AT&T Posts Strong Fourth-Quarter Earnings Growth, Reaffirms Outlook for Double-Digit Growth in Adjusted Earnings Per Share

AT&T Posts Strong Fourth-Quarter Earnings Growth, Reaffirms Outlook for Double-Digit Growth in Adjusted Earnings Per Share

- $0.50 reported earnings per diluted share, up 8.7 percent versus year-earlier fourth quarter

- $0.61 earnings per diluted share before merger-related costs, up 27.1 percent versus comparable results in fourth quarter of 2005

- 2.4 million net wireless subscriber gain with stable churn, wireless service revenues up 13.1 percent, wireless data revenues up 68.6 percent

- Regional business revenues up 7.5 percent versus pro forma results for the year-earlier quarter, continued double-digit percentage growth in regional small/medium business revenues

- Further enterprise progress led by solid demand in data transport and strong double-digit growth in IP data revenues

- Outlook reaffirmed for continued double-digit adjusted earnings per share growth with growing free cash flow after dividends in 2007 and 2008; expected BellSouth merger synergies revised upward, estimated net present value increased from approximately $18 billion to approximately $22 billion

Note: AT&T's fourth-quarter earnings conference call will be broadcast live via the Internet at 10 a.m. ET on Thursday, Jan. 25, 2007, at http://www.att.com/investor.relations .

SAN ANTONIO, Jan. 25 /PRNewswire-FirstCall/ -- AT&T Inc. (NYSE:T) today reported strong fourth-quarter earnings growth led by record subscriber gains in wireless, continued solid regional wireline growth, improved enterprise trends, and merger integration initiatives that continue to generate cost savings ahead of original targets.

AT&T's reported earnings per diluted share were $0.50, up 8.7 percent versus the year-earlier fourth quarter. Before merger-related costs, earnings per diluted share were $0.61, up 27.1 percent versus comparable adjusted results in the fourth quarter of 2005. This marked AT&T's seventh consecutive quarter of double-digit growth in adjusted earnings per share.

"Our execution continues to be solid, we closed the year strong, and AT&T has excellent momentum heading into 2007," said Edward E. Whitacre Jr., AT&T chairman and chief executive officer.

"Wireless had a standout quarter," Whitacre added. "Enterprise revenue trends continue to improve. Our regional wireline operations extended their record of revenue growth in both consumer and business. And merger integration initiatives continue to run on or ahead of our original plan.

"In addition to these operational achievements, I am very pleased to have completed our acquisition of BellSouth," Whitacre said. "BellSouth brings terrific markets, an outstanding network and talented personnel, and our outlook for the combination is stronger now than when we announced the transaction last March.

"Today, AT&T has full ownership of the nation's No.1 wireless provider along with the industry's premier assets in business services, broadband and directory," Whitacre continued. "We also have substantial opportunities to improve our cost structure as we integrate operations. I am tremendously excited about the potential we have to grow our business and deliver value to shareowners."

Consolidated Financial Results

AT&T's fourth-quarter 2006 reported net income was $1.9 billion, up 17.1 percent versus $1.7 billion in the fourth quarter of 2005, and reported earnings per diluted share were $0.50, up 8.7 percent from $0.46 in the year-earlier quarter.

AT&T's fourth-quarter 2006 reported results include costs related to recent mergers: AT&T's acquisition of BellSouth Corporation, which closed on Dec. 29, 2006; its fourth-quarter 2005 acquisition of AT&T Corp.; and Cingular Wireless' fourth-quarter 2004 acquisition of AT&T Wireless. In the fourth quarter of 2006, AT&T's portion of $516 million in wireless merger-related costs amounted to $0.05 per diluted share; AT&T Corp. merger-related costs amounted to $258 million, or $0.05 per share; and, BellSouth merger-related costs were $57 million, or $0.01 per share.

Excluding these items, AT&T's adjusted fourth-quarter 2006 earnings were $2.4 billion, up 38.5 percent versus comparable earnings in the year-earlier quarter of $1.7 billion. Fourth-quarter 2006 adjusted earnings per diluted share were $0.61, up 27.1 percent versus a comparable $0.48 in the fourth-quarter of 2005.

Adjusted results for the fourth quarter of 2005 excluded: AT&T's portion of Cingular's $707 million of merger-related costs, which amounted to $0.08 per diluted share; charges totaling $866 million, or $0.16 per diluted share, for AT&T merger-related costs; a gain of $902 million, or $0.25 per diluted share, resulting from tax settlements; non-merger force-reduction costs of $106 million, or $0.02 per diluted share; and AT&T's portion of Cingular's $20 million of hurricane-related costs.

AT&T's fourth-quarter 2006 consolidated revenues totaled $15.9 billion, up from $12.9 billion in the fourth quarter of 2005.

