Good morning, ladies and gentlemen and welcome to the AT&T first quarter 2008 earnings release conference call. (Operator Instructions). I will now turn the call over to Mr. Rich Dietz, Senior Vice President Investor Relations. Mr. Dietz, you may begin.

Thank you, Christine and good morning to everyone. Welcome to our first quarter conference call. As always it’s great to have you with us. Joining me on the call this morning is Rick Lindner, AT&T’s Chief Financial Officer. As you have seen, we had a strong quarter, a good start to the year and the purpose of this call is to provide additional background on our results. Our release, investor briefing, supplementary information, presentation slides are all available on the investor relations page of AT&T’s website at www.att.com\investorrelations. Before we get started, I need to cover our Safe Harbor Statement. Information set forth in this presentation contains financial estimates and other forward-looking statements that are subject to risks and uncertainties. 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 website at att.com. Okay. With that covered, let me take you through our first quarter EPS comparisons, which are on slide 4. This marks AT&T’s 12th consecutive quarter of double-digit growth in adjusted EPS. Reported EPS this quarter was $0.57 that’s up 26.7% versus the year ago quarter. We had $0.13 of noncash merger costs and $0.04 for charges related to a recently announced force reduction. The result is on adjusted EPS of $0.74, that’s up 13.8% from year ago results. With that of the background I will now turn the call over to AT&T’s Senior Executive Vice President and CFO, Rick Lindner. Rick?

