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 quarterly period ended June 30, 1996
OR
[ ] 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 1-1049
BellSouth Telecommunications, Inc.
(Exact name of registrant as specified in its charter)
Georgia 58-0436120
(State of Incorporation) (I.R.S. Employer
Identification Number)
675 West Peachtree Street, N. E., Atlanta, Georgia 30375
(Address of principal executive offices) (Zip Code)
Registrant's telephone number 404 529-8611
THE REGISTRANT, A WHOLLY-OWNED SUBSIDIARY OF BELLSOUTH CORPORATION,
MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND
(b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH REDUCED
DISCLOSURE FORMAT PURSUANT TO GENERAL INSTRUCTION H(2).
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 ___
Table of Contents
Item
Page
Part I
1. Financial Statements 3
Consolidated Statements of Income 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Selected Operating Data 8
2. Management's Discussion and Analysis of
Results of Operations 10
Results of Operations 10
Volumes of Business 11
Operating Revenues 12
Operating Expenses 13
Other Income Statement Items 14
Regulatory Developments and Competition 14
Federal Developments 14
State Developments 15
Business Developments 16
Other Matters 16
Affiliated Transactions 16
Part II
6. Exhibits and Reports on Form 8-K 17
PART I -- FINANCIAL INFORMATION
BELLSOUTH TELECOMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(Unaudited)
(In Millions)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
Operating Revenues:
Local service $ 2,021 $ 1,793 $ 3,951 $ 3,562
Interstate access 871 806 1,780 1,601
Intrastate access 202 227 420 453
Toll 198 266 405 547
Other 353 503 744 993
Total Operating Revenues 3,645 3,595 7,300 7,156
Operating Expenses:
Cost of services and
products 1,284 1,270 2,544 2,558
Depreciation and
amortization 809 765 1,607 1,511
Selling, general and
administrative 618 580 1,222 1,116
Total Operating Expenses 2,711 2,615 5,373 5,185
Operating Income 934 980 1,927 1,971
Interest Expense 135 150 274 290
Other Income, net 6 7 17 12
Income Before Income Taxes
and Extraordinary Losses 805 837 1,670 1,693
Provision for Income Taxes 295 318 621 641
Income Before Extraordinary
Losses 510 519 1,049 1,052
Extraordinary Loss for
Discontinuance of SFAS No.
71, net of tax -- (2,718) -- (2,718)
Extraordinary Loss on Early
Extinguishment of Debt, net
of tax -- (16) -- (16)
Net Income (Loss) $ 510 $ (2,215) $ 1,049 $ (1,682)
Retained Earnings:
At beginning of period $ 712 $ 3,654 $ 555 $ 3,521
Add: Net Income (Loss) 510 (2,215) 1,049 (1,682)
Deduct: Dividends declared (449) (430) (831) (830)
At end of period $ 773 $ 1,009 $ 773 $ 1,009
The accompanying notes are an integral part of these financial statements.
BELLSOUTH TELECOMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(In Millions)
June 30, December 31,
1996 1995
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents $ 51 $ 1,084
Accounts receivable, net of allowance for
uncollectibles of $82 and $94 2,885 2,941
Material and supplies 339 347
Other current assets 205 281
3,480 4,653
Investments In and Advances to Affiliates 295 279
Property, Plant and Equipment:
Property, Plant and Equipment 44,758 43,521
Accumulated Depreciation 25,976 24,777
18,782 18,744
Deferred Charges and Other Assets 448 257
Total Assets $ 23,005 $ 23,933
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Debt maturing within one year $ 1,479 $ 2,265
Accounts payable 1,084 1,332
Other current liabilities 1,999 1,934
4,562 5,531
Long-Term Debt 6,773 6,853
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes 981 1,000
Unamortized investment tax credits 317 355
Other liabilities and deferred credits 2,201 2,227
3,499 3,582
Shareholder's Equity:
Common stock, one share, no par value 7,398 7,412
Retained earnings 773 555
8,171 7,967
Total Liabilities and Shareholder's Equity $ 23,005 $ 23,933
The accompanying notes are an integral part of these financial statements.
