Any statements contained in this Reportreport that are not statements of historical fact, including statements about our beliefs and expectations, are forward-looking statementsstatements. We use words like “anticipate,” “believe,” “expect,” “intend,” “plan,” “estimate,” “target,” “project,” “should,” “may,” and should be evaluated as such. The words “anticipates”, “believes”, “expects”, “intends”, “plans”, “estimates”, “targets”, “projects”, “should”, “may”, “will” and similar words and expressions are intended to identify forward-looking statements. These forward-looking statements are contained throughout this Report, including, but not limited to, statements found in Part I — Item 1 — “Business”, Part II — Item 5 — “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities”, Part II — Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and Part II — Item 7A — “Quantitative and Qualitative Disclosures about Market Risk”. Such forward-lookingreport.

Forward-looking statements reflect, among other things, our current expectations, plans, strategies, and anticipated financial results and involveresults. There are a number of known and unknown risks, uncertainties, and factorsconditions that may cause our actual results to differ materially from those expressed or implied by these forward-looking statements. Many of these riskscircumstances are beyond our ability to control or predict. Moreover, forward-looking statements necessarily involve assumptions on our part.

All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements containedthat appear throughout this Report. Because of these risks, uncertainties and assumptions, you should not place undue reliance on these forward-looking statements.report. Furthermore, forward-looking statements speak only as of the date they are made. Except as required under the federal securities laws or the rules and regulations of the SEC,Securities and Exchange Commission, we doare not undertakeunder any obligation to update or review any forward-looking information, information—whether as a result of new information, future events, or otherwise. You should not place undue reliance on forward-looking statements.

Please see Part I — I—Item 1A — “Risk1A—“Risk Factors” of this Report,report, as well as the other documents that we file with the SEC from time to time, for important factors that could cause our actual results to differ from our current expectations and from the forward-looking statements discussed in this Report.report.

      We are anConsolidated Communications owns established ruralincumbent local exchange companytelephone companies (“ILECs”) that providesprovide communications services to residential and business customers in Illinois, Texas, and Texas. AsPennsylvania. Our ILECs are “rural telephone companies,” which essentially means they provide service in areas that are not heavily populated.

We offer a wide range of December 31, 2005, we estimate that we were the 17th largest local telephone company in the United States, based on publicly available information, with approximately 242,024 local access lines and approximately 39,192 digital subscriber lines, or DSL, in service. Our main sources of revenues are our local telephone businesses in Illinois and Texas, which offer an array oftelecommunications services, including local dial tone,and long distance service, custom calling features, private line services, long distance,dial-up and high-speed Internet access, inside wiring service and maintenance,digital TV, carrier access billingservices, network capacity services over our regional fiber optic network, and collection services and telephone directory publishing. In addition, we launched our Internet Protocol digital video service, which we refer to as DVS, in selected Illinois markets in 2005 and offer wholesale transport services on a fiber optic network in Texas. We also operate a number of complementary businesses, which offerincluding telemarketing and order fulfillment, telephone services to county jails and state prisons, equipment sales, operator services, equipment sales, and telemarketing and order fulfillmentmobile services.

      EachWith our acquisition of North Pittsburgh in 2007, we are the subsidiaries through which we operate our12^th largest local telephone businesses is classified as a rural telephone company underin the Telecommunications Act of 1996, or the Telecommunications Act. Our rural telephone companies are Illinois Consolidated Telephone Company, whichUnited States. We have 264,323 local access lines, 74,687 Competitive Local Exchange Carrier (“CLEC”) access line equivalents, 91,817 high-speed Internet subscribers (which we refer to as ICTC, Consolidated Communications of Fort Bend Companydigital subscriber lines, or DSL), 16,666 Internet Protocol digital television (which we refer to as IPTV) subscribers and Consolidated Communications of Texas Company. Our rural telephone companies in general benefit from stable customer demand and a favorable regulatory environment. In addition, because we primarily provide service in rural areas, competition for local6,510 digital telephone service has been limited due to the generally unfavorable economics of constructing and operating competitive systems in these areas.(commonly known as Voice over Internet Protocol, or “VOIP”) subscribers.

For the years ended December 31, 20052008, and 2004,2007, we had $321.4$418.4 million and $269.6$329.2 million of revenues, respectively, of which approximately 16.8% and 15.0%, respectively, came from state and federal subsidies.respectively. In addition, we had agenerated net lossincome of $4.5$5.3 million, and $1.1exclusive of an after tax extraordinary gain of $7.2 million for the yearsyear ended December 31, 20052008, and 2004, respectively.we generated net income of $11.4 million for the year ended December 31, 2007. As of December 31, 2005,2008, we had $555.0$880.3 million of total long-term debt, an accumulated deficitnet of $57.5current portion. In addition, as of December 31, 2008, we had retained earnings of $0.0 million and stockholders’ equity of $199.2$70.1 million.

Founded in 1894 as the Mattoon Telephone Company by the great-grandfather of our Chairman, Richard A. Lumpkin, we began as one of the nation’s first independent telephone companies. After several subsequent acquisitions, the Mattoon Telephone Company was incorporated as Illinois Consolidated Telephone Company, or ICTC, on April 10, 1924. On September 24,In 1997, McLeodUSA acquired ICTC and all related businesses from the predecessor of Consolidated Communications, Inc., which we refer to as CCI.

On July 27, 2005, we completed the initial public offering or IPO, of our common stock. At the same time, Spectrum Equity sold its entire investment and Providence Equity sold 50 percent of its investment. In connection withJuly 2006, the IPO,Company repurchased the remaining shares owned by Providence Equity.

On December 31, 2007, we effectedcompleted the acquisition of North Pittsburgh. Through its subsidiaries, North Pittsburgh advanced communication services to residential and business customers in several counties in western Pennsylvania and a reorganization pursuant to which Texas Holdings and Homebase Acquisition, LLC, our former parent company, merged with and into Illinois Holdings, and Illinois Holdings changed its name to Consolidated Communications Holdings, Inc., which is referred to throughout this Report as “we”, “us”,CLEC that operates in the “company”, or “CCH”. We are a holding company with no income from operations or assets except for the capital stock of CCI and Texas Holdings. Instead, all of our operations are conducted through our subsidiaries.Pittsburgh metropolitan area.

Demand for local telephone services from our residential and business customers has been stable despite changing economic conditions. We operate in a favorablesupportive regulatory environment, and competition in our markets is limited. As a result of these favorable characteristics, the cash flow generated byconditions, our local telephone business isgenerates relatively consistent cash flow from year to year, and our long-standingyear. Our longstanding relationship with our local telephone customers providesenables us with an opportunity to pursue increased revenue per access line by selling additional services to existing customers such as local, long distance, DSL and DVS, in selected markets, through a bundling strategy, on a single monthly bill.that includes our triple play offering of voice, DSL, and IPTV services.