Thanks, Rich. Good morning, everybody. It’s great to have this opportunity to talk with you again. Let me begin with the major highlights from the quarter, which are covered on slide 6. We had a good first quarter with excellent momentum in key growth areas. Our cost initiatives are on track and our operational results reinforce the confidence, we have in the business going forward. We said, we would ramp consolidated revenue growth this year and we delivered in the first quarter with pro forma growth of 4.6%. Wireless revenue growth continues to be strong up 18% and our wireless OBIDA service margin stepped up to 41.7%. On top of that, we are very pleased with the Wireless Spectrum acquisitions we have made. The Aloha transaction, which we completed in February and the FCC auction combined to give AT&T, a premier spectrum position with 700 MHz coverage for a 100% of the nation’s top 200 markets. And that’s a terrific foundation for future wireless growth. Another major highlight for us this quarter is enterprise, we continue to win contracts such as the recently announced weal with Shell and enterprise revenue growth continues to ramp. We also continue to deliver solid double-digit growth in broadband revenues and broadband net adds were strong in the first quarter at nearly 0.5 million. Our U-verse TV service is ramping nicely and is on plan. U-verse video Ads were 148,000 for the quarter bringing the base to nearly 400,000. As we drive these growth initiatives, we are also returning substantial cash to shareholders. Our share buybacks in the first quarter topped $4 billion. That’s a quick overview of some first quarter highlights, what I would like to do now is drill down a bit and step you through our results in a little more detail. Slide 7 provides look ahead consolidated revenue growth. On a reported basis revenues were up 6.1% and on a pro forma basis, when you take out the merger accounting effects on our 2007 directory revenues our consolidated revenues were up 4.6%. As you see on this chart those growth rates over the past year are on a very good trajectory. The drivers are strong wireless growth, positive growth in enterprise and substantial improvement this quarter in wholesale and stable regional consumer and business revenue trends. The next slide shows our wireless revenue growth trajectory. Service revenues were up more than 17%, total wireless revenues were up better than 18% to $11.8 billion in the quarter. And wireless now represents 38.5% of AT&T’s total revenue. Over the past year subscribers were up 14.7% with 4.7 million net adds. Our postpaid ARPU was up this quarter nearly 5% and we have now posted seven consecutive quarters of year-over-year ARPU gains. This reflects outstanding growth in wireless data, up more than 57% and wireless data now accounts for 21.5% of our total wireless service revenues and its still in the early part of its growth trajectory. Wireless revenue growth also reflects strength in prepaid. Our first quarter prepaid revenues were up more 25% year-over-year, and something that may be a bit surprising to you, data growth is also an important part of prepaid. In the first quarter, we had year-over-year prepaid data revenue growth above 50% and data makes up nearly 20% of our prepaid ARPU. Slide 9, shows our first quarter subscriber metrics, which reflect good execution in a number of areas including network performance, distribution, and innovation in services and devices. We continue to generate very strong flow share. First quarter gross adds were $5 million. We had $1.3 million net adds that was up nearly 9% versus the year ago quarter. Net adds were impacted by the fact that we executed the full shutdown of our TDMA network in late February and that reduced subscribers by nearly 330,000.Total churn, which plans postpaid reseller and prepaid was flat. Postpaid churn was down 10 basis points versus the year ago first quarter and flat with fourth quarter. At the end of the quarter, we had over $71 million wireless subscribers. In addition to subscribers the other powerful wireless drivers growth in data, slide 10 provides an update. Year-over-year wireless data revenue growth was over 57% and this growth reflects strong increases in both consumer and business data usage and it comes from increased demand across our product portfolio. Internet access revenues were up more than 100%, email growth exceeded 60% and revenues from data access and media bundles were also strong. And we are still in the early part of the adoption curve, penetration of 3G handsets and laptop connect cards in climbing. Adoption of smart phones and integrated devices is on the rise, but at this point we have only 11 million 3G devices in service and only 16% of AT&T’s postpaid subscribers have integrated devices. The ARPUs for customers with integrated devices are nearly doubled the company average. So, we continue to have great upside potential in wireless data. Wireless data is also the major driver behind the spectrum acquisition we have made. We put a summary together for you on slide 11. AT&T has a premier spectrum position and most importantly a clear logical technology roadmap. First let’s look at spectrum. We have put together the 700 MHz spectrum, we acquired from Aloha partners and the B block spectrum we acquired in the recent auction. The spectrum from these two sources is contiguous and unencumbered from a regulatory standpoint. Our 700 MHz spectrum will cover a 100% of the top 200 markets and 87% of the US population. And across the top 100 US markets, we have a total average spectrum debt of 90 MHz. But equally important we have a clear logical technology path to LTE and 4G. Today we are at 3G with HSPA Release 6. This provides users a DSL-like data experience. We are doing a couple of things this year to enhance the 3G experience. First we are expanding our footprint. We will be in nearly 350 metros including all of the top 100 by the end of this year. In addition, now that we have shutdown our TDMA network, we are expanding the use of 850 megahertz spectrum for 3G, which will significantly enhance service. And we are completing the deployment of the nation’s first High Speed Uplink Packet Access Network, which enables laptop users to more quickly send large files and access applications. In the 2009 timeframe, the next step in our evolution is HSPA Release 7, which we expect will deliver peak speeds of over 20 megabits per second. And beyond the 2010 timeframe, we expect to move into LTE with peak speeds as high as a 100 megabits. These steps are logical. They are all building on the same technology foundation. LTE will allow for backward compatibility to our GSM in our HSPA networks and that will be a great benefit to our customers. So, as we look forward to the future of wireless we are excited by the opportunities, we are thrilled with our spectrum position and we are confident that our technology path is the right one. Let me conclude my wireless comments with a quick look at margins. There is an update on slide 12. Our adjusted wireless operating margin was 29.8% up 430 basis points and our service OIBDA margin was 41.7% up 280 basis points. More than three years ago now, we said we expected to drive wireless margins to the 40% plus range and now more than 1600 basis points later, we are still delivering on that target. There are a number of margin expansion drivers. We continue to improve our network cost structure. We continue to lower LD interconnect and roaming costs and we continue to improve operations to realize efficiencies in areas such as billing and customer care. Its important to note that we achieved this margin expansion with a high level of gross adds, 5 million in the quarter, and with a more extensive mix of handsets, as more customer s choose integrated devices. Well, that's an overview of our wireless results. Let