Thank you. Good morning everyone.

Welcome to our first quarter conference call. It's good to have you with us this morning.

As Lorraine mentioned, this is Brooks McCorcle, Head of Investor Relations for AT&T. Joining me on the call this morning is Rick Lindner, AT&T's Chief Financial Officer.

Rick will cover our results and following that we will have a Q&A session. Before we get underway, let me remind you that our release, our first quarter investor briefing, supplementary information and the presentation slides that accompany this call are all available on the Investor Relations page of the AT&T website.

That's www.att.com/investor.relations. I also need to cover our Safe Harbor Statement, which is on slide two.

That says that the information set forth in this presentation contains financial estimates and other financial forward-looking statements that are subject to risks and uncertainties and that actual results may differ materially. A discussion of the factors that may affect future results is contained in AT&T's filings with the Securities and Exchange Commission.

AT&T disclaims any obligation to update or revise statements contained in these presentations based on new information or otherwise. This presentation may contain certain non-GAAP financial measures.

Reconciliations between the non-GAAP financial measures and the GAAP financial measures are also available on our website at www.att.com/investor.relations. Before I turn the call over to Rick let me start with a quick financial recap which is on slide three.

EPS for the quarter was $0.53. That includes $0.05 of pressure from incremental non-cash pension and retiree benefit costs.

It is consistent with the full year outlook we provided in January. Consolidated revenues were relatively stable reflecting economic pressures primarily in voice, largely offset by continued strength in wireless, AT&T U-verse, broadband and strategic business services.

Our first quarter consolidated operating income margin was also in line with our full year outlook at 18.8%. This reflects strong wireless results and good execution on wire line and company wide cost initiatives.

Finally, it was a strong free cash flow quarter with $4.6 billion versus $700 million in the first quarter a year ago, reflecting lower capital expenditures and cash tax payments. With that as a quick overview, I will now turn the call over to AT&T’s Chief Financial Officer, Rick Lindner.

Rick?

Thanks Brooks. Good morning everyone.

It is great to have you with us this morning. Before I cover the details, I would like to take a moment to step back and talk just briefly about what we are seeing across the business and how we are executing and approaching things in this environment.

First, no surprise to everyone the economy has put pressure on usage and volumes particularly wire line voice in our business operations and access line loss continues to impact consumer revenues. Second, in this environment we have taken a disciplined approach to cost which is reflected in our first quarter margins and free cash flow.

We will continue to maintain a sharp focus on cost management as we go throughout this year. Third, we have continued to invest in and to ramp growth in the areas that are key to our future.

Those are wireless data, advanced business services and our AT&T U-verse platform. Our goal is simple.

It is to make sure that when this economy rebounds that number one we are strong financially and two, we are strong operationally with good momentum in the areas that will lead the next wave of growth. With that perspective, we are proud of what we accomplished in this first quarter.

The highlights are on slide four. We delivered strong wireless growth with post-paid net adds up 24%.

Our iPhone activations continue to be strong and we have seen no lessening in the iPhone’s attractive ARPU and churn characteristics. Our wireless EBITDA margin expanded to over 40% this quarter.

Our U-verse TV growth continues to ramp. We took a significant step up in broadband net adds.

Wire line IP data revenue growth improved to 16% driven by U-verse and advanced business services. As Brooks mentioned our consolidated margins are on track with the full year outlook we provided in January.

All in all it was a solid first quarter with good execution on the cost side and positive momentum in our key growth drivers. Slide five shows how these drivers impacted our revenue trends.

Total consolidated revenues were $30.6 billion that is down slightly year-over-year. This reflects a 12% reduction in wire line voice revenues and reductions in print advertising offset by growth in wireless and data services.

Wireless service revenues were up more than $1 billion, 9.6% and wire line data revenues were up 5.3%, slightly above our growth rate in this category over the past few quarters. Wire line IP data revenues were up 16.4% with double digit growth in both consumer and business.

