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The information in this document is not complete and can be changed. AT&T may not issue the securities being offered by use of this document until the registration statement filed with the Securities and Exchange Commission, of which this document is part, is declared effective. This document is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where such offer, solicitation or sale is prohibited.

PRELIMINARY PROXY STATEMENT		PRELIMINARY PROXY STATEMENT
AND PROSPECTUS OF AT&T INC.		OF BELLSOUTH CORPORATION

LOGO		LOGO
Edward E. Whitacre, Jr.		F. Duane Ackerman
Chairman of the Board and Chief Executive Officer		Chairman of the Board and Chief Executive Officer
AT&T Inc.		BellSouth Corporation

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AT&T Inc.		BellSouth Corporation
175 East Houston		1155 Peachtree Street, N.E., Room 14B06
San Antonio, TX 78205		Atlanta, Georgia 30309
(210) 821-4105		(404) 249-2000
Attn: Stockholder Services		Attn: Investor Relations
www.att.com		www.bellsouth.com/investor

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	•	To consider and vote upon a proposal to authorize the issuance of AT&T common shares required to be issued in the merger of ABC Consolidation Corp., a Georgia corporation and a wholly-owned subsidiary of AT&T (“Merger Sub”), with and into BellSouth Corporation, a Georgia corporation, as contemplated by the Agreement and Plan of Merger, dated as of March 4, 2006, by and among BellSouth, AT&T and Merger Sub, as that agreement may be amended; and
	•	To conduct any other business as may properly come before the special meeting or any properly reconvened meeting following an adjournment or postponement of the special meeting.

	By Order of the AT&T Board of Directors.

	Ann Effinger Meuleman
	Vice President and Secretary
	AT&T Inc.
	l        , 2006

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	•	To consider and vote upon a proposal to approve the Agreement and Plan of Merger, dated as of March 4, 2006, by and among BellSouth, AT&T Inc. and a wholly-owned subsidiary of AT&T, as that agreement may be amended; and
	•	To conduct any other business that may properly come before the special meeting or any properly reconvened meeting following an adjournment or postponement of the special meeting.

	•	By Internet — visit the website on the proxy card or in your e-mail notice; or
	•	By telephone — use the toll-free telephone number on the proxy card; or
	•	By mail — mark, sign, date and promptly return the enclosed proxy card(s) in the postage-paid envelope.

	Rebecca M. Dunn
	Senior Vice President — Corporate Compliance and Corporate Secretary
	BellSouth Corporation
	l        , 2006

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Questions and Answers					vii
Summary					1
The Companies					1
The Merger					2
Merger Consideration					2
Recommendation of the AT&T Board of Directors					2
Recommendation of the BellSouth Board of Directors					3
Opinions of AT&T’s Financial Advisors					3
Opinions of BellSouth’s Financial Advisors					3
Treatment of BellSouth Stock Options and Stock-Based Awards					4
Interests of BellSouth Executive Officers and Directors in the Merger					4
Material United States Federal Income Tax Consequences					4
Procedures for Exchange of BellSouth Common Shares for AT&T Common Shares					4
Accounting Treatment					4
Regulatory Matters Related to the Merger					5
Completion of the Merger					5
No Dissenters’ Rights					5
The Merger Agreement					5
Alternative Acquisition Proposals					6
Conditions to Closing					6
Termination of the Merger Agreement					7
Effect of Termination; Termination Fees					8
Recommendation					9
Selected Historical Financial Data of AT&T Inc.					10
Selected Historical Financial Data of BellSouth					11
Selected Unaudited Pro Forma Condensed Combined Financial Data for the Year Ended December 31, 2005					12
Unaudited Comparative Per Share Data for the Year Ended December 31, 2005					13
Comparative Market Data					14
Comparative Per Share Market Price Data and Dividend Information					15
Risk Factors					16
Risk Factors Relating to the Merger					16
Risk Factors Relating to AT&T Following the Merger					18
The Companies					23
BellSouth					23
AT&T					23
Merger Sub					23
The Merger					24
Background of the Merger					24
AT&T’s Reasons for the Merger					25
Recommendation of the AT&T Board of Directors					27
BellSouth’s Reasons for the Merger					27
Recommendation of the BellSouth Board of Directors					31
Opinions of AT&T’s Financial Advisors					31

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Opinions of BellSouth’s Financial Advisors					42
Financial Analyses of BellSouth’s Financial Advisors					48
Interests of BellSouth Executive Officers and Directors in the Merger					53
Material United States Federal Income Tax Consequences					56
Accounting Treatment					58
Regulatory Matters Related to the Merger					59
Merger Fees, Costs and Expenses					60
Dissenters’ Rights					60
Resale of AT&T Common Shares					60
Repurchase of AT&T Common Shares					61
New York Stock Exchange Listing; Delisting and Deregistration of BellSouth Common Shares					61
Litigation Relating to the Merger					62
Information About the AT&T Special Meeting					63
General; Date; Time and Place					63
Purpose of the AT&T Special Meeting					63
Record Date; Voting Power					63
Required Vote					63
Recommendation of AT&T’s Board of Directors					64
Quorum					64
How to Vote					64
To Attend the AT&T Special Meeting					65
Expenses of Solicitation					65
Questions about Voting Your Shares					65
Information About the BellSouth Special Meeting					66
General; Date; Time and Place					66
Purpose of the BellSouth Special Meeting					66
Record Date; Voting Power					66
Required Vote					66
Recommendation of BellSouth’s Board of Directors					67
Quorum					67
How to Vote					67
Householding					68
To Attend the BellSouth Special Meeting					68
Expenses of Solicitation					69
Questions about Voting Your Shares					69
The Merger Agreement					70
The Merger					70
Closing and Effectiveness of the Merger					70
AT&T’s Post-Closing Directors and Officers					70
Merger Consideration					71
Representations and Warranties					72
Covenants and Agreements					73
Conditions to the Merger					86
Termination of the Merger Agreement					88
Effect of Termination					89

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Termination Fees and Expenses					89
Amendment, Extension and Waiver					91
Specific Performance					91
Unaudited Pro Forma Condensed Combined Financial Information as of and for the Year Ended December 31, 2005					92
New Directors and Management of AT&T Following the Merger					103
Description of AT&T Capital Stock					104
AT&T Common Shares					104
AT&T Preferred Shares					104
No Shareholder Rights Plan					104
Comparison of Shareholder Rights					105
Classes and Series of Capital Stock					105
Annual Meeting of Shareholders					105
Special Meetings of Shareholders					106
Shareholder Action Without a Meeting					107
Shareholder Nominations and Proposals					107
Access to Corporate Records, Financial Statements and Related Matters					109
Amendments of Organizational Documents					110
By-Law Amendments					110
Dividends					111
Dissenters’ and Appraisal Rights					111
Number and Qualification of Directors					112
Filling Vacancies on the Board of Directors					113
Removal of Directors					113
Limitation of Personal Liability of Directors					114
Indemnification of Directors and Officers					114
Shareholder Rights Plan					116
Vote on Mergers and Certain Other Transactions					116
Anti-Takeover and Ownership Provisions					117
Experts					121
Legal Matters					121
Shareholder Proposals					121
Cautionary Statement Concerning Forward-Looking Statements					123
Where You Can Find More Information					124
Annex A:		Agreement and Plan of Merger among BellSouth Corporation, AT&T Inc. and ABC Consolidation Corp., dated as of March 4, 2006			A-1
Annex B:		Fairness Opinion of Lehman Brothers Inc.			B-1
Annex C:		Fairness Opinion of Evercore Group Inc.			C-1
Annex D:		Fairness Opinion of Citigroup Global Markets Inc.			D-1
Annex E:		Fairness Opinion of Goldman, Sachs & Co.			E-1

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Q1:		Why am I receiving this joint proxy statement/ prospectus?
A1:		AT&T and BellSouth have agreed to combine their respective businesses by means of a merger. We expect the combined company will be a more effective and efficient provider in the wireless, broadband, video, voice and data markets. It will also put control of Cingular Wireless in one company.
		AT&T is holding a special meeting of shareholders in order to obtain the shareholder approval necessary to issue AT&T common shares in the merger, as described in this joint proxy statement/ prospectus. BellSouth is holding a special meeting of shareholders in order to obtain shareholder approval of the merger agreement, as described in this joint proxy statement/ prospectus.
		We will be unable to complete the merger unless AT&T and BellSouth shareholders approve these proposals at their respective special meetings.
		We have included in this joint proxy statement/ prospectus important information about the merger, the merger agreement and the special meetings of the shareholders of AT&T and BellSouth. You should read this information carefully and in its entirety. We have attached a copy of the merger agreement as Annex A. The enclosed voting materials allow you to vote your shares without attending the applicable special meeting. Your vote is very important and we encourage you to vote your proxy as soon as possible.
Q2:		What will I receive in the merger?
A2:		If the merger is completed, BellSouth shareholders will receive 1.325 AT&T common shares for each BellSouth common share held immediately prior to the merger.
		Holders of BellSouth common shares will generally not receive any fractional AT&T common shares in the merger. Instead, the total number of AT&T common shares that each BellSouth shareholder will receive in the merger will be rounded down to the nearest whole number, and AT&T will pay cash for the remaining fractional AT&T common share that a BellSouth shareholder would otherwise be entitled to receive. The amount of cash payable for a fractional AT&T common share will be determined by multiplying the fraction by the average closing price for an AT&T common share for the five trading days ending on the trading day immediately prior to the completion of the merger.
		Participants in BellSouth’s direct investment plan, however, will receive fractional shares for their plan shares. These fractional shares will be issued and transferred with the participant’s plan account into AT&T’s dividend reinvestment plan automatically after completion of the merger.
		AT&T shareholders will continue to hold their AT&T common shares.
Q3:		How do I calculate the value of the merger consideration?
A3:		BellSouth shareholders will receive merger consideration consisting of a fixed number of 1.325 AT&T common shares for each BellSouth common share they own. Based on the closing price of $27.99 per AT&T common share on the New York Stock Exchange, which we refer to as the NYSE, on March 3, 2006, the last trading day before the public announcement of the merger, the exchange ratio represented approximately $37.09 per BellSouth common share, a 17.9% premium over the closing price of BellSouth common shares on the NYSE on March 3, 2006. Based on the closing price of $l per share of AT&T common shares on the NYSE on                  l , 2006, the latest practicable date before the printing of this joint proxy statement/ prospectus, the exchange ratio represented approximately $l per BellSouth common share.

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		Because AT&T will issue a fixed number of AT&T common shares in exchange for each BellSouth common share, the value of the merger consideration that BellSouth shareholders will receive in the merger for each BellSouth common share will depend on the price per AT&T common share at the time the merger is completed. That price will not be known at the time of the meeting and may be less than the current price or the price at the time of the meeting. Former BellSouth shareholders are currently expected to own approximately 38% of the AT&T common shares outstanding immediately after the merger.
Q4:		What is required to complete the merger?
A4:		We are not required to complete the merger unless a number of conditions are satisfied or waived. These conditions include receipt of shareholder approvals, receipt of the approval of the Federal Communications Commission, which we refer to as the FCC, and other regulatory consents, expiration of the waiting period under the Hart-Scott-Rodino Act, which we refer to as the HSR Act, and receipt of legal opinions that the merger will be treated for federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986 which we refer to as the Code. For a more complete summary of the conditions that must be satisfied or waived prior to completion of the merger, see “The Merger Agreement — Conditions to the Merger” beginning on page 86.
Q5:		When and where will the special meetings be held?
A5:		The AT&T special meeting is scheduled to be held at l, at l, on l. The BellSouth special meeting is scheduled to be held at l, at l, on l .
Q6:		Who is entitled to vote at the AT&T and BellSouth special meetings?
A6:		AT&T has fixed        l        , 2006 as the record date for the AT&T special meeting. If you were an AT&T shareholder at the close of business on the record date, you are entitled to vote on matters that come before the AT&T special meeting. However, an AT&T shareholder may only vote his or her shares if he or she is present in person or is represented by proxy at the AT&T special meeting.
		BellSouth has fixed        l        , 2006 as the record date for the BellSouth special meeting. If you were a BellSouth shareholder at the close of business on the record date, you are entitled to vote on matters that come before the BellSouth special meeting. However, a BellSouth shareholder may only vote his or her shares if he or she is present in person or is represented by proxy at the BellSouth special meeting.

Q7:		I hold my shares in “street name”. How are my shares voted?
A7:		If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the “beneficial holder” of the shares held for you in what is known as “street name.” If this is the case, this joint proxy statement/ prospectus has been forwarded to you by your brokerage firm, bank or other nominee, or their agent. As the beneficial holder, you have the right to direct your broker, bank or other nominee as to how to vote your shares. If you do not provide your broker, bank or other nominee with instructions on how to vote your “street name” shares, your broker, bank or other nominee will not be permitted to vote them on either the proposal to authorize the issuance of AT&T common shares in the merger if you are an AT&T shareholder or the proposal to approve the merger agreement if you are a BellSouth shareholder. You should therefore be sure to provide your broker, bank or other nominee with instructions on how to vote your shares.

Q8:		How do I vote?
A8:		If you are entitled to vote at your company’s special meeting, you can vote in person by completing a ballot at the special meeting, or you can vote by proxy before the special meeting. Even if you plan to attend your company’s special meeting, we encourage you to vote your shares by proxy as soon as possible. After carefully reading and considering the information contained in this joint proxy statement/ prospectus, please submit your proxy by telephone or Internet in accordance with the instructions set forth on the enclosed proxy card, or fill out, sign and date the proxy card, and then mail your signed proxy card in the enclosed envelope as soon as possible so that your shares may be

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		voted at your company’s special meeting. For detailed information, please see “Information About the AT&T Special Meeting — How to Vote” beginning on page 64 and “Information About the BellSouth Special Meeting — How to Vote” beginning on page 67. The vote required to approve the merger agreement at the BellSouth special meeting is a majority of the outstanding BellSouth common shares. Accordingly, a BellSouth shareholder’s failure to vote his or her BellSouth common shares will have the same effect as a vote of those shares against the proposal to approve the merger agreement.
Q9:		How many votes do I have?
A9:		You are entitled to one vote for each AT&T common share that you owned as of the record date. As of the close of business on        l       , 2006, there were l outstanding AT&T common shares. As of that date, less than 1% of the outstanding AT&T common shares were held by the directors and executive officers of AT&T. You are entitled to one vote for each BellSouth common share that you owned as of the record date. As of the close of business on        l       , 2006, there were l outstanding BellSouth common shares. As of that date, less than 1% of the outstanding BellSouth common shares were held by the directors and executive officers of BellSouth.
Q10:		What if I hold shares in both AT&T and BellSouth?
A10:		If you are a shareholder of both AT&T and BellSouth, you will receive two separate packages of proxy materials. A vote as a BellSouth shareholder for the proposal to approve the merger agreement will not constitute a vote as an AT&T shareholder for the proposal to authorize the issuance of AT&T common shares required to be issued in the merger, or vice versa. THEREFORE, PLEASE SIGN, DATE AND RETURN ALL PROXY CARDS THAT YOU RECEIVE, WHETHER FROM AT&T OR BELLSOUTH, OR VOTE AS BOTH AN AT&T AND BELLSOUTH SHAREHOLDER BY INTERNET OR TELEPHONE.

Q11:		How are my employee plan shares voted?
A11:		For Employees of AT&T: If you are an AT&T shareholder and participate in certain of AT&T’s plans and/or maintain shareholder accounts under more than one name (including minor differences in registration, such as with or without a middle initial), you may receive more than one set of proxy materials. To ensure that all shares are voted, please sign and return every proxy card received or submit a proxy by telephone or through the Internet for each proxy card. The proxy card, or a proxy submitted by telephone or through the Internet, will serve as voting instructions to AT&T proxies and the plan administrator or trustee for any shares held on behalf of a participant under any of these employee benefit plans.
		For Employees of BellSouth: If you are a registered shareholder of BellSouth and/or you own BellSouth common shares through a BellSouth employee benefit plan, and the accounts are in the same name, you will receive a proxy card representing your combined directly-owned and plan-owned shares that will serve as voting instructions to the designated BellSouth proxy, if applicable, and also to the trustees of those plans.
		For Employees of Cingular: If you own BellSouth and/or AT&T common shares through the Cingular Wireless 401(k) Savings Plan, and you are also a registered BellSouth and/or AT&T shareholder with your account in the same name, you will receive a proxy card representing the combined BellSouth common shares and a proxy card representing the combined AT&T common shares, each of which will serve as voting instructions to the applicable designated proxy, and also to the trustees of that plan.
		To allow sufficient time for voting by the trustees of the plans, participants in BellSouth, AT&T or Cingular employee benefit plans must vote their shares no later than  l  a.m. Eastern time on        l        , 2006.

