AT&T CORP, 10-K/A, 1999-07-12

AT&T CORP
10-K/A, 1999-07-12
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)

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FORM 10-K/A
AMENDMENT NO. 2
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For The Fiscal Year Ended December 31, 1998

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For The Transition Period From _________ to _________

Commission File Number 1-1105

AT&T CORP.

A NEW YORK I.R.S. EMPLOYER
CORPORATION NO. 13-4924710

32 Avenue of the Americas, New York, New York 10013-2412
Telephone Number 212-387-5400

Securities registered pursuant to Section 12(b) of the Act: See attached
SCHEDULE A.

Securities registered pursuant to Section 12(g) of the Act: None.

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes....x.... No........

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not con-tained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

At February 26, 1999, the aggregate market value of voting stock held by
non-affiliates was $143,517,069,605.

At February 26, 1999, 1,746,368,779 common shares were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the registrant's annual report to shareholders for the year
ended December 31, 1998 (Part II) (2) Portions of the registrant's definitive
proxy statement dated March 25, 1999 issued in connection with the annual
meeting of shareholders (Part III)

<PAGE>

The undersigned registrant hereby files this Amendment No. 2 to its Form
10-K filed with the Securities Exchange Commission for the year ended December
31, 1998 to file Exhibit 13 and to file the Consent of PricewaterhouseCoopers,
LLP.
PART IV

Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K.

(a) Documents filed as a part of the report:

(1) Financial Statements:
Pages
-----

Report of Management ............................... *
Report of Independent Accountants .................. *

Statements:
Consolidated Statements of Income .................. *
Consolidated Balance Sheets ........................ *
Consolidated Statements of Changes in
Shareowners' Equity .......................... *
Consolidated Statements of Cash Flows .............. *
Notes to Consolidated Financial Statements ......... *

(2) Financial Statement Schedule:

Report of Independent Accountants .................. 48

Schedule:

II -- Valuation and Qualifying Accounts ............ 49

Separate financial statements of subsidiaries not consolidated and
50 percent or less owned persons are omitted since no such
entity constitutes a "significant subsidiary" pursuant to the
provisions of Regulation S-X, Article 3-9.

- ------------
* Incorporated herein by reference to the appropriate portions of the Company's
annual report to shareholders for the year ended December 31, 1998.
(See Part II.)

<PAGE>

(3) Exhibits:

Exhibits identified in parentheses below, on file with the Securities
and Exchange Commission ("SEC"), are incorporated herein by reference
as exhibits hereto.

Exhibit Number:

(3)a Restated Certificate of Incorporation of the registrant filed
January 10, 1989, Certificate of Correction of the registrant
filed June 8, 1989, Certificate of Change of the registrant
filed March 18, 1992, Certificate of Amendment of the
registrant filed June 1, 1992, Certificate of Amendment of the
registrant filed April 20, 1994, Certificate of Amendment
filed June 8, 1998 and Certificate of Amendment filed March 9,
1999 (Exhibit (3)a to Form 10-K for 1998, File No. 1-1105).

(3)b By-Laws of the registrant, as amended March 17, 1999 (Exhibit
(3)b to Form 10-K for 1998, File No. 1-1105).

(4) No instrument which defines the rights of holders of long term
debt, of the registrant and all of its consolidated
subsidiaries, is filed herewith pursuant to Regulation S-K,
Item 601(b)(4)(iii)(A). Pursuant to this regulation, the
registrant hereby agrees to furnish a copy of any such
instrument to the SEC upon request.

(10)(i)1 Form of Separation and Distribution Agreement by and among
AT&T Corp., Lucent Technologies Inc. and NCR Corporation,
dated as of February 1, 1996 and amended and restated as of
March 29, 1996 (Exhibit (10)(i)1 to Form 10-K for 1996, File
No. 1-1105).

(10)(i)2 Form of Distribution Agreement, dated as of November 20, 1996,
by and between AT&T Corp. and NCR Corporation (Exhibit (10)(i)
2 to Form 10-K for 1996, File No. 1-1105).

(10)(i)3 Tax Sharing Agreement by and among AT&T Corp., Lucent
Technologies Inc. and NCR Corporation, dated as of February 1,
1996 and amended and restated as of March 29, 1996 (Exhibit
(10)(i)3 to Form 10-K for 1996, File No. 1-1105).

(10)(i)4 Employee Benefits Agreement by and between AT&T Corp. and
Lucent Technologies Inc., dated as of February 1, 1996 and
amended and restated as of March 29, 1996 (Exhibit (10)(i)4 to
Form 10-K for 1996, File No. 1-1105).

(10)(i)5 Form of Employee Benefits Agreement, dated as of November 20,
1996, between AT&T Corp. and NCR Corporation (Exhibit (10)(i)5
to Form 10-K for 1996, File No. 1-1105).

(10)(ii)(B)1 General Purchase Agreement between AT&T Corp. and Lucent
Technologies Inc., dated February 1, 1996 and amended and
restated as of March 29, 1996 (Exhibit (10)(ii)(B)1 to Form
10-K for 1996, File No. 1-1105).

(10)(ii)(B)2 Form of Volume Purchase Agreement, dated as of November 20,
1996, by and between AT&T Corp. and NCR Corporation (Exhibit
(10)(ii)(B)2 to Form 10-K for 1996, File No. 1-1105).

(10)(iii)(A)1 AT&T Short Term Incentive Plan as amended March, 1994 (Exhibit
(10)(iii)(A)1 to Form 10-K for 1994, File No. 1-1105).

(10)(iii)(A)2 AT&T 1987 Long Term Incentive Program as amended December 17,
1997 (Exhibit (10)(iii)(A)2 to Form 10-K for 1997, File No.
1-1105).

(10)(iii)(A)3 AT&T Senior Management Individual Life Insurance Program as
amended March 3, 1998 (Exhibit (10)(iii)(A)3 to Form 10-K for
1997, File No. 1-1105).

(10)(iii)(A)4 AT&T Senior Management Long Term Disability and Survivor
Protection Plan, as amended and restated effective January 1,
1995 (Exhibit (10)(iii)(A)4 to Form 10-K for 1996, File No.
1-1105).
.
(10)(iii)(A)5 AT&T Senior Management Financial Counseling Program dated
December 29, 1994 (Exhibit (10)(iii)(A)5 to Form 10-K for
1994, File No. 1-1105).

(10)(iii)(A)6 AT&T Deferred Compensation Plan for Non-Employee Directors, as
amended December 15, 1993 (Exhibit (10) (iii)(A)6 to Form 10-K
for 1993, File No. 1-1105).

(10)(iii)(A)7 The AT&T Directors Individual Life Insurance Program as
amended March 2, 1998 (Exhibit (10)(iii)(A)7 to Form 10-K for
1997, File No. 1-1105).

(10)(iii)(A)8 AT&T Plan for Non-Employee Directors' Travel Accident
Insurance (Exhibit (10)(iii)(A)8 to Form 10-K for 1990,
File No. 1-1105).

(10)(iii)(A)9 AT&T Excess Benefit and Compensation Plan, as amended and
restated effective October 1, 1996 (Exhibit (10)(iii)(A)9 to
Form 10-K for 1996, File No. 1-1105).

(10)(iii)(A)10 AT&T Non-Qualified Pension Plan, as amended and restated
January 1, 1995 (Exhibit (10)(iii)(A)10 to Form 10-K for 1996,
File No. 1-1105).

(10)(iii)(A)11 AT&T Senior Management Incentive Award Deferral Plan, as
amended January 21, 1998 (Exhibit (10)(iii)(A)11 to Form 10-K
for 1998, File No. 1-1105).

(10)(iii)(A)12 AT&T Mid-Career Hire Program revised effective January 1, 1988
(Exhibit (10)(iii)(A)4 to Form SE, dated March 25, 1988, File
No. 1-1105) including AT&T Mid-Career Pension Plan, as
amended and restated October 1, 1996, (Exhibit (10)(iii)(A)12
to Form 10-K for 1996, File No. 1-1105).

(10)(iii)(A)13 AT&T 1997 Long Term Incentive Program as amended December 17,
1997 (Exhibit (10)(iii)(A)13 to Form 10-K for 1997, File
No. 1-1105).

(10)(iii)(A)14 Form of Indemnification Contract for Officers and Directors
(Exhibit (10)(iii)(A)6 to Form SE, dated March 25, 1987, File
No. 1-1105).

(10)(iii)(A)15 Pension Plan for AT&T Non-Employee Directors revised February
20, 1989 (Exhibit 10)(iii)(A)15 to Form 10-K for 1993, File
No. 1-1105).

(10)(iii)(A)16 AT&T Corp. Senior Management Basic Life Insurance Program, as
amended February 27, 1998 (Exhibit (10)(iii)(A)16 to Form 10-K
for 1997, File No. 1-1105).

(10)(iii)(A)17 Form of AT&T Benefits Protection Trust Agreement as amended
and restated as of November 1993, including the first
amendment thereto dated December 23, 1997 (Exhibit
(10)(iii)(A)17 to Form 10-K for 1998, File No. 1-1105).

(10)(iii)(A)18 AT&T Senior Officer Severance Plan effective October 9, 1997,
as amended October 30, 1997 (Exhibit (10)(iii)(A)18 to Form
10-K for 1997, File No. 1-1105).

(10)(iii)(A)19 Form of Pension Agreement between AT&T Corp. and Frank Ianna
dated October 30, 1997 (Exhibit (10)(iii)(A)19 to Form 10-K
for 1997, File No. 1-1105).

(10)(iii)(A)20 Form of Pension Agreement between AT&T Corp. and John C.
Petrillo dated October 30, 1997 (Exhibit (10)(iii)(A)21 to
Form 10-K for 1997, File No. 1-1105).

(10)(iii)(A)21 Form of Pension Agreement between AT&T Corp. and John Zeglis
dated May 7, 1997 (Exhibit (10)(iii)(A)22 to Form 10-K for
1997, File No. 1-1105).

(10)(iii)(A)22 Form of Employment Agreement between AT&T Corp. and C. Michael
Armstrong dated October 17, 1997 (Exhibit (10)(iii)(A)23 to
Form 10-K for 1997, File No. 1-1105).

(10)(iii)(A)23 Form of Employment Agreement between AT&T Corp. and Daniel E.
Somers dated April, 1997 (Exhibit (10)(iii)(A)23 to Form 10-K
for 1998, File No. 1-1105).

(10)(iii)(A)24 Amended and Restated Tele-Communications, Inc. 1994 Stock
Incentive Plan.(Incorporated herein by reference to Tele-
Communications, Inc.'s Registration Statement on Form S-8
(Commission File No. 333-40141)).

(10)(iii)(A)25 Amended and Restated Tele-Communications, Inc. 1995 Employee
Stock Incentive Plan. (Incorporated herein by reference to
Tele-Communications, Inc.'s Registration Statement on Form S-8
(Commission File No. 333-40141)).

(10)(iii)(A)26 Amended and Restated Tele-Communications, Inc. 1996 Incentive
Plan. (Incorporated herein by reference to Tele-
Communications, Inc.'s Registration Statement on Form S-8
(Commission File No. 333-40141)).

(10)(iii)(A)27 TCI 401(k) Stock Plan, restated effective January 1, 1998.
(Incorporated herein by reference to Tele-Communications,
Inc.'s Annual Report on Form 10-K for the year ended December
31, 1997, as amended by Form 10-K/A (Commission File No.
0-20421)).

(10)(iii)(A)28 Form of 1998 Incentive Plan of Tele-Communications, Inc.,
effective December 16, 1997. (Incorporated herein by
reference to Tele-Communications, Inc.'s Definitive Proxy
Statement on Schedule 14A, dated April 30, 1998 (Commission
File No. 0-20421)).

(10)(iii)(A)29 The Tele-Communications International, Inc. 1995 Stock
Incentive Plan. (Incorporated herein by reference to Tele-
Communications International, Inc. Registration Statement on
Form S-1 (Commission File No. 33-91876)).

(10)(iii)(A)30 Tele-Communications, Inc. 1994 Non-employee Director Stock
Option Plan (Incorporated herein by reference to Exhibit 4.5
to the Registration Statement on Form S-8 of Tele-
Communications, Inc. (Commission File No. 333-06179) filed on
June 18, 1996).

(10)(iii)(A)31 Tele-Communications International, Inc. 1996 Non-employee
Director Stock Option Plan (Incorporated herein by reference
to Appendix II to the Definitive Proxy Statement on Schedule
14A of Tele-Communications International, Inc. (Commission
File No. 0-26264) filed on August 13, 1996).

(10)(iii)(A)32 Liberty Media 401(K) Savings Plan (Incorporated herein by
reference to Exhibit 99.1 to Post-Effective Amendment No. 2 on
Form S-8 to the Registration Statement on Form S-4 of AT&T
Corp. (Commission File No. 333-70279-02) filed March 10,
1999).

(12) Computation of Ratio of Earnings to Fixed Charges (Exhibit
(12) to Form 10-K for 1998, File No. 1-1105).

(13) Specified portions (pages 28 through 72 and the inside back
cover) of the Company's Annual Report to Shareholders for the
year ended December 31, 1998.

(21) List of subsidiaries of AT&T (Exhibit (21) to Form 10-K for
1998, File No. 1-1105).

(23) Consent of PricewaterhouseCoopers, LLP

(24) Powers of Attorney executed by officers and directors who
signed this report (Exhibit (24) to Form 10-K for 1998, File
No. 1-1105).

(27) Financial Data Schedules (Exhibit (27) to Form 10-K for 1998,
File No. 1-1105).

AT&T will furnish, without charge, to a shareholder upon request a copy
of the annual report to shareholders and the proxy statement, portions of which
are incorporated herein by reference thereto. AT&T will furnish any other
exhibit at cost.

(b) Reports on Form 8-K:

During the fourth quarter 1998, Form 8-K dated October 16, 1998 was
filed pursuant to Item 5 (Other Events) and Item 7 (Financial Statements and
Exhibits) on October 16, 1998, Form 8-K dated October 21, 1998 was filed
pursuant to Item 5 (Other Events) on October 21, 1998 and Form 8-K dated
December 8, 1998 was filed pursuant to Item 5 (Other Events) on December 8,
1998.

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

AT&T Corp.

/s/ M. J. Wasser
------------------------------
By: M. J. Wasser
Vice President - Law and Secretary

July 12, 1999

Exhibit 13

Financial Review:
In reviewing our operating performance, we discuss our results on an as-reported
basis, as well as on an operational basis which is adjusted for certain
nonoperational items. We believe this will assist readers in understanding AT&T
in terms of trends from period to period. The nonoperational items adjusted for
in 1998 include restructuring and other charges, primarily due to net charges
associated with a voluntary retirement incentive program for certain employees
and asset impairment charges associated with a local-service initiative, gains
on sales of nonstrategic businesses and the benefit associated with the adoption
of a new accounting standard for internal-use software. The nonoperational items
adjusted for in 1997 include a charge to exit the two-way messaging business in
wireless services, the reversal of certain business restructuring reserves and a
gain on the sale of a nonstrategic business. These items are discussed more
fully under "Results of Operations" on page 32.

Also, in accordance with generally accepted accounting principles, our financial
statements reflect the results of "continuing operations" separate from certain
businesses we have divested. These divested businesses are represented as
"Income from discontinued operations (net of applicable taxes),""Net assets of
discontinued operations," and "Net cash used in discontinued operations." Gains
associated with these sales are recorded as "Gains on sales of discontinued
operations." In 1998, discontinued operations included the results of AT&T
Universal Card Services. The results of AT&T's former submarine systems business
is also included in 1997 and 1996 discontinued operations. In addition, 1996
discontinued operations included Lucent Technologies Inc., AT&T Capital Corp.,
NCR Corp. and other businesses.

Financial Section Index
2 Management's Discussion and Analysis
51 Five-Year Summary of Selected Financial Data
53 Report of Management
54 Report of Independent Accountants
55 Consolidated Statements of Income
56 Consolidated Balance Sheets
57 Consolidated Statements of Changes in Shareowners' Equity
58 Consolidated Statements of Cash Flows
59 Notes to Consolidated Financial Statements

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
AT&T Corp. (AT&T) entered 1998 in what looked to observers like a cloud of
uncertainty around its future. Indeed, the change heralded by the
Telecommunications Act of 1996 had failed to materialize in the nearly two years
since the law was passed. Our efforts to enter the local-exchange market had
proven unsuccessful and costly due largely to the incumbent carriers' choice to
exercise their monopoly power.

At the same time our core product--long distance service-was becoming
increasingly commoditized. With literally hundreds of competitors in the
marketplace, price was quickly becoming the only consideration in customers'
buying decisions. That fact highlighted yet another cause for concern: AT&T's
cost structure, though improving, was simply not competitive, with selling,
general and administrative (SG&A) expenses approaching 30% of revenues.

Investors were looking for solutions to these problems in 1998 and for answers
to important questions about our global, wireless and Internet strategies. Above
all, investors were looking for growth. AT&T's revenues grew only 1.8% in 1997,
although earnings trended upward in the second half of 1997 but declined for the
full year compared with 1996.

The response that investors, customers and competitors received was both swift
and decisive. The "sleeping giant," as some liked to think of AT&T, roared to
life in 1998 and undertook a strategic transformation that has fundamentally
redefined our company and changed the future of our industry.

AT&T and Dow Jones Industrial Average Two-Year Return

180%
x

160%

x +

140% +
+

x x
+ +
+
120% +

+ x
100% x+

x x
80%

60%

12/31/ 3/31/ 6/30/ 9/30/ 12/31/ 3/31/ 6/30/ 9/30/ 12/31/
96 97 97 97 97 98 98 98 98

Legend: AT&T x
Dow +

<PAGE>

Investing to Grow...
Our strategy is to grow by investing in facilities to provide advanced,
end-to-end communications services directly to our customers, without relying on
the networks of other companies. We are moving from the long distance business
to the any-distance business, from a domestic carrier to a global power, and
from a local cellular provider to a national digital-wireless leader. We are
investing in Internet protocol, or IP, networks that will carry voice and data
traffic together at a lower cost than circuit-switched networks. And we are
investing in broadband connections-high-capacity, high-speed links to homes and
businesses--in order to deliver integrated voice, video and data services to our
customers.

This is the strategy we communicated to our shareowners in 1998, and we
committed to the investments we'll need to execute it. We completed our $11
billion merger with Teleport Communications Group Inc. (TCG), giving us local
network facilities to reach business customers in more than 80 U.S. markets. We
gained broadband connections to one third of U.S. households through our merger
with Tele-Communications Inc. (TCI), which closed in March 1999. We conceived a
joint venture with British Telecommunications plc (BT) designed to build a
100-city, global, IP network and become a leading carrier of global
communications traffic. We agreed to acquire the global network business of IBM
for $5 billion. We continued the expansion of our national digital-wireless
footprint, investing more than $1 billion in capital, assuming management
control of our joint venture in Los Angeles, and agreeing to acquire Vanguard
Cellular Systems. And shortly into 1999, we announced a joint venture with Time
Warner Inc., as well as joint ventures with five TCI affiliates that will extend
our cable telephony footprint to more than 40 million homes.

<PAGE>

These investments represent AT&T's future growth, yet we are already beginning
to see the benefits of our growth strategy. Our 1998 revenues grew 3.2%, and we
closed the year with 4.8% growth in the fourth quarter. Our wireless business
was a strong contributor with more than 17% growth for the year and more than
30% in the fourth quarter (adjusted for the sale of our messaging business),
driven by the success of our revolutionary AT&T Digital One RateSM service. AT&T
Solutions, our network outsourcing business, achieved more than $1 billion in
revenues in 1998, growth of 34.2% over 1997. Data services grew at a rate in the
mid-teens, led by packet services such as frame relay. And our investment in TCG
began to pay off, as total local service revenues grew 73% for the year. As we
continue our momentum in these areas and begin to build our capabilities in
broadband and global services, AT&T is well positioned to diversify its revenue
streams and accelerate its growth.

...and Delivering Outstanding Financial Performance
While our growth investments grabbed the headlines in 1998, we also made
tremendous progress on our other important commitments to our shareowners:
improving our financial position, reducing costs and growing our earnings and
cash flow.

The investments we're making require a tremendous amount of financial
flexibility. To achieve that, we have aggressively pursued the sales of assets
not critical to our core business. Over the past two years, we have sold our
Universal Card operation, the AT&T Solutions Customer Care business, LIN
Television Corp., SmarTone Telecommunications Holdings Limited, our submarine
systems business and our AT&T Skynet Satellite Services business. These sales
have enhanced our ability to focus on our core mission, but more importantly
brought in more than $12 billion in cash. We used these cash inflows and the
cash generated by our operations to fund our $8 billion capital expenditures,
reduce our debt by $5.2 billion, and return value to our shareowners through
$2.2 billion in dividends and a $3 billion share repurchase program. After all
this, we exited the year with debt-net-of-cash of only 12% of total capital,
down from 33% at the end of 1997. We have ample financial flexibility to absorb
the debt carried by TCI and can borrow to meet future cash needs.

We made firm commitments in 1998 relative to our cost structure, and we
delivered on them. We told our shareowners that we would reduce our SG&A
expenses by $1.6 billion in 1998, and we achieved that target. We did it by
attacking costs across the entire company, and by implementing an aggressive
force-reduction plan under which we committed to reduce our headcount by 15,000
to 18,000 over two years. Largely as a result of a highly successful voluntary-
retirement offer to management employees, we exceeded our target, reducing our
headcount by approximately 20,000 in just one year, not including headcount
reductions due to businesses sold.

We have far more work to do in order to become the low-cost provider in the
industry and achieve our target of a 23% SG&A to revenues ratio for 1999.
However, the progress we've made has enabled us to be more competitive in the
market with industry-leading price plans such as AT&T One RateSM Plus with
5-cent weekend minutes. It has allowed us to invest in growth opportunities such
as a dial-around service, our prepaid card business, our AT&T Digital One Rate
service and AT&T Personal Network offer. And a competitive cost structure will
be critical to our success as we invest in our any-distance, broadband telephony
and data efforts and as we increase our sales capabilities in business markets.

<PAGE>

Declining costs have not only helped us in the market; they've helped AT&T
deliver very strong financial results for our shareowners. We delivered earnings
from continuing operations, excluding certain nonoperational charges and gains
(discussed more fully under "Results of Operations"), of $3.45 per diluted share
in 1998, an increase of 46% over 1997. We grew our earnings per diluted share on
the same basis in excess of 40% in each of the last three quarters of the year.
Our reported earnings from continuing operations per diluted share were $2.91, a
22% increase over 1997.

Our cash flow from operations also grew impressively to $10.2 billion in 1998,
an increase of 20.2%. Excluding the nonoperational charges and gains, we
generated just under $15 billion in EBITDA, growth of $3.7 billion, or 33%.
We'll redeploy the cash our business produces in order to fuel our growth
engines-broadband communications, local service for businesses, wireless, global
and Internet services.

Income from Continuing Operations per Diluted Share
Dollars

$4.00

3.45
#

$3.00 2.91
x

2.37 2.38
# x

$2.00

$1.00 1997 1998
Legend: Operational* #
As reported x

* Excludes certain nonoperational items.

There's a lot more to the AT&T story of 1998, as described in the paragraphs
below. But 1998 was only the beginning. We identified the path we are taking
into the future, and now we must execute and continue to deliver on our
commitments in order to stay on course.