On a reported basis, operating expenses in the fourth quarter were $13.3 billion, up from $11.8 billion in the year-earlier quarter. Before merger-related costs, fourth-quarter operating expenses totaled $13.0 billion, up from a comparable $10.8 billion in the fourth quarter of 2005.

Fourth-quarter 2006 operating income was $2.6 billion on a reported basis, up from $1.1 billion in the year-earlier quarter. Before merger-related costs, adjusted operating income was $2.9 billion, up from a comparable $2.1 billion in the fourth quarter of 2005.

AT&T's fourth-quarter 2006 operating income margin was 16.2 percent on a reported basis, up from 8.8 percent in the year-earlier quarter. Before merger-related costs, AT&T's fourth-quarter 2006 operating income margin was 18.2 percent, up from a comparable 16.3 percent in the year-earlier quarter.

This margin expansion reflects improved revenue trends along with solid cost management and progress in realizing merger synergies. In 2006, AT&T achieved merger expense savings of $1.0 billion, above its original January 2006 outlook of $600 million to $700 million.

AT&T's fourth-quarter revenue, operating expense and operating income comparisons reflect the timing of merger closings. Fourth quarter 2005 results include AT&T Corp. results starting with the transaction's close on Nov. 18, 2005. AT&T's results for the fourth quarter of 2006 include BellSouth results starting with the merger's close on Dec. 29, 2006. In segment results, BellSouth's fourth-quarter operating results for the two days after the close date are included in the Other segment.

In addition, AT&T's fourth-quarter consolidated revenues, expenses and operating income include results from Cingular Wireless from the time of the BellSouth merger closing on Dec. 29 through the end of the year. Prior to merger close, as required by Generally Accepted Accounting Principles for joint ventures, AT&T included its share of Cingular Wireless' results in the Equity in Net Income of Affiliates line of its Consolidated Statements of Income. Detailed financial results for the full quarter are shown in AT&T's Statements of Segment Income.

Wireline

AT&T's fourth-quarter wireline revenues totaled $14.5 billion, up 22.3 percent from $11.8 billion reported in the fourth quarter of 2005.

Along with reported results, to give investors additional background, AT&T provides supplementary quarterly wireline revenue comparisons to pro forma results for 2005. These pro forma revenues combine results from the former SBC and the former AT&T Corp. in all periods.

Versus pro forma results for the year-earlier quarter, fourth-quarter 2006 wireline revenues declined 4.3 percent, the company's smallest quarterly decline in this segment over the past year. Sequentially, versus the third quarter of 2006, wireline revenues declined 0.7 percent. Approximately 63 percent of the year-over-year decline and more than 100 percent of the sequential decline came from the former AT&T Corp. national mass markets category, primarily standalone long distance and local bundled services, where AT&T Corp. discontinued proactive marketing in 2004.

Beyond the national mass markets category, fourth-quarter wireline revenues declined 1.8 percent versus the year earlier quarter and were up slightly sequentially. These trends reflect continued growth in regional revenues and moderating declines in enterprise along with expected declines in wholesale, where recent shifts of traffic by major consolidated carriers to their own networks affected comparisons.

Wireline fourth-quarter customer highlights include:

-- Solid Regional Business Growth. AT&T's regional business revenues
increased 7.5 percent versus pro forma results for the year-earlier
quarter, marking their strongest growth in more than a year. Results
included 17.8 percent growth in data revenues along with continued
growth in traditional access lines and voice revenues. Small/medium
regional business revenues grew at a double-digit pace for the second
consecutive quarter.

-- Improving Enterprise Trends. Enterprise revenues posted their
smallest decline since the AT&T Corp. merger -- 3.7 percent versus pro
forma results for the year-earlier quarter. This compares with
declines of 5.1 percent in the third quarter of 2006 and 7.3 percent
in the preceding quarter. Excluding results from acquired and
divested businesses and CPE revenues, enterprise revenues declined
3.9 percent in the fourth quarter, compared with declines of
4.4 percent in the third quarter of 2006 and 5.9 percent in the
preceding quarter. Improved enterprise trends were driven by strong
growth in revenues from IP data services along with continued solid
demand and revenue growth in data transport services.

-- Stable Consumer Revenues. Regional consumer revenues were up
0.1 percent versus pro forma results for the year-earlier quarter,
reflecting a 259,000 increase in consumer connections over the past
year to 33.2 million. Consumer connections combine retail access
lines, high speed Internet and video connections. Traditional primary
consumer lines declined by 227,000 in the fourth quarter, reflecting
continued competition. This compares with declines of 242,000 in the
third quarter of 2006 and 129,000 in the fourth quarter of 2005.
Additional lines declined by 105,000 in the fourth quarter, consistent
with results over the past several quarters, reflecting migration from
dial-up Internet access to high speed service.

