**Exhibit 99.1**

**Risk Factors**

Except as otherwise required by the context, references to “we,” “us, “or “our” refer to the combined business of FairPoint Communications, Inc. and all of its subsidiaries. Except as otherwise required by the context, all references to the “Company” refer to FairPoint Communications, Inc. excluding its subsidiaries.

**Any of the following risks couldmaterially adversely affect our business, consolidated financial condition,results of operations or liquidity or the market price of our common stock. Therisks described below are not the only risks facing us. Additional risks anduncertainties not currently known to us or that we currently deem to beimmaterial may also materially and adversely affect our business operations.**

***Risks Related to our Common Stock and our Substantial Indebtedness***

***Ourstockholders may not receive the level of dividends provided for in thedividend policy our board of directors has adopted or any dividends at all.***

Our board of directors hasadopted a dividend policy which reflects an intention to distribute asubstantial portion of the cash generated by our business in excess ofoperating needs, interest and principal payments on our indebtedness, dividendson our future senior classes of capital stock, if any, capital expenditures,taxes and future reserves, if any, as regular quarterly dividends to ourstockholders. Our board of directors may, in its discretion, amend or repealthis dividend policy. Our dividend policy is based upon our directors’ currentassessment of our business and the environment in which we operate, and thatassessment could change based on regulatory, competitive or technologicaldevelopments (which could, for example, increase our need for capitalexpenditures) or new growth opportunities. In addition, future dividends withrespect to shares of our common stock, if any, will depend on, among otherthings, our cash flows, cash requirements, financial condition, contractualrestrictions, provisions of applicable law and other factors that our board ofdirectors may deem relevant. Our board of directors may decrease the level ofdividends provided for in the dividend policy or entirely discontinue thepayment of dividends. Our credit facility contains significant restrictions onour ability to make dividend payments. There can be no assurance that we willgenerate sufficient cash from continuing operations in the future, or havesufficient surplus or net profits, as the case may be, under Delaware law, topay dividends on our common stock in accordance with the dividend policy. If wewere to use borrowings under our credit facility’s revolving facility to funddividends, we would have less cash available for future dividends. Thereduction or elimination of dividends may negatively affect the market price ofour common stock.

***To expandour business through acquisitions and service our indebtedness, we will requirea significant amount of cash. Our ability to generate cash depends on manyfactors beyond our control. We may not generate sufficient funds fromoperations to consummate acquisitions, pay dividends with respect to shares ofour common stock or repay or refinance our indebtedness at maturity orotherwise.***

We may not retain asufficient amount of cash to finance a material expansion of our business, orto fund our operations consistent with past levels of funding in the event of asignificant business downturn. In addition, because a substantial portion ofcash available to pay dividends will be distributed to holders of our commonstock under our dividend policy, our ability to pursue any material expansionof our business, including through acquisitions or increased capital spending,will depend more than it otherwise would on our ability to obtain third partyfinancing. There can be no assurance that such financing will be available tous at all, or at an acceptable cost.

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Our ability to consummateacquisitions and to make payments on our indebtedness will depend on ourability to generate cash flow from operations in the future. This ability, to acertain extent, is subject to general economic, financial, competitive,legislative, regulatory and other factors that are beyond our control. Therecan be no assurance that our business will generate sufficient cash flow fromoperations or that future borrowings will be available to us in an amountsufficient to enable us to pay our indebtedness or to fund our other liquidityneeds.

A significant amount of ourcash flow from operations will be dedicated to capital expenditures and debtservice. In addition, we currently expect to distribute a significant portionof our cash flow to our stockholders in the form of quarterly dividends. As aresult, we may not retain a sufficient amount of cash to finance growthopportunities, including acquisitions, or unanticipated capital expenditures orto fund our operations. In addition, if we reduce capital expenditures, theregulatory settlement payments we receive may decline.

Borrowings under our creditfacility bear interest at variable interest rates. Accordingly, if any of thebase reference interest rates for the borrowings under our credit facilityincrease, our interest expense will increase, which could negatively impact ourability to pay dividends on our common stock. On February 8, 2005, weentered into three interest rate swap agreements, with notional amounts of $130million each, to effectively convert a portion of our variable rate interestexposure to fixed rates ranging from 5.76% to 6.11%. These swap agreementsexpire beginning December 31, 2007 through December 31, 2009. On April 7,2005, we entered into two additional interest rate swap agreements, one withthe notional amount of $50.0 million to effectively convert a portion of ourvariable rate interest exposure to a fixed rate of 6.69% beginning on April 29,2005 and ending on March 31, 2011, and one with the notional amount of$50.0 million to effectively convert a portion of our variable rate interestexposure to a fixed rate of 6.72% beginning on June 30, 2005 and ending onMarch 31, 2012. As a result of these swap agreements, a significantportion of our indebtedness bears interest at fixed rates rather than variablerates. After these interest rate swap agreements expire, our annual debtservice obligations with respect to borrowings under our credit facility willvary from year to year unless we enter into a new interest rate swap orpurchase an interest rate cap or other interest rate hedge. If we choose toenter into a new interest rate swap or purchase an interest rate cap or otherinterest rate hedge in the future, the amount of cash available to paydividends on our common stock may decrease. However, to the extent interestrates increase in the future, we may not be able to enter into a new interestrate swap or purchase an interest rate cap or other interest rate hedge onacceptable terms.

