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                                                                    Exhibit 10-3



June 4, 1998

Mr. J. Randall MacDonald
[Address]
[Address]

Dear Randy:

I am pleased to offer you this employment agreement (the "Agreement") with GTE
Service Corporation ("Service Corp.") which will provide for employment
stability for you and long-term wealth-creation opportunity for you and your
family. In return, Service Corp. can expect your continued leadership for the
foreseeable future as well as your value-added advice and counsel on the broad
array of issues and challenges facing GTE today and in the future.

PURPOSE - Service Corp. enters into this Agreement with you because the
rapidly-changing and increasingly competitive global telecommunications market,
which has resulted from the Telecommunications Act of 1996, has required and
will require GTE to make critical strategic, marketing, and technical decisions.
These decisions by GTE will be based, in whole or in part, on confidential
analyses of the evolving telecommunications market, confidential assessments of
the technical capabilities and strategic plans of GTE and Competing Businesses
(as defined below) and confidential or proprietary information regarding GTE's
technology, resources, and business opportunities or other confidential or
proprietary information relating to GTE's business. Service Corp. seeks by this
Agreement to ensure that you remain a part of the management team that plays a
central role in this decision-making process.

In consideration for your entering into this Agreement, including the
restrictions on the disclosure and use of confidential or proprietary
information and the limitations on your working for a Competing Business for the
Designated Period (as defined below), Service Corp. is providing you the
security of a fixed-term agreement, restricted stock units, additional stock
options, and other benefits.

GENERAL - Under this Agreement, you will continue as a Senior Executive of
Service Corp. at a grade level no less than level 24 or its equivalent. During
the term of this Agreement, you will continue to receive the same benefits as
other Service Corp. executives at your grade level (except that you will not
receive involuntary 


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Mr. J. Randall MacDonald
June 4, 1998
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separation program ("ISEP") or other separation and severance benefits). In
addition, the terms of your employment will be governed by the following:

TERM - The term of this Agreement will be from June 4, 1998, through June 3,
2001; provided that unless Service Corp. gives you written notice to the
contrary before the earlier of a Change in Control (as defined in your Executive
Severance Agreement ("ESA")) or March 6, 2001 (a "Non-Renewal Notice"), the term
of this Agreement will automatically be extended through June 3, 2003. Whenever
this Agreement refers to the term of the Agreement, it refers to the term then
in effect (either the initial 3-year term or, if Service Corp. does not give you
a Non-Renewal Notice, the extended 5-year term). Whenever this Agreement refers
to the "Expiration Date," it refers to June 3, 2003, except that if Service
Corp. gives you a Non-Renewal Notice, "Expiration Date" refers to June 3, 2001.

LOCATION - During the term of this Agreement, you will perform services for
Service Corp. at your current location, at Service Corp.'s headquarters, or at
any other location designated by Service Corp. as necessary or appropriate for
the discharge of your responsibilities under this Agreement; provided that in
the event of any change in your principal work location, you will be eligible
for relocation assistance under the terms of any Service Corp. relocation policy
then applicable to other Service Corp. executives at your grade level.

BASE SALARY - During the term of this Agreement, your annual base salary will
not be less than $364,000 per year; provided that if you are granted a merit
increase in your base salary, your base salary will not thereafter be reduced
below that increased level during the term of this Agreement.

EIP AND LTIP - During the term of this Agreement, on an annual basis, Service
Corp. will provide you the opportunity to earn an annual bonus in accordance
with the terms and conditions of the Executive Incentive Plan or any successor
plan ("EIP") and an annual grant of a long-term cash incentive award in
accordance with the terms and conditions of the Long-Term Incentive Plan or any
successor plan ("LTIP"), in each case at a level commensurate with the
opportunity offered to other Service Corp. executives at your grade level. In
addition, on an annual basis, Service Corp. will provide you a stock option
grant, in accordance with the terms and conditions of the LTIP, at a level
commensurate with the opportunity offered to other Service Corp. executives at
your grade level.

