UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 1998.
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 1-6654
THE SOUTHERN NEW ENGLAND TELEPHONE COMPANY
(Exact name of registrant as specified in its charter)
Connecticut 06-0542646
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
227 Church Street, New Haven, CT 06510
(Address of principal executive offices) (Zip Code)
(203) 771-5200
(Registrant's telephone number,
including area code)
Not applicable
(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 REGISTRANT, A WHOLLY-OWNED SUBSIDIARY OF SOUTHERN NEW ENGLAND
TELECOMMUNICATIONS 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).
- 1 -
Form 10-Q - Part I The Southern New England Telephone Company
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
(Unaudited)
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
Dollars in Millions 1998 1997 1998 1997
Revenues
Local service $ 161.0 $ 167.7 $ 324.5 $ 337.1
Network access 111.6 107.4 217.5 210.0
Intrastate toll 48.5 51.6 97.8 105.0
Publishing and other 18.0 56.4 34.4 114.5
Total Revenues 339.1 383.1 674.2 766.6
Costs and Expenses
Operating and maintenance 185.5 201.6 366.7 404.7
Depreciation and amortization 74.8 79.3 148.9 156.7
Taxes other than income 11.5 11.9 23.0 23.4
Total Costs and Expenses 271.8 292.8 538.6 584.8
Operating Income 67.3 90.3 135.6 181.8
Interest expense 11.0 11.1 21.9 22.3
Other (expense) income, net (.7) (.1) (2.7) (.3)
Income Before Income Taxes 55.6 79.1 111.0 159.2
Income taxes 20.5 30.8 40.9 62.1
Income Before Extraordinary Charge 35.1 48.3 70.1 97.1
Extraordinary charge, net of
related taxes of $2.7 - - - (3.7)
Net Income $ 35.1 $ 48.3 $ 70.1 $ 93.4
Retained Earnings, Beginning
of Period $ 47.7 $ 97.7 $ 128.3 $ 92.6
Net income 35.1 48.3 70.1 93.4
Cash dividends declared to parent (25.1) (38.0) (55.9) (78.0)
Transfers pursuant to corporate
restructure (.6) - (85.4) -
Retained Earnings, End of Period $ 57.1 $ 108.0 $ 57.1 $ 108.0
The accompanying notes are an integral part of these financial statements.
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Form 10-Q - Part I The Southern New England Telephone Company
CONDENSED BALANCE SHEETS
Dollars in Millions June 30, 1998 December 31, 1997
(Unaudited)
Assets
Cash and temporary cash investments $ - $ 28.3
Accounts receivable, net of allowance
for uncollectibles of $14.2 and $19.4,
respectively 258.7 259.9
Accounts receivable from affiliates 24.2 86.4
Materials and supplies 15.3 14.7
Prepaid publishing - 35.8
Prepaid taxes 18.8 .6
Deferred income taxes and other
current assets 22.5 32.8
Total Current Assets 339.5 458.5
Total telephone plant, at cost 4,391.8 4,430.0
Accumulated depreciation (3,021.9) (3,028.7)
Net Telephone Plant 1,369.9 1,401.3
Deferred income taxes and other assets 103.5 93.7
Total Assets $1,812.9 $1,953.5
Liabilities and Shareholder's Equity
Accounts payable and accrued expenses $ 73.7 $ 166.9
Advance billings and customer deposits 31.9 46.4
Accounts and notes payable to affiliates 222.9 178.2
Other current liabilities 122.5 115.6
Total Current Liabilities 451.0 507.1
Long-term debt 667.2 667.1
Other liabilities and deferred credits 106.5 119.9
Total Liabilities 1,224.7 1,294.1
Common Stock; $12.50 par value;
30,428,596 shares issued and
30,385,900 outstanding 380.4 380.4
Proceeds in excess of par value 152.1 152.1
Retained earnings 57.1 128.3
Treasury stock; 42,696 shares, at cost (1.4) (1.4)
Total Shareholder's Equity 588.2 659.4
Total Liabilities and Shareholder's Equity $1,812.9 $1,953.5
The accompanying notes are an integral part of these financial statements.
