<PAGE>



                                   FORM 10-Q

                                 United States
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549


(Mark One)

     |X|          Quarterly Report Pursuant to Section 13 or 15(d) of the
                        Securities Exchange Act of 1934

               For the quarterly period ended September 30, 1997

                                      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 1-1414

                                 PACIFIC BELL

                           A California Corporation
               I.R.S. Employer Identification Number 94-0745535

          140 New Montgomery Street, San Francisco, California 94105
                       Telephone Number: (415) 542-9000


THE REGISTRANT, AN INDIRECTLY HELD WHOLLY-OWNED SUBSIDIARY OF SBC COMMUNICATIONS
INC., MEETS THE CONDITIONS SET FORTH IN GENERAL  INSTRUCTION  H(1)(a) AND (b) OF
FORM 10-Q AND IS  THEREFORE  FILING  THIS FORM WITH  REDUCED  DISCLOSURE  FORMAT
PURSUANT TO GENERAL INSTRUCTION H(2).

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

<PAGE>


PART I - FINANCIAL INFORMATION
Item 1.  Financial Statements
<TABLE>

PACIFIC BELL
-----------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
Dollars in millions
(Unaudited)
-----------------------------------------------------------------------------------------
<CAPTION>
                                                 ----------------------------------------
                                                 Three months ended    Nine months ended
                                                   September 30,         September 30,
                                               ------------------------------------------
                                                   1997       1996       1997      1996
-----------------------------------------------------------------------------------------
<S>                                            <C>        <C>        <C>      <C>
Operating Revenues
Local service                                  $  1,153   $  1,006   $  3,261  $ 2,962
Network access:
  Interstate                                        455        448      1,254    1,338
  Intrastate                                        194        176        596      539
Long-distance service                               302        324        900      953
Directory advertising                               218        204        834      780
Other                                               159        157        479      434
------------------------------------------------------------------------------------------
Total operating revenues                          2,481      2,315      7,324    7,006
------------------------------------------------------------------------------------------

Operating Expenses
Cost of services and products                     1,049        893      2,996    2,618
Selling, general and administrative                 538        433      2,494    1,257
Depreciation and amortization                       471        459      1,557    1,367
------------------------------------------------------------------------------------------
Total operating expenses                          2,058      1,785      7,047    5,242
------------------------------------------------------------------------------------------
Operating Income                                    423        530        277    1,764
------------------------------------------------------------------------------------------

Other Income (Expense)
Interest expense                                   (117)       (95)      (336)    (277)
Other income (expense) - net                         15          2        (15)       4
------------------------------------------------------------------------------------------
Total other income (expense)                       (102)       (93)      (351)    (273)
------------------------------------------------------------------------------------------

Income (Loss) Before Income Taxes and
 Cumulative Effect of Accounting Changes            321        437        (74)   1,491
------------------------------------------------------------------------------------------

Income Taxes                                        126        175          5      607
------------------------------------------------------------------------------------------

Income (Loss) Before Cumulative Effect of
  Accounting Changes                                195        262        (79)     884
------------------------------------------------------------------------------------------
Cumulative Effect of Accounting Changes, net of tax   -          -        342       85
------------------------------------------------------------------------------------------

Net Income                                     $    195   $    262   $    263  $   969
------------------------------------------------------------------------------------------
<FN>

See Notes to Consolidated Financial Statements.
</FN>
</TABLE>


<PAGE>


                                             
PACIFIC BELL
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
Dollars in millions except per share amounts
--------------------------------------------------------------------------------
                                                   September 30,    December 31,
                                                   -----------------------------
                                                            1997            1996
--------------------------------------------------------------------------------
Assets                                                (Unaudited)
Current Assets
Cash and cash equivalents                              $      55       $     58
Accounts receivable - net of allowances for
 uncollectibles of $241 and $161                           2,493          2,133
Prepaid expenses                                              49             37
Deferred income taxes                                        539            119
Deferred charges                                              26             45
Other current assets                                          49             37
--------------------------------------------------------------------------------
Total current assets                                       3,211          2,429
--------------------------------------------------------------------------------
Property, Plant and Equipment - at cost                   29,304         28,372
  Less: Accumulated depreciation and amortization         17,470         16,699
--------------------------------------------------------------------------------
Property, Plant and Equipment - Net                       11,834         11,673
--------------------------------------------------------------------------------
Other Assets                                                 725            547
--------------------------------------------------------------------------------
Total Assets                                           $  15,770       $ 14,649
--------------------------------------------------------------------------------