-- Broadband and Video Progress. AT&T's high-speed Internet connections
-- including DSL, AT&T U-verse(SM) high speed Internet and satellite
broadband services -- increased by 383,000 in the fourth quarter to
8.5 million, up 1.6 million, or 23.4 percent, over the past year.
High speed Internet penetration of consumer primary lines reached
33.3 percent at the end of the fourth quarter, up from 25.5 percent a
year earlier and 17.7 percent at the end of 2004. Video connections --
AT&T | DISH Network satellite television and AT&T U-verse service --
increased by 49,000 to reach 635,000 in service. AT&T U-verse
services are now launched in parts of 11 markets in Texas, California,
Indiana and Connecticut.

Wireline revenue comparisons reflect the movement of certain accounts during the quarter between customer categories, resulting in reclassified revenues between those categories for the current and past quarters. These movements correspond with changes in how the company serves customers as it continues to integrate operations. The changes affect previously reported revenues and trends in several customer categories. Total quarterly wireline revenues and product revenues were not affected by the changes. Financial data that include the changes are on the Investor Relations page of AT&T's Web site under the heading "Financial & Operational Results."

Wireless

In the fourth quarter of 2006, AT&T's wireless operations delivered their best-ever net gain in subscribers, double-digit percentage service revenue growth, and substantial margin expansion.

Total subscribers increased by 2.4 million in the quarter, compared with net adds of 1.8 million in the year-earlier fourth quarter and 1.4 million in the third quarter of 2006. At the end of 2006, AT&T's total wireless subscribers in service reached 61.0 million, an increase of 6.8 million over the past year. Retail net adds in the fourth quarter totaled 1.6 million, also a record for the company, representing nearly 70 percent of total net adds.

Fourth-quarter gross subscriber additions totaled 5.5 million, up from 5.1 million in the year-earlier quarter and 4.6 million in the third quarter of 2006.

Subscriber churn levels remained low, driven by strengthened network performance. In the fourth quarter, average monthly subscriber churn was 1.8 percent overall, down 30 basis points versus the year-earlier quarter and flat sequentially. Postpaid churn was 1.5 percent, down 40 basis points versus the year-earlier quarter and flat sequentially. These churn improvements were achieved despite the ongoing migration of TDMA subscribers to the company's more advanced GSM network and the continued transition of multiple prepaid systems to the company's newer platform.

Driven by subscriber gains and strong growth in data revenues, AT&T's wireless revenues grew to $9.8 billion in the fourth quarter, up 10.2 percent versus the year-earlier quarter. Service revenues, which exclude revenues from sales of handsets and accessories, grew 13.1 percent versus the year-earlier quarter to $8.8 billion.

Wireless service ARPU (average revenues per user) posted year-over-year growth for the second consecutive quarter. Total ARPU in the fourth quarter was $49.29, up 0.9 percent versus the year-earlier quarter.

AT&T's continued robust growth in wireless data services was a major contributor to ARPU growth. Data revenues increased 68.6 percent to $1.3 billion in the fourth quarter, and data ARPU was $7.19, up $2.48, or 52.7 percent, versus the year-earlier fourth quarter and up $0.87, or 13.8 percent, sequentially.

This accelerated data growth was spurred by increased messaging, browsing, downloads, media bundles, laptop connectivity, smart phone connectivity, and enterprise vertical market solutions. In the fourth quarter, AT&T's wireless operations had 32 million active data customers and delivered nearly 180 million multimedia messages along with 12 billion text messages.

The advanced capabilities and high speeds available with AT&T's new 3G UMTS/HSDPA network are also beginning to add to data usage and revenue growth. Through this network, which offers mobile wireless broadband connections averaging 400-700 kilobits per second, AT&T now provides 3G wireless service in 165 cities including 73 of the top 100 markets. Aggressive deployment is continuing in 2007.

Despite robust gross customer additions and typical fourth-quarter seasonality, AT&T's wireless operations delivered strong operating income and margins in the fourth quarter, as the company continued solid progress in its merger integration projects.

On a reported basis, fourth-quarter operating expenses for wireless totaled $8.4 billion, up 1.5 percent from the fourth quarter of 2005. Before merger-related costs, operating expenses were $7.9 billion, up 4.5 percent versus comparable results in the year-earlier quarter.

Reported operating income for the fourth quarter was $1.3 billion, up from $549 million in the year-earlier quarter. Before merger-related costs, operating income was $1.8 billion, up 44.4 percent from a comparable $1.3 billion in the year-earlier fourth quarter.

On a reported basis, the fourth-quarter 2006 operating income margin for AT&T's wireless operations was 13.6 percent, up from 6.2 percent in the year-earlier quarter. Before merger-related costs, AT&T's wireless operating income margin was 18.9 percent, up from 14.4 percent in the fourth quarter of 2005.

