Good morning, ladies and gentlemen, and welcome to the AT&T Fourth Quarter Earnings Release for 2005 Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note this conference is being recorded. I would now like to turn the call over to Mr. Rich Dietz, Senior Vice President of Investor Relations. Mr. Dietz, you may begin.

Thank you, Marie and good morning to everyone. This morning and with me on the call today is Rick Lindner, our Chief Financial Officer. We're delighted to have you with us for the first quarterly earnings conference call for the new AT&T. To get us started, let me cover a few items. First, we will speak to a set of presentation slides that are available on the Investor Relations page of our web site, that's sbc.com/att.investor.relations. Our earnings release, investor briefing, and supplementary information were all issued earlier today, and they are all available on that same site. Second, I need to cover our Safe Harbor statement and remind you that information set forth in this presentation contains financial estimates and other forward-looking statements that are subject to risks and uncertainties, and actual results might differ material. 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 and revise statements contained in this presentation, based on new information or otherwise. This presentation 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. On slide four, provides additional information about our fourth quarter results. As you know, SBC Communications acquired AT&T Corp. midway through the quarter. And at that time, we adopted the name AT&T Inc. In accordance with purchase accounting rules, our reported financials include AT&T Corp. results starting from the transaction's close on November 18. To provide consistency, we have done two things. As we finalize new segments, we have kept SBC's previous financial segments, and we show AT&T Corp. results as a separate segment for the period after transaction close through December 31. In this transactional quarter, to help investors see continuing trends in the AT&T Corp. business, we also show full-quarter pro forma revenue results which were filed with the SEC earlier today, and which are available on the investor page of our Web site, under the heading Financial and Operating Results. It has also been our custom over the past few years to include guidance as part of our fourth quarter earnings call. This year, we will cover forward-looking guidance and the business plans that support that guidance, at our analyst day in New York, next Tuesday. Updates to AT&T merger synergies, and Project Lightspeed status will be included. This meeting will take place this coming Tuesday, January 31, in New York, at 12:30 Eastern time. The event will also be webcast on the AT&T website. With that in mind, on today's call, we will not be able to respond to any questions regarding 2006 guidance. Now, I would like to review our EPS comparisons, which are on slide five. Starting with the column on the left, our adjusted EPS for the fourth quarter was $0.48. Reported EPS was $0.46. We add back $0.08 of Cingular merger integration and intangible amortization costs and a very small amount of hurricane-related costs. We also add back $0.16 of costs related to the AT&T merger, including asset impairments, severance, and other integration costs, and customer amortization. We add another $0.02 for force reduction charges from cost initiatives unrelated to the merger. We subtract a $0.25 benefit we received in the quarter from tax settlements. And the result is an adjusted EPS of $0.48. Comparable EPS in the fourth quarter a year ago was $0.34. Walking down the column on the right, reported EPS was $0.21. We had $0.08 of Cingular merger related costs, $0.03 of force reduction costs, plus $0.02 for a lease accounting adjustment at Cingular, adjustments for tax settlement impacts and pension charges cancel each other out, resulting in an adjusted EPS in the fourth quarter a year ago of $0.34. So bottom line, our adjusted EPS in the fourth quarter of 2005 was $0.48, up 41% versus comparable EPS in a year-ago quarter. And as Rick will outline for you in detail, the two major drivers of this improvement are expanded margins at Cingular, plus impressive execution and expanded margins in our wireline business. And the fact that the AT&T acquisition was accretive to adjusted results. Okay, with that as our background, I will turn it to Rick Lindner, AT&T's Chief Financial Officer. Rick?