Liabilities and Shareowner's Equity
Current Liabilities
Debt maturing within one year                          $   1,217       $    287
Accrued taxes                                              1,023             95
Accounts payable and accrued liabilities                   2,629          2,451
--------------------------------------------------------------------------------
Total current liabilities                                  4,869          2,833
--------------------------------------------------------------------------------
Long-Term Debt                                             5,342          5,364
--------------------------------------------------------------------------------

Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes                                        596            476
Postemployment benefit obligation                            906            671
Unamortized investment tax credits                           204            236
Other noncurrent liabilities                                 411          1,142
--------------------------------------------------------------------------------
Total deferred credits and other noncurrent liabilities    2,117          2,525
--------------------------------------------------------------------------------

Commitments and contingencies
--------------------------------------------------------------------------------

Shareowner's Equity
Common stock - ($1 par value)                                225            225
Paid in surplus                                            5,352          6,100
Retained earnings (deficit)                               (2,135)        (2,398)
--------------------------------------------------------------------------------
Total shareowner's equity                                  3,442          3,927
--------------------------------------------------------------------------------
Total Liabilities and Shareowner's Equity              $  15,770       $ 14,649
--------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.


<PAGE>



PACIFIC BELL
-------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in millions, increase (decrease) in cash and cash equivalents
(Unaudited)
-------------------------------------------------------------------------
                                                    Nine months ended
                                                       September 30,
                                                 ------------------------
                                                        1997      1996
-------------------------------------------------------------------------
Operating Activities
Net income                                         $    263     $    969
Adjustments to reconcile net income to net cash
  provided by operating activities:
   Depreciation and amortization                      1,557        1,367
   Provision for uncollectible accounts                 201          128
   Amortization of investment tax credits               (32)         (36)
   Deferred income taxes                               (248)         149
   Cumulative effect of accounting change, net of tax  (342)         (85)
   Other - net                                          126         (738)
-------------------------------------------------------------------------
Total adjustments                                     1,262          785
-------------------------------------------------------------------------
Net Cash Provided by Operating Activities             1,525        1,754
-------------------------------------------------------------------------

Investing Activities
Construction and capital expenditures                (1,687)      (1,597)
Other                                                     -          (32)
-------------------------------------------------------------------------
Net Cash Used in Investing Activities                (1,687)      (1,629)
-------------------------------------------------------------------------

Financing Activities
Net change in short-term borrowings with
original maturities of three months or less             301         (186)
Issuance of other short-term borrowings                 610            -
Issuance of long-term debt                                -          700
Repayment of long-term debt                              (4)          (3)
Equity received from parent                             156          198
Dividends paid                                         (904)        (830)
Other                                                     -            6
-------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities     159         (115)
-------------------------------------------------------------------------
Net increase (decrease) in cash and cash                 (3)          10
equivalents
-------------------------------------------------------------------------
Cash and cash equivalents beginning of year              58           68
-------------------------------------------------------------------------
Cash and Cash Equivalents End of Period            $     55     $     78
-------------------------------------------------------------------------

Cash paid during the nine months ended September 30 for:
     Interest                                      $    357     $    305
     Income taxes, net of refunds                  $   (416)    $    253

See Notes to Consolidated Financial Statements.



<PAGE>




PACIFIC BELL
----------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF SHAREOWNER'S EQUITY
Dollars in millions
(Unaudited)
----------------------------------------------------------------------------
                                                                     Retained
                                           Common      Paid-in       Earnings
                                            Stock      Surplus       (Deficit)
-----------------------------------------------------------------------------
Balance, December 31, 1996                $   225     $  6,100      $ (2,398)
Net income                                      -            -           263
Dividend to shareowner                          -         (904)           -
Net equity from parent                          -          156            -
------------------------------------------------------------------------------
Balance, September 30, 1997               $   225     $  5,352      $ (2,135)
------------------------------------------------------------------------------

See Notes to Consolidated Financial Statements.