AT&T's reported wireless OIBDA service margin expanded 380 basis points versus the fourth quarter of 2005 to 33.1 percent. Before merger-related costs, AT&T's fourth-quarter wireless OIBDA service margin was 34.4 percent, up 340 basis points versus comparable results in the year-earlier quarter. (OIBDA service margin is operating income before depreciation and amortization, divided by total service revenues.)

BellSouth Results

On Dec. 29, 2006, AT&T completed its acquisition of BellSouth Corporation. Therefore, BellSouth results and 100 percent of Cingular results for the final two days of the year are included in AT&T's fourth-quarter 2006 consolidated revenues and expenses. On AT&T's fourth-quarter Statement of Segment Income, BellSouth's results for those two days are included in the Other segment.

To assist investors in tracking business trends, AT&T is furnishing, separate from AT&T reported results, BellSouth Corporation key financial measures through Dec. 31, 2006, consistent with BellSouth's previously reported quarters prior to its merger with AT&T. Accordingly, all amounts in this section are adjusted to include results for the last two days of 2006.

BellSouth's key financial measures are also adjusted to include the company's 40 percent proportionate share of Cingular's revenues and expenses. They exclude the impact of significant nonoperational or nonrecurring items such as wireless merger integration costs, wireless merger intangible amortization and AT&T merger costs. In the fourth quarter of 2006, these costs totaled $309 million or $0.12 per diluted share. Adjusted earnings per share are calculated based on BellSouth's weighted average common shares outstanding as of the closing date.

BellSouth's fourth-quarter adjusted earnings per share totaled 68 cents, up 28.3 percent versus the fourth quarter of 2005. Revenues increased 4.6 percent year over year to $9.1 billion. Operating income grew to $2.2 billion, representing a 24.6 percent operating margin. Net income grew 29.3 percent to $1.2 billion versus the fourth quarter of 2005.

In the fourth quarter of 2006, operating free cash flow (defined as net cash provided by operating activities less capital expenditures) was $1.2 billion.

In the fourth quarter of 2006, the BellSouth Communications Group's revenues held steady at $4.7 billion, and its operating income margin was 25.7 percent, up from 21.9 percent in the year-earlier quarter. Network data revenues were $1.3 billion, up 5.8 percent versus the fourth quarter of 2005. During the fourth quarter of 2006, BellSouth had a net gain in DSL connections of 183,000, to reach a total of more than 3.6 million. BellSouth's rate of year-over-year total access line decline slowed for the second consecutive quarter primarily due to moderating retail residential line losses. As of Dec. 31, 2006, total access lines were 18.8 million, down 6.4 percent year over year.

Highlights of BellSouth's fourth-quarter 2006 results are on the AT&T Web site at http://www.att.com/investor.relations .

AT&T Outlook

Based on 2006 progress at AT&T, BellSouth and Cingular -- and operational initiatives for the combined company -- AT&T has reaffirmed and updated its outlook for 2007 and 2008.

-- AT&T continues to expect to deliver double-digit percentage growth in
earnings per share, adjusted to exclude merger-related costs and
one-time items, in 2007 and 2008.

-- AT&T also has reaffirmed its free cash flow outlook, with free cash
flow after dividends expected to grow to the $4 billion to $5 billion
range in 2007 and to $6 billion or more in 2008. (Free cash flow
after dividends is cash from operations less capital expenditures and
dividends.)

-- In 2006, AT&T realized $1.1 billion in total synergies from the
SBC/AT&T Corp. merger, versus its January 2006 outlook of $600 million
to $800 million in synergies. AT&T now expects that total SBC/AT&T
Corp. merger synergies will be at the high end of ranges provided in
January of 2006 -- $2.0 billion to $2.4 billion in 2007 and
$2.7 billion to $3.0 billion in 2008.

-- Synergies from the BellSouth merger are now expected to be higher and
realized earlier than in the company's prior projections. AT&T now
expects total synergies to be $0.8 billion to $1.2 billion in 2007, up
from its earlier expectation of $0.5 billion to $0.8 billion. In
2008, total synergies are now expected to reach $2.6 billion to
$3.0 billion, compared with an earlier view of $1.9 billion to
$2.4 billion. In 2009, total BellSouth merger synergies are expected
to be in the $3.3 billion to $3.8 billion range, up from an earlier
projection of $2.6 billion to $3.1 billion. AT&T's estimate of the
net present value of the synergies is now approximately $22 billion,
up from its earlier estimate of approximately $18 billion.

-- AT&T now expects the BellSouth merger to be modestly accretive to
full-year 2007 adjusted earnings per share versus its earlier view of
a neutral impact, primarily reflecting reduced noncash depreciation
expenses due to opening balance sheet adjustments.