In addition, prior to thematurity of our credit facility, we will not be required to make any paymentsof principal on our credit facility, and it is not likely that we will generatesufficient funds from operations to repay the principal amount of ourindebtedness at maturity. We therefore will need to refinance our debt. We maynot be able to refinance our outstanding indebtedness under our creditfacility, or if refinanced, the refinancing may occur on less favorable terms,which may materially adversely affect our ability to pay dividends. If we wereunable to refinance our credit facility, our failure to repay all amounts dueon the maturity date would cause a default under our credit facility. We expectour required principal repayments under the term loan facility of our creditfacility to be approximately $588.5 million at its maturity in February 2012.Our interest expense may increase significantly if we refinance our creditfacility on terms that are less favorable to us than the terms of our creditfacility.

We may also be forced toraise additional capital or sell assets and, if we are forced to pursue any ofthese options under distressed conditions, our business and the value of yourinvestment in our common stock could be adversely affected. In addition, thesealternatives may not be available to us when needed or on satisfactory termsdue to prevailing market conditions, a decline in our business, legislative andregulatory factors or restrictions contained in the agreements governing ourindebtedness.

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***If we have insufficient cash flow to cover the expecteddividend payments under our dividend policy we would need to reduce oreliminate dividends or, to the extent permitted under the agreements governingour indebtedness, fund a portion of our dividends with additional borrowings.***

If we do not have sufficientcash to fund dividend payments, we would either reduce or eliminate dividendsor, to the extent we were permitted to do so under our credit facility and theagreements governing future indebtedness we may incur, fund a portion of ourdividends with borrowings or from other sources. If we were to use borrowingsunder our credit facility’s revolving facility to fund dividends, we would haveless cash available for future dividends and other purposes, which couldnegatively impact our financial condition, our results of operations and ourability to maintain or expand our business.

***Our substantial indebtedness could restrict our ability topay dividends on our common stock and have an adverse impact on our financingoptions and liquidity position.***

Our substantial indebtednesscould have important adverse consequences to the holders of our common stock,including:

·                  limiting our ability to pay dividends on ourcommon stock or make payments in connection with our other obligations,including under our credit facility;

·                  limiting our ability in the future to obtainadditional financing for working capital, capital expenditures or acquisitions;

·                  causing us to not be able to refinance ourindebtedness on terms acceptable to us or at all;

·                  limiting our flexibility in planning for, orreacting to, changes in our business and the communications industry generally;

·                  requiring a significant portion of our cashflow from operations to be dedicated to the payment of the principal andinterest on our indebtedness, thereby reducing funds available for futureoperations, acquisitions, dividends on our common stock and/or capitalexpenditures;

·                  making us more vulnerable to economic andindustry downturns and conditions, including increases in interest rates; and

·                  placing us at a competitive disadvantagecompared to those of our competitors that have less indebtedness.

Subject to certaincovenants, our credit facility permits us to incur additional indebtedness. Anyadditional indebtedness that we may incur would exacerbate the risks describedabove.

***The Company is a holding company and relies on dividends,interest and other payments, advances and transfers of funds from its operatingsubsidiaries and investments to meet its debt service and other obligations.***

The Company is a holdingcompany and conducts all of its operations through its operating subsidiaries.The Company currently has no significant assets other than equity interests inits first tier subsidiaries. These first tier subsidiaries have no significantassets other than a direct or indirect equity

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interestin the Company’s operating subsidiaries. As a result, the Company will rely on dividendsand other payments or distributions from its operating subsidiaries to paydividends with respect to its common stock and to meet its debt serviceobligations generally. The ability of the Company’s subsidiaries to paydividends or make other payments or distributions to the Company will depend ontheir respective operating results and may be restricted by, among otherthings:

·                  the laws of their jurisdiction oforganization;

·                  the rules and regulations of stateregulatory authorities;

·                  agreements of those subsidiaries;

·                  the terms of our credit facility; and

·                  the covenants of any future outstandingindebtedness the Company or its subsidiaries incur.

