse affect.

<PAGE>

AT&T Wireless Group relies on favorable  roaming  arrangements,  which it may be
unable to continue to obtain

         AT&T  Wireless  Group may not continue to be able to obtain or maintain
roaming agreements with other providers on terms that are acceptable to it. AT&T
Wireless Group's customers  automatically  can access another  provider's analog
cellular or digital  system  only if the other  provider  allows  AT&T  Wireless
Group's  customers  to  roam on its  network.  AT&T  Wireless  Group  relies  on
agreements to provide  roaming  capability to its customers in many areas of the
United  States  that  AT&T  Wireless  Group's  network  does  not  serve.   Some
competitors,  because  of their  call  volumes or their  affiliations  with,  or
ownership of, wireless providers,  however,  may be able to obtain roaming rates
that are lower than those rates obtained by AT&T Wireless Group.

         In addition,  the quality of service that a wireless  provider delivers
during a roaming  call may be inferior to the quality of service  AT&T  Wireless
Group or an affiliated company provides,  the price of a roaming call may not be
competitive  with prices of other  wireless  providers  for such call,  and AT&T
Wireless Group's  customer may not be able to use any of the advanced  features,
such as  voicemail  notification,  that the  customer  enjoys when making  calls
within AT&T Wireless  Group's network.  Finally,  AT&T Wireless Group may not be
able to obtain favorable  roaming  agreements for its third generation  products
and services that it intends to offer using the  technologies it plans to deploy
for interim enhanced data and third generation services.

AT&T  Wireless  Group's  business is seasonal  and it depends on fourth  quarter
results, which may not continue to be strong

         The wireless industry, including AT&T Wireless Group, has experienced a
trend of  generating a  significantly  higher  number of customer  additions and
handset sales in the fourth  quarter of each year as compared to the other three
fiscal  quarters.  A number of factors  contribute to this trend,  including the
increasing  use of retail  distribution,  which is  dependent  upon the year-end
holiday shopping season, the timing of new product and service announcements and
introductions,  competitive  pricing  pressures,  and  aggressive  marketing and
promotions.

         Strong fourth quarter results for customer  additions and handset sales
may not continue for the wireless  industry or for AT&T Wireless  Group.  In the
future,  the number of customer  additions  and handset  sales for AT&T Wireless
Group in the fourth  quarter could  decline for a variety of reasons,  including
AT&T  Wireless  Group's  inability  to match or beat  pricing  plans  offered by
competitors,  failure to  adequately  promote AT&T  Wireless  Group's  products,
services and pricing plans,  or failure to have an adequate  supply or selection
of handsets. If in any year fourth quarter results fail to significantly improve
upon customer  additions and handset  sales from the year's  previous  quarters,
this could  adversely  impact AT&T  Wireless  Group's  results for the following
year.
<PAGE>

Media reports have suggested radio frequency  emissions may be linked to various
health  concerns and interfere  with various  medical  devices and AT&T Wireless
Group may be subject to potential litigation relating to these health concerns

         Media and other  reports have linked  radio  frequency  emissions  from
wireless  handsets  to  various  health  concerns,   including  cancer,  and  to
interference with various electronic medical devices, including hearing aids and
pacemakers. These concerns over radio frequency emissions may discourage the use
of wireless  handsets or expose AT&T  Wireless  Group to  potential  litigation,
which could have a material  adverse effect on AT&T Wireless  Group's results of
operations.  Additionally, research and studies are ongoing, and may demonstrate
a link between radio frequency emissions and health concerns.

The  operations  of AT&T Wireless  Group are subject to  government  regulation,
which regulation could have adverse effects on its business

         The   licensing,    construction,    operation,    sale,   resale   and
interconnection arrangements of wireless communications systems are regulated to
varying degrees by the FCC, and, depending on the jurisdiction,  state and local
regulatory agencies. These regulations may include, among other things, required
service features and capabilities,  such as number  portability or emergency 911
service.  In  addition,  the  FCC,  together  with  the  U.S.  Federal  Aviation
Administration  regulates  tower  marking and  lighting.  Any of these  agencies
having  jurisdiction over AT&T Wireless Group's business could adopt regulations
or take other actions that could adversely  affect the business of AT&T Wireless
Group.

         FCC licenses to provide  wireless  services or personal  communications
services are subject to renewal and  revocation.  There may be  competition  for
AT&T Wireless  Group's  licenses upon their  expiration and we cannot assure you
that the FCC will renew  them.  FCC rules  require  all  wireless  and  personal
communications services licensees to meet specified build-out requirements. AT&T
Wireless  Group  may  not be able to meet  these  requirements  in each  market.
Failure to comply with these  requirements  in a given license area could result
in revocation or  forfeiture of AT&T Wireless  Group's  license for that license
area or the imposition of fines on AT&T Wireless Group by the FCC.

State and local legislation  restricting or prohibiting wireless phone use while
driving could cause subscriber usage to decline

         Some  state and local  legislative  bodies  have  proposed  legislation
restricting  or  prohibiting  the use of wireless  phones  while  driving  motor
vehicles.  Similar  laws have been enacted in other  countries,  and, to date, a
small number of communities in the United States have passed  restrictive  local
ordinances.  If laws are passed  prohibiting or restricting  the use of wireless
phones while  driving,  it could have the effect of reducing  subscriber  usage,
which could cause a material  adverse effect on AT&T Wireless Group's results of
operations.

AT&T Wireless Group may be subject to potential  litigation  relating to the use
of wireless phones while driving

         Some studies have indicated that some aspects of using wireless  phones
while driving may impair  drivers'  attention in certain  circumstances,  making
accidents  more  likely.  These  concerns  could  lead to  potential  litigation
relating to accidents,  deaths or serious bodily injuries, which also could have
material adverse effects on AT&T Wireless Group's results of operations.
<PAGE>

SPECIAL CONSIDERATIONS RELATING TO AT&T'S BUSINESS

 AT&T's business units face intense competitive pressures

         Communications Services

     o    AT&T currently faces  significant  competition in each of its consumer
          and business  communications  services business units and expects that
          the level of competition in each of these  businesses will continue to
          increase. In each of these units, AT&T faces competition from numerous
          other national and regional domestic and international companies, some
          of which have advantages over AT&T.

         Competitive  conditions  impose a  variety  of  significant  challenges
including  pressures  that  could  require  future  price  cuts and  affect  the
desirability of products and services.  These conditions create a risk of market
share loss and the risk that customers  shift to less  profitable,  lower margin
services.  Competitive  pressures  also create  challenges for AT&T's ability to
grow new  businesses or introduce new services  successfully  and execute on its
business plan,  including,  most  significantly,  the ability to purchase fairly
priced access services. Each of these business units faces the risk of potential
price cuts by its competitors that could materially adversely affect both market
share and margins.  We believe that it is unlikely that we will sustain existing
price or margin levels.

         These business units also face the risk of increasing  competition from
entities  that own their own access  facilities,  including  entities  that have
access  facilities  across vast regions of the United States with the ability to
control cost,  cycle time, and  functionality  for most  end-to-end  services in
their  regions.  These entities can preserve large market share and high margins
on access  services  as they enter new  markets,  including  long  distance  and
end-to-end services.  This places them in a superior position vis-a-vis AT&T and
other  competitors  which  must  purchase  such  high  margin  access  services.
Additionally,  each of these  business units may initiate price cuts in order to
seek to retain market share or to seek to slow decline of market share.

         The  cost   structure  of  AT&T's   business  units  also  affects  its
competitiveness. Each of these business units faces the risk that it will not be
able to maintain a competitive cost structure if newer  technologies favor newer
competitors who do not have legacy infrastructure and as technology substitution
continues.  Each of these units' ability to make critical investments to improve
cost  structure  may  also  be  impaired  by  AT&T's  current  significant  debt
obligations.

     Broadband Services

         AT&T also faces competitive risks in its Broadband  Services  business.
These risks include the growth of satellite  services,  regional bell  operating
companies  services and/or companies  providing  digital  subscriber lines which
compete directly for customers in most markets.  They also include the emergence
of new  combinations,  such as AOL Time Warner,  which seek both to  commoditize
cable access and provide their own differentiated  product, and escalating costs
for programming and other areas which may materially  adversely  affect margins.
In addition,  AT&T's  Broadband  Services  business  faces risks relating to the
acceptance and costs of potential new services.

The  regulatory  and  legislative  environment  creates  challenges  for  AT&T's
business units
<PAGE>

      Communications Services

         Each of AT&T's consumer and business  communications  services business
units faces the risk of the impact of the implementation of current  regulations
and  legislation,  unfavorable  changes in regulation or the introduction of new
onerous regulation. These risks include the impact of the following:

     o    current  law has been  implemented  in a manner  which has not allowed
          effective entry into local markets due to  non-competitive  pricing of
          access and local service and regional bell operating  company  systems
          that  do not  permit  rapid  large-scale  customer  changes  from  the
          regional bell operating companies to new service providers, and

     o    AT&T  faces  new  head-on   competition  as  regional  bell  operating
          companies begin to enter the long distance business.

         At  present,  AT&T does not believe  that many market  entry rules have
been  applied or enforced to allow the economic  viability of the various  local
market access  alternatives  or effective  large scale  management of customers.
Further,  few  facilities-based  competitors  to  the  regional  bell  operating
companies  have emerged and there is no significant  alternate  source of supply
for most access and local services. One consequence of this is that AT&T remains
ultimately  dependent on the regional  bell  operating  companies  for supply as
regional bell  operating  companies  still  represent  substantially  all of the
access and still control, cost cycle times, and functionality.

         This dependency on supply adversely  impacts both AT&T's cost structure
and its  ability to create  and  market  desirable  and  competitive  end-to-end
products  for  customers.   Absent  more  effective  application  of  rules  and
regulations,  the regional bell operating  companies will be  well-positioned to
deter new entrants to local service.

         In addition,  regional bell  operating  companies  will be entering the
long distance  business  while they still control  substantially  all the access
facilities in their  regions.  This will likely result in an increased  level of
competition for long distance or end-to-end  services as the services offered by
regional bell operating companies expand.

         Broadband Services

         In the case of  broadband  services,  the  possibility  of forced  open
access for cable plant  resulting in the  commodization  of  high-speed  data on
cable could materially  adversely affect AT&T's  business.  Also,  further cable
regulation  regarding  pricing,  ownership  limitations  and other matters could
impede growth or raise costs.

New Legislation and regulation may increase competition

         In addition,  there is the  possibility  that either new regulations or
new  legislation  will further erode the rules that apply to many of our largest
competitor and suppliers, including the regional bell operating companies. These
changes could give these companies more  streamlined  regulations  that apply to
their access  services.  These  changes could also exclude  services,  so-called
"advanced" or data  services,  from the  market-opening  rules of the applicable
legislation.  The  consequences of these changes could be to accelerate  head-on
competition  against AT&T from the regional bell operating companies in both the
communications services and broadband units.
<PAGE>

 AT&T may be adversely affected by its increased overall debt levels

         AT&T currently is pursuing  various measures to seek to reduce its debt
level. However, if these efforts cannot be completed  successfully or at levels,
on the terms and  within  the time frame  contemplated,  or if AT&T's  liquidity
needs increase as a result of further  revenue or margin  deterioration,  AT&T's
financial  condition  would be  materially  adversely  affected.  AT&T  would be
materially adversely affected by a weakening of the overall market for corporate
credit or ratings  downgrades.  AT&T's  current debt level itself may materially
adversely  affect the company and each of its business  units by  impairing  its
financial  flexibility,  its  ability  to pursue  acquisitions  or make  capital
expenditures  and  by  otherwise  impacting   investment  decisions  that  could
materially impair each unit's growth and ability to compete.

         AT&T may not be able to obtain  financing on terms that are  acceptable
to it.  AT&T's debt  ratings  have been under  review by rating  agencies.  As a
result of this review,  AT&T's ratings have been either downgraded and/or put on
credit watch with  negative  outlook.  These actions will result in an increased
cost of future  borrowings and can limit access to financing.  AT&T's failure to
complete the restructuring plan as contemplated may impact its liquidity.

         At December 31, 2000, AT&T had total  indebtedness of approximately $65
billion, with the short term portion of that at $31.9 billion. AT&T's ability to
meet these  obligations  depend upon its credit ratings,  market  conditions and
business  results.  AT&T continues to investigate  and negotiate other financing
alternatives  including the monetization of publicly held  securities,  sales of
certain  non-strategic  assets and investments,  and  securitization  of certain
accounts  receivable,  as well as a $6.5 billion debt  offering by AT&T Wireless
Services in the first quarter  2001.  AT&T has increased its $10 billion line of
credit to $25 billion, which was subsequently reduced to $18.4 billion following
the DoCoMo investment and the AT&T Wireless Services debt offering. In addition,
AT&T plans to retire a portion of the short-term  debt with all or a part of the
funds from a planned  2001  offering  of a  security  intended  to  reflect  the
financial performance and economic value of AT&T's Broadband unit, although that
offering may not occur as expected.

AT&T may be adversely affected by further ratings downgrades

         AT&T's senior debt ratings and two of its short-term  debt ratings were
reduced in late 2000 by Standard & Poor's Rating Services to A andA1; by Moody's
Investors Service, Inc. to A2 andP1; and by Fitch, Inc. to A-and F1. Both AT&T's
short-term and long-term  ratings  remain under review for further  downgrade at
Standard & Poor's and Moody's Investors Service.

         Late last year, AT&T initiated a debt reduction plan,  against which it
has  continued  to make  progress.  However,  at the  same  time,  AT&T has seen
deterioration in the results of its core communication  services businesses.  It
is unclear as to how the rating  agencies  will balance  these  developments  in
their  ratings  assessment,  but there is a  material  risk  that AT&T  could be
further  downgraded.  We expect to review  with the rating  agencies in the near
future the financial  results and long-term  financial  projections  of the AT&T
businesses  to be  separated.  A ratings  action  could  occur in advance of the
meetings, during the meeting period, or following the meetings.

         If AT&T  were to be  further  downgraded,  access to  capital  could be
disrupted and the cost of capital would likely increase.  AT&T has access to the
commercial  paper market  today which is  sufficient  to satisfy its  short-term
borrowing  needs.  In the  event of a further  short-term  rating  downgrade  or

<PAGE>

downgrades,  the level of  issuance  capacity  available  to AT&T  would  likely
contract and could be exceeded by our short-term  borrowing needs. In this case,
AT&T could access the $25 billion bank credit  facility put in place on December
28, 2000 to serve as a commercial  paper back-up  source of  liquidity.  The $25
billion bank credit  facility was reduced to $18.3 billion  during March 2001 as
we made  progress  in our  deleveraging  efforts.  The  cost  of any  short-term
borrowing  under the bank  facility  would  likely  be  higher  than the cost of
commercial  paper  borrowings for AT&T today, and could be even higher depending
upon market  conditions.  In addition,  the access to this bank facility extends
only until December 28, 2001 and could be reduced to as low as $10 billion if we
continue to make progress in our  deleveraging  efforts.  To the extent that the
combined  outstanding  short-term  borrowings under the bank credit facility and
AT&T's  commercial  paper  program  were to exceed the market  capacity for such
borrowings  at the  expiration  of the bank credit  facility,  AT&T's  continued
liquidity would depend upon our ability to reduce such short-term debt through a
combination  of  capital  market  borrowings,   asset  sales,  operational  cash
generation,  capital  expenditure  reduction  and other  means.  Our  ability to
achieve such  objectives  is subject to a risk of execution  and such  execution
could materially impact AT&T's operational results. In addition, the cost of any
capital market financing could be  significantly in excess of AT&T's  historical
financing costs. Also, AT&T could suffer negative banking,  investor, and public
relations  repercussions  if we were to draw  upon the bank  facility,  which is
intended to serve as a back-up  source of liquidity  only.  Such  impacts  could
cause further deterioration in our cost and access to capital.

         Furthermore, according to the terms of the bank credit facility, AT&T's
ability to split off AT&T Wireless  Group is contingent  upon AT&T's senior debt
rating, as determined by Standard and Poor's and Moody's Investors Service,  not
falling  below BBB+ and Baa1,  respectively.  Failure to split off AT&T Wireless
Group by early  2002  would  permit  NTT  DoCoMo  to  elect to  require  AT&T to
repurchase its interest in AT&T for an aggregate  purchase price of $9.8 billion
plus  a  predetermined   rate  of  interest,   which  could  further  limit  the
availability and increase the cost of financing.

AT&T may not be able to attract and retain management

         AT&T's business units face other risks,  including risks related to the
difficulties in attracting, retaining and motivating key employees, particularly
in the consumer and business communications services units. There is also a risk
that it will be more difficult to attract,  retain and motivate key employees as
growth declines and opportunities and compensation  become limited and after the
restructuring  is completed as desired  hires may be less  interested in working
for smaller companies.

AT&T may be unable to engage in potentially desirable strategic transactions

         AT&T from time to time explores strategic  alternatives with respect to
some of its assets and businesses and may engage in discussions or  negotiations
with third parties regarding these possible transactions.

         For example,  AT&T owns an approximately  25.5% interest in Time Warner
Entertainment,  L.P., which AT&T has previously  announced it intends to divest.
This  interest  is not part of or  allocated  to the  AT&T  Wireless  Group.  On
February  28, 2001,  AT&T  exercised  registration  rights it has under the Time
Warner Entertainment  partnership  agreement,  to have Time Warner Entertainment
reconstitute  itself as a  corporation  and then to  register  up to AT&T's full
interest  for  sale  in an  initial  public  offering.  Under  the  Time  Warner
Entertainment partnership agreement, Time Warner Entertainment may determine not

<PAGE>

to effect a public offering but instead to allow AT&T certain put rights to have
Time Warner  Entertainment buy back the shares that would have been sold in such
an offering at an appraised price. AT&T is simultaneously  pursuing  discussions
with AOL Time  Warner  concerning  alternative  potential  arrangements  for the
redemption of AT&T's partnership  interest in Time Warner  Entertainment as well
as certain commercial arrangements with AOL Time Warner.

         We cannot predict whether these discussions will continue,  whether any
of these  transactions  will be completed or the timing or terms of any of these
transactions.

SPECIAL CONSIDERATIONS RELATING TO AT&T CORP.'S RESTRUCTURING PLAN

AT&T Corp.'s  restructuring plan requires  fundamental changes to our businesses
that may be hard to implement

         If we complete our restructuring plan, each of our four businesses will
need to make changes in its operations that will require  substantial effort and
involve  substantial  risks and costs.  If any of these  businesses is unable to
make this transition smoothly or is not able to operate as effectively after the
restructuring, the financial position and results of operations of that business
could suffer and cause the trading value of  securities  intended to reflect the
financial performance and economic value of that business to decline materially.

The total value of the securities issued in our restructuring plan might be less
than the value of AT&T common stock without that plan

         If we complete  our  restructuring  plan as we  currently  contemplate,
holders of AT&T common  stock who do not dispose of their  shares of AT&T common
stock  eventually will receive  securities  issued by or intended to reflect the
financial  performance  and economic  value of four  businesses:  AT&T  Business
Services, AT&T Consumer Services, AT&T Broadband and AT&T Wireless Services. The
aggregate value of these shares could be less than what the value of AT&T common
stock would be without  AT&T's  restructuring.  The trading price of AT&T common
stock may decline as a result of the implementation of AT&T's restructuring plan
or as a result of other factors.

         If we  complete  the  restructuring,  these new  securities  will begin
trading  publicly for the first time.  Until orderly trading markets develop for
each of  these  new  securities,  and  after  that  time as well,  there  may be
significant  fluctuations in price. Also, we have not yet determined many of the
details  of  AT&T's  restructuring  plan  and  these  details  could  materially
adversely  impact the value of AT&T common stock or AT&T Wireless Group tracking
stock.

If we do not complete AT&T's restructuring plan as we plan, there may be adverse
consequences to AT&T and AT&T Wireless Group

         AT&T's  restructuring  plan is complicated,  and involves a substantial
number of steps and transactions.  The  implementation  of AT&T's  restructuring
plan will  require  various  approvals  and be subject  to  various  conditions,
including  IRS  rulings.  In addition,  future  financial  conditions,  superior
alternatives  or other  factors may arise or occur that make it  inadvisable  to
proceed  with  part or all of AT&T's  restructuring  plan.  If we are  unable to
complete AT&T's restructuring plan as we expect, or the implementation of AT&T's
restructuring  plan is more complex  than we expect,  this could have a material
adverse effect on AT&T,  its business or the trading  prices of its  securities.
Any or all of the  elements  of  AT&T's  restructuring  plan may not occur as we

<PAGE>

currently expect or in the time frames that we currently contemplate, or at all.
Alternative  forms  of  restructuring,  including  sales of  interests  in these
businesses,  would reduce what is available for  distribution to shareholders in
the restructuring.

AT&T's  restructuring  may adversely  impact the competitive  position of AT&T's
business units

         In  connection  with the  restructuring,  there is a risk  that  AT&T's
separated  business  units  may  not be able to  create  effective  intercompany
agreements to facilitate effective cost sharing or enter into mutually desirable
bundling arrangements.  Competition between AT&T's units in overlapping markets,
including  the consumer  markets  where cable  telephone,  fixed  wireless,  and
digital  subscriber  line  solutions  may all be  available  at the  same  time,
although  generally not all under the AT&T brand,  could result in more downward
price pressure.  It is expected that the different businesses and companies will
share the AT&T brand after the  restructuring,  which will likely  increase this
level of  competition.  In  addition,  any  incremental  costs  associated  with
implementing  AT&T's  restructuring  plan may  materially  adversely  affect the
different businesses and companies.

SPECIAL CONSIDERATIONS RELATING TO THE AT&T WIRELESS GROUP SPLIT-OFF

We may not complete the AT&T Wireless Group split-off as we plan

         We intend to separate  AT&T  Wireless  Group from AT&T in the middle of
2001, but the split-off is subject to a number of  conditions.  We must obtain a
favorable  IRS ruling,  which we may not receive.  In  addition,  AT&T's new $25
billion credit facility includes as conditions to the split-off that it maintain
a public debt rating for its long-term  senior debt of at least BBB+ by Standard
& Poor's Rating Services and Baa1 by Moody's Investors  Services,  Inc. and that
AT&T Wireless Group repay intercompany  obligations to AT&T,  including debt and
preferred  equity which  totaled $5.4 billion at December 31, 2000.  In order to
facilitate the receipt of the IRS ruling, we have undertaken a reorganization of
our  business  structure  which  requires  receipt  of various  local  franchise
regulatory  approvals.  While we currently intend to complete the split-off,  we
may not be able to satisfy  these  conditions  to the  split-off.  Even if we do
satisfy these conditions,  other events or circumstances,  including litigation,
could  occur that  could  affect  the  timing or terms of the  split-off  or our
ability  or  plans  to  complete  the  split-off.  For  example,  several  large
shareholders  of AT&T  associated with unions that represent AT&T employees have
publicly announced their opposition to AT&T's restructuring plan. As a result of
these  factors,  the split-off  may not occur and, if it does occur,  it may not
occur  on  the  terms  or  in  the  manner  described,  or  in  the  time  frame
contemplated.  In this  event,  there may be adverse  consequences,  such as the
obligation to repurchase DoCoMo's investment in AT&T, or limits on AT&T Wireless
Group's capital funding, as described below.

 AT&T's  intention to retain $3 billion of shares of AT&T Wireless  Services for
sale,  exchange or monetization  after the split-off could adversely  affect the
market value of AT&T Wireless Group tracking stock

         AT&T currently  intends to retain $3 billion of shares of AT&T Wireless
Services  for its own account  for sale,  exchange  or  monetization  within six
months of the split-off,  subject to a satisfactory IRS ruling. If AT&T does so,
the sale of  these  shares  could  adversely  affect  the  market  price of AT&T
Wireless  Services common stock. In addition,  AT&T's  retention of these shares
would  reduce  the  number  of shares of AT&T  Wireless  Services  that we would
distribute to holders of AT&T common stock in the split-off.
<PAGE>

If we do not complete the split-off by early 2002 or if AT&T Wireless Group does
not meet specified  technology  benchmarks,  AT&T or AT&T Wireless  Services may
have to repurchase DoCoMo's $9.8 billion investment

         In connection  with DoCoMo's  investment in AT&T,  AT&T has agreed,  if
DoCoMo so elects,  to  repurchase  DoCoMo's  interest  in AT&T for an  aggregate
purchase price of $9.8 billion plus a  predetermined  interest rate if AT&T does
not complete the split-off of AT&T  Wireless  Group by January 1, 2002, or March
15, 2002 if AT&T is trying to obtain an IRS ruling,  or if by June 30, 2004 AT&T
Wireless Group either fails to commence service using an agreed technology in at
least 13 of the top 50  domestic  markets or  abandons  wideband  code  division
multiple access as its primary technology for third generation services.  Before
the split-off,  AT&T Wireless Group would be required to fund its  proportionate
share,  consisting  of $6.2 billion plus  interest.  After the  split-off,  AT&T
Wireless  Services would be required to fund the entire  repurchase  obligation,
with AT&T  being  secondarily  liable for $3.6  billion  plus  interest  if AT&T
Wireless Services is unable to satisfy the entire obligation.

If we do not complete the split-off, AT&T Wireless Group may not be able to meet
its substantial capital needs that are key to its business strategy

         AT&T's  desire to reduce debt levels and  maintain  its overall  credit
rating  limits the  ability of each of AT&T's  business  units,  including  AT&T
Wireless Group, to incur substantial indebtedness. As a result, if the split-off
does not  occur in the time  frame  contemplated,  and AT&T  does not  otherwise
succeed in deleveraging  by disposition of assets and other debt  restructuring,
AT&T Wireless Group may face significant capital constraints.  These constraints
would make it difficult for AT&T Wireless Group to continue to pursue its growth
strategy in a capital intensive and highly  competitive  industry,  including by
making it  necessary  to scale  back  plans for third  generation  services  and
international investments.  These constraints may have a material adverse effect
on AT&T Wireless Group's business.

If we  complete  the  split-off,  AT&T  Wireless  Services  will  need to obtain
financing on a stand-alone basis

         Historically, all financing for AT&T Wireless Group was done by AT&T at
the parent level.  AT&T was able to use its overall balance sheet to finance the
operations of AT&T Wireless Group.  If we complete the split-off,  AT&T Wireless
Services will have to raise financing on a stand-alone  basis without  reference
to AT&T's overall balance sheet. Following the split-off, AT&T Wireless Services
may not be able to secure adequate debt or equity  financing on desirable terms.
If concerns  generally  affecting  the wireless  industry  arise,  AT&T Wireless
Services will lose the benefit of AT&T's  current  diverse  business  profile to
support its debt. The cost to AT&T Wireless  Services of  stand-alone  financing
may be materially  higher than the cost of financing  that AT&T  Wireless  Group
incurred as part of AT&T.

         The credit  ratings of AT&T  Wireless  Services are  currently  and may
continue  to be  different  than  the  historical  ratings  of AT&T.  After  the
split-off,  AT&T Wireless  Services'  credit  ratings may be different from what
they are now.  Differences in credit ratings affect the interest rate charged on
financings,  as  well  as  the  amounts  of  indebtedness,  types  of  financing
structures  and debt markets that may be  available to AT&T  Wireless  Services.
AT&T  Wireless  Services  may not be able to raise the  capital it  requires  on
desirable terms.

 If we complete the split-off,  AT&T Wireless Services may be unable to make the
changes  necessary  to operate as an  independent  entity and may incur  greater
costs
<PAGE>

         AT&T  Wireless  Group  historically  has  been  part  of an  integrated
telecommunications  provider  since  its  acquisition  by  AT&T in  1994.  If we
complete the split-off,  the separation of AT&T Wireless Services from the other
telecommunications  businesses  of  AT&T  may  adversely  affect  AT&T  Wireless
Services.

         In particular, following the split-off, AT&T will have no obligation to
provide  financial,  operational or  organizational  assistance to AT&T Wireless
Services other than limited services.  AT&T Wireless Services may not be able to
implement  successfully  the changes  necessary to operate  independently.  AT&T
Wireless  Services  may  also  incur  additional  costs  relating  to  operating
independently  that  would  cause its cash flow and  results  of  operations  to
decline materially. In addition,  although AT&T Wireless Services may be able to
participate in some of AT&T's  supplier  arrangements  where those  arrangements
permit this or the vendors agree to this, its supplier  arrangements  may not be
as favorable as has historically been the case.

         Agreements to be entered into in connection with the split-off  provide
that the business of AT&T Wireless Group will be conducted  differently and that
its  relationship  with AT&T will be different from that which has  historically
been the case. These differences may have a detrimental effect on the results of
operations or financial condition of AT&T or AT&T Wireless Services.

The  historical  financial  information  of  AT&T  Wireless  Group  may  not  be
representative of its results as an independent entity, and, therefore,  may not
be reliable as an indicator of its historical or future results

         The historical financial  information we have included and incorporated
in this  document  may not  reflect  what the results of  operations,  financial
position  and cash flows of AT&T  Wireless  Group would have been had it been an
independent  entity during the periods  presented.  This is because the combined
financial  statements reflect allocations for services provided to AT&T Wireless
Group by AT&T,  which  allocations may not reflect the costs AT&T Wireless Group
will incur for similar or incremental services as an independent entity.

         This  historical  financial  information  also  is not  reliable  as an
indicator of future results.

If we complete the  split-off,  AT&T  Wireless  Services'  financing  needs will
increase as a result of intercompany repayment obligations

         Before  the   split-off,   AT&T   Wireless   Services  will  repay  all
intercompany  indebtedness owed to AT&T and will redeem all of the AT&T Wireless
Group preferred equity held by AT&T. As of December 31, 2000, these amounts were
approximately  $2.4 billion and $3.0 billion,  respectively,  or an aggregate of
approximately $5.4 billion.

If  we  complete  the  split-off,  AT&T  Wireless  Services  will  generally  be
responsible for tax liability if the split-off is taxable
<PAGE>

         Under the  separation  and  distribution  agreement  to be entered into
between AT&T and AT&T Wireless  Services,  subject to limited  exceptions,  AT&T
Wireless  Services  will be  responsible  for any tax  liability and any related
liability  that  results  from the  split-off  failing  to qualify as a tax-free
transaction,  subject to limited exceptions.  If the split-off failed to qualify
as a tax-free  transaction,  this liability would have a material adverse effect
on AT&T Wireless Group.

AT&T Wireless Group may no longer receive tax sharing payments from AT&T when it
ceases  to be a member  of the AT&T  consolidated  tax  return  group,  and AT&T
Wireless Group may incur other tax  liabilities as a result of the split-off and
pre-split-off transactions

         As a result of the split-off, AT&T Wireless Services will cease to be a
member of the consolidated  federal income tax return group of which AT&T is the
common parent. Consequently, taxable income and losses, and other tax attributes
of AT&T Wireless  Group in post  split-off  taxable  periods could  generally no
longer  offset  taxable  income or losses and other tax  attributes  of the AT&T
consolidated tax return group. For two taxable years after the split-off,  under
federal income tax rules,  AT&T Wireless Group would  generally be able to carry
back any such tax losses,  subject to limitations,  against  taxable income,  if
any, of members of AT&T Wireless Group for pre split-off periods.  Under the tax
sharing agreement between AT&T and AT&T Wireless Group,  however,  AT&T Wireless
Group  generally  may only carry back net  operating  losses  (and not other tax
attributes)  from  post  split-off  taxable  periods  to pre  split-off  taxable
periods,  and only if those losses are significant and with the consent of AT&T,
which consent AT&T has agreed not to withhold  unreasonably.  To the extent AT&T
Wireless  Group  has tax  losses in post  split-off  taxable  periods,  it would
generally no longer receive  current tax sharing  payments with respect to those
losses. Instead, except where those losses can be carried back, it would benefit
from those  losses only if and when AT&T  Wireless  Group  generated  sufficient
taxable  income in future  years to utilize  those tax  losses on a  stand-alone
basis.

         In addition,  there may be tax costs associated with the split-off that
result  from  AT&T  Wireless  Services  ceasing  to  be a  member  of  the  AT&T
consolidated tax return group, as well as from  pre-split-off  transactions.  If
incurred, these costs could be material to AT&T Wireless Services' results.

If we complete the split-off,  various  factors may interfere with AT&T Wireless
Services'  ability  to engage in  desirable  strategic  transactions  and equity
issuances

         AT&T  Wireless  Services  may not be able to engage  in some  strategic
transactions  after the  split-off.  The  Internal  Revenue Code  restricts  the
ability of a company  which has  undergone  a tax-free  split-off  from  certain
issuances of shares generally  within a two-year period after the split-off.  In
addition,  the separation  and  distribution  agreement  prohibits AT&T Wireless
Services for a period of 30 months  following the split-off,  from entering into
certain  transactions  that  could  render  the  split-off  taxable.   This  may
discourage,  delay or prevent a merger, change of control, or other strategic or
capital  raising  transaction  involving the issuance of equity by AT&T Wireless
Services.  Provisions of AT&T Wireless  Services charter and bylaws,  its rights
plan,  applicable  law,  and the DoCoMo  agreements  may also have the effect of
discouraging,  delaying or preventing  change of control  transactions  that its
shareholders find desirable.

 If we complete  the  split-off,  AT&T  Wireless  Services may lose rights under
agreements with AT&T if a change of control occurs
<PAGE>

         We expect  that  some of the  agreements  that  AT&T and AT&T  Wireless
Services  expect to enter into in connection  with the split-off,  including the
brand  license  agreement,  network  services  agreement  and  other  commercial
agreements, will contain provisions that give one party rights in the event of a
change  of  control  of the other  party  that  triggered  these  rights.  These
provisions  may deter a change of control.  In the event of a change of control,
the  exercise  of these  rights  could  have a material  adverse  effect on AT&T
Wireless Services or AT&T.

The market price and trading volume of AT&T Wireless Services common stock maybe
volatile and may face negative pressure

         Before the split-off, there will be no trading market for the shares of
AT&T Wireless  Services  common stock that holders of AT&T common stock and AT&T
Wireless Group tracking stock will receive in the split-off. Investors' interest
may not lead to a liquid  trading  market and the market price of AT&T  Wireless
Services common stock may be volatile. Also, after the split-off, the percentage
of AT&T  Wireless  Services  represented  by publicly  held shares will increase
materially.

         AT&T has announced its intention to retain $3 billion of shares of AT&T
Wireless Services for its own account for sale,  exchange or monetization within
six months of the split-off, subject to receipt of a satisfactory IRS ruling.

         These  factors may result in short- or long-term  negative  pressure on
the trading price of shares of AT&T Wireless  Services common stock.  The market
price of AT&T Wireless  Services common stock could fluctuate  significantly for
many reasons, including in response to the special considerations listed in this
document or for specific  reasons  unrelated to the performance of AT&T Wireless
Services.  Investors  may  consider  AT&T  Wireless  Services  common stock as a
technology stock.  Technology stocks have recently experienced extreme price and
volume  fluctuations.  Therefore,  the market  price and trading  volume of AT&T
Wireless Services common stock also may be extremely volatile.

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

         This Form 10-K contains certain  forward-looking  statements within the
meaning of the Private Securities Litigation Reform Act of 1995 with respect to:

     -    AT&T's  restructuring  plan,  including the split-off of AT&T Wireless
          Group,
     -    financial condition,
     -    results of operations,
     -    cash flows,
     -    dividends,
     -    financing plans,
     -    business strategies,
     -    operating efficiencies or synergies,
     -    budgets,
     -    capital and other expenditures,
     -    network build-out and upgrade,
     -    competitive positions,
     -    availability of capital,
     -    growth opportunities for existing products,
     -    benefits from new technologies,
     -    availability and deployment of new technologies,
     -    plans and objectives of management,
     -    markets  for stock of AT&T  Corp.,  AT&T  Common  Stock Group and AT&T
          Wireless Group, and
     -    other matters.
<PAGE>

Statements  in  this  Form  10-K  that  are  not  historical  facts  are  hereby
identified as "forward  looking  statements"  for the purpose of the safe harbor
provided  by Section  27A of the  Securities  Act of 1933 and Section 21E of the
Securities  Exchange Act of 1934. Any Form 10-K,  Annual Report to Shareholders,
Form  10-Q or Form  8-K of AT&T  may  include  forward  looking  statements.  In
addition,  other written or oral  statements  which  constitute  forward looking
statements have been made and may in the future be made by or on behalf of AT&T,
including,  without limitation, those relating to the future business prospects,
revenues, working capital, liquidity, capital needs, network build out, interest
costs and income, in each case,  relating to AT&T Corp., AT&T Common Stock Group
and AT&T  Wireless  Group.  These forward  looking  statements  are  necessarily
estimates  reflecting  the best  judgment  of senior  management  that rely on a
number of assumptions  concerning  future  events,  many of which are outside of
AT&T's control, and involve a number of risks and uncertainties that could cause
actual results to differ materially from those suggested by the  forward-looking
statements. These forward-looking statements should, therefore, be considered in
light of various important factors, including those set forth in this Form 10-K.
Important  factors that could cause  actual  results to differ  materially  from
estimates or projections  contained in the  forward-looking  statements include,
without limitation:

     o    the risks  associated with the  implementation  of a  third-generation
          network and business strategy for AT&T Wireless Group, including risks
          relating  to  the   operations   of  new  systems  and   technologies,
          substantial required  expenditures and potential  unanticipated costs,
          the  need  to  enter  into  roaming  agreements  with  third  parties,
          uncertainties regarding the adequacy of suppliers on whom these groups
          must rely to provide both network and consumer  equipment and consumer
          acceptance of the products and services to be offered,

     o    the potential impact of DoCoMo's  investment in AT&T Corp.,  including
          provisions of the  agreements  that  restrict  AT&T  Wireless  Group's
          future  operations,  and provisions that may require the repurchase of
          DoCoMo's  investment if AT&T Corp. or AT&T Wireless Group fail to meet
          specified conditions,

     o    the  risks  associated  with  the   implementation   of  AT&T  Corp.'s
          restructuring   plan,  which  is  complicated  and  which  involves  a
          substantial  number  of  different  transactions  each  with  separate
          conditions,  any or all of which may not occur as we currently intend,
          or which may not occur in the timeframe we currently expect,

     o    the risks  associated  with each of AT&T Corp.'s main business  units,
          including AT&T Wireless Group,  operating as an independent  entity as
          opposed  to as  part  of  an  integrated  telecommunications  provider
          following completion of AT&T Corp.'s restructuring plan, including the
          inability of these  groups to rely on the  financial  and  operational
          resources of the combined  company and these groups  having to provide
          services  that were  previously  provided by a  different  part of the
          combined company,

o        the impact of  existing  and new  competitors  in the  markets in which
         these  groups  compete,  including  competitors  that  may  offer  less
         expensive  products and  services,  desirable or  innovative  products,
         technological  substitutes,  or  have  extensive  resources  or  better
         financing;

     o    the introduction or popularity of new products and services, including
          pre-paid phone products in the case of wireless services,  which could
          increase churn,
<PAGE>

     o    the  impact  of  oversupply  of  capacity   resulting  from  excessive
          deployment of network capacity,

     o    the ongoing  global and domestic  trend towards  consolidation  in the
          telecommunications industry, which trend may have the effect of making
          the   competitors   larger  and  better   financed  and  afford  these
          competitors  with extensive  resources and greater  geographic  reach,
          allowing them to compete more effectively,

     o    the  effects of  vigorous  competition  in the  markets in which these
          groups operate and for each group's more valuable customers, which may
          decrease  prices  charged,  increase  churn  and  change  the  group's
          customer mix, profitability and average revenue per user,

     o    the  ability  to enter into  agreements  to  provide,  and the cost of
          entering new markets necessary to provide, nationwide services,

     o    the  ability  to  establish  a  significant  market  presence  in  new
          geographic and service markets,

     o    the availability and cost of capital and the consequences of increased
          leverage,

     o    successful  execution of plans to dispose of  non-strategic  assets as
          part of an overall corporate deleveraging plan,

     o    the impact of any unusual items resulting from ongoing  evaluations of
          the business strategies of these groups,

     o    the  requirements  imposed  on these  groups or  latitude  allowed  to
          competitors  by the FCC or  state  regulatory  commissions  under  the
          Telecommunications   Act  of  1996  or  other   applicable   laws  and
          regulations,

     o    the risks and costs  associated  with the need to  acquire  additional
          spectrum for current and future services,

     o    the  risks  associated  with  technological  requirements,  technology
          substitution and changes and other technological developments,

     o    the results of litigation filed or to be filed against these groups,

     o    the  possibility  of one or more of the markets in which these  groups
          compete  being  impacted  by changes in  political,  economic or other
          factors,  such as monetary  policy,  legal and  regulatory  changes or
          other external factors over which these groups have no control,

     o    the risks  related to AT&T's  investments  in Liberty  Media Group and
          joint ventures, and

     o    those factors listed under "Special Considerations."

         The words "estimate,"  "project," "intend," "expect," "believe," "plan"
and similar  expressions  are intended to identify  forward-looking  statements.
These  forward-looking  statements are found at various places  throughout  this
document and throughout the other  documents  incorporated  herein by reference.
Readers  are  cautioned  not to place undue  reliance  on these  forward-looking
statements,  which speak only as of the date  hereof.  Moreover,  in the future,

<PAGE>

AT&T  Corp.,  through  its  senior  management  team,  may make  forward-looking
statements  about  the  matters  described  in this  document  or other  matters
concerning  AT&T Corp.,  AT&T  Wireless  Group or AT&T Common Stock Group.  AT&T
Corp.  undertakes  no  obligation  to publicly  release any  revisions  to these
forward-looking  statements to reflect  events or  circumstances  after the date
hereof or to reflect the occurrence of unanticipated events.

ITEM 2.  PROPERTIES.

         The properties of AT&T Corp.  consist  primarily of plant and equipment
used to provide long distance and wireless telecommunications services and cable
television services and administrative office buildings.  AT&T's owns and leases
properties to support its offices, facilities and equipment.

         Telecommunications  plant and  equipment  consists of:  central  office
equipment,  including  switching and  transmission  equipment;  connecting lines
(cables,  wires,  poles,  conduits,  etc.);  wireless  cell sites,  antennas and
wireless switching facilities;  land and buildings; and miscellaneous properties
(work equipment, furniture, plant under construction, etc.). The majority of the
connecting  lines  are on or  under  public  roads,  highways  and  streets  and
international  and  territorial  waters.  The  remainder are on or under private
property. Physical cable television properties, which are located throughout the
United  States,  consist of system  components,  motor  vehicles,  miscellaneous
hardware, spare parts and other components. AT&T also operates a number of sales
offices,  customer  care  centers,  and other  facilities,  such as research and
development laboratories.

         AT&T continues to manage the  deployment and  utilization of its assets
in order to meet its global  growth  objectives  while at the same time ensuring
that these assets are generating value for the  shareholder.  AT&T will continue
to manage its asset base consistent with globalization initiatives,  marketplace
forces, productivity growth and technology change.

ITEM 3.  LEGAL PROCEEDINGS.

         In the normal course of business, AT&T Corp. is subject to proceedings,
lawsuits and other  claims,  including  proceedings  under  government  laws and
regulations related to environmental and other matters. Such matters are subject
to  many   uncertainties  and  outcomes  are  not  predictable  with  assurance.
Consequently, AT&T Corp. is unable to ascertain the ultimate aggregate amount of
monetary liability or financial impact with respect to these matters at December
31, 2000. While these matters could affect operating  results of any one quarter
when resolved in future  periods,  it is  management's  opinion that after final
disposition,  any monetary  liability or financial  impact to AT&T Corp.  beyond
that  provided  for at year-end  would not be material  to AT&T  Corp.'s  annual
consolidated financial position or results of operations.

         The  Company  has  been  named  as a  defendant  in  several  purported
securities  class action lawsuits filed in the United States District Courts for
the District of New Jersey and for the Southern District of New York purportedly
filed on behalf of persons who  purchased  securities of the Company for various
periods from October 25, 1999 through May 1, 2000.  These lawsuits assert claims
under Section 11 of the  Securities  Act of 1933, as amended,  and Section 10(b)
and 20(a) of the Securities Exchange Act of 1934, as amended,  and allege, among
other  things,  that  during the  period  referenced  above,  the  Company  made
materially  false and misleading  statements and omitted to state material facts
concerning  its future  business  prospects.  The  complaints  seek  unspecified
damages. The Company believes that the lawsuits are without merit and intends to
defend them vigorously.
<PAGE>

         Several  lawsuits have been filed  asserting  claims that AT&T Wireless
Group collected  charges for local government taxes from customers that were not
properly  subject to those  charges.  AT&T  Wireless  Group has  entered  into a
settlement of one of these cases, although the settlement has been challenged on
appeal. AT&T Wireless Group has asserted in those cases that any recovery should
come from the municipalities to which the taxes were paid.

         Several class action lawsuits have been filed in which claims have been
asserted that AT&T Wireless  Group did not have  suffcient  network  capacity to
support the influx of new  subscribers  who signed up for AT&T  Digital One Rate
service  beginning in May 1998 and therefore has failed to provide  service of a
quality  allegedly  promised to subscribers.  The plaintiffs in these cases have
not asserted  specific claims for damages,  with the exception of one case filed
in Texas in which the named plaintiffs have asserted claims for compensatory and
punitive damages totaling $100 million.

         Several other class action or  representative  lawsuits have been filed
against  AT&T  Wireless  Group that  allege,  depending  on the case,  breach of
contract,  misrepresentation or unfair practice claims relating to AT&T Wireless
Group's billing  practices  (including  rounding up of partial minutes of use to
full minute increments and billing send to end), coverage,  dropped calls, price
fixing and/or  mistaken  bills.  Although the plaintiffs in these cases have not
specified alleged damages, the damages in two of the cases are alleged to exceed
$100  million.  One of these two  cases  was  dismissed  and the  dismissal  was
affirmed in part on appeal. Settlement negotiations are ongoing in both cases.

         AT&T Wireless Group is involved in litigation in which the Cellular One
Group  claims  that  use of the  name  ""AT&T  Digital  One  Rate"  infringes  a
trademarked  name,  ""DIGITALONE"  for which the Cellular One Group has obtained
trademark  registration.  The  Cellular One Group has not  specified  amounts of
claimed damages.

         AT&T Wireless Group is involved in a patent infringement action against
GTE in the U.S. District Court in Seattle, Washington. GTE claims that the Nokia
phones   manufactured  for  AT&T  Wireless  Group  infringe  a  GTE  patent  for
over-the-air  activation and  over-the-air  programming.  AT&T Wireless Group is
seeking a declaratory judgment that its use of over-the-air  activation does not
infringe GTE's patent. GTE has not specified amounts of claimed damages.

         Stockholders   of  a  former   competitor   of  AT&T   Wireless   Group
air-to-ground  business are plaintiffs in a lawsuit filed in 1993, alleging that
AT&T Wireless Group breached a confidentiality  agreement, used trade secrets to
unfairly  compete,  and  tortiously  interfered  with the business and potential
business of the competitor.  Plaintiffs sought damages in an unspecified  amount
in excess of $3.5 billion. AT&T Wireless Group obtained partial summary judgment
and then  prevailed on the remainder of the claims at a trial on the validity of
a release of plaintiffs'  claims.  Final judgment was entered against plaintiffs
on their claims,  and plaintiffs  appealed.  On appeal,  the Appellate  Court of
Illinois,  Second District,  reversed and remanded the case for trial indicating
that certain issues decided by the judge needed to be resolved by a jury.

         AT&T  Wireless  Group  is  vigorously  defending  each  of  the  claims
described  above.  AT&T Wireless Group cannot predict the final outcome of these
disputes.

         AT&T is also a named party in a number of environmental  actions,  none
of which is material to the consolidated financial statements or business of the
Company. In addition,  pursuant to the Separation and Distribution  Agreement by

<PAGE>

and among AT&T,  Lucent,  and NCR, dated as of February 1, 1996, and amended and
restated  as of March 29,  1996,  Lucent has assumed  liability,  subject to the
liability sharing provisions of that agreement, for a number of actions in which
AT&T remains a named  party.  AT&T is working to be released as a party to these
actions,  although  there can be no assurance that it will be successful in this
regard.

         There  are four  environmental  proceedings  which are  required  to be
reported  pursuant to  Instruction  5.C. of Item 103 of Regulation  S-K; for the
first three below,  Lucent has assumed liability,  as described above. First, on
July 31, 1991,  the United  States  Environmental  Protection  Agency Region III
issued a complaint  pursuant to Section 3008a of the Resource  Conservation  and
Recovery Act alleging violations of various waste management  regulations at the
Company's  Richmond Works,  Richmond,  Virginia.  The complaint seeks a total of
$4.2  million  in  penalties.  Second,  on July  31,  1991,  the  United  States
Environmental  Protection  Agency filed a civil  complaint in the U.S.  District
Court for the Southern  District of Illinois  against the Company and nine other
parties  seeking  enforcement  of  its  Comprehensive   Environmental  Response,
Compensation and Liability Act ("CERCLA")  Section 106 cleanup order,  issued in
November 1990 for the NL Granite City Superfund site,  Granite,  Illinois,  past
costs,  civil penalties of $25,000 per day and treble damages related to certain
United  States'  costs.  Third,  during  1994,  AT&T Nassau  Metals  Corporation
("Nassau"), a wholly owned subsidiary of AT&T, and the New York State Department
of  Environmental  Conservation  ("NYSDEC") were engaged in negotiations  over a
study and cleanup of the Nassau plant located on Richmond  Valley Road in Staten
Island,  New York.  During these  negotiations,  in June 1994,  NYSDEC presented
Nassau with a draft consent order that included not only provisions  relating to
site  investigation  and  remediation but also a provision for payment of a $3.5
million   penalty  for  alleged   violations  of  hazardous   waste   management
regulations.  No formal proceeding has been commenced by NYSDEC.  Last, the U.S.
Department of Justice is using a grand jury sitting in the District Court of the
Virgin Islands to investigate the purported 1996 release of non-toxic  bentonite
drilling mud within the coastal  region of St. Croix.  Requests for documents or
testimony  or both have been  directed  to  numerous  entities  including  AT&T,
affiliated   companies,   contractors  involved  in  the  work,  and  individual
employees.  The  prosecutor  contemplates  seeking  criminal  penalties or other
sanctions  from any party that evidence  suggests  either  knowingly  discharged
pollutants  in  violation  of permits or  knowingly  made  false  statements  in
violation of federal law.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.