-- AT&T continues to expect a return to growth in consolidated revenues
in 2007, versus pro forma results for 2006, with a continued ramp in
2008 and 2009. This outlook includes wireless service revenue growth
in the low double-digit percentage range in 2007, a return to
enterprise revenue growth during 2008, and contributions from AT&T
U-verse services.

-- AT&T expects its adjusted consolidated operating income margin in 2007
to be in the 21 percent to 23 percent range. AT&T expects that its
wireless OIBDA service margin will be in the high 30 percent range for
the full year 2007 and above 40 percent for the full year 2008.

-- In 2006, AT&T's U-verse deployment reduced full-year earnings per
share by $0.06. For the full year 2007, exclusive of any deployment
in the former BellSouth region, AT&T's outlook anticipates additional
dilution from its U-verse deployment of approximately $0.03 to
$0.05 per share above 2006 levels, for a total impact of $0.09 to
$0.11 per share.

-- AT&T expects that its capital expenditures will be in the mid teens as
a percentage of total revenues in both 2007 and 2008.

-- AT&T's plan to complete its $10 billion share repurchase in 2007 is
unchanged. In March of 2006, when the BellSouth merger was announced,
AT&T said it planned to buy back $10 billion of its common shares by
the end of 2007, with $2 billion to $3 billion of the repurchases
occurring during 2006. During the fourth quarter, AT&T repurchased
39 million of its shares for $1.3 billion, bringing its 2006 buyback
total to $2.7 billion.

This AT&T release and other news announcements are available as part of an RSS feed at http://www.att.com/rss .

About AT&T

AT&T Inc. is a premier communications holding company in the United States and around the world, with operating subsidiaries providing services under the AT&T brand. AT&T is the recognized world leader in providing IP-based communications services to businesses and the U.S. leader in providing wireless, high speed Internet access, local and long distance voice, and directory publishing and advertising through its Yellow Pages and YELLOWPAGES.COM organizations. As part of its three-screen integration strategy, AT&T is expanding video entertainment offerings to include such next-generation television services as AT&T U-verse(SM) TV. Additional information about AT&T Inc. and the products and services provided by AT&T subsidiaries and affiliates is available at http://www.att.com/ .

AT&T is a registered trademark of AT&T Knowledge Ventures. Subsidiaries and affiliates of AT&T Inc. provide products and services under the AT&T brand. For more information, please review this announcement in the AT&T newsroom at http://www.att.com/newsroom .

Cautionary Language Concerning Forward-Looking Statements

Information set forth in this news release contains financial estimates and other forward-looking statements that are subject to risks and uncertainties, and actual results may differ materially. A discussion of factors that may affect future results is contained in AT&T's filings with the Securities and Exchange Commission. AT&T disclaims any obligation to update or revise statements contained in this news release based on new information or otherwise.

This news release may contain certain non-GAAP financial measures. Reconciliations between the non-GAAP financial measures and the GAAP financial measures are available on the company's Web site at http://www.att.com/investor.relations .

Accompanying financial statements follow. Previously released 2005 Pro Forma comparisons are available on AT&T's Investor Relations Web site at http://www.att.com/investor.relations .

NOTE: OIBDA is defined as operating income (loss) before depreciation and amortization. OIBDA differs from operating income (loss), as calculated in accordance with GAAP, in that it excludes depreciation and amortization. It differs from net income (loss), as calculated in accordance with GAAP, in that it excludes, as presented on our Consolidated Statement of Income: (1) depreciation and amortization, (2) interest expense, (3) minority interest expense, (4) equity in net income (loss) of affiliates, (5) other, net, and (6) provision (benefit) for income taxes. OIBDA does not give effect to cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. OIBDA is not presented as an alternative measure of operating results or cash flows from operations, as determined in accordance with generally accepted accounting principles. Our calculation of OIBDA, as presented, may differ from similarly titled measures reported by other companies.

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Financial Data

AT&T Inc.
--------------------------------------------------------------------------
Consolidated Statements of Income
Dollars in millions except per share amounts
-------------------------------------------- ----------------------------
Unaudited Three Months Ended Twelve Months Ended
---------------------------- ----------------------------
12/31/2006 12/31/2005 % Chg 12/31/2006 12/31/2005 % Chg
-------------------------------------------- ----------------------------
Operating Revenues
Voice $8,183 $7,129 14.8% $33,908 $24,484 38.5%
Data 4,603 3,391 35.7% 18,068 10,734 68.3%
Wireless service 192 - - 192 - -
Directory 905 902 0.3% 3,621 3,625 -0.1%
Other 2,008 1,487 35.0% 7,266 4,921 47.7%
-------------------------------------------- ----------------------------
Total Operating
Revenues 15,891 12,909 23.1% 63,055 43,764 44.1%
-------------------------------------------- ----------------------------

