The Communication Workers of America and AT&T said they reached a tentative agreement late Sunday on a contract for more than 11,000 workers, ending fears of a strike that could have occurred in less than a week.
The agreement is subject to a ratification vote that will take several weeks.
The union last week authorized a strike if a deal was not reached by the time the old contract expired at 11:59 p.m. Saturday.
The proposed contract would run through April 4, 2009, and provides for four annual base wage increases at 11.2 percent, compounded, over the life of the contracts, AT&T said in a news release.
"We're pleased to have an agreement that rewards our valued employees with outstanding wages and benefits and still preserves our ability to control our cost structure," said AT&T Chairman and CEO Edward E. Whitacre Jr.
The agreement also increases pension benefits by 6 percent next year and by an additional 5 percent in 2008.
Ralph Maly, CWA's vice president for communications and technologies, described the agreement as "fair and equitable."
The agreement increases the employee co-pays and maximum out-of-pocket limits for medical and prescription drug benefits for employees and retirees, AT&T said. Also, the agreement makes provisions that before an employee is laid off, AT&T will offer employees another position in the company.
The negotiations affect technicians and customer service representatives who were part of the old AT&T.
San Antonio-based SBC Communications purchased AT&T Corp. in a $16 billion deal completed last month. The merged company is to be renamed AT&T Inc.