Thanks, Rich and good morning, everyone. It's great to have you with us this morning. As Rich said, our focus this morning will be on fourth quarter results. We will cover our 2006 guidance and in fact our outlook for the next three years at our investor conference in New York this coming Tuesday. On behalf of the entire AT&T executive team, I hope you can attend the meeting on Tuesday. It is an opportunity we've been looking forward to, to meet with investors in person, and provide more back ground on the new AT&T. We hope to see many of you there. Turning to the matter at hand, let me summarize our fourth quarter by saying that across our operations, we continue to deliver very solid results. We ended the year with good momentum in wireless and wireline. We're pleased with the AT&T assets we've added, they're in great shape. We're generating solid cash flow and we're returning cash to our owners via stock repurchase and dividend growth. Slide seven provides the highlights of the quarter. We continue to attack costs, and looking at our adjusted results, we achieved substantial margin expansion, both in our wireline operations and at Cingular Wireless. Our adjusted wireline operating income margin was up 400 basis points versus the year-ago fourth quarter, and Cingular's normalized EBITDA margin was 31%, up 760 basis points over the past year. We also continued to compete and drive growth in key areas. In our wireline business, we posted our seventh straight quarter of revenue growth. Seven consecutive quarters of growth in total wireline revenues in business and in consumer. In retail high cap data revenues, we had our best growth in more than two years, and Cingular pro forma revenues were up 9.4%, our fourth straight quarter of steadily improving wireless revenue growth. We're also generating strong cash flow. Cash from operations was 4.6 billion in the quarter, and 13 billion for the full year. Full-year free cash flow after dividends was 5.6 billion. During the fourth quarter, we repurchased more than $1 billion of our shares and our board declared a dividend increase in December for the 21st consecutive year. So overall, strong execution as we finalized our merger with AT&T. As Rich mentioned, one of the key drivers of our results has been margin expansion and slide eight provides more details. The chart on the left shows adjusted wireline operating income margins, fourth quarter versus fourth quarter. The second chart shows adjusted consolidated operating income margins. Now, just as a reminder, these consolidated results do not include results from Cingular, but they do include results from AT&T Corp. for the period after the transaction closed through year-end. We've adjusted out severance and pension costs in the fourth quarter of '04, also severance and AT&T merger-related charges in the fourth quarter of 2005. On this basis, our consolidated margin expanded 170 basis points and our wireline margin expanded 400 basis points. On an adjusted basis, we made steady progress, reducing operating expenses. We've worked to streamline processes in our call centers and network centers. We've made progress moving more sales and service transactions to the web. And these improvements have allowed us to reduce force in an orderly, logical way. In our legacy SBC operation, we reduced force by 2400 in the fourth quarter. And for the year, we were down more than 10,000. The vast majority of these reductions occurred through natural attrition, and our progress in these areas has more than offset natural cost pressure from volume growth. That volume growth is evident in our wireline revenue trends, which we summarize on slide nine. Total wireline revenues were up 1.3%. Business revenues were up 1.9%. And consumer revenues were up 4.6%. A very solid quarter. Our retail revenue growth more than offset an expected decline in wholesale revenues. Wireline wholesale revenues were down 3.3%, versus the year-ago quarter, and this is an improvement from last quarter and reflects good demand from carriers, particularly wireless. Now, let's cover some of the key drivers of our wireline revenue growth, starting with data services. Those are summarized on slide ten. In the fourth quarter, our total wireline data revenues grew 7.8%. High cap revenues grew 6.5%, driven by products such as DS1s, DS3s and dedicated IP. Retail high cap revenues grew 7.7% and we had our second straight quarter of mid single digit growth in wholesale high cap revenues. DSL Internet revenues were up a solid 21%, reflecting a very good unit growth over the past year. And Data, at a 3.1 billion quarterly run rate, now represents a third of our total wireline revenues. Data is also key to growth in our business markets, which are covered on slide 11. As you see on the left of this slide, we've had solid growth in retail high cap data revenues. That's data transport for business customers. And as I mentioned, these revenues were up 7.7% in the fourth quarter. That's our fourth straight quarter of improved high cap growth rate. Small and medium business also continues to be an area of strength for us. In the fourth quarter, SMB revenues grew 7.2%. That compares with 4.9% growth in this category last quarter. For the full year, our small and medium business access lines increased by 229,000. And our overall business access lines had stabilized over recent quarters. That has occurred while at the same time many firms are migrating to product sets such as Voice over IP, which don't show up in traditional access line counts. Based on our recent research, more than 30% of business line losses are for technology reasons, and we are retaining the majority of those customers as they migrate from voice to data services. We will cover the business markets in much more detail at our analyst conference next week. Slide 12 shows the drivers behind consumer growth. Our wireline consumer revenues were up 4.6% in the quarter, and the drivers of that growth, very simply, are bundling and broadband. Our key product bundle penetration is now 68%. That's an access line, plus at least one key service DSL, long distance, dish, or jointly billed Cingular. More to the point, over the past year, our consumer retail connections increased by a million, consumer connections are retail access lines, plus DSL, and video customers. A couple of years ago, our total consumer connections were declining. But over the past several quarters, we've turned that around, and we've now posted three straight quarters with an annual increase of a million or more. And as a result, our consumer ARPU was up 7.8% in the fourth quarter. The center piece of our consumer bundle is DSL and those results are on slide 13. As you see in this chart, DSL penetration of consumer primary lines now exceeds 25%, up 780 basis points this year, and we have more than doubled our companywide penetration over the past two years. Our best region, California and Nevada, now has a consumer DSL penetration above 31%. We had a net increase in DSL lines this quarter of 425,000. The same as in the fourth quarter a year ago. And over the past four quarters, we've added 1.8 million, and our base now approaches 7 million, well ahead of our closest telco peer. DSL Internet is a sizable revenue stream with an annualized run rate approaching $3 billion, and more strategy click, broadband is a key foundation product for us, that's why we've been a leader driving broadband penetration and we