Operating Expenses
Cost of sales
(exclusive of
depreciation
and amortization
shown separately
below) 6,708 5,856 14.5% 27,349 19,009 43.9%
Selling,
general and
administrative 4,115 3,715 10.8% 15,511 10,944 41.7%
Depreciation and
amortization 2,492 2,206 13.0% 9,907 7,643 29.6%
-------------------------------------------- ----------------------------
Total Operating
Expenses 13,315 11,777 13.1% 52,767 37,596 40.4%
-------------------------------------------- ----------------------------
Operating Income 2,576 1,132 - 10,288 6,168 66.8%
-------------------------------------------- ----------------------------
Interest Expense 465 405 14.8% 1,843 1,456 26.6%
Interest Income 99 92 7.6% 377 383 -1.6%
Equity in Net Income
of Affiliates 605 267 - 2,043 609 -
Other Income (Expense)
- Net (21) 3 - 16 14 14.3%
-------------------------------------------- ----------------------------
Income Before Income
Taxes 2,794 1,089 - 10,881 5,718 90.3%
Income Taxes 856 (566) - 3,525 932 -
-------------------------------------------- ----------------------------
Net Income $1,938 $1,655 17.1% $7,356 $4,786 53.7%
============================================ ============================

Basic Earnings Per
Share:
Net Income $0.50 $0.46 8.7% $1.89 $1.42 33.1%
Weighted Average
Common Shares
Outstanding
(000,000) 3,888 3,569 8.9% 3,882 3,368 15.3%

Diluted Earnings Per
Share:
Net Income $0.50 $0.46 8.7% $1.89 $1.42 33.1%
Weighted Average
Common Shares
Outstanding
with Dilution
(000,000) 3,911 3,580 9.2% 3,902 3,379 15.5%
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Financial Data

AT&T Inc.
--------------------------------------------------------------------------
Statements of Segment Income
Dollars in millions
--------------------------------------------------------------------------
Unaudited
Three Months Ended Twelve Months Ended
--------------------------- ---------------------------
Wireline 12/31/2006 12/31/2005 % Chg 12/31/2006 12/31/2005 % Chg
--------------------------------------------- ---------------------------
Segment Operating
Revenues
Voice $8,183 $7,129 14.8% $33,908 $24,484 38.5%
Data 4,603 3,391 35.7% 18,068 10,734 68.3%
Other 1,695 1,317 28.7% 6,500 4,287 51.6%
--------------------------------------------- ---------------------------
Total Segment
Operating
Revenues 14,481 11,837 22.3% 58,476 39,505 48.0%
--------------------------------------------- ---------------------------

Segment Operating
Expenses
Cost of sales 6,376 5,587 14.1% 26,206 17,945 46.0%
Selling, general and
administrative 3,713 3,537 5.0% 14,305 9,912 44.3%
Depreciation and
amortization 2,381 2,149 10.8% 9,614 7,426 29.5%
--------------------------------------------- ---------------------------
Total Segment
Operating
Expenses 12,470 11,273 10.6% 50,125 35,283 42.1%
--------------------------------------------- ---------------------------
Segment Income $2,011 $564 - $8,351 $4,222 97.8%
============================================= ===========================

Wireless *
--------------------------------------------- ---------------------------
Segment Operating
Revenues
Service revenues $8,795 $7,779 13.1% $33,756 $30,638 10.2%
Equipment sales 960 1,070 -10.3% 3,750 3,795 -1.2%
--------------------------------------------- ---------------------------
Total Segment
Operating
Revenues 9,755 8,849 10.2% 37,506 34,433 8.9%
--------------------------------------------- ---------------------------

Segment Operating
Expenses
Cost of services and
equipment sales 3,838 3,758 2.1% 15,056 14,387 4.7%
Selling, general and
administrative 3,008 2,812 7.0% 11,447 11,647 -1.7%
Depreciation and
amortization 1,582 1,730 -8.6% 6,436 6,575 -2.1%
--------------------------------------------- ---------------------------
Total Segment
Operating
Expenses 8,428 8,300 1.5% 32,939 32,609 1.0%
--------------------------------------------- ---------------------------
Segment Operating
Income 1,327 549 - 4,567 1,824 -
Other Income
(Expense) - Net (317) (297) -6.7% (1,325) (1,293) -2.5%
--------------------------------------------- ---------------------------
Segment Income $1,010 $252 - $3,242 $531 -
============================================= ===========================

* Results reflect 100% of AT&T Mobility's actual results

Directory
--------------------------------------------- ---------------------------
Segment Operating
Revenues $933 $928 0.5% $3,702 $3,714 -0.3%
--------------------------------------------- ---------------------------

