Good morning ladies and gentlemen and welcome to the AT&T Fourth Quarter Earnings Release for 2006 Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Mr. Rich Dietz. Mr. Dietz, you may begin.

Thank you, John, and good morning to everyone and welcome to AT&T's fourth quarter earnings call. It's great to have you with us this morning. On the call today we have our Chairman and CEO, Ed Whitacre, who will provide opening remarks. Rick Lindner, AT&T's Chief Financial Officer will cover our results and updated guidance. Then after our prepared comments, we will have a Q&A session as usual. And [Ray Winborne], Senior Vice President of Finance for our Southeast region or former BellSouth will be available to address questions regarding BellSouth's fourth quarter results. Our release, investor briefing, and supplementary information were issued earlier today. They are available on the investor relations page of the AT&T website. The presentation slides we will speak to on this call are also available on that same web page, att.com/investor.relations. Before we get started, I need to cover our Safe Harbor statement, which is on slide 3. Information set forth in this presentation 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 these presentations 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 our web site att.com/investor.relations. Now turning to slide 4, let me provide you a brief roadmap for reporting issues following our BellSouth merger. As you know, the transaction closed on December 29th. As a result, AT&T's fourth quarter results include just two days from BellSouth operations and two days of Cingular results reflecting our 100% post merger ownership. The impact of those days on our reported and adjusted fourth quarter earnings per share was immaterial. Looking at our statements of segment income, BellSouth's operating results for the two days after the merger close are included in the other segment. And Wireless's full fourth quarter results are shown as their own segment consistent with our previous reporting. Also, to help you with trends, separate from AT&T fourth quarter results, we are furnishing a summary of BellSouth's full fourth quarter results consistent with BellSouth's previously reported quarters prior to its acquisition by AT&T. The summary is available on the investor relations page of our website under the financial and operational results heading. Today, we filed an 8-K with quarterly consolidated pro forma income statements for the combined company for 2006. These statements are also available on our website. Looking ahead, starting with the first quarter 2007 results, Wireless results will be part of our consolidated revenue and expense lines reflecting 100% ownership and BellSouth's results will be combined as a part of AT&T's consolidated results and our segment results. And as we did following the AT&T Corp. merger last year, we plan to provide you with pro forma revenue trends by quarter, by product, and by customer category for 2005 and 2006. We expect to make those available in April prior to our first quarter earnings release. Okay. With that as background, let me now cover our fourth quarter EPS comparisons which are on slide 5. Adjusted EPS for the fourth quarter was $0.61. As shown in the first column on the slide, starting at the top and working down, reported EPS was $0.50. We add back $0.05 of Cingular merger costs. We also add back $0.05 of AT&T merger costs, initial BellSouth merger integration costs add $0.01, the result is an adjusted EPS of $0.61. The EPS walk down for the year ago quarter is in the right hand column. In the fourth quarter of 2005, reported EPS was $0.46. We add $0.08 of Cingular merger and storm related costs. We add back $0.16 of AT&T merger costs. We also had $0.02 for non-merger severance. In addition, we had a gain of $0.25 from 2005 tax settlements. This resulted in an adjusted EPS of $0.48. So, our reported EPS in the fourth quarter of this year was $0.50, up 9% versus the year earlier quarter, and our adjusted EPS was $0.61, that's up 27% versus comparable results in the fourth quarter a year ago. With that, I'll now turn the call over to Ed Whitacre, AT&T's Chairman and Chief Executive Officer, Ed.