<PAGE>

AT&T Corp.

OVERVIEW
AT&T is among the world's communications leaders, providing voice, data and
video telecommunications services to large and small businesses, consumers and
government agencies. We provide regional, domestic, international, local and
Internet communication transmission services, including cellular telephone and
other wireless services. In support of these services, we segment our results by
primary lines of business: business services, consumer services and wireless
services. A fourth category, other and corporate, includes the results of our
other smaller units and corporate cost centers. Results are discussed for these
four categories as well as for consolidated AT&T. Additionally, we
supplementally discuss local services, new wireless services, AT&T Solutions,
AT&T WorldNetSM and other online services, and international operations and
ventures.

Business Services
Our business services segment offers a variety of long distance voice and data
services to business customers, including domestic and international, inbound
and outbound, inter- and intra-LATA toll services, calling card and
operator-handled services, and other network enabled services. In addition, this
segment provides local services, and Web hosting and other electronic-commerce
services.

Consumer Services
Our consumer services segment provides long distance services to residential
customers, including domestic and international long distance services, inter-
and intra-LATA toll services, calling card and operator-handled calling
services, and prepaid calling cards. In addition, local service is offered on a
limited basis.

Wireless Services
Our wireless services segment offers wireless services and products to customers
in 850 MHz markets and newer 1900 MHz markets as well as wireless data. This
segment's results also include costs associated with the development of
fixed-wireless technology, which, along with the results of the newer 1900 MHz
markets and wireless data, are discussed as "new wireless services" within this
document.

Other and Corporate
This group reflects the results of AT&T Solutions, our outsourcing, network-
management and professional-services business, TCG (including their acquisition
of ACC Corp. - ACC - in April 1998), international operations and ventures, AT&T
WorldNet Service, our Internet access services business, and corporate overhead.

<PAGE>

AT&T Corp.

Revenues
Dollars in Millions Dollars in Millions
$30,000 $30,000

24,184
x 23,527
x 22,632
22,030 22,940 x
21,491 x x
x
$20,000 $20,000

$10,000 $10,000

0 0
96 97 98 96 97 98
Business Services x Consumer Services x

Dollars in Millions Dollars in Millions
$8,000 $8,000

$6,000 5,406 $6,000
x
4,668
4,246 x
x
$4,000 $4,000 3,549
x
2,704
x
1,892
$2,000 $2,000 x

0 0
96 97 98 96 97 98
Wireless Services x Other and Corporate x

<PAGE>

AT&T Corp.

The discussion of results includes revenues; earnings, including other income,
before interest and taxes (EBIT); earnings, including other income, before
interest, taxes, depreciation and amortization (EBITDA); capital additions and
total assets.

AT&T calculates EBIT as operating income plus other income and is a measure used
by our chief operating decision-makers to measure AT&T's consolidated operating
results and to measure segment profitability. Interest and taxes are not
allocated to our segments because debt is managed and serviced and taxes are
managed and calculated on a centralized basis. Trends in interest and taxes are
discussed separately on a consolidated basis. Management believes EBIT is a
meaningful measure to disclose to investors because it provides investors with
an analysis of operating results using the same measures used by the chief
operating decision-makers of AT&T, provides a return on total capitalization
measure, and allows investors a means to evaluate the financial results of each
segment in relation to consolidated AT&T. Our calculation of EBIT may or may not
be consistent with the calculation of EBIT by other public companies, and EBIT
should not be viewed by investors as an alternative to generally accepted
accounting principles (GAAP) measures of income as a measure of performance or
to cash flows from operating, investing and financing activities as a measure of
liquidity.

EBITDA is also used by management as a measure of segment performance and is
defined as EBIT plus depreciation and amortization. We believe it is meaningful
to investors as a measure of each segment's liquidity and allows investors to
evaluate a segment's liquidity using the same measure that is used by the chief
operating decision-makers of AT&T. Consolidated EBITDA is also provided for
comparison purposes. Our calculation of EBITDA may or may not be consistent with
the calculation of EBITDA by other public companies and should not be viewed by
investors as an alternative to GAAP measures of income as a measure of
performance or to cash flows from operating, investing and financing activities
as a measure of liquidity. In addition, EBITDA does not take into effect changes
in certain assets and liabilities which can affect cash flow.

<PAGE>

AT&T Corp.

The following discussion and analysis provides information management believes
is relevant to an assessment and understanding of AT&T's consolidated results of
operations for the years ended December 31, 1998, 1997 and 1996 and financial
condition as of December 31, 1998 and 1997.

We completed the merger with TCG on July 23, 1998. Each share of TCG common
stock was exchanged for 0.943 of AT&T common stock, resulting in an issuance of
181.6 million shares in the transaction. The merger was accounted for as a
pooling of interests, and accordingly, AT&T's historical financial statements
were restated to reflect the combined results of AT&T and TCG.

FORWARD-LOOKING STATEMENTS
Except for the historical statements and discussions contained herein,
statements contained herein constitute "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, including statements concerning future
operating performance, AT&T's share of new and existing markets, AT&T's short-
and long-term revenues and earnings growth rates, and general industry growth
rates and AT&T's performance relative thereto. These forward-looking statements
rely on a number of assumptions concerning future events, including, but not
limited to, requirements imposed on AT&T or latitude allowed to competitors by
the Federal Communications Commission (FCC) or state regulatory commissions
under the Telecommunications Act and other applicable laws and regulations; the
successful technical, operational and marketing integration of cable and
telephony services; and the ability to establish significant market presence in
new geographic and service markets. These forward-looking statements are subject
to a number of uncertainties and other factors, many of which are outside AT&T's
control, that could cause actual results to differ materially from such
statements. AT&T disclaims any intention or obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.

<PAGE>

AT&T Corp.

RESULTS OF OPERATIONS

CONSOLIDATED RESULTS

For the Years Ended December 31, 1998 1997 1996
Dollars in Millions
REVENUES
Business services..........................$22,940 $22,030 $21,491
Consumer services.......................... 22,632 23,527 24,184
Wireless services.......................... 5,406 4,668 4,246
Other and corporate........................ 3,549 2,704 1,892
Eliminations............................... (1,304) (1,352) (1,125)
Total revenues.............................$53,223 $51,577 $50,688

Revenues from continuing operations increased 3.2% to $53,223 million in 1998
compared with 1997, led by business services, primarily data services, and
wireless services, primarily due to the success of our AT&T Digital One Rate
service. Also contributing to revenue growth was growth from TCG, including ACC,
and AT&T Solutions, which are included in the other and corporate group.
Improvements in these areas were partially offset by continued declines in
consumer long distance revenues and the reduced revenues due to the sale of AT&T
Solutions Customer Care (ASCC). For 1998, total long distance services revenues
(included in business services and consumer services) were essentially flat
while calling volume increased 4.7% compared with 1997. Revenues by segment are
discussed in more detail in the segment results section. We anticipate total
revenues to grow in the range of 5%-7% in 1999, including the impact of our
merger with TCI and our planned acquisitions of Vanguard Cellular Systems
(Vanguard) and IBM's Global Network business all on a pro forma basis, that is
assuming these businesses were part of AT&T in 1998 and 1999.

Total revenues in 1997 increased 1.8% compared with 1996 due to growth in data
services revenues in business services and wireless services. In addition, AT&T
Solutions, TCG, AT&T WorldNet Services and international operations and
ventures, which are included in the other and corporate group, contributed to
revenue growth. Declines in consumer long distance revenues partially offset
this growth.

Eliminations reflect the elimination of revenues for services sold between units
(e.g., sales of business long distance services to other AT&T units).

<PAGE>

AT&T Corp.

OPERATING EXPENSES
For the year, operating expenses totaled $45,736 million, an increase of 2.2%,
from $44,741 million in 1997. In 1997, operating expenses increased 6.6% from
$41,979 million in 1996. Operating expenses in 1998 included $2,514 million of
restructuring and other charges as well as a benefit of $199 million from the
adoption of Statement of Position (SOP) 98-1 (collectively, the 1998 net
charges). Operating expenses in 1997 included a $160 million charge to exit the
two-way messaging business and a $100 million benefit from the reversal of
pre-1995 restructuring reserves (collectively, the 1997 net charges). Excluding
the impact of the 1998 and 1997 net charges, operating expenses decreased 2.8%
in 1998 compared with 1997 and increased 6.4% in 1997 compared with 1996.

Operating Expenses and Revenues
Dollars in Millions
$60,000

53,223
51,577 +
50,688 +
+
44,741
x 43,222
41,979 x
x
$40,000

$20,000
1996 1997 1998

Operating Expenses Excluding Restructuring and Other Charges x
Revenues +

<PAGE>

AT&T Corp.

For the Years Ended December 31, 1998 1997 1996
Dollars in Millions
Access and other interconnection $15,328 $16,350 $16,363

Access and other interconnection expenses are the charges we pay to connect
calls on the facilities of local exchange carriers and other domestic service
providers, and fees we pay foreign telephone companies (international
settlements) to connect calls made to foreign countries on our behalf. These
charges represent payments to these carriers for the common and dedicated
facilities and switching equipment used to connect our network with theirs. In
1998, these costs declined $1,022 million, or 6.3%, reflecting FCC-mandated
reductions in per-minute access rates which went into effect in July 1997 and
January and July 1998 and lower international settlement rates resulting from
increased competition. Additionally, we continue to manage these costs through
more efficient network usage. These reductions were largely offset by increased
per-line charges (Primary Interexchange Carrier Charges or PICC) and changes in
the Universal Service Fund contribution resulting from FCC access reform, as
well as volume increases. As many of these costs are a pass-through to the
customer, per-minute access-rate reductions and increases in per-line charges
and the Universal Service Fund will generally result in an offsetting impact on
revenues.

Access and other interconnection expenses remained essentially flat in 1997
compared with 1996, due to lower per-minute access costs which are primarily the
result of declines in international settlement rates and access-charge reform
mandated by the FCC effective for the second half of 1997. Interstate and
intrastate tariff reductions, changes in traffic mix and network planning also
contributed to the lower per-minute access costs. These decreases were partially
offset by volume growth and a beneficial second quarter 1996 accounting
adjustment of previously estimated accruals to reflect actual billing.

Access and other interconnection expenses were 33.8% of long distance revenues
in 1998, 35.9% in 1997 and 35.8% in 1996. We expect this percentage to continue
to decline over time as we realize synergies from our merger with TCG.

<PAGE>

AT&T Corp.

For the Years Ended December 31, 1998 1997 1996
Dollars in Millions
Network and other
communications services $10,250 $9,739 $8,262

Network and other communications services expenses include the costs of
operating and maintaining our network, the provision for uncollectible
receivables, the costs of wireless handsets sold, compensation to pay-phone
operators, operator services and nonincome-related taxes. These costs increased
$511 million, or 5.2%, in 1998 compared with 1997. This increase was largely
attributable to increases in wireless services due to intercarrier roaming
charges and cost of handsets sold as a result of the success of AT&T Digital One
Rate service. The increase in cost of handsets reflects not only the higher
number of handsets sold, but the increased cost of the unit as customers migrate
or sign up for digital service. Growth in our AT&T Solutions and local
businesses, as well as increased data traffic on the AT&T network also
contributed to the increase. Partially offsetting these increases was a lower
provision for uncollectible receivables as a result of improved collections in
business services, lower network cost of services as a result of the sale of
ASCC in the first quarter of 1998, and the impact of the 1997 two-way messaging
charge, half of which was recorded in network and other communications services
expense.

Number of Calls on the Network
Billions
90
82.6
x
76.3
x

68.0
X

30
1996 1997 1998

<PAGE>

AT&T Corp.

Network and other communications services expenses increased $1,477 million, or
17.9%, in 1997 compared with 1996. In 1997, we invested heavily in growth
businesses such as AT&T Solutions, AT&T WorldNet Services, local services and
new wireless services. Approximately half of the increase in 1997 was due to
costs associated with these growth businesses. The remaining increase was
primarily driven by FCC-mandated compensation to pay-phone operators and the
increased number and cost of wireless handsets sold.

For the Years Ended December 31, 1998 1997 1996
Dollars in Millions
Depreciation and amortization $4,629 $3,982 $2,819

Depreciation and amortization expenses increased $647 million, or 16.2%, in
1998. This increase was driven by continued high levels of capital expenditures
in 1998 and 1997. Gross capital expenditures for the year were $8.0 billion and
$7.7 billion in 1998 and 1997, respectively. More than half of the capital
expenditures in 1998 were related to the long distance network, including the
completion of the initial SONET (Synchronous Optical Network) build-out. These
expenditures expanded network capacity, reliability and efficiency. In addition,
we invested in our local network to expand our switching and transport capacity
and invested to expand our wireless footprint. We expect depreciation and
amortization expenses to continue to increase in 1999 as we focus our spending
on growth areas such as data and IP networking, wireless and business local.

Depreciation and amortization expenses increased $1,163 million, or 41.3%, in
1997. The increase was driven by continued high levels of capital expenditures,
including the impact of purchasing assets at retail from Lucent Technologies
Inc. (Lucent), subsequent to its spin-off. The 1997 expenditures were primarily
for our long distance and wireless networks, including the deployment of SONET.
We also invested substantial capital in building our capability for local
service and AT&T WorldNet Service.

<PAGE>

AT&T Corp.

For the Years Ended December 31, 1998 1997 1996
Dollars in Millions
Selling, general and administrative $13,015 $14,670 $14,535

Selling, general and administrative (SG&A) expenses decreased $1,655 million, or
11.3%, in 1998 compared with 1997. The decrease was due primarily to savings
from cost-control initiatives such as headcount reductions. In 1998, we adopted
SOP 98-1 "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use." Among other provisions, the SOP requires capitalization of
certain internal-use software costs once certain criteria are met. The impact of
adopting this SOP was a reduction of SG&A expenses of $221 million in 1998. Also
contributing to the decrease in SG&A expenses was a decline in marketing and
sales costs relating to lower customer-acquisition costs in consumer services.
These declines were partially offset by increases in wireless customer
acquisition and migration costs and increased costs associated with the year
2000 initiative. SG&A expenses as a percent of revenues were 24.5%, including
the benefit of adopting SOP 98-1, in 1998, 28.4% in 1997 and 28.7% in 1996.

SG&A as a percent of revenues

30% 28.7% 28.4%
x x

24.5%
x

20%

10%
1996 1997 1998

The reduced level of expenses reflects AT&T's efforts to achieve a best-in-class
cost structure. Excluding the impact of TCG and the benefit associated with SOP
98-1, SG&A expenses declined $1,602 million in 1998, reflecting AT&T's
successful achievement of its target to remove $1.6 billion of SG&A expenses
(excluding TCG) from the business in 1998. Our efforts to achieve a
best-in-class cost structure will continue as we have targeted a ratio of SG&A
expenses to revenues of 23% overall and 21% excluding the local and wireless
businesses for 1999.

<PAGE>

AT&T Corp.

SG&A expenses increased $135 million, or 0.9%, in 1997. We increased spending on
growth businesses such as local and new wireless services as well as spending on
transitory projects such as preparation of our systems for the year 2000. In
addition, SG&A expenses increased due to higher retention and acquisition costs
in core wireless markets. These increases were partially offset by lower
advertising expenses across AT&T, lower acquisition costs in consumer markets -
primarily a reduction in the use of checks to acquire customers, and lower
marketing and sales expenses in business markets.

Also included in SG&A expenses were $662 million, $851 million and $822 million
of research and development expenses in 1998, 1997 and 1996, respectively.
Research and development expenditures are mainly for work on advanced
communications services and projects aimed at IP services. The decline in
research and development expenses in 1998 is mainly due to the redeployment of
resources in support of the year 2000 project. These expenses are still a
component of SG&A, but, are not classified as research and development expenses.

Restructuring and other charges
During 1998, we recorded restructuring and other charges of $2,514 million,
which had an approximate $0.88 impact on earnings per diluted share. The bulk of
the charge was associated with a plan, announced on January 26, 1998, to reduce
headcount by 15,000 to 18,000 over two years as part of our overall
cost-reduction program. In connection with this plan, a voluntary retirement
incentive program (VRIP) was offered to eligible management employees.
Approximately 15,300 management employees accepted the VRIP offer and as of
December 31, 1998, 14,700 have terminated employment. In 1999, the remaining 600
VRIP participants will terminate employment. A restructuring charge of $2,724
million recorded in the second quarter of 1998 was composed of $2,254 million
and $169 million for pension and postretirement special-termination benefits,
respectively, $263 million of curtailment losses and $38 million of other
administrative costs. We also recorded charges of $125 million for related
facility costs and $150 million for executive-separation costs. These charges
were partially offset by $940 million of gains recorded in the second half of
1998 as we settled pension benefit obligations of 13,700 of the total VRIP
employees. In addition, the VRIP charges were partially offset by the reversal
of $256 million of 1995 business restructuring reserves primarily resulting from
the overlap of VRIP on certain 1995 projects.

<PAGE>

AT&T Corp.

During 1998, AT&T recorded asset impairment charges totaling $718 million, of
which $633 million was associated with the local initiative. Included in this
$633 million were charges of $601 million and $32 million recorded in the first
and fourth quarters of 1998, respectively, related to our decision not to pursue
Total Service Resale (TSR) as a local-service strategy. The Regional Bell
Operating Companies have made it extremely difficult to enter the local market
under a TSR strategy. After spending several billions of dollars in an attempt
to enter this market, it became clear to AT&T that the TSR solution is not
economically viable. The $633 million charge includes a $543 million write-down
of software, $74 million write-down of related assets associated with the
ordering, provisioning and billing for resold local services and $16 million for
certain contractual obligations and termination penalties under several vendor
contracts that were canceled during the first quarter as a result of this
decision. AT&T received no operational benefit from these contracts once this
decision was made. Also reflected in the $718 million charge was a
fourth-quarter asset impairment charge of $85 million related to the write-down
of unrecoverable assets in certain international operations in which the
carrying value is no longer supported by future cash flows. This charge was made
in connection with an ongoing review associated with the upcoming formation of a
global joint venture with BT, which will require AT&T to exit certain operations
that compete directly with BT.

Additionally, an $85 million charge for merger-related expenses was recorded in
the third quarter of 1998 in connection with the TCG pooling.

Partially offsetting these charges in the fourth quarter of 1998 was a $92
million reversal of the 1995 restructuring reserve. This reversal reflects
reserves that were no longer deemed necessary. The reversal primarily included
separation costs attributed to projects completed at a cost lower than
originally anticipated. Consistent with the three-year plan, the 1995
restructuring initiatives are substantially complete.

<PAGE>

AT&T Corp.

For the Years Ended December 31, 1998 1997 1996
Dollars in Millions
Other income - net $1,247 $443 $405

Other income - net increased $804 million, or 180.9%, in 1998 due primarily to
significantly higher gains on sales of nonstrategic businesses as well as
increased interest income on our higher cash balance. In 1998, we recorded gains
from the sales of ASCC of $350 million, LIN Television Corp. (LIN-TV) of $317
million and SmarTone Telecommunications Holdings Limited (SmarTone) of $103
million. The increase associated with these 1998 gains was partially offset by
lower earnings from equity investments and a gain in 1997 on the sale of AT&T
Skynet Satellite Services (Skynet) of $97 million.

Other income - net increased $38 million, or 9.4%, in 1997. The increase was
primarily associated with the gain on the sale of Skynet in 1997, partially
offset by a decrease in gains on sales and exchanges of cellular investments.

For the Years Ended December 31, 1998 1997 1996
Dollars in Millions
EBIT $8,734 $7,279 $9,114

EBIT increased $1,455 million, or 20.0%, in 1998. Excluding the impact of the
1998 and 1997 net charges and gains, EBIT for 1998 was $10,279 million, an
increase of $3,037 million, or 41.9%, compared with 1997. This increase in EBIT
was driven by higher revenues, the benefit of our SG&A cost-cutting initiatives
and lower international settlement rates.

<PAGE>

AT&T Corp.

1998 EBIT
Dollars in Millions
$10,000

$8,000

6,613 6,662
x +

$6,000 5,525
5,397 +
x

$4,000

$2,000

3 118 Other and
x + Corporate
0 Business Consumer Wireless
Services Services Services
x
(1,701)

$(2,000)

+
(3,538)

Operational* x
As reported +
*Excludes certain nonoperational items.

<PAGE>

AT&T Corp.

EBIT for 1997 decreased $1,835 million, or 20.1%, due to our 1997 investment in
growth businesses and higher levels of depreciation and amortization associated
with an increased level of capital spending including the impact of purchasing
assets at retail from Lucent, subsequent to its spin-off.

For the Years Ended December 31, 1998 1997 1996
Dollars in Millions
Interest expense $427 $307 $417

After the sale of Universal Card Services (UCS) on April 2, 1998, interest
expense associated with debt previously attributed to UCS was reclassified from
discontinued operations to continuing operations since we did not retire all of
this debt. This reclassification is the primary reason for the $120 million, or
38.9%, increase in interest expense in 1998. In August 1998, we retired $1,046
million of TCG's debt early, which will produce significant savings in future
interest expense. However, we anticipate interest expense to increase in 1999 as
we fund announced acquisitions and ventures.

Interest expense decreased $110 million, or 26.4%, in 1997 due to lower levels
of average debt and a higher proportion of capitalized interest partially offset
by higher average interest rates on debt. Average debt was higher in 1996 due to
the additional debt associated with Lucent, prior to the assumption by Lucent of
such debt in April 1996. We capitalized a greater proportion of our interest
expense in 1997 primarily due to higher qualifying assets for our local
initiative.

For the Years Ended December 31, 1998 1997 1996
Dollars in Millions
Provision for income taxes $3,072 $2,723 $3,239

The effective income tax rate is the provision for income taxes as a percentage
of income from continuing operations before income taxes. The effective income
tax rate was 37.0% in 1998, 39.0% in 1997 and 37.2% in 1996. The lower effective
tax rate in 1998 is due to the tax benefits of certain investment dispositions
and foreign legal entity restructurings. The higher effective tax rate in 1997,
compared with 1996, is due to 1996 tax benefits associated with various legal
entity restructurings.

For the Years Ended December 31, 1998 1997 1996
Dollars in Millions
Income from continuing operations $5,235 $4,249 $5,458

Income from continuing operations increased $986 million, or 23.2%, in 1998 due
primarily to the benefit of our SG&A cost-cutting initiatives, higher revenues,
lower international settlement rates and gains on sales of nonstrategic
businesses, partially offset by the impact of restructuring and other charges.
Income from continuing operations on a diluted per share basis was $2.91, $2.38
and $3.09 for the years ended December 31, 1998, 1997 and 1996, respectively.
Excluding the after-tax impacts of the 1998 and 1997 net charges and gains, 1998
income from continuing operations increased $1,979 million, or 46.8%, compared
with 1997. This translates into an earnings per diluted share of $3.45, an
increase of $1.08, or 45.6%, over 1997. We expect 1999 earnings per diluted
share to be in the range of $4.20 to $4.30, excluding the impact of the merger
with TCI and a planned stock split and share repurchase.

Income from continuing operations decreased $1,209 million, or 22.2%, in 1997.
Increased dilution from investment in growth businesses, and lower earnings from
our other, more mature businesses, due primarily to higher levels of
depreciation and amortization, contributed almost equally to the decline.

<PAGE>

AT&T Corp.