BELLSOUTH TELECOMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Millions)
For the Six Months
Ended June 30,
1996 1995
Cash Flows from Operating Activities:
Net income (loss) $ 1,049 $(1,682)
Adjustments to net income (loss):
Extraordinary loss for discontinuance of SFAS No. 71 -- 4,449
Extraordinary loss on early extinguishment of debt -- 26
Depreciation and amortization 1,607 1,511
Provision for losses on bad debts 62 68
Deferred income taxes and unamortized investment tax
credits (44) (1,746)
Net change in accounts receivable and other current
assets 20 (18)
Net change in accounts payable and other current
liabilities (301) (473)
Net change in deferred charges and other assets (189) 58
Net change in deferred credits and other liabilities 82 53
Other reconciling items, net (51) (5)
Net cash provided by operating activities 2,235 2,241
Cash Flows from Investing Activities:
Capital expenditures (1,649) (1,460)
Other investing activities, net 37 (14)
Net cash used for investing activities (1,612) (1,474)
Cash Flows from Financing Activities:
Proceeds from short-term borrowings 7,987 6,474
Repayment of short-term borrowings (8,323) (6,703)
Proceeds from long-term debt -- 600
Repayment of long-term debt (485) (300)
Advances from parent and affiliates 246 295
Repayment of advances from parent and affiliates (261) (302)
Dividends paid to parent (805) (822)
Other financing activities, net (15) (2)
Net cash used for financing activities (1,656) (760)
Net Increase (Decrease) in Cash and Cash Equivalents (1,033) 7
Cash and Cash Equivalents at Beginning of Period 1,084 94
Cash and Cash Equivalents at End of Period $ 51 $ 101
The accompanying notes are an integral part of these financial statements.
BELLSOUTH TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Millions)
(Unaudited)
Note A -- Preparation of Interim Financial Statements
The consolidated financial statements of BellSouth
Telecommunications, Inc. (BellSouth Telecommunications) have been
prepared in accordance with the rules and regulations of the
Securities and Exchange Commission (SEC). Certain amounts have
been reclassified from previous presentations. These consolidated
financial statements include estimates and assumptions that affect
the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities and the amounts of revenues and
expenses. Actual results could differ from those estimates. In
the opinion of BellSouth Telecommunications, these statements
include all adjustments necessary for a fair presentation of the
results of all interim periods reported herein. All adjustments
are of a normal recurring nature unless otherwise disclosed.
Certain information and footnote disclosures prepared in accordance
with generally accepted accounting principles have been either
condensed or omitted pursuant to SEC rules and regulations.
However, BellSouth Telecommunications believes that the disclosures
made are adequate for a fair presentation of results of operations,
financial position and cash flows. These consolidated financial
statements should be read in conjunction with the consolidated
financial statements and accompanying notes included in BellSouth
Telecommunications' latest annual report on Form 10-K and previous
quarterly report on Form 10-Q. BellSouth Telecommunications is a
wholly-owned subsidiary of BellSouth Corporation (BellSouth).
Note B -- Supplemental Cash Flow Information
The following supplemental information is presented in accordance
with the provisions of SFAS No. 95, "Statement of Cash Flows."
For the Six Months
Ended June 30,
1996 1995
Cash Paid For:
Income taxes $ 498 $ 625
Interest $ 296 $ 318
BELLSOUTH TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Millions)
(Unaudited)
Note C -- Transactions with Affiliates
Through 1995, BellSouth Telecommunications had a contractual
agreement with BellSouth Advertising & Publishing Corporation
(BAPCO), an affiliated company, wherein BAPCO published certain
telephone directories and in return paid publication fees to
BellSouth Telecommunications for publishing rights and other
services. Effective January 1, 1996, BellSouth Telecommunications
and BAPCO established a new contract based on fees for services
rendered between the companies. The new contract eliminated
publication fees received by BellSouth Telecommunications. Such
fees were $166 and $330 for the three- and six-month periods ended
June 30, 1995, respectively.
Note D -- Extraordinary Losses
Discontinuance of SFAS No. 71. In the second quarter 1995,
BellSouth Telecommunications discontinued application of SFAS No.
