##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Form 10-K

|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | for the fiscal year ended December 31,
    2003.                                            
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | for the transition period
    from           to          .                                  

Commission file number 0-27416

(RCC LOGO)

Rural Cellular Corporation

(Exact name of registrant as specified in its
charter)


|                                                                   |  |                                     
|------------------------------------------------------------------ |  | ------------------------------------
|Minnesota                                                          |  | 41-1693295                          
|(State or other jurisdiction of incorporation
    or organization) |  | (I.R.S. Employer Identification No.)

3905 Dakota Street SW

Alexandria, Minnesota 56308


(320) 762-2000


(Address, including zip code, and telephone
number, including area code, of registrants principal
executive offices)


Securities registered pursuant to
Section 12(b) of the Act:

NONE


Securities registered pursuant to
Section 12(g) of the Act:

Class A Common Stock, par value
$.01 per share


Series A Preferred Share Purchase
Rights


(Title of class)


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 þ          No o

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.     o

Indicate by check mark whether the Registrant is
an accelerated filer (as defined in Rule 12b-2 of the
Securities Exchange Act of
1934).     Yes o          No þ

Aggregate value of shares of common stock held by
nonaffiliates of the Registrant based upon the closing price on
June 30, 2003 (only shares held by directors, officers and
their affiliates, and holders of more than 5% of Class A or
Class B stock are excluded): $30,077,922

Number of shares of common stock outstanding as
of the close of business on February 19, 2004:

|        |  |  |            | 
|------- |  |  | ---------- | 
|Class A |  |  | 11,701,397 | 
|Class B |  |  | 539,291    | 

Documents incorporated by reference:

Portions of the definitive Proxy Statement
relating to the 2004 Annual Meeting of Shareholders, which will
be held on May 18, 2004 (Proxy Statement), are
incorporated by reference into Part II, Item 9, and
Part III in this report.



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TABLE OF CONTENTS

|                                 |  |                                                                                                                         |    |      |    | 
|-------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                                 |  |                                                                                                                         |    | Page
|                                 |  |                                                                                                                         |    |     
|PART I                          
|Item 1.                          |  | Business                                                                                                                |    |      | 3  | 
|Item 2.                          |  | Properties                                                                                                              |    |      | 30 | 
|Item 3.                          |  | Legal Proceedings                                                                                                       |    |      | 30 | 
|Item 4.                          |  | Submission of Matters to a
    Vote of Security Holders                                                                 |    |      | 32 | 
|                                
|PART II                         
|Item 5.                          |  | Market for Registrants
    Common Equity and Related Stockholder Matters and Issuer
    Purchases of Equity Securities |    |      | 33 | 
|Item 6.                          |  | Selected Financial Data                                                                                                 |    |      | 35 | 
|Item 7.                          |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations                               |    |      | 38 | 
|Item 7A.                         |  | Quantitative and Qualitative
    Disclosures About Market Risk                                                          |    |      | 57 | 
|Item 8.                          |  | Financial Statements and
    Supplementary Data                                                                         |    |      | 59 | 
|Item 9.                          |  | Changes in and Disagreements
    with Accountants on Accounting and Financial Disclosure                                |    |      | 59 | 
|Item 9A.                         |  | Controls and Procedures                                                                                                 |    |      | 59 | 
|                                
|PART III                        
|Item 10.                         |  | Directors and Executive
    Officers of the Registrant                                                                  |    |      | 59 | 
|Item 11.                         |  | Executive Compensation                                                                                                  |    |      | 60 | 
|Item 12.                         |  | Security Ownership of
    Certain Beneficial Owners and Management and Related Stockholder
    Matters                  |    |      | 60 | 
|Item 13.                         |  | Certain Relationships and
    Related Transactions                                                                      |    |      | 60 | 
|Item 14.                         |  | Principal Accountant Fees
    and Services                                                                              |    |      | 60 | 
|                                
|PART IV                         
|Item 15.                         |  | Exhibits, Financial
    Statement Schedules, and Reports on Form 8-K                                                    |    |      | 61 | 
|Signatures                       |  |                                                                                                                         | 62 |     
|Subsidiaries of the Registrant  
|Consent of Deloitte & Touche LLP
|Section 302 Certification       
|Section 302 Certification       
|Section 906 Certification       
|Section 906 Certification       



2



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##### Table of Contents






PART I






|        |         
|------- | --------
|Item 1. | Business

References in this Form 10-K to
Rural Cellular, RCC, we,
our, and us refer to Rural Cellular
Corporation and its subsidiaries as a combined entity, except
where it is clear that those terms mean only the parent
company.

Forward-Looking Information

This Form 10-K includes
forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of
the Securities Exchange Act. All statements regarding us and our
expected financial position, business, and financing plans are
forward-looking statements. Forward-looking statements can be
identified by, among other things, the use of forward-looking
terminology such as believes, expects,
may, will, should,
seeks, anticipates, intends,
or the negative or other variations of any such term or
comparable terminology, or by discussions of strategy or
intentions. Although we believe that the expectations reflected
in such forward-looking statements are reasonable, our
expectations may prove not to be correct. A number of factors
could cause our actual results, performance, and achievements or
industry results to be materially different from any future
results, performance, or achievements expressed or implied by
such forward-looking statements. These factors include, but are
not limited to:



| |   |                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the competitive environment in the wireless and
    telecommunications industries and in the markets we serve,
    including the quality and pricing of comparable wireless
    communications services offered by our competitors;
|
| |  | economic conditions in our geographic markets and
    in general, including those resulting from geopolitical concerns;                                                                                                            
|
| |  | demographic changes;                                                                                                                                                                                                               
|
| |  | our ability to attract and retain qualified
    personnel;                                                                                                                                                                         
|
| |  | our ability to meet the obligations of our
    indebtedness;                                                                                                                                                                       
|
| |  | our ability to meet our schedule for build-out of
    our wireless network;                                                                                                                                                        
|
| |  | our business plan and our strategy for
    implementing our plan;                                                                                                                                                                  
|
| |  | the market acceptance of the technology we use;                                                                                                                                                                                    
|
| |  | our capital expenditures and funding
    requirements, including our ability to access sufficient capital
    to meet operating and financing needs;                                                                               
|
| |  | the availability of adequate quantities of system
    infrastructure and customer equipment and components to meet our
    service deployment and marketing plans and customer demand;                                             
|
| |  | our ability to achieve and maintain market
    penetration and average customer revenue levels sufficient to
    provide financial viability;                                                                                      
|
| |  | our ability to integrate the operations of any
    businesses we acquire;                                                                                                                                                          
|
| |  | our ability to scale our billing, collection,
    customer care, and similar back-office operations to keep pace
    with customer growth and increased system usage;                                                              
|
| |  | future legislation or regulatory actions relating
    to specialized mobile radio services, other wireless
    communications services, or telecommunications services
    generally;                                              
|
| |  | other risks and uncertainties described from time
    to time in our reports filed with the Securities and Exchange
    Commission; and                                                                                            
|
| |  | other factors described in this report including,
    without limitation, under Factors that may affect our
    business, future operating results, and financial
    condition.                                                 

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In addition, such forward-looking statements are
necessarily dependent upon assumptions, estimates, and data that
may be incorrect or imprecise and involve known and unknown
risks, uncertainties, and other factors. Accordingly,
forward-looking statements included in this report do not
purport to be predictions of future events or circumstances and
may not be realized. All subsequent written and oral
forward-looking statements attributable to us or to persons
acting on our behalf are expressly qualified in their entirety
by the foregoing cautionary statements. Given these
uncertainties, you are cautioned not to place undue reliance on
such forward-looking statements. We disclaim any obligation to
update any such factors or to announce publicly the results of
any revisions to any of the forward-looking statements contained
in this report to reflect future events or developments.

Factors that may affect our business, future
operating results, and financial condition



| |                                                                
| | ---------------------------------------------------------------
| | Our future operating results could
    fluctuate significantly.

We believe that our future operating results and
cash flows may fluctuate due to many factors, some of which are
outside our control. These factors include the following:



| |   |                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | increased costs we may incur in connection with
    the build-out of our networks and the further development,
    expansion, and upgrading of our wireless systems;                              
|
| |  | fluctuations in the demand for our services and
    equipment and wireless services in general;                                                                                                   
|
| |  | increased competition, including price
    competition;                                                                                                                                           
|
| |  | changes in our roaming revenue and expenses due
    to renegotiation of our roaming agreements and the development
    of neighboring or competing networks;                                      
|
| |  | changes in the regulatory environment;                                                                                                                                                            
|
| |  | changes in the level of support provided by the
    Universal Service Fund (USF);                                                                                                               
|
| |  | the cost and availability of equipment components;                                                                                                                                                
|
| |  | seasonality of roaming revenue;                                                                                                                                                                   
|
| |  | changes in travel trends;                                                                                                                                                                         
|
| |  | acts of terrorism, political tensions, unforeseen
    health risks, unusual weather patterns, and other catastrophic
    occurrences that could affect travel and demand for our
    services; and
|
| |  | changes in general economic conditions that may
    affect, among other things, demand for our services and the
    creditworthiness of our customers.                                            

We incurred net losses applicable to common
shares of approximately $50.1 million, $456.5 million,
and $102.1 million in the years ended December 31,
2003, 2002, and 2001, respectively. We may incur significant net
losses as we seek to increase our customer base in existing
markets. We may not generate profits in the short term or at
all. If we fail to achieve profitability, that failure could
have a negative effect on the market value of our common stock.



| |                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We have a significant amount of debt and
    preferred stock, which may limit our ability to meet our debt
    service and dividend obligations, obtain future financing, make
    capital expenditures in support of our business plan, react to a
    downturn in our business, or otherwise conduct necessary
    corporate activities.

As of December 31, 2003, we had
approximately $1.8 billion of long-term debt (which
includes $493.1 million of senior and junior exchangeable
preferred stock), approximately $156.7 million of
Class M and Class T preferred stock, and
shareholders deficit of approximately $526.8 million.
Of the outstanding preferred stock, $622.6 million can be
exchanged, at our option, subject to compliance with certain
leverage ratios under our credit agreement and the indentures
related to our outstanding notes and with the conditions
outlined in the certificates of designation, for subordinated
indebtedness.

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We are required to pay dividends on our
exchangeable preferred stock. Since August 2003, dividends on
our senior exchangeable preferred stock are to be paid in cash.
We did not declare or pay the cash dividends on the senior
exchangeable preferred stock due on August 15, 2003,
November 15, 2003, or February 15, 2004, but are
accruing them. We currently pay dividends on our junior
exchangeable preferred stock by issuing additional shares.
Beginning in May 2005, dividends on our junior exchangeable
preferred stock are to be paid in cash.

The current levels of our debt and preferred
stock entail a number of risks, including the following:



| |   |                                                                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | we must use a substantial portion of our cash
    flows from operations to make principal and interest payments on
    our debt, thereby reducing funds that would otherwise be
    available to us for working capital, capital expenditures,
    future business opportunities, and other purposes;
|
| |  | we may not be able to obtain additional financing
    for working capital, capital expenditures, and other purposes on
    terms favorable to us or at all;                                                                                                                                          
|
| |  | future borrowings under our credit agreement are
    at variable interest rates, making us vulnerable to increases in
    interest rates;                                                                                                                                                            
|
| |  | we may have more debt than many of our
    competitors, which may place us at a competitive disadvantage;                                                                                                                                                                                            
|
| |  | we may have limited flexibility to react to
    changes in our business; and                                                                                                                                                                                                                         
|
| |  | we may not be able to refinance our indebtedness
    or preferred stock on terms that are commercially reasonable or
    at all.                                                                                                                                                                     

Our ability to generate sufficient cash flow from
operations to pay the principal or liquidation preference of,
and interest or preferred dividends on, our indebtedness and
preferred stock is not certain. In particular, if we do not meet
our anticipated revenue growth and operating expense targets,
our future debt and preferred stock service obligations could
exceed the amount of our available cash.



| |                                                                     
| | --------------------------------------------------------------------
| | Our common stock price has been and may
    continue to be volatile.

The trading price of our Class A common
stock has been and is likely to continue to be highly volatile
and could be subject to wide fluctuations in response to factors
such as:



| |   |                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | actual or anticipated variations in operating
    results;                                                                                                                          
|
| |  | our ability to finance our operations, including
    required payments under our credit agreement and other
    obligations and compliance with our credit agreement covenants;     
|
| |  | conditions or trends in the wireless
    communications industry and changes in the economic performance
    and/or market valuation of other wireless communications
    companies;
|
| |  | our strategic partnerships, joint ventures, or
    capital commitments; and                                                                                                         
|
| |  | additions or departures of key personnel.                                                                                                                                           

In addition, the stock market in general has
experienced extreme price and volume fluctuations that have
often been unrelated or disproportionate to the operating
performance of the affected companies. These broad market and
industry factors may materially and adversely affect the market
price of our securities, regardless of our actual operating
performance.



| |                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Litigation has been instituted against RCC
    and our officers and directors, the defense of which could
    materially and adversely affect our business, financial
    condition, and operating results.

Securities class action litigation is often
brought against companies whose stock price has been subject to
volatility. Recently, Rural Cellular and certain officers and
directors have been sued for alleged violations of securities
laws. This litigation could result in substantial costs and a
diversion of managements attention and resources, which
could materially and adversely affect our business, financial
condition, and operating results.

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| |                                                                                                                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | A significant portion of our revenue is
    from roaming charges. Based on industry trends, outcollect
    roaming yield has been declining over the last few years and is
    expected to continue to decline in the future. As a result, our
    future operating results could be adversely affected if
    increases in roaming minutes do not offset anticipated decreases
    in roaming yield.

In 2003, 2002, and 2001, approximately 26%, 27%,
and 26%, respectively, of our revenue was derived from roaming
charges incurred by other wireless providers for use of our
network by their customers who traveled within our coverage
areas. Changes in the network footprints of these providers
could have a material adverse effect on the terms of our roaming
agreements and on our outcollect revenue and incollect expenses.
For example, if a roaming partner from which we derive a
significant amount of revenue in one of our service areas were
to build its own network in that service area, our outcollect
revenue derived from our roaming relationship with that partner
in that area might decrease or even cease altogether, and our
ability to negotiate favorable incollect rates in that
partners network areas could decrease as well.

In addition, our most significant roaming
partners are performing overlays of their existing networks with
GSM/ GPRS or CDMA technology. If these partners convert their
customer base to GSM/ GPRS or CDMA technology more quickly than
anticipated, the progress of our overlays may be insufficient to
maintain the roaming revenue we have historically realized.
Further, if we encounter delays in completing our overlays, we
could miss upgrade milestones in our roaming agreements or our
roaming partners may decide to expand their networks into our
service areas in order to provide coverage for their customers,
which would lead to a decline in our outcollect roaming revenue.
Failure to meet upgrade milestones may result in reduced
outcollect rates or loss of preferred roaming status under our
roaming agreements. As required under our new roaming
agreements, we have engaged an equipment vendor for our planned
GSM/ GPRS upgrade. Any overbuild of our service areas by our
roaming partners would also result in increased competition,
which could have a negative impact on our business, operating
results, retention, and financial condition.

A substantial portion of our roaming revenue is
derived from agreements with AT&T Wireless Services, Inc.
(AWE), Verizon Wireless, and Cingular. Changes in
their operations or a significant decline in the number of their
customers could adversely affect our business. For the year
ended December 31, 2003, AWE accounted for approximately
10.0% of our total revenue.

Our roaming agreements have varying terms, from
month-to-month to up to five years, and some are terminable with
30 days written notice. When these agreements expire
or are terminated, we may be unable to renegotiate these roaming
agreements or to obtain roaming agreements with other wireless
providers upon acceptable terms. Failure to obtain acceptable
roaming agreements could lead to a substantial decline in our
revenue and operating income.



| |                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our transition from TDMA to next generation
    technologies could have a negative impact on customer
    satisfaction and retention and our financial
    results.

Our current technology strategy involves
overlaying GSM/ GPRS and CDMA networks on our existing TDMA
networks. We anticipate that our current customers using TDMA
handsets will migrate to handsets using the upgraded technology.
As these customers migrate and as roaming usage by our roaming
partners GSM/ GPRS or CDMA customers increases, we will be
required to allocate spectrum and capacity based on anticipated
customer usage of the existing and new technologies. If we do
not allocate spectrum and capacity appropriately, our service
quality could suffer, and our customer satisfaction and
retention could decrease, which could have an adverse effect on
our results of operations. In addition, as our current customers
migrate from TDMA handsets to GSM/ GPRS or CDMA handsets, our
cost of equipment may increase as a result of increased handset
subsidies.

Further, reliance on our customer service
functions may increase as we upgrade our wireless systems. Our
inability to timely and efficiently meet the demands for these
services could lead to customer dissatisfaction and decreased
retention. We may also experience increased billing and
technical support costs as a result of maintaining both TDMA and
upgraded networks in our service areas, which would adversely
affect our results of operations.

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| |                                                                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We will require substantial amounts of
    capital to meet various obligations and to maintain our wireless
    network and upgrade to next generation technologies. Our ability
    to generate the capital required to meet our obligations and to
    maintain and develop our network depends on many factors,
    including some that are beyond our control.

We have required, and will continue to require,
substantial capital to maintain our wireless network and upgrade
to next generation technologies. We will also require cash to
satisfy obligations to pay interest on our debt, pay dividends
on our exchangeable preferred stock, and for other operating
needs. We will likely need additional financing for any future
acquisitions, to repay or refinance our debt at its final
maturities, and to meet mandatory redemption provisions on our
preferred stock. To the extent that we do not generate
sufficient cash from operations to satisfy these needs, we will
need to explore other sources of additional capital, which may
include public and private equity and debt financings, including
vendor financing. The amount of additional financing that we may
require will depend on the success of our operations. The
availability of additional financing is dependent on conditions
in the capital markets. We may not be able to obtain additional
financing on terms acceptable to us and within the limitations
contained in the instruments governing our debt and our
preferred stock, or any future financing arrangements.



| |                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our business could be materially and
    adversely affected by our failure to anticipate and react to
    frequent and significant technological changes.

The telecommunications industry is subject to
rapid and significant changes in technology that are evidenced
by:



| |   |                                                                                        
| | - | ---------------------------------------------------------------------------------------
| |  | the increasing pace of digital upgrades to
    existing analog wireless systems;       
|
| |  | evolving industry standards;                                                           
|
| |  | the availability of new radio frequency spectrum
    allocations for wireless services;
|
| |  | ongoing improvements in the capacity and quality
    of digital technology;            
|
| |  | shorter development cycles for new products and
    enhancements;                      
|
| |  | developments in emerging wireless transmission
    technologies; and                   
|
| |  | changes in end-user requirements and preferences.                                      

We may be required to select in advance one
technology over another. At the time we make our selection, it
may be impossible to predict accurately which technology may
prove to be the most economic, efficient, or capable of
attracting customer usage. Consequently, it is possible that we
may select a technology that does not achieve widespread
commercial success or that is not compatible with the technology
selected by one or more of our roaming partners, and as a
result, our business, results of operations and financial
condition could be materially and adversely affected. Moreover,
one or more of the technologies that we currently utilize may
become inferior or obsolete at some time in the future.



| |                                                                                                          
| | ---------------------------------------------------------------------------------------------------------
| | Wireless number portability may decrease
    our customer retention and increase our marketing
    costs.

The Federal Communications Commission
(FCC) mandated that wireless carriers provide for
wireless number portability in the top 100 markets by
November 2003 and in all other markets by May 2004. Of our
service areas, only Cambridge, Minnesota is a top
100 market for purposes of this regulation, and it is
currently in compliance. Wireless number portability allows
customers to keep their wireless phone number when switching to
a different service provider. We anticipate wireless number
portability will increase price competition and reduce
retention. We may be required to grant promotional credits,
subsidize product upgrades, and/or reduce pricing to match
competitors initiatives and to retain customers, which
could adversely impact our operating results.

7



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| |                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we encounter significant problems, such
    as delays, inaccuracies, or loss of customer information from
    our database, in the process of upgrading our billing function,
    we could experience customer dissatisfaction and increased
    churn, which could have a material adverse impact on our
    financial performance.

We have decided to upgrade our data processing
and billing. The implementation of this system is likely to be
phased in over a period of several months and could cause a
disruption in our billing cycle, including delays in mailing of
and errors in statements sent to customers, and customers may be
dropped from our database. If such problems are significant or
prolonged, our customers may become dissatisfied and decide to
switch to a rival carrier. Also, following implementation, we
will be dependent on future performance of an outside
contractor. Any significant or prolonged problems with our
billing function could have a material adverse impact on our
business, financial condition, and results of operations.

There will also likely be a period during which
our existing billing function and our upgraded billing function
will run in tandem as we transition from one system to the
other. For a period of time following completion of the upgrade,
to the extent that agreements relating to current systems and
services are still in effect, we may encounter duplication of
some expenses.



| |                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our roaming revenue is subject to some
    effects of seasonality, and as a result, our overall revenue and
    operating income are also subject to seasonal
    fluctuations.

In 2003, 2002, and 2001, a substantial amount of
our revenue was derived from roaming charges incurred by other
wireless providers for use of our network by their customers who
traveled within our service areas. Our service areas include a
number of resort destinations. As a result, our roaming revenue
increases during vacation periods, introducing a measure of
seasonality to our revenue and operating income. See
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations  Other
Matters  Seasonality.



| |                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Difficulties in upgrading our wireless
    systems could increase our planned capital expenditures, delay
    the continued build-out of our networks, and negatively impact
    our roaming arrangements.

Whenever we need to upgrade our networks, we will
need to:



| |   |                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------
| |  | select appropriate equipment vendors;                                                                      
|
| |  | select and acquire appropriate sites for our
    transmission equipment, or cell sites;                    
|
| |  | purchase and install low-power transmitters,
    receivers, and control equipment, or base radio equipment;
|
| |  | build out any required physical infrastructure;                                                            
|
| |  | obtain interconnection services from local
    telephone service carriers on a timely basis; and           
|
| |  | test cell sites.                                                                                           

Our ability to perform these necessary steps
successfully may be hindered by, among other things, any failure
to:



| |   |                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------
| |  | obtain necessary zoning and other regulatory
    approvals;                                               
|
| |  | lease or obtain rights to sites for the location
    of our base radio equipment;                         
|
| |  | obtain any necessary capital;                                                                             
|
| |  | acquire any additional necessary spectrum from
    third parties; and                                     
|
| |  | commence and complete the construction of sites
    for our equipment in a timely and satisfactory manner.

8



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In addition, we may experience cost overruns and
delays not within our control caused by acts of governmental
entities, design changes, material and equipment shortages,
delays in delivery, and catastrophic occurrences. Any failure to
upgrade our wireless systems on a timely basis may affect our
ability to provide the quality of service in our markets
consistent with our current business plan, and any significant
delays could have a material adverse effect on our business.
Failure to meet upgrade milestones or to comply with other
requirements under our roaming agreements could have an adverse
effect on our roaming revenue.



| |                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We operate in a very competitive business
    environment, which can adversely affect our business and
    operations. Competitors who offer more services than we do may
    attract our targeted customers.

The wireless communications industry is highly
competitive, and we anticipate that this competition will cause
the prices for wireless products and services to decline in the
future. Many of our competitors and potential competitors have
substantially greater financial, personnel, technical,
marketing, and other resources than we do, as well as other
competitive advantages. Further, there has been a recent trend
in the wireless communications industry towards consolidation of
wireless service providers through joint ventures,
reorganizations, and acquisitions. We expect this consolidation,
over time, to lead to larger and better capitalized competitors.
Some competitors may market services we do not offer, such as
cable television, internet access, landline local exchange, or
long distance services, which may make their services more
attractive to customers.

Competition for customers is based principally
upon services and features offered, system coverage, technical
quality of wireless systems, price, customer service, capacity,
and strength of distribution channels. In each of our markets we
compete with several other wireless licensees. To a lesser
extent, we also compete in many of our service areas with
dispatch and conventional mobile telephone companies, satellite
telephone service providers, resellers of wireless services,
paging companies, and landline telephone service providers. We
expect this competition to increase in the future, and we may
not be able to compete successfully.



| |                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Regulation by government or potential
    litigation relating to the use of wireless phones while driving
    could adversely affect our results of operations.

Some studies have indicated that some aspects of
using wireless phones while driving may impair drivers
attention in certain circumstances, making accidents more
likely. These concerns could lead to litigation relating to
accidents, deaths, or serious bodily injuries, or to new
restrictions or regulations on wireless phone use, any of which
also could have material adverse effects on our results of
operations. A number of U.S. states and local governments
are considering or have recently enacted legislation that would
restrict or prohibit the use of a wireless handset while driving
a vehicle or, alternatively, require the use of a hands-free
telephone. Legislation of this sort, if enacted, would require
wireless service providers to provide hands-free enhanced
services, such as voice activated dialing and hands-free speaker
phones and headsets, so that they can keep generating revenue
from their subscribers, who make many of their calls while on
the road. If we are unable to provide hands-free services and
products to subscribers in a timely and adequate fashion, the
volume of wireless phone usage would likely decrease, and our
ability to generate revenues would suffer.



| |                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our business is subject to extensive
    government regulation, which could adversely affect our business
    by increasing our expenses. We also may be unable to obtain or
    retain regulatory approvals necessary to operate our business,
    which could negatively affect our results of
    operations.

The FCC regulates many aspects of our business,
including the licensing, construction, interconnection,
operation, acquisition, and sale of our wireless systems, as
well as the number of wireless licenses issued for each of our
markets. State and local regulatory authorities, to a lesser
extent, also regulate aspects of our business and services. In
addition, the Federal Aviation Administration regulates aspects
of construction, marking, and lighting of communications towers
on which we place our wireless transmitters. Changes in
legislation and regulations governing wireless activities,
wireless carriers, and availability of USF support, our failure
to comply with applicable regulations, or our loss of or failure
to obtain any license or licensed area could have a material
adverse effect on our operations.

9



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The FCC and state authorities are increasingly
looking to the wireless industry to fund various initiatives,
including federal and state universal service programs,
telephone number administration, services to the
hearing-impaired, and emergency 911 services. In addition, many
states have imposed significant taxes on providers in the
wireless industry and have adopted or are considering adoption
of regulatory requirements regarding customer billing and other
matters. These initiatives have imposed and will continue to
impose increased costs on us and other wireless carriers and may
otherwise adversely affect our business. Under Phase II of
its emergency 911 service rules, for example, the FCC has
mandated that wireless providers supply the geographic
coordinates of a customers location, by means of
network-based or handset-based technologies, to public safety
dispatch agencies. We believe that we will be able to implement
most aspects of the required Phase II systems by the
applicable deadlines; however, it appears unlikely that our
network-based systems will be able to comply fully with the
FCCs current accuracy requirements for these systems.
Although we intend to continue working with the FCC to seek
relaxed standards or extended deadlines for Phase II
implementation in rural areas, there can be no assurance that
the FCC ultimately will adopt such relaxed standards or extended
deadlines, that we will be able to comply with any such relaxed
standards or extended deadlines, or that we will not be subject
to fines by the FCC in connection with our failure to comply
with the FCCs emergency 911 service rules. These
initiatives will impose significant costs on us and there can be
no assurance that we will be able to meet these various
requirements or that we will not be subject to fines or license
revocation by the FCC in connection with our failure to comply
with these requirements.

Each of our wireless licenses is subject to
renewal upon expiration of its current term, which is generally
ten years. Grants of wireless license renewals are governed by
FCC rules establishing a presumption in favor of incumbent
licensees that have complied with their regulatory obligations
during the ten-year license period. However, we cannot provide
assurance that the FCC will grant us any future renewal
applications or that our applications will be free from
challenge. In addition, FCC rules require wireless licensees to
meet build-out requirements with respect to particular licenses,
and failure to comply with these and other requirements in a
given licensed area could result in revocation or nonrenewal of
our license for that area or the imposition of fines by the FCC.



| |                                                                                 
| | --------------------------------------------------------------------------------
| | Equipment failure and natural disasters may
    adversely affect our operations.

A major equipment failure or a natural disaster
affecting any of our central switching offices, microwave links,
or cell sites could have a material adverse effect on our
operations. Our inability to operate any portion of our wireless
system for an extended time period could result in a loss of
customers or impair our ability to attract new customers, which
would have a material adverse effect on our business, results of
operations, and financial condition.



| |                                                                                                        
| | -------------------------------------------------------------------------------------------------------
| | Our future financial results could be
    adversely impacted by asset impairments or other
    charges.

Effective January 1, 2002, we adopted
Statement of Financial Accounting Standards (SFAS)
No. 142, Goodwill and Other Intangible Assets. As a
result, we are required to test both goodwill and other
indefinite-lived intangible assets, consisting primarily of our
spectrum licenses, for impairment on an annual basis based upon
a fair value approach, rather than amortizing them over time. We
are also required to test goodwill for impairment between annual
tests if an event occurs or circumstances change that would more
likely than not reduce our enterprise fair value below its book
value. These events or circumstances could include a significant
change in the business climate, regulatory requirements,
operating performance indicators, competition, sale or
disposition of a significant portion of the business, or other
factors. If our fair value continues to be less than our book
value for an extended period of time, it could trigger the need
for impairment tests of goodwill between annual tests.
Additionally, the value of our licenses must be tested between
annual tests if events or changes in circumstances indicate that
the value might be impaired. The amount of any such annual or
interim impairment charge could be significant and could have a
material adverse effect on our reported financial results for
the period in which the charge is taken.

In 2002, upon adoption of SFAS No. 142,
we completed an impairment test of both our goodwill and our
licenses and determined that there were impairments of
$5.0 million and $412.0 million, respectively. We
recorded those impairment charges upon adoption as a cumulative
change in accounting principle. In

10



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accordance with SFAS No. 142, any
future impairment charges will be recorded as operating losses.
See Item 7. Managements Discussion and Analysis
of Financial Condition and Results of Operations 
Critical Accounting Policies and Estimates  Goodwill
and Indefinite-Lived Intangible Assets. As required under
SFAS No. 142, we completed our 2003 annual impairment
test for our goodwill and licenses and did not identify any
impairment of goodwill or licenses.


Effective January 1, 2002, we adopted
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. As a result, we are required
to assess the impairment of our long-lived assets whenever
events or changes in circumstances indicate that the carrying
value may not be recoverable as measured by the sum of the
expected future undiscounted cash flows. Factors management
considers that could trigger an impairment review include
significant underperformance relative to minimum future
operating results, significant change in the manner of use of
the assets, significant technological or industry changes, or
changes in the strategy for our overall business. When we
determine that the carrying value of certain long-lived assets
may not be recoverable based upon the existence of one or more
of the above impairment indicators, we then measure any
impairment based on a projected discounted cash flow method
using a discount rate determined by management to be
commensurate with the risk inherent in our current business
model. In accordance with SFAS No. 144, any such
impairment charges will be recorded as operating losses. See
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations 
Critical Accounting Policies and Estimates 
Impairment of Long-Lived Assets.

On March 1, 2004, we exchanged certain
wireless properties with AWE. In connection with this
transaction, we recorded a non-cash loss on assets held for
sale, in accordance with SFAS No. 144, of
$42.2 million effective in the third quarter of 2003.

Any operating losses resulting from impairment
charges under SFAS No. 142 or SFAS No. 144
could have an adverse effect on the market price of our
securities.



| |                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------
| | The restrictive covenants in our existing
    debt and preferred stock instruments and agreements may limit
    our ability to operate our business.

The instruments governing our debt, including our
credit agreement, the indentures governing our outstanding
notes, and the certificates of designation governing our
preferred stock, impose significant operating and financial
restrictions on us. These restrictions significantly limit,
among other things, our ability and the ability of our
subsidiaries to:



| |   |                                                                           
| | - | --------------------------------------------------------------------------
| |  | incur additional debt;                                                    
|
| |  | pay cash dividends on common stock;                                       
|
| |  | repay junior debt prior to stated maturities;                             
|
| |  | allow the imposition of dividend restrictions on
    certain subsidiaries;
|
| |  | sell assets;                                                              
|
| |  | make investments;                                                         
|
| |  | engage in transactions with shareholders and
    affiliates;              
|
| |  | create liens; and                                                         
|
| |  | engage in some types of mergers or acquisitions.                          

Our credit agreement requires us to maintain
specified financial ratios. Substantially all our assets are
subject to liens securing our credit agreement. These
restrictions could limit our ability to obtain future financing,
make needed capital expenditures, withstand a downturn in our
business, or otherwise conduct necessary corporate activities.
Our failure to comply with these restrictions could lead to a
default under the terms of the relevant debt or a violation of
the terms of the preferred stock even though we are able to meet
debt service and dividend obligations.

11



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If there were an event of default under our
credit agreement or other debt, the holders of the affected debt
could elect to declare all of that debt to be due and payable
which, in turn, could cause all of our other debt to become due
and payable. We and our subsidiaries might not have sufficient
funds available, and we might be unable to obtain sufficient
funds from alternative sources, to make these payments. Even if
we can obtain additional financing, the terms might not be
favorable to us. If the amounts outstanding under our credit
agreement were accelerated and we could not obtain sufficient
funds to satisfy our obligations, our lenders could proceed
against our assets and the stock and assets of our subsidiaries.
As a result, any event of default could have a material adverse
effect on our business and financial condition.



| |                                                                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are subject to limitations on our
    ability to pay cash dividends on and repurchase or otherwise
    satisfy our obligations under our senior exchangeable preferred
    stock and junior exchangeable preferred stock. If we do not
    satisfy these obligations, the holders of these securities may
    have the right to elect additional members to our board of
    directors.

Our ability to pay cash dividends on and to
redeem our senior exchangeable preferred stock and junior
exchangeable preferred stock for cash when required is
substantially restricted under various covenants contained in
documents governing our outstanding preferred stock and our
indebtedness. In addition, under Minnesota law, we are permitted
to pay dividends on or redeem our capital stock, including the
senior exchangeable preferred stock and the junior exchangeable
preferred stock, only if our board of directors determines that
we will be able to pay our debts in the ordinary course of
business after paying the dividends or completing the
redemption. In addition, in order to redeem the junior
exchangeable preferred stock, our board of directors must
determine that we have sufficient assets to satisfy the
liquidation preferences of the senior exchangeable preferred
stock.

In the past, we have been able to pay dividends
on our senior and junior exchangeable preferred stock by issuing
additional shares of preferred stock. Since August 2003,
dividends on our senior exchangeable preferred stock are to be
paid in cash. Beginning in May 2005 our junior exchangeable
preferred stock dividends are to be paid in cash. We did not
declare or pay the cash dividends and on the senior exchangeable
preferred stock due on August 15, 2003, November 15,
2003, or February 15, 2004. We are currently accruing those
dividends and may choose to accrue these dividends indefinitely,
but if we do so for more than six fiscal quarters or otherwise
fail to comply with the terms of the senior exchangeable
preferred stock or the junior exchangeable preferred stock, the
holders of a majority of the outstanding shares of the affected
series of exchangeable preferred stock, voting as a class, will
be entitled to elect the lesser of two directors or that number
of directors constituting 25% of the members of our board. In
addition, a failure to pay dividends on our preferred stock may
result in a downgrade of our credit ratings, and such a
downgrade could have an adverse effect on our ability to
refinance our existing indebtedness or otherwise raise capital.



| |                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If the demand for wireless data services
    does not grow, or if we fail to capitalize on such demand, it
    could have an adverse effect on our growth
    potential.

We have committed significant resources to
wireless data services and our business plan assumes increasing
demand for such services. That demand may not materialize. Even
if such demand does develop, our ability to deploy and deliver
wireless data services relies, in many instances, on new and
unproven technology. Existing technology may not perform as
expected, and we may not be able to obtain new technology to
effectively and economically deliver these services.



| |                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------
| | We may not be able to successfully
    integrate acquired or exchanged properties, which could have an
    adverse effect on our financial results.

We seek to improve our networks and service areas
through selective acquisitions of other providers
properties and other assets, and in some instances, we may
exchange our properties or assets for those properties and
assets. We will be required to integrate with our operations any
properties we acquire, which may have billing systems, customer
care systems, and other operational characteristics that differ
significantly from those of our networks. We may be unsuccessful
in those efforts, and retention in acquired properties and

12



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surrounding areas may suffer as a result, which
could have an adverse effect on our business and results of
operations. We will face these potential risks with respect to
our completed exchange of properties with AWE.




| |                                                                                 
| | --------------------------------------------------------------------------------
| | We have shareholders who could exercise
    significant influence on management.

The holders of our Class M convertible
preferred stock currently are able to elect two members to our
board of directors and can vote, on an as-converted basis,
approximately 2,075,471 shares of our Class A common
stock, which represented, as of December 31, 2003,
approximately 10.8% of the voting power of our common stock. The
holders of our senior exchangeable preferred stock and junior
exchangeable preferred stock, under certain circumstances, may
also be able to elect members of our board of directors in the
future. If any of these holders were to disagree with decisions
made by management or the board of directors about our plans or
operations, they might be able to bring significant pressure to
change such plans or operations.



| |                                                                                          
| | -----------------------------------------------------------------------------------------
| | Antitakeover provisions could adversely
    affect the price of our Class A common stock.

Some of the provisions of our Articles of
Incorporation, Amended and Restated Bylaws, and Minnesota law
could delay or prevent a change of control or a change in
management that may be beneficial to shareholders including:



| |   |                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------
| |  | provisions for a classified board of directors;                                                                                                    
|
| |  | provisions for advance notice for director
    nominations and shareholder proposals;                                                              
|
| |  | provisions allowing holders of our Class B
    common stock ten votes per share as compared to one vote per
    share for our Class A common stock;
|
| |  | provisions for supermajority votes to approve
    mergers or amend specified provisions of the Articles and
    Bylaws; and                        
|
| |  | statutory limits regarding share acquisitions and
    business combinations.                                                                       

We also have adopted a rights plan that could
discourage, delay, or prevent someone from acquiring us at a
premium price. The rights plan provides that preferred stock
purchase rights attached to each share of our common stock
become exercisable to purchase shares of common stock at 50% of
market value, causing substantial dilution to a person or group
acquiring 15% or more of our common stock if the acquisition is
not approved by our board of directors.

In addition, the documents governing our
indebtedness and our preferred stock impose conditions on our
ability to enter into a change of control transaction. Under
these documents, the occurrence of a change of control
transaction, in some cases after notice and grace periods, would
constitute an event of default permitting acceleration of the
indebtedness or would trigger a right of redemption.



| |                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------
| | We may incur increased costs as a result of
    recently enacted and proposed changes in securities laws and
    regulations.

Recently enacted and proposed changes in the laws
and regulations affecting public companies, including the
provisions of the Sarbanes-Oxley Act of 2002 and rules enacted
and proposed by the SEC and by the stock exchanges and the
Nasdaq Stock Market, could result in increased costs to us as we
evaluate the implications of any new rules and respond to their
requirements. The new rules could make it more difficult for us
to obtain certain types of insurance, including director and
officer liability insurance, and we may be forced to accept
reduced policy limits and coverage or incur substantially higher
costs to obtain the same or similar coverage. The impact of
these events could also make it more difficult for us to attract
and retain qualified persons to serve on our board of directors,
our board committees, or as executive officers. We are currently
evaluating and monitoring developments with respect to new and
proposed rules and cannot predict or estimate the amount of the
additional costs we may incur or the timing of such costs.

13



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##### Table of Contents





| |                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our designation or certification as an
    Eligible Telecommunications Carrier (ETC) in any
    state where we conduct business could be refused, conditioned,
    or revoked due to circumstances beyond our control, thus
    depriving us of financial support in that state from the
    USF.

In order to receive financial support from the
USF in any state, we must receive ETC certification in that
state. We are ETC certified in the states of Alabama, Maine,
Minnesota, Mississippi, Vermont, and Washington. We also have
pending applications for ETC certification in Kansas, New
Hampshire, and Oregon. If any of these or future applications
for ETC designation or certification are denied or if our ETC
designation or certification in these or other states is revoked
or conditioned, our financial results could be adversely
affected.



| |                                        
| | ---------------------------------------
| | (a) General Development of
    Business

We are a wireless communications service provider
focusing primarily on rural markets in the United States. Our
operating regions include portions of five states in the
Northeast, two states in the Northwest, four states in the
Midwest, and three states in the South. Within each of our four
regions, we have deployed a strong local sales and customer
service presence in the communities we serve, which we believe
provides us with a substantial competitive advantage,
particularly when coupled with the comprehensive coverage of our
network. In addition, we believe our market characteristics,
network quality, and the lower number of competitors in our
markets relative to more urban markets make us an attractive
roaming partner for other wireless communications service
providers. We have preferred roaming relationships with AWE,
Cingular Wireless, LLC, T-Mobile, and Verizon Wireless in our
various regions.

In October 2003, we completed an acquisition of
personal communication services, or PCS, licenses
from AWE, which overlap our Northeast and Northwest regions. On
March 1, 2004, we completed a property exchange with AWE
where we exchanged certain operations in Oregon for selected AWE
operations in Alabama and Mississippi and received other unbuilt
PCS licenses from AWE adjacent to and overlapping portions of
our Midwest, Northwest, and South regions. The new licenses from
these two transactions, together with our other existing
licenses, will be used in our next generation network build-out,
which we commenced in late 2003 and expect to be substantially
complete in late 2005.

Giving effect to our property exchange with AWE,
our marketed networks covered a total population of
approximately 6.3 million POPs and served approximately
660,000 voice customers, excluding wholesale customers, as of
December 31, 2003. Our marketed PCS networks, which we
operate through Wireless Alliance, a 70%-owned joint venture
with T-Mobile, covers a total population of approximately
754,000 and served approximately 16,000 voice customers as
of December 31, 2003.

We also own PCS licenses that cover a total
population of 300,000 in our Midwest and 1.2 million in our
Northeast regions. Our networks in these areas enable our
customers and those of our roaming partners to use our service.
We do not yet directly market our services in these areas.

14



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##### Table of Contents



The following table summarizes our existing
wireless systems as of December 31, 2003, giving effect to
the AWE property exchange (does not include our unbuilt
licenses).

|                          |           |                         |                             |              |     |              |  |              |           |           |  |  |         |         |  |  |         |         |  |  |                    |  | 
|------------------------- | --------- | ----------------------- | --------------------------- | ------------ | --- | ------------ |  | ------------ | --------- | --------- |  |  | ------- | ------- |  |  | ------- | ------- |  |  | ------------------ |  | 
|                          |           | Percentage              |                             | Service Area |     | Voice        |  |              |           |          
|Regions                   |           | Ownership               |                             | POPS(1)      |     | Customers(2) |  | Square Miles |           | States   
|                          |           |                         |                             |              |     |              |  |              |           |          
|Directly Marketed         |           |                         |                             |              |     |              |  |              |           |           |  |  |         |         |  |  |         |         |  | 
|                          | Cellular: |                         |                             |              |     |              |  |              |           |           |  |  |         |         |  |  |         |         |  |  |                   
|                          |           | Midwest                 |                             |              | 100 | %            |  |              | 741,000   |           |  |  | 118,000 |         |  |  | 45,000  |         |  |  | MN, SD             | 
|                          |           | Northeast               |                             |              | 100 | %            |  |              | 2,068,000 |           |  |  | 271,000 |         |  |  | 46,000  |         |  |  | MA, ME, NH, NY, VT | 
|                          |           | South(3)                |                             |              | 100 | %            |  |              | 2,012,000 |           |  |  | 125,000 |         |  |  | 79,000  |         |  |  | AL, KS, MS         | 
|                          |           | Northwest(3)            |                             |              | 100 | %            |  |              | 706,000   |           |  |  | 130,000 |         |  |  | 77,000  |         |  |  | OR, WA             | 
|                          |           |                         |                             |              |     |              |  |              |           |           |  |  |         |         |  |  |         |         |  | 
|                          |           |                         | Total                       |              |     |              |  |              |           | 5,527,000 |  |  |         | 644,000 |  |  |         | 247,000 |  |  |                    |  | 
|                          | PCS:      |                         |                             |              |     |              |  |              |           |           |  |  |         |         |  |  |         |         |  |  |                   
|                          |           | Wireless Alliance       |                             |              | 70  | %            |  |              | 754,000   |           |  |  | 16,000  |         |  |  | 19,000  |         |  |  | MN, ND, SD, WI     | 
|                          |           |                         |                             |              |     |              |  |              |           |           |  |  |         |         |  |  |         |         |  | 
|                          |           | Total Directly Marketed |                             |              |     |              |  |              | 6,281,000 |           |  |  | 660,000 |         |  |  | 266,000 |         |  |  |                    | 
|                          |           |                         |                             |              |     |              |  |              |           |           |  |  |         |         |  |  |         |         |  | 
|Not Directly Marketed (4) |           |                         |                             |              |     |              |  |              |           |           |  |  |         |         |  |  |         |         |  | 
|                          | PCS:      |                         |                             |              |     |              |  |              |           |           |  |  |         |         |  |  |         |         |  |  |                   
|                          |           | Midwest                 |                             |              | 100 | %            |  |              | 300,000   |           |  |  |         |         |  |  | 4,000   |         |  |  | MN                 | 
|                          |           | Northeast               |                             |              | 100 | %            |  |              | 1,173,000 |           |  |  |         |         |  |  | 6,000   |         |  |  | NH, ME             | 
|                          |           |                         |                             |              |     |              |  |              |           |           |  |  |         |         |  |  |         |         |  | 
|                          |           |                         | Total Not Directly Marketed |              |     |              |  |              |           | 1,473,000 |  |  |         |         |  |  |         | 10,000  |  |  |                    |  | 
|                          |           |                         |                             |              |     |              |  |              |           |           |  |  |         |         |  |  |         |         |  | 
|                          |           |                         | Total                       |              |     |              |  |              |           | 7,754,000 |  |  |         |         |  |  |         | 276,000 |  |  |                    |  | 
|                          |           |                         |                             |              |     |              |  |              |           |           |  |  |         |         |  |  |         |         |  | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Reflects 2000 U.S. Census Bureau population
    data updated for December 2002.                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(2) | Customer numbers exclude wholesale, paging, and
    long distance customers.                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|(3) | Under the property exchange agreement with AWE,
    on March 1, 2004, we transferred to AWE our operations in
    Oregon RSA 4, covering approximately 3,900 square miles,
    228,000 POPs, and approximately 35,000 customers as of
    December 31, 2003. We received from AWE certain of its
    operations in Alabama and Mississippi, increasing our South
    region footprint by 7,900 square miles, 545,000 POPs,
    and approximately 16,000 customers as of December 31,
    2003.
|   
|(4) | In these licensed areas we do not currently
    market our services on a per customer basis.                                                                                                                                                                                                                                                                                                                                                                                                  



| |                                             
| | --------------------------------------------
| | (b) Financial Information about
    Segments

Our business consists of one reportable operating
segment, the operation of wireless communication systems in the
United States.



| |                                               
| | ----------------------------------------------
| | (c) Description of Business/ Service
    Areas

Marketing of Products and Services



| |              
| | -------------
| | Local Service

We have developed our marketing strategy on a
market-by-market basis and offer service plan options to our
customers tailored to address their specific needs and to
encourage cellular usage. In general, because our customers
typically live in rural areas, they are more likely to purchase
plans that provide a regional footprint rather than a national
one. Most of our service plans have a fixed monthly access fee,
which includes a specified number of minutes, and incremental
fees for enhanced services. As a result of our focus on
marketing strategies as well as the upgrade of our networks to
digital capability, we are able to offer our customers a wide

15



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##### Table of Contents



array of services on an individual or bundled
basis. We believe these services, which include the following,
stimulate demand for wireless usage and increase customer
loyalty:




| |   |                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Caller
    ID Allows a customer to
    see the phone number and name of the calling party before
    answering the call or after not answering a call.                                                                                         
|
| |  | Short Message
    Service Allows a customer
    to receive and send text messages or content messages.                                                                                                                                         
|
| |  | Numeric
    Paging Allows a caller to
    leave a phone number rather than a voice message.                                                                                                                                                    
|
| |  | Visual Message
    Notification Allows a
    customer to know that a text or voice message has been received
    by displaying an icon on the customers phone.                                                                                
|
| |  | Group
    Ring Allows a customer to
    have multiple phones ring simultaneously when a single cellular
    phone number is called.                                                                                                            
|
| |  | Add-A-Line
    Allows an additional phone to be included on a single account
    for a flat fee, permitting a customer to share the service plan
    minutes.                                                                                  
|
| |  | Voicemail
    Allows a customer to receive and retrieve voicemail.                                                                                                                                                                             
|
| |  | Regional Personal Toll-Free
    Number Provides a customer
    with a regional personal toll-free number, which encourages
    customers to distribute their cellular numbers and keep their
    telephones turned on to accept incoming calls.
|
| |  | Nationwide Calling
    Option Allows a customer
    to pay a flat fee for all long distance calls made from our
    service areas.                                                                                                             
|
| |  | Voice Activated
    Dialing Provides speech
    recognition services to wireless customers and requires no extra
    equipment for the customer to buy or install.                                                                             

In addition to tailoring our service plans based
on features and minutes of use, we also offer our customers
regional calling plans and roaming packages that allow our
customers to pay home usage rates while traveling within
specified regional zones, both within and outside of our
cellular service areas. We have also established preferred
roaming contracts and developed system integration with adjacent
cellular carriers, which permit our customers to receive
automatic call delivery, call forwarding, toll-free access to
voicemail, call hand-off, and reduced roaming rates nationwide.



| |        
| | -------
| | Roaming

Roaming is an integral component of our service
offerings. We have structured our roaming agreements to enable
us to provide expanded network access to our customers both
regionally and nationally and provide roaming rates based upon
factors such as network coverage, feature functionality, and
number of customers. A substantial portion of our roaming
revenue is derived from agreements with three national wireless
providers, AWE, Verizon Wireless, and Cingular, which, for the
years ended December 31, 2003 and December 31, 2002,
accounted for approximately 84% and 85% of our total roaming
minutes, respectively. For the years ended December 31,
2003 and December 31, 2002, outcollect roaming revenue
received from AWE accounted for 10.0% and 10.1%, respectively,
of our total revenue. Under most of our roaming agreements, the
roaming yield per minute we receive from outcollect calling
minutes, in addition to the cost per minute we pay for our
customers incollect activity, declines over time.