For the Years Ended December 31, 1998 1997 1996
Dollars in Millions
Discontinued Operations:
Income from discontinued operations $ 10 $ 100 $ 173
Gain on sale of discontinued
operations 1,290 66 162

Pursuant to Accounting Principles Board Opinion No. 30 "Reporting the Results of
Operations- Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions" (APB
30) the consolidated financial statements of AT&T reflect the dispositions of
UCS which was sold on April 2, 1998, the sale of AT&T's submarine systems
business (SSI) on July 1, 1997, and the sale of AT&T Capital Corp. on October 1,
1996, as discontinued operations. In addition, discontinued operations included
the results of Lucent and NCR Corp., spun-off on September 30, 1996 and December
31, 1996, respectively. Accordingly, the revenues, costs and expenses, assets
and liabilities, and cash flows of these businesses have been excluded from the
respective captions in the Consolidated Statements of Income, Consolidated
Balance Sheets and Consolidated Statements of Cash Flows, and have been reported
through their respective dates of disposition as "Income from discontinued
operations, net of applicable income taxes;" as "Net assets of discontinued
operations;" and as "Net cash provided by (used in) discontinued operations." As
of December 31, 1998, all businesses previously reported as discontinued
operations have been disposed of. Gains associated with these sales are recorded
as "Gains on sale of discontinued operations."

In August 1998, AT&T extinguished $1,046 million of TCG's debt. The $217 million
pretax loss on the early extinguishment of debt was recorded as an extraordinary
loss. The after-tax impact was $137 million, or $0.08 per diluted share. This
debt reduction will produce significant savings in future interest expense.

For the Years Ended December 31, 1998 1997 1996
Dollars in Millions
Net income $6,398 $4,415 $5,793

Net income increased $1,983 million, or 44.9%, in 1998 due primarily to the gain
on the sale of UCS and increased income from continuing operations. Earnings per
diluted share were $3.55, $2.47 and $3.28 for the years ended December 31, 1998,
1997 and 1996, respectively.

Net income decreased $1,378 million, or 23.8%, in 1997 due to lower income from
continuing operations as discussed above.

<PAGE>

AT&T Corp.

SEGMENT RESULTS
AT&T's results are segmented as follows: business services, consumer services
and wireless services. A fourth category, identified as other and corporate,
includes the results of AT&T Solutions, TCG, international operations and
ventures, AT&T WorldNet Service, and corporate overhead. The results of these
groups plus the impact of the elimination of internal business sum to AT&T's
consolidated results. The following is a discussion of revenues, EBIT, EBITDA,
capital additions and total assets for each of the segments, the other and
corporate group, as well as supplemental information on local services, new
wireless services, AT&T Solutions, AT&T WorldNet and other online services, and
international operations and ventures.

1998 EBITDA
Dollars in Millions
$10,000

7,720
$8,000 7,583 + 7,318 7,379
x x +

$6,000

$4,000

$2,000
1,105 1,220
x +
Other and
Corporate
0 Business Consumer Wireless
Services Services Services

x
(1,035)
$(2,000)

+
(2,871)

Operational* x
As reported +
*Excludes certain nonoperational items.

<PAGE>

AT&T Corp.

Reflecting the dynamics of our business, we are reviewing our management model
and structure which will result in adjustments to our segment discussion during
1999. While this is an evolving process, we anticipate changes as follows: The
business services segment will be expanded to include the results of TCG and the
business portion of AT&T WorldNet, and the consumer services segment will be
expanded to include the residential portion of AT&T WorldNet.

AT&T calculates EBIT as operating income plus other income and is a measure used
by our chief operating decision-makers to measure AT&T's consolidated operating
results and to measure segment profitability. Interest and taxes are not
allocated to our segments because debt is managed and serviced and taxes are
managed and calculated on a centralized basis. Trends in interest and taxes are
discussed separately on a consolidated basis. Management believes EBIT is a
meaningful measure to disclose to investors because it provides investors with
an analysis of operating results using the same measures used by the chief
operating decision-makers of AT&T, provides a return on total capitalization
measure, and it allows investors a means to evaluate the financial results of
each segment in relation to consolidated AT&T. Our calculation of EBIT may or
may not be consistent with the calculation of EBIT by other public companies and
EBIT should not be viewed by investors as an alternative to GAAP measures of
income as a measure of performance or to cash flows from operating, investing
and financing activities as a measure of liquidity.

Total assets for each segment include all assets, except interentity
receivables. Deferred taxes, prepaid pension assets, and corporate-owned or
leased real estate are generally held at the corporate level and therefore are
included in the other and corporate group. Shared network assets are allocated
to the segments and reallocated each January, based on the prior three years'
volumes of minutes used.

<PAGE>

AT&T Corp.

PIE CHART: 1998 CAPITAL SPENDING BY CATEGORY

BUSINESS SERVICES
For the Years Ended December 31, 1998 1997 1996
Dollars in Millions
Revenues.............................$22,940 $22,030 $21,491

EBIT................................. 5,525 4,592 5,215
EBITDA............................... 7,720 6,349 6,313

Capital additions.................... 4,978 4,085 2,538

At December 31, 1998 1997
Total assets*........................$18,077 $15,030

* Includes allocated shared network assets of $12,442 and $10,246 at December
31, 1998 and 1997, respectively.

REVENUES
Business services revenues rose $910 million, or 4.1%, in 1998, led by mid-teens
growth in data services revenues. Adjusting for the 1997 sales of Skynet and
AT&T Tridom, revenues grew 4.4%. Data services, which is the transport of data
rather than voice along our network, was led by strong growth in frame relay and
high-speed private line, both of which are high-speed-data-transmission
services. Long distance voice-related revenues were essentially flat for the
year despite high single-digit growth in volumes. This reflects a declining
average price per minute which was driven by competitive forces as well as
changes in product mix. Revenues also were impacted by reductions in access
costs which were passed to customers in the form of lower rates. We anticipate
total business services revenues to grow between 7% and 9% in 1999 as a result
of continued growth in data as well as local and wholesale services.

Business services revenues grew $539 million, or 2.5%, in 1997. Adjusting for
the sales of Skynet and AT&T Tridom, revenues grew 3.3% in 1997. Strong growth
in revenues from data services - frame relay and other emerging services as well
as private line - drove the increase in business revenues. Long distance voice-
services revenues declined slightly, while volumes grew in the mid-teens.
Revenues from long distance voice were impacted by pricing pressure brought on
by a number of factors. Many voice-service contracts were renegotiated during
1997 due to uncertainty surrounding the possibility of detariffing and
competitive pressure. Also, reductions in access costs were passed to customers
in the form of lower rates, further impacting revenue growth.

<PAGE>

AT&T Corp.

EBIT/EBITDA
EBIT increased $933 million, or 20.3%, and EBITDA increased $1,371 million, or
21.6%, in 1998. Excluding the 1998 benefit from the adoption of SOP 98-1 and the
1997 gain on the sale of Skynet, EBIT increased 20.1% to $5,397 million and
EBITDA increased 21.3% to $7,583 million. The increases were driven by growth in
revenues and the benefits reaped from AT&T's companywide cost-cutting
initiatives. In particular, streamlining of customer-care and sales-support
functions, including significant headcount reductions, contributed to the
increases. The impact of these items on EBIT were partially offset by increased
depreciation and amortization expense correlated to the continued high levels of
capital additions.

EBIT decreased $623 million, or 12.0%, in 1997 reflecting increased depreciation
and amortization expense from capital spending in the second half of 1996 and
throughout 1997 and FCC-mandated pay-phone compensation costs which began in
1997. These increases were partially offset by decreased SG&A expenses and the
gain on the sale of Skynet. Excluding the Skynet gain, EBIT decreased 13.8%.
EBITDA increased $36 million, or 0.6%, in 1997, reflecting decreases in SG&A and
the gain on the sale of Skynet, partially offset by FCC-mandated pay-phone
compensation costs. Excluding the impact of the Skynet gain, EBITDA decreased
1.0%.

OTHER ITEMS
Capital additions increased $893 million, or 21.8%, in 1998 and increased $1,547
million, or 61.0%, in 1997 due to an increase in the allocation of shared
network assets. Capital spending reflects business services' portion of AT&T's
investment to enhance our network (including the data network), and spending on
AT&T's Digital Link product for local service.

Total assets increased $3,047 million, or 20.3%, at December 31, 1998, compared
with December 31, 1997. The increase was primarily due to net increases in
property, plant and equipment (additions less depreciation), and an increase in
the allocation of shared network assets due to higher business volumes as a
percentage of total volumes.

<PAGE>

AT&T Corp.

CONSUMER SERVICES
For the Years Ended December 31, 1998 1997 1996
Dollars in Millions
Revenues.............................$22,632 $23,527 $24,184

EBIT................................. 6,662 5,094 5,345
EBITDA............................... 7,379 5,883 5,982

Capital additions.................... 457 921 1,867

At December 31, 1998 1997
Total assets*........................$ 6,252 $ 7,923

* Includes allocated shared network assets of $2,921 and $4,168 at December 31,
1998 and 1997, respectively.

REVENUES
Revenues fell $895 million, or 3.8%, in 1998 on a low single-digit decline in
volume. The decline in revenues reflected the impact of AT&T's strategy to focus
on high-value customers and actively migrate them to optional calling plans that
provide more favorable pricing for the customer. In addition to the impact of
this migration strategy, revenues continued to be pressured by competition in
domestic and international long distance markets, including the impact of
dial-around competitors, as well as the flow-through of access-charge reductions
to customers. We expect revenues to continue to decline in 1999 in the range of
2%-4%.

Revenues in 1997 declined $657 million, or 2.7%, due to a number of strategic
choices intended to improve profitability. For instance, we accelerated the use
of free minutes as a customer incentive in 1997, increasingly using them in
place of checks. Since free minutes are classified as a deduction from revenues,
while checks are a component of SG&A expense, our move toward free minutes
served to reduce revenue growth. Also impacting revenues were the effects of
flowing savings from access reform through to customers, resulting in lower
prices and the migration of customers to more-favorable calling plans. Partially
offsetting the declines was growth in intra-LATA, or local-toll services.

<PAGE>

AT&T Corp.

EBIT/EBITDA
For the year ended December 31, 1998, EBIT increased $1,568 million, or 30.8%,
and EBITDA increased $1,496 million, or 25.4%. These increases were driven
primarily by reduced SG&A expenses. SG&A expense declines are primarily due to
AT&T's continued focus on high-value customers which has led to lower spending
on customer acquisition and retention. Simplification and consolidation of
marketing messages has also generated substantial efficiencies, and consumer
services has increased its use of alternate, more efficient distribution
channels. For example, One Rate Online offers activation, customer care and
billing over the Internet with payment via credit card. EBIT and EBITDA were
also positively impacted by lower international settlement rates. Excluding the
1998 benefit from the adoption of SOP 98-1, EBIT increased 29.8% to $6,613
million and EBITDA increased 24.4% to $7,318 million compared with 1997.

EBIT and EBITDA decreased $251 million, or 4.7%, and $99 million, or 1.7%,
respectively in 1997. These declines were due to lower revenues primarily
associated with the use of free minutes as a retention tool and higher network
and other communications services expenses due primarily to a higher provision
for uncollectibles and FCC-mandated pay-phone compensation expense which began
in 1997. Partially offsetting the reductions to EBIT and EBITDA were lower
international settlement rates and reductions in SG&A expenses, due primarily to
lower acquisition costs.

OTHER ITEMS
Capital additions declined $464 million, or 50.3%, and total assets decreased
$1,671 million, or 21.1%, at December 31, 1998, due primarily to a decrease in
the allocation of shared network assets due to lower consumer volumes to total
volumes. Capital additions in 1997 declined $946 million, or 50.7%, also due to
a decrease in the allocation of shared network assets.

<PAGE>

AT&T Corp.

WIRELESS SERVICES
TOTAL WIRELESS SERVICES
For the Years Ended December 31, 1998 1997 1996
Dollars in Millions
Revenues.............................$ 5,406 $ 4,668 $4,246

EBIT................................. 118 265 627
EBITDA............................... 1,220 1,227 1,348

Capital additions.................... 2,372 2,158 2,404

At December 31, 1998 1997
Total assets.........................$19,341 $18,850
CORE WIRELESS SERVICES
For the Years Ended December 31, 1998 1997 1996
Dollars in Millions
Revenues.............................$ 5,007 $ 4,642 $4,238

EBIT................................. 653 824 797
EBITDA............................... 1,563 1,653 1,496

Capital additions.................... 1,850 820 1,316

At December 31, 1998 1997
Total assets.........................$14,843 $14,433

NEW WIRELESS SERVICES
For the Years Ended December 31, 1998 1997 1996
Dollars in Millions
Revenues............................. $ 399 $ 26 $ 8

EBIT................................. (535) (559) (170)
EBITDA............................... (343) (426) (148)

Capital additions.................... 522 1,338 1,088

At December 31, 1998 1997
Total assets......................... $4,498 $4,417

<PAGE>

AT&T Corp.

Wireless services is presented in total and as "core" and "new" wireless
services. New wireless services includes the impact of the new 1900 MHz markets,
wireless data, two-way messaging and fixed wireless development. All other
wireless results, primarily services from the 850 MHz markets, are reflected as
core services.

REVENUES
Wireless services revenues grew $738 million, or 15.8%, in 1998. Adjusting for
the October 1998 sale of our messaging business, 1998 revenues increased 17.2%
compared with 1997. The increase was driven by the overwhelming response to
AT&T's Digital One Rate service and a full-year impact in 1998 of the launch of
eight new 1900 MHz markets in the second half of 1997. AT&T Digital One Rate
service, which was rolled out in May 1998, was the first national, one-rate
wireless-service plan that eliminates separate roaming and long distance
charges.

AT&T Digital One Rate service is one key element of our ongoing efforts to
acquire and retain high-value customers. Since the program's launch, more than
850,000 subscribers have signed on to this service. AT&T has continued to add
customers at a rate of approximately 100,000 per month and about three quarters
of these customers are new to AT&T. In AT&T's 850 MHz markets, average revenue
per user (ARPU) was $56.60, a decline of 5.2% compared with 1997. However, in
the fourth quarter ARPU increased 1.3% over the prior year's quarter compared
with quarter-over-quarter declines of 10.8%, 7.6% and 3.9% in the first, second
and third quarters of 1998, respectively. AT&T Digital One Rate service was
partially responsible for the slowdown in the decline of ARPU. Minutes of use
per average subscriber increased within our 850 MHz markets to a 57.6% growth
rate over the fourth quarter of 1997, well above the 4.5%, 16.1% and 36.2%
growth rates achieved in the first, second and third quarters of 1998,
respectively. For the full year, minutes of use per average subscriber increased
29.5% compared with 1997.

AT&T Digital One Rate service is also a key element of our wireless strategy to
migrate customers to digital service, which generates greater network
efficiencies and improves customer retention. As of December 31, 1998, we had
7.198 million consolidated subscribers, an increase of 20.7% from December 31,
1997. Digital subscribers represent 60.5% of the consolidated subscribers, up
from 52.7% one quarter ago and up from 29.3% at December 31, 1997. Including
partnership markets (markets where AT&T has or shares a controlling interest),
5.1 million of the total 9.7 million customers were digital subscribers on
December 31, 1998. We expect the success of AT&T Digital One Rate service to
contribute to continued revenue growth and we estimate wireless services
revenues will grow in the high teens for 1999.

Wireless services revenues increased $422 million, or 9.9%, in 1997. This
includes revenues from AT&T's new 1900 MHz markets although the impact on the
annual growth rate was minimal. Adjusted for the impact of wireless properties
disposed of in December 1996, the 1997 revenue growth rate would have been
12.5%. The revenue growth was driven by consolidated subscriber growth of 18.5%
in 1997.

<PAGE>

AT&T Corp.

EBIT/EBITDA
EBIT decreased $147 million, or 55.3%, and EBITDA decreased $7 million, or 0.5%,
in 1998. Excluding the impacts of the 1998 gain on the sale of SmarTone, the
adoption of SOP 98-1 and the 1997 charge to exit the two-way messaging business,
EBIT decreased 99.2% to $3 million and EBITDA decreased 15.4% to $1,105 million,
compared with 1997.

Core EBIT decreased $171 million, or 20.8%, and core EBITDA decreased $90
million, or 5.4%, in 1998. Excluding the impact of the 1998 gain on the sale of
SmarTone and the adoption of SOP 98-1, core EBIT declined $286 million, or
34.7%, and core EBITDA declined $205 million, or 12.4%. This decrease in core
EBIT and EBITDA for 1998, compared with 1997, reflects higher intercarrier
roaming charges due to increased volume, and lower equity earnings. The decline
in EBIT and EBITDA was also due to higher subscriber-acquisition and
digital-migration costs which is linked to the growth in the subscriber base as
the cost per gross subscriber addition declined 2.8% in 1998. In addition,
declines in EBIT were due in part to increased depreciation and amortization
expense associated with capital additions. This was partially offset by growth
in revenues.

Core EBIT increased $27 million, or 3.5%, and core EBITDA increased $157
million, or 10.5%, in 1997 compared with 1996. These increases are due to the
net impact of a growing subscriber base--higher revenues partially offset by
increased SG&A. In addition, EBIT was impacted by increased depreciation and
amortization expenses associated with the higher asset base.

The EBIT deficit for new wireless services decreased $24 million, an improvement
of 4.3% over 1997 and the EBITDA deficit declined $83 million, an improvement of
19.5%. Excluding the impact of the 1997 charge to exit the two-way messaging
business, EBIT for new wireless services decreased 34.0% and EBITDA increased
0.9% in 1998 compared with 1997. The decline in new wireless services EBIT for
1998 was due to increased acquisition costs relating to the roll out of nine new
markets in 1997, higher intercarrier roaming charges due to increased volume,
and increased depreciation and amortization expense due to the significant level
of capital spending in 1997. These increased costs were partially offset by the
revenues generated in the new markets and increased other income due to gains on
sales of 1900 MHz properties.

EBIT and EBITDA deficits for new wireless services increased 229.1% and 188.7%,
respectively, in 1997 compared with 1996. Excluding the impact of the 1997
two-way messaging charge, the 1997 EBIT deficit grew to $399 million, an
increase of 135.0%, and the 1997 EBITDA deficit increased to $346 million, an
increase of 134.5%, compared with 1996. The increase to these losses was due to
continued investment in the 1900 MHz markets and reflects the cost to roll out
nine new markets in 1997.

OTHER ITEMS
Capital additions increased $214 million in 1998. Capital additions in 1998 were
directed primarily at expanding coverage in the core, traditional markets since
the build-out of the 1900 MHz markets was substantially completed in 1997.

Total assets increased $491 million from December 31, 1997. This increase was
due primarily to the impact of increased investments in nonconsolidated
subsidiaries and increased accounts receivables due to growth in revenues. These
increases were partially offset by declines in licenses as certain licenses were
contributed as part of our investment in nonconsolidated subsidiaries.

<PAGE>

AT&T Corp.

OTHER AND CORPORATE
For the Years Ended December 31, 1998 1997 1996
Dollars in Millions
Revenues............................. $ 3,549 $ 2,704 $ 1,892

EBIT................................. (3,538) (2,665) (2,201)
EBITDA............................... (2,871) (2,125) (1,776)

Capital additions.................... 1,771 1,519 710

At December 31, 1998 1997
Total assets......................... $15,880 $18,191

REVENUES
Revenues increased $845 million, or 31.2%, in 1998. This revenue growth was
primarily due to increases in TCG, including the impacts of ACC (which was a
1998 acquisition by TCG), AT&T Solutions, international operations and ventures
and AT&T WorldNet Service partially offset by a decrease in revenues due to the
sale of ASCC.

Revenues for other and corporate increased $812 million, or 43.0%, in 1997,
primarily due to increases in AT&T Solutions outsourcing revenues, as well as
revenues from TCG, AT&T WorldNet Service and international operations and
ventures.

EBIT/EBITDA
The EBIT deficit increased $873 million, or 32.8%, in 1998 and the EBITDA
deficit increased $746 million, or 35.2%, over 1997. Excluding the impact of the
1998 net charges on the other and corporate units, the gains from the sales of
LIN-TV and ASCC and the 1997 restructuring reserve reversal, 1998 EBIT improved
$1,064 million, or 38.4%, to a loss of $1,701 million and 1998 EBITDA improved
$1,190 million, or 53.4%, to a loss of $1,035 million compared with 1997. These
operational improvements were due primarily to higher interest income associated
with a higher cash balance and lower corporate overhead due to headcount
reductions and lower employee benefit costs. In addition, EBIT and EBITDA from
international operations and ventures, excluding a 1998 charge, and AT&T
Solutions improved as discussed below. The increased EBIT and EBITDA deficits in
1997 compared with 1996 were due primarily to increased dilution from our growth
businesses.

OTHER ITEMS
Capital additions increased $252 million, or 16.8%, in 1998 driven by TCG and
AT&T Solutions. These increases were partially offset by a decrease in
international operations and ventures due primarily to a decrease in investments
in nonconsolidated subsidiaries. In 1997, capital additions increased $809
million, or 113.5%, due primarily to increased spending in international
operations and ventures and TCG.

Total assets decreased $2,311 million at December 31, 1998, due primarily to the
use of proceeds from the settlement of the UCS receivable to pay down debt,
partially offset by the acquisition of ACC.

<PAGE>

AT&T Corp.

Supplemental Revenue Disclosures

Dollars in Millions Dollars in Millions
$1,200 $1,200
1,054
x
974
x

$900 $900
785
x

$600 562 $600
x 473
x

$300 271 $300
x

0 0
1996 1997 1998 1996 1997 1998
Local Services AT&T Solutions

Dollars in Millions Dollars in Millions
$1,200 $1,200

876
$900 $900 x

712
x

585
$600 $600 x

370
x

$300 219 $300
x

80
x

0 0
1996 1997 1998 1996 1997 1998
AT&T WorldNet and International Operations and
Other Online Services Ventures

<PAGE>

AT&T Corp.

SUPPLEMENTAL DISCLOSURES
LOCAL SERVICES
Local services for business and residential customers are included as part of
AT&T's business services, consumer services, and other and corporate results.
Local services includes TCG's local business (but excludes its 1998 acquisition
of ACC) and the costs associated with the corporate staff dedicated to AT&T's
local services effort. TCG and ACC are both included in the other and corporate
group.

For the Years Ended December 31, 1998 1997 1996
Dollars in Millions
Revenues.............................$ 974 $ 562 $ 271

EBIT................................. (1,428) (991) (466)
EBITDA............................... (1,117) (764) (378)

Capital additions.................... 1,362 1,314 892

At December 31, 1998 1997
Total assets.........................$ 3,661 $4,068

REVENUES
Local services revenues increased $412 million, or 73.2%, compared with 1997,
due primarily to TCG's growth in private line, switch usage and facilities,
interconnection, and data/Internet services. In 1997, local services revenues
increased $291 million, or 107.2%, also driven by growth in TCG.

AT&T's local services operation added more than 246,000 access lines in 1998 for
a total of 542,544 access lines in service as of December 31, 1998. Voice-grade
equivalents in service were 11.6 million, an increase of 4.3 million from
year-end 1997. AT&T now serves 19,246 buildings with 5,536 on net (buildings
where we own the switch), in 83 metropolitan statistical areas (MSAs). Since
year-end 1997, AT&T's local operations have added 28 digital voice switches, 18
MSAs and service to 5,732 buildings, almost 900 of which are on net.

