GTE NORTHWEST INC, 10-K405, 1996-03-26

GTE NORTHWEST INC
10-K405, 1996-03-26
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)

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<PAGE> 1
UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required]

For the fiscal year ended December 31, 1995
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]

For the transition period from to

Commission File Number 0-2908

GTE NORTHWEST INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C>
WASHINGTON 91-0466810
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)

600 Hidden Ridge, HQE04B12 - Irving, Texas 75038
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>

Registrant's telephone number, including area code 214-718-5600

Securities registered pursuant to Section 12(b) of
the act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
<S> <C>
NONE
</TABLE>

Securities registered pursuant to Section 12(g) of the Act:

NONE
(TITLE OF CLASS)

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.

YES X NO
----- -----

INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO
THIS FORM 10-K. X
-----

THE COMPANY HAD 17,920,000 SHARES OF NO PAR VALUE COMMON STOCK OUTSTANDING AT
FEBRUARY 29, 1996. THE COMPANY'S COMMON STOCK IS 100% OWNED BY GTE
CORPORATION.

THE COMPANY MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION J (1) (a) AND
(b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE
FORMAT.

<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item Page
<S> <C>
Part I
1. Business 1
2. Properties 4
3. Legal Proceedings 4
4. Submission of Matters to a Vote of Security Holders - This item has
been omitted in accordance with the relief provisions under General
Instruction J of Form 10-K

Part II
5. Market for the Registrant's Common Equity and Related 5
Shareholder Matters
6. Selected Financial Data - This item has been omitted in accordance
with the relief provisions under General Instruction J of Form 10-K
7. Management's Discussion and Analysis of Financial 6
Condition and Results of Operations
8. Financial Statements and Supplementary Data 11
9. Changes in and Disagreements with Accountants on 31
Accounting and Financial Disclosure

Part III
The following items have been omitted in accordance with the relief provisions
under General Instruction J of Form 10-K:
10. Directors and Executive Officers of the Registrant
11. Executive Compensation
12. Security Ownership of Certain Beneficial Owners and Management
13. Certain Relationships and Related Transactions

Part IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 32
</TABLE>
<PAGE> 3
PART I

Item 1. Business

GTE Northwest Incorporated (the Company) (formerly General Telephone Company of
the Northwest, Inc., formerly West Coast Telephone Company) was incorporated in
Washington on March 31, 1964. The Company is a wholly-owned subsidiary of GTE
Corporation (GTE). Together with its wholly-owned subsidiary, GTE West Coast
Incorporated, the Company provides communications services in the states of
California, Idaho, Oregon and Washington. Prior to the sale of properties
described below, the Company also provided communications services in the state
of Montana.

On November 30, 1994, the Company sold all of its local exchange properties
(representing 7,000 access lines) in the state of Montana to Citizens Utilities
Company.

On February 23, 1993, the Idaho properties of Contel of the West, Inc. were
purchased by the Company at book value. On February 26, 1993, Contel of the
Northwest, Inc. merged into the Company. The merger was accounted for in a
manner similar to a "pooling of interests."

Additional information related to the above transactions can be found in Note 4
and Note 5 of the Company's consolidated financial statements included in Item
8.

The Company's principal line of business is providing communications services
ranging from local telephone service for the home and office to highly complex
voice and data services for industry. The Company provides local telephone
service within its franchise area and intraLATA (Local Access Transport Area)
toll service between the Company's facilities and the facilities of other
telephone companies within the Company's LATAs. InterLATA service to other
points in and out of the states in which the Company operates is provided
through connection with interexchange (long distance) common carriers. These
common carriers are charged fees (access charges) for interconnection to the
Company's local facilities. Business and residential customers also pay access
charges to connect to the local network to obtain long distance service. The
Company earns other revenues by leasing interexchange plant facilities and
providing such services as billing and collection and operator services to
interexchange carriers.

The number of access lines in the states in which the Company operates as of
December 31, 1995, was as follows:

<TABLE>
<CAPTION>
Access
State Lines Served
------------- -------------
<S> <C>
Washington 886,867
Oregon 467,139
Idaho 120,791
California 13,078
-------------
Total 1,487,875
=============
</TABLE>

At December 31, 1995, the Company had 3,779 employees.

1
<PAGE> 4
The Company has written agreements with the Communications Workers of America
(CWA) and the International Brotherhood of Electrical Workers (IBEW) covering
substantially all non-management employees. In 1995, a new contract was
reached with the CWA. During 1996, the contract with the IBEW will expire.

REGULATORY AND COMPETITIVE TRENDS

The Company is subject to regulation by the regulatory bodies of the states of
California, Idaho, Oregon and Washington as to its intrastate business
operations and by the Federal Communications Commission (FCC) as to its
interstate operations.

Advances in technology, together with a number of regulatory, legislative and
judicial actions, continue to accelerate and expand the level of competition
and opportunities available to the Company. Presently, the Company is subject
to competition from numerous sources, including competitive access providers
(CAPs) for network access services and specialized communications companies
that have constructed new systems in certain markets to bypass the local-
exchange network. In addition, competition from alternative local-exchange
carriers (ALECs), interexchange carriers (IXCs), wireless and cable TV
companies, as well as more recent entry by media and computer companies, is
expected to increase in the rapidly changing telecommunications marketplace.

On February 8, 1996, the Telecommunications Act of 1996 (the Telecommunications
Act) became law. This comprehensive telecommunications reform legislation
addresses a wide range of competitive and regulatory issues that will affect
the future development of local and long distance services, cable television
and information services. The Telecommunications Act overhauls 62 years of
telecommunications law, replacing government regulation with competition as the
chief way of assuring that telecommunications services are delivered to
customers. The new law removes many of the statutory and court-ordered
barriers to competition between segments of the industry, enabling
local-exchange, long distance, wireless and cable companies to compete in
offering voice, video and information services.

The Telecommunications Act requires the FCC and state commissions to set new
guidelines to open local-exchange markets and to set new guidelines for
interconnection, loosens restrictions barring local telephone companies from
entering the cable television market, and preserves Universal Service while
equalizing the responsibility for contribution among all carriers.

A key provision of the Telecommunications Act also eliminates the legal
restraints of the GTE Consent Decree which has kept the Company from providing
interLATA services. This action will simplify GTE's ability to market local
intraLATA and interLATA service to its customers as a bundled service. In
February 1996, GTE executed an agreement whereby WorldCom, Inc. will provide,
on a non-exclusive basis, a full array of telecommunications services in
support of GTE's entry into the interLATA long distance market. In March 1996,
GTE, through a separate subsidiary, began offering long distance service to its
customers in selected markets. GTE plans to offer the service, marketed under
the name GTE Easy Savings Plan(SM), in all 28 states where it currently offers
local telephone service by December 1996.

The Telecommunications Act forbids states from imposing any barriers to entry
into local and toll competition. Through 1995, local competition has been
authorized in fifteen states, including California, Oregon and Washington. In
addition, eight states, none of which are served by the Company, have concluded
that intraLATA 1+ competition is in the public interest. These states have
authorized plans that would allow customers to pre-subscribe to a specific
carrier to handle their intraLATA toll calls. Pre-subscribed customers will
simply dial "1" before the telephone number in order to complete intraLATA
calls. The Telecommunications Act requires GTE to negotiate intraLATA dialing
parity provisions with its competitors. In subsequent negotiations, GTE will
address implementation of 1+ in those states which have not previously ordered
implementation.

2
<PAGE> 5
Federal and state regulatory activity continued to change the traditional
cost-based, rate-of-return regulatory framework for intrastate and interstate
telephone service. Regulatory authorities have adopted various forms of
alternative regulation, which provide economic incentives to telephone service
providers to improve productivity and provide the foundation for implementing
pricing flexibility necessary to address competitive entry into GTE markets.

For the provision of interstate access services, the Company operates under
the terms of the FCC's price cap incentive plan. The "price cap" mechanism
serves to limit the rates a carrier may charge, rather than just regulating the
rate of return which may be achieved. Under this approach, the maximum prices
that the LEC may charge are increased or decreased each year by a price index
based upon inflation less a predetermined productivity target. LECs have
limited pricing flexibility provided they do not exceed the allowed price cap.
The FCC is considering how the price cap plan should be modified in the future
in order to adapt the system to the emergence of competition.

Further information regarding the Company's activities with the various
regulatory agencies and revenue arrangements with other telephone companies is
discussed in Note 13 of the Company's consolidated financial statements
included in Item 8.

The Company continues to support greater competition in telecommunications,
provided that, overall, the actions to eliminate existing legal and regulatory
barriers benefit consumers by allowing an opportunity for all service providers
to participate equally in a competitive marketplace under comparable
conditions.

The Company intends to continue to respond aggressively to regulatory and legal
developments that allow for increased competition and opportunities in the
marketplace. The Company expects its financial results to benefit from reduced
costs and the introduction of new products and services that will result in
increased usage of its telephone networks. However, it is likely that such
improvements will be offset, in part, by continued strategic pricing reductions
and the effects of increased competition.

INITIATIVES

In 1995, the Company continued to position itself to respond aggressively to
competitive developments and benefit from new opportunities.

Restructuring and Cost Control

During 1995, the Company continued the implementation of its $125 million
re-engineering program. Since the program began in 1994, costs of $60.7
million have been charged to the restructuring reserve --$42.1 million related
to customer service processes, $7.5 million related to administrative processes
and $11.1 million related to the consolidation of facilities and operations
and other related costs. These costs were primarily associated with the
closure and relocation of various centers, software enhancements and separation
benefits associated with workforce reductions. The continued implementation of
this program positions the Company to accelerate delivery of a full array of
voice, video and data services and to reach its stated objective of being the
easiest company to do business with in the industry.

World Class Network

During 1995, the Company deployed its ISDN-based World Class Network in
Portland, Oregon and Seattle metro and the Tri-Cities area of Washington to
provide advanced communications for business customers. This program includes
sophisticated high-speed, digital fiber-optic rings, a high-capacity switching
network (known as SONET), and a new centralized operations center that monitors
the entire network. These SONET rings are an integral part of the high-speed
information network that enables the Company to provide advanced services such
as high-speed data transmission and video conferencing.

3
<PAGE> 6
ENVIRONMENTAL MATTERS

GTE maintains monitoring and compliance programs related to environmental
matters. Currently, the Company has been named as a potentially responsible
party at a number of "Superfund Sites". GTE has reviewed each site in which it
has an involvement to establish an expected remediation cost. Based on this
review, management believes the Company is not subject to administrative or
judicial proceedings which would result in a material adverse effect on the
Company's results of operations or financial position. The Company has
established adequate reserves for estimated remediation and cleanup costs.

The Company's annual expenditures for site cleanups and environmental
compliance have not been and are not expected to be material. Costs incurred
include the Company's share of cleanup expenses for Superfund Sites, outlays
required to keep existing operations in compliance with environmental
regulations and an underground storage tank replacement program.

Item 2. Properties

The Company's property consists principally of land, structures and equipment
required to provide various telecommunications services. All of the
aforementioned properties, located in the states of California, Idaho, Oregon,
and Washington, are generally in good operating condition and adequate to
satisfy the needs of the business. Substantially all of the Company's property
is subject to the liens of its respective mortgages securing funded debt. From
January 1, 1991 to December 31, 1995, the Company made capital expenditures of
$1.2 billion for new plant and facilities required to meet telecommunication
service needs and to modernize plant and facilities. These additions were equal
to 39% of gross plant of $3.1 billion at December 31, 1995.

In response to recently enacted and pending legislation and the increasingly
competitive environment, the Company discontinued the use of Statement of
Financial Accounting Standards No. 71, "Accounting for the Effects of Certain
Types of Regulation" (FAS 71) in the fourth quarter of 1995.

In general, FAS 71 required the Company to depreciate its telephone plant and
equipment over lives approved by regulators which, in many cases, extended
beyond the assets' economic lives. FAS 71 also required the deferral of
certain costs based upon approvals received from regulators to recover such
costs in the future. As a result of these requirements, the recorded net book
value of certain assets and liabilities, primarily telephone plant and
equipment, were in many cases higher than that which would otherwise have been
recorded based on their economic lives. See Note 2 to the Company's
consolidated financial statements included elsewhere herein for further detail.

Item 3. Legal Proceedings

There are no pending legal proceedings, either for or against the Company,
which would have a material impact on the Company's consolidated financial
statements.

4
<PAGE> 7
PART II

Item 5. Market for the Registrant's Common Equity and Related Shareholder
Matters

Market information is omitted since the Company's common stock is wholly-owned
by GTE Corporation (GTE).

SHAREHOLDER SERVICES

The First National Bank of Boston, Transfer Agent and Registrar for GTE and the
Company's common stock, should be contacted with any questions relating to
shareholder accounts. This includes the following:

- - Account information
- - Dividends
- - Market prices
- - Transfer instructions
- - Statements and reports
- - Change of address

Shareholders may call toll-free at 1-800-225-5160 anytime, seven days a week.
Customer Service Representatives are available Monday through Friday between
the hours of 8 a.m. and 5 p.m. Eastern Time. Outside the United States call 1-
617-575-2990.

Or write to:
Bank of Boston
c/o Boston EquiServe, L.P.
P.O. Box 9121
Mail Stop 45-02-60
Boston, MA 02205-9121

For overnight delivery services, use the following address:
Bank of Boston
c/o Boston EquiServe, L.P.
Blue Hills Office Park
150 Royall Street
Canton, MA 02021

The Bank of Boston address where shareholders, banks and brokers may deliver
certificates is One Exchange Place, 55 Broadway in New York City.

PARENT COMPANY ANNUAL REPORT

To obtain a copy of the 1995 annual report of our parent company or the annual
Form 10-K filed with the Securities and Exchange Commission, call
1-800-225-5160.