We have roaming agreements in our markets with
various national carriers and have nationwide roaming agreements
with:



| |   |                                                                                   
| | - | ----------------------------------------------------------------------------------
| |  | AWE, which is effective through June 2006,
    renewable until 2008 at our option,
|
| |  | Cingular, which is effective through June 2007,                                   
|
| |  | T-Mobile, which is effective through December
    2007, and                       
|
| |  | Verizon, which is effective through December 2007.                                

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##### Table of Contents



Under these agreements, we are able to attain
preferred roaming status by overlaying our existing TDMA
networks with GSM/ GPRS or CDMA technologies. Our Northeast and
Northwest networks are being overlaid with GSM/ GPRS technology,
while our Midwest region network is being overlaid with CDMA
technology. We expect to have these technology conversions
substantially completed during 2005. We are currently
considering the overlay options for our South region, where
demand for next-generation technologies by our customers is not
yet as great as compared to other regions.

As part of our Northeast GSM/ GPRS overlay, we
acquired 1900 MHz spectrum from AWE and an affiliate
covering 1.8 million POPs in our Northeast region and
200,000 POPs in our Northwest region, most of which overlap
our existing service areas. Additionally, on March 1, 2004
we completed a transfer of ownership of our Oregon RSA 4
property to AWE. Consideration received by us in the exchange
included 1900 MHz licenses also largely overlapping our
service areas in our Northwest region in addition to
1900 MHz licenses in our Midwest and South regions.

Wireless Alliance has a roaming agreement with
its joint venture partner T-Mobile.



| |                   
| | ------------------
| | Customer Equipment

We currently sell handsets manufactured by
Motorola, Inc., Ericsson, Inc., and Nokia Telecommunications,
Inc. and accessories manufactured by a number of sources.



| |                       
| | ----------------------
| | Distribution and Sales

We market our wireless products and services
through direct sales distribution channels, which include
company-owned retail stores and account executives. We also
utilize indirect sales distribution channels, including
independent sales agents. All distribution channels are managed
on a regional basis. We believe that our decentralized sales
distribution strategy contributes to our service offering
success because our regions are able to tailor their respective
programs to meet the needs of each local market.

Our distribution channels include the following:



| |   |                      
| | - | ---------------------
| |  | direct sales through:



| |   |                                                                                                                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | retail stores and kiosks that we operate and
    staff with our employees. As of December 31, 2003, we had
    89 stores, primarily located in our more densely populated
    markets. In addition, we had six stand-alone kiosks. Our retail
    locations help us establish our local presence and promote
    customer sales and service; and
|
| |  | account executives who are our employees and
    focus on business and major account sales and service; and                                                                                                                                                                                                                                     



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | indirect sales through independent sales agents.
    Our independent sales agents are established businesses in their
    communities and include retail electronics stores, farm
    implement dealers, automobile dealers, automotive parts
    suppliers, college and university bookstores, video and music
    stores, and local telephone companies. Most of the agents sell
    our services in conjunction with their principal business. We
    provide cellular, digital, and paging equipment to the agents
    for sale or lease to customers, and the agents market our
    services utilizing a cooperative advertising program.

Each region is responsible for recruiting,
training, and supporting sales personnel for each distribution
channel. We provide extensive, ongoing training and support to
sales personnel.

Customer Base

At December 31, 2003, our customer base
consisted of three types of customers: postpaid, wholesale, and
prepaid. Postpaid customers accounted for the largest portion of
our customer base as of that date, at 88.0%. These customers pay
a monthly access fee for a wireless service plan that generally
includes a fixed number of minutes and certain service features.
In addition to the monthly access fee, these customers are
typically billed in arrears for long-distance charges, roaming
charges, and minutes of use exceeding the rate plans. Our

17



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##### Table of Contents



wholesale customers are similar to our postpaid
customers in that they pay monthly fees to utilize our network
and services; however, the customers are billed by a third party
(reseller), who has effectively resold our service to the end
user (customer). We in turn bill the third party for the monthly
usage of the end user. The wholesale base accounted for 9.0% of
our total customer base as of December 31, 2003. Our
prepaid customers accounted for 3.0% of our customer base as of
December 31, 2003.


Customer Service

To provide consistent customer service in our
service centers, we have implemented local monitoring and
control systems and maintain customer service departments
consisting of trained personnel who are aware of the needs of
the customers in our local markets. Our customer service centers
are located in Alexandria, Minnesota; Bangor, Maine; Enterprise,
Alabama; and Bend, Oregon. Our customer service centers can be
accessed 24 hours a day, 365 days a year, and are
responsible for processing new service orders and service
changes for existing customers and maintaining customer records.

Service Marks

The following table summarizes the brand names we
use to market our services in our different regions.

|          |  |                        
|--------- |  | -----------------------
|Region    |  | Brand Name             
|          |  |                        
|Northeast |  | UNICEL®                
|Midwest   |  | CELLULAR 2000®, UNICEL®
|Northwest |  | CELLULARONE®           
|South     |  | UNICEL®                

We own the UNICEL® mark. The CELLULAR
2000® name and related marks are owned by Cellular 2000,
Inc., of which we currently own a 50% interest. The only
business of Cellular 2000, Inc. is the licensing of its service
mark to its shareholders. We do not pay any license fees for the
use of the CELLULAR 2000® mark. The CELLULARONE® mark
is owned by Cellular One Group. Our license agreement with
Cellular One Group for use of the mark has expired, but we
continue to use the mark and make payments to Cellular One Group
for that use.

Network Operations



| |                    
| | -------------------
| | Cellular Operations

We develop and build our wireless service areas
in response to customer demand by adding channels to existing
cell sites and by building new cell sites to increase coverage
and capacity. Where appropriate, we also upgrade acquired
properties to enable us to provide similar quality service over
our entire network. We expect to continue our wireless system
expansion where necessary to add and retain customers, enhance
customer usage on our systems, and increase roaming traffic. We
also enhance our systems through scalable network equipment,
cell site splitting, cell site sectorization, and digital
upgrades of our systems. In addition to improving service
quality, these enhancements generally provide improved network
system performance and efficiency of operations. Our cellular
network consisted of 754 cell sites as of December 31,
2003. Giving effect to our property exchange agreement with AWE,
on March 1, 2004, our networks would have included 813 cell
sites.

Although we currently rely on TDMA as the primary
digital standard for our wireless systems, our Northeast and
Northwest networks are being overlaid with GSM/ GPRS technology
while our Midwest region network is being overlaid with CDMA
technology. Our next generation networks will utilize existing
cellular spectrum together with PCS licenses recently acquired
from AWE and PCS licenses from our property exchange with AWE.
We expect to have these technology conversions completed during
2005. We are considering the overlay options for our South
region, where demand for next-generation technologies by our
customers is not yet as great.

18



---



##### Table of Contents



We also have PCS networks in our Midwest and
Northeast regions. Although we do not directly market our
service to the residents of these areas, these networks satisfy
FCC build-out requirements and allow us to receive outcollect
revenue from our national roaming partners and minimize our
incollect cost from our existing customers using their phones in
those areas.



| |                                         
| | ----------------------------------------
| | Build-Out Conditions of PCS
    Licenses

All PCS licenses are granted for 10-year terms
conditioned upon timely compliance with the FCCs build-out
requirements. Pursuant to the FCCs build-out requirements,
all 30 MHz broadband PCS licensees must construct
facilities that offer coverage to one-third of the licensed
areas population within five years of obtaining the
license and to two-thirds of the licensed areas population
within ten years, and all 10 MHz broadband PCS licensees
must construct facilities that offer coverage to at least
one-quarter of the population within five years or make a
showing of substantial service within that five year
period. Failure to comply with these build-out requirements
could result in license cancellation or revocation. We are in
compliance with the build-out requirements of our recently
acquired PCS licenses and the PCS licenses we received from the
AWE property exchange.



| |                  
| | -----------------
| | Wireless Alliance

Wireless Alliance operates a GSM network and at
December 31, 2003, had 65 cell sites using T-Mobiles
switch.



| |               
| | --------------
| | Other Licenses

Currently we own, but have not yet developed
operating plans for, local multi-point distribution system
licenses. These licenses cover approximately 2.6 million
POPs and either overlap or are adjacent to our cellular systems.

Licenses

Giving effect to our property exchange with AWE,
our marketed networks, excluding overlapping licenses, covered a
total population of approximately 6.3 million POPs and
served approximately 660,000 voice customers, excluding
wholesale customers, as of December 31, 2003.

The following table summarizes our marketed and
unmarketed cellular and PCS licenses, including overlapping
unbuilt licenses, as of December 31, 2003, giving effect to
the AWE property exchange:

|            |                                                  |             |  |      |   |         |  |          |  |                     |  |   |  |  |  |                 |  |  |  |           | 
|----------- | ------------------------------------------------ | ----------- |  | ---- | - | ------- |  | -------- |  | ------------------- |  | - |  |  |  | --------------- |  |  |  | --------- | 
|Description |                                                  | % Ownership |  | POPs |   | License |  | Spectrum |  | Date of Acquisition
|            |                                                  |             |  |      |   |         |  |          |  |                    
|Midwest     |                                                  |             |  |      |   |         |  |          |  |                     |  |   |  |  |  |                 |  |  |  |          
|            | Minnesota RSA 1                                  |             |  | 100  | % |         |  | 49,000   |  |                     |  | B |  |  |  | 25 MHz Cellular |  |  |  | 01-Apr-91 | 
|            | Minnesota RSA 2                                  |             |  | 100  | % |         |  | 66,000   |  |                     |  | B |  |  |  | 25 MHz Cellular |  |  |  | 01-Apr-91 | 
|            | Minnesota RSA 3                                  |             |  | 100  | % |         |  | 58,000   |  |                     |  | B |  |  |  | 25 MHz Cellular |  |  |  | 01-Apr-91 | 
|            | Minnesota RSA 5                                  |             |  | 100  | % |         |  | 216,000  |  |                     |  | B |  |  |  | 25 MHz Cellular |  |  |  | 01-Apr-91 | 
|            | Minnesota RSA 6                                  |             |  | 100  | % |         |  | 284,000  |  |                     |  | B |  |  |  | 25 MHz Cellular |  |  |  | 01-Apr-91 | 
|            | Duluth, Minnesota/ Superior, Wisconsin BTA 119   |             |  | 70   | % |         |  | 293,000  |  |                     |  | B |  |  |  | 20 MHz PCS      |  |  |  | 10-Apr-97 | 
|            | Fargo, North Dakota/ Moorhead, Minnesota BTA 166 |             |  | 70   | % |         |  | 185,000  |  |                     |  | B |  |  |  | 20 MHz PCS      |  |  |  | 10-Apr-97 | 
|            | Grand Forks, North Dakota BTA 166                |             |  | 70   | % |         |  | 96,000   |  |                     |  | B |  |  |  | 20 MHz PCS      |  |  |  | 10-Apr-97 | 
|            | Sioux Falls, South Dakota BTA 422                |             |  | 70   | % |         |  | 180,000  |  |                     |  | B |  |  |  | 20 MHz PCS      |  |  |  | 06-Nov-97 | 
|            | South Dakota RSA 4                               |             |  | 100  | % |         |  | 68,000   |  |                     |  | B |  |  |  | 25 MHz Cellular |  |  |  | 01-Feb-99 | 
|            | St. Cloud, MN BTA 391                            |             |  | 100  | % |         |  | 300,000  |  |                     |  | C |  |  |  | 30 MHz PCS      |  |  |  | 01-Jul-99 | 
|            | Duluth, MN                                       |             |  | 100  | % |         |  | 414,000  |  |                     |  | D |  |  |  | 10 MHz PCS      |  |  |  | 01-Mar-04 | 
|            | Fargo, ND                                        |             |  | 100  | % |         |  | 317,000  |  |                     |  | F |  |  |  | 10 MHz PCS      |  |  |  | 01-Mar-04 | 
|            | Grand Forks, ND                                  |             |  | 100  | % |         |  | 194,000  |  |                     |  | E |  |  |  | 10 MHz PCS      |  |  |  | 01-Mar-04 | 

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|            |                                                     |             |  |      |   |         |  |          |  |                     |  |       |  |  |  |                 |  |  |  |           | 
|----------- | --------------------------------------------------- | ----------- |  | ---- | - | ------- |  | -------- |  | ------------------- |  | ----- |  |  |  | --------------- |  |  |  | --------- | 
|Description |                                                     | % Ownership |  | POPs |   | License |  | Spectrum |  | Date of Acquisition
|            |                                                     |             |  |      |   |         |  |          |  |                    
|Northeast   |                                                     |             |  |      |   |         |  |          |  |                     |  |       |  |  |  |                 |  |  |  |          
|            | Maine, Bangor MSA                                   |             |  | 100  | % |         |  | 146,000  |  |                     |  | B     |  |  |  | 25 MHz Cellular |  |  |  | 01-May-97 | 
|            | Maine, RSA 2                                        |             |  | 100  | % |         |  | 141,000  |  |                     |  | B     |  |  |  | 25 MHz Cellular |  |  |  | 01-May-97 | 
|            | Maine, RSA 3                                        |             |  | 100  | % |         |  | 231,000  |  |                     |  | B     |  |  |  | 25 MHz Cellular |  |  |  | 01-May-97 | 
|            | Massachusetts RSA 1                                 |             |  | 100  | % |         |  | 72,000   |  |                     |  | A     |  |  |  | 25 MHz Cellular |  |  |  | 01-Jul-98 | 
|            | New Hampshire RSA 1                                 |             |  | 100  | % |         |  | 312,000  |  |                     |  | A     |  |  |  | 25 MHz Cellular |  |  |  | 01-Jul-98 | 
|            | New York RSA 2                                      |             |  | 100  | % |         |  | 231,000  |  |                     |  | A     |  |  |  | 25 MHz Cellular |  |  |  | 01-Jul-98 | 
|            | Vermont RSA 1                                       |             |  | 100  | % |         |  | 222,000  |  |                     |  | A     |  |  |  | 25 MHz Cellular |  |  |  | 01-Jul-98 | 
|            | Vermont RSA 2                                       |             |  | 100  | % |         |  | 239,000  |  |                     |  | A     |  |  |  | 25 MHz Cellular |  |  |  | 01-Jul-98 | 
|            | Vermont, Burlington MSA                             |             |  | 100  | % |         |  | 156,000  |  |                     |  | A     |  |  |  | 25 MHz Cellular |  |  |  | 01-Jul-98 | 
|            | Maine, RSA 1                                        |             |  | 100  | % |         |  | 85,000   |  |                     |  | B     |  |  |  | 25 MHz Cellular |  |  |  | 31-Jul-98 | 
|            | Manchester & Nashua, NH BTA 274                     |             |  | 100  | % |         |  | 638,000  |  |                     |  | F     |  |  |  | 10 MHz PCS      |  |  |  | 01-Jan-01 | 
|            | New Hampshire, Portsmouth MSA                       |             |  | 100  | % |         |  | 233,000  |  |                     |  | B     |  |  |  | 25 MHz Cellular |  |  |  | 01-Jan-01 | 
|            | Portland, ME BTA 357                                |             |  | 100  | % |         |  | 535,000  |  |                     |  | F     |  |  |  | 10 MHz PCS      |  |  |  | 01-Jan-01 | 
|            | Bangor, ME BTA 30                                   |             |  | 100  | % |         |  | 327,000  |  |                     |  | A5    |  |  |  | 10 MHz PCS      |  |  |  | 15-Oct-03 | 
|            | Burlington, VT BTA 63                               |             |  | 100  | % |         |  | 414,000  |  |                     |  | F     |  |  |  | 10 MHz PCS      |  |  |  | 15-Oct-03 | 
|            | Fulton County, NY 36035                             |             |  | 100  | % |         |  | 55,000   |  |                     |  | D     |  |  |  | 10 MHz PCS      |  |  |  | 15-Oct-03 | 
|            | Hamilton County, NY 36041                           |             |  | 100  | % |         |  | 5,000    |  |                     |  | D     |  |  |  | 10 MHz PCS      |  |  |  | 15-Oct-03 | 
|            | Keene, NH BTA 227                                   |             |  | 100  | % |         |  | 120,000  |  |                     |  | A5    |  |  |  | 10 MHz PCS      |  |  |  | 15-Oct-03 | 
|            | Lebanon, NH BTA 249                                 |             |  | 100  | % |         |  | 183,000  |  |                     |  | A4    |  |  |  | 10 MHz PCS      |  |  |  | 15-Oct-03 | 
|            | Lewiston, ME BTA 251                                |             |  | 100  | % |         |  | 223,000  |  |                     |  | A5    |  |  |  | 10 MHz PCS      |  |  |  | 15-Oct-03 | 
|            | Plattsburg, NY BTA 352                              |             |  | 100  | % |         |  | 120,000  |  |                     |  | E     |  |  |  | 10 MHz PCS      |  |  |  | 15-Oct-03 | 
|            | Presque Isle, ME BTA 363                            |             |  | 100  | % |         |  | 73,000   |  |                     |  | A5    |  |  |  | 10 MHz PCS      |  |  |  | 15-Oct-03 | 
|            | Rutland-Bennington, VT BTA 388                      |             |  | 100  | % |         |  | 100,000  |  |                     |  | E     |  |  |  | 10 MHz PCS      |  |  |  | 15-Oct-03 | 
|            | Waterville, ME BTA 465                              |             |  | 100  | % |         |  | 169,000  |  |                     |  | A5    |  |  |  | 10 MHz PCS      |  |  |  | 15-Oct-03 | 
|Northwest   |                                                     |             |  |      |   |         |  |          |  |                     |  |       |  |  |  |                 |  |  |  |          
|            | Oregon RSA 3                                        |             |  | 100  | % |         |  | 158,000  |  |                     |  | A     |  |  |  | 25 MHz Cellular |  |  |  | 01-Apr-00 | 
|            | Oregon RSA 6                                        |             |  | 100  | % |         |  | 224,000  |  |                     |  | A     |  |  |  | 25 MHz Cellular |  |  |  | 01-Apr-00 | 
|            | Washington RSA 2                                    |             |  | 100  | % |         |  | 140,000  |  |                     |  | A     |  |  |  | 25 MHz Cellular |  |  |  | 01-Apr-00 | 
|            | Washington RSA 3                                    |             |  | 100  | % |         |  | 60,000   |  |                     |  | A     |  |  |  | 25 MHz Cellular |  |  |  | 01-Apr-00 | 
|            | Washington RSA 8                                    |             |  | 100  | % |         |  | 124,000  |  |                     |  | A     |  |  |  | 25 MHz Cellular |  |  |  | 01-Apr-00 | 
|            | Chelan County, WA 53007                             |             |  | 100  | % |         |  | 67,000   |  |                     |  | D     |  |  |  | 10 MHz PCS      |  |  |  | 15-Oct-03 | 
|            | Douglas County, WA 53017                            |             |  | 100  | % |         |  | 33,000   |  |                     |  | D     |  |  |  | 10 MHz PCS      |  |  |  | 15-Oct-03 | 
|            | Ferry County, WA 53019                              |             |  | 100  | % |         |  | 7,000    |  |                     |  | E     |  |  |  | 10 MHz PCS      |  |  |  | 15-Oct-03 | 
|            | Okanogan County, WA 53047                           |             |  | 100  | % |         |  | 39,000   |  |                     |  | D     |  |  |  | 10 MHz PCS      |  |  |  | 15-Oct-03 | 
|            | Pend Oreille County, WA 53051                       |             |  | 100  | % |         |  | 12,000   |  |                     |  | E     |  |  |  | 10 MHz PCS      |  |  |  | 15-Oct-03 | 
|            | Stevens County, WA 53065                            |             |  | 100  | % |         |  | 41,000   |  |                     |  | E     |  |  |  | 10 MHz PCS      |  |  |  | 15-Oct-03 | 
|            | Baker & Malheur counties, OR                        |             |  | 100  | % |         |  | 48,000   |  |                     |  | D     |  |  |  | 10 MHz PCS      |  |  |  | 01-Mar-04 | 
|            | Bend, OR                                            |             |  | 100  | % |         |  | 165,000  |  |                     |  | C5    |  |  |  | 10 MHz PCS      |  |  |  | pending   | 
|            | Portland, OR (Grant, Wheeler & Harney
    counties) |             |  | 100  | % |         |  | 16,000   |  |                     |  | D     |  |  |  | 10 MHz PCS      |  |  |  | 01-Mar-04 | 
|            | Walla Walla, WA                                     |             |  | 100  | % |         |  | 177,000  |  |                     |  | C & F |  |  |  | 10 MHz PCS      |  |  |  | pending   | 
|South       |                                                     |             |  |      |   |         |  |          |  |                     |  |       |  |  |  |                 |  |  |  |          
|            | Alabama RSA 3                                       |             |  | 100  | % |         |  | 134,000  |  |                     |  | A     |  |  |  | 25 MHz Cellular |  |  |  | 01-Apr-00 | 
|            | Alabama RSA 4                                       |             |  | 100  | % |         |  | 146,000  |  |                     |  | A     |  |  |  | 25 MHz Cellular |  |  |  | 01-Apr-00 | 
|            | Alabama RSA 5                                       |             |  | 100  | % |         |  | 221,000  |  |                     |  | A     |  |  |  | 25 MHz Cellular |  |  |  | 01-Apr-00 | 
|            | Alabama RSA 7                                       |             |  | 100  | % |         |  | 170,000  |  |                     |  | A     |  |  |  | 25 MHz Cellular |  |  |  | 01-Apr-00 | 
|            | Kansas RSA 1                                        |             |  | 100  | % |         |  | 27,000   |  |                     |  | A     |  |  |  | 25 MHz Cellular |  |  |  | 01-Apr-00 | 
|            | Kansas RSA 11                                       |             |  | 100  | % |         |  | 93,000   |  |                     |  | A     |  |  |  | 25 MHz Cellular |  |  |  | 01-Apr-00 | 
|            | Kansas RSA 12                                       |             |  | 100  | % |         |  | 48,000   |  |                     |  | A     |  |  |  | 25 MHz Cellular |  |  |  | 01-Apr-00 | 
|            | Kansas RSA 13                                       |             |  | 100  | % |         |  | 28,000   |  |                     |  | A     |  |  |  | 25 MHz Cellular |  |  |  | 01-Apr-00 | 
|            | Kansas RSA 2                                        |             |  | 100  | % |         |  | 29,000   |  |                     |  | A     |  |  |  | 25 MHz Cellular |  |  |  | 01-Apr-00 | 

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|                                      |  |             |     |      |  |         |         |          |  |                     |          |  |  |  |                 |  |  |  |           | 
|------------------------------------- |  | ----------- | --- | ---- |  | ------- | ------- | -------- |  | ------------------- | -------- |  |  |  | --------------- |  |  |  | --------- | 
|Description                           |  | % Ownership |     | POPs |  | License |         | Spectrum |  | Date of Acquisition
|                                      |  |             |     |      |  |         |         |          |  |                    
|Kansas RSA 6                          |  |             | 100 | %    |  |         | 19,000  |          |  |                     | A        |  |  |  | 25 MHz Cellular |  |  |  | 01-Apr-00 | 
|Kansas RSA 7                          |  |             | 100 | %    |  |         | 79,000  |          |  |                     | A        |  |  |  | 25 MHz Cellular |  |  |  | 01-Apr-00 | 
|Mississippi RSA 1                     |  |             | 100 | %    |  |         | 185,000 |          |  |                     | A        |  |  |  | 25 MHz Cellular |  |  |  | 01-Apr-00 | 
|Mississippi RSA 3                     |  |             | 100 | %    |  |         | 157,000 |          |  |                     | A        |  |  |  | 25 MHz Cellular |  |  |  | 01-Apr-00 | 
|Mississippi RSA 4                     |  |             | 100 | %    |  |         | 130,000 |          |  |                     | A        |  |  |  | 25 MHz Cellular |  |  |  | 01-Apr-00 | 
|Albany, GA                            |  |             | 100 | %    |  |         | 359,000 |          |  |                     | A5       |  |  |  | 10 MHz PCS      |  |  |  | 01-Mar-04 | 
|Columbus, GA                          |  |             | 100 | %    |  |         | 366,000 |          |  |                     | A5       |  |  |  | 10 MHz PCS      |  |  |  | 01-Mar-04 | 
|Columbus-Starkville, MS BTA           |  |             | 100 | %    |  |         | 152,000 |          |  |                     | B4/5 & E |  |  |  | 30 MHz PCS      |  |  |  | 01-Mar-04 | 
|Dothan, AL BTA                        |  |             | 100 | %    |  |         | 225,000 |          |  |                     | F & C2   |  |  |  | 25 MHz PCS      |  |  |  | 01-Mar-04 | 
|Meridian, MS                          |  |             | 100 | %    |  |         | 208,000 |          |  |                     | B5       |  |  |  | 10 MHz PCS      |  |  |  | 01-Mar-04 | 
|Montgomery, AL BTA (Pike County Only) |  |             | 100 | %    |  |         | 30,000  |          |  |                     | C3       |  |  |  | 10 MHz PCS      |  |  |  | 01-Mar-04 | 
|Opelika, AL                           |  |             | 100 | %    |  |         | 154,000 |          |  |                     | F        |  |  |  | 10 MHz PCS      |  |  |  | 01-Mar-04 | 
|Tupelo, MS BTA                        |  |             | 100 | %    |  |         | 326,000 |          |  |                     | C        |  |  |  | 30 MHz PCS      |  |  |  | 01-Mar-04 | 



| |                                     
| | ------------------------------------
| | Suppliers and Equipment
    Partners

We do not manufacture any customer or network
equipment. The high degree of compatibility among different
manufacturers models of handsets and network facilities
equipment allows us to design, supply, and operate our systems
without being dependent upon a single source of equipment.
Historically, we have used network equipment manufactured by
Northern Telecom, Inc., Lucent Technologies Inc., Harris, Inc.,
Nokia Telecommunications, Inc., Alcatel, Ericsson, Inc., and
Motorola, Inc. We also resell network equipment.

Competition

We compete against wireless carriers in each of
our markets and also compete with a number of enhanced
specialized mobile radio service providers. We compete for
customers based on numerous factors, including wireless system
coverage and quality, service value equation (minutes and
features over price), local market presence, digital voice and
features, customer service, distribution strength, and brand
name recognition. Some competitors also market other services,
such as long distance, landline local exchange, and internet
access service, with their wireless telecommunication service
offerings. Many of our competitors have been operating for a
number of years, currently serve a substantial customer base,
and have significantly greater financial, personnel, technical,
marketing, sales, and distribution resources than we do.

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##### Table of Contents



The following table, giving effect to our
property exchange with AWE, lists our major competitors by
market:

|                   |                                                                         |        |  |      |  |          |  |        |  |        |  |          |  |          |  |         |  |       |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |                                        
|------------------ | ----------------------------------------------------------------------- | ------ |  | ---- |  | -------- |  | ------ |  | ------ |  | -------- |  | -------- |  | ------- |  | ----- |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  | ---------------------------------------
|                  
|                  
|                   |                                                                         | US     |  |     
|                   |                                                                         | Alltel |  | AT&T |  | Cingular |  | Nextel |  | Sprint |  | T-Mobile |  | Cellular |  | Verizon |  | Other
|                  
|                  
|Midwest:           |                                                                         |        |  |      |  |          |  |        |  |        |  |          |  |          |  |         |  |       |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  | 
|                  
|                   | Minnesota RSA 1 and 2                                                   |        |  |      |  |          |  |        |  |        |  |          |  |          |  | X       |  |       |  | X |  |  |  |   |  |  |  |   |  |  |  |   |  |  | Western Wireless, Dobson Communications
|                  
|                   | Minnesota RSA 3, 5 and 6                                                |        |  |      |  |          |  |        |  |        |  |          |  |          |  |         |  |       |  | X |  |  |  | X |  |  |  |   |  |  |  |   |  |  | Dobson Communications                  
|                  
|                   | South Dakota RSA 4                                                      |        |  |      |  |          |  |        |  |        |  |          |  |          |  |         |  |       |  | X |  |  |  |   |  |  |  |   |  |  |  |   |  |  | Western Wireless                       
|                  
|Northeast:         |                                                                         |        |  |      |  |          |  |        |  |        |  |          |  |          |  |         |  |       |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  | 
|                  
|                   | Maine, Bangor MSA, RSA 1, 2 and 3                                       |        |  |      |  |          |  | X      |  |        |  |          |  |          |  |         |  |       |  |   |  |  |  | X |  |  |  | X |  |  |  |   |  |  |                                        
|                  
|                   | Massachusetts RSA 1                                                     |        |  |      |  |          |  | X      |  |        |  | X        |  |          |  | X       |  |       |  | X |  |  |  | X |  |  |  |   |  |  |  |   |  |  |                                        
|                  
|                   | New Hampshire, Portsmouth, MSA                                          |        |  |      |  |          |  | X      |  |        |  |          |  |          |  | X       |  |       |  | X |  |  |  | X |  |  |  | X |  |  |  |   |  |  | SunCom                                 
|                  
|                   | New Hampshire RSA 1                                                     |        |  |      |  |          |  |        |  |        |  |          |  |          |  | X       |  |       |  | X |  |  |  |   |  |  |  | X |  |  |  |   |  |  |                                        
|                  
|                   | New York RSA 2                                                          |        |  |      |  |          |  |        |  |        |  |          |  |          |  | X       |  |       |  | X |  |  |  |   |  |  |  |   |  |  |  | X |  |  |                                        
|                  
|                   | Vermont, Burlington MSA, RSA 1                                          |        |  |      |  |          |  |        |  |        |  |          |  |          |  | X       |  |       |  | X |  |  |  |   |  |  |  | X |  |  |  | X |  |  |                                        
|                  
|                   | Vermont RSA 2                                                           |        |  |      |  |          |  |        |  |        |  |          |  |          |  | X       |  |       |  | X |  |  |  |   |  |  |  | X |  |  |  | X |  |  |                                        
|                  
|Northwest:         |                                                                         |        |  |      |  |          |  |        |  |        |  |          |  |          |  |         |  |       |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  | 
|                  
|                   | Oregon RSA 3                                                            |        |  |      |  |          |  | X      |  |        |  | X        |  |          |  | X       |  |       |  | X |  |  |  | X |  |  |  | X |  |  |  |   |  |  | Qwest, Inland Cellular, Snake Wireless 
|                  
|                   | Oregon RSA 6                                                            |        |  |      |  |          |  |        |  |        |  |          |  |          |  | X       |  |       |  | X |  |  |  | X |  |  |  | X |  |  |  |   |  |  |                                        
|                  
|                   | Washington RSA 2                                                        |        |  |      |  |          |  |        |  |        |  | X        |  |          |  | X       |  |       |  | X |  |  |  | X |  |  |  |   |  |  |  | X |  |  |                                        
|                  
|                   | Washington RSA 3                                                        |        |  |      |  |          |  |        |  |        |  |          |  |          |  |         |  |       |  | X |  |  |  |   |  |  |  |   |  |  |  | X |  |  |                                        
|                  
|                   | Washington RSA 8                                                        |        |  |      |  |          |  | X      |  |        |  | X        |  |          |  | X       |  |       |  | X |  |  |  | X |  |  |  |   |  |  |  |   |  |  | Qwest, Inland Cellular                 
|                  
|South:             |                                                                         |        |  |      |  |          |  |        |  |        |  |          |  |          |  |         |  |       |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  | 
|                  
|                   | Alabama RSA 3                                                           |        |  |      |  |          |  |        |  |        |  | X        |  |          |  |         |  |       |  |   |  |  |  | X |  |  |  |   |  |  |  |   |  |  |                                        
|                  
|                   | Alabama RSA 4                                                           |        |  | X    |  |          |  |        |  |        |  |          |  |          |  |         |  |       |  |   |  |  |  | X |  |  |  |   |  |  |  |   |  |  | Pine Belt Wireless                     
|                  
|                   | Alabama RSA 5                                                           |        |  | X    |  |          |  |        |  |        |  | X        |  |          |  | X       |  |       |  |   |  |  |  | X |  |  |  |   |  |  |  |   |  |  | Public Service Telephone               
|                  
|                   | Alabama RSA 7                                                           |        |  | X    |  |          |  |        |  |        |  |          |  |          |  |         |  |       |  | X |  |  |  | X |  |  |  |   |  |  |  |   |  |  |                                        
|                  
|                   | Kansas RSA 1, 2, 6, 7, 12 and 13                                        |        |  | X    |  |          |  |        |  |        |  |          |  |          |  |         |  |       |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  | Westlink Communications                
|                  
|                   | Kansas RSA 11                                                           |        |  | X    |  |          |  |        |  |        |  |          |  |          |  |         |  |       |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  | Panhandle Telecommunications           
|                  
|                   | Mississippi RSA 1 and 4                                                 |        |  |      |  |          |  |        |  |        |  | X        |  |          |  |         |  |       |  |   |  |  |  | X |  |  |  |   |  |  |  |   |  |  | Cellular Telepak, Inc., Telcorp PCS    
|                  
|                   | Mississippi RSA 3                                                       |        |  |      |  |          |  |        |  |        |  |          |  |          |  |         |  |       |  |   |  |  |  | X |  |  |  |   |  |  |  |   |  |  | Cellular Telepak, Inc., Telcorp PCS    
|                  
|                   | Dothan, AL BTA                                                          |        |  | X    |  |          |  |        |  |        |  | X        |  |          |  | X       |  |       |  | X |  |  |  | X |  |  |  |   |  |  |  | X |  |  | Southern Line, Virgin                  
|                  
|                   | Tupelo, MS BTA                                                          |        |  | X    |  |          |  |        |  |        |  | X        |  |          |  | X       |  |       |  | X |  |  |  | X |  |  |  |   |  |  |  | X |  |  | Virgin, Georgia Wireless PCS           
|                  
|                   | Columbus-Starkville, MS BTA                                             |        |  |      |  |          |  |        |  |        |  | X        |  |          |  | X       |  |       |  | X |  |  |  | X |  |  |  |   |  |  |  | X |  |  | Virgin, Southern Line, Public          
|                  
|Wireless Alliance: |                                                                         |        |  |      |  |          |  |        |  |        |  |          |  |          |  |         |  |       |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  | 
|                  
|                   | Duluth, Minnesota/ Superior, Wisconsin                                  |        |  |      |  |          |  |        |  |        |  |          |  |          |  | X       |  |       |  | X |  |  |  |   |  |  |  |   |  |  |  | X |  |  |                                        
|                  
|                   | Fargo, North Dakota/ Moorhead, Minnesota, Grand
    Forks, North Dakota |        |  |      |  |          |  |        |  |        |  |          |  |          |  | X       |  |       |  | X |  |  |  |   |  |  |  |   |  |  |  | X |  |  | Western Wireless                       
|                  
|                   | Sioux Falls, South Dakota                                               |        |  |      |  |          |  |        |  |        |  |          |  |          |  | X       |  |       |  | X |  |  |  |   |  |  |  |   |  |  |  | X |  |  | Western Wireless                       
|                  

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The telecommunications industry is experiencing
significant technological changes, as evidenced by the
increasing pace of improvements in the capacity and quality of
digital technology, shorter cycles for new products and
enhancements, and changes in consumer preferences and
expectations. Accordingly, with the entry of new competitors and
the development of new technologies, products, and services,
competition in the wireless telecommunications industry has been
dynamic and intense.

Our ability to compete successfully is dependent,
in part, on our ability to anticipate and respond to various
competitive factors affecting the industry. Our marketing and
sales organization includes a group that carefully monitors and
analyzes competitive products and service offerings, changes in
consumer preferences, changes in demographic trends and economic
conditions, and pricing strategies by competitors that could
adversely affect our operations or present strategic
opportunities.

In the future, we expect to face increased
competition from entities holding licenses for PCS spectrum not
yet operating in our markets. The FCC has issued licenses for
both narrowband and broadband PCS, and six broadband licenses
were issued in each of our cellular service areas. Narrowband
PCS typically provides advanced paging and messaging services.
Broadband PCS consists of wireless two-way telecommunications
services for voice, data, and other transmissions employing
digital micro-cellular technology. Many broadband PCS providers
compete with existing wireless systems. Under FCC rules, PCS
license holders are allowed to disaggregate the spectrum covered
by their license. Accordingly, we may face competition from
additional providers of PCS if the FCC approves a disaggregation
of spectrum for any license for PCS in one of our service areas.
In addition, the Omnibus Budget Reconciliation Act of 1993
required, among other things, the allocation to commercial use
of a portion of 200 MHz of the spectrum currently reserved
for government use. Some portion of this spectrum may be used to
create new land-mobile services or to expand existing
land-mobile services. Further, the FCC has auctioned or
announced plans to auction licenses in the 39 GHz spectrum
and 700 MHz spectrum that may be used for wireless
communications that would compete with our services.

We may also face competition from our roaming
partners if they decide to overbuild or acquire networks in our
service areas. Many of our roaming partners are national
carriers with greater financial resources and access to capital
than we have.

Specialized mobile radio and other private radio
systems, such as those generally used by local dispatch, fleet
services, and other communications services that have the
technical capability to handle mobile telephone calls, including
interconnection to the landline telephone network, may provide
competition in some markets. In addition, enhanced specialized
mobile radio systems may compete with our wireless services by
providing high quality digital communication technology, lower
rates, enhanced privacy, and additional features such as paging,
particularly in metropolitan areas.

We also compete to a lesser extent with
resellers, landline telephone service providers, fixed wireless
services, and satellite-based telecommunications systems. A
reseller provides wireless services to customers but does not
hold an FCC license and might not own facilities. Instead, the
reseller buys blocks of wireless telephone numbers and capacity
from a licensed carrier and resells service through its own
distribution network to the public. Thus, a reseller is both a
customer of a wireless licensees service and also a
competitor of that licensee. Several small resellers currently
operate in our service areas.

We believe that we are strategically positioned
to compete with other communications technologies that now
exist. Continuing technological advances in telecommunications
and FCC policies that encourage the development of new
spectrum-based technologies make it difficult, however, to
predict the extent of future competition.

Legislation and Regulation

The following summary of regulatory
developments and legislation does not purport to describe all
present and proposed federal, state, and local regulation and
legislation affecting the telecommunications industry. Many
existing federal, state, and local laws and regulations are
currently the subject of judicial proceedings, legislative
hearings, and administrative proposals that could change, in
varying degrees, the

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manner in which the telecommunications
industry operates. Neither the outcome of these proceedings nor
their impact upon the telecommunications industry or us can be
predicted.




| |         
| | --------
| | Overview

Our business is subject to varying degrees of
federal, state, and local regulation. The FCC has jurisdiction
over all facilities of, and services offered by, wireless
licensees such as us, to the extent those facilities are used to
provide, originate, or terminate interstate or international
communications. The Communications Act of 1934, as amended (the
Communications Act), preempts state and local
regulation of the entry of, or the rates charged by, any
provider of commercial mobile radio service (CMRS),
which includes our cellular service and broadband personal
communications service. Otherwise, state and local regulatory
commissions may exercise jurisdiction over most of the same
facilities and services to the extent they are used to originate
or terminate intrastate communications and with respect to
zoning and similar matters. The manner in which we are regulated
is subject to change in ways we cannot predict.



| |                                          
| | -----------------------------------------
| | Federal Licensing of Wireless
    Systems

Geographic Market Area
Licenses.CMRS providers operate under
licenses granted by the FCC within a specified geographic market
area. For cellular systems, those market areas are typically
Metropolitan Statistical Areas (MSAs) or Rural
Service Areas (RSAs) as defined by the FCC. PCS
systems are normally licensed within market areas known as Major
Trading Areas (MTAs) or Basic Trading Areas
(BTAs), although it is possible to obtain, and we
currently hold, some PCS licenses that are for market areas
smaller than an entire MTA or BTA, known as a partitioned area.

While the FCC has used an assortment of methods
in the past to grant licenses, most if not all new CMRS licenses
granted by the FCC are by auction. The FCC determines the
availability of licenses in particular frequency ranges, as well
as the terms under which license auctions are conducted. Our
ability to secure new licenses that could be used to introduce
advanced third generation wireless services may
depend upon our success in future FCC auctions. On
October 16, 2003, the FCC adopted rules to auction and
license 90 megahertz of spectrum for third generation and
advanced wireless services, specifying comparatively large
geographic areas, known as Regional Economic Area Groups, for
licensing of 60 megahertz of the available spectrum.

Construction and
Operation.A cellular licensee has the
exclusive right to build out its cellular system and serve the
entire area that falls within its MSA or RSA for a period of
five years following grant of the initial construction permit.
At the end of the five-year period, however, the licensees
exclusive MSA or RSA rights become limited to the Cellular
Geographic Service Area (CGSA) actually served by
the licensee, as determined pursuant to a formula adopted by the
FCC and set forth in a System Information Update filing with the
FCC. At the end of the five-year period, any entity may apply to
serve portions of the MSA or RSA outside the CGSA. The five-year
exclusivity period has expired for most licensees and parties
have filed unserved area applications and obtained licenses that
cut off rights of earlier licensees to expand CGSA in such MSAs
or RSAs.

To maintain our PCS licenses we are required by
the FCCs rules to construct facilities covered by such
licenses and to offer services to a certain percentage of the
population covered by those licenses within specified periods,
based on the date of the grant of the licenses. Our PCS licenses
are subject to revocation or nonrenewal by the FCC, as are all
similar licenses held by other companies, if these build-out
requirements are not satisfied in a timely manner. In the
St. Cloud, Minnesota BTA, we are in the process of building
out a PCS system under a license that requires a certification
of sufficient construction by September 29, 2004, and a
certification of sufficient additional construction by
September 29, 2009, to avoid a revocation or nonrenewal of
the license. Similar build-out requirements apply as to certain
PCS licenses we have agreed to acquire from other entities. We
believe that our construction will progress at a pace that
allows for timely compliance with the construction requirements.

Because we hold PCS licenses, we must comply with
FCC microwave relocation rules. A block of spectrum licensed for
PCS may be encumbered by a previously licensed microwave system.
In such a case, if

24



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##### Table of Contents



the PCS licensee cannot avoid interference with
the microwave system, the FCC requires the PCS licensee to pay
the microwave licensees reasonable costs to relocate to
other spectrum, including costs for new equipment and possibly
new towers up to limits specified in FCC rules. A PCS licensee
is also obligated to participate in cost-sharing if a previous
relocation of a microwave incumbent benefits more than one PCS
licensee. We believe that we are in compliance with applicable
microwave relocation and cost-sharing rules adopted by the FCC.


CMRS providers also must satisfy a variety of FCC
requirements relating to technical and reporting matters,
including coordination of proposed frequency usage with adjacent
systems in order to avoid electrical interference between
adjacent systems. The FCC also requires licensees to secure FCC
consent to system modifications in specified instances.

Entities such as RCC that own towers used for
radio systems are subject to Federal Aviation Administration and
FCC regulations respecting the location, marking, lighting, and
construction of towers and are subject to the requirements of
the National Environmental Policy Act, National Historic
Preservation Act, and other environmental statutes enforced by
the FCC. The FCC has also adopted guidelines and methods for
evaluating human exposure to radio frequency emissions from
radio equipment. We believe that all wireless devices we
currently provide to our customers, and all our radio systems on
towers that we own or occupy, comply with these requirements,
guidelines, and methods.

We use, among other facilities, common carrier
point-to-point microwave facilities to connect cell sites and to
link the cell sites to the main switching office. These
facilities are separately licensed by the FCC and are subject to
regulation as to technical parameters, frequency protection, and
service.

Renewal of Licenses.Near the conclusion of the generally ten-year term of a spectrum
license, a licensee must file an application for renewal of the
license to obtain authority to operate for up to an additional
ten-year term. An application for license renewal may be denied
if the FCC determines that the renewal would not serve the
public interest, convenience, or necessity. The FCC also may
revoke a license prior to the end of its term in extraordinary
circumstances. In addition, at license renewal time, other
parties may file competing applications for the authorization.
The FCC has adopted specific standards stating renewal
expectancy will be awarded to a spectrum licensee that has
provided substantial service during its license term and has
substantially complied with applicable FCC rules and policies
and the Communications Act. If the FCC awards the licensee a
renewal expectancy, its license renewal application generally is
granted and the competing applications are dismissed.

Although we are unaware of any circumstances that
would prevent the approval of any future renewal application, no
assurance can be given that the FCC will renew any of our
licenses. Moreover, although revocation and involuntary
modification of licenses are extraordinary measures, the FCC has
the authority to restrict the operation of a licensed facility
or revoke or modify licenses. None of our licenses has ever been
revoked or involuntarily modified.

Assignment of Licenses or Transfer of Control
of Licensees.FCC licenses generally
may be transferred and assigned, subject to specified
limitations prescribed by the Communications Act and the FCC.
One notable limitation is the FCCs cellular cross-interest
rule that precludes attributable ownership interests in both
frequency Block A and frequency Block B cellular carriers in the
same RSA, absent a waiver of the rule. The FCCs prior
approval is required for the assignment or transfer of control
of a license for a wireless system. Before we can complete a
purchase or sale, we must file appropriate applications with the
FCC, and the public is by law granted a period of time,
typically 30 days, to oppose or comment on them. In
addition, the FCC has established transfer disclosure
requirements that require licensees who assign or transfer
control of a license acquired through an auction within the
first three years of their license terms to file associated sale
contracts, option agreements, management agreements, or other
documents disclosing the total consideration that the licensee
would receive in return for the transfer or assignment of its
license. Non-controlling minority interests in an entity that
holds a FCC license generally may be bought or sold without FCC
approval, subject to the FCCs cellular cross-interest rule
and any applicable FCC notification requirements.