me turn now to Enterprise, which is another key growth for us, the details are on slide 13. A little over two years ago, when we acquired the former AT&T, enterprise revenues were declining in the high single digits. Since then, we've seen substantial improvement. As you see on this chart, in the first quarter, Enterprise revenues grew 1.2% and Service revenues ramped to 2.1% growth. Demand is solid, particularly for IP services, which include virtual private networks, managed internet services and hosting. IP services grew nearly 23%. We are winning contracts, most notably, our recent five year agreement with Royal Dutch Shell. This was one of the largest commercial contracts ever signed by AT&T and the largest agreement signed with a company headquartered in Europe. This follows other large wins in the past few months including agreements to provide telecommunication services for Starbucks, while expanding our Wi-Fi network to include their stores. Another encouraging data point in the first quarter is the improvement that we are seeing in wholesale trends. Slide 14 has the details. Like Enterprise, a couple of years ago, we’ve seen high single digit declines in Wholesale over the past several quarters. That had to do with consolidation in the industry, the decline in UNE-P Wholesale lines industrywide, and merger concessions that affected pricing. The good news is that in the first quarter, we saw significant improvement in year-over-year wholesale revenue growth rates and sequential growth in total wholesale revenues. As you know, last October, we formed an alliance with IBM that calls for AT&T to become their primary global network management services provider. As a result, we expect to receive up to $5 billion of additional revenues over the five-year term of the agreement. This applies in the Wholesale customer category at the outset and in Enterprise as we build the business. These revenues had a small positive effect on first quarter results, but the bulk of the improvement reflect solid fundamental demand in this space, driven by growth in wireless and by reduced impact from carrier consolidations. We expect these fundamental trends to continue and the revenue impacts from our agreement with IBM will grow as the year progresses. We also continue to deliver solid results in regional businesses, as shown on slide 15. Total regional business revenues were up 2.6% and service revenues, which exclude CPE sales, were up 3.4%. Revenues from small and mid-sized firms continue to be solid, up approximately 5% in line with recent quarters. Our regional business voice revenues continue to grow in the low single digits and business data revenues grew 6.3%. This includes mid-single digit growth in data transport and better than 15% growth in IP data, including VPN, broadband and managed internet service. There are few noteworthy initiatives we have undertaken in this space. First, we are bundling more aggressively and that includes wireless. You may have noticed that last week we launched a new wireless plan for small and mid-sized firms called Business Talk, which brings the family talk concept to business customers. Second, we are helping customers migrate to IP, and that's reflected in our IP growth rates which have accelerated in this space and in a new product we launched in the first quarter called Business In A Box, which pulls together Voice-over IP functionality, VPN and other capabilities designed for small and mid-sized firms. And third, as our U-verse network deployment expands, and we reach more businesses with that network, we will be bringing U-verse based services to business customers. Slide 16 shows regional consumer trends, and consistent with results over the past several quarters, overall revenues are flat as we transform this business and transition our customer base to our U-verse platform. Consumer ARPU continues to grow up 5.4% in the first quarter, driven by broadband and TV. As you see on this chart, our consumer data revenue growth which combines broadband and U-verse services grew 18.5%. Consumer Wireline is a business moving through a transition, from traditional wired voice to an IP model focused on broadband and video, with wireless playing an emerging role. And we are pushing to that new model fairly quickly, as voice lines decline, we are aggressively ramping U-verse TV, which has a very high broadband attach rate. We're selling more broadband and wireless bundles, and we've greatly expanded our Wi-Fi reach with some 17,000 US locations following the Starbucks agreement, and that creates a richer experience for our broadband customers. A key foundation for these initiatives is our U-verse deployment, and we have an update on slide 17. Our network deployment is on schedule now reaching more than 9 million living units, and we've launched services in 43 markets across the country. The service is working great, our install rates have climbed, installation times are improving, and customer response continues to be positive. Plus, we continue to add new services and new features. For example, we've rolled out U-verse voice service now in a number of markets, and starting in the second quarter, we will launch the second HD stream. Remember that every set-top box we have installed is HD capable. So we can cost effectively grow without CPE cost or technician dispatches, as our customers adopt more HD. In areas where we've been marketing for some time, we're getting to more than 10% penetration in less than 12 months. We've added a 148,000 U-verse TV subscribers in the second quarter, and that's a good step-up from the preceding quarter, bringing our in-service total to nearly 400,000. As we ramp new growth platforms, we're also taking cost out of our operations and expanding margins. Slide 18 has an update. Our first quarter adjusted operating income margin was 24.6%, that's up year-over-year and it's up sequentially. Consolidated margins are supported by continued improvement in wireless as well as merger synergies and other cost initiatives. In recent weeks, we have begun to restructure our regional wireline operations. As many of you know historically these operations have been organized following the original geographic boundaries of the regional Bell operating companies. We are now moving to a single national approach, which will allow us to streamline staff functions and implement consistent best practices across our local consumer business in network operations. Cost reduction and productivity improvement is a continuous process for us with our scale and technology based industry there will be ongoing opportunities to operate better and more efficient. I would like to close with just a few comments on cash flow on slide 19. In the first quarter we returned substantial cash to investors $2.4 billion a dividends and $4.1 billion in share repurchase. Our free cash flow yield has grown substantially over the past year and we continue to have strong balance sheet. We target a debt to EBITDA multiple in the 13 to 1.5 range. Although, we are comfortable with being slightly above that level of times as we were in the first quarter, but we do expect to move back within the range by the end of this year. With that let me close with a quick recap. I feel we had a strong first quarter and a good start to the year and we are delivering on the targets we outlined for you. We have solid momentum across key growth areas of the business wireless, enterprise, broadband, and video. As a result our revenue growth has rammed and our margins have expanded. And we are pleased to report to you consistent double-digit growth in adjusted EPS. We continue to deliver strong free cash flow, which allows us to return cash to shareowners, while investing in the future of this business. With that Rich, I think I will stop here and why don't we open it up for questions.