Segment Operating
Expenses
Cost of sales 264 277 -4.7% 1,117 1,104 1.2%
Selling, general and
administrative 175 137 27.7% 643 611 5.2%
Depreciation and
amortization 1 1 - 3 5 -40.0%
--------------------------------------------- ---------------------------
Total Segment
Operating Expenses 440 415 6.0% 1,763 1,720 2.5%
--------------------------------------------- ---------------------------
Segment Operating
Income 493 513 -3.9% 1,939 1,994 -2.8%
Equity in Net Income
(Loss) of Affiliates (4) (4) - (17) (5) -
--------------------------------------------- ---------------------------
Segment Income $489 $509 -3.9% $1,922 $1,989 -3.4%
============================================= ===========================

Other **
--------------------------------------------- ---------------------------
Segment Operating
Revenues $350 $216 62.0% $954 $745 28.1%
Segment Operating
Expenses 299 160 86.9% 977 792 23.4%
--------------------------------------------- ---------------------------
Segment Operating
Income (Loss) 51 56 -8.9% (23) (47) 51.1%
Equity in Net Income
of Affiliates 609 271 - 2,060 614 -
--------------------------------------------- ---------------------------
Segment Income $660 $327 - $2,037 $567 -
============================================= ===========================

** Includes results from BellSouth for the 2 days following the
December 29, 2006 acquisition. Equity in Net Income of Affiliates
includes our 60% proportionate share of AT&T Mobility's results prior
to the December 29, 2006 BellSouth acquisition. AT&T Mobility results
for the 2 days following the acquisition are reflected in the Wireless
segment and our Consolidated Statements of Income.

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Financial Data

AT&T Inc.
--------------------------------------------------------------------------
Consolidated Balance Sheets
Dollars in millions except per share amounts
--------------------------------------------------------------------------
12/31/06 12/31/05
Unaudited
--------------------------------------------------------------------------

Assets
Current Assets
Cash and cash equivalents $2,418 $1,224
Accounts receivable - net of
allowances for uncollectibles of
$1,276 and $1,176 16,194 9,351
Prepaid expenses 1,477 1,029
Deferred income taxes 3,034 2,011
Other current assets 2,430 1,039
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Total current assets 25,553 14,654
--------------------------------------------------------------------------
Property, plant and equipment - at cost 192,006 149,238
Less: accumulated depreciation and
amortization 96,560 90,511
--------------------------------------------------------------------------
Property, Plant and Equipment - Net 95,446 58,727
--------------------------------------------------------------------------
Goodwill 67,287 14,055
Intangible Assets - Net 59,740 8,503
Investments in Equity Affiliates 2,323 2,031
Investments in and Advances to AT&T
Mobility - 31,404
Postemployment benefit 14,228 12,666
Other Assets 6,865 3,592
--------------------------------------------------------------------------
Total Assets $271,442 $145,632
==========================================================================

Liabilities and Stockholders' Equity
Current Liabilities
Debt maturing within one year $9,737 $4,455
Accounts payable and accrued
liabilities 25,508 17,088
Accrued taxes 3,026 2,586
Dividends payable 2,215 1,289
--------------------------------------------------------------------------
Total current liabilities 40,486 25,418
--------------------------------------------------------------------------
Long-Term Debt 51,169 26,115
--------------------------------------------------------------------------
Deferred Credits and Other Noncurrent
Liabilities
Deferred income taxes 27,290 15,713
Postemployment benefit obligation 28,901 18,133
Unamortized investment tax credits 181 209
Other noncurrent liabilities 8,169 5,354
--------------------------------------------------------------------------
Total deferred credits and other
noncurrent liabilities 64,541 39,409
--------------------------------------------------------------------------

Stockholders' Equity
Common shares issued ($1 par value) 6,495 4,065
Capital in excess of par value 91,058 27,499
Retained earnings 30,375 29,106
Treasury shares (at cost) (7,368) (5,406)
Additional minimum pension liability
adjustment - (218)
Accumulated other comprehensive
income (5,314) (356)
--------------------------------------------------------------------------
Total stockholders' equity 115,246 54,690
--------------------------------------------------------------------------
Total Liabilities and
Stockholders' Equity $271,442 $145,632
==========================================================================

--------------------------------------------------------------------------
Financial Data

AT&T Inc.
--------------------------------------------------------------------------
Consolidated Statements of Cash Flows
Dollars in millions, increase (decrease) in cash and cash equivalents
--------------------------------------------------------------------------
Unaudited Twelve Months Ended
12/31/06 12/31/05 12/31/04
--------------------------------------------------------------------------
Operating Activities
Net income $7,356 $4,786 $5,887
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 9,907 7,643 7,564
Undistributed earnings from
investments in equity affiliates (1,946) (451) (542)
Provision for uncollectible accounts 586 744 761
Amortization of investment tax
credits (28) (21) (32)
Deferred income tax (benefit)
expense (87) (658) 646
Net gain on sales of investments (10) (135) (939)
Income from discontinued operations,
net of tax - - (908)
Retirement benefit funding - - (2,232)
Changes in operating assets and
liabilities:
Accounts receivable 519 (94) 282
Other current assets 30 34 (102)
Accounts payable and accrued
liabilities (2,213) 74 408
Stock-based compensation tax
benefit (18) (3) (5)
Other - net 1,519 1,055 162
--------------------------------------------------------------------------
Total adjustments 8,259 8,188 5,063
--------------------------------------------------------------------------
Net Cash Provided by Operating
Activities 15,615 12,974 10,950
--------------------------------------------------------------------------