We have included on this slide a look at our first quarter revenue mix which is increasingly weighted to the growth areas of wireless, data and managed services. Two-thirds of our first quarter revenues came from these categories.

Details on wireless results start on slide six. Total wireless service revenues were up more than $1 billion versus first quarter a year ago and wireless subscribers were up 6.9 million.

We had a very strong post-paid quarter. Gross adds were up 9%.

Net adds increased 24% and it was our third straight quarter of strong double digit in post-paid net adds. We continue to have industry leading post-paid data ARPU which was up 27% to $16.48 and total post-paid subscriber ARPU was up 2%.

Wireless data growth continues to be robust driven by data capable devices and richer content and applications. The details are on slide seven.

Wireless data revenues were up nearly $900 million versus the first quarter a year ago. In the first quarter our network carried more than 94 billion text messages, more than double our total in the year-earlier quarter.

For the first time, we had more than a billion multimedia messages. Media bundles and Internet access revenues both grew better than 40% and nearly 50% of our post-paid subscribers now are on monthly recurring data plans.

Data usage and data revenues are driven by integrated devices which are on slide eight. Over the past year we have more than doubled the number of integrated devices on our network.

Penetration of our post-paid base also more than doubled to nearly 32%. In the first quarter nearly 60% of our total wireless device sales were integrated devices.

I think that indicates the opportunity in the future in this area. This growth was led by the iPhone.

We had over 1.6 million iPhone activations in the quarter. Since the iPhone 3G launch in July of last year we have had nearly six million iPhone 3G activations.

Equally important, the iPhone subscriber characteristics continue to be terrific. More than 40% of iPhone activations in the first quarter were for new customers.

ARPUs continue to be roughly 1.6 times our post-paid average and churn is much lower than our post-paid base and recurring margins continue to be high. AT&T is well positioned for the next wave of wireless growth.

The foundation is a strong spectrum position and our GSM technology platform. The second component is a great device line up which we continually keep fresh with exclusives like the iPhone and BlackBerry Bold and new offerings including quick messaging devices and netbooks.

The third driver for wireless data is applications. From thousands of developers around the world, on all dimensions of wireless data there is a lot of opportunity ahead.

I think the good news is that as we drive growth in wireless we are also delivering strong margins which are detailed on slide nine. Our first quarter wireless EBITDA margin was 40.9%.

That is a 510 basis point sequential increase. Network and operational improvements continue to deliver benefits.

Churn was down year-over-year more than 10 basis points. There is a typical seasonal improvement in sales costs as we move from the fourth quarter to the first and the other improvement obviously is in reduced iPhone dilution.

We said that our up front investment in iPhone customers would depress margins in the short-term but given the attractive customer profile would support margins in the quarters and years ahead and that is what you see in our first quarter results. As we outlined for you in January we continue to expect long-term wireless service EBITDA margins in the mid 40% range.

Let me turn now and talk about one of our other major initiatives; the AT&T U-verse platform. Slide ten has an update.

We continue to ramp our customer base with 284,000 net adds in the quarter. Across all eligible living units, our U-verse TV penetration now is in the double digits and we continue to see mid-teens penetration rates in areas marketed to for 18 months.

I think one of the exciting things happening with U-verse is that it is coming into its own as an integrated platform. In the second half of 2008 we took a big step forward with the roll out of total home DVR.

In the first quarter we further expanded our HD channel line up with 100 or more HD channels available in every market. Our all-IP platform lets us deliver integrated voice and broadband as well as unified messaging.

With these developments we are seeing not only a continued ramp in U-verse TV but also strong growth in the U-verse broadband and U-verse voice. Broadband attach rates continue to run above 90%.

We have now launched VoIP service in 86% of our U-verse markets. Dallas started in December.

Houston and Los Angeles were added in the first quarter. U-verse voice attach rates with video is more than 60%.

As we show in the line chart on this slide we had a net gain of 170,000 in the quarter. The potential of U-verse is not just in video but in a set of integrated, interactive services made possible by an all IP platform and with these results we are seeing the beginnings of that transformation.