Great, thanks very much Rick. Christine, we are now ready to begin the question-and-answer-session, if you would initiate that please.

Thank you. (Operator Instructions). The first question comes from John Hodulik from UBS. Please go ahead.

Okay, thanks. Good morning, guys.

Good morning, John.

Couple of quick questions on the wireline margins, they were under a little bit more pressure than we had expected. But I also noticed that you didn't normalize for sort of the usual integration expenses or severance costs. Could you talk about any issues that been that maybe involved there with the lower margins and then are you still sticking to the guidance for flat wireline margins year-over-year. Thanks.

Yeah, John, as we told you when we met in December at the Analyst Conference, we expected wireline margins this year to be relatively flat and that would put wireline EBITDA margins in the mid-30% range. We were in that range, but at the lower end of this quarter at about 34.2%. A couple of comments I'd offer on first the one that you mentioned over the last couple of years since the AT&T and BellSouth mergers, as you know we have incurred in accessing merger synergies, there is also some integration costs involved in that and we've normalized those costs. At the end of 2007 and going into 2008, we felt that we are two years into the AT&T merger and we're a year into the BellSouth merger. We thought it was appropriate to stop normalizing integration costs even though we knew we would continue to have some costs that would impact us in 2008. But it had ramped down substantially and we did have costs in the first quarter primarily related to the BellSouth acquisition and the movement of traffic, largely data traffic from other facilities on to our own facilities. In addition in the first quarter, we did have some impacts from weather and some storms in the Midwest, in the Southwest and whenever we have that it tends to increase over time rates as well as material cost. But as we look forward in the balance of the year, first of all, we will continue to increase the amount of benefits that we will get from merger synergies and other costs initiatives and we'll see some benefits as we get particularly in the second half of the year from the force reductions we are doing now in the wireline business. On top of that, the new agreement we have with Yahoo will begin to generate some lift versus historical results in margins and we'll start to see that in the second quarter and then obviously in third and four. So, as I look ahead, my expectation is that wireline margins will increase somewhat as we go into second and third quarter. And I think we are at this point, we are saying that we expect wireline EBITDA margins to be relatively flat and to be in that mid 30% EBITDA range.

Great, thanks.

The next question comes from Simon Flannery from Morgan Stanley. Please go ahead.

Okay. Thank you. Good morning. It seems like everyday there is a new story on the economy you got a lot of touching the economy lot of different ways and around we talked about increasing non-pay disconnects in the wireline business, but can you talk a little bit about what you are seeing, what the impact of the housing situation is and any sign on the Enterprise side of the sort of more cautious behavior by say some of the financial services companies or others. Thank you.

Sure, Simon. I think I will not enter the date with the experts on the state of the economy and I'll just let our numbers for the quarter speak for themselves. If you look at the numbers this quarter and we go across the different business in customer segments. First of all in wireless, we continue to see very strong growth in revenues, growth in revenue per customer, strong data revenue growth and increases in both postpaid and total net adds year-over-year versus first quarter of last year. So, continued strong growth in wireless. In enterprise, you have seen the numbers in the presentation both in total Enterprise revenues and recurring service revenues, which are really for us the most important. Those growth rates are positive and they are continuing to ramp. As we look at the sales funnel and we look at the opportunities we see going forward from some of the larger contracts we have signed with Shell, with General Motors, with IBM, with Starbucks. We feel good about the Enterprise business, and I think relative to financial firms and other firms that might be impacted by what's going on in the markets and the economy. In many respects, what we are doing for them is supporting the bandwidth needs they have in their business, while at the same time trying to do it in the most cost effective manner. So I think we are really right in the sweet spot for those Enterprise customers. As you look across the rest of the businesses, I mentioned in the presentation, we are seeing improvements in wholesale trends, which are in line with what we had projected. We are seeing continued growth in regional business with growth in both voice revenues as well as data revenues. And in consumer, although I think you still see some softness in access lines, we are offsetting that with solid growth in broadband and with a nice ramp in video services. So as I look across those numbers, I think what it does is it supports our premise that our business continues to be more defensive than most in times when the economy is weak or under stress.

Can you touch briefly on the directory side of things?

Sure. In directory, our revenues year-over-year are down slightly and it reflects some decline, which is expected on the print side, but at the same time, we're seeing very good growth, over 40% growth in electronic yellow pages. And we're doing some things in that business to support the business going forward and support that revenue and cash stream for us. So we've made some investments and we'll make some investments throughout 2008 in some additional advertising to support the business. We are growing the sales force in areas, particularly out of region areas focused on selling electronic yellow pages. And so as a result, we expect revenue to be relatively stable in that business and margins to be also relatively stable in around the mid 40s.

Great, thanks Rick.

Your next question comes from Mike McCormack from Bear Stearns. Please go ahead.

Thanks guys. Hey Rick.

Hey Mike, how are you?

Rich, I think this is probably your last call. So congratulations is probably in order.

Thank you, Mike.

A couple of things, Rick, on the wireless side, churn has obviously been moving in the right direction. This quarter you had the impact of the TDMA shutdown. But are you guys thinking internally about a target or a goal on churn, and maybe the puts and takes to get there? And secondly, on the flow share side of wireless, any commentary on where you stand versus the competitors this quarter, and whether or not the ISO had a meaningful impact? Thanks.

In terms of wireless, Mike, and wireless churn, we're pleased with the continued improvement there. And when you look at wireless churn, frankly, the most important piece of it is postpaid, because that's where you have the more significant customer acquisition cost. And our postpaid churn has continued to trend down. It had some impact still in this quarter from TDMA and TDMA shutdown that was probably worth 5, 6, 7 basis points in terms of churn. And we would expect overall churn and in particular postpaid churn to continue to decline. We want to get down into an industry leading level. And the good news is we see a clear path to do that. In fact, in many markets across the country today, we are at sub 1% on postpaid churn. And that the keys to getting there are number one, continuing to build and improve network coverage and network performance. Continue to simplify our product offerings, which is easier for the customer but also allows us to do a better job of customer service, makes billing easier to understand. And then finally continue to be innovative, I think, with the kinds of products and services and devices that we are offering devices, if anything that become in wireless increasingly important. In terms of flow share, I think we feel very good about our gross flow share today. Certainly, our gross adds are very strong, 5 million this quarter the best first quarter we have ever had in gross adds. The key for us in terms of net adds and market penetration is getting the churn number down and that's where our focus is.