The Company’s operatingsubsidiaries have no obligation, contingent or otherwise, to make funds availableto the Company, whether in the form of loans, dividends or other distributions.In addition, we have a number of minority investments and passive partnershipinterests from which we receive distributions. We do not control the timing oramount of distributions from such investments or interests and we may not haveaccess to the cash flows of these entities.

Accordingly, our ability topay dividends with respect to shares of our common stock and to repay ourcredit facility at maturity or otherwise may be dependent upon factors beyondour control. Subject to limitations in our credit facility, the Company’ssubsidiaries may also enter into agreements that contain covenants prohibitingthem from distributing or advancing funds or transferring assets to the Companyunder certain circumstances, including to pay dividends. Certain regulatoryorders may similarly restrict or prohibit the Company’s subsidiaries.

***Our credit facility contains covenants that limit ourbusiness flexibility by imposing operating and financial restrictions on ouroperations and the payment of dividends.***

Covenants in our creditfacility impose significant operating and financial restrictions on us. Theserestrictions prohibit or limit, among other things:

·                  the incurrence of additional indebtedness andthe issuance by our subsidiaries of preferred stock;

·                  the payment of dividends on, and purchases orredemptions of, capital stock;

·                  a number of other restricted payments,including investments;

·                  the creation of liens;

·                  the ability of our subsidiaries to guaranteeour and their indebtedness;

·                  specified sales of assets;

·                  the creation of encumbrances or restrictionson the ability of our subsidiaries to distribute and advance funds or transferassets to us or any other subsidiary;

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·                  specified transactions with affiliates;

·                  sale and leaseback transactions;

·                  our ability to enter lines of businessoutside the communications business; and

·                  certain consolidations and mergers and salesand/or transfers of assets by or involving us.

Our credit facility alsocontains covenants which require us to maintain specified financial ratios andsatisfy financial condition tests, including, without limitation, a maximumtotal leverage ratio and a minimum interest coverage ratio.

As a result of generaleconomic conditions, conditions in the lending markets, the results of ourbusiness or for any other reason, we may elect or be required to amend orrefinance our credit facility, at or prior to maturity, or enter intoadditional agreements for indebtedness. Any such amendment, refinancing oradditional agreement may contain covenants which could limit in a significantmanner our operations and our ability to pay dividends on our common stock.

***If we are unable to comply with the covenants in the agreementsgoverning our indebtedness, we could be in default under our indebtedness whichcould result in our inability to make dividend payments on our common stock.***

Our ability to comply withthe covenants, ratios or tests contained in our credit facility or in theagreements governing our future indebtedness may be affected by events beyondour control, including prevailing economic, financial and industry conditions.A breach of any of these covenants, ratios or tests could result in a defaultunder our credit facility. Certain events of default under our credit facilitywould prohibit us from making dividend payments on our common stock. Inaddition, upon the occurrence of an event of default under our credit facility,the lenders could elect to declare all amounts outstanding under our creditfacility, together with accrued interest, to be immediately due and payable. Ifwe were unable to repay those amounts, the lenders could proceed against thesecurity granted to them to secure that indebtedness. If the lenders acceleratethe payment of the indebtedness under our credit facility, our assets may notbe sufficient to repay in full the indebtedness under our credit facility andour other indebtedness, if any.

***Limitations on usage of net operating loss carry forwards,and other factors requiring us to pay cash taxes in future periods, may affectour ability to pay dividends to you.***

Our initial public offeringin February 2005, which we refer to as our initial public offering,resulted in an “ownership change” within the meaning of the U.S. federal incometax laws addressing net operating loss carry forwards, alternative minimum taxcredits and other similar tax attributes. As a result of such ownership change,there are specific limitations on our ability to use our net operating losscarry forwards and other tax attributes from periods prior to our initialpublic offering. Although it is not expected that such limitations willmaterially affect our U.S. federal and state income tax liability in thenear-term, it is possible in the future that such limitations could limit ourability to utilize such tax attributes and, therefore, result in an increase inour U.S. federal and state income tax payments. In addition, in the future wemay be required to pay cash income taxes because all of our net operating losscarry forwards have been used or have expired. Limitations on our usage of netoperating loss carry forwards, and other factors requiring us to pay cash taxesin the future, would reduce the funds available for the payment of dividendsand might require us to reduce or eliminate the dividends on our common stock.

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***The price of our common stock may fluctuate substantially,which could negatively affect holders of our common stock.***

The market price of ourcommon stock may fluctuate widely as a result of various factors, such asperiod-to-period fluctuations in our operating results, sales of our commonstock by principal stockholders, developments in the communications industry,the failure of securities analysts to cover our common stock or changes infinancial estimates by analysts, competitive factors, regulatory developments,economic and other external factors, general market conditions and marketconditions affecting the stock of communications companies in particular.Communications companies have in the past experienced extreme volatility in thetrading prices and volumes of their securities, which has often been unrelatedto operating performance. Any such market volatility may have a significantadverse effect on the market price of our common stock. In addition, in thepast, securities class action litigation has often been instituted against acompany following periods of volatility in its stock price. This type oflitigation could result in substantial costs and divert our management’sattention and resources.