We are also seeing good bundled satellite TV penetration. In February we launched our DirecTV relationship companywide.

Execution on both sides was very good and we are pleased with the solid start we had. At the end of the first quarter our combined U-verse and satellite video penetration of households served was nearly 13%.

U-verse made an important contribution to broadband net adds. The details are on slide eleven.

Our first quarter increase in total broadband subscribers combining wire line connections with wireless 3G laptop cards was 471,000. That is a significant increase versus the fourth quarter of 2008.

Wire line broadband net adds were up more than 50% sequentially driven by U-verse and continued growth in stand alone broadband often combined with wireless. Customers increasingly choose broadband with the expectation of a range of wire, mobile and portable choices and that is where we are uniquely able to provide.

Through our wired broadband network, through the nation’s fastest 3G wireless data network and our industry leading WiFi footprint. In the first quarter, regional consumer revenues declined by 6.8% due to continued access line losses but trends in both revenue per household and consumer connections improved.

The details are on slide 12. Revenue per household increased 2% this quarter driven by 23% growth in consumer IP data revenue.

That is a combination of broadband and U-verse. Consumer connections including voice, data and video, while still negative and down 5.1% year-over-year have improved sequentially now for three straight quarters.

There is obviously some seasonality as you look at any particular quarter but the trend also reflects the ramp of U-verse voice, data and video as well as the value in our consumer bundled offers. Let’s turn now and look at business, starting with slide 13.

Total business revenues including retail and wholesale were down 4%. Excluding CPE sales they were down 2.8%.

Our first quarter business results highlight I think two major trends. First, the economic impacts on revenues are fairly straight forward, reflecting lower employment and slower business activity levels just as you would expect.

The sectors where we have seen the most impact are financial, transportation and retail. About half of the revenue pressure is in low margin areas like equipment sales and international long distance where there are corresponding variable cost offsets.

Fixed cost reductions in sales and network have kept overall business margins stable despite the revenue decline. The second major trend that is important to note is we are seeing continued strong growth in our most advanced business offerings.

Wire line business IP revenues grew in the double digits and strategic business revenues grew 19.6%. That is a bucket that includes our most advanced solutions including Ethernet, virtual private networks, hosting, IP conferencing and application services.

With that overview, let me close with a look at margins and cash flow. Margin comparisons are on slide 14.

We said in January we expected our 2009 consolidated operating income margin before incremental pension and retiree benefit costs would be stable with 2008 results. In the first quarter our consolidated operating margin was 18.8% and above 20% when you exclude incremental pension and retiree impacts.

This compares with our full year 2008 margin of 18.6% and our full year margin outlook is unchanged. This reflects solid progress in both wireless and wire line.

Cost reduction initiatives are on track as we consolidate support functions, network operations and business services. In the first quarter total force declined by 8,000.

As I outlined earlier our iPhone customer base has ramped and despite continued strong activations, dilution from the iPhone 3G initiative is down significantly. In concert with solid margins we have also delivered strong free cash flow.

Slide 15 provides the cash summary. Cash from operations totaled $7.9 billion in the quarter, up significantly from the first quarter a year ago due primarily to the timing of cash tax payments.

Capital expenditures were $3.4 billion and free cash flow before dividends was $4.6 billion. Our dividend payments for the quarter totaled $2.4 billion.

Since mid year 2008 we have reduced total debt by $5.8 billion and as a result our balance sheet continues to be sound and debt metrics are solid. So to summarize the first quarter on slide 16, as we said we continue to take a very disciplined approach to cost for 2009.

Margins are stable despite wire line revenue declines. At the same time we are investing in key growth areas for our future; wireless, advanced business solutions and U-verse.

We continue to have excellent wireless momentum and we are well positioned for the future growth in wireless and wireless data. Our U-verse TV platform is growing with excellent broadband and voice attach rates and we are delivering strong free cash flow while maintaining a sound balance sheet and providing shareholders an attractive dividend.

