<PAGE>

                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 20549

                                    FORM 10-Q



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

                 For the quarterly period ended December 31, 1998

                                       OR

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

         For the transition period from _____________to _____________


                        Commission file number 001-11639

                            LUCENT TECHNOLOGIES INC.

          A Delaware                                   I.R.S. Employer
          Corporation                                  No. 22-3408857


              600 Mountain Avenue, Murray Hill, New Jersey 07974

                     Telephone - Area Code 908-582-8500




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 ....

At January 31, 1999, 1,321,650,166 common shares were outstanding.





<PAGE>
 2                                                           Form 10-Q - Part I

                         PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

                  LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF INCOME
                (Dollars in Millions, Except Per Share Amounts)
                                   (Unaudited)

                                                      For the Three
                                                      Months Ended
                                                       December 31,
                                                  1998              1997    

Revenues.............................           $ 9,204           $ 8,724
                                                                 
Costs................................             4,386             4,519
                                                                 
Gross margin.........................             4,818             4,205
                                                                 
Operating Expenses:                                              
Selling, general and                                             
  administrative expenses............             1,774             1,555
Research and development expenses....               926               829
In-process research                                              
  and development expenses...........                21               427
Total operating expenses.............             2,721             2,811
                                                                 
Operating income.....................             2,097             1,394
Other income - net...................               102               146
Interest expense.....................                78                62
Income before income taxes...........             2,121             1,478
Provision for income taxes...........               721               686
                                                                 
Income before cumulative effect of                               
  accounting change..................             1,400               792
                                                                 
Cumulative effect of accounting change                           
  (net of income taxes of $842)......             1,308                -
                                                                 
Net income...........................           $ 2,708           $   792
                                                                 
Earnings per common share - basic:                               
 Income before cumulative effect of                              
  accounting change..................           $  1.06           $  0.62
 Cumulative effect of accounting                                 
  change ............................              1.00                 -
 Net income..........................           $  2.06           $  0.62
                                                                 
Earnings per common share - diluted:                             
 Income before cumulative effect of                              
  accounting change..................           $  1.04           $  0.61
 Cumulative effect of accounting                                 
  change.............................               .96                 -
 Net Income..........................           $  2.00           $  0.61
                                                                 
                                                                 
                                                                 
Dividends declared per common share..           $  0.08           $  0.075
                                                                 
                                                                 
                                                                 
                                                                 
See Notes to Consolidated Financial Statements.          




<PAGE>
 3                                                           Form 10-Q - Part I

                  LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                 (Dollars in Millions, Except Per Share Amounts)
                                   (Unaudited)

                                          December 31,  September 30,
                                             1998           1998
ASSETS

Cash and cash equivalents..............   $   940        $   685

Accounts receivable less allowances
 of $346 at December 31, 1998 and
 $390 at September 30, 1998 ...........     9,185          6,939

Inventories............................     3,778          3,081

Contracts in process, net of progress
 billings of $3,995 at December 31, 1998
 and $3,036 at September 30, 1998......     1,060          1,259

Deferred income taxes - net............     1,620          1,623

Other current assets...................       768            491

Total current assets...................    17,351         14,078

Property, plant and equipment, net
 of accumulated depreciation of
 $6,886 at December 31, 1998 and
 $6,382 at September 30, 1998..........     5,645          5,403

Prepaid pension costs..................     6,068          3,754

Deferred income taxes - net............         -            750

Capitalized software development costs.       306            298

Other assets...........................     2,271          2,437

TOTAL ASSETS...........................   $31,641        $26,720



                                    (CONT'D)




See Notes to Consolidated Financial Statements.





<PAGE>
 4                                                           Form 10-Q - Part I

                  LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
                      CONSOLIDATED BALANCE SHEETS (CONT'D)
                 (Dollars in Millions, Except Per Share Amounts)
                                   (Unaudited)

                                              December 31,       September 30,
                                                  1998                1998
LIABILITIES                                                     
                                                                
Accounts payable.......................         $ 2,468             $ 2,040  
Payroll and benefit-related                                     
  liabilities..........................           1,857               2,511
Postretirement and postemployment                               
  benefit liabilities..................             186                 187
Debt maturing within one year..........           3,763               2,231
Other current liabilities..............           4,167               3,459
                                                                
Total current liabilities..............          12,441              10,428
                                                                
Postretirement and postemployment                               
  benefit liabilities..................           6,413               6,380
Long-term debt ........................           2,404               2,409
Other liabilities......................           1,946               1,969
                                                                
Total liabilities .....................          23,204              21,186
                                                                
Commitments and contingencies                                   
                                                                
SHAREOWNERS' EQUITY                                             
                                                                
Preferred stock-par value $1.00 per share                       
 Authorized shares: 250,000,000                                 
 Issued and outstanding shares: none...               -                   -
Common stock-par value $.01 per share                           
 Authorized shares: 3,000,000,000                               
 Issued and outstanding shares:                                 
 1,320,245,061 at December 31, 1998                             
 1,316,394,169 at September 30, 1998...              13                  13
Additional paid-in capital.............           4,728               4,488
Guaranteed ESOP obligation.............             (49)                (49)
Retained earnings......................           3,965               1,364
Accumulated other comprehensive                                 
 income(loss)..........................            (220)               (282)
                                                                
Total shareowners' equity..............           8,437               5,534
                                                            
TOTAL LIABILITIES AND                          
 SHAREOWNERS' EQUITY...................         $31,641             $26,720
                                               
                                         



See Notes to Consolidated Financial Statements.





<PAGE>
 5                                                           Form 10-Q - Part I

                  LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (Dollars in Millions)
                                   (Unaudited)

                                                 For the Three Months
                                                  Ended December 31,
                                                1998            1997
Operating Activities
Net income...............................     $2,708         $   792
Adjustments to reconcile net income
  to net cash (used in)provided by
  operating activities:
   Cumulative effect of
    accounting change....................     (1,308)              -
   Depreciation and amortization.........        344             343
   Provision for uncollectibles..........        (15)             54
   Deferred income taxes.................        206             (22)
   Purchased in-process research and
     development.........................         21             427
   Increase in accounts receivable - net.     (2,235)         (1,255)
   (Increase)decrease in inventories
    and contracts in process - net.......       (425)            152
   Increase(decrease) in
    accounts payable.....................        352            (387)
   Changes in other operating assets
     and liabilities.....................       (501)            512
   Other adjustments for non-cash
     items - net.........................       (248)           (231)
Net cash (used in)provided by
 operating activities....................     (1,101)            385

Investing Activities
Capital expenditures ....................       (343)           (261)
Proceeds from the sale or disposal of
  property, plant and equipment..........         28              27
Purchases of equity investments..........        (17)            (47)
Sales of equity investments..............          1              25
Acquisitions of businesses,
  net of cash acquired...................       (115)              -
Dispositions of businesses...............         57             281
Other investing activities - net.........         22             (35)
Net cash used in investing activities....       (367)            (10)

Financing Activities
Repayments of long-term debt ............         (8)            (20)
Issuance of long-term debt...............        495               3
Proceeds of issuance of common stock.....        239              72
Dividends paid...........................        (54)            (48)
Increase(decrease) in short-term
  borrowings - net.......................      1,041            (485)
Net cash provided by
 (used in) financing activities..........      1,713            (478)


                                    (CONT'D)





See Notes to Consolidated Financial Statements.




