UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

     (Mark One)

For the quarterly period ended June 30, 2004

For the transition period from                                        to                                       .

Commission File Number 1-16567

AT&T WIRELESS SERVICES, INC.

7277 — 164TH AVENUE NE, BUILDING 1
REDMOND, WASHINGTON 98052
(Address of principal executive offices)

(425) 580-6000
(Registrant’s telephone number)

Indicated by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X]      No [  ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2):

Yes [X]      No [  ]

As of July 30, 2004, 2,729,557,562 shares of the registrant’s Common Stock were outstanding.

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AT&T WIRELESS SERVICES, INC.
AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

The accompanying notes are an integral part of these consolidated condensed financial statements.

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AT&T WIRELESS SERVICES, INC.
AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

The accompanying notes are an integral part of these consolidated condensed financial statements.

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AT&T WIRELESS SERVICES, INC.
AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(IN MILLIONS)
(UNAUDITED)

The accompanying notes are an integral part of these consolidated condensed financial statements.

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AT&T WIRELESS SERVICES, INC.
AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)

The accompanying notes are an integral part of these consolidated condensed financial statements.

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AT&T WIRELESS SERVICES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

(a) BASIS OF PRESENTATION

     AT&T Wireless Services, Inc. (AT&T Wireless Services), which presently operates in a single business segment, is a provider of wireless voice and data services and products primarily in the U.S. AT&T Wireless Services also holds equity interests in U.S. and international wireless communications ventures, corporations, and partnerships.

     The consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial statements and do not include all annual disclosures required by GAAP. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in Form 10-K for the fiscal year ended December 31, 2003. These consolidated condensed financial statements, in the opinion of management, include all normal and recurring adjustments necessary for a fair statement of the consolidated results of operations, financial position, and cash flows for each period presented. The results for the three and six months ended June 30, 2004 are not necessarily indicative of results to be expected for the full fiscal year 2004 or any other future period.

     Certain reclassifications have been made to prior year amounts to conform to current year presentations.

(b) MERGER ANNOUNCEMENT

     On February 17, 2004, AT&T Wireless Services entered into a merger agreement with Cingular Wireless LLC (Cingular) and certain of its affiliates. Under the terms of the agreement, which were approved by the boards of directors of AT&T Wireless Services, BellSouth Corporation, SBC Communications Inc., and Cingular, AT&T Wireless Services’ common shareholders will receive $15 cash per common share and AT&T Wireless Services’ preferred shareholders will receive the then applicable liquidation preference of their preferred shares, for an aggregate of approximately $41 billion, upon consummation of the transaction. On May 19, 2004, AT&T Wireless Services’ shareholders approved the merger agreement with Cingular. The transaction is subject to approval by regulatory authorities and other closing conditions. The companies currently anticipate closing the transaction in the fourth quarter of 2004.

     Although AT&T Wireless Services believes the transaction will be completed in the fourth quarter, the underlying accounting within the consolidated financial statements and related disclosures assumes AT&T Wireless Services continues as a stand-alone entity as the completion of the merger is deemed not probable until all required regulatory approvals have been received.

(c) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

STOCK-BASED COMPENSATION EXPENSE

     As permitted by Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation,” AT&T Wireless Services measures compensation expense for its stock-based employee compensation plans using the intrinsic value method prescribed by the Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees.” AT&T Wireless Services has adopted the disclosure-only provisions of SFAS No. 123. The following table illustrates the effect on Net income available to common shareholders and Earnings (loss) per share if AT&T Wireless Services had elected to recognize compensation costs based on the fair value at the date of grant for AT&T Wireless Services common stock awards granted subsequent to the split-off in 2001, AT&T Wireless Group tracking stock awards granted to AT&T Wireless Services employees prior to the split-off, AT&T common stock awards granted to AT&T Wireless Services employees prior to the split-off, and AT&T Wireless Services shares issued under the Employee Stock Purchase Plan (ESPP) consistent with the

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provisions of SFAS No. 123:

     AT&T Wireless Services granted zero and 0.7 million stock options during the three and six months ended June 30, 2004. As no options were granted for the three months ended June 30, 2004, no weighted-average fair value calculation was required. The weighted-average fair value at date of grant was $4.74 for all AT&T Wireless Services stock options granted during the three months ended March 31, 2004 and was estimated using the Black-Scholes option-pricing model. Although AT&T Wireless Services has used the Black-Scholes option pricing model in the footnotes to its financial statements, the Black-Scholes option pricing model does not necessarily provide a reliable measure of the fair value of its employee stock options as it was developed for use in estimating the fair value of short-lived exchange traded options that have no vesting restrictions and are fully transferable, and it is not designed to take into account the impact of AT&T Wireless Services’ pending merger. The following weighted-average assumptions were applied for the three months ended March 31, 2004: (i) expected dividend yield of 0 percent, (ii) expected volatility rate of 59 percent, (iii) expected life of five years, and (iv) risk-free annual interest rate of 3.5 percent. As discussed in Note (b), as the completion of the merger is uncertain at this time, the assumptions to calculate the weighted-average fair value of stock options granted during the first three months of 2004 assume AT&T Wireless Services continues as a stand-alone entity. Under the provisions of AT&T Wireless Services’ Long-Term Incentive Plan (LTIP) and the merger agreement with Cingular, the vesting of all equity-based awards will accelerate upon the closing of the merger between AT&T Wireless Services and Cingular and each option shall be converted into the right to receive the excess, if any, of $15 over the exercise price of each option. As a result, the options granted during the three months ended March 31, 2004, each of which has an exercise price below the $15 per share to be paid in the merger, will be converted into the right to receive an aggregate of approximately $4 million upon consummation of the merger.

     For the three and six months ended June 30, 2004, respectively, 0.4 million and 1.1 million shares were purchased under the ESPP. The weighted-average fair values at date of grant were $2.08 and $1.71 for the option values of the shares of AT&T Wireless Services common stock issued during the three and six months ended June 30, 2004, respectively, under the ESPP, and were estimated using the Black-Scholes option-pricing model. The following weighted-average assumptions were applied: (i) expected dividend yield of 0 percent for the three and six months ended June 30, 2004, (ii) expected volatility rates of 7 percent and 34 percent for the three and six months ended June 30, 2004, respectively, (iii) expected life of three months for the three and six months ended June 30, 2004, and (iv) risk-free three-month interest rate of 1.4 percent and 1.1 percent for the three and six months ended June 30, 2004, respectively.

     AT&T Wireless Services granted 17.0 million and 25.1 million stock options during the three and six months ended June 30, 2003, respectively. Fair value was estimated using the Black-Scholes option-pricing model. Using this model, the weighted-average fair value at date of grant was $4.00 and $4.07 for all AT&T Wireless Services stock options granted during the three and six months ended June 30, 2003, respectively. The following weighted-average assumptions were applied: (i) expected dividend yield of 0 percent for the three and six months ended June 30, 2003, (ii) expected volatility rates of 62 percent and 63 percent for the three and six months ended June 30, 2003, respectively, (iii) expected life of six years for the three and six months ended June 30, 2003, and (iv) risk-free interest rate of 3.4 percent for the three and six months ended June 30, 2003.

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     For the three and six months ended June 30, 2003, 0.7 million and 1.5 million shares, respectively, were purchased under the ESPP. Fair value was estimated using the Black-Scholes option-pricing model. Using this model, the weighted-average fair value at date of grant was $1.39 and $1.40 for the option value of the shares of AT&T Wireless Services common stock issued under the ESPP during the three and six months ended June 30, 2003, respectively. The following weighted-average assumptions were applied: (i) expected dividend yield of 0 percent for the three and six months ended June 30, 2003, (ii) expected volatility rates of 65 percent and 73 percent for the three and six months ended June 30, 2003, respectively, (iii) expected life of three months for the three and six months ended June 30, 2003, and (iv) risk-free three-month interest rates of 0.9 percent and 1.0 percent for the three and six months ended June 30, 2003, respectively.

PROPERTY, PLANT, AND EQUIPMENT

     During the first half of 2004, AT&T Wireless Services continued accelerating the depreciation on wireless communications equipment, primarily electronics related to its second-generation, or TDMA, network in certain markets. This acceleration resulted from a more aggressive migration from its TDMA network to its next-generation, GSM/GPRS/EDGE, network than originally planned in these markets. The pretax impact of this change for the three and six months ended June 30, 2004 was an increase in depreciation expense of approximately $35 million and $92 million, respectively, a decrease to net income available to common shareholders of approximately $22 million and $57 million, respectively, and a decrease to net income available to common shareholders per basic and diluted share of $0.01 and $0.02, respectively.