Any commentary on the iPhone, Rick?

The iPhone, again, continues to be very popular with customers, and customer feedback on the device is very good. ARPUs are in the mid to upper 90s on the iPhone across the base. We continue to see customers adopting the iPhone. Over 40% of those customers are new to us. So, nothing really new in the trends there. But again, continued solid growth with the iPhone.

You are not seeing any hesitancy in front of the 3G version?

Through the first quarter, it was pretty stable.

Okay, great. Congrats again, Rich.

Thank you, Mike.

The next question comes from David Barden from Banc of America. Please go ahead.

Hey guys, thanks a lot and Rich same here. Appreciate the efforts. Maybe just, Rick, questions on the competitive climate on wireline and the cable front. If you could elaborate a little bit on the kind of run rate level of competition from cable last year. Obviously the story was ramping footprint overlap. I think, by the end of the year we kind of got to a roughly steady state and I think that the next front will be small medium business. If you could elaborate a little bit on whether you believe that you've kind of reached a steady state competitive engagement with cable on the consumer front and then what's happening on the small medium business front. And then on the other side of the coin, in wireless, obviously the story for the quarter was the $99 limited plan, people freaked out a little bit about the implication. But if you could elaborate on what you seem the results have been and what your kind of assessment of Sprint attempts to reengage the market have been if any on your business? Thanks a lot.

Okay, David starting with the cable competition on the wireline side, first in consumer and you're correct. I think in our territory cable is pretty much fully deployed and they were fully deployed in the latter part of 2007 in all of our markets. And what we typically seen as they have launched a market is it tends to ramp-up in terms of their penetration at the market over the first six months or so and then starts to flatten out. So, overall in terms of cable competition on the voice side in our wireline markets, they are still adding customers, but the number of customers they are adding seems to be flattening out. And we'll see those numbers as they report for this quarter we see if that continues to bear out. But what we are seeing in wireline, which is a little different than our expectation a year or two ago is that we are seeing continued ramp in wireless substitution. Some of that maybe driven by the economy, some maybe just driven by how certain segments of the consumer market plays, want to handle their voice and their data communications. And the good news for us is where substantial assets both in the Wireless and wireline side, we can provide the kinds of alternatives that customers are looking for. And so, as you know, we have rolled out a standalone broadband product, but in reality and in that product has been growing it was probably in the neighborhood of 30% of our total broadband net adds in the first quarter. But the good news there is as we look at it is nearly 50% of those customers that are buying that product are also bundling our wireless product with it. So, I think that's a good example of providing the right kind of bundle and the right product set for different segments of the market. On the small medium business side, again cable has launched in probably that the majority of markets and we are seeing some impacts there, but it's pretty small, maybe to think about I think like this we would estimate that cable has somewhere in 2% and 2.5% share of voice in that customer segment. And when we look at our access line disconnects in the regional business segment, what we see is that first of all only about 30% of those in total are related to competitive disconnects. There many of the others are technology related customers moving to IP or there are just businesses that are cutting back and reducing lines. Of the 30% that disconnects that are competitive related less than 30% of those are moving to a cable competitor, so when you put that together losses on access line to cable competition is about in the 8%, 9% range of our total disconnect. So, it's not been significant at this point. We have also worked hard, as you know over the past year particularly in major markets where cable has launched or is preparing to launch. We worked hard to enter in to term contracts and get our customers on the right bundles and I think that helped to inoculate the base somewhat. On the wireless unlimited plans, the results so far have been I'd say better than we expected frankly. To give you a sense for prior to the pricing changes about 1.5% of new customers would sign up for rate plans at $99 or above. Since the price change has occurred, about 4% of new customers are signing up at $99. So, the number of new customers coming in on those price points is up 2.5 and almost 3 times. And obviously customers are choosing, new customers are choosing to buy up and to get the peace of mind of the unlimited pricing. In terms of customer migrations, we have seen some migrations from higher price points or customers that were at the $99 price point, but with a higher ARPU and we have seen those migrations down to $99, above in the magnitude we had expected. But we are seeing more customers migrate up to $99 than we had anticipated. So, when you put all of that together my expectation today is that I don't think we'll see a significant impact at all on ARPU related to those price changes.

And Rick just an overall kind of impressions of Sprint's reengagement?

Well, Sprint obviously has their own price changes and plans out there and they've got new advertising campaigns and so forth. Throughout the first quarter though we continue to be if we look at the porting numbers we continue to be port positive, in fact we are net porting positive in the first quarter with all the carriers. But the most with Sprint in terms of just the relationship of port ins and port out.

Great guys, thank you so much. Thanks again Rich.

Thank you, David.

The next question comes from Jason Armstrong from Goldman Sachs. Please go ahead.

Great, thanks, good morning. Couple of questions, first on U-verse, you start to exit last quarter I mean the comments were that you had a week in December at the last sort of good week before the holiday season you had a 12,000 subs. First quarter results imply under 12,000 add per week, so it seems like the progress there is actually stalled a bit this quarter. Maybe some color behind that and how do you get back to the trajectory required to hit the 1 million target by year-end? And then, maybe second question on the spectrum auction, now that we are on the other side and you can talk more publicly about the auction strategy. Can you talk us through a strategy sort of aggregating regionally like you did versus a national strategy with the C block, maybe help us to think about the puts and takes?