         No matter was  submitted  to a vote of  security  holders in the fourth
quarter of the fiscal year covered by this report.

<PAGE>
<TABLE>
            Executive Officers of the Registrant
                   (as of March 17, 2001)
<CAPTION>
                                                                                        Became AT&T
Name                       Age                                                      Executive Officer On
----                       ---                                                      --------------------
<S>                        <C>  <C>                                                        <C>
C. Michael Armstrong*. .   62   Chairman of the Board and Chief Executive Officer  . . . . 10-97
Harold W. Burlingame . .   60   Executive Vice President, AT&T Wireless Group. . . . . . .  9-86
James Cicconi  . . . . .   48   Executive Vice President-Law & Government Affairs and
                                  General Counsel  . . . . . . . . . . . . . . . . . . . . 12-98
David W. Dorman  . . . .   46   President  . . . . . . . . . . . . . . . . . . . . . . . . 12-00
Mirian Graddick-Weir . .   46   Executive Vice President, Human Resources  . . . . . . . .  3-99
Mohan Gyani  . . . . . .   49   Executive Vice President and President & CEO, AT&T
                                  Wireless Services  . . . . . . . . . . . . . . . . . . .  1-00
Frank Ianna  . . . . . .   51   Executive Vice President and President, AT&T Network
                                  Services . . . . . . . . . . . . . . . . . . . . . . . .  3-97
Michael G. Keith . . . .   52   Executive Vice President and President and CEO,
                                  AT&T Wireless Services . . . . . . . . . . . . . . . . . 12-98
Richard J. Martin  . . .   54   Executive Vice President, Public Relations and
                                  Employee Communication . . . . . . . . . . . . . . . . . 11-97
John C. Malone** . . . .   60   Chairman of the Board, Liberty Media Corporation . . . . .  3-99
David C. Nagel . . . . .   56   President, AT&T Labs & Chief Technology Officer. . . . . .  3-97
Charles H. Noski . . . .   48   Senior Executive Vice President and Chief Financial
                                  Officer  . . . . . . . . . . . . . . . . . . . . . . . . 12-99
John C. Petrillo . . . .   51   Executive Vice President, Corporate Strategy and
                                  Business Development . . . . . . . . . . . . . . . . . .  1-96
Daniel E. Somers . . . .   53   President and CEO, AT&T Broadband  . . . . . . . . . . . .  5-97
John D. Zeglis** . . . .   53   Chairman and Chief Executive Officer, AT&T Wireless Group.  9-86
</TABLE>
    -----------
     *Chairman of the Board of Directors and Chairman of the Executive and Proxy
      Committees.
    **Member of the Board of Directors.

         All of the above  executive  officers  have held high level  managerial
positions with AT&T or its affiliates for more than the past five years,  except
Messrs.  Armstrong,  Cicconi,  Dorman,  Gyani, Malone,  Nagel, Noski and Somers.
Prior to joining  AT&T in October  1997,  Mr.  Armstrong  was Chairman and Chief
Executive  Officer of Hughes  Electronics  from 1993.  Prior to joining  AT&T in
September 1998 as Senior Vice President-Law and Government Affairs,  Mr. Cicconi
was a partner at the law firm of Akin,  Gump,  Strauss,  Houer and Feld,  L.L.P.
from  1991.  Prior to  joining  AT&T in  December  2000,  Mr.  Dorman  was Chief
Executive Officer of Concert, a global venture created by AT&T and BT, from 1999
and from 1998 to 1999 Mr. Dorman was  Chairman,  President and CEO of PointCast,
an Internet-based  news and information service company and from 1996 to 1998 he
was Executive Vice President of SBC  Communications and from 1994 to 1996 he was
Chief Executive  Officer of Pacific Bell. Prior to joining AT&T in January 2000,
Mr. Gyani was Executive Vice President and Chief  Financial  Officer of Airtouch
Communications  from 1995 to 1999,  and  following  the merger of  Vodafone  and
Airtouch,  was head of strategy and corporate  development at Vodafone  Airtouch
plc.  Prior to joining  AT&T,  Dr.  Malone  was  President,  Chairman  and Chief
Executive  Officer of TCI from 1994. In addition,  Dr. Malone served as director
of TCI Pacific  Communications,  Inc. since 1996. Prior to joining AT&T in April
1996, Mr. Nagel was with Apple  Computer,  serving as Senior Vice President from
1995 and  General  Manager  from 1988  through  1995.  Prior to joining  AT&T in
December  1999, Mr. Noski was with Hughes  Electronics  serving as President and
Chief  Operating  Officer and  Director  from 1997 and Vice  Chairman  and Chief
Financial  Officer from 1996 to 1997 and Sr. Vice President and Chief  Financial
Officer  from 1992 to 1996.  Prior to joining AT&T in May 1997,  Mr.  Somers was
Chairman and Chief Executive  Officer for Bell  Cablemedia,  plc, of London from
1995.
<PAGE>

PART II

ITEM 5.    MARKET FOR THE REGISTRANT'S COMMON EQUITY AND

RELATED

              STOCKHOLDER MATTERS.

         AT&T (ticker symbol "T") is listed on the New York Stock  Exchange,  as
well as the Boston, Chicago,  Cincinnati,  Pacific and Philadelphia exchanges in
the United States, and on stock exchanges in Brussels, London, Paris and Geneva.
As of December 31, 2000, AT&T had approximately 3.8 billion shares  outstanding,
held by more than 4.8 million  shareowners.  AT&T  Wireless  Group  common stock
(ticker symbol "AWE"), a tracking stock of AT&T, is listed on the New York Stock
Exchange.  As of December  31,  2000,  there were  approximately  361.8  million
registered  shareowners of AT&T Wireless Group.  Liberty Media Group Class A and
Class B common stock (ticker  symbols  "LMG.A" and "LMG.B"),  tracking stocks of
AT&T,  are listed on the New York  Stock  Exchange.  As of  December  31,  2000,
Liberty Media Class A had approximately 2.4 billion shares outstanding,  held by
6,842 shareowners;  Liberty Media Class B had approximately 206.2 million shares
outstanding, held by 375 shareowners.

         For additional  information  about the market for the Company's  common
equity, see Note 21 to the Consolidated  Financial Statements included in Item 8
to this Annual Report.

<PAGE>
ITEM 6.    SELECTED FINANCIAL DATA.
<TABLE>
                AT&T Corp. and Subsidiaries
SEVEN-YEAR SUMMARY OF SELECTED FINANCIAL DATA (UNAUDITED)
       Dollars in millions (except per share amounts)
<CAPTION>
                                              2000(1)      1999(2)        1998         1997          1996          1995         1994
                                              -----        -----          ----         ----          ----          ----         ----
<S>                                         <C>          <C>           <C>          <C>           <C>           <C>          <C>
RESULTS OF OPERATIONS AND EARNINGS
   PER SHARE
Revenue............................         $65,981      $62,600       $53,223      $51,577       $50,688       $48,449      $46,063
Operating income...................           4,277       10,859         7,487        6,836         8,709         5,169        7,393
Income from continuing operations..           4,669        3,428         5,235        4,249         5,458         2,981        4,230
AT&T Common Stock Group:
   Income from continuing operations          3,105        5,450         5,235        4,249         5,458         2,981        4,230
   Earnings per basic share........            0.89         1.77          1.96         1.59          2.07          1.15         1.65
   Earnings per diluted share......            0.88         1.74          1.94         1.59          2.07          1.14         1.64
   Dividends declared per share....          0.6975         0.88          0.88         0.88          0.88          0.88         0.88
AT&T Wireless Group(3):
   Income..........................              76           --            --           --            --            --           --
   Earnings per basic and diluted
      share........................            0.21           --            --           --            --            --           --
Liberty Media Group(3),(4):
   Income (loss)...................           1,488      (2,022)            --           --            --            --           --
   Earnings (loss) per basic and
      diluted share................            0.58       (0.80)            --           --            --            --           --
ASSETS AND CAPITAL
Property, plant and equipment, net.         $51,161      $39,618       $26,903      $24,203       $20,803       $16,453      $14,721
Total assets-continuing operations.         242,223      169,406        59,550       59,994        55,838        54,365       47,926
Total assets.......................         242,223      169,406        59,550       61,095        57,348        62,864       57,817
Long-term debt.....................          33,092       23,217         5,556        7,857         8,878         8,913        9,138
Total debt.........................          65,039       35,850         6,727       11,942        11,351        21,081       18,720
Mandatorily redeemable preferred
   securities......................           2,380        1,626            --           --            --            --           --
Shareowners' equity................         103,198       78,927        25,522       23,678        21,092        17,400       18,100
Debt ratio(5)......................           46.2%        43.0%         20.9%        33.5%         35.0%         54.8%        50.8%
Gross capital expenditures.........          14,566       13,511         7,981        7,714         7,084         4,659        3,504
OTHER INFORMATION
Operating income as a percent of
   revenue.........................            6.5%        17.3%         14.1%        13.3%         17.2%         10.7%        16.1%
Income from continuing operations
   attributable to AT&T Common Stock
   Group as a percent of revenue...            4.8%         8.7%          9.8%         8.2%         10.8%          6.2%         9.2%
Return on average common equity(6).            6.2%        15.2%         25.3%        19.7%         27.1%          0.4%        29.5%
Employees-continuing operations(6).         165,600      147,800       107,800      130,800       128,700       126,100      116,400
Data at year-end:
   AT&T stock price per share......           17.25        50.81         50.50        40.87         27.54         29.60        22.97
   AT&T Wireless Group stock price
      per share....................           17.31           --            --           --            --            --           --
   Liberty Media Group A stock price
      per share(4).................           13.56        28.41            --           --            --            --           --
   Liberty Media Group B stock price
      per share(4).................           18.75        34.38            --           --            --            --           --
</TABLE>
----------
1.       On April 27,  2000,  AT&T  issued  15.6% of AT&T  Wireless  Group (AWE)
         tracking stock.  AT&T Common Stock Group results exclude the portion of
         AT&T  Wireless  Group that is  represented  by the  tracking  stock and
         exclude Liberty Media Group (LMG). In addition,  on June 15, 2000, AT&T
         completed the acquisition of MediaOne Group, Inc.
<PAGE>

2.       In connection  with the March 9, 1999, merger with Tele-Communications,
         Inc., AT&T issued separate tracking stock for LMG. LMG is accounted for
         as an equity investment.

3.       No dividends have been declared for AWE or LMG tracking stocks.

4.       LMG  earnings  per share  amounts and stock  prices  have been restated
         to  reflect  the  June 2000 two-for-one stock split.

5.       Debt  ratio  reflects  debt as a percent  of total  capital  (debt plus
         equity,  excluding  LMG).  For  purposes  of this  calculation,  equity
         includes  convertible  quarterly trust preferred  securities as well as
         redeemable preferred stock of subsidiary.

6.       Data provided excludes LMG.

<PAGE>

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS.


OVERVIEW

         AT&T Corp.  (AT&T or the  company) is among the world's  communications
leaders, providing voice, data, video and broadband  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 businesses.

MERGER WITH MEDIAONE GROUP, INC.

         We completed the merger with MediaOne  Group,  Inc.  (MediaOne) on June
15, 2000, in a cash and stock  transaction  valued at approximately $45 billion.
We issued  approximately  603 million shares,  of which 60 million were treasury
shares, and made cash payments of approximately $24 billion.

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

TRACKING STOCKS

         On  April  27,  2000,  AT&T  issued a new  class of stock to track  the
performance  of AT&T  Wireless  Group.  AT&T  sold 360  million  shares  of AT&T
Wireless Group tracking  shares at a price of $29.50 per share.  The 360 million
shares track  approximately  16% of the financial  performance  of AT&T Wireless
Group.

         In   addition,   in   connection   with   the   1999   acquisition   of
Tele-Communications, Inc. (TCI), renamed AT&T Broadband (Broadband), AT&T issued
a separate tracking stock to reflect the financial  performance of Liberty Media
Group (LMG), TCI's former programming and technology investment businesses.  The
outstanding  Liberty  Media Group  tracking  stock tracks 100% of the  financial
performance of LMG.

         The remaining  results of operations of AT&T,  including  approximately
84% of the financial  performance of AT&T Wireless Group, are referred to as the
AT&T Common Stock Group and are represented by AT&T common stock.

         A  tracking  stock is  designed  to  provide  financial  returns to its
holders based on the financial  performance  and economic value of the assets it
tracks.  Ownership of shares of AT&T common stock,  AT&T Wireless Group tracking
stock or Liberty  Media Class A or B tracking  stock does not represent a direct
legal  interest  in the  assets and  liabilities  of any of the  groups,  but an
ownership  of AT&T in total.  The specific  shares  represent an interest in the
economic performance of the net assets of each of the groups.

         The   earnings   attributable   to  AT&T   Wireless   Group   represent
approximately  16% of the  earnings  from April 27, 2000,  through  December 31,
2000,  and are excluded from the earnings  available to AT&T Common Stock Group.
Similarly, the earnings and losses related to LMG are excluded from the earnings
available to AT&T Common Stock Group.
<PAGE>
         We do not have a  controlling  financial  interest in LMG for financial
accounting  purposes;  therefore,  our  ownership  in  LMG  is  reflected  as an
investment  accounted  for  under  the  equity  method  in  AT&T's  consolidated
financial  statements.  The amounts  attributable  to LMG are  reflected  in the
accompanying consolidated financial statements as "Equity earnings (losses) from
Liberty  Media  Group"  and  "Investment  in  Liberty  Media  Group and  related
receivables, net".

         AT&T Wireless Group is an integrated business of AT&T and Liberty Media
Group is a combination  of certain  assets and  businesses  of AT&T,  neither of
which is a stand-alone  entity.  As AT&T Wireless  Group and Liberty Media Group
are tracking stocks of AT&T,  separate financial  statements are not required to
be filed. We have provided the financial statements as exhibits to this document
to  provide  additional  disclosures  to  investors  to allow them to assess the
financial  performance of AT&T Wireless Group and Liberty Media Group. Since the
tracking  stocks are governed by a common board of directors,  the AT&T board of
directors could make operational and financial  decisions or implement  policies
that affect  disproportionately  the businesses of any group.  For example,  our
board of  directors  may  decide  to  transfer  funds or to  reallocate  assets,
liabilities,  revenue, expenses and cash flows among groups, without the consent
of shareholders.  All actions by the board of directors are subject to the board
members' fiduciary duties to all shareholders of AT&T as a group and not just to
holders  of a  particular  class of  tracking  stock and to our  charter, policy
statements, by-laws and inter-company agreements.

         Our board of directors may change or supplement  the policies set forth
in the tracking stock policy  statements and our by-laws in the sole  discretion
of our  board  of  directors,  subject  to  the  provisions  of any  inter-group
agreement but without approval of our shareholders.  In addition,  the fact that
we have separate  classes of common stock could give rise to occasions  when the
interests of the holders of AT&T common stock,  AT&T Wireless Group common stock
and Liberty Media Group tracking stock diverge, conflict or appear to diverge or
conflict.  Our board of  directors  would  make any  change or  addition  to the
policies set forth in the tracking stock policy  statements or our by-laws,  and
would respond to any actual or apparent divergence of interest among our groups,
in a  manner  consistent  with  its  fiduciary  duties  to  AT&T  and all of our
shareholders after giving  consideration to the potentially  divergent interests
and all other relevant  interests of the holders of the separate  classes of our
shares.

         You should consider that as a result of the flexibility provided to our
board of  directors,  it may be  difficult  for  investors  to assess the future
prospects of a tracking stock group based on that group's past performance.

RESTRUCTURING OF AT&T

         On October 25, 2000,  we  announced a  restructuring  plan  designed to
fully  separate  or issue  separately  tracked  stocks  intended  to reflect the
financial  performance  and economic  value of each of the company's  four major
operating  units.  Upon completion of the plan,  AT&T Wireless,  AT&T Broadband,
AT&T  Business and AT&T  Consumer  will all be  represented  by  asset-based  or
tracking stocks.

         As part of the first phase of the  restructuring  plan, we are planning
an exchange offer that will give AT&T  shareowners  the  opportunity to exchange
any  portion of their AT&T  common  shares  for  shares of AT&T  Wireless  Group
tracking stock, subject to pro-ration.  Following the exchange offer and subject
to specified conditions,  AT&T plans to split-off AT&T Wireless Group from AT&T.
We intend,  however,  to retain up to $3 billion of shares of AT&T  Wireless for
future sale, exchange or monetization within six months following the split-off.
We expect AT&T Wireless  will become an  independent,  publicly-held  company in
mid-2001, upon receipt of appropriate tax and other approvals.

         In  addition  to the  split-off  of AT&T  Wireless,  we intend to fully
separate or issue separate tracking stocks to reflect the financial  performance
and economic value of each of our other major business  units. We plan to create
and issue new classes of stock to track the financial  performance  and economic
value of our AT&T  Broadband  unit and AT&T Consumer  unit. We plan to sell some
percentage of shares of the AT&T Broadband  unit in the fall of 2001.  Within 12
months of such sale, we intend to completely  separate AT&T Broadband from AT&T,
as an  asset-based  stock.  The AT&T Consumer  tracking  stock is expected to be
fully distributed to AT&T shareowners in the second half of 2001.

         AT&T  expects  that  these   transactions  will  be  tax-free  to  U.S.
shareholders.   AT&T's   restructuring   plan  is  complicated  and  involves  a
substantial  number  of steps  and  transactions,  including  obtaining  various
conditions,  such as Internal Revenue Service (IRS) rulings. In addition, future
financial conditions,  superior alternatives or other factors may arise or occur
that make it  inadvisable  to proceed  with part or all of AT&T's  restructuring
plan. Any or all of the elements of AT&T's  restructuring  plan may not occur as
we currently  expect or in the timeframes that we currently  contemplate,  or at
all.  Alternative forms of restructuring,  including sales of interests in these
businesses,  would reduce what is available for  distribution  to shareowners in
the restructuring.

         On November 15, 2000, we announced that our board of directors voted to
split-off  LMG.  A new  asset-based  security  will be issued to  holders of LMG
tracking stock in exchange for their LMG tracking shares.  The split-off remains
subject to receipt  of a  favorable  tax  ruling  from the IRS.  We expect  this
split-off to be completed in mid-2001.

FORWARD-LOOKING STATEMENTS

         This document may contain  forward-looking  statements  with respect to
AT&T's  restructuring plan,  financial  condition,  results of operations,  cash

<PAGE>

flows, dividends,  financing plans, business strategies,  operating efficiencies
or synergies,  budgets,  capital and other  expenditures,  network build out and
upgrade,  competitive positions,  availability of capital,  growth opportunities
for  existing  products,  benefits  from  new  technologies,   availability  and
deployment of new  technologies,  plans and objectives of management,  and other
matters.

         These forward-looking statements,  including, without limitation, those
relating to the future business prospects,  revenue, working capital, liquidity,
capital needs,  network build out,  interest costs and income,  are  necessarily
estimates reflecting the best judgment of senior management and involve a number
of risks and uncertainties  that could cause actual results to differ materially
from those suggested by the forward-looking  statements.  These  forward-looking
statements  should,  therefore,  be  considered  in light of  various  important
factors that could cause actual results to differ  materially  from estimates or
projections  contained  in the  forward-looking  statements  including,  without
limitation:

         o        the  risks  associated  with  the   implementation  of  AT&T's
                  restructuring  plan,  which  is  complicated  and  involves  a
                  substantial   number  of  different   transactions  each  with
                  separate  conditions,  any or all of which may not occur as we
                  currently  intend,  or which may not occur in the timeframe we
                  currently expect,

         o        the risks  associated with each of AT&T's main business units,
                  operating as independent  entities as opposed to as part of an
                  integrated telecommunications provider following completion of
                  AT&T's  restructuring  plan,  including the inability of these
                  groups to rely on the financial and  operational  resources of
                  the  combined  company  and these  groups  having  to  provide
                  services that were previously  provided by a different part of
                  the combined company,

         o        the impact of existing and new  competitors  in the markets in
                  which these groups  compete,  including  competitors  that may
                  offer less  expensive  products  and  services,  desirable  or
                  innovative  products,   technological  substitutes,   or  have
                  extensive resources or better financing.

         o        the impact of oversupply of capacity resulting  from excessive
                  deployment of network capacity,

         o        the ongoing global and domestic trend towards consolidation in
                  the  telecommunications  industry,  which  trend  may have the
                  effect of making the  competitors of these entities larger and
                  better  financed and afford these  competitors  with extensive
                  resources  and  greater  geographic  reach,  allowing  them to
                  compete more effectively,

         o        the  effects of vigorous  competition  in the markets in which
                  the  company  operates,  which may  decrease  prices  charged,
                  increase  churn and change  customer  mix,  profitability  and
                  average revenue per user,

         o        the ability to enter into agreements  to provide, and the cost
                  of  entering  new  markets   necessary to  provide, nationwide
                  services,
<PAGE>

         o        the  ability to establish a significant market presence in new
                  geographic  and service markets,

         o        the  availability and cost of capital and  the consequences of
                  increased leverage,

         o        the successful  execution of plans to dispose of non-strategic
                  assets as part of an overall  corporate deleveraging plan,

         o        the  potential  impact  of NTT  DoCoMo's  investment  in AT&T,
                  including  provisions  of the  agreements  that  restrict AT&T
                  Wireless  Group's future  operations,  and provisions that may
                  require AT&T to repurchase  DoCoMo's  interest in AT&T if AT&T
                  or AT&T Wireless Group fail to meet specified conditions,

         o        the  impact  of  any  unusual  items  resulting  from  ongoing
                  evaluations  of  the  business  strategies of the company,

         o        the requirements imposed on the company or latitude allowed to
                  competitors by the Federal Communications  Commission (FCC) or
                  state regulatory  commissions under the Telecommunications Act
                  of 1996 or other applicable laws and regulations,

         o        the  risks  and  costs  associated  with  the  need to acquire
                  additional wireless  spectrum for current and future services,

         o        the   risks  associated   with    technological  requirements,
                  technology  substitution and changes   and other technological
                  developments,

         o        the  results of  litigation filed  or to be  filed against the
                  company,

         o        the  possibility  of one or more of the  markets  in which the
                  company  competes  being  impacted  by changes  in  political,
                  economic or other factors,  such as monetary policy, legal and
                  regulatory  changes or other external factors over which these
                  groups have no control, and

         o        the  risks  related  to AT&T's  investments  in LMG  and joint
                  ventures.

         The words "estimate,"  "project," "intend," "expect," "believe," "plan"
and similar  expressions  are intended to identify  forward-looking  statements.
Readers  are  cautioned  not to place undue  reliance  on these  forward-looking
statements,  which speak only as of the date of this document.  Moreover, in the
future, AT&T, through its senior management, may make forward-looking statements
about the matters described in this document or other matters concerning 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, 2000,  1999
and 1998, and financial condition as of December 31, 2000 and 1999.

CONSOLIDATED RESULTS OF OPERATIONS

         The  comparison of 2000 results with 1999 was impacted by events,  such
as  acquisitions  and  dispositions  that occurred  during these two years.  For

<PAGE>

example,  in  2000 we  acquired  MediaOne  and  wireless  properties  in the San
Francisco Bay area, which were both included in our 2000 results for part of the
year,  but were not in 1999  results.  In 1999,  we acquired TCI, the IBM Global
Network  (now AT&T  Global  Network  Services,  or AGNS) and  Vanguard  Cellular
Systems,  Inc. (Vanguard).  These businesses were included in 2000 results for a
full  year,  but  only  a  part  of  1999  (since  their   respective  dates  of
acquisition).  Further, we disposed of certain  international  businesses during
1999 and 2000.  The  results of  businesses  sold in 1999 were  included in 1999
results for part of the year, and were not in 2000 results. Likewise, businesses
sold in 2000 were included in 1999 results for the full year and in 2000 results
for part of the year.

         Year-over-year  comparison was also impacted by the consolidation of At
Home   Corp.    (Excite@Home)    beginning    September   1,   2000,    due   to
corporate-governance  changes  which gave AT&T a controlling  interest.  At that
time and on December 31, 2000, we had an approximate  23% economic  interest and
74% voting interest in Excite@Home. Prior to September 1, 2000, we accounted for
our ownership in Excite@Home under the equity method of accounting,  which means
our investment was included in "Other  investments and related  advances" in the
1999  Consolidated  Balance  Sheet and any earnings or losses were included as a
component  of "Net losses from other  equity  investments"  in the  Consolidated
Statements of Income. The consolidation of Excite@Home resulted in the inclusion
of 100% of its results in each line item of AT&T's  Consolidated  Balance  Sheet
and Consolidated Income Statement. The approximate 77% we do not own is shown in
the  2000  Consolidated  Balance  Sheet  within  "Minority  interest"  and  as a
component of  "Minority  interest  income  (expense)"  in the 2000  Consolidated
Statement of Income.

         On January 5, 2000, we launched Concert,  our global joint venture with
British  Telecommunications  plc (BT). AT&T contributed all of its international
gateway-to-gateway   assets  and  the  economic  value  of   approximately   270
multinational  customers specifically targeted for direct sales by Concert. As a
result,  2000  results do not include the revenue and expenses  associated  with
these  customers and  businesses,  while 1999 does, and 2000 results include our
proportionate  share of  Concert's  earnings in "Net  losses  from other  equity
investments."

         Effective  July 1,  2000,  the  FCC  eliminated  Primary  Interexchange
Carrier  Charges (PICC or per-line  charges) that AT&T pays for  residential and
single-line  business  customers.  The  elimination  of these  per-line  charges
resulted  in lower  access  expense  as well as lower  revenue,  since  AT&T has
historically billed its customers for these charges.

         The  comparison of 1999 results with 1998 was also impacted by the 1999
acquisitions  of TCI,  AGNS and  Vanguard,  since  1999  results  include  these
businesses  for part of the  year,  while  1998  does  not  include  them.  This
comparison  is  also  impacted  by  the  1999   dispositions  of   international
businesses,  which were included in 1999 results for part of the year,  but were
in 1998 results for the full year.
<TABLE>
<CAPTION>
For the Years Ended December 31,                                                2000         1999        1998
                                                                                ----         ----        ----
                                                                                     Dollars in millions
<S>                                                                          <C>          <C>         <C>
Business Services.....................................................       $28,488      $27,480     $24,285
Consumer Services.....................................................        18,976       21,854      22,885
Wireless Services.....................................................        10,448        7,627       5,406
Broadband.............................................................         8,217        5,070          --
Other and Corporate...................................................         (148)          569         647
Total revenue.........................................................       $65,981      $62,600     $53,223
</TABLE>
<PAGE>

         Total revenue  increased  5.4%, or $3.4 billion,  in 2000 compared with
the prior year. Approximately $2.1 billion of the increase was due to the impact
of acquisitions and the  consolidation  of Excite@Home,  offset by the impact of
Concert,  dispositions  and the  elimination of PICC. The remaining $1.3 billion
increase was primarily  driven by a growing demand for our wireless and data and
Internet protocol (IP) products,  and outsourcing services,  partially offset by
continued and  accelerating  declines in long distance voice revenue.  We expect
long  distance  revenue  to  continue  to  be  negatively  impacted  by  ongoing
competition and product substitution.

         Total revenue in 1999 increased $9.4 billion,  or 17.6%,  compared with
1998.  Nearly  three-quarters  of the increase was due to  acquisitions,  net of
dispositions.  The remaining increase was fueled by growth in wireless, business
data, business long distance voice and outsourcing revenue,  partially offset by
the continued decline of consumer long distance voice revenue.

         Revenue by  segment  is  discussed  in  greater  detail in the  segment
results section.
<TABLE>
<CAPTION>
For the Years Ended December 31,                                                2000         1999        1998
                                                                                ----         ----        ----
                                                                                     Dollars in millions
<S>                                                                          <C>          <C>         <C>
Costs of services and products........................................       $17,587      $14,594     $10,495
</TABLE>

         Costs of  services  and  products  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),
programming and licensing costs for cable services,  costs of wireless  handsets
sold,  the provision for  uncollectible  receivables  and other  service-related
costs.

         These costs  increased  $3.0 billion,  or 20.5%,  in 2000 compared with
1999. Nearly $2.1 billion of the increase was due to acquisitions and the impact
of  consolidating  Excite@Home,  net of the impact of Concert and divestments of
international businesses.  The higher costs associated with our growing wireless
subscriber  base  and  wireless  network  as well as new  outsourcing  contracts
increased expenses by approximately  $1.5 billion.  The higher wireless expenses
primarily  related to higher costs of handsets  sold, due to a 53.5% increase in
gross subscriber  additions in 2000 compared with 1999.  Expenses also increased
due to higher  video-programming  costs  principally due to rate increases,  and
higher  costs  associated  with new  broadband  services of  approximately  $0.3
billion.  These increases were partially offset by approximately $0.9 billion of
costs  savings from  continued  cost control  initiatives  and a higher  pension
credit in 2000, primarily driven by a higher pension trust asset base, resulting
from increased investment returns.

         Costs of services and products  rose $4.1  billion,  or 39.1%,  in 1999
compared with 1998,  primarily due to acquisitions,  net of dispositions,  which
accounted  for  approximately  $3.7  billion of the  increase.  The higher costs
associated with our growing wireless  subscriber base as well as new outsourcing
contracts increased expenses by approximately $1.5 billion. Partially offsetting
the 1999 increases were network  cost-control  initiatives of approximately $0.4
billion,  and approximately  $0.3 billion of lower expenses in Business Services
related  to  per-call   compensation   expense,   provision  for   uncollectible
receivables and gross receipts and property taxes.
<PAGE>
<TABLE>
<CAPTION>
For the Years Ended December 31,                                                2000         1999        1998
                                                                                ----         ----        ----
                                                                                     Dollars in millions
<S>                                                                          <C>          <C>         <C>
Access and other connection...........................................       $13,518      $14,686     $15,328
</TABLE>

         Access and other connection  expenses  decreased 8.0%, to $13.5 billion
in 2000,  compared with $14.7 billion in 1999.  Included within access and other
connection  expenses  are costs  that we pay to  connect  domestic  calls on the
facilities of other service providers.  Mandated reductions in per-minute access
costs and decreased  per-line  charges  resulted in lower costs of approximately
$1.5  billion.  Also  contributing  to the decrease was more  efficient  network
usage.  These decreases were partially offset by  approximately  $0.7 billion of
higher  costs due to volume  increases,  and $0.5  billion as a result of higher
Universal  Service Fund  contributions.  Since most of these  charges are passed
through  to  the  customer,  the  per-minute  access-rate  and  per-line  charge
reductions and the increased Universal Service Fund contributions have generally
resulted in a corresponding impact on revenue.

         Costs paid to  telephone  companies  outside  of the  United  States to
connect  calls made to  countries  outside of the United  States  (international
settlements)  are also  included  within access and other  connection  expenses.
These  costs  decreased  approximately  $0.5  billion in 2000,  as result of the
commencement  of  operations  of  Concert.   Concert  now  incurs  most  of  our
international  settlements as well as earns most of our foreign-billed  revenue,
previously  incurred and earned  directly by AT&T. In 2000,  Concert billed us a
net expense composed of international settlement  (interconnection)  expense and
foreign-billed  revenue.  The  amount  charged by Concert in 2000 was lower than
interconnection expense incurred in 1999, since AT&T recorded these transactions
as revenue and expense,  as  applicable.  Partially  offsetting the decline were
costs incurred related to Concert products that AT&T now sells to its customers.

         Access and other connection expenses declined $0.6 billion, or 4.2%, in
1999  compared with the prior year.  This decline  resulted from $0.9 billion of
mandated  reductions  in  per-minute  access  rates in 1999 and  1998,  and $0.6
billion of 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
$0.8 billion of higher costs due to volume growth,  and $0.3 billion as a result
of increased per-line charges and Universal Service Fund contributions.
<TABLE>
<CAPTION>
For the Years Ended December 31,                                                2000         1999        1998
                                                                                ----         ----        ----
                                                                                     Dollars in millions
<S>                                                                          <C>          <C>         <C>
Selling, general and administrative...................................       $13,303      $13,516     $12,770
</TABLE>

         Selling,  general and  administrative  (SG&A)  expenses  decreased $0.2
billion, or 1.6%, in 2000 compared with 1999.  Approximately $2.0 billion of the
decrease was due to savings from continued cost-control initiatives and a higher
pension credit in 2000,  primarily  driven by a higher pension trust asset base,
resulting from increased  investment  returns.  Largely offsetting this decrease
was more than  $1.4  billion  of higher  expenses  associated  with our  growing
wireless  and  broadband  businesses,   and  nearly  $0.7  billion  of  expenses
associated with  acquisitions and the  consolidation of Excite@Home,  net of the
impact of Concert and dispositions.
<PAGE>

         SG&A expenses  increased  $0.7 billion,  or 5.8%, in 1999 compared with
1998.  This  increase was primarily due to  acquisitions,  net of  dispositions,
which  resulted in an increase in SG&A expenses of  approximately  $1.4 billion.
Also contributing to the increase was approximately $0.4 billion of higher costs
to support our growing  wireless  subscriber  base.  Partially  offsetting these
increases  were our continued  efforts to control costs on a companywide  basis,
which resulted in lower SG&A expenses of approximately  $0.9 billion,  including
lower spending for consumer long distance acquisition-programs.
<TABLE>
<CAPTION>
For the Years Ended December 31,                                                   2000       1999       1998
                                                                                   ----       ----       ----
                                                                                       Dollars in millions
<S>                                                                              <C>        <C>        <C>
Depreciation and other amortization.......................................       $7,274     $6,138     $4,378
</TABLE>

         Depreciation  and other  amortization  expenses rose $1.1  billion,  or
18.5%, in 2000 compared with 1999 and increased $1.8 billion,  or 40.2%, in 1999
compared with 1998. Approximately one-half of the increase in both years was due
to acquisitions and the  consolidation  of Excite@Home,  net of dispositions and
the impact of Concert,  as applicable.  The remaining increase was primarily due
to a higher asset base resulting from continued infrastructure investment. Total
capital  expenditures for 2000, 1999 and 1998 were $14.6 billion,  $13.5 billion
and $8.0  billion,  respectively.  We continue to focus the vast majority of our
capital spending on our growth  businesses of broadband,  wireless,  data and IP
and local.
<TABLE>
<CAPTION>
For the Years Ended December 31,                                                      2000       1999    1998
                                                                                      ----       ----    ----
                                                                                         Dollars in millions
<S>                                                                                 <C>        <C>       <C>
Amortization of goodwill, franchise costs and other purchased intangibles....       $2,993     $1,301    $251
</TABLE>

         Amortization   of  goodwill,   franchise   costs  and  other  purchased
intangibles  increased $1.7 billion,  or 130.1%, in 2000 compared with the prior
year.  This  increase  was  largely   attributable  to  the   consolidation   of
Excite@Home,  as well as  acquisitions,  primarily  MediaOne and TCI.  Franchise
costs represent the value attributable to agreements with local authorities that
allow access to homes in Broadband's service areas. Other purchased  intangibles
arising from business combinations primarily included customer relationships and
licenses.

         Amortization   of  goodwill,   franchise   costs  and  other  purchased
intangibles  increased  $1.1 billion in 1999 compared with 1998 due primarily to
the acquisition of TCI and, to a lesser extent, AGNS.

         As a result of our evaluation of recent changes in our industry and the
views of regulatory  authorities,  AT&T expects that the amortization period for
all  licensing  costs,  franchise  costs,  and goodwill  associated  with  newly
acquired wireless,  telecommunications,  and cable operations will not exceed 25
years.

<TABLE>
<CAPTION>
For the Years Ended December 31,                                                   2000       1999       1998
                                                                                   ----       ----       ----
                                                                                       Dollars in millions
<S>                                                                              <C>        <C>        <C>
Net restructuring and other charges.......................................       $7,029     $1,506     $2,514
</TABLE>
<PAGE>

         During 2000,  we recorded $7.0 billion of net  restructuring  and other
charges, which had an approximate $0.90 earnings per diluted share impact to the
AT&T  Common  Stock  Group.  The 2000  charge  included  $6.2  billion  of asset
impairment  charges related to Excite@Home,  $759 million for  restructuring and
exit costs  associated with AT&T's  initiative to reduce costs,  and $91 million
related to the  government-mandated  disposition of AT&T  Communications  (U.K.)
Ltd., which would have competed directly with Concert.

         The asset impairment  charges related to Excite@Home  resulted from the
deterioration of the market conditions and market valuations of Internet-related
companies  during  the fourth  quarter  of 2000,  which  caused  Excite@Home  to
conclude   that   intangible   assets   related   to   their   acquisitions   of
Internet-related  companies  may not be  recoverable.  Accordingly,  Excite@Home
conducted a detailed assessment of the recoverability of the carrying amounts of
acquired  intangible  assets.  This assessment  resulted in a determination that
certain  acquired  intangible  assets,  including  goodwill,  related  to  these
acquisitions,  including  Excite,  were  impaired as of December 31, 2000.  As a
result,  Excite@Home  recorded  impairment  charges of $4.6  billion in December
2000, representing the excess of the carrying amount of the impaired assets over
their fair value.

         The  impairment was allocated to each asset group based on a comparison
of carrying values and fair values. The impairment  write-down within each asset
group was allocated  first to goodwill,  and if goodwill was reduced to zero, to
identifiable intangible assets in proportion to carrying values.

         Since  we own  approximately  23%  of  Excite@Home,  77% of the  charge
recorded by  Excite@Home  was not  included as a reduction to AT&T's net income,
but  rather  was  eliminated  in our 2000  Consolidated  Statement  of Income as
"Minority interest income (expense)."

         Also as a  result  of the  foregoing,  AT&T  recorded  a  goodwill  and
acquisition-related  impairment  charge  of $1.6  billion  associated  with  the
acquisition of our investment in  Excite@Home.  The write-down of our investment
to fair value was determined utilizing discounted expected future cash flows.

         The $759 million charge for  restructuring and exit plans was primarily
due to headcount reductions, mainly in network operations and Business Services,
including  the  consolidation  of  customer-care  and call  centers,  as well as
synergies created by the MediaOne merger.

         Included in exit costs was $503  million of cash  termination  benefits
associated  with the  separation  of  approximately  7,300  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   6,700   employee   separations   were  related  to   involuntary
terminations and approximately 600 to voluntary terminations.

         We also  recorded  $62  million  of  network  lease and other  contract
termination  costs  associated  with  penalties  incurred  as part of  notifying
vendors of the termination of these contracts during the year, and net losses of
$32 million related to the disposition of facilities  primarily due to synergies
created by the MediaOne merger.

         Also included in restructuring  and exit costs in 2000 was $144 million
of benefit plan curtailment  costs associated with employee  separations as part
of these exit plans.  Further,  we recorded  an asset  impairment  charge of $18
million related to the write-down of unrecoverable  assets in certain businesses
where the carrying value was no longer supported by estimated future cash flows.
<PAGE>

         The 2000 restructuring  initiatives are projected to yield cash savings
of  approximately  $690  million  per  year,  as well as EBIT  (earnings  before
interest and taxes,  including  pretax  minority  interest and net pretax losses
from other equity  investments)  savings of approximately $700 million per year.
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 costs of
services and products.

         During 1999,  we recorded $1.5 billion of net  restructuring  and other
charges, which had an approximate $0.37 earnings per diluted share impact to the
AT&T Common Stock Group.

         A $594 million in-process  research and development charge was recorded
reflecting the estimated fair value of research and development projects at TCI,
as of the  date of the  acquisition,  which  had not yet  reached  technological
feasibility or had no alternative future use. The projects identified related to
efforts to offer voice over IP, product-integration efforts for advanced set-top
devices,  cost-savings  efforts  for  broadband-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 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
started  testing  IP-telephony  equipment  in the  field in  late-2000  and will
continue tests throughout 2001.

         The charge  associated  with  product-integration  efforts for advanced
set-top devices, which will enable us to offer next-generation digital services,
was $114 million as of the acquisition date. 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 late-2001 for next-generation digital services.

         The charge associated with cost-savings efforts for broadband-telephony
implementation  was $101 million as of the date of  acquisition.  Telephony cost
reductions  primarily consist of cost savings from the development of a "line of
power  switch," which allows us 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.
Trials related to our telephony cost reductions are complete, and implementation
has begun in certain markets.

         Additionally, the in-process research and development charge related to
Excite@Home was valued at $154 million. This charge related to projects to allow
for  self-provisioning of devices and the development of next-generation  client
software,  network and back-office infrastructure to enable a variety of network
devices  beyond  personal  computers  and improved  design for the regional data
centers' infrastructure.
<PAGE>

         Although  there are  technological  issues to overcome 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,  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 recorded in 1999 associated
with the planned disposal of certain wireless communications equipment resulting
from a program to increase the capacity and operating efficiency of our wireless
network.  As part of a multivendor  program,  contracts  have been executed with
select vendors to replace  significant  portions of our wireless  infrastructure
equipment in the western  United States and the  metropolitan  New York markets.
The program is intended to provide Wireless  Services with the newest technology
available  and allow us to evolve to new,  next-generation  digital  technology,
which is designed to provide high-speed data capabilities. 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.

         Also in 1999, a $145 million  charge for  restructuring  and exit costs
was recorded as part of AT&T's initiative to reduce costs. The restructuring and
exit plans primarily  focused 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 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   were  related  to   involuntary
terminations and approximately 1,100 to voluntary terminations.

         The 1999 restructuring  initiatives are projected to yield cash savings
of approximately $250 million per year. This restructuring  yielded EBIT savings
of  approximately  $200  million in 2000,  and is  expected  to save 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 costs of services and products.

         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 agreement requires
Broadband  to  satisfy   certain   liabilities   owed  by  Phoenixstar  and  its
subsidiaries.  The remaining obligation under this contribution agreement and an
agreement  that  MediaOne  had is $57  million,  which was fully  accrued for at
December 31, 2000. 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 $2.5 billion of net  restructuring  and other
charges, which had an approximate $0.59 earnings per diluted share impact to the
AT&T Common Stock Group.  The bulk of the charge was associated with our overall
cost-reduction  program and the approximately  15,300  management  employees who
accepted the VRIP offer. A  restructuring  charge of $2,724 million was composed

<PAGE>

of  $2,254   million  and  $169   million   for   pension   and   postretirement
special-termination  benefits,   respectively,  $263  million  of  benefit  plan
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  where the  carrying  value was no longer  supported  by future  cash
flows. This charge was made in connection with the review of certain  operations
that would have competed directly with Concert.

         Additionally,  $85 million of merger-related  expenses were recorded in
1998 in connection  with the Teleport  Communications  Group Inc.  (TCG) merger,
which was accounted for as a pooling of interests.  Partially  offsetting  these
charges  was a $92  million  reversal of the 1995  restructuring  reserve.  This
reversal reflected  reserves 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.
<TABLE>
<CAPTION>
For the Years Ended December 31,                                                  2000        1999       1998
                                                                                  ----        ----       ----
                                                                                      Dollars in millions
<S>                                                                             <C>        <C>         <C>
Operating income.........................................................       $4,277     $10,859     $7,487
</TABLE>

         Operating  income  decreased $6.6 billion,  or 60.6%,  in 2000 compared
with 1999. The decrease was primarily due to higher net  restructuring and other
charges of $5.5 billion. Also contributing to the decrease was the impact of the
acquisition  of MediaOne and the  consolidation  of  Excite@Home,  which lowered
operating  income by $1.5 billion.  A majority of the impact of operating losses
and the  restructuring  charge  generated by Excite@Home  was offset in minority
interest income  (expense),  reflecting the approximate 77% of Excite@Home we do
not own. Partially offsetting these decreases were cost-control  initiatives and
a larger pension credit associated with our mature long distance  businesses and
related support groups, partially offset by lower long distance revenue.

         Operating  income rose $3.4  billion,  or 45.0%,  in 1999 compared with
1998. The increase was driven by approximately  $2.3 billion of operating income
improvements in Business Services and Consumer  Services,  reflecting  operating
expense  efficiencies.  Also  contributing  to the  increase was $1.0 billion of
lower net restructuring and other charges.
<TABLE>
<CAPTION>
For the Years Ended December 31,                                                      2000    1999       1998
                                                                                      ----    ----       ----
                                                                                        Dollars in millions
<S>                                                                                 <C>       <C>      <C>
Other income.................................................................       $1,514    $931     $1,281
</TABLE>
<PAGE>

         Other income  increased $0.6 billion,  or 62.4%,  in 2000 compared with
1999.  This  increase  was  primarily  due to  greater  net  gains  on  sales of
businesses  and   investments  of   approximately   $1.0  billion,   and  higher
investment-related  income of  approximately  $0.3 billion.  The higher gains on
sales  were  driven  by  significant  gains  associated  with  the swap of cable
properties  with Comcast  Corporation  (Comcast)  and Cox  Communications,  Inc.
(Cox), the sale of our investment in Lenfest Communications,  Inc. (Lenfest) and
Celumovil,  and a gain  recorded as a result of the merger of TeleCorp PCS, Inc.
(TeleCorp)  and Tritel,  Inc.  (Tritel)  and related  transactions.  These gains
aggregated  approximately $1.0 billion and had an approximate $0.29 earnings per
diluted  share  impact to the AT&T  Common  Stock  Group.  In 1999,  we recorded
significant  gains  associated  with  the  sale of our  Language  Line  Services
business,  a portion of our  ownership  interest  in AT&T  Canada as well as our
investment in Wood-TV. These gains aggregated approximately $0.4 billion and had
an approximate  $0.07 earnings per diluted share impact to the AT&T Common Stock
Group.  Offsetting the increases to other income in 2000 was an approximate $0.5
billion charge  reflecting the increase in the fair value of put options held by
Comcast and Cox related to Excite@Home  stock, and approximately $0.2 billion of
higher investment impairment charges.

         Other income  decreased $0.4 billion,  or 27.3%,  in 1999 compared with
1998.  The  decrease  was due to lower  net  gains on  sales of  businesses  and
investments of  approximately  $0.3 billion as well as lower  investment-related
income of approximately  $0.2 billion.  In 1999, we recorded  significant  gains
associated  with the sale of our Language Line Services  business,  a portion of
our  ownership  interest  in AT&T Canada as well as our  investment  in Wood-TV.
These gains aggregated  approximately  $0.4 billion and had an approximate $0.07
earnings per diluted  share impact to the AT&T Common Stock Group.  In 1998,  we
recorded  significant gains associated with the sale of AT&T Solutions  Customer
Care, LIN Television  Corp. and SmarTone  Telecommunications  Holdings  Limited.
These gains aggregated  approximately  $0.8 billion and had an approximate $0.18
earnings per diluted share impact to the AT&T Common Stock Group.
<TABLE>
<CAPTION>
For the Years Ended December 31,                                                      2000       1999    1998
                                                                                      ----       ----    ----
                                                                                        Dollars in millions
<S>                                                                                 <C>        <C>       <C>
Interest expense.............................................................       $3,183     $1,765    $427
</TABLE>

         Interest  expense  increased  80.3%, or $1.4 billion,  in 2000 compared
with 1999.  The increase was primarily due to a higher average debt balance as a
result of our June 2000 acquisition of MediaOne,  including  outstanding debt of
MediaOne  and debt issued to fund the MediaOne  acquisition,  and our March 1999
acquisition of TCI, partially offset by higher capitalized interest.