71 and recorded a non-cash extraordinary charge of $2,718 (net of a
deferred tax benefit of $1,731). The components of the charge
included a $3,002 (after tax) reduction of telephone plant
partially offset by a $194 (after tax) benefit for a change in the
method by which BellSouth Telecommunications reported its directory
publishing revenues, a $71 (after tax) benefit reflecting the
removal of regulatory assets and liabilities that were recorded as
a result of previous actions by regulators and a $19 (after tax)
benefit for the partial acceleration of unamortized investment tax
credits associated with the reductions in asset carrying values and
in asset lives.
Early Extinguishment of Debt. In the second quarter 1995,
BellSouth Telecommunications issued $300 of Ten Year Notes, the
proceeds from which were used to redeem and refinance an
outstanding $300 Debenture issue, due August 1, 2029. As a result
of the early extinguishment of this issue, an extraordinary loss of
$16 (net of taxes of $10) was recognized in the second quarter
1995.
BELLSOUTH TELECOMMUNICATIONS, INC.
SELECTED OPERATING DATA
(Unaudited)
Percent Change
1996 vs. 1995 vs.
1996 1995 1994
Network Access Lines in Service at June 30 (Thousands)(a):
By Type:
Residence 14,937 3.5% 3.7%
Business 6,522 8.7 7.7
Other 262 2.3 1.3
Total Access Lines 21,721 5.0 4.8
By State:
Florida 5,750 5.4 4.8
Georgia 3,701 7.1 6.2
Tennessee 2,500 4.6 4.6
North Carolina 2,155 5.2 5.7
Louisiana 2,151 3.5 3.9
Alabama 1,832 4.1 3.9
South Carolina 1,325 4.0 4.2
Mississippi 1,184 3.5 4.1
Kentucky 1,123 3.6 3.6
Total Access Lines 21,721 5.0 4.8
Percent Change for
the Periods Ended
1996 vs. 1995 vs.
1996 1995 1994
Access Minutes of Use (Millions)(a)(b):
Interstate:
Three months ended March 31 16,660 10.1% 7.7%
Three months ended June 30 16,847 8.0 8.2
Six months ended June 30 33,507 9.0 7.9
Intrastate:
Three months ended March 31 5,118 13.0 13.1
Three months ended June 30 5,235 9.3 14.7
Six months ended June 30 10,353 11.1 13.9
Total Minutes of Use:
Three months ended March 31 21,778 10.8 8.9
Three months ended June 30 22,082 8.3 9.6
Six months ended June 30 43,860 9.5 9.3
Toll Messages (Millions)(a):
Three months ended March 31 281 (24.1) (4.3)
Three months ended June 30 257 (27.0) (11.4)
Six months ended June 30 538 (25.5) (7.9)
(a) Prior period operating data are often revised at later dates
to reflect updated information. The above information reflects the
latest data available for the periods indicated.
(b) Minutes of Use are classified as either interstate or
intrastate based on the percentage interstate usage factor. This
factor is updated periodically.
BELLSOUTH TELECOMMUNICATIONS, INC.
SELECTED OPERATING DATA (Continued)
(Unaudited)
For the Six
Months Ended
June 30,
1996
Ratio of Earnings to Fixed Charges (c) 6.3
(c) For the purpose of this ratio: (i) earnings have been
calculated by adding income before income taxes, gross interest
expense and such portion of rental expense representative of the
interest factor on such rentals; (ii) fixed charges are comprised
of gross interest expense and such portion of rental expense
representative of the interest factor on such rentals.
At At
June 30, December 31,
1996 1995
Debt Ratio (d) 50.1% 51.9%
(d) This ratio is calculated by dividing the sum of debt maturing
within one year and long-term debt, net of unamortized debt
issuance costs, by the sum of shareholder's equity, debt maturing
within one year and long-term debt, net of unamortized debt
issuance costs. The debt ratio at December 31, 1995 excludes $485
in long-term debentures called in December and redeemed in January,
1996.
BELLSOUTH TELECOMMUNICATIONS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS
(Dollars in Millions)
Management's Discussion and Analysis of Results of Operations
(MD&A) should be read in conjunction with MD&A in BellSouth
Telecommunications, Inc.'s (BellSouth Telecommunications)
latest annual report on Form 10-K and
previous quarterly report on Form 10-Q.