EBIT/EBITDA
For 1998, EBIT and EBITDA deficits increased $437 million and $353 million,
respectively. The greater deficits were due primarily to the $633 million asset
impairment charge and the $85 million TCG merger-related costs recorded in 1998.
Excluding these items, 1998 EBIT improved $281 million, or 28.3%, to a loss of
$710 million and EBITDA improved $365 million, or 47.7%, to a loss of $399
million. These EBIT and EBITDA improvements were primarily due to an increase in
revenues, combined with an improved cost structure. For 1997, EBIT and EBITDA
declined $525 million and $386 million, respectively, compared with 1996, due
primarily to increased SG&A expenses.

OTHER ITEMS
During 1998, capital spending for local services was primarily related to
expansion, development and construction of the business-local network. During
1997, spending was focused on business-local and spending in consumer for the
deployment of TSR. However, we decided not to pursue TSR as a local service
strategy in early 1998.

Total assets decreased $407 million compared with December 31, 1997, due
primarily to the 1998 write-off of consumer-local software assets associated
with TSR and a decrease in marketable securities, partially offset by a net
increase in property, plant and equipment due to the expansion of the
business-local network.

<PAGE>

AT&T Corp.

AT&T SOLUTIONS
AT&T Solutions is our outsourcing, network-management and professional-services
business. The results of AT&T Solutions are included in the other and corporate
group.

For the Years Ended December 31, 1998 1997 1996
Dollars in Millions
Revenues.............................$1,054 $ 785 $ 473

EBIT................................. 27 (154) (202)
EBITDA............................... 173 (6) (63)

Capital additions.................... 271 118 192

At December 31, 1998 1997
Total assets.........................$ 719 $ 576

REVENUES
For 1998, AT&T Solutions' revenues grew by 34.2%, to $1,054 million. The strong
growth can be attributed to new contracts signed during 1998 and the expansion
of services provided to our existing client base. During the year we announced
the signing of a six-year contract with Bank One, valued at $1.4 billion over
the contract term. AT&T Solutions currently has the potential for more than $9
billion in revenues under signed contracts. Revenue growth for 1999, excluding
the impact of the IBM outsourcing agreement, is expected to be approximately
30%.

<PAGE>

AT&T Corp.

Also during 1998, AT&T and IBM announced a series of strategic agreements. AT&T
will acquire IBM's Global Network business for $5 billion and IBM will outsource
a significant portion of its global networking needs to AT&T. This five-year
outsourcing contract has a value of $5 billion. The network acquisition and
outsourcing agreement together have the potential to bring in an additional $2.5
billion in revenues to AT&T Solutions in its first full year of operation. At
the same time, AT&T will outsource its internal data-processing and
applications-processing centers to IBM.

AT&T Solutions also manages AT&T's information-technology infrastructure. These
internal services are accounted for as a reduction to AT&T Solutions' expenses.
Total internal services billed were $1.6 billion in 1998 with an EBIT margin of
about 4%.

AT&T Solutions purchases long distance and data services for its business
customers from business services, who partner closely with AT&T Solutions to
meet its customers' needs.

EBIT/EBITDA
EBIT for AT&T Solutions improved $181 million to $27 million and EBITDA improved
$179 million to $173 million in 1998. The commercial operations of AT&T
Solutions recorded a $40 million EBIT loss in 1998, an improvement of $124
million, or 75.4%, over 1997. However, in the fourth quarter of 1998, AT&T
Solutions' commercial operations met its target to turn EBIT positive. EBITDA
for the commercial operation was a loss of $1 million in 1998, an improvement of
$135 million, or 98.6%, over 1997. Revenue growth combined with significant
progress toward a best-in-class cost structure drove the EBIT and EBITDA
improvements.

OTHER ITEMS
Capital additions for 1998 were $271 million, an increase of $153 million over
1997. This spending was directed primarily toward the AT&T
information-technology infrastructure. Capital additions for 1997 decreased
38.4% compared with 1996, due to lower spending on the AT&T
information-technology infrastructure.

Total assets increased $143 million, or 24.9%, at December 31, 1998, due to
increased capital spending. Approximately 50% of total assets at December 31,
1998 and 1997, were related to servicing the internal-network infrastructure of
AT&T.

<PAGE>

AT&T Corp.

AT&T WORLDNET AND OTHER ONLINE SERVICES
AT&T WorldNet and other online services includes AT&T WorldNet Services, our
Internet access provider for residential and business consumers (included in
other and corporate), as well as Worldwide Web site hosting and other electronic
commerce services (included in business services).

For the Years Ended December 31, 1998 1997 1996
Dollars in Millions
Revenues.............................$ 370 $ 219 $ 80

EBIT................................. (431) (553) (520)
EBITDA............................... (375) (523) (508)

Capital additions.................... 69 118 131
WorldNet subscribers (k)............. 1,294 1,020 568
Hosted Web sites (k)................. 8.1 6.2 2.0

At December 31, 1998 1997
Total assets.........................$ 380 $ 334

REVENUES
Revenues increased $151 million, or 68.6%, in 1998 compared with 1997. The
increase was primarily due to continued growth in AT&T WorldNet's residential
and business subscribers. AT&T WorldNet had 1.294 million gross residential
subscribers at December 31, 1998, of which 1.250 million were paying
subscribers, up from 1.020 million at December 31, 1997, an increase of 22.5%.
Average revenue per customer increased due to movement of customers to plans
with higher monthly rates. AT&T Web Site Services had more than 8,000 hosted
sites at the end of 1998, compared with approximately 6,000 at the end of 1997.

EBIT/EBITDA
EBIT and EBITDA in 1998 improved 22.0% and 28.3% to deficits of $431 million and
$375 million, respectively. The improvements were driven primarily by AT&T
WorldNet revenue growth.

<PAGE>

AT&T Corp.

INTERNATIONAL OPERATIONS AND VENTURES
International operations and ventures includes AT&T's consolidated foreign
operations, our transit and reorigination businesses, online services in the
Asia/Pacific region, as well as the equity earnings/losses of AT&T's
nonconsolidated international joint ventures. International operations and
ventures does not include bilateral international long distance traffic. The
results of international operations and ventures are included in other and
corporate.

For the Years Ended December 31, 1998 1997 1996
Dollars in Millions
Revenues.............................$ 876 $ 712 $ 585

EBIT................................. (298) (399) (309)
EBITDA............................... (244) (338) (242)

Capital additions.................... 125 496 101

At December 31, 1998 1997
Total assets.........................$1,409 $1,837

REVENUES
Revenues increased 23.0% to $876 million in 1998 compared with 1997. In 1998, we
streamlined our international operations by exiting certain nonstrategic and
unprofitable businesses which negatively impacted revenues. Revenues from
ongoing operations increased approximately 54% for the year, driven by increased
reorigination traffic and growth in AT&T Communications Services UK. In 1997,
revenues grew 21.7% due primarily to an increase in reorigination revenues.

EBIT/EBITDA
EBIT improved $101 million, or 25.4%, and EBITDA improved $94 million, or 27.8%,
in 1998 compared with 1997. The EBIT and EBITDA improvements were primarily due
to revenue increases and AT&T's continued efforts to streamline its
international operations and exit nonstrategic and unprofitable businesses.
These improvements were partially offset by an $85 million asset impairment
charge recorded in 1998 relating to the write-down of unrecoverable assets in
certain operations that compete directly with BT. Excluding this charge, 1998
EBIT and EBITDA were deficits of $213 million and $159 million, respectively,
showing year-over-year EBIT and EBITDA improvements of $186 million and $179
million, respectively. In 1997, EBIT and EBITDA grew 29.3% and 39.7%,
respectively, due primarily to increased losses in our international ventures.

OTHER ITEMS
Capital additions decreased $371 million for 1998 compared with 1997. The
decrease was primarily due to the high level of spending in 1997, which was
directed toward the funding of start-up ventures.

Total assets were $1,409 million at December 31, 1998, compared with $1,837
million at December 31, 1997. The decrease is due primarily to a decrease in
cash resulting from a loan to an affiliated entity and due to a reduction in
receivables due primarily to the settlement of the receivable relating to the
sale of SSI.

<PAGE>

AT&T Corp.

LIQUIDITY
For the Years Ended December 31, 1998 1997 1996
Dollars in Millions
CASH FLOW OF CONTINUING OPERATIONS:
Provided by operating activities..........$ 10,217 $ 8,501 $ 8,087
Provided by (used in) investing activities 3,582 (6,755) (2,088)
Used in financing activities.............. (11,049) (1,540) (4,295)

EBITDA ..................................... 13,415 11,327 11,995

AT&T's primary source of cash is derived from the continuing operations of AT&T.
The net cash provided by the operating activities of continuing operations was
$10,217 million in 1998, $8,501 million in 1997 and $8,087 million in 1996. The
increase in 1998 of $1,716 million was driven primarily by an increase in income
from continuing operations excluding the noncash impacts on income of
restructuring and other charges as well as the gains on sales of nonstrategic
businesses. The $414 million increase in 1997 was due to a number of factors
including the collection of employee-benefit related receivables from Lucent in
1997 and improved customer cash collections.

Cash Flow from Operations*

Dollars in Millions
$12,000

10,217
x
8,501
$9,000 8,087 x
x

$6,000

$3,000
1996 1997 1998

* Represents the operating activities of AT&T's continuing operations.

<PAGE>

AT&T Corp.

AT&T's investing activities resulted in a net source of cash in 1998 of $3,582
million. In 1997 and 1996, our investing activities resulted in a net use of
cash of $6,755 million and $2,088 million, respectively. In 1998, we received
$5,722 million as settlement of a receivable in conjunction with the sale of
UCS, as well as $3,500 million in proceeds from the sale. We also received a
total of $1,550 million in proceeds from the sales of LIN-TV, ASCC and SmarTone
during 1998. AT&T's capital spending of $7,817 million in 1998 was the primary
use of cash in investing activities.

During 1997 and 1996, the net use of cash from investing activities was due to
capital spending of $7,604 million and $6,828 million, respectively. Partially
offsetting the use of cash in 1996 were UCS related securitizations.

We expect our 1999 capital expenditures to be about $11 billion to $12 billion,
including the capital spending of TCI. A significant portion of these
expenditures will be in support of our growth businesses.

The net cash used in financing activities of AT&T's continuing operations was
$11,049 million, $1,540 million and $4,295 million in 1998, 1997 and 1996,
respectively. AT&T used the cash received during 1998 from the asset
dispositions to pay down commercial paper and repurchase approximately $3
billion of AT&T common stock in anticipation of the TCI merger. We also early
retired $1,046 million of long-term debt obligations of TCG and repaid
approximately $1,100 million of scheduled debt maturities.

The decrease in cash used in financing activities from 1996 to 1997 was
primarily due to an increase in short-term borrowings resulting from the
increased UCS funding requirements as well as the 1996 pay down of commercial
paper with the proceeds from the sale of AT&T Capital Corp.

On January 8, 1999, we announced that the Board of Directors authorized the
repurchase of up to $4 billion of AT&T common stock. During February and March
1999, we completed this program with the repurchase of 46.6 million shares.
These shares were reissued in connection with the TCI merger. We also announced
our intention, following completion of the TCI merger, to declare a
three-for-two stock split of AT&T's common stock.

<PAGE>

AT&T Corp.

In 1999, AT&T filed a registration statement with the Securities and Exchange
Commission for the offering and sale of up to $10 billion of notes and warrants
to purchase notes. AT&T will have a total of $13.1 billion of registered notes
and warrants to purchase notes available for public sale under this registration
statement and previously filed registration statements.

AT&T intends to use the proceeds from the sale of the notes and warrants for
funding investments in subsidiary companies, capital expenditures, acquisitions
of licenses, assets or businesses, refunding of debt and general corporate
purposes.

In February 1999, we entered into a $7 billion revolving-credit facility with a
consortium of 42 lenders. The 364-day facility is intended for general corporate
purposes and will support our commercial paper issuances. In addition, we
negotiated a $2 billion, 364-day, back-up facility with one institution. This
facility will terminate when AT&T issues debt under the registration statement
filed in 1999 and after any underlying commercial paper has been repaid.

EBITDA is a measure of our ability to generate cash flow and should be
considered in addition to, but not as a substitute for, other measures of
financial performance reported in accordance with GAAP. EBITDA increased $2,088
million, or 18.4%, for 1998 compared with 1997. EBITDA was also impacted by the
1998 and 1997 net charges and gains. However, the EBITDA impact of the adoption
of SOP 98-1 in 1998 was $221 million due to current-year amortization of
software capitalized, and the impact of the two-way messaging charge in 1997 was
$80 million. Excluding the 1998 and 1997 net charges and gains, EBITDA jumped to
$14,938 million in 1998 from $11,210 million in 1997, an increase of 33.2%. The
increase was due primarily to the impact of our cost-reduction efforts coupled
with higher revenues. EBITDA declined 5.6%, or $668 million, in 1997. Excluding
the impact of the 1997 net charges, EBITDA decreased $785 million, or 6.5%,
compared with 1996.

RISK MANAGEMENT
We are exposed to market risk from changes in interest and foreign exchange
rates. On a limited basis we use certain derivative financial instruments,
including interest rate swaps, options, forwards and other derivative contracts
to manage these risks. We do not use financial instruments for trading or
speculative purposes. All financial instruments are used in accordance with
board-approved policies.

We use interest rate swaps to manage the impact of interest rate changes on
earnings and cash flows and also to lower our overall borrowing costs. We
monitor our interest rate risk on the basis of changes in fair value. Assuming a
10% downward shift in interest rates at December 31, 1998 and 1997, the
potential loss for changes in the fair value of interest rate swaps and the
underlying hedged debt would have been $3 million in both periods. Assuming a
10% downward shift in interest rates at December 31, 1998 and 1997, the
potential loss for changes in the fair value of unhedged debt would have been
$290 million and $346 million, respectively.

<PAGE>

AT&T Corp.

We use forward and option contracts to reduce our exposure to the risk of
adverse changes in currency exchange rates. We are subject to foreign exchange
risk related to reimbursements to foreign telephone companies for their portion
of the revenues billed by AT&T for calls placed in the United States to a
foreign country. In addition, we are also subject to foreign exchange risk
related to other foreign-currency-denominated transactions. As of December 31,
1998, there was a net unrealized gain on forward contracts of $9 million. As of
December 31, 1997, there was a net unrealized loss on forward contracts of $30
million. Unrealized gains and losses are calculated based on the difference
between the contract rate and the rate available to terminate the contracts. We
monitor our foreign exchange rate risk on the basis of changes in fair value.
Assuming a 10% appreciation in the U.S. dollar at December 31, 1998 and 1997,
the potential loss for changes in the fair value of these contracts would have
been $20 million and $6 million, respectively. Because these contracts are
entered into for hedging purposes, we believe that these losses would be largely
offset by gains on the underlying firmly committed or anticipated transactions.

The estimated potential losses, as discussed above, assume the occurrence of
certain adverse market conditions. They do not consider the potential effect of
favorable changes in market factors and do not represent projected losses in
fair value that we expect to incur. Future impacts would be based on actual
developments in global financial markets. Management does not foresee any
significant changes in the strategies used to manage interest rate risk or
foreign currency rate risk in the near future.

EURO CONVERSION
On January 1, 1999, certain members of the European Union established fixed
conversion rates between their existing currencies and the European Union's
currency (Euro). The transition period is anticipated to extend between January
1, 1999, and July 1, 2002. We have assessed the impact of the conversion on
information-technology systems, currency exchange rate risk, derivatives and
other financial instruments, continuity of material contracts as well as income
tax and accounting issues. We do not expect the conversion to date or the
conversion during the transition period to have a material effect on our
consolidated financial statements.

<PAGE>

AT&T Corp.

FINANCIAL CONDITION
At December 31, 1998 1997
Dollars in Millions
Total assets $59,550 $61,095
Total liabilities 34,028 37,417
Total shareowners' equity 25,522 23,678
Debt ratio 20.9% 33.5%

At December 31, 1998, total assets decreased $1,545 million, or 2.5%, to $59,550
million primarily due to our efforts to divest nonstrategic assets partially
offset by our efforts to grow the business. Declines in other and long-term
receivables and net assets of discontinued operations, were partially offset by
increases in cash and property, plant and equipment. The decrease in other and
long-term receivables and net assets of discontinued operations is due primarily
to the sale of UCS in 1998. In connection with this sale, the receivables
outstanding were paid. This sale, along with the sales of LIN-TV and ASCC, are
the primary reasons for the increase in cash. Proceeds from the sales were
partially used to repurchase common stock, pay down commercial paper and for the
early extinguishment of $1,046 million in debt in August 1998. The increase in
property, plant and equipment primarily reflects the investment in the expansion
of our long distance, local and wireless networks partially offset by the
current year's increase in accumulated depreciation and the local asset
impairment charge.

Total liabilities decreased $3,389 million, or 9.1%, to $34,028 million at
December 31, 1998, primarily due to declines in debt partially offset by
increases in other current liabilities and increases in total payroll and
benefit-related liabilities. The decreases in both short-term and long-term debt
reflect the pay down of debt with the current year's sales proceeds, as
mentioned above. Other current liabilities increased primarily as a result of
the accrued income taxes recorded associated with the sale of UCS. The increase
in total payroll and benefit-related liabilities (short-term and long-term) is
primarily due to the net charges associated with the voluntary retirement
incentive program for management employees. The charge for pension
special-termination benefits and other costs resulted in the establishment of a
liability for the Management Pension Plan. This increase was partly offset by
the reversal of the remaining 1995 business restructuring charge.

Total shareowners' equity increased $1,844 million, or 7.8%, in 1998, to $25,522
million primarily due to the current year's net income partially offset by the
shares repurchased and dividends declared.

<PAGE>

AT&T Corp.

AT&T Capitalization

Dollars in Millions

$30,000 60%

+
$20,000 40%

#@ #
@

x x
$10,000 # 20%

0 1996 1997 1998 0

Debt Ratio
x Debt + Equity # Debt Ratio @ Net of Cash
1996 $11,351 $21,092 35.0% 34.6%
1997 $11,942 $23,678 33.5% 32.9%
1998 $ 6,727 $25,522 20.9% 12.3%

The ratio of total debt to total capital at December 31, 1998, was 20.9%
compared with 33.5% at December 31, 1997. The decrease was primarily due to
lower debt. The debt ratio net of cash as of December 31, 1998, was 12.3%.
Management expects the debt ratio to increase in 1999.

<PAGE>

AT&T Corp.

RECENT PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." Among other provisions, it requires that
entities recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
Gains and losses resulting from changes in the fair values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. This standard is effective for fiscal years
beginning after June 15, 1999, though earlier adoption is encouraged and
retroactive application is prohibited. For AT&T this means that the standard
must be adopted no later than January 1, 2000. Management, based on its current
operations and hedging strategies, does not expect the adoption of this standard
to have a material impact on AT&T's results of operations, financial position or
cash flows.

YEAR 2000
AT&T is preparing its systems and applications for the year 2000 (Y2K) through
our Y2K program. The issue our Y2K program addresses is the use of a two-digit
year field instead of a four-digit year field in computer systems. If computer
systems cannot distinguish between the year 1900 and the year 2000, system
failures or other computer errors could result. The potential for failures and
errors spans all aspects of our business, including computer systems, voice and
data networks, and building infrastructures. We are also faced with addressing
our interdependencies with our suppliers, connecting carriers and major
customers, all of whom face the same issue.

AT&T's Y2K program is companywide and is focused on four interrelated categories
which are critical to maintaining uninterrupted service to our customers:
AT&T-developed applications and their external interfaces, AT&T networks,
information-technology (IT) platforms that support the applications, and non-IT
infrastructure.

<PAGE>

AT&T Corp.

AT&T's progress in our Y2K program is measured by certain key milestones or
phases common to each category of systems. These milestones are: assessment,
repair/remediation, testing and certification. The end-state of the process is a
declaration of Y2K compliance, which means that neither performance nor
functionality is affected by dates prior to, during and after the year 2000.
AT&T monitors and tracks the progress of our Y2K program through a series of
scorecards that capture the activities related to the Y2K process phases.

AT&T has completed 100% of the assessment and repair and 99% of the testing of
customer-affecting systems that are a subset of AT&T's inventory as of December
31, 1998, with the remaining 1% of the testing scheduled for completion in the
first quarter of 1999. All systems encompassed in our Y2K program have various
projected dates for Y2K certification, which are outlined in further detail
below by major category.

The Y2K plans for AT&T local services (including TCG) have been integrated into
the overall AT&T plan, and the 1999 targets now include all of AT&T local
services. AT&T continues to evaluate TCI's Y2K program, along with the programs
of other pending acquisitions, to understand the potential impact on the
existing AT&T program. All targets cited herein exclude information regarding
TCI and other pending acquisitions, whose programs are still being evaluated and
planned for integration into the overall AT&T Y2K program.

Program Status
AT&T has approximately 3,000 internally developed software applications that (1)
directly support AT&T's voice and data telecommunications services (including
wired and wireless); (2) are critical to the provisioning, administration,
maintenance and customer service/support related to our telecommunications
services; and (3) support our sales and marketing organizations, other AT&T
services and internal administrative functions. These applications represent 360
million lines of code. As of December 31, 1998, AT&T has completed 100% of the
assessment, approximately 98% of the repair, and about 95% of the application
testing. All phases leading to 100% system-compliance are targeted to be
complete in the second quarter of 1999.

<PAGE>

AT&T Corp.

With respect to external (third-party) interface assessment, formal letters have
been sent to about 2,000 domestic telecommunications companies and international
telecommunications authorities to request information on their Y2K plans and
targets for compliance. We have identified about 1,000 different types of
third-party interfaces and about 10,000 total instances of those types, and are
in the process of assessing the Y2K impacts. As of December 31, 1998, AT&T has
assessed approximately 83% of third-party interface types and approximately 82%
are Y2K compliant. We expect to complete 100% of the assessment phase in the
first quarter of 1999 and to be 100% complete with Y2K certification of external
interfaces in the second quarter of 1999.

The AT&T network is critical to providing top-quality, reliable service to AT&T
customers. At December 31, 1998, the assessment and repair of the
operation-support systems (OS) were 100% complete, and the certification phase
was 99% complete. These systems are targeted to be 100% compliant by the second
quarter of 1999. In addition to the AT&T-developed applications supporting the
network, AT&T has inventoried more than 800 externally purchased network
elements (NE) including switches, routers, network-control points and
signal-transfer points. Additional Y2K testing is conducted to independently
verify supplier claims of compliance. Approximately 99% of the NEs are certified
and the remaining certification is expected to be completed in the first quarter
of 1999. After OS/NE certification is complete, AT&T performs integration
testing to verify Y2K certification of NEs in conjunction with the associated OS
applications. Such integration testing is approximately 76% completed as of
December 31, 1998, with 100% deployment targeted for completion by the second
quarter of 1999.

The IT infrastructure category addresses not only the computing platforms that
are critical to the AT&T-developed applications, but also the common modules,
communications protocols, the internal AT&T wide-area and local-area networks,
desktop hardware/software and the internal voice network. The largest part of
this effort has been focused on the inventory and assessment of the products and
components. As of December 31, 1998, AT&T was approximately 70% compliant in
computing platforms, about 42% compliant in desktops, approximately 80%
compliant in voice systems and adjuncts, and about 84% compliant in data
networks. AT&T expects substantial completion of IT infrastructure certification
by the first quarter of 1999, with 100% certification completion during the
second quarter of 1999.