         Interest expense increased $1.3 billion in 1999 compared with 1998, due
to a higher average debt balance  associated  with our  acquisitions,  including
debt outstanding of TCI at the date of acquisition.
<TABLE>
<CAPTION>
For the Years Ended December 31,                                                   2000       1999       1998
                                                                                   ----       ----       ----
                                                                                      Dollars in millions
<S>                                                                              <C>        <C>        <C>
Provision for income taxes................................................       $3,342     $3,695     $3,049
</TABLE>
<PAGE>

         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 128.1% in 2000,  36.9% in 1999 and 36.6% in 1998.  In 2000,
the effective tax rate was negatively  impacted by Excite@Home,  which is unable
to record tax benefits  associated  with its pretax  losses.  Therefore the $4.6
billion restructuring charges taken by Excite@Home in 2000 had no associated tax
benefit.  The 2000 effective tax rate was positively impacted by a tax-free gain
resulting  from an exchange  of AT&T stock for an entity  owning  certain  cable
systems  and other  assets  with Cox and the  benefit  of the  write-off  of the
related  deferred tax  liability.  The 1999  effective  tax rate was  negatively
impacted by a non-tax-deductible research and development charge, but positively
impacted  by a change in the net  operating  loss  utilization  tax  rules  that
resulted in a reduction in the valuation allowance and the income tax provision.
<TABLE>
<CAPTION>
For the Years Ended December 31,                                                      2000      1999     1998
                                                                                      ----      ----     ----
                                                                                        Dollars in millions
<S>                                                                                 <C>        <C>        <C>
Minority interest income (expense)...........................................       $4,120     $(115)     $21
</TABLE>

         Minority  interest  income  (expense),  which is recorded net of income
taxes,  represents  an adjustment to AT&T's income to reflect the less than 100%
ownership of  consolidated  subsidiaries as well as dividends on preferred stock
issued by subsidiaries of AT&T. The $4.2 billion  increase in minority  interest
in 2000 resulted from the  consolidation of Excite@Home  effective  September 1,
2000. The minority  interest income in 2000 primarily  reflects losses generated
by Excite@Home, including the goodwill impairment charge, that were attributable
to the  approximate  77% of  Excite@Home  not  owned by AT&T.  The  decrease  in
minority  interest in 1999  compared with 1998 was primarily due to dividends on
preferred securities issued by a subsidiary trust of AT&T in 1999.
<TABLE>
<CAPTION>
For the Years Ended December 31,                                                   2000         1999     1998
                                                                                   ----         ----     ----
                                                                                       Dollars in millions
<S>                                                                              <C>         <C>           <C>
Equity earnings (losses) from Liberty Media Group.........................       $1,488      $(2,022)      --
</TABLE>

         Equity earnings from LMG, which are recorded net of income taxes,  were
$1.5 billion in 2000, compared with losses of $2.0 billion in 1999. The increase
was primarily due to gains on dispositions,  including gains associated with the
mergers of various  companies that LMG had  investments  in. Gains were recorded
for the difference  between the carrying value of LMG's interest in the acquired
company and the fair value of  securities  received in the merger.  In addition,
lower stock  compensation  expense in 2000 compared with 1999 contributed to the
increase.  These were partially  offset by impairment  charges recorded on LMG's
investments to reflect other than temporary  declines in value and higher losses
relating to LMG's equity affiliates.
<TABLE>
<CAPTION>
For the Years Ended December 31,                                                        2000     1999    1998
                                                                                        ----     ----    ----
                                                                                         Dollars in millions
<S>                                                                                     <C>      <C>      <C>
Net losses from other equity investments...........................................     $205     $765     $78
</TABLE>
<PAGE>

         Net losses from other  equity  investments,  which are  recorded net of
income taxes, were $0.2 billion in 2000, a 73.2% improvement compared with 1999.
This  improvement  was primarily a result of the redemption of our investment in
AB Cellular which resulted in the distribution of wireless properties in the Los
Angeles  area  to  AT&T,  which  caused  AB  Cellular  to  record  a gain on the
distribution. Our pro rata share of this gain was approximately $0.4 billion. In
addition,  in 2000,  earnings from our investment in  Cablevision  Systems Corp.
(Cablevision) were approximately $0.2 billion higher than 1999 due to gains from
cable-system  sales.  Offsetting  these  increases were losses from our stake in
Time Warner  Entertainment  Company,  L.P. (TWE) which we acquired in connection
with the  MediaOne  merger and greater  equity  losses from  Excite@Home,  which
aggregated approximately $0.1 billion.

         Net losses from equity  investments  were $0.8 billion in 1999 compared
with $78 million in 1998,  primarily due to losses we recorded on investments we
acquired through TCI, largely Cablevision and Excite@Home.
<TABLE>
<CAPTION>
For the Years Ended December 31,                                                2000          1999       1998
                                                                                ----          ----       ----
                                                                              (Dollars in millions, except per
                                                                                      share amounts)
<S>                                                                           <C>           <C>        <C>
AT&T Common Stock Group:
   Income from continuing operations....................................      $3,105        $5,450     $5,235
   Earnings from continuing operations per share:
      Basic.............................................................        0.89          1.77       1.96
      Diluted...........................................................        0.88          1.74       1.94
AT&T Wireless Group:
   Income...............................................................         $76            --         --
   Earnings per share:
      Basic and diluted.................................................        0.21            --         --
Liberty Media Group:
   Income (loss)........................................................      $1,488       $(2,022)        --
   Earnings (loss) per share:
      Basic and diluted.................................................        0.58         (0.80)        --
</TABLE>

         Earnings per diluted share (EPS)  attributable to the AT&T Common Stock
Group were $0.88 in 2000 compared  with $1.74 in 1999, a decrease of 49.4%.  The
decrease was primarily due to higher  restructuring and asset impairment charges
and the MediaOne acquisition,  including the impact of shares issued,  operating
losses of MediaOne and additional  interest  expense.  Also  contributing to the
decrease was the impact of Excite@Home,  including the mark-to-market adjustment
related to the put options held by Comcast and Cox. These were partially  offset
by lower  losses  from  equity  investments  and an  increase  in other  income,
primarily   associated  with  higher  net  gains  on  sales  of  businesses  and
investments, and higher investment-related income. Also impacting EPS was higher
operating income associated with our mature long distance businesses.

         EPS from  continuing  operations  attributable to the AT&T Common Stock
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 TCI and AGNS  acquisitions,
including  the  impact of shares  issued and equity  losses of  Excite@Home  and
Cablevision.  Partially offsetting these declines were increased income from the
remaining  operations due to revenue growth and operating expense  efficiencies,
as well as lower net restructuring and other charges.
<PAGE>

         EPS for Liberty Media Group was $0.58 in 2000,  compared with a loss of
$0.80 per share for 1999.  The  increase  in EPS was  primarily  due to gains on
dispositions,  including gains associated with the mergers of various  companies
that LMG had investments in. Gains were recorded for the difference  between the
carrying value of LMG's  interest in the acquired  company and the fair value of
securities received in the merger. In addition, lower stock compensation expense
in 2000 compared with 1999  contributed  to the increase.  These were  partially
offset by impairment charges recorded on LMG's investments to reflect other than
temporary  declines  in  value  and  higher  losses  relating  to  LMG's  equity
affiliates.

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
disposition of AT&T Universal  Card Services  (UCS),  which was sold on April 2,
1998, as discontinued operations.  Accordingly, the revenue, costs and expenses,
and cash flows of UCS have been  excluded  from the  respective  captions in the
1998 Consolidated  Statement of Income and Consolidated Statement of Cash Flows,
and have been reported  through the April 2, 1998 date of disposition as "Income
from discontinued  operations," net of applicable income taxes; and as "Net cash
provided by discontinued  operations."  The gain associated with the sale of UCS
is  recorded as "Gain on sale of  discontinued  operations,"  net of  applicable
income taxes.

Extraordinary Items

         In August 1998, AT&T extinguished  approximately  $1.0 billion 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.

SEGMENT RESULTS

         In support of the services we provided in 2000,  we segment our results
by the  business  units that  support our primary  lines of  business:  Business
Services,  Consumer  Services,  Wireless Services and Broadband.  The balance of
AT&T's operations, excluding LMG, is included in a Corporate and Other category.
Although not a segment, we also discuss the results of LMG.

         The  discussion of segment  results  includes  revenue;  EBIT (earnings
before interest and taxes,  including  pretax  minority  interest and net pretax
losses  of  other  equity   investments);   EBITDA   (EBIT  plus   depreciation,
amortization  and minority  interest income  (expense) other than  Excite@Home);
total  assets,  and capital  additions.  The  discussion  of EBITDA for Wireless
Services and  Broadband is modified to exclude  other income and net losses from
equity investments.  Total assets for each segment generally include all assets,
except intercompany receivables. However, our Wireless Services segment included
intercompany  receivables  from AT&T and the related interest income since these
assets  relate to the  results  of the AT&T  Wireless  Group  tracked  business.
Prepaid pension assets and  corporate-owned  or leased real estate are generally
held at the  corporate  level,  and  therefore are included in the Corporate and
Other 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.
<PAGE>

         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 net pretax losses
from equity  investments,  pretax minority  interest income  (expense) and other
income.  In  addition,  management  also uses  EBITDA as a  measure  of  segment
profitability  and  performance,  and is  defined  as EBIT,  excluding  minority
interest  income  (expense)  other  than  Excite@Home,   plus  depreciation  and
amortization. Interest and taxes are not factored into the segment profitability
measure used by the chief operating decision makers; therefore, trends for these
items  are  discussed  on a  consolidated  basis.  Management  believes  EBIT is
meaningful to investors  because it provides analysis of operating results using
the same measures used by AT&T's chief operating  decision makers and provides a
return on total  capitalization  measure.  We believe  EBITDA is  meaningful  to
investors as a measure of each segment's  liquidity  consistent with the measure
utilized by our chief operating  decision makers.  In addition,  we believe that
both EBIT and EBITDA allow  investors a means to evaluate the financial  results
of each segment in relation to total AT&T. EBIT for AT&T was $9.4 billion, $10.5
billion and $8.7 billion for the years ended  December 31, 2000,  1999 and 1998,
respectively. EBITDA for AT&T was $19.8 billion, $18.6 billion and $13.4 billion
for the  years  ended  December  31,  2000,  1999 and  1998,  respectively.  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 as well as interest and taxes which can affect cash flow.

         Reflecting  the dynamics of our  business,  we  continually  review our
management model and structure and make adjustments accordingly.

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).

         Business    Services    includes   AT&T   Solutions,    the   company's
professional-services  outsourcing  business,  which provides seamless solutions
that  maximize  the  competitive   advantage  of   networking-based   electronic
applications for global clients.  AT&T Solutions also provides  e-infrastructure
and high-availability services to enterprise clients, and manages AT&T's unified
global network.
<TABLE>
<CAPTION>
For the Years Ended December 31,                                                2000         1999        1998
                                                                                ----         ----        ----
                                                                                    Dollars in millions
<S>                                                                          <C>          <C>         <C>
External revenue......................................................       $27,691      $26,749     $23,807
Internal revenue......................................................           797          731         478
Total revenue.........................................................        28,488       27,480      24,285
EBIT..................................................................         6,548        6,136       4,994
EBITDA................................................................        10,260        9,488       7,548
Capital additions.....................................................         6,223        7,511       6,130

At December 31,                                                                 2000         1999
                                                                                ----         ----

Total assets..........................................................       $34,804      $32,010
</TABLE>
<PAGE>

REVENUE

         In 2000, Business Services revenue grew $1.0 billion, or 3.7%, compared
with 1999.  Approximately  $0.4 billion of the increase was due to the impact of
acquisitions, partially offset by the formation of Concert. Strength in data and
IP  services  as well as growth in our  outsourcing  business  contributed  $1.8
billion to the increase. This growth, however, was offset by an approximate $0.9
billion decline in long distance voice services as a result of continued pricing
pressures in the industry.

         Revenue in 1999 grew $3.2 billion,  or 13.2%.  The  acquisition of AGNS
contributed  approximately $1.1 billion to the growth.  Data, IP and outsourcing
services grew  approximately $1.5 billion in 1999 compared with 1998, while long
distance  voice  services  and local  services  contributed  approximately  $0.6
billion to the revenue increase.

         Data services,  which represent the transportation of data, rather than
voice,  along our network,  was impacted by  acquisitions  and the  formation of
Concert.  Excluding these impacts, data services grew at a high-teens percentage
rate in 2000. Growth was led by the continued  strength of frame relay services;
IP services,  which include IP-connectivity services and virtual private network
(VPN) services; and high-speed  private-line  services.  Excluding the impact of
AGNS,  data  services  grew at a  high-teens  percentage  rate in  1999,  led by
strength in frame relay and high-speed private-line services.

         AT&T  Solutions  outsourcing  revenue  grew 47.9% in 2000 and 146.0% in
1999.  More than one-half of the 2000 growth and  approximately  65% of the 1999
growth was driven by our acquisition of AGNS. The remaining growth in both years
was primarily due to growth from new contract  signings and add-on business from
existing clients.

         Excluding the impact of Concert,  long distance voice services  revenue
declined  at a mid  single-digit  percentage  rate  in 2000  due to a  declining
average price per minute  reflecting the competitive  forces within the industry
which are expected to  continue.  Partially  offsetting  this decline was a high
single-digit  percentage  growth rate in minutes.  In 1999,  long distance voice
revenue  grew  at a low  single-digit  percentage  rate,  as  volumes  grew at a
high-teens percentage rate, which was largely offset by a declining average rate
per minute.

         Local voice services  revenue grew nearly 20% in 2000 and more than 50%
in 1999.  During 2000, AT&T added more than 867,000 access lines, with the total
reaching nearly 2.3 million at the end of the year. During 1999, AT&T added more
than 719,000 access lines.  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 6,000 buildings on-network (buildings where AT&T
owns the  fiber  that runs  into the  building),  representing  an  increase  of
approximately  3.5% over 1999.  At the end of 1999,  AT&T served just over 5,800
buildings  on-network  compared with approximately 5,200 buildings at the end of
1998.

         Business Services  internal revenue increased $66 million,  or 9.1%, in
2000 and $253 million, or 52.8%, in 1999. The increase in 2000 was the result of
greater sales of business long distance services to other AT&T units that resell
such  services to their  external  customers,  primarily  Broadband and Wireless
Services.  The  increase  in 2000 was  partially  offset by a  decline  in sales
related to international  businesses divested. In 1999, the increase in internal
revenue was primarily due to greater sales of long distance services to Wireless
Services.
<PAGE>

EBIT/EBITDA

         EBIT improved $0.4 billion,  or 6.7%, and EBITDA improved $0.8 billion,
or 8.1%, in 2000 compared with 1999.  This  improvement  reflects an increase in
revenue  and lower  costs as a result  of our  continued  cost-control  efforts,
partially  offset by the  formation  of  Concert  and the  acquisition  of AGNS.
Additionally,  the  EBIT  increase  was  partially  offset  by  an  increase  in
depreciation and  amortization  expense in 2000 compared with 1999 primarily due
to a higher network asset base.

         In 1999, EBIT improved $1.1 billion, or 22.9%, and EBITDA improved $1.9
billion,  or 25.7%,  compared with 1998.  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.

OTHER ITEMS

         Capital  additions  decreased  $1.3 billion in 2000, and increased $1.4
billion in 1999.  In 2000,  the decrease was a result of lower  spending for our
long distance  network  (including the data network).  In 1999, the increase was
primarily  due to  additional  spending for the build out of our local  services
SONET transport network.

         Total assets  increased  $2.8  billion,  or 8.7%, at December 31, 2000,
compared with December 31, 1999. The increase was primarily due to net increases
in property,  plant and equipment as a result of capital additions, and a higher
accounts receivable balance.

CONSUMER SERVICES

         Our Consumer  Services  segment provides  residential  customers with 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  transaction  services,  such as prepaid
calling card and operator-handled  calling services. Local phone service is also
provided in certain areas.
<TABLE>
<CAPTION>
For the Years Ended December 31,                                                2000         1999        1998
                                                                                ----         ----        ----
                                                                                     Dollars in millions
<S>                                                                          <C>          <C>         <C>
Revenue...............................................................       $18,976      $21,854     $22,885
EBIT..................................................................         7,090        7,909       6,570
EBITDA................................................................         7,650        8,692       7,263
Capital additions.....................................................           302          656         459


At December 31,                                                                 2000         1999
                                                                                ----         ----

Total assets..........................................................        $4,801       $6,279
</TABLE>
<PAGE>

REVENUE

         Consumer  Services  revenue  declined 13.2%,  or $2.9 billion,  in 2000
compared  with 1999.  Approximately  $0.9  billion of the decline was due to the
elimination of per-line charges in 2000 and the impact of Concert. The remainder
of the decline was primarily  due to a decline in  traditional  voice  services,
such as  Domestic  Dial 1,  reflecting  the  ongoing  competitive  nature of the
consumer long distance  industry,  which has resulted in pricing pressures and a
loss of market share. Also negatively impacting revenue was product substitution
and  market   migration  away  from  direct-dial   wireline  and   higher-priced
calling-card  services to the rapidly growing wireless services and lower-priced
prepaid-card   services.  As  a  result,  calling  volumes  declined  at  a  mid
single-digit  percentage  rate  in  2000.  We  expect  competition  and  product
substitution to continue to negatively impact Consumer Services revenue.

         In August 1999, we introduced AT&T One Rate,  which allows customers to
make long distance  calls, 24 hours a day, seven days a week, for the same rate.
These One Rate offers  continue to be well received in the market with more than
12 million customers enrolled since the plan's introduction.  In addition,  AT&T
has been  successful  in  packaging  services in the  consumer  market by giving
customers  the option of intraLATA  service with its One Rate offers.  More than
60% of the  customers  enrolled in One Rate have chosen AT&T as their  intraLATA
provider.

         AT&T's any distance New York Local One Rate offer,  which combines both
local and long distance service, has experienced high customer acceptance.  AT&T
ended the year with nearly 760,000 customers under this plan.

         In 1999,  Consumer Services revenue decreased $1.0 billion, or 4.5%, on
a mid single-digit  percentage decline in volumes. The 1999 decline reflects the
ongoing  competitive nature of the consumer long distance  industry,  as well as
product   substitution   and  market   migration   away  from  direct  dial  and
higher-priced  calling-card  services to rapidly growing  wireless  services and
lower-priced prepaid-card services.

EBIT/EBITDA

         EBIT declined $0.8 billion, or 10.4%, and EBITDA declined $1.0 billion,
or 12.0%, in 2000 compared with 1999. The declines in EBIT and EBITDA  primarily
reflect  the  decline  in  the  long  distance  business,   offset  somewhat  by
cost-control  initiatives.  In addition,  the  declines  reflect $0.2 billion of
lower gains on sales of  businesses,  primarily  the 1999 sale of Language  Line
Services,  and  higher  restructuring   charges.   Reflecting  our  cost-control
initiatives,  EBIT and  EBITDA  margins  in 2000  improved  to 37.4% and  40.3%,
respectively, compared with 36.2% and 39.8%, respectively, in 1999.

         EBIT grew $1.3  billion,  or 20.4%,  and EBITDA grew $1.4  billion,  or
19.7%, in 1999. The EBIT margin improved to 36.2% in 1999 (excluding the gain on
the sale of Language Line  Services,  the 1999 EBIT margin was 35.5%) from 28.7%
in the  prior  year.  The EBIT and  EBITDA  growth  for  1999  reflects  ongoing
cost-reduction  efforts,  particularly in marketing  spending,  as well as lower
negotiated international settlement rates.

OTHER ITEMS

         Capital additions decreased $0.4 billion, or 54.0%, in 2000 as a result
of a planned  reduction in spending on the voice network and reduced spending on
internal-use  software as most of the  functionality  upgrades were completed in

<PAGE>

1999. In 1999, capital additions increased $0.2 billion, or 42.9%, primarily due
to increased spending on internal-use  software to add more functionality to our
services and in support of AT&T WorldNet Services subscriber growth.

         Total assets declined $1.5 billion,  or 23.5%, during 2000. The decline
was primarily due to assets transferred to Concert during 2000, as well as lower
accounts receivable, reflecting 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

<PAGE>

October  2,  1998  date of sale.  Also  included  are  fixed  wireless  services
providing  high-speed  Internet  access and  any-distance  voice  services using
wireless technology to residential and small business customers.
<TABLE>
<CAPTION>
For the Years Ended December 31,                                                  2000        1999       1998
                                                                                  ----        ----       ----
                                                                                     Dollars in millions
<S>                                                                            <C>          <C>        <C>
Revenue.................................................................       $10,448      $7,627     $5,406
EBIT....................................................................         1,131       (473)        418
EBITDA*.................................................................         1,653         581        856
Capital additions.......................................................         5,553       2,739      2,395


At December 31,                                                                   2000        1999
                                                                                  ----        ----

Total assets............................................................       $35,184     $23,312
</TABLE>

*    EBITDA for Wireless  Services  excludes net earnings  (losses)  from equity
     investments and other income.

REVENUE

         Wireless  Services  revenue grew $2.8 billion,  or 37.0%,  in 2000, and
$2.2 billion,  or 41.1%, in 1999.  Approximately $0.6 billion of the 2000 growth
was due to acquisitions,  and approximately  $0.2 billion of the 1999 growth was
due to the net impact of acquisitions and dispositions.  The remaining increases
were due to subscriber growth,  reflecting the continued successful execution of
AT&T's wireless strategy of targeting and retaining  specific customer segments,
expanding the national  wireless  footprint,  focusing on digital  service,  and
offering simple rate plans. In addition,  an increase in average monthly revenue
per user (ARPU) contributed to the growth.

         Consolidated  subscribers grew 58.5% during 2000 to approximately  15.2
million,  and grew  33.4% to  approximately  9.6  million in 1999.  This  growth
included  approximately 3.0 million  subscribers from acquisitions closed during

<PAGE>

2000, and approximately  900,000 from acquisitions  closed during 1999. ARPU was
$68.20 for 2000, a 3.6% increase  compared with 1999. ARPU in 1999 was $65.80, a
14.2% increase from 1998. The average monthly  subscriber churn rate in 2000 was
2.9% compared with 2.6% in 1999.  Average  monthly  subscriber  churn  increased
during  2000 as a result of  competitive  pressures,  as well as our  efforts to
expand to a broader base of consumer  segments  served (e.g.,  prepaid  wireless
services).  We expect these factors to continue,  which will result in a decline
in ARPU.

EBIT/EBITDA

         In 2000,  EBIT  improved $1.6 billion from a deficit of $0.5 billion in
1999.  Approximately  one-half  of the  improvement  was  due to  higher  pretax
earnings on equity  investments  and greater  gains on sales of  businesses  and
investments.  These items included higher equity earnings due to a gain recorded
relating to the redemption of our  investment in AB Cellular,  as well as a gain
on  transactions  associated  with our  affiliate  investments  in TeleCorp  and
Tritel, and a gain on the sale of Celumovil in 2000. In 1999, we recorded a gain
on the sale of WOOD-TV.  Also positively impacting the EBIT growth in 2000 was a
1999 asset impairment  charge of $0.5 billion and higher  intercompany  interest
income in 2000  resulting  from the AT&T Wireless  Group tracking stock offering
proceeds  attributed  to Wireless  Services.  The  remaining  EBIT  increase was
primarily due to increased  revenue,  partially  offset by a related increase in
expenses.

         In 1999, EBIT declined $0.9 billion from $0.4 billion in 1998. The EBIT
decline was primarily due to the 1999 asset  impairment  charge of approximately
$0.5  billion  and  lower  gains on  sales  of  businesses  and  investments  of
approximately $0.5 billion.

         EBITDA,  which excludes net earnings  (losses) from equity  investments
and other income, increased $1.1 billion in 2000 to $1.7 billion.  Approximately
one-half of the increase was due to the 1999 impairment charge and the remainder
was  due to  increased  revenue,  partially  offset  by a  related  increase  in
expenses.

         In 1999,  EBITDA,  which  excludes  net earnings  (losses)  from equity
investments and other income, declined $0.3 billion to $0.6 billion. The decline
was primarily due to the 1999 asset  impairment  charge,  partially offset by an
increase in revenue net of related expenses.

OTHER ITEMS

         Capital  additions  increased  $2.8 billion in 2000, and increased $0.3
billion in 1999.  Spending in both years focused on increasing  the capacity and
quality of our national wireless network.

         Total assets were $35.2 billion as of December 31, 2000, an increase of
$11.8  billion,  or 50.3%,  compared  with  December 31, 1999.  The increase was
primarily due to increases in licensing costs, goodwill, and property, plant and
equipment  associated  with the  acquisitions  that closed in 2000. In addition,
property,  plant and  equipment  increased  as a result of  significant  capital
expenditures  in 2000.  These  increases were partially  offset by a decrease in
investments,  as Wireless Services  previously held equity interests in portions
of wireless  properties in the San Francisco Bay area and Los Angeles through AB
Cellular. These markets were consolidated as of December 31, 2000.
<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 video service, high-speed data service and broadband telephony service.
<TABLE>
<CAPTION>
For the Years Ended December 31,                                                             2000        1999
                                                                                             ----        ----
                                                                                           Dollars in millions
<S>                                                                                       <C>         <C>
Revenue..........................................................................          $8,217      $5,070
EBIT.............................................................................         (1,175)     (1,475)
EBITDA*..........................................................................           1,709         802
Capital additions................................................................           4,963       4,759


At December 31,                                                                              2000        1999
                                                                                             ----        ----

Total assets.....................................................................        $114,681     $53,810
</TABLE>

*    EBITDA for Broadband  excludes net losses from equity investments and other
     income.

         Results of operations for the year ended December 31, 2000, include the
results of MediaOne since its acquisition on June 15, 2000, while the year ended
December 31, 1999, does not include any results of MediaOne.  Additionally,  the
results of operations for the year ended December 31, 1999, include 10 months of
TCI's results,  reflecting its acquisition in March 1999,  while 2000 includes a
full 12 months of TCI's results.

REVENUE

         Broadband  revenue grew $3.1 billion in 2000,  or 62.1%,  compared with
1999.  Approximately  $2.8  billion of the  increase  in revenue  was due to the
acquisition  of MediaOne in 2000 and TCI in 1999. In addition,  revenue from new
services  (digital  video,  high-speed  data,  and  broadband  telephony)  and a
basic-cable rate increase contributed  approximately $0.4 billion to the revenue
increase.

         At December 31, 2000,  Broadband  serviced  approximately  16.0 million
basic-cable  customers,  passing approximately 28.3 million homes, compared with
11.4 million basic-cable customers,  passing approximately 19.7 million homes at
December  31, 1999.  The  increase  reflects  the  acquisition  of MediaOne.  At
December  31, 2000,  we provided  digital  video  service to  approximately  2.8
million  customers,   high-speed  data  service  to  approximately  1.1  million
customers,  and broadband telephony service to approximately  547,000 customers.
This  compares  with   approximately   1.8  million   digital-video   customers,
approximately  207,000  high-speed  data  customers,  and nearly 8,300 broadband
telephony customers at the end of 1999.

EBIT/EBITDA

         EBIT in 2000 was a deficit  of $1.2  billion,  an  improvement  of $0.3
billion,  or 20.4%.  This improvement was due to  approximately  $0.5 billion of
higher gains on sales of businesses and investments, primarily gains on the swap

<PAGE>

of cable  properties  with Cox and  Comcast  and the sale of our  investment  in
Lenfest, and $0.4 billion lower restructuring  charges primarily associated with
an in-process  research and  development  charge recorded in connection with the
1999 acquisition of TCI. Also  contributing to the improvement were lower pretax
losses from equity  investments  of $0.5 billion,  due in part to a $0.3 billion
improvement  from our investment in Cablevision  due to gains from  cable-system
sales.  These  improvements were largely offset by the impact of the acquisition
of MediaOne as well as TCI of  approximately  $0.5  billion and higher  expenses
associated   with   high-speed   data  and  broadband   telephony   services  of
approximately $0.4 billion.

         EBITDA,  which  excludes net losses from equity  investments  and other
income,  was $1.7 billion in 2000, an improvement of $0.9 billion  compared with
1999.  This  improvement  was  due  to  the  impact  of  the  MediaOne  and  TCI
acquisitions  of $0.7 billion and lower  restructuring  charges of $0.4 billion.
Higher  expenses  associated  with  high-speed  data and broadband  telephony of
approximately $0.2 billion offset these increases.

OTHER ITEMS

         Capital additions increased 4.3% to approximately $5.0 billion in 2000,
from $4.8 billion in 1999. The increase was due to higher  capital  expenditures
of $0.8 billion  primarily due to MediaOne,  which was almost entirely offset by
decreased contributions to various nonconsolidated  investments of $0.7 billion.
In 1999,  spending  was  largely  directed  toward  cable-distribution  systems,
focusing on the upgrade of cable plant-assets,  as well as equity infusions into
various investments.

         Total assets at December 31, 2000,  were $114.7  billion  compared with
$53.8  billion at December 31, 1999.  The increase in total assets was primarily
due to the MediaOne acquisition and an increase in property, plant and equipment
as a  result  of  capital  expenditures,  net  of  depreciation  expense.  These
increases were partially offset by a decrease in the mark-to-market valuation of
certain investments.

CORPORATE AND OTHER

         This group  reflects  the results of  corporate  staff  functions,  the
elimination  of  transactions  between  segments,  as  well  as the  results  of
international operations and ventures and Excite@Home.
<TABLE>
<CAPTION>
For the Years Ended December 31,                                               2000        1999          1998
                                                                               ----        ----          ----
                                                                                    Dollars in millions
<S>                                                                        <C>         <C>            <C>
Revenue..............................................................        $(148)        $569          $647
EBIT.................................................................       (4,167)     (1,625)       (3,248)
EBITDA...............................................................       (3,171)       (871)       (2,916)
Capital additions....................................................         2,150       1,494           594


At December 31,                                                                2000        1999
                                                                               ----        ----

Total assets.........................................................       $18,463     $15,535
</TABLE>
<PAGE>

REVENUE

         Revenue for corporate and other  primarily  includes the elimination of
intercompany  revenue of negative $0.8 billion (an increase of $0.1 billion from
1999),  revenue  from  Excite@Home  of  $0.2  billion  (which  was  consolidated
beginning on September 1, 2000), and revenue from our  international  operations
and  ventures  of $0.3  billion (a  decline  of $0.9  billion  from  1999).  The
international  operations and ventures  revenue  decrease was largely due to the
revenue impact of businesses contributed to Concert and due to the impact of the
divestment of certain businesses.

         For 1999,  revenue  decreased $0.1 billion,  or 12.0%.  The decline was
driven by an increase in the elimination of intercompany revenue and the sale of
AT&T  Solutions  Customer  Care  (ASCC) in 1998,  partially  offset by growth in
international operations and ventures.

EBIT/EBITDA

         EBIT and  EBITDA  deficits  in 2000  increased  $2.5  billion  and $2.3
billion to $4.2 billion and $3.2  billion,  respectively.  The  increases in the
deficits were largely related to Excite@Home.  In 2000,  restructuring and other
charges,  net of minority  interest,  were $2.8 billion higher  primarily due to
goodwill  impairment  charges  recorded  by  Excite@Home  and  AT&T  related  to
Excite@Home.  Other impacts included a charge of approximately  $0.5 billion for
the fair market value increase of put options held by Comcast and Cox related to
Excite@Home,  and operating losses from Excite@Home.  Partially offsetting these
declines  were an increase in the pension  credit due to a higher  pension trust
asset base  resulting  from  increased  investment  returns,  and lower expenses
associated  with  our  continued  efforts  to  reduce  costs,  which  aggregated
approximately  $1.0  billion.  In  addition,   higher  net  gains  on  sales  of
investments  and an  increase in interest  income  increased  EBIT and EBITDA by
approximately $0.6 billion.

         In 1999,  EBIT and EBITDA  deficits  improved by $1.6  billion and $2.0
billion to $1.6 billion and $0.9 billion,  respectively.  The improvements  were
driven by $2.1  billion  of lower net  restructuring  and other  charges in 1999
compared with 1998,  partially  offset by lower gains on the sales of businesses
and lower interest  income,  which  negatively  impacted EBIT and EBITDA by $0.3
billion.  Additionally,  EBIT was  impacted  by  dividends  on  trust  preferred
securities. In 1998, AT&T recorded a gain on the sale of ASCC.

OTHER ITEMS

         Capital  additions  increased  $0.7  billion in 2000.  The increase was
driven by our  investment  in 2000 in  Net2Phone,  Inc.  (Net2Phone),  partially
offset  by lower  investments  in  international  nonconsolidated  subsidiaries.
Capital   additions   increased  $0.9  billion  in  1999  reflecting   increased
international equity investments that support our global strategy.

         Total assets increased $2.9 billion at December 31, 2000, primarily due
to our investments in Concert and Net2Phone.

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

<PAGE>

processing.  Earnings from LMG were $1.5 billion in 2000 compared with losses of
$2.0  billion  from the date of  acquisition  through  December  31,  1999.  The
increase was primarily due to gains on dispositions,  including gains associated
with the mergers of various  companies that LMG had  investments  in. Gains were
recorded for the difference  between the carrying value of LMG's interest in the
acquired  company and the fair value of  securities  received in the merger.  In
addition,   lower  stock  compensation   expense  in  2000  compared  with  1999
contributed to the increase.  These were partially offset by impairment  charges
recorded on LMG's investments to reflect other than temporary  declines in value
and higher losses relating to LMG's equity affiliates.

LIQUIDITY
<TABLE>
<CAPTION>
For the Years Ended December 31,                                           2000           1999           1998
                                                                           ----           ----           ----
                                                                                   Dollars in millions
<S>                                                                    <C>            <C>            <C>
CASH FLOW OF CONTINUING OPERATIONS:
   Provided by operating activities...........................          $13,307        $11,521        $10,217
   (Used in) provided by investing activities.................         (39,934)       (27,043)          3,582
   Provided by (used in) financing activities.................           25,729         13,386       (11,049)
</TABLE>

         In 2000,  net cash  provided  by  operating  activities  of  continuing
operations  increased  $1.8  billion.  The increase was  primarily  driven by an
increase  in net  income  excluding  the  noncash  impact  of  depreciation  and
amortization,  net  restructuring and other charges and minority interest income
(expense).  In 1999,  net cash  provided by operating  activities  of continuing
operations  increased $1.3 billion,  primarily due to an increase in net income,
excluding the noncash impact of depreciation and amortization, net restructuring
and other charges and the impact of earnings and losses from equity investments.
This  increase was  partially  offset by higher  receivables,  due  primarily to
higher  revenue,  and an increase in tax payments from the gain on the 1998 sale
of UCS.

         AT&T's  investing  activities  resulted  in a net use of cash of  $39.9
billion  in  2000,  compared  with a net use of cash of $27.0  billion  in 1999.
During  2000,  AT&T  used  approximately   $21.4  billion  for  acquisitions  of
businesses, primarily MediaOne, and spent $15.5 billion on capital expenditures.
During 1999,  AT&T spent  approximately  $14.3 billion on capital  expenditures,
approximately  $6.7 billion on acquisitions  of businesses,  primarily AGNS, and
contributed  $5.5 billion of cash to LMG. During 1998, we received $10.8 billion
related to the sales of businesses,  including  receivables from UCS,  partially
offset by capital expenditures of $7.8 billion.

         During  2000,  net cash  provided  by  financing  activities  was $25.7
billion,  compared  with $13.4 billion in 1999.  In 2000,  AT&T  received  $10.3
billion from the AT&T Wireless  Group  tracking  stock  offering and borrowed an
additional  $17.0 billion of  short-term  debt and $2.5 billion of net long-term
debt.  These were partially  offset by the payment of $3.0 billion in dividends.
In 1999,  AT&T received $10.2 billion from the issuance of commercial  paper and
short-term  debt,  $5.6 billion from the net issuance of long-term debt and $4.6
billion from the issuance of redeemable preferred  securities.  These sources of
cash were partially offset by the acquisition of treasury shares of $4.6 billion
and the payment of dividends of $2.7 billion.  Cash used in financing activities
in 1998  primarily  related to repayment of long-term and  short-term  debt, the
acquisition of treasury shares and dividends paid on common stock.
<PAGE>

         At  December  31,  2000,  we had  current  assets of $17.1  billion and
current  liabilities  of $50.9  billion.  A  significant  portion of the current
liabilities,  $31.9 billion,  relates to short-term notes, the majority of which
were commercial paper or debt with an original  maturity of one year or less. We
expect that we will retire a portion of the short-term debt with other financing
arrangements,  including the monetization of publicly-held securities,  sales of
certain  non-strategic  assets and investments,  and  securitization  of certain
accounts  receivable.  At December 31, 2000, we had a current  liability of $2.6
billion, reflecting our obligation under put options held by Comcast and Cox. In
January 2001,  Comcast and Cox exercised  their rights under the put options and
elected to receive AT&T stock in lieu of cash.  Since December 31, 2000, we have
announced  the sale of  investments  or assets,  which will result in gross cash
proceeds of approximately  $4.6 billion.  In addition,  on February 28, 2001, we
exercised our registration rights in TWE and formally requested TWE to begin the
process of converting the limited partnership into a corporation with registered
equity securities. We have, however,  continued our ongoing discussions with AOL
Time Warner for the sale of our stake in TWE.

         In connection with the planned split-off of AT&T Wireless, we announced
that we will retain up to $3.0 billion in shares of AT&T Wireless, which we will
dispose of within six months  following the split-off.  Also in connection  with
the split-off,  on March 6, 2001, AT&T Wireless  completed a $6.5 billion global
bond  offering.  AT&T  Wireless will  ultimately  use the proceeds to repay $4.8
billion in notes  receivable  and  preferred  stock that AT&T Common Stock Group
holds in AT&T  Wireless.  In addition on March 23, 2001,  AT&T Wireless  entered
into $2.5 billion in  revolving  credit  facilities.  The  facilities  include a
364-day tranche and a 5-year tranche.  The facilities are for general  corporate
purposes.

         Another aspect of our restructuring is the expected sale, in late-2001,
of a new class of stock which will track our Broadband business.

         AT&T is in a joint  venture  with  Alaska  Native  Wireless  (ANW).  At
December 31, 2000,  AT&T had  committed to fund ANW up to $2.4 billion  based on
the outcome of FCC license  spectrum  auction.  In January 2001, the auction was
completed  and ANW was the  highest  bidder on  approximately  $2.9  billion  in
licenses.

         Since the announced  restructuring plans to create four new businesses,
AT&T's debt ratings have been under review by the applicable rating agencies. As
a result of this review, AT&T's ratings have been downgraded and continued to be
on credit watch with negative outlook. These actions will result in an increased
cost of future borrowings and will limit our access to the capital markets.

         AT&T is pursuing  various  measures to reduce its debt level.  However,
there can be no assurance that we will be able to obtain financing on terms that
are acceptable to us. If these efforts cannot be completed  successfully,  or on
terms and within the timeframe contemplated, AT&T's financial condition would be
materially  adversely  affected.  Some of these adverse  conditions  include the
company's ability to pursue  acquisitions,  make capital  expenditures to expand
its network and cable plant, or pay dividends.

         On  December  28,  2000,  we  entered  into  a  364-day,   $25  billion
revolving-credit  facility  syndicated to 39 banks, which was unused at December
31, 2000. As a result of certain  transactions  subsequent to December 31, 2000,
specifically  the  investment  by NTT DoCoMo of $9.8  billion for a new class of
AT&T preferred  stock,  and the $6.5 billion AT&T Wireless bond  offering,  this
credit facility was reduced to $18.3 billion.
<PAGE>

         Also  in  connection  with  our  restructuring,  we have  reviewed  our
dividend  policy as it relates to each of the new  businesses.  On December  20,
2000, we announced that the board of directors reduced AT&T's quarterly dividend
to $0.0375 per share, from $0.22 per share.

         Our board of directors  has the power to make  determinations  that may
impact the  financial  and  liquidity  position  of each of the  tracking  stock
groups. This power includes the ability to set priorities for use of capital and
debt  capacity,  to determine  cash  management  policies and to make  decisions
regarding  whether to make capital  expenditures and as to the timing and amount
of any capital  expenditures.  All actions by the board of directors are subject
to the board members fiduciary duties to all shareholders of AT&T as a group and
not just to holders of a  particular  class of tracking  stock and to our policy
statements, by-laws and inter-company agreements. As a result of this discretion
of our board of  directors,  it may be  difficult  for  investors to assess each
group's liquidity and capital resource needs and in turn the future prospects of
each group based on past performance.

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.  In addition,  we are exposed to market risk from fluctuations in the
prices of  securities  which we  monetized  through the  issuance of debt.  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, the fair value of interest rate
swaps and the  underlying  hedged debt would have  changed by $10 million and $3
million at December 31, 2000 and 1999, respectively.  In 2000, we entered into a
combined interest rate,  forward contract to hedge  foreign-currency-denominated
debt.  Assuming a 10%  downward  shift in both  interest  rates and the  foreign
currency,  the fair value of the contract and the  underlying  hedged debt would
have changed by $88 million. In addition,  certain debt is indexed to the market
prices of  securities we own.  Changes in the market prices of these  securities
result in changes in the fair value of this debt. Assuming a 10% downward change
in the market price of these  securities,  the fair value of the underlying debt
and  securities  would have  decreased  by $534  million at December  31,  2000.
Assuming a 10% downward  shift in interest  rates at December 31, 2000 and 1999,
the fair value of unhedged  debt would have  increased  by $1.2 billion and $938
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  for  foreign-currency-denominated  transactions,  such  as  debt
issued. In addition, in 1999 we were 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.  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, 2000 and 1999,
the fair value of these contracts  would have resulted in additional  unrealized
losses of $6 million and $29 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  (SARs) of  affiliated  companies.
Assuming a 10% decrease in equity prices of affiliated companies, the fair value
of the equity  hedges  would have  decreased  by $29  million and $81 million at
December 31, 2000 and 1999,  respectively.  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.

         In  order  to  determine  the  changes  in fair  value  of our  various
financial instruments, we use certain modeling techniques, namely Black-Scholes,
for our SARs and equity collars.  We apply rate sensitivity  changes directly to
our interest rate swap  transactions and forward rate sensitivity to our foreign
currency forward contracts.
<PAGE>

         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.

FINANCIAL CONDITION
<TABLE>
<CAPTION>
At December 31,                                                                            2000          1999
                                                                                           ----          ----
                                                                                          Dollars in millions
<S>                                                                                    <C>           <C>
Total assets....................................................................       $242,223      $169,406
Total liabilities...............................................................        129,432        83,388
Total shareowners' equity.......................................................        103,198        78,927
</TABLE>

         Total assets  increased $72.8 billion,  or 43.0%, at December 31, 2000,
primarily  due to the impact of the  MediaOne  acquisition,  which  resulted  in
increased  goodwill,  franchise  costs,  other  investments  including  TWE  and
Vodafone Group plc; and the addition of property, plant and equipment. Property,
plant and equipment also increased due to capital  expenditures  made during the
year, net of  depreciation  expense and equipment  contributed to Concert.  This
equipment  contribution,  as well as a $1.0  billion  loan to  Concert,  and our
investment  in  Net2Phone  are  reflected  as an increase to other  investments.
Additionally, other receivables increased due to Concert. Wireless acquisitions,
including the impact of  consolidating  former equity  investments,  resulted in
increased licensing costs.

         Total  liabilities at December 31, 2000,  increased  $46.0 billion,  or
55.2%,  primarily due to the impact of the MediaOne acquisition,  including debt
of MediaOne and borrowings to fund the acquisition, as well as the consolidation
of Excite@Home. In addition, total debt increased due to the monetization of our
investments in Microsoft Corporation and Comcast.

         Minority  interest  increased  $2.5 billion to $4.9 billion,  primarily
reflecting the minority interest of our ownership of Excite@Home  resulting from
the consolidation of Excite@Home  beginning September 1, 2000, and the preferred
stock outstanding of a MediaOne subsidiary.

         Total  shareowners'  equity was $103.2 billion at December 31, 2000, an
increase of 30.8% from December 31, 1999. This increase was primarily due to the
issuance  of AT&T  common  stock  for the  MediaOne  acquisition  as well as the
issuance of AT&T Wireless Group tracking stock.

         The ratio of total debt to total  capital,  excluding LMG (debt divided
by total  debt and  equity,  excluding  LMG) was  46.2% at  December  31,  2000,
compared with 43.0% at December 31, 1999. The equity portion of this calculation
includes  convertible  trust  preferred   securities,   as  well  as  subsidiary
redeemable  preferred  stock.  The increase was primarily  driven by higher debt
associated  with the MediaOne  merger,  largely  offset by a higher  equity base
associated  with the MediaOne  merger and the AT&T Wireless Group tracking stock
offering.  The ratio of debt (net of cash) to EBITDA was 3.28X at  December  31,
2000,  compared  with 1.88X at December 31,  1999,  reflecting  additional  debt
associated with the MediaOne  merger.  Included in debt was  approximately  $8.7
billion of notes, which are exchangeable into or collateralized by securities we
own. Excluding this debt, the ratio of  net-debt-to-EBITDA at December 31, 2000,
was 2.84X.
<PAGE>

NEW ACCOUNTING PRONOUNCEMENTS

         In June 1998, the Financial  Accounting  Standards  Board (FASB) issued
Statement of Financial  Accounting  Standards  (SFAS) No. 133,  "Accounting  for
Derivative  Instruments  and Hedging  Activities."  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.

         In June 2000,  the FASB issued SFAS No.  138,  "Accounting  for Certain
Derivative  Instruments and Certain Hedging  Activities" as an amendment to SFAS
No.  133.  This  statement   provides   clarification  with  regard  to  certain
implementation issues under SFAS No. 133 on specific types of hedges.

         On January 1, 2001, AT&T adopted SFAS No. 133. We recorded a cumulative
effect of an accounting change, net of applicable income taxes, of approximately
$1.4 billion of income,  or  approximately  $0.34 per diluted  share,  primarily
attributable  to fair value  adjustments of debt  instruments,  including  those
acquired in  conjunction  with the  MediaOne  merger,  as well as to our warrant
portfolio.  In  addition,  in  connection  with the adoption of SFAS No. 133, we
reclassified certain investment  securities,  which support debt that is indexed
to   those   securities,    from   "available-for-sale"   to   "trading."   This
reclassification  resulted in the  recognition of a charge of $2.8 billion ($1.7
billion after income taxes), or approximately $0.43 per diluted share, which was
recorded as a  reduction  of other  income.  As  available-for-sale  securities,
changes in fair value were previously included within other comprehensive income
as a component of shareowners'  equity.  In addition,  LMG recorded a cumulative
effect of an accounting change, net of applicable income taxes, of approximately
$0.8 billion of income, or approximately $0.31 per share.

         The impact of the adoption of SFAS No. 133, as amended by SFAS No. 138,
on AT&T's future  results of operations is dependent upon the fair values of our
derivatives  and related  financial  instruments  and could result in pronounced
quarterly fluctuations in other income in future periods.

         In  September  2000,  the FASB  issued SFAS No.  140,  "Accounting  for
Transfers and Servicing of Financial Assets and  Extinguishments  of Liabilities
-- a Replacement of FASB Statement No. 125." This statement provides  accounting
and reporting  standards  for  transfers  and servicing of financial  assets and
extinguishments  of  liabilities.  Under  these  standards,  after a transfer of
financial  assets,  an entity  recognizes the financial and servicing  assets it
controls and the liabilities it has incurred, derecognizes financial assets when
control has been surrendered,  and derecognizes  liabilities when  extinguished.
This statement provides  consistent  standards for  distinguishing  transfers of
financial assets that are sales from transfers that are secured borrowings. This
statement is  effective  for  transfers  and  servicing of financial  assets and
extinguishments  of liabilities  occurring  after March 31, 2001.  AT&T does not
expect that the  adoption of SFAS No. 140 will have a material  impact on AT&T's
results of operations, financial position or cash flows.

<PAGE>

SUBSEQUENT EVENTS

         On January 12, 2001,  AT&T announced that Cox and Comcast had exercised
their  rights to sell a combined  total of 60.4  million  shares of  Excite@Home
Series A common stock to AT&T as part of an  agreement  announced in August 2000
to  reorganize  Excite@Home's  governance.  Cox and  Comcast  elected to receive
shares of AT&T common stock in exchange for their  Excite@Home  shares.  AT&T is
currently in discussions  to renegotiate  the terms of the put options which may
result in a change to the number of shares of AT&T  stock  that Cox and  Comcast
will receive, as well as the number of Excite@Home shares, if any AT&T receives.
There  can be no  assurances  that an  agreement  will be  reached  with Cox and
Comcast.

         On  January  22,  2001,  AT&T  and NTT  DoCoMo  (DoCoMo)  finalized  an
agreement whereby DoCoMo invested  approximately $9.8 billion for a new class of
AT&T  preferred  stock,   termed  DoCoMo  Wireless   tracking  stock,   that  is
economically  equivalent to 406 million  shares of AT&T Wireless  Group tracking
stock and reflects  approximately 16% of the financial  performance and economic
value of AT&T Wireless  Group.  AT&T  allocated  $6.2 billion of the proceeds to
AT&T Wireless Group. Each share of DoCoMo Wireless tracking stock is convertible
at any time into AT&T Wireless Group tracking stock.  Upon the conversion of the
DoCoMo Wireless  tracking  stock,  AT&T will reduce its portion of the financial
performance and economic value in AT&T Wireless Group by 178 million shares, and
the balance of the 406 million shares will come from the issuance of 228 million
new shares of AT&T Wireless Group tracking stock. Additionally,  upon completion
of the planned  split-off of AT&T Wireless,  the DoCoMo Wireless  tracking stock
and related  warrants will  automatically  be converted into AT&T Wireless Group
tracking stock and thereafter be exchanged on the same terms as all other shares
of AT&T Wireless Group  tracking stock in the split-off.  In the event that AT&T
has not split-off AT&T Wireless by specified  dates  beginning  January 1, 2002,
DoCoMo will have the right, at its election,  to require AT&T to repurchase from
DoCoMo  the  preferred  shares  initially  issued to them at  DoCoMo's  original
purchase price plus interest up to the date of payment.  The interest under this
right will be treated as preferred  stock  dividends with charges  recorded as a
reduction of AT&T Common Stock Group  earnings.  In  addition,  DoCoMo  acquired
five-year  warrants to purchase the  equivalent  of an  additional  41.7 million
shares of AT&T Wireless Group  tracking  stock at $35 per share.  As part of the
agreement,  DoCoMo  obtained  a seat on AT&T's  board of  directors  until  AT&T
Wireless is split-off from AT&T as a separate public company,  which is expected
to occur later in 2001. At that time,  DoCoMo will retain  representation on the
new public AT&T Wireless board.

         In January  2001,  AT&T entered into  agreements  with certain  network
equipment  vendors,  which  extend  through  2004,  to purchase  next-generation
wireless network equipment for a total of approximately $1.8 billion.

         On February 27, 2001,  AT&T  entered  into an agreement  with  Vodafone
Group plc to sell our 10% stake in Japan Telecom Co. Ltd for approximately $1.35
billion in cash.  The  transaction is expected to be completed in April 2001 and
will result in a gain.

         On March 1, 2001, AT&T Wireless  completed a private  placement of $6.5
billion in notes.  The notes pay  interest at rates  ranging from 7.35% to 8.75%
per annum,  with  maturity  dates  ranging from 2006 to 2031.  The notes include
customary covenants and registration rights.