***Future sales or the possibility of future sales of asubstantial amount of our common stock may depress the price of our commonstock.***

Future sales, or theavailability for sale in the public market, of substantial amounts of ourcommon stock could adversely affect the prevailing market price of our commonstock, and could impair our ability to raise capital through future sales ofequity securities. Pursuant to a registration rights agreement entered into inconnection with our initial public offering, we registered 7,599,430 shares ofcommon stock which would otherwise be restricted securities within the meaningof Rule 144 under the Securities Act and are held by persons who acquiredour common stock before our initial public offering.

We may issue shares of ourcommon stock, or other securities, from time to time as consideration forfuture acquisitions and investments. In the event any such acquisition orinvestment is significant, the number of shares of our common stock, or thenumber or aggregate principal amount, as the case may be, of other securitiesthat we may issue may in turn be significant. We may also grant registrationrights covering those shares or other securities in connection with any suchacquisitions and investments.

***Our restated certificate of incorporation and amended andrestated by-laws and several other factors could limit another party’s abilityto acquire us and deprive our investors of the opportunity to obtain a takeoverpremium for their securities.***

A number of provisions inour restated certificate of incorporation and amended and restated by-laws makeit difficult for another company to acquire us and for you to receive anyrelated takeover premium for your securities. For example, our restatedcertificate of incorporation provides that certain provisions of our restatedcertificate of incorporation can only be amended by a vote of two-thirds ormore in voting power of all the outstanding shares of capital stock and that stockholdersgenerally may not act by written consent and only stockholders representing atleast 50% in voting power may request that our board of directors call aspecial meeting. Our restated certificate of incorporation provides for aclassified board of directors and authorizes the issuance of preferred stockwithout stockholder approval and upon such terms as the board of directors maydetermine. The rights of the holders of shares of our common stock will besubject to, and may be adversely affected by, the rights of holders of anyclass or series of preferred stock that may be issued in the future.

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***We may, under certain circumstances, suspend the rights ofstock ownership the exercise of which would result in any inconsistency with,or violation of, any applicable communications law.***

Our restated certificate ofincorporation provides that so long as we hold any authorization, license,permit, order, filing or consent from the Federal Communications Commission orany state regulatory commission having jurisdiction over us, we will have theright to request certain information from our stockholders. If any stockholderfrom whom such information is requested should fail to respond to such arequest or we conclude that the ownership of, or the existence or exercise ofany rights of stock ownership with respect to, shares of our capital stock bysuch stockholder, could result in any inconsistency with, or violation of, anyapplicable communications law, we may suspend those rights of stock ownershipthe existence or exercise of which would result in any inconsistency with, orviolation of, any applicable communications law, and we may exercise any andall appropriate remedies, at law or in equity, in any court of competentjurisdiction, against any stockholder, with a view towards obtaining suchinformation or preventing or curing any situation which would cause aninconsistency with, or violation of, any provision of any applicablecommunications law.

***Risks Related to our Business***

***We provide services to our customers over access lines, andif we lose access lines, our business and results of operations may beadversely affected.***

Our business generatesrevenue by delivering voice and data services over access lines. We haveexperienced net voice access line losses, adjusted for acquisitions anddivestitures, of 7.9% for the period from January 1, 2002 throughMarch 31, 2006 and 2.9% for the period from March 31, 2005 throughMarch 31, 2006 due mainly to challenging economic conditions and theintroduction of digital subscriber line services. We may continue to experiencenet access line losses in our markets. Our inability to retain access linescould adversely affect our business and results of operations.

**We are subject tocompetition that may adversely impact us.**

As an incumbent carrier, wehistorically have experienced little competition in our rural telephone companymarkets. Nevertheless, the market for communications services is highlycompetitive. Regulation and technological innovation change quickly in thecommunications industry, and changes in these factors historically have had,and may in the future have, a significant impact on competitive dynamics. Inmost of our rural markets, we face competition from wireless technology, whichmay increase as wireless technology improves. We also face competition fromwireline and cable television operators. We may face additional competitionfrom new market entrants, such as providers of wireless broadband, voice overinternet protocol, satellite communications and electric utilities. TheInternet services market is also highly competitive, and we expect thatcompetition will intensify. Many of our competitors have brand recognition,offer online content services and  have financial,personnel, marketing and other resources that are significantly greater thanours. In addition, consolidation and strategic alliances within thecommunications industry or the development of new technologies could affect ourcompetitive position. We cannot predict the number of competitors that willemerge, especially as a result of existing or new federal and state regulatoryor legislative actions, but increased competition from existing and newentities could have a material adverse effect on our business.

