CFW
[logo]
Communications Company


                                  [photograph]

                                        
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               More Ways To Bring More  e  Together.
                                        
                                                              1998 Annual Report

<PAGE>

                                bringing people

                              together in more ways


Telephone

The foundation of the Company's century-long communications services, CFW's
local and long distance telephone services are offered through a state of the
art digital switching system and extensive fiber optic network.


Wireless

CFW markets an array of wireless communications services including 100% digital
PCS, cellular and paging services. Its digital PCS network extends through
central and western Virginia and parts of West Virginia and is marketed under
the brand name Intelos.


Internet

CFW offers local connections to the internet, as well as e-mail and consulting
services. Dial-up services are complemented with high-speed data alternatives
that include wireless cable modems and DSL solutions.


Network

CFW's extensive fiber optic network provides for the economical transfer and
delivery of communications traffic from internet and long distance to wireless
services. It provides an alternative route for other carriers and is also used
by CFW to deliver CLEC service to businesses.


Video

CFW delivers cable television services to viewers, including packages with local
or regional affiliates, pay-per-view and additional special services, cable
networks, and access to premium providers including HBO and Cinemax.


  c       Key Highlights                                           2
  o       Letter to Shareholders                                   3
  n       The Integrated Communications Provider Concept           6
  t       Consolidated Financial Statements                       14
  e       Independent Auditor's Report                            29
  n       Management's Discussion & Analysis                      30
  t       Board of Directors & Executive Officers                 36
  s       General Information                      Inside Back Cover


<PAGE>


                              financial highlights

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
                                                                             Amount of     Percent
(In thousands, except for per share amounts)   1998           1997          Inc. (Dec.)  Inc. (Dec.)
-------------------------------------------------------------------------------------------------------
<S>                                         <C>            <C>              <C>             <C>
Operating Revenues                          $  66,686      $  59,010        $  7,676        13.0%
Operating Expenses                             44,060         39,598           4,462        11.3%
Operating Cash Flows (a)                       33,130         28,608           4,522        15.8%
Operating Income                               22,627         19,412           3,215        16.6%
Net Income (b)                                  8,508         12,221          (3,713)      (30.4%)
Net Income Per Share - Diluted (b)               0.65           0.94           (0.29)      (30.9%)
Cash Dividends Per Share                        0.435          0.412           0.023         5.6%
Investment In Property
  & Equipment                                $153,621       $137,703         $15,918        11.6%
Average Number of Common Shares
  Outstanding - Diluted                        13,094         13,056              38         0.3%
-------------------------------------------------------------------------------------------------------
</TABLE>

(a)  Operating Income before depreciation and amortization. See Management's
     Discussion & Analysis for additional factors to consider in using this
     measure.

(b)  Excluding gain on sale of investment, loss on write-down of investment and
     equity loss from PCS investees, net income was $13.1 million ($1.00 per
     common share - diluted) and $11.3 million ($0.86 per common share -
     diluted) for 1998 and 1997, respectively. This represents an increase of
     $1.8 million or $0.14 per common share - diluted.

CFW Communications Company is the Integrated Communications Provider (ICP) of
choice for business and residential customers throughout central and western
Virginia and West Virginia. Offering a diversified range of integrated
telecommunications solutions and renowned customer service, CFW is a prime
          source for serving any customer's communications requirements for
 a        voice, data and video. CFW finds more ways to bring more people
 b        together than any other communications company in the region.
 o
 u        Serving as Virginia's premier telecommunications company for more than
 t        a century, CFW is the largest independent telephone company
          headquartered in the Commonwealth and the 40th largest in the nation.
 t        Traded on the NASDAQ exchange (symbol: CFWC), the company has
 h        approximately 13 million shares outstanding and 3,000 shareholders.
 e

 c       Operating Revenues              Operating Cash Flows (a)
 o     (in millions of dollars)          (in millions of dollars)
 m       [graph appears here]              [graph appears here]
 p       98    66.7                        98    33.1
 a       97    59.0                        97    28.6
 n       96    49.9                        96    23.8               
 y       95    43.1                        95    19.9
         94    32.2                        94    17.3


                        Net Income
                 (in millions of dollars)
                   [graph appears here]
                98     8.5 (b)
                97    12.2 (b)
                96     9.6               
                95     8.5
                94     7.6

<PAGE>


                                        f
                                        o
                                        r
                                  Key      Highlights
                                        t
                                        h
                                        e

                                        y
                                        e
                                        a
                                        r


RETAIL STORES - Opened 12 integrated communications retail stores in communities
across Virginia and West Virginia, resulting in wider distribution of our
products and services and greater convenience for our customers.

PREPAID WIRELESS - Introduced Intelos Express prepaid digital wireless phone
service, expanding our target of wireless consumers and creating significant
customer growth.

BUNDLED SERVICES - Launched internet and long distance services in Lynchburg and
Winchester, Virginia and Charleston and Huntington, West Virginia, providing the
first such integrated multi-service bundled packages with single billing in
the region.

NEW MARKETS - Launched three strategic services in Charleston and Huntington,
West Virginia making Intelos the first integrated communications provider to
offer digital PCS, internet and long distance services in the region.

CLEC SERVICE - Initiated competitive local exchange carrier service in
Charlottesville, Harrisonburg and Staunton, Virginia representing our first
entry into the CLEC business and supporting our integrated services strategy.

DSL SERVICE - Began offering digital subscriber line (DSL) service, a new
dedicated high-speed internet service, in Waynesboro, Virginia maximizing the
value of copper wire infrastructure for customers.

EXPANDED DIRECTORY ASSISTANCE - Announced plans to renovate the historic Taylor
Hotel in downtown Winchester as a third directory assistance center to meet
increasing traffic demands.

CUSTOMER CARE - Constructed and opened a 31,000 square foot integrated
customer contact center and training facility, supporting the Company's plan to
provide a single point of contact for wide ranging services.

BRAND - Introduced the CFW Intelos brand in core markets while continuing to
build the Intelos brand across the remaining market areas, more closely linking
the two strong brands in the minds of our customers.

CFW and its progressive Integrated Communications Provider (ICP) concept has
gained recognition in national magazines such as Wireless Review and Telephony.
The operating team leading the company into its 102nd year includes (top row l.
to r.) James Quarforth, President and CEO and Carl Rosberg, Senior Vice
President and COO. (bottom row l. to r.) David Lowe, President, West Virginia
Operations; David Maccarelli, Senior Vice President, Engineering and Carrier
Services and Walter Zirkle, President, Virginia Operations.

[photographs (5) appear here]

<PAGE>

Letter to Shareholders

Nationally the telecommunications industry is in a state of
unprecedented change -- mergers and acquisitions have become
commonplace, competition is emerging and new players are
rapidly entering the market. Companies are endeavoring to
become integrated communications providers and attempting to
bundle local, wireless, internet access and long distance
services.

Our long-term shareholders and the rural communities we            [map
serve know that we have shared this vision of integrated          appears
services for quite some time. And more importantly, we have        here]
been executing a strategy to achieve it.

Today, we have the networks and infrastructure in place to offer
digi-tal PCS, internet access, local telephone and long distance
service in a rapidly expanding operating region. We also remain
focused on continuing our reputation as a quality service provider,        R
having recently opened a new state of the art customer contact center.     e
And, through nineteen integrated retail store and kiosk locations and      g
an expanded business sales team, we offer a host of residential and        i
business communications solutions.                                         o
                                                                           n
Financial Results                                                          a
                                                                           l
Operating revenues were $66.7 million in 1998, an increase of 13% over
the previous year. Operating cash flows were $33.1 million, an             O
increase of 16% over 1997. Operating income was $22.6 million, a 17%       p
increase over last year. Net income for 1998 was $8.5 million, or          e
$0.65 per share-diluted.                                                   r
                                                                           a
These record results reflect strong contributions from our telephone,      t
directory assistance, cellular and paging operations. Highlights from      i
these core services include cellular and paging customer growth of 30%     n
from the prior year, as our combined cellular and paging customers         g
reached 38,400, and growth in telephone access minutes and lines of
10.5% and 3.3%, respectively, from the prior year as access lines          A
topped 36,700. Partially offsetting these results were start-up costs      r
associated with our introduction in the second half of 1998 of             e
competitive local telephone services in Charlottesville, Harrisonburg      a
and Staunton, Virginia; introduction of DSL service, an advanced new
high-speed internet product in Waynesboro, Virginia; and the launch of
internet and long distance services in Lynchburg and Winchester,
Virginia, and Charleston and Huntington, West Virginia.

In addition, we recognized $6.5 million, before-tax, of equity losses
reflecting our share of the operating losses associated with our
investments in PCS alliances and $1.0 million of loss, before-tax,
from the write-down of our investment in American Telecasting, Inc.

1998 ACCOMPLISHMENTS & STRATEGIC INITIATIVES

In 1998 we established Intelos as the leading digital PCS service
provider in central and western Virginia as we closed out the year
with a penetration rate of over one percent of the covered population
in this region. In late 1998, we also launched digital PCS services in
the Charleston and Huntington, West Virginia markets. And our PCS
expansion plans don't stop there, as we have also started construction
of a PCS network to serve the communities of Clarksburg, Fairmont and
Morgantown, West Virginia, and expect to commercially offer digital
PCS service in these new markets in the second quarter of 1999. With
national roaming agreements in place with carriers such as Sprint PCS,
our customers can look forward to the benefits of digital PCS, and,
through the use of a dual mode handset, analog cellular or digital
PCS, nationwide.

                                                                               3

<PAGE>

 I       Complementing our PCS service in each of these markets has been our
 n       internet access service. In the fourth quarter of 1998 we followed our
 t       PCS offering in Lynchburg and Winchester, Virginia, and Charleston and
 e       Huntington, West Virginia, with internet access and long distance
 l       services. We now offer internet access in ten markets and nearly
 o       doubled our customer count from a year ago. Yet we are quick to
 s       realize that the internet customer of today is continually looking for
         higher speed access to the internet. To address this demand, in
 D       November 1998 we introduced an advanced new data service called DSL in
 i       Waynesboro and have plans to deploy this exciting new technology in
 g       seven additional markets by the end of 1999. We will also be testing
 i       high-speed two-way wireless internet service in Charlottesville and
 t       the Shenandoah Valley with plans to introduce this attractive
 a       high-speed alternative by the end of 1999.
 l
         In 1998 we commenced offering competitive local telephone service, or
 P       CLEC, to businesses in the neighboring communities of Charlottesville,
 C       Harrisonburg and Staunton, Virginia - a significant accomplishment
 S       considering the complexity involved in interconnecting with the three
         largest local telephone companies in Virginia. With these
 C       interconnections, and our back-office support in place, we plan to
 o       expand this service offering to businesses in these and other
 v       communities during 1999.
 e
 r       While reselling local loops works for the business sector, we are
 a       looking to provide local service to residential customers by wireless
 g       local loop using the PCS spectrum. And with the Intelos PCS network in
 e       place, we have the ability to redefine the local calling area by
         expanding our markets' current limited local calling areas. In early
 A       1999 we will begin to trial this service in selected markets and
 r       anticipate a commercial launch later in the year.
 e
 a       For our directory assistance operations, the year 1998 was a year for
         integrating the rapid growth we experienced during 1997. Our directory
         assistance workforce has done an outstanding job in learning three new
         states introduced in 1997 and has also taken on the challenge of
         providing national directory assistance services for a new national
         directory assistance customer added during 1998. Our two existing call
         centers are at near-capacity and, to position the Company for future
         growth opportunities, we have commenced the renovation of a building in
         Winchester, Virginia that will house our third call center. This new
         center is expected to begin operations in May 1999, and when coupled
         with the new national directory assistance database located in
         Waynesboro, Virginia we will be prepared to aggressively pursue
         additional directory assistance business.

[map           All of the aforementioned services have stimulated additional
appears        demand and usage of our 450 miles of fiber optic network. And
here]          with continued growth expected from each of these service
               offerings, coupled with our opening of new markets in Virginia
               and West Virginia, through a joint fiber build we plan to acquire
               500 additional miles of fiber to connect the balance of our
               cities in Virginia during 1999 and plan to build or acquire
               access to a fiber network in West Virginia in 2000.

A key enabler in our expansion has been the investment in back-office services
that allows us to provide integrated billing and outstanding customer care. We
recently opened a new integrated customer contact center located in Waynesboro,
Virginia that will enable us to rapidly move toward a single point of contact
for all services to simplify the service experience for

STRATEGIC SERVICES BY MARKET
----------------------------------------------------------------------------
1998 MARKET                       PCS   INTERNET   LONG DISTANCE    LOCAL
----------------------------------------------------------------------------
Charlottesville, VA                *        *            *            *
Harrisonburg, VA                   *        *            *            *
Staunton, VA                       *        *            *            *
Waynesboro, VA                     *        *            *            *
Charleston, WV                     *        *            *
Clifton Forge/Covington, VA                 *            *            *
Huntington, WV                     *        *            *
Lexington, VA                      *        *            *
Lynchburg, VA                      *        *            *
Winchester, VA                     *        *            *
Danville, VA                       *
Martinsville, VA                   *
New River Valley, VA               *
Roanoke, VA                        *

                                                                               4



         [photograph appears here]                                     i
                                                                       n
         President and CEO, James Quarforth and Chairman, Robert       t
         Yeago share a vision for CFW and a commitment to the          e
         extensive region it serves. Quality products and services,    g
         knowledgeable and helpful employees, and service to our       r
         communities will continue to define CFW as it moves forward   a
         as the region's leading integrated communications provider.   t
                                                                       i
                                                                       o
                                                                       n

our customers. We operate a total of nineteen retail stores and kiosks and
have expanded our business sales force throughout Virginia and West
Virginia. These locations offer a single source for voice and data
communications products and services, thereby providing as much convenience
and accessibility to our customers as possible. In 1999, CFW will bring
wireless data services to the Intelos PCS customer base allowing for
circuit switched data from a PC or facsimile machine connected through a
PCS phone. Later in 1999 and 2000, wireless data services will be enhanced
to afford direct connection to the internet and improved speeds of up to 64
kbps. We are also moving toward electronic commerce and production of a
single integrated bill to further enhance customer convenience.