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Limitation on Foreign
Ownership.Ownership of our capital
stock by non-U.S. citizens is subject to limitations under
the Communications Act and FCC regulations. Under existing law,
no more than 20% of a licensees capital stock may be
directly owned or voted by non-U.S. citizens or their
representatives, by a foreign government or its representatives,
or by a foreign corporation. If an FCC licensee is controlled by
another entity, up to 25% of that entitys capital stock
may be owned or voted by non-U.S. citizens or their
representatives, by a foreign government or its representatives,
or by a foreign corporation. Indirect foreign ownership above
the 25% level may be allowed should the FCC find such higher
levels not inconsistent with the public interest.



| |                                        
| | ---------------------------------------
| | Regulatory Matters and
    Developments

Enhanced 911
Services.Cellular and PCS licensees
must comply with the FCCs rules regarding emergency 911
service. There is a staged process for the required deployment
of enhanced 911 services, referred to by the FCC as Phase I
and Phase II. Under Phase I, cellular and PCS
licensees were required as of April 1, 1998, or within six
months of a request from the designated Public Safety Answering
Point (PSAP), whichever is later, to be able to
provide, if available to the serving carrier, the telephone
number of the originator of a 911 call and to provide to the
designated PSAP the location of the cell site or base station
receiving a 911 call from any mobile handset accessing their
systems through the use of Automatic Number Identification and
Pseudo-Automatic Number Identification. We are in substantial
compliance with Phase I requirements. Under Phase II,
cellular and PCS licensees must be able to provide to the
designated PSAP the location of all wireless 911 callers, by
longitude and latitude, in conformance with particular accuracy
requirements. To comply, licensees may elect either
network-based or mobile radio handset-based location
technologies and thereafter meet, according to a phased-in
schedule, the enhanced 911 service standards stated in the
FCCs rules. We notified the FCC of our intention to
utilize network-based location technologies to provide
Phase II enhanced 911 service. Pursuant to terms and
conditions of an FCC Order to Stay adopted in July
2002, granting us an extension of the compliance deadlines, we
are subject to requirements of the FCC that we provide
Phase II enhanced 911 service to at least 50% of a
requesting PSAPs coverage area or population beginning
March 1, 2003, or within six months of a PSAP request,
whichever is later, and to 100% of a requesting PSAPs
coverage area or population by March 1, 2004 or within
18 months of such a request, whichever is later. We have
received requests from PSAPs for deployment of Phase II
enhanced 911 service that relate to all areas in the states of
Minnesota and Vermont and to two rural counties of Alabama and
one rural county of Maine where we provide cellular or PCS
service. We implemented Phase II service in Minnesota and
Vermont by the applicable deadlines and we have met the
applicable 50%-coverage benchmark; however, recent field tests
have shown that our network-based systems do not produce
location accuracy results that meet the standards set out in the
FCCs rules. We plan to request a waiver of FCC rules
relating to location accuracy standards and we may request
additional time to deploy Phase II service in areas where
we believe that a handset-based technology will produce better
location accuracy results than would new deployments of
network-based systems. We have no assurance that our petitions
will be granted, or that we will not be subject to one or more
enforcement orders or fines by the FCC in connection with our
failure to comply with Phase II enhanced 911 requirements.
In November 1999, the FCC determined that a cost recovery
mechanism no longer has to be in place before a carrier is
obligated to provide enhanced 911 services. The FCC has issued
notices of apparent liability requiring other CMRS providers to
pay fines based upon violations of enhanced 911 service
requirements. The implementation of enhanced 911 obligations may
have a financial impact on us. We are not yet able to predict
the extent of that impact.

Interconnection.FCC
rules provide that a local exchange carrier (LEC)
must provide CMRS providers interconnection within a reasonable
time after it is requested, unless such interconnection is not
technically feasible or economically reasonable, and that CMRS
providers are entitled to compensation from LECs for terminating
wireline-to-wireless traffic that originates and terminates
within the same MTA. There are several proceedings pending
before the FCC relating to interconnection and the compensation
arrangements for the exchange of local and long distance
telecommunications traffic. These proceedings could result in
changes to compensation arrangements we have with LECs and
interexchange carriers for the exchange of telecommunications
traffic. Additionally, although key provisions of FCC orders
implementing the Communi-

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##### Table of Contents



cations Acts interconnection requirements
have been affirmed by the courts, certain court challenges to
the FCC rules are pending.


Universal Service.The Communications Act mandates that telecommunications
carriers, such as us, contribute to the federal USF, the purpose
of which is to ensure that basic telephone services are
available and affordable for all citizens, and that consumers in
rural areas have similar choices in telecommunications services
as those consumers living in urban areas. The USF is intended to
promote telecommunications infrastructure development in high
cost areas and to provide subsidies to low income persons,
schools, libraries, and rural health care providers. We also are
required to contribute to state universal service programs
administered by some states. The federal USF is administered
jointly by the FCC, the fund administrator, and state regulatory
authorities. Because we are a collection agent for customer
contributions, we expect that our obligation to remit USF
contributions will have a minimal financial impact on us.

1996 amendments to the Communications Act allow
wireless carriers such as us to propose services and pursue
eligibility to receive USF funding for constructing, maintaining
and improving our facilities and services in high-cost areas.
When declared eligible for USF funding we are also obligated to
offer discounts to low-income subscribers, which amounts are
reimbursed to us through the federal Lifeline and Link-up
programs. We must be designated as an eligible
telecommunications carrier (ETC) by the state where
we provide service (or, in some cases, the FCC) and the state
(or, in some cases, we) must certify our eligibility to the FCC
so that we may ultimately receive USF support. We recently
received ETC designation in the states of Minnesota, Washington,
Mississippi, Alabama, Maine and Vermont and those states (or we)
have certified our eligibility to the FCC. We are currently
receiving USF support, or expect soon to begin receiving USF
support, in each of these states. We have filed additional
applications for ETC designation in Kansas and Oregon. To be
eligible from year-to-year to receive USF support, our ETC
certifications must be renewed each year. Our ability to receive
USF support, and our obligations to pay into state and federal
universal service funds, are subject to change based upon
pending regulatory proceedings, court challenges, and
marketplace conditions.

Local Number
Portability.The FCC has adopted rules
on telephone number portability in an effort to achieve more
efficient number utilization. Cellular and PCS licensees are
required to provide number portability, which enables customers
to change providers and services without changing their
telephone number. By November 24, 2003, CMRS providers in
the top 100 markets were required to offer number portability
without impairment of quality, reliability, or convenience when
customers switch wireless service providers, including the
ability to support roaming throughout their networks. Providers
in other markets must comply by May 24, 2004 if they
received a bona fide request to be open for
porting-out of customer numbers at least six months prior from
another wireless service provider. Our Cambridge, Minnesota
market is our only top 100 market and was in compliance with the
FCC mandate. A failure to comply with this obligation could
result in a fine or revocation of our licenses.

In addition, the FCC provided guidance to the
wireline and wireless industries in the form of a decision
released November 10, 2003 in response to a petition filed
by the Cellular Telecommunications & Internet
Association requesting that wireline carriers be required to
allow their customers to retain their numbers when switching to
a wireless carrier. The FCC concluded that, as of
November 24, 2003, upon the request of a customer, wireline
carriers in the top-100 markets must port numbers to wireless
carriers where the wireless carriers coverage
area overlaps the geographic location of the rate center
in which the customers wireline number is provisioned,
provided that the porting-in carrier maintains the numbers
original rate center designation following the port. The
wireless coverage area was defined by the FCC as the
area in which wireless service can be received from the wireless
carrier. Wireline carriers outside the top-100 markets were
given until May 24, 2004 to comply with the same porting
obligations. The FCC subsequently granted an extension of time
until May 24, 2004 to wireline carriers in the top-100
markets that serve fewer than two percent of the nations
subscriber lines if such wireline carriers had not received a
request for local number porting from either a wireline carrier
prior to May 24, 2003, or a wireless carrier that has a
point of interconnection or numbering resources in the rate
center where the customers wireline number is provisioned.
In addition, state public utility commissions have authority
under the Communications Act to suspend or extend FCC number
portability requirements faced by wireline carriers that serve
fewer than two

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percent of the nations subscriber lines.
Several organizations representing wireline carriers have
petitioned the U.S. Court of Appeals, D.C. Circuit,
for review of the FCCs decision ordering wireline carriers
to port numbers to wireless carriers.


Meanwhile, the FCC invited and has received
written comments on issues that bear upon wireless
carriers obligations to port numbers to wireline carriers
upon customer request. We expect to face obligations that will
allow our customers to port their numbers to wireline carriers.

CALEA.Telecommunications carriers also are subject to the
Communications Assistance for Law Enforcement Act
(CALEA), which is administered by the Department of
Justice, Federal Bureau of Investigation (FBI) and
the FCC. CALEA requires carriers to have a specific number of
open ports available for law enforcement personnel with the
appropriate legal authority to perform wiretaps on each
carriers network. Full implementation of CALEAs
assistance capability requirements was previously required by
June 30, 2000. However, because the FCC found that there
was a lack of equipment available to meet these requirements, it
accepted petitions for a two-year extension of this deadline on
a carrier-by-carrier basis. We submitted such a petition and
were granted a two-year extension, until June 30, 2002, to
comply with CALEAs assistance capability requirements. We
are not yet in compliance for the same reason, and we petitioned
the FCC for another two-year extension, which remains pending.
However, we have received from the FBI a letter of support for
our petition for extension. Additional requirements have been
adopted to require cellular and PCS licensees to accommodate
interception of digital packet mode telecommunications. We will
become obligated to comply with these requirements only if and
when we commence to offer services that make use of digital
packet mode technology. If we are not able to comply with CALEA
prior to the applicable deadlines, we could be subject to
substantial fines that, under existing law, could be as much as
$10,000 per day. We cannot predict yet whether we will be
able to comply with CALEA requirements prior to the applicable
deadlines.

Other FCC-Mandated
Payments.We also are required to
contribute annually to the Telecommunications Relay Service Fund
and the North American Numbering Plan Administration Fund and to
remit regulatory fees to the FCC with respect to our licenses
and operations. We do not expect that these financial
obligations will have a material impact on us.

Access by the
Disabled.The FCC has adopted rules
that determine the obligations of telecommunications carriers to
make their services accessible to individuals with disabilities.
The rules require wireless and other providers to offer
equipment and services that are accessible to and useable by
persons with disabilities. While the rules exempt
telecommunications carriers from meeting general disability
access requirements if these results are not readily achievable,
it is not clear how the FCC will construe this exemption.
Accordingly, the FCC occasionally adopts rules that may require
us to make material changes to our network, product line, or
services at our expense. By September 16, 2006, we must
begin to offer hearing aid compatible handsets, and by
February 28, 2008, 50% of all phone models offered must
meet the U3 performance level for acoustic coupling to
accommodate hearing aid compatible functions. Beginning
March 16, 2004, we will be required to file with the FCC
periodic progress reports on our preparation for implementing
these offerings.

Health and Safety.Various media reports and plaintiffs attorneys in lawsuits
not involving us have suggested that radio frequency emissions
from wireless handsets may be linked to an assortment of health
concerns, including cancer, and may interfere with some
electronic medical devices, including hearing aids and
pacemakers. The FCC and foreign regulatory agencies have updated
and may continue to update the guidelines and methods they use
for evaluating radio frequency emissions from radio equipment,
including wireless handsets. In addition, interest groups have
requested that the FCC investigate claims that wireless
technologies pose health concerns and cause interference with
airbags, hearing aids, and medical devices. The FDA has issued
guidelines for the use of wireless phones by pacemaker wearers.
Safety concerns have also been raised with respect to the use of
wireless handsets while driving. Federal, state, and local
legislation has been proposed and, in some instances, enacted in
response to these issues. Concerns over radio frequency
emissions may have the effect of discouraging the use of
wireless handsets, and thus decrease demand for wireless
products and services.

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Regulatory
Oversight.The rapid growth and
penetration of wireless services has prompted the interest of
the FCC, state legislatures, and state public utility
commissions to oversee certain practices by the wireless
industry, generally in the form of efforts to regulate service
quality, customer billing, termination of service arrangements,
advertising, filing of informational tariffs,
certification of operation, and other matters. While the
Communications Act generally preempts state and local
governments from regulating the entry of, or the rates charged
by, wireless carriers, a state has authority to regulate
other terms and conditions of service offerings by
CMRS providers and may petition the FCC to allow it to regulate
the rates of CMRS providers. Several states have proposed or
imposed consumer protection regulations on CMRS providers.
Moreover, in securing ETC status, we may become subject to such
rules (as we already are in Maine and Vermont), may be required
to offer a specific universal service rate plan, as
we have in Maine, or may become subject to other state-imposed
requirements as a condition of their granting ETC status. In
some states, we are or expect to be required annually to
demonstrate that funds we collect from the high-cost fund are
used for the required purpose of constructing, maintaining, or
improving our facilities and services. These additional
regulatory obligations can be expected to increase our costs of
doing business.

At the local level, wireless facilities typically
are subject to zoning and land use regulation and may be subject
to fees for use of public rights of way. Although local and
state governments cannot categorically prohibit the construction
of wireless facilities in any community, or take actions that
have the effect of prohibiting construction, securing state and
local government approvals for new tower sites may become a more
difficult and lengthy process.

The FCC has expanded the flexibility of cellular,
PCS, and other CMRS providers to provide fixed as well as mobile
services. Such fixed services include, but need not be limited
to, wireless local loop services to apartment and
office buildings and wireless backup services to private
business exchanges and local area networks to be used in the
event of interruptions due to weather or other emergencies. The
FCC has determined that fixed services provided as ancillary
services to a carriers mobile service will be regulated as
commercial mobile radio services.

The FCC recently adopted new rules authorizing
spectrum leasing for a variety of wireless services. Such rules
may provide us with opportunities to expand our services into
new areas, or provide us with access to additional spectrum,
without need for us to purchase licenses, but the same rules
also have the potential to induce new competitors to enter our
markets. In addition, proceedings relating to human exposure to
radio frequency emissions, the feasibility of making additional
spectrum available for unlicensed devices, and the provision of
spectrum-based services in rural areas are pending before the
FCC. All of these initiatives could have an effect on the way we
do business and the spectrum that is available to us and our
competitors.

The FCC does not currently specify the rates CMRS
carriers may charge for their services, nor does it require the
filing of tariffs for wireless operations. However, the FCC has
the authority to regulate the rates, terms, and conditions under
which we provide service because CMRS carriers are statutorily
considered to be common carriers and thus are required to charge
just and reasonable rates and are not allowed to engage in
unreasonable discrimination. The FCC has adopted rules and has
proposed further rules relating to the use of customer
proprietary network information (CPNI). Petitions
for reconsideration of the CPNI rules are pending before the
FCC. Additionally, the FCC has adopted rules governing billing
practices. While none of these existing requirements have a
material impact on our operations, there is no assurance that
future regulatory changes will not materially impact us. The FCC
has ruled that the Communications Act does not preempt state
damages claims as a matter of law, but whether a specific damage
award is prohibited would depend upon the facts of a particular
case. This ruling may affect the number of class action suits
brought against CMRS providers and the amount of damages awarded
by courts.

Employees and Sales Agents

As of December 31, 2003, we had
1,061 employees, including 465 in sales and marketing, 284
in customer service, 171 in network and systems operations, 91
in administration, and 50 in finance and accounting.
Approximately 46 of our employees were part-time. None of our
employees is represented by a labor organization, and we believe
we have excellent relations with our employees. In addition, we
utilize

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approximately 400 independent sales agents.
Wireless Alliance has no full-time or part-time employees but
operates utilizing our employees.







|        |           
|------- | ----------
|Item 2. | Properties

Our corporate facilities include the following:

|           |                        |         |                                                         |         |  |        |  |  |  |        | 
|---------- | ---------------------- | ------- | ------------------------------------------------------- | ------- |  | ------ |  |  |  | ------ | 
|           |                        |         |                                                         | Leased/ |  | Square
|           |                        | Address |                                                         | Owned   |  | Feet  
|           |                        |         |                                                         |         |  |       
|Midwest:   |                        |         |                                                         |         |  |        |  |  |  |       
|           | Principal Corporate HQ |         | 3905 Dakota Street SW
    Alexandria, Minnesota         |         |  | Owned  |  |  |  | 50,000 | 
|Northeast: |                        |         |                                                         |         |  |        |  |  |  |       
|           | Regional Office        |         | 302 Mountain View Drive
    Colchester, Vermont         |         |  | Leased |  |  |  | 10,413 | 
|           | Regional HQ            |         | 6 Telcom Drive
    Bangor, Maine                        |         |  | Owned  |  |  |  | 36,250 | 
|           | Regional Office        |         | 323 North Street
    Saco, Maine                        |         |  | Owned  |  |  |  | 4,000  | 
|Northwest: |                        |         |                                                         |         |  |        |  |  |  |       
|           | Regional HQ            |         | 300 SE Reed Market Road
    Bend, Oregon                |         |  | Leased |  |  |  | 9,272  | 
|South:     |                        |         |                                                         |         |  |        |  |  |  |       
|           | Regional HQ            |         | 621 Boll Weevil Circle, Suite 2
    Enterprise, Alabama |         |  | Leased |  |  |  | 18,000 | 

As of December 31, 2003, our network
consisted of the following cell sites:

|                  |       |  |     |     | 
|----------------- | ----- |  | --- | --- | 
|Midwest           |       |  | 140 |    
|Wireless Alliance |       |  | 65  |    
|Northeast         |       |  | 217 |    
|Northwest         |       |  | 169 |    
|South             |       |  | 163 |    
|                  |       |  |     |    
|                  | Total |  |     | 754 | 

Giving effect to the property exchange with AWE
completed on March 1, 2004, our consolidated network
increased to 813 cell sites, reflecting 96 cell sites added
to our South region less 37 cell sites in Oregon RSA 4
that were transferred to AWE.

Our leased sites consist of land leases, tower
leases or both. We own all the equipment within the leased
sites. The leases covering these sites have various expiration
dates and are with numerous lessors. These leases generally have
renewal options that we would anticipate exercising. Due to our
network design, loss of a leased location would not have a
material impact on the operations of a regions business.

We have 89 retail locations, of which almost all
are leased. The leases covering these locations have various
expiration dates. We believe that the loss of any one of these
retail sites would not have a material impact on our business as
we would likely be able to obtain substantially equivalent
alternative space.






|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

Securities Claims.We and certain of our officers and directors have been named as
defendants in the following action:



| |                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | In re Rural Cellular Corporation Securities
    Litigation, Civil Action No.: 02-4893 PAM/RLE,
    U.S. District Court for the District of
    Minnesota.

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Between December 24, 2002 and
February 14, 2003, four securities class actions were
commenced against us and three of our executive officers. On
April 4, 2003, the court consolidated the four actions into
the single action identified above and appointed two lead
plaintiffs. The lead plaintiffs originally sought to represent a
class consisting of all persons (except defendants) who
purchased our common stock in the market during the time period
commencing in either May 2001 or on January 6, 2002, and
continuing through November 12, 2002.

We received a consolidated amended complaint on
July 3, 2003. The consolidated amended complaint added as
defendants four directors who were members of our audit
committee during the class period and Arthur Andersen LLP, our
former independent auditors. The lead plaintiffs sought to
represent a class consisting of all persons (except defendants
and members of their families and entities in which they held
interests) who purchased or otherwise obligated themselves to
purchase our publicly traded equity and debt securities between
May 7, 2001 and November 12, 2002. The lead plaintiffs
alleged that our publicly-announced financial results were false
and misleading and that we made false and misleading statements
about our operating performance and financial condition. The
lead plaintiffs further alleged that, as a result, the market
price of our securities was artificially inflated during the
class period and investors were deceived into buying our
securities at artificially inflated prices. The lead plaintiffs
alleged that defendants were liable under Sections 10(b)
and 20(a) of the Securities Exchange Act of 1934. The lead
plaintiffs sought compensatory damages in an unspecified amount,
plus their attorneys fees and costs.

On September 2, 2003, we served a motion to
dismiss the consolidated amended complaint as against RCC and
the defendant directors, on the grounds that it failed to plead
fraud with the particularity required by Rule 9(b) of the
Federal Rules of Civil Procedure and the Private Securities
Litigation Reform Act of 1995,
15 U.S.C. § 78u-4, and failed to state a
claim upon which relief may be granted. Arthur Andersen LLP also
filed a motion to dismiss.

By Memorandum and Order filed on January 12,
2004, the court dismissed the consolidated amended complaint
without prejudice. The court held that the lead plaintiffs had
failed to plead specific facts showing that the defendants knew
facts, or had access to information, suggesting that RCCs
financial statements were materially false when they originally
were issued. The court allowed the lead plaintiffs to file a
further amended complaint within 30 days to attempt to
correct the deficiencies in their pleading.

On February 9, 2004, the lead plaintiffs
filed a second consolidated amended complaint. The second
consolidated amended complaint alleges essentially the same
claims against the same defendants for the same alleged class
periods, but includes some additional factual allegations. RCC
and the defendant directors intend to move for dismissal of the
second consolidated amended complaint with prejudice. A motion
is scheduled for hearing on April 22, 2004.

The individual defendants have requested that we
indemnify them and advance the costs of their defense in
connection with this action. Our board of directors authorized
advancing the costs of defense to the executive officers and
directors named as defendants in the initial complaints, and
appointed a committee of certain non-party directors, as
required by Minnesota statute, to consider the request of the
directors added as defendants in the consolidated amended
complaint. The committee authorized advancing the costs of
defense to the four directors who were added as defendants.

We and the officer and director defendants are
beneficiaries of liability insurance, which includes coverage
for securities claims, subject to certain exclusions. We have
tendered these claims to the carriers. The primary carrier has
responded by raising certain issues with regard to coverage,
which have not been resolved. Since this action is currently at
a very early stage, we are unable to determine the potential
effects of this action. It is possible that if this action is
determined in a manner that is adverse to us, it could result in
a material and adverse effect on our financial condition and
results of operations, to the extent that any potential
liability is not covered by our litigation insurance.

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Derivative Action.The following is a purported derivative action brought against
all of our directors and against us, as a nominal defendant:



| |                                                                                                                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Hiene Junge v. Richard P. Ekstrand,
    Wesley E. Schultz, Ann K. Newhall, Jeffrey S.
    Gilbert, Marvin C. Nicolai, George M. Revering,
    Don C. Swenson, George W. Wikstrom, Paul J.
    Finnegan, and John Hunt; and Rural Cellular Corporation as
    nominal defendant, commenced on or about February 20, 2003
    in Douglas County District Court, Alexandria,
    Minnesota.

The plaintiff is one of our shareholders and
claims to bring suit on behalf of RCC. No pre-lawsuit demand to
investigate the allegations or bring the action was made on the
board of directors. The plaintiff alleges that the directors
breached their fiduciary duties to our shareholders, or abused
their control, or grossly mismanaged, or wasted corporate
assets, by allowing or causing RCC to improperly account for
certain transactions in our financial statements during the time
period from May 2001 through November 12, 2002. The
plaintiff further alleges that the improper accounting
eventually led to the commencement of federal securities class
actions (described above) against us, which allegedly will cause
us to expend significant sums of money. The plaintiff seeks
compensatory damages against the directors in an unspecified
amount, plus his attorneys fees and costs.

The plaintiff granted the defendants an
indefinite extension of time to answer his complaint. Later in
2003, the plaintiff attempted to take discovery. On
January 9, 2004, we and the director defendants served a
motion to dismiss the complaint, and a motion to stay all
discovery until the motion to dismiss has been decided. The
grounds for the motion to dismiss are that the plaintiff failed
to make pre-suit demand, that the complaint fails to plead fraud
with sufficient particularity, that the alleged claims are not
ripe for adjudication, and that RCCs Amended Articles of
Incorporation limit the personal liability of the director
defendants and bar claims like those being asserted against them
in this action. Both motions currently are being briefed. Both
motions are scheduled to be heard on April 2, 2004.

The defendant directors have requested that we
indemnify them and advance the costs of defense in connection
with the derivative action. Our board of directors appointed a
special counsel, as required by Minnesota statute, who
considered this request and determined that the defendant
directors are entitled to advance of costs of defense.

We and the defendant directors are named or
defined as insureds under insurance policies that include
coverage for certain shareholders derivative claims,
subject to certain exclusions. This matter has been tendered to
the insurers. Although the response from the primary carrier
regarding the class action does not specifically address
coverage of this claim, the same issues could be raised to
dispute coverage of this matter.

Since this action is currently at a very early
stage, we are unable to determine the potential effects of this
action. It is possible that if this action is determined in a
manner that is adverse to us, it could result in a material and
adverse effect on our financial condition and results of
operations, to the extent that any potential liability is not
covered by our litigation insurance.

Other Claims.We are
involved from time to time in other routine legal matters and
other claims incidental to our business. We believe that the
resolution of such routine matters and other incidental claims,
taking into account established reserves and insurance, will not
have a material adverse impact on our consolidated financial
position or results of operations.






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

No matters were submitted to a vote of security
holders during the fourth quarter of the fiscal year covered by
this report.

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##### Table of Contents



EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth certain
information with regard to each of our executive officers:

|                    |  |     |    |          |  |                                                                   
|------------------- |  | --- | -- | -------- |  | ------------------------------------------------------------------
|Name                |  | Age |    | Position
|                    |  |     |    |         
|Richard P. Ekstrand |  |     | 54 |          |  | President, Chief Executive Officer and Director                   
|Wesley E. Schultz   |  |     | 47 |          |  | Executive Vice President, Chief Financial Officer
    and Director
|Ann K. Newhall      |  |     | 52 |          |  | Executive Vice President, Chief Operating Officer
    and Director
|David J. Del Zoppo  |  |     | 48 |          |  | Vice President, Finance and Accounting                            

Richard P. Ekstrandhas served as our President, Chief
Executive Officer, and a director since 1990. He currently
serves on the board of directors and executive committee of the
Cellular Telecommunications & Internet Association
(CTIA) and the Wireless Foundation. Mr. Ekstrand
previously served as Chairman of the Board of Directors of both
CTIA and the Wireless Foundation. He also was a founding
director of the Rural Cellular Association and served as a
director until 2000. In addition, he is a past President of the
Minnesota Telephone Association, the Association of Minnesota
Telephone Utilities, and the Minnesota Telecommunications
Association. Mr. Ekstrand is the sole shareholder,
president, and a director of North Holdings, Inc. (formerly
Lowry Telephone Co., Inc.), which is a shareholder of Rural
Cellular and a member of Lowry Telephone Company, LLC. From 1980
through 2000, Mr. Ekstrand had served as vice president and
a director of Lowry Telephone Co., Inc. Mr. Ekstrand also
serves as the treasurer and a member of the board of governors
of Lowry Telephone Company, LLC. In January 2004, he was elected
to serve on the board of directors of the Minnesota Zoo
Foundation.

Wesley E. Schultzhas served as Executive Vice President
and Chief Financial Officer since 2000 and as a director since
1999. He joined us in 1996 as Vice President of Finance and
Chief Financial Officer. In 1999, he was appointed Senior Vice
President and Chief Financial Officer and Assistant Secretary.
Mr. Schultz is a certified public accountant and served for
three years as an auditor with Deloitte & Touche LLP.

Ann K. Newhallhas
served as Executive Vice President, Chief Operating Officer, and
Secretary since 2000 and as a director since 1999. She joined us
as Senior Vice President and General Counsel in 1999. Prior to
joining us, Ms. Newhall was a shareholder attorney with
Moss & Barnett, A Professional Association, most
recently serving as President and a director of the firm.
Ms. Newhall received her J.D. from the University of
Minnesota Law School in 1977. In August 2003, she was elected to
serve on the board of directors of Alliant Energy Corporation, a
gas and electric utility.

David J. Del Zoppohas served as Vice President, Finance
and Accounting since 1999. He joined us in 1997 as Controller
and was appointed Vice President in 1998. Mr. Del Zoppo is
a certified public accountant and served for four years as an
auditor with KPMG, LLP.




PART II






|        |                                                                                                                        
|------- | -----------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity
    and Related Stockholder Matters and Issuer Purchases of Equity
    Securities

Until December 17, 2002, our Class A
common stock was quoted on the Nasdaq National Market, and
between December 18, 2002 and December 29, 2003, was
quoted on the OTC Bulletin Board. On December 30, 2003, it
was again listed on the Nasdaq National Market under the symbol
RCCC.

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##### Table of Contents



The following table indicates the high and low
sales price for each quarter of the 2003 and 2002 fiscal years
on the OTC Bulletin Board and on The Nasdaq National Market.

|     |                |      |   |       |  |  |   |      | 
|---- | -------------- | ---- | - | ----- |  |  | - | ---- | 
|     |                | High |   | Low  
|     |                |      |   |      
|2003 |                |      |   |       |  |  |   |     
|     | First Quarter  |      | $ | 1.58  |  |  | $ | 0.71 | 
|     | Second Quarter |      | $ | 4.40  |  |  | $ | 0.85 | 
|     | Third Quarter  |      | $ | 10.05 |  |  | $ | 4.00 | 
|     | Fourth Quarter |      | $ | 10.50 |  |  | $ | 6.85 | 
|2002 |                |      |   |       |  |  |   |     
|     | First Quarter  |      | $ | 23.05 |  |  | $ | 2.90 | 
|     | Second Quarter |      | $ | 5.15  |  |  | $ | 0.80 | 
|     | Third Quarter  |      | $ | 2.69  |  |  | $ | 0.65 | 
|     | Fourth Quarter |      | $ | 2.50  |  |  | $ | 0.58 | 

Our Class B common stock is not publicly
traded.

As of January 30, 2004, there were
approximately 123 holders of record of our Class A common
stock and approximately 16 holders of record of our Class B
common stock.



| |                
| | ---------------
| | Dividend Policy

RCC has never paid dividends on its Common Stock.
The terms of our credit agreement, outstanding notes, and
exchangeable preferred stock limit our ability to pay dividends
on our Common Stock.

34



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##### Table of Contents








|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

The following tables set forth certain of our
consolidated financial and operating data as of and for each of
the five years in the period ended December 31, 2003, which
we derived from our consolidated financial statements. The data
set forth below should be read in conjunction with
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations and the
consolidated financial statements and accompanying notes
included elsewhere in this Form 10-K.

|                                                                                     |                                     |                                                           |         |          |          |      |          |          |          |      |          |          |          |   |         |         |         |   |         |         |         |  
|------------------------------------------------------------------------------------ | ----------------------------------- | --------------------------------------------------------- | ------- | -------- | -------- | ---- | -------- | -------- | -------- | ---- | -------- | -------- | -------- | - | ------- | ------- | ------- | - | ------- | ------- | ------- | -
|                                                                                     |                                     |                                                          
|                                                                                     |                                     | Year Ended December 31,                                  
|                                                                                     |                                     |                                                          
|                                                                                     |                                     | 2003                                                      |         | 2002     |          | 2001 |          | 2000(1)  |          | 1999
|                                                                                     |                                     |                                                           |         |          |          |      |          |          |          |     
|                                                                                     |                                     |                                                          
|                                                                                     |                                     | (In thousands, except per share and other operating data)
|Statement of Operations Data:                                                        |                                     |                                                           |         |          |          |      |          |          |          |      |          |          |          |   |         |         |         |   |         |        
|Revenue:                                                                             |                                     |                                                           |         |          |          |      |          |          |          |      |          |          |          |   |         |         |         |   |         |        
|                                                                                     | Service                             |                                                           | $       | 355,038  |          |      | $        | 319,933  |          |      | $        | 310,520  |          |   | $       | 238,556 |         |   | $       | 125,361 |        
|                                                                                     | Roaming                             |                                                           |         | 131,896  |          |      |          | 122,703  |          |      |          | 116,541  |          |   |         | 98,693  |         |   |         | 43,081  |        
|                                                                                     | Equipment                           |                                                           |         | 20,455   |          |      |          | 20,442   |          |      |          | 18,627   |          |   |         | 18,848  |         |   |         | 7,299   |        
|                                                                                     |                                     |                                                           |         |          |          |      |          |          |          |      |          |          |          |   |         |         |         |   |         |        
|                                                                                     |                                     | Total revenue                                             |         |          | 507,389  |      |          |          | 463,078  |      |          |          | 445,688  |   |         |         | 356,097 |   |         |         | 175,741 |  
|                                                                                     |                                     |                                                           |         |          |          |      |          |          |          |      |          |          |          |   |         |         |         |   |         |        
|Operating expenses:                                                                  |                                     |                                                           |         |          |          |      |          |          |          |      |          |          |          |   |         |         |         |   |         |        
|                                                                                     | Network costs                       |                                                           |         | 96,069   |          |      |          | 97,200   |          |      |          | 101,509  |          |   |         | 85,988  |         |   |         | 38,549  |        
|                                                                                     | Cost of equipment sales             |                                                           |         | 37,636   |          |      |          | 29,184   |          |      |          | 28,415   |          |   |         | 34,711  |         |   |         | 10,951  |        
|                                                                                     | Selling, general and administrative |                                                           |         | 131,761  |          |      |          | 119,185  |          |      |          | 122,387  |          |   |         | 95,034  |         |   |         | 54,753  |        
|                                                                                     | Depreciation and amortization       |                                                           |         | 76,429   |          |      |          | 82,497   |          |      |          | 112,577  |          |   |         | 91,078  |         |   |         | 41,277  |        
|                                                                                     | Loss on assets held for sale        |                                                           |         | 42,244   |          |      |          |         |          |      |          |         |          |   |         |        |         |   |         |        |        
|                                                                                     |                                     |                                                           |         |          |          |      |          |          |          |      |          |          |          |   |         |         |         |   |         |        
|                                                                                     |                                     | Total operating expenses                                  |         |          | 384,139  |      |          |          | 328,066  |      |          |          | 364,888  |   |         |         | 306,811 |   |         |         | 145,530 |  
|                                                                                     |                                     |                                                           |         |          |          |      |          |          |          |      |          |          |          |   |         |         |         |   |         |        
|Operating income                                                                     |                                     |                                                           | 123,250 |          |          |      | 135,012  |          |          |      | 80,800   |          |          |   | 49,286  |         |         |   | 30,211  |        
|                                                                                     |                                     |                                                           |         |          |          |      |          |          |          |      |          |          |          |   |         |         |         |   |         |        
|Other income (expense):                                                              |                                     |                                                           |         |          |          |      |          |          |          |      |          |          |          |   |         |         |         |   |         |        
|                                                                                     | Interest expense                    |                                                           |         | (136,262 | )        |      |          | (114,478 | )        |      |          | (130,432 | )        |   |         | (90,764 | )       |   |         | (27,116 | )      
|                                                                                     | Interest and dividend income        |                                                           |         | 916      |          |      |          | 562      |          |      |          | 1,172    |          |   |         | 2,249   |         |   |         | 467     |        
|                                                                                     | Minority interest                   |                                                           |         |         |          |      |          |         |          |      |          |         |          |   |         |        |         |   |         | 1,663   |        
|                                                                                     | Other                               |                                                           |         | 891      |          |      |          | 66       |          |      |          | (752     | )        |   |         | (24     | )       |   |         | (338    | )      
|                                                                                     |                                     |                                                           |         |          |          |      |          |          |          |      |          |          |          |   |         |         |         |   |         |        
|                                                                                     |                                     | Other expense, net                                        |         |          | (134,455 | )    |          |          | (113,850 | )    |          |          | (130,012 | ) |         |         | (88,539 | ) |         |         | (25,324 | )
|                                                                                     |                                     |                                                           |         |          |          |      |          |          |          |      |          |          |          |   |         |         |         |   |         |        
|Income (loss) before income taxes, and cumulative
    change in accounting principle |                                     |                                                           | (11,205 | )        |          |      | 21,162   |          |          |      | (49,212  | )        |          |   | (39,253 | )       |         |   | 4,887   |        
|Income tax provision                                                                 |                                     |                                                           |        |          |          |      |         |          |          |      |         |          |          |   |        |         |         |   | 37      |        
|                                                                                     |                                     |                                                           |         |          |          |      |          |          |          |      |          |          |          |   |         |         |         |   |         |        
|Income (loss) before cumulative change in
    accounting principle                   |                                     |                                                           | (11,205 | )        |          |      | 21,162   |          |          |      | (49,212  | )        |          |   | (39,253 | )       |         |   | 4,850   |        
|Cumulative change in accounting principle                                            |                                     |                                                           |        |          |          |      | (417,064 | )        |          |      | 1,621    |          |          |   |        |         |         |   |        |        
|                                                                                     |                                     |                                                           |         |          |          |      |          |          |          |      |          |          |          |   |         |         |         |   |         |        
|Net income (loss)                                                                    |                                     |                                                           | (11,205 | )        |          |      | (395,902 | )        |          |      | (47,591  | )        |          |   | (39,253 | )       |         |   | 4,850   |        
|Preferred stock dividend                                                             |                                     |                                                           | (38,877 | )        |          |      | (60,556  | )        |          |      | (54,545  | )        |          |   | (44,081 | )       |         |   | (15,912 | )      
|                                                                                     |                                     |                                                           |         |          |          |      |          |          |          |      |          |          |          |   |         |         |         |   |         |        
|Net loss applicable to common shares                                                 |                                     | $                                                         | (50,082 | )        |          | $    | (456,458 | )        |          | $    | (102,136 | )        |          | $ | (83,334 | )       |         | $ | (11,062 | )      
|                                                                                     |                                     |                                                           |         |          |          |      |          |          |          |      |          |          |          |   |         |         |         |   |         |        
|Weighted average common shares outstanding                                           |                                     |                                                           | 12,060  |          |          |      | 11,920   |          |          |      | 11,865   |          |          |   | 11,510  |         |         |   | 9,047   |        
|                                                                                     |                                     |                                                           |         |          |          |      |          |          |          |      |          |          |          |   |         |         |         |   |         |        

35



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|                                                                                          |                                           |                                                           |       |      |  |      |        |         |   |      |       |     |  |   |       |   |  |   |       |   | 
|----------------------------------------------------------------------------------------- | ----------------------------------------- | --------------------------------------------------------- | ----- | ---- |  | ---- | ------ | ------- | - | ---- | ----- | --- |  | - | ----- | - |  | - | ----- | - | 
|                                                                                          |                                           |                                                          
|                                                                                          |                                           | Year Ended December 31,                                  
|                                                                                          |                                           |                                                          
|                                                                                          |                                           | 2003                                                      |       | 2002 |  | 2001 |        | 2000(1) |   | 1999
|                                                                                          |                                           |                                                           |       |      |  |      |        |         |   |     
|                                                                                          |                                           |                                                          
|                                                                                          |                                           | (In thousands, except per share and other operating data)
|Net loss applicable to common shares before
    cumulative change in accounting principle |                                           | $                                                         | (4.15 | )    |  | $    | (3.30  | )       |   | $    | (8.74 | )   |  | $ | (7.24 | ) |  | $ | (1.22 | )
|                                                                                          | Cumulative change in accounting principle |                                                           |       |     |  |      |        | (34.99  | ) |      |       | .13 |  |   |       |  |  |   |       |  | 
|                                                                                          |                                           |                                                           |       |      |  |      |        |         |   |      |       |     |  |   |       |   |  |   |       |  
|Net loss per basic and diluted share                                                      |                                           | $                                                         | (4.15 | )    |  | $    | (38.29 | )       |   | $    | (8.61 | )   |  | $ | (7.24 | ) |  | $ | (1.22 | )
|                                                                                          |                                           |                                                           |       |      |  |      |        |         |   |      |       |     |  |   |       |   |  |   |       |  

|                    |                                      |                                             |   |           |   |      |   |           |   |      |   |           |   |  |   |           |   |  |   |         |  
|------------------- | ------------------------------------ | ------------------------------------------- | - | --------- | - | ---- | - | --------- | - | ---- | - | --------- | - |  | - | --------- | - |  | - | ------- | -
|                    |                                      |                                            
|                    |                                      | As of December 31,                         
|                    |                                      |                                            
|                    |                                      | 2003                                        |   | 2002      |   | 2001 |   | 2000(1)   |   | 1999
|                    |                                      |                                             |   |           |   |      |   |           |   |     
|                    |                                      |                                            
|                    |                                      | (In thousands, except other operating data)
|Balance Sheet Data: |                                      |                                             |   |           |   |      |   |           |   |      |   |           |   |  |   |           |   |  |   |        
|                    | Working capital (deficit)            |                                             | $ | 86,135    |   |      | $ | (55,496   | ) |      | $ | (18,273   | ) |  | $ | (23,578   | ) |  | $ | (5,887  | )
|                    | Net property and equipment           |                                             |   | 226,202   |   |      |   | 240,536   |   |      |   | 244,980   |   |  |   | 234,490   |   |  |   | 130,651 |  
|                    | Total assets                         |                                             |   | 1,521,058 |   |      |   | 1,462,978 |   |      |   | 1,836,779 |   |  |   | 1,771,796 |   |  |   | 526,278 |  
|                    | Total long-term liabilities          |                                             |   | 1,764,867 |   |      |   | 1,211,026 |   |      |   | 1,286,301 |   |  |   | 1,157,472 |   |  |   | 339,742 |  
|                    | Total shareholders (deficit) equity |                                             | $ | (526,830  | ) |      | $ | (483,115  | ) |      | $ | (33,830   | ) |  | $ | 79,955    |   |  | $ | 9,427   |  

|                                        |                                                         |                    |           |      |         |      |           |         |         |      |           |   |         |   |           |   |         |   |           |   |         | 
|--------------------------------------- | ------------------------------------------------------- | ------------------ | --------- | ---- | ------- | ---- | --------- | ------- | ------- | ---- | --------- | - | ------- | - | --------- | - | ------- | - | --------- | - | ------- | 
|                                        |                                                         |                   
|                                        |                                                         | As of December 31,
|                                        |                                                         |                   
|                                        |                                                         | 2003               |           | 2002 |         | 2001 |           | 2000(1) |         | 1999
|                                        |                                                         |                    |           |      |         |      |           |         |         |     
|Other Operating Data:                   |                                                         |                    |           |      |         |      |           |         |         |      |           |   |         |   |           |   |         |   |           |  
|                                        | Customers (not including long distance and
    paging): |                    |           |      |         |      |           |         |         |      |           |   |         |   |           |   |         |   |           |   |        
|                                        |                                                         | Postpaid           |           |      | 656,110 |      |           |         | 639,221 |      |           |   | 599,514 |   |           |   | 531,290 |   |           |   | 243,277 | 
|                                        |                                                         | Prepaid            |           |      | 22,302  |      |           |         | 27,452  |      |           |   | 33,255  |   |           |   | 20,832  |   |           |   | 2,494   | 
|                                        |                                                         | Wholesale          |           |      | 67,104  |      |           |         | 55,700  |      |           |   | 29,139  |   |           |   | 12,727  |   |           |   |        | 
|                                        |                                                         |                    |           |      |         |      |           |         |         |      |           |   |         |   |           |   |         |   |           |  
|                                        |                                                         | Total customers    |           |      | 745,516 |      |           |         | 722,373 |      |           |   | 661,908 |   |           |   | 564,849 |   |           |   | 245,771 | 
|Marketed POPs(2)                        |                                                         |                    | 5,962,000 |      |         |      | 5,893,000 |         |         |      | 5,893,000 |   |         |   | 5,443,000 |   |         |   | 3,118,000 |  
|Penetration(3)                          |                                                         |                    | 11.4      | %    |         |      | 11.3      | %       |         |      | 10.7      | % |         |   | 10.1      | % |         |   | 7.9       | %
|Retention(4)                            |                                                         |                    | 98.1      | %    |         |      | 98.2      | %       |         |      | 97.8      | % |         |   | 98.2      | % |         |   | 98.3      | %
|Average monthly revenue per customer(5) |                                                         | $                  | 59        |      |         | $    | 57        |         |         | $    | 59        |   |         | $ | 61        |   |         | $ | 54        |  
|Acquisition cost per customer(6)        |                                                         | $                  | 417       |      |         | $    | 373       |         |         | $    | 287       |   |         | $ | 358       |   |         | $ | 365       |  
|Cell sites/ Base stations               |                                                         |                    | 754       |      |         |      | 732       |         |         |      | 684       |   |         |   | 654       |   |         |   | 328       |  



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In April 2000, we acquired wireless operations
    and licenses covering portions of Alabama, Kansas, Mississippi,
    Oregon, and Washington. These acquired operations are reflected
    in our financial statements only after the date of acquisition.
    Our results of operations for the years beginning after
    December 31, 2000 reflect these operations for the full
    year. As a result, our results of operations for the year ended
    December 31, 2000 are not fully comparable to those of
    subsequent years.
|   
|(2) | For 2003, 2002 and 2001, updated to reflect 2000
    U.S. Census Bureau Official Statistics. For years 1999
    through 2000, updated to reflect July 1, 1997, 1990
    U.S. Census Bureau Official Statistics.                                                                                                                                                                                                                                                                                                                        

36



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##### Table of Contents





|    |                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | Represents the ratio of wireless voice customers,
    excluding wholesale customers, at the end of the period to
    population served.                                                                                                                                                                                                                                                                               
|   
|(4) | Determined for each period by dividing total
    postpaid wireless voice customers discontinuing service during
    such period by the average postpaid wireless voice customers for
    such period (customers at the beginning of the period plus
    customers at the end of the period, divided by two), dividing
    that result by the number of months in the period, and
    subtracting such result from one.
|   
|(5) | Determined for each period by dividing service
    revenue (not including pass-through regulatory fees) and roaming
    revenue by the monthly average postpaid customers for such
    period.                                                                                                                                                                                                                        
|   
|(6) | Determined for each period by dividing selling
    and marketing expenses, net costs of equipment sales, and
    depreciation of rental telephone equipment by the gross postpaid
    wireless voice customers added during such period.                                                                                                                                                                              

37



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##### Table of Contents








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

Business Overview

We were founded in 1991 through the combination
of five partnerships holding cellular licenses for five rural
service areas, or RSAs, in northern Minnesota. Since
then, we have materially expanded our business through a series
of acquisitions increasing the population to whom we market our
services from 636,000 to 5.9 million. As of
December 31, 2003, our service areas cover portions of the
Midwest, Northeast, South, and Northwest regions and provide
wireless voice services to approximately 678,000 customers,
excluding wholesale customers.

In October 2003, we completed an acquisition of
personal communication services, or PCS, licenses
from AWE, which overlap our Northeast and Northwest regions. On
March 1, 2004, we completed a property exchange with AWE
under which we exchanged certain operations in Oregon for
selected AWE operations in Alabama and Mississippi and received
other unbuilt PCS licenses from AWE adjacent to and overlapping
portions of our Midwest, Northwest, and South regions. The new
licenses from these two transactions, together with our other
existing licenses, will be used in our next generation network
build-out, which we commenced in late 2003 and expect to be
substantially complete in late 2005.

Giving effect to our property exchange with AWE,
our marketed networks covered a total population of
approximately 6.3 million POPs and served approximately
660,000 voice customers, excluding wholesale customers, as
of December 31, 2003. Our marketed PCS networks, which we
operate through Wireless Alliance, a 70%-owned joint venture
with T-Mobile, covers a total population of approximately
754,000 and served approximately 16,000 voice customers as
of December 31, 2003.

Our principal financial objective is to increase
revenue and achieve profitability through increased penetration
in existing markets. We believe that we can achieve this
objective because our rural markets have lower penetration, and
favorable roaming characteristics. Also, we have focused on
consistent cost reduction and network operating efficiency.

Operating Revenue

Our revenue primarily consists of service,
roaming, and equipment revenue, each of which is described below:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Servicerevenue
    includes monthly access charges, charges for airtime used in
    excess of the time included in the service package purchased,
    long distance charges derived from calls placed by customers as
    well as wireless and paging equipment lease revenue. Also
    included are charges for features such as voicemail, call
    waiting, call forwarding, and incollect revenue, which consists
    of charges to our customers when they use their wireless phones
    in other wireless markets. We do not charge installation or
    connection fees.



| |                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We also include in service revenue the USF
    support funding that we are eligible for as a result of our ETC
    status in certain states in addition to USF pass-through fees we
    charge our customers.



| |   |                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------
| |  | Roamingrevenue
    includes only outcollect revenue, which we receive when other
    wireless providers customers use our network.   
|
| |  | Equipmentrevenue
    includes sales of wireless and paging equipment and accessories
    to customers and network equipment reselling.

Operating Expenses

Our operating expenses include network costs,
cost of equipment sales, selling, general and administrative
expenses, and depreciation and amortization, each of which is
described below:



| |   |                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Network costsinclude switching and transport
    expenses and expenses associated with the maintenance and
    operation of our wireless network facilities, including salaries
    for employees involved in network

38



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | operations, site costs, charges from other
    service providers for resold minutes, and the expense associated
    with incollect revenue.                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Cost of equipment salesincludes costs associated with
    telephone equipment and accessories sold to customers. In recent
    years, we and other wireless providers have increased the use of
    discounts on phone equipment as competition between service
    providers has intensified. As a result, we have incurred, and
    expect to continue to incur, losses on equipment sales per gross
    additional customer. We expect to continue these discounts and
    promotions because we believe they will increase the number of
    our wireless customers and, consequently, increase service
    revenue.
|
| |  | Selling, general and administrative(SG&A) expenses
    include salaries, benefits, and operating expenses such as
    marketing, commissions, customer support, accounting,
    administration, and billing. We also include in SG&A
    contributions payable to the USF.                                                                                                                                                                                                                                                                                                                                            
|
| |  | Depreciation and amortizationrepresents the costs associated with
    the depreciation of fixed assets and the amortization of
    customer lists. Under the rules of SFAS No. 142, RCC
    treats licenses and goodwill as having indefinite useful lives
    and, therefore, since January 1, 2002, they are not being
    amortized. Depreciation and amortization also includes the
    depreciation of the capitalized cost of handsets leased to
    customers.                                                                                                                                                   

Other Expenses



| |   |                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Interest expenseprimarily results from borrowings
    under our credit agreement and the issuance of outstanding notes
    and exchangeable preferred stock, the proceeds of which were
    used to finance acquisitions, repay other borrowings, and
    further develop our wireless network.