Investing Activities
Construction and capital expenditures (8,320) (5,576) (5,099)
Receipts from (investments in)
affiliates - net (1,104) 2,436 (22,660)
Dispositions 756 526 6,672
Acquisitions, net of cash acquired 368 1,504 (74)
Purchases of held-to-maturity
securities - - (135)
Maturities of held-to-maturity
securities 3 99 499
Proceeds from note repayment - 37 50
Other 4 - -
--------------------------------------------------------------------------
Net Cash Used in Investing Activities (8,293) (974) (20,747)
--------------------------------------------------------------------------

Financing Activities
Net change in short-term borrowings
with original maturities of three months
or less 3,649 (4,119) 3,398
Repayment of other short-term
borrowings (2) - -
Issuance of long-term debt 1,491 1,973 6,461
Repayment of long-term debt (4,242) (2,682) (881)
Purchase of treasury shares (2,678) (1,843) (448)
Issuance of treasury shares 589 432 216
Repurchase of preferred shares of
subsidiaries - (728) -
Dividends paid (5,153) (4,256) (4,141)
Stock-based compensation tax benefit 18 3 5
Other 200 (6) -
--------------------------------------------------------------------------
Net Cash (Used in) Provided by
Financing Activities (6,128) (11,226) 4,610
--------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents from continuing
operations 1,194 774 (5,187)
Net Cash Used in Operating Activities
from Discontinued Operations - (310) (256)
Net Cash Provided by Investing
Activities from Discontinued
Operations - - 1,397
--------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 1,194 464 (4,046)
--------------------------------------------------------------------------
Cash and cash equivalents beginning
of year 1,224 760 4,806
--------------------------------------------------------------------------
Cash and Cash Equivalents End of Year $2,418 $1,224 $760
==========================================================================

--------------------------------------------------------------------------
Financial Data

AT&T Inc.
--------------------------------------------------------------------------
Supplementary Operating Data
Dollars in millions except per share amounts
--------------------------------------------------- ---------------------
Unaudited Three Months Ended Year to Date
--------------------- ---------------------
12/31/2006 12/31/2005 12/31/2006 12/31/2005
--------------------------------------------------- ---------------------

In-Region (1)
Total Consumer Revenue
Connections (000)
Retail Consumer
Access Lines 25,307 26,683
Broadband Connections:
Consumer DSL Lines 7,255 5,807
U-verse High-Speed
Internet Access 4 -
Satellite Broadband 5 -
Video Connections: (2)
DISH Connections 632 457
U-verse Video Connections 3 -
---------------------
Total Consumer
Revenue Connections
(000) 33,206 32,947
=====================

Switched Access Lines (000)
Retail Consumer - Primary 21,841 22,793
Retail Consumer - Additional 3,466 3,890
Retail Business 17,136 17,457
---------------------
Retail 42,443 44,140

Wholesale (3) 3,615 4,938
Coin (4) 249 335
---------------------
Total Switched
Access Lines (000) 46,307 49,413
=====================

Unbundled Loops (000) 1,588 1,695
DSL Lines in Service (000) 8,529 6,921
Net DSL Line Additions (000) 381 425 1,608 1,817
Video Connections (000) (2) 635 457
Net Video Connection Additions
(000) (2) 49 38 178 134

Wireless
Wireless Voice Customers (000) 60,962 54,144
Net Customer Additions (000) 2,357 1,820 6,892 5,006
M&A Activity, Partitioned
Customers and Other Adjs. (61) 32 (74) 6
POPs (000,000) 296 294

--------------------------------------------------------------------------
(1) In-region represents access lines served by AT&T's incumbent local
exchange companies (excluding BellSouth).
(2) Video Connections include sales under agency agreement with EchoStar
and U-verse connections.
(3) Wholesale lines include lines purchased by AT&T Corp of approximately
1.04 million at 12/31/06 and 1.64 million at 12/31/05.
(4) Coin includes both retail and wholesale access lines.

First Call Analyst:
FCMN Contact: rolf.gatlin@fleishman.com

Source: AT&T Inc.

CONTACT: Jamie Anderson of AT&T Inc., +1-210-352-6965, or
janderso@attnews.us

Web site: http://www.att.com/
http://www.att.com/investor.relations

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