<PAGE>
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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                       __________________________________

                                  FORM 10-K

                FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
          SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934

  [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
       SECURITIES EXCHANGE ACT OF 1934

       For the fiscal year ended December 31, 2001
                                 -----------------

                                     OR

  [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934

       For the transition period from ____________ to ___________

                       __________________________________

                                   333-36804
                             Commission file number

                           Madison River Capital, LLC
             (Exact Name of Registrant as Specified in Its Charter)

                  Delaware                                   56-2156823
      (State or Other Jurisdiction of                     (I.R.S. Employer
      Incorporation or Organization)                     Identification No.)

                             103 South Fifth Street
                          Mebane, North Carolina 27302
          (Address of Principal Executive Offices, Including Zip Code)

                                 (919) 563-1500
              (Registrant's Telephone Number, Including Area Code)

                       __________________________________

Securities registered pursuant to Section 12(b) of the Act:  NONE

Securities registered pursuant to Section 12(g) of the Act:  NONE

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes    X    No   ____
                                         ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.   [ X ]

                      DOCUMENTS INCORPORATED BY REFERENCE

                                     NONE

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                                     INDEX
<TABLE>
<S>        <C>                                                               <C>
PART I    Item 1.  Business                                                   1
          Item 2.  Properties                                                25
          Item 3.  Legal Proceedings                                         26
          Item 4.  Submission of Matters to a Vote of Security Holders       26

PART II   Item 5.  Market for Registrant's Common Equity and Related
                     Stockholder Matters                                     26
          Item 6.  Selected Financial Data                                   27
          Item 7.  Management's Discussion and Analysis of Financial
                     Condition and Results of Operations                     29
          Item 7A. Quantitative and Qualitative Disclosures About
                     Market Risk                                             39
          Item 8.  Financial Statements and Supplementary Data               39
          Item 9.  Changes in and Disagreements with Accountants on
                     Accounting and Financial Disclosure                     39

PART III  Item 10. Directors and Executive Officers of the Registrant        40
          Item 11. Executive Compensation                                    42
          Item 12. Security Ownership of Certain Beneficial Owners and
                     Management                                              44
          Item 13. Certain Relationships and Related Transactions            45

PART IV   Item 14. Exhibits, Financial Statement Schedules, and Reports
                     on Form 8-K                                             45

SIGNATURES                                                                   46

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS                                  F-1

EXHIBIT INDEX                                                               I-1
</TABLE>


References in this Form 10-K to "we," "us," "our" and "Madison River" mean
Madison River Capital, LLC and its subsidiaries.





                                       i


<PAGE>
                                     PART I

Item 1.  Business

Overview of the Business

We are an established rural local exchange company providing communications
services and solutions to business and residential customers in the Gulf Coast,
Mid-Atlantic and Midwest regions of the United States. Our integrated service
offerings include local and long distance voice, high speed data, Internet
access and fiber transport. We are organized into two operating divisions, the
Local Telecommunications Division (the "LTD") and the Integrated Communications
Division (the "ICD").

Local Telecommunications Division
---------------------------------
The LTD is responsible for the integration, operation and development of our
established markets that consist of four incumbent local exchange carriers
("ILECs") acquired since January 1998.  Through these acquisitions, we acquired
strong businesses with positive, stable cash flows, government and regulatory
authorizations and certifications, operational support systems, management and
key personnel and facilities.  We have a reputation for delivering high quality
services and being highly responsive to our customers in these markets, which we
and our predecessors have established as providers of communications services
and solutions in these markets for over 50 years.  During 2001, the LTD provided
approximately 92%, or $168.8 million, of our total revenues.  The four ILECs,
their location, the date acquired and the number of access lines in service at
December 31, 2001 are:
<TABLE>
<CAPTION>
                                                                           Date           Access Lines at
                  Company                         Location               Acquired        December 31, 2001
    ----------------------------------     ----------------------     --------------     -----------------
    <S>                                    <C>                        <C>                     <C>
    MEBTEL, Inc.                           Mebane, North Carolina     January 1998            12,378
    Gallatin River Communications, LLC     Galesburg, Illinois        November 1998           82,022
    Gulf Coast Services, Inc.              Foley, Alabama             September 1999          58,263
    Coastal Communications, Inc.           Hinesville, Georgia        March 2000              42,147
</TABLE>

The LTD has three types of basic customers:

1. Residential and business customers located in our local service areas that
   buy local and long distance voice, high speed data and Internet access
   services;
2. Interexchange carriers that pay for access to long distance customers located
   within the LTD's local service area; and
3. Customers that purchase miscellaneous services such as directory advertising
   or local premise equipment and other carriers that we provide billing and
   collection services.

The LTD's revenues consist of local service revenues, long distance services,
Internet and enhanced data services and other miscellaneous revenues, each of
which is described below.

Local service revenues - Our local service revenues are derived from providing
basic local telephone service to customers in our franchised territories and
consist primarily of basic local service revenues, network access revenues and
charges for custom calling features.  Basic local service revenues are charges
for services to residential and business customers for originating and receiving
telephone calls within their exchange area.  Customers are charged a flat fee
for the use of this service, with the exception of our Gallatin River customers
who are charged a flat fee plus local usage pursuant to an LMS type tariff.
Network access revenues are related to the origination and termination of long
distance calls, or toll calls.  These revenues are derived from charges to the
end user of the service as well as billings to interexchange carriers for the
use of our facilities to access our customers.  In addition, our participation
in universal service funding support mechanisms are included in network access
revenues.  Finally, our customers are offered a variety of custom calling
features such as voicemail, caller identification, call waiting and call
forwarding.  These services are bundled into packages with other services and
sold at a discount as well as being offered separately.
                                       1
<PAGE>

Long distance services - In each of our ILECs, we provide long distance services
to customers who elect to use our long distance product.  Our long distance
service is marketed under our own brand names.  Long distance revenues are
earned as our long distance customers make toll calls.  The charges are based on
the length of the calls and the rate charged per minute.  We often bundle our
long distance service with other custom calling features to offer an
attractively priced option to our customers.

Internet and enhanced data services - We provide dial-up Internet services as
well as digital subscriber line ("DSL") products to our business and residential
customers.  Our dial-up Internet service provides customers a connection to the
Internet over their existing phone lines for a flat, monthly fee.  Our DSL
products provide high-speed access to the Internet for a monthly fee to both
residential and business customers.  Currently, our network is capable of
providing DSL service to approximately 90% of our customers at speeds up to 1.1
MB downstream and upstream.

Miscellaneous revenues - Included in our miscellaneous revenues are primarily
revenues from advertising sold in telephone directories, revenues earned from
sales of telephone equipment to business customers and revenues earned from
billing toll charges for other carriers and collecting the amounts due.

As of December 31, 2001, the LTD had approximately 194,800 voice access lines
and 11,100 DSL connections in service.  The LTD customer base was comprised of
approximately 135,700 residential access lines and 59,100 business access lines,
80,200 long distance accounts and 30,000 dial-up Internet access subscribers.

An important part of our integration strategy for acquisitions is to maintain,
to the extent possible, the local identity of the acquired company.  With the
exception of Gallatin River, our acquisitions in the LTD continue to operate
with the same corporate identity by which they were recognized before the
acquisition.  The exchanges and assets that comprise Gallatin River were
acquired from Sprint and therefore were renamed.  An experienced, local
management team is in place and directs the operations of each ILEC.  Our
central management company, Madison River Management Company, provides certain
administrative, financial and technical support services to each ILEC in
accordance with the terms of a management services agreement.  Consolidation of
certain functions and the purchase of certain products and services at the
management company provides us with efficiencies and cost savings that could not
be gained by each ILEC acting individually.  In addition, our ILECs share
information between respective management teams regarding process improvements
that have been implemented and best practices that are employed to leverage the
knowledge developed by each ILEC and further the overall improvement in
operations.

Integrated Communications Division
----------------------------------
The ICD, Madison River Communications, LLC ("MRC"), is responsible for
developing and managing our edge-out strategy as a competitive local exchange
carrier ("CLEC") as well as maintaining and marketing a fiber transport and
Internet egress business.  The ICD focuses on selling integrated communications
services built on high speed broadband service offerings utilizing advanced
bandwidth enhancing technologies such as asynchronous transfer mode ("ATM"),
DSL and fiber optic networks. The ICD targets customers that are medium and
Large businesses that utilize eight voice lines or more and high speed data
services. The ICD has employed an edge-out strategy for developing and growing
its business in its current markets.  By developing markets in close proximity
to our more stable ILEC operations, or edging out from those operations, the ICD
is able to leverage off of the resources that the ILECs have to offer.  This
efficient strategy has allowed us to build this business in a cost effective
manner.  The three current markets served are the Triangle (Raleigh, Durham and
Chapel Hill) and Triad (Greensboro and Winston-Salem) regions of North Carolina;
Peoria, Illinois; and New Orleans, Louisiana.




                                       2
<PAGE>

The ICD grew rapidly in 2000 and early 2001 through strategic acquisitions and
internal growth.  In order to sustain the rate of growth we were achieving
required significant capital for working capital and capital expenditures.  In
the fourth quarter of 2001, we shifted our strategy in the ICD from growing the
business and adding access lines to a business plan that focuses on getting the
ICD's operations to a positive cash flow basis sooner than previously planned to
conserve capital.  In order to achieve positive cash flow in the ICD as quickly
as possible, we have intentionally slowed the rate of growth for the division.
This strategy allows us to capitalize on the revenues from our current customer
base while also managing our capital expenditures and expenses more tightly,
reducing the utilization of cash for operations.  With a reduced growth rate, we
have fewer sales people and, accordingly, fewer provisioners, sales engineers,
customer service representatives and other support personnel. Once the ICD
achieves positive cash flow, then a rate of growth will be targeted that can be
funded with cash generated from the ICD's operations without additional outside
investment.

The ICD continues to market its services in the Triangle and the Triad in North
Carolina and New Orleans, Louisiana.  However, under the new plan to achieve
self-funding of its growth, the ICD will not continue to prospect and sell
services to new customers in its Illinois markets.

The fiber transport and Internet egress business will focus on growing revenues
by providing services to other carriers and major accounts such as intercity
transport, including both high capacity and optical wavelength transport, metro
access services and Internet egress services at a DS-3 level and above.  This
business is focused on developing its product lines in Atlanta, Georgia; New
Orleans, Louisiana; and Houston and Dallas, Texas.

The ICD operates approximately 2,300 route miles of fiber optic network in and
around its expansion markets, including a long-haul route of approximately 2,100
route miles that runs from Atlanta, Georgia across the Southeast to Houston and
Dallas, Texas.

In 2001, the ICD had revenues of approximately $15.5 million, or 8% of our total
operating revenues.  As of December 31, 2001, the ICD served approximately
16,700 voice access lines and approximately 700 DSL lines.

Corporate Organization and Ownership
------------------------------------
Madison River is a limited liability company that was organized under the
provisions of the Delaware Limited Liability Company Act.  We are a wholly-owned
subsidiary of our parent company, Madison River Telephone Company, LLC ("MRTC").
MRTC was founded in April 1996 by a management team led by J. Stephen
Vanderwoude, former President and Chief Operating Officer of Centel Corporation.
Equity investors in MRTC include affiliates of Madison Dearborn Partners,
Goldman Sachs & Co., Providence Equity Partners and certain members of
management.


Our Markets

Our established and target markets are predominantly secondary markets in size.
We believe customers in certain secondary markets have significant demand for a
comprehensive service offering, which is not yet fully provided. The above
average industry growth in our markets demonstrates the need and potential for a
provider of a full range of communications solutions. We believe the edge-out
markets we have targeted will experience strong growth, similar to our
established markets, in their demand for telecommunications services. We believe
that our thorough knowledge of the markets in our regions, established
operations and reputation for a high standard of service give us a competitive
advantage over other competitive entrants in the markets we serve. We expect
continued growth in our established markets where the lower population density
favors the incumbent local provider because of the high cost of build-out
relative to major urban markets.



                                       3
<PAGE>

Management

Our management team has extensive experience in telecommunications, network
engineering and operations, customer care, sales and marketing, project
development and finance. J. Stephen Vanderwoude, our Chairman and Chief
Executive Officer, has an extensive background in the telecommunications
industry, including serving as President and Chief Operating Officer and a
director of Centel Corporation and President and Chief Operating Officer of the
Local Telecommunications division of Sprint Corporation.  Many of the other
members of the management team have extensive telecommunications industry
experience, including positions at Sprint Corporation, Centel Corporation and
Citizens Communications. We believe our management team, which averages more
than 30 years of experience in the telecommunications industry, has been
successful in acquiring and successfully integrating strategic assets into our
existing operations. We believe the skill and experience of our management team
will continue to provide significant benefits to us as we continue to enhance
and expand our service offerings.


Products and services

We currently provide integrated communications services to business and
residential customers and transport services to end users and other data and
voice carriers.

Integrated communications services. We seek to capitalize on our local presence
and network infrastructure by offering a full suite of integrated communications
services in voice, high-speed data, fiber transport, Internet access and long
distance services, as well as value-added features such as call waiting, caller
identification, voicemail and conference bridge services, all on one bill.

In the markets served by the ICD, we currently provide a full suite of
integrated data-centric and voice-centric communications services. These markets
are within a reasonable proximity of our existing markets and our network
infrastructure. These markets include the Triangle and Triad regions of North
Carolina; Peoria, Illinois; and New Orleans, Louisiana.

Set forth below are brief descriptions of our communications services:

     Voice. As of December 31, 2001, we provided local exchange service as an
     incumbent local telephone company in areas serving approximately 194,800
     access lines. We offer all of our local telephone subscribers value-added
     features such as call waiting, call forwarding, conference calling, speed
     dialing, caller identification and call blocking. As of December 31, 2001,
     approximately 45% of our access lines subscribed to one or more of our
     value added features. We offer local exchange services in all of the
     markets in which we currently provide telecommunications services. We also
     offer a full range of retail long distance services, including traditional
     switched and dedicated long distance, toll free calling, international,
     calling card and operator services. Our voice services accounted for
     approximately 84.9% of our total revenues for the year ended December 31,
     2001.

     In connection with our offering of local services in our expansion markets,
     we have entered into interconnection agreements with Ameritech and Verizon
     for Illinois, Verizon and Sprint for North Carolina, BellSouth for all nine
     BellSouth States, and SBC for Texas, to (1) resell the incumbent carrier's
     local exchange services and (2) interconnect our network with the incumbent
     carrier's network for the purpose of immediately gaining access to the
     unbundled network elements necessary to provide local exchange services and
     DSL. The interconnection agreements contain provisions that grant us the
     right to obtain the benefit of any arrangements entered into during the
     term of the interconnection agreements between the incumbent carriers and
     any other carrier that materially differs from the rates, terms or
     conditions of our interconnection agreements. Under the interconnection
     agreements, we may resell one or more unbundled network elements of the
     incumbent carriers at agreed upon prices. The BellSouth and Ameritech
     interconnection agreements call for reciprocal compensation associated with
     the transport and termination of interconnected local traffic, excluding
     Internet service provider traffic. The Verizon and SBC agreements use the
     "bill and keep" method of compensation for the transport and termination of
     interconnected local traffic.

                                       4
<PAGE>

     Data and Internet related services. We provide high quality data and
     Internet related services to our customers primarily using ATM switches
     distributed strategically throughout our network, enabling customers to use
     a single network  connection to communicate with multiple sites throughout
     our fiber optic network  and egress to the Internet. We will continue to
     seek, through strategic business relationships with other providers, to
     interconnect our fiber optic network with the fiber optic networks of other
     companies. We anticipate increasing demand for data and Internet related
     services in the future and expect that in the future a larger percentage of
     our revenues will be derived from the sale of Internet egress and dedicated
     and multipoint data services. We also provide high speed and high quality
     DSL services in all of our markets.

     Other Services. We sell and install customer premise equipment such as
     telephones and office private branch exchange systems for customers in our
     markets. We also print, publish and sell advertising in local telephone
     directories in markets where we are also the ILEC.

Sales and marketing

Our marketing approach emphasizes customer oriented sales, marketing and
service. In the LTD, we market our products primarily through our customer
service representatives and various direct marketing methods.

The sales and marketing group for the ICD at December 31, 2001 was comprised of
eight quota-carrying, direct sales personnel.  We divide our sales group between
General Business and Major Accounts.  General Business, with five quota-carrying
sales personnel, targets customers with eight to 100 access lines.  Major
Accounts, with three quota-carrying sales personnel, targets customers with more
than 100 access lines and requirements for high capacity internet transport and
access.

We or our predecessors have been serving our established markets for at least
five decades. We serve our edge-out markets predominantly from our established
base of operations in Mebane, North Carolina and Pekin, Illinois and have sales
and operations facilities in New Orleans, Louisiana.   Our direct sales force
targets medium and large businesses. Our sales personnel make direct calls to
prospective and existing business customers, conduct analyses of business
customers' usage histories and service needs, and demonstrate how our service
package will improve a customer's communications capabilities and costs. Our
sales personnel work closely with our network engineers and information systems
consultants to design service products and applications, such as DSL and
wholesale transport services. Our local offices are primarily responsible for
coordinating service and customer premise equipment installation activities. Our
technicians survey customer premises to assess building entry, power and space
requirements and coordinate delivery, installation and testing of equipment.

We believe that our customers value our ''single point of contact'' for meeting
the customers' telecommunications needs, as well as our ability to provide a
fully integrated portfolio of services. Our voice products include local, long
distance, 800, international, voicemail and calling cards. Our data products
include high speed Internet services, as well as a wide area network product.
Our ATM-based services are fully monitored for service performance by systems in
our network operations center, enabling us to provide preventative as well as
corrective maintenance 24 hours a day, 365 days a year.

We seek to maintain and enhance the strong brand identity and reputation that
each of our local telephone companies enjoys in the communities that it serves,
as we believe this is a significant competitive advantage. For example, in each
of our major areas of operation, we market Internet access and presence through
our local brand names, mebtel.net, mebtel.com, gallatinriver.com, coastal-
online.com and gulfnet.com. As we market new services, or reach out from our
established markets, we will seek to use our brand identities to attain
increased recognition with potential customers.  In our edge-out markets, we are
building and enhancing the brand identity of Madison River Communications.




                                       5
<PAGE>
Network

We offer full facilities-based services in each of our markets. We own and
operate a fully integrated telecommunications network comprised primarily of
thirty-four ATM core switches, capable of handling both voice and data, and ten
time division modulation ("TDM") digital central office switches in our three
regions of operation. Our network also includes approximately 3,300 route miles
of local and long-haul fiber optic network predominately based in the
southeastern United States. We currently own all of our network facilities and
have not booked any revenues from swaps of indefeasible rights to use, or IRUs.

We believe our proven operational support systems (OSS) and customer
care/billing systems allow us to meet or exceed our customers' expectations.
These OSSs include inter-company provisioning (Metasolv) and trading partner
electronic data exchange systems (DSET), which offer a rapid exchange of mission
critical data needed to provision and support our CLEC customer base. We
currently bill customers of the ICD using our Saville billing system and we are
completing the conversion to Saville for our ILEC located in Foley, AL. Our OSSs
are scalable to accommodate any growth and expansion we may experience.

Switching Strategy. Our switch deployment strategy in the ICD incorporates both
TDM switching devices as well as newer ATM platforms.  Using Nortel Network's
Passport and Succession technology, supported by high density wave division
multiplexing, or HDWDM, fiber optic transport, we have a next generation ATM
network. TDM switching systems components are deployed as public switched
telephone network interface vehicles through newly available modules in Nortel's
DMS 500 and ATM edge devices. We deliver both switched and non-switched data-
centric and voice-centric services to our targeted business market segments in a
robust, cost effective, single solution package. Because of the growth in
customer demand for data-centric products, our ability to compete in the market
place is substantially improved by our single integrated voice-centric and data-
centric ATM delivery medium.

Presently, we have deployed two DMS500 Passport and Succession based host
systems in North Carolina and Illinois and have acquired a third DMS500 in
Louisiana and deployed Passport technology there. We believe our edge out
strategy, using an extensive SONET transport network based on the latest ATM
technology while leasing "last mile" DS1 (1.544 Mbs) local loop facilities from
the incumbent local carrier, creates a highly competitive and robust
telecommunications alternative to traditional local high speed data and voice
services.

A basic foundation of our switch and private line deployment tactic is
predicated on ATM's ability to handle single point and multi-point data-centric
transport alternatives fully integrated with voice services. We believe this,
together with our capacity to dynamically allocate bandwidth between voice and
data demands beginning at the customer location and through our network,
positions us on the leading edge of providing robust telecommunication customer
products and solutions.

We place our host switching systems and ATM remote switching devices
strategically on our fiber route.  In December 2000, we acquired a DMS-500 in
New Orleans, Louisiana.  We have deployed ATM remote switching devices in New
Orleans, Louisiana; Houston and Dallas, Texas; Atlanta, Georgia; and Mobile and
Montgomery, Alabama. We may deploy additional ATM remote switching devices in
other locations that become strategic or network enhancing along our existing
routes.  Our voice suite of services will be deployed in these markets using our
existing DMS-500 platforms or by newly deployed soft switches.

Fiber Optic Facilities. The ICD's owned high capacity fiber network in the Gulf
Coast region is capable of reaching over 20 major points of presence in six
southeastern states (Alabama, Florida, Louisiana, Mississippi, Georgia and
Texas). Presently, it extends approximately 2,100 route miles linking Dallas,
Texas to Atlanta, Georgia along a route touching a number of southern and
southeastern cities such as Houston, Texas; Baton Rouge and New Orleans,
Louisiana; Biloxi, Mississippi; Mobile and Montgomery, Alabama; and Pensacola,
Tallahassee and Lake City, Florida. Included in this total are fiber optic rings
located in New Orleans, Louisiana and Montgomery, Alabama.

                                        6
<PAGE>

Regarding our fiber optic network in the Mid-Atlantic region, there are
approximately 575,000 business access lines within the reach of our existing
local service area. To reach these potential customers, we are developing an
intercity fiber optic network stretching from Raleigh-Durham through the
Research Triangle area to Winston-Salem, North Carolina. We acquired this fiber
through long-term indefeasible rights of use arrangements, as well as optical
windows with providers of wholesale fiber capacity.

Serving as the backbone of our Gulf Coast and Mid-Atlantic regions, this high
capacity optical network allows us to offer a full range of data-centric and
voice-centric integrated communications services to our existing and targeted
customers, including other communications carriers. Our network offers
electronic diversity as well as diverse access routing.

In addition, our four incumbent local exchange carriers own and operate
approximately 950 route miles of fiber in their local operating areas.

Our network operations center located in Mebane, North Carolina monitors all of
our networks. In addition, we also monitor the performance of all of our ATM
served customer lines through the capabilities of the ATM-based universal edge
devices that we install on our customers' premises.

Industry overview and competition

Over the past several years, the telecommunications industry has undergone
significant structural change. Many of the largest service providers have
achieved growth through acquisitions and mergers while an increasing number of
competitive providers have restructured or entered bankruptcy to obtain
protection from their creditors. During 2000 and 2001, capital in the form of
public financing or public equity was not as available to new entrants and
competitive providers as compared to the past several years.  Capital
constraints have caused a number of competitive providers to change their
business plans.  Consolidation of competitive providers has resulted in part due
to these capital constraints.  Despite these changes, the demand for all types
of telecommunications services has not diminished, particularly high speed data
services.

The passage of the Telecommunications Act of 1996 ("Telecom Act"), which amended
the Communications Act of 1934, as amended (the "Communications Act"),
substantially changed the regulatory structure applicable to the
telecommunications industry, with a stated goal of stimulating competition for
virtually all telecommunications services, including local telephone service,
long distance service and enhanced services. Companies are increasingly bundling
these services and providing one-stop shopping for end-user customers.

The rural and small urban ILEC industry is composed of a large number of
relatively small companies. According to the United States Telecom Association,
there are approximately 1,300 telephone companies with less than 25,000 access
lines in the U.S. A majority of these small telephone companies operate in
sparsely populated rural areas where competition from CLECs or wireless
telecommunications companies (such as cellular or PCS providers) has been
limited due to the generally unfavorable economics of constructing and operating
such competitive systems.

Many small ILECs in rural and small urban markets are owned by families or small
groups of individuals. We believe that the owners of these small companies are
interested in selling such companies as the growing technical, administrative
and regulatory complexities of the local telephone business challenge the
capabilities of the existing management. In addition, certain large telephone
companies are selling many of their small rural telephone exchanges to focus
their attention on their major metropolitan operations that generate the bulk of
their consolidated revenue and which are increasingly threatened by competition.
As a result, we believe that we have, and in the future will have, numerous
opportunities to acquire rural and small urban telephone operations currently
owned by the large telephone companies.




                                       7
<PAGE>

Since the passage of the Communications Act, federal and state regulations
promoting the widespread availability of telephone service have allowed rural
and small urban telephone companies to maintain advanced technology while
keeping prices affordable for customers. This policy commitment was reaffirmed
and expanded by the universal service provisions of the Telecom Act. In light of
the high cost per access line of installing lines and switches and providing
telephone service in sparsely populated areas, a system of cost recovery
mechanisms has been established to, among other things, keep customer telephone
charges at a reasonable level and yet allow owners of such telephone companies
to earn a fair return on their investment. These cost recovery mechanisms, which
are less available to larger telephone companies, have resulted in robust
telecommunications networks in many rural and small urban areas, and such
capabilities may deter entry by potential competitors in these small markets.
Currently, Gallatin River is the only ILEC that has CLEC competition and that
competition is limited currently to DSL services.

In markets where we implement our CLEC edge-out strategy, we will be subject to
competition from the ILECs in those markets and other CLECs, including cable
television operators, other ILECs operating outside their traditional service
areas, long distance carriers, wireless carriers and others.  The ongoing
consolidation and constraints on capital in the telecommunications industry
could change the nature of our competitive environment.


Regulation

Overview

We are subject to regulation by federal, state and local government agencies. At
the federal level, the Federal Communications Commission ("FCC") has
jurisdiction over interstate and international telecommunications services.
State telecommunications regulatory commissions generally exercise jurisdiction
over intrastate telecommunications services. The FCC does not directly regulate
enhanced services and has preempted certain inconsistent state regulation of
enhanced services. Additionally, municipalities and other local government
agencies regulate limited aspects of our business, such as use of government
owned rights of way, construction permits and building codes. The following
description covers some of the major regulations affecting us, but there are
numerous other areas of regulation that may influence our business.

Federal regulation

We are subject to, and must comply with, the Communications Act.  Pursuant to
this statute and associated FCC rules, the FCC regulates the rates and terms for
interstate access services, which are an important source of revenues for our
ILEC subsidiaries. The amendments to the Communications Act contained in the
Telecom Act have changed and are expected to continue to change the
telecommunications industry.  Among its more significant provisions, the Telecom
Act (1) removes legal barriers to entry into local telephone services, (2)
requires ILECs to interconnect with competitors, (3) establishes procedures
pursuant to which ILECs may provide other services, such as the provision of
long distance services by Bell Operating Companies and their affiliates
(including their respective holding companies), and (4) directs the FCC to
establish an explicit subsidy mechanism (while simultaneously removing implicit
subsidies) for the preservation of universal service.

Access Charges. The FCC regulates the prices that ILECs charge for the use of
their local telephone facilities in originating or terminating interstate
transmissions.  The FCC has structured these prices (known as "access charges")
as a combination of flat monthly charges paid by the end-users and usage
sensitive charges paid by long distance carriers.









                                        8
<PAGE>
The FCC regulates the levels of interstate access charges by imposing price caps
on larger ILECs.  These price caps can be adjusted based on various formulae and
otherwise through regulatory proceedings.  Smaller ILECs may elect to base
access charges on price caps, but are not required to do so unless they elected
to use price caps in the past or their affiliated ILECs base their access
charges on price caps.  Through 2001, our ILEC subsidiaries elected not to apply
for federal price caps. Instead, these subsidiaries employ rate-of-return
regulation for their interstate access charges.  They provide service pursuant
to tariffs they file with the FCC for their interstate traffic sensitive access
services, and participate in interstate common line tariffs filed by the
National Exchange Carrier Association ("NECA") for a pool of small ILECs.  NECA
tariff rates are established based on the pooling carriers' expenses incurred
and investment, and a regulated rate of return on that investment. The
authorized rate of return for such interstate access services is currently
11.25%. The FCC initiated a rulemaking proceeding in October 1998 considering
whether to change this authorized rate of return.  This proceeding was
terminated in November, 2001, with no change required to the interstate
authorized rate-of-return.

