<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                              ---------------------

                                    FORM 10-Q

                              ---------------------


      (Mark one)
          [X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                For the quarterly period ended September 30, 2001

                                      OR

          [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                        For the transition period from  to


                          Commission file number 1-7077


                           GTE SOUTHWEST INCORPORATED


      A Delaware Corporation     I.R.S. Employer Identification No. 75-0573444


        1095 Avenue of the Americas, Room 3868, New York, New York 10036


                         Telephone Number (212) 395-2121


                            -------------------------



THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND
(b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH REDUCED DISCLOSURE
FORMAT PURSUANT TO GENERAL INSTRUCTION H(2).


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes  X  No
                                       ---    ---
<PAGE>

                           GTE Southwest Incorporated

                         PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

                         CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>

                                                             Three Months Ended September 30,     Nine Months Ended September 30,
                                                             ----------------------------------------------------------------------
  (Dollars in Millions) (Unaudited)                                    2001             2000              2001              2000
  ---------------------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>               <C>               <C>               <C>
OPERATING REVENUES
   (including $10.6, $.1, $26.3 and $.6 from affiliates)             $341.9           $ 400.4         $1,031.6          $1,292.0
                                                             ----------------------------------------------------------------------
OPERATING EXPENSES
Operations and support (including $64.5, $94.7, $140.2 and
  $195.5 to affiliates)                                               188.4             211.0            501.5             660.6
Depreciation and amortization                                          72.0              80.5            210.3             232.9
Gain on sales of assets                                                 ---            (879.5)             ---          (1,161.2)
                                                             ----------------------------------------------------------------------
                                                                      260.4            (588.0)           711.8            (267.7)
                                                             ----------------------------------------------------------------------
OPERATING INCOME                                                       81.5             988.4            319.8           1,559.7

OTHER INCOME AND (EXPENSE), NET
  (including   $(2.8), $3.5, $(9.9), and $3.5 from
  affiliates)                                                          (2.8)              3.7             (9.9)              3.7

INTEREST EXPENSE
  (including $.3, $1.1, $.7 and $16.1 to affiliate)                    10.3              12.8             34.5              51.3
                                                             ----------------------------------------------------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES
    AND EXTRAORDINARY ITEM                                             68.4             979.3            275.4           1,512.1

PROVISION FOR INCOME TAXES                                             25.2             347.9            101.0             541.6
                                                             ----------------------------------------------------------------------
INCOME BEFORE EXTRAORDINARY ITEM                                       43.2             631.4            174.4             970.5

EXTRAORDINARY ITEM
    Early extinguishment of debt, net of tax                            ---               ---              ---              (4.6)
                                                             ----------------------------------------------------------------------
NET INCOME                                                           $ 43.2           $ 631.4         $  174.4          $  965.9
                                                             ======================================================================
</TABLE>
                  See Notes to Condensed Financial Statements.

                                       1
<PAGE>

                           GTE Southwest Incorporated

                            CONDENSED BALANCE SHEETS


                                     ASSETS
                                     ------
<TABLE>
<CAPTION>

 (Dollars in Millions)                                                               September 30, 2001       December 31, 2000
 --------------------------------------------------------------------------------------------------------------------------------
                                                                                             (Unaudited)
<S>                                                                                          <C>                         <C>
CURRENT ASSETS
Cash                                                                                              $  8.1                 $  9.7
Short-term investments                                                                              17.8                   47.2
Notes receivable from affiliate                                                                      ---                   12.8
Accounts receivable:
    Trade and other, net of allowances for uncollectibles of $27.2 and $28.5                       197.5                  221.2
    Affiliates                                                                                      48.5                   38.6
Material and supplies                                                                               39.1                   21.1
Prepaid expenses                                                                                     9.1                    4.8
Deferred income taxes                                                                               11.2                    7.0
Other                                                                                               32.0                   22.1
                                                                                    ---------------------------------------------
                                                                                                   363.3                  384.5
                                                                                    ---------------------------------------------

PLANT, PROPERTY AND EQUIPMENT                                                                    4,640.2                4,413.7
Less accumulated depreciation                                                                    2,894.9                2,756.9
                                                                                    ---------------------------------------------
                                                                                                 1,745.3                1,656.8
                                                                                    ---------------------------------------------

PREPAID PENSION ASSET                                                                              430.0                  394.3
                                                                                    ---------------------------------------------

OTHER ASSETS                                                                                        66.1                   77.4
                                                                                    ---------------------------------------------
TOTAL ASSETS                                                                                    $2,604.7               $2,513.0
                                                                                    =============================================
</TABLE>


                  See Notes to Condensed Financial Statements.