ONE-TIME OPTION GRANT - On June 4, 1998, the Executive Compensation and
Organizational Structure Committee (the "ECC") approved the grant to you of an
option to purchase 93,000 shares of GTE Corporation common stock at market value
on the date of grant, subject to the terms of the option award agreement and


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Mr. J. Randall MacDonald
June 4, 1998
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conditional upon your signing this Agreement. The option will vest in accordance
with the following provisions: 50% of the option will vest when the price of a
share of GTE common stock (the "Stock Price") reaches $85, and 100% of the
option will vest when the Stock Price reaches $95. For this purpose, the Stock
Price will be deemed to have reached a specified price upon the 20th consecutive
trading day on the New York Stock Exchange on which GTE common stock has closed
at a price of at least the specified price. The option also will vest, without
regard to the Stock Price, at the rate of 10% per year of employment for each of
the first four continuous years of employment following June 4, 1998, and the
remaining 60% of the option will vest after you complete five continuous years
of employment following June 4, 1998. In addition, 100% of the option will vest,
without regard to the Stock Price, on June 3, 2002, if Service Corp. gives you a
Non-Renewal Notice, and such option will thereupon be exercisable for a period
of at least 90 days. Regardless of whether it is vested, however, the option is
subject to rescission by GTE, as explained below under "Rescission."

ONE-TIME RESTRICTED STOCK UNIT GRANT - On June 4, 1998, the ECC approved the
grant to you of 11,687 restricted GTE Corporation stock units ("RSUs"),
conditional upon your signing this Agreement. These RSUs vest and become payable
in accordance with the vesting and exercisability provisions that apply to the
stock option grant described in the preceding Section ("One-Time Option Grant"),
subject to the terms of the RSU award agreement. The RSUs will be credited with
dividend equivalents. As the RSUs vest, you will be eligible to receive both the
RSUs and the related dividend equivalents or, subject to applicable deferral
regulations, you may elect to defer receipt of the vested RSUs and the related
dividend equivalents. Except as provided below, vested RSUs will not be
forfeited. Details will be provided in your RSU award agreement. Regardless of
whether they are vested, however, the RSUs are subject to rescission by GTE, as
explained below under "Rescission".

RETIREMENT -

ADDITIONAL PENSION AND BENEFIT CREDIT - If you remain employed by Service Corp.
until the Expiration Date:

(i)      You will be credited with an extra year of service for each year for
         which you actually worked for GTE during the term of this Agreement for
         purposes of determining (x) your pension benefits, (y) your right to
         pension, post-retirement medical, and Executive Retirement Life
         Insurance Plan ("ERLIP") benefits, and (z) whether you are a retiree
         for purposes of determining the exercisability of stock options and the
         payment of RSUs; and


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Mr. J. Randall MacDonald
June 4, 1998
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(ii)     Your pension benefits will not be less than those determined in
         accordance with paragraph (i), above, and in accordance with the
         provisions of Service Corp.'s pension plan as in effect on the date of
         this Agreement. Your service before June 4, 1998, and after the
         Expiration Date, however, will be credited in accordance with the
         applicable plan provisions and will not be affected by the preceding
         provisions of this Section ("Additional Pension and Benefit Credit").

If your employment terminates before June 3, 2003, by reason of involuntary
termination for Cause (as defined below) or by reason of your voluntary
termination of employment without Good Reason (as defined below), you will not
receive any service credit pursuant to the provisions of this Section
("Additional Pension and Benefit Credit").

If your employment terminates before June 3, 2003, by reason of your death or
disability, as defined by Service Corp.'s long-term disability plan as in effect
on the date of this Agreement ("Disability"), you will be credited with an extra
year of service for each year for which you actually worked for Service Corp.
during the term of this Agreement for purposes of determining your pension
benefits, but you will not be entitled to any other benefits under the preceding
provisions of this Section ("Additional Pension and Benefit Credit"); provided
that if you are Disabled, you will be eligible to receive any additional Service
Corp. benefits that you may be entitled to receive under Service Corp.'s benefit
plans by reason of your Disability.

