GTE SOUTH INC, 10-Q, 1995-10-31

GTE SOUTH INC
10-Q, 1995-10-31
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)

Previous: GTE NORTHWEST INC, 10-Q, 1995-10-31

Next: GENUINE PARTS CO, 10-Q, 1995-10-31

<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

For the period ended September 30, 1995
-----------------------------------------------------------

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

For the transition period from to
-------------- --------------------------------

Commission File Number: 2-36292
--------------------------------------------------------

GTE SOUTH INCORPORATED
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

VIRGINIA 56-0656680
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I. R. S. Employer
Incorporation or organization) Identification No.)

600 Hidden Ridge, HQE04B12 - Irving, Texas 75038
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)

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

- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)

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
----- -----

The Company had 21,000,000 shares of $25 par value common stock outstanding at
September 30, 1995. The Company's common stock is 100% owned by GTE
Corporation.
<PAGE> 2
PART I. FINANCIAL INFORMATION

GTE SOUTH INCORPORATED

CONDENSED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- --------------------------
1995 1994 1995 1994
-------- -------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Operating revenues:
Local network services $129,303 $118,773 $375,603 $351,697
Network access services 126,622 115,637 368,794 359,203
Long distance services 39,030 35,110 113,170 90,035
Equipment sales and services 23,837 19,949 64,772 56,276
Other 14,257 13,905 44,457 54,354
-------- -------- -------- --------
333,049 303,374 966,796 911,565
-------- -------- -------- --------

Operating expenses:
Cost of sales and services 123,396 127,149 351,576 383,524
Depreciation and amortization 68,967 66,160 206,429 197,692
Selling, general and administrative 42,797 51,833 124,319 137,980
-------- -------- -------- --------

235,160 245,142 682,324 719,196
-------- -------- -------- --------

Net operating income 97,889 58,232 284,472 192,369
-------- -------- -------- --------

Other (income) deductions:
Interest expense - net 14,408 15,266 44,164 43,554
Other - net (20,000) 247 (20,000) 4,200
-------- -------- -------- --------

Income before income taxes 103,481 42,719 260,308 144,615

Income taxes 39,543 15,960 99,419 54,102
-------- -------- -------- --------

Net income $ 63,938 $ 26,759 $160,889 $ 90,513
======== ======== ======== ========
</TABLE>

Per share data is omitted since the Company's common stock is 100% owned by GTE
Corporation (GTE).

See Notes to Condensed Financial Statements.

1
<PAGE> 3
GTE SOUTH INCORPORATED

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

(DOLLARS IN MILLIONS)

RESULTS OF OPERATIONS

Net income increased $37.1 and $70.4 for the three and nine months ended
September 30, 1995, respectively, compared to the same periods in 1994. These
increases are primarily due to the reversal of $20.0 of expired representation
and warranty reserves, continued customer growth, lower operating expenses,
and $4.2 of fees associated with the early retirement of debt recorded in 1994,
partially offset by higher depreciation costs.

OPERATING REVENUES

<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Local network services $ 129.3 $ 118.8 $ 375.6 $ 351.7
Network access services 126.6 115.6 368.8 359.2
Long distance services 39.0 35.1 113.2 90.0
Equipment sales & services 23.8 20.0 64.8 56.3
Other 14.3 13.9 44.4 54.4
-------- -------- -------- --------

Total operating revenues $ 333.0 $ 303.4 $ 966.8 $ 911.6
</TABLE>

Operating revenues increased 10% or $29.6 and 6% or $55.2 for the three and
nine months ended September 30, 1995, respectively, compared to the same
periods in 1994.

Local network services revenues increased 9% or $10.5 and 7% or $23.9 for the
three and nine months ended September 30, 1995, respectively, compared to the
same periods in 1994. The number of access lines increased 5% for the three
and nine months ended September 30, 1995, compared to the same periods in 1994.
This growth generated additional revenues of $4.8 and $13.4, respectively. The
three and nine month increases are also due to a $1.9 and $5.1 growth in
revenues from enhanced custom calling features and a $1.0 and $1.9 growth in
sales of Centranet (trademark) services.

Network access services revenues increased 10% or $11.0 and 3% or $9.6 for the
three and nine months ended September 30, 1995, compared to the same periods in
1994. The three and nine month increases are primarily due to an 8% and 7%
increase in minutes of use, which generated additional revenues of $5.7 and
$15.0, respectively. The three and nine month increases are also due to a $1.1
and $1.8 increase in end user access charge revenues, respectively, and a $2.1
increase in Universal Service Fund support in the third quarter of 1995. These
increases are partially offset by a $1.2 and $3.6 reduction in interstate
access revenues associated with affiliate audit price changes for the three and

2
<PAGE> 4
GTE SOUTH INCORPORATED

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)

nine months ended September 30, 1995, respectively, compared to the same
periods in 1994, and $1.2 of unfavorable carrier settlements recorded in the
third quarter of 1995. The year-to-date increase is also offset by a $1.9
decrease in intraLATA activity related to the Company's transition to an
Originating Responsibility Plan (ORP) in North Carolina and South Carolina,
effective January 1, 1994, and in Kentucky, effective March 1, 1994. The
negative impact on network access revenues is offset by increases in long
distance revenues, increases in access charge payments and a transitional
support payment received by the Company for a portion of the net revenue loss
between the ORP and the access-based pooling arrangement. The support payments
will phase out in the next few years. The transitional support payment
revenues were recorded as network access revenues during the first eight months
of 1994. In the third quarter of 1994, a $3.5 reclassification was made to
reflect the transitional support payments as long distance revenues, causing an
increase in network access revenues in the third quarter of 1995. The
year-to-date increase is also offset by a $4.7 decrease in revenues related to
a revised estimate of shareable earnings recorded in the second quarter of
1995.

Long distance services revenues increased 11% or $3.9 and 26% or $23.2 for the
three and nine months ended September 30, 1995, respectively, compared to the
same periods in 1994. The three and nine month increases are primarily due to
$9.2 and $12.5 of favorable toll settlements. The three month increase is
partially offset by a decrease of $3.5 related to the reclassification of
transitional support payments made in the third quarter of 1994, as mentioned
above, and an additional decrease of $1.3 for the September 1994 transitional
support payment recorded as long distance services revenues. The year-to-date
increase is also due to a $10.7 increase in toll activity related to the
transition to the ORP, as mentioned above.

Equipment sales and services revenues increased 19% or $3.8 and 15% or $8.5 for
the three and nine months ended September 30, 1995, respectively, compared to
the same periods in 1994. These increases are primarily due to $3.9 and $6.7
increases in revenues derived from sales of Lineskeeper (trademark) service, a
protection service for inside wiring.

Other operating revenues increased 3% or less than $1.0 for the three months
and decreased 18% or $10.0 for the nine months ended September 30, 1995,
respectively, compared to the same periods in 1994. The nine month decrease is
primarily due to a $3.5 decrease in rent revenues and a $1.8 decrease in
billing and collection revenues, both of which are related to the transition to
the ORP mentioned above. Also contributing to the nine month decrease is a
$3.4 decrease in directory advertising revenue due to lower directory sales and
timing of directory publications and a $3.9 decrease in billing and collection
revenues, partially offset by a $1.9 decrease in the provision for
uncollectibles.