In May 1997, the FCC initiated a multi-year transition designed to lead to lower
usage-sensitive access charges for larger ILECs.  As part of this transition,
the FCC in August 1999 adopted an order and further notice of proposed
rulemaking aimed at introducing additional pricing flexibility and other
deregulation for these larger companies' interstate access charges, particularly
special access and dedicated transport. In May 2000, the FCC lowered switched
access rates, increased caps applicable to end-user rates and established
additional universal service funding support for these larger companies.
Previously, in May 1998, the FCC proposed to initiate a similar transition for
smaller ILECs, including our ILEC subsidiaries.  This proceeding was concluded
and an order issued in November 2001 (the "MAG Order").

The MAG Order was released November 8, 2001 and was effective January 1, 2002.
The MAG Order applies to non-price cap or "rate-of-return" exchange carriers.
The MAG Order increases the maximum end user common line ("EUCL") charges.
Beginning January 1, 2002, the maximum EUCL charges for single line business and
residential customers increased from $3.50 per month to $5.00 per month.  The
maximum single line business and residential EUCL may be increased to $6.00 as
of July 1, 2002 and to $6.50 as of July 1, 2003.  Maximum EUCLs for multi-line
business customers increased to $9.20 effective January 1, 2002, and no further
increases are scheduled.

In association with the implementation of the MAG Order and end user rate
increases, switched access charges to interexchange carriers were decreased and
a new universal service fund element was established, called the Interstate
Common Line Support Fund ("ICLS").  The combination of end user increases,
switched access charge decreases and new universal service funding provided a
revenue neutral restructuring of the interstate access charges for interstate
rate-of-return carriers such as our ILEC subsidiaries.

The MAG Order included a notice of proposed rulemaking on incentive regulation
and the introduction of pricing flexibility measures for rate-of-return
carriers.  This proceeding has not been completed, and no incentive option
(other than price caps, pursuant to the coalition for affordable local and long
distance services plan) is currently available to our ILEC operations.

During 2001, the FCC released an Order establishing access charge rules for
CLECs.  Under FCC rules, CLECs can file interstate tariffs for access charges
only if the access charge rates conform to FCC safe harbor rates (essentially,
the rate charged by the largest ILEC in that market area).  A CLEC wishing to
charge higher rates can do so, but cannot use the tariff process to collect such
rates.  Under the new rules, interexchange carriers are required to interconnect
with companies whose rates are within the FCC safe harbor guidelines, and are
required to pay access charges at the tariffed rates.

Removal of Entry Barriers. Prior to the enactment of the Telecom Act, many
states limited the services that could be offered by a company competing with an
ILEC. The Telecom Act generally prohibits state and local governments from
enforcing any law, rule or legal requirement that has the effect of prohibiting
any entity from providing any interstate or intrastate telecom service. However,
states can modify conditions of entry into areas served by rural telephone
companies where the state telecommunications regulatory commission has
determined that certain universal service protections must be satisfied. The
federal law should allow us to provide a full range of local and long distance
services in most areas of any state.  Following the passage of the Telecom Act,
the level of competition in the markets we serve has increased and is expected
to continue to increase.
                                        9
<PAGE>

Interconnection with Local Telephone Companies and Access to Other Facilities.
The Telecom Act imposes a number of access and interconnection requirements on
all local telephone companies, including CLECs, with additional requirements
imposed on ILECs. These requirements are intended to ensure access to certain
networks under reasonable rates, terms and conditions. Specifically, local
telephone companies must provide the following:

    *  Resale. Local telephone companies generally may not prohibit or
       place unreasonable restrictions on the resale of their services.
    *  Telephone Number Portability. Local telephone companies must
       provide for telephone number portability, allowing a customer to
       keep the same telephone number even though it switches service
       providers.
    *  Dialing Parity. Local telephone companies must provide dialing
       parity, which allows customers to route their calls to a
       telecommunications provider without having to dial special access
       codes.
    *  Access to Rights-of-Way. Local telephone companies must provide
       access to their poles, ducts, conduits and rights-of-way on a
       reasonable, nondiscriminatory basis.
    *  Reciprocal Compensation. Each local telephone company on whose
       network a call originates must reasonably compensate each local
       telephone company on whose network the call terminates.

All of our local telephone subsidiaries have implemented full equal access
(dialing parity) capabilities.  The FCC's rules require our ILEC subsidiaries to
use reasonable efforts to implement local number portability after receiving a
request from another carrier to do so.  Through the end of 2001, these
subsidiaries had not yet received such a request.  In January 2002, one of our
ILEC subsidiaries received a request for local number portability that may
require it to provide such capability during the third quarter of 2002.

In addition, all ILECs must provide the following, subject to possible
exemptions for rural telephone companies based on economic or technical burdens:

    *  Resale. Offer its retail local telephone services to resellers at a
       wholesale rate that is less than the retail rate charged to end-
       users.
    *  Unbundling of Network Elements. Offer access to various unbundled
       elements of their networks at cost-based rates.
    *  Collocation. Provide physical collocation, which allows CLECs to
       install and maintain their own network termination equipment in
       ILECs' central offices, or functionally equivalent forms of
       interconnection under some conditions.

All of our ILEC subsidiaries qualify as rural telephone companies under the
Telecom Act. Therefore, they have an exemption from the ILEC interconnection
requirements until they receive a bona fide request for interconnection and the
applicable state telecommunications regulatory commission lifts the exemption.
Despite their rural status, Gallatin River agreed with the Illinois Commerce
Commission and Mebtel agreed with the North Carolina Utilities Commission that
they would not contest requests by competitive local telephone companies for
such interconnection arrangements.  State commissions have jurisdiction to
review certain aspects of interconnection and resale agreements.

The FCC has adopted rules regulating the pricing of the provision of unbundled
network elements by ILECs.  Although the United States Supreme Court has upheld
the FCC's authority to adopt such pricing rules, the specific pricing guidelines
created by the FCC remain subject to review by the federal courts.  In addition
to proceedings regarding the FCC's pricing rules, the FCC's other
interconnection requirements remain subject to further court and FCC
proceedings.

The Telecom Act requires utilities to provide access to their poles, ducts,
conduits and rights-of-way to telecom carriers on a nondiscriminatory basis.  In
October 2000, the FCC adopted rules prohibiting certain anticompetitive
contracts between carriers and owners of multi-tenant buildings, requiring ILECs
to disclose existing demarcation points in such buildings and to afford
competitors with access to rights of way, and prohibiting restrictions on the
use of antennae by users which have a direct or indirect ownership or leasehold
interest in such properties.


                                       10
<PAGE>

Bell Operating Company Entry into Long Distance Services. Our principal
competitor for local services in each area where we operate as a CLEC is an
ILEC. In many of these areas, the ILEC is a Bell Operating Company. Although
Bell Operating Companies and their affiliates were, prior to the passage of the
Telecom Act, prohibited from providing long distance services, the Telecom Act
allows a Bell Operating Company to provide long distance service in its own
local service region upon a determination by the FCC that it had satisfied a 14-
point checklist of competitive requirements.  This provision increases the Bell
Operating Companies' incentives to open their markets to competition, to the
benefit of CLECs; obtaining long distance service authority increases the
ability of the Bell Operating Companies to compete against providers of
integrated communications services.  In December 1999, the FCC granted Bell
Atlantic authority to provide long distance services in New York.  In June 2000,
the FCC granted SBC authority to provide long distance services in Texas, and,
in 2001, the FCC granted the incumbent Bell Company authority to provide long
distance services in Oklahoma, Kansas, Massachusetts, Connecticut, Pennsylvania,
Arkansas and Missouri.  In February 2002, the FCC authorized Verizon to provide
long distance services in Rhode Island.  A number of similar applications are
currently pending.  In addition, federal legislation has been introduced to
allow the Bell Operating Companies to provide long distance Internet and high-
speed data services without having to satisfy the checklist.

Relaxation of Regulation. Through a series of proceedings, the FCC has decreased
the regulatory requirements applicable to carriers which do not dominate their
markets. All providers of domestic interstate services other than ILECs are
classified as non-dominant carriers. Our subsidiaries which are operating as
non-dominant carriers are subject to relatively limited regulation by the FCC.
Among other requirements, these subsidiaries must offer interstate services at
just and reasonable rates in a manner that is not unreasonably discriminatory.

The FCC phased out the ability of long distance carriers to provide domestic
interstate services pursuant to tariffs during 2001.   These carriers are no
longer able to rely on tariffs as a means of specifying the prices, terms and
conditions under which they offer interstate services.  The FCC has adopted
rules that require long distance carriers to make specific public disclosures on
the carriers' Internet web sites.

Universal Service. The FCC is required to establish a "universal service"
program that is intended to ensure that affordable, quality telecommunications
services are available to all Americans. The Telecom Act sets forth policies and
establishes certain standards in support of universal service, including that
consumers in rural areas should have access to telecommunications and
information services that are reasonably comparable in rates and other terms to
those services provided in urban areas. A revised universal service support
mechanism for larger ILECs went into effect on January 1, 2000.  A similar new
universal service mechanism for rate-of-return ILECs, known as the Interstate
Common Line Support fund, went into effect January 1, 2002.

Our ILEC subsidiaries receive federal and state universal service support.  We
are required to make contributions to federal and state universal service
support.  Our contribution to federal universal service support programs is
assessed against our interstate end-user telecommunications revenues.  Our
contribution for such state programs is assessed against our intrastate
revenues. Although many states are likely to adopt an assessment methodology
similar to the federal methodology, states are free to calculate
telecommunications service provider contributions in any manner they choose as
long as the process is not inconsistent with the FCC's rules.

Internet. The FCC has to date treated Internet service providers (ISPs) as
enhanced service providers rather than common carriers. As such, ISPs have been
exempt from various federal and state regulations, including the obligation to
pay access charges and contribute to universal service funds.  As part of a
reciprocal compensation order, the FCC has determined that both dedicated and
dial-up calls from a customer to an ISP are interstate, not local, calls, and,
therefore, are subject to the FCC's jurisdiction. On March 24, 2000, the D.C.
Circuit Court of Appeals vacated and remanded this determination so that the FCC
can explain more clearly why such calls are not considered local.  In April,
2001, the FCC released a new order that reclassified Internet service as
information access and therefore not subject to reciprocal compensation.  In
making this finding, the FCC avoided the need to make a legal determination of
the jurisdictional nature of Internet traffic.  This finding has been appealed
and is under review by the DC Circuit Court of Appeals.

                                       11
<PAGE>

Internet services are subject to a variety of other federal laws and
regulations, including with regard to privacy, indecency, copyright and tax.

Customer Information. Carriers are subject to limitations on the use of customer
information the carrier acquires by virtue of providing telecommunications
services. Protected information includes information related to the quantity,
technical configuration, type, destination and the amount of use of services. A
carrier may not use such information acquired through one of its service
offerings to market certain other service offerings without the approval of the
affected customers. These restrictions may affect our ability to market a
variety of packaged services to existing customers. We are also subject to laws
and regulations requiring the implementation of capabilities and provision of
access to information for law enforcement and national security purposes.

Preferred Carrier Selection Changes. A customer may change its preferred long
distance carrier at any time, but the FCC and some states regulate this process
and require that specific procedures be followed. When these procedures are not
followed, particularly if the change is unauthorized or fraudulent, the process
is known as "slamming." The FCC has levied substantial fines for slamming and
has recently increased the penalties for slamming, although no such fines have
been assessed against us.

State regulation - Incumbent local telephone company

Most states have some form of certification requirement which requires
telecommunications providers to obtain authority from the state
telecommunications regulatory commission prior to offering common carrier
services. Our operating subsidiaries in Alabama, Illinois, North Carolina and
Georgia are ILECs and are certified in those states to provide local telephone
services.

State telecommunications regulatory commissions generally regulate the rates
ILECs charge for intrastate services, including rates for intrastate access
services paid by providers of intrastate long distance services. ILECs must file
tariffs setting forth the terms, conditions and prices for their intrastate
services. Under the Telecom Act, state telecommunications regulatory agencies
have jurisdiction to arbitrate and review interconnection disputes and
agreements between ILECs and CLECs, in accordance with rules set by the FCC.
State regulatory commissions may also formulate rules regarding taxes and fees
imposed on providers of telecommunications services within their respective
states to support state universal service programs.

In Alabama, Gulf Telephone is subject to regulation by the Alabama Public
Service Commission (APSC). Gulf Telephone must have tariffs approved by and on
file with that commission for basic, non-basic and interconnection services.
The APSC has proposed to expand flat-rated local calling areas to provide
county-wide flat rated calling.  Gulf Telephone Company operates entirely in
South Baldwin County and provides flat-rated local calling to its entire service
area.  The APSC's proposal, if enacted, would result in decreased intrastate
toll calling, with a possible increase in local rate to offset the reduced long
distance revenue.  It is not known whether the APSC will proceed with this plan
or how such a plan would impact Gulf Telephone's overall revenues.

The Illinois Commerce Commission (ICC) regulates Gallatin River. Gallatin River
provides services pursuant to tariffs that are filed with, and subject to the
approval of, the ICC. The rates for these services are regulated on a rate of
return basis by the ICC, although Gallatin River has some pricing flexibility
with respect to services that have been deemed competitive by the ICC, such as
digital centrex, high capacity digital service, intraLATA toll service, wide
area telephone service (WATS), and digital data services. The ICC has approved
several interconnection agreements under the Telecom Act between Gallatin River
and mobile wireless carriers, as well as agreements between Gallatin River and
facility-based CLECs.  Gallatin River is required to support state universal
service programs and is subject to ICC rules implementing these and the federal
universal service programs.  The ICC is currently rewriting the rules applicable
to requests for rate increases by regulated entities.


                                      12
<PAGE>

In North Carolina, our operating subsidiary MebTel is regulated by the North
Carolina Utilities Commission. MebTel provides service pursuant to tariffs that
are filed with, and subject to the approval of, that commission. Effective
January 1, 2000, a price cap plan applies to MebTel's rates for intrastate
services, replacing rate of return regulation. MebTel is subject to commission
rules implementing state and federal universal service programs.

In Georgia, Coastal Communications is regulated by the Georgia Public Service
Commission. Passage of the Telecommunications and Competition Development Act of
1995 in Georgia significantly changed that commission's regulatory
responsibilities. Instead of setting prices for telecommunications services, the
commission now manages and facilitates the transition to competitive markets,
establishes and administers a universal access fund, monitors rates and service
quality, and mediates disputes between competitors. A price cap plan applies to
Coastal Communications' rates for intrastate services.

State Regulation - Competitive local telephone company

MRC is certified to provide intrastate local, toll and access services in the
states of Illinois, North Carolina, South Carolina, Tennessee, Georgia, Florida,
Alabama, Mississippi, Louisiana and Texas.  In association with these
certifications, MRC has filed state local, access and toll tariffs in all states
except North Carolina, in which, pursuant to Commission rules, MRC has filed a
price list.  MRC has filed interstate access tariffs and maintains long distance
rates on its web site in conformance with FCC orders.  Tariffs are updated as
needed and periodic state financial and quality of service filings are made as
required.

MRC has interconnection agreements with Verizon in Illinois and North Carolina,
with Sprint in North Carolina, with SBC in Texas, Ameritech in Illinois, and
with BellSouth in its nine state operating area.  These interconnection
agreements govern the relationship between the ILECs and MRC's operations in the
areas of resale of retail services, reciprocal compensation, central office
collocation, purchase of unbundled network elements (UNE'S), and use of
operational support systems.

Local government authorizations

We are required to obtain from municipal authorities, on street opening and
construction permits or operating franchises to install and expand fiber optic
facilities in certain cities. We have obtained such municipal franchises in our
incumbent local telephone company territories in Alabama, North Carolina,
Illinois and Georgia. In some cities, subcontractors or electric utilities with
which we have contracts may already possess the requisite authorizations to
construct or expand our networks.

Some jurisdictions where we may provide service require license or franchise
fees based on a percent of certain revenues. There are no assurances that
jurisdictions that do not currently impose fees will not seek to impose fees in
the future. The Telecom Act requires jurisdictions to charge nondiscriminatory
fees to all telecom providers, but it is uncertain how quickly this requirement
will be implemented by particular jurisdictions in which we operate or plan to
operate, especially regarding materially lower fees that may be charged to
ILECs.

Significant Customer

One customer, AT&T, represented 14%, 14% and 15% of our operating revenues for
the years ended December 31, 2001, 2000 and 1999, respectively.








                                       13
<PAGE>

Employees

As of December 31, 2001, our work force consisted of 783 full time employees.
Approximately 150 of our employees are represented by collective bargaining
agreements with the International Brotherhood of Electrical Workers (IBEW) and
with the Communications Workers of America (CWA). Our labor agreement with the
CWA, covering employees of Gallatin River in Galesburg, Illinois, expires on
April 30, 2002.  We are currently in negotiations with the CWA on a new
collective bargaining agreement.  Our labor agreements with the IBEW, covering
employees of Gallatin River in Dixon and Pekin, Illinois, expire on November 30,
2002 and September 30, 2002, respectively. We will begin active negotiations on
each of these agreements later in 2002.  There can be no assurance that, upon
the expiration of our existing collective bargaining or similar agreements, new
agreements will be reached without union action or that any such new agreements
will be on terms satisfactory to us. We believe that our future success will
depend on our continued ability to attract and retain highly skilled and
qualified employees. We believe that our relations with our employees are good.


                                  RISK FACTORS

The risks and uncertainties described below are not the only ones we face.
Additional risks and uncertainties not presently known to us or that we
currently believe to be immaterial may also adversely affect our business.

Risk Factors Relating to Madison River

Our Forward-Looking Statements May Materially Differ from Actual Events or
Results

This annual report on Form 10-K contains "forward-looking statements," within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, and we intend
that such forward-looking statements be subject to the safe harbors created by
this law. Forward-looking statements generally can be identified by the use of
forward-looking words such as "may," "will," "expect," "intend,"
"estimate," "anticipate," "plan," "seek" or "believe," or by
discussion of strategy that involves risks and uncertainties. We often use these
types of statements when discussing our plans and strategies, our anticipation
of revenues from designated markets and sources, and statements regarding the
development of our businesses, the markets for our services and products, our
anticipated capital expenditures, operations support systems or changes in
regulatory requirements and other statements contained in this report regarding
matters that are not historical facts.

Although we believe that the expectations reflected in such forward-looking
statements are accurate, the statements are subject to known and unknown risks,
uncertainties and other factors that could cause the actual results to differ
materially from those contemplated by the statements. Factors that could cause
or contribute to such differences include, but are not limited to, the
discussion of risks that follows.

Consideration should be given to these forward-looking statements only in light
of such cautionary statements. Undue reliance should not be placed on these
forward-looking statements, and these forward-looking statements represent
management's view only as of the date of this Form 10-K.  Except as required by
law, we are not obligated to publicly release any revisions to these forward-
looking statements to reflect events or circumstances occurring after the filing
of this Form 10-K or to reflect the occurrence of unanticipated events.









                                       14
<PAGE>

Our significant amount of indebtedness could limit our operational flexibility
or otherwise affect our financial health.

We have a significant amount of indebtedness. As of December 31, 2001, we had:

    *  Total indebtedness of $680.0 million;

    *  Member's capital of $59.4 million;

    *  Debt to equity ratio of 11.4 to 1; and

    *  For the year ended December 31, 2001, earnings would have been
       insufficient to cover our fixed charges by $79.4 million.

The indenture governing our senior notes limits our ability to undertake certain
transactions. The covenants in the indenture restrict our ability to:

    *  incur additional indebtedness;

    *  pay dividends on, redeem or repurchase our member interests or equity of
       our subsidiaries;

    *  make various investments;

    *  sell certain assets or utilize certain asset sale proceeds;

    *  create certain liens or use assets as security in other transactions;

    *  enter into certain transactions with affiliates; and

    *  merge or consolidate with or into other companies, or dispose of all or
       substantially all of our assets and the assets of our subsidiaries.

These covenants are subject to a number of important exceptions. In addition,
our credit facilities with the Rural Telephone Finance Cooperative ("RTFC")
contain (and credit facilities that we may enter into in the future may contain)
other and more restrictive covenants, including covenants limiting our ability
to incur debt and make capital expenditures and limiting our subsidiaries'
ability to make distributions or pay dividends to us. These covenants also
require us to meet or maintain specified financial ratios and tests. Our ability
to meet these financial ratios could be affected by events beyond our control,
and no assurance can be given that we will be able to comply with these
provisions. A breach of any of these covenants could result in an event of
default under these credit facilities and/or the indenture.

Our substantial indebtedness and the related covenants that restrict what
actions we may take could have important consequences for us. For example, it
could:

    *  make it more difficult for us to satisfy our obligations with respect to
       all of our indebtedness;

    *  limit our flexibility to adjust to changing market conditions, reduce our
       ability to withstand competitive pressures and increase our vulnerability
       to general adverse economic and industry conditions;

    *  limit our ability to borrow additional amounts for working capital,
       capital expenditures, research and development costs, future business
       opportunities and other general corporate requirements or hinder us from
       obtaining such financing on terms favorable to us or at all;

    *  require us to dedicate a substantial portion of our cash flow from
       operations to payments on our indebtedness, thereby reducing the
       availability of our cash flow to fund working capital, capital
       expenditures, research and development efforts, future business
       opportunities and other general corporate purposes;


                                       15
<PAGE>

    *  limit our flexibility in planning for, or reacting to, changes in our
       business and the industry in which we operate;

    *  restrict our ability to access additional capital;

    *  place us at a competitive disadvantage compared to our competitors that
       have less debt; and

    *  make us vulnerable to increases in prevailing interest rates.

We may incur substantial additional indebtedness in the future. This could
further exacerbate the risks described above. The terms of our current
indebtedness do not fully prohibit us from incurring other indebtedness. Our
credit facilities currently permit additional borrowing of up to $21.8 million.

Our ability to service our indebtedness will depend on our ability to generate
cash.

Our ability to make payments on and to refinance our indebtedness and to fund
planned capital expenditures will depend on our ability to generate cash in the
future, our success in our financial and operating performance, our ability to
successfully implement our business plan and our ability to access the cash flow
of our subsidiaries. This, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors that are
beyond our control.

We cannot be certain that our business will generate sufficient cash flow from
operations, that currently anticipated cost savings and operating improvements
will be realized on schedule or that future borrowings will be available to us
under our credit facilities in an amount sufficient to enable us to pay our
indebtedness or to fund our other liquidity needs. We may need to refinance all
or a portion of our indebtedness on or before maturity. We cannot guarantee that
we will be able to refinance any of our indebtedness, including our credit
facilities and the senior notes, on commercially reasonable terms or at all. In
addition, we may be forced to reduce or delay planned improvement initiatives
and capital expenditures, sell assets or obtain additional equity capital.

We may be unable to access the cash flow of our subsidiaries since certain of
our subsidiaries are parties to credit or other borrowing agreements that
restrict the payment of dividends, and such subsidiaries are likely to continue
to be subject to such restrictions and prohibitions for the foreseeable future.
In addition, future agreements governing the terms of our subsidiaries'
indebtedness may restrict our subsidiaries' ability to pay dividends to us. See
footnote 6 to our consolidated financial statements filed as part of this Form
10-K and the Liquidity and Capital Resources section of our Management's
Discussion and Analysis of Results of Operations and Financial Condition in Item
7 of this Form 10-K. As a result, we may be unable to receive cash through
dividends, distributions or other payments from our subsidiaries sufficient to
pay principal of and interest on our indebtedness.

We may need to raise more capital to fund our obligations.

We may need to raise more capital in the future to:

    *  provide adequate working capital to fund our continuing operations and
       capital expenditures and to service our indebtedness;
    *  provide liquidity to fund any unexpected expenses or obligations; and
    *  redeem equity in our subsidiary, Coastal Communications, if the former
       shareholders of Coastal Utilities exercise their put rights and such
       exercise is determined to be valid.






                                       16
<PAGE>

As part of the consideration paid in the Coastal Communications acquisition, we
issued to the former shareholders of Coastal Utilities, Series A non-voting
common stock and Series B non-voting common stock of Coastal Communications in
the face amount of $10.0 million and $5.0 million, respectively. The Series A
and Series B stock have put and call features that are defined pursuant to the
terms of a shareholders agreement and are exercisable by the holders and Coastal
Communications. Based on the put features of the shareholders agreement, the
holders of the Series B stock have the right prior to March 30, 2002 to put
their shares to Coastal Communications for $35.0 million upon the occurrence of
certain events, as defined in the shareholders agreement, or for $60.0 million
at anytime after March 2004. If the Series B shareholders' exercise of their put
option, as described below, is deemed to be a valid exercise, then Coastal
Communications would be required to redeem the shares for $35.0 million no later
than April 2002.

In February 2001, the holders of the Series B shares notified us of their
exercise of the put option.  We are currently in negotiations with the Series B
shareholders regarding their exercise of the put option.  While we presently
anticipate that a mutually acceptable agreement will be entered into with the
shareholders in April 2002, there is no assurance that we will be able to enter
into such an agreement.  The failure to enter into a mutually acceptable
agreement could have a material adverse effect on our financial condition,
results of operations and cash flows. See "Management's Discussion and Analysis
of Financial Condition and Results of Operation-Liquidity and Capital Resources-
Capital Resources."

Based on our business plan and anticipated future capital requirements, other
than any capital required to meet obligations related to the Series B put, we
believe that the available borrowings under our credit facilities, cash and
investments on hand and our cash flow from operations will be adequate to meet
our foreseeable operational liquidity needs for the next 12 months. However,
there is no guarantee that we will not need additional capital earlier.  While
possible sources of additional capital include commercial bank borrowings, sales
of nonstrategic assets, vendor financing or the sale or issuance of equity
and debt securities to one or more strategic investors, our ability to arrange
additional capital and the cost of any financing will depend upon many factors,
some of which are beyond our control. We may be unable to raise additional
capital, and such failure to do so could have a material adverse effect on our
business.

We may not be able to increase our business and revenues.

Consumers may not purchase our services. Our success will depend on our ability
to expand our current customer base, penetrate our target markets and otherwise
implement our business plan. Expansion of our customer base depends on growth in
our established markets and acceptance of our communications services and
technology and the willingness of prospective customers to switch to our
services from their current carriers in our edge-out markets, which may be
limited by the fact that some of our competitors have long-standing
relationships with customers and resources that are far greater than ours.
There is no assurance that our established markets will grow as they have in the
past.  Recession and other negative economic factors would have the effect of
decreasing the number of customers in our established markets.

Prices may decline. The prices that we can charge our customers for network
services, including wholesale fiber capacity, data transport and voice
telecommunications services, could decline due to the following factors, among
others:

    *  installation by us and our competitors, some of which are expanding
       capacity on their existing networks or developing new networks, of fiber
       and related equipment that provides substantially more transmission
       capacity than needed;

    *  recent technological advances that permit substantial increases in, or
       better usage of, the capacity of transmission media;

    *  reduced differentiation in product quality and service resulting in
       increased price competition; and

    *  strategic alliances or similar transactions that decrease industry
       participants' costs.

                                       17
<PAGE>
Our ability to compete effectively will also depend upon our continued ability
to maintain price competitiveness.  We are highly dependent on the cost of
elements leased from ILECs in our edge-out markets, and those costs may
increase.

We may not be successful in efficiently managing the growth of our business. Our
business plan will, if successfully implemented, result in growth of our
operations, which may place a significant strain on our management, financial
and other resources. To achieve and sustain growth we must, among other things,
monitor operations, control costs, maintain regulatory compliance, maintain
effective quality controls and significantly expand our internal management,
technical, provisioning, information, billing, customer service and accounting
systems.

We cannot guarantee that we will successfully obtain, integrate and use the
employee, management, operational and financial resources necessary to manage a
developing and expanding business in an evolving, regulated and increasingly
competitive industry.

We need to increase the volume of traffic on our network. We must increase the
volume of voice, data and Internet transmission on our network at the prices we
anticipate in order to realize the anticipated cash flow, operating efficiencies
and cost benefits of our network. If we do not develop long-term commitments
with new customers, or maintain our relationships with current customers, we
will be unable to increase traffic on our network that could adversely affect
our business.