REVENUE RECOGNITION

     In certain cases, customer activation fees, along with the related costs up to but not exceeding these fees, are deferred. The customer activation fees are amortized into services revenue and the related costs are amortized into selling, general, and administrative expenses over the estimated customer relationship period. During the second quarter of 2004, AT&T Wireless Services reassessed the estimated customer relationship period for its subscribers and reduced the amortization period of these fees from 36 months to 28 months. The impact of this change was not material to AT&T Wireless Services’ results of operations or financial position.

(d) GOODWILL AND OTHER INTANGIBLE ASSETS

     In accordance with the requirements of SFAS No. 142, “Goodwill and Other Intangible Assets,” which prohibits amortization for goodwill and indefinite-lived intangible assets, AT&T Wireless Services does not amortize acquired goodwill or Federal Communications Commission (FCC) licensing costs. Excess net book value associated with its equity method unconsolidated subsidiaries related to goodwill or licensing costs are also not amortized. Although FCC licenses are issued with a stated term, generally 10 years, the renewal of FCC licenses is a routine matter involving a nominal fee and AT&T Wireless Services has determined that no legal, regulatory, contractual, competitive, economic, or other factors currently exist that limit the useful life of its FCC licenses. AT&T Wireless Services periodically reevaluates its determination of an indefinite useful life with regard to FCC licenses. AT&T Wireless Services’ U.S. and Canadian unconsolidated subsidiaries have also determined that their licensing costs have indefinite lives and do not amortize those costs.

     AT&T Wireless Services is required to test both acquired goodwill and other indefinite-lived intangible assets, consisting of U.S. licensing costs, for impairment on an annual basis based upon a fair value approach. Additionally, goodwill must be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of an entity below its carrying value. These events or circumstances could include a significant change in the business climate, including a significant sustained decline in an entity’s market value, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of the business, or other factors. If AT&T Wireless Services’ market value is less than its book value for an extended period of time, it could trigger the need for impairment tests of acquired goodwill between annual tests. Other indefinite-lived intangible assets must be tested between annual tests if events or changes in circumstances indicate that the asset might be impaired.

     In the absence of a current transaction for the sale of its business enterprise, AT&T Wireless Services believes a

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discounted cash flow (DCF) model, rather than the market price of its common stock, is the best technique with which to estimate the fair value of its business enterprise. The closing price of AT&T Wireless Services common stock as of the last business day of the month was $8.21, $8.18, $7.99, $13.61, and $14.32 for the quarters ended June 30, 2003, September 30, 2003, December 31, 2003, March 31, 2004, and June 30, 2004, respectively, reflecting market capitalizations, in some cases, that were significantly lower than the fair values as determined using discounted cash flows. If market prices (adjusted for items that may affect the fair value of the reporting unit, such as a control premium) were used to derive the fair value of AT&T Wireless Services’ business enterprise instead of a DCF model, it could result in a lower fair value of the business enterprise. This lower fair value might result in an impairment charge that might not otherwise result from using a DCF model. While AT&T Wireless Services does not use its market price to determine the fair value of its reporting unit, AT&T Wireless Services expects convergence between its market capitalization and DCF valuation to occur over time.

     On January 22, 2004, AT&T Wireless Services announced that its board of directors was exploring strategic alternatives. On February 17, 2004, AT&T Wireless Services and Cingular and certain of its affiliates signed an agreement such that, subject to certain conditions, Cingular would acquire AT&T Wireless Services for approximately $41 billion, which AT&T Wireless Services deems to reflect fair value. The announcement in January, along with the agreement signed in February, constituted triggering events under SFAS No. 142 requiring AT&T Wireless Services to perform impairment tests for both its goodwill and strategic licensing costs during the first quarter of 2004. AT&T Wireless Services determined the fair value of its business enterprise based upon the purchase price of $41 billion reflected in the agreement. As the business enterprise fair value of $41 billion exceeded its net book value, the first step of the goodwill impairment test was passed and no impairment was recorded. AT&T Wireless Services determined the fair value of its strategic licensing costs using a DCF model that took into consideration its business enterprise fair value. This test resulted in no impairment charges for AT&T Wireless Services’ strategic licensing costs.

     The following table provides information about transactions impacting goodwill for the six months ended June 30, 2004 and 2003, respectively:

     See further discussion of market exchanges, acquisitions and dispositions at Note (h).

     Intangible assets with indefinite lives at June 30, 2004 and December 31, 2003 consisted of U.S. licensing costs of $14,483 million and $14,492 million, respectively. Amortizable intangible assets at June 30, 2004 and December 31, 2003 consisted of values assigned to subscribers acquired of $267 million and $304 million, net of accumulated amortization of $345 million and $378 million, respectively. Intangible assets related to subscribers acquired are being amortized on a straight-line basis over five years. Pretax amortization expense for the three and six months ended June 30, 2004 totaled $32 million and $67 million, respectively. Pretax amortization expense for the three and six months ended June 30, 2003 totaled $31 million and $61 million, respectively. The aggregate pretax amortization expense for the years ended December 31, 2004, 2005, 2006, 2007, and 2008 are estimated to be $128 million, $107 million, $47 million, $31 million, and $19 million, respectively.

(e) RESTRUCTURING CHARGES

     During the second quarter of 2003, AT&T Wireless Services launched a company-wide initiative known as “Project Pinnacle” in an effort to improve operating efficiency and margins. During the first and second quarters of 2004, AT&T Wireless Services recorded $6 million and $1 million, respectively, of additional restructuring charges within selling, general and administrative expenses associated with additional employee separations anticipated to occur during 2004. During the first and second quarters of 2004, AT&T Wireless Services reversed $12 million and $25 million, respectively, also within selling, general and administrative expenses, for charges taken during 2003 that are no longer required based on a reevaluation of certain restructuring activities, primarily related to employee

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separations within its customer care and information technology functions. AT&T Wireless Services established a restructuring plan during the fourth quarter of 2003 related to its customer care function. During the second quarter of 2004, the restructuring plan needed to be modified due to volumes of calls into its customer care centers that were higher than anticipated in the original plan. The adjustments to the plan for employee separations related to the information technology function resulted from a reassessment of the economic and performance risk associated with utilizing third parties for certain functions, as well as higher levels of voluntary employee attrition.

     During 2003 and the first half of 2004, AT&T Wireless Services recorded net restructuring charges reflecting its plan to separate approximately 2,000 employees. Approximately 80 percent of these employees would be expected to be exempt employees and 20 percent would be expected to be non-exempt. Approximately 1,800 of the 2,000 employees had left their positions as of June 30, 2004. The majority of the remaining approximately 200 anticipated employee separations are currently on hold pending AT&T Wireless Services’ merger with Cingular (see Note (b)).

     The following table displays the activity and balances of the restructuring reserve, which is reflected in payroll and benefit-related liabilities on the Consolidated Condensed Balance Sheets for the three and six months ended June 30, 2004:

(f) EARNINGS PER SHARE (EPS)

     The following table presents the computation of basic and diluted earnings per share:

(1)

The effect of dilutive stock options, restricted stock and performance share units for three and six months ended June 30, 2004 and 2003 was determined under the treasury stock method. As of June 30, 2004 and 2003 there were 193 million and 213 million, respectively, AT&T Wireless Services common stock options, restricted stock and performance stock units, as well as the 41.7 million warrants issued to NTT DoCoMo, Inc. (DoCoMo) that were anti-dilutive and therefore were excluded from the calculation of diluted earnings per share.

(g) VARIABLE INTEREST ENTITIES

     In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities, an interpretation of ARB No. 51,” which was further revised in December 2003. FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do

11

not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 also requires disclosure of significant variable interests in variable interest entities for which a company is not the primary beneficiary.

     AT&T Wireless Services has significant variable interests in several entities for which AT&T Wireless Services is deemed to be the primary beneficiary. These variable interests typically consist of a combination of any or all of voting equity interests, non-voting equity interests, loans, and put options that provide the other owners the right to require AT&T Wireless Services to purchase their ownership interest if and when certain events occur. These entities were formed to acquire licenses that were restricted by FCC rules to businesses with limited assets and revenues, and to provide a means through which AT&T Wireless Services could invest in these licenses. To date, the activity of these entities has consisted primarily of acquiring licenses through acquisitions and FCC auctions, and network construction. Prior to April 1, 2003, AT&T Wireless Services accounted for these ventures under the equity method of accounting as AT&T Wireless Services does not have voting control and AT&T Wireless Services has recognized virtually 100 percent of the entities’ operating losses due to its significant variable interests. AT&T Wireless Services’ maximum loss exposure related to these entities as of June 30, 2004 was approximately $145 million, which represented the value of the put options that provide the other owners the right to require AT&T Wireless Services to purchase their ownership interest under certain circumstances. As a result of the adoption of FIN 46, AT&T Wireless Services consolidated these entities at their carrying values effective April 1, 2003. Additionally, AT&T Wireless Services has determined it has a significant variable interest and is deemed to be the primary beneficiary in an entity that holds assets and liabilities associated with synthetic leases. As a result, upon adoption, AT&T Wireless Services consolidated the assets and liabilities associated with two synthetic leases that were previously disclosed as off-balance sheet arrangements.