OPERATING EXPENSES

Operating expenses decreased 4% or $9.9 and 5% or $36.9 for the three and nine
months ended September 30, 1995, respectively, compared to the same periods in
1994. These decreases are primarily the result of lower cost of sales and
services and selling, general and administrative costs, reflecting the
favorable effects of ongoing cost-reduction programs from process
re-engineering activities, partially offset by higher depreciation costs.

3
<PAGE> 5
GTE SOUTH INCORPORATED

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)

The three and nine month decreases, respectively, are primarily due to a $3.3
and $23.4 decrease in labor and benefit costs. The Company is consolidating
its operator services into a new facility in Lexington, Kentucky, which
provides services for both the Company and an affiliate. Costs incurred by the
facility are shared by the Company and the participating affiliate. These
operator services were previously provided on a contractual basis. The three
and nine month decreases are also due to $12.9 of nonrecurring unfavorable
settlement activities recorded in the third quarter of 1994. The year-to-date
decrease is also due to a $6.4 decrease in charges related to unbillable
calling card calls and a $1.9 settlement gain recorded in the second quarter of
1995 which resulted from lump-sum payments from the Company's pension plan.
The three and nine month decreases are partially offset by a $2.8 and $8.7
increase in depreciation costs, respectively, primarily related to higher plant
balances and rate changes in Kentucky and North Carolina effective in June
1994. The three month decrease is also offset by increased costs of $3.4 for
digital switching software fees and $2.9 of increased contractor costs. The
year-to-date decrease is also offset by an $8.6 increase for payments of access
charges under the ORP, as mentioned above, to other local exchange carriers
(LECs) for intraLATA toll calls that are originated by the Company and
terminated by another LEC.

OTHER (INCOME) DEDUCTIONS

Other - net income increased $20.2 and $24.2 for the three and nine months
ended September 30, 1995, respectively, compared to the same periods in 1994.
These increases are primarily due to the reversal of expired representation and
warranty reserves related to certain 1993 property dispositions. The
increases are also due to fees associated with the early retirement of debt
recorded in the second and third quarters of 1994.

Income taxes increased $23.5 and $45.3 for the three and nine months ended
September 30, 1995, respectively, compared to the same periods in 1994. These
increases are primarily due to corresponding increases in pretax income.

CAPITAL RESOURCES AND LIQUIDITY

Management believes that the Company has adequate internal and external
resources available to meet ongoing operating requirements for construction of
new plant, modernization of facilities and payment of dividends. The Company
generally funds its construction program from operations, although external
financing is available. Short-term borrowings can be obtained through
commercial paper borrowings or borrowings from GTE. In addition, at September
30, 1995, a $3,490 line of credit was available to the Company through shared
lines of credit with GTE and other affiliates to support short- term financing
needs.

The Company's primary source of funds during the first nine months of 1995 was
cash from operations of $310.4 compared to $131.0 for the same period in 1994.
The year-to-year increase in cash from operations is primarily the result of
$170.7 in tax payments made in the first quarter of 1994, related to the
disposition of nonstrategic properties in late 1993, as well as improved
results from operations. These increases are partially offset by an increase
in working capital. Cash from operations is also being utilized to fund the
Company's re-engineering plan.

4
<PAGE> 6
GTE SOUTH INCORPORATED

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)

The Company's capital expenditures during the first nine months of 1995 were
$175.0 compared to $184.0 for the same period in 1994. The 1995 expenditures
reflect the Company's continued growth in access lines and modernization of
current facilities and introduction of new products and services, including
broadband digital services and switched digital services. The Company
anticipates construction costs for 1995 to approximate capital expenditures of
$287.5 incurred during 1994.

Cash used in financing activities was $125.4 during the first nine months of
1995 compared to cash provided for the same period in 1994 of $48.2. The
Company received $366.1 in 1994 from the collection of an affiliate note
receivable related to the 1993 sale of properties and used the proceeds to fund
dividend payments of $363.4 to GTE compared to dividend payments of $61.3
during the first nine months of 1995. The Company also retired affiliate notes
payable of $89.3 during the first nine months of 1994. The Company retired
$57.6 of long-term debt and preferred stock in the first nine months of 1995
compared to $72.2 for the same period in 1994. The Company issued $148.2 of
long-term debt in the first nine months of 1994. The Company decreased its
borrowings of commercial paper by $6.4 in the first nine months of 1995
compared to an increase of $58.7 for the same period in 1994.

OTHER MATTERS

As previously reported, results for 1993 included a one-time pretax
restructuring charge of $163.0, which reduced net income by $100.4, 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.

Implementation of the re-engineering plan began during 1994 and is expected to
be completed by the end of 1996. Expenditures of $76.1 have been made since
inception of the re-engineering plan, including $41.0 during the first nine
months of 1995. These expenditures were primarily associated with the
consolidation of customer contact, network operations and operator service
centers, separation benefits associated with workforce reductions and
incremental expenditures to redesign and streamline processes. There have been
no significant changes made to the overall re- engineering plan as originally
reported. As of September 30, 1995, $86.9 remains in the restructuring reserve
which management believes is adequate to cover future expenditures.

In March 1995, the Federal Communications Commission (FCC) adopted interim
rules to be utilized by local exchange carriers (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 a 5.3% productivity factor, with no sharing
required, in each of its tariff entities for use in the 1995-1996 tariff year.
Under the interim rules, the Company filed tariffs to reduce rates by $10.2
annually, effective August 1, 1995. 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 regulation of
local exchange carriers' 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.

Federal telecommunications legislation has been passed by both the Senate and
House of Representatives. The bills must now be reconciled by the joint
Senate/House conference committee.

5
<PAGE> 7
GTE SOUTH INCORPORATED

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)

In April 1995, GTE filed a motion with the U.S. District Court for the District
of Columbia to remove the 1984 Consent Decree, which restricts the manner in
which the Company can provide interLATA services. GTE believes that the
Consent Decree is no longer required since GTE has since divested its interests
in the entities whose purchase gave rise to the Consent Decree.

In May 1995, the FCC approved GTE's applications to construct a new fiber optic
and coaxial-cable video network in four markets, including Manassas, Virginia.
GTE expects to submit tariffs that set the rates for use of its video network
to the FCC for approval at some future date.

On February 23, 1995, new legislation was enacted in Virginia which will allow
local exchange competition, effective January 1, 1996. This statute requires
that firms desiring to compete in the local marketplace must be certified by
the VSCC. Upon granting a certificate to a new entrant, the VSCC must adopt a
form of regulation for the incumbent and new entrant which does not regulate
the earnings of either party. On June 9, 1995, the Company filed a rate case
application with the VSCC seeking to restructure and rebalance its prices in
Virginia in anticipation of this local competition and the VSCC's impending
approval of intraLATA toll competition. In this filing, the Company has
proposed a revenue neutral rate design. The proposed rate design reduces toll
and access charges and includes a restructuring of the basic local exchange
pricing. The Company has also proposed bringing the business and residential
prices closer together. In addition, the separate GTE and Contel tariffs will
be merged, eliminating the VSCC's current requirement that GTE's and Contel's
earnings be regulated separately. Evidentiary hearings regarding this
application will be held in March 1996 and a final VSCC decision is expected in
the second quarter of 1996. The effect on future revenues is unknown at this
time.