BellSouth Telecommunications is a wholly-owned subsidiary of
BellSouth Corporation (BellSouth). BellSouth Telecommunications
serves, in the aggregate, approximately two-thirds of the
population and one-half of the territory within Alabama, Florida,
Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South
Carolina and Tennessee. BellSouth Telecommunications primarily
provides local exchange service and toll communications services
within geographic areas, called Local Access and Transport Areas
(LATAs), and provides network access services to enable interLATA
communications using the long-distance facilities of interexchange
carriers. Through subsidiaries, other telecommunications services
and products are provided primarily within the nine-state BellSouth
Telecommunications region.
Approximately 90% and 86% of BellSouth Telecommunications' Total
Operating Revenues for the six-month periods ended June 30, 1996
and 1995, respectively, were from wireline services. Charges for
local, access and toll services for the six months ended June 30,
1996 accounted for approximately 60%, 34% and 6%, respectively, of
the wireline revenues discussed above. The remainder of BellSouth
Telecommunications' Total Operating Revenues was derived
principally from sales and maintenance of customer premises
equipment and other nonregulated services.
RESULTS OF OPERATIONS
For the Six
Months Ended
June 30,
1996 1995
Income Before Extraordinary Losses $1,049 $ 1,052
Extraordinary Loss for Discontinuance
of SFAS No. 71, net of tax -- (2,718)
Extraordinary Loss on Early
Extinguishment of Debt, net of tax -- (16)
Net Income (Loss) $1,049 $(1,682)
For the six-month period ended June 30, 1996, Income Before
Extraordinary Losses decreased by $3 (0.3%). The decrease for the
six-month period resulted primarily from the elimination of
publication fee revenue, substantially offset by continued strong
growth in key business volumes and expense savings attributable to
employee reductions under BellSouth Telecommunications'
restructuring and work force reduction plans.
For a description of the second quarter 1995 extraordinary losses,
see Note D to the Consolidated Financial Statements.
Volumes of Business
The total number of access lines in service since June 30, 1995
increased by approximately 1,030,000 (5.0%) to 21,721,000, compared
to a 4.8% rate of increase for the same prior year period.
Business and residence access lines increased by 8.7% and 3.5%,
respectively, compared to growth rates of 7.7% and 3.7% in 1995.
The number of second residence lines, included in total residence
lines, increased by 237,000 (20.6%) to 1,387,000 and accounted for
approximately 47.2% and 23.0% of the overall increases in residence
access lines and total access lines, respectively, since June 30,
1995. Such second residence lines are generally used for home
office purposes, access to on-line computer services and children's
phones. The growth in all categories of access lines was primarily
attributable to continued economic improvement in the Southeast,
including increased business activity in Georgia in preparation for
the Olympics, and successful marketing programs.
Access minutes of use represent the volume of traffic carried by
interexchange carriers between LATAs, both interstate and
intrastate, using BellSouth Telecommunications' local facilities.
Total access minutes of use increased by 3,813 million (9.5%)for
the six-month period ended June 30, 1996 compared to an increase of
9.3% for the same period last year. The increase in access minutes
of use was primarily attributable to access line growth; promotions
by the interexchange carriers; and intraLATA toll competition,
which has the effect of increasing access minutes of use while
reducing toll messages carried over BellSouth Telecommunications'
facilities. The growth rate in total minutes of use continues to
be negatively impacted by competition and the migration of
interexchange carriers to categories of service (e.g., special
access) that have a fixed charge as opposed to a volume-driven
charge and to high capacity services.
Toll messages are comprised of Message Telecommunications Service
and Wide Area Telecommunications Service. For the six-month period
ended June 30, 1996, toll messages decreased by 184 million (25.5%)
compared to a decrease 7.9% for the corresponding period in 1995.
The decrease in 1996 was primarily attributable to the expansion of
local area calling plans (LACPs) in Florida, Georgia and North
Carolina and also to increased competition from interexchange
carriers in the intraLATA toll market. While the respective
impacts of such factors cannot be precisely quantified, BellSouth
Telecommunications estimates that about 70% of the decline in toll
messages was attributable to expanded LACPs and about 30% was due
to increased competition.