     AT&T Wireless Services has no material variable interests for which it is not deemed to be the primary beneficiary.

(h) ACQUISITIONS AND DISPOSITIONS

     In February 2004, AT&T Wireless Services completed the purchase of U.S. Cellular’s TDMA wireless operations in south central Texas for $95 million in cash. AT&T Wireless Services completed this transaction to expand its TDMA and GSM/GPRS networks. The allocation of the purchase price included $35 million, $29 million, $20 million, and $11 million to net tangible assets, licensing costs, other acquisition-related intangible assets, and goodwill, respectively. The results of the operations acquired have been included in the Consolidated Financial Statements of AT&T Wireless Services since the acquisition date.

     In March 2004, AT&T Wireless Services completed the sale of its ownership interest in a cost method investment for $26 million in cash and recorded a pretax gain of $26 million within other income (expense).

     In July 2004, AT&T Wireless Services signed a non-binding letter of intent with Cingular and Triton PCS for the exchange of wireless properties. As contemplated in the letter of intent, Cingular would receive Triton PCS’s network assets and customers in Virginia. Triton PCS would receive certain of AT&T Wireless Services’ network assets and customers in North Carolina and Puerto Rico, plus $175 million in cash from Cingular. Additionally, Triton PCS and AT&T Wireless Services have entered into definitive agreements to terminate the stockholder agreement, which includes termination of an exclusivity arrangement in return for the surrender of AT&T Wireless Services’ equity in Triton PCS. Both transactions are contingent upon the closing of the merger agreement between AT&T Wireless Services and Cingular as discussed in Note (b).

(i) LONG-TERM DEBT

TeleCorp Wireless, Inc. and Tritel PCS, Inc. Debt Repurchases

     In March and April 2004, respectively, AT&T Wireless Services exercised the call provisions for the remaining outstanding principal of the TeleCorp Wireless, Inc. 11.625% and the Tritel PCS, Inc. 12.75% Senior Subordinated Discount Notes for cash totaling $58 million. During the six months ended June 30, 2004, AT&T Wireless Services repurchased notes with face values totaling $19 million and $33 million of the TeleCorp Wireless, Inc. 10.625% and the Tritel PCS, Inc. 10.375% Senior Subordinated Notes, respectively, for cash totaling $62 million. The net loss on retirement of debt for the six months ended June 30, 2004 was not material to AT&T Wireless Services’ results of operations.

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Accounts Receivable Securitization Program

     In February 2004, AT&T Wireless Services renewed its $1.6 billion accounts receivable securitization program. As of June 30, 2004, availability under the program was approximately $1.4 billion, based on the accounts receivable balance allowed for under the program. The program allows AT&T Wireless Services to obtain financing collateralized by subscriber trade accounts receivable. Under the program, AT&T Wireless Services can assign subscriber trade accounts receivable on a revolving basis to a special-purpose, wholly-owned subsidiary of AT&T Wireless Services. The wholly-owned subsidiary of AT&T Wireless Services would then sell an undivided interest in such receivables to an unrelated third-party financing entity upon drawing on the facility. The financing is subject to a program fee of 15 to 25 basis points and a liquidity fee of 22.5 to 50 basis points, both of which are based on AT&T Wireless Services’ Senior Notes rating. This financing arrangement is to be used for general corporate purposes, is subject to customary securitization covenants, and will be recorded as an on-balance sheet transaction. Included in the covenants are provisions for the termination of the program in the event AT&T Wireless Services’ long-term unsecured Senior Notes rating is less than BB+ by Standard & Poor’s or Ba1 by Moody’s. As of June 30, 2004 and December 31, 2003, AT&T Wireless Services had no amounts outstanding under the accounts receivable securitization program and was in compliance with its covenants.

Credit Facilities

     In March 2001, AT&T Wireless Services entered into Competitive Advance and Revolving Credit Facilities in the aggregate amount of $2.5 billion consisting of a $1.25 billion 364-day Competitive Advance and Revolving Credit Facility and a $1.25 billion Five-Year Competitive Advance and Revolving Credit Facility (the Five-Year Facility). The 364-day Credit Facility expired in March 2004. The Five-Year Facility is subject to a facility fee of 10 to 25 basis points, which is based on AT&T Wireless Services’ Senior Notes rating, and is payable quarterly on the total commitment. The Five-Year Facility is also subject to a utilization fee of 25 basis points if borrowings exceed certain levels as defined in the agreement. The Five-Year Facility bears interest at variable rates based upon, in various cases, (i) LIBOR plus 65 to 200 basis points depending on AT&T Wireless Services’ Senior Notes rating, or (ii) the greater of the prime rate or the federal funds effective rate plus 50 basis points. The Five-Year Facility is to be used for general corporate purposes and is subject to customary covenants, representations, warranties, and events of default. The Five-Year Facility contains financial covenants requiring AT&T Wireless Services to maintain certain financial ratios. In addition, an obligation by AT&T Wireless Services to repurchase equity interests from DoCoMo may, under certain circumstances, constitute an event of default. Effective March 2003, the Five-Year Facility was guaranteed by TeleCorp Wireless Inc., TeleCorp Communications, Inc., Tritel, Inc., Tritel PCS, Inc. and Tritel Communications, Inc. This guarantee expired in April 2004 with AT&T Wireless Services’ repurchases of certain debt of TeleCorp Wireless, Inc. and Tritel PCS, Inc. As of June 30, 2004 and December 31, 2003, AT&T Wireless Services had no amounts outstanding under the Five-Year Facility, and was in compliance with its covenants.

Commercial Paper Program

     During June 2001, AT&T Wireless Services finalized agreements with a group of commercial paper dealers to issue up to $2.5 billion of private placement commercial paper notes. The notes will be unsecured, ranking pari passu with AT&T Wireless Services’ other unsubordinated and unsecured indebtedness. Maturity of the notes will be up to 365 days from date of issue. AT&T Wireless Services’ commercial paper notes are rated A2 by Standard & Poor’s and P2 by Moody’s. If AT&T Wireless Services decides to issue commercial paper notes, the rates would be reflective of these commercial paper market rates at the time of issuance. The commercial paper program is subject to customary commercial paper program covenants. As of June 30, 2004 and December 31, 2003, AT&T Wireless Services had no notes outstanding under this program.

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     AT&T Wireless Services’ accounts receivable securitization program and its credit facility are terminable upon a change of control. AT&T Wireless Services’ commercial paper program, Senior Notes, and Senior Subordinated Notes are not terminable upon a change of control.

(j) COMMITMENTS AND GUARANTEES

     AT&T Wireless Services has various purchase commitments for network equipment. Those commitments totaled $501 million as of June 30, 2004, with remaining payments to be made by the end of 2004. In July 2004, AT&T Wireless Services was released from $360 million of these commitments.

     Pursuant to the Investor Agreement, as amended in December 2002, between AT&T Wireless Services, AT&T, and DoCoMo, DoCoMo may require AT&T Wireless Services to repurchase its investment at DoCoMo’s original purchase price, plus interest, if under certain circumstances, and subject to the exceptions identified in the Investor Agreement:

•

AT&T Wireless Services fails to launch service based on W-CDMA technology in certain areas of Dallas, San Diego, San Francisco, and Seattle, or permitted alternate cities prior to December 31, 2004; or

•

AT&T Wireless Services’ board of directors approves changes prior to December 31, 2004 in its use of W-CDMA technology as its primary standard for delivery of services based on third-generation technology.

     On July 20, 2004, AT&T Wireless Services began offering customers in Detroit, Phoenix, San Francisco, and Seattle broadband mobile wireless services with its launch of the first commercially-available true third-generation UMTS (Universal Mobile Telecommunications System) network in the United States. The launch of service in these four cities satisfied the UMTS service launch obligations under the Investor Agreement. As a result of the market launches, and because the remaining contingency relating to the board of directors approval of changes in its use of W-CDMA technology is solely within AT&T Wireless Services’ control, during the third quarter of 2004, AT&T Wireless Services will reclassify the 406 million common shares held by DoCoMo, which are currently reflected on AT&T Wireless Services’ consolidated condensed balance sheet as mandatorily redeemable common stock, to shareholders’ equity.

     In November 2000, AT&T Wireless Services joined with others in the formation of a venture, Alaska Native Wireless, LLC (ANW). On November 11, 2002, AT&T Wireless Services and the other owners of ANW amended the terms of the venture. As a result of this amendment, in March 2007, the other owners of ANW may elect to require AT&T Wireless Services to purchase their interests in ANW for $145 million, of which $63 million was reflected within other long-term liabilities as of June 30, 2004. Under certain circumstances, this right may be exercised earlier, in which case the amount payable would be reduced by 5 percent per annum.

