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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q





(Mark one)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the quarterly period ended: March 31, 2008

OR



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

For the transition period from  to

Commission file number 001-32354





IOWA TELECOMMUNICATIONS SERVICES, INC.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                    
|-------------------------------------------------------------- |  | -----------------------------------
|Iowa                                                           |  | 42-1490040                         
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. EmployerIdentification No.)

403 W. Fourth Street North

Newton, Iowa 50208

(Address of principal executive offices)

Registrants telephone number, including area code: (641) 787-2000

115 S. Second Ave. West

Newton, Iowa 50208

(Former address of principal executive offices)





Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.    Yes  x    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange
Act).

Large accelerated filer  x    Accelerated filer   ̈    Non-accelerated filer   ̈

Indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ̈    No  x

The number of shares of the registrants common stock, $.01 par value, outstanding as of April 22, 2008 was 31,990,606.









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TABLE OF CONTENT
S



|         |  |                                                                                       |  |     
|-------- |  | ------------------------------------------------------------------------------------- |  | ----
|         |  |                                                                                       |  | Page
|PART I.  |  | FINANCIAL INFORMATION                                                                 |  | 3   
|         |  |                                                                                      
|         |  | FINANCIAL STATEMENTS                                                                  |  | 3   
|         |  |                                                                                      
|         |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |  | 15  
|         |  |                                                                                      
|         |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            |  | 30  
|         |  |                                                                                      
|         |  | CONTROLS AND PROCEDURES                                                               |  | 30  
|         |  |                                                                                      
|PART II. |  | OTHER INFORMATION                                                                     |  | 31  
|         |  |                                                                                      
|         |  | LEGAL PROCEEDINGS                                                                     |  | 31  
|         |  |                                                                                      
|         |  | RISK FACTORS                                                                          |  | 31  
|         |  |                                                                                      
|         |  | EXHIBITS                                                                              |  | 31  



2



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##### Table of Contents

PART I - FINANCIAL INFORMATION



|ITEM 1. | FINANCIAL STATEMENTS
|------- | --------------------

Iowa Telecommunications
Services, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

(Dollars in Thousands, Except Per Share Data)