The expanded LACPs discussed above and future implementation of
other such plans in BellSouth Telecommunications' service region,
coupled with competition in the intraLATA toll market, will
adversely impact future toll message volumes. Expanded LACPs and
the effects of competition result in the transfer of calls from
toll to local service and access categories, respectively, but the
corresponding revenues are not generally shifted at commensurate
rates.
Operating Revenues
Total Operating Revenues increased $144 (2.0%) for the six-month
period ended June 30, 1996 when compared to the corresponding 1995
period. The components of Total Operating Revenues were as
follows:
For the Six
Months Ended
June 30,
1996 1995
Local Service $3,951 $3,562
Interstate Access 1,780 1,601
Intrastate Access 420 453
Toll 405 547
Other Services 744 993
Total Operating Revenues $7,300 $7,156
Local Service revenues increased $389 (10.9%) for the six-month
period ended June 30, 1996 as compared to the same 1995 period.
The increase for the period was due primarily to 5.0% growth in
access lines in service since June 30, 1995. Also contributing was
an increase of $71 due to higher customer demand for Touchstar and
Custom Calling services, and the effect of expanded LACPs.
Interstate Access revenues increased $179 (11.2%) for the six-month
period ended June 30, 1996 as compared to the same prior year
period. The increase for the period was attributable primarily to
growth in minutes of use of 9.0% and net rate activity which
increased revenues by $34.
Intrastate Access revenues decreased $33 (7.3%) for the six-month
period ended June 30, 1996 when compared to the corresponding 1995
period. The decrease was due primarily to rate reductions of $71
compared with the same 1995 period, partially offset by increases
attributable to growth in minutes of use of 11.1%.
Toll revenues decreased $142 (26.0%) for the six-month period ended
June 30, 1996 when compared to the same prior year period. The
decrease was primarily attributable to the expansion of LACPs and
increased competition, the effect of which reduced toll messages by
25.5%.
Other Services revenues are principally comprised of revenues from
customer premises equipment (CPE) sales and maintenance services,
billing and collection services, cellular interconnect services,
publishing fees (1995 only) and other nonregulated services
(primarily inside wire services). Other Services revenues
decreased $249 (25.1%) for the six-month period ended June 30, 1996
when compared to the corresponding 1995 period.
The decrease was primarily due to the elimination of directory
publishing fees, which were $330 in the six-month period ended June
30, 1995 (see "Other Matters -- Affiliated Transactions"). The
decrease was partially offset by incremental rate impacts related
to potential sharing under certain state regulatory plans.
Operating Expenses
Total Operating Expenses increased $188 (3.6%) for the six-month
period ended June 30, 1996 compared to the same period in 1995. The
components of Total Operating Expenses were as follows:
For the Six
Months Ended
June 30,
1996 1995
Depreciation and Amortization $ 1,607 $ 1,511
Other Operating Expenses:
Cost of Services and
Products 2,544 2,558
Selling, General and
Administrative 1,222 1,116
3,766 3,674
Total Operating Expenses $ 5,373 $ 5,185
Depreciation and Amortization increased $96 (6.4%) for the six-
month period ended June 30, 1996 compared to the same period in
1995. The increase was due primarily to higher levels of property,
plant and equipment since June 30, 1995 and shorter depreciable
lives subsequent to the discontinuance of SFAS No. 71. The higher
levels of property, plant and equipment resulted from continued
growth in the business volumes and continued modernization of the
network.
Other Operating Expenses are comprised of Cost of Services and
Products and Selling, General and Administrative. Cost of Services
and Products includes employee and employee-related expenses
associated with network repair and maintenance, material and
supplies expense, cost of tangible goods sold and other expenses
associated with providing services. Selling, General and
Administrative includes expenses related to sales activities such
as salaries, commissions, benefits, travel, marketing and
advertising expenses and administrative expenses.
Other Operating Expenses increased $92 (2.5%) for the six-month
period ended June 30, 1996 when compared to the corresponding 1995
period. The increase for the period was due principally to higher
business volumes and initiatives to effectively position the
business for increased competition, partially offset by a decrease
of approximately $92 for labor costs in the core wireline business,
including expenses for employee benefits. The decrease in such
labor costs reflects net employee reductions in BellSouth
Telecommunications' telephone operations of approximately 6,000
since June 30, 1995 primarily attributable to previously-disclosed
restructuring and work force reduction plans, partially offset by
annual compensation increases for management and represented
employees.