Thanks Rich, and good morning to all of you. We are glad to hear and it's my pleasure to talk about AT&T this morning. A year ago in New York, we laid out [for you] a three-year plan for our company. That time, we said we were at the beginning of a positive turn in the industry and we said as our target double-digit adjusted EPS growth in each of the three years ahead. In the years since then, I believe we have executed well and we have exceeded our targets. For the full year, our adjusted EPS was up 36%. We announced and completed our merger with BellSouth and BellSouth also had a very solid year. An AT&T shareholders were rewarded with the total return in 2006 of more than 50%. In addition, I am happy to say that we closed the year strong with our seven straight quarter of double-digit adjusted EPS growth. And we are headed into 2007 with excellent momentum. We also returned considerable cash to shareowners. Our plan $10 billion share repurchase is on track to be completed by the end of this year, and in December, as you know, we increased the AT&T dividend 6.8% and that’s the doubled the increase of the past few years. Our view at the industry was beginning to rebound has been validated I believe. Certainly industry fundamentals have improved. Demand is solid, especially in growth areas like wireless business and advanced data services. And while new technologies and increased competition continue to reshape communications, the industry is much more diverse and its potential has gotten much bigger. I believe the industry has made its positive turn, we are still early in the ramp and there is a lot of upside opportunity ahead. And in this environment, the new AT&T is strongly positioned with the best assets in the industry, including 100% of the United States number one wireless provider. So, today, we are reaffirming the outlook we first outlined for you a year ago, including double-digit adjusted EPS growth in each of the next two years. Our EPS outlook obviously reflects the synergy opportunities we have, which are large. But I want to make one thing clear, while cost reduction is important, we also plan to grow the top-line at AT&T and we expect to return the overall revenue growth this year. We have great assets. We have a tremendous brand and a terrific leadership team. And our long-term plan includes revenue growth in every part of our business. Slide 8 shows the new AT&T's revenue mix. Wireless makes up more than a third of our total revenues, approaching a $40 billion annual run rate and we expect Wireless service revenues to continue the kind of growth we saw in the second half of 2006. Business and wholesale together make up nearly 40%. Enterprise revenues are headed in the right direction and regional business continues to deliver solid growth. Wireline consumer is just under one fourth of our total revenue base and we believe there is a lot of opportunity here as well, as we bundled broadband and ramp video. AT&T today is the nation’s leading broadband provider with more than 12 million high speed internet connections. We have a terrific directory business, a print business with margins in the 50% range, and we have full ownership of the YELLOWPAGES.COM, a premier brand in the Internet directory space. In addition to directory, the other category on this chart includes our Sterling Commerce unit. Sterling is one of the world's largest providers of software and services for supply chain management and e-commerce. Sterling has more than 30,000 customers worldwide, including 79%of the Fortune 500, and it’s a growing business. In total, more than three-fourth of AT&T's revenues today come from wireless and sales to business, and a high percentage of our growth is coming from advanced data and broadband services, that’s true in both wireless and wire line. These are all areas of strength for the new AT&T. Before I turn the call over to Rick, I want to comment briefly on five specific operational priorities that you can expect from us as we move forward this year. Number one is to strengthen our lead in wireless, including further margin expansion. When we acquired AT&T wireless two years ago, we said our goal was to build the best wireless company in the business, we've done that. Today, we lead the industry in wireless flow share and other leading companies look to us first innovation and wireless. The best example of that our exclusive with Apple on the iPhone, it’s a great handset and I believe is going to be a big winner. Our second priority is to lead in business and return enterprise to top-line growth. We are expanding our reaching capabilities, customers do appreciate the quality of our network, demand is solid and we expect growth rates to continue to move up. Number three is to strengthen position as provider of choice for smaller and medium business customers. Over the past year, we have accelerated revenue growth rates in this space into double-digits. With our array of services, we should continue to do very well. Number four is to ramp up deployment of video services. AT&T U-verse services are in 11 markets today, we will add to that. And consumer revenues will grow as we ramp our video services. We are committed to IPTV and a fiber-to-the-node network. It’s the right architecture for the long-term. We see it in the field, it works, and it delivers a great service for customers. Our fifth priority is to take the lead in wireless/wireline convergence. We think this is a big opportunity for us, and you saw the dramatic first step last week when we launched our new AT&T unity service, which creates a 100 million plus wireless/wireline calling community. Another key objective is the continually improve customer service, outstanding customer service can and does make a competitive difference. Over the two years, you have seen Cingular take huge steps up in customer service metrics. Cingular has reduced the number of systems they run and they are getting more efficient. We will continue to apply those same approaches across our business. In addition to these initiatives, we will also deliver our merger synergies and improve our cost structure. We exceeded our 2006 target range for AT&T merger synergies and as Rick will cover in a few minutes, we have raised our outlook for BellSouth merger synergies, moving our net present value estimate up from our earlier forecast of $18 billion to $23 billion. We do have a strong record on merger integration and we will deliver. That’s our short list, we feel good about our business and we expect to get a lot done this year. That covers what I had prepared to say and now, Rick Lindner will cover results. Rick?