Notwithstanding the preceding provisions of this Section ("Additional Pension
and Benefit Credit"), if you have a Qualifying Termination following a Change in
Control (as those terms are defined in your ESA), you will be entitled to the
service credit provided by the preceding provisions of this Section as though
your employment continued until June 3, 2003. The service credit provided in
accordance with this paragraph will be in lieu of the additional 2 years of
service credit that otherwise would be provided under your ESA; however, the
other provisions of your ESA will not be adversely affected by this Agreement.

The benefits prescribed by the preceding provisions of this Section ("Additional
Pension and Benefit Credit") will be paid out of Service Corp.'s funded plans,
out of Service Corp.'s general assets, or both, at Service Corp.'s discretion.
Any pension benefits provided pursuant to the preceding provisions of this
Section will be subject to actuarial reduction in accordance with the applicable
provisions of Service Corp.'s pension plans, and will be offset by the actuarial
equivalent of any pension benefits to which you are otherwise entitled under
Service Corp.'s pension plans.


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Mr. J. Randall MacDonald
June 4, 1998
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ELECTION - You may elect to decline to receive all of the benefits provided
pursuant to the provisions of the immediately preceding Section ("Additional
Pension and Benefit Credit") and to receive, in lieu of all such benefits, an
option to purchase 69,750 shares of GTE Corporation common stock at market value
on June 4, 1998, subject to the terms and conditions of the option award
agreement, which will be identical with the terms and conditions applicable to
the option described above under "One-Time Option Grant," including the
provisions described below under "Rescission." Any election that you make
pursuant to this Section ("Election") must be made by signing your name on the
designated Signature Line at the end of this Agreement at the same time that you
accept the terms of this Agreement. If you make such an election, your election
will be irrevocable. If you do not make an affirmative and timely election
pursuant to this Section, you will be eligible to receive benefits pursuant to
the provisions of the immediately preceding Section, and you will not receive
the stock option described in this Section.

TERMINATION PROVISIONS -

o        CHANGE IN CONTROL - Your ESA will be amended to provide for a full
         gross-up payment to cover any excise taxes you may owe after a Change
         in Control (as defined in your ESA); provided that the gross-up
         provision will be subject to rescission by GTE, as explained below
         under "Rescission." Upon the occurrence of a Change in Control, your
         then-outstanding RSUs and stock options will immediately vest, but will
         remain payable or exercisable, as the case may be, in accordance with
         their generally applicable terms. However, upon the occurrence of a
         Qualifying Termination (as defined in your ESA) following a Change in
         Control, your then-outstanding RSUs and stock options will immediately
         become payable or exercisable, as the case may be, for a period of at
         least 2 years, and you will receive service credit in accordance with
         the Section captioned "Additional Pension and Benefit Credit," in lieu
         of the 2 additional years of service credit that otherwise would be
         provided under your ESA. Although you will not be entitled to any
         additional payments, benefits, or grants under this Agreement following
         the Qualifying Termination, you also will receive any other benefits to
         which you are entitled under your ESA.

         If you incur a Qualifying Termination after a Change in Control (as
         those terms are defined in your ESA), except as provided above, your
         entitlement to benefits will be determined solely by your ESA and any
         relevant GTE compensation and benefit plans and award agreements. If
         the preceding provisions of this Section ("Change in Control") apply,
         you will not be entitled to payments or benefits under the following
         Sections that address termination of employment under other
         circumstances.


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Mr. J. Randall MacDonald
June 4, 1998
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o        VOLUNTARY TERMINATION BY YOU - You may terminate your employment under
         this Agreement at any time by giving the Chief Executive Officer of GTE
         Corporation ("CEO") written notice of intent to terminate, delivered at
         least 30 calendar days before the effective date of such termination
         (such period not to include vacation). The termination will
         automatically become effective upon the expiration of the 30-day notice
         period. Upon the effective date of such termination, your base salary
         and any other Service Corp. benefits will cease to accrue, you will
         forfeit all unvested stock options and unvested RSUs, and Service Corp.
         will have no further obligations under this Agreement. A termination of
         employment in accordance with this paragraph will be deemed a
         "Voluntary Termination."

o        TERMINATION DUE TO DEATH OR DISABILITY - Except as provided above under
         "Additional Pension and Benefit Credit," if you die or become Disabled
         during the term of this Agreement, your base salary and any other GTE
         benefits will cease to accrue, and Service Corp. will pay you or your
         beneficiary, as appropriate, all benefits to which you or your
         beneficiary has a right pursuant to Service Corp.'s compensation and
         benefit plans.