On July 24, 1995, the VSCC issued an order allowing intraLATA toll competition,
on a 10XXX basis only, effective October 1, 1995. All interexchange carriers
with existing interLATA toll certificates were authorized to provide intraLATA
10XXX service as of that date. This order also determines that intraLATA 1+
calling should remain exclusively with the LECs, primarily based on the fact
that the Company and Bell Atlantic continue to be prohibited from entering the
interLATA market. The ultimate effect on total revenue is dependent, in part,
on the extent that 10XXX is utilized. The potential negative impact on toll
revenues will be partially offset by increased network access services
revenues.

On April 6, 1995, similar local competition and regulatory reform legislation
was enacted in North Carolina. The North Carolina Utilities Commission (NCUC)
can authorize local exchange competition, effective July 1, 1996 or sooner if a
price regulation plan has been approved for the Company. The revenue impact is
dependent upon the specific price regulation plan expected to be approved by
the NCUC for the Company in the second quarter of 1996 and the extent to which
local exchange competition develops in the Company's serving territory.

On September 20, 1995, the Alabama Public Service Commission (APSC) adopted a
mandatory price regulation plan for South Central Bell (SCB), and an optional
price regulation plan for the other LECs, including the Company. The Company
and other LECs have until December 19, 1995 to indicate their intention to
participate. This plan includes no earnings limitations. Basic local exchange
rates are capped at their present level for five years, and thereafter are
adjusted in accordance with a formula utilizing an inflation factor ( measured
by GDP-PI) less 1.0%. Intrastate access prices must be reduced by the plan
participants. The Company, if it elects to participate, would be required to
reduce access charges by $5.2 over the 1996 - 1998 time period. This order
also authorizes the introduction of local exchange competition in Alabama. The
APSC can allow new competitors in SCB's service territory beginning
immediately. The Company and the other LECs will have a three year grace
period from competition in their service territories.

6
<PAGE> 8
GTE SOUTH INCORPORATED

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)

REGULATORY ACCOUNTING

The Company follows the accounting for regulated enterprises prescribed by
Statement of Financial Accounting Standards No. 71, "Accounting for the Effects
of Certain Types of Regulation" (FAS 71). In general, FAS 71 requires
companies to depreciate plant and equipment over lives approved by regulators
which may extend beyond the assets' actual economic life. FAS 71 also requires
deferral of certain costs based upon approvals received from regulators to
recover such costs in the future. Consequently, the carrying value of certain
assets and liabilities, primarily telephone plant and equipment, may be greater
than that which would otherwise be recorded by unregulated enterprises.

In connection with an ongoing review of the continued applicability of FAS 71,
the Company has commenced a study of the economic lives of its telephone plant
and equipment. The study is expected to be completed by the end of the fourth
quarter of 1995. If the Company were to discontinue the application of FAS 71
and compute the effect on its telephone plant and equipment in a manner similar
to the seven Regional Bell Operating Companies which have discontinued FAS 71,
the after-tax charge resulting from the reduction in carrying value of the
Company's property, plant and equipment, which would be non-cash in nature, is
estimated to be between $400 and $550. This potential accounting charge will
have no effect on the Company's customers or its liquidity and capital
resources. Management expects that such a charge, which would be recorded
primarily as a reduction of the net book value of the fixed assets of the
Company, would not significantly affect depreciation expense on existing plant
and equipment in the near future.

7
<PAGE> 9
GTE SOUTH INCORPORATED

CONDENSED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
(Thousands of Dollars)
<S> <C> <C>
Current assets:
Cash $ 16,615 $ 6,549
Receivables, less allowances of $18,356 and
$24,090, respectively 173,316 221,195
Materials and supplies 23,132 14,461
Deferred income tax benefits 20,567 26,896
Prepayments and other 17,748 7,617
------------ ------------
Total current assets 251,378 276,718
------------ ------------

Property, plant and equipment:
Original cost 3,928,529 3,821,365
Accumulated depreciation (1,552,368) (1,418,438)
------------ ------------
Net property, plant and equipment 2,376,161 2,402,927
------------ ------------

Prepaid pension costs 76,941 58,168
------------ ------------

Other assets 30,144 24,315
------------ ------------

Total assets $ 2,734,624 $ 2,762,128
============ ============
</TABLE>

See Notes to Condensed Financial Statements.

8
<PAGE> 10
GTE SOUTH INCORPORATED

CONDENSED BALANCE SHEETS

LIABILITIES AND SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
(Thousands of Dollars)
<S> <C> <C>
Current liabilities:
Short-term debt, including current maturities $ 108,370 $ 171,022
Accounts payable 87,940 109,442
Accrued taxes 59,917 53,351
Accrued payroll and vacations 31,034 34,036
Accrued dividends 56,969 290
Accrued interest 12,119 12,286
Accrued restructuring costs and other 127,769 154,533
------------ ------------
Total current liabilities 484,118 534,960
------------ ------------

Long-term debt 593,374 594,187
------------ ------------

Reserves and deferred credits:
Deferred income taxes 376,033 370,217
Employee benefit obligations 130,881 106,779
Restructuring costs and other 73,894 122,281
------------ ------------
Total reserves and deferred credits 580,808 599,277
------------ ------------

Preferred stock, subject to mandatory redemption 2,757 3,026
------------ ------------

Shareholders' equity:
Preferred stock 412 412
Common stock 525,000 525,000
Other capital 58,320 58,310
Reinvested earnings 489,835 446,956
------------ ------------
Total shareholders' equity 1,073,567 1,030,678
------------ ------------

Total liabilities and shareholders's equity $ 2,734,624 $ 2,762,128
============ ============
</TABLE>

See Notes to Condensed Financial Statements.

9
<PAGE> 11
GTE SOUTH INCORPORATED

CONDENSED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------------
1995 1994
------------ ------------
(Thousands of Dollars)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 160,889 $ 90,513
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 206,429 197,692
Deferred income taxes 11,867 (29,206)
Provision for uncollectible accounts 14,845 15,123
Tax payments on disposition - - (170,684)
Changes in current assets and current liabilities (47,085) 34,283
Other - net (36,534) (6,735)
------------ ------------
Net cash from operating activities 310,411 130,986
------------ ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (174,980) (184,027)
Other - net - - 10
------------ ------------
Net cash used in investing activities (174,980) (184,017)
------------ ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt issued - - 148,248
Long-term debt and preferred stock retired (57,634) (72,175)
Dividends paid to shareholders (61,331) (363,400)
Net change in affiliate notes - - 276,821
Increased (decrease) in short-term debt (6,400) 58,712
------------ ------------
Net cash from (used in) financing activities (125,365) 48,206
------------ ------------

Increased (decrease) in cash 10,066 (4,825)

Cash at beginning of period 6,549 17,810
------------ ------------

Cash at end of period $ 16,615 $ 12,985
============ ============
</TABLE>

See Notes to Condensed Financial Statements.

10
<PAGE> 12
GTE SOUTH INCORPORATED

NOTES TO CONDENSED FINANCIAL STATEMENTS

(DOLLARS IN MILLIONS)

(1) The unaudited condensed financial statements included herein have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. However, in the opinion of management of the Company, the
condensed financial statements include all adjustments, which consist only of
normal recurring accruals, necessary to present fairly the financial
information for such periods. These condensed financial statements should be
read in conjunction with the financial statements and the notes thereto
included in the Company's 1994 Annual Report on Form 10- K.