The non-IT infrastructure focuses on the energy- and environment-management
systems that are critical to various computer systems, as well as safety,
security and operations. This aspect of the Y2K program encompasses more than
8,000 sites, as well as about 6,500 wireless cell sites. As of December 31,
1998, approximately 90% of all sites completed inventory and about 60% are
assessed and compliant (or not impacted). AT&T expects to complete 100% of the
inventory and assessment phases in the first quarter of 1999, and has targeted
100% site compliance by the third quarter of 1999.

<PAGE>

AT&T Corp.

Costs
We have expended approximately $450 million since inception in 1997 on all
phases of the Y2K project. Total costs for 1998 were approximately $320 million,
which included approximately $65 million of capital spending for upgrading and
replacing noncompliant computer systems. More than half of these costs represent
internal IT resources that have been redeployed from other projects and are
expected to return to these projects upon completion of the Y2K project. We
anticipate Y2K costs to be approximately $190 million for the full year 1999,
which includes approximately $12 million of capitalized fixed assets.

Risk Assessment
We have assessed our business exposure that would result from a failure of our
Y2K program, as well as those of our suppliers, connecting carriers and major
customers. Such failures would result in business consequences that could
include failure to be able to serve customers, loss of network functionality,
inability to render accurate bills, lost revenues, harm to the AT&T brand, legal
and regulatory exposure, and failure of management controls. Although we believe
that internal Y2K compliance will be achieved no later than December 31, 1999,
there can be no assurance that the Y2K problem will not have a material adverse
affect on our business, financial condition or results of operations.

Contingency Plans
AT&T is in the process of establishing Y2K contingency plans to further mitigate
Y2K risks. Specific examples of AT&T's contingency plan initiatives include the
following:

Plans are under way to position AT&T personnel on site at critical locations to
monitor operations and manage increases in work and call volumes.

Agreements are being negotiated with contractors and vendors to ensure the
availability of on-site technical support. This coverage includes, but is not
limited to, network centers and sites, customer-care centers and data centers.

We are planning to proactively stage power, fuel, water, heating,
air-conditioning and ventilation sources to support critical business operations
and personnel requirements.

Alternate procedures and processes are being developed to support critical
customer functions, including alternative procedures for rapid repair, recovery
and restoration of critical technology components by business resumption teams.

Procedures to perform database backups, hardcopy printouts, data retention and
recovery are being established for business critical data.

<PAGE>

AT&T Corp.

OTHER MATTERS
AT&T and British Telecommunications plc (BT) announced on July 26, 1998, that
they will create a global venture to serve the complete communications needs of
multinational companies and the international calling needs of businesses around
the world. The venture, which will be owned equally by AT&T and BT, will combine
transborder assets and operations of each company, including their existing
international networks, all of their international traffic, all of their
transborder products for business customers -- including an expanding set of
Concert services (enhanced international voice, data and IP services)-- and
AT&T's and BT's multinational accounts in selected industry sectors. The
formation of the venture is subject to certain conditions, including receipt of
regulatory approvals, but is expected to be completed by mid-1999.

SUBSEQUENT EVENTS
AT&T announced on January 8, 1999, that it had reached agreements with five TCI
affiliates to form separate joint ventures to offer customers advanced
communications services. AT&T, which expects to own 51% to 65% of each of these
joint ventures, will have long-term exclusive rights to offer communications
services over the systems of each of the five operators in return for one-time
payments to be made when the systems meet certain performance milestones. AT&T
expects to finalize joint ventures with Bresnan Communications, Falcon Cable TV,
Insight Communications, InterMedia Partners and Peak Cablevision in early 1999,
begin piloting the new services later in the year and then begin commercial
operations in the year 2000.

On February 1, 1999, AT&T announced the formation of a joint venture with Time
Warner to offer AT&T-branded cable-telephony service to residential and small
business customers over Time Warner's existing cable-television systems in 33
states. The service is expected to be piloted in one or two cities in 1999 and
begin broader commercial operations in 2000. In addition, the companies agreed
to develop other broadband communications services such as video telephony.
Under the terms of the agreement, AT&T will own 77.5% of the joint venture and
will fund the joint venture's negative cash flow; however, it is anticipated
that the joint venture will have positive cash flow and net earnings after three
full years of operation. In return for 20-year exclusive rights to offer
telephony over Time Warner's cable system, the joint venture will make payments
to Time Warner which are estimated to be $300 million. In addition, the joint
venture will pay a monthly fee per subscriber. Subject to certain conditions,
including definitive documentation and various approvals, the companies expect
to close the joint venture in the second half of 1999.

On March 9, 1999, the merger with TCI announced on June 24, 1998, closed with
each share of TCI Group Series A common stock converted into 0.7757 of AT&T
common stock and each share of TCI Group Series B stock converted into 0.8533 of
AT&T common stock. AT&T issued approximately 439 million shares for TCI shares,
of which 339 million were newly issued shares and 100 million were treasury
shares including the shares repurchased in February and March 1999. In addition,
TCI combined Liberty Media Group, its programming arm, and TCI Ventures Group,
its technology-investments unit, to form the new Liberty Media Group (Liberty
Media). In connection with the closing, the shareowners of the new Liberty Media
Group were issued separate tracking stock by AT&T in exchange for the shares
held. Although Liberty Media is a 100%-owned subsidiary of AT&T, it will be
accounted for as an equity investment since AT&T does not have a controlling
financial interest in Liberty Media. In addition, as a tracking stock, all of
its earnings or losses are excluded from the earnings available to the AT&T
common shareowner.

The closing of the TCI merger is the start of the transformation of AT&T to an
"any-distance" company. We believe this acquisition, along with the joint
ventures reached with five TCI affiliates and Time Warner, will make us a leader
of a new generation of advanced communications, information and video services.
These moves will enable us to reach more than 40% of U.S. households over the
next four to five years.

<PAGE>

AT&T Corp.

LEGISLATIVE AND REGULATORY DEVELOPMENTS
The Telecommunications Act of 1996 was designed to foster local-exchange
competition by establishing a regulatory framework to govern new competitive
entry in local and long distance telecommunications services. The
Telecommunications Act also permits Regional Bell Operating Companies (RBOCs) to
provide interexchange services originating in any state in their regions after
demonstrating to the FCC that such provision is in the public interest and
satisfying the conditions for developing local competition established by the
Telecommunications Act.

A number of court decisions in 1997 severely restricted implementation of the
Telecommunications Act and delayed local-service competition. Recent rulings,
however, have upheld the provisions of the Telecommunications Act. Despite these
favorable rulings, there can be no assurance that the prices and other
conditions established in each state will provide for effective local-service
entry and competition or provide AT&T with new market opportunities.

In July 1997, the U.S. Court of Appeals for the Eighth Circuit vacated the
pricing rules that the FCC had adopted to implement the sections of the
local-competition provisions of the Telecommunications Act applicable to
interconnection with local-exchange carrier (LEC) networks and the purchase of
unbundled network elements and wholesale services from LECs. In October 1997,
the Eighth Circuit vacated an FCC Rule that had prohibited incumbent LECs from
separating network elements that are combined in the LECs' networks, except at
the request of the competitor purchasing the elements. These decisions increased
the difficulty and costs of providing competitive local service through the use
of unbundled network elements purchased from the incumbent LECs.

On January 25, 1999, the U.S. Supreme Court issued a decision reversing the
Eighth Circuit Court of Appeals' holding that the FCC lacks jurisdiction to
establish pricing rules applicable to interconnection and the purchase of
unbundled network elements, and the Court of Appeals' decision to vacate the
FCC's rule prohibiting incumbent LECs from separating network elements that are
combined in the LECs' networks. The effect of the Supreme Court's decision is to
reinstate the FCC's rules governing pricing and the separation of unbundled
network elements. The Eighth Circuit Court of Appeals will now consider the
incumbent LECs' claims that although the FCC has jurisdiction to adopt pricing
rules, the rules it adopted are not consistent with the applicable provisions of
the Telecommunications Act. The Supreme Court also vacated the FCC's rule
identifying and defining the unbundled network elements that incumbent LECs are
required to make available to new entrants, and directed the FCC to reexamine
this issue in light of the standards mandated by the Telecommunications Act.

On December 31, 1997, the U.S. District Court for the Northern District of Texas
issued a memorandum opinion and order holding that the Telecommunications Act's
restrictions on the provision of in-region, inter-LATA service by the RBOCs are
unconstitutional. AT&T and other carriers (collectively, "intervenors") filed an
appeal with the U.S. Court of Appeals for the Fifth Circuit. On February 11,
1998, the District Court suspended the effectiveness of its December 31
memorandum opinion and order pending appeal.

On September 4, 1998, the U.S. Court of Appeals for the Fifth Circuit rejected
arguments that the Telecommunications Act is unconstitutional, and reversed the
District Court's contrary opinion. On December 22, 1998, the U.S. Court of
Appeals for the District of Columbia Circuit rejected a similar challenge to the
constitutionality of the Telecommunications Act. On January 19, 1999, the U.S.
Supreme Court denied petitions filed by the RBOCs to review the decision of the
Fifth Circuit Court of Appeals.

<PAGE>

AT&T Corp.

COMPETITION
AT&T currently faces significant competition and expects that the level of
competition will continue to increase. The Telecommunications Act permits RBOCs
to provide inter-LATA interexchange services after demonstrating to the FCC that
such provision is in the public interest and satisfying the conditions for
developing local competition established by the Telecommunications Act. The
RBOCs have petitioned the FCC for permission to provide inter-LATA interexchange
services in one or more states within their home markets; to date the FCC has
not granted any such petition. To the extent that the RBOCs obtain in-region,
inter-LATA authority before the Telecommunications Act's checklist of conditions
have been fully or satisfactorily implemented and adequate facilities-based
local-exchange competition exists, there is a substantial risk that AT&T and
other interexchange service providers would be at a disadvantage to the RBOCs in
providing both local service and combined-service packages. Because it is widely
anticipated that a substantial number of long distance customers will seek to
purchase local, interexchange and other services from a single carrier as part
of a combined or full-service package, any competitive disadvantage, inability
to profitably provide local service at competitive rates, or delays or
limitations in providing local service or combined service packages is likely to
adversely affect AT&T's future revenues and earnings. In addition, the
simultaneous entrance of numerous new competitors for interexchange and combined
service packages is likely to adversely affect AT&T's long distance revenues and
could adversely affect earnings.

<PAGE>

AT&T Corp.

FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
(UNAUDITED)
AT&T Corp. and Subsidiaries
Dollars in Millions (except per share amounts)

1998* 1997 1996 1995** 1994

RESULTS OF OPERATIONS

Revenues $53,223 $51,577 $50,688 $48,449 $46,063
Operating income 7,487 6,836 8,709 5,169 7,393
Income from continuing operations 5,235 4,249 5,458 2,981 4,230

Earnings per common share
Income from continuing operations:
Basic $ 2.93 $ 2.39 $ 3.10 $ 1.72 $ 2.48
Diluted 2.91 2.38 3.09 1.71 2.47

Dividends declared per
common share 1.32 1.32 1.32 1.32 1.32

<PAGE>

AT&T Corp.

FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
(UNAUDITED)
AT&T Corp. and Subsidiaries
Dollars in Millions (except per share amounts)

1998* 1997 1996 1995** 1994

ASSETS AND CAPITAL
Property, plant and
equipment-net $ 26,903 $ 24,203 $ 20,803 $ 16,453 $14,721
Total assets-
continuing operations 59,550 59,994 55,838 54,365 47,926
Total assets 59,550 61,095 57,348 62,864 57,817
Long-term debt 5,556 7,857 8,878 8,913 9,138
Total debt 6,727 11,942 11,351 21,081 18,720
Shareowners' equity 25,522 23,678 21,092 17,400 18,100
Gross capital expenditures 7,981 7,714 7,084 4,659 3,504
Employees-continuing
operations 107,800 130,800 128,700 126,100 116,400

OTHER INFORMATION
Operating income as a
percentage of revenues 14.1% 13.3% 17.2% 10.7% 16.1%
Income from continuing
operations as a percentage
of revenues 9.8% 8.2% 10.8% 6.2% 9.2%
Return on average common
equity 25.3% 19.7% 27.1% 0.4% 29.5%
EBIT*** $8,734 $7,279 $9,114 $5,439 $7,450
EBITDA*** 13,415 11,327 11,995 8,112 9,914
Data at year-end:
Stock price per share**** 75.75 61.31 41.31 44.40 34.46
Book value per
common share 14.55 13.24 11.89 9.97 10.53
Debt ratio 20.9% 33.5% 35.0% 54.8% 50.8%

* 1998 income from continuing operations includes $1.0 billion of
nonoperational items, including restructuring and other charges as well as
benefits from gains on sales and the adoption of a new accounting standard.

** 1995 income from continuing operations includes $2.0 billion of
restructuring and other charges.

*** EBIT (earnings, including other income, before interest and taxes) and
EBITDA (EBIT plus depreciation and amortization), include $1.5 billion and $3.0
billion of nonoperational net charges for 1998 and 1995, respectively. Excluding
the nonoperational charges, EBIT and EBITDA for 1998 were $10,279 million and
$14,938 million, respectively. 1995 EBIT and EBITDA, excluding the
nonoperational charges, were $8,462 million and $11,135 million, respectively.

**** Stock prices for 1994--1996 have been restated to reflect the spin-offs
of Lucent and NCR.

<PAGE>

AT&T Corp.

REPORT OF MANAGEMENT
Management is responsible for the preparation, integrity and objectivity of the
consolidated financial statements and all other financial information included
in this report. Management is also responsible for maintaining a system of
internal controls as a fundamental requirement for the operational and financial
integrity of results. The financial statements, which reflect the consolidated
accounts of AT&T Corp. and subsidiaries (AT&T) and other financial information
shown, were prepared in conformity with generally accepted accounting
principles. Estimates included in the financial statements were based on
judgments of qualified personnel. To maintain its system of internal controls,
management carefully selects key personnel and establishes the organizational
structure to provide an appropriate division of responsibility. We believe it is
essential to conduct business affairs in accordance with the highest ethical
standards as set forth in the AT&T Code of Conduct. These guidelines and other
informational programs are designed and used to ensure that policies, standards
and managerial authorities are understood throughout the organization. Our
internal auditors monitor compliance with the system of internal controls by
means of an annual plan of internal audits. On an ongoing basis, the system of
internal controls is reviewed, evaluated and revised as necessary in light of
the results of constant management oversight, internal and independent audits,
changes in AT&T's business and other conditions. Management believes that the
system of internal controls, taken as a whole, provides reasonable assurance
that (1) financial records are adequate and can be relied upon to permit the
preparation of financial statements in conformity with generally accepted
accounting principles and (2) access to assets occurs only in accordance with
management's authorizations.
The Audit Committee of the Board of Directors, which is composed of directors
who are not employees, meets periodically with management, the internal auditors
and the independent accountants to review the manner in which these groups of
individuals are performing their responsibilities and to carry out the Audit
Committee's oversight role with respect to auditing, internal controls and
financial reporting matters. Periodically, both the internal auditors and the
independent accountants meet privately with the Audit Committee and have access
to its individual members at any time.
The consolidated financial statements in this annual report have been audited
by PricewaterhouseCoopers LLP, Independent Accountants. Their audits were
conducted in accordance with generally accepted auditing standards and include
an assessment of the internal control structure and selective tests of
transactions. Their report follows.

Daniel E. Somers C. Michael Armstrong
Senior Executive Vice President, Chairman of the Board,
Chief Financial Officer Chief Executive Officer

<PAGE>

AT&T Corp.

REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareowners of AT&T Corp.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, changes in shareowners' equity and of cash
flows present fairly, in all material respects, the financial position of AT&T
Corp. and its subsidiaries (AT&T) at December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of AT&T's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards, which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

PricewaterhouseCoopers LLP
New York, New York
January 25, 1999

<PAGE>

AT&T Corp.

CONSOLIDATED STATEMENTS OF INCOME AT&T CORP. AND SUBSIDIARIES
For the Years Ended December 31,
Dollars in millions (except per share amounts) 1998 1997 1996

Revenues................................... $53,223 $51,577 $50,688

Operating Expenses
Access and other interconnection........... 15,328 16,350 16,363
Network and other communications services.. 10,250 9,739 8,262
Depreciation and amortization.............. 4,629 3,982 2,819
Selling, general and administrative........ 13,015 14,670 14,535
Restructuring and other charges ........... 2,514 - -
Total operating expenses................... 45,736 44,741 41,979

Operating income........................... 7,487 6,836 8,709
Other income-net........................... 1,247 443 405
Interest expense........................... 427 307 417
Income from continuing operations before
income taxes............................. 8,307 6,972 8,697
Provision for income taxes................. 3,072 2,723 3,239
Income from continuing operations.......... 5,235 4,249 5,458

Discontinued Operations
Income from discontinued operations
(net of taxes of $6, $50 and $(353))..... 10 100 173
Gain on sale of discontinued operations
(net of taxes of $799, $43 and $138)..... 1,290 66 162
Income before extraordinary loss........... 6,535 4,415 5,793

Extraordinary loss (net of taxes of $80)... 137 - -

Net income ................................ $ 6,398 $ 4,415 $ 5,793

Weighted-average common shares and
potential common shares (millions)*...... 1,800 1,789 1,767

Per Common Share-Basic:
Income from continuing operations.......... $ 2.93 $ 2.39 $ 3.10
Income from discontinued operations........ 0.01 0.05 0.10
Gain on sale of discontinued operations.... 0.73 0.04 0.09
Extraordinary loss......................... 0.08 - -
Net income................................. $ 3.59 $ 2.48 $ 3.29

Per Common Share-Diluted:
Income from continuing operations.......... $ 2.91 $ 2.38 $ 3.09
Income from discontinued operations........ - 0.05 0.10
Gain on sale of discontinued operations.... 0.72 0.04 0.09
Extraordinary loss......................... 0.08 - -
Net income................................. $ 3.55 $ 2.47 $ 3.28

* Amounts represent the weighted-average shares assuming dilution from the
potential exercise of outstanding stock options. Basic shares, assuming no
dilution, are 1,784 million, 1,781 million and 1,760 million for 1998, 1997 and
1996, respectively.

The notes on pages 56 through 71 are an integral part of the consolidated
financial statements.

<PAGE>

AT&T Corp.

CONSOLIDATED BALANCE SHEETS AT&T CORP. AND SUBSIDIARIES
At December 31,

Dollars in Millions 1998 1997

ASSETS
Cash and cash equivalents............................ $ 3,160 $ 318
Marketable securities................................ - 307
Receivables, less allowances of $1,060 and $988
Accounts receivable................................ 8,652 8,675
Other receivables.................................. 403 5,684
Deferred income taxes................................ 1,310 1,252
Other current assets................................. 593 541
TOTAL CURRENT ASSETS................................. 14,118 16,777

Property, plant and equipment-net.................... 26,903 24,203
Licensing costs, net of accumulated
amortization of $1,266 and $1,076.................. 7,948 8,368
Investments.......................................... 4,434 3,866
Long-term receivables................................ 670 1,794
Prepaid pension costs................................ 2,074 2,156
Other assets......................................... 3,403 2,830
Net assets of discontinued operations................ - 1,101
TOTAL ASSETS......................................... $59,550 $61,095

LIABILITIES
Accounts payable..................................... $ 6,226 $ 6,402
Payroll and benefit-related liabilities.............. 1,986 2,390
Debt maturing within one year........................ 1,171 4,085
Dividends payable.................................... 581 538
Other current liabilities............................ 5,478 3,902
TOTAL CURRENT LIABILITIES............................ 15,442 17,317

Long-term debt....................................... 5,556 7,857
Long-term benefit-related liabilities................ 4,255 3,142
Deferred income taxes................................ 5,453 5,711
Other long-term liabilities and
deferred credits................................... 3,322 3,390
TOTAL LIABILITIES.................................... 34,028 37,417

SHAREOWNERS' EQUITY
Common shares, par value $1 per share................ 1,754 1,789
Authorized shares: 6,000,000,000
Outstanding shares: 1,753,595,962 at December 31, 1998;
1,789,013,000 at December 31, 1997
Additional paid-in capital........................... 15,195 17,121
Guaranteed ESOP obligation........................... (44) (70)
Retained earnings.................................... 8,676 4,876
Accumulated other comprehensive income............... (59) (38)
TOTAL SHAREOWNERS' EQUITY............................ 25,522 23,678

TOTAL LIABILITIES AND SHAREOWNERS' EQUITY............ $59,550 $61,095

The notes on pages 56 through 71 are an integral part of the consolidated
financial statements.

<PAGE>
AT&T Corp.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY

AT&T CORP. AND SUBSIDIARIES
For the Years Ended December 31,
Dollars in Millions 1998 1997 1996
Common Shares
Balance at beginning of year.......$ 1,789 $ 1,774 $ 1,746
Shares issued (acquired), net:
Under employee plans............. 2 2 20
Under shareowner plans........... - - 8
For acquisitions................. 15 6 -
Other............................ (52) 7 -
Balance at end of year............... 1,754 1,789 1,774
Additional Paid-In Capital
Balance at beginning of year....... 17,121 16,624 16,656
Shares issued (acquired), net:
Under employee plans............. 67 (8) 975
Under shareowner plans........... 9 434
For acquisitions................. 806 117 23
Other............................ (2,799) 379 286
Spin-offs of Lucent and NCR........ - - (2,326)
Debt conversion.................... - - 264
Reorganization..................... - - 312
Balance at end of year............... 15,195 17,121 16,624
Guaranteed ESOP Obligation
Balance at beginning of year....... (70) (96) (254)
Amortization....................... 26 26 52
Assumption by Lucent............... - - 106
Balance at end of year............... (44) (70) (96)
Retained Earnings (Deficit)
Balance at beginning of year....... 4,876 2,790 (773)
Net income........................... 6,398 $6,398 4,415 $4,415 5,793 $5,793
Dividends declared................. (2,230) (2,145) (2,132)
Treasury shares issued at less
than cost...................... (370) (187) -
Reorganization................... - - (101)
Other changes.................... 2 3 3
Balance at end of year............... 8,676 4,876 2,790
Accumulated Comprehensive Income
Balance at beginning of year....... (38) - 25
Other comprehensive income
(net of taxes of $(53),$(24),$42).. (21) (21) (38) (38) (25) (25)
Total comprehensive income......... $6,377 $4,377 $5,768
Balance at end of year............... (59) (38) -
Total shareowners' equity............$25,522 $23,678 $21,092

AT&T accounts for treasury stock as retired stock and as of December 31, 1998,
held 53.5 million shares.
In March 1990, we issued 13.4 million new shares of common stock in
connection with the establishment of an Employee Stock Ownership Plan (ESOP)
feature for the nonmanagement savings plan. The shares are being allocated to
plan participants over ten years commencing in July 1990 as contributions are
made to the plan.
We have 100 million authorized shares of preferred stock at $1 par value. No
preferred stock is currently issued or outstanding.

The notes on pages 56 through 71 are an integral part of the consolidated
financial statements.
<PAGE>
AT&T Corp.

