FORM 10-Q

                      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 period ended June 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 1-8609

                                 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,  A 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    Six months ended
                                                      June 30,             June 30,
                                               ------------------------------------------                                          
                                                   1997       1996       1997      1996
-----------------------------------------------------------------------------------------
<S>                                            <C>        <C>        <C>       <C>
Operating Revenues
Local service                                  $  1,089   $    996   $  2,108  $ 1,956
Network access:
  Interstate                                        340        446        799      890
  Intrastate                                        216        185        402      363
Long-distance service                               293        317        598      629
Directory advertising                               258        274        616      576
Other                                               158        146        320      277
------------------------------------------------------------------------------------------
Total operating revenues                          2,354      2,364      4,843    4,691
------------------------------------------------------------------------------------------

Operating Expenses
Cost of services and products                       982        832      1,833    1,711
Selling, general and administrative               1,624        450      2,070      838
Depreciation and amortization                       608        453      1,086      908
------------------------------------------------------------------------------------------
Total operating expenses                          3,214      1,735      4,989    3,457
------------------------------------------------------------------------------------------
Operating Income (Loss)                            (860)       629       (146)   1,234
------------------------------------------------------------------------------------------

Other Income (Expense)
Interest expense                                   (121)       (94)      (219)    (182)
Other income (expense)- net                         (34)        (2)       (30)       1
------------------------------------------------------------------------------------------
Total other income (expense)                       (155)       (96)      (249)    (181)
------------------------------------------------------------------------------------------

Income (Loss) Before Income Taxes and
 Cumulative Effect of Accounting Changes         (1,015)       534       (395)   1,054
------------------------------------------------------------------------------------------

Income Taxes                                       (368)       220       (121)     432
------------------------------------------------------------------------------------------

Income (Loss) Before Cumulative Effect of
  Accounting Changes                               (647)       314       (274)     622
------------------------------------------------------------------------------------------
Cumulative Effect of Accounting Changes, net of tax   -          -        342       85
------------------------------------------------------------------------------------------

Net Income (Loss)                              $   (647)  $    314   $     68  $   707
------------------------------------------------------------------------------------------
<FN>

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



<PAGE>




--------------------------------------------------------------------------------
PACIFIC BELL
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
Dollars in millions except per share amounts
--------------------------------------------------------------------------------

                                                        June 30,    December 31,
                                                   -----------------------------
                                                            1997            1996
--------------------------------------------------------------------------------


Assets                                                (Unaudited)
Current Assets
Cash and cash equivalents                              $      83       $     58
Accounts receivable - net of allowances for
 uncollectibles of $210 and $161                           2,334          2,133
Prepaid expenses                                              52             37
Deferred income taxes                                        564            119
Deferred charges                                              18             45
Other current assets                                          44             37
--------------------------------------------------------------------------------
Total current assets                                       3,095          2,429
--------------------------------------------------------------------------------
Property, Plant and Equipment - at cost                   29,100         28,372
  Less: Accumulated depreciation and amortization         17,344         16,699
--------------------------------------------------------------------------------
Property, Plant and Equipment - Net                       11,756         11,673
--------------------------------------------------------------------------------
Other Assets                                                 616            547
--------------------------------------------------------------------------------
Total Assets                                           $  15,467       $ 14,649
--------------------------------------------------------------------------------

Liabilities and Shareowner's Equity
Current Liabilities
Debt maturing within one year                          $     801       $    287
Accounts payable and accrued liabilities                   3,648          2,546
--------------------------------------------------------------------------------
Total current liabilities                                  4,449          2,833
--------------------------------------------------------------------------------
Long-Term Debt                                             5,348          5,364
--------------------------------------------------------------------------------

Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes                                        597            476
Postemployment benefit obligation                            814            671
Unamortized investment tax credits                           214            236
Other noncurrent liabilities                                 513          1,142
--------------------------------------------------------------------------------
Total deferred credits and other noncurrent liabilities    2,138          2,525
--------------------------------------------------------------------------------

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

Shareowner's Equity
Common stock - ($1 par value)                                225            225
Paid in surplus                                            5,637          6,100
Retained earnings (deficit)                               (2,330)        (2,398)
--------------------------------------------------------------------------------
Total shareowner's equity                                  3,532          3,927
--------------------------------------------------------------------------------
Total Liabilities and Shareowner's Equity              $  15,467       $ 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)
-------------------------------------------------------------------------
                                                      Six months ended
                                                          June 30,
                                                 ------------------------
                                                         1997      1996
-------------------------------------------------------------------------