INFORMATION VIA THE INTERNET

Internet World Wide Web users can access information on GTE Corporation through
the following universal resource:

http://www.gte.com

5
<PAGE> 8
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in Millions)

BUSINESS OPERATIONS

GTE Northwest Incorporated (the Company), a wholly-owned subsidiary of GTE
Corporation (GTE), provides local-exchange, network access and toll services
in the states of California, Idaho, Oregon, and Washington. At December 31,
1995, the Company served 1,487,875 access lines in its service territories.

RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------
1995 1994
-------- ------
<S> <C> <C>
Net income (loss) $(431.0) $118.6
</TABLE>

The net loss for 1995 includes extraordinary after-tax charges of $573.2 for
the discontinuance of Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation" (FAS 71) and $8 for
the early retirement of debt in the fourth quarter of 1995. Excluding these
charges, net income increased 27% or $31.5 in 1995. The 1995 increase is
primarily due to continued customer growth reflected by a 5% increase in
access lines, 12.1% minutes of use growth, and higher toll revenue, partially
offset by higher operating costs and expenses.

REVENUES AND SALES

<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1995 1994
-------- ------
<S> <C> <C>

Local services $397.4 $347.4
Network access services 355.0 359.3
Toll services 115.7 72.3
Other services and sales 153.3 137.0
-------- ------
Total revenues and sales $1,021.4 $916.0
</TABLE>

Total revenues and sales increased 12% or $105.4 in 1995.

Local service revenues are based on fees charged to customers for providing
local-exchange service within designated franchise areas. In 1995, local
service revenues increased 14% or $50. The 1995 increase is primarily due to
continued customer growth as reflected by a 5% increase in access lines, which
generated additional revenues of $12.4, and $6.2 of growth in Extended Area
Service (EAS) revenue. The increase is also due to higher installation revenues
of $3.3 and a $12.1 growth in sales of custom calling features (e.g.
SmartCall(R), CLASS services, etc.), CentraNet(R) and Integrated Services
Digital Network (ISDN), a service that permits rapid transmission of voice,
data, image and text over one line. In addition, the increase reflects one-time
favorable adjustments of $14.4 primarily relating to interexchange carrier
billing.

Network access service revenues are based on fees charged to interexchange
carriers that use the Company's local-exchange network in providing long
distance services. In addition, business and residential customers pay access
fees to connect to the local network to obtain long distance service. Revenues
derived from network access services decreased 1% or $4.3 in 1995. The 1995
decrease is primarily due to a $25.7 reduction in access revenues associated
with the conversion by Oregon and Washington in May 1994 and July 1994,
respectively, to a Primary Toll Carrier (PTC) plan.

6
<PAGE> 9

Before transitioning to the PTC plan, all intraLATA toll was remitted to US
WEST, Inc. In turn, US WEST, Inc. paid the Company access charges for
intraLATA toll that was originated or terminated by the Company. Under the PTC
plan, the Company keeps the revenues from originating toll calls, records them
as toll service revenues and remits access charges to the local-exchange
carriers (LECs) for calls terminating outside the Company's service areas.
Therefore, under the PTC plan, the Company only receives access revenues for
intraLATA toll calls that are terminated by the Company. On an overall basis,
the PTC plan is intended to be income neutral to the Company since decreases in
access revenues are offset by increases in toll revenues and corresponding
access charge expenses. The decrease is also due to lower revenues of $10.6
associated with rate reductions and interstate rate changes. These decreases
are partially offset by a 12.1% increase in minutes of use which generated
additional revenues of $21, a 31.2% growth in dedicated lines which generated
additional revenues of $9.5, and $3.0 in higher end user access charge revenues
corresponding to the increase in access lines.

Toll service revenues are based on fees charged for service beyond a customer's
local calling area but within the local access transport area (LATA). In 1995,
toll service revenues increased 60% or $43.4. The 1995 increase is primarily
due a $51.6 increase in intraLATA toll revenues due to conversion to the PTC
plan mentioned above. The increase is partially offset by $6.2 of toll service
revenue reductions due to the continued growth in extended area calling zones
mentioned above in the discussion of local service revenues.

Other service and sales revenues consist primarily of the sale, lease,
installation and maintenance of customer premises equipment. In 1995, other
service and sales revenues increased 12% or $16.3. The 1995 increase is
primarily due to higher private branch exchange phone system sales and the
related maintenance contracts of $11.8 and increased growth in voice messaging
and radio paging revenues of $4.3.

OPERATING COSTS AND EXPENSES

<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------
1995 1994
------ ------
<S> <C> <C>
Cost of services and sales $367.1 $355.1
Selling, general and administrative 167.5 164.2
Depreciation and amortization 205.0 182.0
------ ------
Total operating costs and expenses $739.6 $701.3
</TABLE>

Total operating costs and expenses increased 5% or $38.3 in 1995. The 1995
increase reflects higher depreciation and amortization costs primarily related
to rate adjustments in Oregon and Washington of $23, and a higher provision for
uncollectibles of $13.8. In addition, the increase is the result of higher
material costs of $10.8 including pole contact rentals, increased contractor
labor costs of $4.6 and higher access charges associated with the transition to
the PTC plan of $2.1. These increases were partially offset by the result of
unfavorable 1994 settlement activities of $11.

7
<PAGE> 10
OTHER (INCOME) EXPENSE

<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1995 1994
----- -----
<S> <C> <C>
Interest - net $54.4 $49.8
Gain on disposition of assets -- (11.9)
Income taxes 77.2 58.2
</TABLE>

Interest - net increased 9% or $4.6 in 1995. The 1995 increase is due to
higher average long-term debt levels resulting from debentures that were issued
in May 1994.

The $11.9 pre-tax gain on disposition of assets represents the excess of cash
proceeds over book value related to the sale of 7,000 access lines in Montana
to Citizens Utilities Company on November 30, 1994.

Income taxes increased 33% or $19 in 1995. The increase is primarily due to an
increase in pre-tax income and a decrease in the amortization of investment tax
credits.

REGULATORY AND COMPETITIVE TRENDS

8
<PAGE> 11
in support of GTE's entry into the interLATA long distance market. In March
1996, GTE, through a separate subsidiary, began offering long distance service
to its customers in selected markets. GTE plans to offer the service, marketed
under the name GTE Easy Savings Plan(SM), in all 28 states where it currently
offers local telephone service by December 1996.

Federal and state regulatory activity continued to change the traditional
cost-based, rate-of-return regulatory framework for intrastate and interstate
telephone service. Regulatory authorities have adopted various forms of
alternative regulation, which provide economic incentives to telephone service
providers to improve productivity and provide the foundation for implementing
pricing flexibility necessary to address competitive entry into GTE markets.

INITIATIVES

In 1995, the Company continued to position itself to respond aggressively to
competitive developments and benefit from new opportunities.

Restructuring and Cost Control

During 1995, the Company continued the implementation of its $125
re-engineering program. Since the program began in 1994, costs of $60.7 have
been charged to the restructuring reserve --$42.1 related to customer service
processes, $7.5 related to administrative processes and $11.1 related to the
consolidation of facilities and operations and other related costs. These
costs were primarily associated with the closure and relocation of various

9
<PAGE> 12
centers, software enhancements and separation benefits associated with
workforce reductions. The continued implementation of this program positions
the Company to accelerate delivery of a full array of voice, video and data
services and to reach its stated objective of being the easiest company to do
business with in the industry.

World Class Network

ENVIRONMENTAL MATTERS

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" (FAS 121) in March 1995,
which is effective January 1, 1996. FAS 121 requires that an impairment loss
be recognized when circumstances indicate that the carrying amount of an asset
may not be recoverable. In discontinuing the application of FAS 71, the
Company used a methodology similar to FAS 121 in determining the amount of
asset impairments. Accordingly, the issuance of FAS 121 will not have a
significant impact on the Company's consolidated financial statements.

In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (FAS 123). As permitted by
FAS 123, the Company will continue to apply the recognition and measurement
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" and adopt the disclosure requirements of FAS 123 beginning
in 1996. Accordingly, the issuance of FAS 123 will not impact the Company's
financial position or results of operations.

INFLATION

The Company's management generally does not believe inflation has a significant
impact on the Company's earnings. However, increases in costs or expenses not
otherwise offset by increases in revenues could have an adverse effect on
earnings.

10
<PAGE> 13
Item 8. Financial Statements and Supplementary Data

GTE Northwest Incorporated and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
Years Ended December 31 1995 1994 1993
- ----------------------- --------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
Revenues and sales (a):
Local services $397,348 $347,387 $331,369
Network access services 355,002 359,307 370,980
Toll services 115,739 72,317 14,444
Other services and sales 153,331 136,957 170,750
--------- -------- --------
Total revenues and sales 1,021,420 915,968 887,543
--------- -------- --------

Operating costs and expenses (b):
Cost of services and sales 367,072 355,142 362,189
Selling, general and administrative 167,525 164,166 178,087
Depreciation and amortization 205,019 181,992 167,448
Restructuring -- -- 125,003
--------- -------- --------
Total operating costs and expenses 739,616 701,300 832,727
--------- -------- --------
Operating income 281,804 214,668 54,816

Other (income) expense:
Interest - net 54,400 49,800 54,483
Gain on disposition of assets -- (11,940) (19,578)
--------- -------- --------
Income before income taxes 227,404 176,808 19,911
Income taxes 77,217 58,159 5,581
--------- -------- --------
Income before extraordinary charges 150,187 118,649 14,330
Extraordinary charges (581,167) -- (4,501)
--------- -------- --------
Net income (loss) $(430,980) $118,649 $9,829
========= ======== ========
</TABLE>

(a) Includes billings to affiliates of $43,752, $42,368 and $49,454 for the
years 1995-1993, respectively.

(b) Includes billings from affiliates of $61,631, $55,040 and $46,352 for the
years 1995-1993, respectively.

See Notes to Consolidated Financial Statements.

11
<PAGE> 14
GTE Northwest Incorporated and Subsidiary
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
December 31 1995 1994
- ----------- ---------- ----------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
Current assets:
Cash and temporary investments $16,310 $953
Receivables, less allowances of $13,268 and $7,745 213,470 231,884
Inventories and supplies 11,882 11,915
Deferred income tax benefits 14,626 7,459
Other 6,677 3,922
---------- ----------
Total current assets 262,965 256,133
---------- ----------

Property, plant and equipment, net 1,194,118 2,079,218

Other assets 50,679 70,682
---------- ----------
Total assets $1,507,762 $2,406,033
========== ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term obligations, including current maturities $48,994 $58,278
Accounts payable 58,896 69,832
Affiliate payables and accruals 28,222 36,221
Advanced billings and customer deposits 19,789 19,369
Taxes payable 31,164 55,845
Accrued interest 10,008 13,617
Accrued payroll costs 27,220 17,569
Dividends payable 19,140 10,693
Accrued restructuring costs 64,315 31,580
Other 37,565 33,954
---------- ----------
Total current liabilities 345,313 346,958
---------- ----------

Non-current liabilities:
Long-term debt 684,017 658,040
Deferred income taxes 18,789 323,415
Restructuring costs -- 67,964
Other liabilities 52,556 42,360
---------- ----------
Total non-current liabilities 755,362 1,091,779
---------- ----------

Preferred stock, subject to mandatory redemption -- 2,400
---------- ----------

Shareholders' equity:
Common stock (17,920,000 shares issued) 448,000 448,000
Additional paid-in capital 57,671 57,687
Retained earnings (deficit) (98,584) 459,209
---------- ----------
Total shareholders' equity 407,087 964,896
---------- ----------
Total liabilities and shareholders' equity $1,507,762 $2,406,033
========== ==========

</TABLE>

See Notes to Consolidated Financial Statements.

12
<PAGE> 15
GTE Northwest Incorporated and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Years Ended December 31 1995 1994 1993
- ----------------------- -------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
Operations:
Income before extraordinary charges $150,187 $118,649 $14,330
Adjustments to reconcile income before extraordinary
charges to net cash from operations:
Depreciation and amortization 205,019 181,992 167,448
Deferred income taxes 37,184 6,568 (28,838)
Restructuring costs -- -- 125,003
Gain on disposition of assets, net of tax -- (7,504) (11,159)
Provision for uncollectible accounts 23,442 9,642 12,732
Change in current assets and current liabilities:
Receivables - net (5,028) (18,200) (14,705)
Other current assets (2,722) 4,662 10,692
Accrued taxes and interest (24,593) 2,822 3,047
Other current liabilities (37,953) (61,243) 21,554
Other - net (5,407) (11,020) 3,998
-------- -------- --------
Net cash from operations 340,129 226,368 304,102
-------- -------- --------

Investing:
Capital expenditures (208,856) (260,717) (245,153)
Acquisition of assets -- -- (25,039)
Proceeds from sale of assets -- 21,842 53,972
Other - net 16 2,763 274
-------- -------- --------
Net cash used in investing (208,840) (236,112) (215,946)
-------- -------- --------

Financing:
Long-term debt issued -- 195,934 123,730
Common stock issued -- -- 38,000
Long-term debt and preferred stock retired (156,028) (4,213) (184,907)
Dividends (118,366) (40,550) (82,127)
Increase (decrease) in short-term obligations, excluding
current maturities 168,497 (143,009) 23,045
Other - net (10,035) -- (5,003)
-------- -------- --------
Net cash from (used in) financing (115,932) 8,162 (87,262)
-------- -------- --------

Increase (decrease) in cash and temporary investments 15,357 (1,582) 894

Cash and temporary investments:
Beginning of year 953 2,535 1,641
-------- -------- --------
End of year $16,310 $953 $2,535
======== ======== ========

Cash paid during the year for:
Interest $59,899 $48,347 $55,102
Income taxes 61,578 45,766 21,079

</TABLE>

See Notes to Consolidated Financial Statements.