Thanks, Ed, and good morning everyone. What I would like to do in the next few minutes is to cover our results in a little more detail and I’ll follow the format pattern we’ve used over the past several quarters. I have some comments on guidance as we go through the results and then I’ll conclude with a recap of our updated outlook. Slide 11 shows our EPS results for the fourth quarter and for the year, and as Ed told you, this was our seventh straight quarter of double-digit year-over-year growth and adjusted EPS. And for the full year, adjusted EPS was up 36% versus comparable adjusted results for 2005. The drivers of this EPS growth are straight-forward. The first driver is wireless, where revenue growth is accelerating and margins continue to ramp up. And there is substantial upside ahead. The second driver is wireline where solid results from merger integration have driven margin expansion. And at the same time, wireline revenue trends are improving particularly in business. This momentum and the opportunity, we see in our BellSouth merger has strengthened our outlook over the past year, and we continue to expect double-digit adjusted EPS growth in 2007 and in 2008. Now, let's start with a quick look at Wireless and there are few key points I would like to emphasize and those are summarized on slide 12. The first point is our Wireless growth rate has accelerated. In the fourth quarter, we had record gross adds, record net adds, and we ended the year with 61 million subscribers. On top of those subscriber gains, we're also seeing very strong wireless data growth. Data revenues were up 69%. Data ARPU was up $0.87 in the quarter and 53% over the past year, and looking ahead, we had a lot of upside potential in data revenues, as we expand our 3G network and our selection of data devices and services. For the second straight quarter we delivered a year-over-year increase in service ARPU and postpaid ARPU increases were even stronger than the blended total we report. We had our second straight quarter with double-digit growth in service revenues and as Stan Sigman said in his call yesterday, we expect to deliver low double-digit service revenue growth in 2007. The second point I'd like to make about our Wireless business is that while we are very pleased with the margin expansion achieved today, there is still a great deal of margin upside ahead. Our fourth quarter adjusted service EBITDA margin was up 340 basis points over the past year and our fourth quarter adjusted operating income from wireless was nearly 600 million better than the fourth quarter a year ago. We expect wireless service margins to be in the high 30% range for the full year 2007 and to exceed 40% for the full year 2008 once we are able to subset TDMA and analog networks. We've also been on a path of margin expansion in our consolidated operations as we show on slide 13. As Rich mentioned, only two days of Cingular and BellSouth results are reflected in our consolidated margins. So, this essentially shows pre-merger AT&T. Our adjusted operating income margin in the fourth quarter was 18.2%, that's up 190 basis points versus a year ago. And for the year, were at 18.5%, up 160 basis points. We've now delivered seven consecutive quarters of year-over-year improvement in adjusted consolidated margins. The drivers are stabilizing revenue trends, operational initiatives underway to streamline and remove cost, and merger synergies. With the improvement we are seeing in revenue trends and the projected increase in merger synergies, we now expect our 2007 full year adjusted margins and which will include the former BellSouth operations as well as our wireless business on a consolidated basis will be in the 21% to 23% range. Now, let's turn and talk a little bit about the revenue trends in a Wireline business starting on slide 14. This is the same slide we've provided to you the past few quarters and it tracks wireline revenues by customer category. And of course, it includes the combined operations of the former SBC and AT&T business units. So, the growth rates shown here are pro forma. Starting at the top, our regional business revenues grew 7.5%, that's up from a 6.6% growth rate last quarter and consistent with our mid single-digit growth rates in this space over the past seven quarters. Our regional consumer revenues grew 0.1% with bundling and broadband offsetting competitive impacts. Enterprise revenues totaled $4.4 billion with the year-over-year decline of 3.7%. This compares to declines of 5.1% in the third quarter and 7.3% in the second quarter. We are seeing and continuing to see a clear improvement in enterprise growth rates and later in this discussion we'll cover that improvement in greater detail. Next is wholesale, where results largely reflect industry consolidation, as we expected careers are moving traffic on to their own networks parallel to moves we've made in our own business, and moving that traffic affects year-over-year comparisons. Also shown on the bottom of this slide are the former AT&T national mass market customers. This category represents 63% of our year-over-year decline in revenue. Sequentially, wireline revenues excluding national mass markets increased in the fourth quarter over third quarter levels. Based on these trends and the strength of our wireless results, we expect to return to overall revenue growth in 2007 versus pro forma results. Now, let's drill down on some of these customer categories starting with regional business on slide 15. This has been an area of strength for us now for several quarters and the trends continue to be solid. There is a couple of things that stand out in this part of our business. First, we continue to see double-digit growth in small and medium business. One of the keys is that we are selling products from the AT&T enterprise portfolio into the small and medium business customer space. Customers like the network reliability, the security, and the bundled services we are able to provide. The second thing that stands out and maybe somewhat surprising is the fact we continue to see good growth in both voice and data in regional business. On the Voice side, access lines increased modestly in the quarter, as they have over the past several quarters. Churn rates are low and ARPU is stable. At the same time, our regional business data revenues grew 18%, with solid growth in transport and 25% growth in IP data, led by strength in managed Internet services, virtual private networking, and DSL. Data now makes up nearly 30% of our regional business revenues. With broad product sets and well stabilized relationships with these customers we expect to continue to see strong growth in regional business. Slide 16 shows regional consumer trends. Total consumer connections, that's retail access lines, plus high speed data and video, were up 259,000 over the past year. Primary access line losses were 227,000 down slightly from last quarter and high speed Internet net ads totaled 383,000, 90% of them are consumer in line with third quarter results. Just looking at the AT&T results, out broadband penetration of primary lines is now above 33%, and in our west region it's right at 40%. And more of these customers are opting for higher speeds, 43% of our consumer DSL base subscribe to higher speed service, that’s up from 25% year ago. The key drivers in consumer continue to be broadband and bundling and we are doing a lot in both areas. In early October, we simplified our pricing for DSL and added a new speed tier to our lineup, the convenience of simple, flat-rate pricing with no contract term, plus the added speed tier choice stimulated demand as we move through the quarter. The effect is an improvement in inward ARPU and improvement in volumes and an improvement in customer retention. Innovations such as this offer expand the opportunity we have in regional consumer, and Video will create another opportunity. Let me give you a quick update on Video on slide 17. We have now launched U-verse service in 11 markets; all of these markets have HDTV. Our fiber-to-the-node architecture is performing well. Bandwidth delivered to homes is as good as or better than original forecast. And customer response has been positive, 70% of customers were signing up to take higher-end video packages and 70% are taking a highest broadband speeds. As Ed said, our experience to-date has strengthened our commitment to IPTV delivered over fiber-to-the-node. It's the right technology and it’s the right approach financially. We are working now on a few final adjustments to the software and video infrastructure, and then we will begin ramping the product launch. We will expand our build to pass 8 million living units by the end of this year. And as we scale, we will concentrate on delivering a quality customer experience. So you can expect we’ll continue to follow a discipline approach. In 2006, U-verse dilution was about $0.06 a share and as we ramp this product in 2007, we would expect that dilution to increase to between $0.09 and $0.11 per share, which is $0.03 to $0.05 higher than in 2006. In addition to U-verse, we are also seeing strong customer response to our DISH bundle and to our Homezone product. We’ve added 49,000 satellite subscribers in the fourth quarter, and together with BellSouth we now have 1.5 million video customers. I promised a more detailed look at our enterprise trends and the details are on slide 18. We continue to see steady improvement in Enterprise revenue trends, demand is solid, Data Transport volumes are strong, the pricing environment has not changed substantially, and we are capturing our share of technology migration as customers move from packet-based service to IP Data. In fact, Enterprise IT services, which include virtual private networks, managed Internet services and hosting had strong double-digit growth in the fourth quarter. And our Enterprise IP Data revenues are now larger than traditional packet-switched revenue including frame and ATM. As a result of these trends for the third consecutive quarter, we posted a sequential decline in Enterprise revenues of less than a 1%, and we are seeing clear improvement in year-over-year growth rates. Looking at total Enterprise revenues over the past three quarters, the year-over-year decline has moved from 7.3% to 5.1% to 3.7%. And if you look at what we call recurring revenues that takes out equipment sales and the effects of assets sales and acquisitions we had with similar client from 5.9% to 5.4% to 3.9%. As we’ve said before, the return to Enterprise revenue growth is a gradual process but we are moving in the right direction, and the BellSouth acquisition will increase our enterprise opportunity and we expect to achieve positive Enterprise revenue growth during 2008. In addition