The telephone company also said that results would be hurt by higher than expected smartphone costs and damage due to Superstorm Sandy.

AT&T said the pension charge related to an actuarial loss of about $12 billion, which was partially offset by an asset gain of about $1.9 billion. But despite the gain, it said it lowered its expected long-term rate of return due to uncertainty in the securities markets and the U.S. economy for 2013.

"It's not a real huge negative, but a little bit sobering," said Michael Bowen, an analyst with Pacific Crest Securities referring to AT&T's annual review of its pension and post employment benefit plans. "They are saying their obligations are larger than they thought they were."

AT&T's biggest rival Verizon Communications already warned it would take a fourth-quarter charge of $7 billion related to its pension liabilities on January 7 and that including other items such as hurricane Sandy, its charges could be as high as $10 billion for the quarter.

Barclays Research analyst James Ratcliffe said that most investors would not be concerned about the pension charge in AT&T's quarterly report, which is due out on January 24.

"You can get wild swings in the values of pension assets and liabilities. It doesn't tell you much about the underlying fundamentals of the business," Ratcliffe said. "It tells you more about assumptions they are making about future interest rates."

While AT&T said the pension loss will not affect its operating results or margins, it warned that its fourth-quarter operating earnings would be hurt by other issues.

It expects to report a $175 million reduction in its operating income due to storms, including Superstorm Sandy, which damaged cellphone towers and caused days of service outages in some locations in the U.S. Northeast in late October and into November.

Ratcliffe said that costs from Sandy were higher than his expectation for an impact of $125 million to $150 million. In comparison, Verizon's Sandy related losses were about $1 billion, about a third of which was covered by insurance.

AT&T said its wireless profit will also be reduced by higher than expected sales of smartphones such as the Apple Inc iPhone in the quarter.

Because AT&T and its rivals tend to pay a hefty subsidy for each smartphone they sell, high phone sales put pressure on wireless profit margins. They pay subsidies so they can offer phone discounts to consumers who commit to long-term contracts.

AT&T said on Thursday that it sold 10.2 million smartphones in the quarter, which would imply sales of about 26.9 million for 2012 up from its December forecast for 26 million.

AT&T had said at the beginning of 2013 that it hoped to keep smartphone sales at around 25 million for the year.

AT&T shares fell 1.3 percent to $32.76 in late trade after closing at $33.20 on the New York Stock Exchange on Thursday.

(Reporting By Sinead Carew and Jim Finkle; Editing by Bernard Orr)

• A Permanent Economic Emergency