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Competition may lead to lossof revenues and profitability as a result of numerous factors, including:

·                  loss of customers (in general, when we lose acustomer for local service we also lose that customer for all relatedservices);

·                  reduced usage of our network by our existingcustomers who may use alternative providers for long distance and dataservices;

·                  reductions in the prices for our serviceswhich may be necessary to meet competition; and/or

·                  increases in marketing expenditures anddiscount and promotional campaigns.

In addition, our provisionof long distance service is subject to a highly competitive market served bylarge nation-wide carriers that enjoy brand name recognition.

***We may not be able to successfully integrate newtechnologies, respond effectively to customer requirements or provide newservices.***

The communications industryis subject to rapid and significant changes in technology, frequent new serviceintroductions and evolving industry standards. We cannot predict the effect ofthese changes on our competitive position, profitability or industry.Technological developments may reduce the competitiveness of our networks andrequire unbudgeted upgrades or the procurement of additional products thatcould be expensive and time consuming. In addition, new products and servicesarising out of technological developments may reduce the attractiveness of ourservices. If we fail to adapt successfully to technological changes orobsolescence or fail to obtain access to important new technologies, we couldlose customers and be limited in our ability to attract new customers and/orsell new services to our existing customers. An element of our businessstrategy is to deliver enhanced and ancillary services to customers. Thesuccessful delivery of new services is uncertain and dependent on many factors,and we may not generate anticipated revenues from such services.

***Ourrelationships with other communications companies are material to ouroperations and their financial difficulties may adversely affect our businessand results of operations.***

We originate and terminatecalls for long distance carriers and other interexchange carriers over ournetwork and for that service we receive payments for access charges. Thesepayments represent a significant portion of our revenues. Should these carriersgo bankrupt or experience substantial financial difficulties, our inability tothen collect access charges from them could have a negative effect on ourbusiness and results of operations.

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***We face risks associated with acquired businesses andpotential acquisitions.***

We have grown rapidly byacquiring other businesses and we expect that a portion of our future growthwill result from additional acquisitions, some of which may be material. Growththrough acquisitions entails numerous risks, including:

·                  strain on our financial, management andoperational resources, including the distraction of our management team inidentifying potential acquisition targets, conducting due diligence andnegotiating acquisition agreements;

·                  difficulties in integrating the network,operations, personnel, products, technologies and financial, computer, payrolland other systems of acquired businesses;

·                  difficulties in enhancing our customersupport resources to adequately service our existing customers and thecustomers of acquired businesses;

·                  the potential loss of key employees orcustomers of the acquired businesses;

·                  unanticipated liabilities or contingencies ofacquired businesses;

·                  unbudgeted costs which we may incur inconnection with pursuing potential acquisitions which are not consummated;

·                  not achieving projected cost savings or cashflow from acquired businesses;

·                  fluctuations in our operating results causedby incurring considerable expenses to acquire businesses before receiving theanticipated revenues expected to result from the acquisitions;

·                  difficulties in finding suitable acquisitioncandidates;

·                  difficulties in making acquisitions onattractive terms due to a potential increase in competitors; and

·                  difficulties in obtaining and maintaining anyrequired regulatory authorizations in connection with acquisitions.

In addition, futureacquisitions by us could result in the incurrence of indebtedness or contingentliabilities, which could have a material adverse effect on our business and ourability to pay dividends on our common stock, provide adequate working capitaland service our indebtedness.

There can be no assurancethat we will be able to successfully complete the integration of the businessesthat we have already acquired or successfully integrate any businesses that wemight acquire in the future. If we fail to do so, or if we do so but at greatercost than we anticipated, there will be a risk that our business may beadversely affected.

***We mayneed additional capital to continue growing through acquisitions.***

We may need additionalcapital to continue growing through acquisitions. Such additional capital maybe in the form of additional debt, which would increase our leverage. We maynot be able to raise sufficient additional capital at all or on terms that weconsider acceptable.

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***A system failure could cause delays or interruptions ofservice, which could cause us to lose customers.***

To be successful, we willneed to continue to provide our customers reliable service over our network.Some of the risks to our network and infrastructure include:

·                  physical damage to access lines;

·                  power surges or outages;

·                  software defects; and

·                  disruptions beyond our control.

Disruptions may causeinterruptions in service or reduced capacity for customers, either of whichcould cause us to lose customers and incur expenses.