will continue to have it as a major emphasis going forward. Long distance also contributed to wireline revenue growth. The trends are on slide 14. We now have 23.5 million LD lines in our former SBC regional operations, representing an annualized revenue stream approaching $4 billion. These revenues continue to show good growth. In the fourth quarter, they were up 13.4%, versus the year-ago quarter, and up 3.7% sequentially. Since mid-2005, our consumer LD revenues per line had increased 7.5%, reflecting pricing actions, and the fact that more customers are on plans with monthly recurring charges. And despite these pricing action, over the same period, our consumer LD churn has stayed flat. Well, that covers our wireline segment. Now, let me turn and talk briefly about AT&T Corp. results for the fourth quarter, these are shown on slide 15. As Rich explained at the outset, under purchase accounting, our reported financials show AT&T Corp. results after the transaction closed. To help investors who were looking for trends in the business we also have made available data on full quarter revenues, and this data was calculated on a consistent basis with AT&T Corp.'s prior quarters, and reflects what these revenues would have been if the merger not closed in the fourth quarter. Detail is available on our web site. Looking at full quarter results, the key change in trend from recent quarters is the business revenue line, where we had a smaller decline than we had seen in some time. On a consistent basis with those reported by AT&T Corp. in the past, business revenues were down 8.3%. However, in the year-ago quarter, there was a $97 million lift to revenues from a reciprocal compensation settlement. Taking that out, business revenues declined 6.7%, and that's the smallest decline in this category in nine quarters. Additionally, AT&T sold its pay phone business in the second quarter of last year and revenues from that sold unit are in the fourth quarter 2004 business revenue total. If you exclude those revenues, fourth quarter business revenues were down 5.9%. IP and enhanced revenues were up 8.2% in the quarter, and sequentially, IP&E revenues were up 7.4%, with strength in EVPN, IP-enabled frame and hosting. Consumer revenues declined 24.9%, in line with recent quarters, and a reflection of management's actions to focus away from customer acquisition efforts in that market. In general, the AT&T Corp. businesses are performing substantially better than we had modeled in our acquisition planning a year ago, with lower churn, and better revenues. The other major contributor to our adjusted EPS growth is Cingular Wireless, on slide 16. As you heard in their conference call earlier this week, Cingular continues to make good progress on multiple fronts. Adjusted margins are up substantially over the past year, up 760 basis points to 31%, while at the same time we grew the customer base by 5 million, or 10%. Gross adds continue to be strong at 5.1 million, and over the past four quarters we've led the industry in gross flow share. Churn was down to 2.1% overall, and 1.9% in post pay. We've made terrific progress on GSM conversion; 95% of Cingular's minutes are now on GSM. Cingular has also made very good progress integrating networks. All of its TDMA networks are converted and significant progress has been made in the GSM overlap markets. And most importantly, where we've completed integration, we've seen significant improvement in network performance metrics. And our UMTS/HSDPA deployment is on schedule, with 16 markets launched in the fourth quarter. Another positive trend is Cingular's revenue growth, which we show on slide 17. In the fourth quarter, Cingular revenues were up 9.4%. As you see in the bar chart, that's our best growth in some time, and we've now had four consecutive quarters with higher revenue growth. The drivers are fairly straightforward. First, good subscriber growth, up 5 million over the past year, to more than 54 million. The second driver is progress in data services. Cingular's Data ARPU was up more than 60% in the quarter. And in the fourth quarter of 2005, Cingular had nearly 24 million active data customers, delivered 72 million multimedia messages and 6.1 billion text messages. This has had a positive impact on overall ARPU trends. Cingular's overall ARPU is down 2.2% in the fourth quarter on a pro forma basis, and that's good improvement from the 5% pro forma decline in the third quarter. And excluding the increase in the resale mix, ARPU was flat year-over-year. Cingular also launched some exciting new services in the fourth quarter, including push to talk, and sales were strong in the high-end business space, where they signed 800 new contracts in the quarter. I commented on cash flow and share repurchase in my opening comments, slide 18 provides the detailed summary on the quarter and the year. In the fourth quarter, cash from operations totaled 4.6 billion, capital expenditures were 1.8 billion, and approximately 170 million of that was from AT&T Corp., subsequent to closing. We paid 1.1 billion in dividends, leaving free cash flow after dividends and CapEx of 1.5 billion, with roughly 550 million of that from AT&T Corp. For the full year, cash from operations totaled 13 billion, CapEx totaled 5.6 billion, and free cash flow after dividends and CapEx was also 5.6 billion. As we told you in our third quarter earnings call, we would use our free cash flow to repurchase shares. And in the fourth quarter, we bought back 1.1 billion in shares. And 1.6 billion in total over the second half of 2005. At the same time, our board declared a dividend increase of 3.1%. We've increased our annual dividend every year in our history. We also strengthened our balance sheet, as we said we would do after the AT&T Wireless acquisition. We ended the year with 1.2 billion in cash. That's after the 1.6 billion in share repurchase in the last two quarters, and we reduced debt by more than 4.8 billion in 2005, ending the year with a debt-to-capitalization ratio under 36%. Slide 19 gives you a quick summary of the quarter. We continue to make great progress at Cingular, with lower churn, expanded margin, and improving revenue growth trends. In our wire-line operations, we posted our seventh straight quarter of revenue growth and our seventh straight quarter of adjusted year-over-year margin expansion. We're off to an excellent start on the AT&T merger integration. And cash flow continues to be strong to support dividend growth and share repurchase. To close, I thought it would be useful to stack our 2005 results up against the guidance we provided a year ago. At the beginning of the year, we said we expected low single digit percentage revenue growth. And we said we expected positive revenue growth at Cingular in its first year after acquiring AT&T Wireless. For the full year, we delivered 1.5% revenue growth in wireline, and Cingular posted an increase of 6.6%, with improved growth rates as the year progressed. Our original guidance on adjusted operating income margins was 15 to 16%, and in our SBC operations we achieved 17.1%. Our CapEx range was 5.4 to 5.7 billion in SBC operations and we came in at the low end of that. Our original guidance for free cash flow after dividends was 3 billion. We delivered 5 billion. To sum it up, what we committed to, we achieved, and more in 2005. That concludes my prepared remarks. Rich, I believe we're ready to take some questions.