We face significant and growing competition in the markets where we operate. Our
ILEC subsidiaries face increasing competition from intermodal providers such as
wireless telephone companies, cable TV companies and the Internet, as well as
competition from CLECs.  We have facility-based interconnection agreements,
primarily at Gallatin River, with competitors providing DSL services and
could potentially enter into more interconnection agreements in the future, some
of which may allow competitors to provide voice services to our customers.  With
wireless telephone companies offering significant minutes of use, including long
distance calls for a flat fee, customers may find it more cost effective to use
their wireless telephones to make long distance calls, and we may experience a
decrease in our long distance and network access service revenues.  In addition,
we face or expect to face competition for high speed access to the Internet from
cable TV companies in each of our ILEC markets.

We may not be able to achieve desired operating efficiencies from our
information and billing systems. Sophisticated information and billing systems
are vital to our growth and ability to monitor and control costs, bill
customers, process customer orders, provision customer service and achieve
operating efficiencies. We currently rely on internal systems and third party
vendors to provide our information and processing systems. Some of our billing,
customer service and management information systems have been developed by third
parties for us and may not perform as anticipated. Our plans for developing and
implementing our information and billing systems rely primarily on the delivery
of products and services by third party vendors. We may not be able to develop
new business, identify revenues and expenses, service customers, collect
revenues or develop and maintain an adequate work force if any of the following
occurs:

    *  vendors fail to deliver proposed products and services in a timely and
       effective manner or at acceptable costs;
    *  we fail to identify adequately our information and processing needs;
    *  our related processing or information systems fail;
    *  we fail to upgrade systems when necessary; and
    *  we fail to integrate our systems with those of our major customers.

In addition, our right to use these systems is dependent upon license agreements
with third party vendors. Some of these agreements may be cancelable by the
vendor, and the cancellation or nonrenewable nature of these agreements could
impair our ability to process orders or bill our customers. Since we rely on
third party vendors to provide some of these services, any switch in vendors
could potentially be costly and affect operating efficiencies.






                                       18
<PAGE>

We are dependent on market acceptance of DSL-based and ATM-based services. We
expect that an increasing amount of our revenues will come from providing DSL-
based and ATM-based services. The market for business, telecommuter and
residential high-speed Internet access is in the early stages of development.
Because we offer and expect to expand our offering of services to a new and
evolving market and because current and future competitors are likely to
introduce competing services, it is difficult for us to predict the rate at
which this market will grow. Various providers of high-speed digital
communications services are testing products from various suppliers for various
applications, and it is unclear if DSL will offer the same or more attractive
price-performance characteristics. The markets for our services could fail to
develop, grow more slowly than anticipated or become saturated with competitors.

Development of our CLEC operations will negatively impact our cash flow and
financial results.

During the past two years, we have expanded our operations as a CLEC into edge-
out markets and other target markets offering local and long distance voice,
high-speed data, Internet access and transport services over our fiber networks.
To support this business, we made a significant investment in the acquisition,
installation and expansion of our networks before we realized any significant
revenues.  In addition, we also incurred significant expenditures in the
development of our sales and marketing infrastructure and operating support
systems.  Economic conditions constrained our access to the capital necessary to
support our growth going forward.  Therefore, in the latter part of 2001, we
altered our business plan with the intention of significantly slowing our growth
rate in order to lower our cash utilization rate.  By slowing the growth rate,
we reduced our expense structure in our CLEC operations necessary to support
growth.  These steps, in the short-term, will materially decrease our revenues
and EBITDA from our edge-out markets. However, we believe that by taking these
steps, our expenses and our cash requirements will be lowered.  There is no
assurance that the revised plan can be implemented successfully or that the
results will achieve lower cash requirements.  Further, we cannot be certain
that the revenues generated from our customer base and reductions in expenses
will be adequate to achieve positive cash flow in 2002 or in future years in
each of our markets or in our target markets as a whole. Growth and
profitability in our expansion operations may also require interconnection and
resale terms and pricing which depend on federal and state regulatory decisions
and court interpretations of legislation, all of which are outside of our
control and subject to change in ways that are difficult to predict.

We have risks relating to our network.

Rapidly changing communications technology and other factors may require us to
expand or adapt our network in the future. We expect that new products and
technologies will emerge as the telecommunications industry is subject to rapid
and significant changes in technology, and we cannot predict the effect of these
technological changes on our business. Further, new technologies and products
may not be compatible with our existing technologies and systems. In addition,
our existing technologies and systems may not be competitive with new
technologies and products. These changes could require us to incur significant
expenditures. New products and technologies may (1) reduce the prices for our
services or (2) be superior to, and render obsolete, the products and
technologies we use. If we do not replace or upgrade our technology and
equipment that becomes obsolete, we will not be able to compete effectively
because we will not be able to meet customer expectations. We cannot be certain
that technological changes in the communications industry will not have a
material adverse effect on our business and our ability to achieve sufficient
cash flow to provide adequate working capital and to service our indebtedness.
We may not be able to obtain timely access to new technology on satisfactory
terms, or incorporate new technology into our systems in a cost effective
manner, or at all.

In addition to technological advances, other factors could require us to further
expand or adapt our network, including (1) an increasing number of customers;
(2) demand for greater data transmission capacity; (3) failure of our technology
and equipment to support operating results anticipated in our business plan; and
(4) changes in our customers' service requirements. Expanding or adapting our
network could require substantial additional financial, operational and
managerial resources, any of which may not be available to us.
                                       19
<PAGE>

Furthermore, due to the limited development of our DSL-based services, the
ability of our network to connect and manage a substantial number of end users
at high digital transmission speeds is still unknown. While peak digital data
transmission speeds across our network between a central office and the end user
can exceed 1.1 megabits per second, the actual data transmission speed over our
network could be significantly slower due to:

    *  the type of DSL technology deployed;
    *  the distance from end user to a central office;
    *  the condition and configuration of the telecommunications line utilized;
    *  the existence of and number of data transmission impediments on telephone
       company copper lines;
    *  the gauge of copper lines; and
    *  the presence and severity of interfering transmissions on nearby lines.

For example, we are not certain whether we can successfully deploy higher DSL
speeds through digital loop carrier systems which, because they connect copper
lines to a fiber link, currently limit DSL service to as slow a speed as 128
kilobits per second.

Because we rely on ILECs to overcome technical limitations associated with loop
carrier systems in service areas outside our own, we cannot be certain that we
will be able to successfully deploy ATM-based service to all areas in our
expansion markets. As a result, our network may not be able to achieve and
maintain the planned high digital transmission speed. Our failure to achieve or
maintain high-speed digital transmissions would have a material adverse effect
on our business.

Network disruptions could adversely affect our operating results. The success of
our operations will require that our network provide competitive reliability,
capacity and security. Some of the risks to our network and infrastructure
include:

    *  physical damage;
    *  power loss from, among other things, adverse weather conditions;
    *  capacity limitations;
    *  software and hardware defects;
    *  breaches of security, including sabotage, tampering, computer viruses and
       break-ins; and
    *  other disruptions that are beyond our control.

Disruptions or system failures may cause interruptions in service or reduced
capacity for customers. If service is not restored in a timely manner,
agreements with our customers may obligate us to provide credits or other
remedies to them, and this would reduce our revenues. Service disruptions could
also damage our reputation with customers causing us to lose existing customers
or have difficulty attracting new ones. Many of our customers' communications
needs are extremely time sensitive, and delays in signal delivery may cause
significant losses to a customer using our network.

We need to obtain and maintain the necessary rights-of-way for our network. As
of December 31, 2001, we have acquired all material, necessary nonexclusive
right-of-way agreements covering ILEC and CLEC operations in existence. However,
we may need to obtain supplemental rights-of-way and other permits from
railroads, utilities, state highway authorities, local governments and transit
authorities to install conduit and related telecom equipment for any expansion
of our network in our CLEC markets. We may not be successful in obtaining and
maintaining these right-of-way agreements or obtaining these agreements on
acceptable terms whether in new markets or in our existing markets. Some of
these agreements may be short-term or revocable at will, and we cannot be
certain that we will continue to have access to existing rights-of-way after
they have expired or terminated. Although we believe that alternative
supplemental rights-of-way will be available, if any of these agreements were
terminated or could not be renewed, we may be forced to remove our fiber optic
cable from under the streets or abandon our networks.


                                       20
<PAGE>

Our utility right-of-way agreements are subject to certain conditions and
limitations on access and use and are subject to termination upon customary
default provisions. In some cases, these agreements require our fiber network to
be moved or removed in the event that the utility needs its right-of-way for
public utility purposes or no longer owns its right-of-way. We may not be able
to maintain all of our existing rights and permits or obtain and maintain the
additional rights and permits needed to implement our business plan. In
addition, our failure to maintain the necessary rights-of-way, franchises,
easements, licenses and permits may result in an event of default under certain
of our credit facilities.

Our ability to protect our proprietary technology is limited, and infringement
claims against us could impact our ability to conduct our business. We currently
rely on a combination of copyright, trademark and trade secret laws and
contractual confidentiality provisions to protect the proprietary information
that we have developed. Our ability to protect our proprietary technology is
limited, and we cannot be certain that our means of protecting our proprietary
rights will be adequate or that our competitors will not independently develop
similar technology. Also, we cannot be certain that the intellectual property
that local telephone companies or others claim to hold and that may be necessary
for us to provide our services will be available on commercially reasonable
terms. If we were found to be infringing upon the intellectual property rights
of others, we might be required to enter into royalty or licensing agreements,
which may be costly or not available on commercially reasonable terms. If
successful, a claim of infringement against us and our inability to license the
infringed or similar technology on terms acceptable to us could adversely affect
our business.

Expanding our services entails a number of risks.

Currently, we operate our business and provide our services primarily as a rural
local telephone company. We are expanding our business by adding new customers
in both our ILEC and our CLEC operations.  In addition, we are providing new
services to our existing customers. As we expand our telecommunications
businesses, we will face certain additional risks, including increased legal and
regulatory risks. The telecommunications businesses in which we compete are
highly competitive, and we may be disadvantaged. The success of our entry into
new telecommunications businesses will be dependent upon, among other things,
our ability to:

    *  integrate new equipment and software into our networks;
    *  design and/or obtain fiber optic network routes;
    *  obtain regulatory approvals;
    *  develop strategic alliances or relationships;
    *  hire and train qualified personnel; and
    *  enhance our billing, back-office and information systems.

We may not be successful in expanding our services or entering new markets. In
addition, demand and market acceptance for any new products and services we
introduce, whether in existing or new markets, are subject to a high level of
uncertainty. Our inability to expand our services or to enter new markets
effectively could have a material adverse effect on our business.

We depend on key personnel.

Our business is dependent upon a small number of key executive officers. We have
entered into employment, confidentiality and noncompetition agreements with
Messrs. J. Stephen Vanderwoude, James D. Ogg, Paul H. Sunu and Bruce J. Becker
providing for employment of each executive for a five year period, subject to
termination by either party (with or without cause) on 30 days' prior written
notice, and an agreement not to compete with us for a maximum period of up to 15
months, following termination for cause or voluntary termination of employment.
We have not entered into employment agreements with any other key executives.

We cannot guarantee that we will be able to attract or retain other skilled
management personnel in the future. The loss of the services of key personnel,
or the inability to attract additional qualified personnel, could have a
material adverse effect on our business and results of operation.
                                       21
<PAGE>

We face risks associated with our strategy of growth through acquisitions.

Our current business plan contemplates growth from future acquisitions. Any
future acquisitions will depend on our ability to identify suitable acquisition
candidates, to negotiate acceptable terms for their acquisition and to finance
those acquisitions. We will also face competition for suitable acquisition
candidates that may increase our costs and limit the number of suitable
acquisition candidates. In addition, future acquisitions by us could result in
the incurrence of indebtedness or contingent liabilities, which could have a
material adverse effect on our business, and our ability to achieve sufficient
cash flow, provide adequate working capital and service our indebtedness. Any
future acquisitions could also expose us to increased risks, including, among
others:

    *  the difficulty of assimilating the acquired operations and personnel;
    *  the potential disruption of our ongoing business and diversion of
       resources and management time;
    *  the inability to generate revenues from acquired businesses sufficient to
       offset acquisition costs;
    *  the inability of management to maintain uniform standards, controls,
       procedures and policies;
    *  the risks of entering markets in which we have little or no direct prior
       experience;
    *  the difficulty of adapting incompatible operational support systems,
       network and other systems;
    *  the impairment of relationships with employees, unions or customers as a
       result of changes in management; and
    *  the impairment of supplier relationships.

As a result, we cannot be sure that any acquisitions will occur or that any
acquisitions, if made, would be successfully integrated into our operations.

To date, we have grown in large part through the acquisition of local telephone
companies and other operating assets. Our future operations depend largely upon
our ability to manage our growing business successfully. If we are successful in
making additional acquisitions, our management team will have to manage a more
complex organization and a larger number of operations than we have previously
operated. There can be no assurance that we will be successful in integrating
the various acquisitions. In addition, we may discover information in the course
of the integration of these acquisitions that may have an adverse effect on our
business and results of operations.

We have a limited operating history upon which to evaluate our performance.

We began operations in January 1998. Accordingly, we have a limited operating
history upon which to base an evaluation of our performance, including the
reliability of our network and future financial results. Our viability,
profitability and growth will depend upon successful implementation of our
business plan. We cannot guarantee that we will successfully implement our
business plan. We are still in the early stages of our operations. The prospects
for our success must be considered in light of the risks often encountered in
the establishment of a new business in an industry subject to rapid
technological and price changes and filled with many competitors, including
access to the capital necessary to allow us to fund our business plan.


Risk Factors Relating to the Telecommunications Industry

We face significant competition in our current and target markets.

We currently operate primarily as a rural ILEC in an industry that is highly
competitive. However, due to the rural, low-density characteristics of our
existing operating areas, the high cost of entry into these markets and the lack
of concentration of medium and large business users, we believe that compared to
most other local exchange carriers, we have historically faced relatively less
competition in our existing markets. As characteristics of our markets change,
the likelihood of local competitors entering our markets may increase.


                                       22
<PAGE>

Significant and potentially larger competitors could enter our markets at almost
any time. We may face competition from future market entrants, including CLECs,
cable television companies, electric utilities, microwave carriers, wireless
telecommunications providers, Internet service providers and private networks
built by large end users and municipalities. Increased competition could lead to
price reductions, fewer large-volume sales, reduced operating margins and loss
of market share.

In each of the cities where we are providing competitive local services, the
services we offer will compete principally with the services offered by the ILEC
serving that area. These local telephone companies have long-standing
relationships with their customers and have the potential to subsidize
competitive services from monopoly service revenues. The FCC's interconnection
decisions and the Telecom Act provide local telephone companies with increased
pricing flexibility for their services and other regulatory relief, which could
adversely effect our competitive local operations. The local telephone companies
with which we compete may be allowed by regulators to lower rates for their
services, engage in substantial volume and term discount pricing practices for
their customers, or seek to charge us substantial fees for interconnection to
their networks.

Our success in our CLEC markets depends upon our ability to increase our share
of the carrier services market by providing high quality services at competitive
prices. Many potential competitors have, and some potential competitors are
likely to enjoy, substantial competitive advantages, including the following:

    *  greater name recognition;
    *  greater financial, technical, marketing and other resources;
    *  longstanding or established national contracts;
    *  more extensive knowledge of the telecommunications business and industry;
       and
    *  well established relationships with a larger installed base of current
       and potential customers.

ILECs can also adversely affect the pace at which we add new customers to our
CLEC business by prolonging the process of providing unbundled network elements,
collocations, intercompany trunks and operations support system interfaces,
which allow the electronic transfer between ILECs and CLECs of needed
information about customer accounts, service orders and repairs. Although the
Telecom Act requires ILECs to provide the unbundled network elements,
interconnections and operations support system interfaces needed to allow the
CLECs and other new entrants to the local exchange market to obtain service
comparable to that provided by the ILECs to their own customers in terms of
installation time, repair response time, billing and other administrative
functions, in many cases the ILECs have not complied with the mandates of the
Telecom Act to the satisfaction of many competitors. In addition, the
interconnection regulations may be affected by the outcome of pending court
decisions and FCC rulemaking.

We are dependent on many telecommunications vendors and suppliers, and their
financial difficulties may affect our business.

We depend on many telecommunications vendors and suppliers to conduct our
business.  For example, we have a resale agreement with Global Crossing to
provide our long distance transmission services.  Associated with the
difficulties facing many companies in the telecommunications industry, some of
these third party vendors and suppliers have experienced substantial financial
difficulties in recent months, in some cases leading to bankruptcies and
liquidations.  Any disruptions that these third party companies experience as a
result of their financial difficulties that impact the delivery of products or
services that we purchase from these companies could have an adverse affect on
our business.







                                       23
<PAGE>

We face particular risks relating to our long distance business.

As part of our offering of bundled telecommunications services to our customers,
we offer long distance services. The long distance business is extremely
competitive and prices have declined substantially in recent years and we expect
prices to continue to decline. In addition, the long distance industry has
historically had a high average churn rate, as customers frequently change long
distance providers in response to the offering of lower rates or promotional
incentives by competitors. We rely on other carriers to provide transmission and
termination services for all of our long distance traffic. Our primary
underlying carrier currently is Global Crossing, which is in Chapter 11
bankruptcy protection.  We must enter into resale agreements with long distance
carriers to provide us with transmission services. These agreements typically
provide for the resale of long distance services on a per-minute basis and may
contain minimum volume commitments. Negotiation of these agreements involves
estimates of future supply and demand for transmission capacity as well as
estimates of the calling patterns and traffic levels of our future customers. In
the event we fail to meet our minimum volume commitments, we may be obligated to
pay underutilization charges and in the event we underestimate our need for
transmission capacity, we may be required to obtain capacity through more
expensive means. The incurrence of any underutilization charges, rate increases
or termination charges could have a material adverse effect on our business.

We may not be able to compete effectively with the Regional Bell Operating
Companies ("RBOCs") in the provision of long distance services.

Federal law currently prohibits RBOCs from providing certain types of long
distance telephone service in most states. However, this restriction may be
removed by the FCC if an RBOC meets certain specified conditions for a
particular state and the FCC determines that removal of the restriction is in
the public interest.  RBOCs have succeeded in capturing substantial market
shares in long distance services in several states where they are authorized to
provide such services, including New York and Texas.  If RBOCs obtain permission
to provide these services in more states, or if legislation is passed to allow
them to offer long distance data and Internet services, our business could be
adversely affected. Such legislation would remove a major incentive RBOCs have
to cooperate with companies like ours to foster competition within their service
areas. When RBOCs offer both long distance and local exchange services, they
reduce a competitive advantage which companies like ours currently are able to
offer in those regions.

We are subject to extensive government regulation.

We are subject to varying degrees of federal, state and local regulation.
Changes in these regulations could materially increase our compliance costs or
prevent us from implementing our business plan. Regulation of the
telecommunications industry is changing rapidly, which affects our
opportunities, competition and other aspects of our business. The regulatory
environment varies substantially from state to state. In the states in which we
provide service, we are generally required to obtain and maintain certificates
of authority from regulatory bodies and file tariffs where we offer intrastate
services.

While our CLEC and long distance businesses are subject to government
regulation, our ILEC subsidiaries, in particular, are highly regulated at both
the federal and state levels. In general, our ILEC subsidiaries operate under
regulations limiting their rates of return on interstate and intrastate
services. For interstate services, the FCC periodically reviews the
reasonableness of the allowed rate-of-return these businesses may charge and may
reduce such allowed rate-of-return. In addition, the FCC has reformed the rules
that govern how our ILECs charge long distance companies for completion of
interstate calls, reducing the interstate costs recovered from interstate access
charges.

As a condition to its approval of Gallatin River Communications' acquisition of
Sprint Corporation's Illinois incumbent local telephone exchanges, the Illinois
Commerce Commission required Gallatin River Communications to file, in an
informal proceeding, an informational earnings report covering its first full
calendar year of operations by April 2000. Gallatin River Communications filed
the required report on April 1, 2000. The information supplied could be used by
the Illinois Commerce Commission's staff to initiate a proceeding to lower our
intrastate rates, which may adversely affect our business and results of
operations.

                                       24
<PAGE>

The Telecom Act requires ILECs to enter into agreements to interconnect with,
sell unbundled network elements to, and sell services for resale to, CLECs. Our
ability to compete in the local exchange market as a CLEC may be adversely
affected by the ILEC's pricing of such offerings and related terms, such as the
availability of operation support systems and local number portability, and
would be adversely affected if such requirements of the Telecom Act were
repealed. Depending on the implementation of the Telecom Act, our ILEC
subsidiaries may be forced to interconnect with, and sell such services and
elements to, competitors at prices that do not fully recover our costs of
providing such services.

With the passage of the Telecom Act, the regulation of our services has been
subject to numerous administrative proceedings at the federal and state level,
litigation in federal and state courts, and legislation in federal and state
legislatures. We cannot predict the outcome of the various proceedings,
litigation and legislation or whether and to what extent they may adversely
affect our business or operations.

Many other aspects of our services and operations are subject to federal and
state regulation, including the introduction and pricing of new services,
contributions to and receipts from universal service funds, compliance with
demands from law enforcement and national security agencies, privacy of
customers' information and our use of radio frequencies. We currently receive
revenues as a result of state and federal universal service fund contributions
and make payments to such funds. If these programs are modified or discontinued,
we may be adversely affected.


Item 2.  Properties

We own and lease offices and space in a number of locations within our regions
of operation, primarily for our corporate and administrative offices, central
office switches and business offices, network operations centers, customer
service centers, sales offices and network equipment installations. Our
corporate headquarters and our accounting center are located in approximately
24,100 square feet of leased space in two separate buildings in Mebane, North
Carolina. The lease for the corporate headquarters (including our renewal
options) will expire in approximately 17 years. The leases for the accounting
center (including our renewal options) will expire at various times in seven to
nine years.

The LTD owns predominantly all of the properties used for its central office
switches, business offices, regional headquarters and warehouse space in its
operating regions.  The poles, lines, wires, cable, conduits and related
equipment owned by the LTD are located primarily on properties that we do not
own, but are available for the LTD's use pursuant to consents of various
governmental bodies or subject to leases, permits, easements or other agreements
with the owners. The LTD owns approximately 945 route miles of fiber in its
operating regions.

The ICD primarily leases properties for sales and administrative offices,
collocations, ATM switches and data transmission equipment.  It also leases
local loop lines that connect its customers to its network as well as leasing
space in ILEC central offices for collocating transmission equipment.  As part
of its new strategy to achieve positive cash flow as quickly as possible, the
ICD closed certain of its sales and administrative offices and is currently
evaluating its options related to disposal or sublease of these spaces.  The ICD
has an operating sales and administrative office in leased space in New Orleans,
Louisiana.  The ICD also has leases on space in Raleigh and Greensboro, North
Carolina; Peoria and Bloomington, Illinois; Atlanta, Georgia; and Houston, Texas
that are no longer used by the ICD, and some of which have been sublet to other
tenants.  The ICD owns approximately 2,300 route miles of fiber in North
Carolina, Illinois and across the southeast from Atlanta to Houston and Dallas.

Substantially all of our ILEC properties and telephone plant and equipment are
pledged as collateral for our senior indebtedness.  We believe our current
facilities are adequate to meet our needs in our incumbent local and competitive
local markets for the foreseeable future.



                                       25
<PAGE>

Item 3.  Legal Proceedings

Our subsidiary, Gulf Coast Services, sponsors an Employee Stock Ownership Plan
("ESOP") that was the subject of an application before the Internal Revenue
Service ("IRS") for a compliance statement under the Voluntary Compliance
Resolution Program.  The application was filed with the IRS on May 17, 2000.
According to the application, Gulf Coast Services made large contributions to
the ESOP and to its 401(k) plan during 1997 and 1998, which caused the two plans
to allocate amounts to certain employees in excess of the limits set forth in
Section 415 of the Internal Revenue Code of 1986, as amended (the "Code").  The
administrative committees for both plans sought to comply with the requirements
of Code Section 415 by reducing employees' allocations under the ESOP before any
reductions of allocations under the 401(k) plan.  Although this approach is
consistent with Treasury Regulations under Code Section 415, it may not have
been consistent with the terms of the plan documents.  The application requests
a compliance statement to the effect that any failure to comply with the terms
of the plans will not adversely affect the plans' tax-qualified status,
conditioned upon the implementation of the specific corrections set forth in the
compliance statement.

We estimate that the contribution to the ESOP required by the corrective
allocation described above will be approximately $3.3 million.  In the
application, Gulf Coast Services requested that the assets held in the Section
415 Suspense Account and in the ESOP Loan Suspense Account be used by the ESOP
for the correction.  The 415 Suspense Account has an approximate value of $1.6
million, and the ESOP Loan Suspense Account has a value in excess of the $1.7
million needed for the full correction.  However, based on discussions with the
IRS and upon the recommendation of our advisors, during the second quarter of
2001, we withdrew our proposal to use the assets in the ESOP Loan Suspense
Account as a source of funds to satisfy the obligation.  Shortly thereafter, the
IRS issued our Section 415 Compliance Statement and provided us with 150 days to
institute the corrective actions.  During the course of making these
corrections, we found additional administrative errors in the operation of the
ESOP that directly affected the accuracy of the corrective allocations.
Therefore, we intend to file a new application in 2002 with the IRS for a
compliance statement under the Voluntary Compliance Resolution Program to
address these new errors and the necessary corrective allocations.  The final
outcome and timing of this process is not readily known, and any additional
costs related to this new filing are not estimable at this time.  We will pursue
other options currently available to us to obtain reimbursement of any funds we
may be required to contribute to the ESOP to comply with the Code, which we
believe will be available from an escrow account established in connection
with the sale of Gulf Coast Services by the sellers of Gulf Coast Services
stock.  There is no assurance that we will be able to obtain any reimbursement
from another source, including the escrow account, and therefore, may be
required to contribute to the ESOP the funds needed to make up any shortfall,
which currently approximates $1.7 million. We do not believe that this action
will have a material adverse effect on our financial condition or results of
operations.

We are involved in other various claims, legal actions and regulatory
proceedings arising in the ordinary course of business.  In the opinion of
management, the ultimate disposition of these matters will not have a material
adverse effect on our consolidated financial position, results of operations or
cash flows.


Item 4.  Submission of Matters to a Vote of Security Holders

No items were submitted to a vote of security holders during the fourth quarter
of 2001.


                                    PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

We are a limited liability company with one member, our parent company, Madison
River Telephone Company, LLC.  Therefore, we do not have common stock registered
on a public trading market.


                                       26
<PAGE>


Item 6.  Selected Financial Data

                           MADISON RIVER CAPITAL, LLC
                      Selected Financial and Operating Data
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                                           Year Ended December 31,
                                -----------------------------------------------------------------------------
                                       1997                  1998          1999          2000          2001
                                ---------------------      --------      --------      --------       -------
                                              Madison       Madison       Madison       Madison       Madison
                                Mebcom (a)   River (b)     River (c)     River (d)     River (e)       River
                                ----------   ---------     ---------     ---------     ---------      --------
Statement of Operations Data:
<S>                            <C>             <C>         <C>           <C>           <C>           <C>
  Revenues                     $  6,379        $    -      $  16,864     $  81,517     $ 167,101     $ 184,263
  Operating expenses:
    Cost of services and
     selling, general and
     administrative expenses      4,259            949        12,157        54,517       117,016       125,779
    Depreciation and
     Amortization                   715             12         4,177        21,508        50,093        58,471
                                  -----           ----        ------       -------       -------       -------
  Total operating expenses        4,974            961        16,334        76,025       169,666       184,250
                                  -----           ----        ------       -------       -------       -------
  Operating income (loss)         1,405           (961)          530         5,492            (8)           13
  Interest expense                 (409)           (31)       (3,893)      (22,443)      (61,267)      (64,624)
  Other income                      286             19           481         3,386         4,899       (14,813)
                                  -----           ----        ------       -------       -------       -------
  Income (loss) before income
   taxes and minority
   interest expense               1,282           (973)       (2,882)      (13,565)      (56,376)      (79,424)
  Income tax (provision)
   benefit                         (480)            -            (52)       (1,625)       (2,460)        5,570
  Minority interest expense         -               -           -              -            (750)       (1,075)
                                  -----           ----        ------       -------       -------       -------
  Income (loss) before
   extraordinary item               802           (973)       (2,934)      (15,190)      (59,586)      (74,929)
  Extraordinary item                -               -           (173)         -             -             -
                                  -----           ----        ------       -------       -------       -------
  Net income (loss)            $    802        $  (973)    $  (3,107)    $ (15,190)    $ (59,586)    $ (74,929)
                                  =====           ====        ======       =======       =======       =======


Balance Sheet Data (at period end):

  Cash and cash equivalents    $  2,668        $ 7,698     $   6,354     $  83,729     $  63,410     $  21,606
  Telephone plant and
   equipment, net                 6,980             69        89,486       293,322       400,319       396,794
  Total assets                   13,073          8,021       285,763       785,290       992,017       896,578
  Long-term debt, including
   current portion                5,522            -         219,876       535,611       678,114       680,018
  Total member's capital          4,364          6,885        54,070       165,994       129,101        59,393


Other Financial Data:

  Capital expenditures         $  1,385        $     4     $   6,056     $  37,756     $  89,644     $  39,936
  Net cash provided by (used
   in) operating activities       2,887           (529)        3,582        12,938        22,253       (22,136)
  EBITDA (f)                      2,120           (949)        4,707        27,000        50,085        58,484
  Ratio of earnings to
   fixed charges (g)                4.1             -           -             -             -             -
</TABLE>







                                       27
<PAGE>
Note:  Madison River Capital, LLC, a wholly-owned subsidiary of Madison River
       Telephone Company, LLC, was organized on August 26, 1999 as a limited
       liability company under the provisions of the Delaware Limited Liability
       Company Act.  Prior to the formation of Madison River Capital, the
       operations of the operating subsidiaries were consolidated at the Madison
       River Telephone Company level.  Concurrent with the organization of
       Madison River Capital as a subsidiary of Madison River Telephone Company,
       all operations were consolidated at the Madison River Capital level.
       Therefore, information presented for 1997 and 1998 in this schedule
       represents the consolidated financial operations for Madison River
       Telephone Company.  The information presented for 1999, 2000 and 2001 in
       this schedule represents the consolidated financial operations for
       Madison River Capital.