Brooks with that why don’t we stop here and I think we are ready to take some questions.

A quick question on wire line margins. Those numbers were better than we expected.

Could you just talk a little bit about what was driving really the up side in margins maybe from a cost cutting standpoint? Then if you can talk a little bit forward you said margins should be flattish year-over-year before pension and given that you are likely to see some further room to go I think in wireless from your earlier comments, how should we expect the wire line trend throughout the year?

Is there more cost cutting or does the revenue transfer catch up with you?

I think first of all with respect to the first quarter we did have a very good first quarter in terms of margins and cash flow. A couple of things.

One, this was a very clean quarter for us. We didn’t have any unusual items or adjustments impacting costs or margins.

We didn’t have any severe weather that typically in our business would drive more overtime or more material costs. So from that standpoint it was very clean.

Secondly, I think the team really throughout our business did a terrific job this quarter getting out in front of the cost side. So, we have done a good job and you see it in our force reductions and you see it in other cost initiatives across the business.

I don’t know there is more up side in total for the year in terms of run rate we will get to but we did get further in the first quarter than we would have expected. So I think both of those things helped margins in the fourth quarter.

As we go forward in the year we will continue to see some pressure as we see reductions primarily in wire line voice revenues. We are going to stay focused on cost and we are going to try and stay out in front of that in terms of the cost trajectory of the business.

You had essentially a doubling of 3G devices in the base year-over-year and I think you said 60% of the adds in the quarter came from integrated devices. The sequential data ARPU essentially stopped growing.

I’m wondering if you could address some of the pressures you are seeing there and whether you expect that to continue for the balance of the year or whether there are sort of one-time, just sort of the trend on data ARPU going forward?

That is a good question. I think there are a few things happening in terms of the trends and overall data ARPU and data revenue growth.

One is that on the business side as employment has been reduced, particularly at large business customers, we have seen some reduction in company paid wireless devices. Those devices typically have higher ARPU and higher data ARPU and data usage.

On the consumer side, we continue to see consumers try to manage their spend better with the pressure that they are seeing. So in consumer we have got a lot of consumers that are either migrating from a pay-per-use to some type of unlimited data package which actually has helped them to in some cases reduce their spend.

In other cases we are seeing consumers try to reduce the amount of their data usage to manage their spend. We are looking at some things we can do from a pricing standpoint there.

We would like to see them continue to move to data packages. We would like them not to take steps to try to reduce their usage or block their usage.

Those are a couple of things that are happening from the data standpoint. We are also, I think, a victim a little bit if you look at percentage increases of just the law of large numbers.

If you step back from it, even in a very difficult economic environment we are still seeing post-paid ARPU growth of 2% and we are seeing that growth really being driven by data. On the data revenue side our data revenue stream is now approaching a $13 billion annual business and still grew at nearly a 40% year-over-year growth rate in the first quarter.

Again, I think there are some pressures there on some usage based revenues but overall business is very healthy. We will continue to push forward with not just 3G devices but integrated devices in our base.

If I could stay on wireless, the margins were tremendous, a nice rebound yet again and sort of earlier than we were expecting with the 40%. You talked about some of the seasonal factors driving down costs.

As I think about Q2 I would assume there would be continued improvement on the iPhone dilution and looking at last year it doesn’t seem there was a whole lot of tick up in expenses overall. Is it reasonable to expect we can continue to see these margins at similar levels to what we saw in Q1 or are there any other drivers there?

Then if you can also just touch on pre-paid, there has been an explosion in these unlimited prepaid plans. The Go Phone continues to shed customers at a modest rate.

Any thoughts there?

On wireless margins, that was a pleasant surprise for us as well in the first quarter. I think our expectation and our goal was to get margins back up over 40% during this year and we were able to do that in the first quarter.