to progress we're making revenues, the other key driver in wireline is also the execution of SBC/AT&T merger initiatives and we have an update for you on slide 19. A year ago, we projected full-year 2006 merger synergies to be $600 million to $800 million. And total synergies achieved in 2006 came in at $1.1 billion, essentially $300 million above the top-end of our original target. We had a total net force reduction during 2006 of 12,000 that excludes about 700 people that came into our business from the USi acquisition. We now expect 2007 and 2008 merger synergies from the AT&T merger to run at the high-end of our original target ranges. We also expect merger integration expenses in 2007 to be approximately $200 million, below the $400 million to $600 million range in our original plan. Decline from $1.1 billion in savings in 2006 to nearly $3 billion run rate in 2008, is expected to be driven by additional force consolidation and reduced access cost as we further integrate networks. So, the bottom line of AT&T merger integration is that, number one, we are ahead of schedule at this point; two, our 2007 and 8 outlook is now at the top-end of our previous ranges, and we're still early in terms of realizing cost synergies with much of the upside still ahead of us. These merger synergies have driven our total cash flow and our cash outlook and the details are on slide 20. Despite year one integration cost for AT&T merger in 2006, free cash after dividend including proportionate Cingular was $2.9 billion, well above our original $2 billion target. Looking ahead, we expect capital expenditures including BellSouth and Cingular to remain in the mid-teens as a percent of revenues. And as we show on this chart, we've reaffirmed our previous targets for free cash flow after dividends over the next two years, $4 billion to $5 billion in 2007, growing to over $6 billion in 2008. And we're on-track with our plan to repurchase $10 billion of our shares by the end of 2007. We acquired $1.3 billion in the fourth quarter, bringing our 2006 total to $2.7 billion, leaving just a little over $7 billion in repurchase in 2007. At this point, I want to provide a quick recap of BellSouth fourth quarter results beginning on slide 22. Because of the timing of the merger close, only two days of BellSouth fourth quarter are in our reported results, but to help you with trending and to see the momentum of the BellSouth operations heading into the merger, we pull together a summary look, and this look is based on the accounting and reporting approaches used by BellSouth prior to close. All of the numbers we will mention in this BellSouth review are adjusted consistent with their prior reporting practice. BellSouth’s adjusted EPS for the fourth quarter was $0.68, that's up 28% versus the year earlier quarter and their fifth straight quarter of double-digit normalized EPS growth. The drivers of growth were Cingular revenue growth and improved profitability across all operating segments. Small business revenues grew 9.1% and large business revenues increased 3%. Consumer revenue was down less s than 1% due to discontinuation of DSL regulatory cost recovery fees. Absent this impact, consumer revenue growth would have been slightly positive. Wholesale revenue declined 4.6% due to the declines in UNEP lines. Revenues in the advertising and publishing segment grew 8.9% or 5.7% when adjusted for last year’s Katrina credits. Electronic media sales growth of more than 40%, as well as stable print revenue contributed to these results. And BellSouth’s advertising and publishing operating margin increased to 48.3%. BellSouth generated strong cash flow. For the full-year 2006, free cash flow was $3.7 billion, and cash flow after dividends was $1.6 billion. Looking specifically at BellSouth communications group, a couple of highlights where data growth and strong margins. And these are on slide 23. Data revenues up 5.8% driven by DSL, emerging data products, and wireless transport. DSL lines were up 26% with a 183,000 added in the fourth quarter. DSL revenues were up almost 17% reflecting increased customers and a positive mix shift to 3mega and higher-speed products. During the quarter, BellSouth maintained a strong margin at 25.7%, up 380 basis points on a year-over-year basis. About a 140 basis points of the year-over-year improvement is attributable to lessened storm activity in 2006. But beyond that, margin expansion was driven by greater scale in broadband data and long-distance services coupled with year-over-year cost reductions. A number of you noted the positive turn in BellSouth's access line results in the third quarter. So, we wanted to update you with a look at trends extending through fourth quarter on slide 24. At year-end, BellSouth had nearly 18.8 million access lines and as you see on these charts, year-over-year rates of decline improved again in the fourth quarter, looking both at residential as well as total access lines. Wireless substitution remained level in the quarter and in the aggregate BellSouth did not see an acceleration of losses to cable competitors despite new launches in some key markets. The slowing of line losses in the [tour] BellSouth cable markets offset the impacts in BellSouth markets where cable providers have recently launched. Small business added 15,000 lines during the quarter offsetting an equal amount of lines lost in the large business segment. More than 40% of those large business line losses were due to technology migrations to BellSouth Data Services. The wholesale line base which consists primarily of UNE-P lines declined to 146,000. But overall, what you see here is continued improvements in access line trends. In addition to good 2006 results at BellSouth, we've now been able to complete and validate our merger plans. As Ed pointed out earlier, we've increased our outlook for synergies from the BellSouth merger and the details are on slide 26. We now expect a net present value of $22 billion, up from $18 billion we communicated last March. We expect a synergy run rate of $2.6 billion to $3 million in 2008 growing to a $3.3 billion to $3.8 billion in 2009 with virtually all of those totals coming from expense and capital savings. Integration costs are heavier upfront in 2007, as you would expect. They drop quickly in 2008 and are negligible in 2009. Intangible amortization impacts are up slightly from our view last March. And we expect that the merger will be modestly accretive to 2007 adjusted EPS, primarily due to the impact of opening balance sheet adjustments. Our book effective tax rate for 2007 will be in the mid 30% range, up from 32.4% in 2006 and the increase is driven by the mechanics of consolidating Cingular into our results. I'd also like to point out an additional purchase accounting impact that you will notice starting in the first quarter of this year. As you know, the revenues and expenses of printed directory advertising books are amortized into the income statement over the life of the book, typically a 12-month life. Purchase accounting rules required us to eliminate the deferred revenues and expenses for all BellSouth directories delivered prior to the close of the merger. This will cause a reduction in reported revenues, expenses, and net income worth approximately $0.07 of earnings per share in 2007, but will not affect cash from operations. We will continue to manage the print business utilizing the amortized information and those amounts will be reflected in our directory segment results. Throughout 2007, we will provide investors with what consolidated operating revenue expense and income would have been without this purchase accounting impact and will normalize this item in our adjusted earnings per share. In 2008, the consolidated and segment results will both reflect amortization account. Let me close now with a recap of 2006 results and an updated outlook, which starts on slide 27. Last January, we said we expected to deliver double-digit adjusted EPS growth in each of the three years starting in 2006 and in 2006 adjusted EPS was up 36%. And our outlook for the next two years is unchanged. In 2007 and 2008 we continue to expect double-digit adjusted earnings per share growth. The expected earnings per share growth in 2007 includes $0.02 of pressure from the BellSouth merger conditions, the additional pressure of $0.03 to $0.05 of Lightspeed dilution and the change in our affective tax rate. A year ago, we targeted adjusted operating income margins for the full year of 2006 in the 15% to 16% range and we raised that guidance at mid-year. We ended with a full year margin of 18.5%. In 2007, with BellSouth and Cingular results included, we expect to achieve an adjusted operating income margin in the 21% to 23% range. That reflects increased merger synergies and continued growth in Cingular margins. We've said previously, we expect to return to revenue growth in 2007 versus pro forma results for 2006, and that's still our outlook and as we return to growth in enterprise and launch our U-verse services, we expect revenue growth to ramp in 2008 and 2009. Included in this revenue outlook is a strong wireless business where we expect double-digit growth in service revenues in 2007. Last January, we anticipated merger expense savings of $600 million to $700 million in 2006 from the AT&T merger. On the expense side, we realized $1 billion and looking at 2007 and 2008, we expect synergies from this merger to be at the upper end of the ranges we previously provided. BellSouth expense synergies of $500 million to $700 million in 2007 will also contribute to earnings and cash flow. We said we expect capital expenditures for the new AT&T to continue in the mid-teens as a percent of total revenue. And we said a year ago, we expected to deliver $2 billion free cash flow after dividends in 2006, and with the improvement in margins and merger synergies we beat that coming in at $2.9 billion. We continue to be confident in our ability to deliver growing free cash flow after dividends in the years ahead and we expect $4 to $5 billion in 2007 growing to over $6 billion in 2008. And we plan to deliver on our commitment to repurchase a total of 10 billion of shares by the end of 2007. When you combine our current dividend with our planned 2007 share repurchase of a little over $7 billion, total cash returned to shareowners this year will be $16 billion. I hope you agree when you look at this outlook in total and it adds up to a strong financial picture for our shareowners, one with excellent growth in earnings and cash flows, but also coupled with opportunities to ramp the top-line revenue growth. Well, Rich that concludes our prepared remarks this morning and at this point, I think we're ready for some questions and answers.