o        INVOLUNTARY TERMINATION BY SERVICE CORP. - Service Corp. may terminate
         your employment under this Agreement at any time, for any reason.
         However, if Service Corp. terminates your employment for any reason
         other than death, Disability, or Cause (as defined below), such
         termination will be deemed an Involuntary Termination by Service Corp.
         If Service Corp. gives you a Non-Renewal Notice without Cause, an
         Involuntary Termination will be deemed to occur under this Agreement on
         June 3, 2001.

         In the event of an Involuntary Termination, you will be entitled to
         continue to receive all payments, benefits, and grants due you under
         this Agreement (but excluding all perquisites, e.g., club memberships,
         credit cards, first class air travel, and car service (which will
         cease)) until (i) June 3, 2002, if the Involuntary Termination occurs
         on or before June 3, 2001, or (ii) June 3, 2003, if the Involuntary
         Termination occurs after June 3, 2001 (such date hereinafter referred
         to as the "Termination Date"), as and when such payments, benefits, and
         grants would have been provided if your employment under this Agreement
         had not been terminated; provided that if you are involuntarily
         terminated on or after June 4, 2002, and before June 3, 2003, you will
         receive a continuation of all payments, benefits, and grants until June
         3, 2003, in accordance with the preceding provisions of this paragraph
         and a continuation of your base salary (with no other payments,



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Mr. J. Randall MacDonald
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         benefits, or grants) from June 4, 2003, until the first anniversary of
         the date your employment terminates.

         In lieu of any stock options that otherwise would have been granted to
         you after your termination of employment, Service Corp. will grant you
         phantom stock options (that is, stock appreciation rights payable in
         cash) with respect to the same number of shares that would have been
         covered by the options that otherwise would have been granted to you.
         Such phantom stock options will be subject to the terms and conditions
         that apply to annual stock options then being granted to other Service
         Corp. executives at your grade level under LTIP, except that (a) the
         phantom stock options will vest on the Termination Date, and (b) you
         will have a period of at least 90 days to exercise the phantom stock
         options following the Termination Date. Similarly, following your
         Involuntary Termination, all of your then-outstanding stock options and
         RSUs will continue to be subject to the applicable vesting schedules
         then in effect, except that such options and RSUs will vest on the
         Termination Date and you will have a period of at least 90 days to
         exercise the stock options following the Termination Date.

         Notwithstanding the foregoing, the value of your then-outstanding and
         future performance-bonus awards (that is, the cash bonus awards under
         LTIP) will be equal to 75% of target for your grade level for each
         award cycle (but not more than the actual corporate rating for the
         award cycle) multiplied by the percentage of that award cycle that
         occurs on or before the Termination Date; provided that, for purposes
         of this sentence, any target award that has not yet been established at
         the time your employment terminates will be deemed to be equal to the
         target award established at the time of payment for each award cycle
         for other Service Corp. executives at your grade level (as your grade
         level was established immediately before your employment terminated).
         In addition, the value of any future payments under EIP will be equal
         to 115% of norm at your grade level for each year (but not more than
         the actual corporate rating for the year) multiplied by the percentage
         of that year that occurs on or before the Termination Date. The amounts
         determined pursuant to the two preceding sentences will be paid to you
         in accordance with the provisions of LTIP and EIP that apply from time
         to time to other Service Corp. executives at your grade level.

         Notwithstanding the foregoing provisions of this Section ("Involuntary
         Termination by Service Corp."), all cash compensation (e.g., base
         salary and annual and long-term cash bonus awards) otherwise payable to
         you following the termination of your employment will be reduced by any
         cash compensation (e.g., hiring bonus, base salary, or annual or
         long-term cash 

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Mr. J. Randall MacDonald
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         bonus award) that you earn or become entitled to that is attributable
         to the same period of time as a result of your subsequent employment
         or self-employment (disregarding for this purpose any pension benefits
         to which you are entitled under this Section).