Interest expense includes the following:



| |   |                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Interest expense on the credit agreement                                                                                                                                                                                                                              
|
| |  | Interest expense on the senior subordinated notes                                                                                                                                                                                                                     
|
| |  | Interest expense on the senior notes                                                                                                                                                                                                                                  
|
| |  | Amortization of debt issuance costs                                                                                                                                                                                                                                   
|
| |  | Early extinguishment of debt issuance cost                                                                                                                                                                                                                            
|
| |  | Dividends on senior and junior exchangeable
    preferred stock                                                                                                                                                                                                       
|
| |  | Related amortization of stock issuance costs upon
    adoption of SFAS No. 150 on July 1, 2003 (See
     Recently Issued Accounting
    Pronouncements  Accounting for Certain Financial
    Instruments with Characteristics of Both Liabilities and
    Equity.)
|
| |  | Gain (loss) on derivative instruments                                                                                                                                                                                                                                 



| |                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | All of our derivative financial instruments
    entered into after January 1, 2003 are marked to market,
    with changes in fair value included in interest expense.



| |   |                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Preferred stock dividendsare accrued on our outstanding
    preferred securities. Included in preferred stock dividends are
    dividends related to our Class M convertible preferred
    stock and Class T convertible preferred stock. Through
    June 30, 2003, preferred stock dividends also included
    dividends on our senior and junior exchangeable preferred
    securities.

Critical Accounting Policies and
Estimates

The following discussion and analysis is based
upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of our
consolidated financial statements requires management to make
estimates and assumptions that affect the reported amounts of
revenue, expenses, assets, and liabilities during the periods
reported. Estimates are used when accounting for certain items
such as unbilled revenue, allowance for

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doubtful accounts, depreciation and amortization
periods, income taxes, valuation of intangible assets, and
litigation contingencies. We base our estimates on historical
experience, where applicable, and other assumptions that we
believe are reasonable under the circumstances. We believe that
the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of
our consolidated financial statements.




| |                                                    
| | ---------------------------------------------------
| | Goodwill and Indefinite-Lived Intangible
    Assets

We review goodwill and indefinite-lived
intangible assets for impairment based on the requirements of
SFAS No. 142, Goodwill and Other Intangible
Assets. In accordance with this statement, goodwill is
tested for impairment at the reporting unit level on an annual
basis as of October 1st or on an interim basis if an event
occurs or circumstances change that could reduce the fair value
of a reporting unit below its carrying value. These events or
circumstances would include a significant change in the business
climate, legal factors, operating performance indicators,
competition, sale or disposition of a significant portion of the
business or other factors. In analyzing goodwill for potential
impairment, we use projections of future cash flows from the
reporting units. These projections are based on our views of
growth rates and anticipated future economic conditions and the
appropriate discount rates relative to risk and estimates of
residual values. We believe that our estimates are consistent
with assumptions that marketplace participants would use in
their estimates of fair value. If changes in growth rates,
future economic conditions or discount rates and estimates of
terminal values were to occur, goodwill may become impaired.

Additionally, impairment tests for
indefinite-lived intangible assets, consisting of FCC licenses,
are required to be performed on an annual basis or on an interim
basis if an event occurs or circumstances change that would
indicate the asset might be impaired. In accordance with
Emerging Issues Task Force (EITF 02-7), Unit
of Accounting for Testing of Impairment of Indefinite-Lived
Intangible Assets, impairment tests for FCC licenses are
performed on an aggregate basis. We utilize a fair value
approach, incorporating discounted cash flows, to complete the
test. This approach determines the fair value of the FCC
licenses, using start-up model assumptions and accordingly
incorporates cash flow assumptions regarding the investment in a
network, the development of distribution channels, and other
inputs for making the business operational. As these inputs are
included in determining free cash flows of the business, the
present value of the free cash flows is attributable to the
licenses using assumptions of our weighted average costs of
capital and the long-term rate of growth for our business. We
believe that our estimates are consistent with assumptions that
marketplace participants would use in their estimates of fair
value. If any of the cash flow assumptions were to change, FCC
licenses may become impaired.

We believe that the accounting estimate related
to determining the fair value of goodwill and indefinite-lived
intangible assets, and thus any impairment, is a critical
accounting estimate because (i) it is highly
susceptible to change from period to period since it requires
management to make cash flow assumptions about future sales,
operating costs, and discount rates over an indefinite life and
(ii) the impact that recognizing an impairment would have
on the assets reported on our balance sheet as well as our net
income (loss) would be material. In estimating future
operations, we use our internal budgets, which require
significant judgment regarding anticipated customer growth and
other business trends. (See Note 14 to our consolidated
financial statements regarding impairment of assets held for
sale.)

Following adoption of SFAS No. 142 in
2002, we completed an impairment test for both our goodwill and
licenses and determined that there were impairments of
$5.0 million and $412.0 million, respectively. We used
a fair value approach, using primarily discounted cash flows, to
complete the transitional impairment tests. In accordance with
SFAS No. 142, the impairment charges were recorded as
a cumulative change in accounting principle in our consolidated
financial statements for the first quarter of 2002. We completed
our annual impairment test for our goodwill and licenses for
2003 and did not identify any impairment of goodwill or FCC
licenses (excluding the impairment on assets held for sale).

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##### Table of Contents





| |                                  
| | ---------------------------------
| | Revenue Recognition 
    Service

We recognize service revenue based upon minutes
of use processed and contracted fees, net of credits and
adjustments for service discounts. As a result of our billing
cycle cut-off times, we are required to make estimates for
service revenue earned, but not yet billed, at the end of each
month. These estimates are based primarily upon historical
minutes of use processed. We follow this method since
reasonable, dependable estimates of the revenue can be made.
Actual billing cycle results and related revenue may vary from
the results estimated at the end of each quarter, depending on
customer usage and rate plan mix. For customers who prepay their
monthly access, we match the recognition of service revenue to
their corresponding usage.

Recently, we started to receive USF revenue
reflecting our ETC status in certain states. How we recognize
support revenue depends on the level of our collection
experience in each ETC qualified state. Where we do not have
adequate experience to determine the time required for
reimbursement, we recognize revenue upon cash receipt. Where we
do have adequate experience as to the amount and timing of the
receipt of these funds, we recognize revenue on an accrual
basis. Additionally, we include the pass-through fees we charge
our customers to support the USF as service revenue.



| |                                                             
| | ------------------------------------------------------------
| | Revenue Recognition  Roaming
    Revenue and Incollect Cost

Roaming revenue and incollect cost information is
provided to us primarily through a third party centralized
clearinghouse. From the clearinghouse we receive monthly
settlement data. We base our accrual of roaming revenue and
incollect expense on these clearinghouse reports. We follow this
method since reasonably dependable estimates of roaming revenue
and incollect cost can be made utilizing these reports.



| |                                    
| | -----------------------------------
| | Allowance for Doubtful
    Accounts

We maintain an allowance for doubtful accounts
for estimated losses that will result from failure of our
customers to pay amounts owed. We base our estimates on the
aging of our accounts receivable balances and our historical
write-off experience, net of recoveries. If the financial
condition of our customers were to deteriorate, we may be
required to maintain higher allowances.



| |                                           
| | ------------------------------------------
| | Depreciation of Property and
    Equipment

We depreciate our wireless communications
equipment using the straight-line method over estimated useful
lives. We periodically review changes in our technology and
industry conditions, asset retirement activity, and salvage to
determine adjustments to estimated remaining useful lives and
depreciation rates. Effective January 1, 2003, we
implemented the results of a review of the estimated service
lives of our remaining TDMA network assets. Useful lives were
shortened to substantially depreciate all such equipment by
December 31, 2008. While we will continue to sell and
market TDMA services for the foreseeable future, the amount of
future projected cash flows to be derived from the TDMA network
assets is highly dependent upon the rate of transition of
existing subscribers using TDMA equipment to GSM/GPRS and CDMA
capable equipment, as well as other competitive and
technological factors. We determined that a reduction in the
useful lives of these assets is warranted based on the projected
transition of network traffic.

The following summarizes the current and expected
useful lives for TDMA equipment acquired between January 1,
2002 and December 31, 2004:

|                    |  |             |         | 
|------------------- |  | ----------- | ------- | 
|Year of Acquisition |  | Useful Life
|                    |  |            
|2002                |  |             | 6 years | 
|2003                |  |             | 5 years | 
|2004                |  |             | 4 years | 

We will continue to review the useful lives of
the TDMA assets throughout the period of transition of
subscribers to GSM/ GPRS and CDMA capable equipment to determine
whether further changes are warranted.

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| |                                    
| | -----------------------------------
| | Impairment of Long-Lived
    Assets

We review long-lived assets, consisting primarily
of property, plant and equipment and intangible assets with
finite lives, for impairment in accordance with
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. In analyzing potential
impairment, we use projections of future cash flows from the
assets. These projections are based on our views of growth rates
for the related business and anticipated future economic
conditions and the appropriate discount rates relative to risk
and estimates of residual values. We believe that our estimates
are consistent with assumptions that marketplace participants
would use in their estimates of fair value. If changes in growth
rates, future economic conditions or discount rates and
estimates of terminal values were to occur, long-lived assets
may become impaired.

When we determine that the carrying value of
certain long-lived assets may not be recoverable based upon the
existence of one or more of the above impairment indicators, we
then measure any impairment based on a projected discounted cash
flow method using a discount rate determined by management to be
commensurate with the risk inherent in our current business
model. In connection with our property exchange with AWE, we
recorded a non-cash loss on assets held for sale, in accordance
with SFAS No. 144, of $42.2 million effective in
the third quarter of 2003. (See Note 14 to our consolidated
financial statements.)



| |             
| | ------------
| | Income Taxes

We account for income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes. As
part of the process of preparing the consolidated financial
statements, we are required to estimate income taxes in each of
the jurisdictions in which we operate. This process involves
estimating actual current tax exposure together with assessing
temporary differences resulting from differing treatment of
items for tax and accounting purposes. These differences result
in deferred tax assets and liabilities. We must then assess the
likelihood that deferred tax assets will be recovered from
future taxable income and, to the extent we believe that
recovery is not likely, we must establish a valuation allowance.
To the extent RCC increases or decreases the valuation allowance
in a period, we must include an expense or benefit within the
tax provision in the consolidated statement of operations.

Significant management judgment is required in
determining the provision for income taxes, deferred tax assets
and liabilities, and any valuation allowance recorded against
net deferred tax assets. As of December 31, 2003, our
valuation allowance was $156.3 million due to uncertainties
related to our ability to utilize the deferred tax assets. The
deferred tax assets consist principally of certain net operating
losses (NOLs) being carried forward, as well as
impairment write-downs of intangible assets not currently
deductible for tax purposes. The valuation allowance is based on
our historical operations projected forward and our estimate of
future taxable income and the period over which deferred tax
assets will be recoverable. It is possible that we could be
profitable in the future at levels that cause us to conclude
that it is more likely than not that we will realize a portion
or all of the NOL carryforward. Upon reaching such a conclusion,
we would immediately record the estimated net realizable value
of the deferred tax asset at that time and would then provide
for income taxes at a rate equal to our combined federal and
state effective rates, which would be approximately 38% under
current tax law. Subsequent revisions to the estimated net
realizable value of the deferred tax asset could cause the
provision for income taxes to vary significantly from period to
period, although our cash tax payments would likely remain
unaffected until the benefit of the NOLs is utilized or the NOLs
expire unused.



| |                                            
| | -------------------------------------------
| | Litigation and Other Loss
    Contingencies

In the ordinary course of business, we are
subject to litigation and other contingencies. Management must
use its best judgment and estimates of probable outcomes when
determining the impact of these contingencies. We assess the
impact of claims and litigation on a regular basis and update
the assumptions and estimates used to prepare the consolidated
financial statements.

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Recently Issued Accounting
Pronouncements



| |                             
| | ----------------------------
| | Asset Retirement Obligations

We adopted SFAS No. 143, Accounting
for Asset Retirement Obligations(SFAS No.
143), effective January 1, 2003. This statement
relates to the costs of closing facilities and removing assets.
SFAS No. 143 requires entities to record the fair
value of a legal liability for an asset retirement obligation
(ARO) in the period it is incurred if a reasonable
estimate of fair value can be made. This cost is initially
capitalized and amortized over the remaining life of the
underlying asset. Once the obligation is ultimately settled, any
difference between the final cost and the recorded liability is
recognized as a gain or loss. For RCC, an ARO includes
contractual obligations for costs associated with removing
component equipment from cell sites located on leased property.
The adoption of SFAS No. 143 did not result in a
significant impact to our operating results for the year ended
December 31, 2003.



| |                                                                                                         
| | --------------------------------------------------------------------------------------------------------
| | Accounting for Certain Financial
    Instruments with Characteristics of Both Liabilities and
    Equity

In May 2003, the FASB issued
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and
Equity. SFAS No. 150 establishes standards for how
an issuer classifies and measures certain financial instruments
with characteristics of both liabilities and equity.
SFAS No. 150 requires that an issuer classify a
financial instrument with certain defined characteristics as a
liability (or an asset in some circumstances). The requirements
of this statement apply to an issuers classification and
measurement of freestanding financial instruments, including
those that comprise more than one option or forward contract.
SFAS No. 150 is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period
beginning after June 15, 2003. We adopted
SFAS No. 150 on July 1, 2003.

The carrying value of the
11 3/8% Senior Exchangeable and 12 1/4% Junior
Exchangeable Preferred securities, as a result of adopting
SFAS No. 150, were reclassified into Long-Term
Liabilities (see Note 5 to our consolidated financial
statements). The dividend expense related to these instruments,
which was previously reported as a component of Preferred
Stock Dividend in our Consolidated Statements of
Operations, is now classified as interest expense within
Interest Expense. For the six months ended
December 31, 2003, dividends on these instruments were
$28.0 million. Accrued dividends payable of
$3.4 million as of December 31, 2003 are included in
Accrued Interest. In addition, $7.3 million of
unamortized stock issuance costs related to these instruments
was reclassified to Deferred Debt Issuance Costs
upon adoption. SFAS No. 150 does not permit
reclassification of prior year amounts to conform to the current
year presentation. Based on SFAS No. 150 guidelines,
our Class M and Class T Preferred Stock do not meet
the characteristics of a liability and will continue to be
presented between liability and equity on our balance sheet.



| |                                                                         
| | ------------------------------------------------------------------------
| | Accounting Guidance on Derivative
    Instruments and Hedging Activities

In April 2003, the FASB issued
SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities(SFAS No. 149), which amends and
clarifies the accounting guidance on derivative instruments and
hedging activities that fall within the scope of
SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 149
also amends certain other existing pronouncements to provide
more uniform reporting of contracts that are derivatives in
their entirety or that contain embedded derivatives that warrant
separate accounting. SFAS No. 149 is effective for us
on a prospective basis for contracts entered into or modified
and for hedging relationships designated for fiscal periods
beginning after September 30, 2003. SFAS No. 149
had no impact on our results of operations, financial position,
or cash flows upon adoption.



| |                                            
| | -------------------------------------------
| | Accounting for Stock-Based
    Compensation

In December 2002, the FASB issued
SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure, an Amendment
of FASB Statement No. 123
(SFAS No. 123). SFAS No. 148
amends SFAS No. 123, Accounting for Stock-Based
Compensation,to provide alternative methods of

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transition for a voluntary change to the fair
value based method of accounting for employee stock-based
compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require
prominent disclosure in annual and interim financial statements
about the method of accounting used by an issuer for stock-based
compensation and its effect on the issuers reported
results. (See Note 3 of our consolidated financial
statements.)




| |                                          
| | -----------------------------------------
| | Accounting for Extinguishment of
    Debt

In April 2002, the FASB issued
SFAS No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13,
and Technical Corrections(SFAS No. 145). SFAS No. 145
provides for the rescission of several previously issued
accounting standards, new accounting guidance for the accounting
for certain lease modifications, and various technical
corrections that are not substantive in nature to existing
pronouncements. We adopted SFAS No. 145 effective
January 1, 2003. Accordingly, our financial statements have
been revised to reflect the reclassification requirements of
SFAS No. 145, requiring us to present losses on
extinguishment of debt within interest expense. We have recorded
within interest expense $6.1 and $3.4 million in debt
extinguishments in 2003 and 2002, respectively.



| |                                                                   
| | ------------------------------------------------------------------
| | Accounting for Revenue Arrangements with
    Multiple Deliverables

In November 2002, EITF No. 00-21,
Accounting for Revenue Arrangements with Multiple
Deliverables(EITF 00-21) was issued.
EITF 00-21 addresses how to account for arrangements that
may involve the delivery or performance of multiple products,
services, and/or rights to use assets. Revenue arrangements with
multiple deliverables are required to be divided into separate
units of accounting if the deliverables in the arrangement meet
certain criteria. Arrangement consideration is to be allocated
among the separate units of accounting based on their relative
fair values. EITF 00-21 is applicable to agreements entered
into in quarters beginning after June 15, 2003. We
determined that the sale of wireless services through our direct
sales channels with an accompanying handset constitutes a
revenue arrangement with multiple deliverables. Upon adoption of
EITF 00-21, direct sales channel activation fees are now
included in equipment revenue rather than service revenue in the
consolidated statement of operations to the extent that the
aggregate activation fee and handset proceeds received from a
subscriber do not exceed the fair value of the handset sold. We
adopted this new pronouncement effective July 1, 2003 on a
prospective basis which did not have a material impact on our
financial position, results of operations or cash flows.



| |                                                
| | -----------------------------------------------
| | Consolidation of Variable Interest
    Entities

In January 2003, the Financial Accounting
Standards Board (FASB) issued Interpretation
No. 46, Consolidation of Variable Interest
Entities(FIN 46). FIN 46
requires an investor with a majority of the variable interests
in a variable interest entity (VIE) to consolidate
the entity and also requires majority and significant variable
interest investors to provide certain disclosures. A VIE is an
entity in which the equity investors do not have a controlling
interest, or the equity investment at risk is insufficient to
finance the entitys activities without receiving
additional subordinated financial support from the other
parties. For arrangements entered into with VIEs created prior
to January 31, 2003, the provisions of FIN 46 are
required to be adopted at the end of the first interim or annual
period ending after March 15, 2004. The provisions of
FIN 46 were effective immediately for all arrangements
entered into with new VIEs created after January 31, 2003.
We reviewed our investments and other arrangements and
determined that none of our investee companies are VIEs. We have
not invested in any new VIEs created after January 31, 2003.

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##### Table of Contents



Results of Operations

The following table presents certain statement of
operations data as a percentage of total revenue for the periods
indicated.

|                                                                   |                                     |                          |      |       |       |      |       |       |       |   |       |       |       |  
|------------------------------------------------------------------ | ----------------------------------- | ------------------------ | ---- | ----- | ----- | ---- | ----- | ----- | ----- | - | ----- | ----- | ----- | -
|                                                                   |                                     |                         
|                                                                   |                                     | Year Ended December 31, 
|                                                                   |                                     |                         
|                                                                   |                                     | 2003                     |      | 2002  |       | 2001
|                                                                   |                                     |                          |      |       |       |     
|Revenue:                                                           |                                     |                          |      |       |       |      |       |       |       |   |       |      
|                                                                   | Service                             |                          |      | 70.0  | %     |      |       | 69.1  | %     |   |       | 69.7  | %    
|                                                                   | Roaming                             |                          |      | 26.0  |       |      |       | 26.5  |       |   |       | 26.1  |      
|                                                                   | Equipment                           |                          |      | 4.0   |       |      |       | 4.4   |       |   |       | 4.2   |      
|                                                                   |                                     |                          |      |       |       |      |       |       |       |   |       |      
|                                                                   |                                     | Total revenue            |      |       | 100.0 |      |       |       | 100.0 |   |       |       | 100.0 |  
|Operating Expenses:                                                |                                     |                          |      |       |       |      |       |       |       |   |       |      
|                                                                   | Network costs                       |                          |      | 18.9  |       |      |       | 21.0  |       |   |       | 22.8  |      
|                                                                   | Cost of equipment sales             |                          |      | 7.4   |       |      |       | 6.3   |       |   |       | 6.4   |      
|                                                                   | Selling, general and administrative |                          |      | 26.0  |       |      |       | 25.7  |       |   |       | 27.5  |      
|                                                                   | Depreciation and amortization       |                          |      | 15.1  |       |      |       | 17.8  |       |   |       | 25.2  |      
|                                                                   | Loss on assets held for sale        |                          |      | 8.3   |       |      |       |      |       |   |       |      |      
|                                                                   |                                     |                          |      |       |       |      |       |       |       |   |       |      
|                                                                   |                                     | Total operating expenses |      |       | 75.7  |      |       |       | 70.8  |   |       |       | 81.9  |  
|                                                                   |                                     |                          |      |       |       |      |       |       |       |   |       |      
|Operating income                                                   |                                     |                          | 24.3 |       |       |      | 29.2  |       |       |   | 18.1  |      
|                                                                   |                                     |                          |      |       |       |      |       |       |       |   |       |      
|Other Income (Expense):                                            |                                     |                          |      |       |       |      |       |       |       |   |       |      
|                                                                   | Interest expense                    |                          |      | (26.8 | )     |      |       | (24.7 | )     |   |       | (29.3 | )    
|                                                                   | Interest and dividend income        |                          |      | 0.2   |       |      |       | 0.1   |       |   |       | 0.3   |      
|                                                                   | Other                               |                          |      | 0.1   |       |      |       | 0.0   |       |   |       | (0.2  | )    
|                                                                   |                                     |                          |      |       |       |      |       |       |       |   |       |      
|                                                                   |                                     | Other expense, net       |      |       | (26.5 | )    |       |       | (24.6 | ) |       |       | (29.2 | )
|Income (loss) before cumulative change in
    accounting principle |                                     |                          | (2.2 | )     |       |      | 4.6   |       |       |   | (11.1 | )    
|Cumulative change in accounting
    principle                      |                                     |                          |     |       |       |      | (90.1 | )     |       |   | 0.4   |      
|                                                                   |                                     |                          |      |       |       |      |       |       |       |   |       |      
|Net loss                                                           |                                     |                          | (2.2 | )     |       |      | (85.5 | )     |       |   | (10.7 | )    
|Preferred stock dividend                                           |                                     |                          | (7.7 | )     |       |      | (13.1 | )     |       |   | (12.2 | )    
|                                                                   |                                     |                          |      |       |       |      |       |       |       |   |       |      
|Net loss applicable to common shares                               |                                     |                          | (9.9 | )%    |       |      | (98.6 | )%    |       |   | (22.9 | )%   
|                                                                   |                                     |                          |      |       |       |      |       |       |       |   |       |      

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##### Table of Contents



Years Ended December 31, 2003 and
2002



| |                   
| | ------------------
| | Operating Revenue:

|          |               |                         |         |         |  |            |         |            |  |   |        |        |  |  |      |     |  
|--------- | ------------- | ----------------------- | ------- | ------- |  | ---------- | ------- | ---------- |  | - | ------ | ------ |  |  | ---- | --- | -
|          |               |                        
|          |               | Year Ended December 31,
|          |               |                        
|          |               | 2003                    |         | 2002    |  | $ Increase |         | % Increase
|          |               |                         |         |         |  |            |         |           
|          |               |                        
|          |               | (In thousands)         
|Service   |               | $                       | 355,038 |         |  | $          | 319,933 |            |  | $ | 35,105 |        |  |  | 11.0 | %  
|Roaming   |               |                         | 131,896 |         |  |            | 122,703 |            |  |   | 9,193  |        |  |  | 7.5  | %  
|Equipment |               |                         | 20,455  |         |  |            | 20,442  |            |  |   | 13     |        |  |  | 0.1  | %  
|          |               |                         |         |         |  |            |         |            |  |   |        |        |  |  |      |    
|          | Total revenue |                         | $       | 507,389 |  |            | $       | 463,078    |  |   | $      | 44,311 |  |  |      | 9.6 | %
|          |               |                         |         |         |  |            |         |            |  |   |        |        |  |  |      |    

Service Revenue.Service revenue growth reflects the revenue resulting from
additional customers added through increased penetration in
existing markets together with increases in local service
revenue per customer (LSR). The increase in LSR to
$43 in 2003 from $41 in 2002 is the result of several factors,
including increases in per customer access and features fees and
in USF subsidies.

During 2003, postpaid retention was 98.1%. Our
customer growth in 2003 of 23,143 as compared to 60,465 in 2002
primarily reflects an increased number of competitors in the
markets we serve. Wireless Alliance accounted for 15,549 of our
total customers. We look to improve our customer growth in 2004.
Improvement in net postpaid customer growth depends on several
factors, including the success of our commercial launch of next
generation products in three of our regions and the amount of
synergy in our South region provided by our enhanced operating
footprint as a result of the exchange with AWE.



| |                                             
| | --------------------------------------------
| | Customers (including Wireless
    Alliance):

(not including long distance and
paging)


|          |                 |                    |         |         |  |            |         |         |  |  |        |        | 
|--------- | --------------- | ------------------ | ------- | ------- |  | ---------- | ------- | ------- |  |  | ------ | ------ | 
|          |                 |                   
|          |                 | As of December 31,
|          |                 |                   
|          |                 |                    |         | Net Add
|          |                 | 2003               |         | 2002    |  | (Decrease)
|          |                 |                    |         |         |  |           
|Postpaid  |                 |                    | 656,110 |         |  |            | 639,221 |         |  |  | 16,889 |       
|Prepaid   |                 |                    | 22,302  |         |  |            | 27,452  |         |  |  | (5,150 | )     
|Wholesale |                 |                    | 67,104  |         |  |            | 55,700  |         |  |  | 11,404 |       
|          |                 |                    |         |         |  |            |         |         |  |  |        |       
|          | Total customers |                    |         | 745,516 |  |            |         | 722,373 |  |  |        | 23,143 | 

On March 1, 2004, we transferred to AWE our
operations in Oregon RSA 4, including approximately 35,000
customers as of December 31, 2003. We received from AWE
operations in Alabama and Mississippi including approximately
16,000 customers as of December 31, 2003.

We recognized $8.8 million in ETC support
payments from the states of Alabama, Maine, Mississippi, and
Washington during 2003. We did not recognize ETC support in the
year ended December 31, 2002. With the receipt of ETC
certification in Minnesota and Vermont during the fourth quarter
of 2003, we expect ETC support payments to increase to
approximately $20.0 million in 2004.

Reflecting FCC changes to the USF rate structure,
our customer pass-through charges were $8.9 million during
2003 as compared to $4.9 million during 2002. We do not
expect this rate structure to change materially in 2004.

Roaming Revenue.The
increase in roaming revenue primarily reflects increases in
outcollect minutes offsetting declines in outcollect yield.
Roaming yield for 2003 was $0.21 per minute as compared to
$0.26 per minute in 2002. Affecting year-over-year
comparability, however, was a $2.0 million one-time
retroactive roaming payment to Wireless Alliance during 2002.

46



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We have roaming agreements in our markets with
various national carriers and have nationwide roaming agreements
with:



| |   |                                                                                   
| | - | ----------------------------------------------------------------------------------
| |  | AWE, which is effective through June 2006,
    renewable until 2008 at our option,
|
| |  | Cingular, which is effective through June 2007,                                   
|
| |  | T-Mobile, which is effective through December
    2007, and                       
|
| |  | Verizon, which is effective through December 2007.                                

Outcollect yields under these agreements will
continue to decline over the terms of the agreements. Under
these agreements, we are able to attain preferred roaming status
by overlaying our existing TDMA networks with GSM/ GPRS or CDMA
technologies. Our Northeast and Northwest networks are currently
being overlaid with GSM/ GPRS technology, while our Midwest
region network is being overlaid with CDMA technology. We expect
to have these technology conversions substantially completed
during 2005. We are currently considering the overlay options
for our South region, where demand for next-generation
technologies by our customers is not yet as great as compared to
other regions.

AWE, Verizon Wireless, and Cingular accounted for
approximately 84% of our outcollect minutes in 2003. During
2003, AWE accounted for 10.0% of our total revenue. Under our
agreements with AWE, Verizon Wireless, Cingular, and other
roaming partners, the roaming yield per minute we receive from
outcollect calling minutes, in addition to the cost per minute
we pay for our customers incollect activity, declines over
time.

Primarily due to the transfer of Oregon
RSA 4 to AWE in March 2004 (Oregon RSA 4 provided
approximately $15 million in roaming revenue in 2003), we
will likely experience lower roaming revenues in 2004 as
compared to 2003.

In our remaining service areas, we do not expect
Cingulars recently announced acquisition of AWE to impact
our anticipated outcollect minutes and expect total minute
increases from our roaming partners to largely offset the
expected yield declines.

Equipment Revenue.Within equipment revenue, equipment reselling decreased by
$5.5 million in 2003 to $1.5 million. Offsetting
decreases in equipment reselling, was a $3.7 million
increase in phone and accessory sales, which reflects our
customer promotion activities that did not utilize phone rental
programs. Also contributing to equipment revenue, was the
adoption of EITF 00-21, Revenue Arrangements with Multiple
Deliverables(see Note 4 to our consolidated financial
statements), which was effective for us on July 1, 2003,
and increased 2003 equipment revenue by $1.8 million.



| |                    
| | -------------------
| | Operating Expenses:

|                                    |                          |                         |         |            |  |            |         |            |  |   |        |        |  |  |      |      |  
|----------------------------------- | ------------------------ | ----------------------- | ------- | ---------- |  | ---------- | ------- | ---------- |  | - | ------ | ------ |  |  | ---- | ---- | -
|                                    |                          |                        
|                                    |                          | Year Ended December 31,
|                                    |                          |                        
|                                    |                          |                         |         | $ Increase |  | % Increase
|                                    |                          | 2003                    |         | 2002       |  | (Decrease) |         | (Decrease)
|                                    |                          |                         |         |            |  |            |         |           
|                                    |                          |                        
|                                    |                          | (In thousands)         
|Network costs                       |                          | $                       | 96,069  |            |  | $          | 97,200  |            |  | $ | (1,131 | )      |  |  | (1.2 | )%  
|Cost of equipment sales             |                          |                         | 37,636  |            |  |            | 29,184  |            |  |   | 8,452  |        |  |  | 29.0 | %   
|Selling, general and administrative |                          |                         | 131,761 |            |  |            | 119,185 |            |  |   | 12,576 |        |  |  | 10.6 | %   
|Depreciation and amortization       |                          |                         | 76,429  |            |  |            | 82,497  |            |  |   | (6,068 | )      |  |  | (7.4 | )%  
|Loss on assets held for sale        |                          |                         | 42,244  |            |  |            |        |            |  |   | 42,244 |        |  |  |     |     
|                                    |                          |                         |         |            |  |            |         |            |  |   |        |        |  |  |      |     
|                                    | Total operating expenses |                         | $       | 384,139    |  |            | $       | 328,066    |  |   | $      | 56,073 |  |  |      | 17.1 | %

Network Costs.The
decrease in network costs reflects a decline in incollect cost,
a material component of network costs. For 2003, the effect of
decreases in per minute incollect cost outpaced the effect of
increases in incollect minutes. As a result, incollect cost
declined 6.5% in 2003 to $44.1 million as compared to
$47.1 million in 2002. Per minute incollect cost for 2003
was $0.15 per minute as compared to $0.18 in 2002.

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Partially offsetting decreased incollect costs
were increased employee and network maintenance costs reflecting
continued network construction efforts.


Incollect cost per minute under our new roaming
agreements is expected to decline. In certain markets, these
decreases have not been offset by increases in incollect minutes.

Cost of Equipment
Sales.Contributing to the increase in
cost of equipment sales was our decision not to utilize our
phone service leasing plans during 2003, under which the cost of
handsets is capitalized rather than expensed as cost of
equipment sales. Therefore, the number of phones sold increased
in 2003. In 2002, we capitalized $13.3 million in phone
service handsets. As a percentage of revenue, cost of equipment
sales for 2003 increased to 7.4% as compared to 6.3% in 2002.

Selling, General and
Administrative.Contributing to the
increase in SG&A was an increase in pass-through charges
totaling $9.3 million in 2003 as compared to
$4.9 million in 2002 and a $1.4 million increase in
bad debt expense. For 2003, bad debt expense was
$9.4 million as compared to $8.0 million in 2002.
Sales and marketing costs were $52.2 million in 2003 as
compared to $50.7 million in 2002. As a percentage of
revenue, SG&A increased to 26.0% in 2003 from 25.7% in 2002.
We may experience increased billing and technical support costs
as a result of maintaining both TDMA and upgraded networks in
our service areas.



| |                                       
| | --------------------------------------
| | Components of SG&A are as
    follows:

|                           |  |                         |         |      |  |            |         |            |  |   |        |  |  |  |      |  
|-------------------------- |  | ----------------------- | ------- | ---- |  | ---------- | ------- | ---------- |  | - | ------ |  |  |  | ---- | -
|                           |  |                        
|                           |  | Year Ended December 31,
|                           |  |                        
|                           |  | 2003                    |         | 2002 |  | $ Increase |         | % Increase
|                           |  |                         |         |      |  |            |         |           
|                           |  |                        
|                           |  | (In thousands)         
|General and administrative |  | $                       | 60,860  |      |  | $          | 55,584  |            |  | $ | 5,276  |  |  |  | 9.5  | %
|Sales and marketing        |  |                         | 52,150  |      |  |            | 50,653  |            |  |   | 1,497  |  |  |  | 3.0  | %
|Bad debt                   |  |                         | 9,412   |      |  |            | 8,027   |            |  |   | 1,385  |  |  |  | 17.3 | %
|USF pass-through           |  |                         | 9,339   |      |  |            | 4,921   |            |  |   | 4,418  |  |  |  | 89.8 | %
|                           |  |                         |         |      |  |            |         |            |  |   |        |  |  |  |      |  
|                           |  | $                       | 131,761 |      |  | $          | 119,185 |            |  | $ | 12,576 |  |  |  | 10.6 | %
|                           |  |                         |         |      |  |            |         |            |  |   |        |  |  |  |      |  

Depreciation and
Amortization.The decrease in
depreciation expense primarily reflects phone service equipment
depreciation expense for 2003 declining to $7.5 million as
compared to $15.9 million in 2002 partially offset by
depreciation relating to additional cell site construction
together with $0.6 million additional depreciation expense
related to the accelerated depreciation of TDMA equipment. As of
December 31, 2003, our network had 754 cell sites.

Loss on Assets Held for
Sale.In October 2003, we announced
that we had entered into a definitive agreement with AWE to
exchange certain wireless properties. In connection with this
transaction, we recorded a non-cash loss on assets held for
sale, in accordance with SFAS No. 144, of
$42.2 million effective in the third quarter of 2003. This
exchange was completed on March 1, 2004. (See Note 14
to our consolidated financial statements.)



| |                       
| | ----------------------
| | Other Income (Expense)

Interest Expense.Interest expense for 2003, including the effect of SFAS No.
133 and SFAS No. 150, increased 19.0% to
$136.3 million as compared to $114.5 million in 2002.
The increase in interest expense primarily reflects the adoption
of SFAS No. 150. Effective July 1, 2003, our
11 3/8% Senior Exchangeable and 12 1/4% Junior
Exchangeable Preferred securities were reclassified into
Long-Term Liabilities. The dividend expense related to these
instruments, which was previously reported as a component of
Preferred Stock Dividend in our Consolidated
Statements of Operations, is now classified as interest expense.
SFAS No. 150 does not permit reclassification of prior
year amounts to conform to the current year presentation. Also
contributing to the increase in interest expense is
$6.1 million in charges related to the early extinguishment
of debt under our credit agreement in 2003 as compared to a
$3.4 million charge in 2002.

48



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| |                                                   
| | --------------------------------------------------
| | Components of interest expense are as
    follows:

|                                                           |  |                         |         |      |  |   |         | 
|---------------------------------------------------------- |  | ----------------------- | ------- | ---- |  | - | ------- | 
|                                                           |  |                        
|                                                           |  | Year Ended December 31,
|                                                           |  |                        
|                                                           |  | 2003                    |         | 2002
|                                                           |  |                         |         |     
|                                                           |  |                        
|                                                           |  | (In thousands)         
|Interest expense on credit agreement                       |  | $                       | 44,962  |      |  | $ | 53,266  | 
|Interest expense on subordinated notes                     |  |                         | 41,281  |      |  |   | 39,981  | 
|Interest expense on senior notes issued
    August 1, 2003 |  |                         | 13,372  |      |  |   |        | 
|Amortization of debt issuance costs                        |  |                         | 4,773   |      |  |   | 4,257   | 
|Early extinguishment of debt issuance costs                |  |                         | 6,134   |      |  |   | 3,421   | 
|Senior and junior preferred stock dividends                |  |                         | 27,973  |      |  |   |        | 
|Effect of derivative instruments                           |  |                         | (3,503  | )    |  |   | 13,519  | 
|Other(1)                                                   |  |                         | 1,270   |      |  |   | 34      | 
|                                                           |  |                         |         |      |  |   |         | 
|                                                           |  | $                       | 136,262 |      |  | $ | 114,478 | 
|                                                           |  |                         |         |      |  |   |         | 



---



|    |                                                                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Upon adoption of SFAS No. 150 on
    July 1, 2003, amortization of senior and junior preferred
    stock issuance costs are presented as interest expense and are
    included within other herein.



| |                                                                         
| | ------------------------------------------------------------------------
| | The following table sets forth adjustments
    relating to SFAS No. 133:

|                 |  |                              |         |                              |  |          |        |              |  |              |         |          |  |   |        |  |  |   |        |  |  |   |         | 
|---------------- |  | ---------------------------- | ------- | ---------------------------- |  | -------- | ------ | ------------ |  | ------------ | ------- | -------- |  | - | ------ |  |  | - | ------ |  |  | - | ------- | 
|                 |  |                              |         |                             
|                 |  | Year Ended December 31, 2003 |         | Year Ended December 31, 2002
|                 |  |                              |         |                             
|                 |  | Prior to                     |         |                              |  | Prior to |        |             
|                 |  | SFAS No. 133                 |         | SFAS No. 133                 |  | As       |        | SFAS No. 133 |  | SFAS No. 133 |         | As      
|                 |  | Adjustment                   |         | Adjustment                   |  | Reported |        | Adjustment   |  | Adjustment   |         | Reported
|                 |  |                              |         |                              |  |          |        |              |  |              |         |         
|                 |  |                             
|                 |  | (In thousands)              
|Interest expense |  | $                            | 138,487 |                              |  | $        | (2,225 | )            |  | $            | 136,262 |          |  | $ | 99,374 |  |  | $ | 15,104 |  |  | $ | 114,478 | 

As of December 31, 2003, the effective rate
of interest on our credit agreement, excluding the impact of
hedge agreements, was 4.39% as compared to 4.53% at
December 31, 2002. The amount outstanding under the credit
agreement decreased to $525.7 million at December 31,
2003 as compared to $793.9 million at December 31,
2002. Partially offsetting the decline in the effective rate of
interest under the credit agreement was the issuance of
$325 million of 9 7/8% Senior Notes, the proceeds
of which were primarily used to repay amounts outstanding under
the credit agreement. Long-term debt as of December 31,
2003 was $1.765 billion as compared to $1.211 billion
as of December 31, 2002, reflecting primarily the
reclassification of exchangeable preferred stock as long-term
debt.



| |                          
| | -------------------------
| | Preferred Stock Dividends

Preferred stock dividends for 2003 decreased by
35.8% to $38.9 million as compared to $60.6 million in
2002. The decline in Preferred Stock Dividends relates primarily
to the adoption of SFAS No. 150, which does not permit
reclassification of prior year amounts to conform to the current
year presentation.

49



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##### Table of Contents



Years Ended December 31, 2002 and
2001



| |                   
| | ------------------
| | Operating Revenue:

|          |               |                         |         |         |  |            |         |            |  |   |       |        |  |  |     |     |  
|--------- | ------------- | ----------------------- | ------- | ------- |  | ---------- | ------- | ---------- |  | - | ----- | ------ |  |  | --- | --- | -
|          |               |                        
|          |               | Year Ended December 31,
|          |               |                        
|          |               | 2002                    |         | 2001    |  | $ increase |         | % increase
|          |               |                         |         |         |  |            |         |           
|          |               |                        
|          |               | (In thousands)         
|Service   |               | $                       | 319,933 |         |  | $          | 310,520 |            |  | $ | 9,413 |        |  |  | 3.0 | %  
|Roaming   |               |                         | 122,703 |         |  |            | 116,541 |            |  |   | 6,162 |        |  |  | 5.3 | %  
|Equipment |               |                         | 20,442  |         |  |            | 18,627  |            |  |   | 1,815 |        |  |  | 9.7 | %  
|          |               |                         |         |         |  |            |         |            |  |   |       |        |  |  |     |    
|          | Total revenue |                         | $       | 463,078 |  |            | $       | 445,688    |  |   | $     | 17,390 |  |  |     | 3.9 | %
|          |               |                         |         |         |  |            |         |            |  |   |       |        |  |  |     |    

Service Revenue.Service revenue growth reflects the revenue resulting from
additional customers added through increased penetration in
existing markets partially offset by moderate declines in LSR.
The decline in LSR to $41 in 2002 from $42 in 2001 is the result
of several factors, including: (i) larger home calling
areas; (ii) more rate plans that included long distance at
no additional charge; and (iii) an increase in numbers of
rate plans that share minutes with an existing plan at lower
access rates. Reflecting FCC changes to the USF rate structure,
our customer pass-through charges were $4.9 million during
2002 compared with $4.5 million in 2001.



| |                                             
| | --------------------------------------------
| | Customers (including Wireless
    Alliance):

(not including long distance and
paging)


|          |                 |                    |         |         |  |            |         |         |  |  |        |        | 
|--------- | --------------- | ------------------ | ------- | ------- |  | ---------- | ------- | ------- |  |  | ------ | ------ | 
|          |                 |                   
|          |                 | As of December 31,
|          |                 |                   
|          |                 |                    |         | Net Add
|          |                 | 2002               |         | 2001    |  | (Decrease)
|          |                 |                    |         |         |  |           
|Postpaid  |                 |                    | 639,221 |         |  |            | 599,514 |         |  |  | 39,707 |       
|Prepaid   |                 |                    | 27,452  |         |  |            | 33,255  |         |  |  | (5,803 | )     
|Wholesale |                 |                    | 55,700  |         |  |            | 29,139  |         |  |  | 26,561 |       
|          |                 |                    |         |         |  |            |         |         |  |  |        |       
|          | Total customers |                    |         | 722,373 |  |            |         | 661,908 |  |  |        | 60,465 | 
|          |                 |                    |         |         |  |            |         |         |  |  |        |       

For 2002, retention was 98.2% as compared to
97.8% in 2001. Postpaid net customer additions for all of 2002
were 39,707 as compared to 46,520 in 2001. Because of the
growing popularity of wholesale distribution programs, wholesale
customers increased to 55,700, a 91.2% increase over 2001.

Roaming Revenue.For
2002, increases in outcollect minutes continued to offset
declines in yield. Roaming yield for all of 2002 was $0.26 as
compared to $0.34 in 2001. Affecting year over year
comparability, however, was a $2.0 million one-time
retroactive roaming payment to Wireless Alliance during 2002.

AWE, Verizon Wireless, and Cingular accounted for
approximately 85% of our outcollect minutes in 2002. During
2002, AWE accounted for 10.1% of our total revenue. Under our
agreements with AWE, Verizon Wireless, Cingular and other
roaming partners, the roaming yield per minute we receive from
outcollect calling minutes, in addition to the cost per minute
we pay for our customers incollect activity, declines over
time.

Equipment Revenue.The increase in equipment revenue reflects the additional
average revenue per handset sold, increased network equipment
reselling, and a decrease in phone service leasing.

50



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##### Table of Contents





| |                    
| | -------------------
| | Operating Expenses:

|                                    |                          |                         |         |            |  |            |         |            |  |   |         |         |   |  |       |       |   
|----------------------------------- | ------------------------ | ----------------------- | ------- | ---------- |  | ---------- | ------- | ---------- |  | - | ------- | ------- | - |  | ----- | ----- | --
|                                    |                          |                        
|                                    |                          | Year Ended December 31,
|                                    |                          |                        
|                                    |                          |                         |         | $ increase |  | % increase
|                                    |                          | 2002                    |         | 2001       |  | (decrease) |         | (decrease)
|                                    |                          |                         |         |            |  |            |         |           
|                                    |                          |                        
|                                    |                          | (In thousands)         
|Network costs                       |                          | $                       | 97,200  |            |  |            | 101,509 |            |  | $ | (4,309  | )       |   |  | (4.2  | )%   
|Cost of equipment sales             |                          |                         | 29,184  |            |  |            | 28,415  |            |  |   | 769     |         |   |  | 2.7   | %    
|Selling, general and administrative |                          |                         | 119,185 |            |  |            | 122,387 |            |  |   | (3,202  | )       |   |  | (2.6  | )%   
|Depreciation and amortization       |                          |                         | 82,497  |            |  |            | 112,577 |            |  |   | (30,080 | )       |   |  | (26.7 | )%   
|                                    |                          |                         |         |            |  |            |         |            |  |   |         |         |   |  |       |      
|                                    | Total operating expenses |                         | $       | 328,066    |  |            |         | 364,888    |  |   | $       | (36,822 | ) |  |       | (10.1 | )%

Network Costs.Contributing to the decline in network costs was a decrease in
incollect cost, a material component of network costs,
reflecting reduced pricing contained in new roaming
arrangements. For 2002, incollect cost declined 5.4% to
$47.1 million as compared to $49.8 million in 2001.
Per minute incollect cost for the year ended December 31,
2002 was $0.18 per minute as compared to $0.25 in 2001.

Cost of Equipment
Sales.Contributing to the increase in
cost of equipment sales was a reduced emphasis on our phone
service leasing plans during 2002, under which the cost of
handsets was capitalized rather than expensed as cost of
equipment sales. During 2002, we capitalized approximately
$13.3 million in phone service handsets as compared to
$20.1 million capitalized in 2001. As a percentage of
revenue, cost of equipment sales for 2002 was 6.3% as compared
to 6.4% in 2001.