- 3 -
Form 10-Q - Part I The Southern New England Telephone Company
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months Ended
June 30,
Dollars in Millions 1998 1997
Operating Activities
Net income $ 70.1 $ 93.4
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 148.9 156.7
Extraordinary charge, net of tax - 3.7
Change in operating assets and liabilities, net (19.9) (55.3)
Other, net 6.5 3.9
Net Cash Provided by Operating Activities 205.6 202.4
Investing Activities
Cash expended for capital additions (165.3) (190.4)
Other, net (1.4) 9.7
Net Cash Used by Investing Activities (166.7) (180.7)
Financing Activities
Net proceeds of short-term debt from affiliate 17.6 80.3
Repayment of long-term debt - (80.0)
Transfers pursuant to corporate restructure (12.2) -
Cash dividends paid (72.6) (73.0)
Other, net - (5.8)
Net Cash Used by Financing Activities (67.2) (78.5)
(Decrease) increase in Cash and Temporary
Cash Investments (28.3) (56.8)
Cash and temporary cash investments at
beginning of period 28.3 56.8
Cash and Temporary Cash Investments at
End of Period $ - $ -
Income Taxes Paid $ 4.8 $ 64.5
Interest Paid, net of amounts capitalized $ 21.8 $ 24.9
The accompanying notes are an integral part of these financial statements.
- 4 -
Form 10-Q - Part I The Southern New England Telephone Company
NOTES TO FINANCIAL STATEMENTS
(Dollars in Millions)
(Unaudited)
Note 1: Basis of Presentation
The Southern New England Telephone Company ("Telephone Company")
is a wholly-owned telephone operating subsidiary of Southern New
England Telecommunications Corporation ("Corporation"). The
condensed financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission
("SEC") and, in the opinion of management, include all
adjustments, which are normal and recurring in nature, necessary
for fair presentation for each period shown. 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 SEC rules and regulations. Management believes that the
disclosures made are adequate to make the information presented
not misleading. Operating results for any interim periods, or
comparisons between interim periods, are not necessarily
indicative of the results that may be expected for full fiscal
years. It is suggested that these financial statements be read
in conjunction with the financial statements and notes thereto
included in the Telephone Company's 1997 Annual Report on Form 10-K.
Note 2: Planned Merger
The Corporation and SBC Communications Inc. ("SBC"), on January
4, 1998, approved a definitive merger agreement whereby the
Corporation will become a wholly-owned subsidiary of SBC. On
March 27, 1998, the Corporation's shareholders approved the
merger.
On February 20, 1998, the Corporation and SBC filed a Joint
Application for Approval of a Change of Control with the
Department of Public Utility Control ("DPUC"). In addition, on
the same day, the Corporation and SBC filed with the Federal
Communications Commission ("FCC") Transfer of Control
Applications for various FCC licenses held by the Corporation.
In a draft decision issued by the DPUC on August 5, 1998, the
merger was approved subject to certain conditions, some of which
are new issues to this proceeding. However, the DPUC found no
economic basis on which to order a rate reduction. The Corporation
and SBC will require additional time to fully analyze the draft
decision. After giving careful consideration to all DPUC draft
conditions, written exceptions will be filed by August 21, 1998.
The final decision is expected on September 2, 1998.
At the federal level, a decision from the FCC is expected by year-
end 1998.