Sure Jason. First of all, on U-verse, and may be there is a little bit of a disconnect between our plans and expectations for the ramp that we expect to see in U-verse net adds this year versus what some in the market may have modeled for the year. But actually, I would tell you in the U-verse net adds, we are on, in fact a little bit ahead of our plan in U-verse net adds for the first quarter. And if you go back and you look at the ramp, what you see is, two quarters ago, we added 75,000 customers. Fourth quarter, we added 105, this quarter we added 148. We are on a pretty good trajectory that we would expect to continue into second, third, and fourth quarter, and as we do that, we feel frankly more comfortable with the guidance we've provided which is that we will be at over 1 million U-verse video customers by the end of this year. As it ramps, there are obviously weeks where we have strong installations and some periods for example, in the first quarter in February, we rolled out a significant upgrade to the software platform, and so for a week or two in there, we went a little slower in installs and activations to make sure that that software upgrade performed well. And so we have some puts and takes like that and then obviously in holiday weeks and so forth, it impacts us. But overall, if you get out of the micro level of looking at it week by week and just look at the trend over the quarters, we actually accelerated somewhat the ramp this quarter versus the net add ramp last quarter. So we are comfortable with where we are there. And it also will vary, as we open up new markets in terms of the magnitude and the areas we open up. On the 700 megahertz spectrum, first of all our plan there was to try to purchase some spectrum upfront from Aloha, which is what we did and then to fill that in with 700 megahertz in the auctions, and clearly our target was the top 100 and top 200 markets. We also looked, as we bid market by market, we looked at the spectrum, the other spectrum position obviously we had in those markets. And we will use this 700 megahertz spectrum combined with the AWS spectrum that we purchased in the last auction to roll out LTE. The nice part about it is we have got a very good footprint now across virtually all our top 200 markets with spectrum that will be available to roll out LTE. It won't require us to go in and try to clear spectrum in order to roll it out. We also have the majority of the markets where we have 20 megahertz in either 700 or AWS to roll LTEL 20 contiguous. So, from that standpoint we are very happy with what we achieved in the auctions. And as I said a little earlier, we've got a very clear logical path to roll out LTE. And don't discount the fact because we've done conversions a number of different ways that we been forced to. This is not a conversion like we had with going from TDMA to GSM. This is more like the logical progression we had when we rolled out EDGE and when we rolled out UMTS. Because as we roll out LTE, we would expect that the technology and devices will be backwards compatible to our networks across the country, which will give customers as they adopt LTE devices, a very seamless experience.

That's helpful. And Rick, can you just put some parameters around what the LTE build might cost? I know, you set sort of a timeframe 2010 and beyond?

Jason, it's probably too early for that. But think about it as maybe similar to UMTS. If you think about it, we have got a very good spectrum position, a very dense cell site infrastructure, so rolling out LTE will be more like UTMS in terms of adding cabinets and radios at the cell sites in this new vacant spectrum to roll it out. So it will be more in that order of magnitude. But as you know LTE is still in development of the standards and development of the technology. So I don't have any numbers for you yet on what the cost will be. As we roll it out, I don't anticipate it's going to be resulting a significant change to our overall CapEx plans much like UMTS has not had a significant impact over our CapEx budget.

Okay. Thank you. And Rich, best of luck to you.

Thanks very much Jason.

The next question comes from Jonathan Chaplin from JPMorgan Securities. Please go ahead.

Hi. I am wondering if I could follow-up on earlier question on margins. I am wondering if the IBM contract and the Shell contract had any margin impact this quarter as there were costs associated with those contracts that were incurred. And then I am wondering, on the at least on the IBM contract, what the ramp looks like in the back of the year? Whether by the fourth quarter, we are going to be seeing sort of $215 million a quarter in revenue on that contract. Whether the $5 billion over five year is more backend weighted? And then on the wireless side, it seems like you probably only got a partial quarter benefit from the TDMA analog shutdown in margins this quarter. So we should see a ramp in margins from first quarter to second quarter it seems as well. I just wanted to check on that. Thanks?

