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).

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.

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.

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:

                                               Employee Separation
                                        ----------------------------------
                                         For the Three       For the Six
                                         Months Ended       Months Ended
                  (In Millions)          June 30, 2004      June 30, 2004
             ------------------------   ---------------    ---------------
             Beginning Balance            $       43          $       64
             Additions                             1                   7
             Payments                            (12 )               (27 )
             Adjustments                         (25 )               (37 )
                                            --------            --------

             Balance at June 30, 2004     $        7          $        7
                                            --------            --------

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

Operating Metrics


                                               For the Three Months                           For the Six Months
                                                  Ended June 30,                                Ended June 30,
                                            ---------------------------                    -------------------------
   (Subscriber Numbers In Thousands)            2004            2003          Change          2004           2003           Change
----------------------------------------    -------------    ----------    ------------    -----------    ----------    --------------
Net subscriber additions (1)                         15           446        (96.6 )%           (352 )         703         (150.1 )%
Consolidated ending subscribers (2)              21,737        21,493          1.1 %          21,737        21,493            1.1 %
Average monthly churn (3)                           3.4 %         2.2 %        120  b.p          3.6 %         2.3 %          130  b.p
Average monthly postpaid churn (3)                  3.0 %         1.9 %        110  b.p          3.2 %         2.0 %          120  b.p
Average Revenue per User (ARPU) (4)          $    58.80      $  60.60        (3.0) %        $  57.70      $  59.70           (3.4 )%
Cost per Gross Subscriber Addition
(CPGA) (5)                                   $      350      $    379        (7.7) %        $    342      $    391          (12.5 )%

(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

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:

                                                           For the Three Months             For the Six Months
                                                              Ended June 30,                  Ended June 30,
                                                       -----------------------------    ---------------------------
                  (In Thousands)                            2004            2003            2004           2003
---------------------------------------------------    --------------    -----------    ------------    -----------
Ending subscribers as of the beginning of the
period                                                      21,692         21,116          21,980         20,859
Net subscriber additions                                        15            446            (352 )          703
Net subscriber impact from market acquisitions
(dispositions) and adjustments                                  30            (69 )           109            (69 )
                                                          --------         ------          ------         ------

Ending subscribers as of June 30                            21,737         21,493          21,737         21,493

(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.

                   For the Three Months                                   For the Six Months
                      Ended June 30,                                        Ended June 30,
                --------------------------                             ------------------------
(In Millions)       2004           2003       $ Change     % Change        2004         2003       $ Change   % Change
-------------   -------------    ---------   ----------   ----------   ------------   ---------   ---------- ----------
REVENUE
Services         $   3,871       $ 3,939      $   (68 )      (1.7 )%    $  7,617      $ 7,682      $   (65 )       (0.8 )%
Equipment              348           219          129        59.0 %          677          424          253         59.8 %
                   -------         -----        -----                     ------        -----        -----

Total revenue    $   4,219       $ 4,158      $    61         1.5 %     $  8,294      $ 8,106      $   188          2.3 %

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 . . .