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Form 10-Q - Part I The Southern New England Telephone Company
Note 3: Corporate Restructure
As discussed in the Telephone Company's 1997 Annual Report on
Form 10 - K, in a decision issued June 25, 1997, the DPUC
approved the Corporation's proposal to establish separate
wholesale and retail organizations. As part of the restructure,
the directory publishing operations were transferred from the
Telephone Company and incorporated into a separate subsidiary of
the Corporation on January 1, 1998. In addition, the Telephone
Company made dividends to the Corporation that consisted
primarily of non-telephone-related fixed assets with a net book
value of approximately $37 and prepaid directory costs of
approximately $36. The fixed assets consisted of equipment
supporting the organizations which were transferred from the
Telephone Company, and included computers, corporate
communications equipment and motor vehicles. All
telecommunications network plant and property remained with the
Telephone Company to support its wholesale operations.
Additionally, net assets (including cash of approximately $12)
related to inside wire and voice mail operations were transferred
from the Telephone Company to other affiliated companies.
- 6 -
Form 10-Q - Part I The Southern New England Telephone Company
Item 2. Management's Discussion and Analysis
(Dollars in Millions)
Planned Merger
The Corporation and SBC Communications Inc. ("SBC"), on January
4, 1998, approved a definitive merger agreement whereby the
Corporation will become a wholly-owned subsidiary of SBC. On
March 27, 1998, the Corporation's shareholders approved the
merger.
On February 20, 1998, the Corporation and SBC filed a Joint
Application for Approval of a Change of Control with the
Department of Public Utility Control ("DPUC"). In addition, on
the same day, the Corporation and SBC filed with the Federal
Communications Commission ("FCC") Transfer of Control
Applications for various FCC licenses held by the Corporation.
In a draft decision issued by the DPUC on August 5, 1998, the
merger was approved subject to certain conditions, some of which
are new issues to this proceeding. However, the DPUC found no
economic basis on which to order a rate reduction. The Corporation
and SBC will require additional time to fully analyze the draft
decision. After giving careful consideration to all DPUC draft
conditions, written exceptions will be filed by August 21, 1998.
The final decision is expected on September 2, 1998.
At the federal level, a decision from the FCC is expected by year-
end 1998.
Corporate Restructure
As discussed in the Telephone Company's 1997 Annual Report on
Form 10 - K, in a decision issued June 25, 1997, the DPUC
approved the Corporation's proposal to establish separate
wholesale and retail organizations. As part of the restructure,
the directory publishing operations were transferred from the
Telephone Company and incorporated into a separate subsidiary of
the Corporation on January 1, 1998. In addition, the Telephone
Company made dividends to the Corporation that consisted
primarily of non-telephone-related fixed assets with a net book
value of approximately $37 and prepaid directory costs of
approximately $36. The fixed assets consisted of equipment
supporting the organizations which were transferred from the
Telephone Company, and included computers, corporate
communications equipment and motor vehicles. All
telecommunications network plant and property remained with the
Telephone Company to support its wholesale operations.
Additionally, net assets (including cash of approximately $12)
related to inside wire and voice mail operations were transferred
from the Telephone Company to other affiliated companies.
- 7 -
Form 10-Q - Part I The Southern New England Telephone Company
Comparison of six months ended June 30, 1998 vs. six months ended
June 30, 1997
Operating Results
Income before extraordinary charge was $70.1 in 1998 compared
with $97.1 in 1997. The decrease in results of operations is due
primarily to the transfer of directory publishing operations,
inside wire and voice mail operations from the Telephone Company
to affiliated companies, in conjunction with the Corporate
restructure. Also negatively impacting the comparison of current
year results to prior year results is the absence of payphone
operations which the Telephone Company transferred to an
affiliated company in April 1997 in conjunction with the pay
telephone reclassification and compensation provisions of the
Federal Telecommunications Act of 1996 ("Act").