Operating Activities
Net income                                           $     68     $    707
Adjustments to reconcile net income to net cash
  provided by operating activities:
   Depreciation and amortization                        1,086          908
   Provision for uncollectible accounts                   148           86
   Amortization of investment tax credits                 (22)         (23)
   Deferred income taxes                                 (275)          94
   Cumulative effect of accounting change, net of tax    (342)         (85)
   Other - net                                            502         (564)
---------------------------------------------------------------------------
Total adjustments                                       1,097          416
---------------------------------------------------------------------------
Net Cash Provided by Operating Activities               1,165        1,123
---------------------------------------------------------------------------

Investing Activities
Construction and capital expenditures                  (1,169)      (1,057)
Other                                                       -          (20)
---------------------------------------------------------------------------
Net Cash Used in Investing Activities                  (1,169)      (1,077)
---------------------------------------------------------------------------

Financing Activities
Net change in short-term borrowings with
original
 maturities of three months or less                       494         (223)
Issuance of long-term debt                                  -          424
Repayment of long-term debt                                (2)          (3)
Equity received from parent                               156          162
Dividends paid                                           (619)        (417)
Other                                                       -          (12)
---------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing                   29          (69)
Activities
---------------------------------------------------------------------------
Net increase in cash and cash equivalents                  25          (23)
---------------------------------------------------------------------------
Cash and cash equivalents beginning of year                58           68
---------------------------------------------------------------------------
Cash and Cash Equivalents End of Period              $     83     $     45
---------------------------------------------------------------------------

Cash paid during the six months ended June 30 for:
     Interest                                        $    205     $    175
     Income taxes                                    $     50     $    193


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                                      -            -           68
Dividend to shareowner                          -         (619)           -
Net equity from parent                          -          156            -
------------------------------------------------------------------------------
Balance, June 30, 1997                    $   225     $  5,637      $ (2,330)
------------------------------------------------------------------------------

See Notes to Consolidated Financial Statements.

                                  * * * *


SELECTED FINANCIAL AND OPERATING DATA


At June 30, or for the six months then ended:             1997           1996
                                                      ---------      ---------

  Return on weighted average total capital* .....       -1.24%         18.02%
  Debt ratio ....................................       63.52%         61.71%
  Network access lines in service (000)..........       16,396         15,854
  Access minutes of use (000,000) ...............       34,145         31,288
  Number of employees ...........................       50,120         46,600
*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)  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 majority-owned 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 are
   eliminated in the consolidation process.

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 six months of 1997 by $22. Had these  changes been adopted  January
   1,  1996  they  would  have  increased  income  before  cumulative  effect of
   accounting  changes by $44,  net of deferred  taxes of $33 for the six months
   ended June 30, 1996. The changes in accounting for pension and  postretirment
   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,  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
   will be recognized in future periods as 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  non-operating  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 total  expense of $553 ($346 after
   tax) associated with these activities.

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 June 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  $80 as of
   June 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.

<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) for the first six months
of 1997 and 1996 are summarized as follows:

-------------------------------------------------------------------------------
                                                         Six-Month Period
                                                    ---------------------------
                                                                       Percent 
                                                    1997       1996    Change
-------------------------------------------------------------------------------
Operating revenues                               $  4,843   $ 4,691       3.2%
Operating expenses                               $  4,989   $ 3,457      44.3
Income (loss) before cumulative effect of        $   (274)  $   622        -
accounting changes
Cumulative effect of accounting changes          $    342   $    85        -
Net income                                       $     68   $   707        -
===============================================================================

Net income for the six months  ended June 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  six  months of 1996
included a cumulative effect of a change in accounting for directory  publishing
revenues and expenses.

PacBell's  six-month loss before cumulative effect of accounting changes of $274
includes after-tax charges of $943 reflecting  strategic  initiatives  resulting
from SBC's  comprehensive  review of  operations  of the merged  company and the
impact of several recent  regulatory  rulings.  Excluding  these items,  PacBell
reported income before cumulative  effect of accounting  changes of $669 or 7.6%
higher  than the first six months of 1996  income  before  cumulative  effect of
accounting changes of $622. PacBell currently  anticipates  incurring additional
after-tax  charges for ongoing merger  integration  costs,  primarily related to
movement of employees,  and customer  number  portability of $125 to $200 during
the remainder of 1997.