Selling, General and
Administrative.The decrease in
SG&A primarily reflects decreases in bad debt expense. Bad
debt expense for the year ended December 31, 2002 declined
to $8.0 million as compared to $13.9 million in 2001.
Partially offsetting the decrease in bad debt expense was an
increase in pass-through charges totaling $4.9 million in
the year ended December 31, 2002. In the year ended
December 31, 2001, offsetting pass-through charges totalled
$4.5 million. As a percentage of revenue, SG&A
decreased to 25.7% in 2002 from 27.5% in 2001.



| |                                       
| | --------------------------------------
| | Components of SG&A are as
    follows:

|                           |  |                         |         |            |  |            |         |            |  |   |        |   |  |  |       |   
|-------------------------- |  | ----------------------- | ------- | ---------- |  | ---------- | ------- | ---------- |  | - | ------ | - |  |  | ----- | --
|                           |  |                        
|                           |  | Year Ended December 31,
|                           |  |                        
|                           |  |                         |         | $ increase |  | % increase
|                           |  | 2002                    |         | 2001       |  | (decrease) |         | (decrease)
|                           |  |                         |         |            |  |            |         |           
|                           |  |                        
|                           |  | (In thousands)         
|General and administrative |  | $                       | 55,584  |            |  | $          | 54,114  |            |  | $ | 1,470  |   |  |  | 2.7   | % 
|Sales and marketing        |  |                         | 50,653  |            |  |            | 49,808  |            |  |   | 845    |   |  |  | 1.7   | % 
|Bad debt                   |  |                         | 8,027   |            |  |            | 13,933  |            |  |   | (5,906 | ) |  |  | (42.4 | )%
|USF pass-through           |  |                         | 4,921   |            |  |            | 4,532   |            |  |   | 389    |   |  |  | 8.6   | % 
|                           |  |                         |         |            |  |            |         |            |  |   |        |   |  |  |       |   
|                           |  | $                       | 119,185 |            |  | $          | 122,387 |            |  | $ | (3,202 | ) |  |  | (2.6  | )%
|                           |  |                         |         |            |  |            |         |            |  |   |        |   |  |  |       |   

Depreciation and
Amortization.The decrease in
depreciation and amortization primarily reflects the
January 1, 2002 adoption of SFAS No. 142 and the
corresponding discontinuance of amortization of goodwill and
licenses, partially offset by the growth in our wireless network
assets. During 2001, we amortized $62.8 million in
licenses, goodwill and customer lists. During 2002, we amortized
$20.6 million in customer lists. Phone service equipment
depreciation expense for 2002 was $15.9 million as compared
to $8.5 million in 2001.



| |                       
| | ----------------------
| | Other Income (Expense)

Interest Expense.Interest expense for 2002, including the effect of SFAS No.
133, decreased 12.2% to $114.5 million as compared to
$130.4 million in 2001. The decline in interest expense
primarily reflects noncash adjustments related to the accounting
for derivative instruments pursuant to SFAS No. 133,
declines in interest rates, and an overall reduction in our
long-term debt. Partially offsetting the interest decline, in

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January 2002 RCC recorded a $3.4 million
extraordinary loss to write-off the unamortized deferred
financing costs related to the early extinguishment of the
repaid debt (in thousands).




| |                                                   
| | --------------------------------------------------
| | Components of interest expense are as
    follows:

|                                            |  |                         |         |      |  |   |         | 
|------------------------------------------- |  | ----------------------- | ------- | ---- |  | - | ------- | 
|                                            |  |                        
|                                            |  | Year Ended December 31,
|                                            |  |                        
|                                            |  | 2002                    |         | 2001
|                                            |  |                         |         |     
|Interest expense on credit agreement        |  | $                       | 53,266  |      |  | $ | 100,142 | 
|Interest expense on subordinated notes      |  |                         | 39,981  |      |  |   | 12,031  | 
|Amortization of debt issuance costs         |  |                         | 4,257   |      |  |   | 3,144   | 
|Early extinguishment of debt issuance costs |  |                         | 3,421   |      |  |   |        | 
|Effect of derivative instruments            |  |                         | 13,519  |      |  |   | 14,841  | 
|Other                                       |  |                         | 34      |      |  |   | 274     | 
|                                            |  |                         |         |      |  |   |         | 
|                                            |  | $                       | 114,478 |      |  | $ | 130,432 | 
|                                            |  |                         |         |      |  |   |         | 



| |                                                                         
| | ------------------------------------------------------------------------
| | The following table sets forth adjustments
    relating to SFAS No. 133:

|                 |  |                              |        |                              |  |             |        |              |  |              |         |             |  |   |         |  |  |   |        |  |  |   |         | 
|---------------- |  | ---------------------------- | ------ | ---------------------------- |  | ----------- | ------ | ------------ |  | ------------ | ------- | ----------- |  | - | ------- |  |  | - | ------ |  |  | - | ------- | 
|                 |  |                              |        |                             
|                 |  | Year Ended December 31, 2002 |        | Year Ended December 31, 2001
|                 |  |                              |        |                             
|                 |  | Prior to                     |        |                              |  | Prior to    |        |             
|                 |  | SFAS No. 133                 |        | SFAS No. 133                 |  |             |        | SFAS No. 133 |  | SFAS No. 133 |         |            
|                 |  | Adjustment                   |        | Adjustment                   |  | As Reported |        | Adjustment   |  | Adjustment   |         | As Reported
|                 |  |                              |        |                              |  |             |        |              |  |              |         |            
|                 |  |                             
|                 |  | (In thousands)              
|Interest expense |  | $                            | 99,374 |                              |  | $           | 15,104 |              |  | $            | 114,478 |             |  | $ | 114,007 |  |  | $ | 16,425 |  |  | $ | 130,432 | 

As of December 31, 2002, the effective rate
of interest on our credit agreement, excluding the impact of
hedge agreements, was 4.3% as compared to 4.9% at
December 31, 2001. Long-term debt as of December 31,
2002 was $1.211 billion as compared to $1.286 billion
as of December 31, 2001.



| |                          
| | -------------------------
| | Preferred Stock Dividends

Preferred stock dividends in 2002 increased 11.0%
to $60.6 million as compared to $54.5 million in 2001.
The increase primarily resulted from our practice of paying
dividends by issuing additional shares of exchangeable preferred
stock rather than in cash, thereby increasing the basis for
subsequent dividend distributions. During 2002, RCC issued
25,509 and 22,134 shares of senior and junior exchangeable
preferred stock, respectively, as dividends.



| |                                              
| | ---------------------------------------------
| | Cumulative Change in Accounting
    Principle

Effective January 1, 2002, we adopted
SFAS No. 142, which requires cessation of goodwill and
license amortization and a fair value approach to testing the
impairment of goodwill and indefinite lived intangible assets.
We completed a transitional impairment test for both our
goodwill and our licensing costs and determined that there were
impairments of $5.0 million and $412.0 million,
respectively. RCC used a fair value approach, using primarily
discounted cash flows, to complete the transitional impairment
tests. We amended our Form 10-Qs for the first two quarters
of 2002 to reflect the effect of the SFAS No. 142
impairment charge as an cumulative change in accounting
principle.

On a prospective basis, we are required to test
both goodwill and other indefinite-lived intangible assets,
including licensing costs, for impairment on an annual basis
based upon a fair value approach. We performed our annual
impairment test for both goodwill and licensing costs as of
October 1, 2002 using methodologies consistent with those
applied under our transitional impairment tests performed as of
January 1, 2002 and determined there was no additional
impairment to be recognized. Other indefinite-lived intangible
assets will be tested between annual tests if events or changes
in circumstances indicate that the asset might be impaired. (See
 Recently Issued Accounting
Pronouncements.)

52



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Liquidity and Capital Resources

We need cash primarily for working capital,
capital expenditures, debt service, customer growth, and
purchases of additional spectrum. In past years, we have met
these requirements through cash flow from operations, borrowings
under our credit agreement, sales of common and preferred stock,
and issuance of debt securities.

Capital expenditures for 2003 were approximately
$53.7 million compared to approximately $59.8 million
for 2002. These amounts reflect the continued expansion of our
existing wireless coverage, the leasing of handsets to certain
customer groups in 2002 (the handset leasing program was
discontinued at the end of the second quarter of 2002), and
begin to reflect capital expenditures during the second half of
2003 in connection with the implementation of CDMA and GSM/ GPRS
network overlays and upgrades in our markets.

We anticipate incurring substantial expenditures
in connection with the continued implementation of CDMA and GSM/
GPRS network overlays and upgrades. We expect to fund these
capital expenditures primarily from cash on hand, operating cash
flow, and borrowings under our revolving credit agreement. We
have made commitments to our roaming partners and to equipment
vendors to substantially complete our next generation networks
by the end of 2005. Including the cost of these anticipated
overlays, our total capital expenditures for 2004 through 2005
are expected to range from $140 million to
$180 million.

We do not have any off-balance sheet financing
arrangements or liabilities. We do not have any majority-owned
subsidiaries or any interests in, or relationships with, any
material special-purpose entities that are not included in the
consolidated financial statements.

Until August 2003, we paid the dividends on our
senior and junior exchangeable preferred stock by issuing
additional shares of exchangeable preferred stock. Effective
August 2003 dividends on our senior exchangeable preferred stock
are to be paid in cash, and beginning in May 2005 our junior
exchangeable preferred stock dividends are to be paid in cash.
We did not declare or pay the cash dividends on the senior
exchangeable preferred stock due on August 15, 2003,
November 15, 2003, or February 15, 2004 and are
currently accruing them.

In conjunction with our $325 million
9 7/8% senior notes offering, we amended our credit
agreement. The credit agreement amendment includes a
$100 million basket that may be used toward the repurchase
of our senior notes, subordinated notes, or preferred stock.
Such repurchases may be further limited by covenants in other
governing instruments, which may fluctuate. We may, in our sole
discretion, determine to acquire such securities through open
market purchases, privately negotiated transactions, or
otherwise, upon such terms and at such prices as we may
determine from time to time. Prior to any acquisition of junior
preferred shares, we would pay any previously unpaid cash
dividends on the senior preferred stock. Payment of such
dividends would reduce the $100 million basket.



| |                 
| | ----------------
| | Credit Agreement

We have a credit agreement with a consortium of
lenders which, as of December 31, 2003, provided up to
$60.0 million in revolving loans and $525.7 million of
outstanding term loans. As of December 31, 2003,
$525.7 million was outstanding under the credit agreement.
Our credit agreement contains certain financial and other
covenants that, among other things, limit our ability to incur
indebtedness, make investments, create or permit liens, make
capital expenditures, provide guarantees, and pay dividends. In
August 2003, January 2002, and March 2001, we obtained
amendments of certain of the financial covenants and other
provisions in the credit agreement. As of December 31,
2003, we were in compliance with all financial covenants. Our
financial covenant calculations do not include Wireless Alliance.

Our August 2003 amendment to the credit agreement
also includes provisions that:



| |   |                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | require us to refinance or extend the maturity
    date of the senior notes beyond March 31, 2010, on or
    before July 31, 2009, or an event of default will occur,                                      
|
| |  | require us to refinance or extend the maturity
    date of our 9 5/8% senior subordinated notes due 2008
    beyond January 1, 2010, on or before November 15,
    2007, or an event of default will occur,

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| |   |                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------
| |  | add a letter of credit subfacility of up to
    $5.0 million,                                                                              
|
| |  | increase the Applicable Margins with
    respect to the interest rates applicable to outstanding debt
    under the credit agreement, and
|
| |  | require that no less than 50% of our total debt
    be fixed rate debt, after giving effect to our interest rate
    hedging agreements.   

The following table indicates the various
financial ratios under the credit agreement with which we are
required to comply as of various dates:

|                                                             |  |      |      |      |  |      |      |      |  |    |      |    |  |    |      |    |  |    |      |    |  |    |      |    |  |    |      |    |  |    |      |    |  |            |      |  |  |  |      |  |  |  |      |  |  |  |      |  |  |  |      |  |  |  |      |  |  |  |      |  |  |  |      |  |  |  |      | 
|------------------------------------------------------------ |  | ---- | ---- | ---- |  | ---- | ---- | ---- |  | -- | ---- | -- |  | -- | ---- | -- |  | -- | ---- | -- |  | -- | ---- | -- |  | -- | ---- | -- |  | -- | ---- | -- |  | ---------- | ---- |  |  |  | ---- |  |  |  | ---- |  |  |  | ---- |  |  |  | ---- |  |  |  | ---- |  |  |  | ---- |  |  |  | ---- |  |  |  | ---- | 
|                                                             |  |      |      |      |  |      |      |      |  |   
|                                                             |  | 2004 |      | 2005 |  | 2006 |      | 2007 |  |   
|                                                             |  |      |      |      |  |      |      |      |  |   
|                                                             |  | Q1   |      | Q2   |  | Q3   |      | Q4   |  | Q1 |      | Q2 |  | Q3 |      | Q4 |  | Q1 |      | Q2 |  | Q3 |      | Q4 |  | Q1 |      | Q2 |  | Q3 |      | Q4 |  | Thereafter
|                                                             |  |      |      |      |  |      |      |      |  |    |      |    |  |    |      |    |  |    |      |    |  |    |      |    |  |    |      |    |  |    |      |    |  |           
|Total leverage ratio                                         |  |      | 6.50 |      |  |      | 6.50 |      |  |    | 6.25 |    |  |    | 6.25 |    |  |    | 6.25 |    |  |    | 6.25 |    |  |    | 6.00 |    |  |    | 6.00 |    |  |            | 5.75 |  |  |  | 5.50 |  |  |  | 5.00 |  |  |  | 5.00 |  |  |  | 5.00 |  |  |  | 5.00 |  |  |  | 5.00 |  |  |  | 5.00 |  |  |  | 4.00 | 
|Senior leverage ratio(1)                                     |  |      | 3.00 |      |  |      | 3.00 |      |  |    | 3.00 |    |  |    | 3.00 |    |  |    | 3.00 |    |  |    | 3.00 |    |  |    | 3.00 |    |  |    | 3.00 |    |  |            | 2.50 |  |  |  | 2.50 |  |  |  | 2.50 |  |  |  | 2.50 |  |  |  | 2.00 |  |  |  | 2.00 |  |  |  | 2.00 |  |  |  | 2.00 |  |  |  | 2.00 | 
|Annualized operating cash flow to interest expense           |  |      | 1.50 |      |  |      | 1.50 |      |  |    | 1.50 |    |  |    | 1.50 |    |  |    | 1.50 |    |  |    | 1.50 |    |  |    | 1.50 |    |  |    | 1.50 |    |  |            | 2.00 |  |  |  | 2.00 |  |  |  | 2.00 |  |  |  | 2.00 |  |  |  | 2.00 |  |  |  | 2.00 |  |  |  | 2.00 |  |  |  | 2.00 |  |  |  | 2.00 | 
|Fixed charge ratio                                           |  |      | 1.00 |      |  |      | 1.00 |      |  |    | 1.10 |    |  |    | 1.10 |    |  |    | 1.10 |    |  |    | 1.10 |    |  |    | 1.10 |    |  |    | 1.10 |    |  |            | 1.10 |  |  |  | 1.10 |  |  |  | 1.10 |  |  |  | 1.10 |  |  |  | 1.10 |  |  |  | 1.10 |  |  |  | 1.10 |  |  |  | 1.10 |  |  |  | 1.10 | 
|Annualized operating cash flow to pro forma debt
    service |  |      | 1.20 |      |  |      | 1.20 |      |  |    | 1.20 |    |  |    | 1.20 |    |  |    | 1.15 |    |  |    | 1.15 |    |  |    | 1.15 |    |  |    | 1.15 |    |  |            | 1.15 |  |  |  | 1.20 |  |  |  | 1.20 |  |  |  | 1.20 |  |  |  |     |  |  |  |     |  |  |  |     |  |  |  |     |  |  |  |     | 



---



|    |                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Defined as the ratio of borrowings under our
    credit agreement to Annualized Operating Cash Flow,
    as defined in the credit agreement.

The following table indicates the effect of our
Total Leverage Ratio (as defined in the credit
agreement) on the margins applicable to the interest rates on
borrowings under our credit agreement:

|                                                 |  |             |      |             |  |             |      |             |  |           |      |        |  |           |      |        |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|------------------------------------------------ |  | ----------- | ---- | ----------- |  | ----------- | ---- | ----------- |  | --------- | ---- | ------ |  | --------- | ---- | ------ |  |  | ---- | - |  |  | ---- | - |  |  | ---- | - |  |  | ---- | -
|                                                 |  |             |      |             |  |             |      |             |  |           |      |        |  |          
|                                                 |  | Revolver &  |      |             |  |             |      |            
|                                                 |  | Term Loan A |      | Term Loan B |  | Term Loan C |      | Term Loan D
|                                                 |  |             |      |             |  |             |      |            
|                                                 |  | Base Rate   |      | LIBOR       |  | Base Rate   |      | LIBOR       |  | Base Rate |      | LIBOR  |  | Base Rate |      | LIBOR 
|Total Leverage Ratio                             |  | Margin      |      | Margin      |  | Margin      |      | Margin      |  | Margin    |      | Margin |  | Margin    |      | Margin
|                                                 |  |             |      |             |  |             |      |             |  |           |      |        |  |           |      |       
|Greater than 6.5x                                |  |             | 2.75 | %           |  |             | 3.75 | %           |  |           | 2.75 | %      |  |           | 3.75 | %      |  |  | 3.00 | % |  |  | 4.00 | % |  |  | 3.25 | % |  |  | 4.25 | %
|Greater than 6.0x but less than or equal to 6.5x |  |             | 2.25 | %           |  |             | 3.25 | %           |  |           | 2.50 | %      |  |           | 3.50 | %      |  |  | 2.75 | % |  |  | 3.75 | % |  |  | 3.00 | % |  |  | 4.00 | %
|Greater than 5.5x but less than or equal to 6.0x |  |             | 1.75 | %           |  |             | 2.75 | %           |  |           | 2.50 | %      |  |           | 3.50 | %      |  |  | 2.75 | % |  |  | 3.75 | % |  |  | 3.00 | % |  |  | 4.00 | %
|Greater than 5.0x but less than or equal to 5.5x |  |             | 1.25 | %           |  |             | 2.25 | %           |  |           | 2.50 | %      |  |           | 3.50 | %      |  |  | 2.75 | % |  |  | 3.75 | % |  |  | 3.00 | % |  |  | 4.00 | %
|Greater than 4.0x but less than or equal to 5.0x |  |             | 1.00 | %           |  |             | 2.00 | %           |  |           | 2.50 | %      |  |           | 3.50 | %      |  |  | 2.75 | % |  |  | 3.75 | % |  |  | 3.00 | % |  |  | 4.00 | %
|Less than or equal to 4.0x                       |  |             | 0.75 | %           |  |             | 1.75 | %           |  |           | 2.50 | %      |  |           | 3.50 | %      |  |  | 2.75 | % |  |  | 3.75 | % |  |  | 3.00 | % |  |  | 4.00 | %

In addition to the scheduled reductions of
outstanding principal, we will be required to reduce the amount
of commitment available under the credit agreement on each
March 31, beginning on March 31, 2004, by an amount
equal to 50% of our Excess Cash Flow, as defined in the credit
agreement, for the immediately preceding year or portion
thereof. In 2004, we will pay $27.2 million pursuant to
this provision reflecting Excess Cash Flow in 2003. We must also
pay specified costs if we prepay LIBOR advances. We will also be
required, subject to specified exceptions, to reduce the amount
of commitments available upon any material sale of assets.

Excess Cash Flow is based on our audited
financial statements and is the remainder of net income before
interest, taxes, depreciation and amortization for such fiscal
year, minus the sum of the following:



| |                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) Capital expenditures made during such
    fiscal year exclusive of investments by us in Wireless Alliance
    LLC permitted under the credit agreement;
|
| | (ii) Scheduled loan payments made during
    such fiscal year;                                                                                             
|
| | (iii) Cash taxes paid by us during such
    fiscal year;                                                                                                   
|
| | (iv) Interest expense during such fiscal
    year;                                                                                                         

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| |                                                                                                              
| | -------------------------------------------------------------------------------------------------------------
| | (v) Principal payments in respect of
    indebtedness for money borrowed paid by us during such
    year; and
|
| | (vi) $1,000,000.                                                                                             

The $100 million basket to repurchase,
repay, redeem, or otherwise acquire notes and preferred stock
will increase by two-thirds of the amount of any of our future
voluntary prepayments of outstanding term loans from our Excess
Cash Flow.



| |                                   
| | ----------------------------------
| | Contractual Obligation
    Summary

The following table summarizes our contractual
commitments as of December 31, 2003 (in thousands).

|           |       |           |       |                |  |               |        |           |  |                 |         |                 |  |                |         |         |  |   |         |         |  |   |         |         |  |   |         |         |  |   |           |           | 
|---------- | ----- | --------- | ----- | -------------- |  | ------------- | ------ | --------- |  | --------------- | ------- | --------------- |  | -------------- | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- |  | - | --------- | --------- | 
|           |       |           |       |                |  |               |        |           |  | 9 5/8% Senior   |         | 9 3/4% Senior   |  |                |         |        
|           |       |           |       |                |  |               |        |           |  | Subordinated    |         | Subordinated    |  | 9 7/8% Senior  |         |        
|           |       | Operating |       | Purchase       |  | Preferred     |        | Credit    |  | Notes(4)        |         | Notes           |  | Notes(5)       |         |        
|           |       | Leases    |       | Commitments(1) |  | Securities(2) |        | Agreement |  | (due 5/15/2008) |         | (due 1/15/2010) |  | (due 2/1/2010) |         | Total  
|           |       |           |       |                |  |               |        |           |  |                 |         |                 |  |                |         |        
|2004       |       | $         | 8,957 |                |  | $             | 36,330 |           |  | $               | 20,255  |                 |  | $              | 27,194  | (3)     |  | $ |        |         |  | $ |        |         |  | $ |        |         |  | $ | 92,736    |          
|2005       |       |           | 7,012 |                |  |               | 10,380 |           |  |                 | 59,817  |                 |  |                | 46,837  |         |  |   |        |         |  |   |        |         |  |   |        |         |  |   | 124,046   |          
|2006       |       |           | 5,115 |                |  |               | 5,190  |           |  |                 | 63,733  |                 |  |                | 82,955  |         |  |   |        |         |  |   |        |         |  |   |        |         |  |   | 156,993   |          
|2007       |       |           | 3,685 |                |  |               |       |           |  |                 | 63,733  |                 |  |                | 87,321  |         |  |   |        |         |  |   |        |         |  |   |        |         |  |   | 154,739   |          
|2008       |       |           | 2,063 |                |  |               |        |           |  |                 | 63,733  |                 |  |                | 221,260 |         |  |   | 125,000 |         |  |   |        |         |  |   |        |         |  |   | 412,056   |          
|Thereafter |       |           | 3,925 |                |  |               |       |           |  |                 | 949,769 |                 |  |                | 60,156  |         |  |   |        |         |  |   | 300,000 |         |  |   | 325,000 |         |  |   | 1,638,850 |          
|           |       |           |       |                |  |               |        |           |  |                 |         |                 |  |                |         |         |  |   |         |         |  |   |         |         |  |   |         |         |  |   |           |          
|           | Total |           | $     | 30,757         |  |               | $      | 51,900    |  |                 | $       | 1,221,040       |  |                | $       | 525,723 |  |   | $       | 125,000 |  |   | $       | 300,000 |  |   | $       | 325,000 |  |   | $         | 2,579,420 | 
|           |       |           |       |                |  |               |        |           |  |                 |         |                 |  |                |         |         |  |   |         |         |  |   |         |         |  |   |         |         |  |   |           |          



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In 2003, we entered into a five-year
    $57.0 million purchase commitment with a vendor to install
    GSM/ GPRS network equipment and CDMA2000 network equipment.
    Through December 31, 2003, we have incurred
    $5.1 million, net applicable discounts and credits, in
    equipment purchases related to this agreement. During the years
    2004 through 2006, we expect to incur all of the capital
    expenditures relating to this Purchase Commitment.                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|(2) | Until August 2003, we paid the dividends on our
    senior and junior exchangeable preferred stock by issuing
    additional shares of exchangeable preferred stock. Effective
    August 2003 dividends on our senior exchangeable preferred stock
    are to be paid in cash, and beginning in May 2005 our junior
    exchangeable preferred stock dividends are to be paid in cash.
    We did not declare or pay the cash dividends on the senior
    exchangeable preferred stock due on August 15, 2003,
    November 15, 2003, or February 15, 2004 and are
    currently accruing them. If we fail to comply with certain terms
    of either our Junior or Senior Preferred Stock certificates of
    designation, including non-payment of cash dividends and the
    mandatory redemption obligation, the sole remedy of the holders
    will be the election of two directors to our board.
|   
|(3) | The 2004 credit agreement amortization includes
    our obligation under the excess cash flow requirement of
    $27.2 million and does not include the permanent reduction
    of $12.9 million, paid from proceeds received as part of
    our property exchange with AWE.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|(4) | The amended credit agreement requires that the
    9 5/8% senior subordinated notes due 2008 must be
    refinanced or extended beyond January 1, 2010, on or before
    November 15, 2007, or an event of default will occur.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|(5) | The amended credit agreement requires that the
    9 7/8% senior notes must be refinanced or extended
    beyond March 31, 2010, on or before July 31, 2009, or
    an event of default will occur.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

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| |                                                                                         
| | ----------------------------------------------------------------------------------------
| | Cash Flows for Year Ended December 31,
    2003 Compared to Year Ended December 31, 2002

|                                                        |  |      |         |      |  |        |         |   |  |   |        |  
|------------------------------------------------------- |  | ---- | ------- | ---- |  | ------ | ------- | - |  | - | ------ | -
|                                                        |  | 2003 |         | 2002 |  | Change
|                                                        |  |      |         |      |  |       
|Net cash provided by operating activities               |  | $    | 144,521 |      |  | $      | 138,322 |   |  | $ | 6,199  |  
|Net cash used in investing activities                   |  |      | (60,454 | )    |  |        | (58,596 | ) |  |   | (1,858 | )
|Net cash provided by (used in) financing
    activities |  |      | 4,692   |      |  |        | (27,933 | ) |  |   | 32,625 |  
|                                                        |  |      |         |      |  |        |         |   |  |   |        |  
|Net increase in cash and cash equivalents               |  |      | 88,759  |      |  |        | 51,793  |   |  |   | 36,966 |  
|Cash and cash equivalents at beginning of period        |  |      | 53,788  |      |  |        | 1,995   |   |  |   | 51,793 |  
|                                                        |  |      |         |      |  |        |         |   |  |   |        |  
|Cash and cash equivalents at end of period              |  | $    | 142,547 |      |  | $      | 53,788  |   |  | $ | 88,759 |  
|                                                        |  |      |         |      |  |        |         |   |  |   |        |  

Net cash provided by operating activities was
$144.5 million for 2003. Adjustments to the
$11.2 million net loss to reconcile to net cash provided by
operating activities included $76.4 million in depreciation
and amortization, a $28.0 million increase in long-term
dividends, a $14.3 million increase in accounts receivable,
a $6.1 million charge relating to the early extinguishment
of debt, a $42.2 million loss on assets held for sale
relating to our asset exchange with AWE, and a $4.7 million
increase in accounts payable.

Net cash used in investing activities for 2003
primarily related to purchases of property and equipment. These
purchases reflect the continued expansion of our existing
wireless coverage and the upgrade and overlay of existing cell
sites and switching equipment.

Net cash provided by financing activities
reflected the offering of $325 million
9 7/8% Senior Notes and $120.0 million in
additional borrowing under our credit agreement. Partially
offsetting the increased debt was $394.6 million in
repayments of outstanding indebtedness under our credit
agreement, $34.2 million payment upon termination of a
swaption, and $13.4 million in payment of debt issuance
costs.

Other Matters



| |          
| | ---------
| | Inflation

The impact of inflation on our operations has not
been significant.



| |            
| | -----------
| | Seasonality

We experience seasonal fluctuations in revenue
and operating income. Our average monthly roaming revenue per
cellular customer increases during the second and third calendar
quarters. This increase reflects greater usage by our roaming
customers who travel in our cellular service area for weekend
and vacation recreation or work in seasonal industries. Because
our cellular service area includes many seasonal recreational
areas, we expect that roaming revenue will continue to fluctuate
seasonally more than service revenue.

56



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##### Table of Contents



Certain quarterly results for 2003 and 2002 are
set forth below (in thousands, except per share data):

|                                                                                                             |           |                    |         |                    |         |     |        |        |         |     |         |        |         |     |        |        |         |   |          |        |         |   |        |        |         |   |        |        |         |   |         |        |         | 
|------------------------------------------------------------------------------------------------------------ | --------- | ------------------ | ------- | ------------------ | ------- | --- | ------ | ------ | ------- | --- | ------- | ------ | ------- | --- | ------ | ------ | ------- | - | -------- | ------ | ------- | - | ------ | ------ | ------- | - | ------ | ------ | ------- | - | ------- | ------ | ------- | 
|                                                                                                             |           |                    |         |                   
|                                                                                                             |           | 2003 Quarter Ended |         | 2002 Quarter Ended
|                                                                                                             |           |                    |         |                   
|                                                                                                             |           | Mar                |         | Jun                |         | Sep |        | Dec    |         | Mar |         | Jun    |         | Sep |        | Dec   
|                                                                                                             |           |                    |         |                    |         |     |        |        |         |     |         |        |         |     |        |       
|Revenue:                                                                                                     |           |                    |         |                    |         |     |        |        |         |     |         |        |         |     |        |        |         |   |          |        |         |   |        |        |         |   |        |        |         |   |         |       
|                                                                                                             | Service   |                    | $       | 80,923             |         |     | $      | 90,904 |         |     | $       | 92,530 |         |     | $      | 90,681 |         |   | $        | 75,497 |         |   | $      | 80,473 |         |   | $      | 83,224 |         |   | $       | 80,739 |        
|                                                                                                             | Roaming   |                    |         | 29,062             |         |     |        | 31,789 |         |     |         | 37,598 |         |     |        | 33,447 |         |   |          | 26,162 |         |   |        | 33,855 |         |   |        | 35,400 |         |   |         | 27,286 |        
|                                                                                                             | Equipment |                    |         | 3,876              |         |     |        | 4,427  |         |     |         | 6,462  |         |     |        | 5,690  |         |   |          | 3,279  |         |   |        | 4,564  |         |   |        | 7,098  |         |   |         | 5,501  |        
|                                                                                                             |           |                    |         |                    |         |     |        |        |         |     |         |        |         |     |        |        |         |   |          |        |         |   |        |        |         |   |        |        |         |   |         |       
|                                                                                                             |           | Total Revenue      |         | $                  | 113,861 |     |        | $      | 127,120 |     |         | $      | 136,590 |     |        | $      | 129,818 |   |          | $      | 104,938 |   |        | $      | 118,892 |   |        | $      | 125,722 |   |         | $      | 113,526 | 
|Operating income                                                                                             |           | $                  | 31,101  |                    |         | $   | 41,232 |        |         | $   | 7,005   |        |         | $   | 43,912 |        |         | $ | 31,425   |        |         | $ | 38,178 |        |         | $ | 38,627 |        |         | $ | 26,782  |       
|Net income (loss) before cumulative change in
    accounting principle                                       |           | $                  | 5,708   |                    |         | $   | 16,991 |        |         | $   | (38,121 | )      |         | $   | 4,217  |        |         | $ | (707     | )      |         | $ | 11,303 |        |         | $ | 10,236 |        |         | $ | 330     |       
|Net income (loss)                                                                                            |           | $                  | 5,708   |                    |         | $   | 16,991 |        |         | $   | (38,121 | )      |         | $   | 4,217  |        |         | $ | (417,771 | )      |         | $ | 11,303 |        |         | $ | 10,236 |        |         | $ | 330     |       
|Net income (loss) applicable to common shares                                                                |           | $                  | (10,465 | )                  |         | $   | 382    |        |         | $   | (41,140 | )      |         | $   | 1,141  |        |         | $ | (432,312 | )      |         | $ | (3,629 | )      |         | $ | (5,098 | )      |         | $ | (15,419 | )     
|Net income (loss) per share applicable to common
    shares before cumulative change in accounting principle |           | $                  | (0.87   | )                  |         | $   | 0.03   |        |         | $   | (3.41   | )      |         | $   | 0.09   |        |         | $ | (1.28    | )      |         | $ | (0.30  | )      |         | $ | (0.43  | )      |         | $ | (1.29   | )     
|Net income (loss) per basic and diluted share                                                                |           | $                  | (0.87   | )                  |         | $   | 0.03   |        |         | $   | (3.41   | )      |         | $   | 0.09   |        |         | $ | (36.27   | )      |         | $ | (0.30  | )      |         | $ | (0.43  | )      |         | $ | (1.29   | )     






|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
    About Market Risk



| |            
| | -----------
| | Market Risk

In the normal course of business, we are exposed
to market risk from fluctuations in interest rates. We address
this risk through a risk management program that includes the
use of derivative financial instruments. The counterparties to
these instruments are major financial institutions and we
believe that credit loss in the event of nonperformance is
remote. We do not enter into any derivative transactions for
speculative purposes.



| |                   
| | ------------------
| | Interest Rate Risk

We have used senior notes, senior subordinated
notes, and bank credit facilities to finance, in part, capital
requirements and operations. These on-balance sheet financial
instruments, to the extent they provide for variable rates of
interest, expose us to interest rate risk.

We are required by the terms of our credit
agreement to maintain interest rate swaps on at least 50% of our
debt for an average period of three years from the date of the
hedge agreements. On December 31, 2003 we held interest
rate swap agreements with a notional amount of
$284.0 million to convert variable rate debt to fixed rate
debt.

See Note 6 of our consolidated financial
statements for additional information regarding financial
instrument activity.

57



---



##### Table of Contents



RCCs financial instruments notional
and estimated fair values and carrying amounts are set forth in
the table below as of December 31 (in thousands). Fair
values are based on quoted market prices, if available.

|                         |                                                 |                                          |                                             |                             |   |                             |           |              |        |              |           |         |     |        |           |         |        |       |           |         |     |        |           | 
|------------------------ | ----------------------------------------------- | ---------------------------------------- | ------------------------------------------- | --------------------------- | - | --------------------------- | --------- | ------------ | ------ | ------------ | --------- | ------- | --- | ------ | --------- | ------- | ------ | ----- | --------- | ------- | --- | ------ | --------- | 
|                         |                                                 |                                          |                                             |                             |   |                            
|                         |                                                 |                                          |                                             | Carrying Value              |   | Estimated Fair Market Value
|                         |                                                 |                                          |                                             |                             |   |                            
|                         |                                                 | Notional                                 |                                             | December 31,                |   | December 31,                |           | December 31, |        | December 31,
|                         |                                                 | Amount                                   |                                             | 2003                        |   | 2002                        |           | 2003         |        | 2002        
|                         |                                                 |                                          |                                             |                             |   |                             |           |              |        |             
|                         |                                                 |                                         
|                         |                                                 | (Dollars in thousands)                  
|Financial assets(1)      |                                                 |                                          |                                             |                             |   |                             |           |              |        |              |           |         |     |        |           |         |        |       |           |        
|                         | Interest rate flooridors:                       |                                          |                                             |                             |   |                             |           |              |        |              |           |         |     |        |           |         |        |       |           |         |    
|                         |                                                 | Fleet Bank (terminated May 12,
    2003) |                                             | $                           |  |                             |           | $            |       |              |           | $       | 631 |        |           | $       |       |       |           | $       | 631 |       
|                         |                                                 |                                          |                                             |                             |   |                             |           |              |        |              |           |         |     |        |           |         |        |       |           |        
|                         |                                                 |                                          |                                             | Total financial assets      |   | $                           |          |              |        | $            |          |         |     | $      | 631       |         |        | $     |          |         |     | $      | 631       | 
|                         |                                                 |                                          |                                             |                             |   |                             |           |              |        |              |           |         |     |        |           |         |        |       |           |        
|Financial liabilities(1) |                                                 |                                          |                                             |                             |   |                             |           |              |        |              |           |         |     |        |           |         |        |       |           |        
|                         | Credit agreement                                |                                          | $                                           |                            |   |                             | $         | 525,723      |        |              | $         | 793,853 |     |        | $         | 524,201 |        |       | $         | 689,064 |    
|                         | 9 7/8% senior notes                             |                                          |                                             |                            |   |                             |           | 325,000      |        |              |           |        |     |        |           | 344,297 |        |       |           |        |    
|                         | 9 5/8% senior subordinated notes                |                                          |                                             |                            |   |                             |           | 125,000      |        |              |           | 125,000 |     |        |           | 121,172 |        |       |           | 81,250  |    
|                         | 9 3/4% senior subordinated notes                |                                          |                                             |                            |   |                             |           | 300,000      |        |              |           | 300,000 |     |        |           | 288,938 |        |       |           | 195,000 |    
|                         | 11 3/8% senior exchangeable preferred
    stock |                                          |                                             |                            |   |                             |           | 254,676      |        |              |           | 240,882 |     |        |           | 210,159 |        |       |           | 57,812  |    
|                         | 12 1/4% junior exchangeable preferred stock     |                                          |                                             |                            |   |                             |           | 219,911      |        |              |           | 195,035 |     |        |           | 150,639 |        |       |           | 42,908  |    
|                         | Class M convertible preferred stock(2)          |                                          |                                             |                            |   |                             |           | 147,981      |        |              |           | 136,712 |     |        |           | 147,981 |        |       |           | 136,712 |    
|                         | Class T convertible preferred stock(2)          |                                          |                                             |                            |   |                             |           | 8,671        |        |              |           | 8,370   |     |        |           | 8,671   |        |       |           | 8,370   |    
|                         |                                                 |                                          |                                             |                             |   |                             |           |              |        |              |           |         |     |        |           |         |        |       |           |        
|                         |                                                 |                                          |                                            |                             |   |                             | 1,906,962 |              |        |              | 1,799,852 |         |     |        | 1,796,058 |         |        |       | 1,211,116 |        
|                         | Derivative financial instruments                |                                          |                                             |                             |   |                             |           |              |        |              |           |         |     |        |           |         |        |       |           |         |    
|                         |                                                 | Interest rate swap agreements(3):        |                                             |                             |   |                             |           |              |        |              |           |         |     |        |           |         |        |       |           |         |     |       
|                         |                                                 |                                          | TD Securities (terminates May 16, 2005)     |                             |   | 84,000                      |           |              |        | 5,666        |           |         |     | 9,010  |           |         |        | 5,666 |           |         |     | 9,010  |          
|                         |                                                 |                                          | PNC Bank (terminated May 16,
    2003)      |                             |   |                            |           |              |        |             |           |         |     | 975    |           |         |        |      |           |         |     | 975    |          
|                         |                                                 |                                          | Fleet Bank (terminates March 7, 2006)       |                             |   | 200,000                     |           |              |        | 443          |           |         |     |       |           |         |        | 443   |           |         |     |       |          
|                         |                                                 | Reverse swap agreements:                 |                                             |                             |   |                             |           |              |        |              |           |         |     |        |           |         |        |       |           |         |     |       
|                         |                                                 |                                          | Fleet Bank (terminated June 2,
    2003)    |                             |   |                            |           |              |        |             |           |         |     | 1,832  |           |         |        |      |           |         |     | 1,832  |          
|                         |                                                 |                                          | Dresdner Bank (terminated June 2,
    2003) |                             |   |                            |           |              |        |             |           |         |     | 1,316  |           |         |        |      |           |         |     | 1,316  |          
|                         |                                                 | Interest rate collar agreements:         |                                             |                             |   |                             |           |              |        |              |           |         |     |        |           |         |        |       |           |         |     |       
|                         |                                                 |                                          | PNC Bank (terminated May 25,
    2003)      |                             |   |                            |           |              |        |             |           |         |     | 966    |           |         |        |      |           |         |     | 966    |          
|                         |                                                 |                                          | Union Bank (terminated June 5,
    2003)    |                             |   |                            |           |              |        |             |           |         |     | 1,622  |           |         |        |      |           |         |     | 1,622  |          
|                         |                                                 |                                          | PNC Bank (terminated June 6,
    2003)      |                             |   |                            |           |              |        |             |           |         |     | 1,827  |           |         |        |      |           |         |     | 1,827  |          
|                         |                                                 |                                          | Union Bank (terminated June 5,
    2003)    |                             |   |                            |           |              |        |             |           |         |     | 936    |           |         |        |      |           |         |     | 936    |          
|                         |                                                 | Swaption(4):                             |                                             |                             |   |                             |           |              |        |              |           |         |     |        |           |         |        |       |           |         |     |       
|                         |                                                 |                                          | TD Securities (terminated May 15,
    2003) |                             |   |                            |           |              |        |             |           |         |     | 30,072 |           |         |        |      |           |         |     | 30,072 |          
|                         |                                                 |                                          |                                             |                             |   |                             |           |              |        |              |           |         |     |        |           |         |        |       |           |        
|                         |                                                 |                                          | 284,000                                     |                             |   |                             | 6,109     |              |        |              | 48,556    |         |     |        | 6,109     |         |        |       | 48,556    |        
|                         |                                                 | Other long-term liabilities              |                                             |                             |  |                             |           |              | 19,991 |              |           |         | 323 |        |           |         | 19,991 |       |           |         | 323 |       
|                         |                                                 |                                          |                                             |                             |   |                             |           |              |        |              |           |         |     |        |           |         |        |       |           |        
|                         |                                                 |                                          |                                             | Total financial liabilities |   | $                           | 284,000   |              |        | $            | 1,933,062 |         |     | $      | 1,848,731 |         |        | $     | 1,822,158 |         |     | $      | 1,259,995 | 
|                         |                                                 |                                          |                                             |                             |   |                             |           |              |        |              |           |         |     |        |           |         |        |       |           |        



---



|    |                                                                                                                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The carrying amounts of cash and cash
    equivalents, accounts receivable, accounts payable, advance
    billing and customer deposits and other current liabilities are
    reasonable estimates of their fair value due to the short-term
    nature of these instruments.
|   
|(2) | These financial instruments are not actively
    traded and, therefore, the estimated fair market value is stated
    at the carrying value.                                                                                                                                 
|   
|(3) | Recorded on our balance sheet at fair value, with
    related changes in fair value included in the consolidated
    statement of operations, and not accounted for as a hedge under
    SFAS No. 133.                                                                       
|   
|(4) | We issued $125 million in subordinated debt
    in May 1998 that matures in May 2008. The $8.7 million
    value of an embedded call option within the subordinated debt
    was monetized in March 2001, resulting in                                                       

58



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##### Table of Contents



| |                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a swaption. The swaption does not qualify for
    hedge accounting treatment under SFAS No. 133 and, as
    such, is recorded in the balance sheet at fair value with
    related changes in fair value included in the statement of
    operations. On May 15, 2003, the counterparty exercised its
    option to terminate the swaption, and we paid the counterparty
    $34.2 million, the fair market value at May 15, 2003.






|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

See Consolidated Financial Statements and Notes
included in this report starting on page F-1.






|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure

This information required under this item is
included in the Proxy Statement under
Item No. 2  Ratification of
Appointment of Independent Auditors.






|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

(a) Evaluation of disclosure controls and
procedures

Within 90 days prior to the date of this
report (the Evaluation Date), the Companys
Chief Executive Officer and Chief Financial Officer carried out
an evaluation of the effectiveness of the Companys
disclosure controls and procedures, as defined in
Rules 13a-15(e) and 15d-15(e)) under the Securities
Exchange Act. Based on that evaluation, these officers have
concluded that as of the Evaluation Date, the Companys
disclosure controls and procedures were effective in ensuring
that the information the Company is required to disclose in
reports filed or submitted under the Exchange Act is recorded,
processed, summarized, and reported, within the time period
specified in the Commissions rules and forms, and that the
disclosure controls are effective in ensuring that the
information required to be reported is accumulated and
communicated to our management, including our principal
executive and financial officers, as appropriate to allow timely
decisions regarding required disclosure.

(b) Changes in disclosure controls and
procedures

There were no significant changes in the
Companys disclosure controls and procedures or, to the
Companys knowledge, in other factors that could
significantly affect the Companys disclosure controls and
procedures subsequent to the Evaluation Date.




PART III






|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

Information regarding directors of Rural Cellular
is set forth in the Proxy Statement under the heading
Item No. 1  Election of
Directors and is incorporated herein by reference.
Information regarding our executive officers is contained in
Part I of this Form 10-K. Information required by
Item 401(h) and (i) and Item 405 of
Regulation S-K is included in the Proxy Statement under the
headings Item No. 1  Election of
Directors and Item No. 2 
Ratification of Appointment of Independent Auditors.

We have adopted a financial code of ethics that
applies to our directors, Chief Executive Officer, Chief
Financial Officer, Corporate Controller, and other employees
involved in preparation of our financial statements. This
financial code of ethics, which is one of several policies
within our Corporate Code of Business Conduct, is posted on our
website. The Internet address for our website is
http:/rccwireless.com, and the Financial Code of Ethics may be
found as follows:



| |                                                                    
| | -------------------------------------------------------------------
| | 1. From our main web page, first click on
    Investor Relations.
|
| | 2. Next, click on Company
    Overview.                          
|
| | 3. Finally, click on Financial Code of
    Ethics.               

59



---



##### Table of Contents



We intend to satisfy the disclosure requirement
under Item 10 of Form 8-K regarding an amendment to,
or waiver from, a provision of this code of ethics by posting
such information on our website, at the address and location
specified above.






|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

Information required by this item is set forth in
the Proxy Statement under the headings
Item No. 1  Election of
Directors and Executive Compensation and is
incorporated herein by reference.






|         |                                                                                                       
|-------- | ------------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder
    Matters

Equity Compensation Plan Information

The following table summarizes share and exercise
price information about our equity compensation plans as of
December 31, 2003.

|                                                                  |       |                      |           |                   |  |                      |       |       |  |  |         |         | 
|----------------------------------------------------------------- | ----- | -------------------- | --------- | ----------------- |  | -------------------- | ----- | ----- |  |  | ------- | ------- | 
|                                                                  |       |                      |           |                   |  | Number of Securities
|                                                                  |       |                      |           |                   |  | Remaining Available 
|                                                                  |       | Number of Securities |           | Weighted-Average  |  | for Future Issuance 
|                                                                  |       | to be Issued Upon    |           | Exercise Price of |  | Under Equity        
|                                                                  |       | Exercise of          |           | Outstanding       |  | Compensation Plans  
|                                                                  |       | Outstanding Options, |           | Options,          |  | (Excluding          
|                                                                  |       | Warrants, and        |           | Warrants, and     |  | Securities Reflected
|Plan Category                                                     |       | Rights               |           | Rights            |  | in the First Column)
|                                                                  |       |                      |           |                   |  |                     
|Equity compensation plans approved by security
    holders(1)     |       |                      | 2,176,770 |                   |  | $                    | 14.32 |       |  |  | 562,498 |        
|Equity compensation plans not approved by
    security holders(2) |       |                      | 0         |                   |  |                      | 0     |       |  |  | 0       |        
|                                                                  |       |                      |           |                   |  |                      |       |       |  |  |         |        
|                                                                  | Total |                      |           | 2,176,770         |  |                      | $     | 14.32 |  |  |         | 562,498 | 
|                                                                  |       |                      |           |                   |  |                      |       |       |  |  |         |        



---



|    |                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes stock subject to outstanding options and
    stock available for issuance under our 1995 Stock Compensation
    Plan, Stock Option Plan for Nonemployee Directors, and Employee
    Stock Purchase Plan.
|   
|(2) | We have not adopted any equity compensation plans
    that have not been approved by our shareholders.                                                                                                           

The remaining information required by this
Item 12 is set forth in the Proxy Statement under the
heading Ownership of Voting Securities and is
incorporated herein by reference.






|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

Information required by this item is set forth in
the Proxy Statement under the heading Certain
Transactions and is incorporated herein by reference.






|         |                                           
|-------- | ------------------------------------------
|Item 14. | Principal Accountant Fees and
    Services

Information required by this item is set forth in
the Proxy Statement under the heading Item
No. 2  Ratification of Appointment of
Independent Auditors.

60



---



##### Table of Contents






PART IV






|         |                                                                     
|-------- | --------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules,
    and Reports on Form 8-K

(a) (1) Consolidated Financial
Statements

|                                                                                                                       |  |             |     | 
|---------------------------------------------------------------------------------------------------------------------- |  | ----------- | --- | 
|                                                                                                                       |  | Page Number
|                                                                                                                       |  | in this    
|                                                                                                                       |  | Form 10-K  
|                                                                                                                       |  |            
|Independent Auditors Report                                                                                           |  |             | F-1 | 
|Consolidated Balance Sheets as of
    December 31, 2003 and 2002                                                       |  |             | F-2 | 
|Consolidated Statements of Operations for the
    Years Ended December 31, 2003, 2002 and 2001                         |  |             | F-3 | 
|Consolidated Statements of Shareholders
    (Deficit) Equity for the Years Ended December 31, 2003,
    2002 and 2001 |  |             | F-4 | 
|Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2003, 2002 and 2001                         |  |             | F-5 | 
|Notes to Consolidated Financial Statements                                                                             |  |             | F-6 | 

(2) Consolidated Financial Statement
Schedules



| |                                                                                     
| | ------------------------------------------------------------------------------------
| | The following financial statement schedules are
    filed as part of this Form 10-K:



| |                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Schedule II  Valuation and
    Qualifying Accounts                                                                                                                                             
|
| | All schedules not included are omitted either
    because they are not applicable or because the information
    required therein is included in Notes to Consolidated Financial
    Statements.



| |             
| | ------------
| | (3) Exhibits



| |                   
| | ------------------
| | See Exhibit Index.

(b) Reports on Form 8-K



| |                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The following reports on Form 8-K were filed
    during the fourth quarter of fiscal 2003:                                                                                                                                         
|
| | A Report on Form 8-K dated July 23,
    2003, reporting under Items 5 and 7 revisions to the
    Companys financial statements for fiscal 2002 to reflect
    adoption of Statement of Financial Accounting Standards
    No. 145.
|
| | A Report on Form 8-K dated October 10,
    2003, reporting under Items 5, 7, and 9 the execution of an
    agreement with AT&T Wireless, Inc. for the exchange of
    certain properties.                                          
|
| | A Report on Form 8-K dated November 13,
    2003, reporting under Items 7 and 12 financial results for
    the quarter ended September 30, 2003.                                                                                   
|
| | A Report on Form 8-K dated December 23,
    2003, reporting under Items 5 and 7 the listing of the
    Companys Class A Common Stock on The Nasdaq National
    Market.                                                           

(c) Exhibits



| |                   
| | ------------------
| | See Exhibit Index.

(d) Financial Statement Schedules



| |                            
| | ---------------------------
| | See Item 15 (a) (2), above.