     In conjunction with the split-off from AT&T in July 2001, AT&T Wireless Services entered into a Master Carrier Agreement with AT&T to purchase certain voice and data telecommunications services. Under the Master Carrier Agreement, as amended in December 2002, May 2003 and April 2004, AT&T Wireless Services is required to purchase certain amounts of wholesale long-distance services from AT&T until July 31, 2007. For any shortfall in cumulative usage, AT&T Wireless Services is required to pay AT&T at the rate of $0.01 per minute at the end of the period. AT&T Wireless Services’ maximum remaining commitment as of June 30, 2004 was approximately $607 million. In October 2002, AT&T Wireless Services committed to purchase certain amounts of international long-distance services over a two-year period beginning November 1, 2002 and is required to pay AT&T any shortfall in cumulative usage based on the period’s average rate. Based on the average rate for the twenty months ended June 30, 2004, AT&T Wireless Services’ maximum remaining commitment as of June 30, 2004, was approximately $4 million.

     AT&T Wireless Services enters into agreements in the normal course of business that provide for indemnification of counterparties. These include split-off, tax sharing, and tax refund agreements with AT&T, as well as certain asset sales, outsourcing arrangements, and financing and intellectual property agreements with other parties. The term of the indemnification varies by agreement. The events or circumstances that would require AT&T Wireless Services to perform under these indemnities are transaction specific, however these agreements may require AT&T Wireless Services to indemnify the counterparty for costs and losses incurred from changes in laws or

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regulations, and/or from litigation or claims arising from the underlying transaction. AT&T Wireless Services is unable to estimate the maximum potential liability for these types of indemnifications as the agreements generally do not specify a maximum amount, and the amounts are dependent on the outcome of future events, the nature and likelihood of which cannot be determined at this time. Historically, AT&T Wireless Services has not made any significant indemnification payments under such agreements and no amount has been accrued in the accompanying consolidated condensed financial statements.

(k) CONTINGENCIES

     AT&T Wireless Services is defending several class-action or representative lawsuits challenging the quality of its wireless service. These cases include allegations of breach of contract, statutory consumer fraud, and similar claims. In one case filed in Texas, the named plaintiffs at one time asserted claims for compensatory and punitive damages totaling $100 million. That case was dismissed, and then reversed by the court of appeals; AT&T Wireless Services is seeking review in the Texas Supreme Court. In a case filed in California, the court denied class certification and also denied all remaining claims for monetary relief, although claims for injunctive relief remain pending.

     A series of class-action cases have been filed against AT&T Wireless Services as well as its major competitors, alleging that defendants have violated federal and state antitrust laws and/or committed unfair or deceptive trade practices by allegedly restricting the portability of wireless handsets between carriers. Plaintiffs assert both tying and monopolization claims, but have not asserted specific claims for damages. In the consolidated federal cases, the court has dismissed the monopolization claims and the per se tying claim against all defendants.

     Various class-action or representative lawsuits are pending against AT&T Wireless Services that challenge a variety of billing practices and the adequacy of AT&T Wireless Services’ disclosures concerning those practices, including billing in full-minute increments, billing from send to end, out-of-cycle billing, charging early termination fees, post-cancellation billing practices, billing for recovery costs associated with government-mandated regulatory programs, and billing for roaming calls. The plaintiffs in two of these cases specified damages in excess of $100 million. In one of these cases, the court denied certification of a class, leaving the claims of five individual customers (three of whom have now offered to settle for nominal amounts). After this ruling, plaintiffs nonetheless asserted a claim for restitution on behalf of a nationwide class of customers in excess of $318 million.

     Numerous class-action lawsuits were filed against AT&T and several wireless phone manufacturers and carriers asserting products liability and similar claims relating to radio-frequency transmissions to and from wireless phones. The court dismissed all but one of these cases on preemption grounds, and the remaining case was voluntarily dismissed. An appeal is pending in the cases that were dismissed based on preemption.

     In 1993, shareholders of a former competitor of AT&T Wireless Services’ air-to-ground business sued AT&T Wireless Services, alleging breach of a confidentiality agreement, misappropriation of trade secrets, and tortious interference with the competitor’s business. The jury returned a verdict in favor of AT&T Wireless Services on all claims. During a trial, which concluded in October 2003, the plaintiff asserted damages totaling up to $438 million, but the jury returned a verdict in favor of AT&T Wireless Services on all claims. Plaintiff has filed certain motions challenging the verdict and has filed for bankruptcy protection.

     Several class-action lawsuits have been filed against AT&T, certain executives of AT&T and AT&T Wireless Services, and a group of investment banking firms asserting claims under federal securities laws. The complaints assert claims that AT&T made material misstatements concerning earnings and financial condition, while omitting other material information, allegedly to maximize proceeds from the offering of AT&T Wireless Group tracking stock in April 2000 and/or to avoid paying a cash guarantee in connection with the MediaOne acquisition. The plaintiffs have demanded damages in excess of $2.1 billion related to the offering of AT&T Wireless Group tracking stock. In connection with the split-off, certain provisions of the Separation Agreement between AT&T Wireless Services and AT&T may result in AT&T Wireless Services being allocated a portion of the liabilities, if any, arising out of these actions to the extent they relate to AT&T Wireless Group tracking stock.

     A former executive and shareholder of Tritel, Inc. (which, as a subsidiary of TeleCorp PCS, Inc. was acquired by AT&T Wireless Services) filed a lawsuit against Tritel, Inc., Tritel Communications, Inc., and two board members seeking to rescind an earlier settlement agreement. The plaintiff alleged that the defendants withheld material

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information about an initial public offering that occurred after he settled his prior claims, and asserted claims for fraud, breach of fiduciary duty, and breach of the duty of good faith and fair dealing. The plaintiff sought $60 million in damages and/or restitution, and $450 million in punitive damages. An arbitration panel awarded the plaintiff $57 thousand. Plaintiff challenged the referral to arbitration in an appeal to the Mississippi Supreme Court, but the Supreme Court affirmed the trial court.

     AT&T Wireless Services has been named as a defendant, along with another wireless carrier and several wireless phone manufacturers, in three class-action lawsuits alleging that existing phone equipment does not meet FCC requirements for 911 emergency call processing. Damages have not been specified, although plaintiffs are seeking injunctive and equitable relief.

     AT&T has demanded arbitration of a claim that AT&T Wireless Services has breached agreements that were part of the split-off of AT&T Wireless Services from AT&T by agreeing with Cingular in the context of the pending merger that certain stock options originally granted by AT&T and later converted into options for AT&T Wireless Services stock will be cancelled if the merger is consummated. AT&T asserts that AT&T Wireless Services is obligated to pay compensation to option holders (even for those options that are “under water”) and asserts a claim for restitution from AT&T Wireless Services in the amount of $201 million.

     AT&T Wireless Services is currently a party to various claims and legal proceedings, including those noted above. AT&T Wireless Services also makes routine filings with the FCC and state regulatory authorities, as well as federal, state, and local tax authorities. Additionally, AT&T Wireless Services is currently under audit by the IRS and various state and local taxing jurisdictions. If management believes that a loss arising from these actions and/or filings and audits is probable and can reasonably be estimated, an amount is recorded for the estimated loss. As additional information becomes available, the potential liability related to the actions is assessed and the estimates are revised, if necessary. Based upon currently available information, management does not believe that the ultimate outcome of these actions beyond that provided for as of June 30, 2004, individually and in the aggregate, will have a material adverse effect on AT&T Wireless Services’ Consolidated Financial Statements. However, litigation is subject to inherent uncertainties and unfavorable rulings could occur. If so, it could have a material adverse impact on AT&T Wireless Services’ Consolidated Financial Statements in future periods. While it is not possible to predict the ultimate outcome of the matters discussed above, historically, AT&T Wireless Services has been successful in defending itself against claims and suits that have been brought against it, and payments made in such claims and actions have not been material to AT&T Wireless Services’ Consolidated Financial Statements.

     As discussed in Note (b), on February 17, 2004, AT&T Wireless Services entered into a merger agreement with Cingular and certain of its affiliates. In conjunction with the merger, AT&T Wireless Services has entered into fee arrangements with investment bankers and law firms, which are contingent upon the completion of the merger. As of June 30, 2004, AT&T Wireless Services estimated that these contingent fees approximated $105 million and will be paid if, and when, the merger is completed.

(l) CONCENTRATIONS

     AT&T Wireless Services purchases a substantial portion of its wireless infrastructure equipment and multi-network handsets from only a few major suppliers. AT&T Wireless Services relies on only one or two key vendors in each of the following areas: billing services, payables and payroll processing, network build-out, Local Number Portability capabilities, customer care, and information services. Loss of any of these suppliers could adversely affect operations temporarily until a comparable substitute could be found.