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Q12:		What constitutes a quorum?
A12:		Shareholders who hold at least 40% of the AT&T outstanding common shares as of the close of business on the record date and who are entitled to vote must be present or represented by proxy in order to constitute a quorum to conduct business at the AT&T special meeting under AT&T’s corporate by-laws.
		Shareholders who hold at least 40% of the outstanding BellSouth common shares as of the close of business on the record date must be present, either in person or represented by proxy, in order for there to be a quorum necessary to conduct the BellSouth special meeting.
Q13:		What vote is required to approve each proposal?
A13:		To authorize the issuance of AT&T common shares as required by the merger agreement: the affirmative vote of the holders of a majority of AT&T common shares voting on the proposal, so long as a majority of the AT&T common shares outstanding is voted, is required to approve the proposal to authorize the issuance of AT&T common shares required to be issued pursuant to the merger agreement. Brokers, banks or other nominees holding AT&T common shares as nominees will not have discretionary authority to vote those shares in the absence of instructions from the beneficial owners of those shares.
		To approve the merger agreement: the affirmative vote of the holders of a majority of outstanding BellSouth common shares entitled to vote is required to approve the merger agreement. Because the affirmative vote required to approve the merger agreement is based upon the total number of outstanding BellSouth shares, the failure to submit a proxy card (or to submit a proxy by telephone or by Internet or to vote in person at the BellSouth special meeting) or the abstention from voting by a shareholder will have the same effect as a vote against approval of the merger agreement. Brokers, banks or other nominees holding BellSouth common shares as nominees will not have discretionary authority to vote those shares in the absence of instructions from the beneficial owners of those shares, so the failure to provide voting instructions to your broker, bank or nominee will also have the same effect as a vote against approval of the merger agreement.
Q14:		What are the recommendations of the AT&T and BellSouth boards of directors?
A14:		Each board of directors has approved and adopted the merger agreement, approved the transactions contemplated by the merger agreement, including the merger, and determined that these transactions are in the best interests of its shareholders.
		The AT&T board of directors recommends that AT&T shareholders vote “FOR” the proposal to authorize the issuance of AT&T common shares required to be issued pursuant to the merger agreement. See “The Merger — AT&T’s Reasons for the Merger” beginning on page 25 and “The Merger — Recommendation of the AT&T Board of Directors” on page 27.
		The BellSouth board of directors recommends that BellSouth shareholders vote “FOR” the proposal to approve the merger agreement. See “The Merger — BellSouth’s Reasons for the Merger” beginning on page 27 and “The Merger — Recommendation of the BellSouth Board of Directors” on page 31.
Q15:		What if I return my proxy card but do not mark it to show how I am voting?
A15:		If your proxy card is signed and returned without specifying your choices, your shares will be voted according to the recommendations of the AT&T or BellSouth board of directors, as the case may be.
Q16:		Can I change my vote after I have submitted a proxy by telephone or Internet or mailed my signed proxy card?
A16:		Yes. You can change your vote by revoking your proxy at any time before it is exercised at the AT&T or BellSouth special meeting.
		You can revoke your proxy in one of three ways: (1) vote again by telephone or Internet prior to midnight on the night before the special meeting; (2) sign another proxy card with a later date and

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		return it prior to the special meeting; (3) attend the AT&T or BellSouth special meeting and complete a ballot; or (4) send a written notice of revocation to the secretary of AT&T or BellSouth.
Q17:		What will happen to the dividend on AT&T and BellSouth common shares following completion of the merger?
A17:		If the merger is completed, holders of AT&T common shares will continue to receive their dividends, if any, as they have been receiving them from AT&T prior to the merger. After the closing, former BellSouth shareholders who were holders of uncertificated BellSouth common shares, or who were holders of certificated BellSouth common shares and have surrendered their BellSouth share certificates according to the instructions provided to them, will receive the same dividends on the AT&T shares that they receive in the merger that all other holders will receive on AT&T common shares with any dividend record date that occurs after the merger is completed. Former BellSouth shareholders who hold BellSouth share certificates will not be entitled to receive dividends otherwise payable on the AT&T common shares into which their BellSouth shares are exchangeable until they surrender their BellSouth share certificates according to the instructions provided to them. Dividends will be accrued for these shareholders and they will receive the accrued dividends when they surrender their BellSouth share certificates subject to abandoned property laws.
		AT&T most recently paid a quarterly dividend on February 1, 2006, in an amount equal to $0.3325 per AT&T common share. BellSouth most recently declared a quarterly dividend of $0.29 per BellSouth common share on February 27, 2006. If the merger had been completed before the record date for that dividend, the 1.325 AT&T common shares that the BellSouth shareholders would have received in the merger for each BellSouth common share would have entitled those shareholders to receive a dividend of $0.4406, a 52% increase over BellSouth’s most recently paid quarterly dividend. All future AT&T dividends will remain subject to approval by the AT&T board of directors.
Q18:		What are the material United States federal income tax consequences of the merger to U.S. holders of BellSouth common shares?
A18:		Assuming the merger will be treated for federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code, a U.S. holder of BellSouth common shares generally will not recognize any gain or loss upon receipt of AT&T common shares solely in exchange for BellSouth common shares in the merger, except with respect to cash received in lieu of a fractional AT&T common share. See “The Merger — Material United States Federal Income Tax Consequences” beginning on page 56.
Q19:		When do you expect the merger to be completed?
A19:		AT&T and BellSouth are working to complete the merger within 12 months after the March 5, 2006 announcement date of the merger. However, the merger is subject to various regulatory approvals and other conditions, and it is possible that factors outside the control of both companies could result in the merger being completed at a later time, or not at all. There may be a substantial amount of time between the respective AT&T and BellSouth special meetings and the completion of the merger. AT&T and BellSouth hope to complete the merger as soon as reasonably practicable.
Q20:		What do I need to do now?
A20:		Read and consider the information contained in this joint proxy statement/prospectus carefully, and then please vote your shares as soon as possible so that your shares may be represented at your special meeting.
Q21:		Should BellSouth or AT&T shareholders send in their share certificates now for the exchange?
A21:		No. BellSouth shareholders should keep any share certificates they hold at this time. After the merger is completed, BellSouth shareholders holding share certificates will receive a letter of transmittal and instructions on how to obtain AT&T common shares, together with cash in lieu of fractional AT&T common shares, to which they are entitled in exchange for their BellSouth common shares.

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		AT&T shareholders will not be required to exchange their certificates in connection with the merger, and shareholders holding certificates should keep their share certificates both now and after the merger is completed.
Q22:		Who can help answer my questions?
A22:		If you have questions about the merger, or if you need assistance in submitting your proxy or voting your shares or need additional copies of the joint proxy statement/prospectus or the enclosed proxy card, you should contact  l, the proxy solicitation agent for AT&T and BellSouth, at l (toll free) or l (collect). If your shares are held in a stock brokerage account or by a bank or other nominee, you should call your broker, bank or other nominee for additional information.

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	•	Ownership of 100% of Cingular will permit AT&T to better integrate Cingular wireless offerings with AT&T’s other communication offerings. This is expected to create enhanced marketing opportunities, significant network synergies resulting from combining multiple IP networks into a single IP network, the ability to more rapidly develop and make available advanced products and services and reduced marketing costs (by rebranding Cingular to the AT&T brand).
	•	Ownership of 100% of Cingular also will improve the speed and focus of decision making in the Cingular business, which should help it develop and deliver more quickly to customers the new products and services they desire.

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	•	The ability to integrate the IP networks of AT&T, BellSouth and Cingular into a single, fully integrated wireless and wireline IP network will offer not only substantial cost savings opportunities, but also should permit AT&T to offer more quickly the kinds of tightly integrated voice, data and video products it believes will be increasingly demanded by customers in the near future.
	•	The addition of the BellSouth wireline network, which already includes a substantial build-out of fiber optic cable to points near end users, will complement AT&T’s existing plans to deploy IPTV to existing wireline service areas and increase the number of potential customers for AT&T’s IPTV product.

	•	The merger is expected to have a positive impact on AT&T’s adjusted earnings per share (meaning AT&T’s earnings per share adjusted to exclude all merger integration costs and non-cash expenses for amortization of intangibles) beginning in 2008, taking into account the effects of AT&T’s proposed share repurchase, although because of expenses for amortization of intangibles and integration costs, the merger is expected to be dilutive to reported earnings per share for at least several years.
	•	The merger will increase AT&T’s investment in the faster growing wireless business, a move that should help facilitate enhanced future revenue growth.
	•	The merger is expected to improve free cash flow (cash from operations minus capital expenditures and dividends) beginning in 2008, and is expected to have a modestly negative effect on net debt to EBITDA coverage ratios, even after taking into account the anticipated approximately $8 billion of 2007 share repurchases.
	•	The merger is expected to result in cost savings, revenue enhancements and capital savings with a net present value of approximately $18 billion.

	•	The information concerning AT&T’s and BellSouth’s respective historic businesses and financial results and prospects, including the results of AT&T’s due diligence investigation of BellSouth.
	•	AT&T management’s assessment that it can, working with BellSouth managers and employees, effectively and efficiently integrate the BellSouth wireline and directories businesses with the similar AT&T businesses.
	•	The opinions of AT&T’s financial advisors, Lehman Brothers and Evercore, that, as of March 4, 2006 and subject to the matters stated in their respective opinions, from a financial point of view, the exchange ratio was fair to AT&T.
	•	The fact that the exchange ratio is fixed and will not fluctuate based upon changes in AT&T’s stock price between signing and closing.
	•	The terms of the merger agreement that create a strong commitment on the part of BellSouth to complete the merger.

	•	The risks of integrating the operations of two businesses the size of the BellSouth wireline business and directories business with the corresponding businesses at AT&T, including the risks that integration costs may be greater, and synergy benefits lower, than anticipated by AT&T management, which risks are amplified by the ongoing integration of AT&T and ATTC.

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	•	The risk that regulatory agencies may not approve the merger or may impose terms and conditions on their approvals that adversely affect the projected financial results of the combined company.
	•	The risk that an unanticipated technological development may adversely affect the business benefits anticipated to result from the merger.
	•	The terms of the Merger Agreement that create a strong commitment on AT&T to complete the merger.

	•	the financial terms of the transaction, including:

	•	the fixed exchange ratio of 1.325 AT&T common shares for each BellSouth common share;
	•	that the exchange ratio reflected a 20% premium to the BellSouth shareholders based on the historical trading relationship of the securities of the two companies;
	•	that based on the closing trading prices of BellSouth common shares and AT&T common shares on the trading day prior to the announcement of the merger, the exchange ratio represented approximately $37.09 per BellSouth common share, a 17.9% percent premium over the closing price of the BellSouth common shares on the NYSE on that day;

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	•	the expectation that, based on the current annual dividend paid by AT&T and the 1.325 exchange ratio, the annual dividend BellSouth shareholders will receive after the transaction will be 52% greater than the annual dividend currently paid to holders of BellSouth common shares;
	•	the BellSouth shareholders will hold approximately 38% of the outstanding common shares of the combined company immediately after closing and will have the opportunity to share in the future growth and expected synergies of the combined company, while retaining the flexibility of selling all or a portion of those shares for cash into a very liquid market at any time;

	•	the financial analyses and opinions of each of Citigroup Global Markets Inc. and Goldman, Sachs & Co., BellSouth’s financial advisors that, as of March 4, 2006, and based upon and subject to the factors, assumptions, matters, procedures, qualifications and limitations set forth in the opinions, the exchange ratio was fair, from a financial point of view, to holders of BellSouth common shares (each opinion is discussed further below under “— Opinions of BellSouth’s Financial Advisors”);
	•	based upon the advice of BellSouth management who had discussions with AT&T management, the significant synergies that could result from the transaction, including:

	•	synergies with a net present value of an estimated $18 billion expected to result from the transaction, including annual synergies of $2 billion expected beginning in 2008, growing to $3 billion beginning in 2009;
	•	the multiple sources of the synergies and that 90% of the anticipated synergies are expected to be derived from clearly identified expense and capital reductions; and

	•	the demonstrated ability of AT&T’s management to successfully integrate and obtain synergistic benefits from previous acquisitions.

	•	the BellSouth Board’s view of BellSouth’s prospects and potential future financial performance as an independent company;
	•	the expectation that the combined company would be a more effective and efficient provider of wireless, broadband, video, data and directory services;
	•	the simplification of the ownership structure of Cingular Wireless;
	•	the anticipated enhanced capabilities and competitiveness of the combined company as compared to BellSouth on a stand-alone basis, including:

	•	greater financial, technical, research and development, network and marketing resources to better serve consumers and large-business customers, and the acceleration of the introduction of new and improved products and services for those customers;
	•	greater scale, scope and reach to leverage the significant spending required to develop next generation products and services for both business and consumer customers;
	•	the expectation that the greater scale, scope and reach of the post merger company would make it a more attractive partner for companies with national or international business models;
	•	the ability to better offer integrated wireless wireline, and broadband products and services over a single IP network, and to strengthen capabilities in business markets through converged services and a single point of contact for wireless and wireline services; and
	•	the ability to more economically deploy next-generation IP television networks and similar services over BellSouth’s extensive, fiber rich broadband network.

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	•	the BellSouth Board’s judgment, after consultation with BellSouth’s management and financial advisors, that an alternative transaction that would provide a greater value to the shareholders of BellSouth was unlikely to be available, while leaving the BellSouth Board with the possibility to consider an alternative transaction;
	•	the merger agreement permits BellSouth under certain circumstances, to provide non-public information to, and engage in discussions with, any third-party that proposes an alternative transaction and to terminate the merger agreement to accept a superior proposal;
	•	The BellSouth Board’s judgment that the terms of the merger agreement, including the $1.7 billion termination fee, should not preclude a proposal for an alternative transaction involving BellSouth;
	•	The BellSouth Board’s judgment, after consultation with BellSouth’s financial advisors, that as a percentage of the merger consideration at the time of the announcement of the transaction, the $1.7 billion termination fee was at the low end of the range of termination fees provided for in recent large acquisition transactions;
	•	the consideration by the BellSouth Board, after consultation with counsel, of the likelihood that the merger would be approved by the requisite authorities, without the imposition of material conditions that would prevent or materially delay the merger and of the required efforts of the parties to obtain such approvals;
	•	the expressed intention of AT&T to broadly utilize the services of the management and employees of BellSouth following the merger, and the proposed management arrangements of the combined company under which each executive officer of BellSouth (other than the Chief Executive Officer) will be given the opportunity to become a senior officer of AT&T or a subsidiary of AT&T with a position of significant managerial experience for at least three years following the completion of the merger;
	•	three BellSouth directors will join the AT&T board of directors following the completion of the merger;
	•	the following employee benefit arrangements, which the BellSouth Board believed would increase the likelihood of a successful integration and operation of the combined company and are designed to ensure the retention of BellSouth employees in the unlikely event that the merger is not completed:

	•	the retention bonus arrangements for management to be implemented in connection with the merger;
	•	the broad-based severance plan for BellSouth’s management employee base contemplated by the merger agreement;
	•	that aggregate pre-closing levels of BellSouth compensation and employee benefits will be maintained for at least twelve months following completion of the merger, excluding equity compensation; and
	•	that AT&T agreed to maintain a number of specified benefit plans through the second anniversary of the completion of the merger;

	•	AT&T’s commitment to continue BellSouth’s historic levels of charitable contributions and community activities, including the continued funding of charitable activities throughout BellSouth’s nine-state region as has previously been provided through the BellSouth Foundation and to continue to support economic development and education in BellSouth’s nine-state region;

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	•	AT&T’s commitment to maintain the headquarters of Cingular Wireless in Atlanta, Georgia for at least five years following the merger and to keep the Southeast regional telephone company headquarters in Atlanta, Georgia; and
	•	the expectation that the merger would qualify as a reorganization for U.S. federal income tax purposes and that, as a result, the exchange by BellSouth shareholders of their BellSouth common shares for AT&T common shares in the merger generally would be tax-free to the BellSouth shareholders.

	•	the price of AT&T common shares at the time of closing could be lower than the price as of the time of signing and accordingly, the value of the consideration received by BellSouth shareholders in the merger could be materially less than the value as of the date of the merger agreement;
	•	the difficulties and challenges inherent in completing a merger and integrating the businesses, especially in light of AT&T’s 2005 acquisition of ATTC;
	•	the expected synergies and other benefits of the merger might not be fully achieved or may not be achieved within the timeframes expected;
	•	given the size of the combined company and the mix of assets it will own, the challenges it will face in continuing to grow its revenues;
	•	the fact that the AT&T dividend is subject to change by the board of directors of AT&T;
	•	the risks of the type and nature described above under “Risk Factors” beginning on page 16;
	•	the merger ultimately may not be completed as a result of material adverse conditions imposed by regulatory authorities or otherwise;
	•	certain provisions of the merger agreement may have the effect of discouraging proposals for alternative transactions with BellSouth, including:

	•	the restriction on BellSouth’s ability to solicit proposals for alternative transactions;
	•	the requirement that BellSouth provide AT&T the right to obtain information with respect to proposals for alternative transactions and to a three business day negotiating period after receipt by BellSouth of a superior proposal before the BellSouth Board may terminate the merger agreement and accept the superior proposal, withdraw its recommendation of the merger or recommend the superior proposal; and
	•	the requirement that BellSouth pay a termination fee of $1.7 billion to AT&T, in order for BellSouth to terminate the merger agreement and accept a superior proposal;

	•	the other circumstances under which BellSouth may be required to pay a termination fee of $1.7 billion to AT&T;
	•	the prohibition in the merger agreement on the ability of the BellSouth Board to withdraw its recommendation of the merger or qualify its recommendation in a manner that could be reasonably understood to be adverse to AT&T, other than in connection with BellSouth’s receipt of a proposal to acquire BellSouth that is more favorable to the BellSouth shareholders than the merger;
	•	the circumstances under which AT&T may terminate the merger agreement, including AT&T’s right to terminate the merger agreement if the BellSouth Board withdraws its recommendation of the merger or qualifies its recommendation in a manner that could be reasonably understood to be adverse to AT&T;

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	•	the circumstances under which BellSouth may be obligated to reimburse AT&T for AT&T’s expenses (up to $120 million, in total), including in the event that BellSouth shareholders fail to approve the merger agreement;
	•	certain of BellSouth’s directors and officers may have conflicts of interest in connection with the merger, as they will receive certain benefits that are different from, and in addition to, those of BellSouth’s other shareholders (see “— Interests of BellSouth Executive Officers and Directors in the Merger”); and
	•	the risk and costs that the merger might not be completed, the potential impact of the restrictions under the merger agreement on BellSouth’s ability to take certain actions during the pendency of the merger agreement, the potential for diversion of management and employee attention and for employee attrition during that period and the potential effect on BellSouth’s business and relations with customers and service providers.