(a)  Represents the historical consolidated financial information of Mebcom
     (acquired on January 16, 1998), as predecessor to Madison River Telephone
     Company.
(b)  Represents the historical consolidated financial information of Madison
     River Telephone Company.
(c)  Represents the historical consolidated financial information of Madison
     River Telephone Company that includes the results of operations of Madison
     River Telephone Company and its subsidiaries, including Mebcom (acquired on
     January 16, 1998) and Gallatin River (acquired on November 1, 1998).
(d)  Represents the historical consolidated financial information of Madison
     River Capital, which includes the results of operations of Madison River
     Capital and its subsidiaries, including Gulf Coast Services (acquired on
     September 29, 1999).
(e)  Represents the historical consolidated financial information of Madison
     River Capital, which includes the results of operations of Madison River
     Capital and its subsidiaries, including Coastal Communications (acquired on
     March 30, 2000).
(f)  EBITDA consists of operating income (loss) before depreciation and
     amortization. EBITDA is presented because we believe it is frequently used
     by investors and other interested parties in the evaluation of a company's
     ability to meet its future debt service, capital expenditures and working
     capital requirements. However, other companies in our industry may present
     EBITDA differently than we do. EBITDA is not a measurement of financial
     performance under generally accepted accounting principles and should not
     be considered as an alternative to cash flows from operating activities or
     as a measure of liquidity or as an alternative to net earnings as an
     indicator of our operating performance or any other measure of performance
     derived in accordance with generally accepted accounting principles. See
     the Consolidated Statements of Cash Flows included in our financial
     statements.
(g)  The ratio of earnings to fixed charges is computed by dividing income
     before income taxes and fixed charges (other than capitalized interest) by
     fixed charges. Fixed charges consist of interest charges, amortization of
     debt expense and discount or premium related to indebtedness, whether
     expensed or capitalized, and that portion of rental expense we believe to
     be representative of interest. For the years ended December 31, 1997, 1998,
     1999, 2000 and 2001, earnings of Madison River were insufficient to cover
     fixed charges by $973, $2,882, $13,565, $56,376 and $79,423, respectively.














                                       28
<PAGE>


Item 7.	Management's Discussion and Analysis of Financial Condition and
Results of Operations

Certain statements set forth below constitute ''forward-looking statements''
that involve risks and uncertainties. During our existence, we have completed
multiple acquisitions of telecommunications companies and assets. As a result,
we believe that period-to-period comparisons of our financial results to date
are not necessarily meaningful and should not be relied upon as an indication of
future performance. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of various factors.
For further discussion of these factors, see "Risk Factors."

Included in our discussion and analysis of our operating results are comparisons
of EBITDA.  EBITDA consists of operating income (loss) before depreciation and
amortization and is presented because we believe it is frequently used by
investors and other interested parties in the evaluation of a company's ability
to meet its future debt service, capital expenditure and working capital
requirements.  However, other companies in our industry may present EBITDA
differently than we do.  EBITDA is not a measurement of financial performance
under generally accepted accounting principles and should not be considered as
an alternative to cash flows from operating activities as a measure of liquidity
or as an alternative to net earnings as an indicator of our operating
performance or any other measures of performance derived in accordance with
generally accepted accounting principles.


Overview

We are an established rural local exchange company providing communications
services and solutions to business and residential customers in the Gulf Coast,
Mid-Atlantic and Midwest regions of the United States. Our integrated service
offerings include local and long distance voice, high-speed data, Internet
access and fiber transport.  At December 31, 2001, we had approximately 223,400
voice and DSL lines in service.

We are organized into two operating divisions, the LTD and the ICD.  The LTD is
responsible for the integration, operation and development of our established
markets that consist of four ILECs acquired since January 1998.  The ILECs are
located in North Carolina, Illinois, Alabama and Georgia.  The ICD is
responsible for developing and managing our target markets as a CLEC.  In
addition, the ICD is building a transport business focusing on providing
transport and IP transit services to other carriers and large accounts.  The ICD
is building its base of customers around the LTD's currently established
operations and along its approximately 2,300 route miles of fiber optic network.
We are currently certified in ten states as a CLEC (North Carolina, South
Carolina, Georgia, Florida, Alabama, Mississippi, Louisiana, Texas, Tennessee
and Illinois) and in 11 states as a long distance provider (North Carolina,
South Carolina, Georgia, Florida, Alabama, Mississippi, Louisiana, Texas,
Tennessee, Kentucky and Illinois).

The majority of our fiber optic network comprises a long-haul network in the
southeast United States that connects Atlanta, Georgia and Dallas, Texas, two of
the four Tier I Network Access Points. Further, the route connects other
metropolitan areas such as Mobile and Montgomery, Alabama; Biloxi, Mississippi;
New Orleans, Louisiana; and Houston, Texas.  We have peering agreements in both
Atlanta and Dallas that allow us to pass the Internet traffic we carry on our
network to the Internet backbone providers.

Our current business plan is focused on improving cash flows for the enterprise.
The LTD is continuing the development of our established markets with successful
marketing of vertical services and DSL products and is controlling expenses
through the use of business process management tools.  The LTD has been
successful in increasing its EBITDA for the year ended December 31, 2001
compared to the same period in the prior year.  For 2001, the LTD's EBITDA was
$83.9 million compared to $68.7 million for the prior year.  In the ICD, our
strategy has shifted from growth to focusing on getting its operations to a
positive cash flow basis sooner than previously planned.  In order to achieve
positive cash flow in the ICD, we have slowed the rate of growth in this
division to allow us to capitalize on the revenues from currently installed
lines while also managing our capital expenditures and expenses more tightly.
Our objective is to achieve positive cash flow and then to maintain a rate of
growth in the ICD that can be funded by the ICD's operations without additional
investment. The ICD continues to provide services to medium and large customers
in three edge-out markets: the Triangle (Raleigh, Durham and Chapel Hill) and
the Triad (Greensboro and Winston-Salem) in North Carolina; Peoria and
Bloomington in Illinois; and the New Orleans, Louisiana region.  However, we
will not continue to prospect and sell services to new customers in our Illinois
markets.  Our transport business is focused on developing its product lines in
Atlanta, Georgia; New Orleans, Louisiana; and Houston and Dallas, Texas.


                                       29
<PAGE>

Since our inception, our principal activities have been the acquisition,
integration, operation and improvement of the four ILECs in secondary markets.
Through these acquisitions, we have acquired businesses with positive cash flow,
government and regulatory authorizations and certifications, operating support
systems, management and key personnel and facilities.

Factors Affecting Future Operations

The following is a discussion of the primary factors that we believe will affect
our operations over the next few years.

Revenues

To date, our revenues have been derived principally from the sale of local and
long distance communications services to customers in our established markets.
For the year ended December 31, 2001, approximately 92% of our operating
revenues came from the LTD.  Our business plan is to generate increasing
revenues in our LTD and ICD operations from voice services (local and long
distance), Internet access and enhanced data and other services.  Our transport
business will focus on growing revenues by providing services to other carriers
and major accounts such as intercity transport, including both high capacity and
optical wavelength transport, metro access services and Internet egress services
at a DS-3 level and above.

The sale of communications services to customers in our established markets will
continue to provide the predominant share of our revenues for the foreseeable
future while we slow the rate of growth in our ICD operations.  We expect that
if we achieve positive cash flow in our ICD operations such that it can fund its
own growth going forward and we are successful in developing and marketing our
fiber transport and Internet egress products, then the ICD's revenues could grow
at a faster pace than the LTD's revenues.  This will result in a growing
percentage of our revenues coming from sales of communications services to
medium and large businesses and other carriers in our edge-out markets.  In the
near term, we anticipate that any increase in revenues from the ICD will grow
sequentially at a much slower pace than we have experienced in the past several
quarters due to our focus on achieving positive cash flow for that division.

We will continue to offer bundled services and to competitively price our
services in each of our markets. In addition, we intend to continue to offer
combined service discounts designed to give customers incentives to buy bundled
services pursuant to long-term contracts. The fiber transport business appears
increasingly to be price driven, and, as a result, we may competitively price
these services to gain market share.

Expenses

Historically, our operating expenses have remained relatively consistent as the
ILECs, which are the foundation of our business, experienced fairly comparable
results from period to period.  In recent quarters, as we continued to integrate
our ILEC acquisitions and implement business process management tools to control
expenses, we have seen our operating expenses in our ILEC operations decrease.
We seek to maintain the expense reductions in our existing operations and, with
additional efforts, gain some further cost savings in the LTD though at a far
slower sequential rate than we have recently seen.

During the past two years, we made a significant investment in the ICD building
our fiber network and ATM and TDM switching platforms and establishing an
efficient marketing, sales and provisioning infrastructure.  This resulted in
significant increases in operating expenses in the ICD.  During much of 2001, we
worked on resizing the ICD organization to better align it with our market
opportunities and lower the rate of growth in operating expenses accordingly.
In the fourth quarter of 2001, our business plan for the ICD shifted from growth
in access lines to focusing on generating positive cash flows from the division.
To achieve this goal, we intentionally slowed the rate at which we are adding
new access lines, and, accordingly, we have significantly reduced our cash
utilization in the ICD.  With slower planned growth, fewer sales personnel are
required, and, as a result, fewer provisioners, customer care and other support
personnel are needed.  In addition, we expect our capital spending for the ICD
will decrease significantly. Then, as the ICD begins generating cash from its
operations, we intend to reinvest the cash in the division to fund its future
growth.  We also addressed the organization of our transport business to better
align it with our strategy going forward.  Therefore, we expect that our
operating expenses in the ICD will decrease moderately in the near term as the
impact of these changes are reflected in our results.

Our primary operating expenses consist of cost of services, selling, general and
administrative expenses and depreciation and amortization.
                                       30
<PAGE>

Cost of services

Our cost of services includes:

    *  plant specific costs and expenses, such as network and general support
       expense, central office switching and transmission expense, information
       origination/termination expense and cable and wire facilities expense;
    *  plant nonspecific costs, such as testing, provisioning, network,
       administrative, power and engineering;
    *  the cost of leasing unbundled copper loop lines and high capacity digital
       lines from the ILECs to connect our customers and other carriers'
       networks to our network;
    *  the cost of leasing transport from ILECs or other providers where our
       fiber transport capacity is not available;
    *  the cost of collocating in ILEC central offices; and
    *  the cost of purchasing and installing electronics on our fiber network.

We have already entered into interconnection agreements with Bell South,
Verizon, Ameritech, Sprint and SBC. Other interconnection agreements may be
required, and certifications by state regulators would be required in states
where we are not certified as a competitive provider.

We have a resale agreement with Global Crossing to provide long distance
transmission services. This agreement contains minimum volume commitments.
Although we believe that we will meet these commitments and expect to experience
lower cost per minute usage rates as volume increases, we may not be successful
in generating adequate long distance business to absorb our minimum volume
commitment and will be required to pay for long distance transmission services
that we are not using.

Selling, general and administrative expenses

Selling, general and administrative expenses include:

    *  selling and marketing expenses;
    *  expenses associated with customer care;
    *  billing and other operating support systems; and
    *  corporate expenses.

We employ a professional sales team in the markets we serve.  We offer a
competitive compensation package based on minimum quota sales and incentives for
long-term contracts and bundled services.

We have operating support and other back office systems that we use to enter,
schedule, provision and track customer orders, test services and interface with
trouble management, inventory, billing, collection and customer care service
systems for our access lines in our operations. We may review and consider the
benefits offered by the latest generation of systems, and, if we implement new
systems, we expect that our operations support systems and customer care
expenses may increase.

As a result of our limited operating history as a consolidated company and the
number and timing of our acquisitions, there is limited operating and financial
data about us upon which to base an evaluation of our performance. Although we
expect to maintain positive EBITDA as an enterprise as we expand from our
established markets, operating losses in our edge-out markets in which the ICD
operates have materially decreased our EBITDA in recent quarters and we expect
will continue to lower our EBITDA over the next few quarters as we work to make
the ICD EBITDA positive. Further, our business plan requires additional capital
expenditures necessary to deliver high quality integrated communications
services and solutions. We anticipate that most of our capital expenditures will
be directed at maintaining our existing networks and for success-based ATM
equipment purchases in the ICD but will decrease from recent levels.  Although
we are currently projecting an increase in revenues, our revenues may not
increase or even continue at their current levels, and we may not achieve or
maintain our target levels for expenses or profitability.  We may not be able to
generate cash from operations in future periods at the levels we currently
project or at all. Our actual future operating results may differ from our
current projections, and those differences may be material.


                                       31
<PAGE>

Critical Accounting Policies

Revenue Recognition

Revenues are recognized when the corresponding services are provided regardless
of the period in which they are billed.  Recurring local service revenues are
billed one month in advance, and recognition is deferred until the service has
been provided.  Nonrecurring revenues, such as long distance toll charges and
other usage based billings, are billed in arrears and are recognized when
earned.

Network access service revenues are based on universal service funding and
charges to interexchange carriers for switched and special access services and
are recognized in the period when earned.  Our rural ILEC subsidiaries
participate in revenue sharing arrangements, sometimes referred to as pools,
with other telephone companies for interstate revenues and for certain
intrastate revenues.  Such sharing arrangements are funded by national universal
service funding, toll revenue and/or access charges in the interstate market.
Revenues earned through the sharing arrangements are initially recorded based on
our estimates.  These estimates are then subject to adjustment in future
accounting periods as refined operating results become available.  Traffic
sensitive and special access revenues for interstate services are billed under
tariffs approved by the appropriate regulatory authority and retained by us.

Revenues from billing and collection services provided to interexchange
carriers, advertising sold in telephone directories and the sale and maintenance
of customer premise equipment are recorded as miscellaneous revenues.  These
revenues are recognized when the service has been provided or over the life of
the contract, as appropriate.

Goodwill

Goodwill resulting from the excess of the purchase price of our acquisitions in
excess of the fair value of the net assets acquired is amortized using the
straight-line method over 25 years. The carrying value of goodwill is
reviewed if the facts and circumstances suggest impairment. If our review
indicates that the carrying value will not be recoverable, as determined based
on undiscounted cash flows over the remaining amortization period, we would
reduce the carrying value by the estimated shortfall of cash flows on a
discounted basis. Based upon the application of this policy, no impairments were
recognized during 2001, 2000 or 1999.

Allowance for Uncollectible Accounts

We evaluate the collectibility of our accounts receivable based on a combination
of factors. In circumstances where we are aware of a specific customer's
inability to meet its financial obligations to us, such as a bankruptcy filing
or substantial down-grading of credit scores, we record a specific allowance
against amounts due to reduce the net recognized receivable to the amount we
reasonably believe will be collected. For all other customers, we reserve a
percentage of the remaining outstanding accounts receivable balance as a general
allowance based on a review of specific customer balances, our trends and
experience with prior receivables, the current economic environment and the
length of time the receivables are past due. If circumstances change, we will
review the adequacy of the allowance, and our estimates of the recoverability of
amounts due us could be reduced by a material amount.













                                       32
<PAGE>

Results of Operations

In March 2000, we completed the Coastal Communications acquisition.  As a result
of this acquisition, we believe that our historical financial statements for the
fiscal year ended December 31, 2001 are not directly comparable with our
historical financial statements for the year ended December 31, 2000.  The
operating results for the year ended December 31, 2001 include twelve months of
operations for Coastal Communications whereas the year ended December 31, 2000
includes approximately nine months of operations for Coastal Communications.

Year Ended December 31, 2001 compared to Year Ended December 31, 2000

Total revenues for the year ended December 31, 2001 were $184.3 million, an
increase of $17.2 million from $167.1 million for the year ended December 31,
2000. The increase is attributed principally to a full year of operations of
Coastal Communications being included in 2001 and growth in revenues in the ICD.
The operations of Coastal Communications, acquired on March 30, 2000, are
included in 2001 for a full year compared to only nine months of operations for
2000. This accounted for approximately $9.7 million, or 56.4% of the increase.
Revenues generated by the ICD grew $8.7 million over the prior year, or 51% of
the increase, as a result of increases in voice and DSL connections in service.
Revenues from voice services, which are comprised of local, network access and
long distance service, as a percentage of total revenues, were approximately
84.9% and 83.4% for the years ended December 31, 2001 and 2000, respectively.

Total operating expenses increased $17.1 million from $167.1 million, or 100.0%
of total revenues in 2000, to $184.3 million, or 100.0% of total revenues in
2001. The increase is attributable primarily to the growth of the CLEC and fiber
transport business and was offset by lower net operating expenses in the LTD.
The expansion of the CLEC and fiber transport business increased operating
expenses approximately $19.5 million from the prior year, which includes
approximately $2.8 million, or 1.5% of total revenues, for a restructuring
charge related to the closing of certain sales offices, redundant network
operations centers and unneeded future switch sites.  This was offset by lower
operating expenses in the LTD of approximately $2.4 million in 2001 compared to
2000.  For the LTD, although operating expenses increased in 2001 by
approximately $7.6 million from the inclusion of a full year of operations for
Coastal Communications, other operating expenses decreased $10.0 million as a
result of improved processes and more efficient operations.  Cost of services,
as a percentage of total revenues, increased from 36.8% in 2000 to 37.2% in
2001, and selling, general and administrative expenses, as a percentage of total
revenues, decreased from 33.2% in 2000 to 29.6% in 2001. Depreciation and
amortization expense, as a percentage of total revenues, increased from 30.0% in
2000 to 31.7% in 2001.

Net operating income for the year ended December 31, 2001 was approximately
$13.0 thousand compared to a net operating loss of $8.0 thousand in 2000. An
increase in the net operating income reported by the LTD of approximately $11.6
million was offset by an increase in the net operating loss in the ICD of
approximately $11.6 million.

Interest expense increased approximately $3.3 million from $61.3 million, or
36.7% of total revenues in 2000, to $64.6 million, or 35.1% of total revenues in
2001. The increase in interest expense is primarily attributable to the
recognition of a full year of interest expense on the senior notes in 2001
compared to approximately ten and one-half months of interest expense in 2000 as
the senior notes were issued on February 17, 2000.  In addition, interest
expense for the financing used for the Coastal Communications acquisition was
recognized for a full year in 2001 compared to approximately nine months in
2000.

Other (expense) income, net was an expense of $14.8 million in 2001, which
represented a change of $19.7 million, or 402.4%, from $4.9 million in income
recognized in 2000.  The change is primarily attributable to an $8.9 million
impairment loss recognized on two investments in unconsolidated companies and
$9.5 million in realized losses on the sale of marketable equity securities.

Net loss increased $15.3 million from $59.6 million, or 35.7% of total revenues
in 2000, to $74.9 million, or 40.7% of total revenues in 2001, as a result of
the factors discussed above. EBITDA increased $8.4 million from $50.1 million,
or 30.0% of total revenues in 2000, to $58.5 million, or 31.7% of total revenues
in 2001.  The increase in EBITDA is primarily attributable to the Coastal
Communications acquisition and lower operating expenses in the LTD and was
partially offset by a larger EBITDA loss in the ICD.




                                       33
<PAGE>

Year Ended December 31, 2000 compared to Year Ended December 31, 1999

In September 1999, we acquired Gulf Coast Services, and, in March 2000, we
completed the Coastal Communications acquisition.  As a result of these
acquisitions, we believe that our historical financial statements for the fiscal
year ended December 31, 2000 are not directly comparable with our historical
financial statements for the year ended December 31, 1999.  The operating
results for the year ended December 31, 2000 include twelve months of operations
for Gulf Coast Services and approximately nine months of operations for Coastal
Communications whereas the year ended December 31, 1999 includes approximately
three months of operations for Gulf Coast Services and no operations for Coastal
Communications.

Total revenues increased $85.6 million to $167.1 million for the year ended
December 31, 2000 from $81.5 million for the same period of 1999. The increase
is attributable principally to a full year of operations of Gulf Coast Services
and approximately nine months of operations of Coastal Communications being
included in 2000 whereas 1999 only had three months of operations for Gulf Coast
Services and none for Coastal Communications. Revenues of Gulf Coast Services
accounted for $43.1 million, or 50.4%, of the net increase. Revenues of Coastal
Communications accounted for $30.4 million, or 35.5%, of the net increase.
Revenues generated by the ICD grew $6.2 million over the prior year. The
remaining increase was primarily due to stronger revenues from private label
long distance growth. Revenues from voice services, which are comprised of
local, network access and long distance service, as a percentage of total
revenues, were approximately 83.4% and 87.2% for the years ended December 31,
2000 and 1999, respectively.

Total operating expenses increased $91.1 million from $76.0 million, or 93.3% of
total revenues in 1999, to $167.1 million, or 100.0% of total revenues in 2000.
The increase is attributable to the inclusion of a full year of operations of
Gulf Coast Services, approximately nine months of operations for Coastal
Communications and the expansion of the CLEC and transport business.  The
increases were partially offset by lower expenses in existing operations as a
result of improved efficiencies.  The inclusion of Gulf Coast Services'
operating expenses accounted for $42.0 million, or 46.1%, the inclusion of
Coastal Communications operating expenses accounted for $24.2 million, or 26.6%,
and the expansion of the CLEC and fiber transport business accounted for $25.0
million, or 27.4%, of the net increase in operating expenses, respectively. Cost
of services, as a percentage of total revenues, increased from 30.6% in 1999 to
36.8% in 2000, and selling, general and administrative expenses, as a percentage
of total revenues, decreased from 36.3% in 1999 to 33.2% in 2000. Depreciation
and amortization expense, as a percentage of total revenues, increased from
26.4% in 1999 to 30.0% in 2000.

Net operating income decreased $5.5 million from $5.5 million, or 6.7% of total
revenues in 1999, to a net operating loss of $8.0 thousand, or 0.0% of total
revenues in 2000. The decrease in net operating income margin was directly
attributable to the increase in operating expenses from the expansion of the
CLEC and transport business.  The impact of the losses from the expansion of the
CLEC business were offset by positive results from the inclusion of Gulf Coast
Services for the full year and Coastal Communications for nine months as well as
improved operating results in our other existing operations.

Interest expense increased $38.8 million from $22.4 million, or 27.5% of total
revenues in 1999, to $61.3 million, or 36.1% of total revenues in 2000. The
increase in interest expense is attributable to the issuance of the senior notes
in February, as well as the financing for the Gulf Coast Services acquisition
and the Coastal Communications acquisition.

Net loss increased $44.4 million from $15.2 million, or 18.6% of total revenues
in 1999, to $59.6 million, or 35.1% of total revenues in 2000, as a result of
the factors discussed above. EBITDA increased $23.1 million from $27.0 million,
or 33.1% of total revenues in 1999, to $50.1 million, or 29.5% of total revenues
in 2000.  The increase in EBITDA is primarily attributable to the EBITDA
contributions of the two acquisitions.










                                       34
<PAGE>
Liquidity and Capital Resources

We are a holding company with no business operations of our own. Our only
significant assets are the capital stock/member interests of our subsidiaries.
Accordingly, our only sources of cash to pay our obligations are cash on hand
and distributions from our subsidiaries from their net earnings and cash flow.
Even if our subsidiaries determine to pay a dividend on, or make a distribution
in respect of, their capital stock/member interests, we cannot guarantee that
our subsidiaries will generate sufficient cash flow to pay such a dividend or
distribute such funds or that they will be permitted to pay such dividend or
distribution under the terms of their credit facilities.

Operating Activities. For the year ended December 31, 2001, we used cash in our
operating activities of $22.1 million. For the years ended December 31, 2000 and
1999, we generated cash from operating activities of $22.3 million and $12.9
million, respectively.  The change from 2000 to 2001 is primarily attributable
to the change in accounts payable and accrued expenses.  The change in accounts
payable and accrued expenses generated cash of approximately $35.3 million in
2000 whereas the change in the same accounts in 2001 resulted in a use of cash
of approximately $25.1 million, or a $60.4 million change year over year.  The
increase in cash from operating activities from 1999 to 2000 of approximately
$9.3 million is primarily attributable to the increase in the net change in
accounts payable and accrued expenses being significantly larger in 2000 when
compared to the same period of 1999.  This effectively offset the larger net
loss in 2000 when compared to 1999.

Investing Activities. For the year ended December 31, 2001, we used $21.6
million in cash for investing activities.  Cash used for investing activities
was primarily for the purchase of telephone plant and equipment in the amount of
$39.9 million.  This was offset by proceeds from the sale of telephone plant and
equipment of $13.5 million and decreases in other assets of $4.7 million.  For
the year ended December 31, 2000, we used cash for investing activities in the
amount of $212.9 million. Investing activities in 2000 were primarily
attributable to the acquisition of Coastal Communications, net of cash acquired,
for $116.6 million.  In addition, purchases of telephone plant and equipment
were $89.6 million. For the year ended December 31, 1999, we used cash for
investing activities in the amount of $374.6 million, primarily in the
acquisition of Gulf Coast Services, net of cash acquired, for $310.5 million,
the purchase of $31.6 million in subordinated capital certificates ("SCC's") in
our senior lender, RTFC, related to the financing of the Gulf Coast Services
acquisition and purchases of telephone plant and equipment of $37.8 million.

Financing Activities. For the year ended December 31, 2001, net cash provided by
financing activities was $2.0 million.  The primary components of this net cash
were proceeds from long-term debt of $17.0 million, offset by repayments on
long-term debt of $15.3 million.  For the year ended December 31, 2000, net cash
provided by financing activities was $170.4 million and consisted of $27.4
million in capital contributions from our member and $329.6 million in proceeds
from long-term debt.  The proceeds from long-term debt were made up of $197.3
million in net proceeds from the senior notes offering, $121.0 million in
financing for the Coastal Communications acquisition and $11.3 million in
additional borrowings used to purchase SCC's as part of the refinancing of our
loan agreements with the RTFC.  These amounts were offset by payments on long-
term debt of $186.7 million, the most significant payment resulting from the
repayment of a note in the amount of $177.8 million to the RTFC.  For 1999, net
cash provided by financing activities was $439.0 million.  This included loan
proceeds of $316.2 million from the RTFC used in the Gulf Coast Services
acquisition and capital contributions from our member of $127.1 million.

Long-Term Debt and Revolving Credit Facilities

We or our subsidiaries have outstanding term and revolving credit facilities
with the RTFC, which were entered into in connection with the acquisitions of
Mebcom, Gallatin River, Gulf Coast Services and Coastal Communications.  In
addition, we have outstanding $200.0 million in 131/4% senior notes that are due
in March 2010, a mortgage note payable on property acquired in the Coastal
Communications acquisition and a miscellaneous note payable.