     AT&T Wireless Services relies on one wireless carrier, Cingular, to provide both a portion of GSM services within certain markets in which AT&T Wireless Services has network coverage, and the vast majority of all of its customers’ GSM roaming services outside of AT&T Wireless Services’ network coverage areas. The roaming agreement with this wireless carrier has become increasingly significant during the second quarter of 2004 due to both the increase in GSM subscribers and the launch of national GSM rate plans during the quarter. Discontinuation of this roaming agreement could adversely impact AT&T Wireless Services’ ability to attract and retain customers.

     Local and long-distance telephone and other companies provide certain communication services to AT&T Wireless Services. Disruption of these services could adversely affect operations in the short term until alternative telecommunication providers were found.

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     AT&T Wireless Services does not have a concentration of available sources of labor or services, nor does AT&T Wireless Services have any significant concentration of business transacted with a particular customer that could, if suddenly eliminated, severely affect operations.

     Financial instruments that could potentially subject AT&T Wireless Services to credit risk consist principally of trade accounts receivable. AT&T Wireless Services believes that the credit risk with respect to trade accounts receivables is limited due to the diversity of its customer base.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     You should read the following discussion and analysis in conjunction with the consolidated condensed financial statements and accompanying notes included elsewhere in this report. Except for the historical information, the following discussion contains forward-looking statements that involve risks and uncertainties, such as our objectives, expectations, and intentions. Actual results could differ materially from results that may be anticipated by such forward-looking statements and discussed elsewhere in this report. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section below, and those discussed under “Additional Factors That May Affect Our Business, Future Operating Results, and Financial Condition.” Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may subsequently arise. Readers are urged to carefully review and consider the various disclosures made in this report and in our other filings made with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect our business, prospects, and results of operations. We make our periodic and current reports available, free of charge, on our website as soon as reasonably practicable after such material is electronically filed with the Commission.

OVERVIEW

     We are the second-largest wireless communications service provider in the United States based on revenues for the four quarters ended June 30, 2004. We seek to expand our customer base and revenue stream by providing high-quality, innovative wireless voice and data services. As of June 30, 2004, we had 21.7 million consolidated subscribers. For the three and six months ended June 30, 2004, we had $4.2 billion and $8.3 billion of total consolidated revenues, respectively. Net income available to common shareholders for the three and six months ended June 30, 2004 was $61 million and $3 million, respectively.

     We currently provide wireless voice and data services principally over two separate, overlapping networks in the U.S. and Caribbean. One network uses the signal transmission technology known as global system for mobile communications, or GSM, for voice services, and general packet radio service, or GPRS, and enhanced data rates for global evolution, or EDGE, for data services. As of June 30, 2004, this network covered an aggregate population, which we refer to as “POPS,” of approximately 220 million POPS, or 76 percent of the U.S. population. We also provide voice services over a network using time division multiple access, or TDMA, as its signal transmission technology. As of June 30, 2004, our TDMA network covered approximately 208 million, or 71 percent of the U.S. population. As of June 30, 2004, these two networks within our consolidated markets covered an aggregate of approximately 226 million POPS, or 78 percent of the U.S. population, and operated in 87 of the 100 largest U.S. metropolitan areas. We refer to this as our network footprint or service area. Our network footprint coverage is estimated using signal mapping technology and population data compiled by third parties. We also provide voice service on our analog network, as mandated by the Federal Communications Commission (FCC), and data service over a network utilizing packet switched data technology, or CDPD. We are phasing out our CDPD network as we increase data capabilities on our GSM/GPRS/EDGE/UMTS network.

     We supplement our own networks with roaming agreements that allow our subscribers to use other providers’ wireless services in regions where we do not have network coverage. We refer to the area covered by our network footprint and roaming agreements as our coverage area. With these roaming agreements, as of June 30, 2004, we were able to offer our TDMA customers wireless services covering virtually the entire U.S. population and to provide voice and data services through our GSM and GPRS networks over approximately 93 percent and 91 percent, respectively, of the U.S. population. We plan to continue to expand our service and coverage area and increase the capacity and quality of our GSM/GPRS/EDGE network.

     On July 20, 2004, we began offering customers in Detroit, Phoenix, San Francisco, and Seattle broadband mobile wireless services with our launch of the first commercially-available true 3G UMTS (Universal Mobile Telecommunications System) network in the United States, and that we are deploying UMTS technology in Dallas and San Diego, and will likely offer certain services in these markets before the end of this year. NTT DoCoMo, Inc. (DoCoMo) has confirmed to us that the launch of service in these four cities satisfied the UMTS service launch obligations under the Investor Agreement (see further discussion under Capital Requirements – Contractual Obligations below).

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SUMMARY OF SECOND QUARTER RESULTS

     Total revenue for AT&T Wireless was $4,219 million in the second quarter, an increase of $61 million, or 1.5 percent, compared with the prior year quarter. Services revenue in the second quarter was $3,871 million, down $68 million, or 1.7 percent, from the second quarter of 2003. Average Revenue per User (ARPU) was $58.80 in the second quarter of 2004, down from $60.60 in the prior year quarter. Both services revenue and ARPU were positively impacted by higher data and roaming revenues, as well as an increase in regulatory program fees. More than offsetting these increases were lower monthly recurring charges received from our postpaid subscriber base despite an increase in Minutes of Use (MOUs), and higher promotional incentives to support customer retention efforts during the quarter. We expect ARPU to continue to decline as we offer increased incentives as part of our customer retention efforts. As a result, our ability to increase revenue will be dependent on our ability to grow our subscriber base sufficiently to offset the expected ARPU decline.

     MOUs per subscriber per month were 600 in the second quarter, up 8.9 percent from 551 in the year-ago quarter. This is consistent with the recent trend in the growth of wireless minutes, as subscribers continue to shift toward calling plans that include larger buckets of minutes.

     We ended the quarter with 21.7 million subscribers, a 1.1 percent increase versus the prior year and a 0.2 percent increase from the first quarter of 2004. Net subscriber additions during the quarter were 15 thousand, down 96.6 percent from 446 thousand net subscriber additions in the prior year quarter; however an increase from the negative 367 thousand in the first quarter of 2004. Net subscriber additions versus the prior year were positively impacted by higher gross subscriber additions, which were more than offset by a significant increase in subscriber deactivations. Gross subscriber additions grew 21.7 percent versus the prior year and were driven primarily by growth in postpaid subscriber sales. During the second quarter, more than 72 percent of our gross subscriber additions were on our GSM/GPRS network. Additionally, we made progress in our plans to shift more sales to our direct channels during the quarter. This rapid increase in our new GSM/GPRS subscribers, along with an increase in offers and rate plans, has strained the capacity of our customer care organization. We are attempting to address the increased load by increasing staffing in our call centers. In the interim, the volume of customer calls into our care centers and our response times have been affected. If we are unable to better manage the volume and reduce response times, it could lead to increased churn. In addition, AT&T has notified us that it believes we are in violation of certain performance metrics under our brand license agreement in respect to certain customer care performance levels and otherwise. We are taking steps to address AT&T’s concerns and are in discussions with them concerning the validity of their claims.

     Our churn rate rose to 3.4 percent, up from 2.2 percent in the prior year quarter; however an improvement from the 3.7 percent churn during the first quarter of 2004. We experienced higher churn rates in both our postpaid and prepaid products. Additionally, our churn rate versus the prior year was negatively impacted by higher deactivations within Go Phone, our pay-in-advance product, which was launched during the second quarter of 2003. Churn reduction continues to be a major issue and focus of the business. Our ability to increase future subscriber growth, and in turn, grow our services revenue and OIBDA, is dependent upon successfully decreasing the current elevated churn level.

     Cost per Gross Subscriber Addition, or Cost per Gross Add (CPGA), for the second quarter was $350, down 7.7 percent from $379 in the prior year quarter. CPGA in the second quarter decreased from the prior year quarter as a result of lower per-gross add equipment subsidies and advertising expense.

     OIBDA, defined as operating income before depreciation and amortization, was $1,134 million in the second quarter of 2004, a decrease of 4.4 percent from the year-ago quarter. OIBDA margin for the second quarter of 2004 of 29.3 percent decreased from 30.1 percent in the year-ago quarter. Second quarter OIBDA and OIBDA margin declined from the prior year quarter primarily due to higher acquisition costs due to the growth in gross subscriber additions during the quarter, lower services revenue and increases in customer care and retention expenses. These increases were partially offset by decreases in incollect and general and administrative expenses during the quarter. Additionally, second quarter OIBDA reflected the benefit of $24 million of net reversals of restructuring charges, versus $47 million of charges recorded in the prior year quarter, and a $24 million benefit from the settlement of previously written off receivables from WorldCom.