         For as long as Service Corp. has obligations to you under this Section
         ("Involuntary Termination by Service Corp."), you will keep Service
         Corp. informed regarding the terms and condition of any subsequent
         employment and the corresponding compensation and benefits earned from
         such employment, and you will provide or cause to provide to Service
         Corp., in writing, correct, complete, and timely information concerning
         the same.

o        TERMINATION FOR GOOD REASON - You may terminate your employment under
         this Agreement for Good Reason by giving the CEO 30 calendar days'
         written notice of such intent to terminate which sets forth in
         reasonable detail the facts and circumstances claimed to provide a
         basis for such termination. For purposes of this Section ("Termination
         For Good Reason"), "Good Reason" means a material breach by Service
         Corp. of the terms and conditions of this Agreement.

         Notwithstanding the foregoing, Service Corp. will have 15 calendar
         days from its receipt of such notice to cure the action specified in
         the notice. In the event of a cure by Service Corp. within the 15-day
         period, the action in question will not constitute Good Reason.

         Except as provided in the preceding paragraph, upon the lapse of the 30
         calendar days' notice period, the Good Reason termination will take
         effect, and your obligation to serve Service Corp., and Service Corp.'s
         obligation to employ you, under the terms of this Agreement, will
         terminate simultaneously, and you will be deemed to have incurred an
         Involuntary Termination, with the consequences described above under
         "Involuntary Termination by Service Corp."

         If you do not fulfill the notice and explanation requirements imposed
         by this Section ("Termination For Good Reason"), the resulting
         termination of employment will be deemed a Voluntary Termination. In
         addition, if Service Corp. does not give you a Non-Renewal Notice, and
         you decline to remain employed by Service Corp. until June 3, 2003,
         without Good Reason, the resulting termination of employment will be
         deemed a Voluntary Termination.

o        TERMINATION FOR CAUSE - Nothing in this Agreement prevents Service
         Corp. from terminating your employment under this Agreement for
         "Cause."


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Mr. J. Randall MacDonald
June 4, 1998
Page 9

         In the event of your termination for Cause, Service Corp. will pay you
         your full accrued base salary and accrued vacation time through the
         date of your termination, and Service Corp. will have no further
         obligations under this Agreement.

         For purposes of this Section ("Termination For Cause"), "Cause" is
         defined as a good faith determination by the CEO, after consultation
         with outside legal counsel, that you have committed an act or omission
         that is materially contrary to GTE's best interests or that you
         materially breached any of the terms and conditions of this Agreement.

RESCISSION - If the ECC determines in its sole discretion that (i) consummation
of a transaction may be contingent upon the parties' ability to use pooling of
interest accounting and (ii) a provision of this Agreement (or the excise tax
gross-up provision in your ESA) would preclude the use of pooling of interest
accounting, the Committee may, in its sole discretion, eliminate or modify that
provision to the extent required to allow pooling of interest accounting. If any
grant described above under "One-Time Option Grant," "One-Time Restricted Stock
Unit Grant," or "Election" is rescinded pursuant to this Section ("Rescission"),
the covenants set forth in paragraphs (b) and (c), below (under "Covenants")
will no longer apply to you.

RELEASE - You will not be entitled to any benefits under this Agreement
following the termination of your employment unless, at the time you terminate
your employment, you execute a release satisfactory to Service Corp. releasing
GTE, its affiliates, shareholders, directors, officers, employees,
representatives, and agents and their successors and assigns from any and all
employment-related claims you or your successors and beneficiaries might then
have against them (excluding any claims you might then have under this
Agreement, your ESA, or any employee benefit plan that is subject to the vesting
standards imposed by the Employee Retirement Income Security Act of 1974, as
amended).