I think we would expect to maintain margins in that range in the low 40’s as we go forward in this year. In addition to some of the seasonal factors and some of the improvement in iPhone dilution, we also had one other factor that I think helped this quarter and that is after a couple of quarters, primarily driven by the iPhone and some of the integrated devices where we had higher than normal upgrade activity, a higher percentage of our base upgrading during the last couple of quarters, that has started to fall back a little bit and has come back in what I think I would consider to be more of a normal range.

That also helped us in this quarter. You asked about prepaid.

I think there are a couple of things that are happening in prepaid. First of all they are positive for us I think in this quarter.

One is that churn is down year-over-year in our prepaid base, about 90 basis points. That is something in the last year we have been focused on in trying to continue to increase and improve profitability of prepaid it is important to bring those churn rates down.

The second is our prepaid ARPU has stayed very stable. So those I think are two positive signs.

I do think we have had some impact in gross adds and gross sales from some of the new offers that are in the market place today. We are trialing some new offers in a couple of markets in prepaid as well that I think will help boost the gross sales as we go forward in the year.

We will be at the same time very careful with it not to do something that could cannibalize our post-paid base. That is really where our bread and butter is.

Two questions on wire line, maybe first. On the line loss in consumer retail, there was a nice improvement in that.

I was wondering if you could kind of speak to whether in light of maybe a slow down in the economic regime kind of impacting home movement and also given the counter forces of wireless substitution how you see that progressing over the course of the year. Have we turned a corner or are there some other forces at work?

Then just looking at the new AT&T business solutions reporting segment it seems like the weakest part of that was what you guys break out as the wholesale and the government piece of it. I know that IBM was supposed to be a big contributor this quarter.

Something else seems to be really kind of falling in that sub-segment. If you could speak to that as well it would be helpful.

Sure. First of all on consumer I think that was for us a pleasant surprise this quarter.

Just a continuation of trends we have seen over the last couple of quarters. When you look at total revenue connections, as I mentioned earlier, while it continues to be in the slightly negative in this quarter certainly the trajectory is better.

I think it reflects a combination of things frankly. I think having possibly due to the economy less movement, fewer people moving, changing residences and locations probably provides some help but I think more importantly we are making good progress as we mentioned with U-verse and that is bringing along not just video connections but very hot broadband attach rate and when we look at those U-verse customers by the way over 60% of those are coming from competitors.

So that is helpful to us. At the same time, we are now starting to get a lot of traction behind the U-verse voice product and that is certainly helping us offset some of the consumer line loss.

Over and above that I think we have a very flexible array of products for consumers these days. We allow them to buy products on a stand alone basis.

We allow them to bundle them. They can bundle with video or broadband.

They can bundle wired voice or wire line voice. When they buy broadband from us they get a very strong mobility and portability aspect in that they have access to 20,000 WiFi hot spots across the country.

So I think overall it is a good offer. That part of the business, as you know, is challenging so I don’t know that I would be ready to declare that we have turned the corner on it but we are encouraged by the trends we are seeing.

The question you asked about the break out of business revenues and I know it will take a quarter or two for everyone to get comfortable with that break out, I thought it was important for us to do it because it does line up now with how we are managing the business within Ron Speers’ organization. When you look at the wholesale government segment particularly the fact is that the government business has been pretty solid.

It has not declined significantly. We did have a sale of a small government services business unit that impacted the year-over-year results slightly.

But the government piece has been solid. In wholesale we are seeing impacts in a couple of areas, primarily voice, and that is where we are seeing some reduction in international LD revenues as an example.

Then keep in mind that wholesale segment also includes our switched access revenues and it also includes our UNE-P base. Both of those provide a little headwind in the overall revenue trends there.

On the iPhone side, can you give us a sense…I think there was a cost per activation that you gave us last quarter. Maybe if you can provide that as well as any commentary on there has been a lot of discussion on next gen iPhone type devices coming out this summer.

Is there anything we can look at as far as margins go that might have an impact on that? Second, on DSL it was a lot stronger than we had anticipated.

Was there any promotional activity that was unusual there? Intangible amortization coming down through the year, any sense on how fast it is going to ramp down?