Other Income Statement Items
The other income statement components were as follows:
For the Six
Months Ended
June 30,
1996 1995
Interest Expense $274 $290
Other Income, net 17 12
Provision for Income Taxes 621 641
Interest Expense decreased $16 (5.5%) for the six-month period
ended June 30, 1996 compared to the same period last year. The
decrease was primarily attributable to lower average interest rates
on borrowings due in part to refinancings during 1995, partially
offset by higher average debt balances.
Provision for Income Taxes decreased $20 (3.1%) for the six-month
period ended June 30, 1996 over the comparable 1995 period.
BellSouth Telecommunications' effective tax rates were 37.2% and
37.9% for the six months ended June 30, 1996 and 1995,
respectively.
REGULATORY DEVELOPMENTS AND COMPETITION
Federal Developments
In February 1996, Congress passed the Telecommunications Act of
1996 (the 1996 Act). Among its provisions, the 1996 Act preempts
state legislative and regulatory barriers to competition for local
telephone service, subject only to competitively neutral
requirements to assure quality service consistent with public
safety, convenience and consumer welfare. The 1996 Act also
includes requirements that incumbent local exchange carriers
(ILECs) unbundle network elements, capabilities and functions for
purchase by authorized competing companies. The price of these
unbundled items is calculated based on the cost of the item and may
include a reasonable profit. ILECs are also required to sell their
retail services to authorized competing local carriers for resale.
The 1996 Act provides that services to be resold are to be provided
to the competing companies at the ILECs' retail rates, discounted
for avoided costs.
In connection with the requirements of the 1996 Act, on August 8,
1996, the FCC released an order adopting rules governing
interconnection and open competition in the local telephone service
industry. Among the issues specifically addressed by the FCC order
are the network elements that ILECs must make available; pricing
guidelines to be followed by states in setting rates for
interconnection, unbundled network elements and resold services;
and access charges paid by interexchange carriers providing
competing local service. The FCC will address access charges and
universal service matters in subsequent proceedings, although an
interim access charge plan will lower access charges paid by
carriers that purchase unbundled network elements from ILECs. The
decision also reduces rates paid by wireless carriers for
connection to the wireline networks of the ILECs. BellSouth
Telecommunications is evaluating the impact that the order released
on August 8 will have on its operations. It will not be
possible to assess fully its implications until all likely
challenges thereto have been resolved and the state regulatory
commissions have addressed the related matters within their
jurisdictions.
State Developments
In order to comply with the requirements of the 1996 Act, all
states in BellSouth Telecommunications' local service area have
proceedings and other activities in progress to consider rules and
regulations necessary to implement open competition for local
service. Among the issues being addressed in these proceedings is
the level of discounts required to be offered by the ILECs to
competing local carriers.
A number of competing local carriers have been approved or have
filed applications to provide local service in many of the areas in
which BellSouth Telecommunications provides service. BellSouth
Telecommunications has executed 15 interconnection or resale
agreements with competing local carriers. BellSouth
Telecommuncations believes that a number of these agreements
address all of the 14 items required for interLATA authority
contained in the 1996 Act. BellSouth Telecommunications continues
to negotiate with a number of other telecommunications companies
and is also involved in arbitration proceedings with certain local
exchange competitors with whom BellSouth Telecommunications was
unable to reach agreements on all points negotiated.
Price regulation plans have been approved or authorized by the
requisite legislative or regulatory bodies in all states in the
BellSouth Telecommunications local service area.
Recent significant developments with respect to discounts to be
offered to competing local carriers, price regulation and other
related issues are discussed below.
Georgia. In second quarter 1996, the Georgia Public Service
Commission ordered a wholesale discount level of 20.3% for
residential services and 17.3% for business services, both of which
were greater than BellSouth Telecommunications' proposals and the
Commission Staff's recommendations (but less than proposed by other
carriers). The discount levels are to remain in effect for a 12-
month period from implementation after which the Commission will
conduct a review to determine if modification is necessary. After
reconsideration, the Commission also set out a time line starting
in the third quarter 1996 for electronic interface implementation
with competing local carriers.
On July 11, BellSouth Telecommunications appealed the Commission's
order to the Superior Court of Fulton County, Georgia.