Revenues and Sales
For the Six Months Ended June 30, 1998 1997
Local service $324.5 $337.1
Network access 217.5 210.0
Intrastate toll 97.8 105.0
Publishing and other 34.4 114.5
Total Revenues $674.2 $766.6
Local service revenues, derived from providing local exchange,
advanced calling features and local private line services,
decreased $12.6, or 3.7%, in 1998. The decrease was due
primarily to the January 1998 transfer of inside wire operations
to an affiliated company, in conjunction with the Corporate
restructure, and the April 1997 transfer of payphone operations
to an affiliate in conjunction with the pay telephone
reclassification and compensation provisions of the Act. Also
negatively impacting revenue was continued customer migration to
discount calling plans such as Centralink 1100. Partially
offsetting these decreases was the increase in revenues caused
by the continued strong growth of 4.9% in access lines in
service to approximately 2,313,000 at June 30, 1998. This
increase included significant growth in Centrex business lines
and second residential lines. Local service revenues also
increased due to growth in vertical services, primarily
SmartLink [R] advanced calling features, including Caller ID, missed
call dialing, call blocking and call tracing. In addition,
revenues increased as a result of increased directory assistance
revenue (related to increased rates and the elimination of free
calls) and increased private line revenue. Management expects
increased competition to negatively impact local service
revenues as other telecommunications providers offer local
service and as the DPUC- mandated balloting process commences.
[see Competition].
Network access revenues, generated primarily from intrastate and
interstate services, increased $7.5, or 3.6%. Intrastate access
revenues increased $8.1, or 38.8%, due primarily to an increase
in demand by competitive providers of intrastate long-distance
service. Interstate access revenues decreased $.6, or .3%, due
primarily to the effects of regulatory mandates (price cap and
access reform orders), partially offset by increases resulting
from growth in special access revenue and increased access
lines. Also contributing to revenues is the recovery of amounts
paid to fund Universal Service, in accordance with FCC
regulation. Management expects the aforementioned regulatory
mandates to continue to place downward pressure on network
access revenues.
Intrastate toll revenues, which include primarily revenues from
toll and WATS services, decreased $7.2, or 6.9%. The decrease
was due primarily to a 6.9% reduction in toll message volume, as
well as reduced intrastate toll rates. Lower toll volume was due
primarily to the highly competitive toll market as a result of
full intrastate equal access. The decline in rates was
attributable to customer migration to
- 8 -
Form 10-Q - Part I The Southern New England Telephone Company
discount calling plans that provide competitive options to
business and residential customers. Increasing competition and
the offering of competitive discount calling plans will continue
to place downward pressure on intrastate toll revenues.
The $80.1 decrease in publishing and other revenues is due
primarily to the transfer of directory publishing operations to
an affiliated company in January 1998 in conjunction with the
Corporate restructure.
Costs and Expenses
For the Six Months Ended June 30, 1998 1997
Operating costs $366.7 $404.7
Depreciation and amortization 148.9 156.7
Taxes other than income 23.0 23.4
Total Costs and Expenses $538.6 $584.8
Operating costs - Operating costs consist primarily of employee-
related expenses, including wages and benefits. Cost of services
and general and administrative expenses, including marketing,
represent the remaining portion of these expenses. Total
operating costs decreased $38.0, or 9.4%. The decrease was
caused primarily by the transfer of directory publishing
operations, inside wire and voice mail operations from the
Telephone Company to affiliated companies (in conjunction with
the Corporate restructure) and the 1997 transfer of payphone
operations to an affiliated company in conjunction with the pay
telephone reclassification and compensation provisions of the
Act. Partially offsetting the decrease were costs incurred in
connection with local number portability and payments to fund
Universal Service (in accordance with FCC regulation).
Depreciation and amortization - Depreciation and amortization
expense decreased $7.8, or 5.0%, due primarily to the transfer of
assets to affiliated companies in conjunction with the Corporate
restructure.
Taxes other than income - Taxes other than income were flat.
Interest Expense and Other (Expense) Income, net
For the Six Months Ended June 30, 1998 1997
Interest expense $21.9 $22.3
Other (expense) income, net $(2.7) $ (.3)
Interest expense was flat. The increase in other (expense)
income, net was due primarily to contract cancellation fees.