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     Free cash flow was $105 million for the second quarter of 2004, compared to $1,057 million in the prior year quarter. The decrease in free cash flow versus the prior year quarter was due to higher capital expenditures during the second quarter of 2004 and an income tax refund of $511 million received during the second quarter of 2003.

MERGER ANNOUNCEMENT

     On February 17, 2004, we entered into a merger agreement with Cingular Wireless LLC (Cingular) and certain of its affiliates. Under the terms of the agreement, which were approved by our board of directors and the boards of directors of BellSouth Corporation, SBC Communications Inc., and Cingular, our common shareholders will receive $15 cash per common share and our preferred shareholders will receive the then applicable liquidation preference of their preferred shares, for an aggregate of approximately $41 billion, upon consummation of the transaction. On May 19, 2004, our shareholders approved the merger agreement with Cingular. The transaction is subject to approval by regulatory authorities and other closing conditions. The companies currently anticipate closing the transaction in the fourth quarter of 2004.

     Although we believe the transaction will be completed in the fourth quarter, the underlying accounting within the consolidated financial statements and related disclosures assumes AT&T Wireless Services continues as a stand-alone entity as the completion of the merger is deemed not probable until all required regulatory approvals have been received.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

     The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities as of the date of the financial statements and revenues and expenses during the periods reported. We base our estimates on historical experience, where applicable, and other assumptions that we believe are reasonable under the circumstances. Actual results may differ from our estimates under different assumptions or conditions.

     There are certain critical estimates that we believe require significant judgment in the preparation of our Consolidated Financial Statements. We consider an accounting estimate to be critical if:

•

It requires us to make assumptions because information was not available at the time or it included matters that were highly uncertain at the time we were making the estimate, and

•

Changes in the estimate or different estimates that we could have selected may have had a material impact on our financial condition or results of operations.

     Our critical accounting policies and estimates include our unbilled services revenues; allowances for doubtful accounts; the estimates used in determining the useful lives and valuation allowances of our property, plant, and equipment; fair values and related impairments of property, plant, and equipment, goodwill, U.S. licensing costs, and investments in and advances to unconsolidated subsidiaries; and legal and tax contingencies. For a detailed discussion of our critical accounting policies and estimates please refer to our Annual Report on Form 10-K for the year ended December 31, 2003. There were no material changes in the application of our critical accounting policies and estimates subsequent to the report. We have discussed the development and selection of these critical accounting estimates with the Audit Committee of our board of directors and the Audit Committee has reviewed our disclosures relating to them.

RESULTS OF OPERATIONS

     The following discussion and analysis should be read in conjunction with the consolidated condensed financial statements and accompanying notes included elsewhere in the report and provides information that management believes is relevant to an assessment and understanding of our results of operations for the three and six months ended June 30, 2004 and 2003 and financial condition as of June 30, 2004 and December 31, 2003.

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Restructuring Charges

     During the second quarter of 2003, we launched a company-wide initiative known as “Project Pinnacle” in an effort to improve operating efficiency and margins. During the first and second quarters of 2004, we recorded $6 million and $1 million, respectively, of additional restructuring charges within selling, general, and administrative expenses associated with additional employee separations anticipated to occur during 2004. During the first and second quarters of 2004, we reversed $12 million and $25 million, respectively, also within selling, general, and administrative expenses, for charges taken during 2003 that are no longer required based on a reevaluation of certain restructuring activities, primarily related to employee separations within our customer care and information technology functions. We established a restructuring plan during the fourth quarter of 2003 related to our customer care function. During the second quarter of 2004, the restructuring plan needed to be modified due to volumes of calls into our customer care centers that were higher than anticipated in the original plan. The adjustments to our plan for employee separations related to our information technology function resulted from a reassessment of the economic and performance risk associated with utilizing third parties for certain functions, as well as higher levels of voluntary employee attrition.

     During 2003 and the first half of 2004, we recorded net restructuring charges reflecting our plans to separate approximately 2,000 employees. Approximately 80 percent of these employees would be expected to be exempt employees and 20 percent would be expected to be non-exempt employees. Approximately 1,800 of the 2,000 employees had left their positions as of June 30, 2004. The majority of the remaining approximately 200 anticipated employee separations are currently on hold pending our merger with Cingular. Additional restructuring charges or adjustments to prior restructuring charges may occur as we continue to reevaluate our business plans, as well as assess the impacts of our pending acquisition by Cingular (see “Merger Announcement” above).

     The following table displays the activity and balances of the restructuring reserve, which is reflected in payroll and benefit-related liabilities on the Consolidated Condensed Balance Sheets for the three and six months ended June 30, 2004:

Three and Six Months Ended June 30, 2004 Compared with the Three and Six Months Ended June 30, 2003

Operating Metrics

(1)		Net subscriber additions reflect gross subscriber additions (new customers who activate service) less subscriber deactivations.
(2)		Ending subscribers include customers in the U.S. and Caribbean on postpaid, prepaid, or pay-in-advance rate plans. Additionally, ending subscribers include subscribers that are sold through our resale agreements. A

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subscriber is counted based upon a Mobile Identification Number (MIN) or a Subscriber Identity Module (SIM) if the subscriber has data-only services (e.g., no voice service). The following table summarizes the activity in our subscriber base for the three and six months ended June 30, 2004 and 2003:

     As of June 30, 2004, we had 21.7 million consolidated subscribers, an increase of 1.1 percent from June 30, 2003. Compared with the prior year quarter, net subscriber additions in the second quarter were impacted by strong gross subscriber additions offset by a significant increase in subscriber deactivations. Gross subscriber additions grew 21.7 percent versus the prior year and were driven primarily by growth in postpaid subscriber sales. We continued to shift more sales to our direct channels, including our retail stores and website, during the quarter. Our churn rate rose to 3.4 percent, up from 2.2 percent in the prior year quarter; however an improvement from the 3.7 percent churn during the first quarter of 2004. We experienced higher churn rates in both our postpaid and prepaid products. Additionally, our churn rate versus the prior year was negatively impacted by higher deactivations within Go Phone, our pay-in-advance product, which was launched during the second quarter of 2003.

(3)

Churn is calculated by dividing the aggregate number of subscribers who cancel service during each month in a period by the total number of subscribers as of the beginning of the month.

(4)

ARPU is used to measure the average monthly services revenue on a per subscriber basis. ARPU is calculated as services revenue generated by subscribers, including both our subscribers’ revenue and the roaming revenues generated from other wireless carriers, divided by our average subscribers for the period. See “Operating Metric Calculations” below for calculations of our ARPU.

(5)

CPGA is used to measure the average cost of adding a new subscriber. CPGA is calculated as our sales and marketing expenses (included within selling, general, and administrative expenses on our Consolidated Statements of Operations) and equipment subsidies (included within costs of equipment sales on our Consolidated Statements of Operations) related to new customer acquisitions, divided by the number of new gross subscribers added in the period. See “Operating Metric Calculations” below for calculations of our CPGA.

     Services revenue consists primarily of monthly recurring charges, airtime and toll usage charges (domestic and international), roaming charges (domestic and international) billed to both our customers and other wireless service providers, and regulatory fees we pass on to our subscribers. Revenue from certain regulatory fees, primarily USF fees, represents pass-through charges that have a corresponding expense recorded within costs of services. Services revenue is derived primarily from these voice services and also includes increasing revenue from data services. Services revenue also includes revenues not generated from wireless users, which consists primarily of sublease rents, revenues we collect from local exchange carriers for call termination charges, and revenues received from Public Safety Answering Points and the governmental oversight agency for Enhanced 911 Service. Services revenue is recognized based upon minutes of use processed and contracted fees, and is net of credits and adjustments for service discounts and incentives. Amounts collected in advance of the service period, primarily related to our prepaid and pay-in-advance customers, are recorded as unearned revenue and are recognized when earned. In certain

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cases, customer activation fees, along with the related costs up to but not exceeding these fees, are deferred and amortized over the estimated customer relationship period. During the second quarter of 2004, we reassessed the estimated customer relationship period for our subscribers and reduced the amortization period of these fees from 36 months to 28 months. The impact of this change was not material to our results of operations or financial position. In order to grow services revenue and maintain current ARPU levels, growth in data and other revenue sources will need to offset the expected continued decline in our average revenue per minute related to our monthly recurring and airtime usage charges. Equipment revenue is generated primarily from the sale of wireless handsets and accessories. We generally subsidize all or a portion of handset sales in connection with longer-term contracts or other promotional offers. The revenue and related expenses associated with the sale of wireless handsets and accessories are recognized when the products are delivered to and accepted by the customer or distributor, as this is considered to be a separate earnings process from the sale of wireless services.

     Total revenue grew 1.5 percent to $4,219 million, an increase of $61 million, for the three months ended June 30, 2004, compared with the prior year. Total revenue grew 2.3 percent to $8,294 million, an increase of $188 million, for the six months ended June 30, 2004, compared with the prior year.