61



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##### Table of Contents






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.

|                     |  |                                                                                    
|-------------------- |  | -----------------------------------------------------------------------------------
|                    
|                     |  | RURAL CELLULAR CORPORATION                                                         
|                    
|Dated: March 5, 2004 |  | By: /s/ RICHARD P. EKSTRANDRichard P. EkstrandPresident and Chief Executive Officer

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 and on the dates indicated.

|                                           |  |                                                                                                  |  |               |  | 
|------------------------------------------ |  | ------------------------------------------------------------------------------------------------ |  | ------------- |  | 
|                                           |  |                                                                                                  |  |              
|Signature                                  |  | Title                                                                                            |  | Date         
|                                           |  |                                                                                                  |  |              
|                                          
|/s/ RICHARD P. EKSTRANDRichard P. Ekstrand |  | President and Chief Executive Officer (Principal
    Executive Officer) and Director             |  | March 5, 2004
|                                          
|/s/ WESLEY E. SCHULTZWesley E. Schultz     |  | Executive Vice President, Chief Financial Officer
    (Principal Financial Officer) and Director |  | March 5, 2004
|                                          
|/s/ DAVID J. DEL ZOPPODavid J. Del Zoppo   |  | Vice President, Finance and Accounting (Principal
    Accounting Officer)                        |  | March 5, 2004
|                                          
|/s/ ANN K. NEWHALLAnn K. Newhall           |  | Director                                                                                         |  | March 5, 2004
|                                          
|/s/ GEORGE W. WIKSTROMGeorge W. Wikstrom   |  | Director                                                                                         |  | March 5, 2004
|                                          
|/s/ DON C. SWENSONDon C. Swenson           |  | Director                                                                                         |  | March 5, 2004
|                                          
|/s/ MARVIN C. NICOLAIMarvin C. Nicolai     |  | Director                                                                                         |  | March 5, 2004
|                                          
|/s/ GEORGE M. REVERINGGeorge M. Revering   |  | Director                                                                                         |  | March 5, 2004
|                                          
|/s/ JOHN HUNTJohn Hunt                     |  | Director                                                                                         |  | March 5, 2004
|                                          
|/s/ PAUL J. FINNEGANPaul J. Finnegan       |  | Director                                                                                         |  | March 5, 2004

62



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##### Table of Contents



INDEPENDENT AUDITORS REPORT

Shareholders and Board of Directors

Rural Cellular Corporation and Subsidiaries


Alexandria, Minnesota


We have audited the accompanying consolidated
balance sheets of Rural Cellular Corporation and Subsidiaries
(the Company) as of December 31, 2003 and 2002
and the related consolidated statements of operations,
shareholders (deficit) equity, and cash flows for each of
the three years in the period ended December 31, 2003. Our
audits also included the financial statement schedule listed in
the Index at Item 15. These financial statements and
financial statement schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform our
audits 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, such consolidated financial
statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2003
and 2002 and the results of its operations and its cash flows
for each of the three years in the period ended
December 31, 2003 in conformity with accounting principles
generally accepted in the United States of America. Also, in our
opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the
information set forth therein.

As discussed in Note 4 to the consolidated
financial statements, on January 1, 2002, the Company
adopted Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other
Intangible Asset,and changed its method of accounting for
goodwill and licenses.

As discussed in Note 4, effective
July 1, 2003, the Company adopted the provisions of
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and
Equity.



| |                          
| | -------------------------
| | /s/ DELOITTE & TOUCHE LLP
| |                          
| | Deloitte & Touche LLP    

Minneapolis, Minnesota

March 1, 2004


F-1



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##### Table of Contents



RURAL CELLULAR CORPORATION AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

|                                                                                   |                                                                                               |                                 |           |              |           |   |           |          |           |  
|---------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------- | --------- | ------------ | --------- | - | --------- | -------- | --------- | -
|                                                                                   |                                                                                               |                                
|                                                                                   |                                                                                               | As of                          
|                                                                                   |                                                                                               |                                
|                                                                                   |                                                                                               | December 31,                    |           | December 31,
|                                                                                   |                                                                                               | 2003                            |           | 2002        
|                                                                                   |                                                                                               |                                 |           |             
|                                                                                   |                                                                                               |                                
|                                                                                   |                                                                                               | (In thousands,                 
|                                                                                   |                                                                                               | except per share data)         
|ASSETS                                                                            
|CURRENT ASSETS:                                                                    |                                                                                               |                                 |           |              |           |   |           |         
|                                                                                   | Cash and cash equivalents                                                                     |                                 | $         | 142,547      |           |   | $         | 53,788   |          
|                                                                                   | Accounts receivable, less allowance for doubtful
    accounts of $3,187 and $3,096            |                                 |           | 57,743       |           |   |           | 46,442   |          
|                                                                                   | Inventories                                                                                   |                                 |           | 8,037        |           |   |           | 6,624    |          
|                                                                                   | Other current assets                                                                          |                                 |           | 4,259        |           |   |           | 3,217    |          
|                                                                                   | Assets of operations held for sale                                                            |                                 |           | 3,189        |           |   |           |         |          
|                                                                                   |                                                                                               |                                 |           |              |           |   |           |         
|                                                                                   |                                                                                               | Total current assets            |           |              | 215,775   |   |           |          | 110,071   |  
|                                                                                   |                                                                                               |                                 |           |              |           |   |           |         
|PROPERTY AND EQUIPMENT, less accumulated
    depreciation of $198,274 and $172,629 |                                                                                               |                                 | 226,202   |              |           |   | 240,536   |         
|LICENSES AND OTHER ASSETS:                                                         |                                                                                               |                                 |           |              |           |   |           |         
|                                                                                   | Licenses, less accumulated amortization of
    $46,997 and $50,409                            |                                 |           | 563,283      |           |   |           | 618,576  |          
|                                                                                   | Goodwill, less accumulated amortization of
    $31,473 and $32,336                            |                                 |           | 360,796      |           |   |           | 369,829  |          
|                                                                                   | Customer lists, less accumulated amortization of
    $78,041 and $66,282                      |                                 |           | 64,575       |           |   |           | 92,748   |          
|                                                                                   | Deferred debt issuance costs, less accumulated
    amortization of $12,009 and $11,427        |                                 |           | 34,479       |           |   |           | 25,176   |          
|                                                                                   | Long-term assets of operations held for sale                                                  |                                 |           | 50,153       |           |   |           |         |          
|                                                                                   | Other assets, less accumulated amortization of
    $1,736 and $1,432                          |                                 |           | 5,795        |           |   |           | 6,042    |          
|                                                                                   |                                                                                               |                                 |           |              |           |   |           |         
|                                                                                   |                                                                                               | Total licenses and other assets |           |              | 1,079,081 |   |           |          | 1,112,371 |  
|                                                                                   |                                                                                               |                                 |           |              |           |   |           |         
|                                                                                   |                                                                                               | $                               | 1,521,058 |              |           | $ | 1,462,978 |         
|                                                                                   |                                                                                               |                                 |           |              |           |   |           |         
|                                                                                  
|LIABILITIES AND SHAREHOLDERS
    DEFICIT                                         
|CURRENT LIABILITIES:                                                               |                                                                                               |                                 |           |              |           |   |           |         
|                                                                                   | Accounts payable                                                                              |                                 | $         | 45,808       |           |   | $         | 41,633   |          
|                                                                                   | Current portion of long-term debt                                                             |                                 |           | 27,262       |           |   |           | 79,047   |          
|                                                                                   | Advance billings and customer deposits                                                        |                                 |           | 10,454       |           |   |           | 10,447   |          
|                                                                                   | Accrued interest                                                                              |                                 |           | 34,084       |           |   |           | 18,476   |          
|                                                                                   | Dividends payable                                                                             |                                 |           |             |           |   |           | 6,412    |          
|                                                                                   | Other accrued expenses                                                                        |                                 |           | 11,276       |           |   |           | 9,552    |          
|                                                                                   | Liabilities of operations held for sale                                                       |                                 |           | 756          |           |   |           |         |          
|                                                                                   |                                                                                               |                                 |           |              |           |   |           |         
|                                                                                   |                                                                                               | Total current liabilities       |           |              | 129,640   |   |           |          | 165,567   |  
|LONG-TERM LIABILITIES                                                              |                                                                                               |                                 | 1,764,867 |              |           |   | 1,211,026 |         
|                                                                                   |                                                                                               |                                 |           |              |           |   |           |         
|                                                                                   |                                                                                               | Total liabilities               |           |              | 1,894,507 |   |           |          | 1,376,593 |  
|                                                                                   |                                                                                               |                                 |           |              |           |   |           |         
|COMMITMENTS AND CONTINGENCIES (Note 10)                                            |                                                                                               |                                 |          |              |           |   |          |         
|REDEEMABLE PREFERRED STOCK                                                         |                                                                                               |                                 | 153,381   |              |           |   | 569,500   |         
|SHAREHOLDERS DEFICIT:                                                             |                                                                                               |                                 |           |              |           |   |           |         
|                                                                                   | Class A common stock; $.01 par value;
    200,000 shares authorized, 11,522 and 11,229 issued |                                 |           | 115          |           |   |           | 112      |          
|                                                                                   | Class B common stock; $.01 par value;
    10,000 shares authorized, 552 and 693 issued        |                                 |           | 6            |           |   |           | 7        |          
|                                                                                   | Additional paid-in capital                                                                    |                                 |           | 192,423      |           |   |           | 192,294  |          
|                                                                                   | Accumulated deficit                                                                           |                                 |           | (719,590     | )         |   |           | (669,508 | )        
|                                                                                   | Accumulated other comprehensive loss                                                          |                                 |           | 216          |           |   |           | (6,020   | )        
|                                                                                   |                                                                                               |                                 |           |              |           |   |           |         
|                                                                                   |                                                                                               | Total shareholders deficit     |           |              | (526,830  | ) |           |          | (483,115  | )
|                                                                                   |                                                                                               |                                 |           |              |           |   |           |         
|                                                                                   |                                                                                               | $                               | 1,521,058 |              |           | $ | 1,462,978 |         
|                                                                                   |                                                                                               |                                 |           |              |           |   |           |         

The accompanying notes are an integral part of
these consolidated financial statements.

F-2



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##### Table of Contents



RURAL CELLULAR CORPORATION AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                                                          |                                       |                                       |         |          |          |      |          |          |          |   |          |          |          |  
|----------------------------------------------------------------------------------------- | ------------------------------------- | ------------------------------------- | ------- | -------- | -------- | ---- | -------- | -------- | -------- | - | -------- | -------- | -------- | -
|                                                                                          |                                       |                                      
|                                                                                          |                                       | For the Years Ended December 31,     
|                                                                                          |                                       |                                      
|                                                                                          |                                       | 2003                                  |         | 2002     |          | 2001
|                                                                                          |                                       |                                       |         |          |          |     
|                                                                                          |                                       |                                      
|                                                                                          |                                       | (In thousands, except per share data)
|REVENUE:                                                                                  |                                       |                                       |         |          |          |      |          |          |          |   |          |         
|                                                                                          | Service                               |                                       | $       | 355,038  |          |      | $        | 319,933  |          |   | $        | 310,520  |         
|                                                                                          | Roaming                               |                                       |         | 131,896  |          |      |          | 122,703  |          |   |          | 116,541  |         
|                                                                                          | Equipment                             |                                       |         | 20,455   |          |      |          | 20,442   |          |   |          | 18,627   |         
|                                                                                          |                                       |                                       |         |          |          |      |          |          |          |   |          |         
|                                                                                          |                                       | Total revenue                         |         |          | 507,389  |      |          |          | 463,078  |   |          |          | 445,688  |  
|                                                                                          |                                       |                                       |         |          |          |      |          |          |          |   |          |         
|OPERATING EXPENSES:                                                                       |                                       |                                       |         |          |          |      |          |          |          |   |          |         
|                                                                                          | Network costs, excluding depreciation |                                       |         | 96,069   |          |      |          | 97,200   |          |   |          | 101,509  |         
|                                                                                          | Cost of equipment sales               |                                       |         | 37,636   |          |      |          | 29,184   |          |   |          | 28,415   |         
|                                                                                          | Selling, general and administrative   |                                       |         | 131,761  |          |      |          | 119,185  |          |   |          | 122,387  |         
|                                                                                          | Depreciation and amortization         |                                       |         | 76,429   |          |      |          | 82,497   |          |   |          | 112,577  |         
|                                                                                          | Loss on assets held for sale          |                                       |         | 42,244   |          |      |          |         |          |   |          |         |         
|                                                                                          |                                       |                                       |         |          |          |      |          |          |          |   |          |         
|                                                                                          |                                       | Total operating expenses              |         |          | 384,139  |      |          |          | 328,066  |   |          |          | 364,888  |  
|                                                                                          |                                       |                                       |         |          |          |      |          |          |          |   |          |         
|OPERATING INCOME                                                                          |                                       |                                       | 123,250 |          |          |      | 135,012  |          |          |   | 80,800   |         
|                                                                                          |                                       |                                       |         |          |          |      |          |          |          |   |          |         
|OTHER INCOME (EXPENSE):                                                                   |                                       |                                       |         |          |          |      |          |          |          |   |          |         
|                                                                                          | Interest expense                      |                                       |         | (136,262 | )        |      |          | (114,478 | )        |   |          | (130,432 | )       
|                                                                                          | Interest and dividend income          |                                       |         | 916      |          |      |          | 562      |          |   |          | 1,172    |         
|                                                                                          | Other                                 |                                       |         | 891      |          |      |          | 66       |          |   |          | (752     | )       
|                                                                                          |                                       |                                       |         |          |          |      |          |          |          |   |          |         
|                                                                                          |                                       | Other expense, net                    |         |          | (134,455 | )    |          |          | (113,850 | ) |          |          | (130,012 | )
|                                                                                          |                                       |                                       |         |          |          |      |          |          |          |   |          |         
|INCOME (LOSS) BEFORE CUMULATIVE CHANGE IN
    ACCOUNTING PRINCIPLE                        |                                       |                                       | (11,205 | )        |          |      | 21,162   |          |          |   | (49,212  | )       
|CUMULATIVE CHANGE IN ACCOUNTING PRINCIPLE                                                 |                                       |                                       |        |          |          |      | (417,064 | )        |          |   | 1,621    |         
|                                                                                          |                                       |                                       |         |          |          |      |          |          |          |   |          |         
|NET LOSS                                                                                  |                                       |                                       | (11,205 | )        |          |      | (395,902 | )        |          |   | (47,591  | )       
|PREFERRED STOCK DIVIDEND                                                                  |                                       |                                       | (38,877 | )        |          |      | (60,556  | )        |          |   | (54,545  | )       
|                                                                                          |                                       |                                       |         |          |          |      |          |          |          |   |          |         
|NET LOSS APPLICABLE TO COMMON SHARES                                                      |                                       | $                                     | (50,082 | )        |          | $    | (456,458 | )        |          | $ | (102,136 | )       
|                                                                                          |                                       |                                       |         |          |          |      |          |          |          |   |          |         
|WEIGHTED AVERAGE COMMON SHARES OUTSTANDING, BASIC
    AND DILUTED                         |                                       |                                       | 12,060  |          |          |      | 11,920   |          |          |   | 11,865   |         
|                                                                                          |                                       |                                       |         |          |          |      |          |          |          |   |          |         
|NET LOSS APPLICABLE TO COMMON SHARES BEFORE
    CUMULATIVE CHANGE IN ACCOUNTING PRINCIPLE |                                       | $                                     | (4.15   | )        |          | $    | (3.30    | )        |          | $ | (8.74    | )       
|CUMULATIVE CHANGE IN ACCOUNTING PRINCIPLE                                                 |                                       |                                       |        |          |          |      | (34.99   | )        |          |   | 0.13     |         
|                                                                                          |                                       |                                       |         |          |          |      |          |          |          |   |          |         
|NET LOSS PER BASIC AND DILUTED SHARE                                                      |                                       | $                                     | (4.15   | )        |          | $    | (38.29   | )        |          | $ | (8.61    | )       
|                                                                                          |                                       |                                       |         |          |          |      |          |          |          |   |          |         

The accompanying notes are an integral part of
these consolidated financial statements.

F-3



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##### Table of Contents



RURAL CELLULAR CORPORATION AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS
(DEFICIT) EQUITY

For the Years Ended December 31, 2003,
2002 and 2001


|                           |                                  |                                                                |                                                          |         |     |         |     |         |   |            |     |             |      |               |   |               |    |               |         |  |     |   |          |   |   |          |         |   |   |        |          |   |     |          |   |   |          |          |  
|-------------------------- | -------------------------------- | -------------------------------------------------------------- | -------------------------------------------------------- | ------- | --- | ------- | --- | ------- | - | ---------- | --- | ----------- | ---- | ------------- | - | ------------- | -- | ------------- | ------- |  | --- | - | -------- | - | - | -------- | ------- | - | - | ------ | -------- | - | --- | -------- | - | - | -------- | -------- | -
|                           |                                  |                                                                |                                                          |         |     |         |     |         |   |            |     |             |      | Accumulated   |   |               |    |              
|                           |                                  | Class A                                                        |                                                          | Class A |     | Class B |     | Class B |   |            |     |             |      | Other         |   | Total         |    |              
|                           |                                  | Common                                                         |                                                          | Common  |     | Common  |     | Common  |   | Additional |     |             |      | Comprehensive |   | Shareholders |    |              
|                           |                                  | Stock                                                          |                                                          | Stock   |     | Stock   |     | Stock   |   | Paid-In    |     | Accumulated |      | Income        |   | (Deficit)     |    | Comprehensive
|                           |                                  | Shares                                                         |                                                          | Amount  |     | Shares  |     | Amount  |   | Capital    |     | Deficit     |      | (Loss)        |   | Equity        |    | Loss         
|                           |                                  |                                                                |                                                          |         |     |         |     |         |   |            |     |             |      |               |   |               |    |              
|                           |                                  |                                                               
|                           |                                  | (In thousands)                                                
|BALANCE, December 31, 2000 |                                  |                                                                | 11,034                                                   |         |     | $       | 110 |         |   |            | 782 |             |      | $             | 8 |               |    | $             | 190,751 |  |     | $ | (110,914 | ) |   |          |        |   |   | $      | 79,955   |   |     |          |  |  
|                           |                                  | Conversion of Class B common stock to
    Class A common stock |                                                          |         | 54  |         |     |         | 1 |            |     |             | (54  | )             |   |               | (1 | )             |         |  |    |   |          |   |  |          |         |   |  |        |          |   |    |          |   |   |         |         
|                           |                                  | Stock issued through employee stock purchase plan              |                                                          |         | 25  |         |     |         |  |            |     |             |     |               |   |               |   |               |         |  | 620 |   |          |   |  |          |         |   |  |        |          |   | 620 |          |   |   |         |         
|                           |                                  | Stock options exercised                                        |                                                          |         | 63  |         |     |         | 1 |            |     |             |     |               |   |               |   |               |         |  | 593 |   |          |   |  |          |         |   |  |        |          |   | 594 |          |   |   |         |         
|                           | COMPONENTS OF COMPREHENSIVE LOSS |                                                                |                                                          |         |     |         |     |         |   |            |     |             |      |               |   |               |    |               |         |  |     |   |          |   |   |          |         |   |   |        |          |   |     |          |   |   |         
|                           |                                  |                                                                | Net loss applicable to common shares                     |         |     |        |     |         |   |           |     |             |      |              |   |               |    |              |         |  |     |  |          |   |   | (102,136 | )       |   |   |       |          |   |     | (102,136 | ) |   | $        | (102,136 | )
|                           |                                  |                                                                | Cumulative effect of SFAS No. 133 at
    January 1, 2001 |         |     |        |     |         |   |           |     |             |      |              |   |               |    |              |         |  |     |  |          |   |   |         |         |   |   | (5,526 | )        |   |     | (5,526   | ) |   |          | (5,526   | )
|                           |                                  |                                                                | Current year effect of SFAS No. 133                      |         |     |        |     |         |   |           |     |             |      |              |   |               |    |              |         |  |     |  |          |   |   |         |         |   |   | (7,337 | )        |   |     | (7,337   | ) |   |          | (7,337   | )
|                           |                                  |                                                                |                                                          |         |     |         |     |         |   |            |     |             |      |               |   |               |    |               |         |  |     |   |          |   |   |          |         |   |   |        |          |   |     |          |   |  
|                           |                                  | Total comprehensive loss                                       |                                                          |         |    |         |     |         |  |            |     |             |     |               |   |               |   |               |         |  |    |   |          |   |  |          |         |   |  |        |          |   |    |          |   | $ | (114,999 | )       
|                           |                                  |                                                                |                                                          |         |     |         |     |         |   |            |     |             |      |               |   |               |    |               |         |  |     |   |          |   |   |          |         |   |   |        |          |   |     |          |   |  
|BALANCE, December 31, 2001 |                                  |                                                                | 11,176                                                   |         |     |         | 112 |         |   |            | 728 |             |      |               | 7 |               |    |               | 191,964 |  |     |   | (213,050 | ) |   |          | (12,863 | ) |   |        | (33,830  | ) |     |          |   |  
|                           |                                  | Conversion of Class B common stock to
    Class A common stock |                                                          |         | 35  |         |     |         | 0 |            |     |             | (35  | )             |   |               | 0  |               |         |  |    |   |          |   |  |          |         |   |  |        |          |   |    |          |   |   |         |         
|                           |                                  | Stock issued through employee stock purchase plan              |                                                          |         | 17  |         |     |         | 0 |            |     |             |     |               |   |               | 0  |               |         |  | 317 |   |          |   |  |          |         |   |  |        |          |   | 317 |          |   |   |         |         
|                           |                                  | Stock options exercised                                        |                                                          |         | 1   |         |     |         | 0 |            |     |             |     |               |   |               | 0  |               |         |  | 13  |   |          |   |  |          |         |   |  |        |          |   | 13  |          |   |   |         |         
|                           | COMPONENTS OF COMPREHENSIVE LOSS |                                                                |                                                          |         |     |         |     |         |   |            |     |             |      |               |   |               |    |               |         |  |     |   |          |   |   |          |         |   |   |        |          |   |     |          |   |   |         
|                           |                                  |                                                                | Net loss applicable to common shares                     |         |     |        |     |         |   |           |     |             |      |              |   |               |    |              |         |  |     |  |          |   |   | (456,458 | )       |   |   |       |          |   |     | (456,458 | ) |   | $        | (456,458 | )
|                           |                                  |                                                                | Current year effect of SFAS No. 133                      |         |     |        |     |         |   |           |     |             |      |              |   |               |    |              |         |  |     |  |          |   |   |         |         |   |   | 6,843  |          |   |     | 6,843    |   |   |          | 6,843    |  
|                           |                                  |                                                                |                                                          |         |     |         |     |         |   |            |     |             |      |               |   |               |    |               |         |  |     |   |          |   |   |          |         |   |   |        |          |   |     |          |   |  
|                           |                                  | Total comprehensive loss                                       |                                                          |         |     |         |     |         |  |            |     |             |     |               |   |               |   |               |         |  |    |   |          |   |  |          |         |   |  |        |          |   |     |          |   | $ | (449,615 | )       
|                           |                                  |                                                                |                                                          |         |     |         |     |         |   |            |     |             |      |               |   |               |    |               |         |  |     |   |          |   |   |          |         |   |   |        |          |   |     |          |   |  
|BALANCE, December 31, 2002 |                                  |                                                                | 11,229                                                   |         |     |         | 112 |         |   |            | 693 |             |      |               | 7 |               |    |               | 192,294 |  |     |   | (669,508 | ) |   |          | (6,020  | ) |   |        | (483,115 | ) |     |          |   |  
|                           |                                  | Conversion of Class B common stock to
    Class A common stock |                                                          |         | 141 |         |     |         | 1 |            |     |             | (141 | )             |   |               | (1 | )             |         |  | 0   |   |          |   |  |          |         |   |  |        |          |   |    |          |   |   |          |         
|                           |                                  | Stock issued through employee stock purchase plan              |                                                          |         | 147 |         |     |         | 2 |            |     |             |     |               |   |               |   |               |         |  | 112 |   |          |   |  |          |         |   |  |        |          |   | 114 |          |   |   |          |         
|                           |                                  | Stock options exercised                                        |                                                          |         | 5   |         |     |         | 0 |            |     |             |     |               |   |               |   |               |         |  | 17  |   |          |   |  |          |         |   |  |        |          |   | 17  |          |   |   |          |         
|                           | COMPONENTS OF COMPREHENSIVE LOSS |                                                                |                                                          |         |     |         |     |         |   |            |     |             |      |               |   |               |    |               |         |  |     |   |          |   |   |          |         |   |   |        |          |   |     |          |   |   |         
|                           |                                  |                                                                | Net loss applicable to common shares                     |         |     |        |     |         |   |           |     |             |      |              |   |               |    |              |         |  |     |  |          |   |   | (50,082  | )       |   |   |       |          |   |     | (50,082  | ) |   | $        | (50,082  | )
|                           |                                  |                                                                | Current year effect of SFAS No. 133                      |         |     |        |     |         |   |           |     |             |      |              |   |               |    |              |         |  |     |  |          |   |   |         |         |   |   | 6,236  |          |   |     | 6,236    |   |   |          | 6,236    |  
|                           |                                  |                                                                |                                                          |         |     |         |     |         |   |            |     |             |      |               |   |               |    |               |         |  |     |   |          |   |   |          |         |   |   |        |          |   |     |          |   |  
|                           |                                  |                                                                | Total comprehensive loss                                 |         |     |         |     |         |   |            |     |             |      |               |   |               |    |               |         |  |     |   |          |   |   |          |         |   |   |        |          |   |     |          |   |   | $        | (43,846  | )
|                           |                                  |                                                                |                                                          |         |     |         |     |         |   |            |     |             |      |               |   |               |    |               |         |  |     |   |          |   |   |          |         |   |   |        |          |   |     |          |   |  
|BALANCE, December 31, 2003 |                                  |                                                                | 11,522                                                   |         |     | $       | 115 |         |   |            | 552 |             |      | $             | 6 |               |    | $             | 192,423 |  |     | $ | (719,590 | ) |   | $        | 216     |   |   | $      | (526,830 | ) |     |          |   |  
|                           |                                  |                                                                |                                                          |         |     |         |     |         |   |            |     |             |      |               |   |               |    |               |         |  |     |   |          |   |   |          |         |   |   |        |          |   |     |          |   |  

The accompanying notes are an integral part of
these consolidated financial statements.

F-4



---



##### Table of Contents



RURAL CELLULAR CORPORATION AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                |                                                                                                      |                                                                   |                                        |                                                         |        |         |         |          |         |       |         |          |         |        |          |  
|----------------------------------------------- | ---------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------- | -------------------------------------- | ------------------------------------------------------- | ------ | ------- | ------- | -------- | ------- | ----- | ------- | -------- | ------- | ------ | -------- | -
|                                                |                                                                                                      |                                                                  
|                                                |                                                                                                      | For the Years Ended December 31,                                 
|                                                |                                                                                                      |                                                                  
|                                                |                                                                                                      | 2003                                                              |                                        | 2002                                                    |        | 2001   
|                                                |                                                                                                      |                                                                   |                                        |                                                         |        |        
|                                                |                                                                                                      |                                                                  
|                                                |                                                                                                      | (In thousands)                                                   
|OPERATING ACTIVITIES:                           |                                                                                                      |                                                                   |                                        |                                                         |        |         |         |          |         |       |         |         
|                                                | Net loss                                                                                             |                                                                   | $                                      | (11,205                                                 | )      |         | $       | (395,902 | )       |       | $       | (47,591  | )      
|                                                | Adjustments to reconcile to net cash provided by
    operating activities:                           |                                                                   |                                        |                                                         |        |         |         |          |         |       |         |          |        
|                                                |                                                                                                      | Depreciation and amortization                                     |                                        |                                                         | 76,429 |         |         |          | 82,497  |       |         |          | 112,577 |       
|                                                |                                                                                                      | Loss on extinguishment of debt                                    |                                        |                                                         | 6,134  |         |         |          | 3,319   |       |         |          |        |       
|                                                |                                                                                                      | Adjustments of interest rate derivatives to fair
    market value |                                        |                                                         | (2,225 | )       |         |          | 15,104  |       |         |          | 16,425  |       
|                                                |                                                                                                      | Loss on assets held for sale                                      |                                        |                                                         | 42,244 |         |         |          |        |       |         |          |        |       
|                                                |                                                                                                      | Non-cash preferred stock dividends                                |                                        |                                                         | 13,074 |         |         |          |        |       |         |          |        |       
|                                                |                                                                                                      | Cumulative change in accounting principle                         |                                        |                                                         |       |         |         |          | 417,064 |       |         |          | (1,621  | )     
|                                                |                                                                                                      | Other                                                             |                                        |                                                         | 4,013  |         |         |          | 3,209   |       |         |          | 1,964   |       
|                                                |                                                                                                      | Change in other operating elements:                               |                                        |                                                         |        |         |         |          |         |       |         |          |         |       
|                                                |                                                                                                      |                                                                   | Accounts receivable                    |                                                         |        | (14,286 | )       |          |         | (475  | )       |          |         | 849    |         
|                                                |                                                                                                      |                                                                   | Inventories                            |                                                         |        | (1,581  | )       |          |         | (7    | )       |          |         | 292    |         
|                                                |                                                                                                      |                                                                   | Other current assets                   |                                                         |        | (1,076  | )       |          |         | (809  | )       |          |         | 605    |         
|                                                |                                                                                                      |                                                                   | Accounts payable                       |                                                         |        | 4,678   |         |          |         | 6,466 |         |          |         | (7,786 | )       
|                                                |                                                                                                      |                                                                   | Advance billings and customer deposits |                                                         |        | 146     |         |          |         | 1,112 |         |          |         | 1,199  |         
|                                                |                                                                                                      |                                                                   | Accrued preferred stock dividends      |                                                         |        | 14,899  |         |          |         |      |         |          |         |       |         
|                                                |                                                                                                      |                                                                   | Other accrued liabilities              |                                                         |        | 13,277  |         |          |         | 6,744 |         |          |         | (1,410 | )       
|                                                |                                                                                                      |                                                                   |                                        |                                                         |        |         |         |          |         |       |         |         
|                                                |                                                                                                      |                                                                   |                                        | Net cash provided by operating activities               |        |         | 144,521 |          |         |       | 138,322 |          |         |        | 75,503   |  
|                                                |                                                                                                      |                                                                   |                                        |                                                         |        |         |         |          |         |       |         |         
|INVESTING ACTIVITIES:                           |                                                                                                      |                                                                   |                                        |                                                         |        |         |         |          |         |       |         |         
|                                                | Purchases of property and equipment                                                                  |                                                                   |                                        | (53,704                                                 | )      |         |         | (59,835  | )       |       |         | (45,979  | )      
|                                                | Proceeds from sale of property and equipment                                                         |                                                                   |                                        | 624                                                     |        |         |         | 462      |         |       |         |         |        
|                                                | Purchases of wireless properties, net of cash
    acquired                                           |                                                                   |                                        | (7,200                                                  | )      |         |         |         |         |       |         | (178,566 | )      
|                                                | Proceeds from sale of other long-lived assets                                                        |                                                                   |                                        |                                                        |        |         |         | 650      |         |       |         | 48,929   |        
|                                                | Other                                                                                                |                                                                   |                                        | (174                                                    | )      |         |         | 127      |         |       |         | 1,155    |        
|                                                |                                                                                                      |                                                                   |                                        |                                                         |        |         |         |          |         |       |         |         
|                                                |                                                                                                      |                                                                   |                                        | Net cash used in investing activities                   |        |         | (60,454 | )        |         |       | (58,596 | )        |         |        | (174,461 | )
|                                                |                                                                                                      |                                                                   |                                        |                                                         |        |         |         |          |         |       |         |         
|FINANCING ACTIVITIES:                           |                                                                                                      |                                                                   |                                        |                                                         |        |         |         |          |         |       |         |         
|                                                | Proceeds from issuance of common stock related to
    employee stock purchase plan and stock options |                                                                   |                                        | 131                                                     |        |         |         | 331      |         |       |         | 1,214    |        
|                                                | Proceeds from issuance of long-term debt under
    the credit agreement                              |                                                                   |                                        | 120,000                                                 |        |         |         | 62,550   |         |       |         | 349,250  |        
|                                                | Proceeds from issuance of 9 7/8% senior
    notes                                                    |                                                                   |                                        | 325,000                                                 |        |         |         |         |         |       |         |         |        
|                                                | Proceeds from issuance of 9 3/4% senior
    subordinated notes                                       |                                                                   |                                        |                                                        |        |         |         | 300,000  |         |       |         |         |        
|                                                | Repayments of long-term debt under the credit
    agreement                                          |                                                                   |                                        | (394,628                                                | )      |         |         | (380,208 | )       |       |         | (256,089 | )      
|                                                | Repayment of swaption                                                                                |                                                                   |                                        | (34,184                                                 | )      |         |         |         |         |       |         |         |        
|                                                | Proceeds from swaption                                                                               |                                                                   |                                        |                                                        |        |         |         |         |         |       |         | 8,720    |        
|                                                | Proceeds from unwinding derivative agreements                                                        |                                                                   |                                        | 2,632                                                   |        |         |         |         |         |       |         |         |        
|                                                | Payments of debt issuance costs                                                                      |                                                                   |                                        | (13,374                                                 | )      |         |         | (10,322  | )       |       |         | (4,366   | )      
|                                                | Other                                                                                                |                                                                   |                                        | (885                                                    | )      |         |         | (284     | )       |       |         | 19       |        
|                                                |                                                                                                      |                                                                   |                                        |                                                         |        |         |         |          |         |       |         |         
|                                                |                                                                                                      |                                                                   |                                        | Net cash provided by (used in) financing
    activities |        |         | 4,692   |          |         |       | (27,933 | )        |         |        | 98,748   |  
|                                                |                                                                                                      |                                                                   |                                        |                                                         |        |         |         |          |         |       |         |         
|NET INCREASE (DECREASE) IN CASH                 |                                                                                                      |                                                                   | 88,759                                 |                                                         |        |         | 51,793  |          |         |       | (210    | )       
|CASH AND CASH EQUIVALENTS, at beginning of year |                                                                                                      |                                                                   | 53,788                                 |                                                         |        |         | 1,995   |          |         |       | 2,205   |         
|                                                |                                                                                                      |                                                                   |                                        |                                                         |        |         |         |          |         |       |         |         
|CASH AND CASH EQUIVALENTS, at end of year       |                                                                                                      | $                                                                 | 142,547                                |                                                         |        | $       | 53,788  |          |         | $     | 1,995   |         
|                                                |                                                                                                      |                                                                   |                                        |                                                         |        |         |         |          |         |       |         |         

The accompanying notes are an integral part of
these consolidated financial statements.

F-5



---



##### Table of Contents



RURAL CELLULAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2003, 2002, and
2001




|   |                                     
|-- | ------------------------------------
|1. | Organization and Nature of Business:

Rural Cellular Corporation, a Minnesota
corporation, and its subsidiaries (the Company or
RCC), provide wireless communication services in
portions of the Midwest, South, Northeast and Northwest areas of
the United States. The Company operates its cellular and paging
systems under licenses granted by the Federal Communications
Commission (FCC). The Companys operations are
subject to the applicable rules and regulations of the FCC.

At December 31, 2003, the Company had
working capital of $86.1 million and a shareholders
deficit of $(526.8) million.

The Companys cash requirements will
increase, due to the anticipated cash resources required to
upgrade its network technologies. The Company expects to meet
these obligations through its existing cash, cash flow from
operations, and borrowings under the Companys credit
agreement.



|   |                   
|-- | ------------------
|2. | Strategic History:

RCC was founded in 1991 through the combination
of five partnerships holding different cellular licenses in
Minnesota. Since then, it has completed the following
acquisitions (the Acquisitions):



| |   |                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In May 1997, the Company acquired wireless
    operations and licenses covering portions of Maine for
    approximately $85.7 million.                                                                                                                                                                                                                                               
|
| |  | In July 1998, the Company acquired wireless
    operations and licenses covering all of Vermont and portions of
    Massachusetts, New Hampshire, and New York for
    approximately $262.5 million.                                                                                                                                                                                 
|
| |  | In August 1998, the Company acquired wireless
    operations and a license in western Maine for approximately
    $7.5 million.                                                                                                                                                                                                                                                      
|
| |  | In February 1999, the Company acquired wireless
    operations and a license in South Dakota for approximately
    $11.9 million.                                                                                                                                                                                                                                                    
|
| |  | In April 2000, the Company acquired wireless
    operations and licenses covering portions of Alabama, Kansas,
    Mississippi, Oregon, and Washington for approximately
    $1.265 billion.                                                                                                                                                                                         
|
| |  | In January 2001, the Company acquired wireless
    operations and licenses in the Portsmouth, New Hampshire service
    area for approximately $194.3 million. In the acquisition,
    the Company also acquired an incumbent local exchange carrier
    (ILEC) business of the seller. The Company sold the
    ILEC business in October 2001 for approximately
    $35.5 million.



| |                     
| | --------------------
| | Accounting Treatment

The purchase prices for the Acquisitions were
allocated to the net assets based on their estimated fair values
and the excess was allocated to licenses and goodwill. The
Acquisitions were accounted for under the purchase method of
accounting; accordingly, operating results for each acquired
business have been included from the date of acquisition.



|   |                          
|-- | -------------------------
|3. | Stock Compensation Plans:

The stock compensation plan (the
Plan) for employees authorizes the issuance of up to
2,400,000 shares of Class A common stock in the form
of stock options, stock appreciation rights, or other
stock-based awards. The Plan provides that the exercise price of
any option shall not be less than 85% of the fair market value
of the Class A common stock as of the date of the grant
(100% in the case of incentive stock

F-6



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##### Table of Contents



RURAL CELLULAR CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)

options). Options and other awards granted under
the Plan vest and become exercisable as determined by the Board
of Directors or a stock option committee.

The stock option plan for nonemployee directors
authorizes the issuance of up to 400,000 shares of
Class A common stock. The plan provides that the option
price shall not be less than the fair market value of the
Class A common stock outstanding on the date of grant. The
options vest and become exercisable one year following the date
of grant and expire five years thereafter.

Under the employee stock purchase plan, employees
who satisfy certain length of service and other criteria are
permitted to purchase shares of Class A common stock at 85%
of the fair market value of the Class A common stock on
January 1 or December 31 of each year, whichever is lower.
The number of shares authorized to be issued under the plan is
750,000.

The following table summarizes option and
purchase plan activity through December 31, 2003:

|                                            |                                                          |                |         |                   |   |                |         |          |   |  |         |          |  
|------------------------------------------- | -------------------------------------------------------- | -------------- | ------- | ----------------- | - | -------------- | ------- | -------- | - |  | ------- | -------- | -
|                                            |                                                          | Nonemployee    |         | Stock             |   | Employee Stock
|                                            |                                                          | Directors Plan |         | Compensation Plan |   | Purchase Plan 
|                                            |                                                          |                |         |                   |   |               
|Remaining to be issued at December 31, 2002 |                                                          |                | 179,500 |                   |   |                | 331,094 |          |   |  | 39      |         
|                                            |                                                          |                |         |                   |   |                |         |          |   |  |         |         
|                                            | Additional options authorized through plan
    amendment |                |         |                  |   |                |         |         |   |  |         | 400,000  |  
|                                            | Options granted                                          |                |         | (31,500           | ) |                |         | (338,000 | ) |  |         | (166,329 | )
|                                            | Options cancelled                                        |                |         | 31,500            |   |                |         | 156,194  |   |  |         |         |  
|                                            |                                                          |                |         |                   |   |                |         |          |   |  |         |         
|Remaining to be issued at December 31, 2003 |                                                          |                | 179,500 |                   |   |                | 149,288 |          |   |  | 233,710 |         
|                                            |                                                          |                |         |                   |   |                |         |          |   |  |         |         

Options outstanding for employees and
nonemployees as of December 31, 2003 have exercise prices
ranging between $0.76 and $79.25. Information related to stock
options is as follows:

|                                               |           |        |           |                |   |        |       |                  |  |        |           |                |   |   |       |       |  |  |           |         |   |   |       |       | 
|---------------------------------------------- | --------- | ------ | --------- | -------------- | - | ------ | ----- | ---------------- |  | ------ | --------- | -------------- | - | - | ----- | ----- |  |  | --------- | ------- | - | - | ----- | ----- | 
|                                               |           |        |           |                |   |       
|                                               |           | 2003   |           | 2002           |   | 2001  
|                                               |           |        |           |                |   |       
|                                               |           |        |           | Weighted       |   |        |       | Weighted         |  |        |           | Weighted      
|                                               |           |        |           | Average        |   |        |       | Average Exercise |  |        |           | Average       
|                                               |           | Shares |           | Exercise Price |   | Shares |       | Price            |  | Shares |           | Exercise Price
|                                               |           |        |           |                |   |        |       |                  |  |        |           |               
|Outstanding, beginning of period               |           |        | 1,908,084 |                |   | $      | 17.40 |                  |  |        | 1,588,734 |                |   | $ | 26.78 |       |  |  | 1,266,422 |         |   | $ | 25.80 |      
|                                               |           |        |           |                |   |        |       |                  |  |        |           |                |   |   |       |       |  |  |           |         |   |   |       |      
|                                               | Granted   |        |           | 369,500        |   |        |       | 1.23             |  |        |           | 503,550        |   |   |       | 4.43  |  |  |           | 477,006 |   |   |       | 30.68 | 
|                                               | Exercised |        |           | (5,120         | ) |        |       | 3.37             |  |        |           | (1,450         | ) |   |       | 8.99  |  |  |           | (70,844 | ) |   |       | 11.05 | 
|                                               | Cancelled |        |           | (187,694       | ) |        |       | 16.72            |  |        |           | (182,750       | ) |   |       | 63.23 |  |  |           | (83,850 | ) |   |       | 46.90 | 
|                                               |           |        |           |                |   |        |       |                  |  |        |           |                |   |   |       |       |  |  |           |         |   |   |       |      
|Outstanding, end of period                     |           |        | 2,084,770 |                |   | $      | 14.64 |                  |  |        | 1,908,084 |                |   | $ | 17.40 |       |  |  | 1,588,734 |         |   | $ | 26.78 |      
|                                               |           |        |           |                |   |        |       |                  |  |        |           |                |   |   |       |       |  |  |           |         |   |   |       |      
|Exercisable, end of period                     |           |        | 1,143,970 |                |   | $      | 18.92 |                  |  |        | 1,015,784 |                |   | $ | 19.12 |       |  |  | 700,781   |         |   | $ | 18.33 |      
|                                               |           |        |           |                |   |        |       |                  |  |        |           |                |   |   |       |       |  |  |           |         |   |   |       |      
|Weighted average fair value of options granted |           |        |           |                |   | $      | 1.09  |                  |  |        |           |                |   | $ | 3.85  |       |  |  |           |         |   | $ | 24.67 |      
|                                               |           |        |           |                |   |        |       |                  |  |        |           |                |   |   |       |       |  |  |           |         |   |   |       |      

F-7



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##### Table of Contents



RURAL CELLULAR CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)

The following table summarizes certain
information concerning currently outstanding and exercisable
options:

|                |  |                    |           |                  |  |                  |   |                    |  |                  |       |  |  |  |           |  |  |   |       | 
|--------------- |  | ------------------ | --------- | ---------------- |  | ---------------- | - | ------------------ |  | ---------------- | ----- |  |  |  | --------- |  |  | - | ----- | 
|                |  |                    |           | Weighted Average |  |                  |   |                    |  |                 
|Exercise Price  |  |                    |           | Remaining        |  | Weighted Average |   |                    |  | Weighted Average
|Range           |  | Number Outstanding |           | Contractual Life |  | Exercise Price   |   | Number Exercisable |  | Exercise Price  
|                |  |                    |           |                  |  |                  |   |                    |  |                 
|$00.76 - $ 9.99 |  |                    | 1,094,773 |                  |  |                  | 7 |                    |  | $                | 4.19  |  |  |  | 407,353   |  |  | $ | 7.52  | 
|$10.00 - $19.99 |  |                    | 452,525   |                  |  |                  | 4 |                    |  | $                | 13.76 |  |  |  | 413,825   |  |  | $ | 13.92 | 
|$20.00 - $29.99 |  |                    | 276,800   |                  |  |                  | 7 |                    |  | $                | 27.07 |  |  |  | 107,360   |  |  | $ | 27.22 | 
|$30.00 - $39.99 |  |                    | 161,322   |                  |  |                  | 6 |                    |  | $                | 35.10 |  |  |  | 135,822   |  |  | $ | 35.59 | 
|$40.00 - $49.99 |  |                    | 16,500    |                  |  |                  | 6 |                    |  | $                | 43.25 |  |  |  | 13,200    |  |  | $ | 43.25 | 
|$50.00 - $59.99 |  |                    | 10,300    |                  |  |                  | 6 |                    |  | $                | 56.49 |  |  |  | 8,180     |  |  | $ | 56.61 | 
|$60.00 - $69.99 |  |                    | 36,750    |                  |  |                  | 2 |                    |  | $                | 68.25 |  |  |  | 36,750    |  |  | $ | 68.25 | 
|$70.00 - $79.25 |  |                    | 35,800    |                  |  |                  | 6 |                    |  | $                | 76.93 |  |  |  | 21,480    |  |  | $ | 76.93 | 
|                |  |                    |           |                  |  |                  |   |                    |  |                  |       |  |  |  |           |  |  |   |       | 
|$00.76 - $79.25 |  |                    | 2,084,770 |                  |  |                  | 6 |                    |  | $                | 14.64 |  |  |  | 1,143,970 |  |  | $ | 18.92 | 

The Company accounts for stock options under
Accounting Principles Board Opinion No. 25, under which no
compensation cost has been recognized. Had compensation cost for
the Companys plans been determined consistent with
Statement of Financial Accounting Standards (SFAS)
No. 148 and SFAS No. 123, the Companys
results of operations and net loss per share would have been
adjusted to the following pro forma amounts:

|                                      |                                 |                                           |   |         |   |      |   |          |   |  |   |          |  
|------------------------------------- | ------------------------------- | ----------------------------------------- | - | ------- | - | ---- | - | -------- | - |  | - | -------- | -
|                                      |                                 |                                          
|                                      |                                 | Years Ended December 31,                 
|                                      |                                 |                                          
|                                      |                                 | 2003                                      |   | 2002    |   | 2001
|                                      |                                 |                                           |   |         |   |     
|                                      |                                 |                                          
|                                      |                                 | (In thousands, except for per share data)
|Net loss applicable to common shares: |                                 |                                           |   |         |   |      |   |          |   |  |   |         
|                                      | As reported                     |                                           | $ | (50,082 | ) |      | $ | (456,458 | ) |  | $ | (102,136 | )
|                                      | Fair value compensation expense |                                           |   | (3,121  | ) |      |   | (5,290   | ) |  |   | (5,741   | )
|                                      |                                 |                                           |   |         |   |      |   |          |   |  |   |         
|                                      | Pro forma                       |                                           | $ | (53,203 | ) |      | $ | (461,748 | ) |  | $ | (107,877 | )
|                                      |                                 |                                           |   |         |   |      |   |          |   |  |   |         
|Net loss per basic and diluted share: |                                 |                                           |   |         |   |      |   |          |   |  |   |         
|                                      | As reported                     |                                           | $ | (4.15   | ) |      | $ | (38.29   | ) |  | $ | (8.61    | )
|                                      | Fair value compensation expense |                                           |   | (0.26   | ) |      |   | (0.44    | ) |  |   | (0.48    | )
|                                      |                                 |                                           |   |         |   |      |   |          |   |  |   |         
|                                      | Pro forma                       |                                           | $ | (4.41   | ) |      | $ | (38.73   | ) |  | $ | (9.09    | )
|                                      |                                 |                                           |   |         |   |      |   |          |   |  |   |         

The fair value of each option grant is estimated
on the date of the grant using the Black-Scholes option-pricing
model with the following assumptions used for grants in 2003,
2002, and 2001: expected volatility of 94.7%, 88.0%, and 67.7%,
respectively; risk-free interest rates of 4.39% in 2003, 4.25%
in 2002, and 7.25% in 2001; expected life of 10 years and
no expected dividend yield. The per share weighted average fair
value of options granted in 2003, 2002, and 2001 was $1.09,
$3.85, and $24.67, respectively.



|   |                                                
|-- | -----------------------------------------------
|4. | Summary of Significant Accounting
    Policies:



| |                            
| | ---------------------------
| | Principles of Consolidation

The consolidated financial statements include the
accounts of RCC and its wholly-owned subsidiaries and its
majority owned joint venture, Wireless Alliance, LLC
(Wireless Alliance). All significant intercompany
balances and transactions have been eliminated.

F-8



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##### Table of Contents



RURAL CELLULAR CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)



| |                                  
| | ---------------------------------
| | Revenue Recognition 
    Service

The Company recognizes service revenue based upon
minutes of use processed and contracted fees, net of credits and
adjustments for service discounts. As a result of our billing
cycle cut-off times, the Company is required to make estimates
for service revenue earned, but not yet billed, at the end of
each month. These estimates are based primarily upon historical
minutes of use processed. The Company follows this method since
reasonable, dependable estimates of the revenue can be made.
Actual billing cycle results and related revenue may vary from
the results estimated at the end of each quarter, depending on
customer usage and rate plan mix. For customers who prepay their
monthly access, we match the recognition of service revenue to
their corresponding usage.

The Company receives Universal Service Fund
(USF) revenue reflecting its eligible
telecommunications carrier (ETC) status in certain
states. How the Company recognizes support revenue depends on
the level of its collection experience in each ETC qualified
state. Where the Company does not have adequate experience to
determine the time required for reimbursement, it recognizes
revenue upon cash receipt. Where the Company does have adequate
experience as to the amount and timing of the receipt of these
funds, it recognizes revenue on an accrual basis. Additionally,
the Company includes the pass-through fees it charges its
customers to support the USF as service revenue.



| |                                                             
| | ------------------------------------------------------------
| | Revenue Recognition  Roaming
    Revenue and Incollect Cost

Roaming revenue and incollect cost information is
provided to us primarily through a third party centralized
clearinghouse. From the clearinghouse the Company receives
monthly settlement data. The Company bases its accrual of
roaming revenue and incollect expense on these clearinghouse
reports. The Company follows this method since reasonably
dependable estimates of roaming revenue and incollect cost can
be made.



| |                 
| | ----------------
| | Cash Equivalents

The Company considers all highly liquid
investments with an original maturity of three months or less to
be cash equivalents.



| |            
| | -----------
| | Inventories

Inventories consist of cellular telephone
equipment, pagers, and accessories and are stated at the lower
of cost, determined using the average cost method, or market.
Market value is determined using replacement cost.



| |                       
| | ----------------------
| | Property and Equipment

Property and equipment are recorded at cost.
Additions, improvements, or major renewals are capitalized,
while expenditures that do not enhance or extend the
assets useful life are charged to operating expenses as
incurred. Depreciation is computed using the straight-line
method based on the estimated useful life of the asset.

F-9



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##### Table of Contents



RURAL CELLULAR CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)

The components of property and equipment and the
useful lives of the Companys assets are as follows as of
December 31 (in thousands):

|                                |  |      |          |      |  |              |          |   |  |  |              | 
|------------------------------- |  | ---- | -------- | ---- |  | ------------ | -------- | - |  |  | ------------ | 
|                                |  | 2003 |          | 2002 |  | Useful Lives
|                                |  |      |          |      |  |             
|Land                            |  | $    | 7,200    |      |  | $            | 7,204    |   |  |  | N/A          | 
|Building and towers             |  |      | 87,496   |      |  |              | 93,335   |   |  |  | 15-39 Years  | 
|Equipment                       |  |      | 275,867  |      |  |              | 255,370  |   |  |  | 2-10 Years   | 
|Phone service equipment         |  |      | 5,235    |      |  |              | 24,082   |   |  |  | 19-24 Months | 
|Furniture and fixtures          |  |      | 25,314   |      |  |              | 22,305   |   |  |  | 3-10 Years   | 
|Assets under construction       |  |      | 23,364   |      |  |              | 10,869   |   |  |  | N/A          | 
|                                |  |      |          |      |  |              |          |   |  |  |              | 
|                                |  |      | 424,476  |      |  |              | 413,165  |   |  |  |              | 
|Less  accumulated depreciation |  |      | (198,274 | )    |  |              | (172,629 | ) |  |  |              | 
|                                |  |      |          |      |  |              |          |   |  |  |              | 
|Property and equipment  net    |  | $    | 226,202  |      |  | $            | 240,536  |   |  |  |              | 
|                                |  |      |          |      |  |              |          |   |  |  |              | 

The Companys network construction
expenditures are recorded as assets under construction until the
system or assets are placed in service and ready for their
intended use, at which time the assets are transferred to the
appropriate property and equipment category. During the years
ended December 31, 2003, 2002 and 2001, as a component of
assets under construction, the Company capitalized
$1.9 million, $1.1 million, and $1.7 million,
respectively, in salaries of the Companys engineering
employees. The Company capitalized interest cost in 2003 of
$204,000.

The Company determined that a reduction in the
useful lives of its TDMA equipment was warranted based on the
projected transition of network traffic. The following
summarizes the current and expected useful lives for TDMA
equipment acquired between January 1, 2002 and
December 31, 2004:

|                                   |  |             |         | 
|---------------------------------- |  | ----------- | ------- | 
|Year of TDMA Equipment Acquisition |  | Useful Life
|                                   |  |            
|2002                               |  |             | 6 years | 
|2003                               |  |             | 5 years | 
|2004                               |  |             | 4 years | 

At December 31, 2003, accumulated
depreciation on phone service equipment was approximately
$5.2 million as compared to $15.3 million at
December 31, 2002. Phone service equipment depreciation
expense for the year ended December 31, 2003 was
$7.5 million as compared to $15.9 million in 2002. The
gross carrying value of phone service equipment disposals in
2003 was $18.8 million as compared to $21.2 million in
2002.

Total depreciation expense for the year ended
December 31, 2003 was $56.2 million,
$61.5 million in 2002, and $49.3 million in 2001.



| |                                         
| | ----------------------------------------
| | Licenses and Other Intangible
    Assets

Licenses consist of the cost of acquiring paging
licenses, the value assigned to the Wireless Alliance personal
communications services (PCS) licenses, other PCS
licenses, local multipoint distribution service
(LMDS) licenses, and the value assigned to cellular
licenses acquired through acquisitions. Other intangibles,
resulting primarily from acquisitions, include the value
assigned to customer lists and goodwill. Amortization is
computed using the straight-line method based on the estimated
useful life of the asset. Customer lists are the only intangible
asset with a definitive useful life; all others are considered
to have indefinite useful lives.

F-10



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##### Table of Contents



RURAL CELLULAR CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)

The components of licenses and other intangible
assets are as follows as of December 31 (in thousands):

|                         |                |          |         |              |           |          |         |          |          |              |         |              |         |   |         |         |           |   |         |         |          |   |         |         |           | 
|------------------------ | -------------- | -------- | ------- | ------------ | --------- | -------- | ------- | -------- | -------- | ------------ | ------- | ------------ | ------- | - | ------- | ------- | --------- | - | ------- | ------- | -------- | - | ------- | ------- | --------- | 
|                         |                |          |         |             
|                         |                | 2003     |         | 2002        
|                         |                |          |         |             
|                         |                | Gross    |         |              |           | Net      |         | Gross    |          |             
|                         |                | Carrying |         | Accumulated  |           | Carrying |         | Carrying |          | Accumulated  |         | Net Carrying
|                         |                | Value    |         | Amortization |           | Value    |         | Value    |          | Amortization |         | Value       
|                         |                |          |         |              |           |          |         |          |          |              |         |             
|Licenses                 |                | $        | 610,280 |              |           | $        | (46,997 | )        |          | $            | 563,283 |              |         | $ | 668,985 |         |           | $ | (50,409 | )       |          | $ | 618,576 |        
|Other intangible assets: |                |          |         |              |           |          |         |          |          |              |         |              |         |   |         |         |           |   |         |         |          |   |         |        
|                         | Goodwill       |          |         | 392,269      |           |          |         | (31,473  | )        |              |         | 360,796      |         |   |         | 402,165 |           |   |         | (32,336 | )        |   |         | 369,829 |          
|                         | Customer lists |          |         | 142,616      |           |          |         | (78,041  | )        |              |         | 64,575       |         |   |         | 159,030 |           |   |         | (66,282 | )        |   |         | 92,748  |          
|                         |                |          |         |              |           |          |         |          |          |              |         |              |         |   |         |         |           |   |         |         |          |   |         |        
|                         |                | Total    |         | $            | 1,145,165 |          |         | $        | (156,511 | )            |         | $            | 988,654 |   |         | $       | 1,230,180 |   |         | $       | (149,027 | ) |         | $       | 1,081,153 | 
|                         |                |          |         |              |           |          |         |          |          |              |         |              |         |   |         |         |           |   |         |         |          |   |         |        

Customer list, goodwill and license amortization
expense for the years ended December 31, 2003, 2002 and
2001 was approximately $20.0 million, $20.6 million,
and $62.8 million, respectively. Customer list amortization
expense is estimated to be approximately $18.2 million for
2004 through 2006, $7.9 million in 2007 and
$2.1 million in 2008. As of December 31, 2003,
licenses, goodwill, and customer lists of $34.2 million,
$4.9 million, and $4.5 million, respectively, net of
accumulated amortization, were included within assets held for
sale.

F-11



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##### Table of Contents



RURAL CELLULAR CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)

The effect of the adoption of
SFAS No. 142 on the reported net loss and basic and
diluted loss per share for all periods presented in the
accompanying statements of operations is as follows (in
thousands, except per share amounts):

|                                     |                                                                   |                                        |         |                              |   |      |         |         |   |      |          |         |   |   |         |         |   |   |          |          |   |   |          |         |  
|------------------------------------ | ----------------------------------------------------------------- | -------------------------------------- | ------- | ---------------------------- | - | ---- | ------- | ------- | - | ---- | -------- | ------- | - | - | ------- | ------- | - | - | -------- | -------- | - | - | -------- | ------- | -
|                                     |                                                                   |                                        |         |                              |   |      |         |        
|                                     |                                                                   | (Before Cumulative Change in           |         |                              |   |      |         |        
|                                     |                                                                   | Accounting Principle and Including the |         |                             
|                                     |                                                                   | Effect of Preferred Stock Dividends)   |         | (As Reported)               
|                                     |                                                                   | For Years Ended December 31,           |         | For Years Ended December 31,
|                                     |                                                                   |                                        |         |                             
|                                     |                                                                   | 2003                                   |         | 2002                         |   | 2001 |         | 2003    |   | 2002 |          | 2001   
|                                     |                                                                   |                                        |         |                              |   |      |         |         |   |      |          |        
|Net loss applicable to common shares |                                                                   | $                                      | (50,082 | )                            |   | $    | (39,394 | )       |   | $    | (103,757 | )       |   | $ | (50,082 | )       |   | $ | (456,458 | )        |   | $ | (102,136 | )      
|                                     |                                                                   |                                        |         |                              |   |      |         |         |   |      |          |         |   |   |         |         |   |   |          |          |   |   |          |        
|                                     | Add back: goodwill amortization                                   |                                        |         |                             |   |      |         |        |   |      |          | 16,690  |   |   |         |        |   |   |          |         |   |   |          | 16,690  |  
|                                     | Add back: license amortization                                    |                                        |         |                             |   |      |         |        |   |      |          | 26,512  |   |   |         |        |   |   |          |         |   |   |          | 26,512  |  
|                                     |                                                                   |                                        |         |                              |   |      |         |         |   |      |          |         |   |   |         |         |   |   |          |          |   |   |          |        
|                                     | Adjusted net loss applicable to common shares                     |                                        | $       | (50,082                      | ) |      | $       | (39,394 | ) |      | $        | (60,555 | ) |   | $       | (50,082 | ) |   | $        | (456,458 | ) |   | $        | (58,934 | )
|                                     |                                                                   |                                        |         |                              |   |      |         |         |   |      |          |         |   |   |         |         |   |   |          |          |   |   |          |        
|                                     | Weighted average common shares outstanding, basic
    and diluted |                                        |         | 12,060                       |   |      |         | 11,920  |   |      |          | 11,865  |   |   |         | 12,060  |   |   |          | 11,920   |   |   |          | 11,865  |  
|Basic and diluted loss per share:    |                                                                   |                                        |         |                              |   |      |         |         |   |      |          |         |   |   |         |         |   |   |          |          |   |   |          |        
|                                     | Net loss per basic and diluted share                              |                                        | $       | (4.15                        | ) |      | $       | (3.30   | ) |      | $        | (8.74   | ) |   | $       | (4.15   | ) |   | $        | (38.29   | ) |   | $        | (8.61   | )
|                                     |                                                                   |                                        |         |                              |   |      |         |         |   |      |          |         |   |   |         |         |   |   |          |          |   |   |          |        
|                                     | Add back: goodwill amortization                                   |                                        |         |                             |   |      |         |        |   |      |          | 1.41    |   |   |         |        |   |   |          |         |   |   |          | 1.41    |  
|                                     | Add back: license amortization                                    |                                        |         |                             |   |      |         |        |   |      |          | 2.23    |   |   |         |        |   |   |          |         |   |   |          | 2.23    |  
|                                     |                                                                   |                                        |         |                              |   |      |         |         |   |      |          |         |   |   |         |         |   |   |          |          |   |   |          |        
|                                     | Adjusted loss per share (basic and diluted)                       |                                        | $       | (4.15                        | ) |      | $       | (3.30   | ) |      | $        | (5.10   | ) |   | $       | (4.15   | ) |   | $        | (38.29   | ) |   | $        | (4.97   | )
|                                     |                                                                   |                                        |         |                              |   |      |         |         |   |      |          |         |   |   |         |         |   |   |          |          |   |   |          |        

The changes in carrying amount of goodwill and
licenses for the year ended December 31, 2003 are as
follows (in thousands):

|                                |                                    |          |         |          |   |       |         |        |   |   |         |         |  
|------------------------------- | ---------------------------------- | -------- | ------- | -------- | - | ----- | ------- | ------ | - | - | ------- | ------- | -
|                                |                                    | Licenses |         | Goodwill |   | Total
|                                |                                    |          |         |          |   |      
|Balance as of December 31, 2002 |                                    | $        | 618,576 |          |   | $     | 369,829 |        |   | $ | 988,405 |        
|                                | Acquisition                        |          |         | 7,200    |   |       |         |       |   |   |         | 7,200   |  
|                                | Impairment on assets held for sale |          |         | (28,318  | ) |       |         | (4,093 | ) |   |         | (32,411 | )
|                                | Reclass to assets held for sale    |          |         | (34,175  | ) |       |         | (4,940 | ) |   |         | (39,115 | )
|                                |                                    |          |         |          |   |       |         |        |   |   |         |        
|Balance as of December 31, 2003 |                                    | $        | 563,283 |          |   | $     | 360,796 |        |   | $ | 924,079 |        
|                                |                                    |          |         |          |   |       |         |        |   |   |         |        

The Company reviews goodwill and indefinite-lived
intangible assets for impairment based on the requirements of
SFAS No. 142, Goodwill and Other Intangible
Assets. In accordance with this statement, goodwill is
tested for impairment at the reporting unit level on an annual
basis as of October 1st or on an interim basis if an event
occurs or circumstances change that would reduce the fair value
of a reporting unit below its carrying value. These events or
circumstances would include a significant change in the business
climate, legal factors, operating performance indicators,
competition, sale or disposition of a significant portion of the
business or other factors. In analyzing goodwill for potential
impairment, we use projections of future cash flows from the
reporting units. These projections are based on our views of
growth rates and anticipated

F-12



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##### Table of Contents



RURAL CELLULAR CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)

future economic conditions and the appropriate
discount rates relative to risk and estimates of residual
values. The Company believes that its estimates are consistent
with assumptions that marketplace participants would use in
their estimates of fair value. If changes in growth rates,
future economic conditions or discount rates, and estimates of
terminal values were to occur, goodwill may become impaired.

Additionally, impairment tests for
indefinite-lived intangible assets, consisting of FCC licenses,
are required to be performed on an annual basis or on an interim
basis if an event occurs or circumstances change that would
indicate the asset might be impaired. In accordance with
Emerging Issues Task Force (EITF 02-7), Unit
of Accounting for Testing of Impairment of Indefinite-Lived
Intangible Assets,impairment tests for FCC licenses are
performed on an aggregate basis. The Company utilizes a fair
value approach, incorporating discounted cash flows, to complete
the test. This approach determines the fair value of the FCC
licenses, using start-up model assumptions, and accordingly
incorporates cash flow assumptions regarding the investment in a
network, the development of distribution channels, and other
inputs for making the business operational. As these inputs are
included in determining free cash flows of the business, the
present value of the free cash flows is attributable to the
licenses using assumptions of our weighted average costs of
capital and the long-term rate of growth for our business. The
Company believes that its estimates are consistent with
assumptions that marketplace participants would use in their
estimates of fair value. If any of the cash flow assumptions
were to change, FCC licenses may become impaired.

Following adoption of SFAS No. 142 on
January 1, 2002, the Company completed a transitional
impairment test for both our goodwill and licenses and
determined that there were impairments of $5.0 million and
$412.0 million, respectively. The Company used a fair value
approach, using primarily discounted cash flows, to complete the
transitional impairment tests. In accordance with
SFAS No. 142, the impairment charges were recorded as
a cumulative change in accounting principle in our consolidated
financial statements for the first quarter of 2002. No
additional impairment occurred on the October 1, 2002
assessment date.

RCC completed its annual impairment test for its
goodwill and licenses for 2003 and did not identify any
impairment of goodwill or FCC licenses (excluding the impairment
on assets held for sale).



| |                             
| | ----------------------------
| | Deferred Debt Issuance Costs

Deferred debt issuance costs relate to the credit
agreement, senior notes, senior subordinated notes and certain
preferred stock issuances (see Note 5). These costs are
being amortized over the respective instruments terms. If
the related debt issuance is extinguished prior to maturity, the
debt issuance costs are immediately expensed.



| |             
| | ------------
| | Other Assets

Other assets primarily consist of costs related
to Wireless Alliance spectrum relocation, restricted investments
and investments in unconsolidated affiliates. Restricted
investments represent the Companys investments in the
stock of CoBank and are stated at cost, which approximates fair
value. The restricted investments were purchased pursuant to the
terms of a loan agreement and are restricted as to withdrawal.
Investments in unconsolidated affiliates are accounted for using
the equity method and represent the Companys ownership
interests in Cellular 2000, Inc. Cellular 2000, Inc. is an
entity organized to own the Cellular 2000 trade name and the
related trademark.



| |             
| | ------------
| | Income Taxes

The Company follows the liability method of
accounting for income taxes, and deferred income taxes are based
on the estimated future tax effects of differences between the
financial statement and tax bases of assets and liabilities
based on enacted tax laws.

F-13



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##### Table of Contents



RURAL CELLULAR CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)



| |                          
| | -------------------------
| | Net Loss Per Common Share

Basic EPS is computed by dividing net loss by the
weighted average number of shares outstanding during the year.
Diluted EPS is computed by including dilutive common stock
equivalents with the basic weighted average shares outstanding.
Potential common shares of 2,084,770, 1,908,084, and 1,588,734,
related to the Companys outstanding stock options were
excluded from the computation of diluted loss per share for the
years ended December 31, 2003, 2002, and 2001,
respectively, as inclusion of these shares would have been
antidilutive.



| |                   
| | ------------------
| | Comprehensive Loss

The Company follows the provisions of
SFAS No. 130, Reporting Comprehensive Income,
which established standards for reporting and display of
comprehensive income and its components. Comprehensive income
(loss) reflects the change in equity of a business enterprise
during a period from transactions and other events and
circumstances from nonowner sources. For the Company,
comprehensive loss represents net losses and the deferred gains
on derivative instruments. In accordance with
SFAS No. 130, the Company has chosen to disclose
comprehensive loss in the accompanying consolidated statement of
shareholders (deficit) equity.



| |                                       
| | --------------------------------------
| | Business and Credit
    Concentrations

RCC operates in one business segment, the
operation of wireless communication systems in the United
States. During 2003 and 2002, AT&T Wireless
(AWE) accounted for 10.0% and 10.1% of our total
revenue, respectively. During 2001, no single customer accounted
for more than 10% of our total revenue.



| |                                    
| | -----------------------------------
| | Impairment of Long-lived
    Assets

The Company reviews long-lived assets, consisting
primarily of property, plant and equipment and intangible assets
with finite lives, for impairment in accordance with
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. In analyzing potential
impairment, we use projections of future cash flows from the
assets. These projections are based on our views of growth rates
for the related business and anticipated future economic
conditions and the appropriate discount rates relative to risk
and estimates of residual values. The Company believes that its
estimates are consistent with assumptions that marketplace
participants would use in their estimates of fair value. If
changes in growth rates, future economic conditions or discount
rates and estimates of terminal values were to occur, long-lived
assets may become impaired. Associated with the property
exchange with AWE), the Company recorded a noncash loss on
assets held for sale of $42.2 million (included in
operating expenses) in 2003. This charge may require adjustment
in future periods if the estimated fair value changes before the
assets are transferred at closing.



| |                 
| | ----------------
| | Use of Estimates

The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenue and expenses during the reported periods. Ultimate
results could differ from those estimates.



| |                  
| | -----------------
| | Reclassifications

Certain reclassifications have been made to prior
years consolidated financial statements in order to
conform to the 2003 presentation. Such reclassifications had no
effect on total shareholders deficit, net loss applicable
to common shares or net loss per share as previously reported.

F-14



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##### Table of Contents



RURAL CELLULAR CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)

The statement of operations for prior periods
presented has been reclassified to reflect billings to our
customers for the USF and other regulatory fees as Service
revenue and the related payments into the associated
regulatory funds as Selling, general and administrative
expense. Operating income for all prior periods has been
unaffected. The amounts reclassified for 2002 and 2001 were
$4.9 million and $4.5 million, respectively.



| |                                              
| | ---------------------------------------------
| | Recently Issued Accounting
    Pronouncements



| |                             
| | ----------------------------
| | Asset Retirement Obligations

The Company has adopted SFAS No. 143,
Accounting for Asset Retirement Obligations(SFAS No. 143), effective
January 1, 2003. This statement relates to the costs of
closing facilities and removing assets. SFAS No. 143
requires entities to record the fair value of a legal liability
for an asset retirement obligation (ARO) in the
period it is incurred if a reasonable estimate of fair value can
be made. This cost is initially capitalized and amortized over
the remaining life of the underlying asset. Once the obligation
is ultimately settled, any difference between the final cost and
the recorded liability is recognized as a gain or loss. For RCC,
an ARO includes contractual obligations for costs associated
with removing component equipment from cell sites that reside
upon leased property. The adoption of SFAS No. 143 did
not result in a significant impact to our operating results for
the year ended December 31, 2003.



| |                                                                                                     
| | ----------------------------------------------------------------------------------------------------
| | Accounting for Certain Financial Instruments
    with Characteristics of Both Liabilities and Equity

In May 2003, the FASB issued
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and
Equity. SFAS No. 150 establishes standards for how
an issuer classifies and measures certain financial instruments
with characteristics of both liabilities and equity.
SFAS No. 150 requires that an issuer classify a
financial instrument with certain defined characteristics as a
liability (or an asset in some circumstances). The requirements
of this statement apply to an issuers classification and
measurement of freestanding financial instruments, including
those that comprise more than one option or forward contract.
SFAS No. 150 is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period
beginning after June 15, 2003. We adopted
SFAS No. 150 on July 1, 2003.

Carrying values on the 11 3/8% Senior
Exchangeable and 12 1/4% Junior Exchangeable Preferred
securities, as a result of adopting SFAS No. 150, were
reclassified into Long-Term Liabilities (see Note 5). The
dividend expense related to these instruments, which was
previously reported as a component of Preferred Stock
Dividend in our statements of operations, is now
classified as interest expense within Interest
Expense. For the six months ended December 31, 2003,
dividends on these instruments were $28.0 million. Accrued
dividends payable of $3.4 million as of December 31,
2003 are included in Accrued Interest. In addition,
$7.3 million of unamortized stock issuance costs related to
these instruments was reclassified to Deferred Debt
Issuance Costs upon adoption. SFAS No. 150 does
not permit reclassification of prior year amounts to conform to
the current year presentation. Based on SFAS No. 150
guidelines, our Class M and Class T Preferred Stock do
not meet the characteristics of a liability and will continue to
be presented between liabilities and equity on our balance sheet.



| |                                                                         
| | ------------------------------------------------------------------------
| | Accounting Guidance on Derivative Instruments
    and Hedging Activities

In April 2003, the FASB issued
SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities(SFAS No. 149), which amends and
clarifies the accounting guidance on derivative instruments and
hedging activities that fall within the scope of
SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities.SFAS No. 149 also amends
certain other existing pronouncements to provide more uniform
reporting of contracts that are derivatives in their entirety or
that contain embedded derivatives that warrant separate
accounting. SFAS No. 149 is effective for us on a
prospective basis for

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RURAL CELLULAR CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)

contracts entered into or modified and for
hedging relationships designated for fiscal periods beginning
after September 30, 2003. SFAS No. 149 had no
impact on our results of operations, financial position, or cash
flows upon adoption.



| |                                            
| | -------------------------------------------
| | Accounting for Stock-Based
    Compensation

In December 2002, the FASB issued
SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure, an Amendment
of FASB Statement No. 123
(SFAS No. 123). SFAS No. 148
amends SFAS No. 123, Accounting for
Stock-Based Compensation,to provide alternative
methods of transition for a voluntary change to the fair value
based method of accounting for employee stock-based
compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require
prominent disclosure in annual and interim financial statements
about the method of accounting used by an issuer for stock-based
compensation and its effect on the issuers reported
results (see Note 3).



| |                                          
| | -----------------------------------------
| | Accounting for Extinguishment of
    Debt

In April 2002, the FASB issued
SFAS No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13,
and Technical Corrections,(SFAS No. 145.) SFAS No. 145
provides for the rescission of several previously issued
accounting standards, new accounting guidance for the accounting
for certain lease modifications and various technical
corrections that are not substantive in nature to existing
pronouncements. We adopted SFAS No. 145 effective
January 1, 2003. Accordingly, our financial statements have
been revised to reflect the reclassification requirements of
SFAS No. 145, requiring us to present losses on
extinguishment of debt within interest expense. We have recorded
within interest expense $6.1 and $3.4 million in debt
extinguishments in 2003 and 2002, respectively.



| |                                                                   
| | ------------------------------------------------------------------
| | Accounting for Revenue Arrangements with
    Multiple Deliverables

In November 2002, EITF No. 00-21,
Accounting for Revenue Arrangements with Multiple
Deliverables(EITF 00-21) was issued.
EITF 00-21 addresses how to account for arrangements that
may involve the delivery or performance of multiple products,
services and/or rights to use assets. Revenue arrangements with
multiple deliverables are required to be divided into separate
units of accounting if the deliverables in the arrangement meet
certain criteria. Arrangement consideration is to be allocated
among the separate units of accounting based on their relative
fair values. EITF 00-21 is applicable to agreements entered
into in quarters beginning after June 15, 2003. The Company
has determined that the sale of wireless services through the
Companys direct sales channels with an accompanying
handset constitutes a revenue arrangement with multiple
deliverables. Upon adoption of EITF 00-21, direct sales
channel activation fees are now included in equipment revenue
rather than service revenue in the consolidated statement of
operations to the extent that the aggregate activation fee and
handset proceeds received from a subscriber do not exceed the
fair value of the handset sold. The Company adopted this new
pronouncement effective July 1, 2003 on a prospective
basis, which did not have a material impact on the
Companys financial position, results of operations or cash
flows.



| |                                                
| | -----------------------------------------------
| | Consolidation of Variable Interest
    Entities

In January 2003, the Financial Accounting
Standards Board (FASB) issued Interpretation
No. 46, Consolidation of Variable Interest
Entities(FIN 46). FIN 46
requires an investor with a majority of the variable interests
in a variable interest entity (VIE) to consolidate
the entity and also requires majority and significant variable
interest investors to provide certain disclosures. A VIE is an
entity in which the equity investors do not have a controlling
interest, or the equity investment at risk is insufficient to
finance the entitys activities without receiving
additional subordinated financial support from the other
parties. For arrangements entered into with VIEs created prior
to January 31, 2003, the provisions of FIN 46 are
required to be adopted at the end of the first interim or annual
period ending after March 15, 2004. The provisions of
FIN 46 were

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RURAL CELLULAR CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)

effective immediately for all arrangements
entered into with new VIEs created after January 31, 2003.
The Company has reviewed its investments and other arrangements
and determined that none of its investee companies are VIEs. The
Company has not invested in any new VIEs created after
January 31, 2003.



|   |                       
|-- | ----------------------
|5. | Long-term Liabilities:

The Company had the following long-term
liabilities outstanding as of December 31 (in thousands):

|                                                                               |                                     |      |         |           |  |  |         |           | 
|------------------------------------------------------------------------------ | ----------------------------------- | ---- | ------- | --------- |  |  | ------- | --------- | 
|                                                                               |                                     | 2003 |         | 2002     
|                                                                               |                                     |      |         |          
|Credit agreement:                                                              |                                     |      |         |           |  |  |         |          
|                                                                               | Revolver                            |      | $       |          |  |  | $       | 16,142    | 
|                                                                               | Term Loan A (terminates 04/03/2008) |      |         | 226,583   |  |  |         | 316,540   | 
|                                                                               | Term Loan B (terminates 10/03/2008) |      |         | 124,656   |  |  |         | 185,223   | 
|                                                                               | Term Loan C (terminates 04/03/2009) |      |         | 124,656   |  |  |         | 185,223   | 
|                                                                               | Term Loan D (terminates 10/03/2009) |      |         | 22,634    |  |  |         | 54,766    | 
|                                                                               |                                     |      |         |           |  |  |         |          
|                                                                               |                                     |      | 498,529 |           |  |  | 757,894 |          
|9 7/8% senior notes                                                            |                                     |      | 325,000 |           |  |  |        |          
|9 3/4% senior subordinated notes                                               |                                     |      | 300,000 |           |  |  | 300,000 |          
|9 5/8% senior subordinated notes                                               |                                     |      | 125,000 |           |  |  | 125,000 |          
|Derivative financial instruments                                               |                                     |      | 6,109   |           |  |  | 12,158  |          
|11 3/8% senior exchangeable preferred
    stock                                |                                     |      | 254,676 |           |  |  |        |          
|Accrued long-term dividends on
    11 3/8% senior exchangeable preferred stock |                                     |      | 18,521  |           |  |  |        |          
|12 1/4% junior exchangeable preferred stock                                    |                                     |      | 219,911 |           |  |  |        |          
|Deferred tax liability                                                         |                                     |      | 15,651  |           |  |  | 15,651  |          
|Other                                                                          |                                     |      | 1,470   |           |  |  | 323     |          
|                                                                               |                                     |      |         |           |  |  |         |          
|                                                                               | Long-term liabilities               |      | $       | 1,764,867 |  |  | $       | 1,211,026 | 
|                                                                               |                                     |      |         |           |  |  |         |          

Credit
Agreement Advances under
the credit agreement bear interest at the London Interbank
Offering Rate (LIBOR) plus an applicable margin
based on our ratio of indebtedness to annualized operating cash
flow as of the end of the most recently completed fiscal
quarter. As of December 31, 2003, the effective rate of
interest on the credit agreement, excluding the impact of hedge
agreements, was 4.39%. A commitment fee not to exceed 0.50% on
the unused portion of the credit agreement is payable quarterly.
Borrowings under the credit agreement are secured by a pledge of
substantially all the assets of RCC, excluding our 70% ownership
in Wireless Alliance, LLC. At December 31, 2003, we had
$60.0 million in unused capacity under the revolver. Future
availability under the revolver will be determined quarterly
based on our leverage ratios as described in the credit
agreement, as amended.

The credit agreement is subject to various
covenants, including the ratio of senior indebtedness to
annualized operating cash flow, the ratio of total indebtedness
to annualized operating cash flow, and the ratio of annualized
operating cash flow to interest expense. Mandatory commitment
reductions are required upon any material sale of assets (see
Note 14). We were in compliance with all financial
covenants at December 31, 2003.

In August 2003, January 2002, and March 2001, RCC
obtained amendments of certain financial covenants in the credit
agreement and waivers of certain non-financial covenants.

F-17



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RURAL CELLULAR CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)

9 7/8% Senior
Notes In August 2003, RCC
completed the placement of $325 million principal amount of
9 7/8% senior notes due 2010. Interest is payable on
February 1 and August 1 of each year, beginning on
February 1, 2004. The notes will mature on February 1,
2010. RCC may redeem all or part of the notes on or after
August 1, 2007. Prior to August 1, 2006, the Company
may redeem up to 35% of the aggregate principal amount of the
notes issued under the indenture with the net cash proceeds of
certain equity offerings.

9 3/4% Senior Subordinated
Notes In 2002, RCC issued
$300 million principal amount of 9 3/4% senior
subordinated notes due 2010. Interest on the
9 3/4% senior subordinated notes is payable
semi-annually on January 15 and July 15. The
9 3/4% senior subordinated notes will mature on
January 15, 2010, and are redeemable, in whole or in part,
at the option of RCC, at any time on or after January 16,
2006.

9 5/8% Senior Subordinated
Notes In 1998, RCC issued
$125 million principal amount of 9 5/8% senior
subordinated notes due 2008. Interest on the senior subordinated
notes is payable semi-annually on May 15 and
November 15. The senior subordinated notes will mature on
May 15, 2008, and are redeemable, in whole or in part, at
our option, at any time on or after May 15, 2003.

11 3/8% Senior Exchangeable
Preferred Stock Dividends
on the senior exchangeable preferred stock are cumulative, are
payable quarterly, and on or before May 15, 2003, were
payable at our option either in cash or by the issuance of
additional shares of senior exchangeable preferred stock having
an aggregate liquidation preference equal to the amount of such
dividends. RCC accrues the undeclared dividends by increasing
the carrying amount of the preferred stock, since the dividends
are payable in cash under the mandatory redemption feature. At
December 31, 2003, it had accrued an $18.5 million
undeclared dividend liability with respect to its senior
exchangeable preferred stock, which will be payable at the
senior preferred mandatory redemption date, if not sooner
declared and paid. The Company did not declare or pay the cash
dividends due in cash in August or November 2003 or February
2004.

12 1/4% Junior Exchangeable Preferred
Stock Dividends on the
junior exchangeable preferred stock are cumulative, are payable
quarterly, and may be paid, at the Companys option, on any
dividend payment date occurring on or before February 15,
2005, either in cash or by the issuance of additional shares of
junior exchangeable preferred stock having an aggregate
liquidation preference equal to the amount of such dividends.

The senior and junior exchangeable preferred
stock are non-voting, except as otherwise required by law and as
provided in their respective Certificates of Designation. Each
Certificate of Designation provides that at any time dividends
on the outstanding exchangeable preferred stock are in arrears
and unpaid for six or more quarterly dividend periods (whether
or not consecutive), the holders of a majority of the
outstanding shares of the affected exchangeable preferred stock,
voting as a class, will be entitled to elect the lesser of two
directors or that number of directors constituting 25% of the
members of the Companys Board of Directors. The voting
rights will continue until such time as all dividends in arrears
on the exchangeable preferred stock are paid in full (and in the
case of dividends payable on the senior exchangeable preferred
stock after May 15, 2003, or in the case of dividends
payable on the junior exchangeable preferred stock after
February 15, 2005, are paid in cash), at which time the
terms of any directors elected pursuant to such voting rights
will terminate. Voting rights may also be triggered by other
events described in the Certificates of Designation.

F-18



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##### Table of Contents



RURAL CELLULAR CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)

Current portion of long-term
debt The current portion
of our long-term debt included the following as of
December 31 (in thousands):

|                                       |                                     |       |        |        |        |  |        |        |        | 
|-------------------------------------- | ----------------------------------- | ----- | ------ | ------ | ------ |  | ------ | ------ | ------ | 
|                                       |                                     |      
|                                       |                                     | As of
|                                       |                                     |      
|                                       |                                     | 2003  |        | 2002  
|                                       |                                     |       |        |       
|Current portion of Credit Agreement(1) |                                     |       |        |        |        |  |        |       
|                                       | Term Loan A (terminates 04/03/2008) |       | $      | 12,360 |        |  | $      | 32,745 |       
|                                       | Term Loan B (terminates 10/03/2008) |       |        | 6,800  |        |  |        | 1,400  |       
|                                       | Term Loan C (terminates 04/03/2009) |       |        | 6,800  |        |  |        | 1,400  |       
|                                       | Term Loan D (terminates 10/03/2009) |       |        | 1,234  |        |  |        | 414    |       
|                                       |                                     |       |        |        |        |  |        |       
|                                       |                                     |       | 27,194 |        |        |  | 35,959 |       
|Financial Instruments                  |                                     |       |        |        |        |  |        |       
|                                       | Swaption(2)                         |       |        |       |        |  |        | 30,072 |       
|                                       | Other financial instruments         |       |        |       |        |  |        | 6,326  |       
|Purchase option agreement (3)          |                                     |       |       |        |        |  | 6,500  |       
|Other                                  |                                     |       | 68     |        |        |  | 190    |       
|                                       |                                     |       |        |        |        |  |        |       
|                                       |                                     | Total |        | $      | 27,262 |  |        | $      | 79,047 | 
|                                       |                                     |       |        |        |        |  |        |       



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In August 2003, the Company negotiated an
    amendment under its credit agreement, which included the
    amendment of mandatory amortization until June 2005. In addition
    to the scheduled mandatory amortization reductions, the Company
    is required to reduce the amount of commitment available under
    the credit agreement on each March 31, beginning on
    March 31, 2004, by an amount equal to 50% of its Excess
    Cash Flow, as defined in the credit agreement, for the
    immediately preceding fiscal year or portion thereof. The
    current portion of the amount outstanding under the credit
    agreement does not include the permanent reduction of
    $12.9 million, which was paid by RCC from cash received as
    part of the property exchange with AWE.
|   
|(2) | The counterparty exercised the optional early
    termination provision of the Swaption, requiring RCC to pay the
    counterparty the negative fair market value of the swaption on
    May 15, 2003 of $34.2 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|(3) | In conjunction with an acquisition, we entered
    into a purchase option to acquire certain cell sites in the
    future for $6.5 million. We exercised the option on
    February 28, 2003. At December 31, 2002, the option
    was included in current liabilities. We assumed an agreement to
    utilize the assets covered by the option for the period prior to
    exercising the option.                                                                                                                                                                                                                                                                                                                                                                                                 

Future
maturities The following
table summarizes the Companys future maturities of debt as
of December 31, 2003 (in thousands).

|           |       |           |         |                 |  |                 |         |                |  |       |         |         |  |   |         |         |  |   |         |           | 
|---------- | ----- | --------- | ------- | --------------- |  | --------------- | ------- | -------------- |  | ----- | ------- | ------- |  | - | ------- | ------- |  | - | ------- | --------- | 
|           |       |           |         | 9 3/8% Senior   |  | 9 3/4% Senior   |         |                |  |      
|           |       |           |         | Subordinated    |  | Subordinated    |         | 9 7/8% Senior  |  |      
|           |       | Credit    |         | Notes(2)        |  | Notes           |         | Notes(3)       |  |      
|           |       | Agreement |         | (due 5/15/2008) |  | (due 1/15/2010) |         | (due 2/1/2010) |  | Total
|           |       |           |         |                 |  |                 |         |                |  |      
|2004       |       | $         | 27,194  | (1)             |  | $               |        |                |  | $     |        |         |  | $ |        |         |  | $ | 27,194  |          
|2005       |       |           | 46,837  |                 |  |                 |        |                |  |       |        |         |  |   |        |         |  |   | 46,837  |          
|2006       |       |           | 82,955  |                 |  |                 |        |                |  |       |        |         |  |   |        |         |  |   | 82,955  |          
|2007       |       |           | 87,321  |                 |  |                 |        |                |  |       |        |         |  |   |        |         |  |   | 87,321  |          
|2008       |       |           | 221,260 |                 |  |                 | 125,000 |                |  |       |        |         |  |   |        |         |  |   | 346,260 |          
|Thereafter |       |           | 60,156  |                 |  |                 |        |                |  |       | 300,000 |         |  |   | 325,000 |         |  |   | 685,156 |          
|           |       |           |         |                 |  |                 |         |                |  |       |         |         |  |   |         |         |  |   |         |          
|           | Total |           | $       | 525,723         |  |                 | $       | 125,000        |  |       | $       | 300,000 |  |   | $       | 325,000 |  |   | $       | 1,275,723 | 
|           |       |           |         |                 |  |                 |         |                |  |       |         |         |  |   |         |         |  |   |         |          

F-19



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##### Table of Contents



RURAL CELLULAR CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)



---



|    |                                                                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The 2004 credit agreement amortization includes
    the Companys obligation under the excess cash flow
    requirement of $27.2 million and does not include the
    permanent reduction of $12.9 million, paid from proceeds
    received as part of the property exchange with AWE.
|   
|(2) | The amended credit agreement requires that the
    9 5/8% senior subordinated notes due 2008 must be
    refinanced or extended beyond January 1, 2010, on or before
    November 15, 2007, or an event of default will occur.                                                        
|   
|(3) | The amended credit agreement requires that the
    9 7/8% senior notes must be refinanced or extended
    beyond March 31, 2010, on or before July 31, 2009, or
    an event of default will occur.                                                                                   



|   |                       
|-- | ----------------------
|6. | Financial Instruments:

The Company recognizes all derivatives as either
assets or liabilities in the consolidated balance sheets and
measures those instruments at fair value. The Company currently
uses interest rate swaps to manage its interest rate exposure on
its credit agreement. Changes in the fair values of those
derivative instruments will be recorded to earnings as
Interest Expense or other comprehensive income
depending on the use of the derivative instrument and whether it
qualifies for hedge accounting.

The Company formally documents all relationships
between hedging instruments and hedged items, as well as its
risk management objectives and strategies for undertaking
various hedge transactions. The Company also assesses, both at
inception and on an on-going basis, whether the derivatives that
are used in hedging transactions are effective. Should it be
determined that a derivative is not effective as a hedge, the
Company would discontinue the hedge accounting prospectively. As
of December 31, 2003, none of the Companys
derivatives was designated as a hedge for accounting purposes.

For the years ended December 31, 2003, 2002
and 2001, the Company recorded a non-operating gain of
$3.5 million and non-operating charges of
$13.5 million and $14.8 million, respectively, related
to the net impact of the change in market value of its financial
instruments, the amortization of gains and losses from other
comprehensive income, and proceeds received upon the termination
of certain derivatives.

F-20



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##### Table of Contents



RURAL CELLULAR CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)

RCCs financial instruments notional
and estimated fair values and carrying amounts are set forth in
the table below as of December 31. Fair values are based on
quoted market prices, if available.

|                         |                                                 |                                          |                                             |                             |   |                       |           |              |        |              |           |         |     |        |           |         |        |       |           |         |     |        |           | 
|------------------------ | ----------------------------------------------- | ---------------------------------------- | ------------------------------------------- | --------------------------- | - | --------------------- | --------- | ------------ | ------ | ------------ | --------- | ------- | --- | ------ | --------- | ------- | ------ | ----- | --------- | ------- | --- | ------ | --------- | 
|                         |                                                 |                                          |                                             |                             |   |                       |           |             
|                         |                                                 |                                          |                                             |                             |   | Estimated Fair Market
|                         |                                                 |                                          |                                             | Carrying Value              |   | Value                
|                         |                                                 |                                          |                                             |                             |   |                      
|                         |                                                 | Notional                                 |                                             | December 31,                |   | December 31,          |           | December 31, |        | December 31,
|                         |                                                 | Amount                                   |                                             | 2003                        |   | 2002                  |           | 2003         |        | 2002        
|                         |                                                 |                                          |                                             |                             |   |                       |           |              |        |             
|                         |                                                 |                                         
|                         |                                                 | (Dollars in thousands)                  
|Financial assets(1)      |                                                 |                                          |                                             |                             |   |                       |           |              |        |              |           |         |     |        |           |         |        |       |           |        
|                         | Interest rate flooridors:                       |                                          |                                             |                             |   |                       |           |              |        |              |           |         |     |        |           |         |        |       |           |         |    
|                         |                                                 | Fleet Bank (terminated May 12,
    2003) |                                             | $                           |  |                       |           | $            |       |              |           | $       | 631 |        |           | $       |       |       |           | $       | 631 |       
|                         |                                                 |                                          |                                             |                             |   |                       |           |              |        |              |           |         |     |        |           |         |        |       |           |        
|                         |                                                 |                                          |                                             | Total financial assets      |   | $                     |          |              |        | $            |          |         |     | $      | 631       |         |        | $     |          |         |     | $      | 631       | 
|                         |                                                 |                                          |                                             |                             |   |                       |           |              |        |              |           |         |     |        |           |         |        |       |           |        
|Financial liabilities(1) |                                                 |                                          |                                             |                             |   |                       |           |              |        |              |           |         |     |        |           |         |        |       |           |        
|                         | Credit Agreement                                |                                          | $                                           |                            |   |                       | $         | 525,723      |        |              | $         | 793,853 |     |        | $         | 524,201 |        |       | $         | 689,064 |    
|                         | 9 7/8% senior notes                             |                                          |                                             |                            |   |                       |           | 325,000      |        |              |           |        |     |        |           | 344,297 |        |       |           |        |    
|                         | 9 5/8% senior subordinated notes                |                                          |                                             |                            |   |                       |           | 125,000      |        |              |           | 125,000 |     |        |           | 121,172 |        |       |           | 81,250  |    
|                         | 9 3/4% senior subordinated notes                |                                          |                                             |                            |   |                       |           | 300,000      |        |              |           | 300,000 |     |        |           | 288,938 |        |       |           | 195,000 |    
|                         | 11 3/8% senior exchangeable preferred
    stock |                                          |                                             |                            |   |                       |           | 254,676      |        |              |           | 240,882 |     |        |           | 210,159 |        |       |           | 57,812  |    
|                         | 12 1/4% junior exchangeable preferred stock     |                                          |                                             |                            |   |                       |           | 219,911      |        |              |           | 195,035 |     |        |           | 150,639 |        |       |           | 42,908  |    
|                         | Class M convertible preferred stock(2)          |                                          |                                             |                            |   |                       |           | 147,981      |        |              |           | 136,712 |     |        |           | 147,981 |        |       |           | 136,712 |    
|                         | Class T convertible preferred stock(2)          |                                          |                                             |                            |   |                       |           | 8,671        |        |              |           | 8,370   |     |        |           | 8,671   |        |       |           | 8,370   |    
|                         |                                                 |                                          |                                             |                             |   |                       |           |              |        |              |           |         |     |        |           |         |        |       |           |        
|                         |                                                 |                                          |                                            |                             |   |                       | 1,906,962 |              |        |              | 1,799,852 |         |     |        | 1,796,058 |         |        |       | 1,211,116 |        
|                         | Derivative financial instruments                |                                          |                                             |                             |   |                       |           |              |        |              |           |         |     |        |           |         |        |       |           |         |    
|                         |                                                 | Interest rate swap agreements(3):        |                                             |                             |   |                       |           |              |        |              |           |         |     |        |           |         |        |       |           |         |     |       
|                         |                                                 |                                          | TD Securities (terminates May 16, 2005)     |                             |   | 84,000                |           |              |        | 5,666        |           |         |     | 9,010  |           |         |        | 5,666 |           |         |     | 9,010  |          
|                         |                                                 |                                          | PNC Bank (terminated May 16,
    2003)      |                             |   |                      |           |              |        |             |           |         |     | 975    |           |         |        |      |           |         |     | 975    |          
|                         |                                                 |                                          | Fleet Bank (terminates March 7, 2006)       |                             |   | 200,000               |           |              |        | 443          |           |         |     |       |           |         |        | 443   |           |         |     |       |          
|                         |                                                 | Reverse swap agreements:                 |                                             |                             |   |                       |           |              |        |              |           |         |     |        |           |         |        |       |           |         |     |       
|                         |                                                 |                                          | Fleet Bank (terminated June 2,
    2003)    |                             |   |                      |           |              |        |             |           |         |     | 1,832  |           |         |        |      |           |         |     | 1,832  |          
|                         |                                                 |                                          | Dresdner Bank (terminated June 2,
    2003) |                             |   |                      |           |              |        |             |           |         |     | 1,316  |           |         |        |      |           |         |     | 1,316  |          
|                         |                                                 | Interest rate collar agreements:         |                                             |                             |   |                       |           |              |        |              |           |         |     |        |           |         |        |       |           |         |     |       
|                         |                                                 |                                          | PNC Bank (terminated May 25,
    2003)      |                             |   |                      |           |              |        |             |           |         |     | 966    |           |         |        |      |           |         |     | 966    |          
|                         |                                                 |                                          | Union Bank (terminated June 5,
    2003)    |                             |   |                      |           |              |        |             |           |         |     | 1,622  |           |         |        |      |           |         |     | 1,622  |          
|                         |                                                 |                                          | PNC Bank (terminated June 6,
    2003)      |                             |   |                      |           |              |        |             |           |         |     | 1,827  |           |         |        |      |           |         |     | 1,827  |          
|                         |                                                 |                                          | Union Bank (terminated June 5,
    2003)    |                             |   |                      |           |              |        |             |           |         |     | 936    |           |         |        |      |           |         |     | 936    |          
|                         |                                                 | Swaption(4):                             |                                             |                             |   |                       |           |              |        |              |           |         |     |        |           |         |        |       |           |         |     |       
|                         |                                                 |                                          | TD Securities (terminated May 15,
    2003) |                             |   |                      |           |              |        |             |           |         |     | 30,072 |           |         |        |      |           |         |     | 30,072 |          
|                         |                                                 |                                          |                                             |                             |   |                       |           |              |        |              |           |         |     |        |           |         |        |       |           |        
|                         |                                                 |                                          | 284,000                                     |                             |   |                       | 6,109     |              |        |              | 48,556    |         |     |        | 6,109     |         |        |       | 48,556    |        
|                         |                                                 | Other long-term liabilities              |                                             |                             |  |                       |           |              | 19,991 |              |           |         | 323 |        |           |         | 19,991 |       |           |         | 323 |       
|                         |                                                 |                                          |                                             |                             |   |                       |           |              |        |              |           |         |     |        |           |         |        |       |           |        
|                         |                                                 |                                          |                                             | Total financial liabilities |   | $                     | 284,000   |              |        | $            | 1,933,062 |         |     | $      | 1,848,731 |         |        | $     | 1,822,158 |         |     | $      | 1,259,995 | 
|                         |                                                 |                                          |                                             |                             |   |                       |           |              |        |              |           |         |     |        |           |         |        |       |           |        



---



|    |                                                                                                                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The carrying amounts of cash and cash
    equivalents, accounts receivable, accounts payable, advance
    billing and customer deposits and other current liabilities are
    reasonable estimates of their fair value due to the short-term
    nature of these instruments.

