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Southern New England Telecommunications Corp – ‘10-Q’ for 6/30/98

As of: Thursday, 8/6/98 · For: 6/30/98 · Accession #: 790650-98-18 · File #: 1-09157

  As Of                Filer                Filing    For·On·As Docs:Size

 8/06/98  Southern New England Teleco… Corp 10-Q        6/30/98    2:44K

Quarterly Report — Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        2nd Qtr                                               20±    76K 
 2: EX-27       Financial Data Schedule                                1      7K

10-Q — 2nd Qtr
Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Exhibits and Reports on Form 8-K Legal Proceedings MANAGEMENT'S DISCUSSION AND ANALYSIS (Dollars in Millions, Except Per Share Amounts) Submission of Matters to a Vote of Security Holders
1	1st Page - Filing Submission
"	Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (Dollars in Millions, Except Per Share Amounts)
"	Item 1. Legal Proceedings
"	Item 4. Submission of Matters to a Vote of Security Holders
"	Item 6. Exhibits and Reports on Form 8-K


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 1-9157                                                   

SOUTHERN NEW ENGLAND TELECOMMUNICATIONS CORPORATION               
(Exact name of registrant as specified in its charter)                

Connecticut                     06-1157778            
(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 .                                

At the settlement date of July 31, 1998, 68,322,715 Common shares               
were outstanding.               

- 1 -                 

Form 10-Q - Part I   Southern New England Telecommunications Corporation        

PART I - FINANCIAL INFORMATION                
Item 1.  Financial Statements                                                   

CONDENSED, CONSOLIDATED STATEMENTS OF INCOME                

                                   (Unaudited)
                                   For the Three       For the Six
                                    Months Ended        Months Ended
                                    June 30,            June 30,
Dollars in Millions, Except Per          1998      1997      1998      1997     
Share Amounts                                                                 

Revenues and Sales                     $ 538.6   $ 501.6  $ 1,065.7   $ 984.3   

Costs and Expenses                                                              
Operating and maintenance                322.4     295.3      627.8     576.9   
Depreciation and amortization             95.8      94.4      190.8     186.0   
Taxes other than income                   13.5      13.4       26.4      26.5   
Total Costs and Expenses                 431.7     403.1      845.0     789.4   

Operating Income                         106.9      98.5      220.7     194.9   
Interest expense                          22.3      22.4       44.9      45.1   
Other income, net                           .4       3.9        (.6)      4.0   

Income Before Income Taxes                85.0      80.0      175.2     153.8   
Income taxes                              31.9      30.0       65.7      57.7   

Income Before Extraordinary Charge and                                          
Cumulative Effect of Accounting Change   53.1      50.0      109.5      96.1  
Extraordinary charge, net of related                                            
taxes of $2.7                              -         -          -       (3.7) 
Cumulative effect of accounting change                                          
to January 1, 1998, net of related taxes                                      
of $10.8                                   -         -        15.5        -   

Net Income                             $  53.1   $  50.0   $  125.0   $  92.4   

Weighted Average Common Shares                                                  
Outstanding (in thousands)                                                    
Basic                                   68,025    65,912     67,627    65,848   
Assuming Dilution                       68,636    66,016     68,317    65,930   

Basic Earnings Per Share                                                        
Income before extraordinary charge                                              
and cumulative effect of accounting                                           
change                               $    .78  $    .76   $   1.62  $   1.46  
Extraordinary charge, net of tax           -         -          -        (.06)  
Cumulative effect of accounting                                                 
change to January 1, 1998, net                                                
of related taxes                          -         -          .23       -    

Basic Earnings Per Share              $    .78  $    .76   $   1.85  $   1.40   

Diluted Earnings Per Share                                                      
Income before extraordinary                                                     
charge and cumulative effect of                                               
accounting change                    $    .77  $    .76   $   1.60  $   1.46  
Extraordinary charge, net of tax           -         -          -        (.06)  
Cumulative effect of  accounting                                                
change to January 1, 1998, net                                                
of related taxes                          -         -          .23       -    
Diluted Earnings Per Share            $    .77  $    .76   $   1.83  $   1.40   

Dividends Declared Per Share          $    .44  $    .44   $    .88  $    .88   

The accompanying notes are an integral part of these financial statements.      