CONSOLIDATED STATEMENTS OF CASH FLOWS AT&T CORP. AND SUBSIDIARIES
For the Years Ended December 31,
Dollars in Millions 1998 1997 1996
OPERATING ACTIVITIES
Net income....................................... $ 6,398 $ 4,415 $ 5,793
Deduct:Income from discontinued operations....... 10 100 173
Gain on sale of discontinued operations... 1,290 66 162
Add: Extraordinary loss on retirement
of debt................................. 137 - -
Income from continuing operations................ 5,235 4,249 5,458
Adjustments to reconcile net income to net
cash provided by operating activities of
continuing operations:
Gains on sales............................... (770) (134) (158)
Restructuring and other charges.............. 2,362 - -
Depreciation and amortization................ 4,629 3,982 2,819
Provision for uncollectibles................. 1,389 1,522 1,518
Increase in accounts receivable.............. (1,577) (1,034) (1,731)
(Decrease) increase in accounts payable...... (467) 125 679
Net change in other operating
assets and liabilities..................... 5 (832) (1,064)
Other adjustments for noncash items-net...... (589) 623 566
NET CASH PROVIDED BY OPERATING ACTIVITIES
OF CONTINUING OPERATIONS....................... 10,217 8,501 8,087

INVESTING ACTIVITIES
Capital expenditures............................. (7,817) (7,604) (6,828)
Proceeds from sale or disposal of property,
plant and equipment............................ 104 169 145
Decrease (increase) in other receivables......... 6,403 (465) 3,499
Acquisitions of licenses......................... (97) (435) (267)
Sales of marketable securities................... 2,003 479 665
Purchases of marketable securities............... (1,696) (345) (1,106)
Equity investment distributions and sales........ 1,516 583 186
Equity investment contributions.................. (1,281) (484) (504)
Net dispositions of businesses, net of
cash acquired.................................. 4,507 1,507 2,145
Other investing activities-net................... (60) (160) (23)
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
OF CONTINUING OPERATIONS....................... 3,582 (6,755) (2,088)

FINANCING ACTIVITIES
Proceeds from long-term debt issuances........... 17 - 1,060
Retirements of long-term debt.................... (2,610) (737) (1,497)
Issuance of common shares related to benefit
plans-net...................................... (325) 171 1,580
Treasury shares acquired other than
for benefit plans.............................. (2,964) - -
Dividends paid................................... (2,187) (2,142) (2,122)
(Decrease) increase in short-term
borrowings-net................................. (3,033) 1,114 (5,301)
Other financing activities-net................... 53 54 1,985
NET CASH USED IN FINANCING ACTIVITIES
OF CONTINUING OPERATIONS....................... (11,049) (1,540) (4,295)

Net cash provided by (used in) discontinued
operations..................................... 92 (84) (1,595)
Net increase in cash and cash
equivalents.................................... 2,842 122 109
Cash and cash equivalents at beginning
of year........................................ 318 196 87
Cash and cash equivalents at end of year......... $ 3,160 $ 318 $ 196

The notes on pages 56 through 71 are an integral part of the consolidated
financial statements.
<PAGE>

AT&T Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AT&T CORP. AND SUBSIDIARIES (AT&T)
(Dollars in millions unless otherwise noted, except per share amounts)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION
The consolidated financial statements include all majority-owned subsidiaries.
Investments in which we exercise significant influence but which we do not
control (a 20% - 50% ownership interest) are accounted for under the equity
method of accounting. This represents the majority of our investments.
Investments in which we have less than a 20% ownership interest and in which
there is no significant influence are accounted for under the cost method of
accounting.

CURRENCY TRANSLATION
For operations outside of the United States that prepare financial statements in
currencies other than the U.S. dollar, we translate income statement amounts at
average exchange rates for the year and we translate assets and liabilities at
year-end exchange rates. We present these translation adjustments as a component
of accumulated other comprehensive income within shareowners' equity.

REVENUE RECOGNITION
We recognize wireline and wireless services revenues based upon minutes of
traffic processed and contracted fees. We recognize products and other services
revenues when the products are delivered and accepted by customers and when
services are provided in accordance with contract terms.

ADVERTISING AND PROMOTIONAL COSTS
We expense costs of advertising and promotions, including checks used to acquire
customers, as incurred. Advertising and promotional expenses were $1,920, $1,995
and $2,533 in 1998, 1997 and 1996, respectively.

INVESTMENT TAX CREDITS
We amortize investment tax credits as a reduction to the provision for income
taxes over the useful lives of the property that produced the credits.

EARNINGS PER SHARE
We calculate earnings per share in accordance with Statement of Financial
Accounting Standard (SFAS) No. 128, "Earnings Per Share." We use the
weighted-average number of common shares outstanding during each period to
compute basic earnings per common share. Diluted earnings per share is computed
using the weighted-average number of common shares and dilutive potential common
shares outstanding. Dilutive potential common shares are additional common
shares assumed to be exercised.

CASH EQUIVALENTS
We consider all highly liquid investments with original maturities of generally
three months or less to be cash equivalents.

MARKETABLE SECURITIES
Marketable securities consist principally of commercial paper, federal agency
notes, federal agency discount notes, corporate medium-term notes, corporate
notes, bank notes and certificates of deposit with original maturity dates
greater than three months. The carrying value of these securities approximates
market value. Market value is determined by the most recently traded price of
the security on the balance sheet date. All marketable securities are classified
as available-for-sale securities under the provisions of SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." Unrealized
holding gains and losses are determined on the specific identification method
and are presented as a component of accumulated other comprehensive income
within shareowners' equity.

<PAGE>

AT&T Corp.

PROPERTY, PLANT AND EQUIPMENT
We state property, plant and equipment at cost and determine depreciation based
upon the assets' estimated useful lives using either the group or unit method.
The useful lives of communications and network equipment range from three to 15
years. The useful lives of other equipment ranges from three to seven years. The
useful lives of buildings and improvements range from 10 to 40 years. The group
method is used for most depreciable assets, including the majority of the
telecommunications and network equipment. When we sell or retire assets
depreciated using the group method, the cost is deducted from property, plant
and equipment and charged to accumulated depreciation, without recognition of a
gain or loss. The unit method is used primarily for large computer systems and
support assets. When we sell assets that were depreciated using the unit method,
we include the related gains or losses in other income-net.
We use accelerated depreciation methods primarily for digital equipment used
in the telecommunications network, except for switching equipment placed in
service before 1989, packet-switched technology and certain high-technology
computer processing equipment. All other plant and equipment, including
capitalized software, is depreciated on a straight-line basis.

LICENSING COSTS
Licensing costs are costs incurred to develop or acquire cellular, personal
communications services (PCS) and messaging licenses. Generally, amortization
begins with the commencement of service to customers and is computed using the
straight-line method over a period of 40 years.

GOODWILL
Goodwill is the excess of the purchase price over the fair value of net assets
acquired in business combinations accounted for as purchases. We amortize
goodwill on a straight-line basis over the periods benefited, ranging from five
to 40 years.

SOFTWARE CAPITALIZATION
In 1998, AT&T adopted Statement of Position (SOP) 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." This
standard requires certain direct development costs associated with internal-use
software to be capitalized including external direct costs of material and
services and payroll costs for employees devoting time to the software projects.
These costs are included in other assets and are amortized over a period not to
exceed three years beginning when the asset is substantially ready for use.
Costs incurred during the preliminary project stage, as well as maintenance and
training costs, are expensed as incurred. AT&T also capitalizes initial
operating system software costs and amortizes them over the life of the
associated hardware.
AT&T capitalizes costs associated with software development in accordance with
SFAS No. 86 "Accounting for Costs of Capitalized Software to be Sold, Leased or
Otherwise Marketed" and related guidance. In accordance with this standard, AT&T
capitalizes costs associated with the development of application software
incurred from the time technological feasibility is established until the
software is ready to provide service to customers. These capitalized costs are
included in property, plant and equipment and are amortized over a three-year
useful life.

VALUATION OF LONG-LIVED ASSETS
Long-lived assets such as property, plant and equipment, licenses, goodwill and
software are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. If the total of the
expected future undiscounted cash flows is less than the carrying amount of the
asset, a loss is recognized for the difference between the fair value and
carrying value of the asset.

<PAGE>

AT&T Corp.

DERIVATIVE FINANCIAL INSTRUMENTS
We use various financial instruments, including derivative financial
instruments, for purposes other than trading. We do not use derivative financial
instruments for speculative purposes. Derivatives, used as part of our risk
management strategy, must be designated at inception as a hedge and measured for
effectiveness both at inception and on an ongoing basis. Gains and losses
related to qualifying hedges of foreign currency firm commitments are deferred
in current assets or liabilities and recognized as part of the underlying
transactions as they occur. All other foreign exchange contracts are marked to
market on a current basis and the respective gains or losses are recognized in
other income-net. Interest rate differentials associated with interest rate
swaps used to hedge AT&T's debt obligations are recorded as an adjustment to
interest payable or receivable with the offset to interest expense over the life
of the swaps. If we terminate an interest rate swap agreement, the gain or loss
is recorded as an adjustment to the basis of the underlying asset or liability
and amortized over the remaining life. Cash flows from financial instruments are
classified in the Consolidated Statements of Cash Flows under the same
categories as the cash flows from the related assets, liabilities or anticipated
transactions.

USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
revenues and expenses during the period reported. Actual results could differ
from those estimates. Estimates are used when accounting for certain items such
as long-term contracts, allowance for doubtful accounts, depreciation and
amortization, employee benefit plans, taxes, restructuring reserves and
contingencies.

CONCENTRATIONS
As of December 31, 1998, we do not have any significant concentration of
business transacted with a particular customer, supplier or lender that could,
if suddenly eliminated, severely impact our operations. We also do not have a
concentration of available sources of labor, services, or licenses or other
rights that could, if suddenly eliminated, severely impact our operations.

RECLASSIFICATIONS
We reclassified certain amounts for previous years to conform with the 1998
presentation.

<PAGE>

AT&T Corp.

2. SUPPLEMENTARY FINANCIAL INFORMATION

SUPPLEMENTARY INCOME STATEMENT INFORMATION

For the Years Ended December 31, 1998 1997 1996
INCLUDED IN DEPRECIATION AND AMORTIZATION
Amortization of licensing costs $ 192 $ 163 $ 170
Amortization of goodwill 76 62 55

INCLUDED IN SELLING, GENERAL AND ADMINISTRATIVE
Research and development expenses $ 662 $ 851 $ 822

OTHER INCOME - NET
Interest income $ 322 $ 59 $ 49
Minority interests in earnings
of subsidiaries 34 (12) (12)
Net equity (losses) earnings from investments (68) 31 48
Officers' life insurance 63 68 74
Gains on sales * 770 97 -
Sale/exchange of other cellular investments 131 75 158
Miscellaneous - net (5) 125 88
Total other income - net $ 1,247 $ 443 $ 405

DEDUCTED FROM INTEREST EXPENSE
Capitalized interest $ 197 $ 254 $ 193

* Includes gains on the sales of AT&T Solutions Customer Care of $350, LIN
Television Corp. of $317 and SmarTone Telecommunications Holdings Limited of
$103 in 1998 and the sale of AT&T Skynet Satellite Services of $97 in 1997.

SUPPLEMENTARY CASH FLOW INFORMATION

For the Years Ended December 31, 1998 1997 1996
Interest payments net of
amounts capitalized $ 422 $ 250 $ 372
Income tax payments 2,881 2,416 2,136

SUPPLEMENTARY BALANCE SHEET INFORMATION

At December 31, 1998 1997
PROPERTY, PLANT AND EQUIPMENT
Communications, network and other equipment $ 44,806 $ 39,240
Buildings and improvements 7,098 6,810
Land and improvements 373 386
Total property, plant and equipment 52,277 46,436
Accumulated depreciation (25,374) (22,233)
Property, plant and equipment - net $ 26,903 $ 24,203

OTHER ASSETS
Unamortized goodwill $ 2,205 $ 1,515
Deferred charges 484 733
Other 714 582
Total other assets $ 3,403 $ 2,830

<PAGE>

AT&T Corp.

3. DISCONTINUED OPERATIONS

On September 20, 1995, AT&T announced a plan, subject to certain conditions, to
separate into three independent, publicly held, global companies: communications
services (AT&T), communications systems and technologies (Lucent Technologies
Inc., "Lucent") and transaction-intensive computing (NCR Corp., "NCR"). In April
1996, Lucent sold 112 million shares of common stock in an initial public
offering (IPO), representing 17.6% of the Lucent common stock outstanding.
Because of AT&T's plan to spin off its remaining 82.4% interest in Lucent, the
sale of the Lucent stock was recorded as an equity transaction, resulting in an
increase in AT&T's additional paid-in capital at the time of the IPO. In
addition, in connection with the restructuring, Lucent assumed $3.7 billion of
AT&T debt in 1996. On September 30, 1996, AT&T distributed to AT&T shareowners
of record -- as of September 17, 1996-- the remaining Lucent common stock held
by AT&T. The shares were distributed on the basis of 0.324084 of a share of
Lucent for each AT&T share outstanding.
On October 1, 1996, AT&T sold its remaining interest in AT&T Capital Corp. for
approximately $1.8 billion, resulting in an after-tax gain of $162, or $0.09 per
diluted share.
On December 31, 1996, AT&T also distributed all of the outstanding common
stock of NCR to AT&T shareowners of record as of December 13, 1996. The shares
were distributed on the basis of 0.0625 of a share of NCR for each AT&T share
outstanding on the record date. As a result of the Lucent and NCR distributions,
AT&T's shareowners' equity was reduced by $2.2 billion. The distributions of the
Lucent and NCR common stock to AT&T shareowners were noncash transactions
totaling $4.8 billion, which did not affect AT&T's results of operations.
On July 1, 1997, AT&T sold its submarine systems business (SSI) to Tyco
International Ltd. for $850, resulting in an after-tax gain of $66, or $0.04 per
diluted share.
On April 2, 1998, AT&T sold AT&T Universal Card Services Inc. (UCS) for $3,500
to Citibank. The after-tax gain resulting from the disposal of UCS was $1,290,
or $0.72 per diluted share. Included in the transaction was a co-branding and
joint marketing agreement.
In addition, we received $5,722 as settlement of receivables from UCS.
The consolidated financial statements of AT&T have been restated to reflect
the dispositions of Lucent, NCR, AT&T Capital Corp., SSI, UCS and certain other
businesses as discontinued operations. Accordingly, the revenues, costs and
expenses, assets and liabilities, and cash flows of these discontinued
operations have been excluded from the respective captions in the Consolidated
Statements of Income, Consolidated Balance Sheets and Consolidated Statements of
Cash Flows, and have been reported through the dates of disposition as "Income
from discontinued operations, net of applicable income taxes;" as "Net assets of
discontinued operations," and as "Net cash used in discontinued operations" for
all periods presented. Gains associated with these sales are reflected as "Gain
on sale of discontinued operations."

<PAGE>

AT&T Corp.

In 1997, we adopted SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." Among other provisions,
this standard requires that in connection with the transfer of financial assets,
liabilities incurred should be measured at fair value and retained interests
should be recorded as a portion of the original carrying amount of the
transferred financial assets. This standard applies only to UCS and resulted in
a substantial benefit to income from discontinued operations in 1997.
Summarized financial information for discontinued operations is as follows:

For the Years Ended December 31, 1998 1997 1996
Revenues $365 $1,942 $23,979
Income(loss) before
income taxes 16 150 (180)
Net income 10 100 173
Current assets - 7,734
Total assets - 7,808
Current liabilities* - 5,602
Total liabilities* - 6,707
Net assets of discontinued
operations $ - $1,101

*Current liabilities include $5,224 of debt maturing within one year, and total
liabilities include an additional $1,093 of long-term debt at December 31, 1997,
both of which were payable to AT&T and repaid by UCS in connection with the
sale.

The income (loss) before income taxes includes allocated interest expense of $45
in 1996. Interest expense was allocated to discontinued operations based on a
ratio of net assets of discontinued operations to total AT&T consolidated
assets. No interest expense was allocated to discontinued operations in 1998 and
1997 due to the immateriality of the amounts; however, UCS recorded direct
interest expense of $85, $297 and $383 in 1998, 1997 and 1996, respectively,
primarily related to the amounts payable to AT&T.

<PAGE>

AT&T Corp.

4. MERGERS, ACQUISITIONS, VENTURES AND DISPOSITIONS

On December 8, 1998, AT&T and IBM announced a series of strategic agreements
under which AT&T will acquire IBM's Global Network business for $5.0 billion in
cash, and will enter into outsourcing contracts with each other. IBM will
outsource a significant portion of its global networking needs to AT&T. AT&T
will outsource certain applications-processing and data-center-management
operations to IBM. The transaction, which is subject to regulatory and other
approvals, is expected to be completed by mid-1999.

On October 5, 1998, AT&T announced that it had signed a definitive merger
agreement to purchase Vanguard Cellular Systems Inc. (Vanguard) in a stock and
cash transaction valued at approximately $1,500, including approximately $600 in
debt. Under the terms of the agreement, each share of Vanguard stock would be
exchanged for either 0.3987 of an AT&T share or $23.00 in cash, at each
shareholder's option, subject to the limitation that the overall consideration
will consist of 50% AT&T stock and 50% cash. The merger has been approved by the
Board of Directors of both AT&T and Vanguard and is subject to various closing
conditions including, among other things, the approval by Vanguard shareholders.
The transaction is expected to close in the first half of 1999.

AT&T and British Telecommunications plc (BT) announced on July 26, 1998, that
they will create a global venture to serve the complete communications needs of
multinational companies and the international calling needs of businesses around
the world. The venture, which will be owned equally by AT&T and BT, will combine
transborder assets and operations of each company, including their existing
international networks, all of their international traffic, all of their
transborder products for business customers -- including an expanding set of
Concert services -- and AT&T's and BT's multinational accounts in selected
industry sectors. The formation of the venture is subject to certain conditions,
including receipt of regulatory approvals. The transaction is expected to be
completed by mid-1999. As a result of the joint venture agreement, AT&T will be
required to exit certain operations which may be determined to compete directly
with BT. An $85 asset impairment charge was recorded in 1998 primarily for the
write-down of unrecoverable assets in certain operations that compete directly
with BT. AT&T continues to review the impact of the joint venture agreement on
all of its international operations.

On July 23, 1998, AT&T completed the merger with Teleport Communications Group
Inc. (TCG), pursuant to an agreement and plan of merger dated January 8, 1998.
Each share of TCG common stock was exchanged for 0.943 of AT&T common stock,
resulting in the issuance of 181.6 million shares in the transaction. The merger
was accounted for as a pooling of interests, and accordingly, AT&T's results of
operations, financial position and cash flows have been restated to reflect the
merger. In 1998, we recognized $85 of merger-related expenses. Premerger TCG
revenues were $455, $494 and $268, and net losses were $118, $223 and $115, for
the six months ended June 30, 1998, and for the years ended December 31, 1997
and 1996, respectively. Elimination entries between AT&T and TCG were not
material. On April 22, 1998, TCG purchased ACC Corp. (ACC), for an aggregate
value of approximately $1,100, including approximately $700 in goodwill.

On March 3, 1998, AT&T sold its 45% common share interest in LIN Television
Corp., a subsidiary of LIN Broadcasting Company, for $742 to Hicks, Muse, Tate
and Furst Inc. We recognized a pretax gain of $317. Also on March 3, 1998, AT&T
sold AT&T Solutions Customer Care to MATRIXX Marketing Inc., a teleservices unit
of Cincinnati Bell for $625. AT&T recognized a pretax gain of $350 in 1998 on
the sale. In the second quarter of 1998, AT&T sold its interest in SmarTone
Telecommunications Holdings Limited. AT&T recognized a pretax gain of $103 on
the sale. After taxes, these gains totaled approximately $0.27 per diluted
share.

<PAGE>

AT&T Corp.

5. RESTRUCTURING AND OTHER CHARGES

Restructuring and other charges of $2,514 for 1998 include $2,999 of
restructuring charges recorded in connection with the 1998 cost reduction
program partially offset by $940 of related settlement gains and $348 in
reversals of 1995 restructuring reserves. Also included in the $2,514 is $718 of
asset impairment charges and $85 of TCG merger-related charges.

On January 26, 1998, AT&T announced a plan to reduce headcount by 15,000 to
18,000 over two years as part of our overall cost reduction program. In
connection with this plan, a voluntary retirement incentive program (VRIP) was
offered to eligible management employees. Approximately 15,300 management
employees accepted the VRIP offer. In connection with this plan, a pretax
restructuring charge of $2,724 recorded in the second quarter of 1998 was
composed of $2,254 and $169 for pension and postretirement special-termination
benefits, respectively, $263 of curtailment losses and $38 of other
administrative costs. Partially offsetting these restructuring charges were
pretax settlement gains of $940 recorded in the second half of 1998 in
connection with the settlement of the pension obligations covering about 13,700
of the total VRIP employees (see Note 8). Also recorded in the second quarter
were pretax charges of $125 for related facility costs and $150 for
executive-separation costs.

The VRIP offer was extended to management employees below executive level who
were participants in the AT&T Management Pension Plan at any time from January
1, 1998, through January 21, 1998, inclusive. The individual had to be either on
the active payroll or on an approved leave of absence with a guaranteed right of
reinstatement. Additionally, to be eligible for the offer, the management
employee had to meet the vesting requirements of the AT&T Management Pension
Plan by the date he or she terminates employment.

A description of the various details about the program was distributed in
February. In March, eligible employees received a more detailed written overview
of the program, and seminars were offered in an effort to reinforce the content
of the program. During the first week of April, detailed VRIP offer packages
with estimates of employee-specific data were provided to eligible employees and
one's irrevocable acceptance was required by May 22, 1998, to be valid. Employee
exits were spread over three primary dates in 1998, June 30, September 30, and
December 30. As of December 31, 1998, approximately 14,700 employees have
terminated employment under the VRIP. The remaining 600 VRIP participants are
anticipated to terminate employment in the first quarter of 1999.

<PAGE>

AT&T Corp.

In the fourth quarter of 1995, AT&T recorded a restructuring charge related to
the exit of certain businesses. In the second quarter of 1998, we reversed $256
of this 1995 charge primarily as a result of an overlap of 3,400 employees
accepting the VRIP offer with those who were already included in the previously
established 1995 exit plans. Because the benefit cost of the VRIP offer was
greater than AT&T's normal severance cost, AT&T had to increase its
restructuring charge. AT&T accounted for this by recording the full charge to
reflect the pension and postretirement special-termination benefits for all the
employees accepting the VRIP offer and then eliminating the accrual of
approximately $200 for the 3,400 employees under the 1995 plan. The balance of
the reversal was due to certain reserves which were no longer deemed necessary
based on this second-quarter review. An additional reversal of $92 was recorded
in the fourth quarter of 1998 related to projects being completed at a cost
lower than originally estimated.

The following table displays a rollforward of the activity and balances of the
restructuring reserve account from December 31, 1996, to December 31, 1998:

1997
--------------------------
Dec. 31, Dec. 31,
1996 1997
Type of Cost Balance Additions Deductions Balance

Employee separations $ 606 $ - $(193) $413
Facility closings 528 - (94) 434
Other 254 - (194) 60
Total $1,388 $ - $(481) $907
- -----------------------------------------------------------------------------

1998
--------------------------
Dec. 31, Dec. 31,
1997 1998
Type of Cost Balance Additions Deductions Balance

Employee separations $ 413 $150 $(445) $118
Facility closings 434 125 (190) 369
Other 60 - (30) 30
Total $ 907 $275 $(665) $517
- -----------------------------------------------------------------------------
Deductions reflect cash payments of $245 and $308 and noncash utilization of
$420 and $173 for 1998 and 1997, respectively. Noncash utilization includes a
reversal in 1998 of $348 related to the 1995 restructuring plan and a $100
reversal in 1997 of the pre-1995 balance. Other noncash utilization includes
curtailment and transfers to deferred termination accounts for executives.