                                  * * * *


SELECTED FINANCIAL AND OPERATING DATA


At September 30, or for the nine months then              1997           1996
ended:
                                                      ---------      ---------

  Return on weighted average total capital* .....        3.09%         17.16%
  Debt ratio ....................................       65.58%         63.13%
  Network access lines in service (000)..........       16,594         16,018
  Access minutes of use (000,000) ...............       51,674         47,307
  Cellular Customers (000).......................          266              0
  Number of employees ...........................       49,920         46,190

*Calculated using Income Before Cumulative Effect of Accounting Changes


<PAGE>


PACIFIC BELL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Dollars in millions

1. BASIS  OF  PRESENTATION  The  consolidated  financial  statements  have  been
   prepared by Pacific Bell (PacBell,  which includes its subsidiaries) pursuant
   to the rules and regulations of the Securities and Exchange  Commission (SEC)
   and, in the opinion of management,  include all adjustments  (consisting only
   of normal recurring accruals) necessary to present fairly the results for the
   interim periods shown. Certain information and footnote disclosures, normally
   included in  financial  statements  prepared  in  accordance  with  generally
   accepted  accounting  principles,  have been condensed or omitted pursuant to
   such SEC rules and regulations.  Certain  reclassifications have been made to
   the  1996  consolidated   financial  statements  to  conform  with  the  1997
   presentation.  The  results  for the  interim  periods  are  not  necessarily
   indicative  of  results  for  the  full  year.  The  consolidated   financial
   statements   contained   herein  should  be  read  in  conjunction  with  the
   consolidated  financial  statements  and notes thereto  included in PacBell's
   1996 Annual Report on Form 10-K (the Form 10-K) filed with the SEC.

2. CONSOLIDATION The consolidated  financial  statements include the accounts of
   PacBell and its subsidiaries. PacBell is a wholly-owned subsidiary of Pacific
   Telesis Group (PAC), a  wholly-owned  subsidiary of SBC  Communications  Inc.
   (SBC). All significant intercompany transactions between PacBell subsidiaries
   are  eliminated  in the  consolidation  process.  During the third quarter of
   1997, PacBell's commercial paper was replaced by intercompany loans from SBC.
   Intercompany loans as of September 30, 1997 totaled $573.

3. COMPLETION OF MERGER On April 1, 1997, SBC and PAC completed the merger of an
   SBC subsidiary with PAC, in a transaction in which each outstanding  share of
   PAC common  stock was  exchanged  for 0.73145 of a share of SBC common  stock
   (equivalent to approximately 313 million shares). With the merger, PAC became
   a wholly-owned subsidiary of SBC. The transaction was accounted for by SBC as
   a pooling of interests and a tax-free reorganization.

   Conforming Accounting Changes
   PacBell's results include merger transaction costs and the effects of changes
   to conform accounting  methodologies between PacBell and SBC for, among other
   items, pensions and postretirement  benefits.  These changes were recorded by
   PacBell in the second  quarter of 1997,  retroactive to January 1, 1997, as a
   cumulative  effect of  accounting  changes of $342 net of  deferred  taxes of
   $238, and increased income before cumulative effect of accounting changes for
   the first nine months of 1997 by $34. Had these changes been adopted  January
   1,  1996  they  would  have  increased  income  before  cumulative  effect of
   accounting  changes  by $64,  net of taxes of $47 for the nine  months  ended
   September 30, 1996. The changes in accounting for pension and  postretirement
   benefits were to adopt SBC's  methodology  of amortizing  gains and losses on
   assets held within those  benefit  plans.  Among other costs  relating to the
   close of the merger,  PacBell  recorded  the  present  value of amounts to be
   returned to California  ratepayers as a condition of the merger of $276 ($173
   net of tax).

   Post-merger initiatives
   During the second quarter 1997,  PacBell recorded  after-tax  charges of $943
   related to SBC's June 19, 1997  announcement of several  strategic  decisions
   resulting  from the merger  integration  process  that began with the April 1
   closing of its merger with PAC which included $107 ($65 after tax) of charges
   related  to recent  regulatory  rulings  and $276  ($173  after  tax) for the
   present  value of  amounts  to be  returned  to  California  ratepayers  as a
   condition of the merger.  The decisions  resulted from an extensive review of
   operations throughout the merged company and include significant  integration
   of operations and consolidation of some administrative and support functions.
   Following is a discussion of the most significant of these charges.


<PAGE>


PACIFIC BELL

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


   Reorganization  SBC will  centralize  several key functions that will support
   the  operations  of PacBell and two other SBC  subsidiaries,  Nevada Bell and
   Southwestern  Bell Telephone  Company  (SWBell),  including network planning,
   strategic  marketing and  procurement.  It is also  consolidating a number of
   corporate-wide  support  activities,   including  research  and  development,
   information  technology,  financial  transaction  processing  and real estate
   management.  PacBell,  Nevada Bell and SWBell will continue as separate legal
   entities.  These initiatives will result in the creation of some jobs and the
   elimination  and realignment of others,  with many of the affected  employees
   changing job  responsibilities  and in some cases assuming positions in other
   locations.

