SHORTTERM INCENTIVE PLAN

1.

Purpose.  The purpose of the Short Term Incentive Plan (the "Plan") is to provide Eligible Employees with incentive compensation based upon the achievement of financial, service, and operating performance levels and management effectiveness.

2.

Definitions.  For purposes of this Plan, the following words and phrases shall have the meanings indicated, unless the context clearly indicates otherwise:

 

Termination Under EPR.  In determining whether an Eligible Employee’s termination of employment under the Enhanced Pension and Retirement Program (EPR) is a Retirement for purposes of this Plan, five years shall be added to each of age and net credited service (NCS).  If with such additional age and years of service, (1) an Eligible Employee upon such termination of employment under EPR is Retirement Eligible according to the AT&T Supplemental Retirement Income Plan (SRIP) or (2) the Eligible Employee upon such termination of employment under EPR has attained one of the following combinations of age and service,

4.

Awards. The Committee with respect to Officers, or the Chairman with respect to non-Officer Eligible Employees, shall approve a Target Award for each employee eligible for an award under the Plan for each Award Year that the Committee or the Chairman, as applicable, intends to make awards.

(a)

Financial performance of AT&T, individual operating entities thereof and/or AT&T and its consolidated subsidiaries.

(b)

Service performance of AT&T and of individual operating entities; or other appropriate operating performance criteria for entities where service performance is not relevant.

(c)

Other criteria in lieu of or in addition to the above as determined by the Committee or the Chairman, as applicable.

(a)

In order to assure the incentive features of the Plan and to avoid distortion in the operation of the Plan, the Committee or the Chairman, as applicable, may make adjustments in the criteria established for any Award Year, whether before or after the end of the Award Year, to the extent the Committee or the Chairman, as applicable, deems appropriate, to compensate for or reflect any extraordinary changes which may have occurred during the Award Year which significantly alter the basis upon which performance levels were determined.  Such changes may include, without limitation, changes in accounting practices, tax laws, or other laws or regulations, or economic changes not in the ordinary course of business cycles.

(b)

In the event of any change in outstanding shares of AT&T by reason of any stock dividend or split, recapitalization, merger, consolidation, combination or exchange of shares or other similar corporate change, the Committee or the Chairman, as applicable, shall make such adjustments, if any, that the Committee or the Chairman, as applicable, deems appropriate in the performance levels established for any Award Year.

(c)

The Senior Executive Vice President-Human Resources (or his or her successor) may approve a new Target Award for any Eligible Employee whose position is modified by changes in job responsibilities, reorganization, or otherwise; provided, however, such authority may not be exercised for positions with a total compensation market rate exceeding $2.0 million (in such a case the new Target Award shall be approved by the Committee).

(a)

No person shall have any claim to be granted an award under the Plan and there is no obligation for uniformity of treatment of Eligible Employees under the Plan.  Awards under the Plan may not be assigned or alienated.

(b)

Neither the Plan nor any action taken hereunder shall be construed as giving to any employee the right to be retained in the employ of AT&T or any subsidiary thereof.

(c)

AT&T or subsidiary thereof, as applicable, shall have the right to deduct from any award to be paid under the Plan any federal, state or local taxes required by law to be withheld with respect to such payment.

(d)

Unless otherwise provided by the Committee, awards under the Plan shall be excluded in determining benefits under any pension, retirement, savings, disability, death, or other benefit plans of AT&T except where required by law.

7.

Designation of Beneficiaries.  An Eligible Employee may designate pursuant to AT&T's Rules for Employee Beneficiary Designations as may hereafter be amended from time-to-time ("Rules"), which Rules shall apply hereunder and are incorporated herein by this reference, a beneficiary or beneficiaries to receive in case of the employee’s death all or part of the awards which may be made to the employee under the Plan.  A designation of beneficiary may be replaced by a new designation or may be revoked by the employee at any time.  A designation or revocation shall be on a form to be provided for the purpose and shall become effective only when filed with AT&T during the employee's lifetime with written acknowledgement of receipt from AT&T.  In case of the employee’s death, an award made under the Plan with respect to which a designation of beneficiary has been made (to the extent it is valid and enforceable under applicable law) shall be paid to the designated beneficiary or beneficiaries.  Any award made to an employee who is deceased and not subject to such a designation shall be distributed in accordance with the Rules.

(a)

The Committee or the Chairman, as applicable, shall have full power to administer and interpret the Plan and to establish rules for its administration.  Awards under the Plan shall be conclusively determined by the Committee or the Chairman, as applicable.  Any determinations or actions required or permitted to be made by the Committee or the Chairman, as applicable, may be delegated by the Committee or the Chairman in its sole discretion.  The Committee or the Chairman, as applicable, or any delegate thereof, in making any determinations under or referred to in the Plan shall be entitled to rely on opinions, reports or statements of officers or employees of AT&T and/or of any subsidiary thereof and of counsel, public accountants and other professional or expert persons.

(b)

The Plan shall be governed by the laws of the State of Texas and applicable Federal law.

Modification or Termination of Plan.  This Plan may be modified or terminated at any time in accordance with the provisions of AT&T's Schedule of Authorizations.  A modification may affect present and future Eligible Employees.

1.

Purpose.  The purpose of these Guidelines is to outline the procedures to be followed in administering AT&T's Short Term Incentive Plan (the "Plan").

2.

Award Process.  The Committee shall approve a Target Award for each eligible Officer.  The Chairman shall approve a Target Award for each non-Officer Eligible Employee.  These Target Awards are based on market-based rates established for each Eligible Employee and shall generally be established in January of the Award Year.

3.

Performance Criteria.  The performance criteria established by the Committee or the Chairman, as applicable, may be one or more of the following:

Other Performance Criteria

4.

Funding.  Each year, a maximum funding level of 1.0 percent of reported AT&T net income (before any extraordinary loss and/or cumulative effect of changes in accounting principles) minus amounts paid as Key Executive Officer Short Term Award(s) pursuant to the 1996 Stock and Incentive Plan and/or the 2001 Incentive Plan shall be available to payment or awards under the Plan with respect to the preceding Award Year.

5.

Distribution of Awards.  Awards for the preceding Award Year will generally be distributed after completion of the Award Year in accordance with the following paragraphs.  Distribution of all awards is subject to approval by the Committee or the Chairman, as applicable, generally obtained in January following the completion of an Award Year.

Financial results above objective

Outstanding customer service results

Advancement of workforce diversity

Outstanding individual contribution

6.

Changes/Exceptions.  Changes in these Guidelines and exceptions to their provisions may be authorized by the Committee.