Sure Jonathan. First of all, at IBM and Shell. The Shell contract was just signed, so it didn't have any impact at all on first quarter. IBM, we are just early in the process of moving employees and contracts and vendor relationships over to us. So it had some impact on the first quarter, but it was pretty modest both in terms of revenues as well as margins. There were some upfront costs on the IBM contract that had some impact on margins. But generally what you should think about on both, on these contracts as well as General Motors and any of the large outsourcing contracts, is that as you look at them over a multiple years in the first year of those contracts, margins will be pretty low because generally what we are doing is we are bringing the business in, we maybe bringing employees in that have to be consolidated with our workforce. We have to, a lot of work to do in rationalizing the access and how traffic is carried, so moving traffic on to our facilities, wherever possible and so a lot of work is done there and so in that first year there is pretty small margins and not much income impact as we get in to the second, third, fourth years of the contract then we have the ability to rationalize the cause and we also have the ability to sell more products and services in to that particular customer. So, the margins will grow over time. In terms of the IBM ramp, we are kind of moving that country by country and in some cases, we are also working with how the traffic has been carried in the providers of that traffic to transition it. So, it will be a transition throughout this year. I'd expect us to be somewhere in the $400 million to $500 million range in terms of revenues from that agreement for the year and it will be ramp as the year goes on. TDMA, our wireless network folks have done a very good job over the last year or so as TDMA traffic declined substantially to thinning the TDMA network and reducing costs taking as much out as possible as we've gone along. Now that network is fully shutdown there are some incremental benefits and we will be able to groom out of the network. So, I think it will provide us some lift as we get into the balance of this year, but the fact is we taken a lot of those costs out already.

Thanks Rick.

Your next question comes from David Janazzo from Merrill Lynch. Please go ahead.

Good morning. Rick, on the free cash flow, obviously a small member in the first quarter versus the annual outlook, can you review some of the timing factors that are going to impact that number? And you bought back lot of shares during the quarter was that a function of being opportunistic or could that mean that things could move along more quickly?

Sure, David on free cash flow as you know first quarter is always low for us on free cash flow. It's a combination of factors. The annual incentives for all employees are paid out in the first quarter. We typically have a little higher payments of other accrued expenses and accounts payable that occur in the first quarter. And then, of course, we've got first quarter generally we're making the tax payment related to the prior year and that first quarter tax payment is normally larger. I think this year in fact it was up about $1.6 billion year-over-year. So, the first quarter always affected by the timing those timing issues. We feel very comfortable with our free cash flow guidance for the year and expect normal significant increases in free cash flow, as we go into the second and third quarter and then fourth quarter is normally a strong free cash flow quarter for us. Share repurchase was really mostly a decision that we made frankly based on where the shares we are trading that as we look at our share repurchase plan for the year. We made a decision to front-end loaded and put more of it in the first quarter and that's what we did. We will continue to be in the market throughout this year as well as next year and I fully expect that we will complete as we said when we announced in December complete the 400 million share authorization next year. And we just see how the market evolves in terms of the timing of that, but we are well on the way; we've purchased nearly 112 million shares of that 400 million shares in the first quarter.

Thank you.

The next question comes from Craig Moffett from Sanford Bernstein. Please go ahead.

Hi, good morning. If I can take down a bit more into a couple of wireline questions. One on the enterprise side, we've seen a clear improvement in the revenue growth maybe if you can talk about the margins specifically within the enterprise segment and whether it were we are staring to see some margin expansion, where you think those margins might be able to get to over time. And then separately on the DSL side you took a relatively large price increase back in February I'm wondering if you could just talk about the kind of response you have seen to the pricing action in the broadband numbers, which were actually pretty strong this quarter.

Sure, Craig. First of all on EPS, the margins there have been pretty stable and that's similar to other parts of our wireline business, what we are doing there is, as customers migrate from legacy voice and data, which tend to have higher margins because of the scale of what we have and then migrate to IP. It creates a margin pressure, but as those customers, as we continue to grow the relationships and sell in to those customers and as we gain more scale in IP based services we are increasing margins in those services and then we are navigating that pressure really through merger synergies and continuation of cost initiatives in the business. So, overall pretty stable, as I mentioned earlier some of the large transactions we are doing, do you put some pressure on margins in the early years. But we are very comfortable and confident that those contracts are profitable over the life of the contracts and essentially give us a great opportunity to sell services and increase margins as we go forward in the contract, so overall pretty stable in enterprise. On the DSL price increase, we are rolling that increase across the base and so we saw some of that in the first quarter. We will continue to roll it as customers come up for renewal or come out of their initial commitment periods and that will take effect throughout the base during the year. But the initial reaction from the base as well as the reaction from new customer adds and gross sales has been very good. We did a lot of training. I think the consumer organization did a terrific job of training in the call centers on the value proposition we were offering, and as a result, the demand there has continued to be very solid. As I mentioned before, I think some of the DSL direct sales have also helped, as well as the bundling we are doing between broadband and wireless has also helped in the broadband area. But overall, very pleased with the reaction from the broadband price increase. The truth is today, even with those price increases, when you look at the service we are providing, we provide the best value in the marketplace in broadband and I think our sales force certainly understands that and I think customers are understanding and reacting to it. The other thing I would mention is, at the same time, as we were increasing prices, in the first quarter, our churn rates in broadband actually dropped. So I think that was a positive sign as well.

Thank you.

Christine, our next question will need to be our last question for this Q&A session.

Thank you. The final question comes from Tom Seitz from Lehman Brothers. Please go ahead.

Yeah, thanks. Before I start, I would also like to wish Rich all the best on his retirement. I look forward to continuing to talk with you as a significant key shareholder.

Thanks Tom.