Income Taxes
For the Six Months Ended June 30, 1998 1997
Income taxes $40.9 $62.1
The decrease in income taxes is due primarily to a decrease in
income before income taxes. The exclusion from pre-tax income of
directory publishing in 1998 caused tax credits, which remained
relatively flat, to have a greater impact in reducing the
effective tax rate when compared to 1997.
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Form 10-Q - Part I The Southern New England Telephone Company
Comparison of balances June 30, 1998 vs. December 31, 1997
The decrease in cash and temporary investments is due primarily
to the transfer of directory publishing, inside wire and voice
mail to affiliated companies.
Accounts receivable from affiliates decreased because the
Telephone Company was reimbursed for payments it made in 1997,
related to activities which were transferred as part of the
Corporate restructure.
The decrease in prepaid publishing, allowance for uncollectibles,
advance billings and customer deposits is due primarily to
transfer of directory publishing operations to an affiliated
company, pursuant to the Corporate restructure.
The increase in prepaid taxes is due primarily to real estate
taxes which are fully amortized by year end.
Deferred income taxes and other current assets decreased with a
corresponding increase in deferred income taxes and other assets
as a result of a reclassification of deferred taxes from current
to noncurrent.
The decrease in accounts payable and accrued expenses is due
primarily to the Telephone Company's transfer of disbursement and
cash processing functions to the Corporation.
Contributing to the increase in accounts and notes payable to
affiliates are increased borrowings from the Corporation to cover
a cash shortfall resulting from the transfer of directory
publishing and inside wire operations to affiliated companies.
Also contributing to the increase are revenue collections made by
the Telephone Company which are then remitted to the directory
publishing subsidiary of the Corporation.
Liquidity and Capital Resources
The Telephone Company generated cash flows from operations of
$205.6 during the six months ended June 30, 1998 as compared with
$202.4 during the six months ended June 30, 1997. Capital
expenditures were the primary use of Telephone Company funds.
The decrease in income taxes paid is due to a change in the method
of calculating estimated tax payments, as well as the timing of
remitting estimated tax payments to the Corporation.
On February 18, 1997, the Telephone Company redeemed $80.0 of
8.70% medium-term notes, resulting in an extraordinary charge of
$3.7, net of related taxes of $2.7, for early extinguishment of
debt.
Competition
The Telephone Company continues to experience an increasingly
competitive environment with respect to telecommunications
services in Connecticut. Competitors include companies that
construct and operate their own communications systems and
networks and/or companies that resell the telecommunications
systems and networks of underlying carriers. Local service
competition continues
- 10 -
Form 10-Q - Part I The Southern New England Telephone Company
to grow in 1998. There have been over 40 certified local
exchange carriers approved by the DPUC to provide local service
in Connecticut. Competition is expected to intensify
particularly upon commencement of the DPUC-mandated balloting
process which could begin as early as mid-1999, depending on the
resolution of operation support systems and other issues.
However, the financial impact cannot be predicted at this time.
Based on existing state and federal regulations, the Telephone
Company expects that many competitors will resell its network and
that increased network access revenues will offset a significant
portion of local service revenues lost to competition.
Regulatory Matters
Federal
On June 16, 1998, the Telephone Company filed its 1998 annual
interstate access price cap revisions which took effect July 1,
1998. The filing would decrease interstate network access rates
by approximately $10 for the period July 1, 1998 to June 30,
1999.
In 1997, the FCC released an Order on Universal Service which
changed the federal subsidy mechanisms and established new
subsidy programs for Schools, Libraries, and Rural Healthcare
providers. Effective January 1, 1998, all interstate
telecommunications service providers fund these support
mechanisms based on their retail revenues. The funding for the
high cost and low income support comes from an assessment on
interstate retail revenues, while the funding for the
Education, Library, and Rural Healthcare support comes from an
assessment on both interstate and intrastate retail revenues.