   PacBell recognized a charge of approximately $154 ($97 net of tax) during the
   second quarter of 1997 in connection with these initiatives.  This charge was
   comprised mainly of postemployment benefits,  primarily related to severance,
   and costs  associated  with  closing  down  duplicate  operations,  primarily
   contract  cancellations.  Other charges  arising out of the merger related to
   relocation,  retraining and other effects of consolidating certain operations
   are being recognized in the periods those charges are incurred.

   Impairments/asset  valuation As a result of SBC's merger  integration  plans,
   strategic  review  of  domestic  operations  and  organizational  alignments,
   PacBell  reviewed  the carrying  values of related  long-lived  assets.  This
   review  included  estimating  remaining  useful  lives  and  cash  flows  and
   identifying assets to be abandoned.  Where this review indicated  impairment,
   discounted  cash flows related to those assets were analyzed to determine the
   amount of the  impairment.  As a result of these  reviews,  PacBell wrote off
   some assets and  recognized  impairments  to the value of other assets with a
   combined  charge of $416 ($262 after tax)  recorded in the second  quarter of
   1997.  These  impairments and writeoffs  related to certain analog  switching
   equipment,  selected  wireless  equipment,  duplicate or obsolete  equipment,
   cable  within  commercial  buildings,  certain  nonoperating  plant and other
   assets.

   Video curtailment/purchase  commitments SBC also announced it is scaling back
   its limited direct investment in video services. As part of this curtailment,
   PacBell has halted construction on the Advanced  Communications Network (ACN)
   in California.  As part of an agreement with the ACN vendor, PacBell will pay
   the  liabilities  of the ACN trust that owns and finances  ACN  construction,
   incur  costs to shut down all  construction  previously  conducted  under the
   trust and  receive  certain  consideration  from the  vendor.  In the  second
   quarter of 1997,  PacBell recognized its net expense of $553 ($346 after tax)
   associated with these activities.  During the third quarter of 1997,  PacBell
   recorded the corresponding short-term debt of $610 previously incurred by the
   ACN trust on its balance sheet.

4. CUMULATIVE EFFECT OF CHANGE IN DIRECTORY ACCOUNTING Prior to January 1, 1996,
   Pacific Bell  Directory (a  subsidiary  of PacBell)  recognized  revenues and
   expenses   related  to  publishing   directories  in  California   using  the
   "amortization" method, under which revenues and expenses were recognized over
   the lives of the directories, generally one year. Under the new "issue basis"
   method, revenues and expenses are recognized when the directories are issued.
   The  change to the issue  basis  method  was made  because  it is the  method
   generally  followed  in the  publishing  industry  and  better  reflects  the
   operating activity of the business.

   The change was adopted during fourth  quarter 1996. The cumulative  after-tax
   effect of applying the change in method to prior years was  recognized  as of
   January  1,  1996 as a  one-time,  non-cash  gain  applicable  to  continuing
   operations of $85. The gain is net of deferred  taxes of $58. The first three
   quarters of 1996 were restated in the Form 10-K to reflect the new method.


<PAGE>


5.  COMMITMENTS AND CONTINGENCIES

   Purchase   Commitments  As  of  September  30,  1997,  PacBell  had  purchase
   commitments  of about  $220  remaining  in  connection  with  its  previously
   announced program for deploying an all digital  switching  platform with ISDN
   and SS-7 capabilities.

   Property Tax Investigation In 1992, a settlement  agreement was reached among
   the State Board of Equalization,  all California counties, the State Attorney
   General,  and 28 utilities,  including PacBell, on a specific methodology for
   valuing  utility  property  for  property  tax purposes for a period of eight
   years.  The  California   Public  Utilities   Commission   (CPUC)  opened  an
   investigation  to determine if any resulting  property tax savings  should be
   returned  to  customers.  Intervenors  have  asserted  that as much as $20 of
   annual  property tax savings should be treated as an exogenous cost reduction
   in PacBell's annual price cap filings.  These  intervenors have also asserted
   that past property tax savings  totaling as much as  approximately  $85 as of
   September  30,  1997,  plus  interest,   should  be  returned  to  customers.
   Management believes that, under the CPUC's regulatory framework, any property
   tax savings  should be treated  only as a  component  of the  calculation  of
   shareable earnings and not as an exogenous cost. In an Interim Opinion issued
   in June 1995,  the CPUC  decided  to defer a final  decision  on this  matter
   pending  resolution  in a separate  proceeding  of the criteria for exogenous
   cost treatment under its regulatory framework.  To date the CPUC has taken no
   further action on this issue.