***Our billing systems may not function properly.***

The failure of any of ourbilling systems could result in our inability to adequately bill and providecustomer service to our customers. We are in the process of converting all ofour companies from CSG Systems, Inc.’s ICMS platform to the Mid AmericaComputer Corporation, or MACC, platform. By the middle of 2006, we expect thatapproximately two thirds of our access lines will be converted to the newplatform and we plan to convert our remaining companies to this same platformby the middle of 2007. At the completion of this project, we will have a singleintegrated billing platform for our end-user customers.  The failure to successfully complete thisconversion or the failure of any of our billing systems could have a materialadverse effect on our business, financial condition and results of operations.

***We depend on third parties for our provision of longdistance and bandwidth services.***

Our provision of longdistance and bandwidth services is dependent on underlying agreements withother carriers that provide us with transport and termination services. Theseagreements are based, in part, on our estimate of future supply and demand andmay contain minimum volume commitments. If we overestimate demand, we may beforced to pay for services we do not need. If we underestimate demand, we mayneed to acquire additional capacity on a short-term basis at unfavorableprices, assuming additional capacity is available. If additional capacity isnot available, we will not be able to meet this demand. In addition, if wecannot meet any minimum volume commitments, we may be subject tounderutilization charges, termination charges, or rate increases which mayadversely affect our results of operations.

***We may not be able to maintain the necessary rights-of-wayfor our networks.***

We are dependent onrights-of-way and other permits from railroads, utilities, state highwayauthorities, local governments and transit authorities to install and maintainconduit and related communications equipment for any expansion of our networks.We may need to renew current rights-of-way for our networks and cannot assureyou that we would be successful in renewing these agreements on acceptableterms. Some of our agreements may be short-term, revocable at will, or subjectto termination upon customary default provisions, and we may not have access toexisting rights-of-way after they have expired or terminated. If any of theseagreements were terminated or could not be renewed, we may be required toremove our existing facilities from under the streets or abandon our networks.Similarly, we

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maynot be able to obtain right-of-way agreements on favorable terms, or at all, innew service areas, and, if we are unable to do so, our ability to expand ournetworks, if we decide to do so, could be impaired.

Our success depends on our ability to attract andretain qualified management and other personnel.

Our success depends upon thetalents and efforts of our senior management team. With the exception of EugeneB. Johnson, our Chairman and Chief Executive Officer, none of these seniorexecutives are employed by us pursuant to an employment agreement. The loss ofany member of our senior management team, due to retirement or otherwise, andthe inability to attract and retain highly qualified technical and managementpersonnel in the future, could have a material adverse effect on our business,financial condition and results of operations.

***We may face significant future liabilities or compliancecosts in connection with environmental and worker health and safety matters.***

Our operations andproperties are subject to federal, state and local laws and regulationsrelating to protection of the environment, natural resources, and worker healthand safety, including laws and regulations governing the management, storageand disposal of hazardous substances, materials and wastes. Under certainenvironmental laws, we could be held liable, jointly and severally and withoutregard to fault, for the costs of investigating and remediating anycontamination at owned or operated properties; or for contamination arisingfrom the disposal by us or our predecessors of hazardous wastes at formerly ownedproperties or at third party waste disposal sites. In addition, we could beheld responsible for third party property or personal injury claims relating toany such contamination or relating to violations of environmental laws. Changesin existing laws or regulations or future acquisitions of businesses couldrequire us to incur substantial costs in the future relating to such matters.

***We will be exposed to risks relating to evaluations ofcontrols required by Section 404 of the Sarbanes-Oxley Act.***

Changing laws, regulationsand standards relating to corporate governance and public disclosure, includingthe Sarbanes-Oxley Act and related regulations implemented by theSecurities and Exchange Commission, or the SEC, the New York Stock Exchange andthe Public Company Accounting Oversight Board, are creating uncertainty forpublic companies, increasing legal and financial compliance costs and makingsome activities more time consuming. We will be evaluating our internalcontrols systems to allow management to report on, and our independent auditorsto attest to, our internal controls as required by Section 404 of theSarbanes-Oxley Act. Our evaluation of our internal controls may result in ouridentifying material weaknesses in our internal controls. While we anticipatebeing able to complete our initial controls assessment and remediation of anyidentified material weaknesses prior to the December 31, 2006 deadline applicable to us, we cannot be certainas to the timing of such completion or the impact of the same on ouroperations. If we are not able to complete the assessment process required by Section 404in a timely manner, or are unable to remediate any identified materialweaknesses prior to December 31, 2006, we might be subject to sanctions orinvestigation by regulatory authorities, such as the SEC or the New York StockExchange. Any such action could adversely affect our financial results orinvestors’ confidence in us, and could cause our stock price to fall. If wefail to maintain effective controls and procedures, we may be unable to providefinancial information in a timely and reliable manner.

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***Risks Related to our Regulatory Environment***

***We aresubject to significant regulations that could change in a manner adverse to us.***

We operate in a heavilyregulated industry, and the majority of our revenues generally have beensupported by regulations, including access revenue and Universal Service Fundsupport for the provision of telephone services in rural areas. Laws andregulations applicable to us and our competitors may be, and have been,challenged in the courts, and could be changed by Congress or regulators. Inaddition, any of the following have the potential to have a significant impacton us:

*Risk ofloss or reduction of network access charge revenues*. A significant portion of our revenues comefrom network access charges, which are paid to us by intrastate and interstatelong distance carriers for originating and terminating calls in the regionsserved. This also includes Universal Service Fund payments for local switchingsupport, long term support and interstate common line support. In recent years,several of these long distance carriers have declared bankruptcy. Futuredeclarations of bankruptcy by a carrier that utilizes our access services couldnegatively impact our financial results. The amount of access charge revenuesthat we receive is based on rates set by federal and state regulatory bodies,and such rates could change. Further, from time to time federal and stateregulatory bodies conduct rate cases and/or “earnings” reviews, which mayresult in rate changes. The Federal Communications Commission has reformed andcontinues to reform the federal access charge system. States often mirror thesefederal rules in establishing intrastate access charges. In October 2001,the Federal Communications Commission reformed the system to reduce interstateaccess charges and shift a portion of cost recovery, which historically hasbeen based on minutes-of-use, to flat-rate, monthly per line charges onend-user customers rather than long distance carriers. As a result, theaggregate amount of access charges paid by long distance carriers to accessproviders, such as our rural local exchange carriers, has decreased and maycontinue to decrease. Although these changes were implemented on a revenueneutral basis (with commensurate increases in other charges and UniversalService Fund support), there is no assurance that future changes in accesscharge rates will be implemented on a revenue neutral basis. Furthermore, tothe extent our rural local exchange carriers become subject to competition,such access charges could be paid to competing communications providers ratherthan to us. Additionally, the originating and terminating access revenues wereceive may be reduced as a result of wireless, voice over internet protocol,or VOIP, or other new technology utilization. Finally, the FederalCommunications Commission is currently weighing several proposals tocomprehensively reform the intercarrier compensation regime in order to createa uniform system of intercarrier payments. Any such proposal eventually adoptedby the Federal Communications Commission will likely involve significantchanges in the access charge system and could potentially result in a significantdecrease or elimination of access charges altogether. Decreases or losses ofaccess charges may or may not result in offsetting increases in local,subscriber line or Universal Service Fund revenues. Regulatory developments ofthis type could adversely affect our business, revenue and/or profitability.

*Risk ofloss or reduction of Universal Service Fund support*. We receive Universal Service Fund revenuesto support the high cost of our operations in rural markets. High cost loopsupport we receive from the Universal Service Fund is based upon our averagecost per loop compared to the national average cost per loop. This revenuestream fluctuates based upon our average cost per loop compared to the nationalaverage cost per loop. For example, if the national average cost per loopincreases and our operating costs (and average cost per loop) remain constantor decrease, the payments we receive from the Universal Service Fund woulddecline. Conversely, if the national average cost per loop decreases and ouroperating costs (and average cost per loop) remain constant or increase, thepayments we receive from the Universal Service Fund would increase. Thenational average cost per loop in relation to our average cost per loop hasincreased and we believe that the national average cost per loop will likelycontinue to increase in relation to our average cost per loop. As a result, thepayments we receive from the Universal 

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Service Fund have declinedand will likely continue to decline. This support fluctuates based upon thehistorical costs of our operating companies. In addition to the UniversalService Fund high cost loop support, we also receive other Universal ServiceFund support payments, which include local switching support, long termsupport, and interstate common line support that used to be included in ourinterstate access charge revenues (the Federal Communications Commission hasrecently merged long term support into interstate common line support). If ourrural local exchange carriers were unable to receive support from the UniversalService Fund, or if such support was reduced, many of our rural local exchangecarriers would be unable to operate as profitably as they have historically, inthe absence of our implementation of increases in charges for other services.Moreover, if we raise prices for services to offset loss of Universal ServiceFund payments, the increased pricing of our services may disadvantage uscompetitively in the marketplace, resulting in additional potential revenue loss.

The Telecommunications Actof 1996, or the Telecommunications Act, provides that eligible communicationscarriers, including competitors to rural local exchange carriers, may obtainthe same per line support as the rural local exchange carriers receive if astate commission determines that granting such support to competitors would bein the public interest. In fact, wireless communications providers in certainof our markets have obtained matching support payments from the UniversalService Fund, but that has not led to a loss of revenues for our rural localexchange carriers under existing regulations. Any shift in universal serviceregulation, however, could have an adverse effect on our business, revenueand/or profitability.