     Services revenue for the three months ended June 30, 2004 was $3,871 million, a decrease of $68 million, or 1.7 percent, compared with the same period in 2003. Services revenue for the six months ended June 30, 2004 was $7,617 million, a decrease of $65 million, or 0.8 percent, compared with the same period in 2003. For both the three and six months ended June 30, 2004, services revenue was positively impacted by higher data and roaming revenues, as well as an increase in regulatory program fees. Additionally, for the six months ended June 30, 2004, services revenue grew due to an increase in USF fees. More than offsetting these increases were lower monthly recurring charges received from our postpaid subscriber base, despite an increase in MOUs, and higher promotional incentives to support customer retention efforts.

     ARPU for the three months ended June 30, 2004 was $58.80, compared to $60.60 for the second quarter of 2003. ARPU for the six months ended June 30, 2004 was $57.70, compared to $59.70 for the first half of 2003. The decline in ARPU for both periods was driven by lower average monthly recurring charges and higher promotional incentives, partially offset by higher average per-user contributions from data revenues, USF fees, and regulatory program fees. Average minutes of use per subscriber per month were 600 and 582 for the three and six months ended June 30, 2004, respectively, representing increases of 8.9 percent and 9.8 percent from the respective year-ago periods. These increases are consistent with the recent trend in the growth of wireless minutes, as subscribers continue to shift toward calling plans that include larger buckets of minutes.

     Equipment revenue for the three months ended June 30, 2004 was $348 million, an increase of $129 million, or 59.0 percent, compared with the same period in 2003. Equipment revenue for the six months ended June 30, 2004 was $677 million, an increase of $253 million, or 59.8 percent, compared with the same period in 2003. The increases for both the three and six months ended June 30, 2004 were attributable to higher average revenue per unit sold and an increase in handsets sold versus the prior year periods.

     Costs of services consist primarily of costs to operate and maintain our TDMA and GSM/GPRS/EDGE networks, incollect expenses (the roaming costs paid to other wireless providers), and access, interconnection, and toll charges paid to connect our customers’ calls on other carriers’ networks. Additionally, costs of services include the provision for uncollectible receivables, USF and regulatory fees, and non-income-related taxes. Costs of services for the three months ended June 30, 2004 were $1,057 million, a decrease of $133 million, or 11.1 percent, compared with the three months ended June 30, 2003. Costs of services for the six months ended June 30, 2004 were $2,223 million, a decrease of $81 million, or 3.5 percent, compared with the six months ended June 30, 2003. The decrease for the three months ended June 30, 2004 was the result of lower incollect and toll expenses, as well as a lower provision for uncollectible receivables. Both incollect and toll expenses declined due to lower average costs

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per minute, and lower roaming and long distance minutes of use. The decline in the provision for uncollectible receivables was due to an improved aging of the receivables balances, as well as a recovery in the second quarter of 2004 related to previously written-off receivables from WorldCom. During the second quarter, we received a settlement from WorldCom totaling $29 million, of which $18 million was reflected as a reduction to our provision for uncollectible receivables. These improvements were partially offset by higher network expenses, including leases, rents and utilities costs, resulting from an increase in cell sites over the prior year. The decrease for the six months ended June 30, 2004 was the result of lower incollect and toll expenses, partially offset by increases in network expenses and USF and regulatory fees.

     Costs of equipment sales include the costs of the handsets and accessories sold to new, as well as existing customers, and the related distribution and shipping costs. Costs of equipment sales for the three months ended June 30, 2004 were $620 million, an increase of $147 million, or 31.0 percent, compared with the three months ended June 30, 2003. Costs of equipment sales for the six months ended June 30, 2004 were $1,206 million, an increase of $264 million, or 28.0 percent, compared with the six months ended June 30, 2003. The increases in both periods resulted from an increase in both the number of handsets sold and the average cost per handset.

     Selling, general, and administrative (SG&A) expenses consist primarily of selling costs to acquire new customers, costs we incur to service our existing customer base, and our general and administrative expense for our information technology group and finance and administration functions. SG&A expenses for the three months ended June 30, 2004 were $1,408 million, an increase of $99 million, or 7.6 percent, compared with the three months ended June 30, 2003. SG&A expenses for the six months ended June 30, 2004 were $2,765 million, an increase of $201 million, or 7.9 percent, compared with the six months ended June 30, 2003. The increases for both periods resulted from increased customer care expenses, driven by high volumes of calls to our customer care centers relating to our GSM customer sales and migrations. Additionally, increases in gross subscriber additions and in sales personnel resulted in higher commissions expense and higher salary and benefit expenses versus the prior year periods. Partially offsetting these increases was a decline in advertising and general and administrative expenses versus the prior year periods. Both the three and six months ended June 30, 2004 reflected benefits associated with the net reversal of restructuring charges totaling $24 million and $30 million, respectively, versus restructuring charges totaling $42 million for the three and six months ended June 30, 2003.

     Depreciation and amortization expenses for the three months ended June 30, 2004 were $896 million, an increase of $161 million, or 21.7 percent, compared with the three months ended June 30, 2003. Depreciation and amortization expenses for the six months ended June 30, 2004 were $1,783 million, an increase of $313 million, or 21.3 percent, compared with the six months ended June 30, 2003. The increases for both periods resulted from an increase in depreciation expense associated with the growth in AT&T Wireless Services’ depreciable asset base, and accelerated depreciation of certain TDMA radio equipment, which totaled $35 million and $92 million for the three and six months ended June 30, 2004, respectively. Capital expenditures, including capital additions related to internal use software, were $918 million and $542 million for the three months ended June 30, 2004 and 2003,

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respectively. Capital expenditures, including capital additions related to internal use software, were $1,657 million and $970 million for the six months ended June 30, 2004 and 2003, respectively.

     Other income for the three months ended June 30, 2004 totaled $24 million and primarily included interest income. Other income for the three months ended June 30, 2003 totaled $50 million and primarily included a gain associated with the exchange of wireless properties, as well as interest income. Other income for the six months ended June 30, 2004 totaled $66 million and primarily included interest income and the gain of the sale of a cost method investment during the first quarter. Other income for the six months ended June 30, 2003 totaled $20 million and primarily included interest income.

     Interest expense was $189 million in the second quarter of 2004, compared with $207 million in the prior year quarter. Interest expense was $385 million in the first six months of 2004, compared with $391 million in the prior year. The decrease for both periods resulted primarily from lower interest expense on the TeleCorp and Tritel debt due to the extinguishments which occurred subsequent to June 30, 2003. Additionally, the decrease for the three months ended June 30, 2004 resulted from an increase in capitalized interest due to the higher levels of capital expenditures versus the prior year quarter. Partially offsetting these decreases was the accretion of interest associated with our mandatorily redeemable preferred stock which was reclassified to interest expense effective in the third quarter of 2003 with the adoption of SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.”

     The provision for income taxes was $34 million for the three months ended June 30, 2004, compared to $57 million for the three months ended June 30, 2003. There was a de minimus tax provision required for the six months ended June 30, 2004, compared to $103 million for the six months ended June 30, 2003. The estimated annual effective tax rate of 9.0 percent as of June 30, 2004 was lower than our statutory rate as non-deductible expenses, including interest accretion on our preferred stock and merger-related expenses, offset the projected tax benefit. During the second quarter of 2003, our deferred tax liabilities (excluding the deferred tax liabilities related to licensing costs and goodwill) exceeded our deferred tax assets. Therefore, we determined that we no longer required a valuation allowance against our deferred tax assets, other than those deferred tax assets associated with actual and potential capital losses that were deemed more likely than not to expire unused. The estimated annual effective rate for 2003 of 22.7 percent was lower than AT&T Wireless Services’ statutory rate due to the reversal of certain valuation allowances recorded during 2003.

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     Net equity earnings (losses) from investments in unconsolidated subsidiaries for the second quarter of 2004 were earnings of $22 million, net of a $6 million tax provision, compared with a loss of $9 million, net of a $46 million tax provision, in the second quarter of 2003. Net equity earnings (losses) from investments in unconsolidated subsidiaries for the first six months of 2004 were earnings of $5 million, net of a $1 million tax provision, compared with earnings of $18 million, net of a $46 million tax provision, in the first half of 2003. The increase in net earnings for the three months ended June 30, 2004 versus the prior year was primarily due to the lower tax provision, which included a benefit from the reversal of certain capital loss valuation allowances, partially offset by equity earnings for the three months ended June 30, 2003 related to investments that were subsequently sold during 2003. The decline in net equity earnings (losses) from investments in unconsolidated subsidiaries for the six months ended June 30, 2004 was due primarily to equity earnings from investments sold during 2003, partially offset by a lower tax provision.