Our Lufkin, Texas, and central Illinois markets have experienced only nominal population growth over the past decade. As of December 31, 2005, 127,127,2008, 106,419, or approximately 53%40.2%, of our local access lines were located in these markets. We haveUntil the cable operators launched voice services, we had experienced limited competition in these markets because the low

Our Conroe Texas and Katy, Texas markets are suburban areas locatedsuburbs on the outskirts of the Houston metropolitan area thatarea. As of December 31, 2008, 99,044, or approximately 37.5%, of our local access lines were located in these markets. Conroe and Katy have experienced above-average population and business employment growth over the past decade as compared to Texas and the United States as a whole. According to the most recent census, the median household income in the primary county in our Conroe market was over $50,000 per year, and in our Katy market was over $60,000 per year, both significantly higher than theyear. In contrast, median annual household income was $39,927 in Texas and $42,148 in the United States.

At the time of $39,927 per year. Asthe acquisition, North Pittsburgh had three operating subsidiaries: an ILEC, a CLEC, and an Internet service provider (ISP). North Pittsburgh operates in a territory of December 31, 2005, 114,897,approximately 285 square miles, including portions of Allegheny, Armstrong, Butler, and Westmoreland counties. Over the past decade, North Pittsburgh’s ILEC territory has experienced population growth because suburban communities have been expanding into its serving area. (The southernmost point of this territory is only 12 miles from Pittsburgh.) For the same reason, the ILEC has benefited from growth in business activity and favorable market demographics. Approximately 58,860, or approximately 47%22.3%, of our local access lines wereare located in these markets.the North Pittsburgh territory.

We have invested significantly inover the last several years in building a technologically advanced network capable of delivering a broad array of reliable, high quality voice, and data, and Internetvideo services to our Illinois and Texas customers on a cost-effective basis. For example, as of December 31, 2005, 92%approximately 95% of our total local access lines were DSL-capable excluding accessas of December 31, 2008. Approximately 96% of these DSL-capable lines already served by other high speed connections. Of our DSL capable lines, 80% are capable of speeds of 6 mega bits3 megabits per second (Mbps) or greater. This is made possible by the completion ofWe believe our superior Internet Protocol, or IP, backbone network in Illinois and the expansion of our IP backbone network in Texas, which we expect will be completed in mid-2006. We believe this IP network will positiongives us with a lower cost, better quality, and flexible platform that will enable the developmentus to develop and delivery ofdeliver new broadband applications to our customers. The service options we are able to providecustomers over our existing network, allow us to generategenerating additional revenues per customer. Other than the provision of success-basedWe will need to provide set-top boxes for subscribers, but otherwise we believe our current network in Illinois is capable of supportingcan support increased DVS subscriber levelsIPTV subscribers with limited additional network preparation.

We offer our residential and business customers a single point of contact for access to a broad array of voice, data, Internet and DVSvideo services. For example, we offer allWe provide local and long distance service, multiple speeds of our customers custom calling features, such as caller nameDSL service, and number identification, call forwardinga robust IPTV video offering with over 200 all-digital channels, high definition (“HD”) offerings, and call waiting.digital video recorder (“DVR”) services. We also offer value-added services such as teleconferencing and voicemail. In addition to ourcustom calling services, we offer ourcarrier access services, digital telephone service to residential and business customers, and directory publishing, telephone equipment sales, installations services and inside wiring installation and maintenance. These sales andpublishing.

Bundling our service options allow us to generate additional revenues per customer.

We benefit from federal and Texas and Pennsylvania state subsidies designed to promote “universal service,” or widely available quality telephone service at affordable prices in rural areas. For the number of customers who subscribed to service bundles as ofyear ended December 31, 2004.2008, we received $32.1 million in payments from the federal universal service fund, $17.9 million from the Texas universal service fund, and $5.2 million from the Pennsylvania universal service fund. In the aggregate, these payments constituted 13.2% of our revenues for the year ended December 31, 2008. For the year ended December 31, 2007, we received $27.0 million from the federal universal service fund and $19.0 million from the Texas universal service fund, constituting 14.0% of revenues for the year.

With an average of approximatelyover 20 years of experience in both regulated and non-regulated telecommunications businesses, our management team has demonstrated the ability tothat it can deliver profitable growth while providing high levels of customer satisfaction. Specifically, our management team has:has a proven track record of:

Over the years, we have made significant operating and management improvements. In particular, we centralized many of our business and back office operations into one functional organization with common work groups, processes, and systems. Following our acquisition of North Pittsburgh, all of its financial, human resource, and supply chain systems were immediately integrated into our existing systems. Because of these efficiencies, management and customer service personnel can focus on running the business and better serving our customers in a cost-effective manner. We intendalso identified several “fast track” projects that allowed us to improve our cost structure while launching new products and improving the customer experience. By mid-2009 we will convert the North Pittsburgh ILEC billing system to a common platform currently used by our Illinois and Texas operations.

Although we focused on integrating North Pittsburgh in 2008, in the longer term we will continue to pursue a disciplined process of selective acquisitions ofselectively acquiring access lines from Regional Bell Operating Companies and other rural local exchange carriers. Over the past five years, Regional Bell Operating Companies have divested a significant number of access lines nationwide and are expected to continue these divestitures in order to focus on larger markets. We also believe there may be attractive opportunities to acquire rural local exchange carriers. For example, in Illinois and Texas, there are approximately 90 rural local exchange carriers serving a fragmented market representing approximately 1.5 million total access lines. Our acquisition criteria include:or operating companies. When we evaluate potential acquisitions, we consider whether:

Our Telephone Operations segment consists of local telephone,calling services, network access services, subsidies, long distance services, data and Internet services (including DSL, IPTV and directory publishingdigital telephone service), and serves both residential and business customers in Illinois and Texas. In addition, we offer DVS in selected Illinois markets and transport services in our Texas service area.other services. As of December 31, 2005,2008, our Telephone Operations segment had approximately:

Long distance servicesinclude services provided to subscribers to our long distance plansenable customers to originate calls that terminate outside the caller’stheir local calling area. For this service, we charge our subscribersWe offer a variety of long distance plans, including an unlimited calling plan, and offer a combination of subscription and usage fees.