(2) The Company follows the accounting for regulated enterprises prescribed
by Statement of Financial Accounting Standards No. 71, "Accounting for the
Effects of Certain Types of Regulation" (FAS 71). In general, FAS 71 requires
companies to depreciate plant and equipment over lives approved by regulators
which may extend beyond the assets' actual economic life. FAS 71 also requires
deferral of certain costs based upon approvals received from regulators to
recover such costs in the future. Consequently, the carrying value of certain
assets and liabilities, primarily telephone plant and equipment, may be greater
than that which would otherwise be recorded by unregulated enterprises.

(3) Reclassifications of prior year data have been made in the financial
statements where appropriate to conform to the 1995 presentation.

11
<PAGE> 13
GTE SOUTH INCORPORATED

PART II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits required by Item 601 of Regulation S-K.

(3-1) Amended By-Laws (Exhibit 3-1 of the September 30,
1995 Form 10-Q, File No. 2-36292).

(12) Statements of Ratio of Earnings to Fixed Charges.

(27) Financial Data Schedule.

(b) GTE South Incorporated filed a report on Form 8-K dated
September 28, 1995 on October 2, 1995, under Item 5 "Other Events". No
financial statements were filed with this report.

12
<PAGE> 14
SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.

GTE SOUTH INCORPORATED
(Registrant)

Date:October 31, 1995 William M. Edwards, III
---------------------------
William M. Edwards, III
Controller
(Chief Accounting Officer)

13
<PAGE> 15
EXHIBIT INDEX

Exhibit
Number Description
- ------- -----------
(3-1) Amended By-Laws (Exhibit 3-1 of the September 30, 1995 Form 10-Q,
File No. 2-36292).

(12) Statements of Ratio of Earnings to Fixed Charges.

(27) Financial Data Schedule.

<PAGE> 1
Exhibit 3-1

Bylaws of

GTE South Incorporated

___________

Incorporated Under the Laws of

The Commonwealth of Virginia

(1947)

Adopted: April 16, 1956
Amended: October 23, 1958
January 30, 1959
May 24, 1967
May 25, 1972
March 15, 1973
April 7, 1976
May 27, 1981
December 18, 1985
December 31, 1985
January 1, 1988
October 26, 1989
May 12, 1991
December 29, 1993
September 20, 1995
<PAGE> 2
GTE South Incorporated

Table of Contents

<TABLE>
<S> <C> <C>
ARTICLE I

Definitions, Etc.

Section 1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

ARTICLE II
Meetings of Stockholders

Section 2. Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 3. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 4. Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 5. Notice of Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 6. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 7. Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 8. Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 9. List of Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 10. Action Without A Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

ARTICLE III
Board of Directors

Section 11. General Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 12. Number, Election and Term of Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 13. Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 14. Place of Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 15. Notice of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 16. Quorum and Manner of Acting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 17. Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 18. Action Without a Meeting of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 19. Resignations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 20. Removal of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 21. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 22. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 23. Executive or Special Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE IV
Officers

Section 24. Election, Term of Office and Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 25. Other Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 26. Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 27. Resignations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 28. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 29. President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 30. Vice Presidents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 31. Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 32. Assistant Secretaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 33. Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 34. Assistant Treasurers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 35. Controller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 36. Assistant Controllers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 37. Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

ARTICLE V
Execution of Instruments, Etc.

Section 38. Contracts, Etc., How Executed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 39. Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 40. Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 41. Checks, Drafts, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 42. Sale or Transfer of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

ARTICLE VI
Shares and Their Transfer: Books

Section 43. Certificates of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 44. Transfer Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 45. Closing of Transfer Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 46. Lost and Destroyed Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 47. Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 48. Place of Keeping Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
<PAGE> 4

<TABLE>
<S> <C> <C> <C>
ARTICLE VII
Notice

Section 49. Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

ARTICLE VIII
Miscellaneous
Section 50. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 51. Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 52. Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

ARTICLE IX
Amendments

Section 53. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
<PAGE> 5
GTE SOUTH INCORPORATED

BY-LAWS

ARTICLE I

Definitions, Etc.

SECTION 1. In these By-Laws, and for all purposes hereof, unless
there be something in the subject or context inconsistent therewith:

(a) "Charter" shall mean the Articles of Association of the
Corporation as from time to time amended.

(b) "Board" shall mean the Board of Directors of the
Corporation.

(c) Whenever reference is made to a stockholder or
stockholders attending or being present at a meeting, such reference
shall be deemed to include a stockholder or stockholders present or
attending in person or by proxy appointment by instrument in writing
and subscribed by such stockholder or stockholders or by his or their
attorney or attorneys thereunto authorized; and, whenever reference is
made to voting or other action by any stockholder at or in connection
with any such meeting, such reference shall be deemed to include
voting or taking such action in person or by such proxy. No proxy
shall be voted after three years from its date, unless the proxy
provides for a longer period.

(d) All references herein in Articles and Sections are to the
corresponding Article and Sections of these By-Laws; and the words
"herein," "hereof," "hereby,"
<PAGE> 6
and "hereunder," and other equivalent words, refer to these By-Laws
and not to any particular subdivision hereof.

ARTICLE II
Meetings of Stockholders

SECTION 2. Annual Meeting. The annual meeting of stockholders for the
election of directors and for the transaction of such other business as may
properly come before said meeting is set for the fourth Thursday in May in each
year at 9:00 o'clock A.M., local time, but if such Thursday be a legal holiday
under the laws of the State where such meeting is held, then at the same hour
on the next succeeding day not a holiday under the laws of said State. If the
election of directors shall not be held on the day designated herein therefor,
the Board shall cause the election to be held as soon thereafter as
conveniently may be.

As an alternative to the foregoing, the annual meeting of stockholders
for the election of directors and for the transaction of other business as may
properly come before said meeting may be held on such date and at such time as
the shareholder shall fix by written consent and which shall be at least
annually. In such written consent, the shareholder shall be entitled to elect
the directors for the forthcoming year who shall serve until the election of
their successors.

SECTION 3. Special Meetings. A special meeting of stockholders may be
called at any time by the President or by resolution of the Board or a
stockholder or stockholders
<PAGE> 7
holding of record at least 10% of the total number of shares of capital stock
of the Corporation at the time outstanding and entitled to vote at such
meeting.

SECTION 4. Place of Meetings. All meetings of the stockholders shall
be held at the principal office of the Corporation in Durham, Durham County,
North Carolina, or at such other place as may be established by the Board of
Directors in the notice of the meeting.

SECTION 5. Notice of Meeting. Notice of each meeting of stockholders
shall be given to each stockholder entitled to vote at such meeting, in the
manner provided by law, or may be given by mailing a written or printed notice
of such meeting to each such stockholder, or by delivering such notice to him
personally, at least 15 days before the day on which the meeting is to be held,
unless some other period shall be required by statute, and if mailed, such
notice shall be enclosed in a postage-prepaid envelope, addressed to each such
stockholder at his post office address as it appears on the stock books of the
Corporation, unless he shall have filed with the Secretary a written request
that notices intended for him be mailed to some other address, in which event
it shall be directed to the address so designated in such request. Failure to
give notice of any annual meeting or any irregularity in any notice thereof
shall not affect the validity of such annual meeting or of any proceedings at
such meeting. Except as otherwise expressly required by statute, no publication
of any notice of a meeting of stockholders shall be required. Every notice of a
special meeting of stockholders, besides stating the time and place of the
meeting,
<PAGE> 8
shall state briefly the purposes thereof. No notice of any adjourned meeting of
stockholders needs to be given, unless expressly required by statute.