Excluding these second quarter charges,  the primary factors contributing to the
increase in income before  cumulative  effect of accounting  changes  during the
first six months of 1997 were  growth in demand for  services  and  products  at
PacBell and 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  partially  offset  by  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 six  months of 1997 reflect
reductions of $114 related  primarily to the impact of several recent regulatory
rulings.  Excluding these items, PacBell's operating revenues increased $266, or
5.7%. Components of operating revenues for the first six months of 1997 and 1996
are as follows:

------------------------------------------------------------------------
                                                   Six-Month Period
                                              --------------------------

                                                               Percent
                                         1997         1996      Change
------------------------------------------------------------------------
Local service                        $   2,108    $  1,956         7.8%
Network access
   Interstate                              799         890       -10.2
   Intrastate                              402         363        10.7
Long-distance service                      598         629        -4.9
Directory advertising                      616         576         6.9
Other                                      320         277        15.5
---------------------------------------------------------------
       Total                         $   4,843    $  4,691         3.2%
========================================================================

      Local  service  revenues  increased  for the first six  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 3.4%
      since June 30, 1996, with approximately 43.1% 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  16.1%. 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 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. Amounts received from
      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 six months of 1997.  This shift is subject to final
      CPUC approval,  expected in third quarter 1997. For further information on
      the  operations  of the  CHCFB,  see  the  discussion  under  the  heading
      "Regulatory  Environment-California" on page 10 of SBC's Current Report on
      Form 8-K dated May 8, 1997.  Rate  reductions due to CPUC price cap orders
      and revenue sharing  accruals  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 six
      months of 1997.

      Network Access  Interstate  network access revenues  decreased $134 in the
      first six months of 1997 due to one-time  charges.  These one-time charges
      included 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
      in the 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  six  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  in  interstate  network  access  revenues  were the  effects of
      revenue sharing adjustments made in 1996.

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

      Long-Distance  Service revenues decreased for the first six months of 1997
      primarily due to the effects of the CHCFB  described  under Local Service,
      and  were  primarily   offset  by  increases  in  demand   resulting  from
      California's growing economy.

      Directory  advertising revenues increased for the first six 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 six months of 1997 due
      primarily  to  increased  demand for voice  messaging  services  and other
      non-regulated services and products.

Expenses  PacBell's  operating expenses for the first six months of 1997 reflect
$1,335 of charges related to strategic  initiatives from a comprehensive  review
of operations of the merged company and the impact of several recent  regulatory
rulings  (see Note 3 to the  financial  statements).  Excluding  these  charges,
operating  expenses  increased $198, or 5.7%, over the first six months of 1996.
Components  of operating  expenses for the first six months of 1997 and 1996 are
as follows:

-------------------------------------------------------------------------------
                                                      Six-Month Period
                                          -------------------------------------

                                                                     Percent
                                                1997         1996    Change
-------------------------------------------------------------------------------
Cost of services and products               $  1,833     $  1,711         7.1%
Selling, general and administrative            2,070          838       147.0
Depreciation and amortization                  1,086          908        19.6
--------------------------------------------------------------------
  Total                                     $  4,989     $  3,457        44.3%
===============================================================================

      Costs of services  and  products  for the first six months of 1997 reflect
      charges of $33 relating to SBC's  strategic  initiatives  and  operational
      reviews.  Excluding these charges, cost of services and products increased
      $89, or 5.2%,  in the first six months of 1997 due  primarily to increases
      in employee  compensation  including increases related to force additions,
      increases in contract labor and the introduction of PCS operations.  These
      increases  were somewhat  offset by a first  quarter 1997 $105  settlement
      gain associated with lump-sum pension payments that exceeded the projected
      service and interest costs for 1996 retirements.

      Selling,  general and administrative  expenses for the first six months of
      1997 reflect $1,144 of charges relating to SBC's strategic initiatives and
      operational  reviews. As discussed in Note 3 to the financial  statements,
      the most  significant of these charges  included shut down 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
      costs  increased  $88,  or 10.5%,  in the first six  months of 1997 due to
      increases for expenses associated with the introduction of PCS operations,
      employee  compensation,  contract labor and  advertising.  These increases
      were partially offset by first quarter $41 settlement gain associated with
      lump-sum pension payments that exceeded the projected service and interest
      costs for 1996 retirements.

      Depreciation  and  amortization  for the first six 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  $20, or 2.2% in the first six months of 1997. The
      increases  were  primarily  due to overall  higher plant levels  partially
      offset  by  reduced  depreciation  during  the  second  quarter  on analog
      switching equipment in California.

Interest Expense  increased $37 or 20.3% for the first six months of 1997 due to
interest of $27 associated  with  one-time  charges,  increased  long  term debt
compared  to the first six  months of 1996 and  increased  interest  on  capital
leases.  These increases were somewhat offset by increased  capitalized interest
related to PCS construction.