North Carolina. In May 1996, the North Carolina Utilities
Commission modified a price regulation plan previously submitted by
BellSouth Telecommunications. The modified plan became effective
June 24, 1996. Under the terms of such plan, prices for residence
basic local exchange services are capped for three years, after
which any price increases are limited subject to an inflation-based
formula. For business basic local exchange, interconnection and
certain non-basic services, any increases in current prices are
also subject to inflation-based formulas. Prices for toll switched
access services are capped at current prices, after giving effect
to specified rate reductions ordered in conjunction with approval
of the price regulation plan. Such rate reductions, including the
toll switched access component and elimination of charges for touch-
tone service by the first anniversary of the plan, will total
approximately $60 over the next three years.
BUSINESS DEVELOPMENTS
In April 1996, BellSouth Telecommunications received approval from
the Florida Public Service Commission to provide competing local
service in other carriers' service areas. BellSouth
Telecommunications intends to offer local service in the near
future to business customers in parts of the Orlando market not
previously served by BellSouth Telecommunications.
BellSouth plans to begin offering interLATA wireline service within
its nine-state local service territory as soon as possible after
completion of FCC and state regulatory proceedings and satisfaction
of requirements arising out of these proceedings, expected to be
concluded in late 1996 or early 1997; however, it is uncertain when
BellSouth will be authorized to initiate such service.
In March, BellSouth began joint marketing of cellular and wireline
services in select markets. BellSouth expects to extend joint
marketing of such services throughout its service region by the end
of 1996.
OTHER MATTERS
Affiliated Transactions
Through 1995, BellSouth Telecommunications had a contractual
agreement with BellSouth Advertising & Publishing Corporation
(BAPCO), an affiliated company, wherein BAPCO published certain
telephone directories and in return paid publication fees to
BellSouth Telecommunications for publishing rights and other
services. For the six months ended June 30, 1995 and the year
ended December 31, 1995, these fees, included in Other Operating
Revenue, were $330 and $721, respectively.
In response to changes in the telecommunications environment,
including passage of the 1996 Act, and to enhance competitive
flexibility, BellSouth Telecommunications and BAPCO established a
new contract, based on fees for services rendered between the
companies, effective January 1, 1996. The new contract is expected
to generate fees of about $75 for BellSouth Telecommunications in
1996, resulting in projected BellSouth Telecommunications' 1996
revenues of about $625 less than they would have been under the old
contract.
Because BellSouth Telecommunications and BAPCO are wholly-owned
subsidiaries, BellSouth's consolidated financial results are not
affected by this change.
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit
Number
4 No instrument which defines the rights of holders of long and
intermediate term debt of BellSouth Telecommunications, Inc.
is filed herewith pursuant to Regulation S-K, Item
601(b)(4)(iii)(A). Pursuant to this regulation, BellSouth
Telecommunications, Inc. hereby agrees to furnish a copy of
any such instrument to the SEC upon request.
12 Computation of Ratio of Earnings to Fixed Charges.
27 Financial Data Schedule.
(b) Reports on Form 8-K:
None.
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 thereunto duly authorized.
BELLSOUTH TELECOMMUNICATIONS, INC.
By /s/ Patrick H. Casey
PATRICK H. CASEY
Vice President and Comptroller
(Principal Financial and
Accounting Officer)
August 12, 1996
EXHIBIT INDEX
Exhibit
Number
12 Computation of Ratio of Earnings to Fixed Charges.
27 Financial Data Schedule.
EXHIBIT 12
BellSouth Telecommunications Inc.
Computation Of Earnings To Fixed Charges
(Dollars In Millions)
For the Six
Months Ended
June 30,
1996
1. Earnings
(a) Income from continuing operations
before deductions for taxes and interest $1,944
(b) Portion of rental expense
representative of interest factor 30
TOTAL $1,974
2. Fixed Charges
(a) Interest $283
(b) Portion of rental expense
representative of interest factor 30
TOTAL $313
Ratio (1 divided by 2) 6.3
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
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<RECEIVABLES> 2,967
<ALLOWANCES> 82
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<PP&E> 44,758
<DEPRECIATION> 25,976
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0
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<COMMON> 7,398
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<SALES> 108
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