                                       2
<PAGE>

                           GTE Southwest Incorporated

                            CONDENSED BALANCE SHEETS

                     LIABILITIES AND SHAREOWNER'S INVESTMENT
                     ---------------------------------------
<TABLE>
<CAPTION>

(Dollars in Millions, Except Per Share Amount)                                       September 30, 2001    December 31, 2000
-------------------------------------------------------------------------------------------------------------------------------
                                                                                             (Unaudited)
<S>                                                                                          <C>                        <C>
CURRENT LIABILITIES
Debt maturing within one year:
    Note payable to affiliate                                                                   $   35.1              $    ---
    Other                                                                                             .7                   1.7
Accounts payable and accrued liabilities:
    Affiliates                                                                                      45.6                  47.4
    Other                                                                                          202.4                 241.5
Other liabilities                                                                                  119.4                  94.6
                                                                                    ---------------------------------------------
                                                                                                   403.2                 385.2
                                                                                    ---------------------------------------------

LONG-TERM DEBT                                                                                     647.0                 646.7
                                                                                    ---------------------------------------------

EMPLOYEE BENEFIT OBLIGATIONS                                                                       263.3                 238.2
                                                                                    ---------------------------------------------

DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes                                                                              245.6                 222.4
Unamortized investment tax credits                                                                    .1                    .1
Other                                                                                               68.0                  73.5
                                                                                    ---------------------------------------------
                                                                                                   313.7                 296.0
                                                                                    ---------------------------------------------
SHAREOWNER'S INVESTMENT
Common stock -  $100 stated value per share                                                        650.0                 650.0
  Authorized shares:   6,500,000
  Outstanding shares:  6,500,000
Contributed capital                                                                                425.3                 425.1
Accumulated deficit                                                                                (97.8)               (128.2)
                                                                                    ---------------------------------------------
                                                                                                   977.5                 946.9
                                                                                    ---------------------------------------------

TOTAL LIABILITIES AND SHAREOWNER'S INVESTMENT                                                   $2,604.7              $2,513.0
                                                                                    =============================================
</TABLE>

                  See Notes to Condensed Financial Statements.

                                       3
<PAGE>

                           GTE Southwest Incorporated

                       CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                        Nine Months Ended September 30,
                                                                                    ---------------------------------------------
(Dollars in Millions) (Unaudited)                                                               2001                   2000
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                          <C>                  <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES                                                    $ 308.5              $   543.5
                                                                                    ---------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets                                                                     ---                2,005.5
Net change in short-term investments                                                            29.4                    ---
Capital expenditures                                                                          (242.1)                (330.2)
Net change in notes receivable from affiliate                                                   12.8                 (580.1)
Other, net                                                                                       (.3)                  (1.5)
                                                                                    ---------------------------------------------
Net cash (used in)/provided by investing activities                                           (200.2)               1,093.7
                                                                                    ---------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal repayments of borrowings and capital lease obligations                                (1.0)                 (54.3)
Preferred stock retired, including premiums paid on early retirement                             ---                   (8.2)
Net change in note payable to affiliate                                                         35.1                 (457.1)
Dividends paid                                                                                (144.0)              (1,117.2)
                                                                                    ---------------------------------------------
Net cash used in financing activities                                                         (109.9)              (1,636.8)
                                                                                    ---------------------------------------------
NET CHANGE IN CASH                                                                              (1.6)                    .4
CASH, BEGINNING OF PERIOD                                                                        9.7                   10.5
                                                                                    ---------------------------------------------
CASH, END OF PERIOD                                                                          $   8.1              $    10.9
                                                                                    =============================================
</TABLE>
                  See Notes to Condensed Financial Statements.