OUTLOOK FOR 1999 AND BEYOND

As a mature company with strong cash flow, we have been able to make strategic
investment decisions that have allowed us to reposition the Company as a
regional ICP. Like most start-up PCS, competitive local exchange carriers (CLEC)
or internet access providers, we too are incurring up-front losses associated
with deploying these services. We believe this strategy will enable us to create
long-term shareholder growth. We also believe that as other telecommunications
companies transition into integrated communications providers, our story will be
better understood by the investment community and the market values of our
businesses will be more accurately reflected in our stock price.

In 1999 and beyond we plan to continue introducing our integrated communications
service offerings to communities throughout central and western Virginia and
West Virginia. These actions should accelerate our revenue growth in the years
ahead; however, the start-up costs will, in the short-term, depress operating
margins and earnings. We have the financial strength to absorb the impact from
this expansion and unlike most start-up PCS, CLEC or internet providers, we have
the financial ability to continue to support our history of paying dividends. We
are proud to report that in February, 1999 the Board approved the thirty-fourth
consecutive annual dividend increase, raising the annual dividend 5.52% to
$0.459 per share.

Thank you for your continued support.

/s/ James S. Quarforth                      /s/ Robert S. Yeago, Jr.
--------------------------------            ------------------------------------
James S. Quarforth                          Robert S. Yeago, Jr.
President and Chief Executive Officer       Chairman of the Board

                                                                               5

<PAGE>

                 [photographs appear here]
                       More Ways

The ICP Concept

A world of communications possibilities for its customers--from a single
provider. That's CFW's vision. And in the dynamic and fast-paced world of
communications, it is quickly becoming a reality. CFW Communications represents
the most progressive Integrated Communications Provider (ICP) in its regional
service area. Couple the depth of its comprehensive array of communications
services with an award-winning commitment to outstanding customer care, and its
version of the ICP concept is created.

CFW has served as Virginia's premier communications company for more than 100
years, and its reputation for high-quality, value-added services, and
outstanding customer care has never been greater or more widespread. Its
integrated solutions encompass traditional telecom offerings as well as wireless
communications services, high-speed data delivery, cable television and business
and security systems. And, with a heritage richly centered in servicing the
needs of an ever increasing customer base, its ability to deliver integrated
communications products and services is overshadowed only by its desire to
differentiate its proposition with unprecedented customer care. In combination,
these elements provide its customers with the power to communicate whenever,
wherever, and however they choose. Being an Integrated Communications Provider
is a powerful premise that immediately differentiates CFW from other providers
in its field.

This is the new age in communications, and people require reliable,
comprehensive solutions for keeping in touch. Whether at home or at the office
-- CFW is proving it has more ways to bring more people together.


         [photographs appear here]                                      v       
                                                                        a
         Intelos   digital  PCS  is  at  the   forefront  of  wireless  l
         communications,  delivering privacy, clarity, and a toll free  u
         calling  area that can include  the state,  the region or the  e
         country.

                                                                               6

<PAGE>

MORE ICP WAYS

CFW's philosophy of "more ways to bring more people together" is especially
applicable in today's busy and fast-paced environment. Revolutionary leaps
forward in technology and general availability of services have given modern age
communications a personalized dimension. In the new age, every family and
business can have a unique communications solution. The line between traditional
residential and business services is becoming more obscure, the result of
improved communications tools and the need to stay in touch with people rather
than places. This revolution sets the stage for an ICP that can deliver
comprehensive, integrated communications services that are reliable, easily
obtainable, and meet the often overlapping needs of both residential and
business customers.

f       CFW's family of integrated communications services is among the
l       broadest in the industry. From within its own network infrastructure,
e       CFW can provide customized solutions that exactly meet the needs of
x       most residential or business customers in their region. And, while
i       traditional telephone services continue to be available in core
b       markets, CFW has expanded its offering to include digital PCS, local
i       internet access, DSL, voicemail, directory assistance, long distance,
l       paging, cellular, cable television, business telephone systems and
i       security and alarm services. Many of these services cross the
t       boundaries of traditional communications. Digital PCS, for example,
y       may be coupled with text messaging services, like stock quotes or
        headline news, to create a personal communications device that is as
        unique to the customer as a fingerprint.

         Full Service

         [PHOTO]
         CFW residential customers, such as the David Bull family,
         enjoy the quality and convenience of multiple communications
         services. One of the first to enjoy high speed internet
         access using DSL technology, the Bull's also have local
         telephone, long distance and wireless services. (Waynesboro,
         Virginia)

                                                                               7
<PAGE>

Integrated Communications

CFW's ICP concept is further played out in nineteen company-owned           r
retail stores and kiosks. These integrated communications shopping          e
centers maintain a visible and striking presence in its markets while       l
offering customers an opportunity to evaluate and sample the latest in      i
communications technology. Professionally trained sales and service         a
representatives are available to provide consulting services, answer        b
questions and demonstrate CFW's complete family of communications           l
services. More importantly, they can personally discuss with each           e
customer how these services can be integrated together to make
individual communications more effective. CFW's commitment to personal
service is exemplified in its retail facilities, where they still do
business by meeting customers person-to-person and creating long-term
relationships.

These retail facilities are complemented with business sales professionals that
bring communications expertise directly to their business customers. By
analyzing and assessing customer needs, CFW is able to craft solutions that
maximize customer specific objectives for voice, data and video. Additionally,
their representatives provide a single interface for business partners,
establishing continuity and mutual respect. CFW realizes that business customers
have many choices for communications services. At CFW, the difference is in its
people, its personalized service, and the added value of the ICP concept.

But face-to-face is not the only way to reach CFW. Their new customer contact
center in Waynesboro, Virginia was built on a century old foundation of deep
rooted customer care philosophies. From this state of the art customer care and
employee training center, CFW's service representatives receive and respond to
customer

         [photograph appears here]

         Designed to reflect the comforts of home, CFW's integrated
         retail stores offer customers a relaxed environment in which
         to evaluate and sample the latest in communications
         technology. Strong colors and distinctive architectural
         designs further establish brand recognition throughout the
         region.

                                                                               8

<PAGE>

inquiries by phone, fax, or e-mail. Universal service representatives
are trained on a variety of communications services and provide a single point
of contact for its customers.

You might also see CFW employees in their local communities. They could be at
soccer practice in Roanoke, Virginia, the Regatta in Charleston, West Virginia
or working as volunteers in any local school system. Their employees are well
entrenched in serving the communities where they work and live, and CFW is proud
to be making a positive influence in local communities across their region.

Whenever and wherever a communications need exists, you can depend on CFW to be
there. Through integrated services, personalized customer care, integrated
billing, and retail and business representatives, CFW works to create the
seamless ICP relationship that its customers will trust now and in the future.

STRATEGY FOR ICP DEVELOPMENT

During the past year, CFW moved decisively in a direction that transformed the
Company into a true regionally based ICP servicing central and western Virginia
and West Virginia. By utilizing a robust digital PCS network and growing fiber
capacity, CFW has been able to extend multiple-service offerings throughout a
much larger regional footprint. In addition, the Company began offering local
business dial tone to a broader service area, while also continuing to enhance
traditional communications services with new technologies that enhance the value
of its ICP concept. For example, CFW introduced DSL service that allows for
simultaneous voice and data transmission over traditional copper lines. That
means local telephone service customers can maximize their communications
services by enjoying direct high-speed internet connections while taking voice
calls at home or work without adding a second line.

By first deploying the Intelos digital PCS network in new markets, and then
entering as a high-quality provider of competitively priced prepaid and postpaid
wireless services, the Company has made it possible for customers to achieve
innovative, feature-rich wireless communications while positioning for
additional services. The digital PCS


         [photograph appears here]

         CFW's four strategic services meet the wide variety of voice
         and data needs of home and business customers. Key services,
         which may be offered as stand alone or as value-added
         bundles, include digital PCS, internet access and local and
         long distance telephone services.

Strategic Services

                                                                               9
<PAGE>

Convenience

         [photograph appears here]

         George Davis, an independent stockbroker, is one of seven
         representatives of Ficon Insurance Agency who utilizes
         digital PCS from Intelos. "The long distance savings is just
         incredible - we never use our office phones to make calls
         outside of the area anymore." George takes his phone
         everywhere he goes and describes it as the "most convenient"
         wireless service in the region. (Charleston, West Virginia)


G       relationship becomes the foundation upon which to build a broader   Y
e       integrated services strategy. Internet, local and long distance     O
o       telephone services follow PCS into expanded regional markets.       U
g       These services are offered either as stand-alone communications     '
r       services or as part of integrated multi-service bundles designed    V
a       to maximize value for customers. Bundling is an important element   E
p       in the ICP strategy, encouraging customers to seek a single
h       source provider for all of their communications needs, while        G
i       rewarding them in both savings and convenience. As an added         O
c       benefit, services in the multi-service pack ages are presented on   T
        a single bill and supported by universal customer care
        representatives.                                                    M
                                                                            A
                                                                            I
                                                                            L

In a communications era of extraordinary evolution, CFW continually searches for
opportunities to expand the value of both new and traditional services. Couple
this with extraordinary customer care, personalized service, and integrated
back-office support, and the ICP concept becomes a powerful proposition.

A YEAR OF NETWORK GROWTH

During 1998, CFW dramatically expanded the reach of its information services and
fiber network. In information services, the Company's directory assistance group
gained access to a national directory assistance database, positioning

                                                                              10

<PAGE>

E     it to capture significant portions of calling volumes from other
x     communications carriers. This important enhancement makes it easier
p     for callers to receive directory assistance even if they do not know
a     the area code. In light of the proliferation of area codes across the
n     United States in recent years, the ability to find a number based on
s     the name and state of the person called is a prime benefit. And these
i     services are delivered with the same commitment to outstanding
o     customer service that has been its hallmark for many years.
n
      While much of CFW's directory assistance business is contracted
      by large carriers, such as AT&T, during 1998 the Company
      experienced a growing volume of directory assistance calls from
      wireless customers, adding a new dimension to this already
      robust business. The Company's two directory assistance
      centers operated at near-capacity during the year, making a
      third center an appealing option.
 
      In anticipation of continued demand and expansion of its directory
      assistance services, CFW began the renovation of the former Taylor
      Hotel in downtown Winchester, Virginia to serve as its third directory
      assistance center. This new call center, which will open in the second
      quarter of 1999, will accommodate up to 250 employees. Part of the
      ground floor level of the hotel will also serve as a highly visible
      retail store for the Company's products and services. In total, the
      project represents CFW's steadfast commitment to the region and to the
      directory assistance business.
 
      In 1998, CFW significantly expanded its fiber network capabilities
      through direct connections to the CFN Fiber Network and AEP
      Communications Fiber Network, resulting in the ability to sell seamless

         [PHOTO]

         Well trained, directory assistance operators answer an
         average of 220,000 calls every business day. Our commitment
         to accuracy, quality and superior customer care has resulted
         in continued growth and expansion for CFW directory
         assistance services.

Network

                                                                              11
<PAGE>

F     voice and data transmission over 10,000 miles of fiber from
i     Pennsylvania to Florida. In addition, CFW continues to partner with
b     other telecommunications companies to grow its fiber network and other
e     facilities for economical wide-area-delivery of services.
r
      This ability to deliver services to customers by a variety of means
O     provides added flexibility. As CFW expands its service offerings out
p     from the core wireless service, its extensive fiber capacity allows it
t     to economically link together widespread markets.
i
c     A STRATEGY FOR THE FUTURE

N     For a company so well grounded in the traditions of its past, CFW is
e     moving with confidence as an ICP into a strong future. CFW will
t     continue to carry other service providers' long distance and
w     communications traffic, further increasing its return on investment in
o     facilities. In addition, Intelos will lease portions of its digital
r     PCS network, which will improve return and encourage other carriers to
k     utilize Intelos' network infrastructure. Intelos will aggressively
      pursue the buildout of the digital PCS network that forms the
      foundation for its strategy of ICP service expansion.

With this foundation intact, the Company's four strategic services--digital PCS,
internet, local and long distance telephone services--will continue to be
extended into new and existing PCS markets. Intelos will install the necessary
hardware and software to accommodate wireless data services in the first half of
1999 and by early 2000, its digital PCS service will allow direct connections to
the internet with improved speeds of up to 64 kbps.

CFW's regional footprint will continue to expand, as it plans to open the
northern

         [map appears here]

         CFW and its partners, through interconnection agreements,
         offer a continuous fiber network encompassing 16 states and
         more than 10,000 miles. This extensive infrastructure makes
         for an attractive alternate traffic route for carriers, while
         also serving as a backbone for ICP service development in
         Virginia and West Virginia.