Great. Thanks Rick. And John, we're ready for the question-and-answer session if you would begin please.

(Operator Instructions). We have John Hodulik on line with the question. Please go ahead.

Okay, thanks, good morning. Rick, first a quick clarification, does the double-digit earnings per share growth include the $0.07 impact from the change in the accounting for the directories? And then second on the Lightspeed dilution, it sounds like it disappears or first like to be a very relatively small increase as what we are expecting year-over-year given the limited rollout in '06 that we saw on our expectations for more broader, 8 million home this past year-end number for '07. Could you dig a little deeper and give us little, some more color on maybe – I don't think for revenue and expense estimates, but better understanding why the dilution is so small versus to what we would expect to see or maybe seen at the other companies?

Yeah, I think I can help with that John. First on the directory purchase accounting adjustment, that adjustment is going to impact, it's going to reduce revenues, it will reduce expenses and will reduce income on a reported basis in 2007. And it's purely a non-cash item, it's just the elimination of the deferred revenues and expenses that are on the balance sheet pre-merger related to books that have been published. So, it will impact our reported results, but we are going to continue to reflect the directory numbers on an amortized basis in our segment results and we will normalize the EPS impact as part of the BellSouth merger in 2007. So, it will not affect our adjusted earnings per share number for 2007, and we continue to expect to grow the adjusted EPS over 2006 at double-digit rates. With respect to U-verse and project Lightspeed dilution, I think there is a couple of factors there, one is in 2006 some of the dilution that you see is related to trailing expenses, many of them in on the IT side relating to developing the OSS systems to support Lightspeed. So, some of the expenses that we incurred in development in '06 are go away or reduced in 2007. What you see in 2007 then reflects an increase from primarily customer acquisition cost, as we market and add customers to the Lightspeed platform. One thing that maybe throwing your numbers off a little bit is that obviously as we go into 2007 with the merger we are doing so with a much larger shareowners base -- our share base in our EPS calculations. So, going from $0.6 to $0.9 to $0.11, to some degree reflects the fact we got more shares outstanding in 2007.

Right, it makes sense. And just lastly, when do we expect an update on video strategy for the BellSouth territory?

I think I don’t have an exact timeframe on that John. I think we are going to evaluate that over the next few months. Our focus right now is going to be on making some adjustments and stabilizing the platform so that we can really roll the launch in the markets that we've already opened up and add some additional markets to that and begin to ramp that into the AT&T -- former AT&T territory. At the same time, we will be working now, but I would expect it will take a few months to work through some details on what our exact plans will be in the BellSouth region.

I could add just a little bit to that, BellSouth has a significant amount of fiber plant with the large portion of the homes on copper loops of less than 5,000 feet. So, I anticipate a quicker rollout compared to what we did in old SBC footprint.

All right, thanks.

We have Simon Flannery online with a question, please go ahead.

Thank you, good morning. Rick, could you update us on the pension and healthcare situation on a combined basis now. Obviously, BellSouth helped you out there, presumably good returns in 2006. So, what are we looking at in terms of funding status and the EPS impact '07 versus '06? And also with some of the healthcare developments in states like California and some other stuff has been talked about in Washington, people have talked about the order maker really being big beneficiaries of this, can you help us think about your thoughts on – offsetting some of the healthcare cost and getting some benefits from some of this over time? Thanks.