                                       4
<PAGE>

                           GTE Southwest Incorporated

                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)

1.   Basis of Presentation

     GTE Southwest Incorporated is a wholly owned subsidiary of GTE Corporation
(GTE), which is a wholly owned subsidiary of Verizon Communications Inc.
(Verizon Communications). The accompanying unaudited condensed financial
statements have been prepared based upon Securities and Exchange Commission
rules that permit reduced disclosure for interim periods. These financial
statements reflect all adjustments that are necessary for a fair presentation of
results of operations and financial position for the interim periods shown
including normal recurring accruals. The results for the interim periods are not
necessarily indicative of results for the full year. The balance sheet at
December 31, 2000 has been derived from the audited financial statements at that
date but does not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. For
a more complete discussion of significant accounting policies and certain other
information, you should refer to the financial statements included in our 2000
Annual Report on Form 10-K.

     We have reclassified certain amounts from prior year's data to conform to
the 2001 presentation.

2.   Revenue Recognition

     We recognize revenue when services are rendered based on usage of our local
exchange network and facilities. For other products and services, revenues are
generally recognized when services are rendered or products are delivered to
customers.

     We defer nonrecurring service activation revenues and costs and amortize
them over the expected term of the customer relationship. The deferred costs are
equal to the activation fee revenue and any excess cost is expensed immediately.
The deferred costs represent incremental direct costs associated with certain
nonrecurring fees, such as service activation and installation fees.

3.   Long-Lived Assets

     We assess the impairment of long-lived assets under Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" whenever events
or changes in circumstances indicate that the carrying value may not be
recoverable. A determination of impairment (if any) is made based on estimates
of future cash flows.

4.   Dividend

     On November 1, 2001, we declared and paid a dividend in the amount of $57.0
million to GTE.

5.   Derivatives and Hedging Activities

     Effective January 1, 2001, we adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" and SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities." SFAS No. 133
requires that all derivatives, including derivatives embedded in other financial
instruments, be measured at fair value and recognized as either assets or
liabilities on our balance sheet. Changes in the fair values of derivative
instruments not qualifying as hedges under SFAS No. 133 or any ineffective
portion of hedges are recognized in earnings in the current period. Changes in
the fair values of derivative instruments used effectively as fair value hedges
are recognized in earnings, along with changes in the fair value of the hedged
item. Changes in the fair value of the effective portions of cash flow hedges
are reported in other comprehensive income (loss), and recognized in earnings
when the hedged item is recognized in earnings. We presently do not have any
derivative instruments or hedging activities and, consequently, SFAS No. 133 did
not have an impact on our financial statements.


                                       5
<PAGE>

                           GTE Southwest Incorporated

6.   Recent Accounting Pronouncements

     In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other
Intangible Assets."

     SFAS No. 141, which applies to business combinations occurring after June
30, 2001, requires that the purchase method of accounting be used and includes
guidance on the initial recognition and measurement of goodwill and other
intangible assets acquired in the combination.

     SFAS No. 142 no longer permits the amortization of goodwill and
indefinite-lived intangible assets. Instead, these assets must be reviewed
annually (or more frequently under certain conditions) for impairment in
accordance with this statement. This impairment test uses a fair value approach
rather than the undiscounted cash flows approach previously required by SFAS No.
121. The new statement also applies to goodwill and indefinite-lived intangible
assets of investments accounted for under the equity method of accounting.
Intangible assets that do not have indefinite lives will continue to be
amortized over their useful lives and reviewed for impairment in accordance with
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."
We are required to adopt SFAS No. 142 effective January 1, 2002. We are
currently evaluating our intangible assets to determine the impact, if any, the
adoption of SFAS No. 142 will have on our results of operations or financial
position.

     In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." This standard provides the accounting for the cost of
legal obligations associated with the retirement of long-lived assets. SFAS No.
143 requires that companies recognize the fair value of a liability for asset
retirement obligations in the period in which the obligations are incurred and
capitalize that amount as a part of the book value of the long-lived asset. That
cost is then depreciated over the remaining life of the underlying long-lived
asset. We are required to adopt SFAS No. 143 effective January 1, 2003. We are
currently evaluating the impact this new standard will have on our future
results of operations or financial position.

     In August 2001, the FASB issued SFAS No. 144. This standard supersedes SFAS
No. 121 and the provisions of Accounting Principles Board Opinion No. 30,
"Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions," with regard to reporting the effects of a disposal of
a segment of a business. SFAS No. 144 establishes a single accounting model for
assets to be disposed of by sale and addresses several SFAS No. 121
implementation issues. We are required to adopt SFAS No. 144 effective January
1, 2002. We do not expect the impact of the adoption of SFAS No. 144 to have a
material effect on our results of operations or financial position.