SECTION 6. Quorum. Except as otherwise provided by statute or by the
Charter, at each meeting of stockholders, the holders of a majority in number
of the issued and outstanding shares of the Corporation having voting power,
shall be present to constitute a quorum for the transaction of business.
Whether or not there is a quorum at any meeting, the stockholders present and
entitled to cast a majority of the votes thereat may adjourn the meeting from
time to time. At any such adjourned meeting at which a quorum is present, any
business may be transacted which might have been transacted at the meeting as
originally called.

Shares of its own capital stock belonging to the Corporation shall not
be deemed issued and outstanding shares for the purpose of determining the
presence of a quorum at any meeting of stockholders.

SECTION 7. Organization. At every meeting of the stockholders, the
President or, in his absence, the ranking Vice President present, or, if
neither the President nor any Vice President be present, a Chairman chosen by
the stockholders present and entitled to cast a majority of the votes thereat,
shall act as Chairman. The Secretary of the Corporation shall act as secretary
of each meeting of the stockholders. In the absence at any such meeting of the
Secretary, the Chairman of such meeting shall appoint an Assistant Secretary,
or if none be present, some other person to act as secretary of the meeting.
<PAGE> 9
SECTION 8. Voting. Subject to the provisions of the Charter, at every
meeting of stockholders, each holder of record of stock present shall, in
respect of all questions upon which such stock shall have voting power, be
entitled to one vote for each share of stock of the Corporation held by him and
registered in his name on the books of the Corporation:

(a) at the close of business on the record date fixed as
provided in Section 45, or

(b) if no such record date shall have been fixed, then at the
date and time of the meeting as fixed in the notice or waiver of
notice pursuant to which such meeting is held.

Except where the transfer books of the Corporation shall have been
closed or a date shall have been fixed as a record date for the determination
of the stockholders entitled to vote, as hereinafter in Section 45 provided, no
share of stock shall be voted at any election for directors which shall have
been transferred on the books of the Corporation within 20 days next preceding
such election of directors.

Voting shall be by ballot whenever expressly required by statute and
whenever any qualified voter shall demand that any vote be by ballot. Each
ballot shall be signed by the stockholder voting, and shall state the number of
shares voted thereby.

Shares of its own capital stock belonging to the Corporation shall not
be voted directly or indirectly.

Except as otherwise provided by law or by the Charter or by Sections
12, 20 and 21, all matters which shall properly come before any meeting of
stockholders shall be decided by the affirmative vote of stockholders present
and entitled to cast a majority of the votes thereat, a quorum being present.
<PAGE> 10
Persons holding stock in a fiduciary capacity shall be entitled to
vote the shares so held, and persons whose stock is pledged shall be entitled
to vote, unless in the transfer by the pledgor on the books of the Corporation
he shall have expressly empowered the pledgee to vote thereon, in which case
only the pledgee and his proxy may represent said stock and vote thereon.

SECTION 9. List of Stockholders. It shall be the duty of the Secretary
or other officer who shall have charge of the stock ledger to prepare and make,
at least 10 days before every election of directors, a complete list of
stockholders entitled to vote at said election, arranged in alphabetical order.
Such list shall be open for said 10 days at the place where said election is to
be held, to the examination of any stockholder, and shall be produced and kept
at the time and place of the election during the whole time thereof, and
subject to the inspection of any stockholder who may be present. Upon the
willful neglect or refusal of the directors to produce such list at any
election they shall be ineligible to any office at such election. The original
or duplicate stock ledger shall be the only evidence as to who are stockholders
entitled to examine such list or the books of the Corporation or to vote at
such election.

SECTION 10. Action Without A Meeting. Action required or permitted to
be taken at a shareholders' meeting may be taken without a meeting and without
action by the Board of Directors if the action is taken by all the shareholders
entitled to vote on the action. The action shall 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
<PAGE> 11
to the secretary of the Corporation for inclusion in the minutes or filing with
the corporate records. Any action taken by unanimous written consent shall be
effective according to its terms when all consents are in possession of the
Corporation. A shareholder may withdraw consent only by delivering a written
notice of withdrawal to the Corporation prior to the time that all consents are
in the possession of the Corporation. Action taken under this section is
effective as of the date specified therein provided the consent states the date
of execution by each shareholder.

ARTICLE III
Board of Directors

SECTION 11. General Powers. The business of the Corporation, except as
otherwise expressly provided by law or by the Charter, shall be managed by the
Board.

SECTION 12. Number, Election and Term of Office. A Board of not less
than three directors shall be elected by a plurality of the votes at the annual
meeting of stockholders and each director shall hold office until the next
annual meeting of stockholders and until his successor shall have been elected
and qualified or until his death, resignation, disqualification or removal. No
director who shall have attained the age of 68 shall be eligible for reelection
as a director of the Corporation and no person who shall have attained the age
of 68 shall be eligible for election as a director of the Corporation. Any
officer of the Corporation who may be elected as a director of the Corporation
shall automatically cease to be a director upon his retirement or termination
of his employment
<PAGE> 12
for any reason as an officer of the Corporation. Directors need not be
stockholders, nor residents of Virginia.

SECTION 13. Meetings. The first regular meeting of the Board after the
annual meeting of stockholders each year, at which such Board shall have been
elected, may be held at such time and place as may be designated by the
President or by the Secretary or by an Assistant Secretary of the Corporation
for the purpose of organization and election of officers, and for the
transaction of such other business as may be required by law or by these
By-Laws or as may be designated by the Board. In case the President or
Secretary or an Assistant Secretary shall fail to call such meeting, it may be
called by any director and shall be held at the principal place of business of
the Corporation or such place as directed by the President or Secretary or
Assistant Secretary.

The Board by resolution may provide for the holding of other regular
meetings and may fix the time and place of holding such meetings.

Special meetings shall be held whenever called by the President, a
Vice President or the Secretary or an Assistant Secretary.

Unless the Charter provides otherwise, the Board of Directors may
permit any or all directors to participate in a regular or special meeting by,
or conduct the meeting through the use of, any means of communication by which
all directors participating may simultaneously hear each other during the
meeting. A director participating in a meeting by this means is deemed to be
present in person at the meeting.
<PAGE> 13
SECTION 14. Place of Meeting. The Board may hold its meetings at such
place or places, within or without the Commonwealth of Virginia, as the Board
from time to time may determine, or as may be designated in waivers of notice
thereof signed by all the directors.

SECTION 15. Notice of Meetings. Notice need not be given of any first
regular meeting of the Board, or of any other regular meeting of the Board, if
the time and place of holding such regular meeting is specified in a resolution
of the Board adopted and incorporated in the minutes of a meeting of the Board
at least 20 days prior to the holding of such regular meeting and if notice of
the adoption of such resolution is given, in the manner herein provided for
giving notice of meetings of the Board, to each director who was absent from
the meeting at which such resolution was adopted. Except as otherwise required
by law, notice of the time and place of each other meeting of the Board shall
be mailed to each director, postage prepaid addressed to him at his residence
or usual place of business, or at such other address as he may have designated
in a written request filed with the Secretary, at least 5 days before the day
on which the meeting is to be held, or shall be sent to him at such address by
telegram or cablegram or given personally or by telephone, at least 24 hours
before the time at which such meeting is to be held. Notice of a meeting of the
Board need not state the purposes thereof, except as otherwise required by law
or by Section 53 expressly provided.