Thanks Simon, good morning. The -- on the pension and OPEB side, first of all, post merger when you step back and look at the -- company in total, I think we are in a very good position in terms of our funding. We are very well-funded in pension, over a 100% funding in pension. And in total when you combine pension and postretirement benefit liabilities, I don’t have the exact number this morning, but my expectation is that we are certainly up in the mid 80s or so in terms of funding of our combined pension and OPEB liability. So, we are in a very good position there. The combination of that funding position and good returns in 2006 will not cause us to have any pressure as we did in 2006. We won’t have any pressure from an earnings standpoint from pension and OPEB cost in 2007. With respect to some of the developments going on in California and Washington, I think, depending upon what healthcare policy ends up being in the US, it could have some positive benefits to us. We have not reflected that certainly in our plans at this point. On our forward-looking thinking, we do continue to try to manage those cost and to do it in a responsible way while still providing a good benefit to employees, and I think an example of that is the higher deductible plans that we rolled out for managers at the beginning of 2006, which will now begin to take over the next year or so, begin to take across our employee base, and we are seeing some very good results from that. It's actually helping to bend the curves for us on medical cost increases and at the same time, providing from a market standpoint, a very good benefit to employees.

Thank you.

We have David Janazzo online with a question, please go ahead.

Good morning. We have noted some selective price increases on the consumer side, for example in California, what's the thought process on elasticity of demand on the part of consumers to small pricing increases?

David, what we've largely been doing from a pricing standpoint is a couple of things, first we continue to focus our sales efforts on bundling and one of the things that we've done in December that I think would be significant as we go through 2007, is that we've simplified the number of bundled offers that we're offering in our large team sales channels. And that has a couple of impacts, one is -- first of all those bundles are competitive in the marketplace, but two, its provides a better, easier selling experience for our sales reps and I think we'll improve productivity there and increase bundle penetration. And at the same time, as we increase our penetration of bundles, it gives us an opportunity to increase consumer ARPUs. In other areas where we've had a number of states that we then granted some pricing flexibility now based on the competition that is in those markets, that's given us the ability in some areas to put some increases and frankly in some access line rates and vertical service rates that in many cases had not been increased for many, many years. And so there -- I don't think those increases in any way put us out of the market or going to increase churn in that base, and it may help us move more customers to bundled offers where they are able to get discounts as they bundle a number of services.

Thanks a lot.

David Barden is online with the question. Please go ahead.

Thanks a lot guys. First question I had, maybe for Rick is, just the small, medium business segments it does appear to be a source of renewed growth at both AT&T and BellSouth, having gone unnoticed by the cable companies we're trying to at least talk about targeting that segment in the future. Could you talk about what market share you guys believe you now have in that segment and what kind of exposure you have there and what impact you feel if any cable companies may or may not be having? The second question I would have is just, as you guys obviously aware of with the delays in IPTV there has been lingering debate about what a plan B strategy might be. Obviously, you Rick and Ed have both used the word commitment today to the IPTV strategy, are we to read into that that we should stop speculating on plan B and focus on plan A for the rest of '07 and into '08? Thanks a lot.

I'll take the IPTV question. Our fiber-to-the-node architecture is performing better than we anticipated it would. We're actually seeing better bandwidth than we actually forecast. And we're seeing that better bandwidth in both the short and the long loop links. Our customer feedback thus far has been very good. And in fact, we think it outperforms better than cable in side-by-side comparisons. 70% of the customers we've got are signing up for the high-end video packages, 70% are taking the higher broadband speed. So the approach we're taking we believe is the right one. There has been a lot of talk about does this stuff works? It works and it works well. The network is good. All the delays and some of the difficulties we've had have been related to programming, and we think we're just about to get all those solved. Everything seems to be working well. So, this is our plan A and plan A we're sticking with. We like this stuff. It works. And it's the right thing financially.

David, with respect to small and medium business, that has been good area of growth for us. As we've said, we're seeing growth not just in data services, but in voice services as well as access line growth. That is an area of the market that there have been competitors and there have been competitors for years in that part of the market. But we've done very well and I think we've done well because when you think about many of these small and medium business customers, they don't have the time or the resources internally to manage communications and certainly to manage data products. And so, they are looking for a company they can partner with that can offer a full range of services and we are certainly today best positioned to do that across a broad spectrum of services, both in the voice and data side. The cable competition, I think cable companies have certainly talked about and we'll enter this market. Actually, Cox has been in this market for sometime and they are coming at the market in a little different way. They are looking to migrate some of their consumer products predominantly and migrate that into some small business customers. I think their focus will be on the smaller customers, kind of ten lines and under probably four to six lines and under frankly, and when you look at that with respect to our business, that total is only at about the mid single-digits range of our total business. So, it’s a sub-segment of the market we go after in small, medium business. And I would add to what Ed said with respect to IPTV, as many of you know I have had the service at home, I have had it for several months now. The service is working very well. The work we are doing right now is really fine tuning the software platform and how that software platform communicates with the set-top boxes, how it communicates and utilizes the data basis for things like scheduling and managing DVR recordings. And in the last month, we've made a lot of progress there, in fact we've had a couple of events that were very high profile DVR-type events, with the premiere of the 24 TV program, the American Idol premiere, all of those were high demand events from a customer standpoint and the platform performed very well for those. So, we are making some changes to the software and I think very shortly, as once we have those changes in place, we will be ready to launch and start adding more customers to this platform.

That's really helpful stuff. Thanks Rick. Thanks Ed.

Thomas Watts is online with the question. Please go ahead.

Hi, yeah, thanks for taking the question. Can you talk a bit more about your outlook for Enterprise to begin top-line growth in 2008 specifically, is that outlook driven by mostly contract renegotiations, where declines versus the embedded base are less than in prior years, is it growth from usage from current customers and the overall demand environment, or are you assuming some acceleration in share gain. If you could -- obviously it's probably a combination of all three, but if you could just provide some color there, I think that will be appreciated?