The Order established a nationwide annual cap for the Schools
and Libraries Fund of $2.25 billion and $.4 billion for the rural
Healthcare fund.
On June 22, 1998, the FCC released its Fifth Order on
Reconsideration and 4th Report and Order in the Universal Service
proceeding. In that order, the FCC did not adjust the annual
caps for the new funds; rather, they adjusted the maximum amounts
that may be collected and spent during 1998 and the first six
months of 1999. Specifically, the FCC directed that nationwide,
no more than $100 be committed for the Rural Health Care program
in 1998 and no more than $1.925 billion be committed for the
Schools and Libraries program for 1998 and the first two quarters
of 1999. On an annual basis, the Telephone Company's
contribution to the Universal Service Fund is estimated to be
approximately $10. This expense is offset through interstate
access rates.
The FCC released its Third Report and Order on May 12, 1998, on
Cost Recovery for Long-Term Number Portability ("LNP"). LNP
refers to the customer's ability to retain the same local
telephone number after changing to a new local service provider.
The FCC determined that incumbent local exchange carriers may
recover some portion of the cost of implementing LNP over five
years (beginning at the earliest in the first quarter of 1999),
through monthly charges to end users. In addition, recovery of
LNP costs will be accomplished through ongoing charges for LNP
query services performed for other carriers.
State
Effective April 1, 1996, the DPUC replaced traditional rate of
return regulation with alternative (price-based) regulation,
during the transition to full competition. Alternative
regulation includes a five-year monitoring period on financial
results and a price cap formula applied to certain services
categorized as non-competitive. In a draft decision, the DPUC
set forth requirements for the Telephone Company's price cap
filing for the rate year June 1, 1998 to May 31, 1999. The draft
decision requires the
- 11 -
Form 10-Q - Part I Southern New England Telephone Company
application of the price cap formula to revenues from basic local
residential service, basic local business service and directory
assistance services which, under alternative regulation, were
previously subject to a rate cap which expired on January 1,
1998. If the draft decision is not modified, the Telephone
Company will be required to reflect reduced revenues associated
with these services for the period January 1, 1998 to May 31,
1998, as well as revenues for applicable non-competitive retail
services for the rate year June 1, 1998 to May 31, 1999. While
the DPUC concurred with the Telephone Company that it is not
desirable to lower the price of basic local residential service
further below cost, the Telephone Company may be required to
lower rates for other non-competitive services to reflect the
revenue impact of applying the price cap formula to basic local
residential service. The Telephone Company has submitted written
exceptions to the draft decision and has presented oral arguments
to the DPUC. If the draft decision is not amended, an estimated
$20 of revenue reductions will occur over the rate year June 1,
1998 to May 31, 1999. A final decision is expected in the third
quarter of 1998.
In final decisions, the DPUC denied the Telephone Company's
application to reclassify private line services, direct inward
dialing, hunting services and custom calling service from the non-
competitive to the emerging-competitive category. Approval to
reclassify these services to emerging-competitive would have
placed them outside the price cap formula. The impact of these
decisions, which approximates $3, have been included in the
previously-discussed $20 revenue reduction associated with the
June 1, 1998 to May 31, 1999 rate year.
As part of its June 25, 1997 decision allowing the Corporation to
restructure and establish separate retail (CLEC) and wholesale
(i.e., incumbent local exchange carrier or "ILEC") organizations,
the DPUC mandated that Connecticut customers choose their local
exchange carrier via a balloting process. In order for the
balloting process to commence, the ILEC must demonstrate that the
systems offered to all CLECs provide full technical and
operational support on a comparable basis. The DPUC will examine
and critically evaluate the respective Operation Support Systems
("OSS") platforms offered to the CLECs. The DPUC's evaluation
will determine the suitability of the ILEC's OSS to support a
competitive local exchange market and will determine if the
interfaces proposed by the ILEC offer the comparability required
under the provisions of the Federal Telecommunications Act of
1996. On February 25, 1998, the DPUC issued a draft decision in
the OSS docket and concluded that by providing access to the same
system that the Corporation's CLEC would use, the ILEC has
provided a comparable interface. On July 13, 1998, the Telephone
Company notified the DPUC it has completed the implementation of
its OSS Plan filed with the DPUC in March 1998. The
Telephone Company will demonstrate its Wholesale Customer
Information Window interface at the DPUC on August 26, 1998.