Data and Internet servicesinclude revenues from non-local private lines and the provision offor providing access to the Internet by DSL, T-1 lines anddial-up access. IPTV. We also offer a variety of data connectivity services, including Asynchronous Transfer Mode and gigabit Ethernet products and frame relay networks. Frame relay networks are public data networks commonly used for local area network to local area network communications as an alternative to private line data communications. In addition,our Pennsylvania markets we offer enhanced Internetalso provide virtual hosting services, which include basiccollocation services, custom web site designdelevopment, and hosting, content feeds, domain namee-commerce enabling technologies.

Other servicese-mailinclude revenues from telephone directory publishing, wholesale transport services and obtaining Internet protocol addresses.

Wireless partnershipinvestments are included as a component of customer telephone equipment.

San Antonio MTA, L.P., a wholly ownedwholly-owned partnership of Cellco Partnership (doing business as Verizon Wireless), is the general partner for both partnerships.GTE Mobilnet of South Texas and GTE Mobilnet of Texas RSA #17.

In 2005,connection with the acquisition of North Pittsburgh, we acquired 3.6% of Pittsburgh SMSA, 16.6725% of Pennsylvania RSA 6(I), and 23.67% of Pennsylvania RSA 6(II) wireless partnerships, all of which are majority owned and operated by Verizon Wireless. These partnerships cover territories that almost entirely overlap the markets served by North Pittsburgh’s ILEC and CLEC operations. Because of our Telephone Operations segment generated $282.3limited influence over Pittsburgh SMSA, we account for the investment using the cost basis. We recognized income on cash distributions from Pittsburgh SMSA of $5.6 million of revenue and $70.1 million of cash flows from operating activities. For 2004, our Telephone Operations segment generated $230.4 million of revenue and $77.0 million of cash flows from operating activities. As offor the year ended December 31, 2005, our Telephone Operations had total assets2008. The Pennsylvania RSA 6(I) and RSA 6(II) partnerships are accounted for under the equity method. We recognized income of $903.2 million.$7.5 million and received cash distributions of $7.0 million from these partnerships for the year ended December 31, 2008.

Our Other Operations segment, which does not include any North Pittsburgh operations, consists of the followingfive complementary businesses:

The Lufkin market is centered primarily in Angelina Countycounty in east Texas, approximately 120 miles northeast of Houston, and extends into three neighboring counties. Lufkin is the largest town within this market, which also includes the towns of Diboll, Hudson and Huntington. The area is a center for the lumber industry and includes other significant industries such as education, health care, manufacturing, retail, and social services.

The Conroe market is located primarily in Montgomery County and is centered approximately 40 miles north of Houston on Interstate I-45.Houston. Parts of the Conroe operating territory extend south to within 28 miles of downtown Houston, including parts of the affluent suburb of Thethe Woodlands. Major industries in this market include education, health care, manufacturing, retail, and social services.

The Katy market is located in parts of Fort Bend, Harris, Waller, and Brazoria counties and is centered approximately 30 miles west of downtown Houston along the busy and expanding I-10 corridor. The majorityMost of the Katy market is considered part of metropolitan Houston, with major industries including administrative, education, health care, management, professional, retail, scientific and waste management services.

The population growth within Fort BendPennsylvania ILEC territory covers 285 square miles and Montgomery has outpaced bothserves portions of Allegheny, Armstrong, Butler, and Westmorland counties in western Pennsylvania. The southernmost point of the TexasILEC territory is just 12 miles from Pittsburgh. We provide basic telephone services in this territory, with approximately 58,860 local access lines, or approximately 206.5 lines per square mile, as of December 31, 2008. Approximately 55.7% of our North Pittsburgh local access lines serve residential customers and U.S. national averages. Accordingthe remainder serve business customers. The CLEC operations expand south to data fromserve Pittsburgh and north to serve the U.S. Census 2000, the populationcity of these counties grew by 3.6% annually between 1990Butler. The CLEC primarily targets small to mid-sized businesses, educational institutions, and 2000. This compares to a growth rate of 1.9% for Texas and 1.2% for the United States during the same period. In addition, according to the most recent census, the weighted average median household income in our three Texas markets was $55,298, which was higher than the average for Texas, which was $39,927, and for the United States, which was $42,148.healthcare facilities.

Our consumer sales and marketing strategy is focused on:on increasing our penetration of broadband services, including DSL, IPTV and digital telephone, in all of our service areas. We are also focused on cross-selling our services, developing additional services to maximize revenues and increase revenues per user, and increasing customer loyalty through superior service, local presence, and motivated service employees.

Our customers also can also visit one of our eight communications centers in Illinois for theirto address various communications needs, including paying bills or ordering new telephone, Internet service and DVS

Our Telephone Operations’ sales efforts are supported by direct mail, bill inserts, newspaper advertising, public relations activities, sponsorship of community events, and website promotions.

Directory Publishing is supported by a dedicated sales force, which spends a certain number of months each year focused on each of the directory markets in order to maximize the advertising sales in each directory.sales. We believe the directory business has been an efficient tool for marketing our other services and for promoting brand development and awareness.

Transport Services has a sales force that consists of commissioned sales people specializing in wholesale transport products.

Each of our Other Operations businesses executes our sales and marketing strategy primarily usethrough an independent sales and marketing team comprised ofcomprising dedicated field sales account managers, management, teams and service representatives to execute our sales and marketing strategy. Theserepresentatives. Salespeople enhance these efforts are supported by attendance atattending industry trade shows and assuming leadership roles in industry groups including the United StatesU.S. Telecom Association, the Associated Communications Companies of America, and the Independent Telephone and Telecommunications Alliance.

Our information technology and support systems staff is a seasoned organization that supportsday-to-day day-to-day operations and develops system enhancements. The technology supporting our Telephone Operations segment is centered on a core of commercially available and internally maintained systems.

      We have developed detailed plans to migrateIn 2005 and 2006 we successfully migrated most of the key business processes of our Illinois and Texas telephone operations onto single company-wide systems and platforms. Our objective is to improve profitability by reducing individual company costs through the sharing of best practices, centralization or standardization of functions and processes and the use of technologies and systems that provide for greater efficiencies. A number of key billing,platforms including common network provisioning, network management, and workforce management systems, and financial systems. In 2007, we upgraded and integrated our telephone billing system in Illinois. All of North Pittsburgh’s financial, human resource, and supply chain systems were immediately integrated into our Illinoisexisting systems, while provisioning, network management, and Texas Telephone Operations already usetrouble management were integrated to common softwareplatforms throughout 2008 and hardware platforms, and we have successfully completed large-scale customer andthe ILEC billing migration projectsplatform will be integrated in the last five years in both Illinois and Texas. Phase one of the end user billing project was completed in July, 2005. Phase two is currently scheduled to be completed in August 2006 and Phase three is currently scheduled to be completed in July 2007. We believe ourmid-2009. Our core operating systems and hardware platform will have significant scalability.are readily expandable.