SECTION 16. Quorum and Manner of Acting. A majority of the total
number of directors shall be present in person at any meeting of the Board in
order to constitute a
<PAGE> 14
quorum for the transaction of business thereat, and (except as otherwise
provided by statute or in the Charter or in Sections 21, 26, and 53) the act of
a majority of the directors present at any such meeting at which a quorum is
present shall be the act of the Board. Whether or not there is a quorum at any
meeting, a majority of the directors who are present may adjourn the meeting
from time to time to a day certain. No notice of an adjourned meeting need be
given. The directors shall act only as a Board, and the individual directors
shall have no power as such.

SECTION 17. Organization. At every meeting of the Board, a Chairman
chosen by a majority of the directors present, shall preside. The Secretary of
the Corporation shall act as Secretary of the meetings of the Board. In the
absence of the Secretary at any meeting of the Board, the Chairman of such
meeting shall appoint an Assistant Secretary or, if none is present, some other
person to act as Secretary of the meeting.

SECTION 18. Action Without a Meeting of the Board of Directors. Unless
the Charter provides otherwise, action required or permitted by this Act 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 shall be evidenced by
one or more written consents stating the action taken, signed by each director
either before or after the action taken, and included in the minutes or filed
with the corporate records reflecting the action taken.

Action taken under this section is effective when the last director
signs the consent unless the consent specifies a different effective date, in
which event the action taken is effective as of the date specified therein.
<PAGE> 15
A consent signed under this section has the effect of a meeting vote
and may be described as such in any document.

SECTION 19. Resignations. Any director may resign at any time by
giving written notice to the President or to the Secretary of the Corporation
or to the Board. Such resignation shall take effect at the time specified
therein and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.

SECTION 20. Removal of Directors. Any director may be removed, either
with or without cause, at any time, by the affirmative vote of the holders of a
majority in interest of the outstanding stock of the Corporation having voting
power for the election of directors, at a special meeting of the stockholders
called for that purpose.

SECTION 21. Vacancies. Except as otherwise provided by statute or by
the Charter, any vacancy in the Board arising at any time from any cause,
including the failure of the stockholders to elect a full Board or an increase
in the number of directors, may be filled by the vote of a majority of the
directors remaining in office; or any such vacancy may be filled by the
stockholders entitled to vote for the election of directors at the next annual
meeting held or at the special meeting of stockholders at which such vacancy
was created, or at a special meeting of stockholders called for the purpose of
filling such vacancy or by unanimous consent resolution. The directors so
appointed or elected shall hold office until the next annual election and until
their successors have been duly elected and qualified.
<PAGE> 16
SECTION 22. Fees. Directors shall not receive any stated compensation
for their services as such unless such compensation shall have been approved at
a stockholder's meeting, but, by resolution of the Board, fees in a reasonable
amount may be paid to the directors. Directors may also be entitled by
resolution of the Board to be reimbursed for expenses incurred in attending any
such meeting. Nothing herein contained shall be construed to preclude any
director from serving in any other capacity or receiving compensation for such
service.

SECTION 23. Executive or Special Committees. The Board, by resolution,
may designate two or more directors to constitute Executive or Special
Committees, which committees, having a quorum of at least one-third of the
committees' membership, to the extent provided in such resolution, shall have
and exercise all of the authority of the Board in the management of the
Corporation, except as otherwise required by law. Vacancies in the membership
of the committees shall be filled by the Board at a regular or special meeting
of the Board or by unanimous consent resolution. The Executive or Special
Committee shall keep regular minutes of their proceedings.

ARTICLE IV
Officers

Section 24. Election, Term of Office and Qualifications. The Board
shall choose annually (who need not be members of the Board of Directors) the
President of the Corporation, a Secretary, a Treasurer, and a Controller and
may also elect one or more
<PAGE> 17
Vice Presidents and any other officers. Each of such officers shall hold
office until the next annual election and until his successor is chosen and
qualified. Any two of said offices except those of President and Vice President
may be held, and the duties thereof may be performed, by one person, except
that no person holding the office of President, Vice President or Controller
shall hold the office of Treasurer. No person may hold more than two of said
offices. No instrument required to be signed by more than one officer shall be
signed by the same individual in more than one capacity.

SECTION 25. Other Officers. The Board may elect such other officers or
agents as the Board may deem necessary or advisable, including one or more
Assistant Secretaries, one or more Assistant Treasurers and one or more
Assistant Controllers, each of whom shall hold office for such period, have
such powers and perform such duties as are provided in these By-Laws or as the
Board may from time to time determine. Any such officer, if required to do so
by the Board, shall give bond for the faithful discharge of his duty, in such
sum and with such surety or sureties as the Board shall require.

SECTION 26. Removal. Any officer may be removed, either with or
without cause, at any time, by resolution adopted by a majority of the whole
Board, at any meeting of the Board, or by any officer upon whom such power of
removal has been conferred by resolution adopted by a majority of the whole
Board.

SECTION 27. Resignations. Any officer may resign at any time by giving
written notice to the President or to the Secretary or to the Board. Any such
resignation shall take
<PAGE> 18
effect at the time specified therein and, unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.

SECTION 28. Vacancies. A vacancy in any office arising from any cause
shall be filled for the unexpired portion of the term in the manner prescribed
in these By-Laws for regular election to such office.

SECTION 29. President. The President may sign and execute, in the name
of the Corporation, deeds, contracts, mortgages, bonds or other instruments,
except in cases where the signing and execution thereof shall be expressly
delegated by the Board to some other officer or agent of the Corporation. The
President may, unless otherwise directed by the Board, attend in person or by
substitute or proxy appointed by him and act and vote in behalf of the
Corporation at all meetings of the stockholders of any corporation in which
this Corporation holds stock; and shall perform such other duties as from time
to time may be assigned to him by the Board.

SECTION 30. Vice Presidents. At the request of the President or in his
absence or disability, the senior Vice President available to act, shall
perform all the duties of the President. Any Vice President may sign and
execute, in the name of the Corporation, deeds, mortgages, contracts, bonds or
other instruments, except in cases where the signing and execution thereof
shall be expressly delegated by the Board to some other officer or agent of the
Corporation. In the absence of the President or in case of the failure of the
President to appoint a substitute or proxy as provided in Section 29, any Vice
<PAGE> 19
President may, unless otherwise directed by the Board, attend in person or by
substitute or proxy appointed by him and act and vote in behalf of the
Corporation at all meetings of the stockholders of any corporation in which
this Corporation holds stock; and shall perform such other duties as from time
to time may be assigned to him by the Board; or by the President.

If at any time there be more than one Vice President, the order of
rank of such Vice Presidents shall be determined by the Board, or, in the
absence of such determination, shall be the order in which such Vice Presidents
were elected as such.

SECTION 31. Secretary. The Secretary shall

(a) keep the minutes of all meetings of the stockholders and
of the Board, in books to be kept for the purpose;

(b) see that all notices are duly given in accordance with
these By-Laws or as required by law;

(c) be custodian of the records (other than financial) and
have charge of the seal of the Corporation and see that it is used
upon all papers or documents whose execution in behalf of the
Corporation under its seal is required by law or duly authorized in
accordance with these By-Laws;

(d) have charge of and keep or cause to be properly kept and
filed the stock books of the Corporation as provided in Section 44 and
all other books, reports, statements, certificates and all other
documents and records required by law;

(e) perform the duties defined in Section 9;
<PAGE> 20
(f) in general, perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned
to him by the President or by the Board.

