Fitch Downgrades SBC Communications' Rating to 'A'; Removes from Rating Watch Negative.

CHICAGO -- Fitch Ratings has downgraded the rating assigned to SBC Communications Inc.'s (which has been renamed AT&T Inc.) senior unsecured debt and its issuer default rating (IDR) to 'A' from 'A+'. In addition, Fitch has taken other rating actions listed at the end of this release. All SBC-related ratings have been removed from Rating Watch Negative and a Stable Outlook has been assigned. Fitch has upgraded the senior unsecured and issuer default ratings of AT&T Corp. that currently do not have a guarantee to 'A-' from 'BB+'. The Positive Rating Watch assigned to the ratings of AT&T Corp. has been removed and a Stable Rating Outlook has been assigned. SBC has unconditionally and irrevocably guaranteed AT&T Corp.'s euro-denominated 7.75% (original coupon 6.00%) notes due Nov. 21, 2006; thus Fitch has upgraded these notes to 'A' from 'BB+' and assigned a Stable Rating Outlook. Following the close of the merger, SBC has changed its name to AT&T Inc.

The rating actions conclude Fitch's review of the ratings initiated in January 2005 following SBC's announcement of the acquisition of AT&T Corp. in an all stock transaction valued at approximately $16 billion including a $1 billion dividend to be paid by AT&T Corp. prior to the close of the transaction. Following the receipt of approval of the transaction by the Federal Communications Commission (FCC) and the U.S. Department of Justice (DoJ) in October 2005, and other customary regulatory approvals, including the California Public Utilities Commission on Nov. 18, 2005, SBC has closed the transaction.

The downgrade of SBC's rating incorporates the moderate increase in business risk resulting from the addition of the competitive long distance segment to SBC's operations and the execution risks associated with the integration of AT&T's operations into those of SBC. Moreover, there will be cash flow timing differences as substantial initial costs will be incurred in 2006 before material synergies arise in 2007 and beyond. Positive aspects of the transaction include the strengthened position in the business services market segment, the further diversification of SBC's revenue stream and, excluding the first year integration costs, relatively strong credit protection metrics given the moderately delevering aspects of the transaction. Including the costs of integration, Fitch expects SBC's debt-to-EBITDA to approximate 1.7 times (x) in 2006 (including the proportionate results of Cingular), and trending down thereafter as synergies arise and integration costs diminish. Fitch's expectations incorporate conservative assumptions as to the synergies to be achieved over the next several years.

Fitch expects at year-end 2005 the combination of SBC's debt, AT&T's debt and SBC's 60% share of Cingular's public debt to approximate $39 billion to $40 billion. SBC's free cash flows are expected to be reduced in 2006, due to the AT&T integration costs, but still be positive. Fitch expects stock repurchase activity in 2006 to occur and be moderated by progress on the integration of AT&T. Beyond 2006, Fitch expects higher discretionary free cash flow, and that stock repurchase levels are expected to exceed debt reduction. Nonetheless, some debt reduction is expected to occur. In addition, Cingular is expected to retire $1.5 billion of maturing debt in 2006, largely from internal cash, thus reducing proportionate debt.

Following the close of the transaction, SBC will have a diverse revenue mix and substantial scale in a changing industry. The acquisition of AT&T dilutes the current favorable proportion of wireless revenues in the revenue mix. However, wireless and high speed data service revenues are expected to continue to grow, and combined with the very defensible position in the business services market resulting from the acquisition of AT&T Corp., should mitigate the effect of the erosion in the consumer market caused by increased voice over Internet protocol (VoIP) competition and wireless substitution. SBC's fiber-to-the-node (FTTN) network build out could also contribute to prospective revenue growth, although Fitch has not included significant results from video or higher speed data over the FTTN network in its assumptions, given the early stage development of this project.

Pro forma for the AT&T Corp. acquisition, SBC had approximately $2.5 billion in free cash flow (excluding $2.6 billion in distributions from Cingular). In 2006, on a pro forma basis, SBC is expected to have approximately $4.1 billion in debt maturities, with a substantial portion needing to be refinanced. Liquidity support is provided by an undrawn, $6 billion credit facility, which matures in October 2007.

The affirmation of the 'A' rating of Cingular and AT&T Wireless reflects the strategic importance and strong linkage of the company to its parent companies, SBC and BellSouth (which also has a senior unsecured rating/IDR of 'A' by Fitch). Cingular currently has approximately $14.2 billion in external debt, but the level is expected to decline over time as Cingular will no longer issue debt publicly. SBC and BellSouth provide a revolving credit facility to finance Cingular's needs to the extent Cingular is not funded internally. SBC and BellSouth also have in place subordinated shareholder loans to Cingular that totaled approximately $9.6 billion and $7.0 billion at Dec. 31, 2004 and Sept. 30, 2005, respectively. The shareholder loans are expected to be reduced over time as Cingular generates free cash flow.

The following ratings have been affirmed, removed from Rating Watch Negative and a Stable Rating Outlook assigned:

SBC Communications Inc.

-- Commercial paper 'F1'.

SBC International

-- Commercial paper 'F1'.

Cingular Wireless, LLC 

-- Senior Unsecured/IDR 'A'.

AT&T Wireless

-- Senior Unsecured/IDR 'A'.

The following entities have had their senior unsecured and issuer default ratings downgraded to 'A' from 'A+', have had their ratings removed from Rating Watch Negative and have had a Stable Rating Outlook assigned.

SBC Communications Capital Corp.

-- senior unsecured, IDR.

Ameritech Capital Funding

-- senior unsecured, IDR.

Indiana Bell Telephone Company

-- senior unsecured, IDR.

Michigan Bell Telephone Company

-- senior unsecured, IDR.

Pacific Bell Telephone Company

-- senior unsecured, IDR.

Wisconsin Bell Telephone Company

-- senior unsecured, IDR.

Southern New England Telephone 

-- senior unsecured, IDR.

Southwestern Bell Telephone

-- senior unsecured, IDR.

In addition, Fitch has assigned the following rating:

SBC Communications Inc.

-- Senior unsecured bank facility 'A'.

The following rating has been downgraded to 'A' from 'A+' and withdrawn, as there is no longer any debt outstanding:

Southwestern Bell Capital Corp.

-- Senior unsecured, IDR.

The following rating has been withdrawn:

AT&T Corp.

-- Commercial paper/short-term IDR, 'B'.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.