**Exhibit
      10.3**




**SETTLEMENT
      AGREEMENT**





ATSI
      Communications, Inc., a Nevada corporation (“ATSI”), formerly a Delaware
      corporation, and Alfonso Torres Roqueñi, an individual residing in Mexico City,
      Mexico, (“Torres”) (collectively, the “Parties”), hereby enter into this
      Settlement Agreement (the “Settlement Agreement”).




**RECITALS**




**WHEREAS,** the
      Parties entered into a new Promissory Note on October 1, 2007 to restructure
      the
      previous Note executed by ATSI; and


**WHEREAS,** the
      Parties desire to set forth their agreement in writing.




**NOW,
      THEREFORE** ,
      in
      consideration of the foregoing and the mutual covenants and agreements set
      forth
      herein, and further good and valuable consideration, the Parties hereby agree
      and covenant as follows:




**1.**  **PROMISSORY
      NOTE.** A new
      Promissory Note has been executed by ATSI as a replacement to the previous
      Note
      that was due on October 1, 2007. The parties have agreed to the
      following:




A.
            Torres
                hereby agrees to waive $49,170 of accrued interest from the previous
                Note.


B.
            ATSI
                shall pay Torres a total of $60,000 in cash spread out over three
                (3)
                months with the first payment to be made on November 2, 2007, the
                second
                30 days after the first payment and the third and final cash payment
                sixty
                days after the first payment. The three monthly payments shall be
                paid in
                equal amounts to Alfonso Torres Roqueñi & George Kauss.


C.
            ATSI
                shall deliver to Torres a total of 130,435 shares of ATSI’s common stock
                in consideration of a “paydown” of the Note for $30,000. The Shares will
                be considered issued at $.23 per share, the average closing price
                of
                ATSI’s stock on October 1, 2007.




**SETTLEMENT
        AGREEMENT**




**Page
          1**




**2** .  **CONFIDENTIALITY** .
      The
      Parties agree that they will not disclose the terms of this Settlement
      Agreement, unless necessary to enforce the terms of this Settlement Agreement
      or
      after receipt of judicial process or lawful discovery procedures. In the event
      that any Party is served with notice to disclose such information by subpoena
      or
      otherwise, that Party agrees promptly to notify the other Parties in writing
      of
      such notice. The Party or Parties so notified in writing shall thereafter
      undertake the cost and obligation to maintain the propriety and confidentiality
      of the terms of such information.




**3.**  **ENTIRE
      AGREEMENT.** This
      Settlement Agreement contains the entire understanding and agreement of the
      Parties hereto with respect to the subject matters herein, and may not be
      amended or modified in any respect other than in a writing which specifically
      refers to this Settlement Agreement and which is signed by all of the Parties
      hereto.




**4.**  **GOVERNING
      LAW.** This
      Settlement Agreement was negotiated in, and shall be governed by and construed
      according to, the laws of the State of Texas. In the event that any provision
      herein is deemed not enforceable, the remainder of this Settlement Agreement
      will remain unaffected. Venue for any action relating to the provisions of
      this
      Agreement shall be in Bexar County, Texas.




**5.**  **NO
      ASSIGNMENT.** By
      signing this Settlement Agreement, each of the Parties represents and warrants
      that it has not assigned or subrogated any of its claims or potential claims,
      in
      whole or in part, to any third party.




**6.**  **MODIFICATION
      AND ATTORNEY’S FEES** .
      This
      Settlement Agreement shall not be suspended, amended, or modified in any manner
      except by an instrument in writing signed by all Parties to be bound. Should
      it
      become necessary to enforce this Settlement Agreement, or any portion of it,
      or
      to declare the effect of any provision of this Settlement Agreement, the
      prevailing Party shall be entitled to recover costs incurred including
      reasonable attorney’s fees.




**SETTLEMENT
      AGREEMENT**




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          2**




**7.**  **INFORMED
      CONSENT** .
      The
      Parties acknowledge that they have had the opportunity to consult with their
      respective attorneys regarding the meaning and effect of this Settlement
      Agreement, and that none of the Parties has made any representations, written
      or
      oral, upon which another Party relies in executing this Settlement
      Agreement.




**8.**  **COUNTERPARTS.** This
      Settlement Agreement may be executed in multiple counterparts. A set of
      counterpart copies which collectively contains the signature and acknowledgment
      of all Parties shall constitute an original.





EXECUTED
      by an authorized representative of ATSI Communications, Inc., a Nevada
      corporation, on the date written below.





**ATSI
      COMMUNICATIONS, INC.**





By:
            /s/
                Arthur L. SmithIts:
            President
                & CEODate:
            October
                1, 2007





EXECUTED
      by Alfonso Torres Roqueñi on the
      date written below.





**ALFONSO
      TORRES ROQUEÑI**





By:
            /s/
                Alfonso Torres RoqueñiIts:
            PresidentDate:
            October
                1, 2007




**SETTLEMENT
        AGREEMENT**




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          3**