SECTION 32. Assistant Secretaries. At the request of the Secretary, or
in his absence or disability, an Assistant Secretary designated by the
Secretary or by the President or by the Board shall perform all the duties of
the Secretary and, when so acting, shall have all the powers of the Secretary.
Each Assistant Secretary shall perform such other duties as from time to time
may be assigned to him by the Secretary or by the President or by the Board.

SECTION 33. Treasurer. The Treasurer, if required by the Board, shall
give a bond for the faithful discharge of his duty, in such sum and with such
surety or sureties as the Board shall require. The Treasurer shall

(a) have charge of, and be responsible for, the collection,
receipt, custody and disbursement of the funds of the Corporation, and
shall deposit its funds in the name of the Corporation, in such banks,
trust companies, or safe deposit vaults as the Board may direct;

(b) have the custody of such books, receipted vouchers, and
other books and papers as in the practical business operations of the
Corporation shall naturally belong in the office or custody of the
Treasurer, or as shall be placed in his custody by the Board;
<PAGE> 21
(c) have charge of the safekeeping of all stocks, bonds,
mortgages, and other securities belonging to the Corporation, but such
stocks, bonds, mortgages, and other securities shall be deposited for
safekeeping in a safe-deposit vault to be approved by the Board, in a
box or boxes, access to which shall be had as may be provided by
resolution of the Board;

(d) sign checks, drafts, and other papers providing for the
payment of money by the Corporation for approved purposes in the usual
course of business, and shall have such other powers and duties as are
commonly incidental to the office of Treasurer, or as may be
prescribed for him by the President or by the Board.

SECTION 34. Assistant Treasurers. Each Assistant Treasurer, if
required to do so by the Board, shall give bond for the faithful discharge of
his duty, in such sum and with such surety or sureties as the Board shall
require. At the request of the Treasurer, or in his absence or disability, an
Assistant Treasurer designated by the Treasurer or by the President or by the
Board shall perform all the duties of the Treasurer, and, when so acting, shall
have all the powers of the Treasurer. Each Assistant Treasurer shall perform
such other duties as from time to time may be assigned to him by the Treasurer
or by the President or by the Board.

SECTION 35. Controller. The Controller shall be the principal
accounting officer of the Corporation. The Controller, if required by the
Board, shall give bond for the faithful discharge of his duty, in such form and
with such surety or sureties as the Board shall require. The Controller shall
<PAGE> 22
(a) keep or cause to be kept full and complete books of
accounts of all operations of the Corporation and of its assets and
liabilities;

(b) exhibit at all reasonable times his books of account and
records to any of the directors of the Corporation upon application
during business hours at the office of the Corporation where such
books and records are kept;

(c) render reports of the operations and business and of the
conditions of the finances of the Corporation at all regular meetings
of the Board, if called upon to do so, and at such other times as may
be requested by the Board or by any director, and render a full
financial report at the annual meeting of the stockholders, if called
upon to do so;

(d) have general supervision over all books and accounts of
the Corporation relating to receipts and disbursements, except those
records provided to be kept by the Treasurer or Secretary; arrange the
form of all vouchers, accounts, reports and returns required by the
various departments; examine the accounts of all officers and
employees from time to time and as often as practicable, and see that
proper returns are made of all receipts from all sources, and that
correct vouchers are turned over to him for all disbursements for any
purpose. At such times in each month as may be found practicable all
bills for the previous month, properly made in detail and certified,
shall be submitted to him, and he shall audit and approve the same, if
found satisfactory and correct, but he shall not approve any voucher
unless it has been previously certified to by the head of the
Department in which the expenditure originated, nor unless satisfied
of its propriety and correctness;
<PAGE> 23
(e) have full access to all contracts, correspondence, and all
other papers and records of the Corporation relating to its business
matters and shall have the custody of its account books and other
papers relating to the accounts of the Corporation, except such as in
the practicable business operations of the Corporation shall naturally
belong in the custody of the Treasurer, or the Secretary or shall be
placed in the custody of the Treasurer or Secretary by the President
or by the Board;

(f) in general, perform all the duties incident to the office
of Controller, and such other duties as from time to time may be
assigned to him by the President or by the Board.

SECTION 36. Assistant Controllers. Each Assistant Controller, if
required to do so by the Board, shall give bond for the faithful discharge of
his duty, in such sum and with such surety or sureties as the Board shall
require. At the request of the Controller, or in his absence or disability, an
Assistant Controller designated by the Controller or by the President or by the
Board shall perform all the duties of the Controller, and, when so acting shall
have all the powers of the Controller. Each Assistant Controller shall perform
such other duties as from time to time may be assigned to him by the Controller
or by the President or by the Board.

SECTION 37. Salaries. The salary of the President may be fixed from
time to time by the Board, and he shall not be precluded from receiving such
salary by reason of the fact that he also may be a director of the Corporation.
<PAGE> 24
ARTICLE V
Execution of Instruments, Etc.

SECTION 38. Contracts, Etc., How Executed. The Board, subject to the
provisions of Section 24 and 43, may authorize any officer or officers, agent
or agents to enter into any contract or to execute and deliver any instrument
in the name and in behalf of the Corporation, and such authority may be general
or confined to specific instances.

SECTION 39. Loans. No loans shall be contracted in behalf of the
Corporation unless authorized by the Board, subject in every case to the
restrictions in the Charter. When such authorization has been given by the
Board, any officer or agent of the Corporation thereunto authorized may effect
loans and advances at any time for the Corporation from any institution, firm
or individual, and for such loans and advances may make, execute and deliver
promissory notes, bonds, or other evidences of indebtedness of the Corporation,
and, as security for the payment of any and all loans, advances, indebtedness
and liabilities of the Corporation, may (subject to such authorization) pledge,
hypothecate or transfer any and all stocks, securities and other property at
any time owned by the Corporation and to that end endorse, assign and deliver
the same. Such authority may be general or confined to specific instances.

SECTION 40. Deposits. Funds of the Corporation may be deposited from
time to time to the credit of the Corporation with such depositaries as may be
selected by the
<PAGE> 25
Board or by any officer or officers, agent or agents of the Corporation to whom
such power may be delegated from time to time by the Board.

SECTION 41. Checks, Drafts, Etc. All checks, drafts, or other orders
for the payment of money, notes, acceptances, or other evidences of
indebtedness issued in the name of the Corporation, shall be signed by such
officer or officers, agent or agents of the Corporation, and in such manner as
shall be determined from time to time by resolution of the Board. Unless
otherwise provided by resolution of the Board, endorsements for deposit to the
credit of the Corporation in any of its duly authorized depositaries may be
made, without countersignature, by the President or any Vice President or the
Treasurer, or by any other officer or agent of the Corporation to whom such
power shall have been delegated by the Board, or may be made by hand-stamped
impression in the name of the Corporation.

SECTION 42. Sale or Transfer of Property. Stock certificates, bonds,
or other securities held or owned by the Corporation may, subject in every case
to the restrictions in the Charter, be sold, transferred, or otherwise disposed
of pursuant to authorization by the Board, and in any such event, the stock
certificates, registered bonds or other securities, deeds and transfers of real
estate and other personal property so authorized to be sold, transferred or
otherwise disposed of may be assigned or transferred from the name of the
Corporation by the signature of the President or any Vice President.
<PAGE> 26
ARTICLE VI
Shares and Their Transfer: Books

SECTION 43. Certificates of Stock. Certificates for shares of stock of
the Corporation of whatever class shall be in such form, not inconsistent with
law or with the Charter, as shall be approved by the Board. They shall be
signed by the President or a Vice President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary; provided,
however, that where such Certificate is countersigned by a transfer agent or by
a transfer clerk acting on behalf of the Corporation and by a registrar, the
signatures of the President, Vice President, Treasurer, Assistant Treasurer,
Secretary or Assistant Secretary may be facsimiles.