         On March 23, 2001, AT&T Wireless entered into $2.5 billion in revolving
credit facilities. The facilities consist of a 364-day facility of $1.25 billion
and a five-year  revolving credit facility of $1.25 billion.  The facilities may
be used for general  corporate  purposes and are subject to customary  covenants
and events of default.
<PAGE>

           AT&T Wireless Group Management's Discussion and Analysis of
                  Results of Operations and Financial Condition

      Overview

         AT&T  Wireless  Group is an  integrated  business  of AT&T and is not a
stand-alone entity. As AT&T Wireless Group is a tracking stock of AT&T, separate
financial  statements  are  not  required  to be  filed.  We have  provided  the
financial  statements  as an exhibit  to  this  document to  provide  additional
disclosures  to investors to allow them to assess the financial  performance  of
AT&T Wireless Group. Since the tracking stocks are governed by a common board of
directors,  the AT&T board of directors  could make  operational  and  financial
decisions or implement policies that affect disproportionately the businesses of
any group.  For example,  our board of directors may decide to transfer funds or
to  reallocate  assets,  liabilities,  revenue,  expenses  and cash flows  among
groups,  without  the  consent  of  shareholders.  All  actions  by the board of
directors are subject to the board members' fiduciary duties to all shareholders
of AT&T as a group and not just to holders  of a  particular  class of  tracking
stock  and  to  our  charter,  policy  statements,   by-laws  and  inter-company
agreements.

         Our board of directors may change or supplement  the policies set forth
in the tracking stock policy  statements and our by-laws in the sole  discretion
of our  board  of  directors,  subject  to  the  provisions  of any  inter-group
agreement but without approval of our shareholders.  In addition,  the fact that
we have separate  classes of common stock could give rise to occasions  when the
interests of the holders of AT&T common stock,  AT&T Wireless Group common stock
and Liberty Media Group tracking stock diverge, conflict or appear to diverge or
conflict.  Our board of  directors  would  make any  change or  addition  to the
policies set forth in the tracking stock policy  statements or our by-laws,  and
would respond to any actual or apparent divergence of interest among our groups,
in a  manner  consistent  with  its  fiduciary  duties  to  AT&T  and all of our
shareholders after giving  consideration to the potentially  divergent interests
and all other relevant  interests of the holders of the separate  classes of our
shares.

         You should consider that as a result of the flexibility provided to our
board of  directors,  it may be  difficult  for  investors  to assess the future
prospects of a tracking stock group based on that group's past performance.



          On  April 27,  2000,  AT&T  completed  an  offering  of 15.6%,  or 360
      million shares, of AT&T Wireless Group tracking stock at an offering price
      of $29.50 per share. AT&T Wireless Group tracking stock is a class of AT&T
      common stock,  which is intended to provide holders with financial returns
      based on the financial  performance  and economic value of AT&T's wireless
      services'  businesses.  AT&T Wireless  Group  tracking stock issued in the
      offering  reflected only a portion of the authorized shares. The remaining
      84.4% has been  reserved for the benefit of AT&T Common Stock Group (which
      consists of the  operations  of AT&T other than those  attributed  to AT&T
      tracking stocks) and is intended to be reflected in AT&T common stock.

          AT&T  Wireless  Group  includes  the results of its mobility and fixed
      wireless  businesses,  as  well  as its  international  operations,  which
      primarily  include the earnings or losses associated with equity interests
      in international wireless communications ventures and partnerships.

          The combined  financial  statements of AT&T Wireless  Group  primarily
      include the legal entity  results of AT&T Wireless  Services,  Inc and its
      subsidiaries (AWS), AT&T Wireless Group, LLC (AWG), AT&T Wireless PCS, LLC
      and it  subsidiaries  (AWPCS),  and  Winston,  Inc.  and its  subsidiaries
      (Winston),  all of which are  direct  subsidiaries  of AT&T  Corp.,  as of
      December 31, 2000.  In February  2001,  the legal  entities of Winston and
      AWPCS as well as  certain  assets  of AWG  were  transferred  to AWS.  The
      remaining  assets and liabilities of AWG will be transferred  prior to the
      split-off.

          On  October  25,  2000,  AT&T  announced  its  decision  to present an
      exchange  offer to AT&T common  shareowners  to allow them to exchange any
      portion of shares of AT&T common stock for shares of AT&T  Wireless  Group
      tracking stock. On December 22, 2000, AT&T filed a registration  statement
      for the exchange offer with the Securities and Exchange Commission,  which
      was amended on February 23, 2001. AT&T anticipates that the exchange offer
      will be completed  during the second quarter of 2001.  AT&T Wireless Group
      will  continue  to be a part  of  AT&T  following  the  completion  of the
      exchange offer.

          Also on October 25, 2000, AT&T announced  its restructuring  plan.  In
      connection with their restructuring plan,  following the completion of the
      exchange  offer  and  subject  to  certain  conditions,  AT&T  intends  to
      split-off  AT&T Wireless  Group from AT&T.  These  conditions  include the
      receipt of a favorable  ruling on the split-off from the Internal  Revenue
      Service (IRS) and  satisfaction of conditions  contained in AT&T's new $25
      billion credit agreement, including the repayment of AT&T Wireless Group's
      intercompany  obligations to AT&T. The split-off,  which is anticipated to
      be completed in mid-2001, would include several steps. These steps include
      transferring  substantially  all of the  assets  and  liabilities  of AT&T
      Wireless Group to AT&T Wireless Services, Inc., mandatorily exchanging all
      issued and  outstanding  shares of AT&T  Wireless  Group  tracking  stock,
      including those issued in the exchange offer,  for shares of AT&T Wireless
      Services common stock,  and  distributing a majority of the shares of AT&T
      Wireless Services common stock held by AT&T Common Stock Group, to holders
      of AT&T common  stock on a pro rata  basis.  On February  14,  2001,  AT&T
      announced  its  intention  to  retain up to $3  billion  of shares of AT&T
      Wireless  Services  for its own account  for sale or  exchange  within six
      months of the split-off, subject to receipt of a satisfactory IRS ruling.
<PAGE>
          In  January  2001,   NTT   DoCoMo,   a   leading   Japanese   wireless
      communications company,  invested $9.8 billion in a security of AT&T that,
      like AT&T Wireless Group tracking  stock, is intended to reflect a portion
      of the financial  performance  and economic value of AT&T Wireless  Group.
      AT&T Wireless Group,  through AT&T Wireless Group, LLC, was allocated $6.2
      billion of the proceeds  from  DoCoMo's  $9.8 billion  investment in AT&T.
      AT&T retained the remaining $3.6 billion of the DoCoMo investment proceeds
      as  consideration  for the  reduction in AT&T's  retained  portion of AT&T
      Wireless Group's value.  Following the split-off,  this investment will be
      converted into approximately 16% of AT&T Wireless Services' common shares.
      DoCoMo  also  received  warrants  at an  exercise  price  of $35 per  AT&T
      Wireless  Group  tracking  share   equivalent   that  would  represent  an
      approximate additional 1.6% of AT&T Wireless Services' common shares after
      the split-off.  As part of this investment,  AT&T Wireless Group,  through
      AT&T Wireless  Services,  Inc., has entered into a strategic alliance with
      DoCoMo  to  develop  mobile  multimedia  services  on  a  global-standard,
      high-speed  wireless  network.  DoCoMo may require the  repurchase  of its
      investment at DoCoMo's  original  purchase price,  plus interest,  if AT&T
      does not complete the split-off by specified  dates  beginning  January 1,
      2002 or if AT&T  Wireless  Group  fails  to meet  specified  technological
      milestones.

      Acquisitions

          On December  29, 2000,  AT&T  Wireless  Group,  through AWS and AWPCS,
      completed the acquisition of a wireless system in Houston,  which covers a
      population  base of  approximately  five million  potential  customers and
      served  approximately 180 thousand subscribers as of the acquisition date.
      Also on December 29, 2000,  AT&T Wireless  Group's  equity  interest in AB
      Cellular,  an entity  which  owned  cellular  properties  in Los  Angeles,
      Houston and Galveston,  Texas, was redeemed.  In  consideration  for their
      equity interest,  AT&T Wireless Group,  through AWS,  received 100% of the
      net assets of the Los Angeles property.  The Los Angeles property covers a
      population base of  approximately 15 million  potential  customers and had
      approximately 1.3 million subscribers as of December 31, 2000. On November
      14, 2000, AT&T Wireless Group, through AWPCS, completed a transaction with
      their  affiliate  Telecorp  PCS  which  resulted  in AT&T  Wireless  Group
      acquiring  wireless systems in several New England markets.  On October 2,
      2000, AT&T Wireless Group,  through AWPCS,  completed the acquisition of a
      wireless   system  in   Indianapolis.   Combined,   the  New  England  and
      Indianapolis  markets cover a population  base of  approximately 4 million
      potential customers,  and served approximately 145 thousand subscribers as
      of their acquisition dates.

          On September 29, 2000, AT&T Wireless Group, through AWS, completed the
      acquisition of a wireless  system in San Diego,  which covers a population
      base of 3 million  potential  customers.  Also,  during the third quarter,
      AT&T Wireless Group,  through AWS, completed its acquisition of a wireless
      system on the Big Island of Hawaii.  Combined,  these two  markets  served
      more than 180 thousand subscribers as of their acquisition dates.

          In June 2000, AT&T Wireless Group, through AWS, closed the acquisition
      of the remaining 50% partnership interest it previously did not own in CMT
      Partners (Bay Area Properties). The Bay Area Properties cover a population
      base exceeding 7 million  potential  customers and, as of the  acquisition
      date,  served nearly 1 million  subscribers.  Also in June,  AT&T Wireless
      Group, through AWS, completed its acquisition of Wireless One Network, L.P
      (Wireless  One).  Wireless  One  owns and  operates  wireless  systems  in
      Northwest and Southwest  Florida covering a population base of 1.6 million
      potential  customers and had approximately 190 thousand  subscribers as of
      the acquisition date.
<PAGE>
          In February 2000, AWS and Dobson Communications Corporation, through a
      joint venture,  acquired American Cellular  Corporation.  AT&T contributed
      cash equal to AWS' interest in the joint venture to AT&T Wireless Group as
      of the date of the acquisition.  This acquisition  increased AT&T Wireless
      Group's  coverage in New York State and several mid-west markets by adding
      approximately 450 thousand subscribers as of the acquisition date.

      Forward-Looking Statements

          Except for the historical statements and discussions contained herein,
      statements  herein  constitute  "forward-looking  statements"  within  the
      meaning of Section 27A of the  Securities  Act of 1933 and Section 21 E of
      the  Securities  Exchange  Act  of  1934,  including  without  limitation,
      statements  concerning  future  business  prospects,   revenue,  operating
      performance,  working  capital,  liquidity,  capital  needs,  and  general
      industry  growth  rates and AT&T  Wireless  Group's  performance  relative
      thereto. These forward-looking  statements rely on a number of assumptions
      concerning  future  events,  including  AT&T Wireless  Group'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 Wireless  Group's  control,
      that could cause actual results to differ materially from such statements.
      AT&T and AT&T  Wireless  Group  disclaim any  intention or  obligation  to
      update or revise any  forward-looking  statements,  whether as a result of
      new information, future events or otherwise.

<PAGE>

               AT&T Wireless Group Combined Results of Operations
                      For the Year Ended December 31, 2000
                 Compared With the Year Ended December 31, 1999

      Revenue

          Total revenue includes  wireless voice and data services,  the sale of
      handsets  and  accessories,  and  revenue  associated  with  the  aviation
      communications and fixed wireless operations.  AT&T Wireless Group records
      revenue as services  are  provided  or when the product is sold.  Services
      revenue  primarily  includes monthly recurring  charges,  airtime and toll
      usage charges, and roaming charges billed to subscribers for usage outside
      of AT&T  Wireless  Group's  network  as well as  charges  billed  to other
      wireless  providers  for roaming on AT&T  Wireless  Group's  network.  The
      revenue  and  related  expenses  associated  with the  sales  of  wireless
      handsets and  accessories  are recognized  when the products are delivered
      and  accepted  by the  customer,  as this is  considered  to be a separate
      earnings process from the sale of wireless services.

          Total revenue  increased  37.0% to $10,448  million for the year ended
      December 31, 2000,  compared with the prior year. Total revenue  increased
      29.6% for the year ended December 31, 2000,  compared with 1999,  adjusted
      to exclude the Bay Area  Properties  for the six months ended December 31,
      2000,  and to exclude  Vanguard  Cellular  for the period  January 2000 to
      April  2000,  to  correlate  results  with  1999,  due  to  the  May  1999
      acquisition.  The revenue  increase for the year ended  December 31, 2000,
      was primarily due to growth in our mobility  business  revenue,  including
      both growth in services and equipment revenue.

          Services  revenue for the year ended  December  31,  2000,  was $9,376
      million, an increase of $2,553 million, or 37.4%,  compared with 1999. The
      services  revenue  growth  was  driven by strong  consolidated  subscriber
      growth.  Additionally,  an  increase in average  monthly  revenue per user
      (ARPU) for the year ended December 31, 2000, compared with the prior year,
      contributed  to  the  revenue  growth.  AT&T  Digital  One  Rate  service,
      including  additional  calling plans  introduced in August 2000 as well as
      the AT&T Regional and Digital  advantage plans announced during the second
      quarter of 2000,  continue to contribute to growth in  subscribers as well
      as an increase in ARPU.

          As of December 31, 2000,  AT&T Wireless  Group had nearly 15.2 million
      consolidated  subscribers,  an increase of 58.5%,  compared with the prior
      year,  of  which  90.1%  were  digital  subscribers,  up from  79.2% as of
      December 31, 1999. Consolidated subscribers at December 31, 2000, included
      approximately  3.0 million  subscribers  associated with acquisitions that
      closed during 2000. Net consolidated  wireless subscriber additions in the
      year ended December 31, 2000, totaled nearly 2.6 million, a 67.5% increase
      over the prior year,  including  865 thousand  during the fourth  quarter.
      AT&T  Wireless  Group's  average  monthly  churn  rate for the year  ended
      December 31, 2000, was 2.9% compared with 2.6% for the year ended December
      31, 1999. AT&T Wireless  Group's  average  monthly churn increased  during
      2000 as a  result  of  competitive  pressures,  as  well as AT&T  Wireless
      Group's  efforts to expand the  customers  they serve to a broader base of
      consumer segments.  Total subscribers,  including  partnership  markets in
      which AT&T Wireless Group does not own a controlling  interest,  were over
      15.7 million at the end of 2000, a 28.9% increase over the prior year. Due
      to the redemption of AT&T Wireless  Group's interest in AB Cellular during
      the fourth quarter of 2000, the Houston market  subscribers of AB Cellular
      are no longer included in AT&T Wireless Group's total subscribers.  Ending
      total  subscribers   included   approximately  450  thousand   subscribers
      associated with AT&T Wireless Group's  acquisition of American Cellular in
      February 2000.
<PAGE>
          AT&T Wireless  Group's ARPU for the year ended  December 31, 2000, was
      $68.2, an increase of $2.4, or 3.6%,  compared with 1999. The increase was
      primarily due to increased  minutes of use per subscriber,  driven in part
      by the  continued  success of AT&T Digital One Rate service and other rate
      plans  introduced  in 2000.  AT&T Wireless  Group's ARPU trended  downward
      during the second half of 2000 as a result of market segmentation efforts.
      Despite this, AT&T Wireless Group's ARPU remained higher than the wireless
      industry  average during the year ended December 31, 2000,  excluding AT&T
      Wireless  Group.  As a result of our  market  segmentation  efforts,  AT&T
      Wireless  Group  anticipates  that ARPU will  decline in 2001  relative to
      2000.

          Equipment  revenue for the year ended  December 31,  2000,  was $1,072
      million, an increase of $268 million,  or 33.2%,  compared with 1999. This
      increase  was  primarily  due to a 53.6%  increase  in gross  consolidated
      subscriber  additions  during the year ended  December 31, 2000,  compared
      with 1999.  As an integral  part of the wireless  service  offering,  AT&T
      Wireless  Group  supplies to its  subscribers  a selection  of handsets at
      competitive prices, which are generally offered at or below cost.

      Costs of services

          Costs of  services  include  the costs to place calls over the network
      (including the costs to operate and maintain AT&T Wireless Group's network
      as well as roaming costs paid to other wireless providers) and the charges
      paid to connect calls on other networks, including those of AT&T.

          Costs of services for the year ended  December  31, 2000,  were $3,169
      million, an increase of $589 million,  or 22.9%,  compared with 1999. This
      increase was due primarily to growth in the mobility  subscriber  base and
      their increased minutes of use which resulted in an increase in the access
      and other  connection  charges  paid to connect  calls on other  networks,
      including  AT&T, as well as the costs to maintain  AT&T  Wireless  Group's
      network. The costs of services associated with AT&T Wireless Group's fixed
      wireless  business  increased  during  2000 as a result of the  commercial
      launch of  service  in several  markets.  Additionally,  during the fourth
      quarter, AT&T Wireless Group's costs of services included asset write-offs
      associated with changes in AT&T Wireless Group's strategy for markets that
      overlap with AT&T's broadband markets

      Costs of equipment sales

          Costs  of  equipment  sales  include  the  costs of the  handsets  and
      accessories provided to AT&T Wireless Group customers.  Costs of equipment
      sales for the year ended December 31, 2000 were $2,041  million.  This was
      an increase of $775 million,  or 61.2%,  compared with 1999. This increase
      was due  primarily to higher gross  subscriber  additions in 2000 compared
      with the prior year.

      Selling, general and administrative

          Selling,  general  and  administrative  expenses  for the  year  ended
      December 31, 2000, were $3,590  million,  compared with $2,663 million for
      the year ended December 31, 1999,  representing an increase of 34.8%. This
      increase was largely  attributable to higher  marketing and selling costs,
      primarily  advertising  and  commissions,  associated with the increase in
      gross  consolidated  subscriber  additions for the year ended December 31,
      2000, compared to 1999. Cost per gross subscriber  addition (CPGA),  which
      includes  the costs of handset  subsidies  recorded in costs of  equipment
      sales,  was $367 for both the year ended  December 31, 2000,  and 1999. In
<PAGE>
      addition,  growth in the wireless customer base resulted in an increase in
      information technology and customer care related expenses.

      Depreciation and amortization

          Depreciation and amortization expenses for the year ended December 31,
      2000, were $1,686 million, an increase of $433 million, or 34.5%, compared
      with 1999. This increase  primarily  resulted from growth in AT&T Wireless
      Group's  depreciable  asset base  resulting from capital  expenditures  to
      increase  the  capacity of the network and  improve  call  quality.  Total
      capital  expenditures were $4,287 million and $2,476 million for the years
      ended December 31, 2000 and 1999, respectively. Additionally, amortization
      expense,  which includes  amortization of licensing costs,  goodwill,  and
      other  intangibles,  increased for the year ended  December 31, 2000, as a
      result  of  the  1999  acquisitions  of  Vanguard  Cellular  and  Honolulu
      Cellular,  as well  as the  2000  acquisitions,  primarily  the  Bay  Area
      Properties and Wireless One which closed during June 2000.

      Asset impairment and restructuring charges

          During the fourth quarter of 1999, AT&T Wireless Group recorded a $531
      million asset  impairment  charge  primarily  associated  with the planned
      disposal of wireless communications  equipment resulting from a program to
      increase capacity and operating efficiency of the wireless network.

      Other income

          Other income primarily  includes gains or losses on sales or exchanges
      of assets,  intercompany interest income on the note receivable from AT&T,
      and minority interests in consolidated subsidiaries.  Other income for the
      year ended December 31, 2000, was $534 million, compared with $122 million
      for the year ended  December  31,  1999.  The  increase for the year ended
      December 31, 2000, was due primarily to the pretax gain of $379 million on
      the  transactions   associated  with  AT&T  Wireless   Group's   affiliate
      investment in Telecorp PCS,  interest  income on the note  receivable from
      AT&T,  partially  offset by a pretax loss of $184 million  associated with
      the  acquisition of the Los Angeles  cellular  property  resulting from AB
      Cellular's  redemption  of AT&T  Wireless  Group's  equity  interest in AB
      Cellular, as well as pretax gains recorded in 1999.

      Interest expense

          Interest expense consists  primarily of interest on intercompany  debt
      due to AT&T less interest  expense  capitalized.  Interest expense for the
      year ended December 31, 2000, was $85 million,  a decrease of $51 million,
      or 37.4%,  compared  with 1999.  The decrease was due to higher  levels of
      capitalized  interest as a result of increased  capital  expenditures,  as
      well as lower levels of average outstanding debt due to AT&T. The decrease
      in the  average  outstanding  debt  due to AT&T  was  attributable  to the
      recapitalization  of $2.0  billion  of long  term debt due to AT&T into 9%
      cumulative preferred stock held by AT&T subsequent to the offering of AT&T
      Wireless Group tracking stock.  These decreases were partially offset by a
      higher rate of interest  charged on the  intercompany  debt in 2000 versus
      the prior year.

      Provision (benefit) for income taxes

          The provision  for income taxes for the year ended  December 31, 2000,
      was $141  million,  compared  with a benefit of $294  million for the year
      ended December 31, 1999. The effective  income tax rate for the year ended
      December  31,  2000 was 34.1%,  compared  with  43.2%,  for the year ended
      December 31, 1999.  The effective  rate for 2000 was impacted by increased
<PAGE>
      goodwill and other purchased  intangibles  amortization expense associated
      with  the  1999 and  2000  acquisitions  as well as the sale of a  foreign
      equity  investment during 2000. The effective income tax rate for 1999 was
      impacted by the benefit from a change in the valuation allowance and other
      estimates,   offset  by  amortization  of  goodwill  and  other  purchased
      intangibles.

      Net equity earnings (losses) from investments

          Net equity earnings  (losses) from  investments,  net of tax, was $388
      million of earnings for the year ended  December 31, 2000,  compared  with
      $19 million of losses for 1999.  The increase was  primarily due to a $372
      million  after-tax  gain  included in equity  earnings  for AT&T  Wireless
      Group's portion of the gain recognized by AB Cellular on the redemption of
      AT&T Wireless Group's equity interest in AB Cellular.

      Dividend requirements on preferred stock held by AT&T

          At December 31, 2000 and 1999,  AT&T Wireless  Group had  outstanding,
      $3.0 billion and $1.0 billion,  respectively,  of preferred  stock held by
      AT&T that pays  dividends at 9% per annum.  Long-term  debt due to AT&T of
      $2.0  billion was  recapitalized  into an  additional  $2.0  billion of 9%
      cumulative  preferred stock held by AT&T following the offering.  Dividend
      requirements on this preferred stock for the year ended December 31, 2000,
      were $130  million  and for the year ended  December  31,  1999,  were $56
      million,  net of  amounts  recorded  in  accordance  with the tax  sharing
      agreement.

                      For the Year Ended December 31, 1999
                 Compared with the Year Ended December 31, 1998

      Revenue

          Total  revenue  for the year  ended  December  31,  1999,  was  $7,627
      million, an increase of $2,221 million, or 41.1%, compared with 1998. AT&T
      Wireless  Group's  1999  results  included  Vanguard  Cellular  since  its
      acquisition  on May  3,1999,  and  1998  results  included  its  messaging
      business  until its sale on  October  2, 1998.  Adjusted  to exclude  both
      Vanguard  Cellular  and its  messaging  business,  total  revenue for AT&T
      Wireless Group increased by 39.0% compared with 1998.

          The revenue increase was driven  primarily by consolidated  subscriber
      growth and rising  ARPU.  As of December  31,  1999,  ending  consolidated
      subscribers  increased  33.4%  compared  with 1998.  AT&T Digital One Rate
      service significantly  contributed to the increase in ARPU and subscribers
      by acquiring and retaining high value customers,  who have a significantly
      higher ARPU than an average subscriber.

          Services  revenue for the year ended  December  31,  1999,  was $6,823
      million, an increase of $2,044 million, or 42.8%, compared with 1998.

          As  of  December  31,  1999,  AT&T  Wireless  Group  had  9.6  million
      consolidated  subscribers,  an increase of 33.4%  compared  with the prior
      year,  of  which  79.2%  were  digital  subscribers,  up from  60.7% as of
      December  31,  1998.  Included in these  figures  were  approximately  700
      thousand  subscribers  from our  acquisition  of Vanguard  Cellular in May
      1999,  approximately  125 thousand  subscribers  from our  acquisition  of
      Honolulu Cellular in August 1999 and approximately 45 thousand subscribers
      from our acquisition of Bakersfield Cellular in April 1999. Including AT&T
      Wireless Group's  partnership  markets,  approximately  9.4 million of the
      12.2 million total  subscribers  were digital  subscribers  as of December
      31,1999.
<PAGE>
          AT&T  Wireless  Group's ARPU for the year ended  December 31, 1999 was
      $65.8, an increase of $8.2, or 14.2%, compared with 1998. The increase was
      primarily due to increased  minutes of use per subscriber,  driven in part
      by the success of AT&T Digital One Rate  service.  AT&T  Wireless  Group's
      ARPU  remained  significantly  higher than the wireless  industry  average
      during 1999, excluding AT&T Wireless Group.

          Equipment  revenue  for the  year  ended  December  31,  1999 was $804
      million,  an increase of $177 million,  or 28.2%,  compared with 1998. The
      increase  was  primarily  due to a 25.1%  increase  in gross  consolidated
      subscriber  additions in 1999  compared  with 1998. As an integral part of
      the wireless  service  offering,  AT&T Wireless  Group supplies to its new
      subscribers  a  selection  of handsets at  competitive  prices,  which are
      generally offered at or below cost.

      Costs of services

          Costs of  services  for the year ended  December  31, 1999 were $2,580
      million.  This was an increase of $1,152 million, or 80.7%,  compared with
      1998. The increase was due primarily to roaming  expenses  associated with
      the  success  of AT&T  Digital  One Rate  service as  off-network  roaming
      minutes of use  increased by 194.7% for the year ended  December 31, 1999,
      compared with 1998.

          Although  roaming  expenses  continued to impact  results for the year
      ended  December  31, 1999,  the rate of roaming  expense  growth  declined
      significantly  during  the latter  half of 1999,  as AT&T  Wireless  Group
      introduced  initiatives  to  aggressively  migrate  more minutes onto AT&T
      Wireless  Group's network as well as reduced  intercarrier  roaming rates.
      AT&T Wireless Group continued to seek to decrease roaming expenses through
      capital  spending  for  network  expansion,   acquisitions  and  affiliate
      launches.  Roaming  rates  also  declined  significantly  as a  result  of
      renegotiated  roaming  agreements and the  deployment of IRDB  technology,
      which  assists in  identifying  favorable  roaming  partners  in areas not
      included in AT&T Wireless Group's  network.  All of these efforts resulted
      in a reduction of approximately 18% in the average roaming rate per minute
      paid to other carriers for the year ended December 31, 1999, compared with
      1998.

      Costs of equipment sales

          Costs of  equipment  sales for the year ended  December  31, 1999 were
      $1,266 million.  This was an increase of $266 million, or 26.6%,  compared
      with 1998.  This  increase was  primarily  the result of  increased  gross
      subscriber   additions  in  1999  compared  with  1998.  Gross  subscriber
      additions  increased 25.1% for the year ended 1999 compared with the prior
      year.

      Selling, general and administrative

          SG&A expenses for the year ended December 31, 1999 were $2,663 million
      compared with $2,122  million for the year ended  December  31,1998.  This
      increase was due to higher marketing and selling costs associated with the
      increase in consolidated gross subscriber  additions in 1999 compared with
      1998, as well as the growth in customer care expenses  associated with the
      larger consolidated subscriber base.
<PAGE>
      Depreciation and amortization

          Depreciation and amortization expenses for the year ended December 31,
      1999 were $1,253  million,  an increase of $174  million,  or 16.1%.  This
      increase  primarily  resulted  from a larger  asset  base  and  additional
      amortization of goodwill and other purchased  intangibles  associated with
      the acquisition of Vanguard  Cellular.  Capital  expenditures for the year
      ended December 31, 1999 and 1998,  were $2,476 million and $1,136 million,
      respectively.

      Asset impairment and restructuring charges

          During the fourth quarter of 1999, AT&T Wireless Group recorded a $531
      million asset  impairment  charge  primarily  associated  with the planned
      disposal of wireless communications  equipment resulting from a program to
      increase capacity and operating efficiency of the wireless network.  Asset
      impairment and restructuring  charges for the year ended December 31, 1998
      were $120 million,  which  represented  the  write-down  of  unrecoverable
      assets associated with non-strategic businesses.

      Other income

          Other income for the year ended  December  31, 1999 was $122  million.
      Other income for the year ended  December 31, 1998 was $650  million.  The
      decrease  was due  primarily  to the pretax  gains on sales in 1998 of LIN
      Television  Corporation  of  $342  million,  SmarTone   Telecommunications
      Holdings Limited of $128 million and PriceCellular of $67 million.

      Interest expense

          Interest expense consists  primarily of interest on intercompany  debt
      due to AT&T.  Interest  was  charged at 7.25% per annum for the year ended
      December  31,  1999 and 7.75% per annum for the year  ended  December  31,
      1998.  Interest  expense  for the year ended  December  31,  1999 was $136
      million,  an increase of $16 million,  or 13.3%,  compared with 1998.  The
      increase was due to a higher level of average debt outstanding,  partially
      offset by the impact of the lower rate charged by AT&T in 1999.

      Provision (benefit) for income taxes

          The benefit for income taxes for the year ended  December 31, 1999 was
      $294  million,  compared  with a tax provision of $59 million for the year
      ended  December  31,  1998.  The  benefit  for  income  taxes  in 1999 was
      primarily  due to the pre-tax loss for the period  coupled with changes in
      the valuation  allowance  and other  estimates.  The effective  income tax
      rates for the years  ended  December  31,  1999 and 1998,  were  43.2% and
      31.6%,  respectively.  The effective income tax rate for 1998 was impacted
      by the effect of state taxes, net of federal benefit, and the amortization
      of  intangibles,  partially  offset  by  the  effects  of  changes  in the
      valuation allowance and other estimates.

      Net equity earnings (losses) from investments

          Net equity earnings (losses) from investments,  net of tax, was a loss
      of $19  million  for the year  ended  December  31,  1999,  compared  with
      earnings of $36 million for 1998.  The decrease was  primarily a result of
      increased  losses  associated  with affiliate  investments.  Additionally,
      equity  losses  increased  in  1999  compared  with  1998  due  to  losses
      associated with financial commitments related to certain investments.
<PAGE>
      Dividend requirements on preferred stock held by AT&T

          AT&T Wireless Group had $1.0 billion of preferred  stock held by AT&T,
      as of December  31, 1999 and 1998,  that paid  dividends  at 9% per annum.
      Dividend  requirements on this preferred stock for each of the years ended
      December  31, 1999 and 1998 were $56 million,  net of amounts  recorded in
      accordance with the tax sharing agreement.

               AT&T WIRELESS GROUP LIQUIDITY AND CAPITAL RESOURCES

          The  continued   expansion  of  AT&T  Wireless   Group's  network  and
      footprint,  including  spectrum auctions,  and service offerings,  and the
      marketing and distribution of its products and services,  will continue to
      require substantial capital. AT&T Wireless Group has funded its operations
      by offering proceeds  attributed from AT&T,  intercompany  borrowings from
      AT&T and internally generated funds, as well as capital contributions from
      AT&T prior to the offering.  Capital  contributions from AT&T prior to the
      offering  included  acquisitions made by AT&T that have been attributed to
      AT&T  Wireless  Group.  Noncash  capital  contributions  from AT&T to AT&T
      Wireless Group related to acquisitions and initial  investments  funded by
      AT&T totaled $539 million,  $2,553 million, and $982 million for the years
      ended December 31, 2000, 1999, and 1998, respectively.

          The April 2000 offering of AT&T Wireless Group tracking stock resulted
      in net proceeds to AT&T after deducting underwriter's discount and related
      fees and expenses of $10.3 billion.  AT&T  attributed  $7.0 billion of the
      net proceeds to AT&T Wireless  Group in the form of an  intercompany  note
      receivable,  which was repaid by December 31, 2000, and was used primarily
      to fund acquisitions and capital expenditures.

          On  May  1,  2000,   following  the  offering,   AT&T  Wireless  Group
      recapitalized  $2.0 billion of outstanding  intercompany  indebtedness  to
      AT&T into an additional $2.0 billion of 9% cumulative preferred stock held
      by AT&T. In conjunction with the  recapitalization,  AT&T Wireless Group's
      long-term debt due to AT&T was  recapitalized to be 10 year term debt that
      bears interest at a fixed rate of 8.1% per annum.

          Currently, financing activities for AT&T Wireless Group are managed by
      AT&T on a centralized basis and are subject to the review of AT&T Wireless
      Group's  capital  stock  committee.  AT&T  Wireless  Group  capital  stock
      committee  is  selected  by  AT&T's  board of  directors  to  oversee  the
      interaction  between  businesses  of AT&T  Common  Stock  Group  and  AT&T
      Wireless  Group  in  accordance   with  the  AT&T  Wireless  Group  Policy
      Statement.  Under the AT&T Wireless Group Policy  Statement,  all material
      transactions  between AT&T Common Stock Group and AT&T Wireless  Group are
      determined  and  governed by a process of fair  dealing.  Sources for AT&T
      Wireless Group's future  financing  requirements may include the borrowing
      of funds,  including  additional  short-term  floating rate debt from AT&T
      and/or  third-party  debt.  Loans from AT&T to any member of AT&T Wireless
      Group have been made at interest  rates and on other terms and  conditions
      intended to be  substantially  equivalent to the interest  rates and other
      terms and conditions that AT&T Wireless Group would be able to obtain from
      third parties,  including the public markets,  as a non-affiliate  of AT&T
      without the benefit of any guaranty by AT&T. This policy contemplates that
      these  loans will be made on the basis set forth above  regardless  of the
      interest  rates and  other  terms and  conditions  on which  AT&T may have
      acquired the funds. If, however,  AT&T incurs any fees or charges in order
      to keep  available  funds for use by AT&T  Wireless  Group,  those fees or
      charges will be allocated to AT&T Wireless Group.
<PAGE>
          Our board of directors  has the power to make  determinations that may
      impact the financial and liquidity  position of each of the tracking stock
      groups.  This power  includes  the  ability to set  priorities  for use of
      capital and debt capacity,  to determine cash  management  policies and to
      make decisions  regarding  whether to make capital  expenditures and as to
      the timing  and amount of any  capital  expenditures.  All  actions by the
      board of directors  are subject to the board members  fiduciary  duties to
      all  shareholders  of AT&T  as a  group  and  not  just  to  holders  of a
      particular class of tracking stock and to our policy  statements,  by-laws
      and inter-company  agreements. As a result of this discretion of our board
      of  directors,  it may be difficult  for  investors to assess each group's
      liquidity and capital  resource needs and in turn the future  prospects of
      each group based on past performance.


          In association with the intended split-off of AT&T Wireless Group from
      AT&T announced on October 25, 2000, AT&T and AT&T Wireless Services,  Inc.
      anticipate  that  they  will  enter  into a  separation  and  distribution
      agreement  that will  govern the terms of the  split-off.  As part of this
      agreement,  AT&T  Wireless  Services  will agree,  upon  completion of the
      split-off,  to repay the full  amount of the  principal  and  accrued  but
      unpaid  interest or face value and accrued  but unpaid  dividends,  of all
      outstanding  indebtedness  owned by AT&T Wireless  Group to AT&T,  and all
      preferred stock in AT&T Wireless Group held by AT&T.

          On January 22, 2001,  AT&T closed their  transaction  with NTT DoCoMo.
      AT&T attributed  $6.2 billion of the approximate  $9.8 billion of proceeds
      received from DoComo to AT&T Wireless Group in the form of an intercompany
      note  receivable.  AT&T Wireless  Group intends to utilize the proceeds to
      continue executing their strategy to expand their capacity,  enlarge their
      footprint,  create  an  advanced  mobile  internet  and  invest  in  other
      strategic  growth  initiatives,   as  well  as  to  satisfy   intercompany
      obligations.

          On March 23, 2001,  AT&T  Wireless Group,  through AWS,  entered  into
      Competitive  Advance and Revolving Credit Facilities (the "Facilities") in
      the aggregate amount of $2.5 billion  consisting of an up to $1.25 billion
      364-day  Competitive  Advance and Revolving  Credit  Facility and an up to
      $1.25 billion Five-Year Competitive Advance and Revolving Credit Facility.
      The facilities are subject to a facility fee and  utilization fee and bear
      interest at variable rates based upon, in various cases,  LIBOR, the prime
      rate or the rates on overnight Federal funds transactions.  The Facilities
      may be used for general  corporate  purposes  and are subject to customary
      covenants,  representations  and  warranties  and  events of  default.  In
      addition,  the  Facilities  contain  financial  covenants  providing for a
      maximum  total debt to total  Consolidated  Operational  EBITDA  ratio (as
      defined  in the  facilities  agreement)  not to exceed 4:0 to 1:0 for AT&T
      Wireless Group and a minimum interest coverage ratio of 3.5:1.0.  From the
      date of the closing of the  Facilities  until the date of the split-off of
      AT&T Wireless Group,  AWS will be prohibited from declaring  and/or paying
      dividends.  The Facility  also  specifies  limitations  on AT&T's and AT&T
      Wireless Group's ability to consummate the split-off including a provision
      that  it  will  constitute  an  event  of  default  if  the  split-off  is
      consummated  without  obtaining a favorable  tax ruling from the IRS or an
      unqualified  tax opinion  that the  split-off  will  qualify as a tax-free
      transaction.  In addition, the existence of an obligation by AT&T Wireless
      Group to  repurchase  equity  interests  from  DoCoMo  may  under  certain
      circumstances constitute an event of default.

          On March 1, 2001,  AT&T  Wireless  Group,  through  AWS,  completed  a
      private placement of $6.5 billion in Senior Notes with maturity dates from
      2006 to 2031.  The notes pay  interest  at rates  ranging  from  7.350% to
      8.750% per annum,  and  include  customary  covenants.  The notes  include
      registration rights, such that AWS is required to exchange the notes for a
      new issue of notes  registered under the Securities Act of 1933 and are to
      be declared effect no later than 240 days after the issue date.

          AT&T performs  cash  management  functions on behalf of  AT&T Wireless
      Group.  Substantially all of AT&T Wireless Group's cash balances are swept
      to AT&T on a daily  basis,  where they are managed  and  invested by AT&T.
      Prior to the offering of AT&T Wireless Group tracking stock,  transfers of
      cash to and from AT&T were reflected as a component of combined attributed
      net assets,  with no interest income or expense  reflected.  Subsequent to
      the offering,  transfers  are reflected as changes in the note  receivable
      from AT&T.  Cash balances  maintained  and reported by AT&T Wireless Group
      primarily represent cash balances for which no right of offset exists with
      AT&T.
<PAGE>
          Net cash provided by operating  activities for the year ended December
      31,  2000,  was $1,635  million,  compared  with $867 million for the year
      ended  December  31,  1999.  The  increase in cash  provided by  operating
      activities was primarily due to an increase in operating  income excluding
      depreciation and amortization,  and the asset impairment and restructuring
      charge in 1999, resulting from revenue growth and expense leveraging,  and
      an increase in operating and payroll related accruals, partially offset by
      increases in inventories and accounts receivable.

          Net cash used in investing  activities for the year ended December 31,
      2000, was $10,525 million, compared with $2,123 million for the year ended
      December 31, 1999.  The  investing  activities  included on AT&T  Wireless
      Group's  statements of cash flows include cash expenditures or receipts of
      cash for  investing  transactions  directly  attributable  to the wireless
      group  operations,  and those legal  entities  that comprise the financial
      statements of AT&T Wireless  Group.  These amounts are  representative  of
      what AT&T Wireless Group would report on a stand-alone basis. The increase
      was due  primarily  to the  acquisitions  of wireless  systems in Houston,
      Indianapolis  and San Diego,  the Bay Area  Properties,  and Wireless One.
      Equity investment  purchases increased primarily due to the acquisition of
      equity  interests  in  international  ventures,   acquired  from  AT&T  in
      association  with their  acquisition  of MediaOne.  In  addition,  capital
      expenditures increased as a result of efforts to increase network capacity
      in existing markets as well as to expand the national footprint.

          Net cash  provided by financing  activities  for the year December 31,
      2000, was $8,947 million,  compared with $1,234 million for the year ended
      December 31, 1999.  The increase was primarily due to proceeds  attributed
      from the offering of AT&T Wireless Group tracking  stock,  short-term debt
      borrowed from AT&T as well as increased  transfers  from AT&T prior to the
      offering, to fund acquisitions and higher capital expenditures.

          Net cash provided by operating  activities for the year ended December
      31, 1999 was $867 million  compared  with $414 million of cash provided by
      operating  activities in 1998 primarily due to increased  operating income
      excluding  depreciation  and  amortization,  and the asset  impairment and
      restructuring  charges and larger  increases  in  operating  accruals  and
      accounts  payable.  These  increases  were offset by a higher  increase in
      accounts  receivable  driven by strong  revenue  growth.  Net cash used in
      investing  activities  for the year  ended  December  31,1999  was  $2,123
      million,  compared  with  $238  million  of  cash  provided  by  investing
      activities in 1998.  The  difference  was due primarily to higher  capital
      expenditures to upgrade and increase  capacity in existing markets as well
      as to expand the national  footprint,  and lower cash proceeds  associated
      with the sales of  equity  investments.  Net cash  provided  by  financing
      activities  for the  year  ended  December  31,  1999 was  $1,234  million
      compared  with $631 million of cash used in financing  activities  in 1998
      due to increased transfers and debt financing from AT&T to fund the higher
      capital expenditures during 1999.

          EBITDA, defined as earnings before interest and taxes, excluding other
      income, plus depreciation and amortization, is the primary measure used by
      the chief  operating  decision-makers  to measure  our ability to generate
      cash flow.  EBITDA may or may not be consistent  with the  calculation  of
      EBITDA for other public companies and should not be viewed by investors as
      an alternative to generally accepted  accounting  principles,  measures of
      performance  or to cash  flows from  operating,  investing  and  financing
      activities as a measure of liquidity.
<PAGE>
          EBITDA for the year  ended  December  31,  2000,  was $1,648  million,
      compared  with $587 million for the year ended  December  31, 1999.  On an
      operational  basis,  adjusted  to exclude  the 1999 asset  impairment  and
      restructuring  charge of $531 million,  EBITDA  increased  $530 million or
      47.3%.  The increase was primarily the result of revenue  growth and lower
      off-network  roaming  expenses.  These increases were partially  offset by
      increased customer acquisition costs associated with the increase in gross
      subscriber  additions,  increased network costs attributable to the growth
      in  subscribers  and  their  minutes  of use,  and  increased  information
      technology  and  customer  care  related  costs to  support  growth in the
      subscriber base.

          For our  mobility  business,  EBITDA for the year ended  December  31,
      2000,  was $1,884  million,  compared with $670 million for the year ended
      December 31, 1999.  Excluding the 1999 asset impairment and  restructuring
      charge, mobility EBITDA increased $686 million or 57.2%.

          For our fixed  wireless  business,  EBITDA for the year ended December
      31, 2000,  was a deficit of $228  million,  compared with a deficit of $75
      million  the year  ended  December  31,  1999.  Excluding  the 1999  asset
      impairment and restructuring  charge, fixed wireless EBITDA decreased $156
      million or 213.4%.

          EBITDA  margins  were  15.8% for the year  ended  December  31,  2000,
      compared with 14.7% for the year and December 31, 1999, excluding the 1999
      asset  impairment  and  restructuring  charge.  The  improvement in EBITDA
      margins for the year ended  December 31, 2000,  compared to the year ended
      December  31, 1999,  was  primarily  driven by revenue  growth and expense
      leveraging,  primarily  off-network roaming expenses,  partially offset by
      increased  customer  acquisition  and customer care costs  associated with
      growth in the subscriber base.

          EBITDA margins for our mobility business were 18.0% for the year ended
      December 31,  2000,  compared  with 15.7% for the year ended  December 31,
      1999, excluding the 1999 asset impairment and restructuring charge.

          EBITDA for the year ended December 31, 1999 was $587 million  compared
      with $736 million for the year ended December 31, 1998.  Excluding  pretax
      asset  impairment  and  restructuring  charges of $531 million in 1999 and
      $120  million  in  1998,   EBITDA  was  $1,118  million  for  1999,  which
      represented  an increase of $262  million,  or 30.6%,  compared with 1998.
      This  increase  was  attributable  to  increases  in total  revenue and an
      improving margin as SG&A expenses declined as a percentage of revenue.

          For our  mobility  business,  EBITDA for the year ended  December  31,
      1999,  was $670  million,  compared  with $794  million for the year ended
      December 31, 1998.  Excluding  pretax asset  impairment and  restructuring
      charges  of $528  million  in 1999 and $120  million  in 1998,  EBITDA was
      $1,198 million for 1999 compared with $914 million for 1998.

          Excluding   the   aforementioned    pretax   asset   impairment    and
      restructuring  charges in 1999 and 1998, EBITDA margins were 14.7% for the
      year ended December 31, 1999,  compared with 15.8% in 1998. The decline in
      EBITDA  margins  in 1999  compared  with  1998  was  driven  primarily  by
      increased  roaming  expenses,  as well as  increased  sales and  marketing
      expenses associated with a 25.1% increase in gross consolidated subscriber
      additions in 1999 compared with 1998.

          Excluding the aforementioned pretax asset impairment and restructuring
      charges in 1999 and 1998,  EBITDA  margins for our mobility  business were
      15.7% for the year ended  December 31, 1999,  compared  with 16.9% for the
      year ended December 31, 1998.
<PAGE>
                     AT&T WIRELESS GROUP FINANCIAL CONDITION

          Total assets were $35,302 million as of December 31, 2000, an increase
      of $11,790  million,  or 50.1%,  compared  with  December  31,  1999.  The
      increase was due primarily to increases in licensing costs,  goodwill, and
      property,  plant and equipment  associated with the acquisitions closed in
      2000,  including  the  acquisitions  of Wireless  One,  L.P. and  wireless
      systems in the San Francisco Bay Area,  San Diego,  Indianapolis,  Houston
      and Los  Angeles.  In  addition,  the  increase  in  property,  plant  and
      equipment was a result of significant  capital  expenditures  for the year
      ended  December 31,  2000.  These  increases  were  partially  offset by a
      decrease in  investments  as AT&T Wireless  Group  previously  held equity
      interests  in  portions  of the Bay Area  Properties,  and the Los Angeles
      market,  through  their  interest  in  AB  Cellular.  These  markets  were
      consolidated as of December 31, 2000.

          Total  liabilities  were  $10,384  million as of December  31, 2000, a
      increase of $889 million,  or 9.4%,  compared with December 31, 1999.  The
      increase was  primarily  due to  increases  in deferred  income taxes as a
      result of gains recorded during the fourth  quarter,  as well as increased
      marketing, business tax and other operating accruals. These increases were
      partially offset by a net decrease in intercompany indebtedness to AT&T.

          Combined  attributed net assets was $24,887 million as of December 31,
      2000, an increase of $10,880 million, or 77.7%, compared with December 31,
      1999.  The  increase  was  primarily  due to the  attribution  of offering
      proceeds to AT&T  Wireless  Group,  net  transfers  from AT&T prior to the
      offering  to  fund  capital  expansion  and  acquisitions,  as well as the
      additional $2.0 billion of preferred stock issued to AT&T.

              AT&T WIRELESS GROUP RECENT ACCOUNTING PRONOUNCEMENTS

          In September  2000, the Financial  Accounting  Standards  Board (FASB)
      issued SFAS No. 140,  "Accounting for Transfers and Servicing of Financial
      Assets and Extinguishments of Liabilities--A Replacement of FASB No. 125".
      This statement provides  accounting and reporting  standards for transfers
      and  servicing of financial  assets and  extinguishments  of  liabilities.
      Under these  standards,  after a transfer of financial  assets,  an entity
      recognizes  the  financial  and  servicing  assets  it  controls  and  the
      liabilities it has incurred,  derecognizes  financial  assets when control
      has been surrendered, and derecognizes liabilities when extinguished. This
      statement provides  consistent  standards for distinguishing  transfers of
      financial   assets  that  are  sales  from   transfers  that  are  secured
      borrowings.  This  statement is effective  for  transfers and servicing of
      financial assets and extinguishments of liabilities  occurring after March
      31, 2001.  AT&T  Wireless  Group does not expect that the adoption of SFAS
      No.  140  will  have a  material  impact  on its  results  of  operations,
      financial position or cash flows.

          In June 1998, the 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 Wireless Group, this means that the standard must be
      adopted no later than January 1, 2001. In June 2000,  the FASB issued SFAS
      No.  138,  "Accounting  for  Certain  Derivative  Instruments  and Certain
      Hedging  Activities"  as an  amendment  to SFAS No.  133.  This  statement
      provides clarification with regard to certain
<PAGE>
      implementation  issues under SFAS No. 133 on specific types of hedges. The
      adoption of SFAS No. 133 in January 2001,  did not have a material  impact
      to the AT&T Wireless Group's results of operations,  financial position or
      cash flows.  In  addition,  based on the types of  contracts  we currently
      have, AT&T Wireless Group does not anticipate that this standard will have
      a material impact on future results of AT&T Wireless Group.

                      AT&T WIRELESS GROUP SUBSEQUENT EVENTS

          In January 2001, AT&T Wireless Group executed  agreements with certain
      network   equipment   vendors,   related   to  the   development   of  its
      next-generation  network strategy.  These agreements require AT&T Wireless
      Group to buy equipment  from these  vendors  totaling  approximately  $1.8
      billion through 2004.

          Effective January 1, 2001, AT&T Wireless Group implemented the results
      of  a  review  of  the  estimated   service  lives  of  certain   wireless
      communications equipment,  primarily electronics.  Lives were shortened to
      fully depreciate all such equipment within seven years.  Similar equipment
      acquired  after  January 1, 2001,  will have  useful  lives no longer than
      seven years.