My pen gave out and I got behind on my writing. I may need help on these questions.

First on the iPhone, what we are seeing there is not reflective of any change in terms of activation cost. It is just simply the normal progression of building that base so that the acquisition costs are a smaller percentage relative to the recurring margins going forward.

In terms of new products, new product announcements, pricing and so forth that really falls to Apple to make those kinds of announcements so we will leave that to them. I will just reiterate two things along those lines.

First, we continue to have a very good relationship with Apple and we enjoy working with them. We are thrilled to have their product as part of our line up.

As we talk about it, it is a situation where the customer characteristics continue to be very strong.

I was just looking at the 1.6 million iPhones, if there are any meaningful acquisition costs. I’m assuming there is.

It just seems like as iPhone continues at these kinds of levels there is probably some margin opportunity there.

As we have said, we believe there is margin opportunity in the wireless business and that will continue to give us some up side as we go forward. I’m sorry, what was your third question?

The DSL, whether or not - the numbers were higher than we were expecting. Was there any promotional activity that drove that?

On DSL and broadband overall one thing is interesting, we were positive in DSL this quarter. I think it reflects some of the things I mentioned earlier.

I think the fact we are very flexible in our bundles. Our stand alone DSL product which about 50% of the time is bundled with wireless has been very strong for us.

We haven’t been running any significant promotional activities I think in the last few quarters. We have improved our focus in the sales channels and in the cost centers around selling broadband and I think that has helped.

We have been very active with save activities as well. I think that has helped and is reflected in some reductions in churn rates.

I think it is just a combination of factors but at the end of the day it comes down to having offers in the market place that I think consumers value. The last question, in terms of intangible amortization we will have some reduction in tangible amortization this year.

We will have to get back to you with the number. I don’t remember it off the top of my head.

The expectation is that it is offset largely with increases in depreciation to some degree as we add more U-verse customers, the set top boxes and the home gateways, the equipment that gets installed in customer premises are capitalized and those are amortized or depreciated over fairly short periods. Depreciation and amortization I think in the year will be relatively flat.

First, just on the dividend, we came into the week with you guys having the distinction of being the highest dividend yielding DOW company. If you look at the last several companies to hold this distinction recently they have all ended up cutting their dividend which sort of begs the question, it is great to hear you walk through the framework and hear your commitment levels to the existing dividend.

The second question here just one wire line margins, if we can step back and think about a framework relative to the last cycle. We sort of look at this in aggregate.

The BellSouth wire line business, the AT&T business, the legacy SBC business just trying to get apples-to-apples wire line last cycle versus where we are this cycle. Last cycle those businesses in aggregate troughed at about 30% of wire line margin.

Just thinking through the puts and takes I think the argument would be enterprise is structurally better at this point. Consumer obviously has some mix issues but I would love to hear you sort of think through the puts and takes of that.

Sure. I wasn’t aware of that distinction on dividends.

I don’t know if that is good or bad but it is nice to be singled out there. Dividends are extremely important to us and to our share owners.

We look upon the dividend yield as an important part of the total return that we provide the shareholders. As you know, we have a good track record with dividend growth and we just increased our dividend in the middle of this environment.

We increased our dividend just last December. From the standpoint of the management team, our objective and our charge is to deliver the cash flows that support that dividend.

That is a high priority and an important objective for us. In terms of future dividend policy, that really is a responsibility of our Board and it is one that they take very seriously and they typically review dividends as we get toward the last part of the year when we have some visibility into our business plans for the following year.

So, nothing has changed with respect to how we view dividends and the process we go through on a regular basis. In wire line margins, I think there is one thing that is very important with respect to this cycle versus past cycles.

That is in the last cycle that we went through in the late 1990’s and the early part of this decade if you think about things that were happening in the local telephone part of our business we had significant growth in UNE-P. In effect, what happened then is volumes weren’t necessarily declining.

We were just moving customers and lines from higher retail rates to lower wholesale rates. So those impacts tended to fall right through to the bottom line.