COVENANTS - In consideration for the benefits and agreements described above,
you agree that:

(a) DISCLOSURE AND USE OF INFORMATION - You will not, directly or indirectly,
without the prior written consent of GTE, during the term of this Agreement,
during the Designated Period (as defined below) and thereafter, use, attempt to
use, disclose, or otherwise make known to any person or entity (other than GTE
or otherwise as authorized by GTE in the performance of services for GTE) any of
the following, in whole or in part:

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Mr. J. Randall MacDonald
June 4, 1998
Page 10

           (i) any and all knowledge, materials, or information of GTE which is
         not generally made available to the public by GTE relating to, without
         limitation, its business; properties; accounting; books and records;
         trade secrets; reports; memoranda; correspondence; business,
         regulatory, or marketing strategies; salaries; customers; suppliers;
         know-how; inventions; products; discoveries; processes; or formulae; as
         well as any other knowledge, materials, or information not generally
         made available to the public by GTE that you may acquire or may have
         acquired in the course of your employment with GTE; or

           (ii) any knowledge or information of a confidential or proprietary
         nature of third parties that you may acquire or may have acquired in
         the course of your employment with GTE.

Upon termination of your employment with Service Corp. for any reason, and
thereafter, if any information specified in paragraph (i) or (ii) (hereinafter
collectively referred to as "Information") comes into or is discovered in your
possession, you shall immediately return to GTE all tangible and electronic
versions, in whole or in part, of such Information.

If you are required to disclose any Information pursuant to applicable laws,
regulations, or court order, you will immediately inform GTE thereof and afford
GTE the opportunity to limit such disclosure and/or to secure protective orders
before making such disclosure.

(b) INTERFERENCE WITH BUSINESS RELATIONS - You will not, without the prior
written consent of GTE, directly or indirectly, during your employment by
Service Corp. and for the Designated Period (as defined below):

           (i) induce any employee of GTE to engage in any activity that
         paragraph (c), below, prohibits you from engaging in or to terminate
         his or her employment with GTE (provided that the foregoing will not
         prohibit you from providing references for former employees of GTE upon
         request without using Information);

           (ii) employ, retain, or offer to employ or retain any person who is
         or was employed by GTE, unless such person has ceased to be employed by
         GTE for a period of at least 2 years;

           (iii) solicit or induce, or in any manner attempt to solicit or
         induce, any client, customer or prospect of GTE (1) to cease being, or
         not to 


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Mr. J. Randall MacDonald
June 4, 1998
Page 11

         become a customer of GTE or (2) to divert any business of such customer
         or prospect from GTE; or

           (iv) otherwise interfere with, disrupt, or attempt to interfere with
         or disrupt the relationship, contractual or otherwise, between GTE and
         any of its customers, clients, prospects, suppliers, consultants, or
         employees.

(c) NONCOMPETITION - Because you will be given access to Information relating to
high-level decision-making (discussed above in the Section captioned "Purpose"),
which you agree to maintain in confidence and trust for the benefit of GTE and
which you will use only for the benefit of GTE, and because the disclosure
and/or use of such Information would be inevitable if you are employed by or are
associated with a Competing Business (as defined below), you agree as follows:
During your employment with Service Corp. and for the Designated Period (as
defined below), except as specifically permitted in writing by the CEO or after
a Qualifying Termination following a Change in Control (as those terms are
defined in your ESA), you will not, directly or indirectly, engage in or provide
services as a partner, officer, director, trustee, proprietor, manager,
supervisor, executive, employee, paid or voluntary consultant, independent
contractor, agent or associate, shareholder of or member in, or participate, in
the ownership, management, operation or control of any Competing Business.

           (i) The "Designated Period" means the period beginning on the date
         your employment with Service Corp. terminates, and ending the earlier
         of (1) June 3, 2003, or (2) the second anniversary of the date your
         employment with Service Corp. terminates; provided that the Designated
         Period shall not end as long as Service Corp. has any obligation under
         this Agreement to pay you salary or salary continuation, except for any
         obligation that Service Corp. might have to pay you deferred
         compensation.