	Lehman Brothers Fairness Opinion

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	•	the merger agreement and the specific terms of the merger;
	•	publicly available information concerning AT&T and BellSouth that Lehman Brothers believed to be relevant to its analysis, including each of AT&T’s and BellSouth’s Annual Reports on Form 10-K for the fiscal year ended December 31, 2005;
	•	financial and operating information with respect to the businesses, operations and prospects of BellSouth furnished to Lehman Brothers by BellSouth and AT&T, including (i) financial projections of BellSouth prepared by BellSouth’s management, and (ii) financial projections of BellSouth prepared by AT&T’s management;
	•	financial and operating information with respect to the businesses, operations and prospects of AT&T furnished to Lehman Brothers by AT&T, including (i) financial projections of AT&T prepared by AT&T’s management, and (ii) the amount and timing of synergies expected by AT&T’s management to result from the merger;
	•	the recent and historical trading prices of AT&T common shares and of BellSouth common shares and a comparison of each of these trading histories with each other and other telecommunications companies that Lehman Brothers deemed relevant;
	•	a comparison of the historical financial results, present financial condition and trading multiples of AT&T and of BellSouth with each other and with those of other telecommunications companies that Lehman Brothers deemed relevant;
	•	a comparison of the financial terms of the merger with the financial terms of certain other transactions that Lehman Brothers deemed relevant;
	•	published estimates of third party research analysts with respect to the future financial performance of both AT&T and BellSouth;
	•	the relative contributions of AT&T and BellSouth to the current and future financial performance of the combined company on a pro forma basis;
	•	the potential pro forma financial impact of the merger on the future financial performance of the combined company, including the expected synergies and the anticipated restructuring charges and integration costs in connection therewith furnished to it by AT&T; and
	•	the potential pro forma financial impact of AT&T’s share repurchase program which was announced contemporaneously with the merger.

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	•	analyzed certain publicly available financial statements and other publicly available business information relating to AT&T and BellSouth that Evercore deemed relevant to its analysis;
	•	analyzed certain internal non-public financial and operating data concerning AT&T and BellSouth prepared and furnished to Evercore by the management of each of AT&T and BellSouth, respectively, and AT&T provided Evercore with, and reviewed with Evercore, the estimated amount and timing of the synergies as well as the expected restructuring charges;
	•	analyzed certain financial projections concerning AT&T and BellSouth furnished to Evercore by the management of AT&T and certain financial projections concerning BellSouth furnished to Evercore by the management of BellSouth;
	•	discussed the past and current operations and financial condition and the prospects of AT&T and BellSouth with the management of each of AT&T and BellSouth, respectively;
	•	reviewed the reported prices and trading activity of the BellSouth common shares and the AT&T common shares;
	•	compared the financial performance of BellSouth and the prices and trading activity of the BellSouth common shares with that of selected publicly traded telecommunications companies and their securities;
	•	compared the financial performance of AT&T and the prices and trading activity of AT&T common shares with that of selected publicly traded telecommunications companies and their securities;
	•	compared the proposed financial terms of the merger with publicly available financial terms of certain transactions that Evercore deemed reasonably comparable to the merger;
	•	considered the potential financial impact of AT&T’s contemplated share repurchase program expected to be announced contemporaneously with the transaction;
	•	considered the potential pro forma impact of the merger on AT&T, based on inputs and analysis provided by AT&T management;
	•	reviewed a draft of the merger agreement dated March 4, 2006, which Evercore assumed was in substantially final form and would not vary in any respect material to its analysis; and
	•	performed such other analyses and examinations and considered such other factors as Evercore in its sole judgment deemed appropriate for purposes of its opinion.

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	Historical Share Price Analysis

	Historical Exchange Ratio Analysis

		Exchange Ratio
March 3, 2006			1.124x
10 day trading average			1.133x
30 day trading average			1.105x
60 day trading average			1.106x
90 day trading average			1.103x
One year average			1.108x
52 week high (June 3, 2005)			1.156x
52 week low (March 3, 2005)			1.065x
Three year average			1.089x

	Equity Research Analysis

	•	Robert W. Baird
	•	Banc of America Securities LLC
	•	Citigroup Global Markets Inc.
	•	Credit Suisse
	•	Deutsche Bank Securities Inc.
	•	Morgan Stanley
	•	UBS Securities LLC
	•	Wachovia Securities LLC

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	Peer Group Trading Analysis

	•	Verizon Communications Inc.
	•	Qwest Communications International Inc.
	•	Sprint Nextel Corporation

	Sum of the Parts Analysis

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	Contribution Analysis

			Contribution
			2006E				2007E				2008E
EBITDA
	AT&T			66%				66%				67%
	BellSouth			34%				34%				33%
	Implied Exchange Ratio			0.98x				0.96x				0.91x
Net Income
	AT&T			64%				65%				67%
	BellSouth			36%				35%				33%
	Implied Exchange Ratio			1.21x				1.15x				1.06x

	Precedent Transaction Analysis

Date Announced		Acquiror		Target
April 1, 1996		SBC Communications Inc.		PacificTelesis Group
April 22, 1996		Bell Atlantic Corporation		NYNEX Corporation
January 4, 1998		SBC Communications Inc.		Southern New England Telecommunications Corporation
May 10, 1998		SBC Communications Inc.		Ameritech Corporation
July 28, 1998		Bell Atlantic Corporation		GTE Corporation
June 23, 1999		Qwest Communications International Inc.		U S WEST, Inc.
February 17, 2004		Cingular Wireless LLC		AT&T Wireless Services, Inc.
December 15, 2004		Sprint Corporation		Nextel Communications, Inc.

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Low

High

Mean

Ratio of Enterprise Value to 12-Month Forward EBITDA

5.5

x

9.5

x

7.5x

	Premia Paid Analysis

	BellSouth Discounted Cash Flow Analysis

	•	adding the present value of BellSouth’s projected after-tax unlevered free cash flows for fiscal years 2006 through 2015 based on AT&T management estimates to the present value of the terminal value of BellSouth as of December 31, 2015 based on AT&T management estimates;
	•	adding the present value of BellSouth’s projected after-tax unlevered free cash flows for fiscal years 2006 through 2010 based on consensus research estimates to the present value of the terminal value as of December 31, 2010 based on consensus research estimates; and
	•	adding the present value of BellSouth’s projected after-tax unlevered free cash flows for fiscal years 2006 through 2008 based on BellSouth management estimates to the present value of the terminal value of BellSouth as of December 31, 2008 based on BellSouth management estimates.

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	AT&T Discounted Cash Flow Analysis

	•	adding the present value of AT&T’s projected after-tax unlevered free cash flows for fiscal years 2006 through 2013 based on AT&T management estimates to the present value of the “terminal value” of AT&T as of December 31, 2013 based on AT&T management estimates; and
	•	adding the present value of AT&T’s projected after-tax unlevered free cash flows for fiscal years 2006 through 2010 based on consensus research estimates to the present value of the “terminal value” of AT&T as of December 31, 2010 based on consensus research estimates.

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	Pro Forma Analysis

	General

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	•	reviewed the merger agreement;
	•	held discussions with certain senior officers, directors and other representatives and advisors of BellSouth and certain senior officers and other representatives and advisors of AT&T concerning the businesses, operations and prospects of BellSouth and AT&T;
	•	examined certain publicly available business and financial information relating to BellSouth and AT&T as well as certain financial forecasts and other information and data relating to BellSouth and AT&T which were provided to or discussed with Citigroup by the respective managements of BellSouth and AT&T, including adjustments to the forecasts and other information and data relating to AT&T discussed with Citigroup by the management of BellSouth and information relating to the potential strategic implications and operational benefits (including the amount,

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		timing and achievability thereof) anticipated by the managements of BellSouth and AT&T to result from the merger;
	•	reviewed the financial terms of the merger as set forth in the merger agreement in relation to, among other things, current and historical market prices and trading volumes of BellSouth common shares and AT&T common shares, the historical and projected earnings and other operating data of BellSouth and AT&T and the capitalization and financial condition of BellSouth and AT&T;
	•	considered, to the extent publicly available, the financial terms of certain other transactions which Citigroup considered relevant in evaluating the merger and analyzed certain financial, stock market and other publicly available information relating to the businesses of other companies whose operations Citigroup considered relevant in evaluating those of BellSouth and AT&T;
	•	evaluated certain potential pro forma financial effects of the merger on AT&T; and
	•	conducted such other analyses and examinations and considered such other information and financial, economic and market criteria as Citigroup deemed appropriate in arriving at its opinion.

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	•	financial advisor to BellSouth in the sale of BellSouth Latin America to Telefonica Moviles SA;
	•	financial advisor to BellSouth and Cingular Wireless LLC in the purchase of AT&T Wireless Services Inc. in October 2004;
	•	financial advisor to SBC in the sale of its interest in its directories joint venture with RH Donnelly Corp. in September 2004;
	•	financial advisor to SBC in the sale of its interests in TDC A/ S to TDC A/ S in June 2004;
	•	financial advisor to Cingular in the sale of Cingular Wireless LLC (Bermuda) to Digicel Ltd. in December 2005;
	•	financial advisor to Cingular in the sale of certain assets to Alltel Corp. in April 2005;
	•	financial advisor to Cingular in the sale of certain assets to MetroPCS Inc. in February 2005;
	•	dealer manager in the $9.5 billion consent solicitation by Cingular in connection with the acquisition of AT&T Wireless in August 2004;
	•	dealer manager in the offer by ATTC to repurchase $1.5 billion and up to € 1.05 billion of its notes in February 2004;
	•	broker to BellSouth in the repurchase of 6.8 million of its shares in December 2005;
	•	agent for BellSouth’s $3 billion credit facility issued in April 2005, $9 billion credit facility and bridge loan issued in October 2004 and $1.5 billion credit facility issued in April 2004;
	•	joint lead arranger for ATTC’s $500 million credit facility issued in October 2005 and $1 billion credit facility issued in October 2004 and SBC’s $12 billion credit facility and bridge loan and $6 billion credit facility issued in September 2004;
	•	joint bookrunner or co-manager in BellSouth’s $2 billion notes offering in November 2004, $3 billion bond offering in September 2004 and $700 million notes offering in June 2004; and
	•	joint bookrunner or co-manager for SBC’s $2 billion notes offering in November 2005, $5 billion bond offering in October 2004 and $1.5 billion notes offering in August 2004.

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	•	the merger agreement;
	•	annual reports to shareholders and Annual Reports on Form 10-K of BellSouth and AT&T for the five years ended December 31, 2005;
	•	certain interim reports to shareholders and Quarterly Reports on Form 10-Q of BellSouth and AT&T;
	•	certain other communications from BellSouth and AT&T to their respective shareholders; and
	•	certain internal financial analyses and forecasts for AT&T prepared by its management, as reviewed and adopted by the management of BellSouth, and certain internal financial analyses and forecasts for BellSouth prepared by its management, which we refer to as the forecasts.

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	•	a joint bookrunner with respect to the public offering of BellSouth’s 6.55% Senior Notes due 2034 (aggregate principal amount of $700,000,000) in June 2004 and 5.20% Senior Notes due 2014 (aggregate principal amount of $1,500,000,000) in September 2004;
	•	a co-lead manager with respect to the public offering of BellSouth’s 4.20% Senior Notes due 2009 (aggregate principal amount of $1,500,000,000) in September 2004;
	•	a joint bookrunnner with respect to the public offering of BellSouth’s 4.75% Senior Notes due 2012 (aggregate principal amount of $800,000,000) in November 2004;
	•	a co-lead manager with respect to the public offering of BellSouth’s Floating Rate Notes due 2007 (aggregate principal amount $500,000,000) and 6.0% Senior Notes due 2034 (aggregate principal amount $700,000,000) in November 2004; and
	•	a participant in BellSouth’s 364 day, $9,000,000,000 Bridge Facility to fund BellSouth’s equity contribution to Cingular to purchase AT&T Wireless in October 2004.

	•	a participant in AT&T’s 364 day, $12,000,000,000 Bridge Facility to fund AT&T’s equity contribution to Cingular to purchase AT&T in October 2004;
	•	a joint bookrunner with respect to the public offering of AT&T’s 5.625% Senior Notes due 2016 (aggregate principal amount of $750,000,000) and 6.45% Senior Notes due 2034 (aggregate principal amount of $750,000,000) in August 2004;

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	•	a co-manager with respect to the public offering of AT&T’s 4.125% Senior Notes due 2009 (aggregate principal amount of $2,250,000,000) and 5.1% Senior Notes due 2014 (aggregate principal amount of $2,250,000,000) in November 2004;
	•	a financial advisor to AT&T in connection with the acquisition by its subsidiary, Sterling Commerce, Inc., of Yantra Corporation in January 2005;
	•	a senior co-manager with respect to the public offering of AT&T’s Floating Rate Notes due 2008 (aggregate principal amount of $500,000,000) and 5.3% Senior Notes due 2010 (aggregate principal amount of $1,000,000,000) in November 2005; and
	•	a counterparty to AT&T in various block trades of shares held by AT&T in June 2003, October 2003, June 2004, October 2004 and November 2004.

	Financial Analyses of BellSouth’s Financial Advisors

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		Illustrative Implied
		Exchange Ratio
March 3, 2006			1.124x
February 23, 2006			1.139x
30 day average			1.097x
60 day average			1.103x
1 year average			1.107x
2 year average			1.089x

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	•	Alltel Corporation/ VALOR Communications Group, Inc.*
	•	Citizens Communications Company
	•	CenturyTel, Inc.
	•	Cincinnati Bell Inc.

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	•	FairPoint Communications Inc.
	•	Iowa Telecommunications Services Inc.
	•	Consolidated Communications Holdings, Inc.
	•	Commonwealth Telephone Enterprises Inc.
	•	Embarq Corporation*

	•	Sprint Nextel Corporation
	•	Alltel Corporation*
	•	Centennial Cellular Operating Co. LLC
	•	Dobson Communications Corporation
	•	Rural Cellular Corporation
	•	SunCom Wireless Inc.
	•	United States Cellular Corporation

	•	Yell Group plc*
	•	Yellow Pages Income Fund*
	•	RH Donnelley/Dex Media Inc.*

*	Analysis gave pro forma effect to certain announced transactions.

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			BellSouth’s Implied Equity				AT&T’s Implied Equity
			Contribution to Combined				Contribution to Combined
			Company				Company
Revenue
	CY 2006E			29	%			71	%
	CY 2008E			30	%			70	%
EBITDA
	CY 2006E			34	%			66	%
	CY 2008E			34	%			66	%
Net Income
	CY 2006E			34	%			66	%
	CY 2008E			36	%			64	%
At Market
	Equity Value			35	%			65	%
	Enterprise Value			36	%			64	%

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		1 Day				1 Month
Median for Precedent Transactions			15%				21%
BellSouth/ AT&T			16%				29%

	Restricted Stock, Restricted Stock Units and Stock Options

						Unvested Restricted				Unvested Stock
Name and Principal Position		Restricted Stock				Stock Units				Options
F. Duane Ackerman			203,369				123,650				269,784	(1)
Chairman of the Board and Chief Executive Officer
Mark L. Feidler			97,000				49,850				184,400
President and Chief Operating Officer
W. Patrick Shannon			72,900				100,400				30,000
Chief Financial Officer
Richard Anderson			63,500				30,850				—
Vice Chairman and President — Business Markets
Francis A. Dramis, Jr.			76,500				24,200				—
Chief Information, E-Commerce and Security Officer
Other executive officers as a group (3 individuals)			148,066				43,400				57,100
Non-employee directors as a group (9 individuals)			—				—				69,247	(1)

(1)	These options vest in May 2006 in accordance with their terms.

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	Performance Shares

						Estimated
		No. of Performance				Value of
Name		Shares				Performance Shares
F. Duane Ackerman			1,045,500			$	24,648,782
Mark L. Feidler			351,400				8,734,321
W. Patrick Shannon			202,425				4,842,425
Richard Anderson			259,250				6,175,341
Francis A. Dramis, Jr.			236,300				5,593,633
Other executive officers as a group (3 individuals)			309,300				8,087,799

	1. a multiple of the sum of (a) the executive officer’s base salary in effect immediately before the termination date or in effect immediately before the completion of the merger, whichever is greater, and (b) the executive officer’s target bonus for the year of termination or for the year in which the merger occurs, whichever is greater;

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	2. a pro rata bonus based on the elapsed portion of the calendar year through the date of termination, at the greater of target levels or actual performance through the calendar quarter ending on or immediately preceding the date of termination;
	3. full vesting of benefits under the nonqualified deferred compensation plans, supplemental retirement and excess benefit plans, and life insurance plans in which the executive officer participates, which means that the benefits under these plans will be determined as if the executive officer is service pension eligible as defined under these plans as of the date of his termination of employment;
	4. outplacement assistance; and
	5. accrued base salary and other amounts earned through the date of termination but not paid as of the date of termination.