     Net income per share available to common shareholders for the second quarter of 2004 was $0.02 per share, compared with $0.08 per share in the prior year quarter. Net income per share available to common shareholders for the first half of 2004 was $0.00 per share, compared with income per share of $0.13 in the prior year first half. The decline in net income per share available to common shareholders for both periods was due primarily to lower operating income.

OIBDA Discussion

     OIBDA is defined as operating income (loss) before depreciation and amortization. OIBDA margin is calculated as OIBDA divided by services revenue. OIBDA and OIBDA margin are non-GAAP financial measures. They differ from operating income (loss), as calculated in accordance with GAAP in that they exclude depreciation and amortization, and differ from net income (loss) as calculated in accordance with GAAP in that they exclude (i) depreciation and amortization, (ii) other income (expense), (iii) interest expense, (iv) provision (benefit) for income taxes, and (v) net equity earnings (losses) from investments in unconsolidated subsidiaries. We believe OIBDA and OIBDA margin to be relevant and useful information to our investors as these measures are an integral part of our internal management reporting and planning process and are the primary measures used by our management to evaluate the operating performance of our consolidated operations. They are used by management as a measurement of our success in acquiring, retaining, and servicing customers because we believe these measures reflect our ability to generate and grow subscriber revenues while providing a high level of customer service in a cost-effective manner. Management also uses these measures as a method of comparing our performance with that of many of our competitors. The components of OIBDA include the key revenue and expense items for which our operating managers are responsible and upon which we evaluate their performance. Additionally, our $1.25 billion credit facility (under which no amounts are currently outstanding) requires us to maintain certain financial ratios, including a specified ratio of net-debt-to-operating income before depreciation and amortization expenses and impairment charges. Lastly, we use OIBDA for planning purposes, and in presentations to our board of directors, and we use multiples of current or projected OIBDA in our discounted cash flow models to determine the value of our licensing costs and our overall enterprise valuation.

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     OIBDA excludes other income (expense) and net equity earnings (losses) from investments in our unconsolidated subsidiaries, as these do not reflect the operating results of our subscriber base and our national footprint that we utilize to obtain and service our subscribers. Net equity earnings (losses) from investments in unconsolidated subsidiaries represent our proportionate share of the net income (loss) of equity investments in which we exercise significant influence, but do not control. As we do not control these entities, our management excludes these results when evaluating the performance of our primary operations. Although excluded, net equity earnings (losses) from investments in unconsolidated subsidiaries may include results that are material to our overall net income (loss). We may record impairment charges in the future if there are further declines in the fair values of our investments, which we deem to be other than temporary. OIBDA also excludes interest expense and the provision (benefit) for income taxes. Excluding these items eliminates the expenses associated with our capitalization and tax structures. Finally, OIBDA excludes depreciation and amortization expenses, in order to eliminate the impact of capital investments, which management believes is better evaluated through its effect on free cash flow (see “Free Cash Flow Discussion” within “Liquidity and Capital Resources” below).

     We believe OIBDA as a percentage of services revenue to be a more relevant measure of our operating margin than OIBDA as a percentage of total revenue. We generally subsidize a portion of our handset sales. All of the equipment subsidy is recognized in the period in which we sell the handset. This results in a disproportionate impact on our margin in that period. Management views this equipment subsidy as a cost to acquire or retain a subscriber, which is recovered through the ongoing services revenue that is generated by the subscriber. We also use services revenue to calculate margin to facilitate comparison, both internally and externally, with our competitors, as they calculate their margins using services revenue as well.

     There are material limitations to using measures such as OIBDA and OIBDA margin, including the difficulty associated with comparing these performance measures as we calculate them to similar performance measures presented by other companies, and the fact that these performance measures do not take into account certain significant items, including depreciation and amortization, interest, and tax expense and net equity earnings (losses) from investments in unconsolidated subsidiaries, that directly affect our net income or loss. Management compensates for these limitations by carefully analyzing how our competitors present performance measures that are similar in nature to OIBDA as we present it, and considering the economic effect of the excluded expense items independently as well as in connection with their analysis of net income (loss) as calculated in accordance with GAAP. OIBDA and OIBDA margin should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with accounting principles generally accepted in the United States of America. OIBDA and OIBDA margin, as we have defined them, may not be comparable to similarly titled measures reported by other companies.

     OIBDA was $1,134 million for the second quarter of 2004, a decrease of 4.4 percent from the year-ago quarter. OIBDA was $2,100 million for the first six months of 2004, a decrease of 8.5 percent from the prior year period. OIBDA margin for the second quarter of 29.3 percent decreased from 30.1 percent in the year-ago quarter. OIBDA margin for the first six months of 2004 of 27.6 percent decreased from 29.9 percent in the prior year period. OIBDA and OIBDA margin declined from the prior year quarter primarily due to higher acquisition costs relating to the growth in gross subscriber additions during the quarter, lower services revenue, and increases in customer care and retention expenses. These increases were partially offset by decreases in incollect and general and administrative expenses during the quarter. Additionally, second quarter OIBDA reflected the benefit of $24 million of net reversals of restructuring charges, versus $47 million of charges recorded in the prior year quarter, and a $24 million benefit from the settlement of previously written off receivables from WorldCom. OIBDA and OIBDA margin for the six months ended June 30, 2004 decreased from the prior year primarily due to higher customer care and retention expenses, higher acquisition costs, and increased network and USF expenses. These increases were partially offset by lower incollect and general and administrative expenses and the net reversal of restructuring charges.

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Reconciliation of OIBDA to Consolidated Net Income

     The following table summarizes the reconciliation of OIBDA to consolidated net income:

Reconciliation of OIBDA Margin to Consolidated Net Income as a Percentage of Services Revenue

     The following table summarizes the reconciliation of OIBDA margin to consolidated net income as a percentage of services revenue:

Operating Metric Calculations

     The following tables summarize our calculation of CPGA and ARPU:

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LIQUIDITY AND CAPITAL RESOURCES

     As of June 30, 2004, we had cash and short-term investments totaling $4.3 billion. We expect to fund our capital requirements for at least the next 12 months by using existing cash balances and short-term investments; cash generated from operations; and if necessary, by accessing external sources of capital including the issuance of commercial paper, public equity or debt securities, or by drawing on our committed receivables securitization program and credit facility. As of June 30, 2004, we had access to $6.9 billion, including our cash balances, short-term investments, and committed, untapped sources of liquidity. We may also generate cash from the sale of nonstrategic investments or excess spectrum. Our need to obtain additional cash from external sources will be impacted by our ability to reduce costs and to continue to achieve subscriber and revenue growth.

Cash Flow Analysis

Net Cash Provided by Operating Activities

     Net cash provided by operating activities for the six months ended June 30, 2004 was $1,556 million, compared with $2,705 million for the six months ended June 30, 2003. The decrease in net cash provided by operating activities was due primarily to the $511 million income tax refund and $245 million from the termination of interest rate swap agreements received in 2003. Also contributing to the decline in operating cash flow was lower operating income, excluding depreciation and amortization, and a higher use of cash related to working capital in 2004.

Net Cash Used in Investing Activities

     Net cash used in investing activities for the six months ended June 30, 2004 was $1,802 million, compared with $887 million in the six months ended June 30, 2003. The increase in net cash used in investing activities compared to the prior year was due primarily to higher capital expenditures and the cash paid related to the purchase of markets from US Cellular during the first quarter of 2004. The majority of our capital spending during the first half of 2004 related to the GSM/GPRS/EDGE network, including the overlay of 850 MHz GSM radios in 850 MHz markets and other investments to enhance quality and expand capacity of the GSM/GPRS/EDGE network.

Net Cash (Used in) Provided by Financing Activities

     Net cash used in financing activities for the six months ended June 30, 2004 was $5 million compared to net cash provided of $441 million for the six months ended June 30, 2003. Financing activities during the first half of 2004 primarily included common stock issuances associated with employee benefit plans which were more than offset by cash used to repurchase TeleCorp and Tritel debt. Financing activities during the first half of 2003 primarily included the cash received from a federal tax refund claim.

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Free Cash Flow Discussion

     Free cash flow, as we have defined it, is calculated as the cash generated from our operating activities less cash payments for capital expenditures. We believe free cash flow to be relevant and useful information to our investors as this measure is used by our management in evaluating our liquidity and the cash generated by our consolidated operating businesses. Our definition of free cash flow does not take into consideration cash generated in the sale of or used to purchase license spectrum, cash used to acquire other businesses, or cash generated or used related to our unconsolidated subsidiaries. Additionally, our definition of free cash flow does not reflect cash used to repurchase or fund debt principal obligations. Free cash flow reflects cash available for financing activities, to strengthen our balance sheet, or cash available for strategic investments, including spectrum acquisitions, acquisitions of businesses, or investments in joint ventures and other unconsolidated subsidiaries. Free cash flow should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with accounting principles generally accepted in the United States of America. Free cash flow, as we have defined it, may not be comparable to similarly titled measures reported by other companies.