      OurAll of our local networks are based on a carrier serving areaCarrier Serving Area, or CSA, architecture. Carrier serving areaCSA architecture is a structure that allows access equipment to be placed closer to customer premises, enabling the customer towhich means customers can be connected to the equipment over shorter copper loops than would be possible if all customers were connected directly to the carrier’s main switch. The access equipment is then connected back to thatthe main switch on a high capacity fiber circuit, resulting in extensive fiber deployment throughout the network. The access equipment is sometimes referrednetwork, which enables us to as a digital loop carrier and the geographic area that it serves is the carrier serving area.provide broadband services in excess of 20 Mbps to our customers.

A single engineering team is responsible for the overall architecture and interoperability of the various elements in the combined network of our Illinois, Texas, and TexasPennsylvania telephone operations. Currently, our Texas telephone operations have aOur network operations center, or NOC, in Lufkin, whichTexas, monitors the network performance of our telephone operations 24 hours per day, 365 days per year.enterprise wide communications network around the clock. This center is connected to aour NOC in Mattoon, Illinois, and together they function as one organization.which deals with customer-specific issues. We believe theseour NOCs allow our Illinois and Texas Telephone Operations to maintain high network performance standards. Our goal is

Our network in Illinois is supported by three advanced 100% digital switches, with a fiber network connecting 3363 of our 35 exchanges and 69 of our 103 field-deployed carriers.65 exchanges. These switches provide all of our Illinois local telephone customers with access to custom calling features, value-added services, anddial-up Internet access. In addition, approximately 94% of our total local access lines in Illinois, excluding local access lines already served by other high speed connections, are served by exchanges or carriers equipped with digital subscriber line access multiplexers, or DSLAMs, and are within distance limitations for providing DSL service. DSLAMs are devices designed to separate voice-frequency signals from DSL traffic. We have twofour additional switches in Illinois,switches: one primarilythat supports feature-rich VOIP, two dedicated to long distance service, and the other primarily dedicated toone that supports our Public Services and Operator Services.Services businesses.

      In late 2003, we commenced theAfter years of making network improvements needed to support the introduction of our DVSand developing content relationships, we introduced IPTV service which(which is functionally similar to a digital cable television offeringtelevision) in selected Illinois markets in 2005, Texas markets in 2006, and Pennsylvania markets in 2008. As of December 31, 2008, IPTV was available to approximately 142,800 homes in our Illinois marketsmarkets. Our IPTV subscriber base grew from 12,241 as of Mattoon, Charleston and Effingham.December 31, 2007, to 16,666 as of December 31, 2008. We have since completed the initial capital investments including associated IP backbone projects and developed the content relationships necessarywill need to provide these services and introduced DVS in these markets in January, 2005. Other than the provision of success-based set-top boxes to future subscribers, but we do not anticipate having to make any material capital upgrades to our network infrastructure in connection with our introductionexpansion of DVS in these markets. As of December 31, 2005, these services are available to approximately 19,500 of our residential customers, of whom, 2,146, or 11.0%, have subscribed to the service.IPTV.

      Our network inIn Texas is supported by advanced 100% digital switches, with fiber network connecting all of our 21 exchanges. These switches provide all of our Texas local telephone customers with access to custom calling features. In addition, as of December 31, 2005, approximately 92% of our Texas total local access lines, excluding local access lines already served by other high speed connections, were served by exchanges or carriers equipped with DSLAMs and were within distance limitations for providing DSL service. Wewe also dedicateoperate a separate switch in Texas for the provision of long distance service. We expect to complete the deployment of our IP backbone in Texas in the second quarter of 2006.

In the past ten years, North Pittsburgh has invested over $160 million to develop a high quality 100% digital switching network, comprising nine central offices and 86 CSAs. The CSA architecture has enabled North Pittsburgh to provide DSL service, with speeds up to 3 Mbps, to all of its access lines. In addition, North Pittsburgh has deployed fiber optic cable extensively throughout its network, resulting in a 100% Synchronous Optical Network (SONET) that supports all of the inter-office and host-remote links, as well as the majority of business parks within its ILEC serving area.

Prior to thesebeing acquired by Consolidated Communications, North Pittsburgh completed a capital construction project to deploy fiber routes.

As of December 31, 2008, we had a total of 1,2291,315 employees, of which 733 employees are located in Illinois (636 of which1,195 were full-time and 97120 were part-time. Approximately 343 of which were part-time) and 496 employees are located in Texas (491 of which were full-time and 5 of which were part-time).

Mediacom, which serves portions of our Illinois territories, offers VOIP that competes with our basic voice services. In November 2005, ICTC entered into an interconnection agreement2008, NewWave Communications launched a competing voice product in the portions of our Illinois territory that is not served by Mediacom. In addition, both Suddenlink and Comcast, cable competitors in Texas, launched a competing voice product this year. These companies also compete with Sprint Communications, L.P., or Sprint,us for customers interested in which Sprint will provide interconnectionvideo and DSL services. In our North Pittsburgh territory, each of the two incumbent cable providers, Armstrong and Comcast, offer a competitive VOIP offering. Armstrong and Comcast also offer aggressive triple play packages of voice, video, and broadband service. In general, cable companies have modern networks and the capacity to serve a substantial number of customers. We estimate that cable companies now cover 85% of our territory.

Rural telephone companies usually face less wireless competition than non-rural providers of voice services because wireless networks in rural areas generally are less developed. Our service areas in Conroe and Katy, Texas are exceptions to this general rule because they are close to Houston. As a result, we are facing increased competition from wireless service providers in those markets. Our Pennsylvania markets also are exposed to increased competition from wireless service providers because of the public switched telephone network for an affiliateconcentration of interstate and major highways in the territory. We have experienced the loss of access lines by customers choosing to eliminate their wireline service in favor of a cable television companywireless provider. We believe that wireless substitution will eventually offercontinue to be a competing telephonecompetitive threat in the years to come.

Cable providers and long distance carriers, among others, arehave aggressively enteringentered the Internet access markets.markets over the last few years. Both have substantial transmission capabilities, traditionally carry data to large numbers of customers, and have a billing system infrastructure that permits them to add new services. Satellite companies are also offering broadband access to the Internet. WeIndustry sources expect, and we agree, that competition for Internet services will increase.continue to be very competitive.

The long distance telecommunications market is highly competitive. Competition in the long distance business is based primarily on price, although service bundling, branding, customer service, billing service, and quality play a role inall influence customers’ choices.