The remaining liability balance associated with the second quarter 1998 charge
of $275 relating to facility costs and executive-separation costs was $194 at
December 31, 1998. We believe that the remaining balance is adequate to complete
these plans.

The restructuring reserve balance at December 31, 1998, includes $180 associated
with the 1995 plan. This remaining balance is primarily related to lease
payments extending beyond 1998. In many cases it was more appropriate from an
economic standpoint to continue to lease excess space until the lease contract
expires than to pay the penalties involved with early termination of the lease.
As of December 31, 1998, of the 12,000 management and 5,000 occupational
employees included under the 1995 exit plan, approximately 8,100 management and
3,700 occupational employees have been separated. In addition, approximately
3,400 employees left under the 1998 VRIP offer, as discussed above. Certain
occupational separations are anticipated to occur during 1999 associated with
projects pending completion at December 31, 1998. We believe that the remaining
balance is adequate to complete these plans.

<PAGE>

AT&T Corp.

The balance at December 31, 1998, also includes $143 of pre-1995 charges
primarily related to excess space in various leased facilities, which we expect
to fully utilize over the remaining terms of the leases.

During 1998, AT&T recorded pretax asset impairment charges of $718, of which
$633 was associated with the local initiative. Charges of $601 and $32 were
recorded in the first and fourth quarters of 1998, respectively, related to our
decision not to pursue Total Service Resale (TSR) as a local-service strategy.
The Regional Bell Operating Companies have made it extremely difficult to enter
the local market under a TSR strategy. After spending several billions of
dollars in an attempt to enter this market, it became clear to AT&T that the TSR
solution is not economically viable for the short term or the long term. A
thorough financial and operational review was performed in the first quarter of
1998 using the criteria described in SFAS No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed." There were minimal
revenues associated with TSR, which did not cover the direct costs associated
with servicing these customers. In addition, the TSR software was designed and
developed to uniquely support the TSR option and cannot be utilized to support
other connectivity options. Based on these factors, it was determined that the
assets were impaired and accordingly were written off in the first quarter of
1998. The fourth quarter charge was a result of further review of certain other
assets associated with the local initiative. It was determined that these assets
were impaired and could not be otherwise utilized in connection with the TCG
merger. This charge of $633 included $543 for software, $74 for related assets
associated with the ordering, provisioning and billing for resold local services
and $16 for certain contractual obligations and termination penalties under
several vendor contracts that were canceled during the first quarter as a result
of this decision. AT&T received no operational benefit from these contracts once
this decision was made.

Also reflected in the $718 charge was a fourth-quarter asset impairment charge
of $85 primarily related to the write-down of unrecoverable assets in certain
international operations in which the carrying value is no longer supported by
future cash flows. This charge was made in connection with an ongoing review
associated with the upcoming formation of a global joint venture with BT.
Pursuant to the joint venture agreement with BT, AT&T will be required to exit
certain operations that compete directly with BT.

<PAGE>

AT&T Corp.

6. DEBT OBLIGATIONS

DEBT MATURING WITHIN ONE YEAR
At December 31, 1998 1997
Commercial paper $ - $3,113
Currently maturing long-term debt 1,083 961
Other 88 11
Total debt maturing within one year $1,171 $4,085
Weighted-average interest rate of
short-term debt 5.6% 5.8%

A consortium of lenders provides revolving-credit facilities of approximately
$1 billion to AT&T. These credit facilities are intended for general corporate
purposes and were unused at December 31, 1998. In February 1999, we entered into
a $7 billion revolving credit-facility with a consortium of 42 lenders. The
364-day facility is intended for general corporate purposes and will support our
commercial paper issuances. In addition, we negotiated a $2 billion, 364-day,
back-up facility with one institution. This facility will terminate when AT&T
issues debt under the registration statement filed in 1999 and after the
underlying commercial paper has been repaid.

LONG-TERM OBLIGATIONS
At December 31, 1998 1997
Interest Rates (a) Maturities
DEBENTURES AND NOTES (b)
4.38% - 5.63% 1999-2001 $ 900 $1,575
6.00% - 7.75% 1999-2025 2,759 3,196
8.00% - 8.85% 1999-2031 2,754 2,756
9.60% - 11.13% 1999-2007 52 1,065
Variable rate 1999-2054 98 115

Total debentures and notes 6,563 8,707
Other 94 189
Less: Unamortized discount-net 18 78
Total long-term obligations 6,639 8,818
Less: Currently maturing long-term debt 1,083 961
Net long-term obligations $5,556 $7,857

(a) Note that the actual interest paid on our debt obligations may have differed
from the stated amount due to our entering into interest rate swap contracts to
manage our exposure to interest rate risk and our strategy to reduce finance
costs. (See Note 7.) (b) In August 1998, AT&T extinguished $1,046 of TCG debt.
This early extinguishment of debt was recorded as an extraordinary loss and
resulted in a $217 pretax loss. The after-tax impact was $137, or $0.08 per
diluted share. This debt reduction will produce significant savings in interest
expense over time.

This table shows the maturities at December 31, 1998, of the $6,639 in total
long-term obligations:

1999 2000 2001 2002 2003 Later Years
$1,083 $426 $657 $539 $15 $3,919

<PAGE>

AT&T Corp.

7. FINANCIAL INSTRUMENTS

In the normal course of business we use various financial instruments, including
derivative financial instruments, for purposes other than trading. We do not use
derivative financial instruments for speculative purposes. These instruments
include letters of credit, guarantees of debt, interest rate swap agreements and
foreign currency exchange contracts. Interest rate swap agreements and foreign
currency exchange contracts are used to mitigate interest rate and foreign
currency exposures. Collateral is generally not required for these types of
instruments.
By their nature, all such instruments involve risk, including the credit risk
of nonperformance by counterparties, and our maximum potential loss may exceed
the amount recognized in our balance sheet. However, at December 31, 1998 and
1997, in management's opinion there was no significant risk of loss in the event
of nonperformance of the counterparties to these financial instruments. We
control our exposure to credit risk through credit approvals, credit limits and
monitoring procedures. We do not have any significant exposure to any individual
customer or counterparty, nor do we have any major concentration of credit risk
related to any financial instruments.

LETTERS OF CREDIT
Letters of credit are purchased guarantees that ensure our performance or
payment to third parties in accordance with specified terms and conditions and
do not create any additional risk to AT&T.

GUARANTEES OF DEBT
From time to time we guarantee the debt of our subsidiaries and certain
unconsolidated joint ventures. Additionally, in connection with restructurings
of AT&T in 1996, we issued guarantees for certain debt obligations of AT&T
Capital Corp. and NCR. At December 31, 1998 and 1997, respectively, the amount
of guaranteed debt associated with AT&T Capital Corp. and NCR was $108 and $120.

<PAGE>

AT&T Corp.

INTEREST RATE SWAP AGREEMENTS
We enter into interest rate swaps to manage our exposure to changes in interest
rates and to lower our overall costs of financing. We enter into swap agreements
to manage the fixed/floating mix of our debt portfolio in order to reduce
aggregate risk to interest rate movements. Interest rate swaps also allow us to
raise funds at floating rates and effectively swap them into fixed-rates that
are lower than those available to us if fixed-rate borrowings were made
directly. These agreements involve the exchange of floating-rate for fixed-rate
payments or fixed-rate for floating-rate payments without the exchange of the
underlying principal amount. Fixed interest rate payments at December 31, 1998,
are at rates ranging from 6.96% to 9.47%. Floating-rate payments are based on
rates tied to LIBOR or U.S. treasury bills.
The following table indicates the types of swaps in use at December 31, 1998
and 1997, and their weighted-average interest rates. Average variable rates are
those in effect at the reporting date and may change significantly over the
lives of the contracts.

1998 1997
Fixed to variable swaps-notional amount $461 $422
Average receive rate 6.33% 7.54%
Average pay rate 5.31% 5.67%
Variable to fixed swaps-notional amount $241 $249
Average receive rate 4.92% 5.70%
Average pay rate 7.68% 7.42%

The weighted-average remaining terms of the swap contracts are two years for
1998 and three years for 1997.

FOREIGN EXCHANGE
We enter into foreign currency exchange contracts, including forward and option
contracts, to manage our exposure to changes in currency exchange rates,
principally French francs, German marks, British pounds sterling and Japanese
yen. The use of these derivative financial instruments allows us to reduce our
exposure to the risk of adverse changes in exchange rates on the eventual
reimbursement to foreign telephone companies for their portion of the revenues
billed by AT&T for calls placed in the United States to a foreign country and
other foreign currency payables and receivables. These transactions are
generally expected to occur in less than one year.

FAIR VALUES OF FINANCIAL INSTRUMENTS INCLUDING DERIVATIVE FINANCIAL INSTRUMENTS
The following table summarizes the notional amounts of material financial
instruments. The notional amounts represent agreed-upon amounts on which
calculations of dollars to be exchanged are based. They do not represent amounts
exchanged by the parties and, therefore, are not a measure of our exposure. Our
exposure is limited to the fair value of the contracts with a positive fair
value plus interest receivable, if any, at the reporting date.

<PAGE>

AT&T Corp.

DERIVATIVES AND OFF BALANCE SHEET INSTRUMENTS

1998 1997
Contract/ Contract/
Notional Notional
Amount Amount
Interest rate swap agreements $702 $671
Foreign exchange:
Forward contracts 244 426
Option contracts - 2
Letters of credit 184 63
Guarantees of debt 237 242

The following tables show the valuation methods, the carrying amounts and
estimated fair values of material financial instruments.

FINANCIAL INSTRUMENT VALUATION METHOD
Debt excluding capital leases Market quotes or based on rates
available to us for debt with
similar terms and maturities
Letters of credit Fees paid to obtain the
obligations
Guarantees of debt There are no quoted market prices
for similar agreements available
Interest rate swap agreements Market quotes obtained from dealers
Foreign exchange contracts Market quotes

For debt excluding capital leases, the carrying amounts and fair values were
$6,691 and $7,136, respectively, for 1998; and $11,875 and $12,312,
respectively, for 1997.

1998
Carrying Fair
Amount Value
Asset Liab. Asset Liab.

Interest rate swap agreements $5 $13 $ - $19
Foreign exchange
forward contracts 7 7 13 4

1997
Carrying Fair
Amount Value
Asset Liab. Asset Liab.

Interest rate swap agreements $3 $10 $5 $31
Foreign exchange
forward contracts - 21 3 33

<PAGE>

AT&T Corp.

8. PENSION, POSTRETIREMENT AND OTHER EMPLOYEE BENEFIT PLANS

We sponsor noncontributory defined benefit pension plans covering the majority
of our employees. Pension benefits for management employees are principally
based on career-average pay. Pension benefits for occupational employees are not
directly related to pay. Pension trust contributions are principally determined
using the aggregate cost method and are primarily made to trust funds held for
the sole benefit of plan participants.
We compute pension cost using the projected unit credit method.
Our benefit plans for current and future retirees include health-care
benefits, life insurance coverage and telephone concessions. Postretirement
trust contributions are determined using the attained-age-normal cost method for
health-care benefits and the aggregate cost method for life-insurance plans.

The following table shows the components of the net periodic benefit costs:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
<S> <C> <C> <C> <C> <C> <C>
For the Years Ended December 31, 1998 1997 1996 1998 1997 1996
Service cost-benefits earned
during the period $ 275 $ 305 $ 295 $ 56 $ 56 $ 53
Interest cost on benefit
obligations 940 946 861 322 278 263
Amortization of unrecognized
prior service cost 135 114 99 (2) 39 42
Credit for expected return on
plan assets (1,570) (1,371) (1,195) (173) (120) (99)
Amortization of transition asset (175) (181) (183) - - -
Charges for special termination
benefits 2,254 - - 169 - -
Net curtailment losses 140 - - 141 - -
Net settlement (gains)losses (921) 5 - - - -
Net periodic benefit cost(credit) $ 1,078 $ (182) $ (123) $ 513 $ 253 $259
</TABLE>

On January 26, 1998, we offered a voluntary retirement incentive program
(VRIP) to employees who were eligible participants in the AT&T Management
Pension Plan. Approximately 15,300 management employees accepted the VRIP offer.
In connection with the VRIP, we recorded pretax charges for pension and
postretirement plan special-termination benefits of $2,254 and $169,
respectively. We also recorded pension and postretirement plan pretax charges of
$120 and $143, respectively, which are included within net curtailment losses.
The special-termination benefits reflect the value of pension benefit
improvements and expanded eligibility for postretirement benefits. The VRIP also
permitted employees to choose either a total lump-sum distribution of their
pension benefits or periodic future annuity payments.
As of December 31, 1998, approximately 14,700 employees had terminated
employment under the VRIP. AT&T has settled the pension obligations covering
about 13,700 of these employees, the remainder of which either chose to defer
commencing their pension benefits or elected to receive an annuity distribution.
Lump-sum pension settlements totaling $4.6 billion, including a portion of the
special-pension termination benefits referred to above, resulted in settlement
gains of $940 recorded in the second half of 1998. The remaining 600 VRIP
participants are anticipated to terminate employment in the first quarter of
1999.

<PAGE>

AT&T Corp.

The following tables provide a reconciliation of the changes in the plans'
benefit obligations and fair value of assets for the years ended December 31,
1998 and 1997, and a statement of the funded status at December 31, 1998 and
1997, respectively:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
<S> <C> <C> <C> <C>
1998 1997 1998 1997
Change in benefit obligations:
Benefit obligation, beginning of year $14,481 $12,380 $4,356 $3,739
Service cost 275 305 56 56
Interest cost 940 946 322 278
Plan amendments 324 263 (95) -
Actuarial losses 1,609 1,278 258 494
Benefit payments (770) (660) (227) (209)
Special termination benefits 2,254 - 169 -
Settlements (4,676) (31) - -
Curtailment losses (gains) 6 - 329 (2)
Benefit obligation, end of year $14,443 $14,481 $ 5,168 $ 4,356

Change in fair value of plan assets:
Fair value of plan assets, beginning
of year $20,513 $17,680 $ 1,969 $ 1,566
Actual return on plan assets 3,375 3,464 437 358
Employer contributions 125 60 297 254
Benefit payments (770) (660) (227) (209)
Settlements (4,676) (31) - -
Fair value of plan assets, end of year $18,567 $20,513 $ 2,476 $ 1,969

At December 31,
Funded (unfunded) benefit obligation $ 4,124 $ 6,032 $(2,692) $(2,387)
Unrecognized net gain (3,495) (4,130) (36) (227)
Unrecognized transition asset (445) (708) - -
Unrecognized prior service cost 961 904 63 166
Net amount recognized $ 1,145 $ 2,098 $(2,665) $(2,448)
</TABLE>

<PAGE>

AT&T Corp.

Our pension plan assets include $85 and $75 of AT&T common stock at
December 31, 1998 and 1997, respectively. The following table provides the
amounts recognized in our consolidated balance sheets:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
<S> <C> <C> <C> <C>
At December 31, 1998 1997 1998 1997
Prepaid pension cost $ 2,075 $ 2,156 $ - $ -
Accrued benefit liabilities (1,016) (161) (2,665) (2,448)
Intangible asset 47 70 - -
Accumulated other comprehensive income 39 33 - -
Net amount recognized $ 1,145 $ 2,098 $(2,665) $(2,448)
</TABLE>

Our nonqualified pension plan had an unfunded accumulated benefit obligation
of $135 and $166 at December 31, 1998 and 1997, respectively. Our postretirement
health and telephone concession benefit plans have accumulated postretirement
benefit obligations in excess of plan assets. The plans' accumulated
postretirement benefit obligations were $4,461 and $3,740 at December 31, 1998
and 1997, respectively, which was in excess of plan assets of $1,408 and $1,108
at December 31, 1998 and 1997, respectively.
The assumptions used in the measurement of the pension and postretirement
benefit obligations are shown in the following table:

Pension and Postretirement Benefits
At December 31, 1998 1997 1996
Weighted-average assumptions:
Discount rate 6.5% 7.0% 7.5%
Expected return on plan assets 9.5% 9.0% 9.0%
Rate of compensation increase 4.5% 4.5% 5.0%

We assumed a rate of increase in the per capita cost of covered health-care
benefits (the health-care cost trend rate) of 5.6%. This rate was assumed to
gradually decline after 1998 to 4.8% by the year 2009 and then remain level.
Assumed health-care cost trend rates have a significant effect on the amounts
reported for the health-care plans. A one percentage point increase or decrease
in the assumed health-care cost trend rate would increase or decrease the total
of the service and interest-cost components of net periodic postretirement
health-care benefit cost by $14 and $12, respectively, and would increase or
decrease the health-care component of the accumulated postretirement benefit
obligation by $181 and $177, respectively.
We also sponsor savings plans for the majority of our employees. The plans
allow employees to contribute a portion of their pretax and/or after-tax income
in accordance with specified guidelines. We match a percentage of the employee
contributions up to certain limits. Our contributions amounted to $204 in 1998,
$201 in 1997 and $181 in 1996.

<PAGE>

AT&T Corp.

9. STOCK-BASED COMPENSATION PLANS

Under the 1997 Long-Term Incentive Program, which was effective June 1, 1997, we
grant stock options, performance shares, restricted stock and other awards.
There are 100 million shares of common stock available for grant with a maximum
of 15 million common shares that may be used for awards other than stock
options. The exercise price of any stock option is equal to the stock price when
the option is granted. Generally, the options vest over three years and are
exercisable up to 10 years from the date of grant. Under the 1987 Long-Term
Incentive Program, which expired in April 1997, we granted the same awards, and
on January 1 of each year 0.6% of the outstanding shares of our common stock
became available for grant.
Under the 1997 Long-Term Incentive Program, performance share units are
awarded to key employees in the form of either common stock or cash at the end
of a three-year period based on AT&T's total shareholder return as measured
against a peer group of industry competitors. Under the 1987 Long-Term Incentive
Program, performance share units with the same terms were also awarded to key
employees based on AT&T's return-on-equity performance compared with a target.
On August 1, 1997, substantially all of our employees were granted a stock
option award to purchase 100 shares representing a total of 12.5 million shares
of our common stock. The options vest after three years and are exercisable up
to 10 years from the grant date.
Under the AT&T 1996 Employee Stock Purchase Plan (Plan), which was effective
July 1, 1996, we are authorized to issue up to 50 million shares of common stock
to our eligible employees. Under the terms of the Plan, employees may have up to
10% of their earnings withheld to purchase AT&T's common stock. The purchase
price of the stock on the date of exercise is 85% of the average high and low
sale prices of shares on the New York Stock Exchange for that day. Under the
Plan, we sold approximately 2 million, 4 million and 3 million shares to
employees in 1998, 1997 and 1996, respectively.
We apply Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and related Interpretations in accounting for our plans.
Accordingly, no compensation expense has been recognized for our stock-based
compensation plans other than for our performance-based and restricted stock
awards, Stock Appreciation Rights (SARs), and prior to July 1, 1996, for the
stock purchase plan for former McCaw Cellular Communications Inc. employees.
Compensation costs charged against income were $157, $110 and $46 in 1998, 1997
and 1996, respectively.

<PAGE>

AT&T Corp.

A summary of option transactions is shown below:

Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares in Thousands 1998 Price 1997 Price 1996 Price
Outstanding at January 1, 73,981 $37.15 50,977 $32.39 50,082 $41.68
Lucent and NCR
spin-off adjustments - - - - 22,678 -
Options granted 30,765 $62.53 38,310 $38.97 11,021 $41.27
Options and SARs
exercised (12,596) $32.92 (11,101) $24.51 (10,760) $19.10

Options canceled or
forfeited:
Lucent and NCR
spin-offs - - - - (16,179) $37.25
Other employee plans (5,980) $46.06 (4,205) $40.09 (5,865) $36.50

At December 31,
Options outstanding 86,170 $45.68 73,981 $37.15 50,977 $32.39
Options exercisable 23,648 $34.69 22,981 $33.26 28,034 $28.81
Shares available
for grant 61,225 - 90,345 - 25,856 -

Effective on the dates of spin-off of Lucent and NCR, AT&T stock options held
by Lucent and NCR employees were canceled. For the holders of unexercised AT&T
stock options, the number of options was adjusted and all exercise prices were
decreased immediately following each spin-off date to preserve the economic
values of the options that existed prior to those dates.
During 1998, 180,940 SARs were exercised and no SARs were granted. At December
31, 1998, 165,841 SARs remained unexercised, all of which were exercisable.

The following table summarizes information about stock options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted-
Number Average Weighted- Number Weighted-
Outstanding at Remaining Average Exercisable at Average
Range of Exercise Dec. 31, 1998 Contractual Exercise Dec. 31, 1998 Exercise
Prices (in thousands) Life Price (in thousands) Price
<S> <C> <C> <C> <C> <C>
$ 6.54 - $15.75 1,335 4.7 $ 9.23 1,215 $ 8.79
15.96 - 27.12 5,570 4.1 23.01 4,144 24.65
27.16 - 36.74 9,279 5.6 34.77 7,519 34.85
36.75 11,477 8.6 36.75 24 36.75
36.78 - 39.28 3,463 5.4 37.40 2,978 37.27
39.31 14,790 8.1 39.31 3,908 39.31
39.36 - 47.37 8,612 6.9 45.14 3,453 45.58
47.67 - 63.06 9,284 9.3 56.96 391 55.11
63.16 20,879 9.1 63.16 13 63.16
63.28 - 75.66 1,481 9.8 70.44 3 66.81

86,170 7.8 $45.68 23,648 $34.69
</TABLE>
<PAGE>

AT&T Corp.

AT&T has adopted the disclosure-only provisions of SFAS No. 123, "Accounting
for Stock-Based Compensation." If AT&T had elected to recognize compensation
costs based on the fair value at the date of grant for awards in 1998, 1997 and
1996, consistent with the provisions of SFAS No. 123, AT&T's net income and
earnings per common share would have been reduced to the following pro forma
amounts:

For the Years Ended December 31, 1998 1997 1996
Income from continuing operations $5,078 $4,158 $5,385
Income from discontinued operations 7 99 146
Gain on sale of discontinued operations 1,290 66 162
Extraordinary loss 137 - -
Net income $6,238 $4,323 $5,693

Earnings per common share-basic:
Continuing operations $ 2.85 $ 2.34 $ 3.06
Discontinued operations - 0.05 0.08
Gain on sale of discontinued operations 0.73 0.04 0.09
Extraordinary loss 0.08 - -
Net income $ 3.50 $ 2.43 $ 3.23

Earnings per common share-diluted:
Continuing operations $ 2.82 $ 2.33 $ 3.05
Discontinued operations - 0.05 0.08
Gain on sale of discontinued operations 0.72 0.04 0.09
Extraordinary loss 0.08 - -
Net income $ 3.46 $ 2.42 $ 3.22

Without the effect of pro forma costs related to the conversion of options in
the Lucent and NCR spin-offs, pro forma income from continuing operations was
$5,415, or $3.06 per diluted common share in 1996.
The pro forma effect on net income for 1998, 1997 and 1996 may not be
representative of the pro forma effect on net income of future years because the
SFAS No. 123 method of accounting for pro forma compensation expense has not
been applied to options granted prior to January 1, 1995.
The weighted-average fair values at date of grant for options granted during
1998, 1997 and 1996 were $14.63, $9.09 and $13.12, respectively, and were
estimated using the Black-Scholes option-pricing model. The weighted-average
risk-free interest rates applied for 1998, 1997 and 1996 were 5.33%, 6.16% and
6.11%, respectively. The following assumptions were applied for 1998, 1997 and
periods subsequent to the Lucent spin-off through December 31, 1996,
respectively: (i) expected dividend yields of 2.1%, 2.2% and 2.8% (ii) expected
volatility rates of 23.8%, 21.8% and 21.0% and (iii) expected lives of 4.5
years.