|                                                                                                                             |  |                  |          |   |               |   |          |  
|---------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | -------- | - | ------------- | - | -------- | -
|                                                                                                                             |  | December 31,2007 |          |   | March 31,2008 |  
|ASSETS                                                                                                                       |  |                  |          |   |               |   |          |  
|CURRENT ASSETS:                                                                                                              |  |                  |          |   |               |   |          |  
|Cash and cash equivalents                                                                                                    |  | $                | 21,919   |   |               | $ | 5,461    |  
|Accounts receivable, net                                                                                                     |  |                  | 20,252   |   |               |   | 18,474   |  
|Inventories                                                                                                                  |  |                  | 2,995    |   |               |   | 3,413    |  
|Prepayments and other current assets                                                                                         |  |                  | 2,288    |   |               |   | 2,792    |  
|                                                                                                                             |  |                  |          |   |               |   |          |  
|Total Current Assets                                                                                                         |  |                  | 47,454   |   |               |   | 30,140   |  
|                                                                                                                             |  |                  |          |   |               |   |          |  
|PROPERTY, PLANT AND EQUIPMENT:                                                                                               |  |                  |          |   |               |   |          |  
|Property, plant and equipment                                                                                                |  |                  | 542,949  |   |               |   | 547,591  |  
|Accumulated depreciation                                                                                                     |  |                  | (264,284 | ) |               |   | (275,349 | )
|                                                                                                                             |  |                  |          |   |               |   |          |  
|Net Property, Plant and Equipment                                                                                            |  |                  | 278,665  |   |               |   | 272,242  |  
|                                                                                                                             |  |                  |          |   |               |   |          |  
|GOODWILL                                                                                                                     |  |                  | 466,554  |   |               |   | 466,554  |  
|INTANGIBLE ASSETS AND OTHER, net                                                                                             |  |                  | 24,888   |   |               |   | 26,516   |  
|INVESTMENT IN AND RECEIVABLE FROM THE RURAL TELEPHONE FINANCE COOPERATIVE                                                    |  |                  | 13,998   |   |               |   | 13,786   |  
|                                                                                                                             |  |                  |          |   |               |   |          |  
|Total Assets                                                                                                                 |  | $                | 831,559  |   |               | $ | 809,238  |  
|                                                                                                                             |  |                  |          |   |               |   |          |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                         |  |                  |          |   |               |   |          |  
|CURRENT LIABILITIES:                                                                                                         |  |                  |          |   |               |   |          |  
|Revolving credit facility                                                                                                    |  | $                | 18,000   |   |               | $ | 3,000    |  
|Accounts payable                                                                                                             |  |                  | 9,062    |   |               |   | 7,998    |  
|Advanced billings and customer deposits                                                                                      |  |                  | 9,365    |   |               |   | 8,862    |  
|Accrued and other current liabilities                                                                                        |  |                  | 32,104   |   |               |   | 26,554   |  
|                                                                                                                             |  |                  |          |   |               |   |          |  
|Total Current Liabilities                                                                                                    |  |                  | 68,531   |   |               |   | 46,414   |  
|LONG-TERM DEBT                                                                                                               |  |                  | 477,778  |   |               |   | 477,778  |  
|DEFERRED TAX LIABILITIES                                                                                                     |  |                  | 35,255   |   |               |   | 34,707   |  
|OTHER LONG-TERM LIABILITIES                                                                                                  |  |                  | 7,028    |   |               |   | 20,119   |  
|                                                                                                                             |  |                  |          |   |               |   |          |  
|Total Liabilities                                                                                                            |  |                  | 588,592  |   |               |   | 579,018  |  
|                                                                                                                             |  |                  |          |   |               |   |          |  
|COMMITMENTS AND CONTINGENCIES (Note 9)                                                                                       |  |                  |         |   |               |   |         |  
|STOCKHOLDERS EQUITY:                                                                                                        |  |                  |          |   |               |   |          |  
|Preferred stock, $0.01 par value, 50,000,000 shares authorized, no shares issued and outstanding                             |  |                  |         |   |               |   |         |  
|Common stock, $0.01 par value, 100,000,000 shares authorized, 31,440,215 and 31,445,215 issued and outstanding, respectively |  |                  | 314      |   |               |   | 314      |  
|Additional paid-in capital                                                                                                   |  |                  | 324,170  |   |               |   | 325,040  |  
|Retained deficit                                                                                                             |  |                  | (82,154  | ) |               |   | (88,156  | )
|Accumulated other comprehensive income (loss)                                                                                |  |                  | 637      |   |               |   | (6,978   | )
|                                                                                                                             |  |                  |          |   |               |   |          |  
|Total Stockholders Equity                                                                                                   |  |                  | 242,967  |   |               |   | 230,220  |  
|                                                                                                                             |  |                  |          |   |               |   |          |  
|Total Liabilities and Stockholders Equity                                                                                   |  | $                | 831,559  |   |               | $ | 809,238  |  
|                                                                                                                             |  |                  |          |   |               |   |          |  

See notes to condensed consolidated financial statements.



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Iowa Telecommunications Services, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(Unaudited)

(Amounts in Thousands, Except Per Share Data)