<PAGE>


PACIFIC BELL

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

RESULTS OF OPERATIONS

Overview  Financial  results for Pacific Bell (PacBell,  which also includes its
subsidiaries)  for the  first  nine  months of 1997 and 1996 are  summarized  as
follows:

-------------------------------------------------------------------------------
                                                        Nine-Month Period
                                                    ---------------------------

                                                                      Percent
                                                    1997      1996     Change
-------------------------------------------------------------------------------
Operating revenues                               $  7,324   $ 7,006       4.5% 
Operating expenses                               $  7,047   $ 5,242      34.4
Income (loss) before cumulative effect of       
accounting changes                               $    (79)  $   884        -  
Cumulative effect of accounting changes          $    342   $    85        -
Net income                                       $    263   $   969        -
===============================================================================

Net income for the nine months ended  September  30, 1997  includes a cumulative
net benefit of $342  resulting  from  accounting  changes  related to conforming
accounting  between PacBell and SBC  Communications  Inc. (SBC) for, among other
items,  pensions  and  postretirement  benefits.  The first nine  months of 1996
included a cumulative effect of a change in accounting for directory  publishing
revenues and expenses.

PacBell's  nine-month loss before cumulative effect of accounting changes of $79
includes after-tax charges of $968 reflecting  strategic  initiatives  resulting
from SBC's comprehensive  review of operations of the merged company, the impact
of several  regulatory rulings during the second quarter of 1997, costs incurred
for customer number  portability since the merger and charges for ongoing merger
integration costs,  primarily related to movement of employees.  Excluding these
items, PacBell reported income before cumulative effect of accounting changes of
$889  approximately  equal  to the  first  nine  months  of 1996  income  before
cumulative effect of accounting changes of $884.  PacBell currently  anticipates
incurring  additional  after-tax charges for ongoing merger  integration  costs,
primarily related to movement of employees,  and customer number  portability of
$120 to $170 during the remainder of 1997.

Excluding  these charges,  the primary  factors  contributing to the increase in
income  before  cumulative  effect of accounting  changes  during the first nine
months of 1997 were growth in demand for  services and products at PacBell and a
first  quarter 1997 $87  after-tax  settlement  gain  associated  with  lump-sum
pension payments that exceeded the projected service and interest costs for 1996
retirements.  These  increases  were  offset by rate  reductions  from price cap
filings and  increased  expenses  including  expenses  for the  introduction  of
Personal Communications Services (PCS) operations in California and Nevada.



<PAGE>


PACIFIC BELL

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

RESULTS OF OPERATIONS - Continued

Revenues PacBell's  operating revenues for the first nine months of 1997 reflect
reductions of $114 related primarily to the impact of several regulatory rulings
during the second quarter of 1997.  Excluding these items,  PacBell's  operating
revenues increased $432, or 6.2%. Components of operating revenues for the first
nine months of 1997 and 1996 are as follows:

------------------------------------------------------------------------
                                                 Nine-Month Period
                                              --------------------------

                                                               Percent
                                         1997         1996      Change
------------------------------------------------------------------------
Local service                        $   3,261    $  2,962        10.1%
Network access
   Interstate                            1,254       1,338        -6.3
   Intrastate                              596         539        10.6
Long-distance service                      900         953        -5.6
Directory advertising                      834         780         6.9
Other                                      479         434        10.4
------------------------------------------------------------
                                     
       Total                         $   7,324    $  7,006         4.5%
========================================================================