On December 29, 2000, our subsidiary, Madison River LTD Funding Corp., entered
into a definitive agreement with the RTFC to refinance our five existing loan
agreements with the RTFC, consolidating them into one new loan agreement.  On
that date, as part of the transaction, we borrowed an additional $11.3 million
from the RTFC to finance the purchase of an equivalent amount of SCCs.  The
transaction received all necessary regulatory approvals during the first quarter
of 2001.  Principal repayment terms and security provisions under the new
agreement are similar to those that existed under the previous separate
agreements.  Our blended interest rate fell from 8.13% to 7.98% as a result of
the transaction.  In addition, under the previous structure, we had four secured
lines of credit that together totaled $31.0 million with certain amounts subject
to an annual pay-down provision.  With the new agreement, we consolidated these
four credit lines into a new, secured $31.0 million facility with no annual pay-
down provision and which matures in March 2005.  As of December 31, 2001, this
secured credit line has $17.0 million advanced against it and bears interest at
the RTFC base rate for a standard line of credit plus 50 basis points, or 6.45%.
The remaining $14.0 million remains available to be drawn.
                                       35
<PAGE>

In addition, we have also drawn $10.0 million against an unsecured line of
credit with the RTFC which is the full amount available under this facility.
This line of credit bears interest at the RTFC base rate for a standard line of
credit plus 100 basis points, or 6.95% at December 31, 2001.  The $7.8 million
secured term facility available to Gulf Telephone Company remains available as
of December 31, 2001.

As of December 31, 2001, we had approximately $452.7 million in term loans
outstanding with the RTFC and another $27.0 million drawn against our lines of
credit.  In addition, we had $46.8 million in SCCs that represent ownership
interests in the RTFC.  Pursuant to our original loan agreements entered into in
connection with each acquisition, we purchased SCCs in amounts equal to 5% or
10% of the amount borrowed under the term facilities depending on the agreement.
We financed the purchase of these SCCs with additional borrowings from the RTFC.
As part of our refinancing in December 2000, for the notes secured at a 5% SCC
level, we agreed to increase the SCCs owned to a level equivalent to 10% of the
outstanding balance on the term loans.  To get to the 10% SCC level, we borrowed
an additional $11.3 million from the RTFC and purchased an equivalent amount of
SCCs.  The SCCs are redeemed proportionately at par as we make payments to
reduce the principal amount outstanding under the term facilities.

In connection with the Mebcom acquisition, on January 16, 1998, Mebtel, Inc.,
our wholly owned subsidiary, entered into a secured credit facility with the
RTFC consisting of a $23.3 million term loan and a $1.0 million revolving line
of credit. This facility was refinanced with the RTFC in December 2000 as
described above.  A total of $22.6 million was funded from the term loan at the
closing of the acquisition and matures in January 2013. The term note bears
interest at the base rate of RTFC's stated variable rate plus 50 basis points,
with the right to convert, at our option under certain circumstances, into a
fixed rate. In accordance with the credit facility, we converted $15.0 million
of the facility into a fixed rate of 6.8% per annum, which was subsequently
reduced under the terms of the refinancing to 6.5%, through September 2003. In
April 2000, we converted the remaining variable portion of the facility in the
amount of $7.2 million into a fixed rate of 8.55% per annum, which was
subsequently reduced under the terms of the refinancing to 8.15%, through April
2003. In addition, we borrowed an additional $1.1 million during the refinancing
and purchased SCCs, raising the level of SCCs for this note from 5% to 10%. At
December 31, 2001, $20.5 million was outstanding under this term note.

In connection with the Gallatin River acquisition, on October 30, 1998, Gallatin
River Communications, LLC and Madison River Communications, Inc. (renamed
Madison River Management Company effective March 6, 2000), our wholly owned
subsidiaries, entered into a secured credit facility with the RTFC consisting of
a $123.2 million term facility and $10.0 million revolving line of credit by
Gallatin River Communications and a $73.7 million term facility by Madison River
Management Company.  These facilities were refinanced with the RTFC in December
2000 as described above.  The term loans were fully funded at the closing of the
acquisition and mature in October 2013. The term facilities bear interest at the
base rate of RTFC's stated variable rate plus 75 basis points, with the right to
convert, at our option under certain circumstances, into a fixed rate. In
accordance with the credit facility, we have converted the $123.2 million term
facility into a fixed rate of 7.0% per annum, which was subsequently reduced
under the terms of the refinancing to 6.7%, through November 2004, and we
converted the $73.7 million term facility into a fixed rate of 8.8% per annum,
which was subsequently reduced under the terms of the refinancing to 8.4%,
through April 2003. In addition, we borrowed an additional $10.2 million during
the refinancing and purchased SCCs, raising the level of SCCs for these notes
from 5% to 10%.  At December 31, 2001, $118.0 million and $75.5 million,
respectively, were outstanding under these term facilities.

In connection with our acquisition of Gulf Coast Services, on September 29,
1999, our subsidiary, Gulf Telephone Company, entered into two secured term
facilities for $138.4 million and $7.8 million and a secured revolving line of
credit for $10.0 million with the RTFC.  These facilities were refinanced with
the RTFC in December 2000 as described above.  The $138.4 million term facility
was fully funded at the closing of the acquisition and matures in September
2014. The $7.8 million term facility remains available to Gulf Telephone Company
for working capital and capital expenditures.  The term notes bear interest at
the base rate of RTFC's stated variable rate plus 35 basis points, with the
right to convert, at our option under certain circumstances, into a fixed rate.
In accordance with the credit facility, we converted the $138.4 million term
note into a fixed rate of 8.4% per annum through October 2004. At December 31,
2001, $132.2 million was outstanding under this term note.

On February 17, 2000, we privately placed $200.0 million of 131/4% senior notes
due 2010. The proceeds from the offering were approximately $189.7 million, net
of bond discount of $2.7 million and issuance costs of $7.6 million.  We
subsequently registered senior notes with the Securities and Exchange Commission
that had had substantially identical terms to the privately placed senior notes
and successfully completed an exchange offer.  At December 31, 2001, the senior
notes had a carrying value of $197.5 million.


                                       36
<PAGE>

To finance the Coastal Communications acquisition, on March 30, 2000, our
subsidiary, Coastal Utilities, entered into two secured facilities with the RTFC
for $118.7 million, which consisted of a $108.7 million, fifteen year note and a
$10.0 million, five year revolving line of credit. In addition, Coastal
Utilities also obtained an unsecured $10.0 million revolving line of credit with
the RTFC. The secured facilities were refinanced with the RTFC in December 2000
as described above.  The unsecured revolving line of credit, which bears
interest at the RTFC base rate for a standard line of credit plus 100 basis
points, continues under its original terms and remains available to be drawn,
maturing in March 2005.  The $108.7 million secured term note was completely
drawn down at the closing of the acquisition and matures in March 2015.  The
secured $10.0 million line of credit was also completely drawn down at closing.
The term note bears interest at the base rate of RTFC's stated variable rate
plus 50 basis points, with the right to convert, at our option under certain
circumstances, into a fixed rate.  In accordance with the credit facility, we
converted the $108.7 million term facility into a fixed rate of 8.5% per annum
through April 2005.  At December 31, 2001, $106.5 million remains outstanding
under the term note.

At December 31, 2001, we had drawn $17.0 million under our secured line of
credit and $10.0 million under our unsecured line of credit.  We had $21.8
million of undrawn credit facilities available with the RTFC.  These consisted
of $14.0 million on our secured line of credit and $7.8 million on a term loan.


Capital Requirements

Our business will require significant capital to fund working capital needs,
debt service requirements, capital expenditures and cash flow deficits.  In the
near term, we expect that our primary uses of cash will include:

    *  the upgrade and maintenance of our current network infrastructure;
    *  the development and integration of operations support systems and other
       automated back office systems;
    *  scheduled principal and interest payments on our long-term debt;
    *  real estate expenses in connection with our network facilities and
       operations;
    *  sales and marketing;
    *  corporate overhead; and
    *  personnel development.

We currently estimate that cash required to fund capital expenditures in 2002
will be less than $20.0 million. For the year ended December 31, 2001, cash used
to fund capital expenditures was approximately $54.0 million.  Our anticipated
use of cash for capital expenditures in 2002 is significantly less than what we
have incurred in prior years.  This is a result of several factors.  First, we
have invested a significant amount in capital expenditures during the last two
years to build-out and enhance our network facilities in our markets.  Absent
major changes in the technology that we employ, we believe that we have very
robust facilities in place capable of providing a high level of service to our
customers without significant alterations or enhancements.  We anticipate that a
large portion of our capital expenditures in 2002 will be directed toward
maintaining our existing facilities.  Second, we anticipate slower growth in
2002 for the LTD than previously experienced.  In addition, our new business
plan for the ICD will significantly reduce growth in that division.  Therefore,
there will not be the demand to expand our network facilities that we have seen
in the past.  Beyond 2002, we expect we will see stronger growth in our
business, and, accordingly, we anticipate the level of capital expenditures to
accelerate in those years.

As part of the consideration paid in the Coastal Communications acquisition, we
issued to former shareholders of the Coastal Utilities, Series A non-
voting common stock and Series B non-voting common stock of Coastal
Communications in the face amount of $10.0 million and $5.0 million,
respectively. The Series A and Series B stock have put and call features that
are defined pursuant to the terms of a shareholders agreement and are
exercisable by the holders and Coastal Communications. Based on the put features
of the shareholders agreement, the holders of Series A stock may put their
shares to Coastal Communications in March 2005, and Coastal Communications will
have until December 2005 to purchase them for $17.7 million.  Coastal
Communications has the right to call the Series A stock at any time in the
intervening period at specified amounts as defined in the shareholders
agreement.  The holders of the Series B stock have the right prior to March 30,
2002 to put their shares to Coastal Communications for $35.0 million upon the
occurrence of certain events, as defined in the shareholders agreement, or for
$60.0 million at anytime after March 2004.  Coastal Communications has the right
to call the Series B stock for amounts that escalate with the passage of time.
If the Series B shareholders' exercise of their put option, as described below,
Is deemed to be a valid exercise, then Coastal Communications would be required
to redeem the shares for $35.0 million no later than April 2002.

                                       37
<PAGE>

In February 2001, the holders of the Series B shares notified us of their
exercise of the put option.  We are currently in negotiations with the Series B
shareholders regarding their exercise of the put option.  While we presently
anticipate that a mutually acceptable agreement will be entered into with the
shareholders in April 2002, there is no assurance that we will be able to enter
into such an agreement.  The failure to enter into a mutually acceptable
agreement could have a material adverse effect on our financial condition and
results of operations. See "Risk Factors-Risk Factors Relating to Madison River-
We may need to raise more capital to fund our obligations."

Under the terms of Madison River Telephone Company's Operating Agreement, at any
time on or after January 2, 2006, certain members may require MRTC to purchase
all of their redeemable member units in an amount equal to the fair market value
of such units. Such an event could result in our being required to fund this
obligation of our parent company, MRTC.

During the second quarter of 2001, we completed the sale of approximately 4,280
access lines and other operating assets that comprise the exchanges in Staunton
and Livingston, Illinois to Madison Telephone Company (a non-related entity).
These assets were part of the LTD.  The proceeds from the sale were
approximately $13.4 million and are subject to certain post-closing adjustments.

Based on our business plan, we currently project that available borrowings under
our credit facilities, cash and investments on hand and our cash flow from
operations will be adequate to meet our foreseeable operational liquidity needs
for the next twelve months. However, our actual cash needs may differ from our
estimates, and those differences could be material. Our future capital
requirements will depend on many factors, including, among others:

    *  the result of our current negotiations with Series B shareholders
       regarding the exercise of their put option;
    *  the extent to which we consummate any significant additional
       acquisitions;
    *  our success in achieving net positive cash flow in our CLEC operations
       and transport business;
    *  the demand for our services in our existing markets;
    *  our ability to acquire, develop and integrate the necessary OSS and other
       back office systems; and
    *  regulatory, technological and competitive developments.

We may be unable to access the cash flow of our subsidiaries since certain of
our subsidiaries are parties to credit or other borrowing agreements that
restrict the payment of dividends, and those subsidiaries are likely to continue
to be subject to such restrictions and prohibitions for the foreseeable future.
In addition, future agreements governing the terms of our subsidiaries'
indebtedness may restrict our subsidiaries' ability to pay dividends to us.

To the extent that our business plans or projections change or prove to be
inaccurate, we may require additional financing or require financing sooner than
we currently anticipate. Sources of additional financing may include commercial
bank borrowings, other strategic debt financing, sales of non-strategic assets,
vendor financing or the private or public sales of equity and debt securities.
We cannot guarantee that we will generate sufficient cash flow from operations
in the future, that anticipated revenue growth will be realized or that future
borrowings or equity contributions will be available in amounts sufficient to
service our indebtedness, fund the payment of any put options when due and make
anticipated capital expenditures. Failure to obtain necessary financing could
require us to significantly reduce our planned capital expenditures and scale
back our expansion plans, either of which could have a material adverse effect
on our projected financial condition and results of operations.


Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board, the ("FASB") issued
Statements of Financial Accounting Standards No. 141, "Business Combinations",
and No. 142, "Goodwill and Other Intangible Assets", effective for fiscal years
beginning after December 15, 2001.  Under the new rules, goodwill and intangible
assets deemed to have indefinite lives will no longer be amortized but will be
subject to annual impairment tests in accordance with the statements.  Other
intangible assets will continue to be amortized over their useful lives.  We
will adopt the new rules on accounting for goodwill and other intangible assets
beginning in the first quarter of 2002.  We expect that application of the
nonamortization provisions of the statements will result in a decrease in net
loss of approximately $16.5 million per year.  During 2002, we will perform the
first of the required impairment tests as of January 1, 2002.  We do not believe
that the results of these tests will have a material impact on our financial
position, net loss or cash flows.

                                       38
<PAGE>
In August 2001, the FASB issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
144").  SFAS 144 supersedes SFAS 121 and establishes a single accounting model
for long-lived assets to be disposed of by sale as well as resolved
implementation issues related to SFAS 121.  We will adopt SFAS 144 for fiscal
2002, which may result in additional disclosures. Adoption of SFAS 144 in fiscal
2002 is not expected to have a material impact on our financial position, net
loss or cash flows.


Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

Although we invest our short-term excess cash balances, the nature and quality
of these investments are restricted under our internal investment policies.
These investments are limited primarily to U.S. Treasury agreement and agency
securities, certain time deposits and high quality repurchase agreements and
commercial paper. We do not invest in any derivative or commodity type
instruments. Accordingly, we are subject to minimal market risk on our
investments.

Our long term secured debt facilities with the RTFC amortize over a 15-year
period. As of December 31, 2001, we had fixed rate secured debt with the RTFC of
$441.8 million at a blended rate of 7.93%. The fixed rates on the facilities
expire from 2003 to 2005 at which time they will be adjusted. We have $10.9
million in term facilities, $17.0 million under a secured line of credit and
$10.0 million under an unsecured line of credit with the RTFC that bear variable
interest approximating a blended average rate of 6.4%.  A one percent change in
the underlying interest rates for the variable rate debt would have an
immaterial impact of less than $400,000 per annum on interest expense.  The
senior notes have a stated fixed rate of 13.25%. Accordingly, we are subject to
only minimal interest rate risk on our long-term debt while our fixed rates are
in place.

As part of the Coastal Communications acquisition, we acquired a marketable
equity security investment in Illuminet, Inc. with a fair value, as of December
31, 2000, of $6.9 million, for which we were subject to market risk.  The entire
equity security investment was sold for approximately $6.3 million during
January 2001.


Item 8.  Financial Statements and Supplementary Data

Our consolidated financial statements begin on page F-1 of this Form 10-K.


Item 9.  Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure

None.

















                                       39
<PAGE>

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant

Board of Managers and Executive Officers

We are a wholly-owned subsidiary and managed by our sole member, MRTC.  The
Board of Managers of MRTC consists of the following nine individuals: J. Stephen
Vanderwoude, Chairman, Paul H. Sunu, Robert C. Taylor, Jr., James N. Perry, Jr.,
James H. Kirby, Sanjeev K. Mehra, Joseph P. DiSabato, Mark A. Pelson and Albert
J. Dobron, Jr.  At present, all managers are appointed by certain groups which
comprise the members of MRTC.  The members holding a majority of MRTC's member
units, which include affiliates of Madison Dearborn Partners, affiliates of
Goldman Sachs and affiliates of Providence Equity Partners, are each entitled
to appoint up to two individuals to the Board of Managers. The members holding a
majority of the member units held by management personnel subject to employment
agreements are entitled to appoint up to three individuals to the Board of
Managers, at least two of whom must be J. Stephen Vanderwoude, James D. Ogg or
Paul H. Sunu. In the event that an appointed Manager ceases to serve as a member
of the Board of Managers, the resulting vacancy on the Board of Managers must be
filled by a person appointed by the members that appointed the withdrawn
Manager.  The following table sets forth certain information regarding the
members of the Board of Managers, executive officers and key operations
personnel of Madison River Capital and its operating subsidiaries.

Name                      Age   Position
----                      ---   --------
J. Stephen Vanderwoude    58    Managing Director - Chairman and Chief Executive
                                  Officer; Member of Board of Managers
James D. Ogg              63    Managing Director and Chairman - Local
                                  Telecommunications Division
Paul H. Sunu              46    Managing Director - Chief Financial Officer and
                                  Secretary; Member of Board of Managers
Kenneth Amburn            59    Managing Director and Chief Operating Officer -
                                  Local Telecommunications Division
Bruce J. Becker           56    Managing Director - Chief Technology Officer and
                                  President and Chief Operating Officer -
                                  Integrated Communications Division
Michael T. Skrivan        47    Managing Director - Revenues
Joseph P. DiSabato        35    Member of Board of Managers
Albert J. Dobron, Jr.     33    Member of Board of Managers
James H. Kirby            33    Member of Board of Managers
Sanjeev K. Mehra          41    Member of Board of Managers
Mark A. Pelson            40    Member of Board of Managers
James N. Perry, Jr.       40    Member of Board of Managers
Robert C. Taylor, Jr.     42    Member of Board of Managers


The following sets forth certain biographical information with respect to the
members of our Board of Managers and our executive officers:

Mr. J. Stephen Vanderwoude, a founding member of MRTC in 1996, serves as a
Managing Director - Chairman and Chief Executive Officer. He has over 35 years
of telecommunications experience including serving as President and Chief
Operating Officer and a Director of Centel Corporation and President and Chief
Operating Officer of the Local Telecommunications division of Sprint
Corporation. He is currently a director of Centennial Communications and First
Midwest Bancorp.

Mr. James D. Ogg, a founding member of MRTC in 1996, serves as a Managing
Director and is Chairman of the Local Telecommunications Division. He has over
43 years of telecommunications experience including serving as President of
Centel-Illinois and Vice President and General Manager of Centel-Virginia and
Centel-North Carolina. Mr. Ogg has also served as Vice President-Strategic
Pricing and Vice President for Governmental Relations for Centel Corporation. In
this capacity, Mr. Ogg managed Centel's Washington, D.C. office and was
responsible for advocacy of corporate policy on telecommunications, cable and
electric businesses before Congress and federal regulatory agencies. Mr. Ogg has
successfully testified in or managed 17 rate cases and brings extensive
experience in dealing with federal and state regulatory processes.  Mr. Ogg
currently represents Madison River on the board of the United States Telecom
Association.
                                       40
<PAGE>

Mr. Paul H. Sunu, a founding member of MRTC in 1996, serves as Managing Director
- Chief Financial Officer and Secretary. Mr. Sunu is a certified public
accountant and a member of the Illinois Bar with 21 years of experience in
finance, tax, treasury, securities and law.

Mr. Kenneth Amburn serves as a Managing Director and is Chief Operating Officer
of the LTD, joining Madison River in 1998. Prior to joining Madison River, Mr.
Amburn established entrepreneurial operations through his service with Network
Construction Services, Inc. as Executive Vice President and a member of its
board of directors from 1995 to 1998.  He has over 37 years of
telecommunications experience including service as Vice President-Operations for
Centel-Texas where he had oversight for operations involving over 280,000 access
lines and for customer services, network maintenance, construction and overall
business operations for Texas. Mr. Amburn has also served as Vice President,
East Region Telecommunications for Citizens Utilities where he was responsible
for establishing the operations and completing the transition of 1,400 employees
to Citizens Utilities in connection with a 500,000 access line purchase from
GTE.

Mr. Bruce J. Becker serves as Managing Director - Chief Technology Officer and
is President and Chief Operating Officer of the ICD, joining Madison River in
1999. From 1997 to 1998, Mr. Becker founded and served as President of BTC
Partners LTD., a telecommunications consulting firm providing services to an
array of CLECs, ILECs, CATV providers, telecommunications and data transport
equipment manufacturers and investment groups.  He has over 38 years of
telecommunications experience.  Mr. Becker has also served as a voting director
of the T1 Committee, a director on the UNLV School of Engineering Board, a
senior member of Northern Telecom's technical advisory board, an active member
of USTA and has testified as an expert witness at the state and federal level on
numerous rate and technology proceedings and inquiries.

Mr. Michael T. Skrivan serves as Managing Director - Revenues for MRTC, joining
Madison River in 1999. He is a certified public accountant and a certified
management accountant with 24 years of experience in the telecommunications
industry. Prior to joining MRTC, Mr. Skrivan was a founding member in the
consulting firm of Harris, Skrivan & Associates, LLC, which provides regulatory
and financial services to local exchange carriers from 1995 to 1999.  Mr.
Skrivan is a member of the Telecom Policy Committee of the United States Telecom
Association.

Mr. Joseph P. DiSabato is a member of the Board of Managers and a Managing
Director of Goldman, Sachs & Co. in the Merchant Banking Division where he has
been employed since 1994. Mr. DiSabato serves on the Board of Directors of
Amscan Holdings, Inc., SCP Communications, Inc. and several privately held
companies on behalf of Goldman Sachs.

Mr. Albert J. Dobron, Jr. is a member of the Board of Managers and a Vice
President of Providence Equity Partners.  He has been at Providence Equity
Partners since 1999.  Prior to that time, Mr. Dobron worked for Morgan Stanley &
Co. from 1996 to 1999 in mergers and acquisitions and held positions with the
K.A.D. Companies, a private equity investment group, working primarily in an
operating role with one of the firm's portfolio companies.  Mr. Dobron is on the
Board of Directors of Surebridge, Inc.

Mr. James H. Kirby is a member of the Board of Managers and a Managing Director
of Madison Dearborn Partners. He joined Madison Dearborn Partners in 1996 and
focuses on venture capital and private equity investing in the communications
industry.  Mr. Kirby currently serves on the Boards of Directors of Completel
LLC, iplan, LLC, New Radio Tower GmbH, Omne Communications Limited, PaeTec
Communications, Inc. and Star Technology Group Limited.

Mr. Sanjeev K. Mehra is a member of the Board of Managers and a Managing
Director in Goldman Sachs' Merchant Banking Division since 1996. He serves on
the boards of Amscan Holdings, Inc., Hexcel Corporation and on the boards of
several portfolio companies. He is a member of the Principal Investment Area's
Investment Committee.

Mr. Mark A. Pelson is a member of the Board of Managers and a Managing Director
of Providence Equity Partners where he has been employed since 1996. Mr. Pelson
is currently also a director of Carrier 1 International S.A., Global Metro
Networks and Language Line Holdings, LLC.

Mr. James N. Perry, Jr. is a member of the Board of Managers and a Managing
Director and co-founder of Madison Dearborn Partners.  Mr. Perry concentrates on
investments in the communications industry and currently also serves on the
Boards of Directors of Allegiance Telecom, Inc., Completel LLC and Focal
Communications Corporation.

                                       41
<PAGE>

Mr. Robert C. Taylor, Jr. is a member of the Board of Managers and is Chief
Executive Officer and President for Focal Communications Corporation. He was
appointed to this position in August 1996. He is also a co-founder of Focal
Communications and a member of its board of directors.  Mr. Taylor is currently
Executive Vice Chairman of the Association for Local Telecommunications Services
(ALTS) and is a member of the Board of the Information Technology Association of
America (ITAA). Recently, Mr. Taylor was appointed by the FCC to serve on the
Network Reliability and Interoperability Council.  In addition, Mr. Taylor sits
on the board of directors for IPLAN Networks, a CLEC based in Argentina.


Item 11.  Executive Compensation

The following table sets forth certain information regarding the cash and non-
cash compensation paid by Madison River Telephone Company to the Chief Executive
Officer and to each of our four most highly compensated executive officers other
than the Chief Executive Officer, whose combined salary and bonus exceeded
$100,000 during the fiscal years ended December 31, 2001, 2000 and 1999
(collectively, the ''Named Executive Officers''). The managers of Madison River
Capital do not receive any compensation for serving on the Board of Managers.

                           Summary Compensation Table
<TABLE>
<CAPTION>
                                                                              Long-term
                                                                            Compensation
Name                                  Annual Compensation                      Awards
----                       -----------------------------------------------  ------------
                                                                             Securities
                                                                             Underlying
                                                              Other Annual   Unit Option       All Other
                           Year       Salary        Bonus     Compensation      Grants      Compensation (1)
                           ----     ---------     ---------   ------------   -----------    ----------------
<S>                        <C>      <C>           <C>         <C>            <C>            <C>
J. Stephen Vanderwoude     2001     $ 195,720     $ 265,000        -              -           $     6,725
(Chairman and CEO)         2000       169,647       190,000        -              -                 5,250
                           1999       189,800       111,000        -              -               250,244

James D. Ogg               2001       160,000        40,000        -              -                 5,309
(Chairman of the LTD)      2000       160,202        89,010        -              -                 5,250
                           1999       160,646        50,004        -              -                61,793

Paul H. Sunu               2001       199,050       175,000        -              -                 5,975
(CFO and Secretary)        2000       160,014       140,000        -              -                 5,250
                           1999       160,014        90,000        -              -                47,132

Ken Amburn                 2001       179,616        60,000        -              -                 6,255
(COO of the LTD)           2000       160,053        60,000        -              -                 5,250
                           1999       197,809         3,334        -              -                 4,467

Bruce J. Becker            2001       179,616       120,000        -              -                   798
(CTO and President and     2000       160,000        80,000        -              -                 5,250
 COO of the ICD)           1999       160,000          -           -              -                   -
</TABLE>

(1) Includes matching contributions for the 401(k) Savings Plan, group term life
insurance premiums paid on behalf of the officer and compensation deferred from
previous years.




                                       42
<PAGE>

401(k) Savings Plans

In 1998, we established a 401(k) savings plan covering substantially all of our
employees that meet certain age and employment criteria. Pursuant to the plan,
eligible employees may elect to reduce their current compensation by up to 15%
of eligible compensation. We have agreed to contribute an amount equal to 50% of
employee contributions for the first 6% of compensation contributed on behalf of
all participants. We made matching contributions of approximately $859,000,
$1,058,000 and $480,000 in 2001, 2000 and 1999, respectively. In addition, we
made a discretionary contribution of $200,000 in 2000.  The 401(k) plan is
intended to qualify under Section 401 of the Internal Revenue Code of 1986, as
amended, so that contributions by employees or by us to the plan, and income
earned on plan contributions, are not taxable to employees until withdrawn and
our contributions are deductible by us when made.

Long-Term Incentive Plan

In 1998, we adopted a long-term incentive plan arrangement which provides for
annual incentive awards for certain employees as approved by the Board of
Directors. Under the terms of the plan, annual awards are expensed over the
succeeding 12 months after the award is determined. The incentive awards vest
automatically at the time of a qualified event as defined under the plan. Vested
awards are payable under certain circumstances as defined under the long-term
incentive plan arrangement. We recognized compensation expense of $1,271,000,
$4,772,000 and $2,576,000 in the years ended December 31, 2001, 2000 and 1999,
respectively, related to the long-term incentive awards.

Pension Plan

In May 1998, we adopted a noncontributory defined benefit pension plan, which
was transferred to us from our subsidiary, Mebtel, Inc. The plan covers all
full-time employees, except employees of Gulf Coast Services and Coastal
Communications, who have met certain age and service requirements and provides
benefits based upon the participants' final average compensation and years of
service. Our policy is to fund the maximum allowable contribution by the
Internal Revenue Service and comply with the funding requirements of the
Employee Retirement Income Security Act of 1974, as amended.

Employment Agreements

We have entered into employment, confidentiality and noncompetition agreements
with J. Stephen Vanderwoude, James D. Ogg, Paul H. Sunu and Bruce J. Becker
providing for employment of each executive for a five-year period, subject to
termination by either party (with or without cause) on 30 days' prior written
notice. The agreements also provide that employees may not disclose any
confidential information while employed by us or thereafter. Additionally, the
agreements provide that the employees will not compete with us for a period of
up to a maximum of 15 months following termination for cause or voluntary
termination of employment.


















                                       43
<PAGE>

Item 12.  Security Ownership of Certain Beneficial Owners and Management

All of Madison River Capital's outstanding member units are owned by MRTC. The
following table sets forth certain information regarding the beneficial
ownership of MRTC's member units as of March 15, 2002 by (A) each holder known
by MRTC to beneficially own five percent or more of such member units, (B) each
executive officer of MRTC and (C) all executive officers and managers as a
group. Beneficial ownership is determined in accordance with the rules of the
SEC and generally includes voting or investment power with respect to
securities. Options or warrants to purchase member units that are currently
exercisable or exercisable within 60 days of March 15, 2002 are deemed to be
outstanding and to be beneficially owned by the person holding such options or
warrants for the purpose of computing the percentage ownership of such person
but are not treated as outstanding for the purpose of computing the percentage
ownership of any other person.

<TABLE>
<CAPTION>
                                               Number of Class A
                                               Units, Warrants or
                                                Options Held by      Percentage
Name                                               Member             of Units
----                                           ------------------    ----------
<S>                                           <C>                    <C>
J. Stephen Vanderwoude                          5,454,696.70 (1)        2.56%
James D. Ogg                                    1,019,647.46 (1)          *
Paul H. Sunu                                    1,198,684.24 (1)          *
Bruce J. Becker                                   421,710.68 (1)          *
Kenneth Amburn                                       -                    -
Madison Dearborn Partners group (2)            85,962,015.42           40.36%
Goldman Sachs group (3)                        71,635,012.69           33.64%
Providence Equity Partners group (4)           47,279,108.13           22.20%
All executive officers and managers
  as a group (13 persons)                     212,970,875.32          100.00%
</TABLE>

* Represents less than one percent (1%).


(1)  Excludes the following incentive interests granted to management.  The
     units granted to the named executive officers below vest over time while
     the units granted to the Madison River Long Term Incentive Plan contain
     vesting provisions which are contingent upon the occurrence of certain
     liquidity events, including the sale of the company or an initial public
     offering:

<TABLE>
<CAPTION>
                                         Class B Units       Class C Units
                                         -------------       -------------
      <S>                                <C>                 <C>
      J. Stephen Vanderwoude                 3,000               1,550 (a)
      James D. Ogg                           1,500               1,150
      Paul H. Sunu                           1,000               1,150
      Bruce J. Becker                         -                    770
      Madison River Long Term
        Incentive Plan                       3,835               5,067
</TABLE>
      (a) Includes 1,200 units that the named executive officer gifted in trust
          to his three adult children for which the named executive officer
          disclaims beneficial ownership.

(2)  Includes 392,610 units which Madison Dearborn Capital Partners, L.P. has
     the right to acquire upon conversion of existing indebtedness and
     76,569,405.42 units held by Madison Dearborn Capital Partners II, L.P.;
     8,711,355.10 units held by Madison Dearborn Capital Partners III, L.P.;
     193,429.77 units held by Madison Dearborn Special Equity III, L.P.;
     75,000.00 units held by Madison Dearborn Special Advisors Fund I, LLC; and
     20,215.13 units held by Madison Dearborn Special Co-Invest Partners I.

(3)  Includes 37,331,285.78 units held by GS Capital Partners II, L.P.;
     7,614,577.66 units held by GSCPII Mad River Holding, L.P.; 1,657,820.36
     units held by GSCPII Germany Mad River Holding, L.P.; 17,867,826.82 units
     held by GSCPII Offshore Mad River Holding, L.P.; 2,341,390.43 units held by
     Bridge Street Fund 1997, L.P.; and 4,822,111.85 units held by Stone Street
     Fund 1997, L.P.

(4)  Includes 46,628,924.50 units held by Providence Equity Partners, L.P. and
     650,183.63 units held by Providence Equity Partners II L.P.

                                       44
<PAGE>
Item 13.  Certain Relationships and Related Transactions

On January 4, 2002, ORVS Madison River sold its interest in MRTC, which
consisted of 5,550,253.16 Class A units at December 31, 2001, to certain members
of management and to MRTC for approximately $1.21 to $1.23 per unit.  MRTC
repurchased 1,632,427.40 of the Class A units and retired them.  Members of
management purchasing Class A units from ORVS Madison River were J. Stephen
Vanderwoude (2,489,450.97 units), James D. Ogg (544,142.74 units), Paul H. Sunu
(462,521.37 units) and Bruce J. Becker (421,710.68 units).  To finance a portion
of their purchase of Class A units from ORVS Madison River, Paul H. Sunu, James
D. Ogg and Bruce J. Becker each borrowed $466.7 thousand from Madison River
Capital.  The loans, payable on demand, bear interest at 5% and are secured by
the respective individual's Class A interests purchased.

Paul H. Sunu and James D. Ogg each have loans outstanding payable to MRTC.  The
proceeds of these loans were used to purchase Class A interests in Madison River
Telephone Company.  The loans, payable on demand, bear interest at 5% and are
secured by Class A interests.  As of March 15, 2002, Paul H. Sunu and James D.
Ogg had outstanding loan amounts of $298.6 thousand and $299.8 thousand,
respectively.


                                   PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)(1)  The following consolidated financial statements of Madison River
        Capital, LLC and report of independent public accountants are included
        in the F pages of this Form 10-K:

        Report of independent public auditors.

        Consolidated balance sheets as of December 31, 2001 and 2000.

        Consolidated statements of operations and comprehensive loss for the
        years ended December 31, 2001, 2000 and 1999.

        Consolidated statements of member's capital for the years ended December
        31, 2001, 2000 and 1999.

        Consolidated statements of cash flows for the years ended December 31,
        2001, 2000 and 1999.

        Notes to consolidated financial statements.

(a)(2)  The following financial statement schedule is filed as part of this
        report and is attached hereto as page F-28.

        Schedule II-- Valuation and Qualifying Accounts.

All other schedules for which provision is made in the applicable accounting
regulations of the SEC either have been included in our consolidated financial
statements or the notes thereto, are not required under the related instructions
or are inapplicable, and therefore have been omitted.

(a)(3)  The following exhibits are either provided with this Form 10-K or are
        incorporated herein by reference:

        The information called for by this paragraph is incorporated herein by
        reference to the Exhibit Index on pages I-1 to I-3 of this Form 10-K.

(b)     Reports on Form 8-K.

        On November 8, 2001, we filed a Current Report on Form 8-K dated
        November 1, 2001 announcing our third quarter and nine-month operating
        and financial results for the periods ended September 30, 2001.

                                       45
<PAGE>

                                   SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.


                                         MADISON RIVER CAPITAL, LLC



                                         By:  /s/  J. STEPHEN VANDERWOUDE
                                            -----------------------------
                                               J. Stephen Vanderwoude
                                            Managing Director, Chairman and
                                                Chief Executive Officer

                                         Date:   April 1, 2002
                                               ---------------------------



Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated as of April 1, 2002.



By:   /s/  J. STEPHEN VANDERWOUDE
   ------------------------------
    J. Stephen Vanderwoude
    Managing Director, Chairman and
      Chief Executive Officer
    (Principal Executive Officer)



By:  /s/  PAUL H. SUNU
   ------------------------------
    Paul H. Sunu
    Managing Director, Chief Financial
      Officer and Secretary
    (Principal Financial Officer)



By:  /s/  JOHN T. HOGSHIRE
   ------------------------------
    John T. Hogshire
    Vice President-Controller
    (Principal Accounting Officer)








                                        46
<PAGE>


    /s/ JOSEPH P. DISABATO
   ---------------------------
        Joseph P. DiSabato
        Manager



    /s/ ALBERT J. DOBRON, JR.
   ---------------------------
        Albert J. Dobron, Jr.
        Manager



    /s/ JAMES H. KIRBY
   ---------------------------
        James H. Kirby
        Manager



    /s/ SANJEEV K. MEHRA
   ---------------------------
        Sanjeev K. Mehra
        Manager



    /s/ ROBERT C. TAYLOR, JR.
   ---------------------------
        Robert C. Taylor, Jr.
        Manager



    /s/ MARK A. PELSON
   ---------------------------
        Mark A. Pelson
        Manager



    /s/ JAMES N. PERRY, JR.
   ---------------------------
        James N. Perry, Jr.
        Manager









                                       47
<PAGE>

                           Madison River Capital, LLC

                       Consolidated Financial Statements

                      As of December 31, 2001 and 2000 and
                for the Three Year Period Ended December 31, 2001


                   Index to Consolidated Financial Statements

Report of Independent Auditors ..............................................F-2

Consolidated Financial Statements

     Consolidated Balance Sheets ............................................F-3
     Consolidated Statements of Operations and Comprehensive Loss............F-5
     Consolidated Statements of Member's Capital ............................F-6
     Consolidated Statements of Cash Flows ..................................F-7
     Notes to Consolidated Financial Statements .............................F-8

Schedule II - Valuation and Qualifying Accounts.............................F-28































                                      F-1
<PAGE>

                         Report of Independent Auditors


Member
Madison River Capital, LLC

We have audited the accompanying consolidated balance sheets of Madison River
Capital, LLC as of December 31, 2001 and 2000, and the related consolidated
statements of operations and comprehensive loss, member's capital, and cash
flows for each of the three years in the period ended December 31, 2001. Our
audits also included the financial statement schedule listed in the index on
page F-1.  These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Madison River
Capital, LLC at December 31, 2001 and 2000, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.  Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.

                                                  /s/ ERNST & YOUNG LLP


Raleigh, North Carolina
February 7, 2002





















                                      F-2
<PAGE>

                           Madison River Capital, LLC

                           Consolidated Balance Sheets
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                       December 31
                                                                    2001        2000
                                                                  ---------------------
<S>                                                               <C>         <C>
Assets
Current assets:
  Cash and cash equivalents                                       $  21,606   $  63,410
  Accounts receivable, less allowance for uncollectible
    accounts of $1,815 and $1,150 in 2001 and 2000,
    respectively                                                     14,305      14,376
  Receivables, primarily from interexchange carriers, less
    allowance for uncollectible accounts of $111 and $531
    in 2001 and 2000, respectively                                    8,826       9,642
  Income tax recoverable                                                219         355
  Inventories                                                         1,129       2,363
  Deferred income taxes                                                -          1,510
  Other current assets                                                5,113       5,685
                                                                    -------     -------
Total current assets                                                 51,198      97,341
                                                                    -------     -------

Telephone plant and equipment:
  Land, buildings and general equipment                              63,978      54,920
  Central office equipment                                          130,098      84,818
  Poles, wires, cables and conduit                                  224,577     204,493
  Leasehold improvements                                              2,484       1,656
  Software                                                           17,308       6,193
  Construction-in-progress                                           30,505      88,739
                                                                    -------     -------
                                                                    468,950     440,819
  Accumulated depreciation and amortization                         (72,156)    (40,500)
                                                                    -------     -------
Telephone plant and equipment, net                                  396,794     400,319
                                                                    -------     -------

Other assets:
  Rural Telephone Bank stock, at cost                                10,078      10,078
  Rural Telephone Finance Cooperative stock, at cost                 46,798      46,946
  Goodwill, net of accumulated amortization of $41,318
    and $25,770 in 2001 and 2000, respectively                      367,929     393,282
  Other assets                                                       23,781      44,051
                                                                    -------     -------
Total other assets                                                  448,586     494,357
                                                                    -------     -------
Total assets                                                      $ 896,578   $ 992,017
                                                                    =======     =======
</TABLE>



                                      F-3
<PAGE>

                           Madison River Capital, LLC

                     Consolidated Balance Sheets, Continued
                                (in thousands)
<TABLE>
<CAPTION>
                                                                       December 31
                                                                    2001        2000
                                                                  ---------------------
<S>                                                               <C>         <C>
Liabilities and member's capital
Current liabilities:
  Accounts payable                                                $   1,157   $   6,201
  Accrued expenses                                                   39,343      59,430
  Advance billings and customer deposits                              4,386       4,921
  Other current liabilities                                             734         168
  Deferred income taxes                                               1,753        -
  Current portion of long-term debt                                  20,408      15,258
                                                                    -------     -------
Total current liabilities                                            67,781      85,978
                                                                    -------     -------

Noncurrent liabilities:
  Long-term debt                                                    659,610     662,856
  Deferred income taxes                                              40,685      47,023
  Other liabilities                                                  22,284      21,309
                                                                    -------     -------
Total noncurrent liabilities                                        722,579     731,188
                                                                    -------     -------

Total liabilities                                                   790,360     817,166

Redeemable minority interest                                         46,825      45,750

Member's capital:
  Member's interest                                                 213,584     213,054
  Accumulated deficit                                              (154,221)    (79,292)
  Accumulated other comprehensive income (loss)                          30      (4,661)
                                                                    -------     -------
Total member's capital                                               59,393     129,101
                                                                    -------     -------
Total liabilities and member's capital                            $ 896,578   $ 992,017
                                                                    =======     =======
</TABLE>



                                   See accompanying notes.


                                      F-4
<PAGE>


                             Madison River Capital, LLC

            Consolidated Statements of Operations and Comprehensive Loss
                                   (in thousands)
<TABLE>
<CAPTION>
                                                                 December 31
                                                         2001        2000       1999
                                                     ---------------------------------
<S>                                                  <C>         <C>         <C>
Operating revenues:
  Local service                                      $ 140,507   $ 125,229   $  68,813
  Long distance service                                 15,891      14,156       2,292
  Internet and enhanced data service                    10,359       6,777         998
  Transport service                                      2,880          95        -
  Miscellaneous telecommunications service
    and equipment                                       14,626      20,844       9,414
                                                       -------     -------     -------
Total operating revenues                               184,263     167,101      81,517
                                                       -------     -------     -------

Operating expenses:
  Cost of services                                      68,512      61,559      24,909
  Depreciation and amortization                         58,471      50,093      21,508
  Selling, general and administrative expenses          54,488      55,457      29,608
  Restructuring charge                                   2,779        -           -
                                                       -------     -------     -------
Total operating expenses                               184,250     167,109      76,025
                                                       -------     -------     -------

Net operating income (loss)                                 13          (8)      5,492

Interest expense                                       (64,624)    (61,267)    (22,443)
Other (expense) income, net                            (14,813)      4,899       3,386
                                                       -------     -------     -------
Loss before income tax expense and minority
  interest expense                                     (79,424)    (56,376)    (13,565)
Income tax benefit (expense)                             5,570      (2,460)     (1,625)
                                                       -------     -------     -------
Loss before minority interest expense                  (73,854)    (58,836)    (15,190)
Minority interest expense                               (1,075)       (750)       -
                                                       -------     -------     -------
Net loss                                               (74,929)    (59,586)    (15,190)

Other comprehensive income (loss)                        4,691      (4,661)       -
                                                       -------     -------     -------
Comprehensive loss                                   $ (70,238)  $ (64,247)  $ (15,190)
                                                       =======     =======     =======
</TABLE>
                                  See accompanying notes.

                                      F-5
<PAGE>


                           Madison River Capital, LLC

                  Consolidated Statements of Member's Capital
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                      Accumulated
                                                                         Other
                                      Member's       Accumulated     Comprehensive
                                      Interest         Deficit       Income (Loss)       Total
                                      --------      ------------     -------------       -----
<S>                                  <C>            <C>               <C>             <C>
Balance at December 31, 1998         $  58,586      $   (4,516)       $    -          $  54,070
  Member's capital contribution        127,114            -                -            127,114
  Net loss                                -            (15,190)            -            (15,190)
                                       -------         -------          -------         -------
Balance at December 31, 1999           185,700         (19,706)            -            165,994
  Member's capital contribution         27,354            -                -             27,354
  Net loss                                -            (59,586)            -            (59,586)
  Other comprehensive loss                -               -              (4,661)         (4,661)
                                       -------         -------          -------         -------
Balance at December 31, 2000           213,054         (79,292)          (4,661)        129,101
  Member's capital contribution            530            -                -                530
  Net loss                                -            (74,929)            -            (74,929)
  Other comprehensive income              -               -               4,691           4,691
                                       -------         -------          -------         -------
Balance at December 31, 2001         $ 213,584      $ (154,221)       $      30       $  59,393
                                       =======         =======          =======         =======
</TABLE>

                                  See accompanying notes.







                                      F-6
<PAGE>

                           Madison River Capital, LLC

                      Consolidated Statements of Cash Flows
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                               December 31
                                                                       2001        2000       1999
                                                                   ---------------------------------
<S>                                                                <C>         <C>         <C>
Operating activities
Net loss                                                           $ (74,929)  $ (59,586)  $ (15,190)
Adjustments to reconcile net loss to net cash (used in)
  provided by operating activities:
    Depreciation                                                      39,766      32,567      11,705
    Amortization                                                      18,705      17,526       9,804
    Gain on sale of telephone plant and equipment                     (1,210)       -           -
    Deferred long-term compensation                                    1,271       4,772       2,576
    Deferred income taxes                                             (4,585)     (4,436)        147
    Writedown of investments carried on equity method                  8,940        -           -
    Realized loss on sale of marketable equity securities              9,452       3,071        -
    Amortization of debt discount                                        158         117        -
    Minority interest expense                                          1,075         750        -
    Rural Telephone Finance Cooperative patronage capital             (1,101)     (1,185)       (342)
    Changes in operating assets and liabilities:
      Accounts receivable                                                734      (1,588)        217
      Receivables, primarily from interexchange carriers                 759      (1,565)     (1,283)
      Income tax recoverable                                             136         224          52
      Due from related party                                            -           -         (1,075)
      Inventories                                                      1,210        (326)         22
      Other current assets                                             3,183      (3,019)      3,611
      Accounts payable                                                (5,044)      1,880      (3,352)
      Accrued expenses                                               (20,099)     33,406       5,631
      Advance billings and customer deposits                            (517)        592         500
      Other current liabilities                                          (40)       (947)        (85)
                                                                     -------     -------     -------
Net cash (used in) provided by operating activities                  (22,136)     22,253      12,938
                                                                     -------     -------     -------

Investing activities
Proceeds from sale of telephone plant and equipment                   13,547        -           -
Purchases of telephone plant and equipment                           (39,936)    (89,644)    (37,756)
Acquisitions, net of cash acquired                                      -       (116,618)   (310,458)
Purchase of Rural Telephone Finance Cooperative stock, net              -         (4,252)    (31,617)
Decrease (increase) in other assets                                    4,742      (2,424)      5,249
                                                                     -------     -------     -------
Net cash used in investing activities                                (21,647)   (212,938)   (374,582)
                                                                     -------     -------     -------

Financing activities
Capital contributions from members                                       530      27,354     127,114
Proceeds from long-term debt                                          17,000     329,649     316,167
Payments on long-term debt                                           (15,254)   (186,717)     (4,822)
(Decrease) increase in other long-term liabilities                      (297)         80         560
                                                                     -------     -------     -------
Net cash provided by financing activities                              1,979     170,366     439,019
                                                                     -------     -------     -------
Net (decrease) increase in cash and cash equivalents                 (41,804)    (20,319)     77,375
Cash and cash equivalents at beginning of year                        63,410      83,729       6,354
                                                                     -------     -------     -------

Cash and cash equivalents at end of year                           $  21,606   $  63,410   $  83,729
                                                                     =======     =======     =======

Supplemental disclosures of cash flow information
Cash paid for interest                                             $  64,172   $  51,896   $  20,879
                                                                     =======     =======     =======
Cash paid for income taxes                                         $   4,055   $   2,038   $   2,085
                                                                     =======     =======     =======
</TABLE>

                                See accompanying notes.

                                      F-7
<PAGE>
                           Madison River Capital, LLC

                          Notes to Financial Statements

                                December 31, 2001
           (amounts in thousands, except for operating and share data)

1. Summary of Significant Accounting Policies

Description of Business

Madison River Capital, LLC (the "Company"), a wholly-owned subsidiary of Madison
River Telephone Company LLC (the "Parent"), was organized on August 26, 1999 as
a limited liability company under the provisions of the Delaware Limited
Liability Company Act. Under the provisions of this Act, the member's liability
is limited to the Company's assets provided that the member returns to the
Company any distributions received. The Company offers integrated
telecommunications services to business and residential customers in the Gulf
Coast, Mid-Atlantic and Midwest regions of the United States which include local
and long distance voice, high speed data, internet access and fiber transport.
These consolidated financial statements include the financial position and
results of operations of the following subsidiaries of the Company from the date
of their respective acquisition or formation (see Note 12, Acquisitions):
Madison River Holdings Corp. ("MRH"), Madison River LTD Funding Corp.
("MRLTDF"), Mebtel, Inc. ("Mebtel"), Gallatin River Holdings, LLC ("GRH"), Gulf
Coast Services, Inc. ("GCSI"), Coastal Communications, Inc. ("CCI"), Madison
River Management Company ("MRM"), Madison River Long Distance Solutions, Inc.
("MRLDS") and Madison River Communications, LLC ("MRC").

Prior to the formation of the Company in 1999, all operations were consolidated
at the parent level.  Concurrent with the formation of the Company, all
operations are consolidated at the Company level.  The primary purpose for which
the Company was organized was the acquisition, integration and operation of
rural local exchange telephone companies.  Since January 1998, the Company has
acquired four rural incumbent local exchange carriers ("ILECs") located in North
Carolina, Illinois, Alabama and Georgia.  These rural ILEC operations, which
comprise the Local Telecommunications Division (the "LTD"), served approximately
205,900 voice access and DSL connections as of December 31, 2001.

The Company also operates as a competitive local exchange carrier ("CLEC") in
markets in North Carolina and Louisiana, as well as providing fiber transport
services to other businesses, primarily in the southeastern United States.  The
CLEC and fiber transport operations form the Integrated Communications Division
(the "ICD") and that division served approximately 17,400 voice access and DSL
connections at December 31, 2001.

Basis of Presentation

The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned and majority-owned subsidiaries.  All material
intercompany accounts and transactions have been eliminated in the consolidated
financial statements.  Minority interest expense represents periodic accretions
in the carrying value of a minority interest in a subsidiary of the Company to
reflect contractual call amounts if the Company elected to redeem the interest
subject to the terms of a shareholders agreement.

Reclassifications

In certain instances, amounts previously reported in the 2000 and 1999
consolidated financial statements have been reclassified to conform with the
2001 consolidated financial statement presentation.  Such reclassifications had
no effect on net loss or member's capital as previously reported.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and the accompanying
notes. Actual results could differ from those estimates.

                                      F-8
<PAGE>

                           Madison River Capital, LLC

                    Notes to Financial Statements (continued)

1. Summary of Significant Accounting Policies (continued)


Regulatory Assets and Liabilities

The Company's rural ILECs are regulated entities and therefore are subject to
the provisions of Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation" ("SFAS 71").
Accordingly, the Company accounts for the economic effects of rate regulation by
recording costs and a return on investment, as such amounts are recovered
through rates authorized by regulatory authorities.  These regulatory assets and
liabilities relate primarily to fixed assets and the regulatory impact thereof.

Telephone plant and equipment used in the rural ILEC operations has been
depreciated using the straight line method over lives approved by regulators.
Such depreciable lives have generally exceeded the depreciable lives used by
unregulated entities.  In addition, certain costs and obligations are deferred
based upon approvals received from regulators to permit recovery of such amounts
in future years.  The Company's operations that are not subject to regulation by
state and federal regulators are not accounted for under the guidelines of SFAS
71.

Statement of Financial Accounting Standards No. 101, "Regulated Enterprises
Accounting for the Discontinuance of Application of FASB Statement No. 71"
("SFAS 101"), specifies the accounting required when an enterprise ceases to
meet the criteria for application of SFAS 71. SFAS 101 requires the elimination
of the affects of any actions of regulators that have been recognized as assets
and liabilities in accordance with SFAS 71 but would not have been recognized as
assets and liabilities by enterprises in general, along with an adjustment of
certain accumulated depreciation accounts to reflect the difference between
recorded depreciation and the amount of depreciation that would have been
recorded had the Company's telephone operations not been subject to rate
regulation.

The ongoing applicability of SFAS 71 to the Company's regulated telephone
operations is being monitored due to the changing regulatory, competitive and
legislative environments, and it is possible that changes in these areas or in
the demand for regulated services or products could result in the Company's
telephone operations no longer being subject to SFAS 71 in the future. If the
regulated operations of the Company no longer qualify for the application of
SFAS 71, the net adjustments required by SFAS 101 could result in a material,
noncash charge against earnings.


Cash Equivalents

It is the Company's policy to consider investments with a maturity of three
months or less at the date of purchase to be cash equivalents.


Inventories

Inventories are comprised primarily of poles, wires and telephone equipment and
are stated at the lower of cost (average cost) or market.


                                      F-9
<PAGE>

                           Madison River Capital, LLC

                    Notes to Financial Statements (continued)

1. Summary of Significant Accounting Policies (continued)

Telephone Plant and Equipment

Telephone plant and equipment is stated at cost, which includes certain labor
and direct costs associated with the installation of certain assets.

Maintenance, repairs and minor renewals are expensed as incurred. Additions,
renewals and betterments are capitalized to telephone plant and equipment
accounts. For the regulated ILEC operations, the original cost of depreciable
property retired is removed from telephone plant and equipment accounts and
charged to accumulated depreciation, which is credited with the salvage value
less removal cost. Under this method, no gain or loss is recognized on ordinary
retirements of depreciable property.  For retirements of telephone plant and
equipment in the Company's unregulated operations, the original cost and
accumulated depreciation are removed from the accounts and the corresponding
gain or loss is included in the results of operations.

Depreciation is provided using the straight-line method over the estimated
useful lives of the respective assets.  The regulated ILEC operations use
straight-line rates approved by regulators.  The composite annualized rate of
depreciation for telephone plant and equipment in the regulated operations
approximated 6.87%, 6.58% and 6.54% for 2001, 2000 and 1999, respectively.  In
the unregulated operations, telephone plant and equipment is depreciated over
lives, determined according to the class of the asset, ranging from three years
to 33 years.

Investments in Unconsolidated Companies

A subsidiary of the Company, CCI, has two investments in unconsolidated
companies that are accounted for using the equity method of accounting and
reflect the Company's share of income or loss of the investee, reduced by
distributions received and increased by contributions made.  The Company's share
of losses in these unconsolidated companies was $2,366 and $1,650 for the years
ended December 31, 2001 and 2000, respectively.  During 2001, the Company
recognized an impairment charge of $8.9 million on these investments for
declines in fair value deemed to be other than temporary.  These amounts are
included in other (expense) income in the accompanying consolidated statements
of operations and comprehensive loss.

The carrying value of these investments were $8,013 and $18,057 at December 31,
2001 and 2000, respectively.  These investments are included in other assets in
the accompanying consolidated balance sheets.

Revenues

Revenues are recognized when the corresponding services are provided regardless
of the period in which they are billed.  Recurring local service revenues are
billed one month in advance, and recognition is deferred until the service has
been provided.  Nonrecurring revenues, such as long distance toll charges and
other usage based billings, are billed in arrears and are recognized when
earned.

Network access service revenues are based on universal service funding and
charges to interexchange carriers for switched and special access services and
are recognized in the period when earned.  The Company's rural ILEC subsidiaries
participate in revenue sharing arrangements, sometimes referred to as pools,
with other telephone companies for interstate revenues and for certain
intrastate revenues.  Such sharing arrangements are funded by national universal
service funding, toll revenue and/or access charges in the interstate market.
Revenues earned through the sharing arrangements are initially recorded based on
the Company's estimates.  These estimates are then subject to adjustment in
future accounting periods as refined operating results become available.
Traffic sensitive and special access revenues for interstate services are billed
under tariffs approved by the appropriate regulatory authority and retained by
the Company.

Revenues from billing and collection services provided to interexchange
carriers, advertising sold in telephone directories and the sale and maintenance
of customer premise equipment are recorded as miscellaneous revenues.  These
revenues are recognized when the service has been provided or over the life of
the contract, as appropriate.
                                      F-10
<PAGE>

                           Madison River Capital, LLC

                    Notes to Financial Statements (continued)

1. Summary of Significant Accounting Policies (continued)

Income Taxes

For federal and state income tax purposes, the Company and its wholly-owned
subsidiary, MRC, are limited liability corporations and are treated as
partnerships. Accordingly, income, losses and credits are passed through
directly to the members of these partnerships.

MRH, a wholly-owned subsidiary of the Company, is a holding company for the
Company's taxable C corporations that include, MRLTDF, Mebtel, GCSI, CCI, MRM
and MRLDS.  Income taxes for the C corporations are accounted for using the
liability method.  Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards.  Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled.  The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.  Deferred tax assets are reduced by a valuation
allowance to the extent that it is unlikely that the asset will be realized.

