**Exhibit        10.1**

**CONFIDENTIAL        SETTLEMENT AGREEMENT AND MUTUAL RELEASE**

**RECITALS**

**WHEREAS,**
**agreed**

**WHEREAS,        **

**WHEREAS,**

**WHEREAS,**

**WHEREAS,**

**NOW,        THEREFORE**

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|   | 1. | **PAYMENT.**                  As                  consideration for all amounts owed up to and including October                  31, 2005 of                  $598,000, ATSI shall deliver to TELEMARKETING the 2,680,077 shares                  that                  are being held as collateral and that represent 10% of ATSI Comunicaciones                  S.A de C.V. total shares                  outstanding. |
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|   | 2. | **APPROVALS.**                  As                  promptly as practicable after the date of this Settlement Agreement,                  the                  parties will file all of the Legal Requirements in Mexico necessary                  in                  order to consummate the Settlement agreement. |
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|   | 3. | **RELEASE                  BY ATSI**.                  In consideration of the receipt of the Payment, ATSI, with the                  intention                  of binding itself, and its officers, directors, shareholder, employees,                  representatives, attorneys-in-fact, predecessors, successors and                  assigns,                  (the “ATSI Releasing Parties”) expressly releases, acquits, and discharges                  and its respective officers, directors, shareholders, representatives,                  attorneys, successors, and assigns (the “TELEMARKETING Released Parties”)                  from all claims, demands, causes of action and potential claims                  or causes                  of action, of whatever nature that the ATSI Releasing Parties may                  have or                  claim to have against the TELEMARKETING Released Parties arising                  from or                  connected with, directly or indirectly, any and all claims the                  ATSI                  Releasing Parties may have or claim to have against the TELEMARKETING                  Released Parties accruing before the execution date of this Release.                  Notwithstanding the foregoing paragraph, the TELEMARKETING Released                  Parties are not released from the obligations or indemnities set                  forth in                  this Settlement Agreement. |
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|   | 4. | **RELEASE**BY                  TELEMARKETING. In further consideration of the foregoing, TELEMARKETING,                  with the intention of binding itself and its respective officers,                  directors, shareholders, employees, representatives, attorneys-in-fact,                  predecessors, successors, assigns, and subsidiaries (the “ATSI Releasing                  Parties”) expressly release, acquit, and discharge Telemarketing and its                  officers, directors, shareholders, representatives, attorneys,                  successors,                  and assigns, (the “Telemarketing Released Parties”) from all claims,                  demands, and causes of action or potential claims and causes of                  action of                  whatever nature that the ATSI Releasing Parties may have or claim                  to have                  against the Telemarketing Released Parties arising from or connected                  with,                  directly or indirectly, any relationship or transaction between                  or among                  the Parties, as well as any and all other or potential claims that                  the                  ATSI Releasing Parties may have or claim to have against the Torres                  Released Parties accruing before the execution date of this Settlement                  Agreement. Notwithstanding the foregoing paragraph, the TELEMARKETING                  Released Parties are not released from the obligations of this                  Settlement                  Agreement. |
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|   | 5. | **NO                  ADMISSION OF LIABILITY.**                  This settlement and the Payment made hereunder do not constitute                  an                  admission of liability by any Party hereto, and liability is expressly                  denied by all Parties. |
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|   | 6. | **CONFIDENTIALITY**.                  Except in ATSI’s “SEC” require disclosures, 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. |
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|   | 7. | **NON-DISPARAGEMENT**.                  The Parties agree to use reasonable effort not to disparage or                  interfere                  with any other Party’s agreements or prospective agreements with any third                  party. |
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|   | 8. | **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. |
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|   | 9. | **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. |
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|   | 10. | **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. |
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|   | 11. | **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. |
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|   | 12. | **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. |
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|   | 13. | **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. |
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| **ATSI COMMUNICATIONS,                      INC.** |                                                                             |   |   |
|----------------------------------------------------|----------------------------------------------------------------------------------|--------|--------|
|                                               |                                                                             |   |   |   |
| By:                                                |  /S/                      Arthur L. Smith                              |   |   |   |
| Its:Date:                                          | **President and Chief Executive                        Officer**October 31, 2005 |   |   |   |

| **TELEMARKETING                        DE MEXICO S.A                        DE C.V.** |                                                        |   |   |
|---------------------------------------------------------------------------------------|-------------------------------------------------------------|--------|--------|
|                                                                                  |                                                        |   |   |   |
| By:                                                                                   |  /S/                        Francisco Bunt   |   |   |   |
| Its:Date:                                                                             | **Chief Executive Officer**October 31, 2005                 |   |   |   |

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