           (ii) A "Competing Business" is defined as the following entities and
         their affiliates, subsidiaries, related entities, lines of business and
         corporate successors and all business enterprises, including joint
         ventures, in which any of them is a partner or has an ownership
         interest: MCI Communications Corporation, Sprint Corporation, AT&T
         Corp., WorldCom, Inc., LCI International, Inc., Cable & Wireless PLC,
         Ameritech Corp., Bell Atlantic Corp., SBC Communications Inc., U S West
         Inc., BellSouth Corp., Telefonica de Espana S.A., British
         Telecommunications PLC, DIGEX, Incorporated, Qwest Communications
         International Inc., Netscape Communications 



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Mr. J. Randall MacDonald
June 4, 1998
Page 12

         Corporation, Cisco Systems, Inc., Ascend Communications, Inc.,
         Airtouch Communications, Inc., NEXTEL Communications, Inc., Teleport
         Communications Group, Inc., PSINet Inc., Earthlink Network Inc., Yahoo
         Inc., Cylink Corporation, Microsoft Corporation and America Online,
         Inc.

           (iii) The foregoing provisions of this paragraph (c) will not
         prohibit you from directly or indirectly owning, as a passive
         investment, up to 2% of the outstanding shares of any Competing
         Business (as defined above) that is listed or traded on a national
         securities exchange or in an over-the-counter securities market,
         provided that you are not involved, directly or indirectly, in the
         management of or provide any services or consulting to such Competing
         Business.

           (iv) You recognize that GTE provides services to customers throughout
         the United States and North America, as well as Latin America, Europe,
         and many other parts of the world. GTE's business is international in
         scope and continues to develop worldwide. You also recognize that, with
         the passage of the Telecommunications Act of 1996, GTE's business and
         business strategies are constantly evolving in a fiercely competitive,
         worldwide market. Further, you acknowledge that your job
         responsibilities and/or the Information that you will receive extend
         throughout the entire geographic area in which GTE provides products or
         services.

           (v) You also acknowledge that the inevitable use and disclosure of
         Information would result if you were to breach the covenant in this
         paragraph (c).

           (vi) You acknowledge that the limitations and restrictions imposed by
         this Agreement are reasonable in scope, duration, and geographic
         territory, and are designed to provide GTE with limited, legitimate,
         and reasonable protection against subsequent diminution of the value of
         its business attributable to any disclosure or use of Information by
         you for the benefit of any Competing Business (as defined above).

           (vii) You further acknowledge that this paragraph (c) is supported by
         sufficient consideration, particularly in light of the Information to
         which you have been and will be given access, as well as the
         professional and economic benefits, including stock options, RSUs,
         pension benefits, and the security of a fixed-term agreement, provided
         to you 



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Mr. J. Randall MacDonald
June 4, 1998
Page 13

         as a direct result of your entering into this Agreement with Service 
         Corp.

           (viii) You also acknowledge that you have broad-based skills that
         will serve as the basis for opportunities of employment with other
         businesses that are not Competing Businesses (as defined above). You
         acknowledge that when your employment with Service Corp. terminates,
         you will be able to earn a livelihood without violating any of the
         terms of this Agreement.

           (ix) If you breach any provision of this paragraph (c), any payments,
         benefits, and grants that otherwise might be owed to you under this
         Agreement will automatically be canceled.

This Section ("Covenants") will continue to apply after any expiration,
termination, or cancellation of this Agreement. Your breach of any provision of
this Section will result in your immediate forfeiture of all rights under this
Agreement.

You agree that your breach of any of the covenants in this Section ("Covenants")
will result in irreparable harm and injury to GTE, that money damages alone will
be insufficient or undeterminable, and that such breach will entitle GTE, as a
matter of right and without limitation of any other remedy available to it,
including the recovery of damages, to immediate injunctive relief in any court
of competent jurisdiction, it being intended that all rights and remedies of GTE
under this Agreement are cumulative and nonexclusive of such other rights or
remedies. You further agree that you will pay for any applicable attorneys' fees
and court costs incurred by GTE if GTE is required to seek the enforcement of or
to defend the terms of this Agreement.

The obligations imposed on you by this Section ("Covenants") are in addition to,
and not in lieu of, any and all other policies and agreements of GTE regarding
the foregoing covenants.

MISCELLANEOUS -

GTE - For purposes of this Agreement, "GTE" refers not only to Service Corp.,
but also to GTE Corporation and all of its affiliates, subsidiaries, related
entities, lines of business and corporate successors and all business
enterprises, including joint ventures, in which it is a partner or has an
ownership interest.