		Estimated Cash
Name		Severance Pay
F. Duane Ackerman		$	9,213,750
Mark L. Feidler		$	5,197,500
W. Patrick Shannon		$	3,150,000
Richard Anderson		$	3,830,400
Francis A. Dramis, Jr.		$	3,696,000
Other executive officers as a group (3 individuals)		$	6,844,950

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	•	a citizen or resident of the United States;
	•	a corporation, or other entity taxable as a corporation for United States federal income tax purposes, created or organized under the laws of the United States or any of its political subdivisions;
	•	a trust if it

	•	is subject to the primary supervision of a court within the United States and one or more United States persons have the authority to control all substantial decisions of the trust, or
	•	has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person; or

	•	an estate that is subject to United States federal income tax on its income regardless of its source.

	The Merger

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	•	a U.S. holder will not recognize any gain or loss upon receipt of AT&T common shares solely in exchange for BellSouth common shares in the merger, except with respect to cash received in lieu of a fractional share of AT&T common shares (as discussed below);
	•	a U.S. holder’s aggregate tax basis in the AT&T common shares received in the merger (including any fractional shares deemed received and redeemed as described below) will be equal to the U.S. holder’s aggregate tax basis in the BellSouth common shares surrendered; and
	•	a U.S. holder’s holding period of the AT&T common shares received in the merger (including any fractional shares deemed received and redeemed as described below) will include the U.S. holder’s holding period of the BellSouth common shares surrendered.

	•	provides a correct taxpayer identification number and any other required information to the exchange agent; or
	•	is a corporation or comes within certain exempt categories and otherwise complies with applicable requirements of the backup withholding rules.

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	HSR Act and Antitrust

	FCC Approval

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	State Regulatory Approvals

	Municipal Franchises

	Foreign and Certain Other Regulatory Matters

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	•	the merger consideration is inadequate and unfair in offering a very meager premium and not reflecting the intrinsic value of BellSouth;
	•	the directors failed to properly inform themselves of BellSouth’s value or its strategic alternatives because the proposed transaction is not the result of a pre-signing auction or market check process and the merger agreement does not provide a market check mechanism process;
	•	the size of the termination fee, the no-shop and matching rights provisions of the merger agreement, which provides AT&T with information on any third party proposal but not information to a third party on any amended AT&T proposal, are impermissible steps to lock up the deal and will hinder and deter other potential acquirers from seeking to acquire BellSouth on better terms than the proposed merger; and
	•	by agreeing to the merger, the BellSouth directors have served their own interests at the expense of shareholders, including the triggering of change in control agreements.

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	•	Employees of BellSouth: If you are a registered shareholder and/or own BellSouth common shares in the Savings and Security Plan, which we refer to as the SSP, and/or the BellSouth Retirement Savings Plan, which we refer to as the BRSP, and the accounts are registered in the same name, you will receive one proxy card representing your combined shares that will serve as voting instructions to the Directors’ Proxy Committee, if applicable, and also to the trustees of those plans.

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	•	Employees of Cingular: If you own BellSouth common shares through the Cingular Wireless 401(k) Savings Plan, and you are also a registered BellSouth shareholder with your account in the same name, you will receive one proxy card representing the combined shares that will serve as voting instructions to the Directors’ Proxy Committee, if applicable, and also to the trustee of that plan.

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	•	organization, good standing and qualification;
	•	capital structure;
	•	corporate authority, approval and fairness matters;
	•	governmental filings and absence of violations;
	•	SEC filings and financial statements (including, in the case of AT&T, with respect to filings and financial statements of ATTC prior to the merger of SBC and ATTC);
	•	absence of specified material adverse effect and certain changes;
	•	litigation and liabilities;
	•	employee benefits;
	•	compliance with laws;
	•	takeover statutes;
	•	environmental matters;
	•	tax matters;
	•	labor matters;
	•	intellectual property;
	•	affiliate transactions;
	•	insurance; and
	•	brokers and finders.

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	•	certain contracts; and
	•	its shareholder rights agreement.

	•	changes or conditions generally affecting the United States economy or financial or securities markets, political conditions in the United States or the United States telecommunications industry or any generally recognized business segment of such industry;
	•	changes or conditions resulting from the execution, announcement or performance of the merger agreement; or
	•	changes or conditions resulting from or arising in connection with the financial condition, properties, assets, liabilities, business or results of operations of Cingular, YellowPages.com or any of their respective subsidiaries.

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	•	BellSouth will not:

	•	amend its articles of incorporation or by-laws;
	•	amend, modify or terminate its shareholder rights agreement in any manner adverse to AT&T’s rights under the merger agreement or exempt any person other than AT&T from the provisions of that agreement relating to the acquisition of BellSouth common shares;
	•	amend, modify, terminate or waive any provision under any standstill agreement unless an amendment, modification, termination or waiver which is the same in all substantive respects is unconditionally offered to be made with respect to the standstill agreement applicable to AT&T (provided that any amendment to the standstill agreement with AT&T need remain in effect only until the termination of the merger agreement);
	•	split, combine, subdivide or reclassify its outstanding shares of capital stock;
	•	declare, set aside or pay any dividend or distribution payable in cash, shares or property in respect of any capital stock, other than regular quarterly cash dividends on the BellSouth common shares in amounts not to exceed $0.29 per fiscal quarter; or
	•	repurchase, redeem or otherwise acquire or permit any of its subsidiaries to purchase or otherwise acquire any shares of its capital stock or any securities convertible into or exchangeable or exercisable for any of its common shares, except that BellSouth may repurchase its common shares in the ordinary course of business as necessary to effect the issuance of its common shares in respect of outstanding options to purchase BellSouth common shares and other awards under BellSouth’s compensation or benefit plans and the issuance of common shares under the BellSouth direct investment plan and otherwise in an amount not to exceed $500 million in any fiscal quarter;

	•	neither BellSouth nor any of its subsidiaries will merge or consolidate or adopt a plan of liquidation, except for any transactions among wholly-owned subsidiaries of BellSouth and BellSouth, with certain exceptions;
	•	neither BellSouth nor any of its subsidiaries will take any action that would prevent the merger from qualifying as a “reorganization” within the meaning of Section 368(a) of the Code;
	•	neither BellSouth nor any of its subsidiaries will terminate, establish, adopt, enter into, make any new grants or awards of stock-based compensation or other benefits under, amend or otherwise modify, any compensation and benefit plans or increase the salary, wage, bonus or other compensation of any directors, officers or key employees except for:

	•	grants or awards to directors, officers and employees of BellSouth or its subsidiaries under compensation and benefit plans in existence as of the date of the merger agreement in such amounts and on such terms as are consistent with past practice;
	•	in the normal and usual course of business, which includes normal periodic performance reviews and related BellSouth compensation and benefit plan increases in compensation and employee benefits and the provision of compensation and employee benefits under compensation and benefit plans, consistent with past practice for current, promoted or newly hired officers and employees and the adoption of compensation and benefit plans for employees of new subsidiaries in amounts and on terms consistent with past practice (however, in no event will BellSouth institute a broad based change in compensation or increase or institute any new severance, change in control, termination or deferred compensation benefits); or

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	•	actions necessary to satisfy existing contractual obligations under the BellSouth compensation and benefit plans existing as of the date of the merger agreement, provided that in no event will BellSouth or any of its subsidiaries:
	•	take any action to fund or in any other way secure the payment of compensation or benefits, other than certain rabbi trusts in accordance with their terms;
	•	take any action to accelerate the vesting or payment of any compensation or benefits, other than with respect to officers and other employees whose employment terminates prior to the effective time of the merger as required by the terms of a compensation and benefit plan in effect on the date of the merger agreement or in the ordinary course of business consistent with past practice (but in the latter case, excluding officers of BellSouth who are subject to Section 16 of the Exchange Act);
	•	other than in the ordinary course of business and consistent with past practice, materially change any actuarial or other assumptions used to calculate funding obligations with respect to any BellSouth compensation and benefit plan or change the manner in which contributions to these plans are made or the basis on which these contributions are determined, except as may be required by generally accepted accounting principles or applicable law; or
	•	amend the terms of any outstanding equity-based award, other than with respect to officers and other employees whose employment terminates prior to the effective time as required by the terms of a compensation and benefit plan in effect on the date of the merger agreement or in the ordinary course of business consistent with past practice (but in the latter case, excluding officers of BellSouth who are subject to Exchange Act Section 16);

	•	neither BellSouth nor any of its subsidiaries will incur any indebtedness for borrowed money or guarantee such indebtedness, or issue or sell any debt securities or warrants or other rights to acquire any debt security of BellSouth or any of its subsidiaries, except for indebtedness for borrowed money incurred in the ordinary course of business not to exceed $1.5 billion in the aggregate, indebtedness for borrowed money in replacement of existing indebtedness for borrowed money, guarantees by BellSouth of indebtedness of its wholly-owned subsidiaries, or interest rate swaps on customary commercial terms consistent with past practice and not to exceed $750 million of notional debt in the aggregate in addition to notional debt currently under swap or similar agreements;
	•	neither BellSouth nor any of its subsidiaries will make or commit to any capital expenditures other than in the ordinary course of business and in any event not in excess of 110% of the aggregate amount reflected in BellSouth’s capital expenditure budget for the year in which such capital expenditures are made;
	•	neither BellSouth nor any of its subsidiaries will transfer, lease, license, sell, mortgage, pledge, place any lien, charge, pledge, security interest, claim or other encumbrance upon or otherwise dispose of any interest of BellSouth or its subsidiaries in Cingular (other than transfers to BellSouth or its wholly-owned subsidiaries), or otherwise transfer, lease, license, sell, mortgage, pledge, place any lien, charge, pledge, security interest, claim or other encumbrance upon or otherwise dispose of any other property or assets (including capital stock of any of BellSouth’s subsidiaries) with a fair market value in excess of $500 million in the aggregate, subject to certain exceptions in the ordinary course of business and consistent with past practice;
	•	neither BellSouth nor any of its subsidiaries will issue, deliver, sell, or encumber shares of the capital stock or any securities convertible into, or any rights, warrants or options to acquire, any such shares except:

	•	any BellSouth common shares issued pursuant to options to purchase BellSouth common shares, and any rights to acquire or receive BellSouth common shares or benefits measured by the value of BellSouth common shares, in each case which are outstanding on the date of the merger

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		agreement under BellSouth stock-based compensation and benefit plans, as well as rights to acquire or receive BellSouth common shares or benefits measured by the value of BellSouth common shares and awards of performance shares granted under the BellSouth stock-based compensation and benefit plans in accordance with the merger agreement and BellSouth common shares issuable pursuant to such rights and awards;
	•	any BellSouth common shares issued pursuant to the BellSouth direct investment plan;
	•	rights to acquire or receive BellSouth common shares or benefits measured by the value of BellSouth common shares or performance shares issued in the ordinary course of business under the BellSouth stock plans (however, no more than 400,000 BellSouth common shares may be issued in the aggregate in respect of such rights and performance shares); and
	•	issuances of capital stock by wholly-owned subsidiaries of BellSouth to BellSouth or any wholly-owned subsidiary of BellSouth;

	•	neither BellSouth nor any of its subsidiaries will spend in excess of $1 billion in the aggregate to acquire any business, whether by merger, consolidation, purchase of property or assets or otherwise; provided that neither BellSouth nor any of its subsidiaries will make, or agree to make, any acquisition that would reasonably be likely to prevent or materially delay or impair the merger or BellSouth’s ability to complete the transactions contemplated the merger agreement;
	•	neither BellSouth nor any of its subsidiaries will make any change with respect to accounting policies, except as required by changes in U.S. generally accepted accounting principles or by applicable law, or except as BellSouth, based upon the advice of its independent registered public accounting firm, and after consultation with AT&T, determines in good faith is advisable to conform to best accounting practices;
	•	neither BellSouth nor any of its subsidiaries will, except as required by applicable law, make any material tax election or take any material position on any material tax return filed on or after the date of the merger agreement or adopt any material method therefor that is inconsistent with elections made, positions taken or methods used in preparing or filing similar tax returns in prior periods or settle or resolve any material tax controversy;
	•	neither BellSouth nor any of its subsidiaries will enter into any material line of business in any geographic area other than the businesses of BellSouth or any of its subsidiaries in the geographic areas where they are conducted, as of the date of the merger agreement, except as conducted as of the date of the merger agreement, engage in the conduct of any business in any geographic area which would require a license issued or granted by a governmental entity to be obtained by BellSouth or any of its subsidiaries, or file for any license to be issued by a governmental entity outside of the ordinary course of business, if in each case a filing would be required to be made with, or a consent or approval would be required to be obtained from, a government entity prior to the effective time with respect to transfer of the license and the conduct or filing for the license would reasonably be likely to prevent or delay the merger or result in the merger being prevented or delayed;
	•	neither BellSouth nor any of its subsidiaries will make any loans, advances or capital contributions to or investments in any entity or person (other than BellSouth or any direct or indirect wholly-owned subsidiary of BellSouth or Cingular, Yellowpages.com LLC or any of their respective subsidiaries) in excess of $25 million, individually, or $100 million in the aggregate, other than investments in marketable securities in the ordinary course of business;
	•	neither BellSouth nor any of its subsidiaries will enter into (i) any non-competition contract or other contract that purports to limit in any material respect either the type of business in which BellSouth or its subsidiaries (or, after the effective time of the merger, AT&T and its subsidiaries) may engage or the manner or locations in which any of them may so engage in any business or

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		(ii) any contract requiring BellSouth or its subsidiaries to, in any material respect, deal exclusively with any person or related group of persons;
	•	neither BellSouth nor any of its subsidiaries will settle any litigation or other proceedings before or threatened to be brought before a governmental or regulatory authority, court, agency, commission, body or other legislative, executive or judicial governmental entity for an amount to be paid by BellSouth or any of its subsidiaries (excluding amounts paid or reimbursed by insurance) in excess of $50 million or, in the case of non-monetary settlements, which would be reasonably likely to have an adverse impact in any material respect on the operations of BellSouth and its subsidiaries taken as a whole; and
	•	neither BellSouth nor any of its subsidiaries will authorize or enter into any agreement to do any of the foregoing.

	•	AT&T will not amend AT&T’s certificate of incorporation or by-laws in any manner that would reasonably be likely to prevent or materially delay or impair the merger or the completion of the transactions contemplated by the merger agreement, except that AT&T may amend its certificate of incorporation to increase the authorized number of shares of any class or series of AT&T capital stock;
	•	AT&T will not split, combine, subdivide or reclassify its outstanding shares of AT&T capital stock;
	•	AT&T will not declare, set aside or pay any dividend or distribution payable in cash, shares or property in respect of any capital stock, other than regular quarterly cash dividends on AT&T common shares in amounts not to exceed $0.3325 per fiscal quarter, as the same may be increased from time to time in a manner consistent with past practice;
	•	AT&T will not repurchase, redeem or otherwise acquire or permit any of AT&T’s subsidiaries to purchase or otherwise acquire any shares of its capital stock or any securities convertible into or exchangeable or exercisable for any shares of its capital stock. AT&T may, however, repurchase AT&T common shares in the ordinary course of business in connection with the issuance of AT&T common shares in respect of outstanding options to purchase AT&T common shares or otherwise under each material benefit and compensation plan, contract, policy or arrangement maintained, sponsored or contributed to by AT&T or any of its subsidiaries covering current or former employees of AT&T and its subsidiaries and AT&T may otherwise repurchase AT&T common shares in open market purchases not to exceed $1 billion per fiscal quarter;
	•	AT&T will not merge or consolidate, or permit any of its subsidiaries to merge or consolidate, with any other person, or adopt a plan of liquidation, with exceptions for transactions otherwise permitted in certain other sections of the merger agreement;
	•	neither AT&T nor any of its subsidiaries will take any action that would prevent the merger from qualifying as a “reorganization” within the meaning of Section 368(a) of the Code;

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	•	neither AT&T nor any of its subsidiaries will incur any indebtedness for borrowed money or guarantee the indebtedness of another person, or issue or sell any debt securities or warrants or other rights to acquire any debt security of AT&T or any of its subsidiaries, except for indebtedness for borrowed money incurred in the ordinary course of business not to exceed $4 billion in the aggregate, indebtedness for borrowed money in replacement of existing indebtedness for borrowed money and other indebtedness permitted to be incurred under the merger agreement, guarantees by AT&T of indebtedness of its wholly-owned subsidiaries, or interest rate swaps on customary commercial terms consistent with past practice;
	•	neither AT&T nor any of its subsidiaries will make or commit to any capital expenditures in excess of 110% of the aggregate amount reflected in AT&T’s capital expenditure budget for the year in which the capital expenditures are made;
	•	neither AT&T nor any of its subsidiaries will transfer, lease, license, sell, mortgage, pledge, place any lien, charge, pledge, security interest, claim or other encumbrance upon or otherwise dispose of any interest of AT&T’s or its subsidiaries in Cingular (other than transfers to AT&T or its wholly-owned subsidiaries), or any other property or assets (including capital stock of any of its subsidiaries), with a fair market value in excess of $2 billion in the aggregate, except in the latter case for:

	•	dispositions of minority interests and real estate no longer being utilized or needed;
	•	transfers, leases, licenses, sales, mortgages, pledges, liens, or other dispositions in the ordinary course of business, or transfers, leases, licenses, sales, mortgages, pledges, liens, or other dispositions in connection with sale/leaseback transactions;
	•	certain permitted mortgages, pledges and liens to secure indebtedness for borrowed money as described above; or
	•	dispositions of assets in connection with certain transactions otherwise permitted under the merger agreement;

	•	neither AT&T nor any of its subsidiaries will issue, deliver, sell, or encumber shares of its capital stock or any securities convertible into, or any rights, warrants or options to acquire, any such shares (subject to certain exceptions) except:

	•	any AT&T common shares issued pursuant to options and other awards outstanding on the date of the merger agreement under each material benefit and compensation plan, contract, policy or arrangement maintained, sponsored or contributed to by AT&T or any of its subsidiaries covering current or former employees of AT&T and its subsidiaries;
	•	awards or options under the benefit and compensation plans granted in accordance with, and after the date of, the merger agreement and AT&T common shares issuable pursuant to such awards;
	•	any outstanding options to purchase AT&T common shares and other stock payable awards issued in the ordinary course of business under such stock-based compensation and benefit plans. However, outstanding options to purchase AT&T common shares and other awards issued after the date of the merger agreement will not be, or be exercisable, for more than 121,000,000 AT&T common shares in the aggregate; and
	•	issuances of AT&T common shares with an aggregate fair market value not in excess of $1 billion (as of the date of the commitment to issue) in connection with acquisitions, mergers, consolidations or purchases of property otherwise permitted under the merger agreement;

	•	neither AT&T nor any of its subsidiaries will spend in excess of $4 billion in the aggregate to acquire any business, whether by merger, consolidation, purchase of property or assets or otherwise, provided that neither AT&T nor any of its subsidiaries will make any acquisition that would, or would reasonably be likely to prevent or materially delay or impair the merger or completion of the transactions contemplated by the merger agreement;

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	•	neither AT&T nor any of its subsidiaries will enter into any material line of business other than the current businesses of AT&T and its subsidiaries if entering into such line of business would prevent or materially delay or impair the merger; and
	•	neither AT&T nor any of its subsidiaries will authorize or enter into any agreement to do any of the foregoing.