<PAGE>

AT&T Corp.

10. INCOME TAXES

The following table shows the principal reasons for the difference between the
effective income tax rate and the U.S. federal statutory income tax rate:

For the Years Ended December 31, 1998 1997 1996
U.S. federal statutory income tax rate 35% 35% 35%
Federal income tax at statutory rate $2,908 $2,440 $3,044
Amortization of investment tax credits (13) (14) (21)
State and local income taxes, net of
federal income tax effect 201 183 273
Amortization of intangibles 28 23 14
Foreign rate differential 63 117 131
Taxes on repatriated and accumulated
foreign income, net of tax credits (36) (32) 19
Legal entity restructuring (84) - (195)
Research credits (74) (63) (13)
Other differences-net 79 69 (13)
Provision for income taxes $3,072 $2,723 $3,239
Effective income tax rate 37.0% 39.0% 37.2%

The U.S. and foreign components of income from continuing operations before
income taxes and the provision for income taxes are presented in this table:

For the Years Ended December 31, 1998 1997 1996
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES
United States $8,318 $7,090 $8,900
Foreign (11) (118) (203)
Total $8,307 $6,972 $8,697

PROVISION FOR INCOME TAXES
CURRENT
Federal $2,908 $1,561 $2,290
State and local 251 194 400
Foreign 41 49 25
$3,200 $1,804 $2,715
DEFERRED
Federal $ (172) $ 851 $ 511
State and local 58 89 23
Foreign - (5) 11
$ (114) $ 935 $ 545
Deferred investment tax credits (14) (16) (21)
Provision for income taxes $3,072 $2,723 $3,239

<PAGE>

AT&T Corp.

The current income taxes payable balance was $1,393 and $434 at December 31,
1998 and 1997, respectively. The increase in the 1998 balance is primarily due
to the accrued income taxes recorded in connection with the sale of UCS.
Deferred income tax liabilities are taxes we expect to pay in future periods.
Similarly, deferred income tax assets are recorded for expected reductions in
taxes payable in future periods. Deferred income taxes arise because of
differences in the book and tax bases of certain assets and liabilities.

Deferred income tax liabilities and assets consist of the following:

At December 31, 1998 1997
LONG-TERM DEFERRED INCOME TAX LIABILITIES
Property, plant and equipment $7,324 $6,285
Investments - 320
Other 776 1,185
Total long-term deferred income tax liabilities $8,100 $7,790

LONG-TERM DEFERRED INCOME TAX ASSETS
Business restructuring $ 134 $ 162
Net operating loss/credit carryforwards 495 487
Employee pensions and other benefits-net 1,557 1,026
Reserves and allowances 126 93
Investments 39 -
Other 556 658
Valuation allowance (260) (347)

Total net long-term deferred income tax assets $2,647 $2,079
Net long-term deferred income tax liabilities $5,453 $5,711

CURRENT DEFERRED INCOME TAX LIABILITIES
Total current deferred income tax liabilities $ 408 $ 177

CURRENT DEFERRED INCOME TAX ASSETS
Business restructuring $ 79 $ 225
Employee pensions and other benefits 346 315
Reserves and allowances 896 617
Other 397 272

Total net current deferred income tax assets $1,718 $1,429
Net current deferred income tax assets $1,310 $1,252

At December 31, 1998, we had net operating loss carryforwards (tax-effected)
for federal and state income tax purposes of $267 and $119, respectively,
expiring through 2013. We also had foreign net operating loss carryforwards
(tax-effected) of $82, which have no expiration date, as well as federal tax
credit carryforwards of $30, which are not subject to expiration. We recorded a
valuation allowance to reflect the estimated amount of deferred tax assets
which, more likely than not, will not be realized.

<PAGE>

AT&T Corp.

11. COMMITMENTS AND CONTINGENCIES

In the normal course of business we are subject to proceedings, lawsuits and
other claims, including proceedings under laws and regulations related to
environmental and other matters. Such matters are subject to many uncertainties,
and outcomes are not predictable with assurance. Consequently, we are unable to
ascertain the ultimate aggregate amount of monetary liability or financial
impact with respect to these matters at December 31, 1998. These matters could
affect the operating results of any one quarter when resolved in future periods.
However, we believe that after final disposition, any monetary liability or
financial impact to us beyond that provided for at year-end would not be
material to our annual consolidated financial statements.
We lease land, buildings and equipment through contracts that expire in
various years through 2032. Our rental expense under operating leases was $742
in 1998, $853 in 1997 and $736 in 1996. The following table shows our future
minimum lease payments due under noncancelable operating leases at December 31,
1998, which total $3,197. The total of minimum rentals to be received in the
future under noncancelable subleases as of December 31, 1998, was $456.

1999 2000 2001 2002 2003 Later Years
$493 $450 $383 $320 $275 $1,276

12. SEGMENT REPORTING

AT&T's results are segmented according to our primary lines of business:
business services, consumer services and wireless services. Our business
services segment offers a variety of long distance voice and data services to
business customers, including domestic and international, inbound and outbound,
inter- and intra-LATA toll services, calling card and operator-handled services,
and other network enabled services. In addition, the business services segment
provides local services, and Web hosting and other electronic-commerce services.
Our consumer services segment provides long distance voice services to
residential customers. Such services include domestic and international long
distance services, inter- and intra-LATA toll services, calling card and
operator-handled calling services, and prepaid calling cards. In addition, local
service is offered on a limited basis. Other service offerings include
messaging, aviation communications and wireless data. Our wireless services
segment offers wireless services and products to customers in 850 MHz markets
and 1900 MHz markets.

Total assets for our reportable segments include all external assets for each
segment. The majority of our deferred taxes and prepaid pension assets are held
at the corporate level. Network assets are allocated to the segments based on
the prior three years' volumes and are reallocated each January. Interest
expense and the provision for income taxes are also held at the corporate level.

The accounting policies of the segments are the same as those described in the
summary of significant accounting policies (see Note 1). AT&T evaluates
performance based on several factors, of which the primary financial measure is
earnings, including other income, before interest and taxes (EBIT).

Generally, AT&T accounts for business services' inter-segment telecommunications
transactions at market prices.

<PAGE>

AT&T Corp.

We had $4,434, $3,866 and $4,001 of equity investments as of December 31, 1998,
1997 and 1996, respectively, the majority of which were held in the wireless
services segment including our investment in AB Cellular. The loss or earnings
on these investments were a loss of $16 for 1998, and earnings of $98 and $110
for 1997 and 1996, respectively.

REVENUES

For the Years Ended December 31, 1998 1997 1996
Business services external revenues $21,808 $21,041 $20,665
Business services internal revenues 1,132 989 826
Total business services revenues 22,940 22,030 21,491

Consumer services external revenues 22,632 23,527 24,184
Wireless services external revenues 5,406 4,668 4,246
Total reportable segments 50,978 50,225 49,921

Other and corporate (a) 3,549 2,704 1,892
Eliminations (1,304) (1,352) (1,125)
Total revenues $53,223 $51,577 $50,688

(a) Included in other and corporate revenues are revenues from TCG including
ACC, AT&T Solutions, international operations and ventures and AT&T WorldNetSM.

DEPRECIATION AND AMORTIZATION

For the Years Ended December 31, 1998 1997 1996
Business services $ 2,195 $ 1,757 $ 1,098
Consumer services 717 789 637
Wireless services 1,050 897 659
Total reportable segments 3,962 3,443 2,394
Other and corporate 667 539 425
Total depreciation and amortization $ 4,629 $ 3,982 $ 2,819

RECONCILIATION OF EBIT TO INCOME BEFORE INCOME TAXES

For the Years Ended December 31, 1998 1997 1996
Business services $ 5,525 $ 4,592 $ 5,215
Consumer services 6,662 5,094 5,345
Wireless services 118 265 627
Total reportable segments' EBIT 12,305 9,951 11,187
Other and corporate EBIT (3,538) (2,665) (2,201)
Elimination of intercompany EBIT (33) (7) 128
Interest expense (427) (307) (417)
Total income before income taxes $ 8,307 $ 6,972 $ 8,697

<PAGE>

AT&T Corp.

ASSETS
At December 31, 1998 1997 1996
Business services $18,077 $15,030 $12,274
Consumer services 6,252 7,923 9,765
Wireless services 19,341 18,850 17,707
Total reportable segments 43,670 41,803 39,746
All other segments 7,565 6,683 5,187
Corporate assets:
Prepaid pension costs 2,074 2,156 1,933
Deferred taxes 1,156 1,106 1,123
Net assets of discontinued operations - 1,101 1,510
Other corporate assets 5,085 8,246 7,849
Total assets $59,550 $61,095 $57,348

CAPITAL ADDITIONS
For the Years Ended December 31, 1998 1997 1996
Business services $ 4,978 $ 4,085 $ 2,538
Consumer services 457 921 1,867
Wireless services 2,372 2,158 2,404
Total reportable segments 7,807 7,164 6,809
Other and corporate 1,771 1,519 710
Total capital additions $ 9,578 $ 8,683 $ 7,519

Geographic information is not presented due to the immateriality of revenues
attributable to international customers.

<PAGE>

AT&T Corp.

13. NEW ACCOUNTING PRONOUNCEMENT

In June 1998, the Financial Accounting Standard Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." Among other
provisions, it requires that entities recognize all derivatives as either assets
or liabilities in the statement of financial position and measure those
instruments at fair value. Gains and losses resulting from changes in the fair
values of those derivatives would be accounted for depending on the use of the
derivative and whether it qualifies for hedge accounting. This standard is
effective for fiscal years beginning after June 15, 1999, though earlier
adoption is encouraged and retroactive application is prohibited. For AT&T this
means that the standard must be adopted no later than January 1, 2000.
Management, based on its current operations and hedging strategies, does not
expect the adoption of this standard to have a material impact on AT&T's results
of operations, financial position or cash flows.

<PAGE>

AT&T Corp.

14. QUARTERLY INFORMATION (UNAUDITED)

1998 (1) First Second Third Fourth
Revenues $12,831 $13,211 $13,653 $13,528
Operating income (loss) 1,404 (459) 3,356 3,186
Income (loss) from continuing
operations 1,285 (161) 2,123 1,988
Income from discontinued
operation 10 - - -
Gain on sale of discontinued
operation - 1,290 - -
Income before extraordinary loss 1,295 1,129 2,123 1,988
Extraordinary loss - - 137 -
Net income $ 1,295 $ 1,129 $ 1,986 $ 1,988

Income (loss) per common share-basic:
Continuing operations $ .71 $ (.08) $ 1.19 $ 1.13
Discontinued operation .01 - - -
Gain on sale of discontinued
operation - .71 - -
Before extraordinary loss .72 .63 1.19 1.13
Extraordinary loss - - .08 -
Net income .72 .63 1.11 1.13

Income (loss) per common share-diluted:
Continuing operations $ .71 $ (.08) $ 1.17 $ 1.12
Discontinued operations .01 - - -
Gain on sale of discontinued
operations - .71 - -
Before extraordinary loss .72 .63 1.17 1.12
Extraordinary loss - - .07 -
Net income .72 .63 1.10 1.12

Dividends declared .33 .33 .33 .33

Stock price*:
High $ 68 $ 67 1/8 $ 60 5/8 $ 79
Low 58 3/8 56 7/16 50 1/8 57
Quarter-end close 65 3/4 57 1/8 58 7/16 75 3/4

* Stock prices obtained from the Composite Tape

(1) In accordance with SOP 98-1, AT&T recorded pretax benefits of $50, $63, $44
and $42, or about $0.02, $0.03, $0.01 and $0.01 per diluted share, for the first
through fourth quarters of 1998, respectively. AT&T adopted SOP 98-1 during 1998
and restated all quarters of 1998 as if the SOP was adopted on January 1, 1998.

<PAGE>

AT&T Corp.

1997 First Second Third Fourth
Revenues $12,688 $12,896 $13,090 $12,903
Operating income 1,616 1,482 1,747 1,991
Income from continuing operations 1,043 877 1,078 1,251
Income from discontinued
operations 38 31 20 11
Gain on sale of discontinued
operation - - 66 -
Net income $ 1,081 $ 908 $ 1,164 $ 1,262

Income per common share-basic:
Continuing operations $ .59 $ .49 $ .60 $ .70
Discontinued operations .02 .02 .01 .01
Gain on sale of discontinued
operation - - .04 -
Net income .61 .51 .65 .71
Income per common share-diluted:
Continuing operations $ .59 $ .49 $ .60 $ .69
Discontinued operations .02 .02 .01 .01
Gain on sale of discontinued
operation - - .04 -
Net income .61 .51 .65 .70

Dividends declared .33 .33 .33 .33

Stock price*:
High $ 41 7/8 $ 38 1/4 $ 45 15/16 $ 63 15/16
Low 34 3/8 30 3/4 34 1/4 43 3/16
Quarter-end close 34 7/8 35 1/16 44 1/4 61 5/16

* Stock prices obtained from the Composite Tape

<PAGE>

AT&T Corp.

15. SUBSEQUENT EVENTS

On March 9, 1999, the merger with TCI announced on June 24, 1998, closed with
each share of TCI Group Series A common stock converted into 0.7757 of AT&T
common stock and each share of TCI Group Series B stock converted into 0.8533 of
AT&T common stock. AT&T issued approximately 439 million shares for TCI shares,
of which 339 million were newly issued shares and 100 million were treasury
shares including the shares repurchased in February and March 1999. In addition,
TCI combined Liberty Media Group, its programming arm, and TCI Ventures Group,
its technology investments unit, to form the new Liberty Media Group. In
connection with the closing, the shareowners of the new Liberty Media Group were
issued separate tracking stock by AT&T in exchange for the shares held in
Liberty Media Group and TCI Ventures Group.

Following is a summary of the pro forma results of AT&T as if the merger had
closed effective January 1, 1997:
For the
Nine Months For the
Ended Year Ended
September 30, December 31,
(Unaudited) 1998 1997
Revenues $44,375 $58,156
Income from continuing operations* 1,997 2,101
Net income* 3,160 2,267
Income from continuing operations,
available to AT&T common shareowners** 2,603 3,052
Net income available to AT&T common
shareowners** 3,766 3,218
Weighted-average AT&T common shares (millions) 2,135 2,115
Weighted-average AT&T common shares and potential
common shares (millions) 2,215 2,189
Basic earnings per AT&T common share:
Income from continuing operations $1.22 $1.44
Net income $1.76 $1.52
Diluted earnings per AT&T common share:
Income from continuing operations $1.18 $1.40
Net income $1.70 $1.47

* Income from continuing operations and net income exclude the dividend
requirements on preferred stock.

** Income available to AT&T common shareowners excludes the results of the new
Liberty Media Group.

On January 8, 1999, we announced a $4 billion share repurchase program. In March
1999, we completed this program with the repurchase of 46.6 million shares.

On February 1, 1999, AT&T announced the formation of a joint venture with Time
Warner to offer AT&T branded cable-telephony service to residential and
small-business customers over Time Warner's existing cable television systems in
33 states. The service is expected to be piloted in one or two cities in 1999
and begin broader commercial operations in 2000. In addition, the companies
agreed to develop other broadband communications services such as video
telephony. Under the terms of the agreement, AT&T will own 77.5% of the joint
venture and will fund the joint venture's negative cash flow. However, it is
anticipated that the joint venture will have positive cash flow and net earnings
after three full years of operation. Subject to certain conditions, including
definitive documentation and various approvals, the companies expect to close
the joint venture in the second half of 1999.

<PAGE>

AT&T Corp.

On January 26, 1999, AT&T filed a registration statement with the Securities and
Exchange Commission (SEC) for the offering and sale of up to $10 billion of
notes and warrants to purchase notes. AT&T intends to use the proceeds from the
sale of the notes and warrants for funding investments in subsidiary companies,
capital expenditures, acquisitions of licenses, assets or businesses, refunding
of debt and general corporate purposes. The amount and timing of the sales will
depend on market conditions and the availability of other funds to AT&T.

On January 8, 1999, AT&T's Board of Directors announced the intention, following
the completion of the TCI merger, to declare a three-for-two stock split of
AT&T's common stock.

In addition, AT&T announced on January 8, 1999, that it had reached agreements
with five TCI affiliates to form separate joint ventures to offer customers
advanced communications services. AT&T, which expects to own 51% to 65% of each
of these joint ventures, will have long-term exclusive rights to offer
communications services over the systems of each of the five operators in return
for one-time payments to be made when the systems meet certain performance
milestones. AT&T expects to finalize joint ventures with Bresnan Communications,
Falcon Cable TV, Insight Communications, InterMedia Partners and Peak
Cablevision in early 1999, begin piloting the new services later in the year and
then begin commercial operations in 2000.

AT&T (ticker symbol"T") is listed on the New York Stock Exchange, as well as on
the Boston, Chicago, Cincinnati, Pacific and Philadelphia exchanges in the
United States, and on stock exchanges in Brussels, London, Paris and Geneva.

As of December 31, 1998, AT&T had 1.8 billion outstanding shares, held by more
than 3.2 million shareowners.

CONSENT OF INDEPENDENT ACCOUNTANTS

--------------

We consent to the incorporation by reference in the registration statements of
AT&T Corp. ("AT&T" or the "Company") on Form S-3 for the Shareowner Dividend
Reinvestment and Stock Purchase Plan (Registration No. 333-00573), Forms S-8 for
the AT&T Long Term Savings and Security Plan (Registration Nos. 333-47257 and
33-34265), Forms S-8 for the AT&T Long Term Savings Plan for Management
Employees (Registration Nos. 33-34264, 33-29256 and 33-21937), Form S-8 for the
AT&T Retirement Savings and Profit Sharing Plan (Registration No. 33-39708),
Forms S-8 for Shares Issuable Under the Stock Option Plan of the AT&T 1987 Long
Term Incentive Program (Registration Nos. 333-47251 and 33-56643), Form S-8 for
the AT&T of Puerto Rico, Inc. Long Term Savings Plan for Management Employees
(Registration No. 33-50819), Form S-8 for the AT&T of Puerto Rico, Inc. Long
Term Savings and Security Plan (Registration No. 33-50817), and Post-Effective
Amendment No. 1 on Form S-8 to Form S-8 Registration Statement (Registration No.
33-54797) for the AT&T 1996 Employee Stock Purchase Plan, Form S-8 for the AT&T
Shares for Growth Program (Registration No. 333-47255), Form S-8 for the AT&T
1997 Long Term Incentive Program (Registration No. 33-28665), Form S-3 for the
AT&T $2,600,000,000 Notes and Warrants to Purchase Notes (Registration No.
33-49589), Form S-3 for the AT&T $3,000,000,000 Notes and Warrants to Purchase
Notes (Registration No. 33-59495), Form S-4 for the AT&T 5,000,000 Common Shares
(Registration No. 33-57745), and in Post-Effective Amendment Nos. 1, 2 and 3 on
Form S-8 to Form S-4 Registration Statement (Registration No. 33-42150) for the
NCR Corporation 1989 Stock Compensation Plan (Registration No. 33-42150-01), the
NCR Corporation 1984 Stock Option Plan (Registration No. 33-42150-02) and the
NCR Corporation 1976 Stock Option Plan (Registration No. 33-42150-03),
respectively, and the Post-Effective Amendment Nos. 1, 2, 3 and 5 on Form S-8 to
Form S-4 Registration Statement (Registration No. 33-52119) for the McCaw
Cellular Communications, Inc. 1983 Non-Qualified Stock Option Plan (Registration
No. 33-52119-01), the McCaw Cellular Communications, Inc. 1987 Stock Option Plan
(Registration No. 33-52119-02), the McCaw Cellular Communications, Inc. Equity
Purchase Plan (Registration No. 33-52119-03) and the McCaw Cellular
Communications, Inc. Employee Stock Purchase Plan (Registration No.
33-52119-05), respectively, and Post-Effective Amendment No. 1 on Form S-8 to
Form S-4 Registration Statement (Registration No. 33-45302) for the Teradata
Corporation 1987 Incentive and Other Stock Option Plan (Registration No.
33-45302-01), Form S-8 for the AT&T Amended and Restated 1969 Stock Option Plan
for LIN Broadcasting Corp. (Registration No. 33-63195), and in Post Effective
Amendment Nos. 1, 2, 3, 4 and 5 on Form S-8 to Form S-4 Registration Statement
(Registration No. 333-49419) for the Teleport Communications Group Inc. 1993
Stock Option Plan (Registration No. 333-49419-01), Teleport Communications Group
Inc. 1996 Equity Incentive Plan (Registration No. 333-49419-02), ACC Corp.
Employee Long Term Incentive Plan (Registration No. 333-49419-03), ACC Corp.
Non-Employee Directors' Stock Option Plan (Registration No. 333-49419-04) and
ACC Corp. 1996 UK Sharesave Scheme (Registration No. 333-49419-05), and Form S-8
for AT&T Wireless Services, Inc. Employee Stock Purchase Plan (Registration No.
333-52757), and in Post-Effective Amendment Nos. 1 and 2 on Form S-8 and Post
Effective Amendment No. 3 to Form S-4 Registration Statement (Registration No.
333-70279) for the Tele-Communications, Inc. 1998 Incentive Plan, the
Tele-Communications, Inc. 1996 Incentive Plan (Amended and Restated), the
Tele-Communications, Inc. 1995 Employee Stock Incentive Plan (Amended and
Restated), the Tele-Communications, Inc. 1994 Stock Incentive Plan (Amended and
Restated), the Tele-Communications, Inc. 1994 Nonemployee Director Stock Option
Plan, the Tele-Communications International, Inc., the 1996 Nonemployee Director
Stock Option Plan, the Tele-Communications International, Inc. 1995 Stock
Incentive Plan (Registration No. 333-70279-01), the Liberty Media 401(K) Savings
Plan, the TCI 401(K) Stock Plan (Registration No. 333-70279-02), Amendments Nos.
1 and 2 to Form S-3 for the $10,000,000,000 Debt Securities and Warrants to
Purchase Debt Securities (Registration No. 333-71167) and Form S-4 for Vanguard
Cellular Systems, Inc. (Registration No. 333-75083) of our report dated January
25, 1999, on our audits of the consolidated financial statements and
consolidated financial statement schedule of the Company and its subsidiaries at
December 31, 1998 and 1997, and for the years ended December 31, 1998, 1997 and
1996, which report is incorporated by reference in the Annual Report on Form
10-K and which report is included in this Annual Report on Form 10-K/A.

PricewaterhouseCoopers LLP

New York, New York
July 12, 1999