Allocation of Distributions

Distributions to its member, if any, are allocated in accordance with the terms
outlined in the Company's Operating Agreement.

Goodwill

Goodwill resulting from the excess of the purchase price of the Company's
acquisitions in excess of the fair value of the net assets acquired is
amortized using the straight-line method over 25 years. The Company
recorded amortization expense related to this goodwill of approximately $16,533,
$15,930 and $8,170 for the years ended December 31, 2001, 2000 and 1999,
respectively. The carrying value of goodwill is reviewed if the facts and
circumstances suggest impairment. If this review by management indicates that
the carrying value will not be recoverable, as determined based on undiscounted
cash flows over the remaining amortization period, the Company would reduce the
carrying value by the estimated shortfall of cash flows on a discounted basis.
Based upon the application of this policy, no impairments were recognized during
2001, 2000 or 1999.

In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning after
December 15, 2001.  Under the new rules, goodwill and intangible assets deemed
to have indefinite lives will no longer be amortized but will be subject to
annual impairment tests in accordance with the statements.  Other intangible
assets will continue to be amortized over their useful lives.  The Company will
adopt the new rules on accounting for goodwill and other intangible assets
beginning in the first quarter of 2002.  The Company expects that application of
the nonamortization provisions of the statements will result in a decrease in
net loss of approximately $16,500 per year.  During 2002, the Company will
perform the first of the required impairment tests as of January 1, 2002.  The
Company does not believe that the results of these tests will have a material
impact on its financial position, net loss or cash flows.

Significant Concentration

The Company's principal financial instrument subject to potential concentration
of credit risk is accounts receivable which are unsecured. The Company provides
an allowance for doubtful receivables based on an analysis of the likelihood of
collection of outstanding amounts. One customer represented 14%, 14% and 15% of
operating revenues for the years ended December 31, 2001, 2000 and 1999,
respectively.  This customer's revenues related primarily to the LTD.

                                      F-11
<PAGE>

                           Madison River Capital, LLC

                    Notes to Financial Statements (continued)


1. Summary of Significant Accounting Policies (continued)

Impairment of Long-Lived Assets

The Company reviews long-lived assets and certain identifiable intangibles for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.  Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of the
assets to future undiscounted net cash flows expected to be generated by the
assets.  If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets.


Comprehensive Income (Loss)

Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130") requires that total comprehensive income (loss) be
disclosed with equal prominence as the Company's net loss. Comprehensive income
(loss) is defined as changes in member's capital exclusive of transactions with
owners such as capital contributions and distributions.  For 2001 and 2000, the
Company had comprehensive income (loss), net of income taxes, of $4,691 and
($4,661), respectively, from unrealized gains and losses on equity securities
available for sale. The Company's comprehensive loss for 1999 is equivalent to
the Company's net loss for that year.


Recent Accounting Pronouncements

In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS 144").  SFAS 144 supersedes SFAS 121 and
establishes a single accounting model for long-lived assets to be disposed of by
sale as well as resolved implementation issues related to SFAS 121.  The Company
will adopt SFAS 144 for fiscal 2002, which may result in additional disclosures.
Adoption of SFAS 144 in fiscal 2002 is not expected to have a material impact on
the financial position, net loss or cash flows of the Company.


2. Rural Telephone Bank Stock

The Company's investment in Rural Telephone Bank ("RTB") stock is carried at
cost and consists of 26,477 shares of $1,000 par value Class C stock and 223
shares of $1 par value Class B stock at December 31, 2001.  At December 31,
2000, the Company had 25,155 shares of $1,000 par value Class C stock and
1,322,084 shares of $1 par value Class B stock.  During 2001, the Company
converted 1,321,861 shares of Class B stock into 1,322 shares of Class C stock.
For 2001, 2000 and 1999, the Company received cash dividends from the RTB of
$1,413, $1,421 and $551, respectively.











                                      F-12
<PAGE>

                           Madison River Capital, LLC

                    Notes to Financial Statements (continued)


3. Rural Telephone Finance Cooperative Equity

The Company's investment in Rural Telephone Finance Cooperative ("RTFC") stock
is carried at cost and consists of Subordinated Capital Certificates ("SCCs")
acquired as a condition of obtaining long-term financing from the RTFC. The SCCs
are redeemed proportionately as the principal of the long-term financing is
repaid to the RTFC. The Company also receives cash dividends and patronage
capital certificates from the RTFC, which the Company records at cost.  For
2001, 2000 and 1999, the Company recognized patronage capital income from the
RTFC of $3,671, $4,119 and $1,118, respectively.


4. Available for Sale Equity Securities

As part of the acquisition of Coastal Utilities, Inc., the Company acquired a
marketable equity security investment that had been classified as available for
sale in accordance with Statement of Financial Accounting Standard No. 115,
"Accounting for Certain Investments in Debt and Equity Securities".  The equity
securities were carried at their estimated fair value based on current market
quotes with unrealized gains and losses reported, net of tax, in other
comprehensive income.  During January 2001, the Company sold the remaining
shares of this investment for approximately $6,331 and realized a loss, net of
income tax benefits, of $5,333.  At December 31, 2000, the securities had a fair
value of $6,915 and unrealized losses of $4,661, net of an income tax benefit of
$3,497. During 2000, the Company had proceeds from sales of certain of these
securities of $5,442 and realized losses of $3,071.


5. Restructuring Charge

In the fourth quarter of 2001, a subsidiary of the Company recorded a $2,779
restructuring charge associated with the subsidiary's decision to reduce its
sales and marketing efforts and eliminate redundant support services.  The
charge was recognized in accordance with EITF 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)."  The amounts recorded
consist primarily of the costs associated with future obligations on non-
cancelable leases for closed sales offices, redundant network operations centers
and future switching facilities, net of any estimated sublease income, losses
from the abandonment of fixed assets and leasehold improvements associated with
those leased facilities and legal related expenses.

As of December 31, 2001, the following amounts were recorded:
<TABLE>
<CAPTION>
                                                               Fourth quarter
                                               Restructuring    charges and       Balance at
                                                  Charge         payments      December 31, 2001
                                               -------------   --------------  -----------------
    <S>                                          <C>             <C>               <C>
    Future lease obligations                     $  2,166        $    248          $  1,918
    Fixed assets and leasehold improvements           413             413               -
    Legal related expenses                            200              -                200
                                                  -------         -------           -------
                                                 $  2,779        $    661          $  2,118
                                                  =======         =======           =======
</TABLE>

The remaining liability as of December 31, 2001 is recorded as $1,013 in accrued
expenses and $1,105 in other long-term liabilities.




                                      F-13
<PAGE>

                           Madison River Capital, LLC

                    Notes to Financial Statements (continued)

6. Long-Term Debt and Lines of Credit

Long-term debt and lines of credit outstanding consist of the following at:
<TABLE>
<CAPTION>
                                                                                             December 31
                                                                                          2001          2000
                                                                                       -----------------------
<S>                                                                                    <C>           <C>
First mortgage notes collateralized by substantially all LTD assets:
   RTFC note payable in escalating quarterly principal installments
      through November 2012, interest payments due quarterly at a
      fixed rate of 6.5% (rate expires September 2003).                                $  12,906     $  13,654
   RTFC note payable in escalating quarterly principal installments
      through November 2012, interest payments due quarterly at a
      fixed rate of 8.15% (rate expires April 2003).                                       6,545         6,925
   RTFC note payable in escalating quarterly principal installments
      through November 2012, interest payments due quarterly at
      the financial institution's base rate plus 0.5% (5.5% at
      December 31, 2001).                                                                  1,043         1,085
   RTFC note payable in escalating quarterly principal installments
      through August 2013, interest payments due quarterly at a
      fixed rate of 6.7% (rate expires November 2004).                                   112,014       117,808
   RTFC note payable in escalating quarterly principal installments
      through August 2013, interest payments due quarterly at
      the financial institution's base rate plus 0.75% (5.75% at
      December 31, 2001).                                                                  6,031         6,246
   RTFC note payable in escalating quarterly principal installments
      through August 2013, interest payments due quarterly at a
      fixed rate of 8.4% (rate expires April 2003).                                       71,684        72,684
   RTFC note payable in escalating quarterly principal installments
      through August 2013, interest payments due quarterly at
      the financial institution's base rate plus 0.75% (5.75% at
      December 31, 2001).                                                                  3,846         3,982
   RTFC note payable in escalating quarterly principal installments
      through August 2014, interest payments due quarterly at a
      fixed rate of 8.4% (rate expires October 2004).                                    132,207       136,902
   RTFC note payable in escalating quarterly principal installments
      through February 2015, interest payments due quarterly at a
      fixed rate of 8.5% (rate expires April 2005).                                      106,462       108,689
   RTFC secured line of credit loan, maturing March 2005 with
      interest payments due quarterly at the financial institution's line
      of credit base rate plus 0.5% (6.45% at December 31, 2001)                          17,000        10,000
RTFC unsecured line of credit loan, maturing March 2005 with
   interest payments due quarterly at the financial institution's line
   of credit base rate plus 1.0% (6.95% at December 31, 2001)                             10,000          -
Mortgage note payable in monthly installments of $18 with a
   balloon payment of $2,238 in April 2006, interest at a
   fixed rate of 8%, secured by land and building                                          2,349         2,367
Unsecured 131/4% senior notes payable, due March 1, 2010, with
   interest payable semiannually on March 1 and September 1, net of
   debt discount of $2,462 and $2,621, respectively                                      197,538       197,379
Other                                                                                        393           393
                                                                                        --------      --------
                                                                                         680,018       678,114
Less current portion                                                                      20,408        15,258
                                                                                        --------      --------
                                                                                       $ 659,610     $ 662,856
                                                                                        ========      ========
</TABLE>
                                      F-14
<PAGE>

                           Madison River Capital, LLC

                    Notes to Financial Statements (continued)

6. Long-Term Debt and Line of Credit (continued)

Principal maturities on long-term debt at December 31, 2001 are as follows:
<TABLE>
                                <S>            <C>
                                2002           $  20,408
                                2003              27,484
                                2004              29,074
                                2005              57,784
                                2006              34,840
                                Thereafter       510,428
                                                --------
                                               $ 680,018
                                                ========
</TABLE>

On February 17, 2000, the Company completed a private debt offering of $200,000
131/4% senior notes (the "Private Placement Notes") that mature in 2010.
Semiannual interest payments are due on March 1 and September 1.  The net
proceeds from the offering were approximately $189,711, which reflects a bond
discount of $2,738 and issuance costs of $7,551.  The funds were used (i) to
repay $160,000 of RTFC indebtedness, which was comprised of $177,778 of
principal less $17,778 in proceeds from the redemption of the Company's
investment in RTFC SCC's applied towards the repayment of the debt, (ii) to
finance a portion of the Coastal Utilities acquisition and (iii) for general
corporate and working capital purposes.

On May 11, 2000, the Company filed a registration statement on Form S-4 with the
Securities and Exchange Commission in order to issue publicly registered notes
(the "Exchange Notes") in exchange for the Private Placement Notes.  The
registration statement became effective on June 27, 2000.  The terms of the
Exchange Notes were substantially identical to the terms of the Private
Placement Notes except that the transfer restrictions, registration rights and
liquidated damage provisions relating to the Private Placement Notes did not
apply to the Exchange Notes.  The exchange offer expired on July 28, 2000.  The
entire $200,000 in Private Placement Notes was tendered and exchanged for the
Exchange Notes.

Under the terms of the indenture that governs the senior notes, the Company must
comply with certain financial and administrative covenants. In addition, the
Company is restricted in its ability to incur additional indebtedness, to pay
dividends, to redeem or repurchase equity interests, to make various investments
or other restricted payments, to create certain liens or use assets as security
in other transactions, to sell certain assets or utilize certain asset sale
proceeds, to merge or consolidate with or into other companies or to enter into
transactions with affiliates.  At December 31, 2001, the Company was in
compliance with the terms of the senior notes indenture.

On December 29, 2000, a subsidiary of the Company, MRLTDF, entered into a
definitive agreement with the RTFC to consolidate the five existing loan
agreements with the RTFC at the various operating companies into one new loan
agreement.  The five existing loan agreements were part of the acquisition
financing used by the Company to purchase its four ILECs.  As required by the
terms of the new agreement, MRLTDF borrowed an additional $11,313 from the RTFC
to finance the purchase of an equivalent amount of SCC's.  Principal repayment
terms and security provisions under the new agreement were similar to those that
existed under the separate agreements.  In addition, the new agreement
consolidated the four separate secured lines of credit that totaled $31,000 into
a new secured $31,000 facility with no annual pay-down provisions.  The
transaction received all necessary regulatory approvals during the first quarter
of 2001.

The loan facilities are secured by a first mortgage lien on substantially all of
the property, assets and revenue of the LTD.  In addition, substantially all of
the outstanding equity interests of the subsidiaries that comprise the LTD are
pledged in support of the facilities.


                                      F-15
<PAGE>

                           Madison River Capital, LLC

                    Notes to Financial Statements (continued)

6. Long-Term Debt and Line of Credit (continued)

The terms of the RTFC loan agreement require MRLTDF to meet and adhere to
various financial and administrative covenants.  MRLTDF is also restricted from
declaring or paying dividends to MRH, its parent, under specified circumstances,
limited in its ability to make intercompany loans or enter into other affiliated
transactions, and restricted from incurring additional indebtedness above
certain amounts without the consent of the RTFC.  At December 31, 2001, the
Company was in compliance with its covenants.

The $31,000 secured revolving line of credit expires in March 2005. Interest is
payable quarterly at the RTFC's base rate plus 0.5% per annum. At December 31,
2001, the Company had drawn down $17,000 under this line of credit.  In
addition, the Company has a $10,000 unsecured revolving line of credit from the
RTFC that also expires in March 2005.  Interest is payable quarterly at the
lender's base rate plus 1.0% per annum.  At December 31, 2001, the Company had
borrowed the entire $10,000 available under this line of credit.

The Company also has available a $7,778 term loan facility with the RTFC.
Interest on this facility is payable at the lender's base rate plus .35% per
annum. The Company had no borrowings under this facility at December 31, 2001
and 2000.


7. Leases

The Company leases various facilities used primarily for offices and networking
equipment under noncancelable operating lease agreements that expire at various
dates through 2015. The leases contain certain provisions for renewal of the
agreements, base rent escalation clauses and additional rentals. Future minimum
lease payments for years subsequent to December 31, 2001 are as follows:

<TABLE>
                                <S>            <C>
                                2002           $   2,899
                                2003               2,753
                                2004               2,700
                                2005               2,323
                                2006                 681
                                Thereafter         2,476
                                                --------
                                               $  13,832
                                                ========
</TABLE>

Total rent expense was approximately $2,895, $1,434 and $319 for the years ended
December 31, 2001, 2000 and 1999, respectively.


8. Income Taxes

Income taxes for the Company's corporate subsidiaries, MRH, MRLTDF, Mebtel,
GCSI, CCI, MRM and MRLDS are calculated using the liability method, which
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in Mebtel's, GCSI's,
CCI's, MRM's and MRLDS's financial statements or tax returns. Deferred income
taxes arise from temporary differences between the income tax basis and
financial reporting basis of assets and liabilities.

In accordance with the terms of a tax sharing agreement, MRH files a
consolidated federal income tax return which includes MRH, MRLTDF, Mebtel, GCSI,
MRM and MRLDS.  CCI files its own federal income tax return.  Each entity files
state income tax returns according to the tax requirement for its respective
state.


                                      F-16
<PAGE>

                           Madison River Capital, LLC

                    Notes to Financial Statements (continued)

8. Income Taxes (continued)

Components of income tax (benefit) expense for the years ended December 31 are
as follows:

<TABLE>
<CAPTION>
                                             2001        2000         1999
                                          ----------------------------------
    <S>                                   <C>         <C>          <C>
    Current:
      Federal                             $  3,129    $ (5,826)    $   (965)
      State                                 (1,356)       (780)        (242)
    Deferred:
      Federal                                3,362       3,838         (255)
      State                                    352         598          108
                                           -------     -------      -------
    Subtotal                                 5,487      (2,170)      (1,354)
    Investment tax credits, net                 19          18           18
    Change in valuation allowance               64        (308)        (289)
                                           -------     -------      -------
    Total income tax expense              $  5,570    $ (2,460)    $ (1,625)
                                           =======     =======      =======
</TABLE>

The net income (loss) before taxes of the corporate subsidiaries for the years
ended December 31, 2001, 2000 and 1999 was approximately $(31,603), $(6,219) and
$979, respectively. Differences between reported tax (benefit) expense computed
by applying the statutory federal income tax rate to income (loss) before income
taxes and reported tax (benefit) expense for the years ended December 31 are as
follows:
<TABLE>
<CAPTION>
                                                   2001       2000       1999
                                                -------------------------------
    <S>                                         <C>        <C>         <C>
    Amount computed at statutory rate           $ 10,745   $  2,114    $  (333)
    Non-deductible goodwill amortization          (3,761)    (3,455)      (856)
    Increase in tax valuation allowance               64       (308)      (289)
    State income taxes, net of federal benefit    (1,004)      (182)      (134)
    Amortization of investment tax credits            19         18         18
    Other, net                                      (493)      (647)       (31)
                                                 -------    -------     ------
    Total income tax (benefit) expense          $  5,570   $ (2,460)   $(1,625)
                                                 =======    =======     ======
</TABLE>

The Company had a federal net operating loss carryforward of approximately
$5,076 at December 31, 2001, which will begin to expire in 2018. At December 31,
2001, GCSI and its wholly-owned subsidiary, Gulf Long Distance, had state net
operating loss carry forwards of approximately $13,006 and $7,510, respectively,
which expire through 2013 and beginning in 2005 through 2019, respectively.





                                      F-17
<PAGE>

                           Madison River Capital, LLC

                    Notes to Financial Statements (continued)

8. Income Taxes (continued)

The tax effects of temporary differences that gave rise to significant portions
of deferred tax assets and deferred tax liabilities of at December 31 are as
follows:

<TABLE>
<CAPTION>
                                                          2001           2000
                                                       ------------------------
    <S>                                                <C>            <C>
    Deferred tax assets:
      Accrued employee benefits                        $   3,443      $   4,273
      Deferred compensation                                4,257          3,992
      Net operating loss carryforwards                     2,546          2,712
      Other deferred assets                                3,056          2,494
                                                         -------        -------
      Total deferred tax assets                           13,302         13,471
      Valuation allowance for deferred tax assets         (1,062)        (1,126)
                                                         -------        -------
      Net deferred tax assets                             12,240         12,345

    Deferred tax liabilities:
      Book basis of property, plant and equipment
        in excess of tax basis                           (42,008)       (40,007)
      Basis difference in investment                      (3,568)        (9,433)
      Other deferred liabilities                          (9,102)        (8,418)
                                                         -------        -------
    Total deferred tax liabilities                       (54,678)       (57,858)
                                                         -------        -------
    Net deferred tax liabilities                       $ (42,438)     $ (45,513)
                                                         =======        =======
</TABLE>

9. Benefit Plans

Pension Plans

The Company adopted the Statement of Financial Accounting Standards No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits," which
standardizes disclosure requirements for pensions and other postretirement
benefits, eliminates certain disclosures and requires additional information.

The Company adopted a noncontributory defined benefit pension plan, which was
transferred to the Company from its wholly-owned subsidiary, Mebtel, in
May 1998, that covers all full-time employees, except employees of GCSI and CCI,
who have met certain age and service requirements. The plan provides benefits
based on participants' final average compensation and years of service. The
Company's policy is to fund the maximum contribution allowable by the Internal
Revenue Code and comply with the funding requirements of the Employee Retirement
Income Security Act of 1974. During 1998, the plan reflected the impact of a
reduction in the number of Mebtel employees covered by the plan that
significantly reduced the minimum pension liability.








                                      F-18
<PAGE>

                           Madison River Capital, LLC

                    Notes to Financial Statements (continued)

9. Benefit Plans (continued)

The following table sets forth the funded status of the Company's pension plan
and amounts recognized in the Company's financial statements at December 31,
2001 and 2000:

<TABLE>
<CAPTION>
                                                            2001         2000
                                                        -----------------------
    <S>                                                 <C>          <C>
    Projected benefit obligation at beginning of year   $  (2,619)   $  (1,690)
      Service cost                                           (783)        (579)
      Interest cost                                          (215)        (143)
      Actuarial loss                                         (244)        (212)
      Gross benefits paid                                      10            5
                                                           ------       ------
    Projected benefit obligation at end of year            (3,851)      (2,619)
                                                           ------       ------

    Fair value of plan assets at beginning of year          2,517        2,036
      Actual return on plan assets, net                       (27)          76
      Contributions                                           296          410
      Distributions                                           (11)          (5)
                                                           ------       ------
    Fair value of plan assets at end of year                2,775        2,517
                                                           ------       ------

    Funded status of the plan                              (1,076)        (102)
      Unrecognized prior service costs                         18           23
      Unrecognized net obligation                              14           15
      Unrecognized net actuarial (loss) gain                  294         (246)
                                                           ------       ------
    Net pension liability                                $   (750)  $     (310)
                                                           ======       ======
</TABLE>

Weighted-average assumptions used for the plan are as follows:
<TABLE>
<CAPTION>
                                                              December 31
                                                        2001     2000     1999
                                                        -----------------------
    <S>                                                 <C>      <C>      <C>
    Plan discount rates                                 7.50%    7.50%    7.50%
    Rates of increase in future compensation levels     3.00%    3.00%    3.00%
    Expected long-term rates of return on assets        8.00%    8.00%    8.00%
</TABLE>

The following table sets forth the net periodic pension cost for the plan:
<TABLE>
<CAPTION>
                                                    December 31
                                            2001       2000       1999
                                           ----------------------------
    <S>                                    <C>        <C>        <C>
    Service cost                           $  783     $  579     $  418
    Interest cost                             215        143         90
    Estimated return on plan assets          (269)      (163)      (162)
    Net amortization and deferral               7         (2)       (26)
                                            -----      -----      -----
    Net periodic pension cost              $  736     $  557     $  320
                                            =====      =====      =====
</TABLE>

                                      F-19
<PAGE>

                           Madison River Capital, LLC

                    Notes to Financial Statements (continued)

9. Benefit Plans (continued)

The Company also has a non-contributory defined benefit pension plan that covers
employees who have met certain age and service requirements at its wholly-owned
subsidiary, CCI, acquired March 30, 2000. The plan provides benefits based on
participants' final average compensation and years of service. The Company's
policy is to fund the maximum contribution allowable by the Internal Revenue
Code and comply with the funding requirements of the Employee Retirement Income
Security Act of 1974.

The following table sets forth the funded status of CCI's pension plan and
amounts recognized in the Company's financial statements related to this plan at
December 31, 2001 and 2000:

<TABLE>
<CAPTION>
                                                            2001         2000
                                                        -----------------------
  <S>                                                   <C>          <C>
  Projected benefit obligation at beginning of period   $  (9,985)   $ (10,357)
    Service cost                                             (318)        (297)
    Interest cost                                            (596)        (584)
    Actuarial gain                                         (1,055)        (418)
    Amendments                                              3,390         -
    Gross benefits paid                                        12        1,670
                                                          -------      -------
  Net benefit obligation at end of year                    (8,552)      (9,986)
                                                          -------      -------

  Fair value of plan assets at beginning of period          6,220        7,567
    Actual return on plan assets, net                        (827)         323
    Contributions                                             731         -
    Distributions                                             (12)      (1,670)
                                                          -------      -------
  Fair value of plan assets at end of year                  6,112        6,220
                                                          -------      -------

  Funded status of plan                                    (2,441)      (3,766)
    Unrecognized prior service costs                       (3,110)        -
    Unrecognized net obligation                              -            -
    Unrecognized net actuarial gain                         2,512          138
                                                          -------      -------
  Net pension liability                                 $  (3,039)   $  (3,628)
                                                          =======      =======
</TABLE>

Weighted-average assumptions used at December 31, 2001 and 2000 are as follows:

<TABLE>
<CAPTION>
                                                         December 31
                                                        2001     2000
                                                      -----------------
    <S>                                                 <C>      <C>
    Plan discount rates                                 7.50%    7.75%
    Rates of increase in future compensation levels     3.00%    3.00%
    Expected long-term rates of return on assets        8.00%    8.00%
</TABLE>

The following table sets forth the net periodic pension cost for the plan for
the year ended December 31, 2001 and for the period from March 30, 2000, the
date of acquisition, to December 31, 2000:

<TABLE>
<CAPTION>
                                                         December 31
                                                        2001     2000
                                                      -----------------
    <S>                                                 <C>      <C>
    Service cost                                        $  318   $  297
    Interest cost                                          596      584
    Estimated return on plan assets                       (513)    (323)
    Net amortization and deferral                         (259)     314
                                                         -----    -----
    Net periodic pension cost                           $  142   $  872
                                                         =====    =====
</TABLE>
                                      F-20
<PAGE>

                           Madison River Capital, LLC

                    Notes to Financial Statements (continued)

9. Benefit Plans (continued)

Postretirement Benefits Other Than Pensions

GCSI provides medical coverage to retirees and their dependents through a
traditional indemnity plan administered by a third party. The plan provisions
are the same as those for active participants. Eligibility to participate in the
retiree medical plan upon retirement is defined as age 55 with 25 years of
service.

GCSI requires retirees to contribute 10% of medical, dental and eye care premium
rates. The additional cost of the plan is absorbed by GCSI. GCSI's retirees also
receive free local phone service and a $100 long distance credit per month. GCSI
does not anticipate any changes in the cost-sharing provisions of the existing
written plan, and there is no commitment to increase monetary benefits. The plan
is unfunded.

The plan had a curtailment gain in 2000 as a result of a reduction in employees
at GCSI from the sale of construction assets and the reorganization and
consolidation of operations.

The following table sets forth the funded status of GCSI's plan and amounts
recognized in GCSI's financial statements at December 31, 2001 and 2000.

<TABLE>
<CAPTION>
                                                                    2001         2000
                                                                -----------------------
  <S>                                                           <C>          <C>
  Accumulated plan benefit obligation at beginning of period    $  (3,992)   $  (5,470)
    Service cost                                                      (49)        (289)
    Interest cost                                                    (102)        (430)
    Plan participants' contributions                                  (15)         (17)
    Amendments                                                      2,492          -
    Curtailment                                                       -          1,484
    Actuarial gain                                                    -            502
    Benefits paid                                                     115          228
                                                                   ------       ------
  Accumulated plan benefit obligation at end of period             (1,551)      (3,992)
                                                                   ------       ------

  Fair value of plan assets at beginning of period                    -            -
    Employer contribution                                             100          211
    Plan participants' contributions                                   15           17
    Benefits paid                                                    (115)        (228)
                                                                   ------       ------
  Fair value of plan assets at end of period                          -            -
                                                                   ------       ------

  Funded status of plan                                            (1,551)      (3,992)
    Unrecognized prior service costs                               (2,326)         -
    Unrecognized net gain                                          (1,017)      (1,073)
                                                                   ------       ------
  Accrued postretirement benefit cost                           $  (4,894)   $  (5,065)
                                                                   ======       ======
</TABLE>





                                      F-21
<PAGE>

                           Madison River Capital, LLC

                    Notes to Financial Statements (continued)

9. Benefit Plans (continued)
<TABLE>
<CAPTION>
                                                           2001        2000       1999
                                                          ----------------------------
  <S>                                                     <C>        <C>          <C>
  Components of net periodic postretirement benefit cost:
    Service cost                                          $  49      $   289      $  77
    Interest cost                                           102          430        114
    Actuarial gain                                          (56)          (2)        -
                                                           ----       ------       ----
  Net periodic postretirement benefit cost                   95          717        191
    Prior service costs                                    (166)          -          -
    Curtailment                                              -        (1,484)        -
                                                           ----       ------       ----
  Total postretirement benefit cost accrual               $ (71)     $  (767)     $ 191
                                                           ====       ======       ====

  Weighted-average assumptions:
    Discount rate                                          7.00%        7.50%      8.00%
    Initial medical trend rate                             9.00%        9.00%      9.00%
    Initial dental and vision trend rate                   8.00%        8.00%      8.00%
    Ultimate trend rate                                    5.00%        5.00%      5.00%
    Years to ultimate trend rate                            8            8          8
</TABLE>

Other information:
<TABLE>
  <S>                                                   <C>         <C>         <C>
  One percent increase in trend rates:
    Effect on service and interest cost                  $  170      $   183     $   46
    Effect on accumulated plan benefit obligation         1,661          732      1,033
  One percent decrease in trend rates:
    Effect on service and interest cost                    (135)        (138)       (35)
    Effect on accumulated plan benefit obligation        (1,361)        (567)      (806)
</TABLE>

401(k) Savings Plans

The Company sponsors a 401(k) savings plan covering substantially all employees
who meet certain age and employment criteria, except for employees of GCSI.
Employees may elect to contribute up to 15% of their compensation to the plan.
The Company matches the first 6% of compensation deferred at the rate of 50% of
employee contributions. The Company made matching contributions of approximately
$859 in 2001, $811 in 2000 and $480 in 1999.  In addition, in 2000, the
Company also made a discretionary contribution of $200.