Other Income  (Expense) - net was net expense of $30 for the first six months of
1997. The increased  expenses include $30 in expenses related to SBC's strategic
initiatives,  primarily  writeoffs of nonoperating  plant.  Income taxes for the
first six  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 recent regulatory rulings.

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

Access   Reform/Price  Caps  On  June  3,  1997,  SBC  filed  with  the  Federal
Communications  Commission  (FCC) a Petition  for  Partial  Stay  (Petition)  of
aspects  of the orders  adopted  on May 7, 1997 by the FCC on access  reform and
local  exchange  carrier  price  caps.  The  Petition  asked the FCC to stay the
application  of the 6.5%  productivity  offset to all  price cap Local  Exchange
Carriers (LECs), its retroactive  application to the 1996 annual tariff filings,
and  exogenous  reductions  associated  with  the  completion  of  equal  access
amortization.  The FCC  denied  the stay on June 18,  1997.  The  impact  of the
retroactive  portion  of the FCC orders was  recorded  in the second  quarter of
1997.

On June 16, 1997,  SBC and several other  parties filed court appeals  regarding
several aspects of the Access Reform and Price Cap Orders. The appeal related to
access  reform has been  assigned  to the U.S.  Court of Appeals  for the Eighth
Circuit in St.  Louis (8th  Circuit).  The appeal  related to price caps and the
productivity  offset decision had been assigned to the U.S. Court of Appeals for
the 10th Circuit in Denver,  but on July 28, 1997 it was transferred to the U.S.
Court of Appeals for the D.C. Circuit.

Interconnection  Agreements  PacBell  continues  to enter  into  interconnection
agreements  with  companies  desiring to provide  local service in its operating
territory. Agreements have been reached and approved by the CPUC.

On July 18, 1997, the 8th Circuit set aside key parts of the FCC interconnection
order that attempted to set prices for local exchange services, holding that the
right to set such prices is reserved  exclusively  to the states.  PacBell is in
agreement with the 8th Circuit's  ruling on the order and believes the intent of
the  Telecommunications  Act of 1996 (Telecom Act)  retained  state  regulators'
jurisdiction over pricing of intrastate service and local  interconnection.  The
FCC has  indicated  it will  appeal the 8th  Circuit's  decision  to the Supreme
Court.

Other Billing and Collecting  Allocation  Methodology  Changes On June 13, 1997,
PacBell filed a waiver request with the FCC that if approved,  would allow it to
reverse an other billing and  collection  adjustment  resulting  from a recently
adopted FCC separations ruling that shifts recovery of substantial other billing
and collecting costs from the intrastate to the interstate jurisdiction. The FCC
has released  this waiver  request for Public Notice but no comments were filed.
If PacBell's request for a waiver is denied, the separations change could reduce
PacBell's  revenues by about $30 in 1997 and about $45 in each subsequent  year.

Portions of Telecom Act  Challenged On July 2, 1997,  SBC sued in U.S.  District
Court for the Northern District of Texas to declare a portion of the Telecom Act
unconstitutional on the grounds the Telecom Act improperly discriminates against
SBC  by  imposing   restrictions  that  prohibit  SBC  from  offering  interLATA
long-distance and other services that other local exchange companies are free to
provide. The suit challenges only that portion of the Telecom Act which excludes
SBC from competing in certain lines of business.


<PAGE>


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 $43 in cash outlays
was charged to the reserve in the first six months of 1997. As of June 30, 1997,
$51 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 $750
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.  The FCC
has  suspended  the tariff  filed by PacBell  for  recovery of these costs until
September   1997,   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.


<PAGE>


PACIFIC BELL

PART II - OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K
(a)   Exhibits

      Exhibit 12    Computation of Ratios of Earnings to Fixed Charges.

      Exhibit 18    Preferability Letter on Change in Accounting

      Exhibit 27    Financial Data Schedule.

(b)   Reports on Form 8-K

      On April 4, 1997,  Pacific Bell  (PacBell)  filed a Current Report on Form
      8-K, reporting on Item 4 Change in Registrant's Certifying Accountant.  In
      the Report, PacBell indicated that Ernst & Young LLP would replace Coopers
      & Lybrand L.L.P. as the certifying accountants.




<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




August 13, 1997                           /s/ Michael F. G. Ashby
                                          -----------------------
                                          Michael F. G. Ashby
                                          Vice President and Chief
                                            Financial Officer