Our other lines of business are subject to substantial competition from local, regional, and national competitors. In particular, our directory publishing and transport businesses operate in competitive markets. We expect that competition as a general matter in all of our businesses will continue to intensify as new technologies and new services are offered. Our businesses operate in a competitive environment where long-term contracts are either not the norm or have cancellation clauses that allow quick termination of the agreements. Where long-term contracts are common, they are being renewed with shorter duration terms. Customers in these businesses can and do change vendors frequently. Customer business failuresLong-term contracts are unusual, and consolidation ofthose that do exist have cancellation clauses that allow quick termination. Where long-term contracts are in place, customers through mergers and buyouts can cause loss of customers.are renewing them for shorter terms.

A significant portion of our rural telephone companies’ revenues come from network access charges paid by long distance and other carriers for originating or terminating calls within our rural telephone companies’ service areas. The amount of network access charge revenues our rural telephone companies receive is based on rates set or approved by federal and state regulatory commissions, and these rates are subject to change at any time.

The FCC regulates the prices our rural telephone companieswe may charge for the use of our local telephone facilities in originatingto originate or terminatingterminate interstate and international transmissions. The FCC has structured these prices as a combination of flat monthly charges paid by the end-userscustomers, and usage sensitiveusage-sensitive charges or flat monthly rate charges paid by long distance or other carriers. Intrastate network access charges are regulated by state commissions, which in our case are the ICC and the PUCT. Our Illinois rural telephone company’s intrastate network access charges currently mirror interstate network access charges for all but one element, local switching. In contrast, in accordance with the regulatory regime in Texas, our Texas rural telephone companies may charge significantly higher intrastate network access charges than interstate network access charges.

The FCC regulates levels of interstate network access charges by imposing price caps on Regional Bell Operating Companies, referred to as RBOC’s,RBOCs, and other large incumbent telephone companies. These price caps can be adjusted based on various formulae,formulas, such as inflation and productivity, and otherwise through regulatory proceedings. Small incumbentIncumbent telephone companies, such as our local telephone companies, may elect to base network access charges on price caps, but are not required to do so. Our Illinois

Historically, all of our rural telephone company and Texas rural telephone companies have elected not to apply federal price caps. Instead, our rural telephone companiesthey employrate-of-return rate-of-return regulation for their network interstate access charges, whereby they earn a fixed return on their investment investment—currently 11.25%—over and above operating costs. TheIn December 2007, we filed a petition with the FCC determinesseeking to permit our Illinois and Texas companies to convert to price cap regulation. Our petition was approved on May 6, 2008 and is effective on July 1, 2008. This conversion gives us greater pricing flexibility for interstate services, especially the profitsincreasingly competitive special access segment. It also provides us the potential to increase our net earnings by becoming more productive and introducing new services. On the other hand, we were required to reduce our interstate access charges in Illinois significantly, and because our Illinois intrastate access charges generally mirror interstate rates, this conversion also may result in lower intrastate revenues in Illinois. In addition, we will receive somewhat reduced subsidies from the interstate Universal Service Fund program.

Our Pennsylvania rural telephone companies can earncompany is an average schedule rate of return company, which means its interstate access revenues are based upon a statistical formula developed by setting therate-of-return National Exchange Carrier Association (“NECA”) and approved by the FCC, rather than upon its actual costs. In its 2006 and 2007 annual revisions of the average schedule formulas, NECA proposed and the FCC approved structural changes that were fully phased in during 2008, reducing our Pennsylvania rural telephone company’s annual interstate revenues by approximately $3.7 million compared to periods prior to the phase in of the structural changes. NECA and the FCC may make further changes to the formulas in future years, which could have an additional impact on their allowable investment base, which is currently 11.25%.our revenues. Our Pennsylvania rural telephone company has the option to become a cost company, meaning its rates would be subject to its own individual cost and demand data studies, but this option would be irrevocable if exercised. We cannot predict whether or when it would be advantageous to make this conversion.

Traditionally, regulators have allowed network access rates for rural areas to be set higher in rural areas than the actual cost of terminating or originating long distance calls as an implicit means of subsidizing the high cost of providing local service in rural areas. Following a series of federal circuit court decisions in 2001 ruling that subsidies must be explicit rather than implicit, the FCC began to consider various reforms to the existing rate structure for interstate network access rates as proposed by the Multi Association Group and the Rural Task Force, each of which is a consortium of various telecommunications industry groups. We believe that the states will likely mirror any FCCadopted reforms in establishing intrastate network access charges.

      The FCC’s 2001 access reform order had a negative impact on the intrastate network access revenues of our Illinois rural telephone company. Under Illinois network access regulations, our Illinois rural telephone company’s intrastate network access rates mirror interstate network access rates. Illinois, however, unlikeUnlike the federal system, Illinois does not provide an explicit subsidy in the form of a universal service fund. Therefore, while subsidies from the federal universal service fund offset Illinois Telephone Operations’the decrease in revenues resulting from the reduction in interstate network access rates in Illinois, there was not ano corresponding offset for the decrease in revenues from the reduction in intrastate network access rates. In Pennsylvania and Texas, because the intrastate network access rate regime applicable to our Texas rural telephone companies does not mirror the FCC regime, so the impact of the reforms was revenue neutral. The PUCTTexas legislature is continuingexpected to investigate possibleconsider potential changes to rates during the structure for intrastate access charges. No changes are expected before 2007.legislative session beginning in January 2009.

In recent years, long distance carriers such as AT&T, MCI and Sprint, have become more aggressive in disputing the FCC’s interstate access charge rates set by the FCC and the applicabilityapplication of access charges to their telecommunications traffic. We believe that these disputes have increased in part due tobecause advances in technology which have renderedmade it more difficult to determine the identity and jurisdiction of traffic, more difficult to ascertain and which have affordedgiving carriers an increased opportunity to assert regulatory distinctions and claims to lowerchallenge access costs for their traffic. For example, in October 2002, AT&T filed a petition with the FCC challenging its current and prospective obligation to pay access charges to local exchange carriers for the use of their networks. The FCC rejected AT&T’s petition. In September 2003, Vonage Holdings Corporation filed a petition with the FCC to preempt an order of the Minnesota Public Utilities Commission which had issued an order requiring Vonage to comply with the Minnesota Commission’s order.asserting jurisdiction over Vonage. The FCC determined that Vonage’s VOIP service was such that it was impossible to divide itVonage’s VOIP service into interstate and intrastate components without negating federal rules and policies. Accordingly, the FCC found it was an interstate service not subject to traditional state telephone regulation. While the FCC order did not specifically address the issue of the application ofwhether intrastate access charges were applicable to Vonage’s VOIP service, the fact that the service was found to be solely interstate raises that concern. We cannot predict what other actions that other long distance carriers may take before the FCC or with their local exchange carriers, including our rural telephone companies, to challenge the applicability of access charges. To date, no long distance or other carrier has made a claim to us contesting the applicability of network access charges billed by our rural telephone companies. We cannot assure you, however, that long distance or other carriers willhave not makereceived any such claims to us in the future nor, if such a claim is made, candate, but we predict the magnitude of the claim. As a result ofcannot guarantee that none will arise. Due to the increasing deployment of VOIP services and other technological changes, we believe that these types of disputes and claims willare likely to increase.