                                                                              12

<PAGE>

         [photograph appears here]

         Our vision of the integrated communications provider concept
         is nearly realized. By combining the strengths of our rich
         heritage, our employees, and our services, we are confident
         of a bright future that finds more ways to bring more people
         together.


                                                              L
                                                              e
                                                              a
                                                              d
                                                              e
                                               The Future     r
                                                              s
                                                              h
                                                              i
                                                              p



corridor markets of West Virginia--including Clarksburg, Fairmont and
Morgantown--in 1999. A new West Virginia operations center and switch facility
will be located in downtown Charleston, further enhancing its position as a
regional integrated communications provider.

Certainly, it is foremost that CFW continually look for ways to add value to its
relationships with its customers. This CFW will do through ever-enhanced
services from a single source, expanded 24-hours by 7-days a week customer care,
and a continuation of its corporate policy of involvement in the communities it
serves.

There is a link between this company and its communities that spans a century.
It will be CFW's strength as it moves forward, and will always be an integral
part of its culture. It is also a time of great excitement and opportunity in
communications, and CFW is positioned to prevail today, and to drive powerfully
into the future. By developing the resources and systems needed to serve its
customers over time, and by remaining true to its history and heritage as the
premier provider of reliable communications, CFW will continue to find more ways
to bring more people together.

                                                    Dedication

                                                                              13

<PAGE>

Consolidated Balance Sheets
CFW Communications Company and Subsidiaries


<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------

December 31,                                                                          1998         1997
--------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>           <C>
ASSETS

CURRENT ASSETS
   Cash and cash equivalents                                                   $      42,890  $  1,224,347
   Accounts receivable, net of allowance of $0.6 million ($0.3 million in 1997)   12,120,985    12,204,284
   Receivable from affiliates                                                      5,681,978       726,831
   Materials and supplies                                                          2,176,895     2,039,345
   Prepaid expenses and other                                                        448,775       349,617
   Income taxes receivable                                                           691,221             -
--------------------------------------------------------------------------------------------------------------

                                                                                  21,162,744    16,544,424
                                                                                --------------------------


SECURITIES AND INVESTMENTS                                                        11,671,417    16,873,601
--------------------------------------------------------------------------------------------------------------

PROPERTY AND EQUIPMENT
   Land                                                                            1,957,874     1,702,312
   Buildings and improvements                                                     19,007,349    14,710,539
   Network plant and equipment                                                    93,247,587    87,718,927
   Furniture, fixtures, and other equipment                                       20,022,238    16,187,202
   Radio spectrum licenses                                                        15,468,649    15,370,979
                                                                                --------------------------
      Total in service                                                           149,703,697   135,689,959
   Under construction                                                              3,916,819     2,013,191
--------------------------------------------------------------------------------------------------------------

                                                                                 153,620,516   137,703,150
   Less accumulated depreciation                                                  50,760,242    42,032,163
--------------------------------------------------------------------------------------------------------------

                                                                                 102,860,274    95,670,987
                                                                                --------------------------
OTHER ASSETS
   Cost in excess of net assets of business acquired,
      less accumulated amortization of $1.4 million ($1.0 million in 1997)        12,705,900    13,062,856
   Deferred charges                                                                  533,540     1,120,829
   Radio spectrum licenses                                                         6,090,791     5,174,832
--------------------------------------------------------------------------------------------------------------

                                                                                  19,330,231    19,358,517
                                                                                --------------------------

                                                                                $155,024,666  $148,447,529
--------------------------------------------------------------------------------------------------------------

See Notes to Consolidated Financial Statements.

                                                                                                            14
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------

December 31,                                                                          1998         1997
--------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>           <C>
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
   Accounts payable                                                            $   7,042,966 $   4,169,282
   Customers' deposits                                                               400,655       457,343
   Advance billings                                                                2,303,696     2,081,491
   Accrued payroll                                                                 1,283,083     1,459,821
   Accrued interest                                                                  623,412       815,622
   Other accrued liabilities                                                       2,490,386     2,651,719
   Deferred revenue                                                                1,221,849     1,329,877
   Income taxes payable                                                                    -       124,545
--------------------------------------------------------------------------------------------------------------
                                                                                  15,366,047    13,089,700
                                                                                ------------------------------
LONG-TERM DEBT                                                                    19,774,262    24,606,160
--------------------------------------------------------------------------------------------------------------
LONG-TERM LIABILITIES
   Deferred income taxes                                                          14,243,872     9,242,246
   Retirement benefits other than pensions                                         9,317,424     8,431,688
   Other                                                                           1,440,157     1,471,543
--------------------------------------------------------------------------------------------------------------
                                                                                  25,001,453    19,145,477
                                                                                ------------------------------


MINORITY INTERESTS                                                                 1,472,419     1,150,690
--------------------------------------------------------------------------------------------------------------
COMMITMENTS
SHAREHOLDERS' EQUITY
   Preferred stock, no par value per share, authorized                                    -              -
      1,000,000 shares; none issued
   Common stock, no par value per share, authorized                               43,527,636     43,420,269
      20,000,000 shares;  issued 13,016,988 shares
      (12,986,654 in 1997)
   Retained earnings                                                              49,882,849    47,035,233
--------------------------------------------------------------------------------------------------------------
                                                                                  93,410,485    90,455,502
                                                                                ------------------------------

                                                                                $155,024,666  $148,447,529
--------------------------------------------------------------------------------------------------------------

                                                                                                            15
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
Consolidated Statements of Income
CFW Communications Company and Subsidiaries

----------------------------------------------------------------------------------------------------------

Years Ended December 31,                                                1998          1997         1996
----------------------------------------------------------------------------------------------------------
<S>                                                                 <C>          <C>           <C>
OPERATING REVENUES
   Wireline communications                                          $37,596,778  $34,495,331   $32,479,810
   Wireless communications                                           13,197,732   11,714,012     9,205,028
   Directory assistance                                              12,949,714   10,533,459     6,399,865
   Other communications services                                      2,941,880    2,267,156     1,863,584
----------------------------------------------------------------------------------------------------------
                                                                     66,686,104   59,009,958    49,948,287
                                                                    --------------------------------------
OPERATING EXPENSES
   Maintenance and support                                           10,837,093    9,659,569     9,528,425
   Depreciation and amortization                                     10,503,338    9,196,237     8,409,662
   Customer operations                                               16,223,183   14,282,592    11,156,489
   Corporate operations                                               6,496,028    6,459,352     5,438,732
----------------------------------------------------------------------------------------------------------
                                                                     44,059,642   39,597,750    34,533,308
                                                                    --------------------------------------
OPERATING INCOME                                                     22,626,462   19,412,208    15,414,979

OTHER INCOME (EXPENSES)
   Other expenses, principally interest                                (729,926)  (1,140,020)   (1,273,045)
   Interest and dividend income                                         106,835      284,660       587,393
   Equity loss from PCS investees                                    (6,467,031)    (834,075)            -
   Equity income from other wireless investees                          197,906       74,115       449,893
   Loss on write-down of investment                                  (1,009,661)  (2,808,145)            -
   Gain on sale of investment                                                 -    5,077,379             -
----------------------------------------------------------------------------------------------------------
                                                                     14,724,585   20,066,122    15,179,220
INCOME TAXES                                                          5,638,940    7,398,495     5,162,497
----------------------------------------------------------------------------------------------------------
                                                                      9,085,645   12,667,627    10,016,723

MINORITY INTERESTS                                                     (578,005)    (446,695)     (467,017)
----------------------------------------------------------------------------------------------------------


NET INCOME                                                          $ 8,507,640  $12,220,932  $  9,549,706
----------------------------------------------------------------------------------------------------------

Net income per common share - basic                                $       0.65  $      0.94  $       0.74
Net income per common share - diluted                              $       0.65  $      0.94  $       0.73

Average shares outstanding - basic                                   13,007,880   12,982,289    12,977,920
Average shares outstanding - diluted                                 13,093,561   13,055,814    13,056,081
----------------------------------------------------------------------------------------------------------

Cash dividends per share                                           $      0.435  $     0.412  $      0.392
----------------------------------------------------------------------------------------------------------

See Notes to Consolidated Financial Statements.

                                                                                                        16
</TABLE>

<PAGE>

Consolidated Statements of Cash Flows
CFW Communications Company and Subsidiaries

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------

Years Ended December 31,                                                1998          1997         1996
----------------------------------------------------------------------------------------------------------
<S>                                                               <C>            <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income                                                     $   8,507,640  $12,220,932   $ 9,549,706
   Adjustments to reconcile net income
      to net cash provided by operating activities:
        Depreciation                                                  9,730,746    8,559,656     7,916,152
        Amortization                                                    772,592      636,581       493,510
        Deferred taxes                                                5,001,626      105,664     1,612,833
        Retirement benefits other than pensions                         885,736      707,581       574,150
        Other                                                           (37,534)     (10,426)       42,812
        Equity (gain) loss from wireless investees                    6,269,125      759,960      (449,893)
        Minority interests, net of distributions                         (4,013)     (41,306)       22,231
        Distributions received from investments                         218,705       99,704       155,141
        Gain on sale of investment                                            -   (5,077,379)            -
        Loss on write-down of investment                              1,009,661    2,808,145             -
   Changes in assets and liabilities from operations:
        Increase (decrease) in accounts receivable                       83,299   (3,489,136)     (823,032)
        Increase in materials and supplies                             (137,550)     (19,509)      (38,999)
        Increase (decrease) in income taxes                            (815,766)     741,612      (613,711)
        Increase in other current assets                                (99,158)    (238,786)     (123,789)
           Increase (decrease) in accounts payable                    2,873,684      823,237      (328,265)
        Increase (decrease) in other accrued liabilities               (530,281)    (144,075)      777,693
        Increase in other current liabilities                           165,517      192,460       571,092
----------------------------------------------------------------------------------------------------------
   Net cash provided by operating activities                         33,894,029   18,634,915    19,337,631
----------------------------------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES
   Purchases of property and equipment                              (16,736,272) (14,196,629)  (15,874,951)
   Purchase of PCS licenses                                            (666,885)  (4,459,818)   (1,355,347)
   Investments in PCS alliances                                      (2,253,995)  (1,492,709)   (4,351,235)
   Net advances to PCS alliances                                     (4,955,147)           -             -
   Purchase of investment                                            (1,004,681)           -             -
   Sale of mortgage-backed securities                                   971,288      540,961       990,125
   Maturities and distributions from other investments                  (45,239)      10,282       232,377
   Purchase of cellular minority interests                                    -   (1,103,481)            -
   Proceeds from the sale of investment                                       -    6,594,399             -
----------------------------------------------------------------------------------------------------------

   Net cash used in investing activities                            (24,690,931) (14,106,995)  (20,359,031)
----------------------------------------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES
   Cash dividends                                                    (5,660,024)  (5,349,009)   (5,087,255)
   Payments on senior notes and notes payable                        (3,741,764)           -             -
   Payments on lines of credit, net                                  (1,090,134)  (1,000,000)    4,000,000
   Stock redeemed                                                             -            -      (175,313)
   Net proceeds from exercise of stock options                          107,367       41,829        22,589
----------------------------------------------------------------------------------------------------------

   Net cash used in financing activities                            (10,384,555)  (6,307,180)   (1,239,979)
----------------------------------------------------------------------------------------------------------

   Decrease in cash and cash equivalents                             (1,181,457)  (1,779,260)   (2,261,379)
   Cash and cash equivalents:
   Beginning                                                          1,224,347    3,003,607     5,264,986
----------------------------------------------------------------------------------------------------------
   Ending                                                        $       42,890   $1,224,347   $ 3,003,607
----------------------------------------------------------------------------------------------------------

See Notes to Consolidated Financial Statements.

                                                                                                        17
</TABLE>
<PAGE>

Consolidated Statements of Shareholders' Equity
CFW Communications Company and Subsidiaries

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
                                                                               Accumulated Other   Total
                                            Common Stock            Retained     Comprehensive  Shareholders'
                                        Shares         Amount       Earnings        Income        Equity
-----------------------------------------------------------------------------------------------------------
<S>                                   <C>          <C>            <C>            <C>          <C>
Balance, December 31, 1995            12,983,318   $ 43,531,164   $ 35,700,859   $10,009,680  $ 89,241,703
   Comprehensive Income:
      Net income                                                     9,549,706
      Unrealized loss on securities available
         for sale, net of $4.8 million
         of deferred tax benefit                                                  (7,549,504)
      Comprehensive income                                                                       2,000,202
   Cash dividends                                                   (5,087,255)                 (5,087,255)
   Stock options exercised, net            6,894         22,589                                     22,589
   Stock redeemed                        (10,000)      (175,313)                                  (175,313)
-----------------------------------------------------------------------------------------------------------
Balance, December 31, 1996            12,980,212     43,378,440     40,163,310     2,460,176    86,001,926
   Comprehensive Income:
      Net income                                                    12,220,932
      Unrealized loss on securities available
         for sale, net of $1.6 million
         of deferred tax benefit                                                  (2,460,176)
      Comprehensive income                                                                       9,760,756
   Cash dividends                                                   (5,349,009)                 (5,349,009)
   Stock options exercised, net            6,442         41,829                                     41,829
-----------------------------------------------------------------------------------------------------------
Balance, December 31, 1997            12,986,654     43,420,269     47,035,233             -    90,455,502
   Comprehensive Income:
       Net income                                                    8,507,640
       Comprehensive income                                                                      8,507,640
Cash dividends                                                      (5,660,024)                 (5,660,024)
Stock options exercised, net              30,334        107,367                                    107,367
-----------------------------------------------------------------------------------------------------------
Balance, December 31, 1998            13,016,988   $ 43,527,636   $ 49,882,849   $          - $ 93,410,485
-----------------------------------------------------------------------------------------------------------

See Notes to Consolidated Financial Statements.