If you look at the global business in the early part of this decade a lot of capacity was available in the market place and so pricing started to drop significantly as some demand fell. So, again what you saw was not necessarily reductions in volume but more reductions in price.

Again, those tended to fall right to the bottom line. This is also a challenging cycle we are in but it is a little more rational from the standpoint that the kinds of things you expect in this economy are the things we are seeing which is some reductions in usage and reductions in volumes.

As we mentioned in the presentation, if you look particularly at the business side, half of the pressures at least that we are seeing are in products that carry high variable costs. So they are not having nearly as significant an impact on margins or on the bottom line.

At the same time, I think we recognized last year that we had to be very proactive in taking fixed costs out of the business and we are doing that largely through the reorganization that we began in the fourth quarter. That is progressing well.

I think we are seeing not just improvements from a cost perspective but we are also seeing some positive benefits operationally from the changes we made in the fourth quarter. So, again as I mentioned earlier our charge this year is that we know we will see some declines in voice revenues and some changes in our mix.

So our charge in terms of the management team is number one to not just grow revenues in the growth areas of the business but improve the margins as we scale those products. Secondly, to drive fixed costs out of the business to try to maintain stability overall in margins and stability in our cash flow.

I was wondering if you could talk a little bit more about the sales cycle and some of the pricing trends you are seeing within the enterprise segment? As we move through 2009 how should investors think about whether the enterprise business will lag or move with the economy in terms of employment and maybe some other metrics you look at and is that different than it was maybe a few years ago?

I think in terms of how business will react in the economy I still think there will be some lag because…let me say it this way, I think businesses will need to see some improvements in the environment and in the economy, in consumer spending and when they see that they will react to it and the reaction will be as their volumes increase they will increase employment, we will see more new business start ups and we will see expansion in more locations. The things that drive our business.

I do think there will be some lag. In terms of the sales cycle we are still seeing, and I think winning a fair share of the deals that are coming on the market.

We are still seeing companies going forward with plans to migrate their networks to IP. I think you see that in the fact that our IP data revenues are growing still at double digit rates in our business markets.

So I think that is a positive. From a business standpoint or our customer’s standpoint there is a benefit to them to move towards IP.

It helps them provide the capability and the bandwidth they need within their business. It helps them better manage their costs and their infrastructure.

It fits well in the sweet spot for us because we have the capabilities there not just in the services and products but the experience to help them manage through that transition.

If I can just follow-up, in the last recession back in the 2001-2003 period, your bad debt expense as a percent of revenue peaked around the low 3’s if I remember correctly. It might have been a little bit volatile.

It was certainly significantly higher than it is today. How do you think about credit and customer activity?

Is this time different in terms of what we should expect in terms of the bad debt experience as we move through this period of economic softness?

To be honest I don’t remember bad debt moving up into the 3 range. It may have been.

That was prior to the AT&T acquisition. It may have been higher on the business side there.

I don’t know. Our overall bad debt expense, not just uncollectibles but our write offs, our aging experience across all segments right now, wire line, wireless consumer business, are all holding up very well.

I think we are approaching reserves conservatively particularly on the business side because there are some increases in bankruptcies and business failures so I think we are being appropriately conservative there. Right now I feel good about where we are in terms of our collections, our aging and our write offs.

Can you talk about CapEx a little bit? It was down seasonally as we would expect and you projected that pretty well.

Can you talk about the drivers for whether it be high end or low end or below the range for the year? What are you thinking about those drivers as you look at the business and opening up the spigot on that CapEx?

CapEx for the quarter is about where we expected. First quarter is seasonally lower for us.

We typically have about in the 20% range of CapEx in the first quarter and that fits in with the guidance we provided of $17-18 billion this year. When you break it down in the first quarter we had a small increase in wireless spend which is I think what you would expect given the growth in that business and the volumes particularly on the data side.

The reductions in CapEx have come predominately in two areas; again the same areas we talked about when we provided guidance for the year. About half of the reduction year-over-year came in success based demand related capital.