Well, I think, you are right, it’s a combination of all of those factors, demand is very good right now, and we are certainly seeing strong demand in areas like transport, we are seeing a very strong demand in IP Data services. What has provided -- what has caused a drag on this part of the business if you will are pricing declines, primarily to a large degree in long distance voice. And the point-of-sale pricing that we see -- there it continues to be a very competitive environment, but the point-of-sale declines in the last several quarter have been pretty small 1% and less in each of the last few quarters. And as contracts are renewing, the gap between our average price in our contracts, in our portfolio contracts, and the point-of-sale price has been reducing. So, we see that continuing which will reduce overtime the drag on revenues from Voice service, but what really drive it is the continued growth in IP services in areas that we talked about VPN services, managed Internet services, hosting services. We also have some opportunities I think to grow incrementally internationally. So again it’s a gradual process, because we do have some embedded pricing in our existing contracts that are higher than the current market and so we got to work through that, that’s why it's more of a gradual process. We are very encouraged by the trends we are seeing, as we showed in the presentation. Every quarter has been improving in terms of those trends.

Great. Thank you very much.

Mike McCormack is on line with the question. Please go ahead.

Thanks guys. Just a couple of things. First on the revised synergies, you have identified obviously that 2007 I guess is mostly non-cash, but when you go in towards 2008-2009, maybe you are going to identify what you've seen there to improve the guidance, is it changes in the view on operations or is it stability either BellSouth or continuous stability at AT&T? And secondly on Lightspeed, if you have got operational dilution going from roughly a $141 million last year to what I think could be based on your numbers here about $625 million in the current year. But it's still I think fairly amorphous for us. We don’t really have an idea as far as subscriber targets, revenue expense, or may be you get -- we got expense, but no revenue or subscriber targets or market targets, may be you are putting some parameters around that? And then may be connected to that is just commentary on your announced free TV offer in the San Antonio market under strategic rationale for that? Thanks.

Those were lot of questions, Mike. We’ll try to tackle those. We will do the best we can. The -- going back to the first one. I think, the first one had to do with expected improvement in synergies and let me just talk about primarily the – well, let me talk about both the AT&T and BellSouth mergers. In the AT&T merger, I think, our -- we are more confident and comfortable with the ranges that we originally provided. In fact, we think we will be at the upper end of those ranges. We have some areas where we’ve actually exceeded our expectations. But for the most part, what we’ve been able to do is achieve the synergies sooner and I think that’s what you’ve seen in 2007 or 2006 rather. As we get into BellSouth merger, we -- and firmed up our merger plans, we found some areas, both with respect to operating expenses and capital, where we think we had more opportunities. And on the operating expense side, we are expecting about the same level of consolidation and force. The numbers there are a little bit higher, but for the most part, we are picking up what we believe will be a couple -- eventually 200 to 300 million per year and a additional expense savings. A lot of that is to consolidating operations and consolidating external spend and getting better prices for those products and services that we buy.

Because there are still, Rick, I'm sorry, expectation that roughly 20% of that headcount is still Cingular related? I think that's the original one.

Yes, I think that's fair, it's still in the 20% to 25% range.

Okay.

And then secondly, where we did increased synergy expectations has been on -- as well on capital expenditures and that's -- frankly half of that in CapEx is related to just doing a review of all of our purchase contracts and all of our major vendor contracts. And as we combine the spin and as we move to the best pricing embedded in those contracts, we believe there is $300 million to $400 million a year in CapEx benefit over time. And then, we also have CapEx savings that are largely coming out of IT from consolidating operations, consolidating datacenters, moving to common platforms. So, I think those are the major areas.

That's helpful.

We have not -- on Lightspeed and U-verse, we've not provided guidance on customers at this point. We want to get the products into the market, open up the channels, and I think what we're going to find is that, when we do that we're going to get some nice early penetration gains, but I think it's pretty immature to put numbers out there yet. Focus right now is on making sure that the platform is working well and those customers we add have a great experience.

So that's something you've plan to discontinue to report, Rick, though as far as sub-counts goes or market goes, I guess, some of the qualitative discussion on the call?

Yes. As we start to really ramp these markets and put advertising and marketing behind it, you will see our customer accounts both in terms of high-speed data as well as video related to U-verse.

Okay.

And just a quick comment on the -- we did put an offer out, it's not universal, we’ve got it in a handful of markets and it's not a -- it revolves around a 12-month free DISH offer is at the low-end package and in order to get that offer, customers have to bundle voice and data and long-distance service with that. So, when we look at that, plus the opportunity in many cases to up-sell the customer to a higher video package, this ends up being a reasonable offer for us financially and we are targeting it in markets where we are seeing more aggressive cable competition or new launches from cable.

Great. Sorry for the long question, Rick.

That’s okay.

We've Jason Armstrong in the line with a question, please go ahead.

Great. Thanks, good morning. Couple of questions, just first on wireless, and Cingular is obviously performing very well. I talked about wireless being at sort of the core of the strategy, and Ed you mentioned two out of your five key priorities were tied into the wireless business, I just wondering because we think sort of conceptually about this, you got wireless and enterprise, which are national franchises, but consumer wireline, broadband, and video strategy, they are sort of regional. Target market is about half of the U.S. If you think long-term about the business and sort of the future bundling opportunities of wireless, does it make sense to think, sort of longer-term about extending either the video with a broadband footprint to better complement wireless footprint? And may be second question is just for Rick, on the free cash flow guidance, it does seem a bit conservative. You sort of kept the guidance the same despite increasing synergy guidance for BellSouth and really pointing to the higher end of the range for the legacy AT&T business. So, this would have seem like it would have moved up for cash flow guidance, I am just wondering if you can offer some comments there? Thanks.