                                                                                                         18
</TABLE>

<PAGE>

Notes to Consolidated Financial Statements
CFW Communications Company and Subsidiaries


Note 1. Significant Accounting Policies

CFW Communications Company is a diversified regional communications company that
provides a broad range of products and services to businesses, telecommunication
carriers and residential customers in Virginia and surrounding states. The
Company's services include local telephone, long distance, personal
communications services ("PCS"), cellular, paging, wireline and wireless cable
television, directory assistance, competitive access, local internet access and
alarm monitoring and installation. Significant accounting policies follow:

ACCOUNTING ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles 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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.

PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of the Company, its wholly-owned subsidiaries and those partnerships
where the Company, as managing partner, exercises control. All significant
intercompany accounts and transactions have been eliminated.

REVENUE RECOGNITION: The Company's revenue recognition policy is to recognize
revenues when services are rendered or when products are delivered, installed
and functional, as applicable. Certain services of the Company require payment
in advance of service performance. In such cases, the Company records a service
liability at the time of billing and subsequently recognizes revenue over the
service period.

CASH AND CASH EQUIVALENTS: For purposes of reporting cash flows, the Company
considers all highly liquid debt instruments with a purchased maturity of three
months or less to be cash equivalents. The Company places its temporary cash
investments with high credit quality financial institutions. At times such
investments may be in excess of the FDIC insurance limit.

SECURITIES AND INVESTMENTS: The Company has investments in debt and equity
securities and partnerships. Management determines the appropriate
classification of securities at the date of purchase and continually thereafter.
The classification of those securities and the related accounting policies are
as follows:

AVAILABLE FOR SALE SECURITIES: Securities classified as available for sale
primarily are traded on a national exchange and are those securities that the
Company intends to hold for an indefinite period of time but not necessarily to
maturity. Any decision to sell a security classified as available for sale would
be based on various factors including changes in market conditions, liquidity
needs and other similar factors. Securities available for sale are stated at
fair value and unrealized holding gains and losses, net of the related deferred
tax effect, are reported as a separate component of shareholders' equity.
Realized gains and losses, determined on the basis of the cost of specific
securities sold, are included in earnings.

EQUITY METHOD INVESTMENTS: These investments consist of partnership and
corporate investments where the Company's ownership is 20% or more, except where
such investments meet the requirements for consolidation. Under the equity
method, the Company's share in earnings or losses of these companies is included
in earnings.

INVESTMENTS CARRIED AT COST: These are investments in which the Company does not
have significant ownership and for which there is no ready market. Information
regarding these and all other investments is reviewed continuously for evidence
of impairment in value. No impairment was deemed to have occurred at December
31, 1998. 
     Interest on debt securities is recognized in income as accrued, and
dividends on marketable equity securities recognized in income when declared.
Realized gains or losses are determined on the basis of specific securities sold
and are included in earnings.

PROPERTY AND EQUIPMENT: Property and equipment is stated at cost. Accumulated
depreciation is charged with the cost of property retired, plus removal cost,
less salvage. Depreciation is determined under the remaining life method and
straight-line composite rates. Buildings are depreciated over a 50 year life.
Network plant and equipment are depreciated over various lives from 3 to 50
years, with an average life of approximately 13 years for the category.
Furniture, fixtures and other equipment are depreciated over various lives from
5 to 24 years. Radio spectrum licenses, which are for areas where the licenses
are being used in operations, are amortized over a life of 30 years. The Company
has other radio spectrum licenses that are included in other assets until such
licenses are placed in service. Depreciation provisions were approximately 6.8%,
6.6% and 6.8% of average depreciable assets for the years 1998, 1997 and 1996,
respectively.

                                                                              19
<PAGE>

MATERIALS AND SUPPLIES: The Company's materials and supplies inventory consists
primarily of items held for resale such as cellular and PCS phones, pagers,
cable converter boxes, wireline business phones and accessories, and items used
as installation and maintenance supplies. The Company values its inventory at
the lower of average cost or market. The market value is determined by reviewing
current replacement cost, marketability, and obsolescence. The balance for
resale items at December 31, 1998 was $1.4 million ($0.8 million in 1997) and
the installation and maintenance items $0.8 million ($1.2 million in 1997).

COST IN EXCESS OF NET ASSETS ACQUIRED: Cost in excess of net assets acquired
resulting from acquisitions is being amortized over 30 years using the
straight-line method. The Company periodically evaluates the recoverability of
intangibles resulting from business acquisitions and assesses whether impairment
has occurred. This assessment is derived based on current and future levels of
income and cash flow as well as other factors, such as business trends, future
prospects and market and economic conditions.

PENSION BENEFITS: At December 31, 1998, the Company adopted the provisions of
Financial Accounting Standards Board (FASB) Statement No. 132, Employers'
Disclosures about Pensions and Other Post-retirement Benefits. This standard
revises the disclosure about pension and other post-retirement benefit plans.
Accordingly, the disclosures in these financial statements have been modified to
comply with this new standard. The Company sponsors a non-contributory defined
benefit pension plan covering all employees who meet eligibility requirements.
Pension benefits vest after five years of service and are based on years of
service and average final compensation subject to certain reductions if the
employee retires before reaching age 62. The Company's funding policy has been
to contribute up to the maximum amount allowable by applicable regulations.
Contributions are intended to provide not only for benefits based on service to
date, but also for those expected to be earned in the future.
    The Company also sponsors a contributory defined contribution plan under
Internal Revenue Code Section 401(k) for substantially all employees. The
Company contributes 60% of each participant's annual contribution for
contributions up to 6% of each participant's annual compensation. The employee
elects the type of investment fund from the equity, bond and annuity
alternatives offered by the plan.

RETIREMENT BENEFITS OTHER THAN PENSIONS: The Company provides certain health
care benefits for all retired employees that meet eligibility requirements. The
Company's share of the estimated costs of benefits that will be paid after
retirement is generally being accrued by charges to expense over the eligible
employees' service periods to the dates they are fully eligible for benefits.

INCOME TAXES: Deferred income taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences and
deferred tax liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported amounts of assets
and liabilities and their tax bases. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment.

NET INCOME PER COMMON SHARE: Basic net income per share was computed by dividing
net income by the weighted average number of common shares outstanding during
the year. Diluted net income per share was computed under the treasury stock
method assuming the conversion, as of the beginning of the year, of all dilutive
stock options.
    The weighted average number of common shares outstanding (diluted), which
was used to compute diluted net income per share, was derived by adding weighted
average outstanding shares ("Average shares outstanding - basic") to assumed
conversion of dilutive stock options (85,681, 73,525 and 78,161 shares for 1998,
1997 and 1996, respectively). The Company has 31,850, 52,450 and 54,450 stock
options outstanding in 1998, 1997 and 1996, respectively, which could
potentially dilute net income per share in future periods, but which were not
included in diluted net income per share for the periods presented since the
results were antidilutive. There were no adjustments to net income in the
computation of diluted net income per share.

FAIR VALUE OF FINANCIAL INSTRUMENTS: The fair values of financial instruments
recorded on the balance sheet, except securities and investments, are not
significantly different from the carrying amounts. Information as to securities
and investments is included elsewhere in Notes 1, 3 and 4. The fair value of off
balance sheet guarantees, as described in Note 3, is not determinable due to the
nature of the transaction.

DISCLOSURES REGARDING OPERATING SEGMENTS AND RELATED INFORMATION: At December
31, 1998, the Company adopted the additional disclosure provisions of FASB
Statement No. 131, Disclosures about Segments of an Enterprise and Related
Information. The Company has one customer that accounts for greater than 10% of
its revenue, primarily consisting of carrier access charges for long distance
services, billing and collecting services and directory assistance. The percent
of operating revenue from this customer

                                                                              20
<PAGE>

was 28% in 1998, 34% in 1997, and 24% in 1996. The primary segments receiving
revenue from this customer are telephone and directory assistance (Note 2).

COMPREHENSIVE INCOME: The Company adopted the additional disclosure provisions
of FASB Statement No. 130, Reporting Comprehensive Income, in the first quarter
of 1998. This pronouncement results in the Company presenting, in a financial
statement, all items required to be recognized under accounting standards as
components of comprehensive income. The Company has elected to present this
information in the consolidated statements of shareholders' equity.

START-UP COSTS: The Accounting Standards Executive Committee issued Statement of
Position (SOP) 98-5, Reporting on the Costs of Start-Up Activities, in June
1998. This statement requires the costs of start-up activities, including
organization costs, to be expensed as incurred. The statement broadly defines
start-up activities as those one-time activities related to opening a new
facility, introducing a new product or service, conducting business in a new
territory and the like. The statement is effective beginning in 1999, and
requires that previously deferred start-up costs be written-off through a
cumulative effect charge to earnings when the statement is initially adopted.
Adoption of this statement is not expected to have a material impact to the
Company's results of operations or the Company's financial position.

FINANCIAL STATEMENT CLASSIFICATIONS: Certain amounts on the prior year financial
statements have been reclassified, with no effect on net income, to conform with
classification adopted in 1998.

Note 2. Disclosures About Segments of an
Enterprise and Related Information

The Company has five primary business segments which have separable management
focus and infrastructures and that offer different products and services. These
segments are as follows:

Telephone: The Company has a 100 year old local telephone business subject to
the regulations of the State Corporation Commission of Virginia. This business
is the incumbent local exchange carrier (ILEC) for several areas in western
Virginia. Principal products offered by this business are local service which
includes advanced calling features, network access, long distance toll and
directory advertising.

Network: The Company directly or indirectly owns 450 miles of fiber optic
network and provides transport services for long distance, internet and private
network services. This network is connected and marketed with Carolina's
FiberNet throughout the Southeast. Additionally, the network business offers
internet and, in 1998, began marketing long distance and competitive local
exchange service in certain Virginia markets.

Wireless: The Company's wireless business carries cellular and digital phones
and services, paging and voicemail and is marketed in the retail,
business-to-business and wholesale channels within the Company's cellular
territories.

Directory Assistance: The Company's directory assistance business provides third
party directory assistance for customers of several communications companies and
handles approximately 220,000 requests per average business day. Revenues from
its largest customer, AT&T, accounted for 94%, 97% and 100% of the segment's
total revenues for 1998, 1997, and 1996, respectively.

Wireless Cable: The cable business offers a wireless video cable service and has
launched a wireless cable high-speed internet service in Charlottesville,
Virginia.

     Wireless revenues are reported net of cost of sales, primarily for
handsets, of $4.4 million, $1.7 million and $1.9 million for the three years
ended December 31, 1998. Directory assistance revenues are reported net of
database access charges of $5.0 million, $4.1 million and $2.3 million for the
three years ended December 31,1998. Wireless cable revenues are reported net of
programming and equipment costs of $1.7 million, $1.5 million and $1.1 million
for the three years ended December 31, 1998.
    The accounting policies of the segments are the same as those described in
the summary of significant accounting policies (see Note 1). The Company
evaluates the performance of its operating segments principally on operating
revenues and earnings before income taxes, depreciation and amortization
(EBITDA). Corporate functions are allocated at cost to the operating segments
and all other intercompany transactions are cost based. Segment depreciation and
amortization contains an allocation of deprecia tion and amortization from
corporate assets. Corporate depreciation and amortization not allocated to the
segments are indicated in the "Other" column in the table following.
    Summarized financial information concerning the Company's reportable
segments is shown in the following table. The "Other" column includes certain
unallocated corporate related items, and results from the Company's alarm,
communication services and wireline cable businesses which are not considered
separate reportable segments.