On July 25, 2006, the FCC issued for comment CC Docket 01-92, Missoula Intercarrier Compensation Plan, or the Missoula Plan—a proposal for a comprehensive reform of network access charges and other forms of compensation for the exchange of traffic among telecommunications carriers. Consolidated Communications has publicly supported the Missoula Plan; our state regulators have filed comments in opposition. The FCC has taken no action on the proposal to date. We continue to actively participate in shaping intercarrier compensation and universal service reforms through our own efforts as well as through industry associations and coalitions.

Federal universal service fund payments is performed by the National Exchange Carrier Association, or NECA, which was formed by the FCC in 1983 to perform telephone industry tariff filings and revenue distributions following the breakup of AT&T. The board of directors of NECA is comprised of representatives from the RBOCs, large and small incumbent telephone companies and other industry participants. NECA also performs various other functions including filing access charge tariffs with the FCC, collecting and validating cost and revenues data, assisting with compliance with FCC rules and processing FCC regulatory fees.

      With some limitations, incumbent telephone companies receive federalThe formula the FCC uses to calculate universal service fund subsidies pursuantis in flux. In November 2007, the Federal-State Joint Board on Universal Service offered some proposals to existing mechanisms for determining the amounts of such payments on a cost per loop basis. The FCC has adopted, with modifications,to address the proposed framework oflong-term reform issues facing the Rural Task Force for rural, high-cost universal service fund subsidies. The FCC order modifies the existing universal service fund mechanism for rural telephone companies and adopts an interim embedded, or historical, cost mechanism for a five-year period that provides predictable levels of support to rural carriers. The FCC intends to develop a long-term plan based on forward-looking costs when the five-year period expires in 2006.

Illinois Telephone Operations’ long distance, operator services, and payphone services subsidiaries holdsubsidiary holds the necessary certifications in Illinois and(and the other states in which they operate. In Illinois, our long distance, operator services and payphone services subsidiaries areit operates). This subsidiary is required to file tariffs with the ICC, but generally can change the prices, terms, and conditions stated in theirits tariffs on one day’s notice, with prior notice of price increases to affected customers. Our Illinois Telephone OperationsOperations’ other services are not subject to any significant state regulations in Illinois. OurIllinois, and our Other Illinois Operations are not subject to any significant state regulation outside of any specific contractually imposed obligations.

Our Illinois rural telephone company is certified by the ICC to provide local telephone services. This entity operates as a distinct company from an Illinoisa regulatory standpoint and is regulated under a rate of return system for intrastate revenues. Although, as explained above, the FCC has preempted certain state regulations pursuant to the Telecommunications Act, as explained above, Illinois retains the authority to impose requirements on our Illinois rural telephone company to preserve universal service, protect public safety and welfare, ensure quality of service, and protect consumers. For instance, our Illinois rural telephone company must file tariffs setting forth the terms, conditions, and prices for theirits intrastate services andservices; these tariffs may be challenged by third parties. Our Illinois rural telephone company has not had however, a general rate proceeding before the ICC since 1983.

The ICC has broad authority to impose service quality and service offering requirements on our Illinois rural telephone company, including credit and collection policies and practices, and tocan require our Illinois rural telephone company to take other actions in order to insureensure that it meets its statutory obligation to provide reliable local exchange service. In particular, we were required to obtain the approval of the ICC to effect the reorganization we implemented in connection with our IPO. AsFor example, as part of the ICC’s reviewits approval of the reorganization we implemented in connection with our 2005 IPO, the ICC imposed various conditions, as part of its approval of the reorganization, including (1) prohibitions on payment of dividends or other cash transfers from ICTC to us if itICTC fails to meet or exceed agreed benchmarks for a majority of seven service quality metrics, and (2) the requirement that our Illinois rural telephone companyICTC have access to the higher of $5.0 million or its currently approved capital expenditure budget (whichever is higher) for each calendar

Our Texas rural telephone companies operate as distinct companies from a Texas regulatory standpoint. Each Texas rural telephone company is separately regulated by the PUCT in order to preserve universal service, protect public safety and welfare, ensure quality of service, and protect consumers. Each Texas rural telephone company also must file and maintain tariffs setting forth the terms, conditions, and prices for its intrastate services.

Currently, both of our Texas rural telephone companies have immunity from adjustments to their rates, including their intrastate network access rates, due to their election of incentive regulationbecause they elected “incentive regulation” under the Texas Public Utilities Regulatory Act, or PURA. In order to qualify for this incentive regulation, our rural telephone companies agreed to fulfill certain infrastructure requirements and, inrequirements. In exchange, they are not subject to challenge by the PUCT regarding their rates, overall revenues, return on invested capital, or net income.

      There arePURA prescribes two different forms of incentive regulation designated by PURA:in Chapter 58 and Chapter 59. Generally underUnder either election, the rates, including network access rates, an incumbent telephone company may charge in connection withfor basic local services generally cannot be increased from the amount(s) on the date of election without PUCT approval. Even with PUCT approval, increases can only occur in very specific situations. Pricing flexibility under Chapter 59 is extremely limited. In contrast,

Initially, both of our Texas rural telephone companies elected incentive regulation under Chapter 59 and fulfilled the applicable infrastructure requirements, to maintain their election status. Consolidated Communications of Texas Company made its election on August 17, 1997. Consolidated Communications of Fort Bend Company made its election on May 12, 2000. On March 25, 2003, both Texas rural telephone companiesbut they changed their election status from Chapter 59 to Chapter 58. The rate freezes58 in 2003, which gives them some pricing flexibility for basic services, with respectsubject to the current Chapter 58 elections are due to expire on March 24, 2007.