          On January 22, 2001, AT&T Wireless Group,  through AWS,  completed its
      previously  announced  transaction  with  DoCoMo.  See Note 1 for  further
      discussion of the transaction.

          On November 17, 2000,  AT&T Wireless Group announced that AT&T's board
      of directors  had approved an agreement  under which AT&T  Wireless  Group
      would   purchase   $200  in  Series  AA   preferred   stock  from   Dobson
      Communications  Corporation.  AT&T Wireless Group,  through AWS, completed
      this  transaction  on  February  8, 2001.  The Series AA  preferred  stock
      acquired  has  a  liquidation  preference  of  $1,000  per  share  and  is
      exchangeable  into Series A convertible  preferred stock. If the Series AA
      preferred  stock is exchanged into Series A convertible  preferred  stock,
      AT&T Wireless Group will increase its ownership  interest in Dobson, on an
      as converted to common stock basis,  from its current ownership of 4.6% to
      approximately 11.6%.

          On March 23, 2001,  AT&T  Wireless  Group,  through AWS,  entered into
      Competitive  Advance and Revolving Credit Facilities (the "Facilities") in
      the aggregate amount of $2.5 billion consisting of and up to $1.25 billion
      364-day  Competitive  Advance and Revolving  Credit  Facility and an up to
      $1.25 billion Five-Year Competitive Advance and Revolving Credit Facility.
      The facilities are subject to a facility fee and  utilization fee and bear
      interest at variable rates based upon, in various cases,  LIBOR, the prime
      rate or the rates on overnight Federal funds transactions.  The Facilities
      may be used for general  corporate  purposes  and are subject to customary
      covenants,  representations  and  warranties  and  events of  default.  In
      addition,  the  Facilities  contain  financial  covenants  providing for a
      maximum  total debt to total  Consolidated  Operational  EBITDA  ratio (as
      defined  in the  facilities  agreement)  not to exceed 4:0 to 1:0 for AT&T
      Wireless Group and a minimum interest coverage ratio of 3.5:1.0.  From the
      date of the closing of the  Facilities  until the date of the split-off of
      AT&T Wireless Group,  AWS will be prohibited from declaring  and/or paying
      dividends.  The Facility  also  specifies  limitations  on AT&T's and AT&T
      Wireless Group's ability to consummate the split-off including a provision
      that  it  will  constitute  an  event  of  default  if  the  split-off  is
      consummated  without  obtaining a favorable  tax ruling from the IRS or an
      unqualified  tax opinion  that the  split-off  will  qualify as a tax-free
      transaction.  In addition, the existence of an obligation by AT&T Wireless
      Group to  repurchase  equity  interests  from  DoCoMo  may  under  certain
      circumstances constitute an event of default.
<PAGE>
          On February 26, 2001, AT&T agreed to sell its entire interest in Japan
      Telecom for approximately  $1.35 billion.  The net after-tax  proceeds are
      expected to be approximately  $1 billion.  AT&T has indicated that the net
      after-tax  proceeds  will be split evenly  between AT&T and AT&T  Wireless
      Group.   AT&T  Wireless  Group   anticipates  that  it  will  recognize  a
      significant gain on the transaction.

          On March 1, 2001,  AT&T  Wireless  Group,  through  AWS,  completed  a
      private placement of $6.5 billion in Senior Notes with maturity dates from
      2006 to 2031.  The notes pay  interest  at rates  ranging  from  7.350% to
      8.750% per annum,  and  include  customary  covenants.  The notes  include
      registration rights, such that AWS is required to exchange the notes for a
      new issue of notes  registered under the Securities Act of 1933 and are to
      be declared effect no later than 240 days after the issue date.


ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.


         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,  2000 and 1999,  and the results of their
operations  and their cash flows for each of the three years ended  December 31,
2000, 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 $34,290  million  and  $38,460
million as of  December  31,  2000 and 1999,  respectively,  and  equity  method
earnings  (losses) of $1,488 million and $(2,022)  million,  for the years ended
December 31, 2000 and 1999, respectively. 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 years ended December 31, 2000 and 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
New York, New York
March 16, 2001

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

                                                                                                    For the Years Ended December 31,

                                                                                                        2000        1999        1998
                                                                                                        ----        ----        ----
                                                                                                           Dollars in millions
                                                                                                        (except per share amounts)
<S>                                                                                                  <C>         <C>         <C>
Revenue                                                                                              $65,981     $62,600     $53,223
Operating Expenses
Costs of services and products (excluding depreciation of $5,457, $4,947 and $3,362
  included below)                                                                                     17,587      14,594      10,495
Access and other connection                                                                           13,518      14,686      15,328
Selling, general and administrative                                                                   13,303      13,516      12,770
Depreciation and other amortization                                                                    7,274       6,138       4,378
Amortization of goodwill, franchise costs and other purchased intangibles                              2,993       1,301         251
Net restructuring and other charges                                                                    7,029       1,506       2,514
Total operating expenses                                                                              61,704      51,741      45,736
Operating income                                                                                       4,277      10,859       7,487
Other income                                                                                           1,514         931       1,281
Interest expense                                                                                       3,183       1,765         427
Income from continuing operations before income taxes, minority interest and earnings (losses)
   from equity investments                                                                             2,608      10,025       8,341
Provision for income taxes                                                                             3,342       3,695       3,049
Minority interest income (expense)                                                                     4,120       (115)          21
Equity earnings (losses) from Liberty Media Group                                                      1,488     (2,022)          --
Net losses from other equity investments                                                                 205         765          78
Income from continuing operations                                                                      4,669       3,428       5,235
Discontinued Operations
Income from discontinued operations (net of income taxes of $6)                                           --          --          10
Gain on sale of discontinued operations (net of income taxes of $799)                                     --          --       1,290
Income before extraordinary loss                                                                       4,669       3,428       6,535
Extraordinary loss (net of income taxes of $80)                                                           --          --         137
Net income                                                                                            $4,669      $3,428      $6,398
                                                                                                      ------      ------      ------
AT&T Common Stock Group--per basic share:
Income from continuing operations                                                                      $0.89       $1.77       $1.96
Income from discontinued operations                                                                       --          --          --
Gain on sale of discontinued operations                                                                   --          --        0.48
Extraordinary loss                                                                                        --          --        0.05
AT&T Common Stock Group earnings                                                                       $0.89       $1.77       $2.39
                                                                                                       -----       -----       -----
AT&T Common Stock Group--per diluted share:
Income from continuing operations                                                                      $0.88       $1.74       $1.94
Income from discontinued operations                                                                       --          --          --
Gain on sale of discontinued operations                                                                   --          --        0.48
Extraordinary loss                                                                                        --          --        0.05
AT&T Common Stock Group earnings                                                                       $0.88       $1.74       $2.37
                                                                                                       -----       -----       -----
AT&T Wireless Group:
Earnings per share:
   Basic and diluted                                                                                   $0.21         $--         $--
Liberty Media Group:
Earnings (loss) per share:
   Basic and diluted                                                                                   $0.58      $(0.80)        $--
</TABLE>
The notes are an integral part of the consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
AT&T CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
                                                                                                                    At December 31,
                                                                                                                   2000         1999
                                                                                                                   ----         ----
                                                                                                                 Dollars in millions
<S>                                                                                                            <C>          <C>
ASSETS
Cash and cash equivalents..............................................................................            $126       $1,024
Receivables, less allowances of $1,379 and $1,281......................................................          11,144        9,813
Other receivables......................................................................................           1,703          640
Investments............................................................................................           2,102           --
Deferred income taxes..................................................................................             812        1,287
Other current assets...................................................................................           1,200        1,120
TOTAL CURRENT ASSETS...................................................................................          17,087       13,884
Property, plant and equipment, net.....................................................................          51,161       39,618
Franchise costs, net of accumulated amortization of $1,664 and $697....................................          48,218       32,693
Licensing costs, net of accumulated amortization of $1,762 and $1,491..................................          13,626        8,548
Goodwill, net of accumulated amortization of $850 and $363.............................................          31,478        7,445
Investment in Liberty Media Group and related receivables, net.........................................          34,290       38,460
Other investments and related advances.................................................................          34,261       19,366
Prepaid pension costs..................................................................................           3,003        2,464
Other assets...........................................................................................           9,099        6,928
TOTAL ASSETS...........................................................................................        $242,223     $169,406
                                                                                                               --------     --------
LIABILITIES
Accounts payable.......................................................................................          $6,455       $6,771
Payroll and benefit-related liabilities................................................................           2,423        2,651
Debt maturing within one year..........................................................................          31,947       12,633
Liability under put options............................................................................           2,564           --
Other current liabilities..............................................................................           7,478        6,152
TOTAL CURRENT LIABILITIES..............................................................................          50,867       28,207
Long-term debt.........................................................................................          33,092       23,217
Long-term benefit-related liabilities..................................................................           3,670        3,964
Deferred income taxes..................................................................................          36,713       24,199
Other long-term liabilities and deferred credits.......................................................           5,090        3,801
TOTAL LIABILITIES......................................................................................         129,432       83,388
Minority Interest......................................................................................           4,883        2,391
Company-Obligated Convertible Quarterly Income Preferred Securities of Subsidiary Trust Holding Solely
   Subordinated Debt Securities of AT&T................................................................           4,710        4,700
SHAREOWNERS' EQUITY
Common Stock:
AT&T Common Stock, $1 par value, authorized 6,000,000,000 shares; issued and outstanding 3,760,151,185
   shares (net of 416,887,452 treasury shares) at December 31, 2000, and 3,196,436,757 shares (net of
   287,866,419 treasury shares) at December 31, 1999...................................................           3,760        3,196
AT&T Wireless Group Common Stock, $1 par value, authorized 6,000,000,000 shares;
issued and outstanding 361,802,200 shares at December 31, 2000.........................................             362           --
Liberty Media Group Class A Common Stock, $1 par value, authorized 4,000,000,000 shares; issued and
   outstanding 2,363,738,198 shares (net of 59,512,496 treasury shares) at December 31, 2000, and
   2,313,557,460 shares at December 31, 1999...........................................................           2,364        2,314
Liberty Media Group Class B Common Stock, $1 par value, authorized 400,000,000 shares; issued and
   outstanding 206,221,288 shares (net of 10,607,776 treasury shares) at December 31, 2000, and
   216,842,228 shares at December 31, 1999.............................................................             206          217
Additional paid-in capital.............................................................................          90,496       59,526
Guaranteed ESOP obligation.............................................................................              --         (17)
Retained earnings......................................................................................           7,408        6,712
Accumulated other comprehensive income.................................................................         (1,398)        6,979
TOTAL SHAREOWNERS' EQUITY..............................................................................         103,198       78,927
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY..............................................................        $242,223     $169,406
                                                                                                               --------     --------
</TABLE>
    The notes are an integral part of the consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
                                                     AT&T CORP. AND SUBSIDIARIES
                                      CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY

                                                                                                    For the Years Ended December 31,
                                                                                                        2000        1999        1998
                                                                                                        ----        ----        ----
                                                                                                            Dollars in millions
<S>                                                                                                   <C>         <C>         <C>
AT&T Common Shares
   Balance at beginning of year.............................................................          $3,196      $2,630      $2,684
   Shares issued (acquired), net:
      Under employee plans..................................................................               3          --           2
      For acquisitions......................................................................             607         566        (56)
      Other*................................................................................            (46)          --          --
Balance at end of year......................................................................           3,760       3,196       2,630
AT&T Wireless Group Common Stock
   Balance at beginning of year.............................................................              --          --          --
   Shares issued:
      For stock offering....................................................................             360          --          --
      Under employee plans..................................................................               2          --          --
Balance at end of year......................................................................             362          --          --
Liberty Media Group Class A Common Stock
   Balance at beginning of year.............................................................           2,314          --          --
   Shares issued (acquired), net:
      For acquisitions......................................................................              62       2,280          --
      Other.................................................................................            (12)          34          --
Balance at end of year......................................................................           2,364       2,314          --
Liberty Media Group Class B Common Stock
   Balance at beginning of year.............................................................             217          --          --
   Shares issued (acquired), net:
      For acquisitions......................................................................            (11)         220          --
      Other.................................................................................              --         (3)          --
Balance at end of year......................................................................             206         217          --
Additional Paid-In Capital
   Balance at beginning of year.............................................................          59,526      15,195      17,121
   Shares issued (acquired), net:
      Under employee plans..................................................................              98         431          67
      For acquisitions......................................................................          23,097      42,425     (2,105)
      Other*................................................................................         (2,767)         323         112
   Proceeds in excess of par value from issuance of AT&T Wireless common stock..............           9,915          --          --
   Common stock warrants issued.............................................................              --         306          --
   Gain on issuance of common stock by affiliates...........................................             530         667          --
   Other....................................................................................              97         179          --
Balance at end of year......................................................................          90,496      59,526      15,195
Guaranteed ESOP Obligation
   Balance at beginning of year.............................................................            (17)        (44)        (70)
   Amortization.............................................................................              17          27          26
Balance at end of year......................................................................              --        (17)        (44)
Retained Earnings
   Balance at beginning of year.............................................................           6,712       7,800       3,981
   Net income...............................................................................           4,669       3,428       6,398
   Dividends declared.......................................................................         (2,485)     (2,807)     (2,230)
   Treasury shares issued at less than cost.................................................         (1,488)     (1,709)       (370)
   Other changes............................................................................              --          --          21
Balance at end of year......................................................................           7,408       6,712       7,800
Accumulated Comprehensive Income
   Balance at beginning of year.............................................................           6,979        (59)        (38)
   Other comprehensive income...............................................................         (8,377)       7,038        (21)
Balance at end of year......................................................................         (1,398)       6,979        (59)
Total Shareowners' Equity...................................................................        $103,198     $78,927     $25,522

<PAGE>
                                                                                                    --------     -------     -------
Summary of Total Comprehensive Income:
Net income..................................................................................          $4,669      $3,428      $6,398
Other comprehensive income [net of income taxes of $(5,348), $4,600 and $(53)]..............         (8,377)       7,038        (21)
Comprehensive Income........................................................................        $(3,708)     $10,466      $6,377
                                                                                                    --------     -------     -------
</TABLE>
-----------

*        Activity in 2000  primarily  represents  AT&T stock  received  from Cox
         Communications, Inc. in exchange for an entity owning cable systems and
         certain other assets.

         AT&T accounts for treasury stock as retired  stock,  and as of December
         31, 2000 and 1999,  had 417 million  and 288 million  treasury  shares,
         respectively,   of  which  346   million   and  216   million   shares,
         respectively,  were owned by AT&T Broadband subsidiaries.  In addition,
         70 million  treasury  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 was issued or outstanding.

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

<PAGE>
<TABLE>
<CAPTION>
AT&T CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                                   For the Years Ended December 31,
                                                                                                  2000           1999           1998
                                                                                                  ----           ----           ----
                                                                                                        Dollars in millions
<S>                                                                                            <C>            <C>            <C>
OPERATING ACTIVITIES
Net income............................................................................          $4,669         $3,428         $6,398
Deduct: Income from discontinued operations...........................................              --             --             10
        Gain on sale of discontinued operations.......................................              --             --          1,290
Add:        Extraordinary loss on retirement of debt..................................              --             --            137
Income from continuing operations.....................................................           4,669          3,428          5,235
Adjustments to reconcile net income to net cash provided by operating activities of
   continuing operations:
   Net gains on sales of businesses and investments...................................         (1,683)          (682)          (959)
   Net restructuring and other charges................................................           6,793          1,209          2,362
   Depreciation and amortization......................................................          10,267          7,439          4,629
   Provision for uncollectible receivables............................................           1,393          1,416          1,389
   Deferred income taxes..............................................................           1,054            145          (128)
   Minority interest (income) expense.................................................         (4,357)              8           (55)
   Net equity (earnings) losses from Liberty Media Group..............................         (1,488)          2,022             --
   Net losses from other equity investments...........................................             395          1,155             68
   Increase in receivables............................................................         (3,350)        (2,891)        (1,577)
   (Decrease) increase in accounts payable............................................           (773)            116          (467)
   Net change in other operating assets and liabilities...............................               4        (1,679)              5
   Other adjustments, net.............................................................             383          (165)          (285)
NET CASH PROVIDED BY OPERATING ACTIVITIES OF CONTINUING OPERATIONS....................          13,307         11,521         10,217
INVESTING ACTIVITIES
Capital expenditures and other additions..............................................        (15,524)       (14,306)        (7,817)
Proceeds from sale or disposal of property, plant and equipment.......................             600            286            104
(Increase) decrease in other receivables..............................................         (1,052)             17          6,403
Net acquisitions of licenses..........................................................           (247)            (6)           (97)
Sales of marketable securities........................................................              96             --          2,003
Purchases of marketable securities....................................................              --             --        (1,696)
Equity investment distributions and sales.............................................           1,352          1,875          1,516
Equity investment contributions and purchases.........................................         (3,412)        (8,121)        (1,281)
Net (acquisitions) dispositions of businesses including cash acquired.................        (21,410)        (6,711)          4,507
Other investing activities, net.......................................................           (337)           (77)           (60)
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES OF CONTINUING OPERATIONS..........        (39,934)       (27,043)          3,582
FINANCING ACTIVITIES
Proceeds from long-term debt issuances................................................           4,601          8,396             17
Retirement of long-term debt..........................................................         (2,118)        (2,807)        (2,610)
Issuance of convertible securities....................................................              --          4,638             --
Redemption of redeemable securities...................................................           (152)             --             --
Issuance of AT&T common shares........................................................              99             --             32
Issuance of AT&T Wireless Group common shares.........................................          10,314             --             --
Net acquisition of treasury shares....................................................           (581)        (4,624)        (3,321)
Dividends paid on common stock........................................................         (3,047)        (2,712)        (2,187)
Dividends on preferred securities.....................................................           (294)          (135)             --
Increase (decrease) in short-term borrowings, net.....................................          16,973         10,238        (3,033)
Other financing activities, net.......................................................            (66)            392             53

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES OF CONTINUING OPERATIONS..........          25,729         13,386       (11,049)

NET CASH PROVIDED BY DISCONTINUED OPERATIONS..........................................              --             --             92
Net (decrease) increase in cash and cash equivalents..................................           (898)        (2,136)          2,842
Cash and cash equivalents at beginning of year........................................           1,024          3,160            318
Cash and cash equivalents at end of year..............................................            $126         $1,024         $3,160
                                                                                              --------       --------       --------
    The notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>

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

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION

         The   consolidated   financial   statements   include  all   controlled
subsidiaries.  All significant  intercompany accounts and transactions have been
eliminated in consolidation.  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.  Customer  activation fees,
along with the related  costs,  are  deferred  and  amortized  over the customer
relationship  period. The revenue and related expenses  associated with the sale
of wireless  handsets  and  accessories  are  recognized  when the  products are
delivered  and accepted by  customers,  as this is  considered  to be a separate
earnings process from the sale of wireless services. We recognize other products
and services  revenue when the products are  delivered and accepted by customers
and when services are provided in accordance with contract  terms.  During 2000,
we adopted  Securities and Exchange  Commission (SEC) Staff Accounting  Bulletin
No. 101,  "Revenue  Recognition in Financial  Statements".  The adoption did not
have a material impact on our results of operations or financial condition.

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 $1,995, $1,804 and $1,920 in 2000, 1999 and 1998, respectively. Of
these amounts,  $288, $320 and $622 were cash incentives to acquire customers in
2000, 1999 and 1998, 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.
<PAGE>

CASH EQUIVALENTS

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

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  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.

         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 acquire  cellular  and personal
communications   services   (PCS)   licenses.   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  business  combinations.   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 under the  purchase
method.  We  amortize  goodwill  on  a  straight-line  basis  over  the  periods
benefited, ranging from five to 40 years.

SOFTWARE CAPITALIZATION

         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.
<PAGE>

         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.

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. In addition, in accordance with Accounting Principles Board (APB) Opinion
No. 17, "Intangible Assets", we continue to evaluate the amortization periods to
determine whether events or circumstances warrant revised amortization periods.

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. 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, 2000, 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.
<PAGE>

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
2000  presentation.  In  addition,  we  restated  prior year share and per share
amounts to reflect the June 2000 two-for-one split of Liberty Media Group common
stock.

2.  RESTRUCTURING OF AT&T

         On October 25, 2000,  we  announced a  restructuring  plan  designed to
fully  separate  or issue  separately  tracked  stocks  intended  to reflect the
financial  performance and economic value of each of AT&T's four major operating
units. Upon completion of the plan, AT&T Wireless, AT&T Broadband, AT&T Business
and AT&T Consumer will all be represented by asset-based or tracking stocks.

         As part of the first phase of the  restructuring  plan, we are planning
an exchange offer that will give AT&T  shareowners  the  opportunity to exchange
any  portion of their AT&T  common  shares  for  shares of AT&T  Wireless  Group
tracking stock, subject to pro-ration.  Following the exchange offer and subject
to specified conditions,  AT&T plans to split-off AT&T Wireless Group from AT&T.
We intend,  however,  to retain up to $3 billion of shares of AT&T  Wireless for
future sale, exchange or monetization within six months following the split-off.
We expect AT&T Wireless  will become an  independent,  publicly-held  company in
mid-2001, upon receipt of appropriate tax and other approvals.

         In  addition  to the  split-off  of AT&T  Wireless,  we intend to fully
separate or issue separate tracking stocks to reflect the financial  performance
and economic value of each of our other major business  units. We plan to create
and issue new classes of stock to track the financial  performance  and economic
value of our AT&T  Broadband  unit and AT&T Consumer  unit. We plan to sell some
percentage of shares of the AT&T Broadband  unit in the fall of 2001.  Within 12
months of such sale, we intend to completely  separate AT&T Broadband from AT&T,
as an  asset-based  stock.  The AT&T Consumer  tracking  stock is expected to be
fully distributed to AT&T shareowners in the second half of 2001.

         AT&T  expects  that  these   transactions  will  be  tax-free  to  U.S.
shareholders.   AT&T's   restructuring   plan  is  complicated  and  involves  a
substantial  number  of steps  and  transactions,  including  obtaining  various
conditions,  such as Internal Revenue Service (IRS) rulings. In addition, future
financial conditions,  superior alternatives or other factors may arise or occur
that make it  inadvisable  to proceed  with part or all of AT&T's  restructuring
plans. Any or all of the elements of AT&T's  restructuring plan may not occur as
we currently  expect or in the timeframes that we currently  contemplate,  or at
all.  Alternative forms of restructuring,  including sales of interests in these
businesses,  would reduce what is available for  distribution  to shareowners in
the restructuring.

         On November 15, 2000,  AT&T announced that our board of directors voted
to  split-off  Liberty  Media  Group  (LMG),   which  we  acquired  through  our
acquisition  of  Tele-Communications,  Inc. A new  asset-based  security will be
issued to holders  of LMG  tracking  stock in  exchange  for their LMG  tracking
shares.  The split-off remains subject to receipt of a favorable tax ruling from
the IRS. We expect this split-off to be completed in mid-2001.
<PAGE>

3.  SUPPLEMENTARY FINANCIAL INFORMATION

SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
For the Years Ended December 31,                                                                             2000    1999       1998
                                                                                                             ----    ----       ----
<S>                                                                                                        <C>       <C>      <C>
INCLUDED IN SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Research and development expenses...................................................................         $402    $550       $513


OTHER INCOME

Investment-related income...........................................................................         $514    $222       $389
Net gains on sales of businesses and investments....................................................        1,683     682        959
Mark-to-market charge on put options................................................................        (537)      --         --
Investment impairment charges.......................................................................        (248)    (40)         --
Miscellaneous, net..................................................................................          102      67       (67)

Total other income..................................................................................       $1,514    $931     $1,281


DEDUCTED FROM INTEREST EXPENSE
Capitalized interest................................................................................         $299    $143       $197
                                                                                                           ------    ----     ------
</TABLE>




SUPPLEMENTARY BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
At December 31,                                                                                                  2000           1999
                                                                                                                 ----           ----
<S>                                                                                                          <C>            <C>
PROPERTY, PLANT AND EQUIPMENT
Communications, network and other equipment.........................................................          $74,550        $60,985
Buildings and improvements..........................................................................            8,951          8,104
Land and improvements...............................................................................              531            586

Total property, plant and equipment.................................................................           84,032         69,675
Accumulated depreciation............................................................................         (32,871)       (30,057)

Property, plant and equipment, net..................................................................          $51,161        $39,618
                                                                                                             --------       --------
</TABLE>

SUPPLEMENTARY SHAREOWNERS' EQUITY INFORMATION
<TABLE>
<CAPTION>
For the Years Ended December 31,                                                                            2000       1999     1998
                                                                                                            ----       ----     ----
<S>                                                                                                     <C>          <C>       <C>
OTHER COMPREHENSIVE INCOME
Net foreign currency translation adjustment[net of income taxes of $(181), $87 and $(3)]........          $(309)       $148     $(5)
Net revaluation of securities [net of income taxes of $(5,166), $4,506 and $(35)]...............         (8,067)      6,878     (25)
Net minimum pension liability adjustment [net of income taxes of $(1), $7 and $(15)]............             (1)         12        9
Total other comprehensive income................................................................        $(8,377)     $7,038    $(21)
                                                                                                        --------     ------    -----
</TABLE>
<PAGE>

         In 2000,  other  comprehensive  income included LMG's foreign  currency
translation  adjustments  totaling  $(202),  net  of  applicable  income  taxes,
revaluation of LMG's  available-for-sale  securities  totaling $(6,117),  net of
applicable  income  taxes,  and  the  recognition  of  previously   unrecognized
available-for-sale securities totaling $(635), net of applicable income taxes.

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

SUPPLEMENTARY CASH FLOW INFORMATION
<TABLE>
<CAPTION>
For the Years Ended December 31,                                                                          2000       1999       1998
                                                                                                          ----       ----       ----
<S>                                                                                                     <C>        <C>         <C>
Interest payments, net of amounts capitalized.....................................................      $3,453     $1,425       $422
Income tax payments...............................................................................       1,976      3,906      2,881
</TABLE>


4.  MERGERS WITH MEDIAONE GROUP, INC. AND TELE-COMMUNICATIONS, INC.



MERGER WITH MEDIAONE GROUP, INC.

         On June 15, 2000,  AT&T  completed a merger with MediaOne  Group,  Inc.
(MediaOne) in a cash and stock transaction  valued at approximately $45 billion.
For  each  share  of  MediaOne  stock,  MediaOne  shareowners  received,  in the
aggregate,  0.95 of a share of AT&T  common  stock and $36.27 per share in cash,
consisting of $30.85 per share as  stipulated in the merger  agreement and $5.42
per share based on AT&T's stock price  preceding  the merger,  which was below a
predetermined  amount.  AT&T issued  approximately  603 million shares of common
stock in the  transaction,  of which  approximately  60  million  were  treasury
shares.  The AT&T shares had an  aggregate  market  value of  approximately  $21
billion and cash payments totaled approximately $24 billion.

         The merger was  accounted for under the purchase  method.  Accordingly,
the results of MediaOne  have been  included  in the  accompanying  consolidated
financial  statements  since the date of  acquisition  as part of our  Broadband
segment.

         Approximately $16 billion of the purchase price of $45 billion has been
attributed to agreements with local franchise  authorities  that allow access to
homes in our broadband service areas ("franchise  costs") and is being amortized
on a straight-line  basis over 40 years. Also included in the purchase price was
approximately  $22 billion  related to  nonconsolidated  investments,  including
investments in Time Warner Entertainment  Company, L.P. (TWE) and Vodafone Group
plc  (Vodafone),  approximately  $5  billion  related  to  property,  plant  and
equipment,  and  approximately  $7 billion  of other net  assets.  In  addition,
included  was  approximately   $14  billion  in  deferred  income   liabilities,
approximately  $10 billion  attributable to MediaOne debt, and  approximately $1
billion of minority  interest in Centaur  Funding  Corporation,  a subsidiary of
MediaOne.  The purchase  resulted in preliminary  goodwill of approximately  $20
billion,  which is being amortized on a straight-line  basis over 40 years. AT&T
may make  refinements  to the allocation of the purchase price in future periods
as the related  fair value  appraisals  of certain  assets and  liabilities  are
finalized.
<PAGE>

MERGER WITH TELE-COMMUNICATIONS, INC.

         On March 9, 1999,  AT&T  completed a merger  with  Tele-Communications,
Inc.  (TCI),  renamed  AT&T  Broadband,  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 common stock in the transaction,
of which  approximately 149 million were treasury shares. The AT&T 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
Sheets.

         In  addition,  TCI  simultaneously  combined  its  Liberty  Media Group
programming business with its TCI Ventures Group technology investment business,
forming LMG. In connection with the closing, AT&T issued separate tracking stock
in exchange  for the TCI Liberty  Media Group and TCI  Ventures  Group  tracking
shares previously  outstanding.  We issued 2,280 million shares of Liberty Media
Group  Class A tracking  stock  (including  120  million  shares  related to the
conversion of  convertible  notes) and 220 million shares of Liberty Media Group
Class B tracking  stock.  The tracking stock is designed to reflect the separate
financial  performance  and economic value of LMG. These shares had an aggregate
market value of approximately $23 billion.

         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 "Equity  earnings  (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.

         Each share of Liberty  Media Group Class A common  stock is entitled to
0.0375 of a vote,  and each share of Liberty Media Group Class B common stock is
entitled to 0.375 of a vote.

         The  TCI  merger  was   accounted   for  under  the  purchase   method.
Accordingly,  the results of TCI have been included in the financial  results of
AT&T  since the date of  acquisition.  The  operating  results  of TCI have been
included in the  accompanying  consolidated  financial  statements at their fair
value  since  March 1,  1999,  the  deemed  effective  date of  acquisition  for
accounting  purposes.  The impact of the results  from March 1 through  March 9,
1999, were deemed immaterial to our consolidated results.

         Approximately  $20  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.  Pursuant to Statement of Financial  Accounting  Standards (SFAS)
No. 109, "Accounting for Income Taxes," AT&T recorded an approximate $13 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 was  approximately  $11 billion related to  nonconsolidated
investments,  approximately $5 billion related to property, plant and equipment,

<PAGE>

approximately  $11 billion of TCI long-term  debt and  approximately  $7 billion
related  to other  net  liabilities.  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 earnings (losses) from Liberty Media Group."

         Following  is a  summary  of the pro  forma  results  of AT&T as if the
mergers with MediaOne and TCI had closed effective January 1, 1999:
<TABLE>
<CAPTION>
For the Years Ended December 31,                                                             2000        1999
--------------------------------                                                             ----        ----
Shares in millions                                                                             (Unaudited)
<S>                                                                                       <C>         <C>
Revenue............................................................................       $67,306     $66,236
Net income.........................................................................         5,617       6,452
Weighted-average AT&T common shares................................................         3,762       3,784
Weighted-average AT&T common shares
and potential common shares........................................................         3,821       3,906
Weighted-average AT&T Wireless Group shares........................................           361          --
Weighted-average Liberty Media Group shares........................................         2,572       2,519
AT&T Common Stock Group earnings per common share:
   Basic...........................................................................         $1.08       $2.30
   Diluted.........................................................................         $1.07       $2.23
AT&T Wireless Group earnings per common share:

   Basic and diluted...............................................................         $0.21         $--
Liberty Media Group earnings (loss) per share:
   Basic and diluted...............................................................         $0.58     $(0.89)
</TABLE>

         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.

5.       OTHER  MERGERS, ACQUISITIONS, STOCK OFFERING, VENTURE, DISPOSITIONS AND
         DISCONTINUED OPERATIONS


AB CELLULAR

         On December 29, 2000, AB Cellular  completed  the  redemption of AT&T's
equity  interest in AB Cellular.  Prior to that date,  AT&T held a 55.62% equity
interest  in AB  Cellular,  which was formed in 1998 with  BellSouth,  with each
party having a 50% voting interest. AB Cellular owned, controlled and supervised
wireless properties in Los Angeles,  Houston,  and Galveston,  Texas.  BellSouth
exercised an option  available to it,  which  resulted in AB Cellular  redeeming
AT&T's interest in AB Cellular in exchange for 100% of the net assets of the Los
Angeles property.  AB Cellular  recognized a significant gain upon completion of
the transaction.  Accordingly, net losses from other equity investments included
$603  representing  our portion of this gain,  and other  income  included a net
pretax loss of $184 related to the difference  between the carrying value of our
investment in AB Cellular and the fair market value of the Los Angeles property.
As a result of this transaction,  we consolidated the Los Angeles property.  The
consolidation  resulted in  licensing  costs of $2.2  billion,  goodwill of $0.8
billion,  other net assets of $0.6 billion and the removal of our  investment in
AB Cellular of $3.8 billion.
<PAGE>

TELECORP PCS, INC.

         On November 13, 2000, two of AT&T's wireless affiliates,  TeleCorp PCS,
Inc.  (TeleCorp) and Tritel,  Inc.,  merged as part of a stock  transaction.  In
connection  with the merger,  AT&T  contributed  to  TeleCorp  rights to acquire
wireless  licenses in Wisconsin  and Iowa,  paid  approximately  $20 in cash and
extended the term of its brand license  agreement through July 2005, in exchange
for  approximately  9.3 million  additional  common  shares in the newly  merged
entity. In a separate  transaction,  AT&T exchanged certain additional  wireless
licenses and rights to acquire  licenses in the Wisconsin and Iowa markets,  and
made a cash payment of  approximately  $80 for certain TeleCorp PCS licenses and
wireless systems in several New England markets.  These transactions resulted in
a net pretax gain of $379. The acquisition of the wireless systems was accounted
for under the purchase  method.  The pro forma impact of the wireless systems on
historical AT&T results is not material.

AT HOME CORPORATION

         On  August  28,  2000,  AT&T  and  At  Home  Corporation  (Excite@Home)
announced  shareholder  approval  of a new  board of  directors  and  governance
structure  for  Excite@Home  and  completion  of the  extension of  distribution
contracts with AT&T,  Cox  Communications,  Inc.  (Cox) and Comcast  Corporation
(Comcast). AT&T was given the right to designate six of the 11 Excite@Home board
members. In addition,  Excite@Home converted  approximately 50 million of AT&T's
Series A shares into Series B shares, each of which has 10 votes. As a result of
these  governance  changes,   AT&T  gained  a  controlling  interest  and  began
consolidating  Excite@Home's  results  upon the  closing of the  transaction  on
September 1, 2000. As of December 31, 2000,  AT&T had, on a fully diluted basis,
approximately  23% of the economic  interest  and 74% of the voting  interest in
Excite@Home.

         In exchange  for Cox and Comcast  relinquishing  their rights under the
shareholder agreement, AT&T granted put options to Cox and Comcast on a combined
total of 60.4  million  shares of  Excite@Home  Series A common  stock.  The put
options  provide Cox and  Comcast  with the right to convert  their  Excite@Home
shares  into  either  AT&T stock or cash at their  option,  at any time  between
January 1, 2001 and June 4, 2002, at the higher of (i) $48 per share or (ii) the
30-day average trading price at the time of exercise  (beginning 15 trading days
prior to the exercise  date,  and ending 15 days after the exercise  date).  The
maximum  amount  that  AT&T  would  be  required  to pay in  cash  or  stock  is
approximately  $2.9 billion based on the $48 strike price.  The obligation under
these put options was  recorded  at fair value,  with gains or losses  resulting
from changes in fair value being  recorded as a component of other  income.  For
the year,  changes in fair market  value  resulted in a pretax  expense of $537.
Subsequent to December 31, 2000,  Cox and Comcast  exercised  their put options,
electing to receive AT&T common shares (see Note 23).

         Also,  in  connection  with the  distribution  agreements  which extend
through 2008, AT&T obtained the right to purchase up to approximately 25 million
Excite@Home Series A shares and 25 million Series B shares. In addition, Cox and
Comcast  will each receive new warrants to purchase two Series A shares for each
home its cable system passes. These warrants will vest in installments every six
months  beginning in June 2001, and will be fully vested by June 2006 if Cox and
Comcast elect to continue their extended non-exclusive  distribution  agreements
through that period.

         The  consolidation  of  Excite@Home  resulted in  minority  interest of
approximately $2.2 billion,  goodwill of approximately $2.4 billion,  short-term
liabilities  of  approximately  $2.4  billion  (including  an initial put option
liability),  other net assets of  approximately  $1.2 billion and the removal of
our investment in Excite@Home of approximately $1.9 billion.
<PAGE>

AT&T WIRELESS GROUP

         On April 27, 2000,  AT&T  created a new class of stock and  completed a
public stock offering of 360 million  shares,  which  represented  15.6% of AT&T
Wireless  Group  tracking  stock at a price of $29.50 per  share.  This stock is
intended  to track  the  financial  performance  and  economic  value of  AT&T's
wireless  services'   business.   The  net  proceeds  to  AT&T  after  deducting
underwriter's  discount and related fees and expenses were $10.3  billion.  AT&T
allocated  $7.0 billion of the net proceeds to AT&T Wireless  Group,  which were
used for acquisitions,  network expansion,  capital expenditures and for general
corporate purposes.  The remaining net proceeds of $3.3 billion were utilized by
AT&T for general  corporate  purposes.  Holders of AT&T Wireless  Group tracking
stock are  entitled  to one-half of a vote per share.  The AT&T  Wireless  Group
tracking stock is listed on the New York Stock Exchange under the symbol "AWE."

COX COMMUNICATIONS, INC.

         On March 15, 2000,  AT&T  received  50.3 million  shares of AT&T common
stock held by Cox in exchange  for an entity  owning  cable  television  systems
serving   approximately   312,000   customers  and  certain  other  net  assets.
Specifically,  AT&T exchanged $1.1 billion of investments and related  advances,
$0.9 billion of  franchise  costs and $0.5 billion of other net assets for stock
valued at $2.7 billion on March 15, 2000. The  transaction  resulted in a pretax
gain of $189.

LENFEST COMMUNICATIONS, INC.

         On January 18, 2000, AT&T sold its ownership in Lenfest Communications,
Inc. to a subsidiary of Comcast.  In connection  with the sale, we received 47.3
million shares of Comcast Class A Special common stock. The transaction resulted
in a pretax gain of $224.

CONCERT

         On  January  5,  2000,  AT&T and  British  Telecommunications  plc (BT)
announced  financial  closure of  Concert,  their  global  communications  joint
venture. AT&T contributed all of its international gateway-to-gateway assets, as
well  as  the  economic  value  of  approximately  270  multinational  customers
specifically targeted for direct sales by Concert.

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.  The transaction resulted in a pretax
loss of $179.

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  were  completed  in phases
throughout  1999 and  during the first  quarter of 2000.  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.  The  acquisition  was
accounted for under the purchase method.  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.
<PAGE>

TELEPORT COMMUNICATIONS GROUP INC.

         On July 23, 1998, AT&T completed a 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 net losses were
$118, for the six months ended June 30, 1998.  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 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  reflect  UCS  as  a
discontinued operation.  Accordingly,  the revenue, costs and expenses, and cash
flows of this business have been  excluded from the  respective  captions in the
1998 Consolidated  Statement of Income and Consolidated Statement of Cash Flows,
and  have  been  reported  through  the  date of  disposition  as  "Income  from
discontinued  operations,"  net of  applicable  income  taxes,  and as "Net cash
provided  by  discontinued  operations"  for all  periods  presented.  The  gain
associated  with  this  sale is  reflected  as  "Gain  on  sale of  discontinued
operations," net of applicable income taxes.

         Summarized financial information for UCS was as follows:

                                                                       1998
                                                                       ----
For the Year Ended December 31,

Revenue..........................................................      $365
Income before income taxes.......................................        16
Net income.......................................................        10


         No  interest   expense  was  allocated  to  UCS  in  1998  due  to  the
immateriality of the amounts;  however,  UCS recorded direct interest expense of
$85 in 1998, primarily related to amounts payable to AT&T.
<PAGE>
ACQUISITION-RELATED INTANGIBLE ASSETS

         As a result of our evaluation of recent changes in our industry and the
views of regulatory  authorities,  AT&T expects that the amortization period for
all  licensing  costs,  franchise  costs,  and  goodwill  associated  with newly
acquired wireless,  telecommunications,  and cable operations will not exceed 25
years.

6.  EARNINGS PER COMMON SHARE AND POTENTIAL COMMON SHARE

         Income (loss) from continuing operations  attributable to the different
classes of AT&T common stock is as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,                                                2000          1999       1998
                                                                                ----          ----       ----
<S>                                                                           <C>          <C>         <C>
AT&T Common Stock Group.................................................      $3,105        $5,450     $5,235
AT&T Wireless Group.....................................................          76            --         --
Liberty Media Group.....................................................       1,488       (2,022)         --

Income from continuing operations.......................................      $4,669        $3,428     $5,235
</TABLE>

         Basic  earnings  per share (EPS) for AT&T Common  Stock Group for 2000,
1999 and 1998 were  computed by dividing  AT&T Common  Stock Group income by the
weighted- average number of shares  outstanding  during the year.

         Diluted EPS for AT&T Common Stock Group was  computed by dividing  AT&T
Common Stock Group income,  adjusted for the  conversion of  securities,  by the
weighted-average  number of shares and  dilutive  potential  shares  outstanding
during the year, assuming conversion of the potential shares at the beginning of
the years  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 convertible quarterly income
preferred securities were antidilutive and were excluded from the computation of
diluted EPS.  Computed on a yearly basis,  the dividends would have an after-tax
impact to earnings of approximately $155. Assuming conversion of the securities,
the  dividends  would no longer be included as a reduction to net income and the
securities would convert into 67 million shares of AT&T common stock.

         A  reconciliation  of the  income  and share  components  for basic and
diluted EPS  calculations  with  respect to AT&T Common  Stock Group  continuing
operations is as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,                                                   2000       1999       1998
                                                                                   ----       ----       ----
<S>                                                                              <C>        <C>        <C>
Income....................................................................       $3,105     $5,450     $5,235
Income impact of assumed conversion of preferred stock of subsidiary......           32         26         --
Income adjusted for conversion of securities..............................       $3,137     $5,476     $5,235
Shares in millions
Weighted-average common shares............................................        3,486      3,082      2,676
Stock options.............................................................           19         35         24
Preferred stock of subsidiary.............................................           40         33         --
Convertible debt securities of subsidiary.................................           --          2         --
Weighted-average common shares and potential common shares................        3,545      3,152      2,700
</TABLE>
<PAGE>

         Basic EPS for AT&T  Wireless  Group for the period from April 27, 2000,
the stock  offering  date,  through  December 31, 2000, was computed by dividing
AT&T Wireless Group income by the weighted-average  number of shares outstanding
of AT&T  Wireless  Group of 361  million.  There  were no  potentially  dilutive
securities outstanding at December 31, 2000.

         Basic EPS for LMG was  computed  by dividing  LMG income  (loss) by the
weighted-average  number of shares  outstanding  of LMG of 2,572 million in 2000
and 2,519 million from the March 9, 1999, date of issuance  through December 31,
1999. Potentially dilutive securities, including fixed and nonvested performance
awards and stock options,  have not been factored into the dilutive calculations
because past history has indicated that these contracts are generally settled in
cash.  There  were 96 million  and 124  million  of these  potentially  dilutive
securities outstanding at December 31, 2000 and 1999, respectively.  The diluted
earnings per share  calculation  for 2000 also  excludes  approximately  700,000
warrants outstanding at December 31, 2000, which were antidilutive. In addition,
since LMG had a loss in 1999, the impact of any potential shares would have been
antidilutive.

7.  NET RESTRUCTURING AND OTHER CHARGES

         During 2000, we recorded $7,029 of net restructuring and other charges,
which included $6,179 of asset impairment  charges related to Excite@Home,  $759
for  restructuring  and exit costs  associated with AT&T's  initiative to reduce
costs,  and  $91  related  to  the   government-mandated   disposition  of  AT&T
Communications (U.K.) Ltd., which would have competed directly with Concert.

         The charges related to Excite@Home  included $4,609 of asset impairment
charges recorded by Excite@Home  associated with the impairment of goodwill from
various acquisitions, including Excite, and a related goodwill impairment charge
of $1,570  recorded by AT&T associated with goodwill from the acquisition of our
investment in Excite@Home.

         The  impairments   resulted  from  the   deterioration  of  the  market
conditions and market valuations of Internet-related companies during the fourth
quarter of 2000,  which caused  Excite@Home to conclude that  intangible  assets
related  to  their  acquisitions  of  Internet-related   companies  may  not  be
recoverable.  In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived  Assets and for  Long-Lived  Assets to be Disposed  Of",  Excite@Home
conducted a detailed assessment of the recoverability of the carrying amounts of
acquired  intangible  assets.  This assessment  resulted in a determination that
certain  acquired  intangible  assets,  including  goodwill,  related  to  these
acquisitions,  including  Excite,  were  impaired as of December 31, 2000.  As a
result, we recorded impairment charges of $4,609 in December 2000,  representing
the excess of the carrying amount of the impaired assets over their fair value.

         The review for impairment included a review of publicly-traded Internet
companies that are comparable to the companies that Excite@Home acquired.  These
companies   experienced  a  substantial   decline  in  stock  price  and  market
capitalization during the fourth quarter of 2000.

         Excite@Home also reviewed the business climate for Internet advertising
and web-based infrastructure companies as of December 31, 2000, and observed the
following: (1) investor and consumer enthusiasm for the Internet sector severely
deteriorated  during the fourth  quarter of 2000;  (2) many Internet  companies,
including those acquired by Excite@Home,  experienced significant  decelerations
in  their  growth  both  as  a  result  of  economic   conditions   and  due  to
Internet-sector  specific  issues such as  competition  and the weakening of the

<PAGE>

Internet advertising market; and (3) funding sources for Internet-based consumer
businesses,  which require  considerable  amounts of capital,  had substantially
evaporated  as of December 31, 2000.  As a result,  Excite@Home  concluded  that
fundamental,  permanent and significant  adverse changes had occurred during the
fourth quarter of 2000 in the business climate for companies  providing Internet
advertising and other web-based services.

         In addition,  Excite@Home  reviewed operating and cash flow projections
that existed at the time Excite@Home made the acquisitions and that were used as
a basis upon which the decisions to complete the  acquisitions  were made. These
operating and cash flow projections indicated that the acquired companies,  over
their useful lives,  would be profitable and generate  positive cash flows.  The
operating and cash flow projections were compared to operating results after the
date of the  acquisitions  through  December 31,  2000,  as well as to projected
operating   results  for  2001.   These   comparisons   indicated  that  certain
acquisitions  generated  operating and cash flow losses through the end of 2000,
and were projected to continue generating operating and cash flow losses for the
foreseeable future.

         As  a  result  of  these  factors,   Excite@Home  determined  that  the
intangible  assets  related to the  acquisitions  might not be  recoverable  and
conducted impairment tests.

         Generally,  the impairment tests were performed at an asset group level
corresponding  to the  lowest  level at which cash  flows  independent  of other
assets  could be  identified.  Each asset group  consisted  of the  goodwill and
acquired  identifiable  intangible  assets  related to a  specific  acquisition.
Acquired intangible assets were combined for those acquisitions where separately
identifiable cash flows that are largely  independent of the cash flows of other
groups of assets could not be identified.

         For each of the asset groups to be tested for  impairment,  Excite@Home
projected undiscounted cash flows over a future projection period of five years,
based on Excite@Home's  determination  of the current  remaining useful lives of
the asset  groups,  plus an  undiscounted  terminal  period cash flow to reflect
disposition  of the  entities  at the end of their  useful  lives.  Undiscounted
future cash flows were estimated using projected net realizable value in a sales
transaction  (undiscounted  cash flows  during the  expected  remaining  holding
period until disposition were estimated as negligible).  The undiscounted future
cash flows were  compared  to the  carrying  amount of each asset  group and for
those asset groups where the carrying  amount exceeded the  undiscounted  future
cash flows, Excite@Home concluded that the asset group was impaired.

         Excite@Home  measured the  impairment  loss  related to impaired  asset
groups  based on the  amount by which  the  carrying  amount of the asset  group
exceeded the fair value of the asset group.  Measurement of fair value was based
on an analysis by Excite@Home  utilizing the best  information  available in the
circumstances using reasonable and supportable assumptions and projections,  and
including the discounted cash flow and market comparison  valuation  techniques.
The discounted cash flow analysis considered the likelihood of possible outcomes
and was based on  Excite@Home's  best  estimate of projected  future cash flows,
including  terminal value cash flows expected to result from the  disposition of
the asset at the end of its useful life, discounted at our weighted average cost
of  capital.  Weighted  average  cost of capital  was based on  historical  risk
premiums required by investors for companies of Excite@Home's size, industry and
capital structure and included risk factors specific to Excite@Home.  The market
comparison model represented  Excite@Home's  estimate of the prices that a buyer
would be  willing to pay  currently  for  similar  assets,  based on  comparable
products and services,  customer base,  risks,  earnings  capabilities and other
factors.
<PAGE>

         Based on the foregoing,  Excite@Home recorded an impairment  write-down
of $4,609 in the  aggregate,  which was allocated to each asset group based on a
comparison of carrying values and fair values. The impairment  write-down within
each asset group was allocated first to goodwill, and if goodwill was reduced to
zero, to identifiable intangible assets in proportion to carrying values.

         Also as a  result  of the  foregoing,  AT&T  recorded  a  goodwill  and
acquistion-related  impairment  charge  associated  with the  acquisition of our
investment in  Excite@Home.  The  write-down of our investment to fair value was
determined utilizing discounted expected future cash flows.

         Since  we own  approximately  23%  of  Excite@Home,  77% of the  charge
recorded by  Excite@Home  was not  included as a reduction to AT&T's net income,
but  rather  was  eliminated  in our 2000  Consolidated  Statement  of Income as
"Minority interest income (expense)."

         The $759 charge for  restructuring  and exit plans was primarily due to
headcount  reductions,  mainly in  network  operations  and  Business  Services,
including  the  consolidation  of  customer-care  and call  centers,  as well as
synergies created by the MediaOne merger.

         Included in exit costs was $503 of cash termination benefits associated
with the separation of  approximately  7,300  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
6,700  employee  separations  were  related  to  involuntary   terminations  and
approximately 600 to voluntary terminations.

         We also  recorded $62 of network lease and other  contract  termination
costs  associated  with penalties  incurred as part of notifying  vendors of the
termination of these contracts during the year, and net losses of $32 related to
the disposition of facilities primarily due to synergies created by the MediaOne
merger.

         The  following   table  displays  the  activity  and  balances  of  the
restructuring reserve account:
                                                 Type of Cost
                                      Employee     Facility
                                   Separations     Closings     Other    Total
                                   -----------   ------------   -----    -----

Balance at January 1, 1998....            $413         $434       $60     $907
   Additions..................             150          125        --      275
   Deductions.................           (445)        (190)      (30)    (665)

Balance at December 31, 1998..            118           369        30      517
   Additions..................            142            --         3      145
   Deductions.................          (110)         (130)      (12)    (252)

Balance at December 31, 1999..            150           239        21      410
   Additions..................            503            32        62      597
   Deductions.................          (394)          (98)      (47)    (539)

Balance at December 31, 2000..           $259          $173       $36     $468

         Deductions reflect cash payments of $245, $209 and $369, for 1998, 1999
and 2000,  respectively.  These payments  included cash termination  benefits of
$124, $40 and $257, respectively,  which were primarily funded through cash from

<PAGE>

operations.  Deductions also reflect  noncash  utilization of $420, $43 and $170
for 1998, 1999 and 2000,  respectively.  Noncash  utilization  included deferred
severance  payments  primarily related to executives,  and a reversal in 1998 of
$348  related  to the  1995  restructuring  plan.  Nearly  75% of the  employees
affected by the 1999 and 2000 restructuring charges have left their positions as
of December 31, 2000.

         Also  included  in  restructuring  and  exit  costs in 2000 was $144 of
benefit plan curtailment  costs associated with employee  separations as part of
these exit plans. Further, we recorded an asset impairment charge of $18 related
to the  write-down  of  unrecoverable  assets in  certain  businesses  where the
carrying value was no longer supported by estimated future cash flows.

         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 TCI,
as of  the  date  of  acquisition,  which  had  not  yet  reached  technological
feasibility or had no alternative future use. The projects identified related to
efforts to offer voice over Internet protocol (IP),  product-integration efforts
for advanced  set-top devices that would enable the offering of  next-generation
digital    services   and   cost-savings    efforts   for    broadband-telephony
implementation.  In addition,  Excite@Home had research and development  efforts
underway,  including projects to allow for  self-provisioning of devices and the
development  of  next-generation   client  software,   network  and  back-office
infrastructure to enable a variety of network devices beyond personal computers,
and improved  design for the regional  data  centers'  infrastructure.  We began
testing  IP-telephony  equipment  in  the  field  in  late-2000,  we  anticipate
beginning field trials for  next-generation  digital services in late-2001,  and
have   completed   trials   related  to  our  telephony   cost   reductions  and
implementation  has begun in certain markets.  Although there are  technological
issues to overcome to successfully complete the acquired in-process research and
development,  we expect successful  completion.  If, however,  AT&T is unable to
establish   technological    feasibility   and   produce   commercially   viable
products/services,  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 in 1999 associated with the
planned disposal of certain wireless  communications  equipment resulting from a
program to increase  the  capacity  and  operating  efficiency  of our  wireless
network.  As part of a multivendor  program,  contracts  have been executed with
select vendors to replace  significant  portions of our wireless  infrastructure
equipment in the western  United States and the  metropolitan  New York markets.
The program is intended to provide Wireless  Services with the newest technology
available  and allow it to evolve to new,  next-generation  digital  technology,
which is designed to 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 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.  As of December 31, 2000,  approximately
$320 of the asset impairment reserve has been utilized for assets that have been
disposed of and written  off. The  remaining  net book value of these assets was
approximately  $23 at  December  31,  2000,  which will be  depreciated  over an
estimated remaining useful life of three months.
<PAGE>

         Also in 1999,  a $145  charge  for  restructuring  and exit  costs  was
recorded as part of AT&T's  initiative to reduce costs.  The  restructuring  and
exit plans primarily  focused 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 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  were  related  to  involuntary   terminations  and
approximately 1,100 to voluntary terminations.

         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 agreement requires Broadband to satisfy
certain  liabilities owed by Phoenixstar and its subsidiaries.  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 our overall  cost-reduction  program
and the approximately 15,300 management employees who 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 benefit plan
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 on certain
1995 projects.

         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  where the  carrying
value was no longer  supported  by future  cash  flows.  This charge was made in
connection  with the review of  certain  operations  that  would  have  competed
directly with Concert.

         Additionally,  $85 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  reflected  reserves  no  longer  deemed
necessary.  The reversal  primarily  included  separation  costs  attributed  to
projects completed at a cost lower than originally anticipated.  Consistent with
the  three-year  plan, the 1995  restructuring  initiatives  were  substantially
completed by the end of 1998.
<PAGE>

8.  INVESTMENT IN LIBERTY MEDIA GROUP

         As a result of our merger with TCI, we acquired  Liberty Media Group, a
wholly-owned  investment  accounted  for under the equity  method  (see Note 4).
Summarized results of operations for Liberty Media Group were as follows:
<TABLE>
<CAPTION>

                                                                 For the Year Ended  For the Ten Months Ended
                                                                  December 31, 2000         December 31, 1999
<S>                                                                          <C>                      <C>
Revenue................................................                      $1,526                      $729
Operating income (loss)................................                         436                   (2,214)
Net income (loss)......................................                       1,488                   (2,022)

                                                                     At December 31,
                                                                               2000                      1999
                                                                               ----                      ----

Current assets.........................................                      $2,954                    $3,387
Noncurrent assets......................................                      51,314                    55,297
Current liabilities....................................                       2,962                     3,370
Noncurrent liabilities.................................                      16,668                    16,853
Minority interest......................................                         348                         1
</TABLE>

         During 2000 and 1999,  certain  investees of Liberty Media Group issued
common  stock.  Changes in the equity of the  investees,  net of the dilution of
LMG's ownership  interest,  resulted in an increase to AT&T's additional paid-in
capital of $355 and $109 in 2000 and 1999, respectively.

9.  OTHER INVESTMENTS

         We have  investments  in various  companies and  partnerships  that are
accounted for under the equity method and included within "Other investments and
related  advances" 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,  2000 and 1999,  we had  equity  investments  (other  than LMG) of
$13,624 and  $18,454,  respectively.  The  carrying  value of these  investments
exceeded our share of the underlying reported net assets by approximately $8,720
and $12,530, at December 31, 2000 and 1999, respectively.  The goodwill is being
amortized  over periods  ranging  from 15 to 40 years.  Pretax  amortization  of
goodwill was $571,  $495,  and $52 in 2000,  1999, and 1998,  respectively.  The
amortization  is shown net of income  taxes as a  component  of "Net losses from
other equity investments" in the accompanying Consolidated Statements of Income.
Distributions from equity investments totaled $214, $317 and $360, for the years
ended December 31, 2000, 1999 and 1998, respectively.
<PAGE>

         Ownership of significant equity investments was as follows:
<TABLE>
<CAPTION>
At December 31,                                                                           2000           1999
                                                                                          ----           ----
<S>                                                                                  <C>            <C>
Cablevision Systems Corporation................................................      27.98%(a)      32.04%(a)
Concert........................................................................      50.00%(b)             --
Time Warner Texas..............................................................         50.00%         50.00%
Net2Phone, Inc.................................................................      31.34%(c)             --
Insight Midwest LP.............................................................         50.00%         50.00%
EuroTel Praha, spol. s.r.o.....................................................         24.50%             --
Century-TCI California, LP.....................................................         25.00%         25.00%
Rogers Wireless Communications, Inc............................................      16.65%(d)      16.65%(d)
TeleCorp PCS, Inc..............................................................         22.99%         15.67%
Kansas City Cable Partners.....................................................         50.00%         50.00%
Parnassos, LP..................................................................         33.33%         33.33%
ACC Acquisitions, LLC..........................................................         50.00%             --
Far EasTone Telecommunications, ltd............................................         22.70%         13.87%
AB Cellular....................................................................         -- (e)      55.62%(e)
At Home Corporation............................................................         -- (f)      25.00%(f)
Lenfest Communications, Inc....................................................         --          50.00%
Bresnan Communications Group LLC...............................................         --          50.00%
</TABLE>


(a)      At  December  31,  2000  and  1999,  we  owned  48,942,172   shares  of
         Cablevision  Systems  Corporation  Class A common  stock,  which  had a
         closing market price of $84.94 and $75.50 per share,  respectively,  on
         those dates. Cablevision Systems Corporation (Cablevision) redeemed all
         of its outstanding  preferred stock and issued additional common stock,
         and issued shares of its common stock for acquisitions.  As a result of
         these transactions,  AT&T's ownership interest in Cablevision decreased
         from 32.04% to 27.98%. Due to the dilution of AT&T's ownership interest
         in  Cablevision,  net of the  increase in  Cablevision's  equity,  AT&T
         recorded a net decrease to additional paid-in capital of $170 in 2000.

(b)      On January 5, 2000, we formed Concert, our  global-communications joint
         venture with BT.

(c)      At December 31, 2000, we owned  18,900,000  shares of  Net2Phone,  Inc.
         Class A common  stock,  which had a closing  market  price of $7.38 per
         share on that date.

(d)      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.

(e)      On December 29,  2000,  AB Cellular  completed  the  redemption  of our
         equity interest in AB Cellular.  Voting interest in AB Cellular was 50%
         at December 31, 1999.

(f)      On  August 28,  2000,  AT&T and  Excite@Home  announced  the closing of
         their extension contracts and governance reorganization. As a result of
         the governance  changes,  AT&T gained a controlling  interest and began
         consolidating  Excite@Home's  results  on  September  1,  2000.  As  of
         December 31, 2000,  AT&T had an approximate  23% economic  interest and
         74% voting interest in  Excite@Home.  We owned 7,924,422 and 63,720,000

<PAGE>

         shares of  Excite@Home  Class A common  stock at December  31, 2000 and
         1999, respectively, which had closing market prices of $5.53 and $42.88
         per share,  respectively,  on those dates. We also owned 86,595,578 and
         30,800,000  shares of Excite@Home  Class B common stock at December 31,
         2000 and 1999, respectively, which are not publicly traded. During 2000
         and 1999,  Excite@Home  issued  shares of its common  stock for various
         acquisitions.  As a  result  of  these  transactions,  AT&T's  economic
         interest in Excite@Home decreased from 25% to 23% in 2000, and from 38%
         to  25%  in  1999,  respectively.  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 $116 and $527 in 2000 and 1999, respectively.

         Summarized  unaudited  combined  financial  information for investments
accounted for under the equity method was as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,                                                  2000        1999       1998
                                                                                  ----        ----       ----
                                                                                          (Unaudited)
<S>                                                                            <C>         <C>         <C>
Revenue.................................................................       $32,663     $12,751     $4,488
Operating (loss) income.................................................         (583)     (1,384)        239
(Loss) income from continuing operations before extraordinary items and
   cumulative effect of a change in accounting principle................       (1,005)     (2,701)        147
Net (loss) income.......................................................       (1,373)     (2,897)         53
</TABLE>

<TABLE>
<CAPTION>
At December 31,                                                                   2000        1999
                                                                                  ----        ----
                                                                                    (Unaudited)
<S>                                                                            <C>          <C>
Current assets..........................................................       $12,274      $7,616
Noncurrent assets.......................................................        44,748      38,008
Current liabilities.....................................................        12,181       6,209
Noncurrent liabilities..................................................        26,337      19,422
Redeemable preferred stock..............................................         2,198       1,094
Minority interest.......................................................           621       1,740
</TABLE>

         In  addition,  we have a 25.51%  interest in TWE.  This  investment  is
"held-for-sale"  at December 31, 2000.  Accordingly,  we are no longer recording
equity earnings (losses) on this investment.

         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 income taxes, being included within other comprehensive income as a
component of shareowners' equity. Approximately $2,102 of these investments have
been  classified as current  assets since they are indexed to certain  currently
maturing debt instruments.
<PAGE>

10.  DEBT OBLIGATIONS

DEBT MATURING WITHIN ONE YEAR
<TABLE>
<CAPTION>
At December 31,                                                                   2000        1999
                                                                                  ----        ----
<S>                                                                            <C>         <C>
Commercial paper........................................................       $16,234      $5,974
Short-term notes........................................................        11,505       5,000
Currently maturing long-term debt.......................................         3,724       1,355
Other...................................................................           484         304

Total debt maturing within one year.....................................       $31,947     $12,633


Weighted-average interest rate of short-term debt.......................          6.5%        5.3%
</TABLE>

         In February  2000,  we entered into a 364-day,  $10 billion  syndicated
credit facility upon the expiration of existing credit  facilities.  On December
28, 2000, we entered into a new 364-day,  $25 billion credit facility syndicated
to 39 banks.  As a result,  the  outstanding  $10 billion  credit  facility  was
terminated.  The credit facility is for commercial  paper back-up and was unused
at  December  31,  2000.  The credit  facility  agreement  contains a  financial
covenant that requires AT&T to maintain a net  debt-to-EBITDA  ratio (as defined
in the  credit  agreement)  not  exceeding  3.00 to 1.00  for  four  consecutive
quarters ending on the last day of each fiscal quarter. At December 31, 2000, we
were in compliance with this covenant.

         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.

LONG-TERM OBLIGATIONS
<TABLE>
<CAPTION>
At December 31,                                                                 2000        1999
                                                                                ----        ----
<S>                                                                          <C>         <C>
DEBENTURES, NOTES AND TRUST PREFERRED SECURITIES(a)
Interest Rates(b)      Maturities

4.00% - 6.00%          2001-2018.......................................       $6,639      $5,251
6.25% - 6.50%          2001-2029.......................................        6,660       4,367
6.55% - 7.50%          2001-2037.......................................        7,840       3,701
7.53% - 8.50%          2001-2097.......................................        5,267       4,762
8.60% - 11.13%         2001-2045.......................................        7,320       5,389
Variable rate          2001-2054.......................................        2,794         867

Total debentures, notes and trust preferred securities.................       36,520      24,337
Other..................................................................          360         362
Unamortized discount, net..............................................         (64)       (127)

Total long-term obligations............................................       36,816      24,572
Less: Currently maturing long-term debt................................        3,724       1,355

Net long-term obligations..............................................      $33,092     $23,217
</TABLE>
<PAGE>



(a)      Included in these balances was $946 and $975 representing the remaining
         excess of the fair value over the recorded  value of debt in connection
         with the TCI and MediaOne mergers at December 31, 2000 and December 31,
         1999,  respectively.  The excess is being  amortized over the remaining
         lives of the underlying debt obligations.

(b)      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 12).

         On January 26, 1999,  AT&T filed a registration  statement with the 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 TCI 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.

         Included  in  long-term  debt  are   subsidiary-obligated   mandatorily
redeemable preferred securities of subsidiary trusts holding solely subordinated
debt  securities,  exchangeable  notes and other  exchangeable  debt acquired in
connection with the TCI and MediaOne mergers.

SUBSIDIARY-OBLIGATED  MANDATORILY  REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY
TRUSTS HOLDING SOLELY SUBORDINATED DEBT SECURITIES

         Certain subsidiary trusts of TCI (TCI Trusts) had preferred  securities
outstanding at December 31, 2000 and 1999, as follows:
<TABLE>
<CAPTION>
                                      Interest    Maturity      Carrying Amount
                                        Rate        Date        2000       1999
                                      --------    --------      ----       ----
<S>                                   <C>    <C>    <C>    <C>    <C>    <C>
TCI Communications Financing I......  8.72%          2045       $528       $528
TCI Communications Financing II..... 10.00%          2045        514        521
TCI Communications Financing III....  9.65%          2027        357        360
TCI Communications Financing IV.....  9.72%          2036        204        217
Total...............................                          $1,603     $1,626
                                                              ------     ------
</TABLE>


         The TCI Trusts were created for the exclusive  purpose of issuing trust
preferred  securities  and  investing  the proceeds  thereof  into  subordinated
deferrable   interest  notes   (subordinated   debt   securities)  of  TCI.  The
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 trust  preferred  securities  are
callable  at  face  value  beginning  in  January  and May  2001,  respectively.

<PAGE>

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.  TCI  effectively  provides  a full and
unconditional guarantee of the TCI Trusts' obligations under the trust preferred
securities.  In 2000,  AT&T provided a full and  unconditional  guarantee of the
trust  preferred  securities  for  TCI  Communications  Financing  I,  II and IV
subsidiary trusts (see Note 19).

         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 trusts during any such interest-payment period.

         Certain  subsidiary trusts of MediaOne  (MediaOne Trusts) had preferred
securities outstanding at December 31, 2000, as follows:
<TABLE>
<CAPTION>
                                          Interest       Maturity      Carrying
                                              Rate           Date        Amount
                                          --------       --------      --------
<S>                                          <C>           <C>          <C>
MediaOne Financing I...............          7.96%         2025           $30
MediaOne Financing II..............          8.25%         2036            28
MediaOne Finance II................          9.50%         2036           214
MediaOne Finance III...............          9.04%         2038           504

Total..............................                                      $776
                                                                         ----
</TABLE>

         The  MediaOne  Trusts  exist  for the  purpose  of  issuing  the  trust
preferred  securities  and  investing  the proceeds  thereof  into  subordinated
deferrable  interest  notes  (subordinated  deferrable  notes) of MediaOne Group
Funding,   Inc.,  a  wholly  owned  subsidiary  of  MediaOne.  The  subordinated
deferrable  notes have the same  interest  rate and  maturity  date as the trust
preferred  securities to which they relate.  All of the subordinated  deferrable
notes are redeemable by MediaOne Group Funding, Inc. or MediaOne at a redemption
price of $25.00 per security,  plus accrued and unpaid interest. Upon redemption
of the subordinated  deferrable  notes,  the trust preferred  securities will be
mandatorily redeemable,  at a price of $25.00 per share, plus accrued and unpaid
distributions.  The 7.96% subordinated  deferrable notes became redeemable after
September  11,  2000.  The  9.50% and 8.25%  subordinated  deferrable  notes are
redeemable after October 29, 2001. The 9.04%  subordinated  deferrable notes are
redeemable after October 28, 2003. MediaOne has effectively  provided a full and
unconditional  guarantee of the  MediaOne  Trusts'  obligations  under the trust
preferred securities.  In 2000, AT&T provided a full and unconditional guarantee
of MediaOne's trust preferred securities (see Note 19)

         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 trusts during any such interest-payment period.

EXCHANGEABLE NOTES

         During 2000, we issued debt  (exchangeable  notes) which is mandatorily
redeemable  at AT&T's  option into shares of Comcast and  Microsoft  Corporation
(Microsoft) common stock, as applicable, or its cash equivalent. During 1999 and
1998,  MediaOne issued  exchangeable  notes which are mandatorily  redeemable at
MediaOne's option into (i) Vodafone American  Depository Receipts (ADRs) held by
MediaOne, (ii) the cash equivalent,  or (iii) a combination of cash and Vodafone
ADRs. The maturity value of these  exchangeable notes varies based upon the fair
market value of the security it is indexed to.
<PAGE>

         Following  is a  summary  of  the  exchangeable  notes  outstanding  at
December  31,  2000,  which are indexed to 25 million  shares of Comcast  common
stock:
<TABLE>
<CAPTION>
Maturity Date                                                          2003       2004       2005
-------------                                                          ----       ----       ----
<S>                                                                   <C>       <C>        <C>
Face value.....................................................        $371       $314       $329
Interest rate..................................................       6.75%      5.50%      4.63%
Put price......................................................       41.50      41.06      39.13
Call price.....................................................       49.80      49.27      46.96
Carrying value at December 31, 2000............................        $371       $314       $329
</TABLE>

         At maturity, the exchangeable notes will be redeemed, at AT&T's option,
with (i) a number of shares of  Comcast  common  stock  equal to the  underlying
shares  multiplied by the exchange ratio, or (ii) its equivalent cash value. The
exchange ratio will be calculated at maturity in the following manner:

         (a)      If the fair market  value of  a share of Comcast  common stock
                  is greater  than the call price,  the  exchange  ratio will be
                  0.8333;

         (b)      If the  fair market value  of a share of Comcast  common stock
                  is less than or equal to the put  price,  the  exchange  ratio
                  will be 1;

         (c)      If the fair market value of a share of Comcast common stock is
                  less than or equal to the call price but greater  than the put
                  price, the exchange ratio will be be a fraction, the numerator
                  of which is equal to the put  price,  and the  denominator  of
                  which is equal to the fair market  value of a share of Comcast
                  common stock.

         Following  is a  summary  of  the  exchangeable  notes  outstanding  at
December 31, 2000,  which are indexed to 10 million  shares of Microsoft  common
stock:
<TABLE>
<CAPTION>
Maturity Date                                                          2003       2004       2005
-------------                                                          ----       ----       ----
<S>                                                                   <C>       <C>        <C>
Face value.....................................................        $227       $226       $226
Interest rate..................................................       6.96%      7.00%      7.04%
Put price......................................................       67.87      67.87      67.87
Call price.....................................................       97.39     111.64     128.60
Carrying value at December 31, 2000............................        $145       $144       $144
</TABLE>

         At maturity, the exchangeable notes will be redeemed, at AT&T's option,
with (i) a number of shares of Microsoft  common  stock equal to the  underlying
shares  multiplied by the exchange ratio, or (ii) its equivalent cash value. The
exchange ratio will be calculated at maturity in the following manner:

         (a)      If the fair market value of a share of Microsoft  common stock
                  is greater than the call price,  the exchange  ratio will be a
                  fraction,  the  numerator  of which is equal to the sum of (i)
                  the put price,  plus (ii) the excess of the fair market  value
                  of a share of Microsoft  common stock over the call price, and
                  the  denominator of which is equal to the fair market value of
                  a share of Microsoft common stock;
<PAGE>

         (b)      If the fair market value of a share of  Microsoft common stock
                  is less than or equal to the put  price,  the  exchange  ratio
                  will be 1;

         (c)      If the fair market value of a share of Microsoft  common stock
                  is less than or equal to the call price but  greater  than the
                  put  price,  the  exchange  ratio  will  be  a  fraction,  the
                  numerator  of  which  is  equal  to the  put  price,  and  the
                  denominator  of which is equal to the fair  market  value of a
                  share of Microsoft common stock.

         Following  is a  summary  of  the  exchangeable  notes  outstanding  at
December 31, 2000,  which are indexed to 22.3 million  shares of Comcast  common
stock:
<TABLE>
<CAPTION>
Maturity Date                                                          2003       2004       2005
-------------                                                          ----       ----       ----
<S>                                                                  <C>        <C>        <C>
Face value.....................................................        $267       $267       $267
Interest rate..................................................       6.76%      6.80%      6.84%
Put price......................................................       35.89      35.89      35.89
Call price.....................................................       50.64      58.39      67.97
Carrying value at December 31, 2000............................        $267       $267       $267
</TABLE>


         At maturity, the exchangeable notes will be redeemed, at AT&T's option,
with (i) a number of shares of  Comcast  common  stock  equal to the  underlying
shares  multiplied by the exchange ratio, or (ii) its equivalent cash value. The
exchange ratio will be calculated at maturity in the following manner:

         (a)      If the fair market value of a share of Comcast common stock is
                  greater than or equal to the call price,  the  exchange  ratio
                  will be a fraction, the numerator of which is equal to the sum
                  of (i) the put price,  plus (ii) the excess of the fair market
                  value of a share of Comcast  common stock over the call price,
                  and the denominator of which is equal to the fair market value
                  of a share of Comcast common stock;

         (b)      If the fair market  value of  a share of Comcast  common stock
                  is less than or equal to the put  price,  the  exchange  ratio
                  will be 1;

         (c)      If the fair market value of a share of Comcast common stock is
                  less than the call price but greater  than the put price,  the
                  exchange  ratio will be a fraction,  the numerator of which is
                  equal to the put price,  and the denominator of which is equal
                  to the fair market value of a share of Comcast common stock.
<PAGE>

         Following  is a  summary  of  the  exchangeable  notes  outstanding  at
December 31, 2000, which are indexed to Vodafone ADRs:
<TABLE>
<CAPTION>
Maturity Date                                                                                 2001       2002
-------------                                                                                 ----       ----
<S>                                                                                         <C>        <C>
Face value...........................................................................       $1,686     $1,129
Interest rate........................................................................        6.25%      7.00%
Put price............................................................................        19.65      43.44
Call price...........................................................................        25.10      51.26
Carrying value at December 31, 2000..................................................       $2,337     $1,012
</TABLE>

         The  exchangeable  notes that  mature in 2001 are indexed to 29 million
Vodafone ADRs,  and will be exchanged at maturity based upon a redemption  value
of $9.00 in cash  plus  21/2  times  the fair  market  value of a  Vodafone  ADR
(maturity price), as follows:

                  (a) If the  maturity  price is greater  than or equal to $9.00
         plus 21/2  times the call price per share,  each  exchangeable  note is
         equivalent to 0.8101 of the maturity price;

                  (b) If the maturity  price is less than or equal to $9.00 plus
         21/2  times  the  put  price  per  share,  each  exchangeable  note  is
         equivalent to the maturity price; or

                  (c) If the  maturity  price is less than  $71.75 per share but
         greater than $58.125 per share, each exchangeable note is equivalent to
         $58.125.

         The  exchangeable  notes that  mature in 2002 are indexed to 26 million
Vodafone ADRs, and will be exchanged at maturity as follows:

                  (a) If the fair market value of a Vodafone ADR is greater than
         or equal to the call price,  each  exchangeable  note is  equivalent to
         0.8475 of a Vodafone ADR;

                  (b) If the fair market value of a Vodafone ADR is less than or
         equal to the put price,  each  exchangeable  note is  equivalent to one
         Vodafone ADR; or

                  (c) If the fair  market  value of a Vodafone  ADR is less than
         the call price but greater than the put price,  each  exchangeable note
         is  equivalent  to a fraction  of a  Vodafone  ADR equal to (i) the put
         price divided by (ii) the fair market value of a Vodafone ADR.

         The  exchangeable  notes  are  being  accounted  for  as  indexed  debt
instruments  since the  maturity  value of the debt is  dependent  upon the fair
market value of the underlying Comcast,  Microsoft and Vodafone securities.  The
exchangeable  notes  contain  embedded  options  that hedge the market risk of a
decline in value of Comcast,  Microsoft and Vodafone securities. The market risk
of a decline in Comcast  and  Microsoft  stock,  and  Vodafone  ADRs,  below the
respective put prices has been eliminated.  In addition, any market gains we may
earn have been  limited to the call prices,  with the  exception of certain debt
indexed  to  Comcast  stock and the debt  indexed to the  Vodafone  ADRs,  which
provides for our  participation  in a portion of the market gains above the call
price.
<PAGE>

         Since the Comcast,  Microsoft,  and Vodafone securities are cost method
investments  being accounted for as  "available-for-sale"  securities under SFAS
No. 115,  "Accounting  for Certain  Investments in Debt and Equity  Securities,"
changes  in the  maturity  value of the  exchangeable  notes and the  underlying
securities  are being  recorded  as  unrealized  gains or losses,  net of income
taxes, within other comprehensive income as a component of shareowners' equity.

         The  exchangeable  notes indexed to Comcast  common stock and Microsoft
common stock are secured by the Comcast and Microsoft investments AT&T owns. The
exchangeable notes indexed to Vodafone ADRs are unsecured  obligations,  ranking
equally  in right  of  payment  with  all  other  unsecured  and  unsubordinated
obligations of AT&T.

OTHER EXCHANGEABLE DEBT

         During 2000, we entered into a series of purchased and written  options
on 21.9 million shares of Microsoft common stock, and issued floating rate debt.
The  carrying  value of the debt at December 31,  2000,  was $1,369,  which pays
interest at the three-month  London  Inter-Bank  Offered Rate (LIBOR) plus 0.4%.
The debt matures annually with $458 maturing in 2003 and 2004, and $453 maturing
in 2005, and is repayable at AT&T's option in either Microsoft stock or cash.

         In addition, during 1999 two subsidiaries of MediaOne,  MediaOne SPC IV
and MediaOne SPC VI,  entered into a series of purchased and written  options on
Vodafone ADRs  contributed to them by MediaOne,  and issued  floating rate debt.
The  carrying  value of the debt at December 31,  2000,  was $1,739,  which pays
interest  at the  three-month  LIBOR  plus  0.5%.  This  debt  matures  in equal
quarterly  installments  beginning  in 2003 and  ending in 2005.  The  assets of
MediaOne SPC IV, which are primarily  29.1 million  Vodafone ADRs, are available
only to pay the creditors of MediaOne SPC IV.  Likewise,  the assets of MediaOne
SPC VI, which are primarily  18.0 million  Vodafone  ADRs, are available only to
pay the creditors of MediaOne SPC VI.

         This table shows the maturities at December 31, 2000, of the $36,816 in
total long-term obligations:

       2001       2002       2003       2004       2005       Later Years
       ----       ----       ----       ----       ----       -----------

     $3,724     $2,661     $3,093     $4,112     $4,182           $19,044


11.  OTHER SECURITIES

PREFERRED STOCK OF SUBSIDIARIES

         Prior to the TCI 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, 2000 and 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 a
combination of the foregoing.  The Pacific  preferred stock is reflected  within
"Minority  Interest"  in  the  accompanying  Consolidated  Balance  Sheets,  and
aggregated $2.1 billion at December 31, 2000 and 1999.
<PAGE>

         Prior to the TCI 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. Class B preferred stock and
accumulated  dividends  aggregated $152 at December 31, 1999, and were reflected
within "Minority Interest" in the accompanying 1999 Consolidated  Balance Sheet.
On February 22, 2000,  all  outstanding  shares of Class B preferred  stock were
redeemed at $105.88 per share.

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   (quarterly   preferred
securities)  to  Microsoft.  Proceeds of the issuance  were invested by the AT&T
Trust in junior  subordinated  debentures  (debentures) issued by AT&T due 2029,
which represent the sole asset of the AT&T Trust.

         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.  The
quarterly  preferred   securities  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 $250 and $135 for
the years ended  December  31,  2000 and 1999,  respectively,  and are  reported
within "Minority  interest 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  "Minority  interest
income (expense)" in the accompanying Consolidated Statements of Income.

CENTAUR FUNDING CORPORATION

         Centaur Funding Corporation (Centaur), a subsidiary of MediaOne, issued
three  series of  preferred  shares  prior to AT&T's  acquisition  of  MediaOne.
Centaur was created for the  principal  purpose of raising  capital  through the

<PAGE>

issuance of preferred  shares and investing  those proceeds into notes issued by
MediaOne SPC II, a subsidiary of MediaOne.  Principal and interest payments from
the notes are expected to be Centaur's  primary source of funds to make dividend
and redemption  payments on the preferred shares. In addition,  the dividend and
certain  redemption  payments  on the  preferred  shares will be  determined  by
reference to the  dividend and  redemption  activity of the  preferred  stock of
AirTouch Communications,  Inc. (ATI Shares) held by MediaOne SPC II. Payments on
the preferred shares are neither guaranteed nor secured by MediaOne or AT&T. The
assets of MediaOne SPC II, which include the ATI shares,  are available  only to
pay the creditors of MediaOne SPC II. These securities  remained  outstanding at
December 31, 2000 as follows:
<TABLE>
<CAPTION>
                                            Dividend Rate        Maturity Date                Carrying Amount
                                            -------------        -------------                ---------------
<S>                                         <C>                  <C>                                  <C>
Series A..................................  Variable             None                                    $100
Series B..................................  9.08%                April 21, 2020                           927
Series C..................................  None                 April 21, 2020                           118

Total.....................................                                                             $1,145
                                                                                                       ------
</TABLE>

         The Auction  Market  Preference  Shares,  Series A, have a  liquidation
value of $250  thousand  per share and  dividends  are  payable  quarterly  when
declared by Centaur's  board of directors  out of funds legally  available.  The
9.08% Cumulative  Preference  Shares,  Series B, have a liquidation  value of $1
thousand per share and dividends are payable  quarterly in arrears when declared
by Centaur's  board of directors  out of funds legally  available.  In addition,
dividends may be declared and paid only to the extent that  dividends  have been
declared and paid on the ATI shares.  The  preference  shares,  Series C, have a
liquidation value of $1 thousand per share at maturity.  The value of the Series
C will be accreted to reach its  liquidation  value upon maturity.  The Series B
shares rank equally with the Series C shares as to redemption  payments and upon
liquidation,  and the Series B and Series C shares  rank  senior to the Series A
shares as to redemption  payments and upon  liquidation.  The preference  shares
issued by Centaur are reflected within  "Minority  interest" in the accompanying
2000 Consolidated Balance Sheet.

         Dividends  on the  preferred  shares  were  $55  for the  period  ended
December 31, 2000, and were included within "Minority interest income (expense)"
in the Consolidated Statement of Income.

12.  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,  option contracts and equity
hedges. 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,
2000 and 1999, 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.
<PAGE>

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.
Letters of credit 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, TCI had agreed to
take  certain  steps to support  debt  compliance  with  respect to  obligations
aggregating  $1,461 and $1,720 at December 31, 2000 and 1999,  respectively,  of
certain  cable  television  partnerships  in  which  TCI  has a  non-controlling
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 our former  subsidiaries AT&T Capital
Corp. and NCR. The amount of guaranteed  debt associated with AT&T Capital Corp.
and NCR was $48 and $56 at December 31, 2000 and 1999, respectively.

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, 2000,  were at rates ranging from
6.05% to 8.20%.  Floating-rate payments are based on rates tied to the LIBOR. In
addition,  we also have combined interest rate, foreign currency swap agreements
for  foreign-currency-denominated  debt,  which hedge our risk to both  interest
rate and currency movements.

         The following table indicates the types of swaps in use at December 31,
2000 and 1999, 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.
<TABLE>
<CAPTION>
                                                                                              2000       1999
                                                                                              ----       ----
<S>                                                                                          <C>        <C>
Fixed to variable swaps--notional amount...........................................           $750     $1,800
   Average receive rate............................................................          8.16%      6.89%
   Average pay rate................................................................          8.16%      6.67%
Variable to fixed swaps--notional amount...........................................           $218       $229
   Average receive rate............................................................          6.81%      6.30%
   Average pay rate................................................................          7.31%      6.77%
Variable to variable swaps--notional amount........................................           $739       $495
   Average receive rate............................................................          1.74%      6.63%
   Average pay rate................................................................          5.42%      6.53%
</TABLE>

         The weighted-average  remaining terms of the swap contracts were 11 and
seven years at December 31, 2000 and 1999, respectively.
<PAGE>

FOREIGN EXCHANGE

         We enter into foreign currency  exchange  contracts,  including forward
and option  contracts,  to manage our  exposure to changes in currency  exchange
rates  related  to  foreign-currency-denominated  transactions.  In  2000,  this
consisted  principally  of Brazilian  reais and Swiss francs related to debt. In
1999,  this consisted  principally of European  Union currency  (Euro),  British
pounds  sterling and  Japanese Yen  contracts  related to 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.  In  addition,  we are  subject to foreign
exchange risk related to other foreign-currency-denominated transactions.

COLLARS

         We enter into option  agreements  to hedge our exposure on debt that is
indexed to securities we own. During 2000, we entered into a series of purchased
and written  options  related to a portion of our  holdings in  Microsoft  stock
(Microsoft collar),  which is indexed to floating rate debt. The collar has been
designated  and is effective as a hedge of the market risk  associated  with our
investment in Microsoft  stock.  The Microsoft  collar is carried at fair value,
with  unrealized  gains or losses,  net of income taxes,  being recorded  within
other comprehensive income as a component of shareowners' equity,  together with
any change in the fair value of the Microsoft  stock.  The carrying value of the
Microsoft collar was $419 at December 31, 2000.

         At the expiration of the Microsoft  collar, if the price of a Microsoft
share is equal to or less than the put price of $62.48,  we would  exercise  the
put option and deliver  all  underlying  shares of  Microsoft  common  stock and
receive  cash  equal  in  value  to (i) the put  price,  multiplied  by (ii) the
underlying  share  amount.  Alternatively,  at our  option,  we can elect not to
deliver the  underlying  shares and instead  settle the put option by  receiving
cash equal in value to the (i) the  difference  between  the put price minus the
fair value of one  Microsoft  share,  multiplied  by (ii) the  underlying  share
amount. If the price of a Microsoft share is greater then the call price,  which
range from $86.26 to $118.36,  then the call option  would be  exercised  and we
would deliver all  underlying  shares and receive cash equal in value to (i) the
call price,  multiplied by (ii) the underlying share amount.  At our option,  we
can elect not to  deliver  the  underlying  shares and  instead  settle the call
option by paying cash equal in value to the (i) the difference  between the call
price  minus  the fair  value of one  Microsoft  share,  multiplied  by (ii) the
underlying  share  amount.  Any  cash  received  by AT&T  from the  exercise  or
settlement  of either put or call  option  would be used to retire the  floating
rate debt.  We would  retain cash in excess of the call price from a call option
exercise.  If the price of a  Microsoft  share is between  the put price and the
call price, the collar will expire without value.

         Prior to our  merger  with  MediaOne,  two  subsidiaries  of  MediaOne,
MediaOne  SPC IV and MediaOne  SPC VI,  entered  into a series of purchased  and
written  options  (Vodafone  collars) on Vodafone  ADRs  contributed  to them by
MediaOne,  and  issued  floating  rate  debt.  The  Vodafone  collars  have been
designated and are effective as a hedge of the market risk  associated  with our
investment  in Vodafone  ADRs.  The Vodafone  collars are carried at fair value,
with  unrealized  gains or losses,  net of income taxes,  being recorded  within
other comprehensive income as a component of shareowners' equity,  together with
any change in the fair value of the Vodafone  ADRs.  The  carrying  value of the
Vodafone collars was $453 at December 31, 2000.
<PAGE>

         At the  expiration of the MediaOne SPC IV collar,  we will receive cash
if the market  value of a  Vodafone  ADR is less than  approximately  $34.00 per
share,  effectively  eliminating  downside  risk on the stock  below  $34.00 per
share.  Conversely,  if the  market  value of a  Vodafone  ADR is  greater  than
approximately  $49.00 per share, we will be required to pay cash,  which will be
offset by the  corresponding  increase in the value of the  Vodafone  ADR.  This
Vodafone collar expires quarterly beginning in 2003 and ending in 2005.

         At the  expiration of the MediaOne SPC VI collar,  we will receive cash
if the market  value of a  Vodafone  ADR is less than  approximately  $40.00 per
share,  effectively  eliminating  downside  risk on the stock  below  $40.00 per
share.  Conversely,  if the  market  value of a  Vodafone  ADR is  greater  than
approximately  $58.00 per share, we will be required to pay cash,  which will be
offset by the  corresponding  increase in the value of the  Vodafone  ADR.  This
Vodafone collar expires quarterly beginning in 2003 and ending in 2005.

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>
<TABLE>
<CAPTION>
DERIVATIVES AND OFF BALANCE SHEET INSTRUMENTS
                                                                                         2000           1999
                                                                                         ----           ----
                                                                                    Contract/      Contract/
                                                                                     Notional       Notional
                                                                                       Amount         Amount
                                                                                    ---------      ---------
<S>                                                                                      <C>           <C>
Interest rate swap agreements................................................             $968         $2,524
Combined interest rate foreign currency swap agreements......................              739             --
Foreign exchange forward contracts...........................................               71          1,881
Option contracts.............................................................            3,108             --
Equity hedges................................................................              392            495
Letters of credit............................................................              852            243
Guarantees of debt...........................................................            1,607          1,848
</TABLE>

         The following tables show the valuation  methods,  the carrying amounts
and estimated fair values of material financial instruments.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL INSTRUMENT                                               VALUATION METHOD
<S>                                                                <C>
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
Combined interest rate foreign currency swap agreements            Market quotes obtained from dealers
Foreign exchange contracts                                         Market quotes
Option contracts                                                   Black-Scholes option-pricing model
Equity hedges                                                      Market quotes
Preferred securities                                               Market quotes*
</TABLE>

*        It is  not  practicable  to  estimate  the  fair  market  value  of our
         quarterly  preferred  securities that  aggregated  $4,710 and $4,700 at
         December 31, 2000 and 1999,  respectively.  There are no current market
         quotes available on this private placement.

                                          2000                    1999
                                          ----                    ----
                                   Carrying      Fair      Carrying       Fair
                                     Amount     Value        Amount      Value
                                   --------     -----      --------      -----

Debt excluding capital leases.....  $64,542   $61,686       $35,507     $34,092
Pacific preferred stock...........    2,121       595         2,121       1,929

<TABLE>
<CAPTION>
                                                                          2000                                  1999
                                                                          ----                                  ----
                                                            Carrying Amount       Fair Value      Carrying Amount       Fair Value
                                                            ---------------       ----------      ---------------       ----------
                                                            Asset     Liab.     Asset    Liab.     Asset    Liab.     Asset    Liab.
                                                            -----     -----     -----    -----     -----    -----     -----    -----
<S>                                                            <C>      <C>        <C>     <C>       <C>      <C>      <C>       <C>
Interest rate swap agreements.........................         $4        $5        $4       $5       $28      $27        $6      $29
Combined interest rate foreign currency swap agreements         1         3         1        3        --       --        --       --
Foreign exchange forward contracts....................         --         1         1        2        --       26         1       28
Equity hedges.........................................          2       100         2      100       313        2       313       --
</TABLE>

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 based
principally 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 certain future retirees include health-care benefits, life insurance
coverage and telephone concessions.
<PAGE>

         The following  table shows the  components of the net periodic  benefit
costs included in our Consolidated Statements of Income:
<TABLE>
<CAPTION>
                                                                        Pension Benefits                 Postretirement Benefits
                                                                        ----------------                 -----------------------
  For the Years Ended December 31,                                    2000          1999        1998      2000       1999       1998
                                                                      ----          ----        ----      ----       ----       ----
<S>                                                              <C>           <C>           <C>         <C>        <C>        <C>
Service cost benefits earned during the period...........           $248          $247          $275       $35        $54        $56
Interest cost on benefit obligations.....................            991           919           940       352        324        322
Amortization of unrecognized prior service cost..........            174           159           135         4         13        (2)
Credit for expected return on plan assets................        (1,821)       (1,458)       (1,570)     (230)      (200)      (173)
Amortization of transition asset.........................          (156)         (158)         (175)        --         --         --
Amortization of gains....................................          (332)          (10)            --      (16)        (1)         --
Charges for special termination benefits*................             --            --         2,254        16          5        169
Net curtailment losses (gains)*..........................            121            --           140      (14)         --        141
Net settlement losses (gains)*...........................              8         (121)         (921)        --         --         --

Net periodic benefit (credit) cost.......................         $(767)        $(422)        $1,078      $147       $195       $513
</TABLE>


*        Primarily  included  in "Net  restructuring  and other  charges" in the
         Consolidated Statements of Income.

         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 15,100
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.
<PAGE>

         The following  tables  provide a  reconciliation  of the changes in the
plans'  benefit  obligations  and fair value of assets,  and a statement  of the
funded status:
<TABLE>
<CAPTION>
                                                                                       Pension Benefits      Postretirement Benefits
                                                                                       ----------------      -----------------------
For the Years Ended December 31,                                                         2000        1999          2000         1999
                                                                                         ----        ----          ----         ----
<S>                                                                                  <C>         <C>            <C>          <C>
Change in benefit obligations:
Benefit obligation, beginning of year..........................................       $12,868     $14,443        $4,642       $5,168
Service cost...................................................................           248         247            35           54
Interest cost..................................................................           991         919           352          324
Plan amendments................................................................            32         558          (45)            4
Actuarial losses (gains).......................................................             5     (1,683)           203        (579)
Acquisition....................................................................           204          --            38           --
Benefit payments...............................................................       (1,228)     (1,062)         (362)        (334)
Special termination benefits...................................................            --          --            16            5
Settlements....................................................................          (57)       (554)            --           --
Curtailment losses.............................................................            --          --             7           --
Benefit obligation, end of year................................................       $13,063     $12,868        $4,886       $4,642
                                                                                      -------     -------        ------       ------
Change in fair value of plan assets:
Fair value of plan assets, beginning of year...................................       $21,854     $18,567        $2,852       $2,476
Actual return on plan assets...................................................           995       4,855         (128)          385
Employer contributions.........................................................            94          48           159          325
Acquisition....................................................................           205          --             5           --
Benefit payments...............................................................       (1,228)     (1,062)         (362)        (334)
Settlements....................................................................          (57)       (554)            --           --
Fair value of plan assets, end of year.........................................       $21,863     $21,854        $2,526       $2,852
                                                                                      -------     -------        ------       ------
At December 31,
Funded (unfounded) benefit obligation..........................................        $8,800      $8,986      $(2,360)     $(1,790)
Unrecognized net gain..........................................................       (7,301)     (8,457)         (188)        (800)
Unrecognized transition asset..................................................         (123)       (279)            --           --
Unrecognized prior service cost................................................         1,100       1,362           (9)           55
Net amount recorded............................................................        $2,476      $1,612      $(2,557)     $(2,535)
                                                                                       ------      ------      --------     --------
</TABLE>

         At December  31,  2000,  our pension  plan assets  included $34 of AT&T
common stock,  $26 of Liberty Media Group Series A common stock,  and $2 of AT&T
Wireless  Group common  stock.  At December  31,  1999,  our pension plan assets
included $82 of AT&T common stock and $34 of Liberty Media Group Series A common
stock.

         The following table provides the amounts  recorded in our  Consolidated
Balance Sheets:
<TABLE>
<CAPTION>
                                                                                        Pension Benefits     Postretirement Benefits
                                                                                        ----------------     -----------------------
At December 31,                                                                           2000       1999          2000         1999
                                                                                          ----       ----          ----         ----
<S>                                                                                     <C>        <C>         <C>          <C>
Prepaid pension cost.............................................................       $3,003     $2,464           $--          $--
Benefit related liabilities......................................................        (579)      (918)       (2,557)      (2,535)
Intangible asset.................................................................           30         46            --           --
Accumulated other comprehensive income...........................................           22         20            --           --
Net amount recorded..............................................................       $2,476     $1,612      $(2,557)     $(2,535)
                                                                                        ------     ------      --------     --------
</TABLE>
<PAGE>

         Our  nonqualified  pension  plans had an unfunded  accumulated  benefit
obligation  of $125 and $118 at December  31, 2000 and 1999,  respectively.  Our
postretirement  health and telephone  concession  benefit plans had  accumulated
postretirement benefit obligations of $4,282 and $4,021 at December 31, 2000 and
1999, respectively,  which were in excess of plan assets of $1,413 and $1,635 at
December 31, 2000 and 1999, respectively.

         The   assumptions   used  in  the   measurement   of  the  pension  and
postretirement benefit obligations are shown in the following table:
<TABLE>
<CAPTION>
At December 31,                                   2000     1999    1998
                                                  ----     ----    ----
<S>                                               <C>     <C>      <C>
Weighted-average assumptions:
Discount rate................................     7.5%    7.75%    6.5%
Expected return on plan assets...............     9.5%     9.5%    9.5%
Rate of compensation increase................     4.5%     4.5%    4.5%
</TABLE>

         We  assumed  a rate of  increase  in the  per  capita  cost of  covered
health-care  benefits (the  health-care  cost trend rate) of 7.6%. This rate was
assumed to gradually  decline  after 2000 to 4.5% by 2010 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 $9 and $9,  respectively,  and would  increase  or
decrease the  health-care  component of the accumulated  postretirement  benefit
obligation by $125 and $122, 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 $280
in 2000, $234 in 1999 and $204 in 1998.

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 and March 14, 2000, we grant
stock options,  performance  shares,  restricted  stock and other awards on AT&T
common stock as well as stock options on AT&T Wireless Group tracking stock.

         Under the Program,  there were 150 million  shares of AT&T common stock
available  for grant with a maximum of 22.5 million  common shares that could be
used for awards other than stock  options.  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 are 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 or four years and are  exercisable  up to 10 years from
the date of 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.
<PAGE>

         On April 27, 2000,  AT&T created a new class of stock and  completed an
offering of AT&T Wireless Group  tracking  stock.  Under the Program,  5% of the
outstanding AT&T Wireless Group shares became available for grant with a maximum
of 1.25% of the  outstanding  shares  that may be used  for  awards  other  than
options.  Beginning  with January 1, 2001,  the remaining  AT&T  Wireless  Group
shares  available  for grant at December  31 of the prior  year,  plus 2% of the
outstanding  AT&T  Wireless  Group  shares  on  January 1 of each  year,  become
available  for grant.  The  exercise  price of any stock  option is equal to the
stock price when the option is granted.  Generally, the options vest over two to
three and  one-half  years and are  exercisable  up to 10 years from the date of
grant.  In 2000,  there were no grants of awards  other than stock  options.  On
April 27, 2000,  substantially  all employees  were granted AT&T Wireless  Group
tracking stock options.

         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
AT&T  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  6  million  shares to
employees in 2000 and 3 million shares to employees in both 1999 and 1998.

         We  apply  APB  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).  Stock  based-compensation  income
(expense)  was $253,  $(462)  and $(157) in 2000,  1999 and 1998,  respectively.
These  amounts  included  income  (expense) of $269 and $(382) in 2000 and 1999,
respectively,  related to grants of SARs of affiliated companies held by certain
employees  subsequent to the TCI merger. We also entered into an equity hedge in
1999 to offset potential future  compensation  costs associated with these SARs.
(Expense)  income  related  to this  hedge was $(297) and $247 in 2000 and 1999,
respectively.

         A summary of the AT&T common stock option transactions is shown below:
<TABLE>
<CAPTION>
                                                                     Weighted-                  Weighted-                  Weighted-
                                                                       Average                    Average                    Average
                                                                      Exercise                   Exercise                   Exercise
Shares in thousands                                        2000          Price        1999          Price        1998          Price
                                                           ----          -----        ----          -----        ----          -----
<S>                                                    <C>              <C>       <C>              <C>       <C>              <C>
Outstanding at January 1,........................       168,763         $37.42     131,904         $30.41     110,972         $24.77
Options assumed in mergers.......................        29,613         $24.71      11,770         $14.79          --             --
Options granted..................................        74,570         $36.12      47,927         $57.13      46,148         $41.69
Options and SARs exercised.......................      (11,446)         $22.07    (17,858)         $22.87    (18,894)         $21.95
Options canceled or forfeited....................      (12,474)         $45.61     (4,980)         $42.44     (6,322)         $31.64
At December 31:
Options outstanding..............................       249,026         $35.82     168,763         $37.42     131,904         $30.41
Options exercisable..............................       131,450         $30.44      57,894         $28.21      35,472         $23.13
Shares available for grant.......................        34,204                     41,347                     91,838
</TABLE>

         All of the 11.8 million  stock options  assumed in connection  with the
TCI merger were in tandem  with SARs,  which were  canceled  on April 30,  1999.
During  1999,  386,000  SARs  (including  137,000  for TCI) were  exercised.  At
December 31, 2000, there were no AT&T SARs outstanding.
<PAGE>

         The following table summarizes  information about the AT&T common stock
options outstanding at December 31, 2000:
<TABLE>
<CAPTION>
                                                         Options Outstanding                            Options Exercisable
                                                         -------------------                            -------------------
                                                                                                               Number
                                                                      Weighted-                           Exercisable
                                                                       Average       Weighted-                     at      Weighted-
                                           Number Outstanding         Remaining        Average            December 31,       Average
Range of Exercise Prices                 at December 31, 2000  Contractual Life Exercise Price                   2000 Exercise Price
------------------------                 --------------------  ---------------- --------------            ----------- --------------
                                           (in thousands)                                          (in thousands)
<S>                                                   <C>                   <C>         <C>                   <C>             <C>
$2.69 - $18.08.......................                  21,182               5.0         $11.23                 20,206         $10.99
$18.15 - $24.49......................                  16,914               6.2         $22.51                 11,808         $22.57
$24.50...............................                  15,451               6.6         $24.50                 15,451         $24.50
$24.55 - $26.18......................                   8,664               6.2         $25.33                  8,664         $25.33
$26.21...............................                  17,299               6.1         $26.21                 17,299         $26.21
$26.33 - $31.97......................                  20,246               6.6         $30.31                 12,501         $29.98
$32.09...............................                  25,551               9.6         $32.09                    141         $32.09
$32.19 - $42.04......................                  26,908               8.5         $36.91                 10,147         $39.57
$42.10...............................                  26,975               7.1         $42.10                 17,531         $42.10
$42.19 - $45.44......................                  20,017               9.1         $45.25                  1,927         $44.45
$45.48 - $59.75......................                  23,581               8.6         $51.33                  9,293         $50.40
$59.88 - $62.13......................                  26,238               8.1         $59.89                  6,482         $59.89
                                                      249,026               7.5         $35.82                131,450         $30.44
                                         --------------------                                             -----------
</TABLE>
         A summary of the AT&T Wireless Group tracking stock option transactions
is shown below:
<TABLE>
<CAPTION>
                                                                                                                           Weighted-
                                                                                                                             Average
                                                                                                                            Exercise
Shares in thousands                                                                                              2000          Price
                                                                                                                 ----      ---------
<S>                                                                                                           <C>            <C>
Outstanding at January 1,................................................................................          --            $--
Options granted..........................................................................................      76,983         $29.29
Options exercised........................................................................................          --            $--
Options canceled or forfeited............................................................................     (3,357)         $29.43
At December 31:
Options outstanding......................................................................................      73,626         $29.29
Options exercisable......................................................................................      12,391         $29.48
Shares available for grant...............................................................................      41,874
</TABLE>
<PAGE>

         The  following  table  summarizes  information  about the AT&T Wireless
Group tracking stock options outstanding at December 31, 2000:
<TABLE>
<CAPTION>
                                                         Options Outstanding                         Options Exercisable
                                                         -------------------                         -------------------
                                                                                                            Number
                                                                      Weighted-                        Exercisable
                                                                       Average       Weighted-                  at        Weighted-
                                       Number Outstanding at         Remaining         Average         December 31,         Average
Range of Exercise Prices                   December 31, 2000  Contractual Life  Exercise Price                2000   Exercise Price
------------------------                   -----------------  ----------------  --------------               -----   --------------
                                           (in thousands)                                        (in thousands)
<S>                                                    <C>                  <C>         <C>                    <C>            <C>
$17.06 - $21.00......................                     305               9.9         $17.91                     --            $--
$24.47...............................                   1,741               9.8         $24.47                     --            $--
$26.00 - $28.53......................                   1,865               9.5         $27.62                    122         $27.21
$29.50...............................                  69,715               9.3         $29.50                 12,269         $29.50
                                                       73,626               9.3         $29.29                 12,391         $29.48
                                                 ------------                                           -------------
</TABLE>

<PAGE>

         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
2000, 1999 and 1998,  consistent with the provisions of SFAS No. 123, net income
and earnings per share amounts would have been as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,                                                                          2000       1999       1998
                                                                                                          ----       ----       ----
<S>                                                                                                     <C>        <C>        <C>
AT&T Common Stock Group:
Income from continuing operations.................................................................      $2,625     $5,193     $5,078
Income from discontinued operations...............................................................          --         --          7
Gain on sale of discontinued operations...........................................................          --         --      1,290
Extraordinary loss................................................................................          --         --        137
Income............................................................................................      $2,625     $5,193     $6,238
Earnings per AT&T Common Stock Group common share-basic:
Continuing operations.............................................................................       $0.75      $1.68      $1.90
Discontinued operations...........................................................................          --         --         --
Gain on sale of discontinued operations...........................................................          --         --       0.48
Extraordinary loss................................................................................          --         --       0.05
AT&T Common Stock Group earnings..................................................................       $0.75      $1.68      $2.33
Earnings per AT&T Common Stock Group common share-diluted:
Continuing operations.............................................................................       $0.74      $1.65      $1.88
Discontinued operations...........................................................................          --         --         --
Gains on sale of discontinued operations..........................................................          --         --       0.48
Extraordinary loss................................................................................          --         --       0.05
AT&T Common Stock Group earnings..................................................................       $0.74      $1.65      $2.31
AT&T Wireless Group:
Income............................................................................................         $51        $--        $--
Earnings per share:
Basic and diluted.................................................................................       $0.14        $--        $--
</TABLE>
<PAGE>

         The pro forma  effect on net income for 1998 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 AT&T common stock
options  granted  during  2000,  1999 and 1998 were  $12.10,  $15.64  and $9.75,
respectively,  and were estimated using the Black-Scholes  option-pricing model.
The  weighted-average  risk-free  interest rates applied for 2000, 1999 and 1998
were  6.29%,  5.10% and 5.33%,  respectively.  The  following  assumptions  were
applied for 2000, 1999 and 1998,  respectively:  (i) expected dividend yields of
1.6%, 1.7% and 2.1%, (ii) expected  volatility  rates of 33.5%,  28.3% and 23.8%
and (iii) expected lives of 4.7 years in 2000 and 4.5 years for 1999 and 1998.

         The  weighted-average  fair  values at date of grant for AT&T  Wireless
Group  tracking  stock options  granted during 2000 was $14.20 and was estimated
using the  Black-Scholes  option-pricing  model. The following  weighted-average
assumptions  were applied for 2000: (i) risk-free  rate of 6.53%,  (ii) expected
volatility rate of 55.0% and (iii) expected life of 3.9 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:
<TABLE>
<CAPTION>
For the Years Ended December 31,                                                                          2000       1999       1998
                                                                                                          ----       ----       ----
<S>                                                                                                     <C>        <C>        <C>
U.S. federal statutory income tax rate............................................................         35%        35%        35%
Federal income tax at statutory rate..............................................................        $913     $3,509     $2,920
Amortization of investment tax credits............................................................        (23)       (10)       (14)
State and local income taxes, net of federal income tax effect....................................         176        247        199
In-process research and development write-off.....................................................          --        208         --
Amortization of intangibles.......................................................................         111         43         28
Foreign rate differential.........................................................................         104         56         30
Taxes on repatriated and accumulated foreign income, net of tax credits...........................        (84)       (45)       (36)
Research and other credits........................................................................        (40)       (64)       (91)
Valuation allowance...............................................................................          --       (78)         37
Investment dispositions, acquisitions and legal entity restructurings.............................       (477)       (94)      (153)
Operating losses and charges relating to Excite@Home..............................................       2,757         --         --
Other differences, net............................................................................        (95)       (77)        129
Provision for income taxes........................................................................      $3,342     $3,695     $3,049
Effective income tax rate.........................................................................      128.1%      36.9%      36.6%
</TABLE>
<PAGE>

         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:
<TABLE>
<CAPTION>
For the Years Ended December 31,                                                                         2000        1999       1998
                                                                                                         ----        ----       ----
<S>                                                                                                    <C>        <C>         <C>
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
United States...................................................................................       $3,014      $9,595     $8,047
Foreign.........................................................................................        (406)         430        294
Total...........................................................................................       $2,608     $10,025     $8,341
                                                                                                       ------     -------     ------
PROVISION FOR INCOME TAXES
CURRENT
   Federal......................................................................................       $1,878      $2,691     $2,784
   State and local..............................................................................          196         415        232
   Foreign......................................................................................           89         100         41
                                                                                                        2,163       3,206      3,057
DEFERRED
   Federal......................................................................................        1,136         527       (68)
   State and local..............................................................................           71        (36)         74
   Foreign......................................................................................          (5)           8         --
                                                                                                        1,202         499          6
Deferred investment tax credits.................................................................         (23)        (10)       (14)
Provision for income taxes......................................................................       $3,342      $3,695     $3,049
                                                                                                       ------      ------     ------
</TABLE>

-----------

         In addition,  we also recorded current and deferred income tax expenses
(benefits)  related to minority  interest and net equity  losses on other equity
investments  in the  amounts of $(154)  and $(125) in 2000,  $(94) and $(344) in
1999 and $143 and $(120) in 1998, respectively.

         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.
<PAGE>

         Deferred income tax liabilities and assets consist of the following:
<TABLE>
<CAPTION>
At December 31,                                                                                                     2000        1999
                                                                                                                    ----        ----
<S>                                                                                                              <C>         <C>
LONG-TERM DEFERRED INCOME TAX LIABILITIES
   Property, plant and equipment..........................................................................        $9,123      $7,678
   Investments............................................................................................        10,716       7,304
   Franchise costs........................................................................................        18,571      11,998
   Other..................................................................................................         2,826       1,156

   Total long-term deferred income tax liabilities........................................................        41,236      28,136

LONG-TERM DEFERRED INCOME TAX ASSETS
   Business restructuring.................................................................................           127         120
   Net operating loss/credit carryforwards................................................................           710         710
   Employee pensions and other benefits, net..............................................................         1,470       1,359
   Reserves and allowances................................................................................            99         376
   Other..................................................................................................         2,867       1,603
   Valuation allowance....................................................................................         (750)       (231)

Total net long-term deferred income tax assets............................................................         4,523       3,937

Net long-term deferred income tax liabilities.............................................................       $36,713     $24,199
                                                                                                                 -------     -------

CURRENT DEFERRED INCOME TAX LIABILITIES
   Investments............................................................................................          $670         $--
   Other..................................................................................................           309         427

   Total current deferred income tax liabilities..........................................................           979         427

CURRENT DEFERRED INCOME TAX ASSETS
   Business restructuring.................................................................................           155          47
   Employee pensions and other benefits...................................................................           436         562
   Reserves and allowances................................................................................           639         682
   Other..................................................................................................           600         423
   Valuation allowance....................................................................................          (39)          --

Total net current deferred income tax assets..............................................................         1,791       1,714

Net current deferred income tax assets....................................................................          $812      $1,287
                                                                                                                 -------     -------
</TABLE>


         At  December  31,  2000,  we  had  net  operating  loss   carryforwards
(tax-effected), excluding Excite@Home, for federal and state income tax purposes
of $79 and $164,  respectively,  expiring  through  2015.  In  addition,  we had
federal tax credit  carryforwards  of $145, of which $64 have no expiration date
and $81  expire  through  2005.  We also  had  state  tax  credit  carryforwards
(tax-effected)  of $32 expiring through 2003. In connection with the TCI merger,
we acquired certain federal and state net operating loss  carryforwards  subject
to a valuation  allowance of $59. 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.
<PAGE>

         At December 31, 2000,  Excite@Home had net operating loss carryforwards
(tax  effected)  for federal  and state  income tax  purposes  of $290  expiring
through 2020.  Utilization of Excite@Home's net operating loss carryforwards may
be subject to a minor annual limitation due to the ownership change  limitations
provided by the Internal  Revenue Code of 1986,  as amended,  and similar  state
provisions.  The annual  limitation may result in the expiration of a portion of
Excite@Home's  net  operating  loss  carryforwards   before   utilization.   The
realization  of   Excite@Home's   net  deferred  tax  asset  is  dependent  upon
Excite@Home's  future  earnings,  if any,  the  timing  and  amount of which are
uncertain.  In addition,  Excite@Home is a separate taxpayer and is not a member
of  the  AT&T  consolidated  tax  group.  Accordingly,  Excite@Home  provided  a
valuation allowance in an amount equal to its net deferred tax assets of $702 as
of December 31, 2000. Approximately $142 of Excite@Home's valuation allowance at
December 31, 2000, is  attributable to stock option  deductions,  the benefit of
which will be credited to paid-in capital when realized.  Approximately  $269 of
Excite@Home's  valuation  allowance  at December 31, 2000,  is  attributable  to
deferred  tax assets  that,  if  realized,  will be  allocated  to first  reduce
goodwill, then other purchased intangibles, and then income tax expense.

         On November 15, 2000, we announced our intention to split-off  LMG. The
split-off  of  LMG  remains  subject  to the  receipt  of  necessary  approvals,
including a  favorable  tax ruling  from the IRS.  Pursuant  to the  tax-sharing
agreement  dated  March  9,  1999  between  AT&T and LMG,  in the  event  LMG is
split-off,  AT&T would be required to reimburse LMG  approximately  $830 for the
value of certain TCI pre-acquisition net operating loss carryforwards.  Also, in
connection  with a tax-sharing  agreement  between LMG and TCI that was executed
prior  to  AT&T's  acquisition  of TCI,  LMG  would  be  obligated  to pay  AT&T
approximately $138 upon its split-off from AT&T.

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,  2000.  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 2037. Our rental expense under  operating  leases was $980
in 2000,  $827 in 1999 and $742 in 1998.  The  total of  minimum  rentals  to be
received in the future under  noncancelable  operating  subleases as of December
31, 2000, was $209.
<PAGE>

         The  following  table shows our future  minimum  commitments  due under
noncancelable operating and capital leases at December 31, 2000:

                                         Operating Leases        Capital Leases

2001...........................................      $830                  $149
2002...........................................       700                   137
2003...........................................       602                    87
2004...........................................       519                    66
2005...........................................       413                    63
Later years....................................     1,218                   175
Total minimum lease payments...................    $4,282                   677
                                                   ------

Less: Amount representing interest.............                            (179)
Present value of net minimum lease payments....                            $498
                                                                           -----

         AT&T has an agreement with Motorola, Inc. to purchase a minimum of 1.25
million  digital  set-top  devices at an average price of $248 per unit in 2001.
During 2000,  AT&T  satisfied its  obligation  under a previous  agreement  with
Motorola, Inc. to purchase set-top devices.

         AT&T has entered into various purchase commitments for wireless network
equipment and handsets.  The  commitments  totaled $432 as of December 31, 2000,
and extend through 2004.

         AT&T has  committed  to provide  funding to a joint  venture with other
investors,  Alaska Native Wireless  (ANW),  which was formed in November 2000 to
participate in the Federal  Communication  Commission's  recent license spectrum
auction.  The  auction  was  concluded  in January  2001 and ANW was the highest
bidder on  approximately  $2.9 billion in licenses.  AT&T has  committed to fund
approximately  $2.6  billion  to ANW to fund  ANW's  purchase  of  licenses.  At
December  31,  2000,  AT&T had  provided  approximately  $229 of funding and has
committed to provide additional funding of approximately $2.4 billion consisting
primarily of debt securities of ANW. At the fifth  anniversary of the first date
on which  licenses  are granted to ANW,  the other  owners of ANW have rights to
require AT&T to purchase  their equity  interests.  If such rights are exercised
five  years  after  the  license  grant  date,   the  purchase  price  would  be
approximately  $950 and would be  payable,  at our  option,  in  either  cash or
marketable  securities.  In the event that these rights are exercised before the
fifth anniversary,  or in the event that the winning bid is rejected,  or if any
licenses granted to ANW are revoked or challenged, the amount that AT&T would be
required to pay would be less than $950.

         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 1999 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$40.56 per share,  which  represented  the projected value as of December 31,
2000,  with an accretion of 4% each quarter that began on 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 Canadian foreign-ownership regulations.
<PAGE>

17.  RELATED PARTY TRANSACTIONS

         AT&T has various related party transactions with Concert as a result of
the closure of this global venture in early January 2000.

         Included in revenue for the year ended  December 31,  2000,  is $1,080,
for services provided to Concert.

         Included  in access and other  connection  expenses  for the year ended
December 31, 2000, are charges from Concert  representing  costs incurred on our
behalf to connect calls made to foreign  countries  (international  settlements)
and costs paid by AT&T to Concert for  distributing  Concert  products  totaling
$2,364.

         During the first quarter of 2000, AT&T contributed property,  plant and
equipment  of  approximately  $1,600  to  Concert.  AT&T also  loaned  $1,000 to
Concert;  that loan is included within "Other  investments and related advances"
in the accompanying 2000 Consolidated Balance Sheet.  Interest income of $67 was
recognized for the year ended December 31, 2000.

         At December 31, 2000,  AT&T had a floating rate loan payable to Concert
in the amount of $126.  The loan,  which is due on demand,  is included in "Debt
maturing  within  one  year" in the  accompanying  Consolidated  Balance  Sheet.
Interest expense was $6 for the year ended December 31, 2000.

         Included in accounts  receivable  and accounts  payable at December 31,
2000, was $462 and $518,  respectively,  related to  transactions  with Concert.
Included in other  receivables  and other  current  liabilities  at December 31,
2000, was $1,106 and $1,032,  respectively,  related to transactions  associated
with Concert.

         In  addition,  we had  various  related  party  transactions  with LMG.
Included in costs of services and products were programming  expenses related to
services from LMG. These  expenses  amounted to $239 for the year ended December
31, 2000 and $184 for the 10 months ended December 31, 1999, respectively.

         Included in "Investment in Liberty Media Group and related receivables,
net" was $155 and $27 at  December  31, 2000 and 1999,  respectively,  primarily
related to taxes pursuant to a tax-sharing  agreement between LMG and Broadband.
That agreement existed prior to the TCI merger.

18.  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). Also included in the Business Services segment is AT&T Solutions, our
outsourcing and network-management business.

         Our  Consumer  Services  segment  provides  a variety  of  any-distance
communications  services,  including long distance, local toll (intrastate calls
outside the immediate local area) and Internet access to residential  customers.
In   addition,   Consumer   Services   provides   prepaid   calling   card   and
operator-handled  calling  services.  Local  phone  service is also  provided in
certain areas.
<PAGE>

         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  fixed  wireless  services.  Fixed  wireless  provides  high-speed
Internet  access and  any-distance  voice services using wireless  technology to
residential and small business customers.

         Our Broadband  segment  offers a variety of services  through our cable
broadband network,  including  traditional analog video and new services such as
digital video, high-speed data and broadband telephony.

         The  balance of AT&T's  operations  (excluding  LMG) is  included  in a
"Corporate and Other" category. This category reflects corporate staff functions
and the elimination of transactions between segments,  as well as the results of
Excite@Home and international  operations and ventures.  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 generally include all assets,
except intercompany receivables. However, our Wireless Services segment included
intercompany  receivables  from AT&T and the related interest income since these
assets  relate to the  results  of the AT&T  Wireless  Group  tracked  business.
Prepaid pension assets and  corporate-owned  or leased real estate are generally
held at the  corporate  level and  therefore,  are included in the Corporate and
Other  category.  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.

         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 before interest and taxes,  including pretax minority  interest and net
pretax losses from other equity investments (EBIT).

         Generally,   AT&T  accounts  for  Business  Services'  and  Broadband's
intersegment transactions at market prices.
<PAGE>
REVENUE
<TABLE>
<CAPTION>
For the Years Ended December 31,                                                                        2000        1999        1998
                                                                                                        ----        ----        ----
<S>                                                                                                  <C>         <C>         <C>
   Business Services external revenue.........................................................       $27,691     $26,749     $23,807
   Business Services internal revenue.........................................................           797         731         478

Total Business Services revenue...............................................................        28,488      27,480      24,285
Consumer Services external revenue............................................................        18,976      21,854      22,885
Wireless Services external revenue............................................................        10,448       7,627       5,406
   Broadband external revenue.................................................................         8,203       5,069          --
   Broadband internal revenue.................................................................            14           1          --

Total Broadband revenue.......................................................................         8,217       5,070          --
      Total reportable segments...............................................................        66,129      62,031      52,576
Corporate and Other(1)........................................................................         (148)         569         647

Total revenue.................................................................................       $65,981     $62,600     $53,223
                                                                                                     -------     -------     -------
(1) Includes $248 and $10 related to Excite@Home in 2000 and 1999, respectively.
</TABLE>


DEPRECIATION AND AMORTIZATION(1)
<TABLE>
<CAPTION>
For the Years Ended December 31,                                                                        2000        1999        1998
                                                                                                        ----        ----        ----
<S>                                                                                                  <C>          <C>         <C>
Business Services.............................................................................        $3,714      $3,352      $2,554
Consumer Services.............................................................................           561         783         693
Wireless Services.............................................................................         1,678       1,246       1,051
Broadband.....................................................................................         3,068       1,636          --

      Total reportable segments...............................................................         9,021       7,017       4,298
Corporate and Other(2)........................................................................         1,246         422         331

Total depreciation and amortization...........................................................       $10,267      $7,439      $4,629
                                                                                                     -------      ------      ------
</TABLE>



(1) Includes  the    amortization  of goodwill,  franchise  costs   and    other
    purchased intangibles.
(2) Includes $991 and $38 related to Excite@Home in 2000 and 1999, respectively.

EARNINGS (LOSSES) FROM OTHER EQUITY INVESTMENTS
<TABLE>
<CAPTION>
For the Years Ended December 31,                                                                        2000        1999        1998
                                                                                                        ----        ----        ----
<S>                                                                                                   <C>         <C>          <C>
Wireless Services.............................................................................          $382       $(10)         $30
Broadband.....................................................................................         (215)       (396)          --

      Total reportable segments...............................................................           167       (406)          30
Corporate and Other(1)........................................................................         (372)       (359)       (108)

Total net losses from other equity investments................................................        $(205)      $(765)       $(78)
                                                                                                      ------      ------       -----
(1) Includes $(619) and $(504) related to Excite@Home in 2000 and 1999,
    respectively.
</TABLE>

<PAGE>

RECONCILIATION OF EBIT TO INCOME BEFORE INCOME TAXES
<TABLE>
<CAPTION>
For the Years Ended December 31,                                                                      2000          1999        1998
                                                                                                      ----          ----        ----
<S>                                                                                                <C>           <C>         <C>
Business Services..........................................................................         $6,548        $6,136      $4,994
Consumer Services..........................................................................          7,090         7,909       6,570
Wireless Services..........................................................................          1,131         (473)         418
Broadband..................................................................................        (1,175)       (1,475)          --

      Total reportable segments............................................................         13,594        12,097      11,982
Corporate and Other(1).....................................................................        (4,167)       (1,625)     (3,248)
Less: Pretax minority interest income (expense)............................................          4,031         (163)          34
Add: Pretax losses from other equity investments...........................................            395         1,155          68
Interest expense...........................................................................        (3,183)       (1,765)       (427)

Total income before income taxes...........................................................         $2,608       $10,025      $8,341
                                                                                                    ------       -------      ------
(1) Includes $(3,603) and $(686) related to Excite@Home in 2000 and 1999,
    respectively.  The Excite@Home EBIT impact in 2000 includes $2,630 of net
    restructuring and other charges.
</TABLE>


ASSETS
<TABLE>
<CAPTION>
At December 31,                                                                                       2000          1999        1998
                                                                                                      ----          ----        ----
<S>                                                                                               <C>           <C>          <C>
Business Services..........................................................................        $34,804       $32,010     $22,189
Consumer Services..........................................................................          4,801         6,279       6,185
Wireless Services..........................................................................         35,184        23,312      19,416
Broadband..................................................................................        114,681        53,810          --

   Total reportable segments...............................................................        189,470       115,411      47,790
Corporate and Other assets:
   Other segments..........................................................................          6,892         3,386       3,016
   Prepaid pension costs...................................................................          3,003         2,464       2,074
   Deferred income taxes...................................................................            720           899       1,156
   Other corporate assets(1)...............................................................          7,848         8,786       5,514
Investment in Liberty Media Group and related receivables, net.............................         34,290        38,460          --

Total assets...............................................................................       $242,223      $169,406     $59,550
                                                                                                  --------      --------     -------
(1) Includes $2,541 and $2,726 related to Excite@Home for 2000 and 1999,
    respectively.
</TABLE>


EQUITY INVESTMENTS (EXCLUDING LMG)
<TABLE>
<CAPTION>
At December 31,                                                                                       2000          1999        1998
                                                                                                      ----          ----        ----
<S>                                                                                                <C>           <C>          <C>
Wireless Services..........................................................................         $3,080        $4,409      $3,766
Broadband..................................................................................          6,470        10,327          --

   Total reportable segments...............................................................          9,550        14,736       3,766
Corporate and Other(1).....................................................................          4,074         3,718         491

Total equity investments...................................................................        $13,624       $18,454      $4,257
                                                                                                   -------       -------      ------
(1) Includes $35 and $2,726 related to Excite@Home for 2000 and 1999,
    respectively.
</TABLE>
<PAGE>

CAPITAL ADDITIONS
<TABLE>
<CAPTION>
For the Years Ended December 31,                                                                     2000          1999         1998
                                                                                                     ----          ----         ----
<S>                                                                                               <C>           <C>           <C>
Business Services.........................................................................         $6,223        $7,511       $6,130
Consumer Services.........................................................................            302           656          459
Wireless Services.........................................................................          5,553         2,739        2,395
Broadband.................................................................................          4,963         4,759           --

   Total reportable segments..............................................................         17,041        15,665        8,984
Corporate and Other(1)....................................................................          2,150         1,494          594

Total capital additions...................................................................        $19,191       $17,159       $9,578
                                                                                                  -------       -------       ------
(1) Includes $92 related to Excite@Home in 2000.
</TABLE>


         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 and make adjustments accordingly.

19.  GUARANTEE OF PREFERRED SECURITIES

TCI Securities:

         Prior to the  consummation  of the TCI merger,  TCI issued  mandatorily
redeemable preferred securities through subsidiary trusts that held subordinated
debt  securities  of  TCI.  At  December  31,  2000,  $1,246  of the  guaranteed
redeemable preferred securities remained outstanding.

MediaOne Securities:

         Prior to the  consummation  of the  MediaOne  merger,  MediaOne  issued
mandatorily  redeemable preferred securities through subsidiary trusts that held
subordinated  debt  securities  of MediaOne.  At December 31, 2000,  $776 of the
guaranteed securities remained outstanding.

         AT&T  provides a full and  unconditional  guarantee on the  outstanding
securities  issued  by TCI  Communications  Financing  I,  II  and  IV  and  the
outstanding  securities  issued  by  MediaOne  Financing  I and II and  MediaOne
Finance  II  and  III.  Following  are  the  condensed  consolidating  financial
statements  of AT&T  Corp.,  which  include  the  financial  results  of TCI and
MediaOne for each of the  corresponding  periods.  The results of MediaOne  have
been included in the financial  results of AT&T since the date of acquisition on
June 15,  2000,  and the  results of TCI have been  included  since the March 9,
1999, date of acquisition.
<PAGE>

<TABLE>
CONSOLIDATING CONDENSED BALANCE SHEET
As of December 31, 2000
<CAPTION>
                       Guarantor  Guarantor   Guarantor TCI   TCI     TCI  Media- Media- Media- Media- Non-    Elimination  Consol-
                         AT&T    Subsidiary Subsidiary Finan- Finan- Finan- One   One   One Fin  One  Guaran-       and      idated
                        Parent      TCI     MediaOne   cing  cing  cing    Finan  Finan   ance  Finance tor    Consolidation   AT&T
                                                        I     II    IV   cing I   cing II   II  III Subsidiaries Adjustments  Corp.
                        -------     ---     --------  ----   ----   ---   -----   ------  ----  ---  ---------    ---------  ------
<S>                     <C>         <C>     <C>       <C>   <C>    <C>     <C>      <C>    <C>   <C>  <C>      <C>          <C>
ASSETS
Cash and cash                                                                                             $126                  $126
  equivalents.........
Receivables...........    11,424      2,577      78                                                     50,788   (52,020)     12,847
Investments...........                                                                                   2,102                 2,102
Deferred income taxes.       811                                                                             1                   812
Other current assets..     1,103         11                                                                 90        (4)      1,200
TOTAL CURRENT ASSETS..    13,338      2,588      78                                                     53,107   (52,024)     17,087
Property, plant &          9,064         93      22                                                     41,985        (3)     51,161
  equipment, net......
Franchise costs, net..       838                                                                        47,380                48,218
Licensing costs, net..                   30                                                             13,596                13,626
Goodwill, net.........       161             19,786                                                     11,531                31,478
Investment in Liberty
  Media Group and                    34,290                                                                                   34,290
  related
  receivables, net....
Other investments and    164,844     35,358  29,325                                                     23,059  (218,325)     34,261
  related advances....
Other assets..........     5,500                       528   514    204     51       44     230   516   17,020   (12,505)     12,102
TOTAL ASSETS..........  $193,745    $72,359 $49,211   $528  $514   $204    $51      $44    $230  $516 $207,678 $(282,857)   $242,223
LIABILITIES
Debt maturing within     $52,556       $435  $2,337                                                     $6,409  $(29,790)    $31,947
  one year............
Liability under put                                                                                      2,564                 2,564
  options.............
Other current              9,535      1,166      76                                                     13,972    (8,393)     16,356
  liabilities.........
TOTAL CURRENT             62,091      1,601   2,413                                                     22,945   (38,183)     50,867
  LIABILITIES.........
Long-term debt........    21,333     30,096   2,168    528   514    204     30       28     214   504    3,895   (26,422)     33,092
Deferred income taxes.       569                230                                                     35,914                36,713
Other long-term
  liabilities and          7,341        939     129                                                        431       (80)      8,760
  deferred credits....
TOTAL LIABILITIES.....    91,334     32,636   4,940    528   514    204     30       28     214   504   63,185   (64,685)    129,432
Minority interest.....                1,462   1,147                                                      2,274                 4,883
Company-Obligated
  Convertible
  Quarterly Income
  Preferred                4,710                                                                                               4,710
  Securities of a
  Subsidiary Trust
  Holding Solely
  Subordinated Debt
  Securities of AT&T..
<PAGE>
SHAREOWNERS' EQUITY
AT&T Common Stock.....     4,176                                                                         (416)                 3,760
AT&T Wireless Group          362                                                                                                 362
  common stock........
Liberty Media Group        2,364                                                                                               2,364
  Class A Common Stock
Liberty Media Group          206                                                                                                 206
  Class B Common Stock
Other shareowners'        90,593     38,261  43,124                         21       16      16    12  142,635  (218,172)     96,506
  equity..............
TOTAL SHAREOWNERS'        97,701     38,261  43,124                         21       16      16    12  142,219  (218,172)    103,198
  EQUITY..............
TOTAL LIABILITIES AND
  SHAREOWNERS' EQUITY.  $193,745    $72,359 $49,211   $528  $514   $204    $51      $44    $230  $516 $207,678 $(282,857)   $242,223
</TABLE>

<TABLE>
CONSOLIDATING CONDENSED INCOME STATEMENT
For the year ended December 31, 2000
<CAPTION>
                      Guarantor  Guarantor   Guarantor TCI   TCI     TCI  Media- Media- Media- Media- Non-    Elimination  Consol-
                         AT&T    Subsidiary Subsidiary Finan- Finan- Finan- One   One   One Fin  One  Guaran-       and      idated
                        Parent      TCI     MediaOne   cing  cing  cing    Finan  Finan   ance  Finance tor    Consolidation   AT&T
                                                        I     II    IV   cing I   cing II   II  III Subsidiaries Adjustments  Corp.
                        -------     ---     --------  ----   ----   ---   -----   ------  ----  ---  ---------    ---------  -------
<S>                     <C>         <C>     <C>       <C>   <C>    <C>     <C>      <C>    <C>   <C>  <C>      <C>          <C>
Revenue......................... $22,234     $0      $0                                                $45,834 $(2,087)  $65,981
Operating Expenses
Costs of services and products..   2,961      6                                                         16,359 (1,739)    17,587
Access and other connection.....   7,047                                                                 6,803   (332)    13,518
Selling, general and               2,071  (378)      29                                                 11,597    (16)    13,303
  administrative................
Depreciation and other             1,791     45       7                                                  5,431             7,274
  amortization..................
Amortization of goodwill,
  franchise costs and other           50      3     226                                                  2,714             2,993
  purchased intangibles.........
Net restructuring and other          443     60                                                          6,526             7,029
  charges.......................
Total operating expenses........  14,363  (264)     262                                                 49,430 (2,087)    61,704
Operating income (loss).........   7,871    264   (262)                                                (3,596)       0     4,277
Other income (expense)..........     971     30      64     43     46    18      2     2     11    25    4,749 (4,447)     1,514
Interest expense (benefit)......   4,786  1,974     194     43     46    18      1     1     11    24      421 (4,336)     3,183
Income (loss) before income
  taxes, minority interest and
  earnings (losses) from equity    4,056 (1,680)  (392)      0      0     0      1     1      0     1      732   (111)     2,608
  investments...................
Provision (benefit) for income     1,505   (72)    (46)                                             1    1,954             3,342
  taxes.........................
Minority interest income           (161)   (23)                                                          4,304             4,120
  (expenses)....................
Equity earnings from Liberty              1,488                                                                            1,488
  Media Group...................
Net earnings (losses) from
  other equity investments......   5,371 (2,437)  (168)                                                  (203) (2,768)     (205)
Net income (loss)...............   7,761 (2,580)  (514)      0      0     0      1     1      0     0    2,879 (2,879)     4,669
Dividend requirements on
  preferred stock held by AT&T,                                                                            111   (111)         0
  net...........................
Net income (loss) after
  preferred stock dividends.....  $7,761 $(2,580)$(514)     $0     $0    $0     $1    $1     $0    $0   $2,768 $(2,768)   $4,669
</TABLE>
<PAGE>

<TABLE>
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
For the year ended December 31, 2000
<CAPTION>
                      Guarantor  Guarantor   Guarantor TCI   TCI     TCI  Media- Media- Media- Media- Non-    Elimination  Consol-
                         AT&T    Subsidiary Subsidiary Finan- Finan- Finan- One   One   One Fin  One  Guaran-       and      idated
                        Parent      TCI     MediaOne   cing  cing  cing    Finan  Finan   ance  Finance tor    Consolidation   AT&T
                                                        I     II    IV   cing I   cing II   II  III Subsidiaries Adjustments  Corp.
                        -------     ---     --------  ----   ----   ---   -----   ------  ----  ---  ---------    ---------  -------
<S>                           <C>     <C>       <C>       <C>    <C>    <C>     <C>    <C>   <C>     <C>  <C>     <C>      <C>
NET CASH PROVIDED BY (USED
  IN) OPERATING ACTIVITIES...  $3,131  $(634)    $1,792    $43    $53    $31     $2     $2    $11     $25 $9,129    $(278)  $13,307
INVESTING ACTIVITIES
Capital expenditures and         (51)    (10)      (21)                                                   (14,842)         (14,924)
  other additions............
Equity investment                 363                                                                        989              1,352
  distributions and sales....
Equity investment
  contributions and purchases (1,700) (6,904)                                                             (1,712)    6,904  (3,412)
Net acquisitions of
  businesses including cash   (23,943)                                                                     2,533           (21,410)
  acquired...................
Other........................ (2,057)    (34)                                                             (6,376)    6,927  (1,540)
NET CASH (USED IN) PROVIDED
  BY INVESTING ACTIVITIES.... (27,388)(6,948)      (21)      0      0      0      0      0      0       0 (19,408)  13,831 (39,934)
FINANCING ACTIVITIES
Proceeds from long-term debt      739                                                                      3,862              4,601
  issuances..................
Proceeds from debt from AT&T.   5,867  13,715                                                              4,898  (24,480)        0
Retirement of long-term debt.   (498) (1,143)                                                              (477)            (2,118)
Retirement of AT&T debt......         (4,990)   (1,500)                                                              6,490        0
Issuance of AT&T Wireless
  Group common stock.........  10,314                                                                                        10,314
Dividends paid............... (3,047)                                                                                       (3,047)
Increase in short-term         12,108             (271)                                                      977     4,159   16,973
  borrowings, net............
Other........................   (830)                     (43)   (53)   (31)    (2)    (2)   (11)    (25)  (275)       278    (994)
NET CASH PROVIDED BY (USED
  IN) FINANCING ACTIVITIES...  24,653   7,582   (1,771)   (43)   (53)   (31)    (2)    (2)   (11)    (25)  8,985  (13,553)   25,729
Net (decrease) increase in
  cash and cash equivalents..     396       0         0      0      0      0      0      0      0       0 (1,294)        0    (898)
Cash and cash equivalents at
  beginning of year..........   (396)                                                                      1,420              1,024
Cash and cash equivalents at
  end of period..............      $0      $0        $0     $0     $0     $0     $0     $0     $0      $0   $126        $0     $126
</TABLE>
<PAGE>

<TABLE>
CONSOLIDATING CONDENSED BALANCE SHEET
As of December 31, 1999
<CAPTION>
                                     Guarantor  Guarantor    TCI     TCI       TCI        Non-     Elimination
                                        AT&T    Subsidiary Finan-  Finan-cinFinancing  Guarantor       and
                                       Parent      TCI     cing I     II        IV     Subsidiarie Consolidation Consolidated
                                                                                                    Adjustments  AT&T Corp.
                                        -----      ---     ------     --        --     -----------   ----------   ----------
<S>                                    <C>         <C>        <C>      <C>        <C>    <C>         <C>           <C>
ASSETS
Cash and cash equivalents.........                                                         $1,024                    $1,024
Receivables.......................       12,513          5                                 42,270      (44,335)      10,453
Deferred income taxes.............          945                                               342                     1,287
Other current assets..............          381          3                                    741           (5)       1,120
TOTAL CURRENT ASSETS..............       13,839          8                                 44,377      (44,340)      13,884
Property, plant & equipment, net..       10,974        128                                 28,516                    39,618
Franchise costs, net..............                      33                                 32,660                    32,693
Licensing costs, net..............           38                                             8,510                     8,548
Goodwill, net.....................           88                                             7,357                     7,445
Investment in Liberty Media Group
  and related receivables, net....                  38,460                                                           38,460
Other investments and related           111,056     35,694                                 23,338     (150,722)      19,366
  advances........................
Other assets......................        5,105                528      521        217      9,809       (6,788)       9,392
TOTAL ASSETS......................     $141,100    $74,323    $528     $521       $217   $154,567    $(201,850)    $169,406
LIABILITIES
Debt maturing within one year.....      $40,246     $1,136                                 $6,141     $(34,890)     $12,633
Other current liabilities.........        6,319      1,262                                 16,097       (8,104)      15,574
TOTAL CURRENT LIABILITIES.........       46,565      2,398                                 22,238      (42,994)      28,207
Long-term debt....................       13,429     18,873     528      521        217        891      (11,242)      23,217
Deferred income taxes.............           78                                            24,121                    24,199
Other long-term liabilities &             6,600        333                                    935         (103)       7,765
  deferred credits................
TOTAL LIABILITIES.................       66,672     21,604     528      521        217     48,185      (54,339)      83,388
Minority Interest.................            5      1,462                                    924                     2,391
Company-Obligated Convertible
  Quarterly Income Preferred
  Securities of a Subsidiary Trust
  Holding Solely Subordinated Debt        4,700                                                                       4,700
  Securities of AT&T..............
SHAREOWNERS' EQUITY
AT&T Common Stock.................        3,483                                             (287)                     3,196
Liberty Media Group Class A Common        2,314                                                                       2,314
  Stock...........................
Liberty Media Group Class B Common          217                                                                         217
  Stock...........................
Other Shareowners' Equity.........       63,709     51,257                                105,745     (147,511)      73,200
TOTAL SHAREOWNERS' EQUITY.........       69,723     51,257                                105,458     (147,511)      78,927
TOTAL LIABILITIES AND SHAREOWNERS'
  EQUITY..........................     $141,100    $74,323    $528     $521       $217   $154,567    $(201,850)    $169,406
</TABLE>
<PAGE>

<TABLE>
CONSOLIDATING CONDENSED INCOME STATEMENT
For the year ended December 31, 1999
<CAPTION>
                                      Guarantor  Guarantor    TCI     TCI       TCI        Non-     Elimination
                                        AT&T    Subsidiary Finan-  Finan-cinFinancing  Guarantor       and
                                       Parent      TCI     cing I     II        IV     Subsidiarie Consolidation Consolidated
                                                                                                    Adjustments  AT&T Corp.
                                        -----      ---     ------     --        --     -----------   ----------   -------
<S>                                     <C>         <C>              <C>        <C>         <C>  <C>           <C>           <C>
Revenue...........................      $24,755          $0                                      $39,506       $(1,661)      $62,600
Operating Expenses
Costs of services and products....        1,536        (59)                                       14,372        (1,255)       14,594
Access and other connection.......        8,403                                                    6,479          (196)       14,686
Selling, general and administrative       4,363         380                                        8,777            (4)       13,516
Depreciation and other amortization       2,056          56                                        4,026                       6,138
Amortization of goodwill, franchise
  costs and other purchased                  34           4                                        1,263                       1,301
  intangibles.....................
Net restructuring and other charges          18         440                                        1,048                       1,506
Total operating expenses..........       16,410         821                                       35,965        (1,455)       51,741
Operating income (loss)...........        8,345       (821)                                        3,541          (206)       10,859
Other income (expense)............          539        (33)          36         40         16      2,916        (2,583)          931
Interest expense (benefit)........        3,186       1,008          36         40         16        268        (2,789)        1,765
Income (loss) before income taxes,
  minority interest and earnings
  (losses) from equity investments        5,698     (1,862)           0          0          0      6,189              0       10,025
Provision (benefit) for income taxes      2,118     (1,580)                                        3,157                       3,695
Minority interest income (expense)         (87)        (14)                                         (14)                       (115)
Equity loss from Liberty Media Group                  2,022                                                                    2,022
Net earnings (losses) from other
  equity investments..............        4,155     (1,902)                                        (788)        (2,230)        (765)
Net income (loss).................       $7,648    $(4,220)          $0         $0         $0     $2,230       $(2,230)       $3,428
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
For the year ended December 31, 1999
<CAPTION>
                                     Guarantor  Guarantor    TCI     TCI       TCI        Non-     Elimination
                                        AT&T    Subsidiary Finan-  Finan-cinFinancing  Guarantor       and
                                       Parent      TCI     cing I     II        IV     Subsidiarie Consolidation Consolidated
                                                                                                    Adjustments  AT&T Corp.
                                        -----      ---     ------     --        --     -----------   ----------   -------
<S>                                      <C>          <C>             <C>        <C>       <C>    <C>         <C>           <C>
NET CASH PROVIDED BY (USED  IN)
  OPERATING ACTIVITIES............         $2,672    $(2,807)          $44        $75       $24    $11,370        $143       $11,521
INVESTING ACTIVITIES
Capital expenditures and other            (1,733)        (60)                                     (12,227)                  (14,020)
  additions.......................
Equity investment distributions and            61                                                    1,814                     1,875
  sales...........................
Equity investment contributions and       (5,473)                                                  (2,648)                   (8,121)
  purchases.......................
Net acquisitions of businesses
  including cash acquired.........        (6,405)                                                    (306)                   (6,711)
Other.............................          (203)       (130)                                     (16,343)      16,610          (66)
NET CASH (USED IN) PROVIDED BY
  IVESTING ACTIVITIES.............       (13,753)       (190)            0          0         0   (29,710)      16,610      (27,043)
FINANCING ACTIVITIES
Proceeds from long-term debt                8,396                                                                              8,396
  issuances.......................
Proceeds from debt from AT&T......                      6,176                                        5,055    (11,231)             0
Retirement of long-term debt......        (1,014)     (1,070)                                        (723)                   (2,807)
Retirement of AT&T debt...........                    (2,109)                                                    2,109             0
Issuance of AT&T convertible                4,694                                                     (56)                     4,638
  securities
Net acquisitions of treasury shares       (4,624)                                                                            (4,624)
Dividends paid....................        (2,685)                                                     (27)                   (2,712)
Increase in short-term borrowings,         19,154                                                  (1,142)     (7,774)        10,238
  net.............................
Other.............................       (13,215)           0         (44)       (75)      (24)     13,472         143           257
NET CASH PROVIDED BY (USED IN)
  FINANCING ACTIVITIES............         10,706       2,997         (44)       (75)      (24)     16,579    (16,753)        13,386
Net (decrease) in cash and cash             (375)           0            0          0         0    (1,761)           0       (2,136)
  equivalents.....................
Cash and cash equivalents at                  375                                                    2,785                     3,160
  beginning of year...............
Cash and cash equivalents at end of            $0          $0           $0         $0        $0     $1,024          $0        $1,024
  period..........................
</TABLE>

<PAGE>

20.  CONSOLIDATING CONDENSED FINANCIAL INFORMATION

         In  conjunction  with the issuance of AT&T  Wireless  Group and Liberty
Media Group tracking stocks, AT&T has separated for financial reporting purposes
in all  periods  the AT&T  Common  Stock  Group,  Liberty  Media  Group and AT&T
Wireless Group. Below is the consolidating  financial information reflecting the
businesses of these  individual  groups,  including  the  allocation of expenses
between the groups in accordance with our allocation policies,  as well as other
related party transactions such as sales of services between groups and interest
income and  expense on  intercompany  borrowings.  The AT&T  Common  Stock Group
presented  below  excludes  its retained  portion of the value of AT&T  Wireless
Group. AT&T does not have a controlling  financial interest in LMG for financial
accounting  purposes;  therefore,  our  ownership  in  LMG  is  reflected  as an
investment accounted for under the equity method and is reflected as such in the
consolidating financial statements below.

         AT&T Wireless Group,  purchases long distance and other network-related
services  from AT&T at  market-based  prices and  accordingly  such  amounts are
eliminated.  Prior to the offering of AT&T Wireless  Group tracking  stock,  the
capital  structure of AT&T  Wireless  Group had been  assumed  based upon AT&T's
historical capital ratio adjusted for certain items. Intercompany interest rates
are  intended to be  substantially  equivalent  to the  interest  rate that AT&T
Wireless  Group  would be able to obtain  or  receive  if it were a  stand-alone
entity.  General corporate overhead related to AT&T's corporate headquarters and
common support  divisions has been allocated to AT&T Wireless Group based on the
ratio  of  AT&T  Wireless   Group's   external  costs  and  expenses  to  AT&T's
consolidated  external costs and expenses,  adjusted for any functions that AT&T
Wireless  Group  performs on its own.  The  consolidated  income tax  provision,
related tax  payments or refunds,  and  deferred  tax balances of AT&T have been
alloated to AT&T Wireless Group based  principally on the taxable income and tax
credits directly attributable to AT&T Wireless Group.

         Pursuant to the Inter-Group  agreement,  AT&T does not allocate general
overhead expenses to Libery Media Group and only charges Liberty Media Group for
specific  services  that  Liberty  Media Group  receives  from AT&T  pursuant to
service agreements or similar arrangements. Additionally, as Liberty Media Group
operates independent of AT&T, there is no cash or debt allocated to them.