13
<PAGE> 16
GTE Northwest Incorporated and Subsidiary
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
Additional Retained
Common Paid-in Earnings
Stock Capital (Deficit) Total
-------- ------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Shareholders' equity, December 31, 1992 $430,757 $36,930 $434,434 $902,121
Net income 9,829 9,829
Dividends declared (52,514) (52,514)
Common stock issued 17,243 20,757 38,000
-------- ------- -------- --------
Shareholders' equity, December 31, 1993 448,000 57,687 391,749 897,436

Net income 118,649 118,649
Dividends declared (51,189) (51,189)
-------- ------- -------- --------
Shareholders' equity, December 31, 1994 448,000 57,687 459,209 964,896

Net loss (430,980) (430,980)
Dividends declared (126,813) (126,813)
Premium on redemption of preferred stock (16) (16)
-------- ------- -------- --------
Shareholders' equity, December 31, 1995 $448,000 $57,671 $(98,584) $407,087
======== ======= ======== ========
</TABLE>

See Notes to Consolidated Financial Statements.

14
<PAGE> 17
GTE Northwest Incorporated and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

GTE Northwest Incorporated (the Company) provides a wide variety of
communications services ranging from local telephone service for the home and
office to highly complex voice and data services for various industries. At
December 31, 1995, the Company served 1,487,875 access lines in the states of
California, Idaho, Oregon, and Washington. The Company is a wholly-owned
subsidiary of GTE Corporation (GTE).

BASIS OF PRESENTATION

The Company prepares its consolidated financial statements in accordance with
generally accepted accounting principles which require that management make
estimates and assumptions that affect reported amounts. Actual results could
differ from those estimates.

The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, GTE West Coast Incorporated. All significant
intercompany transactions have been eliminated.

The Company discontinued applying the provisions of Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of Certain Types of
Regulation" (FAS 71), in the fourth quarter of 1995 (see Note 2). The 1995
financial presentation reflects account classifications consistent with
unregulated enterprises operating in a competitive environment. Specifically,
uncollectible revenue accounts have been reclassified from revenues and sales
to selling, general and administrative expenses. Reclassifications of
prior-year data have been made, where appropriate, to conform to the 1995
presentation.

TRANSACTIONS WITH AFFILIATES

Certain affiliated companies, which are not subsidiaries of the Company, supply
construction and maintenance equipment, supplies and electronic repair services
to the Company. These purchases and services amounted to $56.2 million, $55.2
million and $61.5 million for the years 1995-1993, respectively. Such
purchases and services are recorded in the accounts of the Company, at cost,
which includes a normal return realized by the affiliates.

The Company is billed for certain printing and other costs associated with
telephone directories, data processing services and equipment rentals, and
receives management, consulting, research and development and pension
management services from other affiliated companies. These charges amounted to
$61.6 million, $55.0 million and $46.4 million for the years 1995-1993,
respectively. The amounts charged for these affiliated transactions are based
on a proportional cost allocation method.

The Company's consolidated financial statements include allocated expenses
based on the sharing of certain executive, administrative, financial,
accounting, marketing, personnel, engineering, and other support services being
performed at consolidated work centers among the domestic GTE Telephone
Operating Companies. The amounts charged for these affiliated transactions are
based on a proportional cost allocation method as filed with the Federal
Communications Commission.

The Company has an agreement with GTE Directories Corporation (Directories)
(100% owned by GTE), whereby the Company provides its subscriber lists, billing
and collection and other services to Directories. Revenues from these
activities amounted to $43.8 million, $42.4 million and $49.5 million for the
years 1995-1993, respectively.

15
<PAGE> 18
TELEPHONE PLANT

The Company has historically provided for depreciation on a straight-line basis
over asset lives approved by regulators. Beginning in 1996, the Company will
provide for depreciation on a straight-line basis over the estimated economic
lives of its assets (see Note 2). Maintenance and repairs of property are
charged to income as incurred. Additions to, replacements and renewals of
property are charged to telephone plant accounts. Property retirements are
charged in total to the accumulated depreciation account. No adjustment to
depreciation is made at the time properties are retired or otherwise disposed
of, except in the case of significant sales or extraordinary retirements of
property where profit or loss is recognized.

REVENUE RECOGNITION

Revenues are recognized when earned. This is generally based on usage of the
Company's local-exchange networks or facilities. For other products and
services, revenues are generally recognized when services are rendered or
products are delivered to customers.

INVENTORIES AND SUPPLIES

Inventories and supplies are stated at the lower of cost, determined
principally by the average cost method, or net realizable value.

EMPLOYEE BENEFIT PLANS

Pension and postretirement health care and life insurance benefits earned
during the year as well as interest on accumulated benefit obligations are
accrued currently. Prior service costs and credits resulting from changes in
plan benefits are amortized over the average remaining service period of the
employees expected to receive benefits. Material curtailment/settlement gains
and losses associated with employee separations are recognized in the period in
which they occur.

The Company adopted Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" (FAS 112), effective
January 1, 1993. FAS 112 requires employers to accrue the future cost of
benefits provided to former or inactive employees and their dependents after
employment but before retirement. Previously, the cost of these benefits was
charged to expense as paid. The impact of this change in accounting on the
Company's results of operations was immaterial.

INCOME TAXES

The Company's results are included in GTE's consolidated federal income tax
return. The Company participates in a tax-sharing agreement with GTE and
remits tax payments to GTE based on its tax liability on a separate company
basis.

Deferred tax assets and liabilities are established for temporary differences
between financial and tax reporting bases and are subsequently adjusted to
reflect changes in tax rates expected to be in effect when the temporary
differences reverse. A valuation allowance is established for any deferred tax
asset for which realization is not likely.

COMPUTER SOFTWARE

The cost of computer software for internal use, except initial operating system
software, is charged to expense as incurred. Initial operating system software
is capitalized and amortized over the life of the related hardware.

16
<PAGE> 19
CASH AND TEMPORARY INVESTMENTS

Cash and temporary investments include investments in short-term, highly liquid
securities, which have maturities when purchased of three months or less.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

17
<PAGE> 20
2. EXTRAORDINARY CHARGES

In response to recently enacted and pending legislation (see Note 13) and the
increasingly competitive environment, the Company discontinued the use of FAS
71 in the fourth quarter of 1995.

As a result of the decision to discontinue FAS 71, the Company recorded a
non-cash, after-tax extraordinary charge of $573.2 million (net of tax benefits
of $331.3 million) in the fourth quarter of 1995. The charge primarily
represents a reduction in the net book value of telephone plant and equipment
through an increase in accumulated depreciation. The amount of the charge was
based on an analysis of the discounted cash flows expected to be generated by
the embedded telephone plant and equipment over their remaining economic lives.
In addition to the one-time charge, the Company, beginning in 1996, will
shorten the depreciable lives of its telephone plant and equipment as follows
as a result of the discontinuance of FAS 71:

<TABLE>
<CAPTION>
Depreciable Lives
---------------------------
Average
Asset Category Before After
- -------------- ------- -----
<S> <C> <C>
Copper 20-30 15
Switching 17-19 10
Circuit 11-13 8
Fiber 25-30 20

</TABLE>

In addition, during 1995, the Company redeemed prior to stated maturity, $140.9
million of long-term debt. These redemptions resulted in an after-tax
extraordinary charge of $8 million (net of tax benefits of $4.7 million).

During 1993, the Company redeemed prior to stated maturity, $125 million of
high-coupon first-mortgage bonds. These redemptions resulted in an after-tax
extraordinary charge of $4.5 million (net of tax benefits of $2.5 million).

3. RESTRUCTURING COSTS

Results for 1993 include one-time pre-tax restructuring costs of $125 million,
which reduced net income by $77 million, primarily for incremental costs
related to implementation of the Company's three-year re-engineering plan. The
re-engineering plan will redesign and streamline processes to improve
customer-responsiveness and product quality, reduce the time necessary to
introduce new products and services and further reduce costs. The
implementation of the plan is expected to result in costs of $83.8 million to
re-engineer customer service processes and $30.1 million to
re-engineer administrative processes. The restructuring costs also include
$11.1 million primarily for the consolidation of facilities and operations and
other related costs. Implementation of the re-engineering plan began during
1994 and is expected to be substantially completed by the end of 1996.

Costs of $60.7 million have been incurred since the plan's inception including
$42.1 million related to customer service processes, $7.5 million related to
administrative processes and $11.1 million related to the consolidation of
facilities and operations and other related costs. These expenditures were
primarily associated with the closure and relocation of various service
centers, software enhancements and separation benefits related to employee
reductions.

During 1993, the Company offered various voluntary separation programs to its
employees. These programs resulted in a pre-tax charge of $7.8 million which
reduced 1993 net income by $5.1 million.

18
<PAGE> 21
4. PROPERTY REPOSITIONING

On November 30, 1994, the Company sold 7,000 access lines in Montana to
Citizens Utilities Company for $22 million in cash and recorded a pre-tax gain
of $11.9 million. The proceeds from this transaction were used to pay down
short-term commercial paper borrowings.

On February 23, 1993, the Idaho properties of Contel of the West, Inc. were
purchased by the Company for their book value of $25 million.

On December 31, 1993, the Company sold a portion of its telephone plant in
service, materials and supplies and customers (representing 17,000 access
lines) in the state of Idaho to Citizens Utilities Company for $54 million in
cash and recorded a pre-tax gain of $20 million. The proceeds from this
transaction were primarily used to pay down $50 million of debt.

5. LEGAL ENTITY MERGER

On February 26, 1993, Contel of the Northwest, Inc. merged into the Company.
Contel of the Northwest, Inc. was a wholly-owned subsidiary of Contel
Corporation (a wholly-owned subsidiary of GTE Corporation) prior to the merger.

The merger was accounted for in a manner similar to a "pooling of interests."
Accordingly, the financial statements and the notes include the results of
operations and financial position of the Company and Contel of the Northwest,
Inc. for all periods.

6. PREFERRED STOCK

On August 1, 1995, the Company redeemed its remaining shares of preferred stock
with cash from operations.

7. COMMON STOCK

The authorized common stock of the Company consists of 20,000,000 shares
without par value. The Company received proceeds of $38 million from the
issuance of common stock to GTE in 1993. All outstanding shares of common
stock are held by GTE.

There were no shares of common stock held by or for the account of the Company
and no shares were reserved for officers and employees, or for options,
warrants, conversions or other rights.

Under the most restrictive terms of the Company's indentures, the Company would
have been prohibited from paying dividends on its common stock due solely to
the recording of the 1995 extraordinary charge discussed in Note 2. However,
the most restrictive indenture contains a provision which allows the trustees
and the holders to modify the agreement. As such, in December 1995, the
agreement was modified allowing the Company to continue to declare and pay
dividends on its common stock.

19
<PAGE> 22
8. DEBT

Long-term debt as of December 31 was as follows:

<TABLE>
<CAPTION>
1995 1994
-------- --------
(Thousands of Dollars)
<S> <C> <C>
First mortgage bonds:
4 5/8 % Series, due 1995 $ -- $10,000
6 % Series P, due 1996 9,000 9,000
6 1/4 % Series Q, due 1998 13,600 13,600
7 1/8 % Series R, due 1999 18,000 18,000
7 7/8 % Series U, due 2002 20,000 20,000
8 1/4 % Series W, due 2007 48,000 48,000
8 3/4 % Series BB, due 2016 75,000 75,000
7 3/4 % Series CC, due 1998 -- 50,000
9 3/4 % Series EE, due 2030 -- 75,000
6 1/8 % Series FF, due 1999 125,000 125,000
10 1/4 % Series GG, due 1997 -- 2,999
9.67 % Series HH, due 2010 13,236 14,118
10.40 % Series II, due 2013 -- 14,100

Debenture:
7 3/8 % Series A, due 2001 200,000 200,000

Other:
Commercial paper expected to be refinanced on a long-term basis 175,000 --
Capitalized leases 15 646
-------- --------
Total principal amount 696,851 675,463
Less: discount (2,937) (4,745)
-------- --------

Total 693,914 670,718

Less: current maturities (9,897) (12,678)
-------- --------
Total long-term debt $684,017 $658,040
======== ========
</TABLE>

Long-term debt as of December 31, 1995 includes $175 million of commercial
paper which the Company anticipates refinancing during the first half of 1996
as further discussed in Note 9.

In May 1994, the Company issued $200 million of 7 3/8% Series A Debentures, due
2001, for the repayment of short-term borrowings incurred in connection with
the 1993 early retirement of high-coupon first mortgage bonds and for the
purpose of financing the Company's construction program.

The aggregate principal amount of bonds and debentures that may be issued is
subject to the restrictions and provisions of the Company's indentures. None
of the securities shown above were held in sinking or other special funds of
the Company or pledged by the Company. Debt discount on the Company's
outstanding long-term debt is amortized over the lives of the respective
issues. Substantially all of the Company's telephone plant is subject to the
liens of the indentures under which the bonds listed above were issued.

Estimated payments of long-term debt during the next five years are: $9.9
million in 1996; $0.9 million in 1997; $14.5 million in 1998; $143.9 million in
1999; and $0.9 million in 2000.

20
<PAGE> 23

Total short-term obligations were as follows:

<TABLE>
<CAPTION>
1995 1994
------- -------
(Thousands of Dollars)
<S> <C> <C>
Commercial paper - average rates 5.75% and 5.97% $38,800 $45,600
Notes payable to affiliate - average rate 6.09% 297 --
Current maturities of long-term debt 9,897 12,678
------- -------
Total $48,994 $58,278
======= =======
</TABLE>

A $3.5 billion credit line is available to the Company through shared lines of
credit with GTE and other affiliates. Most of these arrangements require
payment of annual commitment fees of .1% of the unused lines of credit.