During the last four years,pursuant to recommendations made by the Multi Association Group and the RuralTask Force, the Federal Communications Commission has made certainmodifications to the universal service support system that changed the sourcesof support and the method for determining the level of support. These changeshave been revenue neutral to our operations. It is unclear whether the changesin methodology will continue to accurately reflect the costs incurred by ourrural local exchange carriers, and whether it will provide for the same amountof Universal Service Fund support that our rural local exchange carriers havereceived in the past. In addition, several parties have raised objections tothe size of the Universal Service Fund and the types of services eligible forsupport. A number of issues regarding the source and amount of contributionsto, and eligibility for payments from, the Universal Service Fund are pendingand will likely be addressed by the Federal Communications Commission orCongress in the near future. For example, a number of proposals to be examinedby the Federal Communications Commission in its current rulemaking with respectto the reform of the intercarrier compensation system include reforms of theUniversal Service Fund. The outcome of any regulatory proceedings orlegislative changes could affect the amount of Universal Service Fund supportthat we receive, and could have an adverse effect on our business, revenue orprofitability.

On February 28, 2005,the Federal Communications Commission issued a press release announcingadditional requirements for the designation of competitive EligibleTelecommunications Carriers for receipt of high-cost support. In itscorresponding order, released on March 17, 2005, the FederalCommunications Commission adopted additional mandatory requirements forEligible Telecommunications Carriers designation in cases where it hasjurisdiction, and encourages states that have jurisdiction to designateEligible Telecommunications Carriers to adopt similar requirements. The FederalCommunications Commission is still considering revisions to the methodology bywhich contributions to the Universal Service Fund are determined. Theserevisions will be part of an overall rulemaking regarding Universal ServiceSupport which is expected to be dealt with sometime in 2006.

*Risk ofloss of statutory exemption from burdensome interconnection rules imposedon incumbent local exchange carriers.*Our rural local exchange carriers are exempt from theTelecommunications Act’s more burdensome requirements governing the rights ofcompetitors to interconnect to incumbent local exchange carrier networks and toutilize discrete network elements of the incumbent’s network at

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favorable rates. If stateregulators decide that it is in the public’s interest to impose these moreburdensome interconnection requirements on us, we would be required to provideunbundled network elements to competitors. As a result, more competitors couldenter our traditional telephone markets than are currently expected and wecould incur additional administrative and regulatory expenses, and experienceadditional revenue losses.

***Risks posed bycosts of regulatory compliance***. Regulations create significant compliance costsfor us. Our subsidiaries that provide intrastate services are generally subjectto certification, tariff filing and other ongoing regulatory requirements bystate regulators. Our interstate access services are provided in accordancewith tariffs filed with the Federal Communications Commission. Challenges toour tariffs by regulators or third parties or delays in obtainingcertifications and regulatory approvals could cause us to incur substantiallegal and administrative expenses, and, if successful, such challenges couldadversely affect the rates that we are able to charge our customers.

Our business also may beimpacted by legislation and regulation imposing new or greater obligationsrelated to assisting law enforcement, bolstering homeland security, minimizingenvironmental impacts, or addressing other issues that impact our business. Forexample, existing provisions of the Communications Assistance for LawEnforcement Act and Federal Communications Commission regulations implementingthe Communications Assistance for Law Enforcement Act require communicationscarriers to ensure that their equipment, facilities, and services are able tofacilitate authorized electronic surveillance. We cannot predict whether andwhen the Federal Communications Commission might modify its CommunicationsAssistance for Law Enforcement Act rules or any other rules or whatcompliance with new rules might cost. Similarly, we cannot predict whetheror when federal or state legislators or regulators might impose new security,environmental or other obligations on our business.

***Regulatory changes in the communications industry couldadversely affect our business by facilitating greater competition against us,reducing potential revenues or raising our costs.***

The Telecommunications Actprovides for significant changes and increased competition in thecommunications industry, including the local communications and long distanceindustries. This statute and the Federal Communications Commission’simplementing regulations remain subject to judicial review and additionalrulemakings of the Federal Communications Commission, thus making it difficultto predict what effect the legislation will have on us, including ouroperations and our revenues and expenses, and our competitors. Severalregulatory and judicial proceedings have recently concluded, are underway ormay soon be commenced, that address issues affecting our operations and thoseof our competitors. We cannot predict the outcome of these developments, norcan we assure that these changes will not have a material adverse effect on usor our industry.

***The failure to obtain necessary regulatory approvals couldimpede the consummation of a potential acquisition.***

Our acquisitions likely willbe subject to federal, state and local regulatory approvals. We cannot assureyou that we will be able to obtain any necessary approvals, in which case apotential acquisition could be delayed or not consummated.

 

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