	•	initiate, solicit, or knowingly facilitate or encourage, any inquiries or the making of any proposal or offer, which we refer to as an acquisition proposal, that constitutes or could reasonably be likely to lead to an acquisition proposal; or
	•	engage in, continue or otherwise participate in any discussions or negotiations regarding, or provide any non-public information or data to any person other than AT&T and Merger Sub who has made, or proposes to make, or otherwise knowingly facilitate, or encourage an acquisition proposal.

	•	providing information in response to a request by a person who has made a bona fide written acquisition proposal that was not initiated, solicited, facilitated or encouraged, in violation of the merger agreement by BellSouth, or by BellSouth’s representatives, prior to the time the acquisition proposal was first made after the date of the merger agreement, if BellSouth receives from the person requesting information an executed confidentiality agreement on terms substantially similar to those contained in the non-disclosure agreement between BellSouth and AT&T, dated as of February 16, 2006, together with a customary standstill agreement on terms no more favorable to that other person than the standstill agreement applicable to AT&T. The term of the standstill agreement, however, may be shorter than the time of the standstill applicable to AT&T, but not less than 9 months, and other provisions of the standstill agreement may be more favorable to such person, to the extent customary. In that case, the term and other provisions of the standstill agreement applicable to AT&T will, for so long as the merger agreement is in effect, automatically be reduced to be as favorable to AT&T as the other standstill agreement is to that other person or made more favorable to AT&T; or
	•	engaging in discussions or negotiations with any person who has made a bona fide written acquisition proposal that was not initiated, solicited, facilitated or encouraged, in violation of the merger agreement by BellSouth, or by BellSouth’s representatives, prior to the time the acquisition proposal was first made after the date of the merger agreement;

	•	in each case referred to above, the board of directors of BellSouth determines in good faith, after consultation with its financial advisers and legal counsel, that this action is necessary in order for the directors of BellSouth to comply with their fiduciary duties under applicable law; and

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	•	in the case referred to in the second bullet point above, if the board of directors of BellSouth has also determined in good faith based on all the information then available and after consultation with its financial advisers and legal counsel that the acquisition proposal either constitutes or is reasonably likely to result in a superior proposal. By superior proposal, we refer to a bona fide acquisition proposal: (i) involving assets of BellSouth or its subsidiaries representing at least 50% of the fair market value of the consolidated assets of BellSouth (including its interest in Cingular and YellowPages.com LLC ), or at least 50% of the outstanding BellSouth common shares; (ii) that was not initiated, solicited, facilitated or encouraged in violation of the merger agreement by BellSouth or by BellSouth’s representatives prior to the time such acquisition proposal was first made after the date of the merger agreement; and (iii) that the board of directors of BellSouth determines in good faith, after consultation with its financial advisers and legal counsel, is reasonably likely to be completed in accordance with its terms, taking into account all legal, financial and regulatory aspects of the proposal and the person making the proposal, and if completed, would result in a transaction more favorable to BellSouth’s shareholders from a financial point of view than the transaction contemplated by the merger agreement, after taking into account any revisions to the terms of the transaction contemplated by the merger agreement agreed to by AT&T.

	•	(i) BellSouth or AT&T has received a superior proposal; (ii) the board of directors of BellSouth or AT&T determines in good faith (after consultation with its financial advisers and outside legal counsel), that, as a result of such superior proposal, such change in the board of directors’ recommendation is necessary in order for the directors of BellSouth or AT&T to comply with their fiduciary duties under applicable law; (iii) three business days have elapsed following delivery by BellSouth to AT&T or by AT&T to BellSouth of written notice advising the other party that the board of directors of BellSouth or AT&T intends to make such change in the board of directors’ recommendation, specifying the material terms and conditions of the superior proposal and identifying the person making the superior proposal; (iv) BellSouth or AT&T has given the other

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		party the opportunity to propose revisions to the terms of the transactions contemplated by the merger agreement, and BellSouth and its representatives or AT&T and its representatives have, if requested by the other party, negotiated in good faith with the other party and its representatives regarding any revisions to the terms of the transactions contemplated by the merger agreement proposed by the other party and the board of directors of BellSouth or AT&T continues to believe in good faith, as a result of the acquisition proposal, that the change in its recommendation is necessary in order for such directors to comply with their fiduciary duties under applicable law and in light of any revisions to the terms of the transaction contemplated by the merger agreement to which the other party has agreed; and (v) in the case of withholdings, withdrawals, qualifications or modifications by BellSouth, BellSouth has complied with its obligations with respect to acquisition proposals as set forth in the merger agreement in all material respects; or
	•	to approve, or recommend to the shareholders of BellSouth or AT&T, any superior proposal made after the date of the merger agreement, which we refer to as a superior proposal action, if the board of directors of BellSouth or AT&T determines in good faith (after consultation with its financial advisers and legal counsel) that this action is necessary in order for the directors of BellSouth or AT&T to comply with their fiduciary duties under applicable law. However, BellSouth’s or AT&T’s board of directors may not take a superior proposal action unless all of the conditions in the previous bullet point above have been satisfied (substituting the term “superior proposal action” for the term “change in the board of director’s recommendation” in clauses (ii) and (iii)) and the acquisition proposal continues to be a superior proposal in light of any revisions to the terms of the transaction contemplated by the merger agreement to which the other party has agreed.

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	•	cure, no later than the effective time of the merger, any material violations and defaults by any of them under any applicable rules and regulations of the FCC;
	•	comply in all material respects with the terms of its FCC licenses and file or cause to be filed with the FCC all reports and other filings to be filed under applicable FCC rules and regulations; and
	•	take all actions, to the extent reasonably requested by AT&T in writing, for each of AT&T and BellSouth to be in compliance upon the completion of the merger with the provisions of Sections 271 and 272 of the Communications Act of 1934, as amended (including any orders issued by the FCC interpreting or implementing such provisions).

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	•	neither BellSouth nor AT&T will have any obligations under the rights agreement or rights issued in connection with the rights agreement;
	•	the holders of the rights will have no rights under the rights or the rights agreement; and
	•	the rights agreement will expire.

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	•	the merger agreement will have been duly approved by holders of a majority of the outstanding BellSouth common shares entitled to vote on the matter and the issuance of AT&T common shares required to be issued to the BellSouth shareholders pursuant to the merger agreement will have been duly approved by holders of a majority of the votes cast on the proposal, so long as the total vote cast represents at least 50% of all of the outstanding AT&T common shares;
	•	the AT&T common shares issuable to BellSouth shareholders pursuant to the merger agreement will have been authorized for listing on the NYSE upon official notice of issuance;
	•	the waiting period applicable to the completion of the merger under the HSR Act will have expired or been earlier terminated and the EC Merger Regulation, if applicable, will have expired or been earlier terminated;
	•	all approvals and authorizations required to be obtained from the FCC for the completion of the merger will have been obtained;
	•	all approvals and authorizations required to be obtained from any state PUC in order to complete the merger will have been obtained;
	•	all other approvals and authorizations the failure of which to make or obtain would, individually or in the aggregate, reasonably be likely to result in a regulatory material adverse effect or be reasonably likely to result in an officer or director of AT&T or BellSouth being subject to criminal liability will have been made or obtained;
	•	no court in the U.S. or U.S. federal or state legislature, or the applicable competition authorities or courts of the United Kingdom, will have enacted, issued, promulgated, enforced or entered after the date of the merger agreement any law, order, decree or injunction (whether temporary, preliminary or permanent) that is in effect and enjoins or otherwise prohibits completion of the merger, and no other governmental entity will have enacted, issued, promulgated, enforced or entered an order which is, individually or in the aggregate, reasonably likely to result in a regulatory material adverse effect or reasonably likely to subject any officer or director of AT&T or BellSouth to criminal liability; and
	•	the registration statement of which this joint proxy statement/ prospectus forms a part will have been declared effective by the SEC under the Securities Act and no stop order suspending its effectiveness will have been issued by the SEC.

	•	the representations and warranties made by BellSouth in the merger agreement relating to the capital stock of BellSouth will be true and correct in all material respects as of the date of the merger agreement and as of the closing date as though made on and as of the closing date (except to the extent the representation and warranty expressly speaks as of an earlier date, in which case that representation and warranty will be true and correct as of such earlier date);
	•	the representations and warranties of BellSouth set forth in the merger agreement that are qualified with respect to material adverse effect will be true and correct as of the date of the merger agreement and as of the closing date and (except to the extent that any such representation and

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		warranty expressly speaks as of a particular date, in which case such representation and warranty will be true and correct as of such earlier date);
	•	the other representations and warranties of BellSouth set forth in the merger agreement will be true and correct as of the date of the merger agreement and as of the closing date (except to the extent that the representation or warranty speaks as of a particular date, in which case that representation or warranty will be true and correct as of that date), unless the failure of the representations and warranties of BellSouth to be so true and correct, without reference to any materiality qualification, individually or in the aggregate, will have had or would reasonably be likely to have a material adverse effect upon BellSouth;
	•	BellSouth will have performed in all material respects all obligations required to be performed by it under the merger agreement at or prior to the closing;
	•	BellSouth will have obtained the consent or approval of each person whose consent or approval is required in order to complete the transactions contemplated by the merger agreement under any contract to which BellSouth or any of its subsidiaries is a party, except those for which the failure to obtain consent or approval would not, individually or in the aggregate, reasonably be likely to have a material adverse effect upon BellSouth;
	•	AT&T will have received the written opinion of Sullivan & Cromwell LLP, counsel to AT&T, or other counsel reasonably satisfactory to AT&T, dated as of the closing date, to the effect that the Merger will be treated for federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code. In rendering this opinion, counsel to AT&T will be entitled to rely upon assumptions, representations, warranties and covenants, including those contained in the merger agreement and in the tax representation letters described in “— Covenants and Agreements — Tax-Free Qualification”, above; and
	•	all governmental consents that have been obtained will have been obtained without the imposition of any term, restriction, condition or consequence that would, individually or in the aggregate, reasonably be likely to have or result in a regulatory material adverse effect, and all required governmental consents obtained from the FCC will have been obtained by a final order.

	•	the representations and warranties made by AT&T and Merger Sub in the merger agreement relating to the capital stock of AT&T and Merger Sub will be true and correct in all material respects as of the date of the merger agreement and as of the closing date as though made on and as of the closing date (except to the extent a representation and warranty expressly speaks as of an earlier date, in which case that representation and warranty will be true and correct as of that earlier date);
	•	the representations and warranties of AT&T and Merger Sub set forth in the merger agreement that are qualified with respect to material adverse effect will be true and correct as of the date of the merger agreement and as of the closing date and (except to the extent that a representation and warranty expressly speaks as of a particular date, in which case that representation and warranty will be true and correct as of that earlier date);
	•	the other representations and warranties of AT&T and Merger Sub set forth in the merger agreement will be true and correct as of the date of the merger agreement and as of the closing date (except to the extent that a representation or warranty speaks as of a particular date, in which case that representation or warranty will be so true and correct as of that date), unless the failure of the representations and warranties of AT&T and Merger Sub to be so true and correct, without reference to any materiality qualification, individually or in the aggregate, will not have had or would not reasonably be likely to have a material adverse effect upon AT&T;

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	•	Each of AT&T and Merger Sub will have performed in all material respects all obligations required to be performed by it under the merger agreement at or prior to the closing of the merger; and
	•	BellSouth will have received the written opinion of Fried, Frank, Harris, Shriver & Jacobson LLP, counsel to BellSouth, or other counsel reasonably satisfactory to BellSouth, dated as of the closing date, to the effect that the merger will be treated for Federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code. In rendering that opinion, counsel to BellSouth will be entitled to rely upon assumptions, representations, warranties and covenants, including those contained in the merger agreement and in the tax representation letters described in “— Covenants and Agreements — Tax-Free Qualification”, above.

	•	by mutual written consent of AT&T and BellSouth;
	•	by either AT&T or BellSouth if:

	•	the merger is not completed by March 6, 2007, unless the closing conditions with respect to certain orders of governmental entities and required governmental consents have not been satisfied by March 6, 2007, in which case the termination date may be extended from time to time by AT&T or BellSouth one or more times to a date not beyond September 6, 2007. However, the right to terminate the merger agreement under these circumstances will not be available to any party that has breached its obligations under the merger agreement in any manner that will have proximately contributed to the occurrence of the failure of a condition to the complete the merger;
	•	the approval of the merger agreement by BellSouth shareholders was not obtained at a BellSouth shareholders’ meeting duly convened to vote on the matter, or at any adjournment or postponement of the meeting at which a vote on the merger agreement was taken;
	•	the approval of AT&T shareholders necessary for the issuance of AT&T common shares required to be issued to BellSouth shareholders pursuant to the merger agreement was not obtained at an AT&T shareholders’ meeting duly convened to vote on the matter, or at any adjournment or postponement of the meeting at which a vote on the merger agreement was taken; or
	•	any order of a governmental entity permanently restraining, enjoining or otherwise prohibiting the completion of the merger becomes final and non-appealable, except for any orders the existence of which would not result in the failure of a closing condition, see “— Conditions to the Merger — Conditions to Each Party’s Obligations to Effect the Merger” on page 86.

	•	by BellSouth if:

	•	prior to the receipt of the approval of the AT&T shareholders of the issuance of AT&T common shares required to be issued to BellSouth shareholders pursuant to the merger agreement, the board of directors of AT&T has withheld or withdrawn, or qualified or modified in a manner reasonably likely to be understood to be adverse to BellSouth, its recommendation with respect to such issuance of shares;
	•	prior to the receipt of the approval of the merger agreement by BellSouth’s shareholders, the board of directors of BellSouth approves a superior proposal in accordance with the terms of the merger agreement and authorizes BellSouth to enter into a binding written agreement providing for such superior proposal and, prior to or simultaneous with entering into such agreement pays to AT&T in immediately available funds a $1.7 billion termination fee, see “— Termination Fees and Expenses” below; or

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	•	there has been a breach of any representation, warranty, covenant or agreement made by AT&T or Merger Sub in the merger agreement, or any representation and warranty will have become untrue after the execution of the merger agreement, such that closing conditions to BellSouth’s obligation to effect the merger would not be satisfied and this breach or failure to be true would not be not curable or, if curable, would not be curable by the termination date (as it may be extended).

	•	by AT&T if:

	•	prior to the receipt of the approval of the merger agreement by BellSouth’s shareholders, the board of directors of BellSouth has withheld or withdrawn, or qualified or modified in a manner reasonably likely to be understood to be adverse to AT&T, its recommendation that the BellSouth shareholders approve the merger agreement, or has approved or recommended to the shareholders of BellSouth any acquisition proposal other than AT&T’s proposal;
	•	there has been a breach of any representation, warranty, covenant or agreement made by BellSouth in the merger agreement, or any such representation and warranty will have become untrue after the date of the merger agreement, such that closing conditions to AT&T’s obligation to effect the merger would not be satisfied and such breach or failure to be true would not be curable or, if curable, would not be curable by the termination date (as it may be extended); or
	•	BellSouth has willfully or intentionally breached in any material respect its obligations under the merger agreement relating to acquisition proposals.