F-21



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##### Table of Contents



RURAL CELLULAR CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | These financial instruments are not actively
    traded and, therefore, the estimated fair market value is stated
    at the carrying value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|(3) | Recorded on the Companys balance sheet at
    fair value, with related changes in fair value included in the
    statement of operations, and not accounted for as a hedge under
    SFAS No. 133.                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|(4) | The Company issued $125 million in
    subordinated debt in May 1998 that matures in May 2008. The
    $8.7 million value of an embedded call option within the
    subordinated debt was monetized in March 2001, resulting in a
    swaption. The swaption does not qualify for hedge accounting
    treatment under SFAS No. 133 and, as such, is recorded
    in the balance sheet at fair value with related changes in fair
    value included in the statement of operations. On May 15,
    2003, the counterparty exercised its option to terminate the
    swaption, and the Company paid the counterparty
    $34.2 million, the fair market value at May 15, 2003.



|   |                            
|-- | ---------------------------
|7. | Redeemable Preferred Stock:

The Company has issued the following preferred
stock with liquidation preferences of $1,000 per share:

|                                           |       |            |            |          |  |            |        |             |  |            |        |                |  |                |            |  |  |  |         |         |  |  |        |        |  |  |         |         | 
|------------------------------------------ | ----- | ---------- | ---------- | -------- |  | ---------- | ------ | ----------- |  | ---------- | ------ | -------------- |  | -------------- | ---------- |  |  |  | ------- | ------- |  |  | ------ | ------ |  |  | ------- | ------- | 
|                                           |       |            |            |          |  |            |        | Other       |  |            |        | Accrued        |  |               
|                                           |       |            |            |          |  | Conversion |        | Features,   |  | Number     |        | Dividends at   |  |               
|                                           |       | Mandatory  |            | Dividend |  | Price to   |        | Rights,     |  | of Shares  |        | December 31,   |  |               
|                                           |       | Redemption |            | Rate per |  | Common     |        | Preferences |  | Originally |        | 2003           |  | Total         
|                                           |       | Date       |            | Annum    |  | Stock      |        | and Powers  |  | Issued     |        | (In thousands) |  | (In thousands)
|                                           |       |            |            |          |  |            |        |             |  |            |        |                |  |               
|Class M Voting Convertible Preferred Stock |       |            | April 2012 |          |  |            | 8.000% |             |  | $          | 53.000 |                |  |                | Voting     |  |  |  | 110,000 |         |  |  | 37,981 |        |  |  | 147,981 |        
|Class T Convertible Preferred Stock        |       |            | April 2020 |          |  |            | 4.000% |             |  | $          | 50.631 |                |  |                | Non-Voting |  |  |  | 7,541   |         |  |  | 1,130  |        |  |  | 8,671   |        
|                                           |       |            |            |          |  |            |        |             |  |            |        |                |  |                |            |  |  |  |         |         |  |  |        |        |  |  |         |        
|                                           | Total |            |            |          |  |            |        |             |  |            |        |                |  |                |            |  |  |  |         | 117,541 |  |  |        | 39,111 |  |  |         | 156,652 | 
|                                           |       |            |            |          |  |            |        |             |  |            |        |                |  |                |            |  |  |  |         |         |  |  |        |        |  |  |         |        

Preferred security balance sheet reconciliation
(in thousands):

|                                       |  |                   |         |  
|-------------------------------------- |  | ----------------- | ------- | -
|                                       |  | As of            
|                                       |  | December 31, 2003
|                                       |  |                  
|Preferred securities originally issued |  | $                 | 117,541 |  
|Accrued dividends                      |  |                   | 39,111  |  
|Unamortized issuance costs             |  |                   | (3,271  | )
|                                       |  |                   |         |  
|                                       |  | $                 | 153,381 |  
|                                       |  |                   |         |  

Dividends on the Class M convertible
preferred stock are compounded quarterly, accrue at 8% per
annum, and are payable upon redemption or upon liquidation of
RCC. The Class M convertible preferred stock is convertible
into the Companys Class A common stock at
$53.00 per share subject to certain adjustments. Dividends
are not payable if the shares are converted. The holders of the
Class M convertible preferred stock are entitled to vote on
all matters submitted to the holders of the common stock on an
as-converted basis.

In order to comply with the FCC rules regarding
cross-ownership of cellular licensees within a given market, the
Company issued 7,541 shares of Class T convertible
preferred stock with a liquidation preference of $1,000 per
share to Telephone & Data Systems, Inc.
(TDS) on March 31, 2000 in exchange for
43,000 shares of Class A common stock and
105,940 shares of Class B common stock owned by TDS.
TDS or RCC can convert the convertible preferred stock into the
original number of shares of Class A or Class B common
stock in the future if ownership by TDS of the common stock
would then be permissible under FCC rules. Dividends on the
Class T convertible preferred stock are cumulative, have a
fixed coupon rate of 4% per annum, and are payable in April
2020. Dividends are not payable if the shares are converted.
Shares of Class T

F-22



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##### Table of Contents



RURAL CELLULAR CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)

convertible preferred stock are non-voting,
except as otherwise required by law and as provided in the
Certificate of Designation.

The Class T convertible preferred stock is
senior to the junior exchangeable preferred stock, Class M
convertible preferred stock and common stock of RCC with respect
to dividend rights and rights on liquidation, winding-up and
dissolution of RCC. The Class M convertible preferred stock
is senior to the Companys common stock with respect to
dividend rights and rights on liquidation, winding-up and
dissolution of RCC.

The senior exchangeable preferred stock, junior
exchangeable preferred stock, Class M convertible preferred
stock, and Class T convertible preferred stock are
redeemable at 100% of their total liquidation preference plus
accumulated and unpaid dividends at their respective redemption
dates.



|   |                                
|-- | -------------------------------
|8. | Shareholders (Deficit) Equity:



| |                  
| | -----------------
| | Authorized Shares

The Company has 300,000,000 shares of
authorized capital stock consisting of 200,000,000 shares
of Class A common stock, 10,000,000 shares of
Class B common stock and 90,000,000 undesignated shares.



| |                    
| | -------------------
| | Common Stock Rights

Holders of Class A common stock are entitled
to one vote for each share owned while holders of Class B
common stock are entitled to ten votes for each share owned.
Each share of Class B common stock may at any time be
converted into one share of Class A common stock at the
option of the holder. All issued Class B common shares may
also be converted into an equivalent number of Class A
common shares upon the affirmative vote of not less than
66 2/3% of the then issued Class B common shares.
Further, Class B common shares are automatically converted
to an equal number of Class A common shares if they are
transferred to anyone who is not an affiliate of the
transferring shareholder.

RCC has shareholder rights plans for its
Class A common stock and Class B common stock. The
rights plans give each holder of Class A common stock the
right to purchase 1/100th of a newly authorized preferred share
that is essentially equivalent to one share of Class A
common stock and each holder of Class B common stock the
right to purchase 1/100th of a newly authorized preferred share,
essentially equivalent to one share of Class B common
stock. The exercise price for both the Class A rights and
the Class B rights is $120 per right.

The rights become exercisable by existing
shareholders only following the acquisition by a buyer, without
prior approval of the Companys board of directors, of 15%
or more of the outstanding Common Stock, Class A and
Class B, or following the announcement of a tender offer
for 15% of the outstanding Common Stock. If a person acquires
15% or more of the Companys Common Stock, each right
(except those held by the acquiring person) will entitle the
holder to purchase shares of the Companys Class A or
Class B common stock, as appropriate, having a market value
of twice the rights exercise price, or, in effect, at a
50% discount from the then current market value. If the Company
were acquired in a merger or similar transaction after a person
acquires 15% of the Companys outstanding Common Stock,
without prior approval of the board of directors, each right
would entitle the holder (other than the acquirer) to purchase
shares of the acquiring company having a market value of twice
the exercise price of the right, or, in effect, at a discount of
50%. Until the acquisition by any person of 15% or more of the
Companys Common Stock, the rights can be redeemed by the
board of directors for $.001 per right.

F-23



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##### Table of Contents



RURAL CELLULAR CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)



|   |              
|-- | -------------
|9. | Income Taxes:

The Company incurred losses for the years ended
December 31, 2003, 2002, and 2001, respectively, and
recorded no provision for income taxes.

The reconciliation of income tax computed at the
U.S. federal statutory rate to income tax expense recorded
in the consolidated financial statements was as follows:

|                                   |  |                         |       |      |  |      |       |    |  |  |       |   
|---------------------------------- |  | ----------------------- | ----- | ---- |  | ---- | ----- | -- |  |  | ----- | --
|                                   |  |                        
|                                   |  | Year Ended December 31,
|                                   |  |                        
|                                   |  | 2003                    |       | 2002 |  | 2001
|                                   |  |                         |       |      |  |     
|Tax at statutory rate              |  |                         | (35.0 | )%   |  |      | (35.0 | )% |  |  | (35.0 | )%
|State taxes                        |  |                         | (3.0  | )    |  |      | (3.0  | )  |  |  | (3.0  | ) 
|Nondeductible item  amortization  |  |                         | 2.0   |      |  |      |      |    |  |  | 5.0   |   
|Adjustment for valuation allowance |  |                         | 36.0  |      |  |      | 38.0  |    |  |  | 33.0  |   
|                                   |  |                         |       |      |  |      |       |    |  |  |       |   
|                                   |  |                         | 0.0   | %    |  |      | 0.0   | %  |  |  | 0.0   | % 
|                                   |  |                         |       |      |  |      |       |    |  |  |       |   

The income tax effect of the items that create
deferred income tax assets and liabilities are as follows (in
thousands):

|                                 |                              |                                   |   |          |         |   |   |          |         |  
|-------------------------------- | ---------------------------- | --------------------------------- | - | -------- | ------- | - | - | -------- | ------- | -
|                                 |                              |                                  
|                                 |                              | December 31,                     
|                                 |                              |                                  
|                                 |                              | 2003                              |   | 2002    
|                                 |                              |                                   |   |         
|Deferred income tax assets:      |                              |                                   |   |          |         |   |   |         
|                                 | Operating loss carryforwards |                                   | $ | 124,256  |         |   | $ | 93,040   |        
|                                 | Tax credit carryforwards     |                                   |   |          |         |   |   |         |        
|                                 | Temporary differences:       |                                   |   |          |         |   |   |          |        
|                                 |                              | Allowance for doubtful accounts   |   |          | 1,267   |   |   |          | 1,036   |  
|                                 |                              | Derivatives                       |   |          | 1,257   |   |   |          | 18,212  |  
|                                 |                              | Intangible assets                 |   |          | 36,377  |   |   |          | 52,946  |  
|                                 |                              | Other                             |   |          | 5,191   |   |   |          | 2,317   |  
|                                 | Valuation allowance          |                                   |   | (156,275 | )       |   |   | (158,245 | )      
|                                 |                              |                                   |   |          |         |   |   |         
|                                 |                              | Total deferred income tax assets  |   |          | 12,073  |   |   |          | 9,306   |  
|Deferred income tax liabilities: |                              |                                   |   |          |         |   |   |         
|                                 | Depreciation                 |                                   |   | (26,086  | )       |   |   | (23,312  | )      
|                                 | Intangible assets            |                                   |   |         |         |   |   |         |        
|                                 | Other                        |                                   |   | (1,638   | )       |   |   | (1,645   | )      
|                                 |                              |                                   |   |          |         |   |   |         
|                                 |                              | Net deferred income tax liability |   | $        | (15,651 | ) |   | $        | (15,651 | )
|                                 |                              |                                   |   |          |         |   |   |         

As of December 31, 2003, the Company had tax
operating loss carryforwards of approximately $327 million
available to offset future income tax liabilities. These
carryforwards expire in the years 2007 through 2023. Internal
Revenue Code Section 382 contains provisions that limit the
availability and timing of usage of net operating loss
carryforwards in the event of certain changes in the ownership
of the Companys common stock.

In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will be
realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during
the periods in which those temporary differences become
deductible. Management has considered the scheduled reversal of
deferred tax liabilities, the limitations under Internal Revenue
Code Section 382 following a change in ownership and tax
planning

F-24



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##### Table of Contents



RURAL CELLULAR CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)

strategies in making this assessment. Based upon
the assessment, management has established a valuation allowance
for net deferred income tax assets currently not expected to be
realized.



|    |                                                                
|--- | ---------------------------------------------------------------
|10. | Commitments, Contingencies, and Related Party
    Transactions:



| |                      
| | ---------------------
| | Employment Agreements

The Company has employment agreements with
certain executive officers with terms of three years. These
agreements provide for payment of amounts up to three times
their annual compensation if there is a termination of their
employment as a result of a change in control of the Company, as
defined in the agreements. The maximum contingent liability
under these agreements was $7.5 million at
December 31, 2003.



| |                           
| | --------------------------
| | Related Party Transactions

During 2003, 2002, and 2001 the Company paid
$723,058, $876,023, and $902,986, respectively, related to
certain operating leases with an affiliate of a shareholder. In
addition, during 2003, 2002, and 2001, the Company paid
$492,224, $566,610, and $478,442 to affiliates of certain
shareholders for services.



| |                             
| | ----------------------------
| | Legal and Regulatory Matters

Securities Claims.The Company and certain of its officers and directors have been
named as defendants in the following action:



| |                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| | In re Rural Cellular Corporation Securities
    Litigation, Civil Action No.: 02-4893 PAM/ RLE,
    U.S. District Court for the District of
    Minnesota.

Between December 24, 2002 and
February 14, 2003, four securities class actions were
commenced against the Company and three of its executive
officers. On April 4, 2003, the court consolidated the four
actions into the single action identified above and appointed
two lead plaintiffs. The lead plaintiffs originally sought to
represent a class consisting of all persons (except defendants)
who purchased the Companys common stock in the market
during the time period commencing in either May 2001 or on
January 6, 2002, and continuing through November 12,
2002.

The Company received a consolidated amended
complaint on July 3, 2003. The consolidated amended
complaint added as defendants four directors who were members of
the Companys audit committee during the class period and
Arthur Andersen LLP, the Companys former independent
auditors. The lead plaintiffs sought to represent a class
consisting of all persons (except defendants and members of
their families and entities in which they held interests) who
purchased or otherwise obligated themselves to purchase the
Companys publicly traded equity and debt securities
between May 7, 2001 and November 12, 2002. The lead
plaintiffs alleged that Companys publicly-announced
financial results were false and misleading and that the Company
made false and misleading statements about its operating
performance and financial condition. The lead plaintiffs further
alleged that, as a result, the market price of the
Companys securities was artificially inflated during the
class period and investors were deceived into buying the
Companys securities at artificially inflated prices. The
lead plaintiffs alleged that defendants were liable under
Sections 10(b) and 20(a) of the

F-25



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##### Table of Contents



RURAL CELLULAR CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)

Securities Exchange Act of 1934. The lead
plaintiffs sought compensatory damages in an unspecified amount,
plus their attorneys fees and costs.

On September 2, 2003, the Company served a
motion to dismiss the consolidated amended complaint as against
RCC and the defendant directors, on the grounds that it failed
to plead fraud with the particularity required by Rule 9(b)
of the Federal Rules of Civil Procedure and the Private
Securities Litigation Reform Act of 1995, 15 U.S.C.
§ 78u-4, and failed to state a claim upon which relief
may be granted. Arthur Andersen LLP also filed a motion to
dismiss.

By Memorandum and Order filed on January 12,
2004, the court dismissed the consolidated amended complaint
without prejudice. The court held that the lead plaintiffs had
failed to plead specific facts showing that the defendants knew
facts, or had access to information, suggesting that RCCs
financial statements were materially false when they originally
were issued. The court allowed the lead plaintiffs to file a
further amended complaint within 30 days to attempt to
correct the deficiencies in their pleading.

On February 9, 2004, the lead plaintiffs
filed a second consolidated amended complaint. The second
consolidated amended complaint alleges essentially the same
claims against the same defendants for the same alleged class
periods, but includes some additional factual allegations. RCC
and the defendant directors intend to move for dismissal of the
second consolidated amended complaint with prejudice. A hearing
date has been scheduled for April 22, 2004.

The individual defendants have requested that the
Company indemnify them and advance the costs of their defense in
connection with this action. RCCs board of directors
authorized advancing the costs of defense to the executive
officers and directors named as defendants in the initial
complaints, and appointed a committee of certain non-party
directors, as required by Minnesota statute, to consider the
request of the directors added as defendants in the consolidated
amended complaint. The committee authorized advancing the costs
of defense to the four directors who were added as defendants.

The Company and the officer and director
defendants are beneficiaries of liability insurance, which
includes coverage for securities claims, subject to certain
exclusions. RCC has tendered these claims to the carriers. The
primary carrier has responded by raising certain issues with
regard to coverage, which have not been resolved.

Since this action is currently at a very early
stage, the Company is unable to determine the potential effects
of this action. It is possible that if this action is determined
in a manner that is adverse to us, it could result in a material
and adverse effect on the Companys financial condition and
results of operations, to the extent that any potential
liability is not covered by the Companys litigation
insurance.

Derivative Action.The following is a purported derivative action brought against
all of the Companys directors and against the Company, as
a nominal defendant:



| |                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Hiene Junge v. Richard P. Ekstrand, Wesley E.
    Schultz, Ann K. Newhall, Jeffrey S. Gilbert, Marvin C. Nicolai,
    George M. Revering, Don C. Swenson, George W. Wikstrom, Paul J.
    Finnegan, and John Hunt; and Rural Cellular Corporation as
    nominal defendant, commenced on or about February 20, 2003
    in Douglas County District Court, Alexandria,
    Minnesota.

The plaintiff is one of RCCs shareholders
and claims to bring suit on behalf of RCC. No pre-lawsuit demand
to investigate the allegations or bring the action was made on
the board of directors. The plaintiff alleges that the directors
breached their fiduciary duties to the Companys
shareholders, or abused their control, or grossly mismanaged, or
wasted corporate assets, by allowing or causing RCC to
improperly account for certain transactions in the
Companys financial statements during the time period from
May 2001 through November 12, 2002. The plaintiff further
alleges that the improper accounting eventually led to the
commencement of federal securities class actions (described
above) against us, which allegedly will cause us

F-26



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##### Table of Contents



RURAL CELLULAR CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)

to expend significant sums of money. The
plaintiff seeks compensatory damages against the directors in an
unspecified amount, plus his attorneys fees and costs.

The plaintiff granted the defendants an
indefinite extension of time to answer his complaint. Later in
2003, the plaintiff attempted to take discovery. On
January 9, 2004, the Company and the director defendants
served a motion to dismiss the complaint, and a motion to stay
all discovery until the motion to dismiss has been decided. The
grounds for the motion to dismiss are that the plaintiff failed
to make pre-suit demand, that the complaint fails to plead fraud
with sufficient particularity, that the alleged claims are not
ripe for adjudication, and that RCCs Amended Articles of
Incorporation limit the personal liability of the director
defendants and bar claims like those being asserted against them
in this action. Both motions currently are being briefed. Both
motions are scheduled to be heard on April 2, 2004.

The defendant directors have requested that the
Company indemnify them and advance the costs of defense in
connection with the derivative action. The Companys board
of directors appointed a special counsel, as required by
Minnesota statute, who considered this request and determined
that the defendant directors are entitled to advance of costs of
defense.

The Company and the defendant directors are named
or defined as insureds under insurance policies that include
coverage for certain shareholders derivative claims,
subject to certain exclusions. This matter has been tendered to
the insurers. Although the response from the primary carrier
regarding the class action does not specifically address
coverage of this claim, the same issues could be raised to
dispute coverage of this matter.

Since this action is currently at a very early
stage, the Company is unable to determine the potential effects
of this action. It is possible that if this action is determined
in a manner that is adverse to the Company, it could result in a
material and adverse effect on the Companys financial
condition and results of operations, to the extent that any
potential liability is not covered by the Companys
litigation insurance.

Other Claims.The
Company is involved from time to time in other routine legal
matters and other claims incidental to its business. The Company
believes that the resolution of such routine matters and other
incidental claims, taking into account established reserves and
insurance, will not have a material adverse impact on its
consolidated financial position or results of operations.

Regulatory Matters.The Company is subject to various regulatory requirements
associated with its networks in the normal course of business
related to E911, CALEA, and WNP. The Company currently does not
meet all of the requirements imposed by regulatory agencies. In
some cases, the Company has received a waiver from such
requirements or is in the process of applying for a waiver.
However, management does not believe such non-compliance will
have a material adverse effect on the Company, although the
ultimate outcome of these matters cannot be determined based on
available information.



| |       
| | ------
| | Leases

The Company leases office space, cellular towers
(including land leases on which the Companys owned towers
reside), and real estate under noncancelable operating leases.
These leases typically include renewal

F-27



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##### Table of Contents



RURAL CELLULAR CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)

options and escalation clauses. Future minimum
payments under these leases as of December 31, 2003 are as
follows (in thousands):

|           |       |        |       |        | 
|---------- | ----- | ------ | ----- | ------ | 
|Year       |       | Amount
|           |       |       
|2004       |       | $      | 8,957 |       
|2005       |       |        | 7,012 |       
|2006       |       |        | 5,115 |       
|2007       |       |        | 3,685 |       
|2008       |       |        | 2,063 |       
|Thereafter |       |        | 3,925 |       
|           |       |        |       |       
|           | Total |        | $     | 30,757 | 
|           |       |        |       |       

Under the terms of the lease agreements, the
Company also is responsible for certain operating expenses and
taxes. Total rent expense of $10.6 million,
$9.7 million, and $8.3 million was charged to
operations for the years ended December 31, 2003, 2002, and
2001, respectively.



| |                     
| | --------------------
| | Purchase Commitments

The Company has made commitments to its roaming
partners and to equipment vendors to substantially complete its
next generation networks by the end of 2005. Including the cost
of the anticipated overlays, total capital expenditures for 2004
through 2005 are expected to range from $140 million to
$180 million.

In 2003, the Company entered into a five-year
$57.0 million purchase commitment with a vendor to install
GSM/ GPRS network equipment and CDMA2000 network equipment,
under which, through December 31, 2003, the Company had
incurred $5.1 million in equipment purchases.



| |                                                 
| | ------------------------------------------------
| | Off-Balance Sheet Financings and
    Liabilities

The Company does not have any off-balance sheet
financing arrangements or liabilities. The Company does not have
any majority-owned subsidiaries or any interests in, or
relationships with, any material special-purpose entities that
are not included in the consolidated financial statements.



|    |                           
|--- | --------------------------
|11. | Defined Contribution Plan:

The Company has a defined contribution savings
and profit-sharing plan for employees who meet certain age and
service requirements. Under the savings portion of the plan,
employees may elect to contribute a percentage of their salaries
to the plan, with the Company contributing a matching percentage
of the employees contributions. Under the profit-sharing
portion of the plan, the Company contributes a percentage of
employees salaries. Contributions charged to operations
for the years ended December 31, 2003, 2002 and 2001 were
$599,000, $570,000, and $728,000, respectively. The percentages
the Company matches under the savings portion of the plan and
contributes under the profit-sharing portion of the plan are
determined annually by the Companys Board of Directors.

F-28



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##### Table of Contents



RURAL CELLULAR CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)



|    |                                                       
|--- | ------------------------------------------------------
|12. | Supplemental Cash Flow Information (in
    thousands):

|                                |                                      |                          |   |        |  |      |   |        |  |  |   |         | 
|------------------------------- | ------------------------------------ | ------------------------ | - | ------ |  | ---- | - | ------ |  |  | - | ------- | 
|                                |                                      |                         
|                                |                                      | Years Ended December 31,
|                                |                                      |                         
|                                |                                      | 2003                     |   | 2002   |  | 2001
|                                |                                      |                          |   |        |  |     
|Cash paid for:                  |                                      |                          |   |        |  |      |   |        |  |  |   |        
|                                | Interest, net of amounts capitalized |                          | $ | 86,801 |  |      | $ | 86,775 |  |  | $ | 116,961 | 
|Noncash financing transactions: |                                      |                          |   |        |  |      |   |        |  |  |   |        
|                                | Preferred stock dividends            |                          | $ | 38,877 |  |      | $ | 60,556 |  |  | $ | 54,545  | 



|    |                                                 
|--- | ------------------------------------------------
|13. | Quarterly Results of Operations
    (Unaudited):

Certain unaudited quarterly results for 2003 and
2002 are set forth below (in thousands, except per share data):





|                                                                                                             |               |                    |         |                    |  |           |        |          |  |       |         |         |  |           |        |          |  |   |          |         |  |   |        |         |  |   |        |         |  |   |         |         | 
|------------------------------------------------------------------------------------------------------------ | ------------- | ------------------ | ------- | ------------------ |  | --------- | ------ | -------- |  | ----- | ------- | ------- |  | --------- | ------ | -------- |  | - | -------- | ------- |  | - | ------ | ------- |  | - | ------ | ------- |  | - | ------- | ------- | 
|                                                                                                             |               |                    |         |                   
|                                                                                                             |               | 2003 Quarter Ended |         | 2002 Quarter Ended
|                                                                                                             |               |                    |         |                   
|                                                                                                             |               | March              |         | June               |  | September |        | December |  | March |         | June    |  | September |        | December
|                                                                                                             |               |                    |         |                    |  |           |        |          |  |       |         |         |  |           |        |         
|Revenue:                                                                                                     |               |                    |         |                    |  |           |        |          |  |       |         |         |  |           |        |          |  |   |          |         |  |   |        |         |  |   |        |         |  |   |         |        
|Service                                                                                                      |               | $                  | 80,923  |                    |  | $         | 90,904 |          |  | $     | 92,530  |         |  | $         | 90,681 |          |  | $ | 75,497   |         |  | $ | 80,473 |         |  | $ | 83,224 |         |  | $ | 80,739  |        
|Roaming                                                                                                      |               |                    | 29,062  |                    |  |           | 31,789 |          |  |       | 37,598  |         |  |           | 33,447 |          |  |   | 26,162   |         |  |   | 33,855 |         |  |   | 35,400 |         |  |   | 27,286  |        
|Equipment                                                                                                    |               |                    | 3,876   |                    |  |           | 4,427  |          |  |       | 6,462   |         |  |           | 5,690  |          |  |   | 3,279    |         |  |   | 4,564  |         |  |   | 7,098  |         |  |   | 5,501   |        
|                                                                                                             |               |                    |         |                    |  |           |        |          |  |       |         |         |  |           |        |          |  |   |          |         |  |   |        |         |  |   |        |         |  |   |         |        
|                                                                                                             | Total Revenue |                    | $       | 113,861            |  |           | $      | 127,120  |  |       | $       | 136,590 |  |           | $      | 129,818  |  |   | $        | 104,938 |  |   | $      | 118,892 |  |   | $      | 125,722 |  |   | $       | 113,526 | 
|Operating income                                                                                             |               | $                  | 31,101  |                    |  | $         | 41,232 |          |  | $     | 7,005   |         |  | $         | 43,912 |          |  | $ | 31,425   |         |  | $ | 38,178 |         |  | $ | 38,627 |         |  | $ | 26,782  |        
|Net income (loss) before cumulative change in
    accounting principle                                       |               | $                  | 5,708   |                    |  | $         | 16,991 |          |  | $     | (38,121 | )       |  | $         | 4,217  |          |  | $ | (707     | )       |  | $ | 11,303 |         |  | $ | 10,236 |         |  | $ | 330     |        
|Net income (loss)                                                                                            |               | $                  | 5,708   |                    |  | $         | 16,991 |          |  | $     | (38,121 | )       |  | $         | 4,217  |          |  | $ | (417,771 | )       |  | $ | 11,303 |         |  | $ | 10,236 |         |  | $ | 330     |        
|Net income (loss) applicable to common shares                                                                |               | $                  | (10,465 | )                  |  | $         | 382    |          |  | $     | (41,140 | )       |  | $         | 1,141  |          |  | $ | (432,312 | )       |  | $ | (3,629 | )       |  | $ | (5,098 | )       |  | $ | (15,419 | )      
|Net income (loss) per share applicable to common
    shares before cumulative change in accounting principle |               | $                  | (0.87   | )                  |  | $         | 0.03   |          |  | $     | (3.41   | )       |  | $         | 0.09   |          |  | $ | (1.28    | )       |  | $ | (0.30  | )       |  | $ | (0.43  | )       |  | $ | (1.29   | )      
|Net income (loss) per basic and diluted share                                                                |               | $                  | (0.87   | )                  |  | $         | 0.03   |          |  | $     | (3.41   | )       |  | $         | 0.09   |          |  | $ | (36.27   | )       |  | $ | (0.30  | )       |  | $ | (0.43  | )       |  | $ | (1.29   | )      



|    |                                                       
|--- | ------------------------------------------------------
|14. | Assets and Liabilities of Operations Held for
    Sale

On October 14, 2003, the Company announced
that it had entered into a definitive agreement with AWE to
exchange wireless properties. This transaction closed on
March 1, 2004. Under the agreement, the Company transferred
to AWE its operations in Oregon RSA 4, covering 226,000 POPs and
including 37 cell sites and approximately 35,000 customers as of
December 31, 2003. RCC received from AWE operations in
Alabama and Mississippi covering 732,000 total POPs and 545,000
incremental POPs and including 96 cell sites and approximately
16,000 customers as of December 31, 2003. In addition, RCC
received from AWE unbuilt PCS licenses covering portions of
RCCs South, Midwest, and Northwest regions that
incorporate 2.4 million total POPs and 1.3 million
incremental POPs. RCC also received $12.9 million in cash,
which will be used to pay amounts outstanding under the
Companys credit agreement.

The acquisition of licenses in the exchange will
be accounted for as a purchase by the Company and the transfer
of the properties by the Company to AWE will be accounted for as
a sale. The Companys consolidated balance sheet as of
December 31, 2003 reflects the assets and liabilities to be
transferred as assets

F-29



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##### Table of Contents



RURAL CELLULAR CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)

and liabilities of operations held for sale in
accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. The results of
operations of the markets to be transferred are included in
continuing operations. In connection with this transaction, RCC
recorded a loss on assets held for sale of $42.2 million
(included in operating expenses). This charge may require
adjustment in future periods if the estimated fair value changes
before the assets are transferred at closing.

Assets and liabilities relating to operations
held for sale (after giving effect to the loss on assets held
for sale) are summarized as follows (in thousands):

|                                                                    |                                                                       |                                         |       |        |        | 
|------------------------------------------------------------------- | --------------------------------------------------------------------- | --------------------------------------- | ----- | ------ | ------ | 
|                                                                    |                                                                       | December 31,                           
|                                                                    |                                                                       | 2003                                   
|                                                                    |                                                                       |                                        
|CURRENT ASSETS:                                                     |                                                                       |                                         |       |       
|                                                                    | Cash and cash equivalents                                             |                                         | $     | 2      |       
|                                                                    | Accounts receivable, less allowance for doubtful
    accounts of $146 |                                         |       | 2,983  |       
|                                                                    | Inventories                                                           |                                         |       | 169    |       
|                                                                    | Other current assets                                                  |                                         |       | 35     |       
|                                                                    |                                                                       |                                         |       |       
|                                                                    |                                                                       | Total current assets held for sale      |       | $      | 3,189  | 
|                                                                    |                                                                       |                                         |       |       
|PROPERTY AND EQUIPMENT, less accumulated
    depreciation of $5,457 |                                                                       | $                                       | 6,550 |       
|LICENSES AND OTHER ASSETS:                                          |                                                                       |                                         |       |       
|                                                                    | Licenses, net                                                         |                                         |       | 34,175 |       
|                                                                    | Goodwill, net                                                         |                                         |       | 4,940  |       
|                                                                    | Customer lists, net                                                   |                                         |       | 4,488  |       
|                                                                    |                                                                       |                                         |       |       
|                                                                    |                                                                       | Total licenses and other assets         |       |        | 43,603 | 
|                                                                    |                                                                       |                                         |       |       
|                                                                    |                                                                       | Total non current assets held for sale  |       | $      | 50,153 | 
|                                                                    |                                                                       |                                         |       |       
|                                                                    |                                                                       | ASSETS OF OPERATIONS HELD FOR SALE      |       | $      | 53,342 | 
|                                                                    |                                                                       |                                         |       |       
|CURRENT LIABILITIES:                                                |                                                                       |                                         |       |       
|                                                                    | Accounts payable                                                      |                                         | $     | 503    |       
|                                                                    | Advance billings and customer deposits                                |                                         |       | 139    |       
|                                                                    | Property taxes                                                        |                                         |       | 114    |       
|                                                                    |                                                                       |                                         |       |       
|                                                                    |                                                                       | LIABILITIES OF OPERATIONS HELD FOR SALE |       | $      | 756    | 
|                                                                    |                                                                       |                                         |       |       

F-30



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##### Table of Contents



RURAL CELLULAR CORPORATION AND
SUBSIDIARIES

SCHEDULE II  VALUATION AND
QUALIFYING ACCOUNTS



| |                                     
| | ------------------------------------
| | Allowance for Doubtful
    Accounts:

|                              |                             |                          |       |         |   |      |       |         |   |   |       |         |  
|----------------------------- | --------------------------- | ------------------------ | ----- | ------- | - | ---- | ----- | ------- | - | - | ----- | ------- | -
|                              |                             |                         
|                              |                             | Years Ended December 31,
|                              |                             |                         
|                              |                             | 2003                     |       | 2002    |   | 2001
|                              |                             |                          |       |         |   |     
|                              |                             |                         
|                              |                             | (In thousands)          
|Balance, at beginning of year |                             | $                        | 3,096 |         |   | $    | 4,016 |         |   | $ | 2,385 |        
|                              | Additions charged to income |                          |       | 12,784  |   |      |       | 10,809  |   |   |       | 16,291  |  
|                              | Write-offs                  |                          |       | (12,547 | ) |      |       | (11,729 | ) |   |       | (14,660 | )
|                              |                             |                          |       |         |   |      |       |         |   |   |       |        
|Balance, at end of year       |                             | $                        | 3,333 |         |   | $    | 3,096 |         |   | $ | 4,016 |        
|                              |                             |                          |       |         |   |      |       |         |   |   |       |        

F-31



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##### Table of Contents



EXHIBIT INDEX

|       |    |             |  |                                                                                                                                                                                                                                                                                                                                                        |  |     
|------ | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----
|Number |    | Description |  |                                                                                                                                                                                                                                                                                                                                                       
|       |    |             |  |                                                                                                                                                                                                                                                                                                                                                       
|       | 3  | .1(a)       |  | Articles of Incorporation                                                                                                                                                                                                                                                                                                                              |  | (1) 
|       | 3  | .1(b)       |  | Amendment to Articles of Incorporation, effective
    March 24, 2000                                                                                                                                                                                                                                                                                   |  | (1) 
|       | 3  | .2(a)       |  | Amended and Restated Bylaws                                                                                                                                                                                                                                                                                                                            |  | (1) 
|       | 3  | .2(b)       |  | Amendment to Amended and Restated Bylaws,
    effective March 22, 2000                                                                                                                                                                                                                                                                                 |  | (1) 
|       | 4  | .1          |  | Indenture dated May 14, 1998 between Rural
    Cellular Corporation, as Issuer, and Norwest Bank Minnesota,
    N.A., as Trustee, with respect to the 9 5/8% Senior
    Subordinated Notes Due 2008, including form of the
    9 5/8% Senior Subordinated Notes Due 2008                                                                               |  | (2) 
|       | 4  | .2          |  | Indenture dated January 16, 2002 between
    Rural Cellular Corporation, as Issuer, and Wells Fargo Bank
    Minnesota, N.A., as Trustee, with respect to the
    9 3/4% Senior Subordinated Notes Due 2010,
    including form of the 9 3/4% Senior Subordinated
    Notes Due 2010                                                                   |  | (2) 
|       | 4  | .3          |  | Certificate of Designation of
    11 3/8% Senior Exchangeable Preferred Stock                                                                                                                                                                                                                                                                          |  | (3) 
|       | 4  | .4          |  | Certificate of Designation of 12 1/4% Junior
    Exchangeable Preferred Stock                                                                                                                                                                                                                                                                          |  | (1) 
|       | 4  | .5(a)       |  | Class A Share Rights Agreement dated
    April 30, 1999                                                                                                                                                                                                                                                                                                |  | (4) 
|       | 4  | .5(b)       |  | Amendment to the Class A Rights Agreement
    dated March 31, 2000                                                                                                                                                                                                                                                                                     |  | (5) 
|       | 4  | .6(a)       |  | Recapitalization Agreement dated October 31,
    1999 by and between Rural Cellular Corporation and Telephone and
    Data Systems, Inc.                                                                                                                                                                                                               |  | (6) 
|       | 4  | .6(b)       |  | First Amendment to Recapitalization Agreement
    dated December 6, 1999 by and between Rural Cellular
    Corporation and Telephone and Data Systems, Inc.                                                                                                                                                                                            |  | (6) 
|       | 4  | .6(c)       |  | Second Amendment to Recapitalization Agreement
    dated March 31, 2000 by and between Rural Cellular
    Corporation and Telephone and Data Systems, Inc.                                                                                                                                                                                             |  | (6) 
|       | 4  | .6(d)       |  | Registration Rights Agreement dated
    March 31, 2000 by and between Rural Cellular Corporation
    and Telephone and Data Systems, Inc.                                                                                                                                                                                                              |  | (6) 
|       | 4  | .6(e)       |  | Certificate of Designation of Voting Power,
    Preferences and Relative Participating, Optional and Other
    Special Rights, Qualifications, and Restrictions of Class T
    Convertible Preferred Stock of Rural Cellular Corporation                                                                                                               |  | (6) 
|       | 4  | .7(a)       |  | Preferred Stock Purchase Agreement dated
    April 3, 2000 among Rural Cellular Corporation, Madison
    Dearborn Capital Partners III, L.P., Madison Dearborn
    Special Equity III, L.P., Special Advisors Fund I,
    LLC, Boston Ventures Limited Partnership V and Toronto
    Dominion Investments, Inc. (collectively Class M
    Investors) |  | (6) 
|       | 4  | .7(b)       |  | Certificate of Designation of Voting Power,
    Preferences and Relative Participating, Optional and Other
    Special Rights, Qualifications and Restrictions of Class M
    Redeemable Voting Convertible Preferred Stock of Rural Cellular
    Corporation                                                                                          |  | (6) 
|       | 4  | .7(c)       |  | Registration Rights Agreement dated April 3,
    2000 among Rural Cellular Corporation and Class M Investors                                                                                                                                                                                                                                           |  | (6) 
|       | 4  | .8          |  | Indenture dated August 1, 2003 between Rural
    Cellular Corporation, as Issuer, and U.S. Bank National
    Association., as Trustee, with respect to the
    9 7/8% Senior Notes Due 2010, including form of
    the 9 7/8% Senior Notes Due 2008                                                                                                    |  | (7) 
|       | 10 | .1(a)       |  | Third Amended and Restated Loan Agreement dated
    June 29, 2000 among Rural Cellular Corporation and certain
    financial institutions and Toronto Dominion (Texas), Inc. as
    administrative agent                                                                                                                                               |  | (8) 
|       | 10 | .1(b)       |  | First Amendment to the Third Amended and Restated
    Loan Agreement dated December 14, 2000 among Rural Cellular
    Corporation and certain financial institutions and Toronto
    Dominion (Texas), Inc. as administrative agent                                                                                                                    |  | (9) 
|       | 10 | .1(c)       |  | Second Amendment to the Third Amended and
    Restated Loan Agreement dated March 31, 2001 among Rural
    Cellular Corporation and certain financial institutions and
    Toronto Dominion (Texas), Inc., as administrative agent                                                                                                                     |  | (10)



---



##### Table of Contents



|       |     |             |  |                                                                                                                                                                                                                                                                    |  |     
|------ | --- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----
|Number |     | Description |  |                                                                                                                                                                                                                                                                   
|       |     |             |  |                                                                                                                                                                                                                                                                   
|       | 10  | .1(d)       |  | Third Amendment to the Third Amended and Restated
    Loan Agreement dated January 10, 2002, among Rural Cellular
    Corporation and certain financial institutions and Toronto
    Dominion (Texas), Inc., as administrative agent                               |  | (3) 
|       | 10  | .1(e)       |  | Fourth Amendment to the Loan Agreement dated
    August 1, 2003, among Rural Cellular Corporation and
    certain financial institutions and Toronto Dominion (Texas),
    Inc., as administrative agent                                                           |  | (7) 
|       | 10  | .2(a)       |  | Trademark and Trade Name License Agreements
    between Cellular 2000, Inc. and North Woods Cellular
    Partnership, Northern Lights Cellular Partnership, Great River
    Cellular Partnership, Cellular Five Partnership and Heartland
    Cellular Partnership |  | (11)
|       | 10  | .2(b)       |  | Assignment and Assumption Agreements by and
    between Rural Cellular Corporation and each partnership                                                                                                                                                            |  | (11)
|       | *10 | .3          |  | 1995 Stock Compensation Plan, as amended to date                                                                                                                                                                                                                   |  | (12)
|       | *10 | .4          |  | Stock Option Plan for Nonemployee Directors, as
    amended to date                                                                                                                                                                                                |  | (13)
|       | *10 | .5(a)       |  | Employment Agreement with Richard P. Ekstrand
    effective January 22, 1999                                                                                                                                                                                       |  | (14)
|       | *10 | .5(b)       |  | Amendment to Employment Agreement with Richard P.
    Ekstrand effective January 1, 2001                                                                                                                                                                           |  | (9) 
|       | *10 | .5(c)       |  | Second Amendment to Employment Agreement with
    Richard P. Ekstrand effective July 24, 2001                                                                                                                                                                      |  | (15)
|       | *10 | .5(d)       |  | Third Amendment to Employment Agreement with
    Richard P. Ekstrand effective August 23, 2001                                                                                                                                                                     |  | (15)
|       | *10 | .6(a)       |  | Employment Agreement with Wesley E. Schultz
    effective January 22, 1999                                                                                                                                                                                         |  | (14)
|       | *10 | .6(b)       |  | Amendment to Employment Agreement with Wesley E.
    Schultz effective January 1, 2001                                                                                                                                                                             |  | (9) 
|       | *10 | .6(c)       |  | Second Amendment to Employment Agreement with
    Wesley E. Schultz effective July 24, 2001                                                                                                                                                                        |  | (15)
|       | *10 | .6(d)       |  | Third Amendment to Employment Agreement with
    Wesley E. Schultz effective August 23, 2001                                                                                                                                                                       |  | (15)
|       | *10 | .7(a)       |  | Employment Agreement with Ann K. Newhall
    effective February 6, 1999                                                                                                                                                                                            |  | (16)
|       | *10 | .7(b)       |  | Amendment to Employment Agreement with Ann K.
    Newhall effective January 1, 2001                                                                                                                                                                                |  | (9) 
|       | *10 | .7(c)       |  | Second Amendment to Employment Agreement with Ann
    K. Newhall effective July 24, 2001                                                                                                                                                                           |  | (15)
|       | *10 | .7(d)       |  | Third Amendment to Employment Agreement with Ann
    K. Newhall effective August 23, 2001                                                                                                                                                                          |  | (15)
|       | *10 | .8(a)       |  | Change of Control Agreement with David Del Zoppo
    effective January 1, 2001                                                                                                                                                                                     |  | (9) 
|       | *10 | .8(b)       |  | Amendment to Change of Control Agreement with
    David Del Zoppo effective July 24, 2001                                                                                                                                                                          |  | (15)
|       | *10 | .9(a)       |  | Key Employee Deferred Compensation Plan                                                                                                                                                                                                                            |  | (17)
|       | *10 | .9(b)       |  | Amendment to Key Employee Deferred Compensation
    Plan                                                                                                                                                                                                           |  | (18)
|       | *10 | .10         |  | Management Incentive Plan                                                                                                                                                                                                                                          |  | (19)
|       | 16  |             |  | Letter from Arthur Andersen LLP                                                                                                                                                                                                                                    |  | (20)
|       | 21  |             |  | Subsidiaries of Registrant                                                                                                                                                                                                                                         |  | **  
|       | 23  |             |  | Consent of Deloitte & Touche LLP                                                                                                                                                                                                                                   |  | **  
|       | 31  | .1          |  | Section 302 Certification Sarbanes-Oxley Act
    of 2002                                                                                                                                                                                                           |  | **  
|       | 31  | .2          |  | Section 302 Certification Sarbanes-Oxley Act
    of 2002                                                                                                                                                                                                           |  | **  
|       | 32  | .1          |  | Section 906 Certification Sarbanes-Oxley Act
    of 2002                                                                                                                                                                                                           |  | **  
|       | 32  | .2          |  | Section 906 Certification Sarbanes-Oxley Act
    of 2002                                                                                                                                                                                                           |  | **  



---



| |     |                                                                                                                              
| | --- | -----------------------------------------------------------------------------------------------------------------------------
| | (1) | Filed as an exhibit to Report on Form 10-K
    for the year ended December 31, 1999 and incorporated
    herein by reference.



---



##### Table of Contents





| |     |                                                                                                                                                  
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | Filed as an exhibit to Registration Statement on
    Form S-4 (SEC No. 333-57677), filed June 25,
    1998, and incorporated herein by reference.
|
| | (3) | Filed as an exhibit to Report on Form 10-K
    for the year ended December 31, 2001 and incorporated
    herein by reference.                    
|
| | (4) | Filed as an exhibit to Registration Statement on
    Form 8-A filed May 19, 1999 and incorporated herein by
    reference.                       
|
| | (5) | Filed as an exhibit to Registration Statement on
    Form 8-A/ A-1 filed April 18, 2000 and incorporated
    herein by reference.                
|
| | (6) | Filed as an exhibit to Report on Form 8-K
    dated April 1, 2000 and incorporated herein by reference.                                          
|
| | (7) | Filed as an exhibit to Report on Form 10-Q
    for the quarter ended June 30, 2003, and incorporated
    herein by reference.                    
|
| | (8) | Filed as an exhibit to Report on Form 10-Q
    for the quarter ended June 30, 2000 and incorporated herein
    by reference.                     
|
| | (9) | Filed as an exhibit to Report on Form 10-K
    for the year ended December 31, 2000, and incorporated
    herein by reference.                   



|     |                                                                                                                                                   
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Filed as an exhibit to Report on Form 10-Q/
    A for the quarter ended March 31, 2001, and incorporated
    herein by reference.                 
|    
|(11) | Filed as an exhibit to Registration Statement on
    Form S-1 (Sec. No. 33-80189) filed December 8,
    1995 and incorporated herein by reference.
|    
|(12) | Filed with definitive proxy statement for 2000
    Annual Meeting on April 7, 2000 and incorporated herein by
    reference.                      
|    
|(13) | Filed as an exhibit to Report on Form 10-K
    for the year ended December 31, 1996 and incorporated
    herein by reference.                     
|    
|(14) | Filed as an exhibit to Report on Form 10-K
    for the year ended December 31, 1998 and incorporated
    herein by reference.                     
|    
|(15) | Filed as an exhibit to Report on Form 10-Q/
    A for the quarter ended September 30, 2001, and
    incorporated herein by reference.             
|    
|(16) | Filed as an exhibit to Report on Form 10-Q
    for the quarter ended March 31, 1999 and incorporated
    herein by reference.                     
|    
|(17) | Filed as an exhibit to Report on Form 10-Q/
    A for the quarter ended June 30, 2001, and incorporated
    herein by reference.                  
|    
|(18) | Filed as an exhibit to Report on Form 10-K
    for the year ended December 31, 2002 and incorporated
    herein by reference.                     
|    
|(19) | Filed with Proxy Statement for 2001 Annual
    Meeting on April 9, 2001, and incorporated herein by
    reference.                                
|    
|(20) | Filed as an exhibit to Report on Form 8-K
    dated June 10, 2002, and incorporated herein by reference.                                          



| |   |                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------
| | * | Management contract or compensatory plan or
    arrangement required to be filed as an exhibit to this form.



| |    |                
| | -- | ---------------
| | ** | Filed herewith.