<PAGE>
 6                                                           Form 10-Q - Part I

                  LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT'D)
                             (Dollars in Millions)
                                  (Unaudited)

                                                For the Three Months
                                                 Ended December 31,
                                                1998            1997

Effect of exchange rate
  changes on cash........................         10             (22)

Net increase(decrease) in cash and
  cash equivalents.......................        255            (125)

Cash and cash equivalents
  at beginning of period.................        685           1,350

Cash and cash equivalents
  at end of period.......................     $  940         $ 1,225
































See Notes to Consolidated Financial Statements.


<PAGE>
 7                                                            Form 10-Q - Part I

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               (Dollars in Millions Except Per Share Amounts)
                                (Unaudited)

1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared
by Lucent Technologies Inc. ("Lucent" or the "Company") pursuant to the rules
and regulations of the Securities and Exchange Commission ("SEC") and, in the
opinion of management, include all adjustments necessary for a fair presentation
of the results of operations, financial position and cash flows for each period
shown.

The preparation of financial statements during interim periods requires
management to make numerous estimates and assumptions that impact the reported
amounts of assets, liabilities, revenues and expenses. Estimates and assumptions
are reviewed periodically and the effect of revisions is reflected in the
results of operations of the interim periods in which changes are determined to
be necessary. During the three months ended December 31, 1998, improved
performance on multi-year contracts and the resolution of certain contingencies
had a positive impact on the reported results of operations.

The financial statement results for interim periods are not necessarily
indicative of financial results for the full year. These unaudited consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements and notes thereto included in Lucent's Annual Report on
Form 10-K for the year ended September 30, 1998.

The financial statements presented have been restated to reflect the two-for-one
split of Lucent's common stock which became effective on April 1, 1998. Certain
prior period amounts have been reclassified to conform to the current period
presentation.

2. ACCOUNTING CHANGE - EMPLOYEE BENEFIT PLANS

Effective October 1, 1998, Lucent changed its method for calculating the
market-related value of plan assets used in determining the expected
return-on-asset component of annual net pension and postretirement benefit
costs. Under the previous accounting method, which recognized only interest and
dividends immediately, all other realized and unrealized gains and losses on
plan assets were included in the calculated market-related value over a
five-year period. The new method changes the manner in which realized and
unrealized gains and losses are included in market-related value over the
five-year period and results in a calculated market-related value of plan assets
that is closer to current fair value, while still mitigating the effects of
annual market value fluctuations. The new method also reduces the substantial
accumulation of unrecognized gains and losses created under the previous method
due to the disparity between fair value and market-related value of plan assets.

The cumulative effect of this accounting change related to periods prior to
fiscal year 1999 of $2,150 ($1,308 after-tax, or $1.00 and $0.96 per basic and
diluted share, respectively) is a one-time, non-cash credit to fiscal 1999
earnings. This accounting change also resulted in a reduction in benefit costs
as a result of the change in Lucent's pension and postretirement accounting in
the three months ended December 31, 1998 that increased income by $108 ($65
after-tax, or $0.05 per basic and diluted share) as compared to the previous
accounting method. A comparison of pro forma amounts is presented below showing
the effects if the accounting change were applied retroactively:

                                    Three Months Ended December 31,
                                          1998           1997  
                                         ------         ------            
     Net Income                          $1,400         $  851
         Earnings per share-basic        $ 1.06         $ 0.66
         Earnings per share-diluted      $ 1.04         $ 0.65
                                                     
                                                 



<PAGE>
 8                                                            Form 10-Q - Part I

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               (Dollars in Millions Except Per Share Amounts)
                                (Unaudited)

3. COMPREHENSIVE INCOME

Lucent has adopted Statement of Financial Accounting Standards No. 130
"Reporting Comprehensive Income" as of October 1, 1998 which requires new
standards for reporting and display of comprehensive income and its components
in the financial statements. However, it does not affect net income or total
shareowners' equity. The components of comprehensive income are as follows:

                                           Three Months Ended
                                               December 31,
                                          1998             1997
                                      ----------------------------
Net income.........................   $ 2,708            $  792

Other comprehensive income(loss):
 Foreign currency translation
    adjustments....................        51               (82)
 Unrealized holding gains(losses)
    arising during the period......        11               (21)
Comprehensive income...............   $ 2,770             $ 689


The components of accumulated other comprehensive income(loss) are as follows:
<TABLE>
<CAPTION>

                                             Foreign Currency            Total Accumulated
                                               Translation              Other Comprehensive
                                              Adjustments      Other        Income(Loss)
                                             -------------    -----     -------------------
<S>                                         <C>               <C>       <C>  
Accumulated other comprehensive income
  (loss) at September 30, 1998........         $ (279)        $  (3)           $ (282)
Other comprehensive income                   
 for the period.......................             51            11                62
Accumulated other comprehensive income       
  (loss) at December 31, 1998.........         $ (228)       $    8            $ (220)
                                
</TABLE>
             
The foreign currency translation adjustments are not currently adjusted for
income taxes since they relate to indefinite investments in non-United States
subsidiaries.

4. ACQUISITION

Quadritek Systems, Inc.
-----------------------
On October 1, 1998, Lucent completed the purchase of Quadritek Systems, Inc. for
$50 in cash. Quadritek was a privately-held company involved in the development
of Internet Protocol ("IP") network administration software solutions. The
transaction was accounted for under the purchase method of accounting and the
excess purchase price over the estimated fair value of net tangible assets was
allocated to various intangible assets, primarily consisting of developed
technology of $5 and goodwill of $24. These assets are being amortized over six
and eight years, respectively. In addition to the intangible assets acquired,
Lucent recorded a charge of $21 ($14 after-tax), representing the write-off of
in-process research and development ("IPR&D").

The allocation of $21 represents the estimated fair value related to incomplete
projects based on risk-adjusted cash flows. Lucent believes that such fair value
is reasonable and does not exceed the amount a third party would pay for these
projects. At the date of the acquisition, the projects associated with the IPR&D
efforts had not yet reached technological feasibility and had no alternative
future uses. Accordingly, these costs were expensed during the period.





<PAGE>
 9                                                            Form 10-Q - Part I

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               (Dollars in Millions Except Per Share Amounts)
                                (Unaudited)


At the acquisition date, Quadritek was conducting development, engineering, and
testing activities associated with the completion of a number of new product
offerings ("New Product Offerings"). The IPR&D projects were in various stages
of development. Overall, substantial progress had been made. The IPR&D projects
ranged in completion from 20% to 80%. Remaining efforts necessary to complete
the New Product Offerings relate primarily to additional coding, testing, and
addressing performance issues. In total, costs to complete the New Product
Offerings are expected to total approximately $5.

In making its purchase price allocation, Lucent relied upon an independent
third-party valuation which gave consideration to present value calculations of
income, an analysis of project accomplishments and completion costs, an
assessment of overall contributions, as well as project risks. The values
assigned to IPR&D were determined by estimating the costs to develop the
purchased technology into commercially viable products, estimating the resulting
net cash flows from each project, excluding the cash flows related to the
portion of each project that was incomplete at the acquisition date, and
discounting the resulting net cash flows to their present value. Each of the
project forecasts was based upon future discounted cash flows, taking into
account the stage of development of each in-process project, the cost to
complete that project, the expected income stream, the life cycle of the product
ultimately developed, and the associated risks. Projected future net cash flows
attributable to the in-process technology, assuming successful development of
such technologies, were discounted to their present values using a discount rate
of 20%.

The aforementioned estimates are subject to change, given the uncertainties of
the development process, and no assurance can be given that deviations from
these estimates will not occur. Management expects to continue development of
these efforts and believes there is a reasonable chance of successfully
completing such development. However, there is risk associated with the
completion of the in-process projects and there can be no assurance that any of
the projects will meet with either technological or commercial success. Failure
to successfully develop and commercialize the in-process projects would result
in the loss of the expected economic return inherent in the fair value
allocation.


<PAGE>
 10                                                          Form 10-Q - Part I

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               (Dollars in Millions Except Per Share Amounts)
                                (Unaudited)


5. SUPPLEMENTARY BALANCE SHEET INFORMATION

Inventories at December 31, 1998 and September 30, 1998 were as follows:

                                      December 31,   September 30,
                                          1998           1998
                                      ------------   -------------
     Completed goods ...............   $ 1,777        $ 1,578
     Work in process and
       raw materials................     2,001          1,503
     Total inventories .............   $ 3,778        $ 3,081

6. BUSINESS RESTRUCTURING

For the three months ended December 31, 1998 and 1997, $13 and $26,
respectively, were applied to the 1995 business restructuring reserve. The
remaining reserve for business restructuring at December 31, 1998 was $238.

7. EARNINGS PER COMMON SHARE

Basic earnings per common share was calculated by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share was calculated by dividing net income by the sum of the
weighted average number of common shares outstanding plus all additional common
shares that would have been outstanding if potentially dilutive common shares
had been issued.

Earnings per share amounts for the periods presented have been restated to
reflect the two-for-one split of Lucent's common stock which became effective on
April 1, 1998. The following table reconciles the number of shares utilized in
the earnings per share calculations for the three months ended December 31, 1998
and 1997:






<PAGE>
 11                                                          Form 10-Q - Part I

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               (Dollars in Millions Except Per Share Amounts)
                                (Unaudited)

                                            Three Months Ended
                                                December 31,
                                           1998              1997
                                         -------------------------
Net income                               $ 2,708            $  792
                                                         
Earnings per common share - basic:                       
 Income before cumulative effect                         
   of accounting change                  $  1.06            $ 0.62
 Cumulative effect of accounting                         
   change                                   1.00                 -
 Net Income                              $  2.06            $ 0.62
                                                         
                                                         
Earnings per common share - diluted:                     
 Income before cumulative effect                         
   of accounting change                  $  1.04            $ 0.61
 Cumulative effect of accounting                         
   change                                    .96                 -
 Net Income                              $  2.00            $ 0.61
                                                         
Number of Shares (in millions)                           
---------------------------------                        
Common shares - basic                    1,317.3           1,287.3
Effect of dilutive securities:                           
  Stock options                             32.4              18.4
  Other                                      2.4               0.3
                                                         
Common shares - diluted                  1,352.1           1,306.0
                                                         
                                                         
Shares excluded from the                                 
computation of earnings                                  
per common share - diluted since                         
option exercise price was greater                        
than the average market price of                         
the common shares for the period             2.8               5.4
                                                         
                                                         
                                                     
8.  PHILIPS CONSUMER COMMUNICATIONS ("PCC")

On October 1, 1997, Lucent contributed its Consumer Products business to a new
venture formed by Lucent and Philips Electronics N.V. ("Phillips") in exchange
for 40% ownership of PCC. On October 22, 1998, Lucent and Phillips announced
their intention to end the PCC venture and agreed to regain control of their
original businesses. The results of operations and net assets of the remaining
businesses Lucent previously contributed to PCC have been consolidated as of
October 1, 1998. The revenues are included in Other Systems and Products. In
December 1998, Lucent sold certain assets of the wireless handset portion of the
remaining businesses to Motorola. Lucent is continuing to look for opportunities
to sell the remaining consumer products businesses.





<PAGE>
 12                                                         Form 10-Q - Part I

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               (Dollars in Millions Except Per Share Amounts)
                                (Unaudited)
9.  COMMITMENTS AND CONTINGENCIES

In the normal course of business, Lucent 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,
the ultimate aggregate amount of monetary liability or financial impact with
respect to these matters at December 31, 1998 cannot be ascertained. While these
matters could affect the operating results of any one quarter when resolved in
future periods and while there can be no assurance with respect thereto,
management believes that after final disposition, any monetary liability or
financial impact to Lucent beyond that provided for at December 31, 1998 would
not be material to the annual consolidated financial statements.

Lucent's current and historical operations are subject to a wide range of
environmental protection laws. In the United States, these laws often require
parties to fund remedial action regardless of fault. Lucent has remedial and
investigatory activities underway at numerous current and former facilities. In
addition, Lucent was named a successor to AT&T Corp. ("AT&T") as a potentially
responsible party ("PRP") at numerous "Superfund" sites pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA") or comparable state statutes. Under the Separation and Distribution
Agreement ("Separation and Distribution Agreement"), among Lucent, AT&T and NCR
Corporation ("NCR"), dated as of February 1, 1996 as amended and restated,
Lucent is responsible for all liabilities primarily resulting from or relating
to the operation of Lucent's business as conducted at any time prior to or after
the separation from AT&T of the businesses and operations transferred to form
Lucent (the "Separation") including related businesses discontinued or disposed
of prior to the Separation, and Lucent's assets including, without limitation,
those associated with these sites. In addition, under the Separation and
Distribution Agreement, Lucent is required to pay a portion of contingent
liabilities paid out in excess of certain amounts by AT&T and NCR, including
environmental liabilities.

It is often difficult to estimate the future impact of environmental matters,
including potential liabilities. Lucent records an environmental reserve when it
is probable that a liability has been incurred and the amount of the liability
is reasonably estimable. This practice is followed whether the claims are
asserted or unasserted. Management expects that the amounts reserved will be
paid out over the periods of remediation for the applicable sites which range
from 5 to 30 years. Reserves for estimated losses from environmental remediation
are, depending on the site, based primarily upon internal or third party
environmental studies, and estimates as to the number, participation level and
financial viability of any other PRPs, the extent of the contamination and the
nature of required remedial actions. Accruals are adjusted as further
information develops or circumstances change. The amounts provided for in
Lucent's consolidated financial statements for environmental reserves are the
gross undiscounted amount of such reserves, without deductions for insurance or
third party indemnity claims. In those cases where insurance carriers or third
party indemnitors have agreed to pay any amounts and management believes that
collectibility of such amounts is probable, the amounts are reflected as
receivables in the financial statements. Although Lucent believes that its
reserves are adequate, there can be no assurance that the amount of capital
expenditures and other expenses which will be required relating to remedial
actions and compliance with applicable environmental laws will not exceed the
amounts reflected in Lucent's reserves or will not have a material adverse
effect on Lucent's financial condition, results of operations or cash flows. Any
amounts of environmental costs that may be incurred in excess of those provided
for at December 31, 1998 cannot be determined.


<PAGE>
13                                                            Form 10-Q - Part I

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               (Dollars in Millions Except Per Share Amounts)
                                (Unaudited)
10. SUBSEQUENT EVENTS

Kenan Systems Corporation
-------------------------
On January 11, 1999, Lucent announced its intention to merge with Kenan Systems
Corporation, a privately held developer of third-party billing and customer care
software, in exchange for 12.88 million shares of Lucent common stock. Lucent
expects that the acquisition will be completed in Lucent's second fiscal quarter
ending March 31, 1999 and be accounted for as a pooling of interests.

Ascend Communications, Inc.
---------------------------
On January 13, 1999, Lucent announced that it had entered into a definitive
agreement to merge with Ascend Communications, Inc. Under the terms of the
agreement, which was approved by each company's board of directors, each share
of Ascend common stock will be converted into 0.825 shares of Lucent common
stock. Based on Lucent's closing stock price of $107-7/8 on January 12, 1999,
the transaction would be valued at approximately $20 billion.

The transaction, which is subject to customary conditions and regulatory
approvals, is expected to be completed during Lucent's third fiscal quarter,
which ends June 30, 1999, and is expected to be accounted for as a pooling of
interests.

WaveAccess Ltd.
---------------

On January 22, 1999, Lucent completed the acquisition of the remaining 80
percent of WaveAccess Ltd. for $45 in cash. In May 1998, Lucent had acquired a
20 percent stake in the company. WaveAccess is a developer of high-speed systems
for wireless data communications. The acquisition will be accounted for using
the purchase method of accounting.

The purchase is expected to result in a one-time, non-tax deductible, non-cash
charge to earnings for purchased in-process research and development in the
quarter ending March 31, 1999. The amount of the charge has not yet been
determined. The remaining purchase price will be allocated to tangible assets
and intangible assets, including goodwill and existing technology, less
liabilities assumed.



<PAGE>
 14                                                           Form 10-Q - Part I

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
        FINANCIAL CONDITION

HIGHLIGHTS

Lucent reported net income of $2,708 million, or $2.00 per share (diluted) for
the quarter ended December 31, 1998. Included in net income is a $1,308 million
(or $0.96 per share-diluted) cumulative effect of an accounting change related
to Lucent's pension and postretirement benefits (see Note 2). The year-ago
quarterly net income was $792 million, or $0.61 per share (diluted). Excluding
the one-time gain from the cumulative effect of the accounting change and the
in-process research and development charge associated with the acquisition of
Quadritek, which Lucent completed during the current quarter (see Note 4),
Lucent's net income was $1,414 million, or $1.05 per share (diluted) for the
three months ended December 31, 1998. This compares to net income of $1,124
million, or $0.86 per share (diluted) for the three months ended December 31,
1997, excluding the in-process research and development charge associated with
the acquisition of Livingston and the gain on the sale of Advanced Technology
Systems ("ATS").

Gross margin increased $613 million for the quarter ended December 31, 1998
compared with the year-ago quarter. The increase in gross margin was primarily
due to higher sales volume and improved performance on multi-year contracts
compared with the same quarter last year.

Operating income of $2,097 million reflects an increase of $703 million in the
quarter compared with the same quarter in 1997 and was 22.8% of revenues. The
increase was primarily due to the increased gross margin described above and a
non-cash reduction in benefits costs of $108 million resulting from the change
in Lucent's pension and postretirement accounting as described in Note 2.

On October 1, 1998, Lucent completed the purchase of Quadritek for $50 million
in cash. The acquisition was accounted for using the purchase method of
accounting and has been included in the balance sheet at December 31, 1998.

On January 11, 1999, Lucent announced its intention to merge with Kenan Systems
Corporation, a privately held developer of third-party billing and customer care
software, in exchange for 12.88 million shares of Lucent common stock. Lucent
expects that the acquisition will be completed in Lucent's second fiscal quarter
ending March 31, 1999 and be accounted for as a pooling of interests.

On January 13, 1999, Lucent announced that it had entered into a definitive
agreement to merge with Ascend Communications, Inc. Under the terms of the
agreement, which was approved by each company's board of directors, each share
of Ascend common stock will be converted into 0.825 shares of Lucent common
stock. Based on Lucent's closing stock price of $107-7/8 on January 12, 1999,
the transaction would be valued at approximately $20 billion. The transaction,
which is subject to customary conditions and regulatory approvals, is expected
to be completed during Lucent's third fiscal quarter, which ends June 30, 1999,
and is expected to be accounted for as a pooling of interests.

On January 22, 1999, Lucent completed the acquisition of the remaining 80%
interest in WaveAccess for $45 million in cash. The acquisition will be
accounted for using the purchase method of accounting and will be included in
financial statements for the quarter ending March 31, 1999.




<PAGE>
 15                                                        Form 10-Q - Part I

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
                       OPERATIONS AND FINANCIAL CONDITION

KEY BUSINESS CHALLENGES

Lucent continues to face significant competition and expects that the level of
competition on pricing and product offerings will intensify. Lucent expects that
new competitors will enter its markets as a result of the trend toward global
expansion by foreign and domestic competitors as well as continued changes in
technology and public policy. These competitors may include entrants from the
telecommunications, software, data networking and semiconductor industries.
Existing competitors have, and new competitors may have, strong financial
capability, technological expertise, well-recognized brand names and a global
presence. As a result, Lucent's management periodically assesses market
conditions and redirects the Company's resources to meet the challenges of
competition. Steps Lucent may take include acquiring or investing in new
businesses and ventures, partnering with existing businesses, delivering new
technologies, closing and consolidating facilities, disposing of assets,
reducing work force levels or withdrawing from markets.

Lucent has taken measures to manage the seasonality of its business by changing
the date on which its fiscal year ends and its compensation programs for
employees. As a result, Lucent has achieved a more uniform distribution of
revenues -- accompanied by a related redistribution of earnings -- throughout
the year. Revenues and earnings still remain higher in the first fiscal quarter
primarily because many of Lucent's large customers historically delay a
disproportionate percentage of their capital expenditures until the fourth
quarter of the calendar year (Lucent's first fiscal quarter).

The purchasing behavior of Lucent's largest customers has increasingly been
characterized by the use of fewer, larger contracts. These contracts typically
involve longer negotiating cycles, require the dedication of substantial amounts
of working capital and other resources, and in general require costs that may
substantially precede recognition of associated revenues. Moreover, in return
for larger, longer-term purchase commitments, customers often demand more
stringent acceptance criteria, which can also cause revenue recognition delays.
Lucent has increasingly provided or arranged long-term financing for customers
as a condition to obtain or bid on infrastructure projects. Certain multi-year
contracts involve new technologies that may not have been previously deployed on
a large-scale commercial basis. On its multi-year contracts, Lucent may incur
significant initial cost overruns and losses that are recognized in the quarter
in which they become ascertainable. Further, profit estimates on such contracts
are revised periodically over the lives of the contracts, and such revisions can
have a significant impact on reported earnings in any one quarter.

Lucent has been successful in diversifying its customer base and seeking out new
types of customers globally. These new types of customers include competitive
access providers, competitive local exchange carriers, wireless service
providers, cable television network operators and computer manufacturers.

Historically, a limited number of customers have provided a substantial portion
of Lucent's total revenues. The loss of any of these customers, or any
substantial reduction in orders by any of these customers, could materially
adversely affect Lucent's operating results.




<PAGE>
 16                                                         Form 10-Q - Part I

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
                       OPERATIONS AND FINANCIAL CONDITION



REVENUES - THREE MONTHS ENDED DECEMBER 31, 1998 VERSUS THREE MONTHS ENDED
DECEMBER 31, 1997

Total revenues increased 5.5% to $9,204 million in the quarter compared with the
same quarter of 1997, due to increases in sales from Systems for Network
Operators, Business Communications Systems, Microelectronic Products and Other
Systems and Products. For the quarter, sales within the United States decreased
by 9.7% compared with the same quarter in 1997 and sales outside the United
States increased 49.0% compared with the same quarter last year.

The following table presents Lucent's revenues by product line, and the
approximate percentage of total revenues for the three months ended December 31,
1998 and 1997:

                                                      Three Months
                                                        Ended
                                                      December 31,
  Dollars in Millions                       ------------------------------
                                                1998              1997
                                            -------------     ------------
Systems for Network Operators........       $6,115   66%      $5,943   68%
Business Communications Systems......        1,975   22        1,930   22
Microelectronic Products.............          821    9          775    9
Other Systems and Products...........          293    3           76    1
Total................................       $9,204  100%      $8,724  100%

Revenues from SYSTEMS FOR NETWORK OPERATORS increased $172 million, or 2.9% in
1998 compared with the same quarter in 1997. Revenues were driven by sales of
switching systems with associated software, optical networking systems, data
networking systems for service providers, and services. Continued demand for
data services and Internet access in businesses and residences contributed to
the group's quarterly revenues.

Revenues from Systems for Network Operators in the United States decreased by
19.2% over the year-ago quarter. The revenue decrease in the United States was
primarily due to expected software revenues that were delayed into the second
and third quarters. Another factor was an exceptionally strong comparative
quarter in fiscal 1998 when Lucent benefited from revenues associated with
personal communications services ("PCS") wireless buildouts. Revenues generated
outside the United States increased 66.7% compared with the same quarter in 1997
due to revenue growth in the Europe/Middle East/Africa and Caribbean/Latin
America regions and China. Revenues generated outside the United States
represented 41.6% of revenues for the quarter compared with 25.7% for the same
quarter of 1997.

Revenues from BUSINESS COMMUNICATIONS SYSTEMS increased $45 million, or 2.3%
compared with the year-ago quarter. Increased sales of DEFINITY(R) enterprise
communication servers, including those with Call Center applications, messaging
systems, and enterprise data networking systems contributed to the increased
revenue for the quarter. Sales within the United States increased 3.2% for the
quarter compared with the same quarter of 1997. Revenues generated outside the
United States decreased by 1.7%. Revenues generated outside the United States
represented 17.9% of revenues for the quarter compared with 18.7% in the same
quarter in 1997.


--------------------------------------
(R)  Registered trademark of Lucent





<PAGE>
 17                                                           Form 10-Q - Part I

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
                       OPERATIONS AND FINANCIAL CONDITION

Revenues from MICROELECTRONIC PRODUCTS increased $46 million, or 5.9% compared
with the year-ago quarter driven by sales of chips for high-speed
communications, mass storage, data networking and optoelectronic components.
These increases were partially offset by decreased sales of power systems. Sales
within the United States decreased 7.8% compared to the same quarter in 1997.
Revenues generated outside the United States increased 20.3%. The growth in
revenues outside the United States was driven by sales in the Asia/ Pacific and
Europe/Middle East/Africa regions. Revenues generated outside the United States
represented 55.4% of sales for the quarter compared with 48.8% for the same
quarter of 1997.

Revenues from OTHER SYSTEMS AND PRODUCTS increased $217 million compared with
the year-ago quarter primarily due to the consolidation of the businesses
regained from the PCC venture (see Note 8).

COSTS AND GROSS MARGIN - THREE MONTHS ENDED DECEMBER 31, 1998 VERSUS 
THREE MONTHS ENDED DECEMBER 31, 1997

Total costs decreased by $133 million, or 2.9% in 1998 compared with the same
quarter in 1997 primarily due to better performance on multi-year contracts and
improved cost management partially offset by the costs related to the high sales
volume. As a percentage of revenue, gross margin increased to 52.3% from 48.2%
in the year-ago quarter. The increase this quarter compared with the same
quarter in 1997 reflects improved performance on multi-year contracts and higher
profits on certain products offset by a delayed recognition of software
revenues. Based on current planning assumptions, Lucent expects that its full
1999 fiscal year gross margin will exceed fiscal year 1998, but at a lower level
than achieved for the first fiscal quarter.

OPERATING EXPENSES - THREE MONTHS ENDED DECEMBER 31, 1998 VERSUS
THREE MONTHS ENDED DECEMBER 31, 1997

Selling, general and administrative expenses as a percentage of revenues were
19.3% for the quarter, up 1.5 percentage points compared with 17.8% for the same
quarter in 1997. Excluding the amortization expense associated with goodwill and
existing technology for both years, selling, general and administrative expenses
as a percentage of revenues was 18.7%, an increase of 1.1 percentage points from
the same quarter in 1997.

Selling, general and administrative expenses increased $219 million, or 14.1%
compared with the same year-ago quarter. This increase was attributed to
investment in growth initiatives as well as the increase in amortization expense
associated with goodwill and existing technology. Amortization expense
associated with goodwill and existing technology was $57 million for the
quarter, an increase of $34 million from the year-ago quarter.

Research and development expenses represented 10.1% of revenues for the quarter
compared with 9.5% of revenues for the same quarter of 1997.

Research and development expenses increased $97 million during the quarter
compared with the same year-ago quarter. This was primarily due to increased
expenditures in support of wireless, data networking, optical networking and
switching and access systems.

The purchased in-process research and development expenses for the quarter were
$21 million associated with the acquisition of Quadritek compared with $427
million related to the acquisition of Livingston for the same quarter of 1997.

OTHER INCOME, INTEREST EXPENSE AND PROVISION FOR INCOME TAXES - THREE
MONTHS ENDED DECEMBER 31, 1998 VERSUS THREE MONTHS ENDED DECEMBER 31, 1997

Other income - net decreased $44 million to $102 million for the quarter
compared with the same quarter in 1997. The decrease was primarily due to the
gain on ATS recorded in the prior quarter partially offset by lower net equity
losses and lower losses on foreign exchange in the current quarter.




<PAGE>
 18                                                         Form 10-Q - Part I

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
                       OPERATIONS AND FINANCIAL CONDITION


Interest expense for the quarter increased $16 million to $78 million compared
with the same quarter in 1997. The increase in interest expense is due to higher
debt levels for the quarter ended December 31, 1998 compared with the same
quarter in 1997.

The effective income tax rate of 34.0% for the quarter ended December 31, 1998
decreased from 46.4% for the prior year quarter. Excluding the purchased
in-process research and development expenses associated with the Quadritek
acquisition in 1998 and the Livingston acquisition in 1997, the effective income
tax rate remained at 34.0% for the quarter ended December 31, 1998 compared with
36.0% in the prior year quarter. This decrease was primarily due to increased
research and experimentation tax credits and the tax impact of foreign activity.

TOTAL ASSETS, WORKING CAPITAL AND LIQUIDITY

Total assets increased $4,921 million, or 18.4%, from fiscal year-end 1998. This
increase was largely due to increases in accounts receivable and prepaid pension
costs of $2,246 million and $2,314 million, respectively. The increase in
accounts receivable was primarily related to higher sales volume in the last
month of the quarter. Prepaid pension costs increased due to the change in
accounting for pensions.

Total liabilities increased $2,018 million, or 9.5% from fiscal year-end 1998.
This increase was due primarily to higher commercial paper balances.

Working capital, defined as current assets less current liabilities, increased
$1,260 million from September 30, 1998, primarily resulting from the increase in
accounts receivable and inventories partially offset by higher commercial paper
balances.

Lucent expects that, from time to time, outstanding commercial paper balances
may be replaced with short- or long-term borrowings as market conditions permit.
At December 31, 1998, Lucent maintained approximately $5,400 million in credit
facilities of which a portion is used to support Lucent's commercial paper
program. At December 31, 1998, approximately $4,900 million was unused. Future
financings will be arranged to meet Lucent's requirements with the timing,
amount and form of issue depending on the prevailing market and general economic
conditions. Lucent anticipates that borrowings under its bank credit facilities,
the issuance of additional commercial paper, cash generated from operations and
short- and long-term debt financings will be adequate to satisfy its future cash
requirements, although there can be no assurance that this will be the case.

Network operators, inside and outside the United States, increasingly have
required their suppliers to arrange or provide long-term financing for them as a
condition to obtaining or bidding on infrastructure projects. These projects may
require financing in amounts ranging from modest sums to over a billion dollars.
Lucent has increasingly provided or arranged long-term financing for customers.
As market conditions permit, Lucent's intention is to lay off these long-term
financing arrangements, which may include both commitments and drawn down
borrowings, to financial institutions and investors. This enables Lucent to
reduce the amount of its commitments and free up additional financing capacity.

As of December 31, 1998, Lucent had made commitments or entered into an
agreement to extend credit to certain network operators, including PCS and
wireless operators, for an aggregate of approximately $3,190 million. As of
December 31, 1998, approximately $440 million had been advanced and was
outstanding. Included in the $3,190 million is approximately $2,810 million to
twelve network operators for possible future sales. As of December 31, 1998,
approximately $350 million had been advanced and outstanding under seven of
these arrangements.




<PAGE>
 19                                                         Form 10-Q - Part I

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
                       OPERATIONS AND FINANCIAL CONDITION

As part of the revenue recognition process, Lucent assesses the collectibility
of its receivables relating to contracts with customers for which Lucent
provides financing.

In addition to the above arrangements, Lucent will continue to provide or commit
to financing where appropriate for its business. The ability of Lucent to
arrange or provide financing for its customers will depend on a number of
factors, including Lucent's capital structure and level of available credit, and
its continued ability to lay off commitments and drawn down borrowings on
acceptable terms.

Lucent believes that it will be able to access the capital markets on terms and
in amounts that will be satisfactory to Lucent and that it will be able to
obtain bid and performance bonds, to arrange or provide customer financing as
necessary, and to engage in hedging transactions on commercially acceptable
terms, although there can be no assurance that this will be the case.

RISK MANAGEMENT

Lucent is exposed to market risk from changes in foreign currency exchange rates
and interest rates, which could impact its results of operations, financial
condition and cash flow. Lucent manages its exposure to these market risks
through its regular operating and financing activities and, when deemed
appropriate, through the use of derivative financial instruments. Derivative
financial instruments are viewed as risk management tools and are not used for
speculative or trading purposes. In addition, derivative financial instruments
are entered into with a diversified group of major financial institutions in
order to manage Lucent's exposure to nonperformance by the counterparties on
such instruments.

Lucent manages its ratio of fixed to floating rate debt with the objective of
achieving a mix that management believes is appropriate. To manage this mix in a
cost effective manner, Lucent, from time to time, enters into interest rate swap
agreements, in which it agrees to exchange various combinations of fixed and/or
variable interest rates based on agreed upon notional amounts. Lucent had no
material interest rate swap agreements in effect as of December 31, 1998 and
September 30, 1998. Management does not foresee or expect any significant
changes in its exposure to interest rate fluctuations or in how such exposure is
managed in the near future.

CASH FLOWS

Cash used in operating activities for the three months ended December 31, 1998
was $1,101 million compared with cash provided by operating activities of $385
in the same year-ago quarter. This reduction in cash was primarily due to
increases in accounts receivable and inventories, offset by a decrease in
payroll and benefit related liabilities.

Cash payments of $13 million were made for the quarter ended December 31, 1998,
for the 1995 business restructuring charge. Of the 23,000 positions that Lucent
announced it would eliminate in connection with the restructuring charges,
approximately 20,100 positions have been eliminated as of December 31, 1998.




<PAGE>
 20                                                           Form 10-Q - Part I

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
                       OPERATIONS AND FINANCIAL CONDITION



Comparing the quarters ended December 31, 1998 and 1997, cash used in investing
activities increased to $367 million from $10 million primarily due to the cash
used for acquisitions and a reduction in cash from dispositions.

Capital expenditures were $343 million and $261 million for the quarters ended
December 31, 1998 and 1997, respectively. Capital expenditures relate to
expenditures for equipment and facilities used in manufacturing and research and
development, including expansion of manufacturing capacity, and expenditures for
cost reduction efforts and international growth.

Cash provided by financing activities for the quarter ended December 31, 1998
was $1,713 million compared with $478 million used in financing activities in
the same quarter a year-ago. This increase in cash provided by financing
activities was primarily due to increased issuances of both short- and long-term
debt.

The ratio of total debt to total capital (debt plus equity) was 42.2% at
December 31, 1998 compared to 45.6% at September 30, 1998.

OTHER

Lucent's current and historical operations are subject to a wide range of
environmental protection laws. In the United States, these laws often require
parties to fund remedial action regardless of fault. Lucent has remedial and
investigatory activities underway at numerous current and former facilities. In
addition, Lucent was named a successor to AT&T as a potentially responsible
party ("PRP") at numerous "Superfund" sites pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA") or
comparable state statutes. Under the Separation and Distribution Agreement,
among AT&T, Lucent and NCR Corporation dated as of February 1, 1996, as amended
and restated, Lucent is responsible for all liabilities primarily resulting from
or related to the operation of Lucent's business as conducted at any time prior
to or after the Separation including related businesses discontinued or disposed
of prior to the Separation, and Lucent's assets including, without limitation,
those associated with these sites. In addition, under the Separation and
Distribution Agreement, Lucent is required to pay a portion of contingent
liabilities paid out in excess of certain amounts by AT&T and NCR, including
environmental liabilities.

It is often difficult to estimate the future impact of environmental matters,
including potential liabilities. Lucent records an environmental reserve when it
is probable that a liability has been incurred and the amount of the liability
is reasonably estimable. This practice is followed whether the claims are
asserted or unasserted. Management expects that the amounts reserved will be
paid out over the period of remediation for the applicable site which ranges
from 5 to 30 years. Reserves for estimated losses from environmental remediation
are, depending on the site, based primarily upon internal or third party
environmental studies, and estimates as to the number, participation level and
financial viability of any other PRPs, the extent of the contamination and the
nature of required remedial actions. Accruals are adjusted as further
information develops or circumstances change. The amounts provided for in
Lucent's consolidated financial statements for environmental reserves are the
gross undiscounted amount of such reserves, without deductions for insurance or
third party indemnity claims. In those cases where insurance carriers or third
party indemnitors have agreed to pay any amounts and




<PAGE>
 21                                                          Form 10-Q - Part I

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
                       OPERATIONS AND FINANCIAL CONDITION


management believes that collectibility of such amounts is probable, the amounts
are reflected as receivables in the financial statements. Although Lucent
believes that its reserves are adequate, there can be no assurance that the
amount of capital and other expenditures that will be required relating to
remedial actions and compliance with applicable environmental laws will not
exceed the amounts reflected in Lucent's reserves or will not have a material
adverse effect on Lucent's financial condition, results of operations or cash
flows. Any amounts of environmental costs that may be incurred in excess of
those provided for at December 31, 1998 cannot be determined.

FORWARD-LOOKING STATEMENTS

This Management's Discussion and Analysis of Results of Operations and Financial
Condition and other sections of this report contain forward-looking statements
that are based on current expectations, estimates, forecasts and projections
about the industries in which Lucent operates, management's beliefs and
assumptions made by management. In addition, other written or oral statements
which constitute forward-looking statements may be made by or on behalf of
Lucent. Words such as "expects," "anticipates," "intends," "plans," "believes,"
"seeks," "estimates," variations of such words and similar expressions are
intended to identify such forward-looking statements. These statements are not
guarantees of future performance and involve certain risks, uncertainties and
assumptions ("Future Factors") which are difficult to predict. Therefore, actual
outcomes and results may differ materially from what is expressed or forecasted
in such forward-looking statements. Lucent undertakes no obligation to update
publicly any forward-looking statements, whether as a result of new information,
future events or otherwise.

Future Factors include increasing price and product/services competition by
foreign and domestic competitors, including new entrants; rapid technological
developments and changes and Lucent's ability to continue to introduce
competitive new products and services on a timely, cost-effective basis; the mix
of products/services; the achievement of lower costs and expenses; the ability
to successfully integrate the operations and business of Ascend, Kenan and other
acquired companies; the outcome and impact of Year 2000; domestic and foreign
governmental and public policy changes which may affect the level of new
investments and purchases made by customers; changes in environmental and other
domestic and foreign governmental regulations; protection and validity of patent
and other intellectual property rights; reliance on large customers; customer
demand for Lucent's products and services; technological, implementation and
cost/financial risks in the increasing use of large, multi-year contracts; the
cyclical nature of Lucent business; the outcome of pending and future litigation
and governmental proceedings and continued availability of financing, financial
instruments and financial resources in the amounts, at the times and on the
terms required to support Lucent's future business. These are representative of
the Future Factors that could affect the outcome of the forward-looking
statements. In addition, such statements could be affected by general industry
and market conditions and growth rates, general domestic and international
economic conditions including interest rate and currency exchange rate
fluctuations and other Future Factors.

For a further description of Future Factors that could cause actual results to
differ materially from such forward-looking statements, see below in this report
including the other sections referred to and also see the discussion in Lucent's
Form 10-K for the year ended September 30, 1998 in Item 1 in the section
entitled "OUTLOOK-Forward Looking Statements" and the remainder of the OUTLOOK
section.



<PAGE>
 22                                                        Form 10-Q - Part I

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
                       OPERATIONS AND FINANCIAL CONDITION

Competition:
See discussion above under KEY BUSINESS CHALLENGES.

Dependence On New Product Development:
The markets for Lucent's principal products are characterized by rapidly
changing technology, evolving industry standards, frequent new product
introductions and evolving methods of building and operating communications
systems for network operators and business customers. Lucent's operating results
will depend to a significant extent on its ability to continue to introduce new
systems, products, software and services successfully on a timely basis and to
reduce costs of existing systems, products, software and services. The success
of these and other new offerings is dependent on several factors, including
proper identification of customer needs, cost, timely completion and
introduction, differentiation from offerings of Lucent's competitors and market
acceptance. In addition, new technological innovations generally require a
substantial investment before any assurance is available as to their commercial
viability, including, in some cases, certification by international and domestic
standards-setting bodies.

Reliance on Major Customers:
See discussion above under KEY BUSINESS CHALLENGES.

Readiness for Year 2000:
Lucent is engaged in a major effort to minimize the impact of the Year 2000 date
change on Lucent's products, information technology systems, facilities and
production infrastructure. Lucent has targeted June 30, 1999 for completion of
these efforts.

The Year 2000 challenge is a priority within Lucent at every level of Lucent.
Primary Year 2000 preparedness responsibility rests with program offices which
have been established within each of Lucent's product groups and corporate
centers. A corporate-wide Lucent Year 2000 Program Office ("LYPO") monitors and
reports on the progress of these offices. Each program office has a core of
full-time individuals augmented by a much larger group who have been assigned
specific Year 2000 responsibilities in addition to their regular assignments.
Further, Lucent has engaged third parties to assist in its readiness efforts in
certain cases. LYPO has established a methodology to measure, track and report
Year 2000 readiness status consisting of five steps: inventory; assessment;
remediation; testing and deployment.

Lucent is completing programs to make its new commercially available products
Year 2000 ready and has developed evolution strategies for customers who own
non-Year 2000 ready Lucent products. The majority of the upgrades and new
products needed to support customer migration are already generally available.
By the end of 1998, all but a few of these products were generally available.

Lucent has launched extensive efforts to alert customers who have non-Year 2000
ready products, including direct mailings, phone contacts and participation in
user and industry groups. Lucent also has a Year 2000 website www.lucent.com/y2k
that provides Year 2000 product information. Lucent continues to cooperate in
the Year 2000 information sharing efforts of the Federal Communications
Commission and other governmental bodies.

Lucent believes it has sufficient resources to provide timely support to its
customers that require product migrations or upgrades. However, because this
effort is heavily dependent on customer cooperation, Lucent continues to monitor
customer response and will take steps to improve customer responsiveness, as
necessary. Also, Lucent is continuing contingency planning to address potential
spikes in demand for customer support resulting from the Year 2000 date change.
These plans are targeted for completion by April 30, 1999.




<PAGE>
 23                                                         Form 10-Q - Part I

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
                       OPERATIONS AND FINANCIAL CONDITION


Lucent has largely completed the inventory and assessment phases of the program
with respect to its factories, information systems, and facilities.
Approximately, two-thirds of the production elements included in the factory
inventory were found to be Year 2000 ready. The factories have commenced the
remediation phase of their effort through a combination of product upgrades and
replacement. Plans have been developed to facilitate the completion of this
work, as well as the related testing and deployment, by June 30, 1999.

Currently, approximately 65% of Lucent's information technology infrastructure
has been determined to be Year 2000 ready and is deployed for use.
Approximately, 65% of our business applications lines of code that are supported
by Lucent's information technology group are now Year 2000 ready and have been
deployed or are awaiting deployment. LYPO is monitoring the progress of
readiness efforts across Lucent, with a special emphasis on the early
identification of any areas where progress to-date could indicate difficulty in
meeting Lucent's June 1999 internal readiness target date. Lucent is developing
specific contingency plans, as appropriate.

Lucent is also assessing the Year 2000 readiness of the large number of
facilities that it owns or leases world-wide. Priority is being placed on
Lucent-owned facilities, leased facilities that Lucent manages and other
critical facilities that house large numbers of employees or significant
operations. Based on the results of these assessment activities, Lucent plans to
complete remediation efforts by March 31, 1999 and complete development of
applicable contingency plans by May 31, 1999.

To ensure the continued delivery of third party products and services, Lucent's
procurement organization has analyzed Lucent's supplier base and has sent
surveys to approximately 5,000 suppliers. Follow-up efforts have commenced to
obtain feedback from critical suppliers. To supplement this effort, Lucent is
conducting readiness reviews of the Year 2000 status of the suppliers ranked as
most critical based on the nature of their relationship with Lucent, the
product/service provided and/or the content of their survey responses. Almost
all of Lucent's suppliers are still deeply engaged in executing their Year 2000
readiness efforts and, as a result, Lucent cannot, at this time, fully evaluate
the Year 2000 risks to its supply chain. Lucent will continue to monitor the
Year 2000 status of its suppliers to minimize this risk and will develop
appropriate contingent responses as the risks become clearer.

The risk to Lucent resulting from the failure of third parties in the public and
private sector to attain Year 2000 readiness is the same as other firms in
Lucent's industry or other business enterprises generally. The following are
representative of the types of risks that could result in the event of one or
more major failures of Lucent's information systems, factories or facilities to
be Year 2000 ready, or similar major failures by one or more major third party
suppliers to Lucent: (1) information systems--could include interruptions or
disruptions of business and transaction processing such as customer billing,
payroll, accounts payable and other operating and information processes, until
systems can be remedied or replaced; (2) factories and facilities--could include
interruptions or disruptions of manufacturing processes and facilities with
delays in delivery of products, until non-compliant conditions or components can
be remedied or replaced; and (3) major suppliers to Lucent--could include
interruptions or disruptions of the supply of raw materials, supplies and Year
2000 ready components which could cause interruptions or disruptions of
manufacturing and delays in delivery of products, until the third party supplier
remedied the problem or contingency measures were implemented. Risks of major
failures of Lucent's principal products could include adverse functional impacts
experienced by customers, the costs and resources for Lucent to remedy problems
or replace products where Lucent is obligated or undertakes to take such action,
and delays in delivery of new products.




<PAGE>
 24                                                         Form 10-Q - Part I

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
                       OPERATIONS AND FINANCIAL CONDITION

Lucent believes it is taking the necessary steps to resolve Year 2000 issues;
however, given the possible consequences of failure to resolve significant Year
2000 issues, there can be no assurance that any one or more such failures would
not have a material adverse effect on Lucent. Lucent estimates that the costs of
efforts to prepare for Year 2000 from calendar year 1997 through 2000 is about
$535 million, of which an estimated $280 million has been spent as of December
31, 1998. Lucent has been able to reprioritize work projects to largely address
Year 2000 readiness needs within its existing organizations. As a result, most
of these costs represent costs that would have been incurred in any event. These
amounts cover costs of the Year 2000 readiness work for inventory, assessment,
remediation, testing and deployment including fees and charges of contractors
for outsourced work and consultant fees. Costs for previously contemplated
updates and replacements of Lucent's internal systems and information systems
infrastructure have been excluded without attempting to establish whether the
timing of non-Year 2000 replacement or upgrading was accelerated.

While the Year 2000 cost estimates above include additional costs, Lucent
believes, based on available information, that it will be able to manage its
total Year 2000 transition without any material adverse effect on its business
operations, products or financial prospects.

The actual outcomes and results could be affected by Future Factors including,
but not limited to, the continued availability of skilled personnel, cost
control, the ability to locate and remediate software code problems, critical
suppliers and subcontractors meeting their commitments to be Year 2000 ready and
provide Year 2000 ready products, and timely actions by customers.

European Monetary Union - Euro:
On January 1, 1999, eleven member countries of the European Union established
fixed conversion rates between their existing sovereign currencies, and adopted
the Euro as their new common legal currency. As of that date, the Euro is
trading on currency exchanges, and the legacy currencies will remain legal
tender in the participating countries for a transition period between January 1,
1999 and January 1, 2002.

During the transition period, cash-less payments can be made in the Euro, and
parties can elect to pay for goods and services and transact business using
either the Euro or a legacy currency. Between January 1, 2002 and July 1, 2002,
the participating countries will introduce Euro notes and coins and withdraw all
legacy currencies so that they will no longer be available.

Lucent has begun planning for the Euro's introduction. For this purpose, Lucent
has in place a joint European-United States team representing affected functions
within the Company.

The Euro conversion may affect cross-border competition by creating cross-border
price transparency. Lucent is assessing its pricing/marketing strategy in order
to insure that it remains competitive in a broader European market. Lucent is
also assessing its information technology systems to allow for transactions to
take place in both the legacy currencies and the Euro and the eventual
elimination of the legacy currencies, and reviewing whether certain existing
contracts will need to be modified. Lucent's currency risk and risk management
for operations in participating countries may be reduced as the legacy
currencies are converted to the Euro. Final accounting, tax and governmental
legal and regulatory guidance is not available. Lucent will continue to evaluate
issues involving introduction of the Euro. Based on current information and
Lucent's current assessment, Lucent does not expect that the Euro conversion
will have a material adverse effect on its business or financial condition.


<PAGE>
 25                                                          Form 10-Q - Part I

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
                       OPERATIONS AND FINANCIAL CONDITION

Employee Relations:
On December 31, 1998, Lucent employed approximately 143,800 persons, of whom 78%
were located in the United States. Of these domestic employees, 40% are
represented by unions, primarily the Communications Workers of America
("CWA")and the International Brotherhood of Electrical Workers ("IBEW"). Lucent
has concluded new five year agreements with the CWA and IBEW expiring May 31,
2003.

Multi-Year Contracts:
Lucent has significant contracts for the sale of infrastructure systems to
network operators which extend over a multi-year period, and expects to enter
into similar contracts in the future, with uncertainties affecting recognition
of revenues, stringent acceptance criteria, implementation of new technologies
and possible significant initial cost overruns and losses. See also discussion
above under TOTAL ASSETS, WORKING CAPITAL AND LIQUIDITY, and KEY BUSINESS
CHALLENGES.

Seasonality:
See discussion above under KEY BUSINESS CHALLENGES.

Future Capital Requirements:
See discussion above under TOTAL ASSETS, WORKING CAPITAL AND LIQUIDITY.

Growth Outside the U.S., Foreign Exchange and Interest Rates:
Lucent intends to continue to pursue growth opportunities in markets outside the
U.S. In many markets outside the U.S., long-standing relationships between
potential customers of Lucent and their local providers, and protective
regulations, including local content requirements and type approvals, create
barriers to entry. In addition, pursuit of such growth opportunities outside the
U.S. may require significant investments for an extended period before returns
on such investments, if any, are realized. Such projects and investments could
be adversely affected by reversals or delays in the opening of foreign markets
to new competitors, exchange controls, currency fluctuations, investment
policies, repatriation of cash, nationalization, social and political risks,
taxation, and other factors, depending on the country in which such opportunity
arises. Difficulties in foreign financial markets and economies, and of foreign
financial institutions, could adversely affect demand from customers in the
affected countries.

See discussion above under RISK MANAGEMENT with respect to foreign exchange and
interest rates. A significant change in the value of the dollar against the
currency of one or more countries where Lucent sells products to local customers
or makes purchases from local suppliers may materially adversely affect Lucent's
results. Lucent attempts to mitigate any such effects through the use of foreign
currency contracts, although there can be no assurances that such attempts will
be successful.

While Lucent hedges transactions with non-U.S. customers, the decline in value
of the Asia/Pacific currencies, or declines in currency values in other regions,
may, if not reversed, adversely affect future product sales because Lucent's
products may become more expensive to purchase for local customers doing
business in the countries of the affected currencies.

Legal Proceedings and Environmental:
See discussion above in Note 9 - COMMITMENTS AND CONTINGENCIES and OTHER.




<PAGE>
 26                                                          Form 10-Q - Part I

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
                       OPERATIONS AND FINANCIAL CONDITION

RECENT PRONOUNCEMENTS

In December 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-9, Modification of SOP 97-2, "Software Revenue
Recognition," with Respect to Certain Transactions ("SOP 98-9"). SOP 98-9 amends
SOP 97-2 to require recognition for multiple-element arrangements by means of
the "residual method" in certain circumstances. The provisions of SOP 98-9 that
extend the deferral of certain passages of SOP 97-2 became effective December
15, 1998. All other provisions are effective for transactions entered into in
fiscal years beginning after March 15, 1999. Earlier application for financial
statements or information that has not been issued is permitted and retroactive
application is prohibited. SOP 98-9 is not expected to have a material impact on
Lucent's consolidated results of operations, financial position or cash flows.




<PAGE>
 27                                                        Form 10-Q - Part II

                      Part II - Other Information


Item 6. Exhibits and Reports on Form 8-K.

(a)  Exhibits:

     Exhibit Number

     (12)              Computation of Ratio of Earnings to Fixed Charges

     (18)              Preferability Letter on Accounting Change from
                           PricewaterhouseCoopers LLP

     (27)              Financial Data Schedule


(b) Reports on Form 8-K:

     Current Report on Form 8-K dated October 22, 1998 was filed pursuant to
     Item 5 (Other Events) and Item 7 (Financial Statements, Pro Forma Financial
     Information and Exhibits).





<PAGE>
 28                                                          Form 10-Q


                              SIGNATURES

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




                            Lucent Technologies Inc.









Date February 16, 1999



                          By James S. Lusk
                          Vice President and Controller
                         (Principal Accounting Officer)