In September 2005, the Texas Legislaturelegislature adopted significant telecommunications legislation. ThisAmong other things, this legislation created among other provisions, a statewide video franchise for telecommunications carriers,carriers; established a framework for deregulation ofto deregulate the retail telecommunications services offered by incumbent local telecommunications carriers, createdand imposed concurrent requirements for incumbent local telecommunications carriers to reduce intrastate access charges upon the deregulation of marketscharges; and directed the Texas Public Utility Commission, or the TPUC,PUCT to initiate a study of the Texas Universal Service Fund. We expectThe PUCT study submitted to participatethe legislature in numerous TPUC proceedings in the coming months related to this new legislation, and we expect2007 recommended that the Small Company Area High-Cost Program, which covers our Texas Legislaturetelephone companies, should be reviewed by the PUCT from a policy perspective regarding basic local telephone service rates and lines eligible for support. The PUCT has only addressed the large company fund and has no immediate plans to conduct a small company review. The Texas legislature may further address issues of importance to rural telecommunications carriers in Texas, including the Texas Universal Service Fund, in the 2007 Legislative2009 legislative session.

The Texas universal service fund was established within PURA and is administered by NECA. ThePURA, the governing law, directs the PUCT to adopt and enforce rules requiring local exchange carriers to contribute to a state universal service fund which assiststhat helps telecommunications providers in providingoffer basic local telecommunications service at reasonable rates in high cost rural areas. The Texas universal service fund is also used to reimburse telecommunications providers for revenues lost by providing Tel-Assistance and to reimburse carriers for providing lifeline service. The Texas universal service fund is funded by a statewide charge payable by specified telecommunications providers at rates determined by the PUCT. Our Texas rural telephone companies qualify forreceive disbursements from this fund pursuantfund.

The PAPUC regulates the rates, the system of financial accounts for reporting purposes, and certain aspects of service quality, billing procedures and universal service funding, among other things, related to criteria establishedour rural telephone company and CLEC’s provision of intrastate services. In addition, the PAPUC sets the rates and terms for interconnection between carriers within the guidelines ordered by the PUCT.FCC.

North Pittsburgh’s intrastate rates are regulated under a statutory framework referred to as Act 183. Under this statute, North Pittsburgh’s rates for non-competitive intrastate services are allowed to increase based on an index that measures economy-wide price increases. In 2005, we received Texasreturn, North Pittsburgh committed to continue to upgrade its network to ensure that all its customers would have access to broadband services, and to deploy a ubiquitous broadband (defined as 1.544 Mbps) network throughout its entire service area by December 31, 2008, which it did.

On September 30, 1999, as part of $20.6 million, or 6.4%a proceeding that resolved a number of ourpending issues, the PAPUC ordered ILECs, including North Pittsburgh, to rebalance and reduce intrastate toll and switched access rates. In that same order, the PAPUC also created a Pennsylvania Universal Service Fund (PAUSF) to help offset the resulting loss of ILEC revenues. UnderIn 2003, the new PURA rulesPAPUC ordered ILECs to further rebalance and reduce intrastate access charges and left the PUCT must review the Texas universal service fundPAUSF in place pending further review. In 2008, North Pittsburgh’s annual receipts from and report backcontributions to the legislaturePAUSF total $5.2 million and $0.3 million, respectively. The CLEC receives no funding from the PAUSF but currently contributes $0.2 million annually. Since Act 183 was adopted in 2004, the PAPUC may not require a LEC to reduce intrastate access rates except on January, 2007. We are participatinga revenue neutral basis.

In 2004, PAPUC instituted a third review of access charges. This proceeding may affect access charge rates for North Pittsburgh and the CLEC, as well as the amount of funding that North Pittsburgh receives from the PAUSF and the amounts that both companies contribute to that fund. Since 2004, the PAPUC has twice agreed to stay those proceedings while awaiting an FCC ruling in its Unified Compensation docket. The request for a third stay is now pending before the proceedingsPAPUC and dois opposed by several parties. Parties have filed testimony and the hearing will begin in February 2009. It is not expect any material changes to impactknown when the fund through 2007.PAPUC will rule. During the period of the stay, the current PAUSF continues under the existing regulations.

In Texas, incumbent telephone companiesIllinois, we historically have historically been required to obtain franchises from each incorporated municipality in which our Texas rural telephone companies operate. In 1999,company operates. An Illinois state statute prescribes the fees that a municipality may impose for the privilege of originating and terminating messages and placing facilities within the municipality. Illinois Telephone Operations also may be required to obtain permits for street opening and construction, or for operating franchises to install and expand fiber optic facilities. These permits or other licenses or agreements typically require the payment of fees.

Similarly, Texas enacted legislation generally eliminating the need for incumbent telephone companies historically had been required to obtain franchises from each incorporated municipality in which they operate. Texas law now provides that incumbent telephone companies do not need to obtain franchises or other licenses to use municipalrights-of-way rights-of-way for delivering services. PaymentsInstead, payments to municipalities forrights-of-way rights-of-way are administered through the PUCT and through a reporting process by each incumbent telephone company and other similar telecommunications provider. Incumbent telephone companies still need to obtain permits from municipal authorities for street opening and construction, but most burdens of obtaining municipal authorizations for access torights-of-way rights-of-way have been streamlined or removed.

Our Texas rural telephone companies still operate pursuant to the terms of municipal franchise agreements in some territories served by Consolidated Communications of Fort Bend Company. As the franchises expire, they are not being renewed.

To date, the FCC has treated Internet Service Providers, or ISP’s,ISPs as enhanced service providers rather than common carriers, and thereforecarriers. As a result, ISPs are exempt from most federal and state regulation, including the requirement to pay access charges or contribute to the federal USF.universal service fund. Currently, there is only a small body of law and regulation that governs access to, or commerce on, the Internet. As the Internet services expand, federal, state and local governmentsbecomes more significant, government at all levels may adopt new rules and regulations or apply existing laws and regulations to the Internet. The FCC is reviewing the appropriate regulatory framework governing high speed access to the Internet through telephone and cable providers’ communications networks. We cannot predict the outcome of these proceedings, and they may affect our regulatory obligations and the form of competition for these services.

In its September 23, 2005, Order, the FCC adopted a comprehensive regulatory framework for facilities-based providers of wireline broadband Internet access service. The FCC determinedservice after determining that facilities-based wireline broadband Internet accesssuch service is an information service. This decision places the federal regulatory treatment of DSL service in parity with the federal regulatory treatment of cable modem service. Facilities-based wireline carriers are permitted to offer broadband Internet access transmission arrangements for wireline broadband Internet access services on a common carrier basis or a non-common carrier basis, but they must continue to provide existing wireline broadband Internet access transmission offerings, on a grandfathered basis, to unaffiliated ISPs for a one-year transition period. Wireline broadband Internet access providers must maintain their current universal service contribution levels attributable to the provision ofbasis. Revenues from wireline broadband Internet access service are not subject to assessment for a period of 270 days from the date of the FCC Order. If the FCC is unable to complete new contribution rules within the270-day period, the FCC will take whatever action is necessary to preserve existing funding levels, including extending the270-day period discussed above or expanding the contribution base.federal universal service fund.