      Local  service  revenues  increased  for the first nine months of 1997 due
      primarily to increases in demand,  including increases in access lines and
      vertical services  revenues.  The number of access lines increased by 3.6%
      since September 30, 1996, with approximately 46% of access line growth due
      to the sales of additional access lines to existing residential customers.
      Vertical services revenues,  which include custom calling options,  Caller
      ID and other  enhanced  services,  increased by  approximately  14%. Local
      service  revenues also reflect the  implementation  of the California High
      Cost Fund (CHCFB) that went into effect  February 1, 1997.  The California
      Public Utilities  Commission  (CPUC) has stated that the CHCFB is intended
      to  directly  subsidize  the  provision  of service to high cost areas and
      allow PacBell to set competitive rates for other services. The rebalancing
      provisions of the CHCFB  resulted in a shift of  equivalent  revenues from
      intraLATA  long-distance  and intrastate  network access revenues to local
      service  revenues in the first nine months of 1997.  This shift is subject
      to final  CPUC  approval,  expected  in the second  quarter  of 1998.  For
      further  information  on the  operations of the CHCFB,  see the discussion
      under the heading "State  Regulation" on page 8 of PacBell's Annual Report
      on Form 10-K dated December 31, 1996 and the discussion  under the heading
      "Regulatory  Environment-California" on page 10 of SBC's Current Report on
      Form 8-K dated May 8, 1997.  Additionally,  Federal payphone  deregulation
      increased local service and decreased  other operating  revenues and, to a
      lesser extent,  long-distance  service and interstate  network access; the
      overall impact was a slight  increase in total  operating  revenues.  Rate
      reductions  due to CPUC price cap orders  partially  offset  increases  in
      local service revenues. Wireless revenues also contributed to the increase
      in local service revenues due to product  introduction of PCS in the first
      nine months of 1997.

      Network Access  Interstate  network access revenues  decreased $134 in the
      first nine months of 1997 due to one-time charges.  These one-time charges
      include  billing claim  settlements  related to the Percentage  Interstate
      Usage  (PIU)  factor  and  several  Federal  regulatory  issues  including
      end-user   charges,   800  data  base   charges,   recovery   of   certain
      employee-related  expenses and the retroactive  effect of the productivity
      factor  adjustment  mandated in the July 1, 1997 Federal price cap filing.
      While the change in PIU factor,  which is used to allocate  network access
      revenues  between  interstate and intrastate  jurisdictions,  also had the
      effect of increasing  intrastate network access revenues, it resulted in a
      slight  decline in total network access  revenues.  Without these impacts,
      interstate access revenues  increased in the first nine months of 1997 due
      to demand for access  services  by  interexchange  carriers  and growth in
      revenues from end-user charges  attributable to an increasing  access line
      base.  Partially  offsetting  these increases were the effects of the rate
      reduction  related to the  productivity  factor  adjustment and of revenue
      sharing adjustments made in 1996.

      Intrastate  network access revenues  increased in the first nine months of
      1997 due primarily to the PIU settlements described above.  Excluding this
      impact, intrastate network access revenues increased slightly in the first
      nine months of 1997 as increases in demand, including usage by alternative
      intraLATA toll carriers were partially  offset by the effects of the CHCFB
      discussed above in Local Service.

      Long-Distance Service revenues decreased for the first nine months of 1997
      primarily  due to the  effects  of the  CHCFB  discussed  above  and  rate
      reductions due to CPUC price cap orders  partially  offset by increases in
      demand resulting from California's growing economy.

      Directory advertising revenues increased for the first nine months of 1997
      due mainly to the  publication  of books not  published  in 1996 and, to a
      lesser extent, increased demand.

      Other operating  revenues  increased for the first nine months of 1997 due
      primarily to increased equipment sales at Pacific Bell Mobile Services and
      increased demand for nonregulated products and services. Revenues from new
      business  initiatives  primarily  voice  messaging  services  and Internet
      services,  also  contributed  to the  increase.  Results  also reflect the
      impact of payphone deregulation as described in Local Service.

Expenses PacBell's  operating expenses for the first nine months of 1997 reflect
$1,377 of charges related to strategic  initiatives from a comprehensive  review
of operations of the merged company,  the impact of several  regulatory  rulings
during the  second  quarter  of 1997 (see Note 3 to the  financial  statements),
costs incurred for customer number  portability since the merger and charges for
ongoing merger  integration costs.  Excluding these charges,  operating expenses
increased  $428,  or 8.2%,  over the first nine  months of 1996.  Components  of
operating expenses for the first nine months of 1997 and 1996 are as follows:

-------------------------------------------------------------------------------
                                                  Nine-Month Period
                                          -------------------------------------

                                                                     Percent
                                                1997         1996    Change
-------------------------------------------------------------------------------
Cost of services and products               $  2,996     $  2,618       14.4%
Selling, general and administrative            2,494        1,257       98.4
Depreciation and amortization                  1,557        1,367       13.9
------------------------------------------------------------------
  Total                                     $  7,047     $  5,242       34.4%
===============================================================================

      Cost of services and  products for the first nine months of 1997  reflects
      charges  of $53  relating  to  SBC's  strategic  initiatives,  operational
      reviews,  costs incurred for customer number  portability since the merger
      and ongoing merger  integration  costs.  Excluding these charges,  cost of
      services and products  increased  $325, or 12.4%, in the first nine months
      of 1997. These increases were  significantly  impacted by the introduction
      of PCS operations during 1997.  Additional increases were due primarily to
      employee  compensation  including increases related to force additions and
      increases in contract labor. These cost increases were partially offset by
      the conforming of accounting  methodologies  and  assumptions for pensions
      and  postretirement  benefits.  During the third quarter of 1997,  pension
      settlement gains previously reported as cost of services and products were
      reclassified  to  selling,   general  and  administrative  expense;  prior
      quarters of 1997 were restated to reflect this reclassification.

      Selling,  general and administrative  expense for the first nine months of
      1997 reflects $1,166 of charges  relating to SBC's strategic  initiatives,
      operational  reviews and ongoing merger integration costs. As discussed in
      Note 3 to the financial statements,  the most significant of these charges
      included shutdown of the Advanced Communications Network, regulatory costs
      related to the  approval of the merger with SBC by  California  regulators
      and reorganization initiatives. Excluding these one-time charges, selling,
      general and  administrative  expense  increased $71, or 5.6%, in the first
      nine months of 1997.  These increases were  significantly  impacted by the
      introduction of PCS operations during 1997.  Additional increases were due
      primarily to employee compensation and contract labor which were partially
      offset  by a first  quarter  1997 $146  settlement  gain  associated  with
      lump-sum pension payments that exceeded the projected service and interest
      costs for 1996 retirements and reduced expenses  resulting from conforming
      of   accounting   methodologies   and   assumptions   for   pensions   and
      postretirement benefits.

      Depreciation  and  amortization for the first nine months of 1997 reflects
      charges totaling $158 to record  impairment of plant and  intangibles.  As
      discussed in Note 3 to the financial  statements,  the most significant of
      these impairments  related to certain analog switching equipment and cable
      within  commercial  buildings.  Excluding these charges,  depreciation and
      amortization  increased  $32,  or 2.3% in the first  nine  months of 1997.
      These  increases  were  primarily  due  to  overall  higher  plant  levels
      partially offset by reduced depreciation beginning with the second quarter
      on analog switching equipment in California.

Interest Expense increased $59 or 21.3% for the first nine months of 1997 due to
interest of $27  associated  with certain second  quarter  one-time  charges and
increased debt levels compared to the first nine months of 1996. These increases
were somewhat offset by capitalized interest related to PCS construction.

Other Income  (Expense) - net was a net expense of $15 for the first nine months
of 1997.  The  increased  expenses  include  $30 in  expenses  related  to SBC's
strategic   initiatives,   primarily  writeoffs  of  nonoperating  plant.  Other
increases  relate  primarily to the  recognition of investment  returns on funds
held in trust for deferred compensation.

Income taxes for the first nine months of 1997 reflect the tax effect of charges
for  strategic   initiatives   resulting  from  SBC's  comprehensive  review  of
operations of the merged  company and the impact of several  regulatory  rulings
during the second quarter of 1997.

Income taxes paid, net of refunds reflect the impact of reduced tax payments due
to merger-related  and integration costs incurred and the application of the SBC
tax sharing agreement.

Cumulative Effect of Accounting Changes, as discussed in Note 3 to the financial
statements,  include  the effect of  changes  applied  retroactively  to conform
accounting  methodologies  between PAC and SBC  effective  January 1, 1997.  The
cumulative after-tax effect of these one-time changes is $342.


<PAGE>


PACIFIC BELL

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

OPERATING ENVIRONMENT AND TRENDS OF THE BUSINESS

COMPETITIVE AND REGULATORY ENVIRONMENT

State Interconnection  Agreements/  Reselling  Developments PacBell continues to
enter into  interconnection  agreements with companies desiring to provide local
service in its operating territory.  Approximately 40 interconnection agreements
have been reached, and most have been approved by the CPUC. AT&T Corp. and other
competitors are reselling PacBell local exchange  services,  and as of September
30, 1997 there were more than 180,000 access lines supporting services resold by
competitors.