Great, thanks, Rick. Marie, we're ready for questions, if you would take us through that.

Thank you, sir. We will now begin the question-and-answer session. Operator Instructions. Thank you, our first question comes from Mike McCormack, from Bear Stearns. Please go ahead, sir.

Thanks, good morning, guys. Just a couple of questions, first, on wireline legacy SBC margin if, you will. Just if you could walk us through your thoughts, and I know we will hear more data next week, but thoughts on sort of sustainability, obviously you had pretty good head count reduction, this year, I think in '06, you will clearly have more spending around Lightspeed. Maybe give us a sense for how much we can expect force reduction to carry over into 2006? And secondly, on the AT&T legacy business, obviously we may be seeing some stability there reflected in the revenue number. Your thoughts, maybe, on the pricing environment there, what you're doing on the consumer customer, whether they can be migrated from wholesale back to retail? And then, just if there is any way we can look at a full quarter of profitability on the AT&T legacy business, if there is a number there that you can provide, that would be great. Thanks.

Okay. Mike, I will try to tackle all of those. First, with respect to SBC margins, I think the good news, as you dig into the numbers and sort through the numbers, I think you should feel good about sustainability in terms of the margin performance there, because the things that we have done are changes, improvements in processes, consolidation of call centers, movement of more of our traffic to web-based, and IVR services, and so those are all things that are sustainable going forward. As you know, and as we talked about on the call, we had substantial reduction in force this year about, 10,000, as a result of those changes. And so obviously, we will get the full benefit of that as we go into next year. And we improved margins this year, as we said, year-over-year, 400 basis points in the fourth quarter in wireline, and that's despite the fact that we had some growth in pension and OPEB costs, and despite the fact that we had some dilution from development in Project Lightspeed. And so going forward, I think you should expect some of the benefits that we generated this year certainly to carry over into 2006. And we will continue, this is just a part of the business today, we will continue to work to improve processes and improve cost structure, because it, it becomes a strategic advantage for us going forward, and you will hear more about our thoughts on Tuesday, in terms of continued ways outside of merger integration and synergies, continued ways we can improve the cost structure in the business. On the AT&T side, I will tell you, in pricing, with about a total of nine or ten weeks experience in this, it is difficult for us to reach firm conclusions with respect to how pricing is progressing. But what I would tell you is this. The, we are seeing, across the industry, growth in traffic and demand. We're seeing growth in minutes on our networks, we're seeing demand for more bandwidth, we’re seeing substantial growth in IP traffic. At the same time, as you know, in many parts of this industry over the last several years, there has not been significant investment in capacity. And so I think a natural progression in the industry will be for that demand and supply formula to start to bring some, to set some floors under pricing. And so I think that, probably more than consolidation or other competitive factors will bring some stability over time. The truth is, for the large customers, for the large enterprise customers, and for the large wholesale customers, it is still going to be a very competitive pricing environment. With respect to AT&T Corp.'s consumer base, that base has thrown off, as you know, looking at the 2005 results, it throws off some very nice margins and some very nice cash flow. And we will continue to enjoy that margin and cash flow stream. I think there are some opportunities and we will talk about them, in fact, Scott Helbing, who leads our consumer marketing effort, will talk more about this on Tuesday, but obviously, we have some opportunities now, post-close, particularly in-region, and even in some cases out-of-region, to market some bundles of products, including wireless, DSL in-region, and Dish TV, and enhance the revenues of that base. So we will talk more about that, more about that next week.