                                                                              21
<PAGE>

<TABLE>
<CAPTION>

                                                           Directory     Wireless
(in thousands)    Telephone     Network       Wireless    Assistance      Cable        Other         Total
-----------------------------------------------------------------------------------------------------------
<S>                <C>          <C>           <C>          <C>            <C>          <C>       <C>
1998
Revenues           $30,548      $ 5,440       $10,231      $12,950        $2,966       $4,551    $  66,686
EBITDA              21,715        1,605         4,896        3,018           365        1,531       33,130
Depreciation &
  Amortization       3,343        1,637           637        1,032         2,724        1,130       10,503
Total Segment
  Assets            42,521       14,081         7,581       10,942        26,018       14,542      115,685
Corporate Assets                                                                                    39,340
                                                                                                  --------
Total Assets                                                                                      $155,025
----------------------------------------------------------------------------------------------------------
1997
Revenues           $28,828       $3,997        $8,602      $10,533        $3,112       $3,938    $  59,010
EBITDA              19,708        1,887         4,318        1,627           285          783       28,608
Depreciation &
  Amortization       3,169        1,071           602          916         2,567          871        9,196
Total Segment
  Assets            40,523       12,822         6,877       12,593        29,048       14,664      116,527
Corporate Assets                                                                                    31,921
                                                                                                  --------
Total Assets                                                                                      $148,448
----------------------------------------------------------------------------------------------------------
1996
Revenues           $27,388       $3,592        $6,819       $6,400        $2,385       $3,364      $49,948
EBITDA              17,982        2,453         2,875          925          (488)          78       23,825
Depreciation &
  Amortization       3,887          785           448          670         1,907          713        8,410
Total Segment
  Assets            38,942       13,252         7,439        9,711        28,952       15,937      114,233
Corporate Assets                                                                                    28,167
                                                                                                  --------
Total Assets                                                                                      $142,400
----------------------------------------------------------------------------------------------------------
</TABLE>

Note 3. Investments in Wireless Affiliates

At December 31, 1998, the Company had invested $0.9 million ($0.8 million at
December 31, 1997) for a 21% common ownership interest in Virginia PCS Alliance,
L.C. ("VA Alliance"), a provider of PCS serving a 1.6 million populated area in
central and western Virginia. The Company is managing network expansion and
ongoing operations pursuant to a service agreement. PCS operations began
throughout the Virginia region in the fourth quarter of 1997.
    At December 31, 1998, the Company had invested approximately $6.0 million
($4.2 million at December 31, 1997) for convertible preferred ownership interest
in the VA Alliance which is convertible after four years into additional common
ownership interest. If converted, the Company would have a 43% ownership
interest in the VA Alliance. In December 1996, the VA Alliance also issued $12.9
million of redeemable preferred ownership interest that can be redeemed by the
investor after December 31, 2001. In the event the investor elects to redeem
such preferred equity after such date, the Company may elect to fund $11.4
million of such obligation in exchange for additional common ownership in the VA
Alliance. In the event this redemption and funding occurs, and the Company
converts its convertible preferred ownership interest, the Company would have a
65% common ownership interest in the VA Alliance.
    The Company has committed to provide $9.8 million of additional capital to
the VA Alliance in three equal annual installments beginning in January 1999.
Such additional capital commitments would be reduced by proceeds, if any, from
future equity offerings by the VA Alliance.
    The Company has a 45% common ownership interest in the West Virginia PCS
Alliance, L.C. ("WV Alliance"), a provider of PCS serving a 2.0 million
populated area in West Virginia and eastern Kentucky, southwestern Virginia and
eastern Ohio. The Company is managing network expansion and ongoing operations
pursuant to a service agreement. PCS operations began in Charleston and
Huntington, West Virginia in the fourth quarter of 1998.
    In August 1997, the Company contributed PCS licenses valued at $4.5 million
and approximately $1.0 million in cash in exchange for such ownership in the WV
Alliance. The Company has committed to provide $2.5 million of additional
capital to the WV Alliance in four equal annual installments beginning in
January 1999. Such additional capital commitments would be reduced by proceeds,
if any, from future equity offerings by the WV Alliance.

                                                                              22
<PAGE>

    Combined summarized financial information for the VA Alliance and WV
Alliance ("Alliances"), both of which are accounted for by the equity method,
are as follows:


(in thousands)                    1998       1997
----------------------------------------------------------
Current assets                $   4,136   $   5,756
Noncurrent assets               131,312     101,560
Current liabilities              22,723      37,549
Noncurrent liabilities           98,380      33,571
Redeemable preferred interest    14,345      12,812

(in thousands)                    1998       1997
----------------------------------------------------------
Net sales                     $   4,756  $      119
Gross profit (loss)               1,528        (197)
Net loss applicable
  to common owners              (27,518)     (3,952)
Company's share of net loss      (6,467)       (834)

    The Company has entered guarantee agreements whereby the Company is
committed to provide guarantees of up to $50.5 million of the Alliances' debt
and redeemable preferred obligations. Such guarantees become effective as
obligations are incurred by the Alliances. At December 31, 1998, the Company has
guaranteed $34.6 million of the Alliances' obligations.
    In its managing member role, the Company provides certain corporate services
for the Alliances, including executive, finance, accounting, information
management, human resources, and other general and administrative services
(collectively, "corporate services"). The Company charged the Alliances $1.9
million in 1998 and $0.5 million in 1997 for these corporate services.
    In connection with providing corporate services, the Company processes and
pays the Alliances' capital and general operating expenses and is subsequently
reimbursed. The outstanding advances at December 31,1998 totalled $5.6 million
($0.7 million at December 31,1997).
    Retained earnings of the Company at December 31, 1998, include accumulated
losses of $4.5 million related to these Alliances.
    In April 1997, the Company sold its 30% limited interest in the Roanoke MSA
Cellular Partnership to GTE Wireless ("GTE") for approximately $6.6 million and
recognized a gain on the sale of approximately $5.1 million. The Company
recognized equity income from the Roanoke MSA Cellular Partnership of
approximately $16,000 and $374,000 in 1997 and 1996, respectively. In addition,
in April 1997, the Company purchased from GTE an 8.4% interest in the Virginia
RSA 6 Cellular Partnership for approximately $1.1million. At December 31, 1998,
the Company had an 84% ownership interest in the Virginia RSA 6 Cellular
Partnership.

Note 4. Securities and Investments
Investments consist of the following as of December 31:

<TABLE>
<CAPTION>
                                                                                        Carrying Values
                                        Type of Ownership                             1998           1997
-----------------------------------------------------------------------------------------------------------
<S>                                     <C>                                      <C>            <C>
Available for Sale
American Telecasting, Inc.              Equity Securities                        $    275,362   $ 1,285,022
Mortgage-backed securities              Debt Securities                                    -        971,288
-----------------------------------------------------------------------------------------------------------
                                                                                      275,362     2,256,310
                                                                                  -------------------------
Equity Method
Virginia PCS Alliance, L.C.             Equity and Convertible
                                        Preferred Interests                         1,404,879     4,504,770
West Virginia PCS Alliance, L.C.        Equity Interest                             4,661,583     5,774,728
Virginia Telecommunications              General Partnership
   Partnership                             Interest                                   325,684       380,394
Virginia Independent                    Limited Partnership
   Telephone Alliance                      Interest                                   489,628       445,050
Other                                   Partnership Interests                         518,605       527,733
-----------------------------------------------------------------------------------------------------------
                                                                                    7,400,379    11,632,675
                                                                                  -------------------------
Cost Method
Illuminet Holdings, Inc.                Equity and Convertible
                                           Debt Securities                          1,778,787     1,771,765
Multimedia Medical Systems, Inc.        Equity Securities                           1,052,650     1,052,650
Listing Services Solutions, Inc.        Equity Securities                           1,004,681            -
Other                                   Equity Securities                             159,558       160,201
-----------------------------------------------------------------------------------------------------------
                                                                                    3,995,676     2,984,616
                                                                                  -------------------------
                                                                                  $11,671,417   $16,873,601
-----------------------------------------------------------------------------------------------------------
</TABLE>

                                                                              23
<PAGE>

    The Company recognized a $1.0 million and $2.8 million impairment loss for
the years ended December 31, 1998 and 1997, respectively, on its investment in
American Telecasting, Inc. (ATEL) which resulted in a carrying value in the
investment of $0.3 million at December 31, 1998.
    Changes in the unrealized gain (loss) on available for sale securities
during the years ended December 31, 1998 and 1997, reported as a separate
component of shareholders' equity and making up the entire amount of accu
mulated other comprehensive income are as follows:

<TABLE>
<CAPTION>
                                                                                     1998          1997
-----------------------------------------------------------------------------------------------------------
<S>                                                                              <C>            <C>
Unrealized gain, beginning balance                                               $       -      $4,026,475
Unrealized holding gains (losses) during the year                                        -      (4,026,475)
-----------------------------------------------------------------------------------------------------------
Unrealized gain, ending balance                                                  $       -       $       -
-----------------------------------------------------------------------------------------------------------
</TABLE>

Note 5. Long-Term Debt and Lines of Credit

Long-term debt and lines of credit consist of the following as of December 31:


<TABLE>
<CAPTION>
                                                                                     1998          1997
----------------------------------------------------------------------------------------------------------
<S>                                                                              <C>           <C>
7.26% Unsecured senior notes due in annual
installments from 1999 to 2007                                                   $16,363,636   $20,000,000
6.25% Notes payable secured by certain PCS
   radio spectrum licenses due from 1999 to 2006                                   1,500,760     1,606,160
Borrowings under lines of credit                                                   1,909,866     3,000,000
----------------------------------------------------------------------------------------------------------
                                                                                 $19,774,262   $24,606,160
----------------------------------------------------------------------------------------------------------
</TABLE>

    The unsecured senior note agreement contains various restrictive convenants
including restrictions relating to additional debt issuance, fixed charges, net
worth and payment of dividends. Approximately $12.5 million of retained earnings
were available for the payment of dividends at December 31, 1998.
    The Company paid $3.6 million of principal on the unsecured senior notes in
January 1999 with proceeds from borrowings under the Company's lines of credit.
The Company has classified this payment amount and borrowings under its notes
payable and lines of credit as long-term, since the Company has the ability and
the intent to refinance these borrowings with an existing line of credit that
has a maturity of beyond one year. The Company has available lines of credit
aggregating $24.0 million at December 31, 1998. The blended interest rates on
the borrowings under lines of credit as of December 31, 1998, 1997 and 1996 was
5.2%, 5.9% and 5.9%, respectively.
    Interest expense was $716,000, $888,000, and $1,325,000 for 1998, 1997, and
1996, respectively. Maturities of long-term debt for each of the next five years
are 1999 - $0, 2000 - $7,592,000; 2001 - $1,982,000; and 2002 -$1,993,000; and
2003 - $2,004,000.

Note 6. Shareholder Rights Plan

In 1990, the Company adopted a ten-year shareholder rights plan that provides a
right to common shareholders to acquire a unit of preferred stock of the Company
at a purchase price of $130. The right is exercisable only upon the occurrence
of certain events. If a third party acquires 20% or more of the Company's common
stock, without prior approval of the Board of Directors, other shareholders are
entitled to receive, upon exercise of the right and payment of the purchase
price, common stock or preferred stock at the option of the Company having a
value equal to twice the amount of the purchase price.


                                                                              24
<PAGE>

Note 7. Income Taxes
The components of income tax expense are as follows for the years ended December
31:

<TABLE>
<CAPTION>
                                                                        1998        1997           1996
-----------------------------------------------------------------------------------------------------------
<S>                                                                 <C>           <C>           <C>
Current tax expense:
   Federal tax expense                                              $   690,507   $6,165,040    $3,159,133
   State tax expense (benefit)                                          (53,193)   1,127,791       390,531
-----------------------------------------------------------------------------------------------------------
                                                                        637,314    7,292,831     3,549,664

Deferred tax expense
   Federal tax expense                                                4,500,178       95,070     1,482,070
   State tax expense                                                    501,448       10,594       165,145
   Investment tax credits amortized                                          -            -        (34,382)
-----------------------------------------------------------------------------------------------------------
                                                                      5,001,626      105,664     1,612,833
-----------------------------------------------------------------------------------------------------------
                                                                     $5,638,940   $7,398,495    $5,162,497
-----------------------------------------------------------------------------------------------------------
</TABLE>

    Total income tax expense was different than an amount computed by applying
the graduated statutory federal income tax rates to income before taxes. The
reasons for the differences are as follows for the years ended December 31:

<TABLE>
<CAPTION>
                                                                         1998        1997          1996
----------------------------------------------------------------------------------------------------------
<S>                                                                  <C>          <C>           <C>
Computed tax at statutory rate                                       $4,851,302   $6,766,799    $5,049,271
Investment tax credits amortization                                          -            -        (34,382)
State income taxes, net of federal income tax benefit                   560,204      751,334       366,746
Other - net                                                             227,434     (119,638)     (219,138)
----------------------------------------------------------------------------------------------------------
                                                                     $5,638,940   $7,398,495    $5,162,497
----------------------------------------------------------------------------------------------------------
</TABLE>

    Net deferred income tax assets and liabilities consist of the following
components at December 31:

<TABLE>
<CAPTION>
                                                                                     1998          1997
-----------------------------------------------------------------------------------------------------------
<S>                                                                             <C>           <C>
Deferred income tax assets:
   Retirement benefits other than pension                                       $  3,334,042  $  3,106,609
   Net operating loss of acquired company                                          1,074,000     1,074,000
   Net operating loss                                                                542,143            -
   Alternative minimum tax credit carryforwards                                      568,405            -
   Accrued expenses                                                                  268,577           -
   Other                                                                             447,183       339,672
-----------------------------------------------------------------------------------------------------------
                                                                                   6,234,350     4,520,281
-----------------------------------------------------------------------------------------------------------
Deferred income tax liabilities:
   Investments, net                                                                5,722,200        33,454
   Property and equipment                                                         14,756,022    13,689,777
   Other                                                                                  -         39,296
-----------------------------------------------------------------------------------------------------------
                                                                                  20,478,222    13,762,527
-----------------------------------------------------------------------------------------------------------
Net deferred income tax liabilities                                              $14,243,872  $  9,242,246
-----------------------------------------------------------------------------------------------------------
</TABLE>


                                                                              25
<PAGE>

Note 8. Pension Plans and Other Postretirement Benefits

The Company sponsors several qualified and nonqualified pension plans and other
postretirement benefit plans for its employees. The following tables provide a
reconciliation of the changes in the plans' benefit obligations and fair value
of assets over the two-year period ending December 31, 1998, and a statement of
the funded status as of December 31 of each year:

<TABLE>
<CAPTION>
                                        Defined Benefit Pension Plan       Other Postretirement Benefit Plan
                                           1998              1997                1998              1997
-------------------------------------------------------------------------------------------------------------
<S>                                   <C>                 <C>               <C>               <C>
Change in benefit obligations:
Benefit obligations, beginning        $16,655,591         $15,646,558       $  7,134,616      $ 6,622,727
Service cost                              617,099             486,925            202,347          177,187
Interest cost                           1,212,044           1,175,197            525,784          503,626
Amendment                                       -            (249,319)                 -                -
Actuarial (gain) loss                   1,767,159             479,493            671,957          (11,549)
Benefits paid                            (878,231)           (883,263)          (117,632)        (157,375)
-------------------------------------------------------------------------------------------------------------
    Benefit obligations, ending       $19,373,662         $16,655,591       $  8,417,072      $ 7,134,616
-------------------------------------------------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets, beginning  $17,791,099         $16,279,589       $         -       $        -
Actual return on plan assets            2,206,080           2,394,773                 -                -
Employer contribution                           -                   -            117,632          157,375
Benefits paid                            (878,231)           (883,263)          (117,632)        (157,375)
-------------------------------------------------------------------------------------------------------------
    Fair value plan assets, ending    $19,118,948         $17,791,099       $          -      $        -
-------------------------------------------------------------------------------------------------------------
Funded status:
Funded status, beginning              $  (254,714)        $ 1,135,508        $(8,417,072)     $(7,134,616)
Unrecognized net actuarial gain          (861,171)         (2,178,484)          (170,039)        (851,378)
Unrecognized prior service cost           533,334             565,873                  -                -
Unrecognized transition obligations        47,341              63,122                  -                -
-------------------------------------------------------------------------------------------------------------
    Accrued benefit cost              $  (535,210)        $  (413,981)       $(8,587,111)     $(7,985,994)
-------------------------------------------------------------------------------------------------------------
</TABLE>

    The Company's matching contributions to the defined contribution plan were
$406,000, $337,000, and $246,000 for the years ended December 31, 1998, 1997,
and 1996.
    The accumulated benefit obligation of the Company's nonqualified pension
plan was approximately $730,000, $446,000 and $249,000 at December 31, 1998,
1997, and 1996, respectively, and has been classified with retirement benefits
other than pensions. All of the Company's plans for postretirement benefits
other than pensions and the nonqualified pension plan have no plan assets. 
     The following table provides the components of net periodic benefit cost
for the plans:

<TABLE>
<CAPTION>

                                        Defined Benefit Pension Plan        Other Postretirement Benefit Plan
                                       1998        1997          1996         1998        1997        1996
--------------------------------------------------------------------------------------------------------------
<S>                             <C>          <C>           <C>              <C>        <C>         <C>
Service cost                    $     617,099   $  486,925  $   445,527      $202,347   $177,187    $207,319
Interest cost                       1,212,044    1,175,197    1,043,933       525,784    503,626     476,194
Expected return on plan assets     (1,729,609)  (1,579,686)  (1,444,994)           -         -            -
Amortization of transition obligations 15,781       15,781       15,781            -         -            -
Amortization of prior service cost     32,539       45,005       12,529            -         -            -
Recognized net actuarial gain         (26,625)     (15,352)     (13,304)       (9,382)   (12,656)         -
--------------------------------------------------------------------------------------------------------------
    Net periodic benefit cost   $     121,229   $  127,870  $    59,472      $718,749   $668,157    $683,513
--------------------------------------------------------------------------------------------------------------
</TABLE>

    The prior-service costs are amortized on a straight-line basis over the
average remaining service period of active participants. Gains and losses in
excess of 10% of the greater of the benefit obligation and the market-related
value of assets are amortized over the average remaining service period of
active participants.

                                                                              26
<PAGE>

    The Company has multiple nonpension postretirement benefit plans. The health
care plan is contributory, with participants' contributions adjusted annually;
the life insurance plans are also contributory. Eligibility for the life
insurance plan has been restricted to active pension participants age 50-64 as
of January 5, 1994. The accounting for the plans anticipates that the Company
will maintain a consistent level of cost sharing for the benefits with the
retirees.
    The assumptions used in the measurements of the Company's benefit
obligations are shown in the following table:

<TABLE>
<CAPTION>
                                          Defined Benefit Pension Plan       Other Postretirement Benefit Plan
                                         1998        1997          1996         1998        1997        1996
----------------------------------------------------------------------------------------------------------------
<S>                                        <C>          <C>          <C>           <C>        <C>         <C>
Assumptions as of December 31
Discount rate                              7.00%        7.50%        7.75%         7.00%      7.50%       7.75%
Expected return on plan assets            10.00%       10.00%        9.50%            -          -           -
Rate of compensation increase              4.75%        4.75%        4.75%            -          -           -
----------------------------------------------------------------------------------------------------------------
</TABLE>

    For measurement purposes, a 7% annual rate of increase in the per capita
cost of covered health care benefits was assumed for the 1998. The rate was
assumed to decrease gradually each year to a rate of 5.75% for 2001 and remain
at that level thereafter.
    Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. The effect of a 1% change on the
total of service and interest cost components of net periodic postretirement
health care benefit cost would be $137,000 for a 1% increase and $108,000 for a
1% decrease. Additionally, the effect of a 1% change on the health care
component of the accumulated postretirement benefit obligations would be
$1,324,000 for a 1% increase and $1,062,000 for a 1% decrease.

Note 9. Stock Plans

The Company's 1997 Stock Compensation Plan (Option Plan), which replaces the
Company's 1988 Stock Option Plan, provides for the grant of stock options, stock
appreciation rights (SARS), stock awards and performance shares to officers and
certain key management employees. A maximum of 950,000 shares of common stock
may be issued under the Option Plan by means of the exercise of options or SARS,
the grant of stock awards and/or the settlement of performance shares. The
Company's Non-Employee Director's Stock Option Plan (Director's Plan) provides a
non-employee director the opportunity to receive stock options in lieu of a
retainer fee. A maximum of 25,000 shares of common stock may be issued upon the
exercise of options granted under the Director's Plan. Stock options must be
granted under the Plans at not less than 100% of fair market value at the date
of grant and have a maximum life of ten years from the date of grant. Options
and other awards under the Plans may be exercised in compliance with such
requirements as determined by a committee of the Board of Directors.
    A summary of the status of the Stock Option Plans at December 31, 1998, 1997
and 1996 and changes during the years ended on those dates is as follows:

<TABLE>
<CAPTION>

                                               1998                   1997                   1996
-------------------------------------------------------------------------------------------------------------
                                               Weighted-Average       Weighted-Average    Weighted-Average
                                                   Exercise               Exercise              Exercise
Options                                 Shares       Price       Shares     Price      Shares     Price
------------------------------------------------------------------------------------------------------------
<S>                                     <C>            <C>      <C>           <C>     <C>            <C>
Outstanding at beginning of year        409,210        $17.10   325,022       $15.90  244,606        $14.99
------------------------------------------------------------------------------------------------------------
Granted                                 115,740         23.02   109,373        20.68   99,800         17.68
Exercised                               (45,971)        10.25    (8,915)       10.33  (12,084)         9.79
Forfeited                               (10,300)        21.62   (16,270)       20.90   (7,300)        20.12
------------------------------------------------------------------------------------------------------------
Outstanding at end of year              468,679        $19.13   409,210       $17.10  325,022        $15.90
Exercisable at end of year              225,631        $17.12   212,545       $14.89  177,348        $13.43
Weighted average fair value per option of
   options granted during the year             $6.91                  $6.15                   $4.85
------------------------------------------------------------------------------------------------------------
</TABLE>

                                                                              27
<PAGE>

    The following table summarizes information about stock options outstanding
at December 31, 1998:

<TABLE>
<CAPTION>

                                               Options Outstanding            Options Exercisable
-------------------------------------------------------------------------------------------------------------
                                                Weighted-Average   Weighted-                    Weighted-
                                        Number      Remaining       Average           Number     Average
    Range of                              of       Contractual     Exercise             of       Exercise
 Exercise Prices                        Shares        Life           Price            Shares       Price
-------------------------------------------------------------------------------------------------------------
<S>                                    <C>           <C>            <C>             <C>           <C>     
  $ 6.50 - 10.00                       45,500        1 year         $  8.81         45,500        $  8.81 
  $12.75 - 18.25                      140,066        6 years         $16.75         84,016         $16.26 
  $18.38 - 25.75                      283,113        8 years         $21.91         96,115         $21.82 
</TABLE>                                                            

    Grants of options under the Plans are accounted for following Accounting
Principles Board (APB) Opinion No. 25 and related interpretations. Accordingly,
no compensation cost has been recorded. The Company has elected to apply the
disclosure-only provisions of FASB Statement No. 123. However, had compensation
cost been recorded based on the fair value of awards at the grant date, the pro
forma impact on the Company's net income and net income per common share -
diluted would have been less than $0.4 million ($0.03 per share) in 1998 and
$0.2 million ($0.02 per share) for 1997 and 1996. The pro forma effects of
applying FASB Statement No. 123 are not indicative of future amounts since,
among other reasons, the requirements of the Statement have been applied only to
options granted after December 31, 1994.
    The fair value of each grant is estimated at the grant date using the
Black-Scholes option-pricing model with the following assumptions: dividend rate
of 1.7% to 2.0% for 1998, 1.9% to 2.3% for 1997, and 2.0% for 1996; risk-free
interest rates of 5.0% to 5.7% for 1998, 5.9% to 6.3% for 1997 and 6.4% for
1996; expected lives of 6 years for 1998 and 1997 and 8 years for 1996; and
price volatility of 26.0% to 26.3% for 1998, 23.1% to 24.6% for 1997 and 15.8%
for 1996.
    The Company also has a plan whereby its common stock can be purchased by
employees at a price 10% less than the market price on the issue date.

Note 10. Supplementary Disclosures Of Cash Flow Information

The following information is presented as supplementary disclosures for the
Consolidated Statements of Cash Flows:

<TABLE>
<CAPTION>

                                                                        1998         1997           1996
-----------------------------------------------------------------------------------------------------------
<S>                                                                  <C>          <C>           <C>
Cash payments for:
   Interest, net of capitalized interest of $785,854
   in 1998, $762,643 in 1997, and $322,516 in 1996                   $  925,609   $1,067,098     $1,174,778
-----------------------------------------------------------------------------------------------------------
Income taxes                                                         $1,453,080   $6,551,222    $4,166,400
-----------------------------------------------------------------------------------------------------------
</TABLE>

    In 1997 the Company contributed two PCS radio spectrum licenses valued at
$4.5 million to the WV Alliance in exchange for equity ownership (Note 3). In
1997, the Company acquired through the FCC auction certain PCS radio spectrum
licenses for approximately $1.6 million of notes payable.

Note 11. Lease Commitments

The Company has several operating leases for administrative office
space, retail space, tower space, channel rights, and equipment. The leases for
retail and tower space have initial lease periods of ten to thirty years. These
leases are associated with the operation of a cellular business in Virginia
Rural Service Area 6 in which the Company is the general partner. The leases for
channel rights relate to the Company's wireless cable operations and have
initial terms of three to ten years. The equipment leases have an initial term
of three years. Rental expense for operating leases was $2,011,000, $1,352,000,
$977,000, in 1998, 1997, and 1996, respectively. The total amount committed
under these lease agreements is: $1,000,000 in 1999, $518,000 in 2000, $410,000
in 2001, $331,000 in 2002, $278,000 in 2003 and $3,407,000 for the years
thereafter.
    The Company has commitments for capital expenditures of approximately $6
million as of December 31, 1998, all of which are expected to be incurred in
fiscal 1999.

                                                                              28
<PAGE>

Independent Auditor's Report

To the Board of Directors
CFW Communications Company
Waynesboro, Virginia

    We have audited the accompanying consolidated balance sheets of CFW
Communications Company and subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of income, shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1998.
These financial statements 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosure in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
    In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CFW
Communications Company and subsidiaries as of December 31, 1998 and 1997, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1998, in conformity with generally
accepted accounting principles.