NONDUPLICATION OF BENEFITS/NO SEVERANCE - The payment of any benefits hereunder
will be in lieu of any other ISEP or separation or severance benefits and


<PAGE>   14
Mr. J. Randall MacDonald
June 4, 1998
Page 14

will fulfill all GTE obligations under associated plans and programs, except to
the extent that you become entitled to such benefits after a Qualifying
Termination following a Change in Control (as those terms are defined in your
ESA). No provision of this Agreement will require GTE to provide you with any
payment, benefit, or grant that duplicates any payment, benefit, or grant that
you are entitled to receive under your ESA or under any GTE compensation or
benefit plan, award agreement, or other arrangement.

OTHER GTE PLANS - Except to the extent otherwise explicitly provided by this
Agreement, any awards made to you under any GTE compensation or benefit plan or
program will be governed by the terms of that plan or program and any applicable
award agreement thereunder. Notwithstanding the foregoing, you will not be
entitled to participate in any GTE compensation or benefit plan that is
established after your employment with Service Corp. terminates, and, except as
specifically provided in this Agreement, you will not be entitled to any
additional grants or awards under any GTE compensation or benefit plan after
your employment with Service Corp. terminates.

TAXES - GTE may withhold from any benefits payable under this Agreement all
taxes that GTE reasonably determines to be required pursuant to any law,
regulation, or ruling. However, it is your obligation to pay all required taxes
on any amounts provided under this Agreement, regardless of whether withholding
is required.

CONFIDENTIALITY - Except to the extent otherwise required by law, you will not
disclose, in whole or in part, any of the terms of this Agreement. This Section
("Confidentiality") does not prevent you from disclosing the terms of this
Agreement to your spouse or to your legal or financial adviser, provided that
you take all reasonable measures to assure that he or she does not disclose the
terms of this Agreement to a third party except as otherwise required by law.

GOVERNING LAW - To the extent not preempted by federal law, the provisions of
this Agreement will be construed and enforced in accordance with the laws of the
State of New York, excluding any conflicts or choice of law rule or principle
that might otherwise refer construction or interpretation of this provision to
the substantive law of another jurisdiction.

ASSIGNMENT - Service Corp. may, without your consent, assign its rights and
obligations under this Agreement to any other entity that is a part of GTE, and
if Service Corp. makes such an assignment, all references in this Agreement to
"Service Corp." shall be deemed to refer to the assignee. However, you may not
assign your rights and obligations under this Agreement.


<PAGE>   15
Mr. J. Randall MacDonald
June 4, 1998
Page 15

SEVERABILITY - Should any part of this Agreement be held to be enforceable only
if modified, a court of competent jurisdiction is empowered to reform this
Agreement accordingly. In addition, any such modification or reformation of a
clause contained in this Agreement will not affect the validity of the remainder
of this Agreement, the balance of which will continue to be binding upon the
parties hereto with any such modification to become a part hereof and treated as
though contained in this Agreement.

Randy, I believe this generous offer provides you and your family with financial
security as our industry and GTE evolve. We recognize the requirements that have
been and will be placed on you are significant. It is my hope that this
compensation arrangement provides you with a level of comfort to allow you to
continue to perform your responsibilities in an exemplary manner. Please
indicate your acceptance by signing below.

Sincerely yours,


/s/ CHARLES R. LEE
------------------------------------
Charles R. Lee

cc: M.T. Masin
    K.B. Foster
    J.R. MacDonald



I agree to the terms described above.



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     Signature Line

IN ADDITION TO SIGNING ABOVE, SIGN BELOW IF YOU WISH TO MAKE THE FOLLOWING 
IRREVOCABLE ELECTION. IF YOU DO NOT WISH TO MAKE THE FOLLOWING ELECTION, DO NOT
SIGN BELOW.

In accordance with the election offered to me above under "Additional Pension 
and Benefit Credit," I irrevocably decline eligibility for the additional
pension and benefit

<PAGE>   16
Mr. J. Randall MacDonald
June 4, 1998
Page 16

credit described under "Additional Pension and Benefit Credit," and I
irrevocably elect to accept, in lieu thereof, the stock option grant described
under "Additional Pension and Benefit Credit."



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     Signature Line