9. FINANCIAL INSTRUMENTS

During 1995, the Company entered into forward contracts to sell $175 million of
U.S. Treasury bonds in order to hedge against future changes in market interest
rates related to the debt the Company anticipates issuing during the first half
of 1996. Any gain or loss recognized upon the expiration or settlement of the
forward contracts will be amortized over the life of the associated refinanced
debt as an offset or addition to interest expense.

The risk associated with these off-balance sheet financial instruments arises
from the possible inability of counterparties to meet the contract terms and
from movements in interest rates. The Company carefully evaluates and
continually monitors the creditworthiness of its counterparties and believes
the risk of non-performance is remote.

The fair values of financial instruments, other than long-term debt, closely
approximate their carrying value. As of December 31, 1995, the estimated fair
value of long-term debt based on either reference to quoted market prices or an
option pricing model, exceeded the carrying value by approximately $23 million.
The estimated fair value of long-term debt as of December 31, 1994, was lower
than the carrying value by approximately $22 million.

21
<PAGE> 24
10. INCOME TAXES

The income tax provision is as follows:

<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(Thousands of Dollars)
<S> <C> <C> <C>
Current:
Federal $38,272 $48,853 $28,929
State 1,761 2,738 5,490
------- ------- -------
40,033 51,591 34,419
------- ------- -------
Deferred:
Federal 36,659 14,509 (17,776)
State 4,168 1,234 (5,762)
------- ------- -------
40,827 15,743 (23,538)
------- ------- -------

Amortization of deferred investment tax credits (3,643) (9,175) (5,300)
------- ------- -------
Total $77,217 $58,159 $5,581
======= ======= =======
</TABLE>

A reconciliation between taxes computed by applying the statutory federal
income tax rate to pre-tax income and income taxes provided in the consolidated
statements of income is as follows:

<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(Thousands of Dollars)
<S> <C> <C> <C>

Amounts computed at statutory rates $79,574 $61,883 $6,969
State income taxes, net of federal income tax benefits 3,854 2,582 (177)
Amortization of deferred investment tax credits (3,643) (9,175) (5,300)
Depreciation of telephone plant construction costs
previously deducted for tax purposes - net 3,651 3,184 3,353
Rate differentials applied to reversing temporary
differences (972) (1,721) (1,498)
Other differences - net (5,247) 1,406 2,234
------- ------- -------
Total provision $77,217 $58,159 $5,581
======= ======= =======
</TABLE>

The tax effects of temporary differences that give rise to the current deferred
income tax benefits and deferred income tax liabilities at December 31, are as
follows:

<TABLE>
<CAPTION>
1995 1994
------- --------
(Thousands of Dollars)
<S> <C> <C>
Depreciation and amortization $15,024 $336,483
Employee benefit obligations (21,967) (20,321)
Prepaid pension costs 17,988 11,356
Restructuring costs (23,557) (36,463)
Investment tax credits 4,302 8,875
Other - net 12,373 16,026
------- --------
Total $4,163 $315,956
======= ========
</TABLE>

22
<PAGE> 25
11. EMPLOYEE BENEFIT PLANS

RETIREMENT PLANS

The Company sponsors noncontributory defined benefit plans covering
substantially all employees. The benefits to be paid under these plans are
generally based on years of credited service and average final earnings. The
Company's funding policy, subject to the minimum funding requirements of U.S.
employee benefit and tax laws, is to contribute such amounts as are determined
on an actuarial basis to provide the plans with assets sufficient to meet the
benefit obligations of the plans. The assets of the plans consist primarily of
corporate equities, government securities and corporate debt securities.

The components of the net pension credit for 1995-1993 were as follows:

<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C>

Benefits earned during the year $9,394 $11,538 $13,745
Interest cost on projected benefit obligations 24,358 22,823 27,015
Return on plan assets:
Actual (103,066) 1,111 (81,538)
Deferred 62,076 (41,108) 39,562
Other - net (9,873) (8,141) (9,123)
-------- -------- --------
Total - net $(17,111) $(13,777) $(10,339)
======== ======== ========
</TABLE>

The expected long-term rate of return on plan assets was 8.5% for 1995 and
1994, and 8.25% for 1993.

The funded status of the plans and the net prepaid pension cost at December 31
were as follows:

<TABLE>
<CAPTION>
1995 1994
-------- --------
(Thousands of Dollars)
<S> <C> <C>
Vested benefit obligations $222,636 $189,659
======== ========

Accumulated benefit obligations $258,581 $221,946
======== ========

Plan assets at fair value $564,620 $493,965
Less: projected benefit obligations 335,632 292,470
-------- --------
Excess of assets over projected benefit obligations 228,988 201,495
Unrecognized net transition asset (26,313) (31,010)
Unrecognized net gain (152,223) (140,761)
-------- --------
Total - net $50,452 $29,724
======== ========
</TABLE>

Assumptions used to develop the projected benefit obligations at December 31
were as follows:

<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Discount rate 7.50% 8.25%
Rate of compensation increase 5.25% 5.50%

</TABLE>

23
<PAGE> 26

POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" (FAS 106). FAS 106 requires that the expected
costs of postretirement benefits be charged to expense during the years that
the employees render service. The Company elected to adopt this new accounting
standard on the delayed recognition method and effective January 1, 1993, began
amortizing the estimated unrecorded accumulated postretirement benefit
obligation over twenty years. Prior to the adoption of FAS 106, the cost of
these benefits was charged to expense as paid.

Substantially all of the Company's employees are covered under postretirement
health care and life insurance benefit plans. The health care benefits paid
under the plans are generally based on comprehensive hospital, medical and
surgical benefit provisions. The Company funds amounts for postretirement
benefits as deemed appropriate from time to time.

The postretirement benefit cost for 1995-1993 included the following
components:

<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(Thousands of Dollars)
<S> <C> <C> <C>
Benefits earned during the year $2,305 $2,761 $3,854
Interest cost on accumulated postretirement benefit
obligations 10,608 11,026 10,749
Actual return on plan assets (1,488) 126 --
Amortization of transition obligation 4,652 4,904 7,198
Other - net 1,157 131 --
------- ------- -------
Total - net $17,234 $18,948 $21,801
======= ======= =======
</TABLE>

The following table sets forth the plans' funded status and the accrued
postretirement benefit obligations as of December 31:
<TABLE>
<CAPTION>
1995 1994
------- -------
(Thousands of Dollars)
<S> <C> <C>
Accumulated postretirement benefit obligations attributable to:
Retirees $97,865 $94,192
Fully eligible active plan participants 3,249 4,038
Other active plan participants 51,552 45,155
------- -------
Total accumulated postretirement benefit obligations 152,666 143,385
Less: fair value of plan assets 17,321 4,917
------- -------
Excess of accumulated obligations over plan assets 135,345 138,468
Unrecognized transition obligation (74,835) (85,798)
Unrecognized net loss (18,075) (17,326)
------- -------
Total $42,435 $35,344
======= =======
</TABLE>

The assumed discount rates used to measure the accumulated postretirement
benefit obligations were 7.50% at December 31, 1995 and 8.25% at December 31,
1994. The assumed health care cost trend rates in 1995 and 1994 were 11% and
12%, respectively, for pre-65 participants and 8.5% and 9%, respectively, for
post-65 retirees, each rate declining on a graduated basis to an ultimate rate
in the year 2004 of 6%. A one percentage point increase in the assumed health
care cost trend rates for each future year would have increased 1995 costs by
$1.7 million and the accumulated postretirement benefit obligation at December
31, 1995 by $17.1 million.

24
<PAGE> 27

During 1993, the Company made certain changes to its postretirement health care
and life insurance benefits for nonunion employees retiring on or after January
1, 1995. These changes include, among others, newly established limits to the
Company's annual contribution to postretirement medical costs and a revised
cost sharing schedule based on a retiree's years of service.

SAVINGS PLANS

The Company sponsors employee savings plans under section 401(k) of the
Internal Revenue Code. The plans cover substantially all full-time employees.
Under the plans, the Company provides matching contributions in GTE common
stock based on qualified employee contributions. Matching contributions
charged to income were $3.4 million, $3.1 million and $3.1 million for the
years 1995-1993, respectively.

12. PROPERTY, PLANT AND EQUIPMENT

The Company's property, plant and equipment is summarized as follows at
December 31:

<TABLE>
<CAPTION>
1995 1994
---------- ----------
(Thousands of Dollars)
<S> <C> <C>
Land $12,745 $12,396
Buildings 218,879 212,140
Plant and equipment 2,634,360 2,492,412
Other 252,275 272,964
---------- ----------
Total 3,118,259 2,989,912
Accumulated depreciation (See Note 2) (1,924,141) (910,694)
---------- ----------
Total property, plant and equipment - net $1,194,118 $2,079,218
========== ==========
</TABLE>

Depreciation provisions in 1995-1993 were equivalent to a composite average
percentage of 6.7%, 6.3% and 6.0%, respectively.

25
<PAGE> 28

13. REGULATORY AND COMPETITIVE MATTERS

The Company's intrastate business is regulated by the state regulatory
commissions in California, Idaho, Oregon and Washington. Prior to the sale of
properties described in Note 4, the state regulatory commission in Montana also
regulated the Company's intrastate operations. The Company is subject to
regulation by the Federal Communications Commission (FCC) for its interstate
business operations.

INTRASTATE SERVICES

The Company provides local-exchange services to customers within its designated
franchise area. The Company also provides toll services within designated
geographic areas called Local Access and Transport Areas (LATAs) under
agreements with connecting local-exchange carriers (LECs) in conformity with
individual state regulatory orders.

A filing was made on July 9, 1992 with the Washington Utility and
Transportation Commission (WUTC) for approval of the legal entity merger in
Washington (see Note 5). A settlement agreement was approved by the WUTC on
September 24, 1992. Pursuant to the stipulation order, local service rates
were reduced by $8.0 million annually and a filing was made to reduce switched
access rates by $2.0 million, effective January 1, 1993. On January 25, 1993,
the WUTC filed a complaint alleging that the $2.0 million access reduction
filing was not in accordance with the settlement agreement. The Company
disagreed with the allegations. On February 11, 1994, as a resolution to the
WUTC complaint associated with the legal entity merger, the WUTC ordered the
Company to reduce its switched access rates $6.7 million, effective
immediately.

A filing was made on July 10, 1992 with the Oregon Public Utility Commission
(OPUC) for approval of the legal entity merger in Oregon (see Note 5). A
settlement agreement was filed on October 9, 1992 and approved by the OPUC on
November 5, 1992. The Company's rates were reduced by $1.3 million effective
January 1, 1993.

The Company began a major Extended Area Service (EAS) offering in the Portland
metropolitan area in November 1991. This non-optional EAS offering provides
expanded local calling to customers in Portland's metropolitan EAS region
allowing customers to choose between flat rate, measured, or a combination of
flat rate and measured EAS calling plans. On August 29, 1994, the OPUC ordered
the expansion of the Portland Metro area to add new EAS routes, eleven of which
involved the Company's exchanges.

In 1992, the Company filed tariffs in both Washington and Oregon that would
allow it to operate under a Primary Toll Carrier (PTC) plan in its service
areas. Under this plan, the toll billed to end users for intraLATA toll calls
originating in the Company's service area are retained by the Company. The
Company, in turn, pays access charges to the company terminating the call based
on that company's approved access charge tariff. Likewise the Company will
receive access charges for terminating any intraLATA toll call that originates
outside of its service area based on its approved access charge tariff. On
January 28, 1993, the WUTC authorized the Company to operate as a PTC in its
service areas, effective July 1, 1994. As a result of the order, the Company
reduced its toll rates by an average of 4.5%, its switched access rates by $8.4
million and special access rates by $2.6 million. In Oregon, the Company
filed for authority to operate under a PTC plan and on February 22, 1994, the
OPUC approved the Company's request effective May 1, 1994. It also ordered
$5.1 million of local and access rate reductions effective April 1, 1994. The
Company was authorized a return on equity (ROE) of 10.36% and a rate of return
(ROR) of 9.48%.

On December 21, 1994, the WUTC authorized the Company an ROE of 11.25% and an
overall ROR of 9.76%. No rate changes were required.

26
<PAGE> 29

On December 27, 1995, the WUTC issued an Order setting the structure for local
interconnection and competition between LECs and Alternative Local Exchange
Carriers (ALECs). The Order required the Company to file an unbundled two-wire
line-side connection local loop tariff and an interim number portability tariff
by January 26, 1996. Number portability will be accomplished on an interim
basis through remote call forwarding offered at a discounted price. Also, a
local interconnection tariff implementing bill and keep compensation was
required by January 16, 1996. The parties were directed to file a capacity
cost based compensation proposal by July 15, 1996. The Order also opened up a
bona fide request procedure for further resale and unbundling. The revenue
impacts are not known at this time.

During 1995, Oregon had a local competition docket in progress. An order was
issued on January 12, 1996 which granted the application of three ALECs,
Electric Lightwave (ELI), MCI Metro, and Metropolitan Fiber Sytems, Inc. (MFS),
to provide service in GTE and US West's exchanges in the greater Portland area.
Subsequently, two more ALECs, AT&T Corp. and Teleport Communications Group
(TCG), have also applied. Eight of the Company's exchanges were designated as
competitive. Interconnection will be based on the same terms and conditions
that incumbent LECs have used to interconnect their networks. Tariffs allowing
for implementation of local interconnection were filed February 12, 1996.
Revenue impacts of the order are not known at this time.