- 2 -                 

Form 10-Q - Part I   Southern New England Telecommunications Corporation        

CONDENSED, CONSOLIDATED BALANCE SHEETS                

Dollars in Millions, Except Per                                                 
Share Amounts                             June 30, 1998   December 31, 1997   
                   (Unaudited)
Assets                                                                          
Cash and temporary cash investments          $     11.5       $     12.3        
Accounts receivable, net of allowance                                           
for uncollectibles of $44.2 and $32.5,                                        
respectively                                     378.3            327.9       
Materials, supplies and inventories                29.3             29.8        
Prepaid publishing                                 14.0             35.9        
Deferred income taxes                              31.1             37.7        
Prepaid taxes                                      19.8              1.3        
Other current assets                                2.4              9.7        
Total Current Assets                              486.4            454.6        
Property, plant and equipment, at cost          4,983.7          4,917.0        
Accumulated depreciation                       (3,225.3)        (3,200.2)       
Property, plant and equipment, net              1,758.4          1,716.8        
Intangible assets, net                            384.9            394.7        
Deferred income taxes                              69.6             89.7        
Leases and other assets                           137.6            115.1        
Total Assets                                   $2,836.9         $2,770.9        

Liabilities and Shareholders' Equity                                            
Accounts payable and accrued expenses         $   213.4        $   266.8        
Short-term debt                                   179.9            186.3        
Advance billings and customer deposits             50.4             64.4        
Other current liabilities                         165.1            140.1        
Total Current Liabilities                         608.8            657.6        
Long-term debt                                  1,146.5          1,156.9        
Accrued postretirement benefit obligation         256.0            267.0        
Other liabilities and deferred credits             87.8             92.2        
Total Liabilities                               2,099.1          2,173.7        
Common Stock; $1.00 par value;                                                  
300,000,000 shares authorized;                                                
70,314,746 and 68,896,854 issued,                                             
respectively                                      70.3             68.9       
Proceeds in excess of par value                   690.2            622.1        
Retained earnings                                  92.4             26.8        
Treasury stock; 2,230,586 shares, at cost         (84.7)           (84.7)       
Unearned compensation related to ESOP             (30.4)           (35.9)       
Total Shareholders' Equity                        737.8            597.2        
Total Liabilities and Shareholders' Equity     $2,836.9         $2,770.9        

The accompanying notes are an integral part of these financial statements.      

- 3 -                 

Form 10-Q - Part I   Southern New England Telecommunications Corporation        

CONDENSED, CONSOLIDATED STATEMENTS OF CHANGES IN                
SHAREHOLDERS' EQUITY                

                                   (Unaudited)
                                   For the Three       For the Six
                                    Months Ended        Months Ended
                                    June 30,            June 30,
Dollars in Millions                      1998      1997      1998     1997      

Common Stock, Par Value                                                         
Balance at Beginning of Period        $   69.9  $   68.6  $  68.9  $   68.4   
Common shares issued, at market:                                              
Dividend reinvestment plan                 .1        .1       .2        .2  
Savings and incentive plans                .3        -       1.2        .1  
Balance at End of Period              $   70.3  $   68.7  $  70.3  $   68.7   

Proceeds in Excess of Par Value                                                 
Balance at Beginning of Period        $  671.5  $  608.2  $ 622.1  $ 602.8    
Common shares issued, at market:                                              
Dividend reinvestment plan                3.2       3.4      6.2      6.8   
Savings and incentive plans              10.9       1.5     46.5      3.5   
Tax benefit on stock options exercised     4.6        -      15.4       -     
Balance at End of Period              $  690.2  $  613.1  $ 690.2  $ 613.1    

Retained Earnings (Deficit)                                                     
Balance at Beginning of Period        $   69.0  $  (42.1) $  26.8  $ (55.7)   
Net income                                53.1      50.0    125.0     92.4    
Dividends declared                       (29.9)    (29.0)   (59.6)   (58.0)   
Tax benefit of dividends declared                                             
on unallocated shares held in ESOP         .2        .2       .2       .4   
Balance at End of Period              $   92.4  $  (20.9) $  92.4  $ (20.9)   

Treasury Stock                                                                  
Balance at Beginning and                                                      
End of Period                        $  (84.7) $(104.7)  $ (84.7) $(104.7)  

Unearned Compensation Related                                                   
To Employee Stock Ownership Plan                                              
Balance at Beginning of Period        $  (33.1) $ (44.4)  $ (35.9) $ (47.8)   
Reduction of ESOP debt                      -        -        8.8      8.1    
ESOP earned compensation accrual           2.7      2.8      (3.3)    (1.9)   
Balance at End of Period              $  (30.4) $ (41.6)  $ (30.4) $ (41.6)   

Total Shareholders' Equity             $  737.8  $ 514.6   $ 737.8  $ 514.6     

The accompanying notes are an integral part of these financial statements.      

- 4 -                 

Form 10-Q - Part I   Southern New England Telecommunications Corporation        

CONDENSED, CONSOLIDATED STATEMENTS OF CASH FLOWS                

                                                 (Unaudited)
                                                For the Six Months Ended
                                                June 30,
Dollars in Millions                                     1998         1997       

Operating Activities                                                            
Net income                                          $   125.0   $    92.4     
Adjustments to reconcile net income to                                        
net cash provided by operating activities:                                  
Depreciation and amortization                         190.8       186.0   
Extraordinary charge, net of tax                         -          3.7   
Cumulative effect of accounting change, net of tax    (15.5)         -    
Change in operating assets and liabilities, net       (70.9)      (43.4)  
Other, net                                             18.9         7.1   
Net Cash Provided by Operating Activities:              248.3       245.8     

Investing Activities                                                            
Cash expended for capital additions                    (229.4)     (207.9)    
Other, net                                               (2.7)       17.3     
Net Cash Used by Investing Activities                  (232.1)     (190.6)    

Financing Activities                                                            
Proceeds from long-term debt                               -        100.0     
Repayments of long-term debt                             (1.9)      (86.6)    
Net payments of short-term debt                          (8.6)      (14.6)    
Stock purchases under employee stock option plans        46.2         2.1     
Cash dividends paid                                     (52.7)      (50.8)    
Other, net                                                 -         (6.6)    
Net Cash Used by Financing Activities                   (17.0)      (56.5)    

(Decrease) Increase in Cash and                                                 
Temporary Cash Investments                                (.8)       (1.3)    

Cash and temporary cash investments at                                          
beginning of period                                      12.3         9.0     

Cash and Temporary Cash Investments at                                          
End of Period                                      $     11.5     $   7.7     

Income Taxes Paid                                   $      4.5     $  53.1      

Interest Paid, net of amounts capitalized           $     45.1     $  45.1      

The accompanying notes are an integral part of these financial statements.      

- 5 -                 

Form 10-Q - Part I   Southern New England Telecommunications Corporation        

NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS               
(Dollars in Millions, Except Per Share Amounts)               
(Unaudited)               

Note 1:  Significant Accounting Policies                                        

Basis of Presentation                                                           

The  condensed, consolidated financial statements of the Southern               
New  England Telecommunications Corporation ("Corporation")  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 consolidated 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  condensed, consolidated financial statements  be  read  in               
conjunction with the consolidated financial statements and  notes               
thereto included in the Corporation's 1997 Annual Report on  Form               
10-K.                                                                           

Accounting Principle Change                                                     

Effective January 1, 1998, the Corporation changed its method  of               
accounting  for directory publishing revenues and expenses.   The               
old accounting method recognized revenues and expenses related to               
publishing  directories using the "amortization"  method.   Under               
this method, revenues and expenses were recognized over the lives               
of the directories, generally one year.  Under the new "point-of-               
publication"  or "as issued basis" method, revenues and  expenses               
are  recognized when the directories are published.   The  change               
was  made  because it is the preferable method generally followed               
in  the  publishing  industry  and better  reflects  the  current               
operating activity of the business.                                             

The  cumulative  after-tax  effect of  applying  this  accounting               
change to prior years was recognized as of January 1, 1998  as  a               
one-time,  non-cash gain of $15.5, or $.23 per share (both  basic               
and  diluted).   The gain is net of applicable  income  taxes  of               
$10.8.   The application of the new accounting method during  the               
second quarter of 1998 increased net income by approximately $.6,               
or  $0.01  per  share (both basic and diluted) and  approximately               
$4.6  or  $0.07 per share (both basic and diluted)  for  the  six               
month period.                                                                   

On  an  annual  basis, the financial impact of applying  the  new               
accounting  method  to  1997 was not material.   Pro  forma  1997               
results,  assuming  the new accounting method  had  been  applied               
retroactively during the prior period, are as follows:                          

                           For the Three       For the Six
                             Months Ended       Months Ended
                             June 30, 1997       June 30, 1997
                           Pro        As       Pro        As
                               Forma    Reported   Forma    Reported
Income before extraordinary item     $ 50.6    $ 50.0   $  100.7   $   96.1     
Earnings per share                                                          
- basic and diluted              $  .77    $  .76   $   1.53   $   1.46 

Net income                           $ 50.6    $ 50.0   $   97.0   $   92.4     
Earnings per share                                                          
- basic and diluted              $  .77    $  .76   $   1.47   $   1.40 

- 6 -                 

Form 10-Q - Part I  Southern New England Telecommunications Corporation         

New Accounting Standard                                                         

In February 1998, the Financial Accounting Standards Board issued               
SFAS  No.  132, "Employers' Disclosures about Pensions and  Other               
Postretirement Benefits" ("SFAS No. 132").  SFAS No. 132  revises               
certain  disclosures  employers  make  about  pension  and  other               
postretirement   benefit   plans  and   will   not   impact   the               
Corporation's  consolidated financial  position  and  results  of               
operations.  The Corporation will adopt SFAS No. 132 at  year-end               
1998.                                                                           

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.                                                                       

In addition, all notices and applications for transfer of control               
have  been  filed  in the states in which SNET America,  Inc.,  a               
wholly-owned subsidiary of the Corporation, has authorization  to               
provide  resold  interexchange  telecommunications  services.   A               
number of approvals have been received, with the balance expected               
by year end 1998.                                                               

- 7 -                 

Form 10-Q - Part I  Southern New England Telecommunications Corporation         

Note 3:  Supplemental Financial Information                                     

Operating Cash Flow(1)  The following unaudited financial data on               
the  Corporation's  product groups is not required  by  generally               
accepted  accounting principles and is provided for informational               
purposes only:                                                                  

                                  For the Three        For the Six
                                   Months Ended         Months Ended
                                   June 30,             June 30,
                                   1998      1997       1998      1997
Wireline                              $155.1    $149.9     $317.2    $293.8     
Wireless                                20.4      15.5       35.2      28.5     
Information and entertainment (2)       18.9      23.5       47.2      48.8     
Other(3)                                 8.3       4.0       11.9       9.8     
Total                                 $202.7    $192.9     $411.5    $380.9     

(1)  Represents operating income before depreciation and                        
amortization. Operating cash flow is not a generally accepted         
accounting principle measurement.                                     
(2)  Reflects the change in accounting for directory publishing                 
and costs associated with the corporate restructure of                
directory publishing operations into a separate subsidiary of         
the Corporation on January 1, 1998.                                   
(3)  Includes SNET Real Estate, Inc. and holding company                        
operations.                                                           

- 8 -                 

Form 10-Q - Part I  Southern New England Telecommunications Corporation         

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS                                    
(Dollars in Millions, Except Per Share Amounts)         

Southern     New    England    Telecommunications     Corporation               
("Corporation")   has   business   units   in    the    following               
telecommunications  product  groups:   wireline;  wireless;   and               
information  and  entertainment.   Wireline  includes   telephone               
related  services, premium services and equipment sales; wireless               
consists  of cellular and paging services and cellular  equipment               
sales;  and  information and entertainment  includes  publishing,               
internet  and cable television services.  Other activities,  such               
as  real estate and holding company operations, are included with               
eliminations and other sales.                                                   

Planned Merger                                                                  

On  January  4, 1998 the Corporation and SBC Communications  Inc.               
("SBC")    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.                                                                       

In addition, all notices and applications for transfer of control               
have  been  filed  in the states in which SNET America,  Inc.,  a               
wholly-owned subsidiary of the Corporation, has authorization  to               
provide  resold  interexchange  telecommunications  services.   A               
number of approvals have been received, with the balance expected               
by year end 1998.                                                               

Comparison  of  the periods ended June 30, 1998 vs.  the  periods               
ended June 30, 1997                                                             

Operating Results                                                               

Income  before  extraordinary charge and  cumulative  effect  of              
accounting  change  was $53.1, or $.77 per  diluted  share,  and              
$109.5, or $1.60 per diluted share, for the three and six months              
ended June 30, 1998, respectively.  The corresponding periods in              
1997  generated income before extraordinary charge of $50.0,  or              
$.76 per diluted share, and $96.1, or $1.46 per diluted share.                

- 9 -                 

Form 10-Q - Part I  Southern New England Telecommunications Corporation         

Revenues and Sales                                                              

                                          For the Three    For the Six
                                           Months Ended     Months Ended
                                             June 30,         June 30,
                                           1998     1997     1998     1997
Wireline:                                                                       
Local service                              $181.7   $175.4    $365.6  $344.8  
Network access                              113.6    107.4     221.8   210.0  
Intrastate toll                              49.9     52.2     100.7   105.6  
Interstate and international toll            40.6     34.4      81.8    64.9  
Premium services and equipment sales         34.4     27.7      62.1    55.4  
Other revenues                               14.2     10.9      27.2    23.3  
Total Wireline                              434.4    408.0     859.2   804.0  
Wireless:                                                                       
Cellular service                             62.2     54.8     116.3   101.8  
Cellular equipment sales                      2.4      2.2       4.7     4.4  
Paging                                        1.5      1.6       3.1     3.3  
Total Wireless                               66.1     58.6     124.1   109.5  
Information and Entertainment                 58.5     47.0     120.6    93.7   
Eliminations and Other Sales                 (20.4)   (12.0)    (38.2)  (22.9)  
Revenues and Sales                          $538.6   $501.6  $1,065.7  $984.3   

Wireline -  Local service revenues, derived from providing  local             
exchange,  advanced  calling features  and  local  private  line              
services, increased $6.3, or 3.6%, and $20.8, or 6.0%,  for  the              
three and six month periods, respectively.  The increase was due              
primarily to continued strong growth of 5.9% in access lines  in              
service  to approximately 2,335,000 lines as of June  30,  1998.              
Excluding  the  purchase  of  the  Woodbury  Telephone   Company              
("Woodbury")  in the third quarter of 1997, access  lines  would              
have  increased 4.9%.  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, local service 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.  Also contributing to the increase  were              
revenues received in connection with funding E-911 and  Lifeline              
services.    Additionally,  payphone  revenues  increased  as  a              
result  of  the pay telephone reclassification and  compensation              
provisions  of  the  Federal  Telecommunications  Act  of   1996              
("Act").  The increase in local service revenues was tempered by              
a  decrease  in revenues as a result of customer migration  from              
flat-rate  services  to  lower priced Centralink  1100  service.              
Management  expects increased competition to  negatively  impact              
local  service  revenues  as other telecommunications  providers              
continue  to  offer  local  service  and  as  the  DPUC-mandated              
balloting process commences [see Competition].                                

Network access revenues, generated primarily from intrastate and              
interstate  services, increased $6.2, or  5.8%,  and  $11.8,  or              
5.6%,  for  the  three  and  six  month  periods,  respectively.              
Intrastate  access revenues increased $6.2, or  53.4%,  for  the              
quarter,  and  $8.9,  or  42.5% for the six  month  period,  due              
primarily  to an increase in demand by competitive providers  of              
intrastate long-distance service and the inclusion of  Woodbury.              
Interstate  access  revenues were  flat  for  the  quarter,  and              
increased  $2.9,  or  1.5% for the six month  period.   For  the              
quarter,  the  effects  of regulatory mandates  (price  cap  and              
access reform orders) offset  increases resulting from growth in              
special   access  revenue,  increased  access  lines,  and   the              
inclusion  of  Woodbury.  Also contributing to revenues  is  the              
partial  recovery of amounts paid to fund Universal Service,  in              
accordance with FCC regulation.  For the six month period,                    

- 10 -                

Form 10-Q - Part I  Southern New England Telecommunications Corporation         

revenue  increased  as  a  result of growth  in  special  access              
revenue,  increased access lines and the inclusion of  Woodbury.              
Also contributing to revenues is the partial recovery of amounts              
paid   to  fund  Universal  Service,  in  accordance  with   FCC              
regulation.   Partially  offsetting  these  increases  was   the              
reduction in rates caused by regulatory mandates (price cap  and              
access  reform  orders).  Management expects the  aforementioned              
regulatory  mandates to continue to place downward  pressure  on              
network interstate access revenues.                                           

Intrastate toll revenues, which include primarily revenues  from              
toll  and  WATS services, decreased $2.3, or 4.4%, and $4.9,  or              
4.6%,  for  the three and six month periods, respectively.   The              
decreases were due primarily to 7.6% and 6.9% reductions in toll              
message   volume,   for  the  three  and  six   month   periods,              
respectively, 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  several              
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.                       

Interstate and international toll revenues increased $6.2 or 18%              
for the quarter and $16.9 or 26% for the six month period due to              
strong  growth in the customer base.  The growth is primarily  a              
result of customer migration to the SNET All Distance[R] product              
line  which allows Connecticut customers to package and discount              
their entire long-distance calling in one plan.                               

Premium Services and Equipment Sales revenue increased $6.7  for              
the  quarter  and six month period due to increased Teleservices              
(wholesale  operator  and  call center  services)  revenues  and              
increased  revenues  resulting from the  sales  and  leasing  of              
business phone sets.                                                          

Wireless - Cellular service revenues increased $7.4,  or  13.5%,              
and  $14.5,  or  14.2%, for the quarter and  six  month  period,              
respectively,  due  primarily  to  the  14.2%  increase  in  the              
subscriber  base.   This  growth was  partially  offset  by  the              
effects  of  promotional  plans such  as  giving  free  minutes,              
bundling and digital plans.                                                   

Information  and  Entertainment - Information  and  entertainment             
revenues  increased $11.5 or 24.5% for the quarter and $26.9  or              
28.7  %  for  the  six  month period.  The  increases  were  due              
primarily  to  the   accounting change in directory  publishing.              
Growth  in internet sales, due primarily to an increase  in  the              
customer  base  from approximately 62,000 at June  30,  1997  to              
109,000  at  June  30,  1998  and a  new  pricing  package  also              
contributed to revenue increase.  In addition, revenue increased              
as a result of growth in cable television revenues due primarily              
to  the  expansion of the customer base from 1,000 at  June  30,              
1997 to 18,000 at June 30, 1998.                                              

Costs and Expenses                                                              
                           For the             For the
                          Three Months Ended    Six Months Ended
                             June 30,             June 30,
                            1998       1997      1998       1997
Operating Costs                   $322.4     $295.3    $627.8     $576.9        
Depreciation and amortization       95.8       94.4     190.8      186.0        
Taxes other than income             13.5       13.4      26.4       26.5        
Total Costs and Expenses          $431.7     $403.1    $845.0     $789.4        

- 11 -                

Form 10-Q - Part I   Southern New England Telecommunications Corporation        

Operating  costs - Operating costs consist primarily of employee-             
related  expenses, including wages and benefits.  Cost of  goods              
sold   and   general  and  administrative  expenses,   including              
marketing,  represent the remaining portion of  these  expenses.              
Total operating costs increased $27.1, or 9.2%, for the quarter,              
and $50.9, or 8.8%, for the six month period.                                 

Wireline -   For  the  three  and  six  month  periods,  wireline             
operating  costs increased $21.3, or 8.7%, and $31.6,  or  6.5%,              
respectively, due primarily to costs of providing interstate and              
international  toll services, costs incurred in connection  with              
local number portability and payments to fund Universal Service,              
in  accordance with FCC regulation.  Also contributing  was   an              
increase in the costs of providing services to other carriers.                

Wireless -   For  the  three  and  six  month  periods,  wireless             
operating  costs  increased $2.5, or 5.9%, and  $7.8,  or  9.9%,              
respectively.  The increase for the quarter and six month period              
is  due  primarily to increased computer software costs for  the              
roll  out  of  digital  service, increased  cost  of  sales  and              
increased   advertising  costs.   Partially   offsetting   these              
increases was a decline in fraud.                                             

Information  and Entertainment - Operating costs for  information             
and entertainment increased $16.1, or 68.5% for the quarter, and              
$28.9, or 64.5% for the six month period due primarily to  costs              
associated   with   the  corporate  restructure   of   directory              
publishing  operations  into  a  separate  subsidiary   of   the              
Corporation on January 1, 1998 and the accounting change related              
to  publishing, the deployment of cable television  service  and              
growth in internet services.  Management expects information and              
entertainment  operating costs to increase  as  the  Corporation              
continues  to deploy cable television services and continues  to              
offer internet services to an expanding customer base.                        

Depreciation  and  amortization - Depreciation  and  amortization             
expense  increased $1.4, or 1.5%, and $4.8,  or  2.6%,  for  the              
three  and six month periods, respectively, due primarily to  an              
increase in the average depreciable telecommunications property,              
plant and equipment.                                                          

Other Income, net                                                               

             For the Three     For the Six
              Months Ended      Months Ended
              June 30,          June 30,
              1998      1997     1998     1997
Other income, net             $.4       $3.9     $(.6)    $4.0                

The  decrease for both the quarter and six month period  is  due              
primarily to the absence in 1998 of  gains on the sale of assets              
that were recognized in the second quarter of 1997.                           

Income Taxes                                                                    

             For the Three     For the Six
              Months Ended      Months Ended
              June 30,          June 30,
              1998      1997     1998     1997
Income taxes                  $31.9     $30.0    $65.7    $57.7               

Income tax expense increased because of higher pre-tax income.                  

- 12 -                

Form 10-Q - Part I   Southern New England Telecommunications Corporation        

Liquidity and Capital Resources                                                 

The  Corporation generated cash flows from operations  of  $248.3               
during the six months ended June 30, 1998 as compared with $245.8               
during the six months ended June 30, 1997.                                      

The increase in accounts receivable is due primarily to an                      
increase in unbilled revenues as a result of the change in                      
accounting for directory publishing operations (see Note 1).                    

The decrease in income taxes paid is due to a change in the method              
of calculating and the timing of estimated tax payments, as well as             
the effect of the large amount of stock options exercised in 1998.              

The  weighted average number of common shares outstanding for the               
six month period  increased for both basic EPS and diluted EPS by               
2.7% and 3.6% respectively, primarily as a result of the exercise               
of employee stock options.  Employees exercised approximately 1.3               
million stock options in the six month period, contributing $46.2               
to  cash  flows  from  financing activities.   In  addition,  tax               
benefits  of  $15.4  were  accrued by  the  Corporation,  on  the               
ordinary income recognized by the employees.                                    

The Corporation's ratio of debt to total capitalization decreased               
to  64.3% at June 30, 1998 compared with 72.9% at year-end  1997.               
For  the  second  quarter  of 1998, the  Corporation's  Board  of               
Directors declared a dividend of $.44 per share.                                

Management believes that the Corporation has sufficient  internal               
and external resources to finance the anticipated requirements of               
business  development.   Capital  additions  and  dividends   are               
expected to be funded primarily with cash from operations  during               
the  remainder  of  1998.  The Corporation  also  has  access  to               
external resources including lines of credit and long-term  shelf               
registration commitments.                                                       

Competition                                                                     

The   Corporation   continues  to  experience   an   increasingly               
competitive   environment  with  respect  to   telecommunications               
services  in  Connecticut, the northeast, and its  entire  market               
area.   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 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 Corporation expects that many competitors  will               
resell  the  network of its wholly-owned subsidiary The  Southern               
New  England  Telephone Company ("Telephone  Company")  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.                                                                           

- 13 -                

Form 10-Q - Part I  Southern New England Telecommunications Corporation         

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, including  subsidiaries  of               
the  Corporation, 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 Corporation's contribution  to               
the Universal Service Fund is estimated to be approximately  $18.               
This  expense is partially offset through a variety of mechanisms               
including  the retail pricing structure, interstate access  rates               
and direct surcharges.                                                          

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 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                               

- 14 -                

Form 10-Q - Part I  Southern New England Telecommunications Corporation         

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 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.  Additionally, in February 1998,               
the  DPUC directed the Corporation's payphone operation to  offer               
to  payphone  location owners a four-month  "Fresh  Look"  period               
during  which payphone location owners may move to an alternative               
service provider without penalty.  This "Fresh Look" period ended               
on  June  30,1998.   The  "Fresh Look" periods  did  not  have  a               
significant  impact on the Telephone Company or the Corporation's               
payphone operation.                                                             