<PAGE>
Condensed Income Statement
For the year ended December 31, 2000
<TABLE>
<CAPTION>
                                           AT&T        AT&T
                                   Common Stock    Wireless    Liberty Media              Eliminations/
                                          Group       Group            Group       Reclassifications(1)      Consolidated AT&T Corp.
                                          -----       -----            -----       --------------------      -----------------------
<S>                                     <C>         <C>               <C>                         <C>                        <C>
External Revenue.............           $55,533     $10,448                $                          $                      $65,981
Inter-group revenue..........               321                                                   (321)
Total Revenue................            55,854      10,448                                       (321)                      $65,981
Operating Expenses
Costs of services and products           13,001       4,969                                       (383)                       17,587
Access and other connection..            13,140                                                     378                       13,518
Selling, general and
   administrative............            10,001       3,302                                                                   13,303
Depreciation and other
   amortization..............             5,923       1,686                                       (335)                        7,274
Amortization of goodwill,
   franchise costs and other
   purchased intangibles.....             2,665                                                     328                        2,993
Net restructuring and other
   charges...................             7,029                                                                                7,029
Inter-group expenses.........             (208)         529                                       (321)
Total operating expenses.....            51,551      10,486                                       (333)                       61,704
Operating income (loss)......             4,303        (38)                                          12                        4,277
Other income (expense).......             1,150         391                                        (27)                        1,514
Inter-group interest income..               326         143                                       (469)
Interest expense.............             3,294       (111)                                                                    3,183
Inter-group interest expense.               143         196                                       (339)
Income before income taxes,
   minority interest and
   earnings (losses) from
   equity investments........             2,342         411                                       (145)                        2,608
Provision for income taxes...             3,199         141                                           2                        3,342
Minority interest income.....             4,092                                                      28                        4,120
Equity earnings from Liberty
   Media Group...............                                          1,488                                                   1,488
Net earnings (losses) from
   other equity investments..             (585)         388                                         (8)                        (205)
Net income...................             2,650         658            1,488                      (127)                        4,669
Dividend requirements on
   preferred stock held by
   AT&T, net.................                           130                                       (130)
Net income after preferred
   stock dividends...........            $2,650        $528           $1,488                         $3                       $4,669
</TABLE>
-----------

(1)      Includes the  elimination  of inter-group  transactions,  consolidating
         entries as well as  reclassifications  and adjustments  related to AT&T
         Wireless Group tracking stock.
<PAGE>

Consolidating Condensed Balance Sheet
As of December 31, 2000
<TABLE>
<CAPTION>
                                           AT&T        AT&T
                                   Common Stock    Wireless    Liberty Media              Eliminations/
                                          Group       Group            Group       Reclassifications(1)      Consolidated AT&T Corp.
                                          -----       -----            -----       --------------------      -----------------------
<S>                                    <C>          <C>              <C>                       <C>                          <C>
ASSETS
Cash and cash equivalents....               $64         $62                $                          $                         $126
Receivables..................            11,053       2,010                                       (216)                       12,847
Deferred income taxes........               719          93                                                                      812
Other current assets.........             2,890         417                                         (5)                        3,302
Short-term note due from
   related party.............               638                                                   (638)
TOTAL CURRENT ASSETS.........            15,364       2,582                                       (859)                       17,087
Property, plant and equipment,
   net.......................            41,269       9,892                                                                   51,161
Franchise costs, net.........            48,218                                                                               48,218
Licensing costs, net.........                        13,627                                         (1)                       13,626
Goodwill, net................            26,782       5,816                                     (1,120)                       31,478
Investment in Liberty Media
   Group and related
   receivables, net..........                                         34,290                                                  34,290
Other investments and related
   advances..................            30,876       3,385                                                                   34,261
Other assets.................            10,984                                                   1,118                       12,102
Long-term assets due from
   related party.............             4,800                                                 (4,800)
TOTAL ASSETS.................          $178,293     $35,302          $34,290                   $(5,662)                     $242,223
LIABILITIES
Debt maturing within one year           $31,838        $109                $                          $                      $31,947
Short-term debt due to related
   party.....................                           638                                       (638)
Liability under put options..             2,564                                                                                2,564
Other current liabilities....            13,709       2,907                                       (260)                       16,356
TOTAL CURRENT LIABILITIES....            48,111       3,654                                       (898)                       50,867
Long-term debt...............            33,089                                                       3                       33,092
Long-term debt due to related
   party.....................                         1,800                                     (1,800)
Deferred income taxes........            32,054       4,659                                                                   36,713
Other long-term liabilities
   and deferred credits......             8,493         271                                         (4)                        8,760
TOTAL LIABILITIES............           121,747      10,384                                     (2,699)                      129,432
</TABLE>
-----------

(1)      Includes the  elimination  of inter-group  transactions,  consolidating
         entries as well as  reclassifications  and adjustments  related to AT&T
         Wireless Group tracking stock.

<PAGE>

Consolidating Condensed Balance Sheet
As of December 31, 2000
<TABLE>
<CAPTION>
                                           AT&T        AT&T
                                   Common Stock    Wireless    Liberty Media              Eliminations/
                                          Group       Group            Group       Reclassifications(1)      Consolidated AT&T Corp.
                                          -----       -----            -----       --------------------      -----------------------
<S>                                    <C>          <C>              <C>                       <C>                          <C>
Minority Interest............             4,842          41                                                                    4,883
Company-Obligated Convertible
   Quarterly Income Preferred
   Securities of a Subsidiary
   Trust Holding Solely
   Subordinated Debt Securities
   of AT&T...................             4,710                                                                                4,710
SHAREOWNERS' EQUITY

AT&T Common Stock............                                                                     3,760                        3,760
AT&T Wireless Group Common
   Stock.....................                                                                       362                          362
Liberty Media Group Class A
   Common Stock..............                                                                     2,364                        2,364
Liberty Media Group Class B
   Common Stock..............                                                                       206                          206
Other shareowners' equity....            46,994      21,877           34,290                    (6,655)                       96,506
Other shareowners' equity due
   to related party..........                         3,000                                     (3,000)
TOTAL SHAREOWNERS' EQUITY....            46,994      24,877           34,290                    (2,963)                      103,198
TOTAL LIABILITIES AND
   SHAREOWNERS' EQUITY.......          $178,293     $35,302          $34,290                   $(5,662)                     $242,223
</TABLE>
-----------

(1)      Includes the  elimination  of inter-group  transactions,  consolidating
         entries as well as  reclassifications  and adjustments  related to AT&T
         Wireless Group tracking stock.

<PAGE>

Consolidating Condensed Statement of Cash Flows
<TABLE>
<CAPTION>
For the year ended December 31, 2000

                                            AT&T         AT&T
                                    Common Stock     Wireless        Liberty Media                  Eliminations/       Consolidated
                                           Group        Group                Group           Reclassifications(1)         AT&T Corp.
                                           -----        -----                -----           --------------------         ----------
<S>                                     <C>          <C>                         <C>                      <C>               <C>
NET CASH PROVIDED BY
   OPERATING ACTIVITIES....              $11,684       $1,635                    $                          $(12)            $13,307
INVESTING ACTIVITIES
Capital expenditures and
   other additions.........             (10,912)      (4,012)                                                               (14,924)
Equity investment
   distributions and sales.                  992          360                                                                  1,352
Equity investment
   contributions and
   purchases...............              (1,767)      (1,645)                                                                (3,412)
Net acquisitions of
   businesses including cash
   acquired................             (16,647)      (4,763)                                                               (21,410)
Other......................              (2,113)        (465)                                               1,038            (1,540)
NET CASH USED IN INVESTING
   ACTIVITIES..............             (30,447)     (10,525)                                               1,038           (39,934)
FINANCING ACTIVITIES
Proceeds from long-term debt
   issuance................                4,601                                                                               4,601
Retirement of long-term debt             (2,118)                                                                             (2,118)
Issuance of AT&T Wireless
   Group common stock......                3,314        7,000                                                                 10,314
Dividends paid.............              (3,047)                                                                             (3,047)
Increase in short-term
   borrowings, net.........               17,009          638                                               (674)             16,973
Other......................              (1,951)        1,309                                               (352)              (994)
NET CASH PROVIDED BY
   FINANCING ACTIVITIES....               17,808        8,947                                             (1,026)             25,729
Net (decrease) increase in
   cash and cash equivalents               (955)           57                                                                  (898)
Cash and cash equivalents at
   beginning of year.......                1,019            5                                                                  1,024
Cash and cash equivalents at
   end of period...........                  $64          $62                    $                              $               $126
</TABLE>

-----------

(1)      Includes the  elimination  of inter-group  transactions,  consolidating
         entries as well as  reclassifications  and adjustments  related to AT&T
         Wireless Group tracking stock.

<PAGE>

Consolidating Condensed Income Statement
For the year ended December 31, 1999
<TABLE>
<CAPTION>
                                           AT&T        AT&T
                                   Common Stock    Wireless    Liberty Media              Eliminations/
                                          Group       Group            Group       Reclassifications(1)      Consolidated AT&T Corp.
                                          -----       -----            -----       --------------------      -----------------------
<S>                                     <C>          <C>             <C>                          <C>                        <C>
Revenue......................           $54,973      $7,627                $                          $                      $62,600
Inter-group revenue..........               227                                                   (227)
Total Revenue................            55,200       7,627                                       (227)                       62,600
Operating Expenses
Costs of services and products           11,158       3,676                                       (240)                       14,594
Access and other connection..            14,439                                                     247                       14,686
Selling, general and
   administrative............            11,243       2,273                                                                   13,516
Depreciation and other
   amortization..............             5,137       1,253                                       (252)                        6,138
Amortization of goodwill,
   franchise costs and other
   purchased intangibles.....             1,057                                                     244                        1,301
Net restructuring and other
   charges...................               976         531                                         (1)                        1,506
Inter-group expenses.........             (333)         560                                       (227)
Total operating expenses.....            43,677       8,293                                       (229)                       51,741
Operating income (loss)......            11,523       (666)                                           2                       10,859
Other income (expense).......               824         122                                        (15)                          931
Inter-group interest income..               270                                                   (270)
Interest expense.............             1,755        (78)                                          88                        1,765
Inter-group interest expense.                           214                                       (214)
Income (loss) before income
   taxes, minority interest
   and earnings (losses) from
   equity investments........            10,862       (680)                                       (157)                       10,025
Provision for income taxes...             4,016       (294)                                        (27)                        3,695
Minority interest income
   (expense).................             (132)                                                      17                        (115)
Equity earnings from Liberty
   Media Group...............                                        (2,022)                                                 (2,022)
Net earnings (losses) from
   other equity investments..             (760)        (19)                                          14                        (765)
Income (loss)................             5,954       (405)          (2,022)                       (99)                        3,428
Dividend requirements on
   preferred stock held by
   AT&T, net.................                            56                                        (56)
Net income (loss) after
   preferred stock dividends.            $5,954      $(461)         $(2,022)                      $(43)                       $3,428
</TABLE>
-----------

(1)      Includes the  elimination  of inter-group  transactions,  consolidating
         entries as well as  reclassifications  and adjustments  related to AT&T
         Wireless Group tracking stock.

<PAGE>

Consolidating Condensed Balance Sheet
As of December 31, 1999
<TABLE>
<CAPTION>
                                           AT&T        AT&T
                                   Common Stock    Wireless    Liberty Media              Eliminations/
                                          Group       Group            Group       Reclassifications(1)      Consolidated AT&T Corp.
                                          -----       -----            -----       --------------------      -----------------------
<S>                                    <C>          <C>              <C>                       <C>                          <C>
ASSETS
Cash and cash equivalent.....            $1,019          $5                $                          $                       $1,024
Receivables..................             9,241       1,300                                        (88)                       10,453
Deferred income taxes........             1,160         127                                                                    1,287
Other current assets.........               929         196                                         (5)                        1,120
TOTAL CURRENT ASSETS.........            12,349       1,628                                        (93)                       13,884
Property, plant and equipment,
   net.......................            33,366       6,349                                        (97)                       39,618
Franchise costs, net.........            32,693                                                                               32,693
Licensing costs, net.........                         8,571                                        (23)                        8,548
Goodwill, net................             5,310       2,462                                       (327)                        7,445
Investment in Liberty Media
   Group and related
   receivables, net..........                                         38,460                                                  38,460
Other investments and related
   advances..................            14,856       4,502                                           8                       19,366
Other assets.................             9,065                                                     327                        9,392
Long-term assets due from
   related party.............             4,400                                                 (4,400)
TOTAL ASSETS.................          $112,039     $23,512          $38,460                   $(4,605)                     $169,406
LIABILITIES
Debt maturing within one year           $12,479        $154                $                          $                      $12,633
Other current liabilities....            13,711       2,143                                       (280)                       15,574
TOTAL CURRENT LIABILITIES....            26,190       2,297                                       (280)                       28,207
Long-term debt...............            23,213                                                       4                       23,217
Long-term debt due to related
   party.....................                         3,400                                     (3,400)
Deferred income taxes........            20,507       3,750                                        (58)                       24,199
Other long-term liabilities
   and deferred credits......             7,722          48                                         (5)                        7,765
TOTAL LIABILITIES............            77,632       9,495                                     (3,739)                       83,388
</TABLE>

-----------

(1)      Includes the  elimination  of inter-group  transactions,  consolidating
         entries as well as  reclassifications  and adjustments  related to AT&T
         Wireless Group tracking stock.

<PAGE>

Consolidating Condensed Balance Sheet
As of December 31, 1999
<TABLE>
<CAPTION>
                                           AT&T        AT&T
                                   Common Stock    Wireless    Liberty Media              Eliminations/
                                          Group       Group            Group       Reclassifications(1)      Consolidated AT&T Corp.
                                          -----       -----            -----       --------------------      -----------------------
<S>                                    <C>          <C>              <C>                       <C>                          <C>
Minority Interest............             2,371          20                                                                    2,391
Company-Obligated Convertible
   Quarterly Income Preferred
   Securities of a Subsidiary
   Trust Holding Solely
   Subordinated Debt
   Securities of AT&T........             4,700                                                                                4,700
SHAREOWNERS' EQUITY
AT&T Common Stock............                                                                     3,196                        3,196
AT&T Wireless Group Common
   Stock
Liberty Media Group Class A
   Common Stock..............                                                                     2,314                        2,314
Liberty Media Group Class B
   Common Stock..............                                                                       217                          217
Other shareowners' equity....            27,336      12,997           38,460                    (5,593)                       73,200
Other shareowners' equity due
   to related party..........                         1,000                                     (1,000)
TOTAL SHAREOWNERS' EQUITY....            27,336      13,997           38,460                      (866)                       78,927
TOTAL LIABILITIES AND
   SHAREOWNERS' EQUITY.......          $112,039     $23,512          $38,460                   $(4,605)                     $169,406
</TABLE>

-----------

(1)      Includes the  elimination  of inter-group  transactions,  consolidating
         entries as well as  reclassifications  and adjustments  related to AT&T
         Wireless Group tracking stock.

<PAGE>

Consolidating Condensed Statement of Cash Flows
For the year ended December 31, 1999
<TABLE>
<CAPTION>
                                            AT&T         AT&T
                                    Common Stock     Wireless        Liberty Media                  Eliminations/       Consolidated
                                           Group        Group                Group           Reclassifications(1)         AT&T Corp.
                                           -----        -----                -----           --------------------         ----------
<S>                                     <C>           <C>                        <C>                        <C>             <C>
NET CASH PROVIDED BY
   OPERATING ACTIVITIES                  $10,907         $867                    $                         $(253)            $11,521
INVESTING ACTIVITIES
Capital expenditures and
   other additions.........             (11,795)      (2,272)                                                  47           (14,020)
Equity investment
   distributions and sales.                1,639          236                                                                  1,875
Equity investment
   contributions and
   purchases...............              (7,837)        (284)                                                                (8,121)
Net acquisitions of
   businesses including cash
   acquired................              (6,955)          244                                                                (6,711)
Other......................                (960)         (47)                                                 941               (66)
NET CASH USED IN INVESTING
   ACTIVITIES..............             (25,908)      (2,123)                                                 988           (27,043)
FINANCING ACTIVITIES
Proceeds from long-term debt
   issuance................                8,396                                                                               8,396
Retirement of long-term debt             (2,807)                                                                             (2,807)
Issuance of convertible
   securities..............                4,638                                                                               4,638
Net acquisition of treasury
   shares..................              (4,624)                                                                             (4,624)
Dividends paid.............              (2,712)                                                                             (2,712)
Increase in short-term
   borrowings, net.........               10,173           65                                                                 10,238
Other......................                (177)        1,169                                               (735)                257
NET CASH PROVIDED BY
   FINANCING ACTIVITIES....               12,887        1,234                                               (735)             13,386
Net decrease in cash and
   cash equivalents........              (2,114)         (22)                                                                (2,136)
Cash and cash equivalents at
   beginning of year.......                3,133           27                                                                  3,160
Cash and cash equivalents at
   end of period...........               $1,019           $5                    $                              $             $1,024
</TABLE>

-----------
         Includes the  elimination  of inter-group  transactions,  consolidating
         entries as well as  reclassifications  and adjustments  related to AT&T
         Wireless Group tracking stock.

<PAGE>

Consolidating Condensed Income Statement
For the year ended December 31, 1998
<TABLE>
<CAPTION>
                                                                AT&T          AT&T
                                                        Common Stock      Wireless                  Eliminations/       Consolidated
                                                               Group         Group           Reclassifications(1)         AT&T Corp.
                                                               -----         -----           --------------------         ----------
<S>                                                          <C>            <C>                             <C>              <C>
Revenue........................................              $47,817        $5,406                              $            $53,223
Inter-group revenue............................                   73                                         (73)
Total Revenue..................................               47,890         5,406                           (73)             53,223
Operating Expenses:
Costs of services and products.................                8,336         2,363                          (204)             10,495
Access and other connection....................               15,117                                          211             15,328
Selling, general and administrative............               10,845         1,931                            (6)             12,770
Depreciation and other amortization............                3,534         1,079                          (235)              4,378
Amortization of goodwill, franchise costs and
   other purchased intangibles.................                   44                                          207                251
Net restructuring and other charges............                2,514           120                          (120)              2,514
Inter-group expenses...........................                (183)           256                           (73)
Total operating expenses.......................               40,207         5,749                          (220)             45,736
Operating income (loss)........................                7,683         (343)                            147              7,487
Other income...................................                  811           650                          (180)              1,281
Inter-group interest income....................                  246                                        (246)
Interest expense...............................                  515          (70)                           (18)                427
Inter-group interest expense...................                                190                          (190)
Income from continuing operations before income
   taxes, minority interest and earnings
   (losses) from equity investments............                8,225           187                           (71)              8,341
Provision for income taxes.....................                2,996            59                            (6)              3,049
Minority interest income.......................                                                                21                 21
Net earnings (losses) from other equity
   investments.................................                (108)            36                            (6)               (78)
Income from continuing operations..............                5,121           164                           (50)              5,235
Dividend requirements on preferred stock held by
   AT&T, net...................................                                 56                           (56)
Income from continuing operations after
   preferred stock dividends...................               $5,121          $108                             $6             $5,235
</TABLE>

-----------

(1)      Includes the  elimination  of inter-group  transactions,  consolidating
         entries as well as  reclassifications  and adjustments  related to AT&T
         Wireless Group tracking stock.

<PAGE>

Consolidating Condensed Statement of Cash Flows
For the year ended December 31, 1998
<TABLE>
<CAPTION>
                                                                AT&T          AT&T
                                                        Common Stock      Wireless                  Eliminations/       Consolidated
                                                               Group         Group           Reclassifications(1)         AT&T Corp.
                                                               -----         -----           --------------------         ----------
<S>                                                         <C>            <C>                             <C>              <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES......               $9,928          $414                         $(125)            $10,217
INVESTING ACTIVITIES
Capital expenditures and other additions.......              (6,509)       (1,219)                             15            (7,713)
Decrease in other receivables..................                6,303                                          100              6,403
Net sales of marketable securities.............                  307                                                             307
Equity investment distributions and sales......                  148         1,354                             14              1,516
Equity investment contributions and purchases..              (1,118)         (156)                            (7)            (1,281)
Net acquisitions of businesses including cash
   acquired....................................                4,183           324                                             4,507
Other..........................................                 (60)          (65)                           (32)              (157)
NET CASH PROVIDED BY INVESTING ACTIVITIES......                3,254           238                             90              3,582
FINANCING ACTIVITIES
Proceeds from long-term debt issuance
Retirement of long-term debt...................              (2,610)                                                         (2,610)
Net acquisition of treasury shares.............              (3,321)                                                         (3,321)
Dividends paid.................................              (2,187)                                                         (2,187)
Increase in short-term borrowings, net.........              (3,076)            43                                           (3,033)
Other..........................................                  833         (674)                           (57)                102
NET CASH USED IN FINANCING ACTIVITIES..........             (10,361)         (631)                           (57)           (11,049)
NET CASH PROVIDED BY DISCONTINUED OPERATIONS...                                                                92                 92
Net increase in cash and cash equivalents......                2,821            21                                             2,842
Cash and cash equivalents at beginning of year.                  312             6                                               318
Cash and cash equivalents at end of period.....               $3,133           $27                              $             $3,160
</TABLE>

-----------

(1)      Includes the  elimination  of inter-group  transactions,  consolidating
         entries as well as  reclassifications  and adjustments  related to AT&T
         Wireless Group tracking stock.

<PAGE>

21.  QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                          First       Second       Third      Fourth
<S>                                                                                     <C>          <C>         <C>        <C>
2000
Revenue1.........................................................................       $15,901      $16,221     $16,975     $16,884
Operating income (loss)2.........................................................         2,402        3,267       2,954     (4,346)
Net income.......................................................................        $2,683       $2,034      $3,072    $(3,120)
AT&T Common Stock Group:
Earnings (loss) per share:
   Basic.........................................................................          $.55         $.54        $.35      $(.45)
   Diluted.......................................................................           .54          .53         .35       (.45)
   Dividends declared............................................................          $.22         $.22        $.22      $.0375
AT&T Wireless Group3:
Earnings (loss) per share:
   Basic and diluted.............................................................            $--        $.06      $(.01)        $.16
Liberty Media Group3:
Earnings (loss) per share:
   Basic and diluted4............................................................          $.37         $.10        $.68      $(.57)
Stock price5:
AT&T common stock
   High..........................................................................        $61.00       $58.81      $35.19      $30.00
   Low...........................................................................         44.31        31.25       27.25       16.50
   Quarter-end close.............................................................         56.25        31.63       29.38       17.25
AT&T Wireless Group common stock
   High..........................................................................            --        36.00       29.56       24.94
   Low...........................................................................            --        23.56       20.50       16.38
   Quarter-end close.............................................................            --        27.88       20.88       17.31
Liberty Media Group Class A common stock4
   High..........................................................................         30.72        29.94       26.56       19.25
   Low...........................................................................         24.44        19.19       17.44       10.75
   Quarter-end close.............................................................         29.63        24.25       18.00       13.56
Liberty Media Group Class B common stock4
   High..........................................................................         36.56        32.69       32.63       20.63
   Low...........................................................................         27.00        22.13       18.75       12.75
   Quarter-end close.............................................................         32.81        32.50       18.75       18.75
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
<S>                                                                                     <C>          <C>         <C>         <C>
1999
Revenue1.........................................................................       $14,117      $15,752     $16,333     $16,398
Operating income2................................................................         2,116        2,913       3,389       2,441
Net income (loss)................................................................        $1,018       $1,045      $1,416       $(51)
AT&T Common Stock Group:
Earnings per share:
   Basic.........................................................................          $.39         $.50        $.51        $.36
   Diluted.......................................................................          $.38         $.49        $.50        $.36
Dividends declared...............................................................          $.22         $.22        $.22        $.22
Liberty Media Group3:
Loss per share:
   Basic and diluted4............................................................          $.02         $.21        $.09        $.48
Stock price5:
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 common stock4
   High..........................................................................         14.53        18.52       19.84       28.34
   Low...........................................................................         10.95        13.13       15.44       17.94
   Quarter-end close.............................................................         13.15        18.38       18.66       28.41
Liberty Media Group Class B common stock4
   High..........................................................................         14.56        18.63       19.88       34.38
   Low...........................................................................         11.13        13.69       16.00       19.31
   Quarter-end close.............................................................         13.44        18.63       19.88       34.38
</TABLE>
-----------

1.       Results have been restated to reflect certain franchise tax expenses as
         revenue and expense in the amount of $21 in first quarter 1999,  $61 in
         second  quarter 1999,  $63 in third quarter 1999, $64 in fourth quarter
         1999 and $65 in first quarter 2000.  This  restatement had no impact on
         operating income or net income.

2.       Operating income (loss) included net restructuring and other charges of
         $773 in first quarter 2000, $24 in third quarter 2000, $6,232 in fourth
         quarter  2000,  $731 in first  quarter 1999 and $804 in fourth  quarter
         1999.  Second  quarter  1999  included  a net  restructuring  and other
         charges benefit of $29.

3.       No dividends have been declared on AT&T Wireless Group or Liberty Media
         Group (LMG) common stocks.

4.       Amounts have  been restated to reflect the  June 2000 two-for-one split
         of LMG common stock.

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

<PAGE>

22.  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
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.

         In June 2000,  the FASB issued SFAS No.  138,  "Accounting  for Certain
Derivative  Instruments and Certain Hedging Activities," as an amendment to SFAS
No.  133.  This  statement   provides   clarification  with  regard  to  certain
implementation issues under SFAS No. 133 on specific types of hedges.

         On January 1, 2001, AT&T adopted SFAS No. 133. We recorded a cumulative
effect of an accounting change, net of applicable income taxes, of approximately
$1,370  of  income,  or  approximately   $0.34  per  diluted  share,   primarily
attributable  to fair value  adjustments of debt  instruments,  including  those
acquired in  conjunction  with the  MediaOne  merger,  as well as to our warrant
portfolio.  In  addition,  in  connection  with the adoption of SFAS No. 133, we
reclassified certain investment  securities,  which support debt that is indexed
to   those   securities,    from   "available-for-sale"   to   "trading."   This
reclassification  resulted  in  the  recognition  of  a  charge  of  $1,724,  or
approximately  $0.43 per  diluted  share,  net of  applicable  taxes,  which was
recorded as a  reduction  of other  income.  As  available-for-sale  securities,
changes in fair value were previously included within other comprehensive income
as a component of shareowners'  equity.  In addition,  LMG recorded a cumulative
effect of an accounting change, net of applicable income taxes, of approximately
$800 of income, or approximately $0.31 per share.

         The impact of the adoption of SFAS No. 133, as amended by SFAS No. 138,
on AT&T's future  results of operations is dependent upon the fair values of our
derivatives  and related  financial  instruments  and could result in pronounced
quarterly fluctuations in other income in future periods.

         In  September  2000,  the FASB  issued SFAS No.  140,  "Accounting  for
Transfers and Servicing of Financial Assets and  Extinguishments  of Liabilities
-- a Replacement of FASB Statement No. 125." This statement provides  accounting
and reporting  standards  for  transfers  and servicing of financial  assets and
extinguishments  of  liabilities.  Under  these  standards,  after a transfer of
financial  assets,  an entity  recognizes the financial and servicing  assets it
controls and the liabilities it has incurred, derecognizes financial assets when
control has been surrendered,  and derecognizes  liabilities when  extinguished.
This statement provides  consistent  standards for  distinguishing  transfers of
financial assets that are sales from transfers that are secured borrowings. This
statement is  effective  for  transfers  and  servicing of financial  assets and
extinguishments  of liabilities  occurring  after March 31, 2001.  AT&T does not
expect that the  adoption of SFAS No. 140 will have a material  impact on AT&T's
results of operations, financial position or cash flows.
<PAGE>

23.  SUBSEQUENT EVENTS

         On January 12, 2001,  AT&T announced that Cox and Comcast had exercised
their  rights to sell a combined  total of 60.4  million  shares of  Excite@Home
Series A common stock to AT&T as part of an  agreement  announced in August 2000
to  reorganize  Excite@Home's  governance.  Cox and  Comcast  elected to receive
shares of AT&T common stock in exchange for their  Excite@Home  shares.  AT&T is
currently in discussions  to renegotiate  the terms of the put options which may
result in a change to the number of shares of AT&T  stock  that Cox and  Comcast
will receive, as well as the number of Excite@Home Shares, if any AT&T receives.
There  can be no  assurance  that an  agreement  will be  reached  with  Cox and
Comcast.

         On  January  22,  2001,  AT&T  and NTT  DoCoMo  (DoCoMo)  finalized  an
agreement whereby DoCoMo invested  approximately $9.8 billion for a new class of
AT&T  preferred  stock,   termed  DoCoMo  Wireless   tracking  stock,   that  is
economically  equivalent to 406 million  shares of AT&T Wireless  Group tracking
stock and reflects  approximately 16% of the financial  performance and economic
value of AT&T Wireless  Group.  AT&T  allocated  $6.2 billion of the proceeds to
AT&T Wireless Group. Each share of DoCoMo Wireless tracking stock is convertible
at any time into AT&T Wireless Group tracking stock.  Upon the conversion of the
DoCoMo Wireless  tracking  stock,  AT&T will reduce its portion of the financial
performance and economic value in AT&T Wireless Group by 178 million shares, and
the balance of the 406 million shares will come from the issuance of 228 million
new shares of AT&T Wireless Group tracking stock. Additionally,  upon completion
of the planned  split-off of AT&T Wireless,  the DoCoMo Wireless  tracking stock
and related  warrants will  automatically  be converted into AT&T Wireless Group
tracking stock and thereafter be exchanged on the same terms as all other shares
of AT&T Wireless Group  tracking stock in the split-off.  In the event that AT&T
has not split-off AT&T Wireless by specified  dates  beginning  January 1, 2002,
DoCoMo will have the right, at its election,  to require AT&T to repurchase from
DoCoMo  the  preferred  shares  initially  issued to them at  DoCoMo's  original
purchase price plus interest up to the date of payment.  The interest under this
right will be treated as preferred stock  dividends,  with charges recorded as a
reduction of AT&T Common Stock Group  earnings.  In  addition,  DoCoMo  acquired
five-year  warrants to purchase the  equivalent  of an  additional  41.7 million
shares of AT&T Wireless Group  tracking  stock at $35 per share.  As part of the
agreement,  DoCoMo  obtained  a seat on AT&T's  board of  directors  until  AT&T
Wireless Group is split-off  from AT&T as a separate  public  company,  which is
expected to occur later in 2001. At that time, DoCoMo will retain representation
on the new public AT&T Wireless board.  Receipt of the DoCoMo  proceeds  reduced
AT&T's existing $25 billion credit facility by $1.8 billion.

         In January  2001,  AT&T entered into  agreements  with certain  network
equipment  vendors,  which  extend  through  2004,  to purchase  next-generation
wireless network equipment for a total of approximately $1.8 billion.

         On February 27, 2001,  AT&T  entered  into an agreement  with  Vodafone
Group plc to sell our 10% stake in Japan Telecom Co. Ltd for approximately $1.35
billion in cash.  The  transaction is expected to be completed in April 2001 and
will result in a gain.

         On March 1, 2001, AT&T Wireless  completed a private  placement of $6.5
billion in notes.  The notes pay  interest at rates  ranging from 7.35% to 8.75%
per annum,  with  maturity  dates  ranging from 2006 to 2031.  The notes include
customary  covenants  and  registration  rights.  As a result of the issuance of
these notes,  AT&T's  existing $25 billion  credit  facility was reduced by $4.8
billion.
<PAGE>

         On March 23, 2001, AT&T Wireless entered into $2.5 billion in revolving
credit facilities. The facilities consist of a 364-day facility of $1.25 billion
and a five-year  revolving credit facility of $1.25 billion.  The facilities may
be used for general  corporate  purposes and are subject to customary  covenants
and events of default.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.

         There  have  been  no  changes  in  independent   accountants   and  no
disagreements   with  independent   accountants  on  any  matter  of  accounting
principles or practices,  financial statement  disclosure,  or auditing scope or
procedure during the last two years.


PART III

ITEMS 10. THROUGH 13.

         Information  regarding  executive  officers  required  by  Item  401 of
Regulation  S-K is furnished in a separate  disclosure  in Part I of this report
because the Company did not furnish such  information  in its  definitive  proxy
statement prepared in accordance with Schedule 14A.

         The other  information  required  by Items 10 through 13 is included in
the Company's  definitive  proxy  statement  dated March 29, 2001:  the last two
paragraphs on page 4, the first two  paragraphs on page 5, the last paragraph on
page 5 through the first two paragraphs on page 14, and the second  paragraph on
page 28 through page 50. Such  information is incorporated  herein by reference,
pursuant to General Instruction G(3).

PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K.

      (a)  Documents filed as a part of the report:

      (1) The following  consolidated  financial statements are included in Part
          II, Item 8:

                                                                         Pages
                                                                        ------
             Report of Management ....................................    113
             Report of Independent Accountants .......................    114

         Statements:
             Consolidated Statements of Income .......................    115
             Consolidated Balance Sheets .............................    116
             Consolidated Statements of Changes in  Shareowners'
               Equity ................................................    118
             Consolidated Statements of Cash Flows ...................    120
             Notes to Consolidated Financial Statements ..............    121

      (2) Financial Statement Schedule:
             Report of Independent Accountants .......................    197

         Schedule:

             II -- Valuation and Qualifying Accounts .................    198
<PAGE>

          All other  schedules are omitted  because they are not applicable, not
          required  or   the   required   information   is   included   in   the
          consolidated financial statements or notes thereto.

          Separate  financial  statements of  Liberty  Media  Group,  which is a
          "significant subsidiary" pursuant to the provisions of Regulation S-X,
          Article 3-9, are included as Exhibit (99)b.

      (3) Exhibits:

          Exhibits identified in parentheses  below, on file with the Securities
          and Exchange Commission ("SEC"),  are incorporated herein by reference
          as exhibits hereto.

Exhibit Number:

(3)a              Restated Certificate of Incorporation of  the registrant filed
                  January 10, 1989,  Certificate of Correction of the registrant
                  filed June 8, 1989,  Certificate  of Change of the  registrant
                  filed  March  18,  1992,   Certificate  of  Amendment  of  the
                  registrant filed June 1, 1992, Certificate of Amendment of the
                  registrant  filed April 20, 1994,  Certificate of Amendment of
                  the registrant filed June 8, 1998, Certificate of Amendment of
                  the registrant  filed March 9, 1999,  Certificate of Amendment
                  of the  registrant  filed  April 12, 2000 and  Certificate  of
                  Amendment of the registrant filed June 2, 2000.

(3)b              By-Laws of the registrant, as amended January 25, 2001.

(4)               No instrument which defines the rights of holders of long term
                  debt,  of  the   registrant   and  all  of  its   consolidated
                  subsidiaries,  is filed herewith  pursuant to Regulation  S-K,
                  Item  601(b)(4)(iii)(A).  Pursuant  to  this  regulation,  the
                  registrant  hereby  agrees  to  furnish  a copy  of  any  such
                  instrument to the SEC upon request.

(10)(i)1          Form of Separation and Distribution Agreement by and among
                  AT&T Corp.,  Lucent  Technologies  Inc.  and NCR  Corporation,
                  dated as of February  1, 1996 and  amended and  restated as of
                  March 29, 1996 (Exhibit  (10)(i)1 to Form 10-K for 1996,  File
                  No. 1-1105).

(10)(i)2          Form of Distribution Agreement, dated as of November 20, 1996,
                  by  and  between  AT&T  Corp.  and  NCR  Corporation  (Exhibit
                  (10)(i)2 to Form 10-K for 1996, File No. 1-1105).

(10)(i)3          Tax Sharing Agreement by and among AT&T Corp., Lucent
                  Technologies Inc. and NCR Corporation, dated as of February 1,
                  1996 and  amended and  restated as of March 29, 1996  (Exhibit
                  (10)(i)3 to Form 10-K for 1996, File No. 1-1105).

(10)(i)4          Employee Benefits Agreement by and between AT&T Corp. and
                  Lucent  Technologies  Inc.,  dated as of  February 1, 1996 and
                  amended and restated as of March 29, 1996 (Exhibit (10)(i)4 to
                  Form 10-K for 1996, File No. 1-1105).

(10)(i)5          Form of Employee Benefits Agreement, dated as of November 20,
                  1996, between AT&T Corp. and NCR Corporation (Exhibit (10)(i)5
                  to Form 10-K for 1996, File No. 1-1105).
<PAGE>

(10)(i)6          Securities Purchase Agreement by and among AT&T Corp., AT&T
                  Wireless Services,  Inc. and NTT DoCoMo,  Inc., dated December
                  20, 2000  (Exhibit  10.1 to Form 8-K filed  December 22, 2000,
                  File No. 1-1105).

(10)(i)7          Investor Agreement by and among AT&T Corp., AT&T Wireless
                  Services,  Inc. and NTT DoCoMo,  Inc., dated December 20, 2000
                  (Exhibit  10.2 to Form 8-K filed  December 22, 2000,  File No.
                  1-1105).

(10)(i)8          Warrant Agreement by and among AT&T Wireless Services, Inc.,
                  NTT DoCoMo,  Inc.  and AT&T  Corp.,  dated  December  20, 2000
                  (Exhibit  10.3 to Form 8-K filed  December 22, 2000,  File No.
                  1-1105).

(10)(i)9          364-Day Competitive Advance and Revolving Credit Facility
                  Agreement,  dated as of December 28,  2000,  among AT&T Corp.,
                  the Lenders party thereto,  THE CHASE MANHATTAN  BANK,  CREDIT
                  SUISSE FIRST BOSTON and GOLDMAN SACHS CREDIT PARTNERS L.P., as
                  Administrative Agents, and THE CHASE MANHATTAN BANK, as Paying
                  Agent  (Exhibit 10 to Form 8-K filed  February 16, 2001,  File
                  No. 1-1105).

(10)(ii)(B)1      General Purchase Agreement between AT&T Corp. and Lucent
                  Technologies  Inc.,  dated  February  1, 1996 and  amended and
                  restated as of March 29, 1996  (Exhibit  (10)(ii)(B)1  to Form
                  10-K for 1996, File No. 1-1105).

(10)(ii)(B)2      Form of Volume Purchase Agreement, dated as of November 20,
                  1996, by and between AT&T Corp. and NCR  Corporation  (Exhibit
                  (10)(ii)(B)2 to Form 10-K for 1996, File No. 1-1105).

(10)(iii)(A)1     AT&T Short Term Incentive Plan as amended March, 1994 (Exhibit
                  (10)(iii)(A)1 to Form 10-K for 1994, File No. 1-1105).

(10)(iii)(A)2     AT&T 1987 Long Term Incentive Program as amended December 17,
                  1997  (Exhibit  10)(iii)(A)2  to Form 10-K for 1997,  File No.
                  1-1105).

(10)(iii)(A)3     AT&T Senior Management Individual Life Insurance Program as
                  amended March 3, 1998 (Exhibit  (10)(iii)(A)3 to Form 10-K for
                  1997, File No. 1-1105).

(10)(iii)(A)4     AT&T  Senior  Management  Long Term  Disability  and  Survivor
                  Protection Plan, as amended and restated  effective January 1,
                  1995 (Exhibit  (10)(iii)(A)4  to Form 10-K for 1996,  File No.
                  1-1105).
                                                           .
(10)(iii)(A)5     AT&T Senior Management Financial Counseling Program dated
                  December  29,  1994  (Exhibit  (10)(iii)(A)5  to Form 10-K for
                  1994, File No. 1-1105).

(10)(iii)(A)6     AT&T Deferred Compensation Plan for Non-Employee Directors, as
                  amended December 15, 1993 (Exhibit (10) (iii)(A)6 to Form 10-K
                  for 1993, File No. 1-1105).

(10)(iii)(A)7     The AT&T Directors Individual Life Insurance Program as
                  amended March 2, 1998 (Exhibit  (10)(iii)(A)1 to Form 10-K for
                  1997, File No. 1-1105).
<PAGE>

(10)(iii)(A)8     AT&T Plan for Non-Employee Directors' Travel Accident
                  Insurance  (Exhibit  (10)(iii)(A)8 to Form 10-K for 1990, File
                  No. 1-1105).

(10)(iii)(A)9     AT&T Excess Benefit and Compensation Plan, as amended and
                  restated  effective October 1, 1996 (Exhibit  (10)(iii)(A)9 to
                  Form 10-K for 1996, File No. 1-1105).

(10)(iii)(A)10    AT&T Non-Qualified Pension Plan, as amended and restated
                  January 1, 1995 (Exhibit (10)(iii)(A)10 to Form 10-K for 1996,
                  File No. 1-1105).

(10)(iii)(A)11    AT&T Senior  Management  Incentive  Award  Deferral  Plan,  as
                  amended January 21, 1998 (Exhibit  (10)(iii)(A)11 to Form 10-K
                  for 1998, File No. 1-1105).

(10)(iii)(A)12    AT&T Mid-Career Hire Program revised effective January 1, 1988
                  (Exhibit  (10)(iii)(A)4 to Form SE, dated March 25, 1988, File
                  No. 1-1105) including AT&T Mid-Career Pension Plan, as amended
                  and restated July 1, 1999 (Exhibit (10)(iii)(A)12 to Form 10-K
                  for 1999, File No. 1-1105).

(10)(iii)(A)13    AT&T 1997 Long Term Incentive Program as amended through March
                  14, 2000 (Exhibit  (10)(iii)(A)13  to Form 10-K for 1999, File
                  No. 1-1105).

(10)(iii)(A)14    Form of Indemnification Contract for Officers and Directors
                  (Exhibit (10)(iii)(A)6 to Form SE, dated March 25, 1987, File
                  No. 1-1105).

(10)(iii)(A)15    Pension Plan for AT&T Non-Employee Directors revised February
                  20, 1989 (Exhibit  10)(iii)(A)15  to Form 10-K for 1993,  File
                  No. 1-1105).

(10)(iii)(A)16    AT&T Corp. Senior Management Universal Life Insurance Program
                  effective October 1, 1999.

(10)(iii)(A)17    Form of AT&T Benefits  Protection  Trust  Agreement as amended
                  and  restated  as  of  November  1993,   including  the  first
                  amendment   thereto   dated   December   23,   1997   (Exhibit
                  (10)(iii)(A)17 to Form 10-K for 1999, File No. 1-1105).

(10)(iii)(A)18    AT&T Senior Officer  Severance Plan effective October 9, 1997,
                  as amended  October 30, 1997 (Exhibit  (10)(iii)(A)18  to Form
                  10-K for 1997, File No. 1-1105).

(10)(iii)(A)19    Form of Pension Agreement between AT&T Corp. and Frank Ianna
                  dated  October 30, 1997 (Exhibit  (10)(iii)(A)19  to Form 10-K
                  for 1997, File No. 1-1105).

(10)(iii)(A)20    Form of Pension Agreement between AT&T Corp. and John C.
                  Petrillo  dated  October 30, 1997 (Exhibit  (10)(iii)(A)21  to
                  Form 10-K for 1997, File No. 1-1105).

(10)(iii)(A)21    Form of Pension Agreement between AT&T Corp. and John Zeglis
                  dated May 7,  1997  (Exhibit  (10)(iii)(A)22  to Form 10-K for
                  1997, File No. 1-1105).
<PAGE>

(10)(iii)(A)22    Form of Employment Agreement between AT&T Corp. and C. Michael
                  Armstrong  dated October 17, 1997 (Exhibit  (10)(iii)(A)23  to
                  Form 10-K for 1997, File No. 1-1105).

(10)(iii)(A)23    Form of Employment Agreement between AT&T Corp. and Daniel E.
                  Somers dated April, 1997 (Exhibit  (10)(iii)(A)23 to Form 10-K
                  for 1998, File No. 1-1105).

(10)(iii)(A)24    Liberty Media 401(K) Savings Plan (Incorporation herein by
                  reference to Exhibit 99.1 to Post-Effective Amendment No. 2 on
                  Form  S-8 to the  Registration  Statement  on Form S-4 of AT&T
                  Corp. (Commission File No. 333-70279) filed March 10, 1999).

(10)(iii)(A)25    AT&T Corp. Directors' Universal Life Insurance Program
                  effective June 1, 2000.

(10)(iii)(A)26    AT&T Corp. Senior Management Universal Life Insurance Program
                  for Former Executives effective October 1, 1999.

(10)(iii)(A)27    Form of Employment Agreement between AT&T Corp. and Charles H.
                  Noski dated December 8, 1999.

(10)(iii)(A)28    Form of Special Deferral Agreement between AT&T Corp. and
                  Charles H. Noski dated January 26, 2001.

(10)(iii)(A)29    Form of Special Deferral Agreement between AT&T Corp. and
                  Frank Ianna dated January 16, 2001.

(10)(iii)(A)30    Form of Loan Agreement between AT&T Corp. and David Dorman
                  dated December 21, 2000.

(10)(iii)(A)31    Form of Loan Agreement between AT&T Corp. and David Dorman
                  dated December 21, 2000.

(10)(iii)(A)32    AT&T Corp. board resolutions adopting change in control
                  provision to various plans effective October 23, 2000.

(12)              Computation of Ratio of Earnings to Fixed Charges.

(21)              List of subsidiaries of AT&T.

(23)a             Consent of PricewaterhouseCoopers, LLP

(23)b             Consent of KPMG, LLP

(24)              Powers of Attorney executed by officers and directors who
                  signed this report.

(99)a             Supplemental Information regarding AT&T Wireless Group.

(99)b             Supplemental Information regarding Liberty Media Group.


         AT&T will furnish, without charge, to a shareholder upon request a copy
of the annual report to shareholders and the proxy statement,  portions of which
are  incorporated  herein by  reference  thereto.  AT&T will  furnish  any other
exhibit at cost.
<PAGE>

     (b) Reports on Form 8-K:

         During the fourth  quarter  2000,  Form 8-K dated  October 23, 2000 was
filed  pursuant to Item 5 (Other  Events) and Item 7 (Financial  Statements  and
Exhibits),  Form 8-K dated November 15, 2000 was filed pursuant to Item 5 (Other
Events) and Item 7 (Financial Statements and Exhibits),  Form 8-K dated December
1,  2000 was  filed  pursuant  to Item 5 (Other  Events)  and Item 7  (Financial
Statements and Exhibits), Form 8-K dated December 18, 2000 was filed pursuant to
Item 5 (Other  Events),  Form 8-K dated  December 20, 2000 was filed pursuant to
Item 5 (Other  Events) and Item 7 (Financial  Statements  and Exhibits) and Form
8-K dated December 22, 2000 was filed pursuant to Item 5 (Other Events) and Item
7 (Financial Statements and Exhibits).

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS ON CONSOLIDATED FINANCIAL STATEMENT SCHEDULE


  To the Board of Directors and Shareowners of AT&T Corp.:

Our audits of the consolidated  financial  statements  referred to in our report
dated March 16, 2001 appearing in the 2000 Annual Report to Shareholders of AT&T
Corp. (which report and consolidated  financial statements appear in this Annual
Report  on Form  10-K)  also  included  an audit of the  consolidated  financial
statement  schedule  listed in Item  14(a)(2) of this Form 10-K. In our opinion,
this consolidated  financial statement schedule presents fairly, in all material
respects,  the information  set forth therein when read in conjunction  with the
related consolidated financial statements.

PricewaterhouseCoopers LLP

New York, New York

March 16, 2001

<PAGE>







                              Schedule II--Sheet 1

                                   AT&T CORP.

                        AND ITS CONSOLIDATED SUBSIDIARIES

                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

                              (Millions of Dollars)

------------------------------------------------------------------------------
           COL. A              COL. B      COL. C       COL. D        COL. E
------------------------------------------------------------------------------
                             Balance at  Charged to                   Balance
                             Beginning    Costs and                   at End
         Description         of Period     Expenses   Deductions(a)  of Period
------------------------------------------------------------------------------
  Year 2000

Allowances for doubtful
  accounts (b)                 $1,334      $1,393       $1,292          $1,435
Deferred tax asset valuation
  allowance (c)                $  231      $  826       $  268          $  789

  Year 1999

Allowances for doubtful
  accounts (b)                 $1,106      $1,416       $1,188          $1,334
Deferred tax asset valuation
  allowance (c)                $  278      $  124       $  171          $  231

  Year 1998

Allowances for doubtful
  accounts (b)                 $1,037      $1,389       $1,320          $1,106
Deferred tax asset valuation
  allowance (c)                $  361      $   23       $  106          $  278

------------

(a)     Amounts written off as uncollectible, net of recoveries.
(b)     Includes  allowances for doubtful  accounts on long-term  receivables of
        $56,  $53 and $46 at  December  31,  2000,  1999 and 1998,  respectively
        (included in other assets in the Consolidated Balance Sheets).

(c)     End of period  balances at December  31, 2000 and 1998,  include $39 and
        $18,  respectively,  which represent the current portion of the deferred
        tax valuation  allowance.  There was no current  portion at December 31,
        1999. The increase in the deferred tax asset valuation allowance in 2000
        was primarily due to the  consolidation  of At Home  Corporation and the
        merger with MediaOne Group,  Inc. The increase in 1999 was primarily due
        to the merger with  Tele-Communications,  Inc. These increases are shown
        within the charged to costs and expenses column.

<PAGE>




                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                   AT&T Corp.


                                  /s/  M. J. Wasser
                                  -------------------------------
                                  By:  M. J. Wasser
                                       Vice President - Law and Secretary

April 17, 2001

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
registrant and in the capacities and on the date indicated.

Principal Executive Officers:                          #
                                                       #
C. Michael Armstrong    Chairman of the Board and      #
                        Chief Executive Officer        #
                                                       #
John Zeglis             Director and Chief Executive   #
                        Officer, AT&T Wireless Group   #
                                                       #
Principal Financial Officer:                           #
                                                       #
Charles H. Noski        Senior Executive Vice President#
                        and Chief Financial Officer    #
                                                       #
Principal Accounting Officer:                          #
                                                       #
Nicholas S. Cyprus      Vice President and Controller  ##    By M. J. Wasser
                                                       #     (attorney-in-fact)*
Directors:                                             #
                                                       #     April 17, 2001
   Kenneth T. Derr                                     #
   M. Kathryn Eickhoff                                 #
   Walter Y. Elisha                                    #
   George M. C. Fisher                                 #
   Donald V. Fites                                     #
   Amos B. Hostetter, Jr.                              #
   Ralph S. Larsen                                     #
   John C. Malone                                      #
   Donald F. McHenry                                   #
   Louis A. Simpson                                    #
   Michael I. Sovern                                   #
   Sanford I. Weill                                    #
   Masaki Yoshikawa                                    #