|                                                                       |  |                             |        |   |      |   |        |  
|---------------------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                                       |  | Three Months EndedMarch 31, |       
|                                                                       |  | 2007                        |        |   | 2008 |  
|REVENUES AND SALES                                                     |  | $                           | 66,496 |   |      | $ | 60,845 |  
|OPERATING COSTS AND EXPENSES:                                          |  |                             |        |   |      |   |        |  
|Cost of services and sales (exclusive of items shown separately below) |  |                             | 18,376 |   |      |   | 18,613 |  
|Selling, general and administrative                                    |  |                             | 10,481 |   |      |   | 10,115 |  
|Depreciation and amortization                                          |  |                             | 12,028 |   |      |   | 12,605 |  
|                                                                       |  |                             |        |   |      |   |        |  
|Total Operating Costs and Expenses                                     |  |                             | 40,885 |   |      |   | 41,333 |  
|                                                                       |  |                             |        |   |      |   |        |  
|OPERATING INCOME                                                       |  |                             | 25,611 |   |      |   | 19,512 |  
|                                                                       |  |                             |        |   |      |   |        |  
|OTHER INCOME (EXPENSE):                                                |  |                             |        |   |      |   |        |  
|Interest and dividend income                                           |  |                             | 371    |   |      |   | 378    |  
|Interest expense                                                       |  |                             | (8,012 | ) |      |   | (7,698 | )
|Other, net                                                             |  |                             | (224   | ) |      |   | (259   | )
|                                                                       |  |                             |        |   |      |   |        |  
|Total Other Expense, net                                               |  |                             | (7,865 | ) |      |   | (7,579 | )
|                                                                       |  |                             |        |   |      |   |        |  
|EARNINGS BEFORE INCOME TAXES                                           |  |                             | 17,746 |   |      |   | 11,933 |  
|INCOME TAX EXPENSE                                                     |  |                             | 7,273  |   |      |   | 4,976  |  
|                                                                       |  |                             |        |   |      |   |        |  
|NET INCOME                                                             |  | $                           | 10,473 |   |      | $ | 6,957  |  
|                                                                       |  |                             |        |   |      |   |        |  
|EARNINGS PER SHARE:                                                    |  |                             |        |   |      |   |        |  
|BASIC - Earnings Per Share                                             |  | $                           | 0.33   |   |      | $ | 0.22   |  
|                                                                       |  |                             |        |   |      |   |        |  
|BASIC - Weighted Average Number of Shares Outstanding                  |  |                             | 31,380 |   |      |   | 31,444 |  
|                                                                       |  |                             |        |   |      |   |        |  
|DILUTED - Earnings Per Share                                           |  | $                           | 0.33   |   |      | $ | 0.22   |  
|                                                                       |  |                             |        |   |      |   |        |  
|DILUTED - Weighted Average Number of Shares Outstanding                |  |                             | 32,013 |   |      |   | 32,037 |  
|                                                                       |  |                             |        |   |      |   |        |  
|Dividends Declared Per Share                                           |  | $                           | 0.405  |   |      | $ | 0.405  |  
|                                                                       |  |                             |        |   |      |   |        |  

See notes to condensed consolidated financial statements.



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Iowa Telecommunications Services, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders Equity

(Unaudited)

(Dollars in Thousands, Except Per Share Data)



|                                                          |  |                                            |  |             |     |                          |   |                 |  |   |                                            |   |  |       |        |   |  |   |         |  
|--------------------------------------------------------- |  | ------------------------------------------ |  | ----------- | --- | ------------------------ | - | --------------- |  | - | ------------------------------------------ | - |  | ----- | ------ | - |  | - | ------- | -
|                                                          |  | Three Months Ended March 31, 2007 and 2008 | 
|                                                          |  | CommonShares                               |  | CommonStock |     | AdditionalPaid-InCapital |   | RetainedDeficit |  |   | AccumulatedOtherComprehensiveIncome (loss) |   |  | Total |       
|Balance, December 31, 2006                                |  | 31,379,670                                 |  | $           | 314 |                          | $ | 322,016         |  | $ | (59,976                                    | ) |  | $     | 5,345  |   |  | $ | 267,699 |  
|Net Income                                                |  |                                           |  |             |    |                          |   |                |  |   | 10,473                                     |   |  |       |       |   |  |   | 10,473  |  
|Unrealized loss on derivatives, net of tax effect         |  |                                           |  |             |    |                          |   |                |  |   |                                           |   |  |       | (1,284 | ) |  |   | (1,284  | )
|                                                          |  |                                            |  |             |     |                          |   |                 |  |   |                                            |   |  |       |        |   |  |   |         |  
|Total comprehensive income (loss)                         |  |                                           |  |             |    |                          |   |                |  |   | 10,473                                     |   |  |       | (1,284 | ) |  |   | 9,189   |  
|Compensation from compensatory stock plans                |  | 622                                        |  |             |    |                          |   | 603             |  |   |                                           |   |  |       |       |   |  |   | 603     |  
|Dividends declared ($.405 per share)                      |  |                                           |  |             |    |                          |   |                |  |   | (12,846                                    | ) |  |       |       |   |  |   | (12,846 | )
|                                                          |  |                                            |  |             |     |                          |   |                 |  |   |                                            |   |  |       |        |   |  |   |         |  
|Balance, March 31, 2007                                   |  | 31,380,292                                 |  | $           | 314 |                          | $ | 322,619         |  | $ | (62,349                                    | ) |  | $     | 4,061  |   |  | $ | 264,645 |  
|                                                          |  |                                            |  |             |     |                          |   |                 |  |   |                                            |   |  |       |        |   |  |   |         |  
|Balance, December 31, 2007                                |  | 31,440,215                                 |  | $           | 314 |                          | $ | 324,170         |  | $ | (82,154                                    | ) |  | $     | 637    |   |  | $ | 242,967 |  
|Net Income                                                |  |                                           |  |             |    |                          |   |                 |  |   | 6,957                                      |   |  |       |        |   |  |   | 6,957   |  
|Unrealized loss on derivatives, net of tax effect         |  |                                           |  |             |    |                          |   |                |  |   |                                           |   |  |       | (7,471 | ) |  |   | (7,471  | )
|Postretirement benefit plan adjustment, net of tax effect |  |                                           |  |             |    |                          |   |                |  |   |                                           |   |  |       | (144   | ) |  |   | (144    | )
|                                                          |  |                                            |  |             |     |                          |   |                 |  |   |                                            |   |  |       |        |   |  |   |         |  
|Total comprehensive income (loss)                         |  |                                           |  |             |    |                          |   |                |  |   | 6,957                                      |   |  |       | (7,615 | ) |  |   | (658    | )
|Compensation from compensatory stock plans, net of tax    |  | 5,000                                      |  |             |    |                          |   | 870             |  |   |                                           |   |  |       |       |   |  |   | 870     |  
|Dividends declared ($.405 per share)                      |  |                                           |  |             |    |                          |   |                |  |   | (12,959                                    | ) |  |       |       |   |  |   | (12,959 | )
|                                                          |  |                                            |  |             |     |                          |   |                 |  |   |                                            |   |  |       |        |   |  |   |         |  
|Balance, March 31, 2008                                   |  | 31,445,215                                 |  | $           | 314 |                          | $ | 325,040         |  | $ | (88,156                                    | ) |  | $     | (6,978 | ) |  | $ | 230,220 |  
|                                                          |  |                                            |  |             |     |                          |   |                 |  |   |                                            |   |  |       |        |   |  |   |         |  