New Accounting Standard                                                         
In February 1998, the Financial Accounting Standards Board issued               
SFAS  No.  132, "Employers' Disclosures about Pensions and  Other               
Postretirement Benefits" ("SFAS No. 132").  SFAS No. 132  revises               
certain  disclosures  employers  make  about  pension  and  other               
postretirement benefit plans and will                                           

- 15 -                

Form 10-Q - Part I  Southern New England Telecommunications Corporation         

not  impact the Corporation's consolidated financial position and               
results  of operations.  The Corporation will adopt SFAS No.  132               
at year-end 1998.                                                               

Employee Matters                                                                
The  Corporation'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,   63%  of the Corporation'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.                                   

- 16 -                

Form 10-Q - Part II  Southern New England Telecommunications Corporation        

PART II  -  OTHER INFORMATION               

Item 1.  Legal Proceedings                                                      

There were no material developments in the second             
quarter of 1998.                                              

Item 4.  Submission of Matters to a Vote of Security Holders                    

On May 13, 1998, the Corporation held its Annual Meeting      
of Shareholders ("Annual Meeting").                           

(a)   The  following persons, having received the FOR votes set           
opposite  their respective names, constituting in  excess     
of  a  majority  of the votes cast at the Annual  Meeting     
for  the  election of Directors, were duly elected  Class     
III Directors:                                                

Directors                  For         Withheld       
Richard H. Ayers         54,435,544         790,036           
Frank J. Connor          54,426,283         799,297           
Ira D. Hall              54,420,805         804,775           
Dr. Burton G. Malkiel    54,407,485         818,095           
Frank R. O'Keefe, Jr.    54,378,649         846,931           

If  the merger is effected, in accordance with the merger     
agreement, the terms of office for all elected class  III     
Directors  will  cease  at  the  effective  time  of  the     
merger.   If  the merger is not effected,  the  terms  of     
office  will  run  until 2001 and until their  successors     
are elected and qualified.                                    

(b)   Shareholders     ratified     the     appointment      of           
PricewaterhouseCoopers   LLP,   as   independent   public     
accountants,   to  examine  the  consolidated   financial     
statements  of  the  Corporation  for  the  current  year     
ending  December  31,  1998.   The  vote  was  54,583,162     
shares  FOR  and  332,535 shares  AGAINST,  with  309,883     
shares abstaining.                                            

Item 6.  Exhibits and Reports on Form 8-K                                       

(a)   Exhibit                                                             

(27) Financial Data Schedule                                  

(b)   Reports on Form 8-K                                                 

On  April  24,  1998 and April 27, 1998, the  Corporation     
and  the  Telephone  Company,  respectively,   separately     
filed   reports  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 Corporation and  the  Telephone     
Company,  separately filed reports  on  Form  8-K,  dated     
July  27,  1998  announcing the  Corporation's  financial     
results for the second quarter of 1998.                       

- 17 -                

Form 10-Q - Part II Southern New England Telecommunications Corporation         

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.                        

     Southern New England Telecommunications Corporation

August 6, 1998                                                                  

/s/ Donald R. Shassian                            
Donald R. Shassian                        
       Senior Vice President and Chief Financial Officer

Dates Referenced Herein and Documents Incorporated by Reference

This ‘10-Q’ Filing	Date	Other Filings

	6/30/99
	5/31/99
	12/31/98
	11/18/98
	9/2/98	8-K
	8/26/98
	8/21/98
	8/8/98
Filed on:	8/6/98
	8/5/98
	7/31/98
	7/27/98	8-K
	7/24/98
	7/13/98
	7/1/98
For Period End:	6/30/98
	6/22/98
	6/16/98
	6/1/98
	5/31/98
	5/13/98	DEF 14A
	5/12/98
	4/27/98	8-K
	4/24/98	8-K
	3/27/98	8-K, DEF 14A
	2/25/98
	2/20/98
	1/4/98	3
	1/1/98
	12/31/97	10-K405, 10-K405/A
	6/30/97	10-Q
	6/25/97	8-K
	4/1/96
		List all Filings

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Southern New England Telecommunications Corp – ‘10-Q’ for 6/30/98

As of: Thursday, 8/6/98 · For: 6/30/98 · Accession #: 790650-98-18 · File #: 1-09157

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