      The emerging technology application known as VoIPVOIP can be used to carry voice communications services over a broadband Internet connection. The FCC has ruled that some VoIPVOIP arrangements are not subject to regulation as telephone services. In particular, in 2004, the FCC ruled that certain VoIPVOIP services are jurisdictionally interstate, and it preemptedwhich means that states cannot regulate those applications or the ability of the states to regulate some VoIP applications orservice providers. A number of state regulators have filed judicial challenges to that preemption decision. The FCC has pending a proceeding that will address the applicability ofwhether various regulatory requirements apply to VoIPVOIP providers, including the payment of access charges and the support of programs such as Universal Serviceuniversal service and Enhanced-911. Expanded use of VoIPVOIP technology could reduce the access revenues received by local exchange carriers like us.our ILEC’s and our CLEC. We cannot predict whether or when VoIPVOIP providers may be required to pay or be entitled to receive access charges or USF support, the extent to which users will substitute VoIPVOIP calls for traditional wireline communications, or the impact of the growth of VoIPVOIP on our revenues.

We are not required to pay dividends, anddividends; our stockholders willdo not be guaranteed, or have contractual or other rights to receive dividends.them. Our board of directors may decide at any time, in its discretion, to decrease the amount of dividends, otherwise change or revoke the dividend policy, or discontinue entirely the payment of dividends. Our board could depart from or change our dividend policy, for example, if it were to determine that we had insufficient cash to take advantage of other opportunities with attractive rates of return. In addition, ifpaying dividends entirely. If we do not pay dividends, for whatever reason, your shares of our common stock could become less liquid and the market price of our common stock could decline.

While our estimated cash available to pay dividends for the year ended December 31, 20052008, was sufficient to pay dividends in accordance with our dividend policy, if our future estimated cash available to pay dividends were to fall below our expectations, or if our assumptions as to estimated cash needs are too low or if other applicable assumptions were to prove incorrect, we may need to:

Over time, our capital and other cash needs will invariably be subject to uncertainties, which could affect whether we pay dividends and the level of any dividends we may pay in the future.at what level. In addition, if we seek to raise additional cash from additionalby incurring debt incurrence or issuing equity security issuances,securities, we cannot assure you that such financing will be available on reasonable terms or at all. Each of the resultspossibilities listed above could negatively affect our results of operations, financial condition, liquidity, and ability to maintain and expand our business.

As a holding company we have no direct operations and our principal assets are the equity interests we hold in our respective subsidiaries. In addition,However, our subsidiaries are legally distinct from us and have no obligation to transfer funds to us. As a result, we are dependent on theour subsidiaries’ results of operations, of our subsidiaries and, based on their existing and future debt agreements, (such as the credit agreement),governing state corporation law of the subsidiaries and state regulatory requirements, theirand ability to transfer funds to us to meet our obligations and to pay dividends.

      Beginning in 2006, we expect that our cash income tax liability will increase, which may limit the amount of cash we have available to pay dividends. Under the Internal Revenue Code, in general, to the extent a corporation haswith losses in excess of taxable income in a taxable period it will generate(known as a net“net operating loss,” or NOL thatNOL) generally may be carriedcarry the loss back or carried forward and useduse it to offset taxable income in prior or future periods. As of December 31, 2005, we have $17.0 million of federal net operating losses, net of valuation allowances, available to us to carry forward to periods beginning after December 31, 2005.a different period. The amount of an NOL that may be used in a taxable year to offset taxable income in a particular year may be limited, such as when a corporation undergoeshas experienced an “ownership change” under Section 382 of the Internal Revenue Code. We expect

As of December 31, 2008, we have utilized all our federal net operating losses, net of valuation allowances, that we can carry forward to generate taxable income in the future which will be offset by our NOLs, subjectperiods. Pursuant to limitations, such as under Section 382, there were some limitations on the amount of the Internal Revenue Code as a resultlosses we could use because of our IPO and prior ownership changes. OnceSince our NOLs have been used or have expired, we will be required to pay additional cash income taxes. The increase in our cash income tax liability will have the effect of reducingreduce our after-tax cash available to pay dividends in future periods and may require us to reduce dividend payments on our common stock in such future periods.the future.

We believe that our dividend policy willcould limit, but not preclude, our ability to grow. If we continue paying dividends at the level currently anticipated, under our dividend policy, we may not retain a sufficient amount of cash and may need to seek financing, to fund a material expansion of our business, including any significant acquisitions or to pursue growth opportunities requiring significant and unexpected capital expenditures significantly beyond our current expectations. The risks relating to funding any dividends, or other cash needs as a result of paying dividends, are summarized above. In addition, because we expect a significant portion of cash available will be distributed to the holders of our common stock under our dividend policy,expenditures. For that reason, our ability to pursue any material expansion of our business willmay depend more than it otherwise would on our ability to obtain third partythird-party financing. We cannot assure youguarantee that such financing will be available to us on reasonable terms or at all.

A number of provisions in our amended and restated certificate of incorporation and bylaws will make it difficult for another company to acquire us. TheseAmong other things, these provisions:

On December 31, 2005,2008, Central Illinois Telephone, and Providence Equitywhich is controlled by our Chairman, Richard A. Lumpkin, owned approximately 18.9% and 12.7%19.1% of our common stock, respectively.stock. In addition, our executive management and key employees also

We currently expect our cash interest expense to be approximately $58.0 million to $61.0 million in 2009. Interest expense is significantly higher than it has been in years preceding the acquisition of North Pittsburgh because we incurred additional indebtedness to consummate the merger. We cannot assure youguarantee that we will generate sufficient revenues to service and repay our debt and have sufficientadequate funds left over to achieve or sustain profitability in our operations, meet our working capital and capital expenditure needs, compete successfully in our markets, or pay dividends to our stockholders.

As of December 31, 2008, our credit agreement would have permitted us to incur approximately $74.7 million of additional debt. However, additional debt would exacerbate the lenders or to our other debt holders.risks described above.

      Our indenture and credit agreement impose significant operating and financial restrictions on us. These restrictions limit or restrict, amongAmong other things, our credit agreement limits or restricts our ability and(and the ability of certain of our subsidiaries that are restricted by these agreementssubsidiaries) to: