<PAGE>   1
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                                 UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549


                                   FORM 10-Q


          [X] Quarterly Report Pursuant to Section 13 or 15(d) of the
                        Securities Exchange Act of 1934

               For the quarterly period ended: SEPTEMBER 30, 1999

                                       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 0-2908


                           GTE NORTHWEST INCORPORATED
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


            WASHINGTON                               91-0466810
  (STATE OR OTHER JURISDICTION OF         (I.R.S. EMPLOYER IDENTIFICATION NO.)
   INCORPORATION OR ORGANIZATION)

1255 Corporate Drive, SVC04C08, Irving, Texas          75038
 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)            (ZIP CODE)

        Registrant's telephone number, including area code 972-507-5000


     (Former name, former address and former fiscal year, if changed since
                                 last report)

The registrant, a wholly-owned subsidiary of GTE Corporation, meets the
conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is
therefore filing this form with reduced disclosure format pursuant to General
Instruction (H)(2).

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                               YES        [X]    NO        [ ]

The Company had 17,920,000 shares of no par value common stock outstanding at
October 31, 1999. The Company's common stock is 100% owned by GTE Corporation.
===============================================================================

<PAGE>   2

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

                   GTE NORTHWEST INCORPORATED AND SUBSIDIARY
            Condensed Consolidated Statements of Income (Unaudited)


<TABLE>
<CAPTION>
                                            Three Months Ended        Nine Months Ended
                                               September 30,            September 30,
                                           --------------------     ---------------------
                                             1999        1998         1999         1998
                                           --------    --------     --------     --------
                                                     (Dollars in Millions)
<S>                                        <C>        <C>           <C>          <C>
REVENUES AND SALES
     Local services                         $121.5      $116.1       $356.3       $346.0
     Network access services                 135.0       119.6        384.7        355.5
     Other services and sales                 59.6        65.4        163.5        163.9
                                            ------      ------       ------       ------

        Total revenues and sales             316.1       301.1        904.5        865.4
                                            ------      ------       ------       ------

OPERATING COSTS AND EXPENSES
     Cost of services and sales               85.2        90.9        267.8        274.7
     Selling, general and administrative      34.8        45.1        118.1        131.2
     Depreciation and amortization            57.3        51.5        168.3        156.6
                                            ------      ------       ------       ------

        Total operating costs and expenses   177.3       187.5        554.2        562.5
                                            ------      ------       ------       ------

OPERATING INCOME                             138.8       113.6        350.3        302.9

OTHER (INCOME) EXPENSE
     Interest - net                           13.8        15.7         41.6         42.5
     Other - net                                --        (0.2)          --         (0.2)
                                            ------      ------       ------       ------

INCOME BEFORE INCOME TAXES                   125.0        98.1        308.7        260.6
     Income taxes                             46.1        36.2        113.9         95.8
                                            ------      ------       ------       ------

INCOME BEFORE EXTRAORDINARY CHARGE            78.9        61.9        194.8        164.8
     Extraordinary charge                       --          --           --         (3.1)
                                            ------      ------       ------       ------

NET INCOME                                  $ 78.9      $ 61.9       $194.8       $161.7
                                            ======      ======       ======       ======
</TABLE>


Per share data is omitted since the Company's common stock is 100% owned by GTE
Corporation.

The accompanying notes are an integral part of these statements.

                                       1
<PAGE>   3
                   GTE NORTHWEST INCORPORATED AND SUBSIDIARY
               Condensed Consolidated Balance Sheets (Unaudited)

<TABLE>
<CAPTION>
                                                    September 30,  December 31,
                                                        1999           1998
                                                    ------------   ------------
                                                       (Dollars in Millions)
<S>                                                 <C>         <C>
ASSETS
Current assets
    Cash and cash equivalents                        $    0.1       $    0.4
    Receivables, less allowances of
       $16.9 million and $15.5 million                  208.0          214.8
    Accounts receivable from affiliates                   5.4            4.3
    Note receivable from affiliate                       20.7          105.5
    Inventories and supplies                             22.4           15.1
    Net assets held for sale (see Note 5)                15.6             --
    Prepayments and other                                 1.5           20.0
                                                     --------       --------

       Total current assets                             273.7          360.1
                                                     --------       --------


Property, plant and equipment, at cost                3,632.9        3,598.0
Accumulated depreciation                             (2,247.0)      (2,216.4)
                                                     --------       --------

       Total property, plant and equipment, net (a)   1,385.9        1,381.6
                                                     --------       --------



Prepaid pension costs                                   157.7          114.4
Other assets                                             10.4           16.4
                                                     --------       --------

Total assets                                         $1,827.7       $1,872.5
                                                     ========       ========
</TABLE>

(a) Includes $14.8 million at December 31, 1998, that is now held for sale, see
Note 5.

The accompanying notes are an integral part of these statements.

                                       2
<PAGE>   4
                   GTE NORTHWEST INCORPORATED AND SUBSIDIARY
         Condensed Consolidated Balance Sheets (Unaudited) - Continued

<TABLE>
<CAPTION>
                                            September 30,   December 31,
                                                 1999           1998
                                            -------------   ------------
                                               (Dollars in Millions)
<S>                                         <C>        <C>
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
    Current maturities of long-term debt      $    0.9        $  125.9
    Accounts payable                              81.9            67.6
    Affiliate payables                            22.3            58.3
    Taxes payable                                 53.9            41.1
    Accrued payroll costs                         20.2            28.2
    Dividends payable                             56.0            20.0
    Accrued interest                              23.4            13.4
    Other                                         50.0            47.2
                                              --------        --------

       Total current liabilities                 308.6           401.7
                                              --------        --------


Long-term debt                                   764.9           765.4
Deferred income taxes                            129.6           111.0
Deferred employee benefit plans and other         46.0            48.9
                                              --------        --------

       Total liabilities                       1,249.1         1,327.0
                                              --------        --------


Shareholder's equity
    Common stock (17,920,000 shares issued)      448.0           448.0
    Additional paid-in capital                    60.1            57.7
    Retained earnings                             70.5            39.8
                                              --------        --------

       Total shareholder's equity                578.6           545.5
                                              --------        --------

Total liabilities and shareholder's equity    $1,827.7        $1,872.5
                                              ========        ========
</TABLE>

The accompanying notes are an integral part of these statements.

                                       3
<PAGE>   5
                   GTE NORTHWEST INCORPORATED AND SUBSIDIARY
          Condensed Consolidated Statements of Cash Flows (Unaudited)

<TABLE>
<CAPTION>
                                                                Nine Months Ended
                                                                  September 30,
                                                              ---------------------
                                                                1999        1998
                                                              ---------   --------
                                                              (Dollars in Millions)
<S>                                                           <C>         <C>
OPERATIONS
    Income before extraordinary charge                           $194.8    $164.8
    Adjustments to reconcile income before extraordinary
     charge to net cash
       from operations:
         Depreciation and amortization                            168.3     156.6
         Provision for uncollectible accounts                      12.4      13.5
         Changes in current assets and current liabilities         (0.9)     26.7
         Deferred income taxes and other - net                    (24.7)    134.8
                                                                 ------    ------

       Net cash from operations                                   349.9     496.4
                                                                 ------    ------

INVESTING
    Capital expenditures                                         (182.6)   (225.5)
    Other - net                                                     1.5       0.2
                                                                 ------    ------

       Net cash used in investing                                (181.1)   (225.3)
                                                                 ------    ------

FINANCING
    Long-term debt issued                                            --     173.9
    Long-term debt retired, including premiums paid
       on early retirement                                       (125.9)   (145.5)
    Dividends                                                    (128.0)   (157.4)
    Net change in affiliate notes                                  84.8    (141.5)
    Other - net                                                      --      (1.7)
                                                                 ------    ------

       Net cash used in financing                                (169.1)   (272.2)
                                                                 ------    ------

Decrease in cash and cash equivalents                              (0.3)     (1.1)

Cash and cash equivalents:
    Beginning of period                                             0.4       1.5
                                                                 ------    ------

    End of period                                                $  0.1    $  0.4
                                                                 ======    ======
</TABLE>

The accompanying notes are an integral part of these statements.

                                       4

<PAGE>   6
                   GTE NORTHWEST INCORPORATED AND SUBSIDIARY
           Consolidated Statement of Shareholder's Equity (Unaudited)

<TABLE>
<CAPTION>
                                                  Additional
                                          Common    Paid-In     Retained
                                           Stock    Capital     Earnings    Total
                                          ------- ----------   ----------  --------
                                                   (Dollars in Millions)
<S>                                      <C>      <C>          <C>        <C>
Shareholder's equity, December 31, 1998    $448.0   $ 57.7      $  39.8    $ 545.5

Net income                                                        194.8      194.8
Tax benefit of employee stock options
   exercised                                           2.4                     2.4
Dividends declared                                               (164.1)    (164.1)
                                           ------   ------      -------    -------

Shareholder's equity, September 30, 1999   $448.0   $ 60.1      $  70.5    $ 578.6
                                           ======   ======      =======    =======
</TABLE>

The accompanying notes are an integral part of these statements.

                                       5
<PAGE>   7

                   GTE NORTHWEST INCORPORATED AND SUBSIDIARY
        Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 1.  BASIS OF PRESENTATION

GTE Northwest Incorporated (the Company) is incorporated under the laws of the
State of Washington and is a subsidiary of GTE Corporation (GTE).

The unaudited condensed consolidated financial statements included herein have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. However, in the opinion of management
of the Company, the condensed consolidated financial statements include all
adjustments, which consist only of normal recurring accruals, necessary to
present fairly the financial information for such periods. These condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's 1998 Annual Report on Form 10-K.

Reclassifications of prior year data have been made, where appropriate, to
conform to the 1999 presentation.

NOTE 2.  CAPITALIZED SOFTWARE

Effective January 1, 1999, the Company adopted Statement of Position (SOP)
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." As a result of adopting SOP 98-1, in the third quarter and first
nine months of 1999 the Company capitalized $5.3 million and $11.3 million,
respectively, of software expenditures, which would have previously been
expensed.

NOTE 3.  SPECIAL CHARGE

In 1999, GTE continued the review of its operations and cost structure to
ensure they were consistent with its growth objectives. In connection with this
ongoing review, GTE initiated employee separation programs that resulted in a
one-time charge for GTE during the first quarter of 1999. The charge pertaining
to the Company totaled $5.9 million and is reflected as "Selling, general and
administrative" costs and expenses in the condensed consolidated income
statements. The components of the charge include separation programs and
related benefits such as outplacement and benefit continuation costs. These
programs were completed during the first quarter of 1999.

NOTE 4.  RECENT ACCOUNTING PRONOUNCEMENT

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. The Company is
currently assessing the impact of adopting SFAS No. 133, as amended, which is
effective January 1, 2001.


                                       6
<PAGE>   8
                   GTE NORTHWEST INCORPORATED AND SUBSIDIARY
  Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

NOTE 5.  NET ASSETS HELD FOR SALE

During May 1999, the Company entered into an agreement to sell approximately
14,000 switched access lines located in California to Citizens Utilities
Company. This sale consummates the Company's previously announced 1998 plan to
sell selected access lines located in California. The sale is subject to
regulatory approval and is expected to close in 2000. The associated net
assets, which approximate $15.6 million, consist of property, plant and
equipment, and are classified as "Net assets held for sale" in the condensed
consolidated balance sheet as of September 30, 1999. The Company intends to
continue to operate all of these assets until sold. Based on the decision to
sell, however, the Company stopped recording depreciation expense for these
assets, resulting in a year-to-date depreciation expense reduction of $1.8
million for 1999. No charges were recorded for the access lines to be sold
because their estimated fair values were in excess of their carrying values.
The access lines sold represented approximately 1% of the average switched
access lines that the Company had in service during 1998, and contributed
approximately 1.5% to 1998 consolidated revenues.

NOTE 6.  PROPOSED MERGER WITH BELL ATLANTIC CORPORATION

Bell Atlantic and GTE have announced a proposed merger of equals under a
definitive merger agreement dated as of July 27, 1998. Under the terms of the
agreement, GTE shareholders will receive 1.22 shares of Bell Atlantic common
stock for each share of GTE common stock that they own.

The merger is expected to qualify as a pooling of interests, which means that
for accounting and financial reporting purposes the companies will be treated
as if they had always been combined. The completion of the merger is subject to
a number of conditions, including certain regulatory approvals and receipt of
opinions that the merger will be tax-free. At annual meetings held in May 1999,
the shareholders of each company approved the merger.


                                       7
<PAGE>   9
                   GTE NORTHWEST INCORPORATED AND SUBSIDIARY

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

RESULTS OF OPERATIONS

Net income increased $33.1 million or 20% for the nine months ended September
30, 1999, compared to the same period in 1998, primarily due to higher revenues
combined with lower operating costs and expenses. Included in 1998 net income
is an after-tax extraordinary charge of $3.1 million (net of tax benefits of
$1.8 million) related to the retirement of high-coupon debt prior to stated
maturity.

<TABLE>
<CAPTION>
REVENUES AND SALES
(Dollars in Millions)             Nine Months Ended
                                    September 30,
                                 ------------------   Increase   Percent
                                  1999      1998      (Decrease) Change
                                 -------   ------     ---------- -------
<S>                               <C>       <C>       <C>        <C>
    Local services                $356.3   $346.0      $ 10.3      3%
    Network access services        384.7    355.5        29.2      8%
    Other services and sales       163.5    163.9        (0.4)    --
                                  ------   ------      ------
       Total revenues and sales   $904.5   $865.4      $ 39.1      5%
                                  ======   ======      ======
</TABLE>

Local Services Revenues

Switched access lines grew 4% generating $10.6 million of additional revenues
from basic local services for the nine months ended September 30, 1999,
compared to the same period in 1998. Demand for operator and directory
assistance services generated an additional $4.0 million and enhanced custom
calling features added an additional $3.2 million in revenues. In addition, the
September 1998 Idaho rate rebalancing agreement resulted in increased local
revenues of $2.9 million. Partially offsetting these increases was a $10.4
million decrease related to lower charges for extended area service, which
resulted from a settlement between the Company and the Oregon Public Utilities
Commission (OPUC) in September 1998.

Network Access Services Revenues

Minutes of use increased 8% generating additional revenues of $15.2 million in
the first nine months of 1999, compared to the same period in 1998. Special
access revenues grew by $27.2 million as a result of greater demand for
increased bandwidth services by high-capacity users. End user surcharges
increased $6.4 million primarily as a result of implementation of the local
number portability (LNP) surcharge (for further information see "INTERSTATE
REGULATORY DEVELOPMENTS - Number Portability"). Partially offsetting these
increases are decreases of $15.2 million reflecting the impact of mandated
interstate and intrastate access price changes, and $4.6 million resulting from
settlements with intraLATA (local access transport area) local exchange
carriers (LECs) in accordance with intrastate sharing agreements.


                                       8
<PAGE>   10

                   GTE NORTHWEST INCORPORATED AND SUBSIDIARY

          Management's Discussion and Analysis of Financial Condition
                     And Results of Operations - Continued
              (Abbreviated pursuant to General Instruction H(2).)

<TABLE>
<CAPTION>
OPERATING COSTS AND EXPENSES
(Dollars in Millions)                   Nine Months Ended
                                          September 30,
                                       ------------------    Increase   Percent
                                         1999      1998     (Decrease)  Change
                                       -------    -------   ----------  -------
<S>                                    <C>        <C>       <C>         <C>
Cost of services and sales              $267.8     $274.7     $ (6.9)      (3)%
Selling, general and administrative      118.1      131.2      (13.1)     (10)%
Depreciation and amortization            168.3      156.6       11.7        7%
                                        ------     ------     ------
   Total operating costs and expenses   $554.2     $562.5     $ (8.3)      (1)%
                                        ======     ======     ======
</TABLE>

Total operating costs and expenses decreased $8.3 million for the nine months
ended September 30, 1999, compared to the same period in 1998. Due to the
employee-reduction program initiated earlier this year and the resulting
settlement of pension obligations, the Company was able to immediately
recognize pension plan gains that have accumulated in excess of the employee
obligations. These favorable pension settlement gains were $28.7 million for
the first nine months of 1999. Partially offsetting these expense reductions is
a one-time special charge of $5.9 million associated with the employee
separation programs completed in the first quarter of 1999. Additionally,
material costs increased $9.0 million for customer and access line growth and
increased telecommunications equipment sales volume. Higher depreciation and
amortization expenses of $13.5 million were primarily driven by additional
investment in network facilities resulting from increased demand for switched
access lines, and amortization of right-to-use (RTU) fees. These increases were
partially offset by a $1.8 million decrease resulting from the discontinuation
of depreciation on approximately 14,000 switched access lines held for sale
(for further information see "OTHER DEVELOPMENTS - Planned Asset Sales").

OTHER INCOME STATEMENT ITEMS

Income taxes increased 19% or $18.1 million for the nine months ended September
30, 1999, compared to the same period in 1998, due to an increase in pretax
income.

INTERSTATE REGULATORY DEVELOPMENTS

During the third quarter of 1999, regulatory and legislative activity at both
the state and federal levels continued to be a direct result of the
Telecommunications Act of 1996 (Telecommunications Act). Along with promoting
competition in all segments of the telecommunications industry, the
Telecommunications Act was intended to preserve and advance universal service.

GTE continued in the third quarter of 1999, to meet the wholesale requirements
of new competitors. To date, GTE has signed interconnection agreements with
other carriers, providing them the capability to purchase individual unbundled
network elements (UNEs), resell retail services and interconnect
facilities-based networks. Several of these interconnection agreements were the
result of the arbitration process established by the Telecommunications Act,
and incorporated prices or terms and conditions based upon the Federal
Communications Commission (FCC) rules that were subsequently overturned by the
Eighth Circuit Court (Eighth Circuit) in July 1997. GTE challenged a number of
such agreements in federal district courts during 1997.

GTE's position in these challenges was supported by the Eighth Circuit's July
1997 decision stating that the FCC had overstepped its authority in several
areas concerning implementation of the interconnection provisions of the
Telecommunications Act. In January 1999, the U.S. Supreme Court (Supreme Court)
reversed in part and affirmed in part the Eighth Circuit's decisions. The
Supreme Court reversed the Eighth Circuit's determination that the FCC


                                       9
<PAGE>   11
                   GTE NORTHWEST INCORPORATED AND SUBSIDIARY

          Management's Discussion and Analysis of Financial Condition
                     And Results of Operations - Continued
              (Abbreviated pursuant to General Instruction H(2).)


had no jurisdiction over pricing. As a result, the pricing rules established by
the FCC are now subject to review on their merits by the Eighth Circuit. On the
other hand, the Supreme Court vacated the FCC rule setting forth the UNEs that
incumbent local exchange carriers (ILECs) are required to provide to
competitive local exchange carriers (CLECs). This latter ruling has led to a
proceeding before the FCC concerning what elements had to be offered and under
what conditions.

In September 1999, the FCC voted on the matter; and the order was issued on
November 5, 1999. The FCC reaffirmed that incumbents must provide unbundled
access to five of the original seven network elements. ILECs are no longer
required to provide unbundled operator services, including directory assistance.
In addition, in certain circumstances, local and tandem switching need not be
unbundled. The FCC also found that state commissions can require ILECs to
unbundle additional elements as long as they are consistent with the
requirements of the Telecommunications Act and the national policy framework
instituted in the FCC's order. Furthermore, the order precludes states from
removing network elements from the FCC's list of unbundling obligations.

In June 1999, the Eighth Circuit established a schedule for addressing the
issues it did not decide in 1998. The major issues are: (1) the FCC's cost
methodology used to set prices, (2) its methodology for setting wholesale
discounts, (3) the "proxy rates" it set for interconnection, UNEs, and
wholesale discounts, (4) whether ILECs should be required to combine UNEs that
are not already combined, and (5) whether the FCC can require ILECs to provide
"superior quality" to competitors than what the ILEC provides to itself.
Parties to this action have filed briefs and participated in oral arguments on
September 17, 1999. A court decision is expected during the first quarter of
2000.

Universal Service

GTE is active before both state and federal regulators advocating development
and implementation of measures that will meet the requirements of the universal
service provisions of the Telecommunications Act. Specifically, GTE urges
regulators to identify and remove all hidden subsidies and to provide an
explicit replacement mechanism.

In October 1998, the FCC issued an order selecting a cost model for universal
service. On October 22, 1999, the FCC adopted an order selecting the cost
inputs for the federal universal service cost model. Due to unforeseen delays,
the FCC has now moved the implementation date of the new universal service
mechanism for non-rural carriers to January 2000. As a result, many state
regulators are awaiting FCC action so they can design their universal service
programs to be complementary with the FCC program.

In July 1999, the United States Court of Appeals for the Fifth Circuit (Fifth
Circuit) affirmed in part, reversed in part, and remanded in part the FCC's
universal service regime. The FCC filed a Motion For Stay of the Fifth
Circuit's mandate so that additional time could be granted to address the
implementation issues associated with changing its existing methods of
assessment and carrier recovery of universal service contributions. GTE and
several other parties also asked the Fifth Circuit for rehearing on several
issues. However, in September 1999 the Fifth Circuit denied all motions for
stay and/or rehearing, and established November 1, 1999 as the effective date
for the original decision.

On October 8, 1999, the FCC released two orders in response to the Fifth
Circuit decision. One order permits ILECs to continue to recover their
universal service contributions from access charges or to establish end user
charges. The second order changed the contribution basis for school/library
funding to eliminate calculations based upon intrastate revenues.

On November 4, 1999, the FCC released an order dealing with implementation of
the new FCC federal high cost support mechanism for non-rural ILECs. The
effective date for the new federal universal service plan is January 1,


                                      10
<PAGE>   12
                   GTE NORTHWEST INCORPORATED AND SUBSIDIARY

          Management's Discussion and Analysis of Financial Condition
                     And Results of Operations - Continued
              (Abbreviated pursuant to General Instruction H(2).)


2000. This plan will take contributions to the federal fund and distribute them
to states with higher than average costs. The role of state commissions is to
ensure reasonable comparability within the borders of a state. Federal high
cost support will be calculated by comparing the nationwide average cost with
each state's average cost per line, and providing federal support for only
states that exceed 135% of the nationwide average. To guard against rate shock,
the FCC also adopted a "hold harmless" approach so that the amount of support
provided to each non-rural carrier under the new plan will not be less than the
amount provided today.

Price Cap

In May 1999, the U.S. Court of Appeals for the District of Columbia (Court)
released a decision regarding the FCC's choice of a 6.5% price cap productivity
factor in a 1997 order. The Court found the FCC's choice of a 6.0% base factor
and a 0.5% Consumer Productivity Dividend to be inadequately supported. The
Court remanded the matter back to the FCC for further action and established an
April 2000 date by which the FCC must complete its deliberations. The Court
also stayed application of its order, allowing the status quo use of the 6.5%
productivity factor pending conclusion of the FCC's further review.

Interstate Access Revision

Effective July 1999, access charges were further reduced using a 6.5%
productivity factor in compliance with FCC requirements to reflect the impacts
of access charge reform and in making the Company's 1999 Annual Filing. The
total annual financial impact of the reduction was $113 million. Similar
filings during 1997 and 1998 had already resulted in price reductions.

In July 1999, GTE, along with a coalition of local exchange and long-distance
companies, submitted a proposal for interstate access charge and universal
service reform to the FCC. The proposal would accelerate the shift in access
revenue recovery from per-minute to flat-rated charges, set a schedule for
elimination of the price cap productivity factor, and provide more explicit
support for universal service. In September 1999, the FCC put the coalition's
proposal out for public comment.

In August 1999, the FCC released an order pertaining to access reform and
pricing flexibility. The order grants price cap LECs immediate flexibility
under certain circumstances to deaverage certain access services and permits
the introduction of new services on a streamlined basis, without prior FCC
approval.

Advanced Telecommunications Services

The Telecommunications Act required the FCC to "encourage the deployment on a
reasonable and timely basis of advanced telecommunications capability to all
Americans." Further, the FCC was required to conduct a proceeding aimed at
determining the availability of advanced telecommunications, and to take action
to remove barriers to infrastructure investment and to promote competition.

In March 1999, the FCC released an order adopting a number of new collocation
rules designed to make competitive entry easier and less costly. These rules
specify how ILECs will manage such items as alternate collocation arrangements,
security, space preparation cost allocation, provisioning intervals, and space
exhaustion. GTE has appealed this order to federal court. The FCC also released
a Further Notice of Proposed Rulemaking (FNPRM) seeking comment on spectrum
compatibility issues and line sharing. Line sharing is a concept wherein two or
more service providers are allowed to use the same local loop (e.g., voice and
xDSL). An order from the FCC on line sharing is expected in the fourth quarter
of 1999.


                                      11
<PAGE>   13
                   GTE NORTHWEST INCORPORATED AND SUBSIDIARY

          Management's Discussion and Analysis of Financial Condition
                     And Results of Operations - Continued
              (Abbreviated pursuant to General Instruction H(2).)


Number Portability

In December 1998, the FCC released an order establishing cost recovery rules
for local number portability (LNP) that permitted the recovery of
carrier-specific costs directly related to the provision of long-term LNP via a
federally tariffed end-user monthly charge. GTE subsequently filed an LNP
tariff with the FCC, and in March 1999 instituted an end-user number
portability fee. This charge is levied on all business and residence customers
because all customers benefit from the competitive environment created by LNP
capability. In June 1999, GTE's tariffed LNP charge was reviewed and accepted
by the FCC at $0.36 per access line.

Internet Service Traffic

ILECs are required to provide open access to all Internet service providers
(ISPs), while cable television operators are not. Several major cable
television operators providing Internet access through cable modem facilities
are only offering their affiliated ISPs to consumers. Cable television
operators that do allow customers to select non-affiliated ISPs often require
the customer to also pay for their affiliated ISP's service (i.e., to pay twice
for the same service). GTE has been active in encouraging municipalities
engaged in reviewing cable television mergers or franchise renewals to require
cable modem open access as a condition for approval. The City of Portland,
Oregon was first to adopt such a requirement and AT&T has appealed that
decision. Arguments took place November 1, 1999 before the Ninth Circuit Court.

In October 1999, GTE's Internetworking unit filed an antitrust lawsuit
contending that cable TV providers' refusal to provide ISPs with "open access"
to cable modem platforms is a violation of federal antitrust law. The lawsuit
filed in the U.S. District Court in Pittsburgh, names Tele-Communications,
Inc., (now a unit of AT&T Corp.), Comcast Corp., and Excite@Home and seeks an
injunction to require open access and damages.

GTE's interconnection contracts with CLECs specify that parties compensate each
other for the exchange of local traffic, defined as traffic that is originated
by an end user of one party and terminating to the end user of the other party
within GTE's current local serving area. It is GTE's position that ISP traffic
does not satisfy the definition of local traffic, and that no compensation
should be paid to CLECs that switch this traffic to their ISP customers. In a
recent ruling, the FCC has clarified that ISP traffic is largely interstate,
does not "terminate" in GTE's local serving area, and based on an end-to-end
analysis of the call, is not local traffic. Consistent with this recent ruling,
GTE has been disputing and litigating bills from CLECs on these calls.

INTRASTATE REGULATORY DEVELOPMENTS

Oregon

An Oregon federal district court decision issued in March 1999 ruled in favor
of the Company's argument that the UNE tariff is unlawful and preempted by the
Telecommunications Act. The UNE tariff resulted from the OPUC's decision that
the Company was required to offer the same prices as US West until the
Company's cost studies were approved as the basis for establishing new prices.
In August 1999, the Company sent a notification letter to the OPUC to withdraw
the Company's tariff in order to comply with the court's decision. The OPUC
issued an order in August 1999 rejecting the Company's tariff withdrawal. The
Company will accept the order, however, it may file an amendment to the terms
and conditions of the tariff stating that only CLECs with approved
interconnection agreements may purchase out of the tariff.


                                      12
<PAGE>   14
                   GTE NORTHWEST INCORPORATED AND SUBSIDIARY

          Management's Discussion and Analysis of Financial Condition
                     And Results of Operations - Continued
              (Abbreviated pursuant to General Instruction H(2).)


Washington

The interim discount rates for the Company's resold services will be replaced
by the permanent rates that result from the Washington Utilities and
Transportation Commission's (WUTC's) Phase II proceeding in its generic cost
docket. The WUTC issued a decision on the generic cost docket in April 1998,
but a cost model was not chosen. Instead, price floors for UNEs were
established. The Company filed cost studies in May 1998. In August 1999, the
WUTC issued its Phase II order establishing permanent rates. The Company
petitioned for reconsideration and clarification of the following substantive
issues: 1) effective date of the interconnection and UNE prices ordered in
Phase II; 2) costs to be recovered in non-recurring charges (NRCs); and 3)
clarification of the Company's adoption of US West's NRC rate structure. Phase
III of this proceeding will address operational support systems (OSS) and the
deaveraging of interconnection and UNE prices.

In March 1999, the Company filed an Access Reform Tariff with the WUTC changing
various access rates in compliance with a 1998 access form ruling. In June
1999, the WUTC filed a complaint against the Company indicating that it did not
believe the Company's tariff had complied with the 1998 ruling. The complaint
alleges that the Company is inappropriately collecting implicit subsidies in
this rate. The Company responded to the complaint stating that it believes that
it has fully complied with the access form ruling. The WUTC is expected to rule
in the first quarter 2000.

OTHER DEVELOPMENTS

Proposed Merger with Bell Atlantic Corporation

Bell Atlantic and GTE have announced a proposed merger of equals under a
definitive merger agreement dated as of July 27, 1998. Under the terms of the
agreement, GTE shareholders will receive 1.22 shares of Bell Atlantic common
stock for each share of GTE common stock that they own.

The merger is expected to qualify as a pooling of interests, which means that
for accounting and financial reporting purposes the companies will be treated
as if they had always been combined. The completion of the merger is subject to
a number of conditions, including certain regulatory approvals and receipt of
opinions that the merger will be tax-free. At annual meetings held in May 1999,
the shareholders of each company approved the merger.

Both companies are working diligently to complete the merger and are targeting
completion of the merger around the end of the first quarter of 2000. However,
Bell Atlantic and GTE must obtain the approval of a variety of state and
federal regulatory agencies and, given the inherent uncertainties of the
regulatory process, the closing of the merger may be delayed.

Planned Asset Sales

During May 1999, the Company entered into an agreement to sell approximately
14,000 switched access lines located in California to Citizens Utilities
Company. This sale consummates the Company's previously announced 1998 plan to
sell selected access lines located in California. The sale is subject to
regulatory approval and is expected to close in 2000. The associated net
assets, which approximate $15.6 million, consist of property, plant and
equipment, and are classified as "Net assets held for sale" in the condensed
consolidated balance sheet as of September 30, 1999. The Company intends to
continue to operate all of these assets until sold. Based on the decision to
sell, however, the Company stopped recording depreciation expense for these
assets, resulting in a year-


                                      13
<PAGE>   15
                   GTE NORTHWEST INCORPORATED AND SUBSIDIARY

          Management's Discussion and Analysis of Financial Condition
                     And Results of Operations - Continued
              (Abbreviated pursuant to General Instruction H(2).)


to-date depreciation expense reduction of $1.8 million for 1999. No charges
were recorded for the access lines to be sold because their estimated fair
values were in excess of their carrying values. The access lines sold
represented approximately 1% of the average switched access lines that the
Company had in service during 1998, and contributed approximately 1.5% to 1998
consolidated revenues.

YEAR 2000 CONVERSION

State of Readiness

GTE has completed Year 2000 remediation, conducted system testing and returned
to production the essential systems that support its domestic
telecommunications businesses. GTE's portion of the public switched telephone
network (PSTN) in the United States has been upgraded for Year 2000, and all of
GTE's access lines are now operating using Year 2000 compliant central office
switches and network elements. All other GTE business units are substantially
complete in Year 2000 conversion and testing and are expected to be 100%
complete by the end of November 1999.

GTE's remaining efforts continue through March 2000 and consist of quality
assurance and validation of Year 2000 efforts across businesses; assuring
forward compliance of systems and services; planning for reasonably foreseeable
contingencies associated with the millennium rollover; and operation of our
corporate Year 2000 communications watch center.

Cost to Address Year 2000 Issues

The estimated total multi-year cost of GTE's Year 2000 Program remains
unchanged and is not expected to exceed $400 million. Through September 30,
1999, expenditures totaled $358 million. The current estimate for the cost of
remediation for the Company is approximately $14.5 million. Through September
30, 1999, expenditures totaled $9.7 million. Year 2000 remediation costs are
expensed in the year incurred. Approximately 68% of GTE's program effort
involves U.S. domestic operations. GTE's majority-owned subsidiaries have not
elected to replace or accelerate the planned replacement of any systems due to
the Year 2000 issue. GTE has begun to reduce the staff assigned to the Year
2000 program. From a program peak of over 1,200 full-time equivalent workers,
we are currently staffed with an estimated 500 full-time equivalent workers
(both company employees and contractors) worldwide.

Risks of Year 2000 Issues

With the completion of conversion and system testing, GTE believes that the
risk of multiple, simultaneous Year 2000 disruptions affecting GTE's ability to
provide basic services has been substantially eliminated. While isolated system
issues may arise, the "most reasonably likely worse case scenario" would be any
disruptions resulting from interoperability issues with other international
carriers that have not completed their Year 2000 efforts or other circumstances
outside of GTE's control.

Contingency Planning

GTE continues to enhance its normal business continuity planning to address
potential Year 2000 interruptions. GTE's disaster preparedness recovery plans
include procedures and activities for a "multi-regional" Year 2000 contingency,
if it occurs. GTE has established a corporate Year 2000 communications watch
center that is now operational. Located in Dallas, Texas, the watch center will
remain operational (as required) through March 1,


                                      14
<PAGE>   16
                   GTE NORTHWEST INCORPORATED AND SUBSIDIARY

          Management's Discussion and Analysis of Financial Condition
                     And Results of Operations - Continued
              (Abbreviated pursuant to General Instruction H(2).)


2000. The initial versions of our contingency plans were completed during the
second quarter of 1999. These contingency plans will be kept current through
the millennium rollover, and are being tested (as appropriate). As of September
30, 1999, 79% of the contingency plans have completed testing, and the
remaining plans are expected to complete testing by the end of November 1999.
GTE's Year 2000 contingency plans include business continuity planning;
disaster recovery/emergency preparedness; millennium rollover planning; post
millennium degradation tracking; a network and information technology freeze
period; employee availability and logistics backup planning; "follow-the-sun"
time-zone impact analysis; and coordination with other (non-PSTN)
telecommunications providers.

RECENT ACCOUNTING PRONOUNCEMENT

Derivative Instruments and Hedging Activities

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. The statement requires
entities that use derivative instruments to measure these instruments at fair
value and record them as assets or liabilities on the balance sheet. It also
requires entities to reflect the gains or losses associated with changes in the
fair value of these derivatives, either in earnings or as a separate component
of comprehensive income, depending on the nature of the underlying contract or
transaction. The Company is currently assessing the impact of adopting SFAS No.
133, as amended, which is effective January 1, 2001.

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

In this Management's Discussion and Analysis, the Company has made
forward-looking statements. These statements are based on the Company's
estimates and assumptions and are subject to certain risks and uncertainties.
Forward-looking statements include the information concerning possible or
assumed future results of operations of the Company, as well as those
statements preceded or followed by the words "anticipates," "believes,"
"estimates," "expects," "hopes," "targets" or similar expressions. For each of
these statements, the Company claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995.

The future results of the Company could be affected by subsequent events and
could differ materially from those expressed in the forward-looking statements.
If future events and actual performance differ from the Company's assumptions,
the actual results could vary significantly from the performance projected in
the forward-looking statements.

The following important factors could affect the future results of the Company
and could cause those results to differ materially from those expressed in the
forward-looking statements: (1) materially adverse changes in economic
conditions in the markets served by the Company; (2) material changes in
available technology; (3) the final resolution of federal, state and local
regulatory initiatives and proceedings, including arbitration proceedings, and
judicial review of those initiatives and proceedings, pertaining to, among
other matters, the terms of interconnection, access charges, universal service,
UNEs and resale rates; (4) the extent, timing, success and overall effects of
competition from others in the local telephone and intraLATA toll service
markets; and (5) the success


                                      15
<PAGE>   17
                   GTE NORTHWEST INCORPORATED AND SUBSIDIARY

          Management's Discussion and Analysis of Financial Condition
                     And Results of Operations - Continued
              (Abbreviated pursuant to General Instruction H(2).)


and expense of our remediation efforts and those of our suppliers, customers
and all interconnecting carriers in achieving Year 2000 compliance.

Item 3.   Quantitative and Qualitative Disclosures About Market Risk

There has been no material change in the Company's market risks since
December 31, 1998.


                                      16
<PAGE>   18

PART II. OTHER INFORMATION

                   GTE NORTHWEST INCORPORATED AND SUBSIDIARY


Item 6.  Exhibits and Reports on Form 8-K.

     (a) Exhibits required by Item 601 of Regulation S-K.

         12       Statement re: Calculation of the Consolidated Ratio of
                  Earnings to Fixed Charges

         27       Financial Data Schedule

     (b) The Company filed no reports on Form 8-K during the third quarter of
         1999.


                                      17
<PAGE>   19

                                   SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

<TABLE>
<S>                                           <C>
                                                 GTE Northwest Incorporated
                                              ---------------------------------
                                                       (Registrant)

  Date:         November 10, 1999                  /s/ Stephen L. Shore
          ------------------------------      ---------------------------------
                                                       Stephen L. Shore
                                                         Controller
                                                (Principal Accounting Officer)
</TABLE>


                                       18
<PAGE>   20

                                 EXHIBIT INDEX
<TABLE>
<CAPTION>
     Exhibit
      Number                       Description
     ---------                     -----------
     <S>          <C>
        12        Statement re: Calculation of the Consolidated Ratio of
                  Earnings to Fixed Charges

        27        Financial Data Schedule
</TABLE>