Couple of quick ones. D&A continues to go down, can you talk about what you expect there with the tax stimulus package impacts? Is there is going to be a complete reversal of that trend or just a swelling of that trend? And then, I think about 20% of the postpaid base has a 3G device. I think our equipment colleagues estimate that you go through somewhere around 60 million to 65 million handsets when you combine replacements in gross adds. Is there an opportunity to significantly grow the number of customers that has a 3G device this year, may be faster than the ramp we are currently seeing?

Sure Tom. First on the depreciation and amortization trends, and the reduction there. Let me split it into a couple of pieces. First of all, amortization of customer intangibles from the mergers is dropping, and it's dropping because we used an accelerated method to amortize those intangible assets. But if you look at our adjusted numbers, which exclude the amortization of those customer base intangibles, you still see a decline essentially in depreciation expense in the first quarter. And that's being driven by a couple of things. First of all, in the wireline business, when we did the acquisition of AT&T and of BellSouth, there are certain assets both in network and in IT and support systems and so forth, which we knew we would use for an interim period of time. But then, as we integrated the companies, those assets would come out of service. So we accelerated the depreciation on those assets and depreciated them over fairly short loss. And what you are seeing at the end of 2007 is some of those assets coming out of service, so depreciation is falling off. We have the same phenomenon in the wireless business with TDMA. We had known for several years now what the end date was for the TDMA network, and so in 2006 and 2007, we were actually accelerating depreciation on TDMA assets and then that depreciation obviously drops off when those assets come out of service. What I would expect going forward though is, I would expect in the next few quarters to see depreciation expense increase somewhat, and that's a function of the capital program we have in place for this year, as well as the fact that larger portion of our capital program is going into areas that have shorter loss. Either software or in the case of U-verse, the success based CPE capital associated with our U-verse customers, set top boxes and home gateways which get depreciated over shorter loss. And so that will drive some increase and depreciation expense as we go forward this year. And overall I would expect 2007 and 2008 to be fairly flat. In terms of 3G devices we still have opportunities to ramp up 3G and we'll see it ramp up pretty significantly as the year goes on. You have to think about it like this, Tom, we've got two things going on in our wireless space. We've got growth in 3G devices, but we also have growth in integrated devices and both of those are positive to us from the standpoint of ARPU and of data revenues. But certainly, the integrated devices more so, and if you think about it, up to this point in time, when you think about the integrated devices, the two devices, the first two that come to mind are the BlackBerry and the iPhone. Both of which are EDGE devices for the most part. We are just starting to see BlackBerry 3G come out. And so, as those devices, as those integrated devices move to 3G, I think that will be the next catalyst to drive stocks stronger 3G growth. New customers coming in today, if they are buying a phone many times, particularly postpaid customers, they are primarily going to 3G. If they are buying an integrated device in the future, they will be going to 3G, so that will increase the penetration there.

Great, thank you very much.

Okay. Very good. That will conclude our question and answer session. I believe Rick has some closing comments before we adjourn for this morning.

Thanks Rich, and thanks everyone for being on the call today. Before I close the call, I would like to as well take a moment to recognize Rich Dietz, who as you all know, has headed up our investor relations efforts. Rich is retiring at the end of this month. He has already told me as a retiree he wants to make sure that we increase dividends significantly in the future. But he is retiring after 38 years or so with AT&T and our predecessor company HBC Communications and Southwestern Bell. And during his carrier Rich has held leadership positions in Information Technology, in our local telephone operations, in our International Ventures, in our Broadband and Data Communication businesses. And for the last three and half years he has done an absolutely terrific job with Investor Relations. As with all of his previous positions he leaves the organization on top with AT&T being voted the most shareowner-friendly company in our sector by institutional investor this year. And so Rich we thank you for your leadership and your friendship over terrific career with AT&T. And on behalf of all your friends of the company and all the investors and analysts you served, we wish you and your wife Kim and your family the absolute best in your retirement.

Thank you, Rick.

Now if I can I'd like to offer a closing comment on the first quarter results. As I said beginning of the call I think it was a strong quarter and good start to the year in a number of ways. Our Wireless growth continues to be strong; we've got solid momentum in enterprise. Wholesale has begun a positive turn. In our U-verse platform is delivering the growth trajectory, we expected. Broadband growth continues at a double-digit pace and our profit margins are moving in the right direction and as we continue to return substantial value to shareowners, who also investing in the future of the business. I think at anytime, but especially in the current market and economic environment, I think AT&T has an attractive profile. We have great assets with a terrific set of opportunities in front of us in terms of both revenue growth and on the cost side of the business and our revenue growth is ramping, and we are continuing to grow earnings per share at double-digit rates. We have got a strong balance sheet and a strong dividend yield and best of all both consumer and business customers continue to need connectivity from us, for both voice and data communications, making our business more defensive than most during periods of economic weakness. So looking ahead, we feel good about the business and our ability to deliver what we have laid out for you. And again I want to thank you for taking part in the call today and for you interest in AT&T.

Thank you, Rich. Christine, that will conclude the call this morning.

Thank you. This concludes the AT&T First Quarter 2008 earnings release conference call. This concludes your conference for today. You may all disconnect at this time.