And just on the full quarter of profitability, is there something you can share with us on that?

Well, on full quarter profitability, I guess the best thing I can share with you is this. If you take out some of the noise from merger adjustments and amortization of intangibles that occurred as a result of the merger, things like that, normally fourth quarter would be a little bit lower in terms of margins. You have a little seasonal downturn in long distance volumes, less business days in December, and so forth. And so I think you see a little bit of that, but in general, you would see business margins in the AT&T Corp. business in the low 20s, similar to what you would see in the rest of the year, and in the consumer business, margins around, EBITDA margins now around 30%.

Yeah, that's helpful. Thank you, Rick.

Thank you. Our next question comes from John Hodulik, from UBS. Please go ahead.

Thanks, good morning, guys. Just a quick follow-up on that, this decline in the business segment at AT&T, 5.9%, I know you want to sort of get away from giving guidance on the call, but can you get a little more granular? That is a dramatic improvement over the last few quarters. Is that something to expect going forward, that kind of rate of decline? And any more information on what's particularly driving that would be great. And then, just as it relates to cable competition, obviously Comcast is going to ramp up throughout the year. Do you expect this sort of low-200s in terms of retail residential line loss to continue, or can you just comment on how you see cable competition progressing and how it impacted you this quarter? Thanks.

I think on the business segment declines, John, let me tell you a little bit about what we saw in this quarter, and then I am going to let Forrest Miller and Mark Kiefer talk really about the outlook on the business markets when we're in New York next Tuesday. But what we saw this quarter was, for one thing, continued growth in volumes. There was strong growth, low double digit growth in minute volumes. There was some good volume growth in some of the data services T1s, T3s, OCN services. There was, of course, nice growth over 8% growth in IP and E-services. And we're still seeing, both in the legacy data and certainly in the long distance rate per minute, we're still seeing pricing pressure. Some of it is on the legacy data side, certainly that's competitive pricing pressure, and just the movement of the base, as customers come out of contract and move to more current rates. On the rate per minute side, there is some movement and some of that reflects movement of those minutes from retail minutes to more wholesale minutes. And so there is a rate action there. But that's essentially what we saw in the fourth quarter. And I would say the improvements there were in good, some good volume growth, and some nice growth in IP & E-services. With respect to cable competition, what we have seen in the last few quarters is, we've actually seen access lines, if you look at retail consumer lines, you know, the losses have been fairly stable. And in fact, our churn rates on access lines, retail access lines, had been lower, and had been better. We're obviously going to see some impact as Comcast enters the market, but we've had, we've really had Time-Warner now in for most of this year and marketing very hard in all of their markets. And we've had some of Comcast in the latter part of 2005. We really frankly, I think, are seeing the customers going to cable more out of, in some cases, our wholesale base, where frankly, we've lost those customers already, and so we're just a wholesale provider at this point. And I think the other area of opportunity for us, as churn rates have come down in the consumer space, the other area of opportunity for us, and I think Scott Helbing will talk more about this next week, but it is in some specific initiatives where we're working to get out front, to garner more share of customers that, as they're moving, and starting service again, we want to make sure we're getting a strong share of those inwards. But so far, when you look at 2005, actually, the retail line loss has been pretty stable, despite a lot of entry and marketing by cable and VoIP providers, and consumer lines I think will, those losses, I'm sorry, not consumer line, the wholesale line losses, are starting to come down somewhat. And that's a reflection of the fact that we're kind of moving through the bubble from UNE-P pricing changes and most now of our lines are UNE-P lines, are on commercial agreement.

Thanks, Rick.

Thank you. Our next question comes from Simon Flannery, from Morgan Stanley. Please go ahead.

Thank you very much, good morning. Can you just talk a little bit about the AT&T integration so far, the AT&T Corp. integration? You talked about legacy head count being down 2400 in the quarter. Any updates on what happened to the head count at AT&T since acquisition? And related to, that I think you had a $0.16 merger charge, can you help us with sort of the key elements of that severance, rebranding, cash, noncash, and a quick comment on directory, revenue down a little bit, but SG&A very down significantly there. Thank you.