GCSI sponsors a 401(k) savings plan for all of its employees who meet certain
age and employment criteria.  Employees may elect to contribute up to 8% of
their compensation to the plan. The Company matches the first 6% of compensation
deferred at the rate of 50% of employee contributions. The Company made matching
contributions of approximately $243 in 2001, $246 in 2000 and $242 in the period
from September 29, 1999, the date of acquisition, to December 31, 1999.


GCSI Employee Stock Ownership Plan

A GCSI subsidiary sponsors a non-contributory employee stock ownership plan
("ESOP") which covered certain employees who had completed one year of service
and attained the age of nineteen.  Additionally, all participants in a former
profit sharing plan became eligible for the ESOP effective with the formation of
the ESOP.






                                      F-22
<PAGE>

                           Madison River Capital, LLC

                    Notes to Financial Statements (continued)

9. Benefit Plans (continued)

Prior to September 1999, the ESOP operated as a leveraged ESOP.  On September
29, 1999, GCSI merged with the Company. As part of the acquisition, all shares
held by the ESOP were acquired subject to an escrow holdback for contingent
liabilities and unpaid obligations and the outstanding loan of the ESOP was
retired.  The Company adopted a resolution to terminate the ESOP effective
December 31, 1999 subject to final resolution of certain matters relating to the
ESOP and a receipt of a favorable letter of determination from the Internal
Revenue Service regarding the termination of the ESOP.  Accordingly, all
accruals of benefits under the plan were suspended as of that date, and no
further contributions were required to be made by GCSI.  At December 31, 2001,
the ESOP continued to operate pending final resolution of those matters as more
fully discussed in Note 14 below.  Upon final resolution, all remaining assets
will be distributed to plan participants and the ESOP will be terminated.

In November 1999 and June 2000, GCSI distributed approximately 20% and 60% of
accumulated benefits under the ESOP as of December 31, 1998.  In addition to the
remaining cash, the ESOP continues to hold a 48.2% interest in the escrow
holdback.


10. Long-Term Incentive Plan

In 1998, the Company adopted a long-term incentive plan arrangement that
provides for annual incentive awards for certain employees as approved by the
Board of Directors. Under the terms of the plan, awards are earned over the
succeeding 12 months after the award eligibility is determined.

Incentive awards vest automatically at the time of a qualified event as defined
under the plan. Vested awards are payable under certain circumstances as defined
under the long-term incentive plan arrangement. The Company recognized
compensation expense of $1,271, $4,772 and $2,576 in the years ended December
31, 2001, 2000 and 1999, respectively, related to the long-term incentive
awards.


11. Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value of
the Company's financial instruments:

   Cash and cash equivalents, accounts receivable, inventories, other current
   assets, accounts payable, accrued expenses and other current liabilities -
   the carrying value approximates fair value due to the short maturity of these
   instruments.

   Long-term debt and lines of credit - the fair value and carrying value of
   long-term debt and lines of credit at December 31, 2001 were $621,758 and
   $680,018, respectively, and at December 31, 2000 were $620,735 and $678,114,
   respectively. The fair value of the Company's $200,000 senior notes is based
   on the quoted value at the close of business on December 31.  The fair value
   of the secured long-term debt is estimated by discounting the scheduled
   payment streams to their present value based on current rates for similar
   instruments of comparable maturities.


12. Acquisitions

In March 2000, CCI, a subsidiary of the Company, acquired Coastal Utilities,
Inc. and its subsidiary, a Georgia local exchange company serving approximately
41,000 access lines, for cash consideration of $130,000 and Series A and Series
B non-voting common stock of CCI with a face value of $10,000 and $5,000,
respectively.

                                      F-23
<PAGE>

                           Madison River Capital, LLC

                    Notes to Financial Statements (continued)

12. Acquisitions (continued)

These transactions were accounted for using the purchase method of accounting
with results of operations of the acquired companies included in the Company's
operations from the effective dates of acquisition. The Company records acquired
assets and liabilities at their estimated fair value. The excess of the purchase
price over the fair value of net assets acquired is recorded as goodwill.

The following reflects the allocation of the net purchase price for the Coastal
acquisition:

<TABLE>
           <S>                                           <C>
           Current assets                                $  16,672
           Telephone plant and equipment                    46,222
           Excess cost over the fair value of the net
             assets acquired (goodwill)                     81,323
           Other assets                                     50,545
           Current liabilities                              (6,023)
           Other liabilities                               (13,739)
           Redeemable minority interest                    (45,000)
                                                          --------
           Net cash paid                                $  130,000
                                                          ========
</TABLE>

The minority interest portion of the consideration consisted of Series A and
Series B non-voting common stock of CCI that was issued to the sellers of the
Coastal Utilities stock.  The Series A and Series B stock have put and call
features exercisable by the holders and CCI, subject to the terms and conditions
of a shareholders agreement.  The Series A stock, with a face value of $10,000,
can be put to CCI at any time after March 30, 2005 for $17,700.  CCI has the
right to call the Series A stock during the intervening period at specific
amounts as defined in the shareholders agreement.  The Series A stock was
initially recorded at $10,000, which approximated its fair value.  Periodic
accretions in the carrying value are being made to reflect the contractual call
amounts and are being charged to minority interest expense in the Consolidated
Statements of Operations and Comprehensive Loss. The Series B stock, with a face
value of $5,000, can be put to CCI before March 31, 2002 upon the occurrence of
an eligible risk changing event as defined in the shareholders agreement or
after March 30, 2004.  CCI has the right to call the Series B stock in the
intervening period at predetermined amounts that increase at certain dates.  The
Series B stock was initially recorded at $35,000, which was the initial put
value and approximated its fair value.  The carrying value will be adjusted,
with a corresponding charge to minority interest expense, to correspond to the
maximum amount of cash that CCI would be required to pay to redeem the Series B
stock.

The following unaudited consolidated results of operations are prepared on a pro
forma basis and presented as if the acquisition of Coastal Utilities, Inc.
occurred as of the beginning of the respective period:

<TABLE>
<CAPTION>
                                                      Year ended
                                        December 31, 2000   December 31, 1999
                                        -----------------   -----------------
        <S>                                 <C>                 <C>
        Total operating revenues            $ 178,754           $ 166,852
        Net loss                            $ (61,840)          $ (46,863)
</TABLE>

This pro forma financial information is presented for informational purposes
only and is not necessarily indicative of the operating results that would have
actually been obtained had Coastal Utilities been acquired as of the above
dates, nor are such amounts indicative of future operating results.




                                      F-24
<PAGE>

                           Madison River Capital, LLC

                    Notes to Financial Statements (continued)


13. Segment Information

The Company is a provider of integrated communications services and solutions.
In accordance with the requirements of Statement of Financial Accounting
Standards No. 131, "Disclosure about Segments of an Enterprise and Related
Information," the Company's operations are classified into two reportable
business segments, the LTD and the ICD.  Though both segments provide
telecommunication services, each segment is managed by distinct management
teams, each is subject to different levels of regulation and their financial and
operating results are evaluated separately by the chief operating decision
maker.  The reporting segments follow the same accounting principles and
policies used for the Company's consolidated financial statements.  Revenues by
product line are disclosed in the Consolidated Statement of Operations. All
operations and assets are based in the United States.  The following summarizes
the revenues and net operating income (loss) for each segment for the years
ended December 31, 2001, 2000 and 1999:

<TABLE>
<CAPTION>
                                                        December 31
                                            2001            2000         1999
                                        ---------------------------------------
    <S>                                 <C>             <C>            <C>
    Total revenues
      LTD                               $  171,328      $  161,741     $ 81,161
      ICD                                   15,496           6,698          460
                                          --------        --------      -------
                                           186,824         168,439       81,621
    Less intersegment revenues              (2,561)         (1,338)        (104)
                                          --------        --------      -------
      Total reported revenues           $  184,263      $  167,101     $ 81,517
                                          ========        ========      =======

    Net operating income (loss)
      LTD                               $   37,886      $   26,234     $ 11,616
      ICD                                  (37,873)        (26,242)      (6,124)
                                          --------        --------      -------
      Total reported operating
        income (loss)                   $       13      $       (8)    $  5,492
                                          ========        ========      =======
</TABLE>

As of December 31, 2001 and 2000, total assets by segment, net of intersegment
investments and other intersegment balances, were as follows:
<TABLE>
<CAPTION>
                                                    December 31
                                               2001            2000
                                          ----------------------------
      <S>                                 <C>             <C>
      Total assets:
        LTD                               $    819,584    $    918,085
        ICD                                    506,239         518,728
                                           -----------     -----------
                                             1,325,823       1,436,813
      Less intersegment assets                (429,245)       (444,796)
                                           -----------     -----------
        Total reported assets             $    896,578    $    992,017
                                           ===========     ===========
</TABLE>










                                      F-25
<PAGE>

                           Madison River Capital, LLC

                    Notes to Financial Statements (continued)


14. Commitments and Contingencies

Under the terms of Madison River Telephone Company's Operating Agreement, at any
time on or after January 2, 2006, certain members may require MRTC to purchase
all of their redeemable member units in an amount equal to the fair market value
of such units. Such an event could result in Madison River Capital and its
subsidiaries being required to fund this obligation of the parent company, MRTC.

The Company has a resale agreement with a vendor to provide long distance
transmission services. Under the terms of the agreement, the Company must
utilize certain contracted minimum volume commitments.

As part of the consideration paid in the acquisition of Coastal Utilities, the
Company issued to the former shareholders of Coastal Utilities, Series A non-
Voting common stock and Series B non-voting common stock of CCI in the face
amount of $10.0 million and $5.0 million, respectively. The Series A and Series
B stock have put and call features that are defined pursuant to the terms of a
shareholders agreement and are exercisable by the holders and CCI. Based on the
put features of the shareholders agreement, the holders of Series A stock may
put their shares to CCI in March 2005, and CCI will have until December 2005 to
purchase them for $17.7 million.  CCI has the right to call the Series A stock
at any time in the intervening period at specified amounts as defined in the
shareholders agreement.  The holders of the Series B stock have the right prior
to March 30, 2002 to put their shares to CCI for $35.0 million upon the
occurrence of certain events, as defined in the shareholders agreement, or for
$60.0 million at anytime after March 2004.  CCI has the right to call the Series
B stock for amounts that escalate with the passage of time. If the Series B
Shareholders' exercise of their put option, as described below, is deemed to be
a valid exercise, then CCI would be required to redeem the shares for $35.0
million no later than April 2002.

In February 2001, the holders of the Series B stock notified the Company of
their exercise of the put option.  The Company is currently in negotiations with
the Series B shareholders regarding their exercise of the put option.  Although
the Company anticipates that a mutually acceptable agreement will be entered
into with the shareholders in April 2002, there is no assurance that the Company
will be able to enter into such an agreement.  The failure to enter into a
mutually acceptable agreement could have a material adverse effect on the
Company's financial condition, results of operations and cash flows.

GCSI's ESOP is also the subject of an application before the Internal Revenue
Service ("IRS") for a compliance statement under the Voluntary Compliance
Resolution Program.  The application was filed with the IRS on May 17, 2000.
According to the application, GCSI made large contributions to the ESOP and to
its 401(k) plan during 1997 and 1998, which caused the two plans to allocate
amounts to certain employees in excess of the limits set forth in Section 415 of
the Internal Revenue Code ("Code").  The administrative committees for both
plans sought to comply with the requirements of Code Section 415 by reducing
employees' allocations under the ESOP before any reductions of allocations under
the 401(k) plan.  Although this approach is consistent with Treasury Regulations
under Code Section 415, it may not have been consistent with the terms of the
plan documents.  The application requests a compliance statement to the effect
that any failure to comply with the terms of the plans will not adversely affect
the plans' tax-qualified status, conditioned upon the implementation of the
specific corrections set forth in the compliance statement.









                                      F-26
<PAGE>

                           Madison River Capital, LLC

                    Notes to Financial Statements (continued)


14. Commitments and Contingencies, Continued

The Company estimates that the contribution to the ESOP required by the
corrective allocation described above will be approximately $3.3 million.  In
the application, GCSI requested that the assets held in the Section 415 Suspense
Account and in the ESOP Loan Suspense Account be used by the ESOP for the
correction.  The 415 Suspense Account has an approximate value of $1.6 million
and the ESOP Loan Suspense Account has a value in excess of the $1.7 million
needed for the full correction.  However, based on discussions with the IRS and
upon the recommendation of its advisors, during the second quarter of 2001, the
Company withdrew its proposal to use the assets in the ESOP Loan Suspense
Account as a source of funds to satisfy the obligation.  Shortly thereafter, the
IRS issued to the Company a Section 415 Compliance Statement and provided the
Company with 150 days to institute the corrective actions.  During the course of
making these corrections, additional administrative errors in the operation of
the ESOP were found that directly affected the accuracy of the corrective
allocations.  Therefore, the Company intends to file a new application in 2002
with the IRS for a compliance statement under the Voluntary Compliance
Resolution Program to address these new errors and the necessary corrective
allocations.  The final outcome and timing of this process is not readily known
and any additional costs related to this new filing are not estimable at this
time.  The Company will pursue other options currently available to it to obtain
reimbursement of any funds that may be required to be contributed to the ESOP to
comply with the Code, which may include seeking reimbursement from an escrow
account established in connection with the sale of Gulf Coast Services by the
sellers of Gulf Coast Services stock.  There is no assurance that the Company
will be able to obtain any reimbursement from another source and, therefore, may
be required to contribute to the ESOP the funds needed to make up any shortfall,
which currently approximates $1.7 million. The Company does not believe that
this action will have a material adverse effect on its financial condition or
results of operations.

The Company is involved in various claims, legal actions and regulatory
proceedings arising in the ordinary course of business.  The Company does not
believe the ultimate disposition of these matters will have a material adverse
effect on its consolidated financial position, results of operations or cash
flows.














                                      F-27
<PAGE>

                           Madison River Capital, LLC

                 Schedule II - Valuation and Qualifying Accounts
                   Years Ended December 31, 2001, 2000 and 1999
                                 (in thousands)

<TABLE>
<CAPTION>
Allowance for uncollectible accounts:
                                                         Additions
                                               -----------------------------
                                               Additions
                                Balance at     Charged to     Additions           Deductions     Balance at
                                Beginning      Costs and        Due to               from           End
                                of Period      Expenses      Acquisitions (a)      Reserves      of Period
                                ---------      ----------    ----------------     ----------     ---------
<S>                             <C>            <C>           <C>                  <C>            <C>
Year ended December 31, 2001:
  Allowance for uncollectible
    accounts                    $  1,150       $  4,922      $     -              $  (4,257)     $  1,815
                                 =======        =======       ========             ========       =======
Year ended December 31, 2000:
  Allowance for uncollectible
    accounts                    $  1,087       $  1,471      $     583            $  (1,991)     $  1,150
                                 =======        =======       ========             ========       =======
Year ended December 31, 1999:
  Allowance for uncollectible
    accounts                   $     335       $  1,585      $     261            $  (1,094)     $  1,087
                                ========        =======       ========             ========       =======
</TABLE>

(a)  This column represents additions due to the acquisitions of Gulf Coast
Services and Coastal Communications.


Allowance for uncollectible accounts, primarily from interexchange carriers:

<TABLE>
<CAPTION>
                                                         Additions
                                               -----------------------------
                                               Additions
                                Balance at     Charged to     Additions           Deductions     Balance at
                                Beginning      Costs and        Due to               from           End
                                of Period      Expenses      Acquisitions          Reserves      of Period
                                ---------      ----------    ----------------     ----------     ---------
<S>                             <C>            <C>           <C>                  <C>            <C>
Year ended December 31, 2001:
  Allowance for uncollectible
    accounts                    $   531        $  -          $     -              $  (420)       $  111
                                  =====         =====          ========             =====          ====
Year ended December 31, 2000:
  Allowance for uncollectible
    accounts                    $   -          $  531        $     -              $   -          $  531
                                  =====         =====          ========             =====          ====
Year ended December 31, 1999:
  Allowance for uncollectible
    accounts                    $   -          $  -          $     -              $   -          $  -
                                  =====         =====          ========             =====          ====
</TABLE>

                                      F-28
<PAGE>


                           Madison River Capital, LLC

                 Schedule II - Valuation and Qualifying Accounts
                   Years Ended December 31, 2001, 2000 and 1999
                                 (in thousands)


Valuation allowance for deferred income tax assets:
<TABLE>
<CAPTION>
                                                         Additions
                                               -----------------------------
                                               Additions
                                Balance at     Charged to     Additions           Deductions     Balance at
                                Beginning      Costs and        Due to               from           End
                                of Period      Expenses      Acquisitions (a)      Reserves      of Period
                                ---------      ----------    ----------------     ----------     ---------
<S>                             <C>            <C>           <C>                  <C>            <C>

Year ended December 31, 2001:
  Valuation allowance for
    deferred income tax asset   $  1,126       $   -         $   -                $    (64)      $  1,062
                                 =======        ======        ========             =======        =======
Year ended December 31, 2000:
  Valuation allowance for
    deferred income tax assets  $    818       $   308       $   -                $     -        $  1,126
                                 =======        ======        ========             =======        =======
Year ended December 31, 1999:
  Valuation allowance for
    deferred income tax assets  $    -         $   289       $   529              $     -        $    818
                                 =======        ======        ========              ======        =======
</TABLE>

(a)  This column represents additions due to the acquisition of Gulf Coast
Services.








                                      F-29
<PAGE>



                                  EXHIBIT INDEX

EXHIBIT
NUMBER                         Description of Exhibits
-------                        -----------------------
3.1*       Certificate of Formation of Madison River Capital, LLC
3.2*       Limited Liability Company Agreement of Madison River Capital, LLC
3.3*       Certificate of Incorporation of Madison River Finance Corp.
3.4*       By-Laws of Madison River Finance Corp.
4.1*       Form of the Series B 131/4% Senior Notes due 2010
4.2*       Purchase Agreement, dated as of February 17, 2000, between Madison
           River Capital, LLC, Madison River Finance Corp. and Goldman, Sachs &
           Co., Bear, Stearns & Co., Inc., Chase Securities Inc. and Morgan
           Stanley & Co. Incorporated
4.3*       Indenture, dated as of February 17, 2000, between Madison River
           Capital, LLC, Madison River Finance Corp. and Norwest Bank Minnesota,
           National Association
4.4*       Exchange and Registration Rights Agreement, dated as of February 17,
           2000, between Madison River Capital, LLC, Madison River Finance Corp.
           and Goldman, Sachs & Co., Bear, Stearns & Co. Inc., Chase Securities
           Inc. and Morgan Stanley & Co. Incorporated
10.1*      Contribution and Stock Purchase Agreement, dated November 23, 1999,
           by and among, Madison River Telephone Company, LLC, Coastal
           Communications, LLC, Coastal Utilities, Inc., Daniel M. Bryant, G.
           Allan Bryant and The Michael E. Bryant Life Trust
10.1.1*    First Amendment to Contribution and Stock Purchase Agreement, dated
           March 20, 2000, by and among, Madison River Telephone Company, LLC,
           Coastal Communications, LLC, Coastal Utilities, Inc., Daniel M.
           Bryant, G. Allan Bryant and The Michael E. Bryant Life Trust
10.1.2*    Second Amendment to Contribution and Stock Purchase Agreement, dated
           March 29, 2000, by and among, Madison River Telephone Company, LLC,
           Coastal Communications, LLC, Coastal Utilities, Inc., Daniel M.
           Bryant, G. Allan Bryant and The Michael E. Bryant Life Trust
10.1.3*    Shareholders Agreement, dated March 30, 2000, by and among Coastal
           Communications, Inc. and Daniel M. Bryant, G. Allan Bryant, The
           Michael E. Bryant Life Trust and Madison River Capital, LLC
10.2*      Agreement and Plan of Merger, dated May 9, 1999, by and between
           Madison River Telephone Company, LLC and Gulf Coast Services, Inc.
10.2.1*    First Amendment to Agreement and Plan of Merger, dated July 2, 1999,
           by and between Madison River Telephone Company, LLC and Gulf Coast
           Services, Inc.
10.2.2*    Second Amendment to Agreement and Plan of Merger, dated August 24,
           1999, by and between Madison River Telephone Company, LLC and Gulf
           Coast Services, Inc.
10.2.3*    Third Amendment to Agreement and Plan of Merger, dated September 28,
           1999, by and between Madison River Telephone Company, LLC and Gulf
           Coast Services, Inc.
10.3*      Asset Purchase Agreement, dated April 21, 1998, among Madison River
           Telephone Company, LLC, Gallatin River Communications L.L.C., Central
           Telephone Company of Illinois and Centel Corporation
10.3.1*    Amendment No. 1 to Asset Purchase Agreement, dated September 22,
           1998, by and between Gallatin River Communications, LLC, Madison
           River Telephone Company, LLC, Central Telephone Company of Illinois
           and Centel Corporation
10.3.2*    Amendment No. 2 to Asset Purchase Agreement, dated October 29, 1998,
           by and between Gallatin River Communications, LLC, Madison River
           Telephone Company, LLC, Central Telephone Company of Illinois and
           Centel Corporation
10.4*      Stock Purchase Agreement, dated September 12, 1997, by and among
           Madison River Telephone Company, LLC and Mebcom Communications, Inc.
           and its stockholders



                                      I-1
<PAGE>
                            EXHIBIT INDEX, Continued
EXHIBIT
NUMBER                         Description of Exhibits
-------                        -----------------------

10.5*      Employment Agreement, dated April 17, 1996, between Madison River
           Telephone Company, LLC and J. Stephen Vanderwoude   **
10.5.1*    First Amendment to Employment Agreement, dated October 8, 1996,
           between Madison River Telephone Company, LLC and J. Stephen
           Vanderwoude   **
10.5.2*    Second Amendment to Employment Agreement, dated January 24, 1997,
           between Madison River Telephone Company, LLC and J. Stephen
           Vanderwoude   **
10.5.3*    Third Amendment to Employment Agreement, dated October 16, 1997,
           between Madison River Telephone Company, LLC and J. Stephen
           Vanderwoude   **
10.5.4*    Fourth Amendment to Employment Agreement, dated September 15, 1999,
           between Madison River Telephone Company, LLC and J. Stephen
           Vanderwoude   **
10.6*      Employment Agreement, dated April 17, 1996, between Madison River
           Telephone Company, LLC and James D. Ogg   **
10.6.1*    First Amendment to Employment Agreement, dated October 8, 1996,
           between Madison River Telephone Company, LLC and James D. Ogg   **
10.6.2*    Second Amendment to Employment Agreement, dated January 24, 1997,
           between Madison River Telephone Company, LLC and James D. Ogg   **
10.6.3*    Third Amendment to Employment Agreement, dated October 16, 1997,
           between Madison River Telephone Company, LLC and James D. Ogg   **
10.6.4*    Fourth Amendment to Employment Agreement, dated September 15, 1999,
           between Madison River Telephone Company, LLC and James D. Ogg   **
10.7*      Employment Agreement, dated August 1, 1996, between Madison River
           Telephone Company, LLC and Donald K. Roberton   **
10.7.1*    First Amendment to Employment Agreement, dated January 24, 1997,
           between Madison River Telephone Company, LLC and Donald K. Roberton**
10.7.2*    Second Amendment to Employment Agreement, dated October 16, 1997,
           between Madison River Telephone Company, LLC and Donald K. Roberton**
10.7.3*    Third Amendment to Employment Agreement, dated September 15, 1999,
           between Madison River Telephone Company, LLC and Donald K. Roberton**
10.8*      Employment Agreement, dated June 4, 1996, between Madison River
           Telephone Company, LLC and Paul H. Sunu   **
10.8.1*    First Amendment to Employment Agreement, dated October 8, 1996,
           between Madison River Telephone Company, LLC and Paul H. Sunu   **
10.8.2*    Second Amendment to Employment Agreement, dated January 24, 1997,
           between Madison River Telephone Company, LLC and Paul H. Sunu   **
10.8.3*    Third Amendment to Employment Agreement, dated October 16, 1997,
           between Madison River Telephone Company, LLC and Paul H. Sunu   **
10.8.4*    Fourth Amendment to Employment Agreement, dated September 15, 1999,
           between Madison River Telephone Company, LLC and Paul H. Sunu   **
10.9*      Employment Agreement, dated September 28, 1999, between Madison River
           Telephone Company, LLC and Bruce J. Becker   **
10.10*     Terms of the Madison River Telephone Company, LLC Long Term Incentive
           Plan effective November 1, 1998








                                      I-2
<PAGE>
                             EXHIBIT INDEX, Continued
EXHIBIT
NUMBER                         Description of Exhibits
-------                        -----------------------

10.11*     Loan Agreement and Promissory Notes, dated as of September 29, 1999,
           between Gulf Telephone Company and the Rural Telephone Finance
           Cooperative (the "RTFC")
10.12*     Secured Revolving Line of Credit Agreement, dated as of September 29,
           1999, between Gulf Telephone Company and the RTFC
10.13*     Loan Agreement, dated as of January 16, 1998, between Mebtel, Inc.
           and the RTFC
10.14*     Secured Revolving Line of Credit Agreement, dated as of January 16,
           1998, between Mebtel, Inc. and the RTFC
10.15*     Loan Agreement, dated as of October 30, 1998, between Gallatin River
           Communications, LLC and the RTFC
10.16*     Loan Agreement, dated as of October 30, 1998, between Madison River
           Communications, Inc. and the RTFC
10.17*     Secured Revolving Line of Credit Agreement, dated as of October 30,
           1998, between Gallatin River Communications, LLC and the RTFC
10.18*     Loan Agreement, dated as of March 29, 2000, between Coastal
           Utilities, Inc. and the RTFC
10.19*     Secured Revolving Line of Credit Agreement, dated as of March 29,
           2000, between Coastal Utilities, Inc. and the RTFC
10.20*     Unsecured Revolving Line of Credit Agreement, dated as of March 29,
           2000, between Coastal Utilities, Inc. and the RTFC
10.21***   Interconnection Agreement, dated December 18, 1998, between BellSouth
           Telecommunications Inc. and Mebtel Integrated Communications
           Solutions, LLC
10.22***   Interconnection, Resale and Unbundling Agreement, dated as of October
           13, 1999, between GTE North Incorporated, GTE South Incorporated and
           Mebtel Integration Communication Solutions, Inc.
10.23***   Interconnection Agreement, dated as of August 31, 1999, by and
           between Ameritech Information Industry Services and Mebtel Integrated
           Communications Solutions, LLC
10.24***   Interconnection, Resale and Unbundling Agreement, dated as of
           September 27, 1999 between GTE South Incorporated and Mebtel
           Integration Communication Solutions, Inc.
10.25++    Interconnection Agreement-Texas, dated July 27, 2000, between
           Southwestern Bell Telephone Company and Madison River Communications
           LLC
10.26+++   Loan Agreement and Secured Promissory Notes, dated as of December 29,
           2000, by and between Madison River LTD Funding Corp. and the RTFC
10.27+++   Secured Revolving Line of Credit Agreement, dated as of December 29,
           2000, by and between Madison River LTD Funding Corp. and the RTFC
21.1       Subsidiaries of the Registrant

*  Incorporated herein by reference to the Registrant's Registration Statement
on Form S-4 (File No. 333-36804) filed with the Securities and Exchange
Commission on May 11, 2000.

**  Denotes management contract or compensatory plan or arrangement required to
be filed as an exhibit hereto.

***  Incorporated herein by reference to the Registrant's First Amendment to the
Registration Statement on Form S-4 (File No. 333-36804) filed with the
Securities and Exchange Commission on June 23, 2000.

++  Incorporated herein by reference to the Registrant's Quarterly Report on
Form 10-Q filed with the Securities and Exchange Commission on November 13,
2000.

+++  Incorporated herein by reference to the Registrant's Annual Report on Form
10-K filed with the Securities and Exchange Commission on April 2, 2001.

                                      I-3