7.   Merger Charges

     In connection with the merger of Bell Atlantic and GTE on June 30, 2000, we
incurred charges associated with employee severance of $30.0 million pre-tax.
Employee severance costs, as recorded under SFAS No. 112, "Employers' Accounting
for Postemployment Benefits," represent the benefit costs for the separation of
management employees who were entitled to benefits under pre-existing separation
plans, as well as an accrual for ongoing SFAS No. 112 obligations for former GTE
employees. During the second quarter of 2000, in connection with the merger, we
also recorded a pre-tax charge of $18.8 million for direct, incremental
merger-related costs, including compensation, professional services and other
direct costs.

     In addition, we recorded pre-tax merger-related transition costs of $13.5
million in the first nine months of 2001. Transition costs consisted of costs to
integrate systems, consolidate real estate, relocate employees and meet certain
regulatory conditions of the merger. They also included costs for advertising
and other costs to establish the Verizon brand. Transition costs since the date
of the merger totaled $17.6 million. Transition costs are expensed as incurred.
During the second quarter of 2000, we also recorded a $1.7 million pre-tax
charge for other actions in relation to the Bell Atlantic - GTE merger.

     Results of operations for the first nine months of 2000 also included
adjustments that were required to conform our accounting methods and
presentation to that of Verizon Communications. These conforming adjustments are
differences in capitalization policies. As a result of these adjustments,
depreciation and amortization expense decreased $4.2 million for the nine month
period ended September 30, 2000.


                                       6
<PAGE>

                           GTE Southwest Incorporated

8.   Shareowner's Investment

<TABLE>
<CAPTION>
                                                                                               Contributed         Accumulated
(Dollars in Millions)                                                     Common Stock             Capital             Deficit
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>                  <C>                 <C>
Balance at December 31, 2000                                                    $650.0              $425.1             $(128.2)
Net income                                                                                                               174.4
Dividends declared                                                                                                      (144.0)
Other                                                                                                   .2
                                                                      ----------------------------------------------------------
Balance at September 30, 2001                                                   $650.0              $425.3             $ (97.8)
                                                                      ==========================================================
</TABLE>

     Net income and comprehensive income were the same for the nine months ended
September 30, 2001 and 2000.

9.   Debt

     In January 2000, we retired $46.7 million of long-term debt (first mortgage
bonds, Series T and U) prior to stated maturity and recorded an after-tax
extraordinary charge of $4.6 million (net of tax benefits of $2.5 million),
reflecting premiums paid on the redemption of this debt.

10.  Commitments and Contingencies

     Various legal actions and regulatory proceedings are pending to which we
are a party and claims which, if asserted, may lead to other legal actions. We
have established reserves for specific liabilities in connection with regulatory
and legal matters that we currently deem to be probable and estimable. We do not
expect that the ultimate resolution of pending regulatory and legal matters in
future periods will have a material effect on our financial condition, but it
could have a material effect on our results of operations.

     Several regulatory matters may require us to refund a portion of the
revenues collected in the current and prior periods. The outcome of each pending
matter, as well as the time frame within which each matter will be resolved, is
not presently determinable.

     Regulatory conditions to the Bell Atlantic - GTE merger include certain
commitments to, among other things, promote competition and the widespread
deployment of advanced services, while helping to ensure that consumers continue
to receive high-quality, low cost telephone services. In some cases, there are
significant penalties associated with not meeting these commitments. The cost of
satisfying these commitments could have a significant impact on net income in
future periods.

                                       7
<PAGE>

                           GTE Southwest Incorporated

Item 2. Management's Discussion and Analysis of Results of Operations
        (Abbreviated pursuant to General Instruction H(2).)

     This discussion should be read in conjunction with the Financial Statements
and Notes to Financial Statements.

RESULTS OF OPERATIONS
---------------------

     We reported net income of $174.4 million for the nine month period ended
September 30, 2001, compared to net income of $965.9 million for the same period
in 2000.

     Our results for 2001 and 2000 were affected by special items. The special
items in both periods include our allocated share of charges from affiliates
that provide various centralized services on behalf of Verizon Communications
Inc. subsidiaries.