Hearings in the OSS Docket are scheduled for September 1-4 with a
final decision due from the Department on November 18, 1998.
In February 1998, the DPUC opened two new dockets to examine the
provision of: (i) combinations of unbundled network elements
("UNE") and (ii) shared transport to CLECs. In a final decision,
the DPUC has required that the Telephone Company offer UNE
combinations. UNE combinations have not yet been defined and
this will be the subject of ongoing proceedings in the docket.
The price of the UNE combinations will not be known until after
the UNE combinations are defined and a further proceeding on the
pricing is conducted. Thus, the revenue impact is unknown until
these two steps are completed. On July 24, 1998, the Telephone
Company requested the DPUC to reconsider the decision. The
Telephone Company believes that the order requiring the
provisioning of rebundled UNEs is inconsistent with federal law
as interpreted by the Eighth Circuit Court of Appeals. A
decision in the shared transport docket is expected in the third
quarter of 1998. Both decisions may affect existing
interconnection agreements between the ILEC and CLECs operating
in Connecticut. Included in its June 25, 1997 decision, the DPUC
directed the Telephone Company to initiate a "Fresh Look" period
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Form 10-Q - Parts I & II The Southern New England Telephone Company
from January 1, 1998 until June 1, 1998, on all non-competitive
services sold under contracts to its customers. During the
"Fresh Look" period any Telephone Company customer who elected to
obtain the contracted service from an alternative service
provider would not be liable to pay a termination penalty to the
Telephone Company as a condition of its contract. The "Fresh
Look" period did not have a significant impact on the Telephone
Company.
Employee Matters
The Telephone Company's bargaining unit employees are represented
by the Connecticut Union of Telephone Workers, Inc. ("CUTW"). In
early July 1998, it was announced that CUTW members had voted to
affiliate with the Communications Workers of America.
At June 30, 1998, 77% of the Telephone Company's employees were
represented by the CUTW. The current labor agreement will expire
on August 8, 1998. Management and union officials are in the
process of negotiating a new labor agreement.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There were no material developments in the second
quarter of 1998.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit
(27) Financial Data Schedule
(b) Reports on Form 8-K
On April 27, 1998, the Telephone Company filed a report
on Form 8-K, dated April 24, 1998, announcing the
Corporation's financial results for the first quarter of
1998.
On July 27, 1998, the Telephone Company filed a report
on Form 8-K, dated July 27, 1998 announcing the
Corporation's financial results for the second quarter
of 1998.
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Form 10-Q - Part II The Southern New England Telephone Company
SIGNATURES
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.
The Southern New England Telephone Company
August 6, 1998
/s/ Donald R. Shassian
Donald R. Shassian
Senior Vice President and Chief Financial Officer
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
2ND QUARTER OF 1998 FORM 10-Q OF THE SOUTHERN NEW ENGLAND TELEPHONE
COMPANY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
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<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
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<SECURITIES> 0
<RECEIVABLES> 297,100
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<INVENTORY> 15,300
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<PP&E> 4,391,800
<DEPRECIATION> 3,021,900
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<CURRENT-LIABILITIES> 451,000
<BONDS> 667,200
0
0
<COMMON> 380,400
<OTHER-SE> 207,800
<TOTAL-LIABILITY-AND-EQUITY> 1,812,900
<SALES> 0
<TOTAL-REVENUES> 674,200
<CGS> 0
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<INCOME-TAX> 40,900
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<DISCONTINUED> 0
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</TABLE>