About half of it or maybe a little more than half came in portfolio capital. Again, that is where we brought CapEx down.

We focused a little more of our portfolio capital on expense related versus revenue related projects. I think we are right in line with where we expected to be at this point.

We are also comfortable that we are investing in the areas that are important for us to invest in and as we said to position ourselves going forward. I am very comfortable with the levels we are at.

Like all other businesses I think we will need to see some pick up in growth and economic activity and our own volumes and when that starts to occur then we will start to spend in those areas consistently.

As you went through the quarter and into April have you seen any change in the direction of the economy either positive or to the negative?

I can’t say that in this first quarter that we have seen significant changes in the direction. I think in most respects what we are seeing is from the standpoint of the economy and the drivers in the business for the most part we are seeing a continuation of the trends that we saw in the fourth quarter.

We continue to see some pressure on wire line voice revenues primarily and overall on usage based kinds of services. So I don’t think we have seen any change there.

I think there were two positives in the first quarter but I think they speak more to our products in these areas than necessarily the economy. One was in our sales in wireless of integrated devices and in particular iPhone sales.

I think having 1.6 million iPhone sales in the quarter in this environment was very strong. Then secondly, as I mentioned earlier, I think our trends in wire line revenue connections and consumer again given this environment were good.

They were a little bit of a pleasant surprise for us. I think it speaks to the services that we offer there and it speaks to the success we are seeing with U-verse.

I wonder if I can just follow-up on that sort of macro economic picture for a second. If I think strategically as you think about when is the timing to reposition from cost positioning heading into a worsening economy to strategic positioning coming out of a worsening economy do you feel like you are in that position to make that shift?

Where are the places that you say you take advantage of the weakness of others to really position the business for the turn in the best way? Would it be in wireless?

In expansion internationally? Would it be out of region opportunities?

What are the things on your radar screen for coming out of the recession?

Those are great questions. First of all, I think I want to be careful how we characterize it.

I think I would characterize the position we are taking right now a little differently in that we are working real hard to do both. We are focused obviously on the cost side of the business and on generating margins and cash flow.

But at the same time we are investing in areas that we think are important for the future. We are investing in wireless and as you have seen over the past year in what has been a difficult environment we have continued to invest in wireless spectrum, we have continued to do some fill in acquisitions in wireless, we have invested in products like the iPhone, and we have invested in relationships with integrated device manufacturers.

So we are doing everything there I think that is important to position the business for the future. In our business services we continue to develop our suite of business services and managed services.

We have been successful in developing relationships with major customers, developing relationships with IBM, all of those things that position us I think very well on the business side. Of course we are investing in U-verse and as I mentioned earlier I think we are seeing a nice ramp in growth there and we are seeing the kind of benefits that we hope to see from the integrated platform.

So not just sales of video but bringing both broadband and voice with it. So, we are continuing to invest in the areas that are important to us.

As always, we look at opportunities domestically and internationally and certainly our focus areas are in wireless and our focus areas are in services to business customers. Those things haven’t changed.

It is just a matter of finding the right opportunities at the right time. Folks, again I appreciate everyone being with us this morning.

I will just wrap it up with a closing comment. As I said earlier, I think despite the economic pressures I think we had a very solid first quarter.

Cost initiatives are on track. The margins are stable.

Cash flows are strong. As I mentioned, our focus in this current environment is first to execute the disciplined focus on the cost side but second to continue to invest and drive growth in areas that are key to the future, in wireless data, business services and in U-verse.

I think we did these things in the first quarter. I think the results give us confidence in our ability to execute going forward in this year and in this environment.

That confidence comes from having I think terrific assets in our business with a lot of opportunity ahead. Our goal this year, as I mentioned, is to make certain that we are well positioned, that we are strong financially with good operational momentum so that as this economy turns we are positioned to grow this business going forward.

That is our focus. I want to thank you again for being with us this morning.

As always I want to thank you for your interest in AT&T.

Thanks everyone. Have a good day.