Let me address the cash flow issue first. And first of all, we've got a fairly good size range there. That range on cash flow was the same range that we had projected prior to the announcing the BellSouth acquisition. And so, as you put BellSouth on top of that in 2007 in particular, you have to remember that we're going to have a pretty heavy cash outflow in terms of integration cost in 2007. We've got all of the rebranding to occur in 2007 across both BellSouth and Cingular, plus there are a lot of costs that due to the timing adjacent of the close that are cost related to, the legal costs, banker fees, all of the cost related to actually doing the transaction. We'll be accrued either in expense at BellSouth in their 2006 results or being on the beginning balance sheet for 2007, but all of that cash comes out in 2007. So, total integration cost in 2007 on a cash basis is over $2 billion. And so, that has an impact. And then of course, with the dividend increase we did in December, which was actually higher than we would have planned a year ago, that dividend increase now with the additional shares outstanding takes our dividends well into the upper $8 billion a year range. So, you put all of those things together. I think in answering your question, is it possible could we do better than the guidance? Sure, that's possible. We're going to try to do that. We hope to do that. But I'd say the integration cost, some higher cash taxes in '07, and the higher dividends, all of those are impacting that range for 2007. Ed, do you want to talk?

Yeah. Jason, when you talked about the wireless and enterprise being national franchises and that's right, you made the point of consumer more a regional business and how does that connect up to video and what makes sense? We are the number one wireless business now. We're the global leader in enterprise, and there is always going to be opportunities out there, but we have very good connections with smaller and medium firms. And what you say certainly makes sense and is probably true, but we're about executing right now and we'll see what comes along.

Okay. Thanks for the color.

John, due to time constraints this will have to -- this next question will have to be our last question.

Chris Larsen is online with our last question. Please go ahead.

Making it under the wire, thank you. A quick question for Rick. On the directory, the incremental dilution or how we want to classify, is that a one-time item that's going to show up in the first quarter or are we going to see that hit each quarter throughout '07? And then, second on the CapEx, it looks like where the mid point, 15% CapEx to revs, it's about a billion or so down year-on-year. And I am wondering if you can give us an idea of where some of those ups and downs, I've sensed that, Cingular probably is down a billion, billion plus, is that where most of the sequential changes or if you could just give us some -- an idea of where some that spending might be up and down? Thanks.

Sure, Chris. On the directory issue, that's something because those directories are amortized over twelve months, you will actually see it throughout the year. It will be more front-end loaded, because as we go through the year, the amortization from some of the directories, say the directories that were issued in the first half of last year by BellSouth, that amortization will start to fall off. So, it will reduce as we go through each quarter, but you will see it throughout 2007. And again, we will show you the numbers in our segment without that purchase accounting adjustment and we'll normalize the impact in our adjusted margins and in our adjusted EPS. On the CapEx side, we're actually seeing a -- we'll see a pretty substantial decrease in wireless CapEx this year and let me backup on that for a minute. I think your numbers are pretty much on target. If you put the three companies together in 2006, total CapEx would be in the upper $18 billion range. If you take out, there was couple $100 million or so of CapEx related to some Hurricane restoration at BellSouth. If you take that out, you are in the 18.6 kind of range for 2006. Our expectation for 2007 is that will be at or below that level, which would put us again kind of right in the mid-teens as a percent of revenues. But underneath that pretty significant decline in wireless CapEx, in fact wireless CapEx will move into lower double-digit range, as a percent of their revenues. And that’s just a function of their integration build out in California, and most of their build out are cost related to UMTS being behind us. They now have when you heard Stan talk about this yesterday. They now have the ability. They have got this converged network at the local level pretty dense cell side configuration and a very good spectrum position, that gives you the ability to drive that if you will as you put new customers and new traffic on the network and maintain a lower CapEx level. On the wireline side, you are going to see some increases this year and that’s related to rolling out and ramping up our build on project Lightspeed and, in general, driving fiber deeper into our network. And then on top of that, we are making some investments in our AT&T national networks and we will make some investments targeted and selectively in international in areas like hosting services, building some data centers, you've seen some of our announcements there already. So, we will make some incremental investments there that we think will drive revenue growth for us in 2007 and beyond. But that’s a pretty good picture. I think you have got a pretty good view of CapEx.

Thanks Rick. Just one clarification, the CapEx budget includes the integration spending that you are doing right?

Yeah.

That would be capitalized.

Yes. It includes integration.

And so maybe on a run rate basis it’s a little bit lower than that, as we get into ’08,’09?

Yeah, I think that’s fair. I mean as you start to have -- we've got some integration capital in ’07 and then we will have some CapEx synergies as we go into ’08 and ’09, but obviously a big driver there as we get into ’08 and ’09 is what are we seeing in terms of demand, how does that drive CapEx, and what other opportunities do we see in order to invest in the business and start to ramp at top line growth? So, it will be a balance year as we go into ’08 and ’09.

Thanks a lot.

Before we close, Ed Whitacre has some closing comments for us.

Well, thanks to all of you for being on the call with us today. When I look at how we closed 2006 and how we are positioned for the year ahead, there are a number of things that are very encouraging. We are ahead of plan on merger savings and we raised our estimates for BellSouth synergies. Wireless growth has accelerated and we continue to expand Wireless margins. Regional business trends are solid. Enterprise is on an upward trajectory, and we expect to return to overall revenue growth this year. As a result of all this, we have a strong growth outlook for both EPS and cash flow, which we have reaffirmed today. We are confident in our ability to deliver on the targets we’ve laid out for you today, and we are very excited about the year ahead. The new AT&T is a company with great assets. We’ve demonstrated our commitment to strong and consistent execution and most important, we are confident we have a business that over the next few years will be able to generate value not only through productivity improvements, but also through top-line growth. Again, we look forward to a great 2007. Thank you for joining us, and thank you for your interest in AT&T.

Thanks Ed, and thanks to all of you for joining our call. John, this concludes our earnings call this morning.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may all disconnect.