Sure, Simon. I will be happy to talk about those. In terms of AT&T integration, again, we're going to cover that in terms of the progress and the outlook in a lot of detail next week. But as you would expect, in the first eight, nine, 10 weeks, what we've worked very hard to do is get our organizations in place. Forrest Miller is heading up the AT&T core business units. He has named his key leadership team. Many of those officers will be at the conference next week. We're very pleased with the people and some of the key leaders we've been able to retain in the AT&T Corp. operation, so, I think everything there so far has been on track. I think the best news is the transition has been, I think, very seamless from a customer standpoint. We actually had set up some special SWAT teams to handle any customer concerns or customer issues, and frankly, those folks have had very little to do. So the transition has gone very well. In terms of the $0.16 of charges in this quarter, let me give you the major pieces of that. We booked just under $350 million of asset impairments. And so obviously that is a noncash charge. And those asset impairments related primarily to some SBC assets that we had network assets out-of-region, as well as some internal use software. And the out-of-region and assets were written down because our plan will be to move those customers and that traffic on to existing AT&T facilities. Likewise, we had some capitalized software, and that software was supporting data applications for enterprise customers. Those customers will be moved over to the AT&T platforms and systems, so we wrote down that software. Another piece of the $0.16 is we took a charge of about 283 million for severance charges, and this relates to the merger plans we have in place, and essentially our estimates of impacts to former SBC business units, related to the consolidation of organizations with the merger. And then on top of that, we did have about 50 million or so of branding costs and other integration costs. The branding was primarily some brand launch advertising, some write-off of some signage that we had in certain areas. So that was in the quarter. And then the final item was from November 18 forward, we had intangible amortization related to the value placed on the AT&T customer base. And that was in about the 180, $185 million range. So those are essentially the elements that make that up. The last question you had, Simon, was with respect to directory, and as you correctly noted, there was a revenue decline in directory that was a little larger than we have had for the year. There was also a positive variance in their operating expenses, I believe, down in selling costs. Those two are somewhat related and it relates to a change we made in how we handle barter sales in directory, which typically are heavier in the fourth quarter, and we made a change, instead of recognizing those barter sales in revenues and expenses in the quarter in which they occurred, we're now amortizing them over the life of the book, so that had an impact on those year-over-year growth rates. And there was also an adjustment that was a reclass between uncollectibles and revenues, uncollectibles shows up as part of selling expenses. So that pretty well accounts for that change in the trend of directory. But as you also saw in there, the margins and the operating income stayed at very good levels.

So is minus 3% a, if that is not the true run rate, is it a little better than that?

Yeah, it would be better than that. We can get back with you on better numbers, but I think the combination of those two factors that I talked about probably impacted fourth quarter revenues by something in the 20 to 25 million range.

Great. Thank you very much.

Thank you. Our next question comes from Jason Armstrong from Goldman Sachs. Please go ahead.

Great, thanks, good morning. A couple of questions. First, just a follow-up on John, I'm just wondering if you can break out your retail access line loss for us across wireless substitution, cable telephony and maybe other factors and just be a little more concrete. Second question relates to the out of territory UNE-P lines that have you now from legacy AT&T and I'm just wondering how these lines fit into the strategy going forward, and specifically, you've got a bunch of low-margin subs, at this point, in Verizon's territory, and they, correspondingly have a bunch of former MCI subs in your territory, so it seems like there could be an opportunity here, so I'm wondering if you can comment on that. And then finally, just let me ask you the wireless question, given the new information this morning from Verizon. Cingular has made commitments to get to industry leading metrics with that asset, which I think were based more on a convergence assumption of Cingular metrics getting better and the industry leaders getting a little bit worse. The results from Verizon this morning seems to indicate there are no real signs of a crack there. So I'm just wondering, as you look at Cingular, are you still comfortable pointing people to industry-leading metrics for the business by 2007? Thanks.