INTERSTATE SERVICES

For the provision of interstate services, the Company operates under the terms
of the FCC's price cap incentive plan. The "price cap" mechanism serves to
limit the rates a carrier may charge, rather than just regulating the rate of
return which may be achieved. Under this approach, the maximum price that the
LEC may charge is increased or decreased each year by a price index based upon
inflation less a predetermined productivity target. LECs have limited pricing
flexibility provided they do not exceed the allowed price cap.

In March 1995, the FCC adopted interim rules to be utilized by LECs, including
the Company, for their 1995 Annual Price Cap Filing. The interim rules allowed
LECs to select from three productivity/sharing options for each tariff entity.
Each of the three options reflected an increase to the 3.3% productivity factor
used since 1991. The Company selected the following productivity factors and
sharing thresholds for use in the 1995-1996 tariff year:

<TABLE>
<CAPTION>
Sharing Parameters
Tariff Productivity ---------------------------------------
Entity Factor 50% 100%
--------------------------------- ------------ ------------------ ---------------
<S> <C> <C> <C>
Washington (GTE), 4.0% 12.25 - 13.25% ROR Over 13.25% ROR
California-West Coast, Inc.

Idaho, Oregon, 5.3% None None
Washington (Contel)
</TABLE>

Since the Company's access fees were priced significantly below the FCC's
maximum price, the Company was permitted to file tariffs effective May 24, 1995
to increase rates $6 million, annually. In addition, the Company filed
tariffs, effective August 31, 1995, under the interim rules to reduce rates
$17.2 million annually. On September 20, 1995, the FCC released its proposed
rulemaking proceeding on price caps which proposes specific changes to reflect
and encourage emerging competition in local and access services markets and to
establish the path towards decreased

27
<PAGE> 30
regulation of LECs' services. On September 27, 1995, the FCC solicited
comments on a number of specific issues regarding methods for establishing the
price caps, such as productivity measurements, sharing, the common line formula
and exogenous costs. The Company anticipates the FCC will issue an order prior
to the July 1996 annual filing.

SIGNIFICANT CUSTOMER

Revenues received from AT&T Corp. include amounts for access, billing and
collection and interexchange leased facilities during the years 1995-1993 under
various arrangements and amounted to $133.4 million, $128.3 million and $129.3
million, respectively.

14. COMMITMENTS AND CONTINGENCIES

The Company has noncancelable leases covering certain buildings, office space
and equipment. Rental expense was $12.3 million, $12.0 million and $11.3
million in 1995-1993, respectively. Minimum rental commitments for
noncancelable leases through 2000 do not exceed $2.9 million annually and
aggregate $5.4 million thereafter.

The Company is subject to a number of proceedings arising out of the conduct of
its business, including those relating to regulatory actions, commercial
transactions and/or environmental, safety and health matters. Management
believes that the ultimate resolution of these matters will not have a material
adverse effect on the results of operations or the financial position of the
Company.

Recent judicial and regulatory developments, as well as the pace of
technological change, have continued to influence industry trends, including
accelerating and expanding the level of competition. As a result, the
Company's operations face increasing competition in virtually all aspects of
its business. The Company supports greater competition in telecommunications
provided that, overall, the actions to eliminate existing legal and regulatory
barriers allow an opportunity for all service providers to participate equally
in a competitive marketplace under comparable conditions.

28
<PAGE> 31
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of
GTE Northwest Incorporated:

We have audited the accompanying consolidated balance sheets of GTE Northwest
Incorporated (a Washington corporation and wholly-owned subsidiary of GTE
Corporation) and subsidiary as of December 31, 1995 and 1994, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1995. These financial
statements and the schedule and exhibit referred to below are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and the schedule and exhibit based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of GTE Northwest Incorporated and
subsidiary as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.

As discussed in Note 2 to the consolidated financial statements, in 1995, the
Company discontinued applying the provisions of Statement of Financial
Accounting Standards No.71, "Accounting for the Effects of Certain Types of
Regulation".

Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The supporting schedule and exhibit listed under
Item 14 are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not a required part of the basic financial
statements. The supporting schedule and exhibit have been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.

ARTHUR ANDERSEN LLP

Dallas, Texas
January 24, 1996

29
<PAGE> 32
MANAGEMENT REPORT

To Our Shareholder:

The management of the Company is responsible for the integrity and objectivity
of the financial and operating information contained in this Annual Report on
Form 10-K, including the consolidated financial statements covered by the
Report of Independent Public Accountants. These statements were prepared in
conformity with generally accepted accounting principles and include amounts
that are based on the best estimates and judgments of management.

The Company has a system of internal accounting controls which provides
management with reasonable assurance that transactions are recorded and
executed in accordance with its authorizations, that assets are properly
safeguarded and accounted for, and that financial records are maintained so as
to permit preparation of financial statements in accordance with generally
accepted accounting principles. This system includes written policies and
procedures, an organizational structure that segregates duties, and a
comprehensive program of periodic audits by the internal auditors. The Company
has also instituted policies and guidelines which require employees to maintain
the highest level of ethical standards.

EILEEN O'NEILL ODUM
President

GERALD K. DINSMORE
Senior Vice President - Finance and Planning

30
<PAGE> 33

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

None.

31
<PAGE> 34
PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a) (1) Financial Statements - See GTE Northwest Incorporated's
consolidated financial statements and report of independent
accountants thereon in the Financial Statements section included
elsewhere herein.

(2) Financial Statement Schedules - Schedules supporting the
consolidated financial statements for the years ended December
31, 1995-1993 (as required):

II - Valuation and Qualifying Accounts

Note: Schedules other than that listed above are omitted as not
applicable, not required, or the information is included in the
consolidated financial statements or notes thereto.

(3) Exhibits - Included in this report or incorporated by reference.

2.1* Agreement of Merger dated November 18, 1992 between Contel
of the Northwest, Inc. and GTE Northwest Incorporated.
(Exhibit 2.1 of the 1993 Form 10-K, File No. 0-2908)

3.1* Articles of Incorporation and amendments are referenced in
the 1986 and 1987 Form 10-K's, respectively

3.2 Amended Bylaws (Exhibit 3.2 of the 1995 Form 10-K, File No.
0-2908)

4* Indenture dated as of April 1, 1994 between GTE Northwest
Incorporated and Bank of America National Trust and Savings
Association, as Trustee (Exhibit 4.1 of the Company's
Registration Statement on Form S-3, File No. 33-52909)

10 Material Contracts - Agreements Between GTE and Certain
Executive Officers

12 Statements re: Calculation of the Consolidated Ratio
of Earnings to Fixed Charges

23 Consent of Independent Public Accountants

27 Financial Data Schedule

(b) Reports on Form 8-K

On November 13, 1995, the Company filed a report on Form 8-K dated
November 9, 1995, under Item 5 "Other Events". Financial information was
filed with this report.

* Denotes exhibits incorporated herein by reference to previous filings with
the Securities and Exchange Commission as designated.

32
<PAGE> 35
GTE Northwest Incorporated and Subsidiary

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For The Years Ended December 31, 1995, 1994 and 1993

(Thousands of Dollars)

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- ------------------------------------------------------------------------------------------------------------
Additions
---------------------------
Deductions
Balance at from
Beginning Charged to Charged to Reserves Balance at
Description of Year Income Other Accounts (Note 1) Close of Year
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for uncollectible
accounts for the years ended:

December 31, 1995 $ 7,745 $ 23,442 $21,716 (2) $39,635 $ 13,268
=========================================================================
December 31, 1994 $ 6,602 $ 9,642 $14,683 (2) $23,182 $ 7,745
=========================================================================
December 31, 1993 $ 3,654 $ 12,732 $13,690 (2) $23,474 $ 6,602
=========================================================================

Accrued restructuring costs for the
years ended (Note 3):

December 31, 1995 $ 99,544 $ -- $ -- $35,229 $ 64,315
=========================================================================
December 31, 1994 $125,003 $ -- $ -- $25,459 $ 99,544
=========================================================================
December 31, 1993 $ -- $125,003 $ -- $ -- $125,003
=========================================================================

</TABLE>

NOTES:

(1) Charges for purpose for which reserve was created.

(2) Recoveries of previously written-off amounts.

(3) See Note 3 to the consolidated financial statements included elsewhere
herein.

33
<PAGE> 36

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

GTE NORTHWEST INCORPORATED
---------------------------------------------
(Registrant)

Date March 26, 1996 By Eileen O'Neill Odum
------------------ -------------------------------------------
Eileen O'Neill Odum
President

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report is signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

<TABLE>
<S> <C> <C>
Eileen O'Neill Odum President March 26, 1996
- ------------------------- (Principal Executive Officer)
Eileen O'Neill Odum

Gerald K. Dinsmore Senior Vice President - Finance and March 26, 1996
- ------------------------- Planning and Director
Gerald K. Dinsmore (Principal Financial Officer)

William M. Edwards, III Controller March 26, 1996
- ------------------------- (Principal Accounting Officer)
William M. Edwards, III

John C. Appel Director March 26, 1996
- -------------------------
John C. Appel

Richard M. Cahill Director March 26, 1996
- -------------------------
Richard M. Cahill

Michael B. Esstman Director March 26, 1996
- -------------------------
Michael B. Esstman

Thomas W. White Director March 26, 1996
- -------------------------
Thomas W. White
</TABLE>

34
<PAGE> 37
EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
3.2 Amended Bylaws

10 Material Contracts - Agreements Between GTE and Certain Executive Officers

12 Statements re: Calculation of the Ratio of Earnings to Fixed Charges

23 Consent of Independent Public Accountants

27 Financial Data Schedule

</TABLE>

<PAGE> 1
Exhibit 3.2

BYLAWS

GTE NORTHWEST INCORPORATED

INCORPORATED UNDER THE LAWS OF

THE STATE OF WASHINGTON

(1964)

Adopted: April 1, 1964
Amended: June 30, 1964
August 21, 1964
January 12, 1966
February 14, 1968
June 5, 1969
March 27, 1970
September 23, 1971
March 26, 1981
November 19, 1987
March 13, 1992
January 25, 1996
<PAGE> 2
GTE NORTHWEST INCORPORATED

TABLES OF CONTENTS

ARTICLE I.

STOCKHOLDERS

Section 1. Annual Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 3. Notice of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 4. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 5. Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 6. Action Without Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

ARTICLE II.

BOARD OF DIRECTORS

Section 7. Qualifications and Term of Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 8. Authority to Elect or Appoint Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 9. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 10. Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 11. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 12. Notice of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 13. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 14. Action Without Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 15. Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

ARTICLE III.

OFFICERS

Section 16. Number and Designation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 17. Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 18. President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 19. Vice President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 20. Secretary and Assistant Secretaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 21. Treasurer and Assistant Treasurers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 22. Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 23. Tenure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 24. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

</TABLE>

i
<PAGE> 3
TABLE OF CONTENTS

ARTICLE IV.

MISCELLANEOUS

Section 25. Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 26. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

ARTICLE V.

AMENDMENTS

Section 27. Bylaws Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

</TABLE>

ii
<PAGE> 4
GTE NORTHWEST INCORPORATED

BYLAWS

ARTICLE I.

STOCKHOLDERS

Section 1. Annual Meetings. An annual meeting of shareholders shall
be held on the third Friday in March in each year of a time and place to be
determined by the Board of Directors for the purpose of electing directors and
transacting such other business as may lawfully come before the meeting.

Section 2. Special Meetings. Special meetings of the stockholders
may be called by the Board of Directors or by the Secretary on written request
of any stockholders holding in the aggregate one-fifth (1/5) of the voting
power of all the stockholders.

Section 3. Notice of Meetings. At least ten (10) days' written
notice of the time, place, and purpose of any special meeting shall be given to
all shareholders entitled to vote at such meetings.

Section 4. Quorum. The presence, in person or by proxy, of holders
of a majority of the voting power of all the stockholders shall constitute a
quorum, but less than a quorum may adjourn from time to time, without new
notice being given, but any meeting at which directors are to be elected shall
be adjourned only from day to day until such directors have been elected.

Section 5. Voting.

(a) At all meetings of the stockholders, every holder of
voting stock shall be entitled to one (1) vote on each question for each share
of stock standing in his name on the books of the Corporation.

(b) In the election of Directors, every stockholder shall have
the right to multiply the number of votes to which he may be entitled under
paragraph (a) of this Section 5 by the number of Directors to be elected, and
he may cast all such votes for one candidate or he may distribute them among
any two or more candidates.

(c) Whenever stockholders vote by proxy, such proxy shall be
in writing and filed with the Secretary at or before the time the vote is
tendered.

Section 6. Action Without Meeting. Action required or permitted to
be taken at a shareholders' meeting may be taken without a meeting if the
action is taken by all the shareholders entitled to vote on the action. The
action must be evidenced by one or more written consents describing the action
taken, signed by all the shareholders entitled to vote on the action, and
delivered to the Corporation for inclusion in the minutes or filing with the
corporate records.

ARTICLE II.

BOARD OF DIRECTORS

Section 7. Qualifications and Term of Office. The number of
directors of this Corporation shall be not less than three (3) and not more
than fifteen (15) in number. While any vacancy or vacancies exist on the Board
of Directors, the remaining directors shall have authority to act. Each
director shall serve for the term for which he was elected and until his
successor is elected and qualified.

Section 8. Authority to Elect or Appoint Officers. In addition to
the officers required by law to be elected, the Board of Directors shall elect
such officers and agents as may be necessary for the business of the
Corporation. Any
<PAGE> 5
officer or agent of the Corporation may be removed without notice by the Board
of Directors whenever in its judgment the best interests of the Corporation
will be served thereby. The Board of Directors may determine the compensation
to be paid all officers, and may, except in the case of the President's
compensation, delegate such power to the President. The Board of Directors
shall also have authority to determine the compensation to be paid Directors
for their services as directors and for services in any other capacity,
provided, however, such authority shall be subject to veto by the shareholders
at their next meeting after such compensation is fixed by the Directors.