                                                     /s/ McGladrey & Pullen, LLP

Richmond, Virginia
February 12, 1999

                                                                              29

<PAGE>

Management's Discussion and Analysis

OVERVIEW
CFW Communications Company ("CFW" or the "Company")
is a diversified communications company providing a broad range of products and
services to business and residential customers primarily in Virginia and West
Virginia. These communications products and services include local telephone,
long distance, cellular, personal communications service (PCS), paging, wireless
and wireline cable television, directory assistance, competitive access, local
internet access, and alarm monitoring and installation.
    The Company's strategy is to be a regional full-service provider of
communications products and services to customers within an expanding service
area. The Company has implemented this strategy through acquisitions,
investments in spectrum licenses and internal growth through capital investment.
In addition, the Company has leveraged its existing switching platform and fiber
optic network by introducing new services such as long distance directory
assistance, long distance services to local telephone customers and surrounding
communities, cable television, local internet access, and various enhanced
services including Call Waiting and Caller Identification. These activities
continue to contribute to growth in the Company's operating revenues. In
addition to these activities, the Company has commenced offering, in selected
markets within Virginia, a competitive local telephone service, high-speed
wireless cable and digital subscriber line (DSL) internet services and a
wireless local telephone service. Further, the Company will be expanding its
operations base and its service offerings in Virginia and West Virginia in 1999.
    As a result of the Company's increasing focus on and growth in wireless
communications and other competitive communications-related businesses, a larger
percentage of the Company's operating revenues and operating cash flows
(operating cash flows is defined as operating income before depreciation and
amortization) are being generated by businesses other than the mature telephone
operations. Accordingly, management believes operating cash flows is a
meaningful indicator of the Company's performance. Operating cash flows is
commonly used in the wireless communications industry and by financial analysts
and others who follow the industry to measure operating performance. Operating
cash flows should not be construed as an alternative to operating income or cash
flows from operating activities (both as determined in accordance with generally
accepted accounting principles) or as a measure of liquidity.
    Through the Virginia PCS Alliance, L.C. ("VA Alliance") and West Virginia
PCS Alliance, L.C. ("WV Alliance"), and other PCS joint ventures, the Company
has acquired radio spectrum licenses for personal communications service ("PCS")
for markets with an aggregate population of five million people. These licenses
have enabled the Company, as managing member of both Alliances, to deploy PCS in
central and western Virginia and central West Virginia and will enable the
Company to provide services in additional markets in Virginia, West Virginia and
parts of Maryland, Ohio, Pennsylvania, Kentucky and Tennessee. The VA Alliance
completed its first full year of operation in 1998 and the WV Alliance commenced
offering PCS in Charleston and Huntington, West Virginia in the fourth quarter
of 1998. The Company plans to commence providing PCS in the Clarksburg, Fairmont
and Morgantown, West Virginia corridor in the first half of 1999. In 1999,
management expects continued growth in revenue, operating cash flows and
operating income from its current consolidated operations. However, the Company
expects lower operating margins due to start-up costs of newer businesses
associated with expansion into new markets and introduction of new service
offerings through the region. The Company's recognition of its share of losses
associated with its investments in the PCS Alliances is expected to be
significant in 1999 as the Company recognizes a full year of operating losses
from both the Virginia and West Virginia Alliances. These losses from equity
investments are expected to exceed net income growth from consolidated
operations and will likely result in consolidated net income levels below
amounts reported in recent years. These losses from equity investments are also
expected to continue into future years until build-out is completed and a
sufficient customer base is established.
    The Company wishes to caution readers that these forward-looking statements
and any other forward-looking statements made by the Company are based on a
number of assumptions, estimates and projections including but not limited to;
continuation of economic growth and demand for wireless and wireline
communications services; continuation of current level of services for certain
material customers; reform initiatives being considered by the FCC being
relatively revenue neutral; significant competition in the Company's telephone
service area not emerging in 1999; the impact on capital requirements and
earnings from new business opportunities and expansion into new markets and
anticipated competitive activity not being greater than anticipated; and the
achievement of build-out, operational, capital, financing and marketing plans
relating to deployment of PCS services. Investors are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, and that any significant deviations from these
assumptions could cause actual results to differ materially from those in the
above and other forward-looking statements. Forward-looking statements included
herein are as of the date hereof and the Company undertakes no obligation to
revise or update such statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.

                                                                              30
<PAGE>

RESULTS OF OPERATIONS

SUMMARY- Operating revenues were $66.7 million in 1998, an increase
of 13% over 1997. Operating cash flows were $33.1 million, an increase of 16%
over 1997. Operating income was $22.6 million in 1998, an increase of 17% over
1997. Strong customer growth in our cellular and paging operations of 28% and
33%, respectively, fueled the growth in our wireless operations. Operating
results from our wireline operations reflect continued strong contributions from
our telephone operations, led by 3% growth in access lines, 11% growth in access
minutes and continued growth in calling features, over 80% increase in internet
customers and effective cost control. Results from our directory assistance
operations reflect the annualized revenue stream from 1997 contract expansions
and operating efficiencies. Start-up costs associated with expansion into new
markets and new service offerings reduced the year to year percentage increases.
    Net income for 1998 was $8.5 million, or $0.65 per share-diluted, which
includes a $1.0 million ($0.6 million after tax, or $0.05 per share) loss on the
write-down of our investment in American Telecasting, Inc. (ATEL) (see Note 4 to
the financial statements) and equity losses from PCS investees of $6.5 million
($4.0 million after tax, or $0.30 per share). Exclusive of these transactions,
earnings for 1998 were $13.1 million, or $1.00 per share. These earnings results
reflect the continued growth from our consolidated operations, particularly
directory assistance and cellular.
    Net income for 1997 was $12.2 million, or $0.94 per share-diluted, including
a $5.1 million gain ($3.1 million after tax, or $0.24 per share) on the sale of
our investment in the Roanoke MSA Cellular Partnership (see Note 3 to the
financial statements, hereinafter referred to as "Note 3"), a $2.8 million ($1.7
million after tax, or $0.13 per share) loss on write-down of our investment in
ATEL and a $0.8 million loss ($0.5 million after tax, or $0.04 per share) from
the Company's equity share of losses from PCS investees. Exclusive of these
transactions, earnings for 1997 were $11.3 million, or $0.86 per share. These
earnings reflect the growth from our consolidated telephone, cellular and
directory assistance operations.
    OPERATING REVENUES - Total operating revenues were $66.7 million, an
increase of $7.7 million, or 13% over 1997 ($9.1 million, or 18%, increase in
1997 over 1996). The increases were primarily attributable to wireline services,
cellular, and directory assistance. Wireline revenue in 1998 totaled $37.6
million, an increase of $3.1 million, or 9% over 1997 ($5.1 million, or 16%,
over 1996). Wireless revenue in 1998 totaled $13.2 million, an increase of $1.5
million, or 13% over 1997 ($4.0 million, or 43%, over 1996). Directory
assistance revenue in 1998 totaled $12.9 million, an increase of $2.4 million,
or 23% over 1997 ($6.5 million, or 102%, over 1996).
     Wireline communications revenues include telephone revenues, fiber optic
network usage, internet access, competitive local telephone, long distance and
wireline cable revenues. Telephone revenues, which include local service, access
and toll service, directory advertising and calling feature revenues were $30.5
million, an increase of $1.7 million, or 6% over 1997 ($1.4 million, or 5%
increase in 1997 over 1996). These increases were primarily due to growth in
access lines of 3% and 4% in 1998 and 1997, respectively, and revenue growth
from custom calling features of 19% and 28%, respectively. Revenues from fiber
optic network usage, which includes internet services, were $5.4 million, an
increase of $1.4 million, or 36%, over 1997 ($0.4 million, or 11% increase in
1997 over 1996) due to expanded network usage and growth of over 80% in our
internet customer base. Expanded services in 1998 included competitive local
telephone service and long distance which generated $0.8 million in revenue for
1998. Wireline cable revenues have remained relatively constant from 1996
through 1998, with only a $0.1 million increase during this two-year period.
    Wireless communications include cellular, paging, voicemail and wireless
cable. Revenues for cellular, paging and voicemail totaled $10.2 million, an
increase of $1.6 million, or 19%, over 1997 ($1.8 million, or 26%, in 1997 over
1996). Increases result primarily from cellular access, toll, and roaming
associated with 28% customer growth over 1997 (33% in 1997 over 1996) and
increased outside roaming traffic. Wireless cable revenues of $3.0 million
decreased 5% from 1997 but increased 24% compared to 1996. The decline in 1998
revenue is due to limiting marketing efforts and installations to
multiple-dwelling units in an effort to contain costs and capital in this
business section. This revenue stream pertains primarily to video services. The
Company realized less than $0.1 million of revenues from the high-speed wireless
internet, introduced in one geographic market in 1998.
    Directory assistance revenues, which includes net revenues from providing
directory listings for customers seeking telephone numbers in the mid-Atlantic
states, were $12.9 million, an increase of $2.4 million, or 23% over 1997 ($4.1
million, or 65% increase, in 1997 over 1996). During the first half of 1997, the
Company commenced directory assistance services to AT&T customers seeking
telephone numbers in New Jersey and Delaware. During August through October
1997, the Company expanded this service to encompass Pennsylvania. These
expansions, which only had a partial year impact in the prior year, produced an
additional 12.6 million of call volume in 1998 over 1997.
    Other communications revenues, which include revenues from the Company's
sale and lease of communications equipment and security alarm monitoring and
installation, and rental for property and equipment primarily to the PCS
Alliances were $2.9 million, an increase of $0.7 million, or 30% over 1997 ($0.4
million, or 22% in 1997 over 1996) due primarily to services provided to the
Alliances.

                                                                              31
<PAGE>

    OPERATING EXPENSES - Total operating expenses were $44.0 million, an
increase of $4.5 million, or 11% over 1997 ($5.1 million, or 15%, increase in
1997 over 1996). The introduction of competitive local telephone services and
long distance and the resulting start-up related costs, coupled with the growth
of internet and the related commitment towards that infrastructure, accounted
for $2.0 million of the 1998 increase. Additionally, costs associated with
increased directory assistance calling volume accounted for $1.1 million of the
1998 increase due to the annualized revenue from 1997 contract expansions and
commencement of national directory assistance services. Finally, growth in
cellular customers contributed an additional $1.1 million in operating expenses
in 1998 over 1997. The increase in 1997 over 1996 was primarily attributable to
directory assistance contract expansions ($3.9 million) and growth in cellular
and wireless cable customers ($1.5 million). These increases in 1998 over 1997
trailed total revenue growth resulting in a 2% margin improvement indicating a
leveraging of fixed costs and a continued focus on cost containment and
operating efficiencies.
    Maintenance and support expenses, which include costs related to specific
property and equipment, as well as indirect costs such as general engineering
and general administration of property and equipment, increased $1.2 million or
12%, over 1997. This increase was primarily a result of increased costs
associated with customer growth and service enhancements for the underlying
network and support systems. Maintenance and support expenses for 1997 increased
$0.1 million, or 1%, over 1996 which was a result of the Company controlling
expenses by acquiring access and other network pricing decreases coupled with
more efficient utilization of our facilities and equipment infrastructure.
    Depreciation and amortization expenses in 1998 increased $1.3 million, or
14% over 1997 and $0.8 million, or 9% in 1997 over 1996. The increase in 1998
and 1997 was a result of capital outlays to support continued business expansion
primarily in our wireless operations and directory assistance.
    Customer operations expenses, which included marketing, product management,
product advertising, sales, publication of a regional telephone directory,
customer services and directory services, increased $1.9 million, or 14% over
1997 and $3.1 million, or 28%, in 1997 over 1996. Approximately $1.0 million of
these 1998 increases relate to the directory assistance business that added
personnel throughout 1997 to handle the calling volume from new contracts. The
fact that personnel hired to support this expansion were in place for a partial
year in 1997 but the full year of 1998 caused year over year expense growth.
Additionally, the Company has invested resources in customer service related
functions and sales and marketing related costs in order to support our growth
businesses and expansion plans, a significant portion ($0.9 million) of which
relates to competitive telephone service, long distance, internet and
communications systems sales and support. The 1997 increase over 1996 was
primarily attributable to the directory assistance expansion during 1997.
    Corporate operations expenses, which include taxes other than income,
executive, accounting, legal, purchasing, information management, human
resources and other general and administrative expenses, remained constant in
1998 and increased $1.0 million, or 19% in 1997 over 1996. The increase in 1997
relates primarily to internal infrastructure growth necessary to support the
overall growth of the Company.
    OTHER INCOME (EXPENSES) - Other income (expenses) which includes interest
expense, dividend and interest income, equity income from wireless investees,
equity loss from PCS investees, gain on sale of investment and loss on
write-down of investment, decreased $8.6 million from 1997 but increased $0.9
million in 1997 over 1996.
    Other expenses, principally interest, decreased $0.4 million, or 36% from
1997 and $0.1 million, or 10% in 1997 from 1996. The reduction in interest
expense in 1998 and 1997 is primarily a result of the liquidation of
mortgaged-backed securities used to satisfy cash flow needs in lieu of
additional debt, and lower interest rates on line of credit debt facilities
offset by an increase in investing activity (see Statement of Cash Flows). The
Company capitalized interest on property under construction and the investments
in PCS alliances of $0.8 million in 1998 and in 1997. As a result of the VA
Alliance commencing operations during the fourth quarter of 1997 and the
commencement of operations of the WV Alliance in mid-year 1998, the Company
expects the capitalization of interest costs to be reduced during 1999.
    Interest and dividend income was down $0.2 million, or 62% from 1997 and
$0.3 million, or 52% in 1997 from 1996, due to the liquidation of
mortgage-backed securities to support the continued growth in customer base and
business expansion.
    Equity income from other wireless investees, which includes equity earnings
from the Company's cellular partnership interests increased $0.1 million, or
167% over 1997 and decreased $0.4 million, or 84% in 1997 from 1996. The
decrease in 1997 is principally due to the sale of the Company's 30% limited
interest in the Roanoke MSA cellular partnership to GTE in April 1997 (Note 3).
    Equity loss from PCS investees totaled $6.5 million for 1998. The Company
has a 21% common ownership interest in the VA Alliance, a provider of PCS
serving a 1.6 million populated area in central and western Virginia, that
commenced operations in the fourth quarter of 1997. The Company also has a 45%
common ownership interest in the WV Alliance, an owner of PCS radio spectrum
licenses for most of West Virginia and parts of eastern Kentucky, southwestern
Virginia and eastern Ohio. The WV Alliance commenced operations in late 1998.
Accordingly, management believes that the Company's share of losses to be
recognized in 1999 will increase over 1998 loss levels due to the full year of
operations for the WV Alliance.
    The Company recognized a $5.1 million gain on the sale of its 30% limited
ownership interest in the Roanoke MSA Cellular Partnership to GTE Wireless in
April 1997 (Note 3).