Jason, on retail line losses, as we look first of all at data where we see customers porting, we actually saw a little bit of a decline this quarter in the percent of customers porting to cable or VoIP providers, and we saw some increase in some other areas, including even some increase in some customers porting into resale or local wholesale complete types of arrangements. But overall, the trends remain the same and that is I think in terms of retail lines, those lines are going first to wireless substitution, secondly a decline in lines, particularly secondary lines, are simply broadband, reflect broadband substitution. And then I think third, to cable and VoIP providers. But as I said earlier, at least up to this point, there seems to be more of the lines on the wholesale side that may be going to other providers as opposed to our retail lines, and our retail churn rates continue to be good, and to improve. On the out-of-region customers, there's, first of all, AT&T Corp. had, at the end of the year, about 14.5 million or so customers that are stand-alone long distance customers, and then a little over 3 million customers that are bundled. And of those bundled customers, probably 40% are more, are in our region. And then when you look outside the region, I don't know that I would characterize those customers and that base as low margin today. For one, they're bundled, so they're producing not only local but good LD revenues, and overall ARPUs from those customers are pretty strong. And the fact is, the customer acquisition cost has already been borne. So we will continue to manage and service that base. And I think as Scott will talk about next week, we will look at opportunities even to enhance the offerings we had to that base. But it is a good margin and a good cash flow stream, and so we will continue to manage it. With wireless, we are really pleased with Cingular's progress. And the truth of the matter is, we have not really seen the impacts of the most significant element of the integration, and that is the integration of the local networks. While we did complete some integration of local networks in 2005, that was done in the latter part of the year. And what we are seeing in those networks is really good performance and significant improvement in network performance around blocked calls, dropped calls, and voice quality. And those are the drivers that will, I think drive significant improvement to Cingular's churn, and in turn, improvement on the margin side. We're also seeing at Cingular, I think, some nice trends in ARPUs and in revenues. And we will see, as we get through the network integration over this next year, I think we will see significant improvement in their results through 2006 and into 2007. The thing that you have to remember, and Verizon has done a terrific job in their wireless business, and in the results there, but they've had the luxury of not going through a technology change-out. And that's a significant event in terms of network performance and a significant event in terms of impacting the customer base, new handsets, new devices, changes in billing systems, and so forth. But we're really starting to see the ramp-up of the metrics at Cingular, and we're, I think we feel very confident that 2006 and '07 are going to be great years in wireless for us.

Okay. Thanks, Rick.

Thank you. Our next question comes from David Barden from Banc of America Securities. Please go ahead.

Hi, guys, thanks a lot. I just wanted to maybe kind of talk a little bit on pricing just philosophically, I mean if we look at 2005, you guys really kind of came out of the gate swinging on DSL pricing, kind of taking the first of what we've seen are many steps bringing unlimited LD pricing down, also, you know, very aggressive posture on video in the satellite market. Over the course of the year, the DSL subscriber growth has matured, you're now with AT&T kind an incumbent LD provider, if you will. Some of the recent moves on DSL pricing have suggested that maybe you are looking to wring more profitability out of the low end that of market. And so as we head into 2006, I was wondering if you could kind of just talk about, even in the face of competition, as you've learned about how competition is affecting you and about how price works with the customer base, how are you looking at that equation heading into 2006? Thanks a lot.

Sure, David. Let me take LD first, because in LD, we have achieved even prior to the merger, we achieved significant penetration. So our penetration in consumer markets is well into the 60s and in business, is in the upper 40s, pushing 50%. And then you add in AT&T's Corp.'s base on top of that and penetration rates are higher. Realizing where we were in terms of penetration, and looking at that base, we did begin in 2005 to take some selected actions in pricing, particularly around services or plans that were purchased on a stand-alone basis, or that were purchased without monthly recurring charges. So over the last couple of quarters, we've actually seen our LD consumer ARPU go up by about 7-8%. And we're seeing that growth based on those changes, and the customers, we feel it probably has cost us some customers and some number of picks, but the picks that are leaving us are ones that have typically very low monthly usage. So overall, it has been a positive in terms of the revenue growth, and that's why you see us producing over 13% LD revenue growth this quarter. I think in terms of DSL, well, we're probably in a different, we're in a different stage in that market for a couple of reasons. One is, we think there is still substantial upside in terms of penetration and secondly, we think it is a critical product for us. We don't say this just lightly. We believe it is the foundation product for us in consumer. It is the product upon which other services are built around. So we'll continue to be aggressive in terms of penetration there. And overall, in pricing, though, you will see in some areas, some price increases on stand alone services, and we will continue to be competitive with particularly our cable competitors and others in the market around bundled prices.

Great. Thanks, guys.

Thank you. Our next question comes from Christopher Larsen from Prudential Equity. Please go ahead.

Hi, Rick. In the past, you've talked, mentioned the fact that your after-tax cost of debt is above that of your dividend yield. You can talk a little bit about, you were aggressive in the fourth quarter, what are the plans maybe for '06, and you'll probably hash that out more on Tuesday, but if you can give us an idea. And then secondly is, you're talking about the repricing of the AT&T long distance base. What percent of the base is already repriced, is there a way we can think about it is that is already lived through, if you sort of look back and say maybe '04 was the big price, new price floors. What percent of the base has already been repriced and as we work through that, how will that sort of flow through the revenue line?