In case any officer or officers who shall have signed or whose
facsimile signature or signatures shall have been used on any such certificate
or certificates shall cease to be such officer or officers of the Corporation,
whether because of death, resignation, or otherwise, before such certificate or
certificates shall have been delivered by the Corporation, such certificate or
certificates may nevertheless be adopted by the Corporation and be issued and
delivered as though the person or persons who signed such certificate or
certificates or whose facsimile signature or signatures shall have been used
thereon had not ceased to be such officer or officers of the Corporation.

SECTION 44. Transfer Shares. Transfer of shares of the stock of the
Corporation shall be made on the stock books of the Corporation by the holder
of record of such shares or by his attorney thereunto duly authorized, and on
surrender of the certificate or
<PAGE> 27
certificates for such shares, but no shares shall be transferred until all
previous calls thereon shall have been fully paid in. A person in whose name
shares of stock stand on the books of the Corporation shall be deemed the owner
thereof as regards the Corporation; provided, however, that whenever any
transfer of shares shall be made for collateral security, and not absolutely,
and written notice thereof shall be given to the Secretary of the Corporation
or to its transfer agent, if any, such fact shall be stated in the entry of the
transfer.

SECTION 45. Closing of Transfer Books. The Board shall have power to
close the stock transfer books for a period not more than 50 days before the
date of any stockholders' meeting or the date for the payment of any dividend
or for the allotment of rights, or the date when any change or conversion or
exchange of capital stock shall go into effect, or for a period of not more
than 30 days in connection with obtaining the consent of stockholders for any
purposes; or the Board may in its discretion fix in advance a date, not more
than 50 days before the date of any stockholders' meeting or the date for the
payment of any dividend or for the allotment of rights, or the date when any
change or conversion or exchange of capital stock shall go into effect, or a
date in connection with obtaining such consent, as a record date for the
determination of the stockholders entitled to notice of and to vote at any such
meeting and any adjournment thereof, or entitled to receive such dividend or
rights, or to exercise the rights in respect of any such change, conversion or
exchange of capital stock, or to give such consent, and in such case such
stockholders and only such stockholders as shall be stockholders of record at
the close of business on the date so fixed shall be entitled to notice of and
to receive such dividend or
<PAGE> 28
rights, or to exercise such rights, or to give such consent, as the case may
be, notwithstanding any transfer of any stock on the books of the Corporation
after such record date fixed as aforesaid.

SECTION 46. Lost and Destroyed Certificates. The holder of record of
any certificates of stock who shall claim that such certificate is lost or
destroyed may make an affidavit or affirmation of that fact and advertise the
same, if required to do so by the Board, in such manner as the Board may
require and furnish a bond, if required to do so by the Board, in form and with
one or more sureties satisfactory to the Board and to the Transfer Agent and/or
Registrar, if any, in such sum as the Board may direct, sufficient to indemnify
the Corporation and the Transfer Agent and/or Registrar, if any, against any
claim that may be made against them, or any of them, on account of such
certificate, whereupon one or more new certificates may be issued of the same
tenor and for the same aggregate number of shares as the one alleged to be lost
or destroyed. The Board may delegate to any officer authority to administer the
provisions of this Section.

SECTION 47. Regulations. The Board may make such rules and regulations
as it may deem expedient concerning the issuance, transfer and registration of
certificates of stock. It may appoint one or more transfer agents or registrars
of transfer or both, and may require all certificates of stock to bear the
signature of either or both.

SECTION 48. Place of Keeping Books and Records. To the extent
permitted by law, the stock ledgers, books and other records of the Corporation
may, at the option of
<PAGE> 29
the officer or officers in charge of the same, be kept at any office of the
Corporation within or without the Commonwealth of Virginia, unless otherwise
directed by the Board.

ARTICLE VII
Notice

SECTION 49. Waiver of Notice. No notice of the time, place or purpose
of any meeting of stockholders or directors, or any publication thereof,
whether prescribed by law, by the Charter, or by these By-Laws, need be given
to any person who attends such meetings, or who, in writing, executed either
before or after the holding thereof, waives such notice, and such attendance or
waiver shall be deemed equivalent to notice.

ARTICLE VIII
Miscellaneous

SECTION 50. Fiscal Year. The fiscal year of the Corporation shall be
the calendar year.

SECTION 51. Seal. The corporate seal shall be a device containing the
name of the Corporation, the year of its organization and the words "Corporate
Seal" and "Virginia". The corporate seal may be used by printing, engraving,
lithographing, stamping or otherwise making, placing or affixing, or causing to
be printed, engraved, lithographed, stamped or otherwise made, placed or
affixed, upon any paper or document, by any
<PAGE> 30
process whatsoever, an impression, facsimile, or other reproduction of said
corporate seal.

SECTION 52. Offices. The principal office of the Corporation shall be
in the City of Durham, County of Durham, State of North Carolina. The
Corporation may have one or more other offices at such place or places within
or without the State of North Carolina as the Board shall from time to time
determine.

ARTICLE IX
Amendments

SECTION 53. Amendments. The shareholder and the directors shall have
the power to amend these By-Laws as permitted by law.

<PAGE> 1
Exhibit 12

GTE SOUTH INCORPORATED

STATEMENTS OF RATIO OF EARNINGS TO FIXED CHARGES

(Thousands of Dollars)

<TABLE>
<CAPTION>
Nine Months Year
Ended September Ended December
30, 1995 31, 1994
--------------- --------------
<S> <C> <C>
Net earnings available for fixed charges:
Net income $160,889 $129,187
Add - Income tax expense 99,419 77,308
- Fixed charges 49,114 67,606
-------- --------

Adjusted earnings: $309,422 $274,101

Fixed charges:
Interest expense $44,794 $60,038
Portion of rent expense
representing interest 4,320 7,568
-------- --------

Adjusted fixed charges: $49,114 $67,606
-------- --------

RATIO OF EARNINGS TO FIXED
CHARGES: 6.30 4.05
</TABLE>

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1995
<CASH> 16,615
<SECURITIES> 0
<RECEIVABLES> 191,672
<ALLOWANCES> 18,356
<INVENTORY> 23,132
<CURRENT-ASSETS> 251,378
<PP&E> 3,928,529
<DEPRECIATION> 1,552,368
<TOTAL-ASSETS> 2,734,624
<CURRENT-LIABILITIES> 484,118
<BONDS> 593,374
<COMMON> 525,000
2,757
412
<OTHER-SE> 548,155
<TOTAL-LIABILITY-AND-EQUITY> 2,734,624
<SALES> 966,796
<TOTAL-REVENUES> 966,796
<CGS> 351,576
<TOTAL-COSTS> 682,324
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44,164
<INCOME-PRETAX> 260,308
<INCOME-TAX> 99,419
<INCOME-CONTINUING> 160,889
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 160,889
<EPS-PRIMARY> 0
<EPS-DILUTED> 0

</TABLE>