                                                                              32
<PAGE>

    The Company recognized a $1.0 and $2.8 million impairment loss on its
investment in American Telecasting, Inc. (ATEL) at December 31, 1998 and 1997,
respectively. The Company concluded that the decline in value was other than
temporary given recent trading prices in the common stock and ATEL's financial
condition and continued financial losses.
    INCOME TAXES - Income taxes decreased $1.8 million, or 24% from 1997 and
increased $2.2 million, or 43%, in 1997 from 1996. The 1998 decrease was
attributable to a number of factors, the most significant of which was the
recognition of approximately $6.5 million in losses sustained by our PCS
investees compared to only $0.8 in 1997. These losses generated an increased tax
benefit to the Company of approximately $2.2 million. Additionally, the Company
recognized a one-time increase to tax expense of $2.0 million related to a gain
on an investment sale in 1997 (discussed further below). The 1998 tax reductions
were offset by approximately $1.2 million of income taxes recognized by the $3.2
million increase in taxable income from operations. The 1997 increase was due to
an increase in taxable income from operations, $2.0 million of taxes from the
gain on the sale of the Roanoke MSA cellular partnership, offset partially by a
$1.1 million tax benefit from the write-down of the Company's investment in
ATEL. The effective rate was 40%, 38%, and 35% in 1998, 1997 and 1996,
respectively.

LIQUIDITY AND CAPITAL RESOURCES

    The Company has funded its working capital requirements and capital
expenditures from net cash provided from operating activities and borrowings
under committed credit facilities. The Company has $22.1 million in unused
aggregate borrowings available under its existing credit facilities.
    During 1998, net cash provided by operating activities was $33.9 million.
Principle changes in operating assets and liabilities included a $0.9 million
increase in current assets, excluding cash and receivable from affiliates, and a
$2.3 million increase in current liabilities. Current assets increased in 1998
primarily due to the income tax receivable versus an income tax liability in
1997 and current liabilities increased $2.3 million due to timing of payments
offset by other accrued liabilities reduction of $0.5 million. The Company's
investing activities included the investment of $16.7 million in property and
equipment, $5.0 million in net advances to PCS Alliances, $2.3 million
investment in PCS Alliances, $1.0 million investment in Listing Services
Solutions, Inc., $0.7 investment in PCS licenses, and proceeds of $1.0 from the
liquidation of mortgaged-backed securities. Net cash used in financing
aggregated $10.4 million, which includes $5.7 million used to pay dividends and
an aggregate of $4.8 million of payments on long-term debt.
    The Company had firm cash commitments relating to purchases of property and
equipment of approximately $6 million as of December 31, 1998. Capital
expenditures for 1999, including these commitments, are expected to increase
significantly over 1998 levels to support expansion of competitive local
telephone and internal access services, build-out of 500 miles of fiber optic
cable, and the addition of a third directory assistance calling center. Funds
required for dividends, capital expenditures, interest and debt principal
payments, and partnership contributions are expected to be provided from
internal sources and borrowings drawn against available credit facilities. The
Company has entered into certain guarantee agreements relating to its investment
in the VA Alliance and WV Alliance (Note 3) and expects to increase its
guarantee levels and equity contributions in the Alliances to support continued
PCS network build-out and expansion. Management anticipates that funds required
for additional capital contributions to the VA Alliance and WV Alliance (Note 3)
will be provided from increased cash flow resulting from lower estimated tax
payments due to the Company recognizing its proportionate share of the tax
losses generated by the VA Alliance and WV Alliance, both limited liability
companies, cash flows from operations and borrowings under existing lines of
credit.

IMPACT OF YEAR 2000

The year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
    The Company has addressed this issue with a plan which is centered around
several key components: (1) system inventory, (2) third party confirmation, (3)
internal systems review, (4) compliance implementation, (5) testing and (6)
contingency planning. Regarding the first component, the Company completed a
comprehensive inventory of all its systems (hardware and software) in July 1998.
At the same time, formal communication, through a confirmation process, was
initiated with all of the Company's significant suppliers and large customers to
determine the extent to which the Company's interface systems are vulnerable to
those third parties' failure to resolve their own year 2000 issues. The Company
has received responses from approximately two-thirds of the confirmations sent
and continues to follow-up on non-responses and instances where potential issues
were noted. Regarding the third component, the Company has completed a
comprehensive review of its computer systems to identify the internal systems
that could be impacted by the year 2000 issue. Based on findings from this
review, the Company has developed an implementation plan to resolve potential
issues and is in the early to middle stages of implementing such a plan. Both
the second and third components were further broken down by category of system
(network

                                                                              33
<PAGE>

systems, information technology systems and other supporting systems).
Significant focal areas are the Company's network/ switching related equipment
and the corporate billing, customer provisioning and accounting systems. The
final components are testing and contingency planning. Testing, where feasible,
spans both the internal systems and systems interface with third parties.
Contingency planning is necessary in the event that conversion efforts, customer
compliance or any other conditions arise that prevent planned critical
application upgrades. The entire year 2000 project has a targeted completion
date of June 1, 1999. Completion of this project includes planned testing of
each major exposure area to ensure compliance. Although no significant plan
changes are anticipated, implementation of any contingency plan, should it be
necessary, may affect the project's completion date and cost.
    Based on it's findings and assessment to date, the Company is or will be
performing certain planned telephone switching software upgrades and computer
software and system upgrades, which are being performed primarily to better meet
the business and growth needs of the Company. The total year 2000 project cost
estimates are not expected to be material to the Company's business operations
or financial condition. The Company will continue to review and update this
estimate over the duration of the project.
    As mentioned above, the Company expects its year 2000 program to be
completed by June 1, 1999. It should be noted that the Company plans to devote
the resources required to resolve any significant year 2000 issues. However, if
the planned modifications and upgrades are not made, or are not completed on a
timely basis, and contingency plans were to falter, the year 2000 issue could
have a material impact on the operations of the Company. Also, there can be no
assurance that the systems of other companies on which the Company's systems
rely will be timely converted or that any such failure to convert by another
company would not have an adverse effect on the Company's systems or costs of
upgrades. The material impact on the operations of the Company could include,
but not be limited to, interruption of telecommunications services,
interruption, error or failure of the Company's customer care services,
including customer billing, and failures of the Company's other information
systems and other date-sensitive equipment. Such failures could result in
substantial customer claims as well as lost revenue due to service interruption,
significant delays in the billing process and increased expense associated with
stabilizing operations following such failures.
    The costs of the program and estimated completion date are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events, including the continued availability of certain resources and
other factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area,
compliance by third parties which interact with the Company's systems, the
ability to locate and correct all relevant computer codes and similar
uncertainties.

                                                                              34

<PAGE>

Quarterly Review

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)   First Quarter    Second Quarter   Third Quarter  Fourth Quarter
----------------------------------------------------------------------------------------------------------
<S>                                     <C>               <C>             <C>             <C>
1998
Operating revenues                        $     16,235      $     16,551    $     17,156    $     16,744
Operating cash flows (a)                         8,041             8,199           8,413           8,477
Operating income                                 5,547             5,712           5,757           5,610
Loss on write-down of investment                  (270)                -            (353)           (387)
Equity loss from PCS investees                    (896)           (1,346)         (1,547)         (2,678)
Net income                                       2,450             2,468           2,174           1,416
Net income per share - basic                     0.189             0.190           0.167           0.108
Net income per share - diluted                   0.187             0.188           0.166           0.109
----------------------------------------------------------------------------------------------------------
Stock price range                         $27.00-20.75      $27.50-22.75    $24.25-20.00    $23.38-19.50
----------------------------------------------------------------------------------------------------------
Quarterly dividend                        $    0.10875      $    0.10875    $    0.10875    $    0.10875
----------------------------------------------------------------------------------------------------------
1997
----------------------------------------------------------------------------------------------------------
Operating revenues                        $     13,466      $     14,503    $     15,157    $     15,884
Operating cash flows (a)                         6,673             6,838           7,387           7,710
Operating income                                 4,486             4,607           5,132           5,187
Gain on sale of investment                           -             5,077               -               -
Loss on write-down of investment                     -                 -               -          (2,808)
Equity loss from PCS investees                       -                 -             (60)           (774)
Net income                                       2,480             5,905           2,894             942
Net income per share - basic                     0.191             0.453           0.223           0.074
Net income per share - diluted                   0.190             0.452           0.222           0.072
----------------------------------------------------------------------------------------------------------
Stock price range                         $22.25-18.25      $19.50-16.62    $22.50-17.50    $24.75-18.50
Quarterly dividend                        $      0.103      $      0.103    $      0.103    $      0.103
----------------------------------------------------------------------------------------------------------
</TABLE>

(a) Operating income before depreciation and amortization. See Management's
    Discussion and Analysis for additional factors to consider in using this
    measure.
-   Fourth quarter 1997 includes equity loss from investment in PCS Alliances
    (Note 3), which commenced operations during the fourth quarter, of $0.8
    million ($0.5 million after-tax or $0.04 per share). These losses totaled
    $6.5 million ($4.0 million after-tax or $0.30 per share) for the year ended
    December 31, 1998 (Note 3).
-   Fourth quarter 1997 includes a loss on write-down of the investment in
    American Telecasting, Inc. (Note 4) of $2.8 million ($1.7 million after-tax
    or $0.13 per share). Further write-downs of this investment totalled $1.0
    million ($0.6 million after-tax or $0.05 per share) for the year ended
    December 31, 1998.
-   Second quarter 1997 includes gain on the sale of investment in the Roanoke
    MSA Cellular Partnership (Note 3) of $5.1 million ($3.1 million after-tax or
    $0.24 per share).

Selected Financial Data and Five Year Growth Comparison

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
(Dollars in thousands,
except per share amounts)              1998            1997           1996           1995          1994
----------------------------------------------------------------------------------------------------------
<S>                                 <C>            <C>             <C>             <C>           <C>
Operating revenues                  $  66,686      $  59,010       $  49,948       $  43,089     $  32,198
Operating expenses                     44,060         39,598          34,533          29,667        19,949
Income taxes                            5,639          7,399           5,163           5,006         3,550
Gain on sale of investments                 -          5,077               -             927             -
Loss on write-down of investment       (1,010)        (2,808)              -               -             -
Net income                              8,508         12,221           9,550           8,494         7,563
Earnings per share - diluted             0.65           0.94            0.73            0.66          0.63
Cash dividends per share                0.435          0.412           0.392           0.379         0.368
Total assets                          155,025        148,448         142,400         143,251       123,964
Long-term debt                         19,774         24,606          24,000          20,000        20,067
Retirement benefits
   other than pensions                  9,317          8,432           7,724           7,150         6,514
Investment in property
   and equipment                     $153,621       $137,703        $127,196        $111,806      $103,086
Average number of common
   shares outstanding - diluted    13,093,561     13,055,814      13,056,081      12,933,926    12,016,163
Number of employees                       743            567             454             492           232
Number of shareholders                  2,998          2,884           2,883           2,889         2,638
----------------------------------------------------------------------------------------------------------
</TABLE>

                                                                              35
<PAGE>

Board of Directors

<TABLE>
<CAPTION>
<S>                                  <C>                                <C>
C. Phillip Barger                    John B. Mitchell, Sr.              Carl A. Rosberg
Retired Chairman                     President & Chairman               Senior Vice President and
E. W. Barger & Company               Hammond-Mitchell, Inc.             Chief Operating Officer
T/A Barger Insurance Network                                            CFW Communications
                                     John N. Neff
William Wayt Gibbs, V                President and                      Robert S. Yeago, Jr.
President                            Chief Executive Officer            Chairman of the Board
Comprehensive Computer Consultants   Nielsen Builders, Inc.             CFW Communications

C. Wilson McNeely, III               James S. Quarforth
Chairman                             President and
Eagle Corporation                    Chief Executive Officer
                                     CFW Communications

Executive Officers

J. William Brownlee                  David R. Maccarelli               James S. Quarforth
Vice President -                     Senior Vice President -           President and
Virginia Operations                  Engineering and Carrier Services  Chief Executive Officer

Warren C. Catlett                    Michael B. Moneymaker             Carl A. Rosberg
Vice President - Strategy and        Vice President and                Senior Vice President and
Business Development                 Chief Financial Officer,          Chief Operating Officer
                                     Treasurer and Secretary
David E. Lowe                                                          Robert S. Yeago, Jr.
President -                          Don Marie Persing                 Chairman of the Board
West Virginia Operations             Vice President -
                                     Human Resources                   Walter M. Zirkle, III
                                                                       President -
                                                                       Virginia Operations
</TABLE>

36

<PAGE>

Annual Meeting

The Board of Directors extends to the shareholders a cordial invitation to
attend the Annual Meeting of Shareholders, at the Holiday Inn next to Route 275
and I-81, north of Staunton, Virginia, on Tuesday, April 27, 1999, at 10:00am.

Corporate Office

401 Spring Lane
Suite 300
PO Box 1990
Waynesboro, Virginia 22980
540-946-3500

Web Page

http://www.cfw.com or www.intelos.com

Stock Updates

For updates on CFW stock prices call 800-946-8227, or dial locally 946-5144. CFW
is publically traded on The NASDAQ Stock Market under the symbol CFWC.

Shareholder Services

For shareholder services, including information on the Company's Dividend
Reinvestment and Stock Purchase Plan, please call 1-888-221-4239.

All trademarks are the property of their respective owners.


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                                                      CFW COMMUNICATIONS COMPANY
                                                            POST OFFICE BOX 1990
                                                      WAYNESBORO, VIRGINIA 22980
                                                                    540-946-3500