Well, I think, Chris, certainly our views around share repurchase haven't changed. And that outlook changes with changes in the marketplace, both in terms of, I guess, things like interest rates, as well as where the share price and dividend yield are. And also change with, at times with other opportunities we may have to deploy cash in ways we think we will increase value. But overall, our share repurchase thoughts haven't changed, and that is, based on the current environment, we expect to be using our free cash flow, or a large portion of our free cash flow for share repurchase. And there's nothing really has changed relative to that at this point. I don't have really good metrics in terms of how to tell you at this point to think about repricing or price impacts in the AT&T base of customers, because it is a little more complex than that. You have to look at the various customer segments and what is happening in each one of those. But if you look at enterprise customers, those customers typically those contracts come up for renewal, typically on a three-year or a three to five-year basis, and as those contracts come up, those are competitive situations, and that will drive the prices to rates that are consistent in the marketplace at that time. What I do believe is that, as I said earlier, the supply and demand factors are starting to provide some floor under pricing, and so even though the base is almost continually rolling over as contracts renew, the floor pricing, I believe, over the next few years, has the opportunity to stabilize at some levels based on just the underlying costs of providing those services. So what you have seen in the past, I think, several quarters has been the natural evolution of that, and that is reduction in the amount of decline in terms of those revenue streams. And I think we will have more time on Tuesday again, with Forrest Miller and Mark Kiefer and others, and we will have a chance to talk and give you some more thoughts about that.

Thanks.

Marie, this will have to be our last question, please.

Yes, Sir.

No, one more question, Marie.

Thank you. Our next question comes from Blake Bath from Lehman Brothers. Please go ahead.

Good morning, Rick and Rich Dietz. Most of my questions have been asked, maybe I could try two last ones. Just was trying to put the run rate earnings performance in context. Traditionally, the fourth quarter has been a weaker EPS quarter because of wireline and wireless margin pressures, relative to the prior quarters. Is there something that's changed in the seasonality, or were the results really this strong, such that the run rate is even stronger than what we actually saw in the fourth quarter? And I guess the second question, as a bit of a follow-on, Rick, I think I've heard both you and Randall suggest that you believe traditional SBC or lack wireline margins ought to be up in '06, relative to '05. Without stealing any of the thunder from next week, is that a fair characterization? You're still expecting that to be the case? Thanks.

Thanks, Blake. We're glad to get your questions on there. We almost accidentally cut you off.

Okay.

The fourth quarter, and November December in particular, can be a CFO's, well, can keep a CFO up at night, let me put it that way, because you work hard at producing results through the year, and sometimes the organization can lose some focus as you get into the end of the year, particularly in this year, when you close a major acquisition in November. And what I would tell you is that the organizations throughout the company in legacy SBC, legacy AT&T, did a terrific job in 2005, and particularly in the fourth quarter, despite a heavy workload, and a lot of distractions around merger closings, did a terrific job of staying focused and producing results. We are a large momentum kind of business, and what you saw in the fourth quarter, I think, was the result of work throughout the year in terms of taking costs out of the business, work throughout the year in terms of continuing to grow revenues, and there wasn't anything, in answer to your question, there wasn't anything that was seasonal or impacted positively fourth quarter results other than just the momentum we carried into the quarter, and good execution there. In terms of our regional, our local exchange business, as said earlier, in answer to some of the other questions, we still believe we have opportunities to grow revenues. We're seeing nice revenue growth in consumer. I mean, despite all concerns about competition, our consumer retail revenue is up 4.6% this quarter. It is really a strong result. We're seeing strong results in business as well. Year-over-year, at 1.9%, but that is even a little bit low, because in fourth quarter of last year, we had some large CPE sales, which are traditionally lower margin sales, and so when you look at just the services excluding CPE, the run rates were better than that, and they were driven by terrific growth of small-medium business. Then you layer on top of that a continued focus we will have on costs, and as I've said before, as you go into next year, we are going to have some additional pressures from pension OPEB costs, we are going to have some pressures from our commercial launch and rollout of Lightspeed as we go into '06, and so that will have some impacts. But I think we have enough positive momentum on the cost side to offset that. So we are, we feel very good about 2006, and we're going to be excited to tell you more about it on Tuesday.

Great. We will look forward to it.

If I can, I would like to just go ahead and wrap up, and just have a quick closing comment. This is an extremely busy and a very exciting time for us at the new AT&T. Our results this quarter are probably a little more complex to analyze because of the merger closing. And hopefully, this call will help, and our IR staff is ready to answer your questions and help you through the numbers. If you get below the numbers, and into the operations, I think you will see we delivered another very strong quarter. We expanded margins in both wireline and wireless. We grew revenues in wireline, consumer and business, for the seventh consecutive quarter. Cingular is on a good track, revenue growth is improved, churn is down, margins have expanded, and we've exceeded expectations and returned value to owners in 2006. On top of that, we're very pleased with our AT&T acquisition. The assets are in great shape, the people are terrific, and together, it is a great way to start 2006. So with that, I thank you for your interest in the new AT&T. And we look forward to seeing you in person at our conference next Tuesday. Thank you.

Marie, that will end our call for today, thank you.

Thank you, sir. Ladies and gentlemen, this concludes the AT&T fourth quarter earnings release for 2005. Thank you for participating, and you may now disconnect.