Section 9. Vacancies. The remaining Directors may fill any vacancy
or vacancies in the membership of the Board of Directors caused by death,
resignation, or otherwise. The person so elected to fill such vacancy shall
hold office until the next annual meeting of the stockholders or until his
successor shall be elected and qualified.

Section 10. Regular Meetings. Regular meetings of the Board of
Directors may be held without notice at such time and place as may from time to
time be determined by the Board of Directors.

Section 11. Special Meetings. Special meetings of the Board of
Directors, upon notice as hereinafter provided, may be held at any time or any
place as determined by the Board of Directors, upon the written consent of a
majority of the Directors. Special meetings of the Board of Directors may be
called by the President, and shall be called by the President or the Secretary
upon written request of two directors.

Section 12. Notice of Meetings. Notice of the regular meetings of the
Board of Directors shall not be required. At least five days' notice in
writing of any special meeting shall be given to each Director personally or
mailed or telegraphed to him at his last address known to the Secretary;
provided that nothing herein contained shall operate to prevent a meeting of
the Board of Directors being held at any time provided all members are present
or assent to the meeting in writing, and any Director may waive any notice
provided for herein.

Section 13. Quorum. One-third of the number of directors at any time
constituting the Board of Directors shall constitute a quorum for the purpose
of the transaction of business of the Board.

Section 14. Action Without Meeting. Action required or permitted to
be taken at a Board of Directors' meeting may be taken without a meeting if the
action is taken by all members of the Board. The action must be evidenced by
one or more written consents describing the action taken, signed by each
director either before or after the action taken, and delivered to the
Corporation for inclusion in the minutes or filing with the corporate records.

Section 15. Committees. The Board of Directors may create one or more
committees of directors. Each committee must have two or more members and
one-third of the committee's membership shall constitute a quorum.

ARTICLE III.

OFFICERS

Section 16. Number and Designation. The officers of this Corporation
shall consist of President, one or more Vice Presidents, a Secretary, one or
more Assistant Secretaries, a Treasurer, one or more Assistant Treasurers, and
such other officers as the Board of Directors may from time to time provide for
and elect, all of whom shall be elected annually by the Board of Directors and
who shall serve for one year or until their successors shall have been elected
and qualify.

Section 17. Requirements. The President, any Vice President,
Secretary, Treasurer and such other officers as may be elected or appointed
may, but need not, be stockholders or directors of this Corporation. Any
person may hold more than one office provided the duties thereof can be
consistently performed by the same person, provided, however, that no one
person shall at the same time hold the three offices of President or Vice
President and Secretary and Treasurer.

Section 18. President. The President shall be the chief executive
officer of this Corporation. He shall preside, if in attendance, at all
meetings of the stockholders. He shall have general and active management of
the business of the Corporation, and shall see that all orders and resolutions
of the Board are carried into effect. The President or a Vice President shall
execute all bonds, mortgages, and other contracts requiring a seal, under the
seal of the Corporation. The President shall have the general powers and
duties of supervision and management usually vested in the office of President

-2-
<PAGE> 6
of a Corporation. The President shall have the power to appoint all necessary
officers and servants of the Corporation except those elected by the Board of
Directors, and to make new appointments to fill the vacancies, and may delegate
any of these powers to a Vice President of this Corporation. The President and
Vice Presidents shall perform all of the duties commonly given to their
offices, subject to the provisions and limitations herein contained, and shall
perform such other duties as the Board of Directors shall designate from time
to time.

Section 19. Vice President. Except as specially limited by vote of
the Board of Directors, any Vice President shall perform the duties and have
the powers of the President or other Vice Presidents during the absence or
disability of the President or other Vice Presidents.

Section 20. Secretary and Assistant Secretaries. The Secretary shall
keep accurate minutes of all meetings of the stockholders and of the Board of
Directors, and shall perform all the duties commonly incident to his office,
and shall perform such other duties and have such other powers as the Board of
Directors shall designate from time to time. The Secretary, subject to the
order of the Board of Directors, shall have the care and custody of the
valuable papers and documents of this Corporation. The Secretary shall affix
the corporate seal to all bonds, mortgages, and other documents upon which the
corporate seal is required. In his absence at any meeting, an Assistant
Secretary or a Secretary Pro Tempore shall perform his duties thereat. Each
Assistant Secretary shall be vested with the same powers and duties as the
Secretary, and any act may be done or duty performed by the Assistant Secretary
with like effect as so done or performed by the Secretary. Each Assistant
Secretary shall have such other powers and perform such other duties as may be
prescribed to him by the Board of Directors.

Section 21. Treasurer and Assistant Treasurers. The Treasurer,
subject to the order of the Board of Directors, shall have the care and custody
of the moneys, funds, and financial records of this Corporation (other than his
own bond which shall be in the custody of the President) and shall have and
exercise, under the supervision of the Board of Directors, all the powers and
duties commonly incident to his office, and shall give bond, if required by the
Board of Directors, in such amount and form and with such sureties as shall be
prescribed by the Board of Directors. He shall deposit all funds of this
Corporation in such bank or banks, trust company or trust companies, or with
such firm or firms doing a banking business, as the directors shall designate.
He may endorse for deposit or collection all checks, notes, et cetera, payable
to this Corporation or to its order, and may accept drafts on behalf of this
Corporation. He shall keep accurate books of account of this Corporation which
together with all its property in his possession, shall be subject at all times
to the inspection and control of the Board of Directors. The Treasurer shall
be subject in every way to the order of the Board of Directors. Each Assistant
Treasurer shall be vested with the same powers and duties as the Treasurer, and
any act may be done or duty performed by the Assistant Treasurer with like
effect or so done or performed by the Treasurer. Each Assistant Treasurer
shall have such other powers and perform such other duties as may be prescribed
to him by the Board of Directors.

Section 22. Bonds. The Board of Directors may require any officer to
furnish bond in such reasonable amount and upon such conditions as may be fixed
by majority vote of the Board of Directors.

Section 23. Tenure. All officers shall hold office at the will of the
Board of Directors and may be removed without notice by majority action by the
Board of Directors. Subject to the power of the Board of Directors, the
President shall have authority to remove without notice any officer or servant
appointed by him.

Section 24. Vacancies. In case of death, resignation or removal of
any of the officers of this Corporation, the Board of Directors shall elect
successors, who shall likewise hold office at the will of the Board, and,
subject to the power of the Board of Directors, the President shall fill
vacancies caused by death, resignation or removal of any officers and servants
appointed by him.

ARTICLE IV.

MISCELLANEOUS

Section 25. Seal. The corporate seal of this Corporation shall have
inscribed on the margin thereof the name of this Corporation and in the center
the words "Incorporated March 31, 1964".

Section 26. Fiscal Year. The fiscal year of this Corporation shall be
the calendar year.

-3-
<PAGE> 7
ARTICLE V.

AMENDMENTS

Section 27. Bylaws Amendments. These Bylaws may be altered, amended
or repealed at any stockholders' meeting by a vote of a majority of all shares
entitled to vote, or by unanimous written consent of the stockholders eligible
to vote, or by the Board of Directors of the Corporation at any regular meeting
of the Board of Directors, at any special meeting called duly for that purpose,
or by unanimous written consent of the Board of Directors. The number of
Directors of this Corporation may be changed by a Bylaw duly and legally
adopted in the above manner.

-4-

<PAGE> 1

Exhibit 10

EXECUTIVE SEVERANCE AGREEMENT

This AGREEMENT ("Agreement") dated as of January 8, 1996, by and
between GTE Service Corporation, a New York corporation (the "Company"), and
the "Executive".

W I T N E S S E T H:

WHEREAS, the Company recognizes the valuable services that the
Executive has rendered thereto and desires to be assured that the Executive
will continue to attend to the business and affairs of the Company without
regard to any potential or actual change in control of GTE Corporation, a New
York corporation and the Company's sole shareholder ("GTE"); and

WHEREAS, the Executive is willing to continue to serve the Company,
but desires assurance that he will not be materially disadvantaged by a change
in control of GTE;

NOW, THEREFORE, in consideration of the Executive's continued service
to the Company and the mutual agreements herein contained, the Company and the
Executive hereby agree as follows:

ARTICLE I

ELIGIBILITY FOR BENEFITS

Section 1.1. Qualifying Termination. The Company shall not be
required to provide any benefits to the Executive pursuant to this Agreement
unless a Qualifying Termination occurs before the Agreement expires in
accordance with Section 6.1 hereof. For purposes of this Agreement, a
Qualifying Termination shall occur only if

(a) a Change in Control occurs, and

(b) (i) within two years after the Change in Control, the Company
terminates the Executive's employment other than for Cause; or

(ii)(A) within two years after the Change in Control, a Good
Reason arises, and (B) the Executive terminates employment
with the Company within (I) six months after the Good Reason
arises or (II) two years after the Change in Control,
whichever occurs later;

provided, that a Qualifying Termination shall not occur if the Executive's
employment with the Company terminates by reason of the Executive's Retirement,
Disability, or death. A Qualifying Termination may occur even though the
Executive retires from employment with the Company other than by reason of
Retirement or Disability.

Section 1.2. Change in Control. Except as provided below, a
Change in Control shall be deemed to occur when and only when the first of the
following events occurs:

(a) an acquisition (other than directly from GTE) of securities of
GTE by any Person, immediately after which such Person,
together with all Affiliates and Associates of such Person,
shall be the Beneficial Owner of securities of GTE
representing 20 percent or more of the Voting Power or such
lower percentage of the Voting Power that, from time to time,
would cause the Person to constitute an "Acquiring Person" (as
such term is defined in the Rights Plan); provided that, in
determining whether a Change in Control has occurred, the
acquisition of securities of GTE in a Non-Control Acquisition
shall not constitute an acquisition that would cause a Change
in Control; or

(b) three or more directors, whose election or nomination for
election is not approved by a majority of the members of the
"Incumbent Board" (as defined below) then serving as members
of the Board, are elected within any single 12-month period to
serve on the Board; provided that an individual whose election
or nomination for election is approved as a result of either
an actual or threatened "Election Contest" (as described in
Rule 14a-11 promulgated under the Securities Exchange Act of
1934, as amended from time to time) or other actual or
threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board (a "Proxy Contest"),
including by
<PAGE> 2
reason of any agreement intended to avoid or settle any
Election Contest or Proxy Contest, shall be deemed not to have
been approved by a majority of the Incumbent Board for
purposes hereof; or

(c) members of the Incumbent Board cease for any reason to
constitute at least a majority of the Board; "Incumbent Board"
shall mean individuals who, as of the close of business on
April 19, 1995, are members of the Board; provided that, if
the election, or nomination for election by GTE's
shareholders, of any new director was approved by a vote of at
least three-quarters of the Incumbent Board, such new director
shall, for purposes of this Agreement, be considered as a
member of the Incumbent Board; provided further that no
individual shall be considered a member of the Incumbent Board
if such individual initially assumed office as a result of
either an actual or threatened Election Contest or other
actual or threatened Proxy Contest, including by reason of any
agreement intended to avoid or settle any Election Contest or
Proxy Contest; or

(d) approval by shareholders of GTE of:

(i) a merger, consolidation, or reorganization involving
unless

(A) the shareholders of GTE, immediately before
the merger, consolidation, or reorganization, own, directly or
indirectly immediately following such merger, consolidation,
or reorganization, at least 50 percent of the combined voting
power of the outstanding voting securities of the corporation
resulting from such merger, consolidation, or reorganization
(the "Surviving Corporation") in substantially the same
proportion as their ownership of the voting securities
immediately before such merger, consolidation, or
reorganization;

(B) individuals who were members of the Incumbent
Board immediately prior to the execution of the agreement
providing for such merger, consolidation, or reorganization
constitute at least a majority of the board of directors of
the Surviving Corporation; and

(C) no Person (other than GTE or any subsidiary
of GTE, any employee benefit plan (or any trust forming a part
thereof) maintained by GTE, the Surviving Corporation, or any
subsidiary of GTE, or any Person who, immediately prior to
such merger, consolidation, or reorganization, had Beneficial
Ownership of securities representing 20 percent (or such lower
percentage the acquisition of which would cause a Change in
Control pursuant to paragraph (a) of this definition of
"Change in Control") or more of the Voting Power) has
Beneficial Ownership of securities representing 20 percent (or
such lower percentage the acquisition of which would cause a
Change in Control pursuant to paragraph (a) of this definition
of "Change in Control") or more of the combined Voting Power
of the Surviving Corporation's then outstanding voting
securities;

(ii) a complete liquidation or dissolution of GTE; or

(iii) an agreement for the sale or other disposition of all
or substantially all of the assets of GTE to any Person (other
than a transfer to a subsidiary of GTE).

For purposes of this Section, the following terms shall have the
definitions set forth below:

"Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended from time to time.

"Board" means the Board of Directors of GTE.

"Non-Control Acquisition" means an acquisition by (1) an employee
benefit plan (or a trust forming a part thereof) maintained by GTE or any of
its subsidiaries, (2) GTE or any of its subsidiaries, or (3) any Person in
connection with a "Non-Control Transaction."

"Non-Control Transaction" means a transaction described in clauses (A)
through (C) of paragraph (d)(i) of the definition of "Change in Control"
herein.

"Person" shall mean any individual, firm, corporation, partnership,
joint venture, association, trust, or other entity.

A Person shall be deemed the "Beneficial Owner" of, and shall be
deemed to "beneficially own," any securities:

(x) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly;

(y) which such Person or any of such Person's Affiliates or
Associates has (i) the right or obligation to acquire (whether
such right or obligation is exercisable or effective
immediately or only after the passage of time) pursuant to any
agreement, arrangement, or understanding (whether or not in
<PAGE> 3
writing) or upon the exercise of conversion rights, exchange
rights, rights (other than the rights granted pursuant to the
Rights Plan), warrants or options, or otherwise; provided that
a Person shall not be deemed the "Beneficial Owner" of, or to
"beneficially own," securities tendered pursuant to a tender
or exchange offer made by such Person or any of such Person's
Affiliates or Associates until such tendered securities are
accepted for purchase or exchange; or (ii) the right to vote
pursuant to any agreement, arrangement, or understanding
(whether or not in writing); provided that a Person shall not
be deemed the "Beneficial Owner" of, or to "beneficially own,"
any security under this clause (ii) if the agreement,
arrangement, or understanding to vote such security (A) arises
solely from a revocable proxy given in response to a public
proxy or consent solicitation made pursuant to, and in
accordance with, the applicable rules and regulations of the
Securities Exchange Act of 1934, as amended from time to time,
and (B) is not also then reported by such person on Schedule
13D under the Securities Exchange Act of 1934, as amended from
time to time (or any comparable or successor report); or

(z) which are beneficially owned, directly or indirectly, by any
other Person (or any Affiliate or Associate thereof) with
which such Person or any of such Person's Affiliates or
Associates has any agreement, arrangement, or understanding
(whether or not in writing), or with which such Person or any
of such Person's Affiliates or Associates have otherwise
formed a group for the purpose of acquiring, holding, voting
(except pursuant to a revocable proxy as described in clause
(ii)(A) of subparagraph (y), above), or disposing of any
securities of GTE.

"Rights Plan" means the Rights Agreement, dated as of December 7,
1989, between GTE and State Street Bank and Trust Company (now administered by
the First National Bank of Boston), as it may be amended from time to time, or
any successor thereto.

"Voting Power" means the voting power of all securities of GTE then
outstanding generally entitled to vote for the election of directors of GTE.

Section 1.3. Termination for Cause. The Company shall have Cause
to terminate the Executive for purposes of Section 1.1 hereof only if the
Executive (a) engages in unlawful acts intended to result in the substantial
personal enrichment of the Executive at the Company's expense, or (b) engages
(except by reason of incapacity due to illness or injury) in a material
violation of his responsibilities to the Company that results in a material
injury to the Company. Notwithstanding the foregoing, the Executive shall not
be deemed to have been terminated for Cause unless and until there shall have
been delivered to him a notice, consisting of a copy of a resolution duly
adopted by the affirmative vote of not less than three quarters of the entire
membership of GTE's Board of Directors at a duly held meeting of the Board of
Directors (with reasonable notice to the Executive and an opportunity for the
Executive, together with counsel, to be heard before the Board of Directors)
("Notice of Termination"), finding that the Executive has engaged in the
conduct set forth above in this Section 1.3 and specifying the particulars
thereof in detail. GTE's Board of Directors may not delegate or assign its
duties under this Section 1.3.

Section 1.4. Termination for Good Reason. The Executive shall
have a Good Reason for terminating employment with the Company only if one or
more of the following occurs after a Change in Control:

(a) a change in the Executive's status or position(s) with the
Company that, in the Executive's reasonable judgment,
represents a demotion from the Executive's status or
position(s) in effect immediately before the Change in
Control;

(b) the assignment to the Executive of any duties or
responsibilities that, in the Executive's reasonable judgment,
are inconsistent with the Executive's status or position(s) in
effect immediately before the Change in Control;

(c) layoff or involuntary termination of the Executive's
employment, except in connection with the termination of the
Executive's employment for Cause or as a result of the
Executive's Retirement, Disability, or death;

(d) a reduction by the Company in the Executive's total
compensation (which shall be deemed, for this purpose, to be
equal to his base salary plus the greater of (i) the most
recent award that he has earned under the GTE Corporation
Executive Incentive Plan, as amended from time to time, or any
successor thereto (the "EIP"), or (ii) an EIP award equal to
the Executive's Average Percentage of the annual value (i.e.,
the dollar amount) of the normal payment under the EIP for the
Executive's salary level (such annual value and normal payment
being those that are in effect under the EIP immediately
before the date on which the Change in Control occurs for the
Executive's salary level immediately before the date on which
the Change in Control occurs)). For
<PAGE> 4
purposes of this paragraph (d), the Executive's "Average
Percentage" means the average of the Executive's Annual
Percentages for the Determination Years. For purposes of this
paragraph (d), the Executive's "Annual Percentage" for each
Determination Year means a fraction (expressed as a
percentage), the numerator of which is the EIP award earned by
the Executive for such Determination Year, and the denominator
of which is the annual value of the normal payment under the
EIP for the Executive's salary level (such annual value and
normal payment being those that were in effect under the EIP
for such Determination Year for the Executive's salary level
for such Determination Year). For purposes of this paragraph
(d), a "Determination Year" means each of the last three EIP
plan years ending before the date on which the Change in
Control occurs (or, if less, the number of those three plan
years during which the Executive was a participant in the
EIP);

(e) a material increase in the Executive's responsibilities or
duties without a commensurate increase in total compensation;

(f) the failure by the Company to continue in effect any Plan in
which the Executive is participating at the time of the Change
in Control (or plans or arrangements providing the Executive
with substantially equivalent benefits) other than as a result
of the normal expiration of any such Plan in accordance with
its terms as in effect at the time of the Change in Control;

(g) any action or inaction by the Company that would adversely
affect the Executive's continued participation in any Plan on
at least as favorable a basis as was the case on the date of
the Change in Control, or that would materially reduce the
Executive's benefits in the future under the Plan or deprive
him of any material benefits that he enjoyed at the time of
the Change in Control, except to the extent that such action
or inaction by the Company is required by the terms of the
Plan as in effect immediately before the Change in Control, or
is necessary to comply with applicable law or to preserve the
qualification of the Plan under section 401(a) of the Internal
Revenue Code, and except to the extent that the Company
provides the Executive with substantially equivalent benefits;

(h) the Company's failure to provide and credit the Executive with
the number of days of paid vacation, holiday, or leave to
which he is then entitled in accordance with the Company's
normal vacation, holiday, or leave policy in effect
immediately before the Change in Control;

(i) the imposition of any requirement that the Executive be based
anywhere other than within 25 miles of where his principal
office was located immediately before the Change in Control;

(j) a material increase in the frequency or duration of the
Executive's business travel;

(k) the Company's failure to obtain the express assumption of this
Agreement by any successor to the Company as provided by
Section 6.3 hereof;

(l) any attempt by the Company to terminate the Executive's
employment that is not effected pursuant to a Notice of
Termination satisfying the requirements of Section 1.3 hereof
or that does not afford the Executive the procedural
protections prescribed by that Section; or

(m) any violation by the Company of any agreement (including this
Agreement) between it and the Executive.

Notwithstanding the foregoing, no action by the Company shall give rise to a
Good Reason if it results from the Executive's termination for Cause,
Retirement, or death, and no action by the Company specified in paragraphs (a)
through (d) of the preceding sentence shall give rise to a Good Reason if it
results from the Executive's Disability. A Good Reason shall not be deemed to
be waived by reason of the Executive's continued employment as long as the
termination of the Executive's employment occurs within the time prescribed by
Section 1.1(b)(ii)(B) hereof. For purposes of this Section 1.4, "Plan" means
any compensation plan, such as an incentive, stock option, or restricted stock
plan, or any employee benefit plan, such as a thrift, pension, profit-sharing,
stock bonus, long-term performance award, medical, disability, accident, or
life insurance plan, or a relocation plan or policy, or any other plan, program
or policy of the Company that is intended to benefit employees.

Section 1.5. Retirement. For purposes of this Agreement,
"Retirement" shall mean the Executive's termination of employment upon or after
attaining age 65.

Section 1.6. Disability. For purposes of this Agreement,
"Disability" shall mean an illness or injury that prevents the Executive from
performing his duties (as they existed immediately before the illness or
injury) on a full- time basis for six consecutive months.

Section 1.7. Notice. If a Change in Control occurs, the Company
shall notify the Executive of the
<PAGE> 5
occurrence of the Change in Control within two weeks after the Change in
Control.

ARTICLE II

BENEFITS AFTER A QUALIFYING TERMINATION

Section 2.1. Basic Severance Payment.

(a) If the Executive incurs a Qualifying Termination, the Company
shall pay to the Executive a cash amount equal to 200% of the
Base Amount. The Base Amount shall be an amount equal to the
greater of:

(A) the sum of (I) the Executive's base annual
salary immediately before the Change in Control plus (II) the
Executive's Average Percentage of the annual value (i.e., the
dollar amount) of the normal payment under the EIP for the
Executive's salary level (such annual value and normal payment
being those that are in effect under the EIP immediately
before the date on which the Change in Control occurs for the
Executive's salary level immediately before the date on which
the Change in Control occurs). For purposes of this paragraph
(A), the Executive's "Average Percentage" means the average of
the Executive's Annual Percentages for the Determination
Years. For purposes of this paragraph (A), the Executive's
"Annual Percentage" for each Determination Year means a
fraction (expressed as a percentage), the numerator of which
is the EIP award earned by the Executive for such
Determination Year, and the denominator of which is the annual
value of the normal payment under the EIP for the Executive's
salary level (such annual value and normal payment being those
that were in effect under the EIP for such Determination Year
for the Executive's salary level for such Determination Year).
For purposes of this paragraph (A), a "Determination Year"
means each of the last three EIP plan years ending before the
date on which the Change in Control occurs (or, if less, the
number of those three plan years during which the Executive
was a participant in the EIP); or

(B) the sum of (I) the Executive's base annual
salary immediately before the Qualifying Termination plus (II)
the Executive's Average Percentage of the annual value (i.e.,
the dollar amount) of the normal payment under the EIP for the
Executive's salary level (such annual value and normal
payment being those that are in effect under the EIP
immediately before the date on which the Qualifying
Termination occurs for the Executive's salary level
immediately before the date on which the Qualifying
Termination occurs). For purposes of this paragraph (B), the
Executive's "Average Percentage" means the average of the
Executive's Annual Percentages for the Determination Years.
For purposes of this paragraph (B), the Executive's "Annual
Percentage" for each Determination Year means a fraction
(expressed as a percentage), the numerator of which is the EIP
award earned by the Executive for such Determination Year, and
the denominator of which is the annual value of the normal
payment under the EIP for the Executive's salary level (such
annual value and normal payment being those that were in
effect under the EIP for such Determination Year for the
Executive's salary level for such Determination Year). For
purposes of this paragraph (B), a "Determination Year" means
each of the last three EIP plan years ending before the date
on which the Qualifying Termination occurs (or, if less, the
number of those three plan years during which the Executive
was a participant in the EIP).

(b) The Company shall make the payment to the Executive pursuant
to subsection (a) of this Section 2.1 in a lump sum within 30
days of the Qualifying Termination.

Section 2.2. Insurance. If the Executive incurs a Qualifying
Termination, the Company shall provide the Executive, at the Company's expense,
for a period beginning on the date of the Qualifying Termination, the same
medical insurance and life insurance coverage as was in effect immediately
before the Change in Control (or, if greater, as in effect immediately before
the Qualifying Termination occurs); such coverage shall end upon the earlier of
(a) the expiration of 24 months after the Qualifying Termination or (b)(i) with
respect to medical insurance coverage, the date on which the Executive first
becomes eligible for medical insurance coverage provided by a firm that employs
him following the Qualifying Termination, or (ii) with respect to life
insurance coverage, the date on which the Executive first becomes eligible for
life insurance coverage provided by such firm.
<PAGE> 6
Section 2.3. Outplacement Counseling. If the Executive incurs a
Qualifying Termination, the Company shall make available to the Executive, at
the Company's expense, outplacement counseling that is at least equivalent to
the outplacement counseling that the Company provided to its terminated senior
executives during 1995. Subject to the foregoing, the Executive may select
the organization that will provide the outplacement counseling; provided, that
this sentence shall not require the Company to provide the Executive with
outplacement counseling that is more costly to the Company than the
outplacement counseling that this Section 2.3 otherwise requires the Company to
provide to the Executive.

Section 2.4. Financial Counseling. If the Executive incurs a
Qualifying Termination, the Company shall, within 30 days of the Qualifying
Termination, make available to the Executive three individual financial
counseling sessions, of at least two hours each and at times and locations that
are convenient to the Executive, with a nationally recognized financial
counseling firm. At the financial counseling sessions, the financial
counseling firm shall provide the Executive with detailed financial advice that
is tailored to the Executive's particular personal and financial situation.
The Company shall specify to the Executive the information regarding his
personal and financial situation that he must provide to the financial
counseling firm in order for the firm to provide the counseling services
required by this Section 2.4. The Company shall take all reasonable and
appropriate measures to assure that the financial counseling firm preserves the
confidentiality of all information conveyed by the Executive to the counseling
firm.

Section 2.5. Benefit Credit. If the Executive incurs a Qualifying
Termination,

(a) the Executive shall receive service credit, for the purpose of
receiving benefits and for vesting, retirement eligibility,
benefit accrual, and all other purposes, under all employee
benefit plans sponsored by the Company (including, but not
limited to, health, life insurance, pension, savings, stock,
and stock ownership plans, but excluding the Company's
short-term and long-term disability plans) in which he
participated immediately before the Change in Control, for 24
months;

(b) for purposes of determining the Executive's benefits under all
defined benefit pension plans maintained by the Company,
including the GTE Service Corporation Supplemental Executive
Retirement Plan ("SERP"), the Executive's compensation shall
include the amount payable to the Executive pursuant to
Section 2.1 hereof, and for purposes of this subsection (b),
the Executive shall be deemed to have received such amount in
monthly installments, each equal to 1/24th of the amount
payable to the Executive pursuant to Section 2.1 hereof; and

(c) the Executive shall be considered to have not less than 76
points and 15 years of Accredited Service for purposes of
determining his eligibility for early retirement benefits
under the Company's defined benefit pension plans (including,
but not limited to, the SERP) and for purposes of determining
his eligibility for benefits under the GTE Executive Retired
Life Insurance Plan (or any predecessor or successor thereto).

Notwithstanding the service credit granted under subsection (a) of this
Section 2.5 and the compensation recognized under subsection (b) of this
Section 2.5, nothing in this Section 2.5 shall prevent the Executive from
receiving any benefits to which the Executive is entitled under any defined
benefit or defined contribution pension plan maintained by the Company,
including the SERP (as such benefits are modified by this Agreement) in any
form permitted by such plans (including but not limited to a lump-sum
distribution) immediately following the Executive's Qualifying Termination. To
the extent that the Company's tax-qualified retirement plans cannot provide the
benefits specified by this Section 2.5 without jeopardizing the tax
qualification of such plans, the Company shall provide such benefits under the
SERP.

Section 2.6. Nonduplication.

(a) Nothing in this Agreement shall require the Company to make
any payment or to provide any benefit or service credit that
GTE or the Company is otherwise required to provide under any
other contract, agreement, policy, plan, or arrangement.

Section 2.7. Prior Agreement. This Agreement supersedes any prior
Executive Severance Agreement entered into between the Company and the
Executive ("Prior Agreement"). On and after the date of this Agreement, such
Prior Agreement shall have no force or effect.
<PAGE> 7

ARTICLE III

EFFECT ON HUMAN RESOURCES POLICY 104

Section 3.1. Effect on Policy 104. If the Executive becomes
entitled to receive benefits hereunder, the Executive shall not be entitled to
any benefits under GTE Human Resources Policy 104, as amended from time to
time, or any successor policy, or under any other Company severance or salary
continuation policy (including but not limited to any benefits pursuant to an
involuntary separation program or similar program maintained under a pension
plan sponsored by the Company).

ARTICLE IV

TAX MATTERS

Section 4.1. Withholding. The Company may withhold from any
amounts payable to the Executive hereunder all federal, state, city or other
taxes that the Company may reasonably determine are required to be withheld
pursuant to any applicable law or regulation.

ARTICLE V

COLLATERAL MATTERS

Section 5.1. Nature of Payments. All payments to the Executive
under this Agreement shall be considered either payments in consideration of
his continued service to the Company or severance payments in consideration of
his past services thereto.

Section 5.2. Legal Expenses. The Company shall pay all legal fees
and expenses that the Executive may incur as a result of the Company's
contesting the validity, the enforceability or the Executive's interpretation
of, or determinations under, this Agreement; provided, that this Section 5.2
shall be operative only if and to the extent that (a) the Company fails to
establish a trust that defrays all such legal fees and expenses or (b) the
Company establishes such a trust, but the trust fails to pay all such legal
fees and expenses.

Section 5.3. Mitigation. The Executive shall not be required to
mitigate the amount of any payment provided for in this Agreement either by
seeking other employment or otherwise. The amount of any payment provided for
herein shall not be reduced by any remuneration that the Executive may earn
from employment with another employer or otherwise following his Qualifying
Termination.

Section 5.4. Interest. If the Company fails to make, or cause to
be made, any payment provided for herein within 30 days of the date on which
the payment is due, the Company shall make such payment together with interest
thereon. The interest shall accrue and be compounded monthly. The interest
rate shall be equal to 120 percent of the prime rate as reported by The Wall
Street Journal for the first business day of each month, effective for the
ensuing month. The interest rate shall be adjusted at the beginning of each
month.

Section 5.5. Authority. The execution of this Agreement has been
authorized by the Board of Directors of the Company and by the Board of
Directors of GTE.

ARTICLE VI

GENERAL PROVISIONS

Section 6.1. Term of Agreement. This Agreement shall become
effective on the date hereof and shall continue in effect until the earliest of
(a) July 1, 1999, if no Change in Control has occurred before that date; (b)
the termination of the Executive's employment with the Company for any reason
prior to a Change in Control; (c) the Company's termination of the Executive's
employment for Cause, or the Executive's resignation for other than Good
<PAGE> 8
Reason, following a Change in Control and the Company's and the Executive's
fulfillment of all of their obligations hereunder; and (d) the expiration
following a Change in Control of two years and six months and the fulfillment
by the Company and the Executive of all of their obligations hereunder.
Notwithstanding the foregoing, commencing on July 1, 1999, and on July 1 of
each year thereafter, the expiration date prescribed by clause (a) of the
preceding sentence shall automatically be extended for an additional year
unless, not later than December 31 of the immediately preceding year, one of
the parties hereto shall have given notice to the other party hereto that it
(or he) does not wish to extend the term of this Agreement. Furthermore,
nothing in this Article VI shall cause this Agreement to terminate before both
the Company and the Executive have fulfilled all of their obligations
hereunder.

Section 6.2. Governing Law. Except as otherwise expressly
provided herein, this Agreement and the rights and obligations hereunder shall
be construed and enforced in accordance with the laws of the State of New York.

Section 6.3. Successors to the Company. This Agreement shall
inure to the benefit of and shall be binding upon and enforceable by the
Company and any successor thereto, including, without limitation, any
corporation or corporations acquiring directly or indirectly all or
substantially all of the business or assets of the Company, whether by merger,
consolidation, sale or otherwise, but shall not otherwise be assignable by the
Company. Without limitation of the foregoing sentence, the Company shall
require any successor (whether direct or indirect, by merger, consolidation,
sale or otherwise) to all or substantially all of the business or assets of the
Company, by agreement in form satisfactory to the Executive, expressly,
absolutely and unconditionally to assume and to agree to perform this Agreement
in the same manner and to the same extent as the Company would have been
required to perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as heretofore defined and any
successor to all or substantially all of its business or assets that executes
and delivers the agreement provided for in this Section 6.3 or that becomes
bound by this Agreement either pursuant to this Agreement or by operation of
law. As used in this Agreement, "GTE" shall mean GTE as heretofore defined and
any successor to all or substantially all of its business or assets.

Section 6.4. Noncorporate Entities. If any provision of this
Agreement refers to the board of directors of an entity that has no board of
directors, the reference to board of directors shall be deemed to refer to the
body, committee, or person that has duties and responsibilities with respect to
the entity that most closely approximate those of a board of directors of a
corporation.

Section 6.5. Successor to the Executive. This Agreement shall
inure to the benefit of and shall be binding upon and enforceable by the
Executive and his personal and legal representatives, executors,
administrators, heirs, distributees, legatees and, subject to Section 6.6
hereof, his designees ("Successors"). If the Executive should die while
amounts are or may be payable to him under this Agreement, references hereunder
to the "Executive" shall, where appropriate, be deemed to refer to his
Successors; provided, that nothing in this Section 6.5 shall supersede the
terms of any plan or arrangement (other than this Agreement) that is affected
by this Agreement.

Section 6.6. Nonalienability. No right of or amount payable to
the Executive under this Agreement shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, hypothecation,
encumbrance, charge, execution, attachment, levy or similar process or to
setoff against any obligations or to assignment by operation of law. Any
attempt, voluntary or involuntary, to effect any action specified in the
immediately preceding sentence shall be void. However, this Section 6.6 shall
not prohibit the Executive from designating one or more persons, on a form
satisfactory to the Company, to receive amounts payable to him under this
Agreement in the event that he should die before receiving them.

Section 6.7. Notices. All notices provided for in this Agreement
shall be in writing. Notices to the Company shall be deemed given when
personally delivered or sent by certified or registered mail or overnight
delivery service to GTE Service Corporation, One Stamford Forum, Stamford,
Connecticut 06904, Attention: Corporate Secretary. Notices to the Executive
shall be deemed given when personally delivered or sent by certified or
registered mail or overnight delivery service to the last address for the
Executive shown on the records of the Company. Either the Company or the
Executive may, by notice to the other, designate an address other than the
foregoing for the receipt of subsequent notices.

Section 6.8. Amendment. No amendment to this Agreement shall be
effective unless in writing and signed by both the Company and the Executive.

Section 6.9. Waivers. No waiver of any provision of this
Agreement shall be valid unless approved in writing by the party giving such
waiver. No waiver of a breach under any provision of this Agreement shall be
deemed to be a waiver of such provision or any other provision of this
Agreement or any subsequent breach. No failure on the part of either the
Company or the Executive to exercise, and no delay in exercising, any right or
remedy
<PAGE> 9

conferred by law or this Agreement shall operate as a waiver of such right or
remedy, and no exercise or waiver, in whole or in part, of any right or remedy
conferred by law or herein shall operate as a waiver of any other right or
remedy.

Section 6.10. Severability. If any provision of this Agreement
shall be held unlawful or otherwise invalid or unenforceable in whole or in
part, such unlawfulness, invalidity or unenforceability shall not affect any
other provision of this Agreement or part thereof, each of which shall remain
in full force and effect. If the making of any payment or the provision of any
other benefit required under this Agreement shall be held unlawful or otherwise
invalid or unenforceable, such unlawfulness, invalidity or unenforceability
shall not prevent any other payment or benefit from being made or provided
under this Agreement, and if the making of any payment in full or the provision
of any other benefit required under this Agreement in full would be unlawful or
otherwise invalid or unenforceable, then such unlawfulness, invalidity or
unenforceability shall not prevent such payment or benefit from being made or
provided in part, to the extent that it would not be unlawful, invalid or
unenforceable, and the maximum payment or benefit that would not be unlawful,
invalid or unenforceable shall be made or provided under this Agreement.

Section 6.11. Agents. The Company may make arrangements to cause
any agent or other party, including an affiliate of the Company, to make any
payment or to provide any benefit that the Company is required to make or to
provide hereunder; provided, that no such arrangement shall relieve or
discharge the Company of its obligations hereunder except to the extent that
such payments or benefits are actually made or provided.

Section 6.12. Definitions. All upper case terms used herein shall
have the meaning set forth in this Agreement.

Section 6.13. Captions. The captions to the respective articles
and sections of this Agreement are intended for convenience of reference only
and have no substantive significance.

Section 6.14. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original but all
of which together shall constitute a single instrument.

IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.

GTE SERVICE CORPORATION

By: J. Randall MacDonald
----------------------
J. Randall MacDonald
Senior VP-Human Resources
and Administration

By: Marianne Drost
----------------------
Marianne Drost
VP and Associate General
Counsel-Finance & Corporate
Secretary

<PAGE> 1

Exhibit 12

GTE Northwest Incorporated and Subsidiary

STATEMENTS OF THE CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
(Thousands of Dollars)

<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------------
1995 1994 1993(a) 1993 1992 1991
-------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net earnings available for
fixed charges:
Income before extraordinary charges $150,187 $118,649 $96,421 $14,330 $126,780 $109,171
Add - Income tax expense 77,217 58,159 56,193 5,581 66,586 44,106
- Fixed charges 60,382 56,089 61,955 61,955 58,319 64,067
-------- -------- -------- ------- -------- --------

Adjusted earnings: $287,786 $232,897 $214,569 $81,866 $251,685 $217,344
======== ======== ======== ======= ======== ========

Fixed charges:
Interest expense $56,292 $52,086 $58,185 $58,185 $54,352 $59,867
Portion of rent expense
representing interest 4,090 4,003 3,770 3,770 3,967 4,200
-------- -------- -------- ------- -------- --------

Adjusted fixed charges: $60,382 $56,089 $61,955 $61,955 $58,319 $64,067
======== ======== ======== ======= ======== ========

RATIO OF EARNINGS TO FIXED
CHARGES: 4.77 4.15 3.46 1.32 4.32 3.39

</TABLE>

(a) Results for 1993 exclude an after-tax restructuring charge of approximately
$77 million for the implementation of a re-engineering plan and a one-time
after-tax charge of approximately $5.1 million related to the enhanced early
retirement and voluntary separation programs offered to eligible employees in
1993.

<PAGE> 1

Exhibit 23

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation
of our report, dated January 24, 1996, on the consolidated financial statements
and supporting schedule and exhibit of GTE Northwest Incorporated and
subsidiary included in this Form 10-K, into the Registration Statement filed on
Form S-3 (File No. 33-52909).

ARTHUR ANDERSEN LLP

Dallas, Texas
March 26, 1996

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 16,310
<SECURITIES> 0
<RECEIVABLES> 226,738
<ALLOWANCES> 13,268
<INVENTORY> 11,882
<CURRENT-ASSETS> 262,965
<PP&E> 3,118,259
<DEPRECIATION> 1,924,141
<TOTAL-ASSETS> 1,507,762
<CURRENT-LIABILITIES> 345,313
<BONDS> 684,017
<COMMON> 448,000
0
0
<OTHER-SE> (40,913)
<TOTAL-LIABILITY-AND-EQUITY> 1,507,762
<SALES> 1,021,420
<TOTAL-REVENUES> 1,021,420
<CGS> 367,072
<TOTAL-COSTS> 739,616
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54,400
<INCOME-PRETAX> 227,404
<INCOME-TAX> 77,217
<INCOME-CONTINUING> 150,187
<DISCONTINUED> 0
<EXTRAORDINARY> 581,167
<CHANGES> 0
<NET-INCOME> (430,980)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0

</TABLE>