     The following table shows how special items are reflected in our condensed
consolidated statements of income for each period:

<TABLE>
<CAPTION>
                                                                                                        (Dollars in Millions)
Nine Months Ended September 30,                                                                     2001                2000
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                       <C>                    <C>
Operating Revenues
  Other charges and special items                                                                 $ ---             $     1.2
  Regulatory contingency                                                                            ---                   1.2
                                                                                      ----------------------------------------
                                                                                                    ---                   2.4
                                                                                      ----------------------------------------
Operations and Support Expenses
  Bell Atlantic-GTE merger direct incremental costs                                                 ---                  18.8
  Bell Atlantic-GTE merger severance costs                                                          ---                  30.0
  Bell Atlantic-GTE merger transition costs                                                        13.5                  ---
  Bell Atlantic-GTE merger related costs                                                            ---                   1.7
  Other charges and special items                                                                   ---                    .5
                                                                                      ----------------------------------------
                                                                                                   13.5                  51.0
                                                                                      ----------------------------------------
Depreciation and Amortization Expenses
  Bell Atlantic- GTE merger accounting conformity adjustments                                       ---                  (4.2)
                                                                                      ----------------------------------------

Gain on sales of assets
  Sales of non-strategic access lines                                                               ---              (1,161.2)
                                                                                      ----------------------------------------

Interest Expense
  Regulatory contingency                                                                            ---                    .3
                                                                                      ----------------------------------------
Net impact on income before provision for income taxes and extraordinary item                     $13.5             $(1,111.7)
                                                                                      ==================== ===================
</TABLE>
     What follows is a further explanation of the nature of these special items.

Merger Charges

     In connection with the merger of Bell Atlantic and GTE on June 30, 2000, we
incurred charges associated with employee severance of $30.0 million pre-tax.
Employee severance costs, as recorded under SFAS No. 112, "Employers' Accounting
for Postemployment Benefits," represent the benefit costs for the separation of
management employees who were entitled to benefits under pre-existing separation
plans, as well as an accrual for ongoing SFAS No. 112 obligations for former GTE
employees. During the second quarter of 2000, in connection with the merger, we
also recorded a pre-tax charge of $18.8 million for direct, incremental
merger-related costs, including compensation, professional services and other
direct costs.

     In addition, we recorded pre-tax merger-related transition costs of $13.5
million in the first nine months of 2001. Transition costs consisted of costs to
integrate systems, consolidate real estate, relocate employees and meet certain
regulatory conditions of the merger. They also included costs for advertising
and other costs to establish the Verizon brand. Transition costs are expensed as
incurred. During the second quarter of 2000, we also recorded a $1.7 million
pre-tax charge for other actions in relation to the Bell Atlantic - GTE merger.

     Results of operations for the first nine months of 2000 also included
adjustments that were required to conform our accounting methods and
presentation to that of Verizon Communications. These conforming adjustments are
differences in capitalization policies. As a result of these adjustments,
depreciation and amortization expense decreased $4.2 million for the nine month
period ended September 30, 2000.


                                       8
<PAGE>

                           GTE Southwest Incorporated

Other Charges and Special Items

     In the second quarter of 2000, we recognized a pre-tax charge for a
regulatory matter totaling $1.5 million. We recorded a reduction to operating
revenue in the amount of $1.2 million and a charge to interest expense of $.3
million. This matter relates to a specific issue currently under investigation
by the Federal Communications Commission (FCC). We believe that it is probable
that the ultimate resolution of this matter will result in refunds to customers,
including interest. In the second quarter of 2000, we also recorded other
charges and special items totaling approximately $1.7 million pre-tax. Of this
amount, $1.2 million was recorded as a reduction to operating revenue and $.5
million was recorded as a charge to operations and support expenses.

Sales of Non-strategic Access Lines

     During 2000, we sold selected switched access lines in Oklahoma, Arkansas,
New Mexico, as well as selected switched access lines in Texas. At September 30,
2000, no assets remained held for sale. The operating revenues and net income
contributed by these properties in the first nine months of 2000 were
approximately $312.4 million and $128.1 million, respectively. On an annual
basis, the total operating revenues and net income contributed by the sold
properties were approximately $314.8 million and $129.1 million, respectively,
for the year ended December 31, 2000. The pre-tax gain on these sales totaled
$1,161.2 million for the nine months ended September 30, 2000 and the cash
proceeds from the sales totaled $2,005.5 million at September 30, 2000.

     These and other items affecting the comparison of our results of operations
for the nine month period ended September 20, 2001 and 2000 are discussed in the
following sections.


OPERATING REVENUES
------------------
(Dollars in Millions)

Nine Months Ended September 30,                     2001                 2000
--------------------------------------------------------------------------------
Local services                                     $588.0              $ 731.3
Network access services                             336.3                433.2
Long distance services                               19.6                 28.2
Other services                                       87.7                 99.3
                                          -------------------- -----------------
Total                                            $1,031.6             $1,292.0
                                          ==================== =================

LOCAL SERVICES

      2001 - 2000                                             (Decrease)
--------------------------------------------------------------------------------
      Nine Months                                        $(143.3)      (19.6)%
--------------------------------------------------------------------------------

     Local service revenues are earned from the provision of local exchange,
local private line, wire maintenance, voice messaging and value-added services.
Value-added services are a family of services that expand the utilization of the
network, including products such as Caller ID, Call Waiting and Return Call. The
provision of local exchange services not only includes retail revenues, but also
includes local wholesale revenues from unbundled network elements (UNEs),
interconnection revenues from competitive local exchange carriers, certain data
transport revenues and wireless interconnection revenues.

     Local service revenues declined in the first nine months of 2001 primarily
due to the effect of non-strategic access lines sold during 2000, as described
in the Results of Operations. Local service revenues were also impacted by the
effect of an economic slowdown and competition. In addition, technology
substitution is increasing, as more customers are choosing wireless and Internet
services in place of certain basic wireline services.

     These decreases were partially offset by higher payments received from
competitive local exchange carriers for interconnection of their networks with
our network and for the purchase of unbundled network elements. In addition, the
effect of certain regulatory decisions including the implementation of the Texas
Universal Service Fund (USF) in 2000 and increased customer demand and usage of
our value-added services as a result of new packaging of services also offset
the revenue decreases.

                                       9
<PAGE>

                           GTE Southwest Incorporated


NETWORK ACCESS SERVICES

      2001 - 2000                                             (Decrease)
--------------------------------------------------------------------------------
      Nine Months                                         $(96.9)      (22.4)%
--------------------------------------------------------------------------------

     Network access revenues are earned from end-user subscribers and from long
distance and other competing carriers who use our local exchange facilities to
provide usage services to their customers. Switched access revenues are derived
from fixed and usage-based charges paid by carriers for access to our local
network. Special access revenues originate from carriers and end-users that buy
dedicated local exchange capacity to support their private networks. End-user
access revenues are earned from our customers and from resellers who purchase
dial-tone services.

     Network access revenues declined in the first nine months of 2001 primarily
due to the effect of the aforementioned sale of non-strategic access lines. In
addition, mandated price reductions on certain interstate access services and
other regulatory decisions also contributed to the decline in network access
revenues. The Texas Public Utilities Commission (TPUC) regulates us with respect
to intrastate rates and services and certain other matters. The FCC regulates
rates that we charge long distance carriers and end-user subscribers for
interstate access services. We are required to file new access rates with the
FCC each year. In July 2000, we implemented the Coalition for Affordable Local
and Long Distance Service (CALLS) plan. Rates included in the July 2000 CALLS
plan were in effect through June 2001. Effective July 3, 2001, we implemented
further rate reductions in accordance with the plan. The impact of the slowing
economy also affected network access revenues in 2001.

     These decreases were partially offset by higher customer demand for special
access services, particularly for high-capacity, high-speed digital services.

LONG DISTANCE SERVICES

      2001 - 2000                                             (Decrease)
--------------------------------------------------------------------------------
      Nine Months                                          $(8.6)      (30.5)%
--------------------------------------------------------------------------------

     Long distance revenues are earned primarily from calls made to points
outside a customer's local calling area, but within our service area (intraLATA
toll). IntraLATA toll calls originate and terminate within the same LATA, but
generally cover a greater distance than a local call. These services are
regulated by the TPUC except where they cross state lines. Other long distance
services that we provide include 800 services and Wide Area Telephone Service
(WATS). We also earn revenue from private line and operator services associated
with long distance calls.

     Long distance revenues declined in the first nine months of 2001 primarily
due to the effect of the aforementioned sale of non-strategic access lines.

OTHER SERVICES

      2001 - 2000                                             (Decrease)
--------------------------------------------------------------------------------
      Nine Months                                         $(11.6)      (11.7)%
--------------------------------------------------------------------------------

     Our other services include such services as billing and collections for
long distance carriers and affiliates, facilities rentals to affiliates and
non-affiliates, public (pay) telephone and customer premises equipment (CPE).
Other service revenues also include fees paid by customers for non-publication
of telephone numbers and multiple white page listings, fees paid by an affiliate
for usage of our directory listings and fees paid by an affiliate for the
provision of sales agent services.

     Other service revenues decreased in the first nine months of 2001 primarily
due to the aforementioned sale of non-strategic access lines. This decrease was
partially offset by higher revenues received for sales and services to
affiliates.

                                      10
<PAGE>

                           GTE Southwest Incorporated

OPERATING EXPENSES
------------------
(Dollars in Millions)


OPERATIONS AND SUPPORT

      2001 - 2000                                             (Decrease)
--------------------------------------------------------------------------------
      Nine Months                                        $(159.1)      (24.1)%
--------------------------------------------------------------------------------

     Operations and support expenses consist of employee costs and other
operating expenses. Employee costs consist of salaries, wages and other employee
compensation, employee benefits and payroll taxes. Other operating expenses
consist of contract services including centralized services expenses allocated
from affiliates, rent, network software costs, operating taxes other than
income, the provision for uncollectible accounts receivable, reciprocal
compensation, and other costs.

     The decrease in operations and support expenses was mainly attributable to
a reserve adjustment recorded in 2001 associated with the previous sale of
assets and the effect of merger-related costs and other special items recorded
in 2000 and 2001, as described in Results of Operations. Operations and support
expenses were further reduced by declining work force levels and lower operating
taxes other than income. Operating costs have also decreased due to business
integration activities and effective cost control measures. These decreases were
partially offset by the effect of pre-tax gains recorded in 2000 associated with
lump-sum settlements of pension obligations for certain active and former
employees.

     We continue to incur expenditures related to reciprocal compensation
arrangements with competitive local exchange carriers and other carriers to
terminate calls on their network. In March 2000, the United States Court of
Appeals for the District of Columbia Circuit reversed and remanded the FCC's
February 1999 order that concluded that calls to the Internet through Internet
service providers (ISP) do not terminate at the ISP but are single interstate
calls. The FCC had concluded that calls to the Internet are not therefore
subject to reciprocal compensation under section 251(b)(5) of the
Telecommunications Act, but left it to state regulatory commissions to determine
whether local interconnection agreements entered into with competing carriers
required the payment of compensation on such calls.

     On April 27, 2001, the FCC released an order responding to the court's
remand. The FCC found that Internet-bound traffic is interstate and subject to
the FCC's jurisdiction. Moreover, the FCC again found that Internet-bound
traffic is not subject to reciprocal compensation under section 251(b)(5) of the
Telecommunications Act. Instead, the FCC established federal rates that decline
from $0.0015 to $0.0007 per minute over a three year period. The FCC order also
sets caps on the total minutes that may be subject to any intercarrier
compensation and requires that incumbent local exchange carriers must offer to
pay reciprocal compensation for local traffic at the same rate as they are
required to pay on Internet-bound traffic.


DEPRECIATION AND AMORTIZATION

      2001 - 2000                                             (Decrease)
--------------------------------------------------------------------------------
      Nine Months                                         $(22.6)       (9.7)%
--------------------------------------------------------------------------------

     Depreciation and amortization expense decreased in the first nine months of
2001 primarily as a result of lower rates of depreciation. The decrease was
partially offset by growth in depreciable telephone plant and an increase in
software amortization costs. Partially affecting the change in depreciation and
amortization expense were adjustments made to conform the accounting policies of
Bell Atlantic and GTE as a result of the merger, as described in Results of
Operations.


GAIN ON SALES OF ASSETS

      2001 - 2000                                               Increase
--------------------------------------------------------------------------------
      Nine Months                                       $1,161.2         100.0%
--------------------------------------------------------------------------------

     The change in gain on sales of assets is due to the effect of a gain
recognized on the sale of non-strategic access lines in 2000, as described in
the Results of Operations section.

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                           GTE Southwest Incorporated

OTHER INCOME AND (EXPENSE), NET

      2001 - 2000                                             (Decrease)
--------------------------------------------------------------------------------
      Nine Months                                         $(13.6)       (367.6)%
--------------------------------------------------------------------------------

     The change in other income and (expense), net, is primarily attributable to
equity losses recognized from our investment in Verizon Advanced Data Inc.
(VADI). VADI is a wholly owned subsidiary of Verizon Communications that
provides new exchange access services. At September 30, 2001, our ownership in
VADI was 2.26%.


INTEREST EXPENSE

      2001 - 2000                                             (Decrease)
--------------------------------------------------------------------------------
      Nine Months                                         $(16.8)      (32.7)%
--------------------------------------------------------------------------------

     Interest expense includes costs associated with borrowings and capital
leases, net of interest capitalized as a cost of acquiring or constructing plant
assets.

     Interest expense decreased in the first nine months of 2001, compared to
the same period in 2000, primarily due to overall lower levels of average
borrowings and the effect of lower rates of interest.


EFFECTIVE INCOME TAX RATES

      Nine Months Ended September 30,
--------------------------------------------------------------------------------
      2001                                                      36.7%
--------------------------------------------------------------------------------
      2000                                                      35.8%
--------------------------------------------------------------------------------

     The effective income tax rate is the provision for income taxes as a
percentage of income before provision for income taxes and extraordinary item.
Our effective income tax rate was higher for the nine months ended September 30,
2001, compared to the same period in 2000, due to the effect of equity losses
associated with our investment in VADI for which we do not recognize income tax
benefits. This factor was partially offset by reductions in non-recurring income
tax expense and the effective tax rate for state income taxes.

EXTRAORDINARY ITEM
------------------

     In January 2000, we retired $46.7 million in long-term debt prior to stated
maturity and recorded an after-tax extraordinary charge of $4.6 million (net of
tax benefits of $2.5 million).


OTHER MATTERS
-------------
Recent Accounting Pronouncements


     In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other
Intangible Assets."

     SFAS No. 141, which applies to business combinations occurring after June
30, 2001, requires that the purchase method of accounting be used and includes
guidance on the initial recognition and measurement of goodwill and other
intangible assets acquired in the combination.

     SFAS No. 142 no longer permits the amortization of goodwill and
indefinite-lived intangible assets. Instead, these assets must be reviewed
annually (or more frequently under certain conditions) for impairment in
accordance with this statement. This impairment test uses a fair value approach
rather than the undiscounted cash flows approach previously


                                      12
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                           GTE Southwest Incorporated

required by SFAS No. 121. The new statement also applies to goodwill and
indefinite-lived intangible assets of investments accounted for under the equity
method of accounting. Intangible assets that do not have indefinite lives will
continue to be amortized over their useful lives and reviewed for impairment in
accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets." We are required to adopt SFAS No. 142 effective January 1,
2002. We are currently evaluating our intangible assets to determine the impact,
if any, the adoption of SFAS No. 142 will have on our results of operations or
financial position.

     In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." This standard provides the accounting for the cost of
legal obligations associated with the retirement of long-lived assets. SFAS No.
143 requires that companies recognize the fair value of a liability for asset
retirement obligations in the period in which the obligations are incurred and
capitalize that amount as a part of the book value of the long-lived asset. That
cost is then depreciated over the remaining life of the underlying long-lived
asset. We are required to adopt SFAS No. 143 effective January 1, 2003. We are
currently evaluating the impact this new standard will have on our future
results of operations or financial position.

     In August 2001, the FASB issued SFAS No. 144. This standard supersedes SFAS
No. 121 and the provisions of Accounting Principles Board Opinion No. 30,
"Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions," with regard to reporting the effects of a disposal of
a segment of a business. SFAS No. 144 establishes a single accounting model for
assets to be disposed of by sale and addresses several SFAS No. 121
implementation issues. We are required to adopt SFAS No. 144 effective January
1, 2002. We do not expect the impact of the adoption of SFAS No. 144 to have a
material effect on our results of operations or financial position.



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                           GTE Southwest Incorporated

                           PART II - OTHER INFORMATION


Item 1.       Legal Proceedings

              There were no proceedings reportable under this Item.


Item 6.       Exhibits and Reports on Form 8-K


              (b)   There were no Current Reports on Form 8-K filed during the
                    quarter ended September 30, 2001.







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                           GTE Southwest Incorporated

                                   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.



                                       GTE Southwest Incorporated




Date:  November 13, 2001               By  /s/ Edwin F. Hall
                                       --------------------------------
                                               Edwin F. Hall
                                               Controller



    UNLESS OTHERWISE INDICATED, ALL INFORMATION IS AS OF NOVEMBER 8, 2001.


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