	Termination Fees and Expenses Payable by BellSouth

	•	terminated by either party on the basis of the failure of the BellSouth shareholders to approve the merger agreement at the BellSouth special meeting, and between the date of the merger agreement and the vote on the approval of the merger agreement at the BellSouth special meeting, one or more bona fide acquisition proposals involving 50% or more of the outstanding BellSouth common shares, or assets of BellSouth (including its interests in Cingular), representing 50% or more of the fair market value of the consolidated assets of BellSouth (including its interests in Cingular) or otherwise involving a transaction or series of transactions that could reasonably be expected to result in value to holders of BellSouth common shares comparable to or more favorable than the transactions contemplated by the merger agreement, which we refer to as a covered proposal, has

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		been publicly made or any person will have publicly announced an intention (whether or not conditional) to make a covered proposal; or
	•	terminated by AT&T on the ground that BellSouth’s board of directors has withheld, withdrawn, qualified or modified in a manner reasonably likely to be understood to be adverse to AT&T its recommendation that the merger agreement be approved, or terminated by AT&T on the basis of a willful or intentional breach of any representation, warranty, covenant or agreement made by BellSouth in the merger agreement and a covered proposal has been made after the date of the merger agreement; and
	•	within 12 months after the date of a termination, any person (other than AT&T or any of its affiliates or BellSouth and any of its subsidiaries) has acquired, or has entered into an agreement to acquire, by acquisition, merger, consolidation or other business combination transaction or by purchase, sale, assignment, lease, transfer or otherwise, in one transaction or in a series of related transactions, at least 50% of the outstanding BellSouth common shares (or shareholders of BellSouth immediately prior to that transaction cease to hold at least 50% of the BellSouth common shares (or any successor shares) after that transaction) or at least 50% of the fair market value of BellSouth’s consolidated assets (including its interests in Cingular) or BellSouth or one or more of its subsidiaries transfers or otherwise disposes of at least 50% of the fair market value of BellSouth’s consolidated assets or BellSouth or one or more of its subsidiaries publicly announces its intention to effect any such acquisition, transfer or disposition that, in one transaction or a series of related transactions, includes as the principal part an extraordinary dividend, spin-off, split-off, distribution, reclassification, issuer tender offer or similar transaction and thereafter completes that transaction or a substantially similar transaction (it being understood that a difference in consideration will not be taken into account in determining if the completed transaction is substantially similar);

	Termination Fees and Expenses Payable by AT&T

	•	by either party on the basis of the failure of AT&T’s shareholders to approve the issuance of AT&T common shares required to be issued to BellSouth’s shareholders pursuant to the merger agreement, or by BellSouth on the ground that AT&T’s board of directors has withheld, withdrawn, qualified or modified in a manner reasonably likely to be understood to be adverse to BellSouth its recommendation that the issuance of AT&T common shares to BellSouth shareholders as required pursuant to the merger agreement be approved; and
	•	prior to the AT&T special meeting, but after the date of the merger agreement, a covered proposal (for this purpose, substituting AT&T for BellSouth and AT&T common shares for each reference to BellSouth common shares) other than any acquisition proposal from BellSouth or any of its

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		subsidiaries has been publicly made or any person has publicly announced an intention (whether or not conditional) to make a covered proposal; and
	•	within 12 months after the date of a termination, any person other than AT&T or any of its subsidiaries or BellSouth and any of its subsidiaries, has acquired, or has entered into an agreement to acquire, by acquisition, merger, consolidation or other business combination transaction or by purchase, sale, assignment, lease, transfer or otherwise, in one transaction or in a series of related transactions, at least 50% of the outstanding AT&T common shares (or shareholders of AT&T immediately prior to the transactions cease to hold at least 50% of the AT&T common shares (or successor shares) after the transaction) or at least 50% of the fair market value of AT&T’s consolidated assets (including its interest in Cingular) or AT&T or one or more of its subsidiaries transfers or otherwise disposes of at least 50% of the fair market value of AT&T’s consolidated assets or AT&T or one or more of its subsidiaries publicly announces its intention to effect any acquisition, transfer or disposition that, in one or a series of related transactions, includes as the principal part an extraordinary dividend, spin-off, split-off, distribution, reclassification, issuer tender offer or similar transaction and thereafter completes that transaction or a substantially similar transaction (it being understood that a difference in consideration will not be taken into account in determining if the completed transaction is substantially similar),

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																						Adjustments
																														Combined
		Historical				Historical								Pro Forma				Historical				Consolidation								Pro Forma
		AT&T				ATTC*				Adjustments				AT&T/ATTC				BellSouth				of Cingular				Other				AT&T Inc.
Total Operating Revenues		$	43,862			$	23,876			$	(1,677	)(c1)		$	66,061			$	20,547			$	34,433			$	(1,959	)(d1)		$	117,479
																											(873	)(e1)
																											(730	)(e2)
Operating Expenses
Cost of sales (exclusive of depreciation and amortization shown separately below)			19,190				13,117				(1,626	)(c1)			30,656				8,067				14,387				(1,959	)(d1)			49,297
											(25	)(c2)															—	(d2)
																											(873	)(e1)
																											(251	)(e3)
																											(730	)(e2)
Selling, general and administrative			10,861				5,406				(46	)(c2)			16,221				3,873				11,647				(1	)(d2)			31,648
																											(92	)(e3)
Depreciation and amortization			7,643				2,217				990	(c6)			10,188				3,661				6,575				(981	)(d4)			24,318
											(189	)(c6)															1,767	(a2)
											(94	)(c5)															3,108	(b3)
											(379	)(c4)
Asset impairment and net restructuring and other charges			—				—				—				—				276				—				—				276
Total Operating Expenses			37,694				20,740				(1,369	)			57,065				15,877				32,609				(12	)			105,539
Operating Income			6,168				3,136				(308	)			8,996				4,670				1,824				(3,550	)			11,940
Interest expense			1,456				621				(85	)(c3)			1,992				1,124				1,260				(518	)(d1)			3,797
																											(11	)(d3)
																											(50	)(e4)
Other income (expense) — net			1,006				(26	)			—				980				756				(33	)			(518	)(d1)			852
																							(333	)(d)
Income Before Income Taxes			5,718				2,489				(223	)			7,984				4,302				198				(3,489	)			8,995
Provision for income taxes			932				970				(85	)(g)			1,817				1,389				198				(1,349	)(g)			2,055
Income From Continuing Operations		$	4,786			$	1,519			$	(138	)		$	6,167			$	2,913			$	—			$	(2,140	)		$	6,940
Basic Earnings Per Share:
Income From Continuing Operations		$	1.42											$	1.59			$	1.60											$	1.11	(f)
Weighted Average Common Shares Outstanding (000,000)			3,368												3,877				1,823												6,259
Diluted Earnings Per Share:
Income From Continuing Operations		$	1.42											$	1.59			$	1.59											$	1.11	(f)
Weighted Average Common Shares Outstanding with Dilution (000,000)			3,379												3,887				1,829												6,277

*	ATTC results prior to November 18, 2005 acquisition (January 1, 2005 through November 18, 2005).

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											Adjustments
																			Combined
			Historical				Historical				Consolidation of								Pro Forma
			AT&T				BellSouth				Cingular				Other				AT&T Inc.
Assets
Current Assets
Cash and cash equivalents			$	1,224			$	427			$	472			$	—			$	2,123
Accounts receivable — net				9,351				2,555				3,622				—				15,528
Other current assets				4,079				1,227				1,955				—				7,261
	Total current assets			14,654				4,209				6,049				—				24,912
Property, Plant and Equipment — Net				58,727				21,723				21,745				1,533	(b2)			103,728
Goodwill				14,055				—				22,359				40,267	(b2)			68,209
												472	(a5)			(8,944	)(a1)
Other Intangibles — Net				8,503				1,533				28,414				10,200	(b3)			53,551
																5,300	(a2)
																12,500	(a2)
																(11,366	)(a1)
																(1,533	)(b2)
Investments in Equity Affiliates				2,031				33				7				—				2,071
Investments in and Advances to
Cingular Wireless				31,404				21,274				(31,404	)(a)			—				—
												(21,274	)(a)
Other Assets				16,258				7,781				745				45	(b4)			23,602
																(1,227	)(b2)
	Total Assets		$	145,632			$	56,553			$	27,113			$	46,775			$	276,073
Liabilities and Stockholders’ Equity
Current Liabilities
Debt maturing within one year			$	4,455			$	4,109			$	2,036			$	—			$	10,089
												(511	)(a5)
Other current liabilities				20,963				4,545				7,972				—				33,480
	Total current liabilities			25,418				8,654				9,497				—				43,569
Long-Term Debt				26,115				13,079				19,340				289	(a4)			52,659
												(6,717	)(a5)			553	(b5)
Other noncurrent liabilities				39,409				11,286				4,993				5,579	(b4)			60,064
																(1,227	)(b2)
																24	(a3)
	Total noncurrent liabilities			65,524				24,365				17,616				5,218				112,723
Stockholders’ Equity
Common shares issued				4,065				2,020				—				(2,020	)(b6)			6,447
																2,382	(b1)
Capital in excess of par value				27,499				7,960				—				(7,960	)(b6)			90,208
																62,709	(b1)
Members’ Capital				—				—				44,988				—				—
												(44,988	)(a5)
Retained earnings				29,106				20,383								(20,383	)(b6)			29,106
Treasury shares (at cost)				(5,406	)			(6,815	)							6,815	(b6)			(5,406	)
Accumulated other comprehensive income				(574	)			(14	)			(10	)			14	(b6)			(574	)
												10	(a5)
Total stockholders’ equity				54,690				23,534				—				41,557				119,781
Total Liabilities and Stockholders’ Equity			$	145,632			$	56,553			$	27,113			$	46,775			$	276,073

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Note 1.	Basis of Presentation

Note 2.	Pro Forma Adjustments

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	(a1) The acquisition of BellSouth’s portion of Cingular will be accounted for as a step acquisition. In accordance with purchase accounting rules, BellSouth’s investment in Cingular will be adjusted to its fair value through purchase accounting adjustments. Accordingly, the Unaudited Pro Forma Condensed Combined Balance Sheet includes adjustments of $8,944 to eliminate BellSouth’s 40% ownership interest in Cingular’s historical goodwill and $11,366 to eliminate BellSouth’s interest in Cingular’s intangible assets.
	(a2) Of the total amount allocated to “Other Intangibles — Net,” approximately $12,500 represents BellSouth’s portion of the fair value of wireless licenses held by Cingular. These licenses are intangible assets with indefinite lives and, as such, are not subject to amortization. Additionally, AT&T has tentatively assigned approximately $5,300 to BellSouth’s portion of the fair value of Cingular’s customers acquired with an average asset life of 5 years. Amortization of these intangibles is reflected in the Unaudited Pro Forma Condensed Combined Statement of Income using the sum-of-the-months-digits method of amortization. Additionally, the final purchase price allocations, which will be based on third party appraisals, may result in different allocations for tangible and intangible assets than presented in these Unaudited Pro Forma Condensed Combined Financial Statements, and those differences could be material.
	The sum-of-the-months-digits method is a process of allocation, not of valuation and reflects the belief that more revenues will be generated from the assets during the earlier years of their lives. Using the sum-of-the-months-digits method of amortization, which records a larger portion of the amortization expense earlier in the life of the assets, the expected amortization expense for the first year is $1,767.
	(a3) The Unaudited Pro Forma Condensed Combined Balance Sheet has been adjusted to reflect BellSouth’s portion of Cingular’s pension and postretirement benefit plans at fair value. The total adjustment of $24 represents 40 percent of the unrecognized net losses totaling $1 and $21 and 40 percent of the unrecognized prior services cost (benefit) totaling $4 and $(2) for Cingular’s pension and postretirement plans, respectively, as of December 31, 2005. Such amounts were reflected in the balance sheet based on the plans the adjustments relate to and whether such plans were in a net asset or net liability position.
	(a4) The Unaudited Pro Forma Condensed Combined Balance Sheet has been adjusted to report BellSouth’s portion of Cingular’s long-term debt due to external parties at fair value. BellSouth’s portion of the estimated fair value of Cingular’s long-term debt (including current maturities of long-term debt) was $5,261 at December 31, 2005, calculated using quotes or rates available for debt with similar terms and maturities, based on Cingular’s debt ratings at that time. BellSouth’s portion of the carrying value of Cingular’s long-term debt (including current maturities of long-term debt) was $4,972 at December 31, 2005, resulting in a proportional increase to debt of

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	$289. The carrying value of debt with an original maturity of less than one year approximates market value. None of this fair market value adjustment was attributed to current maturities of long-term debt.
	(a5) The Unaudited Pro Forma Condensed Combined Balance Sheet has been adjusted to eliminate Cingular’s December 31, 2005 “Members’ Capital,” other equity amounts, amounts due to AT&T and BellSouth under the Cingular revolving credit agreement and long-term debt due to AT&T and BellSouth.

			Common				Additional
			Stock				Capital				Total
Total consideration: Issuance of AT&T common stock to BellSouth shareholders			$	2,382			$	62,709			$	65,091	(b1)
Book value of net assets acquired
BellSouth’s equity											$	23,534
Elimination of BellSouth’s ownership percentage of Cingular’s goodwill and intangibles												(20,310	)(a1)
Fair value of BellSouth’s customer lists												10,200	(b3)
BellSouth’s portion of the fair value of Cingular’s customer lists												5,300	(a2)
BellSouth’s portion of the fair value of Cingular’s wireless licenses												12,500	(a2)
Preliminary fair value adjustments:
	BellSouth deferred activation and installation revenue											1,227	(b2)
	BellSouth deferred activation and installation expense											(1,227	)(b2)
	BellSouth long-term debt											(553	)(b5)
	BellSouth ownership percentage of Cingular’s long-term debt											(289	)(a4)
	BellSouth’s pension and postretirement plans											(5,534	)(b4)
	BellSouth’s ownership percentage of Cingular’s pension and postretirement plans											(24	)(a3)
Preliminary estimate of fair value of identifiable net assets (liabilities) acquired											$	24,824
Goodwill											$	40,267	(b2)

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	(b1) The purchase price allocation included within these Unaudited Pro Forma Condensed Combined Financial Statements is based upon a purchase price of $65,091 calculated as follows:

BellSouth common shares outstanding at December 31, 2005			1,798,000,000
Exchange ratio			1.325
AT&T common shares to be issued			2,382,350,000
Price per share(1)		$	27.32
Aggregate value of AT&T consideration		$	65,091
Value attributed to par at $1 par value		$	2,382
Balance to capital in excess of par value		$	62,709

	(1)	Price per share is based on the average closing price of the AT&T common shares for the two days prior to, including and two days subsequent to the first trading day following public announcement of the merger on March 5, 2006.

	It is assumed that all stock will be new issuances. However, AT&T may issue treasury shares for a portion of the required AT&T common shares. The actual number of newly issued shares of AT&T common stock or treasury shares to be delivered in connection with the merger will be based upon the number of BellSouth common shares issued and outstanding when the merger closes.
	(b2) The Unaudited Pro Forma Condensed Combined Financial Statements reflect a preliminary allocation of the purchase price to tangible assets and liabilities with many fair values approximating historical book values as of December 31, 2005, especially for PP&E. The remaining unallocated purchase price was allocated to Goodwill.
	The final purchase price allocations, which are based on third party appraisals, may result in different allocations for tangible and intangible assets than presented in these Unaudited Pro Forma Condensed Combined Financial Statements, and those differences could be material. The following table is presented for illustrative purposes and provides the estimated annual impact on pro forma net income for every incremental $1,000 assigned to PP&E in the final purchase price allocation. Depreciation of these assets is utilizing the straight-line method over the lives shown.

				Estimated
				Depreciation				Net income				Per share
Lives in years				Expense				impact				impact
	3			$	333			$	206			$	0.03
	10				100				62				0.01
	20				50				31				0.00

	The Unaudited Pro Forma Condensed Combined Balance Sheet reflects the reclassification of BellSouth’s capitalized software, which was recorded as an intangible asset and to eliminate deferred activation-related revenue and expense (see note e2).
	(b3) Of the total amount allocated to “Other Intangibles — Net,” AT&T has tentatively identified approximately $10,200 for customers acquired from BellSouth with an average asset life of 6 years. Amortization of these intangibles is reflected in the Unaudited Pro Forma Condensed Combined Statement of Income using the sum-of-the-months-digits method of amortization. However, the final method of amortization will be based in such a way as to allocate as equitably as

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	possible, to periods during which the intangible assets are expected to contribute to AT&T’s future cash flow.
	The sum-of-the-months-digits method is a process of allocation, not of valuation and reflects the belief that more revenues will be generated from the assets during the earlier years of their lives. Using the sum-of-the-months-digits method of amortization, which records a larger portion of the amortization expense earlier in the life of the assets, the expected amortization expense for the first year is $3,108.
	The following table is presented for illustrative purposes and provides the estimated annual impact on pro forma net income for every incremental $1,000 assigned to amortizable intangible assets in the final purchase price allocation. Amortization of these assets is utilizing the sum-of-the-months digits method over the lives shown and the first year of amortization is displayed. Expense for each year thereafter will decrease.