Federal  Interconnection In September 1997, 28 state  commissions,  the National
Association of Regulatory  Utilities  Commissioners  and the D.C. Public Service
Commission  along with many companies who have Local Exchange  Carriers  (LECs),
including  SBC filed  petitions  to enforce the July 18, 1997 ruling of the U.S.
Court of Appeals  for the Eighth  Circuit in St.  Louis (8th  Circuit)  that the
right to set local exchange prices,  including the pricing  methodology used, is
reserved  exclusively  to the  states.  The  petitions  respond  to the  Federal
Communications Commission's (FCC) rejection of Ameritech Corporation's interLATA
long-distance application in Michigan in which the FCC stated it is applying its
own pricing standards to interLATA applications.  The petitioners assert the FCC
is violating state  authority.  On October 14, 1997, the 8th Circuit granted the
LECs' petitions for rehearing and ruled that they do not have to deliver network
elements to competitors in anything other than completely unbundled form.

Payphone  Deregulation/Market  Price Adjustments Final price deregulation of the
payphone  industry took effect October 7, 1997.  PacBell raised  payphone prices
throughout its operating territories,  beginning in October 1997. The new prices
are the  result of  federal  telecommunications  deregulation,  which  prohibits
subsidy of payphone  service  directly or indirectly from its telephone  service
operations and allows payphone providers to determine their own pricing.

Portions of the  Telecommunications  Act of 1996  Challenged  In July 1997,  SBC
brought  suit  against  the FCC in the  U.S.  District  Court  for the  Northern
District of Texas,  seeking a  declaration  that a portion of the Telecom Act is
unconstitutional on the grounds that it improperly  discriminates against SBC by
imposing  restrictions that prohibit SBC from offering  interLATA  long-distance
and other services that other LECs are free to provide. The suit challenges only
that  portion of the Telecom Act that  excludes  SBC from  competing  in certain
lines of  business.  SBC is  currently  awaiting a decision  by the court on its
motion for summary judgement.

California  Universal Service Rebalancing  Hearings related to the PacBell March
1997 filing to  permanently  reduce  certain toll and access rates and eliminate
universal  service  surcredits to ratepayers  for  rebalancing of the CHCFB were
held in October 1997 with a decision expected in the second quarter of 1998.


<PAGE>


PACIFIC BELL

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

OTHER BUSINESS MATTERS

Restructuring  Reserve PacBell established a restructuring reserve at the end of
1993 to provide for the  incremental  cost of force  reductions  associated with
restructuring  business  processes  through 1997. A total of $62 in cash outlays
was charged to the reserve in the first nine months of 1997. As of September 30,
1997, $32 remained in the restructuring reserve.

Local  Number  Portability/Interconnection  Over the next few years,  PacBell is
expecting to incur  significant  capital and software  expenditures for customer
number  portability  and  interconnection.  PacBell  expects  capital  costs and
expenses associated with customer number portability,  which allows customers to
switch to local  competitors and keep the same phone number, to total up to $600
on a pre-tax basis over the next four years.  Full  recovery of customer  number
portability  costs is required under the Telecom Act;  however,  the FCC has not
yet determined when or how those  significant  costs will be recovered.  PacBell
has filed a tariff with the FCC for recovery of these costs.  No action has been
taken by the FCC on this  tariff,  pending the issuance of its order on customer
number  portability.  PacBell is unable to  predict  the  likelihood  of the FCC
permitting the tariff to become effective. Capital costs and expenses associated
with  interconnection  will  vary  based on the  number of  competitors  seeking
interconnection  and customers served and markets entered by those  competitors.
Accordingly, PacBell is currently unable to reasonably estimate these costs.

CPUC Ruling A complaint  filed with the CPUC  challenged  PacBell's  practice of
charging to reconnect wires between the utility  terminal board and the customer
utility board in apartment buildings, claiming that the wiring between these two
points were part of PacBell's facilities.  On November 5, 1997, the CPUC ordered
PacBell to retroactively refund these charges dating from 1993. PacBell believes
it has  several  meritorious  defenses  and  plans  to file  for  rehearing  and
reconsideration  with the CPUC, and if  appropriate,  file for judicial  review.
Management is evaluating the order and while it is currently  unable to estimate
the specific amount of any refund that may be required,  it does not believe the
amount would be material.

<PAGE>


PACIFIC BELL

PART II - OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

(a)   Exhibits

      Exhibit 3-a   By-Laws of Pacific Bell, as amended to November 10, 1997

      Exhibit 12    Computation of Ratios of Earnings to Fixed Charges.

      Exhibit 27    Financial Data Schedule.

(b)   Reports on Form 8-K

      There  were no reports on Form 8-K filed  during the third  quarter  ended
      September 30, 1997.


<PAGE>





                                      SIGNATURES

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

                                          Pacific Bell




November  12, 1997                        /s/ Daniel J. Fete
                                          Daniel J. Fete
                                          Controller