		Estimated
		Amortization				Net income				Per share
Lives in years		Expense				impact				impact
3		$	550			$	340			$	0.05
5			357				221				0.04
9			209				129				0.02

	(b4) The Unaudited Pro Forma Condensed Combined Balance Sheet has been adjusted to reflect BellSouth’s pension and postretirement benefit plans at fair value. The total adjustment of $5,534 represents unrecognized net loss of $724 and $2,339 and unrecognized prior services cost (benefit) and unrecognized net obligation of $(345) and $2,816 for BellSouth’s pension and postretirement plans, respectively, as of December 31, 2005. Such amounts were reflected in the balance sheet based on adjustments to the individual plans and whether such plans were in a net asset or net liability position.
	(b5) The Unaudited Pro Forma Condensed Combined Balance Sheet has been adjusted to report BellSouth’s long-term debt at fair value. The estimated fair value of BellSouth’s long-term debt (including current maturities of long-term debt) was $16,318 at December 31, 2005, calculated using quotes or rates available for debt with similar terms and maturities, based on BellSouth’s debt ratings at that time. The carrying value of BellSouth’s long-term debt (including current maturities of long-term debt) was $15,765 at December 31, 2005, resulting in a total increase to debt of $553. The carrying value of debt with an original maturity of less than one year approximates market value. None of this fair market value adjustment was attributed to current maturities of long-term debt.
	(b6) The Unaudited Pro Forma Condensed Combined Balance Sheet has been adjusted to eliminate the historical shareholders’ equity accounts of BellSouth.

	(c1) The Unaudited Pro Forma Condensed Combined Statement of Income has been adjusted to eliminate certain revenues and expenses between ATTC and AT&T, prior to the November 18, 2005 merger. These items consist primarily of switched access, Unbundled Network Element-Platform (UNE-P) and high-capacity transport services, including DS1s and DS3s (types of dedicated high-

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	capacity lines), and SONET (a dedicated high-speed solution for multisite businesses). Other pre-merger transactions and ending intercompany balances between ATTC and AT&T are immaterial.
	(c2) The Unaudited Pro Forma Condensed Combined Statement of Income has been adjusted to reflect lower amortization of prior service cost and unrealized losses due to the adjustment of ATTC’s pension and postretirement plans to fair value and to conform ATTC pension and postretirement benefit assumptions to those used by AT&T at the time of the ATTC acquisition.
	(c3) The Unaudited Pro Forma Condensed Combined Statement of Income has been adjusted to reflect lower interest expense due to the adjustment of ATTC’s long-term debt to fair value at the time of the ATTC acquisition. The difference between the fair value and the face amount of each borrowing is amortized on a straight-line basis as a reduction to interest expense over the remaining term of the borrowing, based on the maturity date.
	(c4) The Unaudited Pro Forma Condensed Combined Statement of Income has been adjusted to reflect lower depreciation and amortization expense due to the adjustment of ATTC’s PP&E and internal use software to fair value at the time of the ATTC acquisition.
	(c5) The Unaudited Pro Forma Condensed Combined Statement of Income has been adjusted to reflect the elimination of ATTC’s historical intangible asset amortization due to the elimination of ATTC’s historical intangible assets at the time of the ATTC acquisition.
	(c6) The Unaudited Pro Forma Condensed Combined Statement of Income has been adjusted to reflect additional amortization expense associated with intangible assets acquired in the ATTC acquisition.

	(d1) The Unaudited Pro Forma Condensed Combined Statement of Income has been adjusted to eliminate revenues and expenses between Cingular and AT&T, ATTC and BellSouth. Operating revenues and expenses consist primarily of access and long-distance services and commission revenue. Other revenues and expense adjustments consist primarily of interest on shareholder loans and advances to Cingular.
	(d2) The Unaudited Pro Forma Condensed Combined Statement of Income has been adjusted to reflect lower amortization of prior service cost and unrealized losses due to BellSouth’s portion of the adjustment of Cingular’s pension and postretirement plans to fair value (see note a3). The adjustment reflects BellSouth’s portion of the elimination of amounts recorded by Cingular in 2005 for amortization of unrecognized prior service benefit of $1 for and amortization of losses of $2 for pension and postretirement benefits.
	(d3) The Unaudited Pro Forma Condensed Combined Statement of Income has been adjusted to reflect lower interest expense due to BellSouth’s portion of the adjustment of Cingular’s long-term debt to fair value (see note a4). The difference between the fair value and the face amount of each borrowing is amortized on a straight-line basis as a reduction to interest expense over the remaining term of the borrowing, based on the maturity date.
	(d4) The Unaudited Pro Forma Condensed Combined Statement of Income has been adjusted to reflect the elimination of BellSouth’s portion of Cingular’s historical intangible asset amortization.

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	(e1) The Unaudited Pro Forma Condensed Combined Statement of Income has been adjusted to eliminate certain intercompany revenues and expenses between AT&T and/or ATTC and BellSouth, consisting primarily of switched access, Unbundled Network Element-Platform (UNE-P) and high-capacity transport services, which include DS1s and DS3s (types of dedicated high-capacity lines), and SONET (a dedicated high-speed solution for multisite businesses). Other intercompany transactions and ending intercompany balances are immaterial.
	(e2) BellSouth defers revenue from activation-related activities and recognizes the revenue over the life of the customer relationship. Associated expenses are also deferred but only to the extent of revenues and are recognized over the same period as the revenue. The Unaudited Pro Forma Condensed Combined Statement of Income has been adjusted to eliminate the amortization of this revenue and expense in accordance with fair value accounting.
	(e3) The Unaudited Pro Forma Condensed Combined Statement of Income has been adjusted to reflect lower amortization of prior service cost and unrealized losses due to the adjustment of BellSouth’s pension and postretirement plans to fair value (see note b4). The adjustment reflects the elimination of amounts recorded by BellSouth in 2005 for amortization of net unrecognized prior service cost and transition obligation of $228 and net amortization of losses of $115 for pension and postretirement benefits.
	(e4) The Unaudited Pro Forma Condensed Combined Statement of Income has been adjusted to reflect lower interest expense due to the adjustment of BellSouth’s long-term debt to fair value (see note b5). The difference between the fair value and the face amount of each borrowing is amortized on a straight-line basis as a reduction to interest expense over the remaining term of the borrowing, based on the maturity date.

Note 3.	Federal Income Tax Consequences of the Merger

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	•	8,650,000,000 BellSouth common shares, having a par value of $1.00 per share and entitled to one vote per share; and
	•	100,000,000 BellSouth first preferred shares, having a par value of $1.00 per share.

	•	7,000,000,000 AT&T common shares, having a par value of $1.00 per share and entitled to one vote per share; and
	•	10,000,000 AT&T preferred shares, having a par value of $1.00 per share.

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	•	a brief description of the purpose of the proposed meeting and business to be brought before the meeting, and any material interest in the business of any shareholder and beneficial owner, if any, on whose behalf the proposal is made; and
	•	if the shareholders requesting the special meeting propose to nominate one or more persons for election as directors, information similar to that required by the Exchange Act in connection with the election of directors;

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	•	as to the shareholders giving the notice and the beneficial owner, if any, on whose behalf the request is made, the name and address of each shareholder, as they appear on the corporation’s books, and of the beneficial owner, and the class or series and the number of shares of the corporation that are owned beneficially and held of record by the shareholders and beneficial owners; and
	•	if the shareholder intends to solicit proxies from the shareholders of the corporation, that shareholder’s notice must notify the corporation of this intent. If a shareholder fails to notify the corporation of his or her intent to solicit proxies and does in fact solicit proxies, the chairman of the board of directors has the authority, in his or her discretion, to strike the proposal or nomination proposed by the shareholder.

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	•	as to any person whom the shareholder proposes to nominate for election as a director, all information relating to that person that is required to be disclosed in proxy solicitations for director elections, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act;
	•	as to any other business that the shareholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting that business at the meeting and any material interest in that business of the shareholder and the beneficial owner, if any, on whose behalf the proposal is made;
	•	as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made, the name and address of the shareholder, as they appear on the corporation’s books, and of the beneficial owner and the class or series and number of shares of the corporation that are owned beneficially and held of record by the shareholder and the beneficial owner; and
	•	if the shareholder intends to solicit proxies from the shareholders of the corporation, such shareholders’ notice must notify the corporation of this intent. If a shareholder fails to notify the corporation of his or her intent to solicit proxies and does in fact solicit proxies, the chairman of the board of directors has the authority, in his or her discretion, to strike the proposal or nomination proposed by the shareholder.

	•	a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting;
	•	the name and record address of such shareholder;
	•	the class or series and number of shares of AT&T capital stock which are owned beneficially or of record of such shareholder; and
	•	any material interest of the shareholder in such business.

	•	the name, age, business address and residence address of the nominee;
	•	the principal occupation or employment of the nominee;
	•	the class or series and number of shares of capital stock of AT&T which are owned beneficially or of record by the nominee;
	•	any other information relating to the nominee that is required to be disclosed in proxy solicitations for director elections pursuant to Section 14 of the Exchange Act; and
	•	certain other specified information relating to the shareholder making the nomination.

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	•	excerpts from minutes of any meeting of the board of directors, records of any action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any shareholders’ meeting, and records of action taken by the shareholders or board of directors without a meeting, to the extent not otherwise subject to inspection as discussed above;
	•	accounting records of the corporation; and
	•	the record of shareholders.

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	•	listed on a national securities exchange; or
	•	held of record by more than 2,000 shareholders.

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	•	listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc.; or
	•	held of record by more than 2,000 shareholders.

	•	shares of the surviving corporation;
	•	shares of another corporation which is either listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. or held of record by more than 2,000 shareholders;
	•	cash in lieu of fractional shares; or
	•	some combination of the above.

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	•	breach of the duty of loyalty to the corporation or its shareholders;
	•	acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;
	•	unlawful payments of dividends, certain share repurchases or redemptions; or
	•	any transaction from which the director derived an improper personal benefit.

	•	for any breach of the director’s duty of loyalty to the corporation or its shareholders;
	•	for acts or omissions not in good faith or which involve intentional misconduct or knowing violation of the law;
	•	under Section 174 of the DGCL; or
	•	for any transaction from which a director derived an improper benefit.

	•	conducted himself or herself in good faith and the person reasonably believed, in the case of conduct in his or her official capacity, that the conduct was in the best interests of the corporation,

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		and in all other cases, that the conduct was at least not opposed to the best interests of the corporation; and
	•	in a criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful.

	•	appropriation, in violation of his or her duties, of any business opportunity of the corporation;
	•	acts or omission which involve intentional misconduct or a knowing violation of law;
	•	participation in certain unlawful distributions to shareholders; or
	•	any transaction from which he or she received an improper personal benefit.

	•	the appropriation, in violation of his or her duties, of any business opportunity of the corporation;
	•	acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
	•	participation in unlawful distributions to shareholders; or
	•	any transaction from which he or she derived an improper personal benefit.

	•	acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation; and
	•	with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful.

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	•	the articles of incorporation of the surviving or acquiring corporation will not differ (except for certain amendments) from its articles before the merger or share exchange;
	•	each share of the surviving or acquiring corporation outstanding immediately before the effective date of the merger or share exchange is to be an identical outstanding or reacquired share immediately after the merger or share exchange; and
	•	the number and kind of shares outstanding immediately after the merger or share exchange, plus the number and kind of shares issuable as a result of the merger or share exchange and by the conversion of securities issued pursuant to the merger or share exchange or the exercise of rights and warrants issued pursuant to the merger or share exchange, will not exceed the total number and

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		kind of shares of the surviving or acquiring corporation authorized by its articles of incorporation immediately before the merger or share exchange.

	•	the merger agreement does not amend in any respect its certificate of incorporation;
	•	each share of the corporation outstanding prior to the merger will be an identical share following the merger; and
	•	the merger will not result in the issuance of shares exceeding 20 percent of the common shares of the corporation outstanding immediately prior to the merger.

	•	unanimously approved by the continuing directors (as defined below), so long as the continuing directors constitute at least three members of the board of directors at the time of such approval; or
	•	recommended by at least two-thirds of the continuing directors and approved by a majority of the votes entitled to be cast by holders of voting shares, other than voting shares beneficially owned by the interested shareholder who is, or whose affiliate is, a party to the business combination.

	•	a “continuing director” as any member of the board of directors who is not an affiliate or associate of an interested shareholder or any of its affiliates, other than the corporation or any of its subsidiaries, and who was a director of the corporation prior to the determination date, and any

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		successor to the continuing director who is not an affiliate or an associate of an interested shareholder or any of its affiliates, other than the corporation or its subsidiaries, and is recommended or elected by a majority of all of the continuing directors; and
	•	an “interested shareholder” as any person, other than the corporation or its subsidiaries, that is the beneficial owner of ten percent or more of the voting power of the outstanding voting shares of the corporation, or is an affiliate of the corporation and, at any time within the two-year period immediately prior to the date in question, was the beneficial owner of ten percent or more of the voting power of the then outstanding voting shares of the corporation.

	•	prior to the time the resident domestic corporation’s board of directors approved either the business combination or the transaction which resulted in the shareholder becoming an interested shareholder;
	•	in the transaction which resulted in the shareholder becoming an interested shareholder, the interested shareholder became the beneficial owner of at least 90 percent of the voting shares of the resident domestic corporation outstanding at the time the transaction commenced, excluding shares held by certain parties enumerated in the GBCC; or
	•	subsequent to becoming an interested shareholder, the shareholder acquired additional shares resulting in the interested shareholder being the beneficial owner of at least 90 percent of the outstanding voting shares of the resident domestic corporation, excluding shares held by certain parties enumerated in the GBCC, and the business combination was approved at an annual or special meeting of shareholders by the holders of a majority of the voting shares entitled to vote thereon, excluding the shares held by certain parties enumerated in the GBCC.

	•	unanimously approved by the continuing directors, so long as the continuing directors constitute at least three members of the board of directors at the time of the approval; or
	•	recommended by at least two-thirds of the continuing directors and approved by a majority of the votes entitled to be cast by holders of voting shares, other than voting shares beneficially owned by the interested shareholder who is, or whose affiliate is, a party to the business combination.

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	•	the board of directors has approved, before the acquisition date, either the business combination or the transaction that resulted in the person becoming an interested shareholder;
	•	upon completion of the transaction that resulted in the person becoming an interested shareholder, the person owns at least 85 percent of the corporation’s voting shares, excluding shares owned by directors who are officers and shares owned by employee stock plans in which participants do not have the right to determine confidentially whether shares will be tendered in a tender or exchange offer; or
	•	after the person or entity becomes an interested shareholder, the business combination is approved by the board of directors and authorized by the vote of at least 662/3 percent of the outstanding voting shares not owned by the interested shareholder at an annual or special meeting of shareholders and not by written consent.

	•	previous approval by a majority of the members of the board who are not affiliated with the interested shareholder and who were members of the board of directors prior to the time that the interested shareholder became an interested shareholder (or any successor of such a director unaffiliated with the interested shareholder and approved by a majority of the unaffiliated directors); or
	•	certain minimum price and procedural requirements are met, including dividend payment requirements and that the consideration paid to AT&T’s shareholders must be either cash or the same type of consideration paid by the interested shareholder in acquiring the largest portion of its AT&T shares prior to the proposed business combination and would generally have to be at least equal in value to the greatest of:

	•	the highest per share price paid by the interested shareholder in acquiring any share of AT&T common shares during the two years prior to the announcement date of the proposed business combination or in the transaction in which it became an interested shareholder (whichever is higher);
	•	the fair market value per share of AT&T common shares on the day after the announcement date or on the date on which the interested shareholder became an interested shareholder (whichever is higher); or
	•	the fair market value per share multiplied by the ratio of:

	•	the highest per share price paid by the interested shareholder in acquiring any AT&T common share during the two years prior to such announcement to,
	•	the fair market value per share of AT&T common shares on the first day in the two-year period upon which the interested shareholder acquired any AT&T common shares.

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	•	is the beneficial owner, directly or indirectly, of more than ten percent of any of the voting shares of the corporation; or
	•	is an affiliate of the corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of ten percent or more of any of the voting shares of the corporation; or
	•	is an assignee of or has otherwise succeeded to any voting shares which were at any time within the two-year period immediately prior to the date in question beneficially owned by any interested shareholder, if this assignment or succession will have occurred in the course of a transaction or series of transactions not involving a public offering.

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	•	the ability to obtain governmental approvals of the merger on the proposed terms and schedule;
	•	the failure of BellSouth shareholders to approve the merger agreement;
	•	the failure of AT&T shareholders to authorize the issuance of AT&T common shares required to be issued pursuant to the merger agreement;
	•	the risks that the businesses of AT&T and BellSouth will not be integrated successfully;
	•	the risks that the cost savings and any other synergies from the merger may not be fully realized or may take longer to realize than expected;
	•	disruption from the merger making it more difficult to maintain relationships with customers, employees or suppliers;
	•	the extent and intensity of competition and resulting pressure on access line totals and wireline and wireless operating margins as well as the impact on pricing strategies, new product offerings, spending, third-party relationships and revenues;
	•	Cingular’s failure to achieve, in the amounts and within the time frame expected, the capital and expense synergies and other benefits expected from its acquisition of AT&T Wireless as a result of technical, logistical, regulatory and other factors;
	•	the impact of AT&T’s acquisition of ATTC, including the risk that the businesses will not be integrated successfully; the risk that the cost savings and any other synergies from that acquisition may not be fully realized or may take longer to realize than expected; disruption from the acquisition making it more difficult to maintain relationships with customers, employees or suppliers; and competition and its effect on pricing, spending, third-party relationships and revenues;
	•	final outcomes of various state and federal regulatory proceedings and changes in existing state, federal or foreign laws and regulations and/or enactment of additional regulatory laws and regulations;
	•	risks inherent in international operations, including exposure to fluctuations in foreign currency exchange rates and political risk;
	•	the outcome of pending litigation in which AT&T or BellSouth is involved;
	•	the impact of new technologies; and
	•	changes in general economic and market conditions.

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AT&T SEC Filings		Period
Annual Report on Form 10-K		Year ended December 31, 2005
Current Reports on Form 8-K		Filed on February 1, 2006 and March 6, 2006
Current Report on Form 8-K/A		Filed on January 26, 2006
Proxy Statement on Schedule 14A for AT&T’s 2006 Annual Meeting of Stockholders		Filed March 10, 2006
Report of Independent Registered Public Accounting Firm (incorporated by reference to Exhibit 99.2 to AT&T’s Current Report on Form 8-K filed November 21, 2005)
Audited consolidated statements of operations, consolidated statements of changes in shareholders’ equity and consolidated statements of cash flows of ATTC for each of the three years in the period ended December 31, 2004, and the notes related thereto (incorporated by reference to Exhibit 99.3 to AT&T’s Current Report on Form 8-K filed November 21, 2005)
Unaudited consolidated condensed statements of operations, condensed consolidated statements of changes in shareholders’ equity and consolidated condensed statements of cash flows of ATTC for the period ended September 30, 2005, and the notes related thereto (incorporated by reference to Exhibit 99.4 to AT&T’s Current Report on Form 8-K filed November 21, 2005)
The description of AT&T common stock set forth in AT&T’s registration statement on Form 10, dated November 15, 1983, filed by AT&T pursuant to Section 12 of the Exchange Act
Certificate of Designations for Perpetual Cumulative Preferred Stock of SBC Communications Inc., filed with the Secretary of State of the State of Delaware on November 18, 2005. (Contained in Restated Certificate of Incorporation filed with the Secretary of State of Delaware on November 18, 2005.)		Filed as Exhibit 3-a to Form 8-K dated November 18, 2005

BellSouth SEC Filings		Period
Annual Report on Form 10-K		Year ended December 31, 2005
Current Reports on Form 8-K		Dated as of January 10, 2006, January 23, 2006, February 27, 2006, March 5, 2006, March 7, 2006 and March 8, 2006
Proxy Statement on Schedule 14A for BellSouth’s 2006 Annual Meeting of Shareholders		Filed (as amended) March 3, 2006

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				Page
		ARTICLE I THE MERGER; CLOSING; EFFECTIVE TIME
1.1		The Merger			A-1
1.2		Closing			A-1
1.3		Effective Time			A-1
		ARTICLE II ARTICLES OF INCORPORATION AND BY-LAWS OF THE SURVIVING CORPORATION
2.1		The Articles of Incorporation			A-2
2.2		The By-Laws			A-2
		ARTICLE III OFFICERS AND DIRECTORS
3.1		Directors of Surviving Corporation			A-2
3.2		Officers of Surviving Corporation			A-2
3.3		Parent Board of Directors/ Company Executive Officers			A-2
		ARTICLE IV EFFECT OF THE MERGER ON CAPITAL STOCK; EXCHANGE OF CERTIFICATES
4.1		Effect on Capital Stock			A-2
4.2		Exchange of Certificates for Shares			A-3
4.3		Adjustments to Prevent Dilution			A-5
4.4		Company Stock Based Plans			A-5
		ARTICLE V REPRESENTATIONS AND WARRANTIES
5.1		Representations and Warranties of the Company			A-6
5.2		Representations and Warranties of Parent and Merger Sub			A-17
		ARTICLE VI COVENANTS
6.1		Interim Operations			A-25
6.2		Acquisition Proposals			A-30
6.3		Information Supplied			A-33
6.4		Shareholders/ Stockholders Meetings			A-34
6.5		Filings; Other Actions; Notification			A-34
6.6		Access; Consultation			A-36
6.7		Affiliates			A-36
6.8		Stock Exchange Listing and De-listing			A-36
6.9		Publicity			A-36
6.10		Employee Benefits			A-37
6.11		Expenses			A-38
6.12		Indemnification; Directors’ and Officers’ Insurance			A-38
6.13		Regulatory Compliance			A-39
6.14		Takeover Statute; Rights Agreement			A-39
6.15		Dividends			A-39
6.16		Control of the Company’s or Parent’s Operations			A-40
6.17		Section 16(b)			A-40

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				Page
6.18		Tax-Free Qualification			A-40
6.19		Tax Representation Letters			A-40
6.20		Cingular Headquarters			A-40
6.21		Direct Investment Plan			A-40
		ARTICLE VII CONDITIONS
7.1		Conditions to Each Party’s Obligation to Effect the Merger			A-41
7.2		Conditions to Obligations of Parent and Merger Sub			A-41
7.3		Conditions to Obligation of the Company			A-43
7.4		Invoking Certain Conditions			A-43
		ARTICLE VIII TERMINATION
8.1		Termination by Mutual Consent			A-43
8.2		Termination by Either Parent or the Company			A-43
8.3		Termination by the Company			A-44
8.4		Termination by Parent			A-44
8.5		Effect of Termination and Abandonment			A-45
		ARTICLE IX MISCELLANEOUS AND GENERAL
9.1		Survival			A-47
9.2		Modification or Amendment			A-47
9.3		Waiver of Conditions			A-47
9.4		Counterparts			A-47
9.5		GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL			A-47
9.6		Notices			A-48
9.7		Entire Agreement			A-48
9.8		No Third Party Beneficiaries			A-49
9.9		Obligations of Parent and of the Company			A-49
9.10		Severability			A-49
9.11		Interpretation			A-49
9.12		Captions			A-49
9.13		Specific Performance			A-49
9.14		Assignment			A-49
Exhibit A  Form of Amended and Restated Charter of Surviving Corporation
Exhibit B  Form of Affiliate Agreement

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Defined Term		Section
Acquiring Person			8	.5(b)
Acquisition Proposal			6	.2(b)
Affected Employees			6	.10(a)
Agreement			Preamble
Bankruptcy and Equity Exception			5	.1(c)
By-Laws			2	.2
Certificate			4	.1(a)
Certificate of Merger			1	.3
Charter			2	.1
Cingular			5	.1(a)(i)
Closing			1	.2
Closing Date			1	.2
Code			Recitals
Common Stock Unit			5	.1(b)(i)
Communications Act			5	.1(d)(i)
Company			Preamble
Company Awards			4	.4(b)
Company Compensation and Benefit Plans			5	.1(h)(i)
Company Current Properties			5	.1(l)(ii)
Company Direct Investment Plan			5	.1(b)(i)
Company Disclosure Letter			5	.1
Company Employees			5	.1(h)(i)
Company ERISA Affiliate			5	.1(h)(iii)
Company Former Properties			5	.1(l)(iii)
Company Material Adverse Effect			5	.1(a)(ii)
Company Non U.S. Compensation and Benefit Plans			5	.1(h)(i)
Company Option			4	.4(a)
Company Preferred Shares			5	.1(b)(i)
Company Recommendation			5	.1(c)
Company Recommendation Change			6	.2(c)(ii)
Company Region			5	.1(a)
Company Reports			5	.1(e)(i)
Company Requisite Vote			5	.1(c)
Company Share			4	.1(a)
Company Shares			4	.1(a)
Company Stock Plans			4	.4(a)
Company Shareholders Meeting			6	.4(a)
Company Superior Proposal Action			6	.2(c)(ii)
Company U.S. Compensation and Benefit Plans			5	.1(h)(ii)
Computer Software			5	.1(p)(1)
Confidentiality Agreement			6	.2(a)
Contracts			5	.1(d)(ii)
Covered Proposal			8	.5(b)

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Defined Term		Section
Current Premium			6	.12(c)
D&O Insurance			6	.12(c)
EC Merger Regulation			5	.1(d)(i)
Effective Time			1	.3
Environmental Law			5	.1(l)
ERISA			5	.1(h)(i)
ERISA Plans			5	.1(h)(ii)
Exchange Act			5	.1(d)(i)
Exchange Agent			4	.2(a)
Exchange Fund			4	.2(a)
Exchange Ratio			4	.1(a)
Excluded Company Shares			4	.1(a)
FCC			5	.1(d)(i)
FCC Rules			6	.13(a)
Final Order			7	.2(e)
GAAP			5	.1(e)(iii)
GBCC			1	.1
Governmental Consents			7	.1(c)
Governmental Entity			5	.1(d)(i)
Hazardous Substance			5	.1(l)
HSR Act			5	.1(b)(ii)
Indemnified Parties			6	.12(a)
Information Technology			5	.1(p)(2)
Intellectual Property			5	.1(p)(3)
IRS			5	.1(h)(i)
Laws			5	.1(i)
Licenses			5	.1(i)
Lien			5	.1(b)(ii)
Merger			Recitals
Merger Consideration			4	.1(a)
Merger Sub			Preamble
Multiemployer Plan			5	.1(h)(ii)
New Plans			6	.10(b)
Order			7	.1(d)
Parent			Preamble
Parent Acquiring Person			8	.5(c)
Parent Covered Proposal			8	.5(c)
Parent Recommendation Change			6	.2(d)
Parent Common Stock			4	.1(a)
Parent Common Stock Unit			5	.2(b)(i)
Parent Compensation and Benefit Plan			5	.2(h)(i)
Parent Current Properties			5	.2(k)
Parent Disclosure Letter			5	.2
Parent Employees			5	.2(h)(i)

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Defined Term		Section
Parent ERISA Affiliate			5	.2(h)(iii)
Parent Former Properties			5	.2(k)
Parent Material Adverse Effect			5	.2(a)
Parent Non U.S. Compensation and Benefit Plans			5	.2(h)(i)
Parent Option			5	.2(b)(i)
Parent Preferred Stock			5	.2(b)(i)
Parent Recommendation			5	.2(c)
Parent Regions			5	.2(a)
Parent Reports			5	.2(e)(i)
Parent Requisite Vote			5	.2(c)
Parent Stockholders Meeting			6	.4(a)
Parent Superior Proposal Action			6	.2(d)
Parent U.S. Compensation and Benefit Plans			5	.2(h)(ii)
Pension Plan			5	.1(h)(ii)
Person			4	.2(b)
Prior Plan			6	.10(b)
Prospectus/ Proxy Statement			6	.3(a)
PUC			5	.1(d)(i)
Receiving Party			6	.2(g)
Regulatory Material Adverse Effect			6	.5(b)
Representatives			6	.2(a)
Required Governmental Consents			7	.1(c)
Rights Agreement			5	.1(b)(i)
S-4 Registration Statement			6	.3(a)
Sarbanes-Oxley			5	.1(e)(i)
SEC			4	.4(c)
Securities Act			4	.4(c)
Significant Subsidiary			5	.1(b)(ii)
Subsidiary			5	.1(a)(i)
Successor Plan			6	.10(b)
Superior Proposal			6	.2(b)
Surviving Corporation			1	.1
Takeover Statute			5	.1(k)
T			5	.2(e)(i)
T Reports			5	.2(e)(i)
Tax			5	.1(n)
Tax Return			5	.1(n)
Taxes			5	.1(n)
Termination Date			8	.2
Termination Fee			8	.5(b)
Uncertificated Company Share			4	.1(a)
Utilities Laws			5	.1(d)(i)
YP.com			5	.1(a)(i)

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(a) Merger Consideration. Each share of Common Stock, par value $1.00 per share, of the Company (each, a “Company Share”, and together, the “Company Shares”) issued and outstanding immediately prior to the Effective Time (other than Company Shares that are owned by Parent or by the Company or any direct or indirect wholly-owned Subsidiary of the Company and in each case not held on behalf of third parties (collectively, “Excluded Company Shares”)) shall be converted into and become exchangeable for 1.325 (the “Exchange Ratio”) common shares, par value $1.00 per

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	share, of Parent (“Parent Common Stock”) (the shares of Parent Common Stock into which each Company Share is to be converted, the “Merger Consideration”). At the Effective Time, all Company Shares shall no longer be outstanding, shall be cancelled and retired and shall cease to exist, and (A) each certificate (a “Certificate”) formerly representing any of such Company Shares (other than Excluded Company Shares) and (B) each uncertificated Company Share (an “Uncertificated Company Share”) registered to a holder on the stock transfer books of the Company (other than Excluded Company Shares), shall thereafter represent only the right to the Merger Consideration and the right, if any, to receive pursuant to Section 4.2(e) cash in lieu of fractional shares into which such Company Shares have been converted pursuant to this Section 4.1(a) and any distribution or dividend pursuant to Section 4.2(c), in each case without interest.
	(b) Cancellation of Shares. Each Excluded Company Share shall, by virtue of the Merger and without any action on the part of the holder thereof, no longer be outstanding, shall be cancelled and retired without payment of any consideration therefor and shall cease to exist.
	(c) Merger Sub. At the Effective Time, each share of Common Stock, par value $1.00 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into one share of Common Stock of the Surviving Corporation.

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	(x) except as expressly permitted by this Section 6.2, withhold or withdraw, or qualify or modify in a manner reasonably likely to be understood to be adverse to Parent (or publicly resolve to withhold or withdraw or so publicly qualify or modify), the Company Recommendation or approve or recommend to the Company’s shareholders any Acquisition Proposal; or
	(y) cause or permit the Company to enter into any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement or other agreement (other than a confidentiality agreement referred to in Section 6.2(a) entered into in the circumstances referred to in Section 6.2(a)) for any Acquisition Proposal.

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	AT&T Inc.
	175 E. Houston
	San Antonio, Texas 78205

	Attention:	Wayne Watts, Esq.,

	Senior Vice President and Associate General Counsel
	Fax: (210) 351-3257

	Sullivan & Cromwell LLP
	125 Broad Street
	New York, New York 10004

	Attention:	Joseph B. Frumkin

	Eric M. Krautheimer
	Fax: (212) 558-3588

	BellSouth Corporation
	1155 Peachtree Street
	Suite 2000
	Atlanta, Georgia 30309
	Attention: Marc Gary, Esq.
	Fax: (404) 249-5948

	Fried, Frank, Harris, Shriver & Jacobson LLP
	One New York Plaza
	New York, New York 10004

	Attention:	Arthur Fleischer, Jr.

	Peter Golden
	Philip Richter
	Fax: (212) 859-4000

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	BELLSOUTH CORPORATION

	By:	/s/ F. Duane Ackerman

	Name: F. Duane Ackerman
	Title:   Chairman and Chief Executive Officer
	AT&T INC.

	By:	/s/ Edward E. Whitacre, Jr.

	Name: Edward E. Whitacre, Jr.
	Title:   Chairman of the Board and Chief             Executive Officer
	ABC CONSOLIDATION CORP.

	By:	/s/ Randall L. Stephenson

	Name: Randall L. Stephenson
	Title:   President

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	Very truly yours,
	/s/ Lehman Brothers
	LEHMAN BROTHERS

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	(i)	analyzed certain publicly available financial statements and other publicly available business information relating to Aspen and Birch that we deemed relevant to our analysis;
	(ii)	analyzed certain internal non-public financial and operating data concerning Aspen and Birch prepared and furnished to us by the management of each of Aspen and Birch, respectively, and Aspen has provided us with, and reviewed with us, the estimated amount and timing of the synergies expected to result from the Merger (the “Synergies”) as well as the transaction expenses and one-time cash costs arising from the proposed transaction, as estimated by the management of Aspen and furnished to us by Aspen (the “Expected Restructuring Charges”);
	(iii)	analyzed certain financial projections concerning Aspen and Birch furnished to us by the management of Aspen and certain financial projections concerning Birch furnished to us by the management of Birch;
	(iv)	discussed the past and current operations and financial condition and the prospects of Aspen and Birch with the management of each of Aspen and Birch, respectively;
	(v)	reviewed the reported prices and trading activity of the Birch Common Stock and the Aspen Common Stock;
	(vi)	compared the financial performance of Birch and the prices and trading activity of the Birch Common Stock with that of selected publicly traded telecommunications companies and their securities;
	(vii)	compared the financial performance of Aspen and the prices and trading activity of Aspen Common Stock with that of selected publicly traded telecommunications companies and their securities;

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	(viii)	compared the proposed financial terms of the Merger with publicly available financial terms of certain transactions that we deemed reasonably comparable to the Merger;
	(ix)	considered the potential financial impact of Aspen’s contemplated share repurchase program expected to be announced contemporaneously with the transaction;
	(x)	considered the potential pro forma impact of the Merger on Aspen, based on inputs and analysis provided by Aspen management;
	(xi)	reviewed a draft of the Agreement dated March 4, 2006, which we assume is in substantially final form and will not vary in any respect material to our analysis;
	(xii)	performed such other analyses and examinations and considered such other factors as we have in our sole judgment deemed appropriate for purposes of this opinion.

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	Very truly yours,
	Evercore Group Inc.

	By:	/s/ Timothy G. LaLonde

	Name: Timothy G. LaLonde
	Title:   Authorized Person

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