See notes to condensed consolidated financial statements.



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Iowa Telecommunications Services, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(Dollars in Thousands)



|                                                                              |  |                             |         |   |      |   |         |  
|----------------------------------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                                              |  | Three Months EndedMarch 31, |        
|                                                                              |  | 2007                        |         |   | 2008 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                         |  |                             |         |   |      |   |         |  
|Net income                                                                    |  | $                           | 10,473  |   |      | $ | 6,957   |  
|Adjustments to reconcile net income to cash provided by operating activities: |  |                             |         |   |      |   |         |  
|Depreciation                                                                  |  |                             | 11,495  |   |      |   | 12,231  |  
|Amortization of intangible assets                                             |  |                             | 533     |   |      |   | 374     |  
|Amortization of debt issuance costs                                           |  |                             | 148     |   |      |   | 148     |  
|Deferred income taxes                                                         |  |                             | 6,895   |   |      |   | 4,769   |  
|Non-cash stock based compensation expense                                     |  |                             | 593     |   |      |   | 866     |  
|Changes in operating assets and liabilities:                                  |  |                             |         |   |      |   |         |  
|Receivables                                                                   |  |                             | 742     |   |      |   | 1,778   |  
|Inventories                                                                   |  |                             | (238    | ) |      |   | (418    | )
|Accounts payable                                                              |  |                             | 620     |   |      |   | (1,064  | )
|Other assets and liabilities                                                  |  |                             | (5,286  | ) |      |   | (6,448  | )
|                                                                              |  |                             |         |   |      |   |         |  
|Net Cash Provided by Operating Activities                                     |  |                             | 25,975  |   |      |   | 19,193  |  
|                                                                              |  |                             |         |   |      |   |         |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                         |  |                             |         |   |      |   |         |  
|Capital expenditures                                                          |  |                             | (6,537  | ) |      |   | (5,858  | )
|Deposit for wireless licenses                                                 |  |                             |        |   |      |   | (1,906  | )
|                                                                              |  |                             |         |   |      |   |         |  
|Net Cash Used in Investing Activities                                         |  |                             | (6,537  | ) |      |   | (7,764  | )
|                                                                              |  |                             |         |   |      |   |         |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                         |  |                             |         |   |      |   |         |  
|Net change in revolving credit facility                                       |  |                             | (15,000 | ) |      |   | (15,000 | )
|Dividends paid                                                                |  |                             | (12,846 | ) |      |   | (12,887 | )
|                                                                              |  |                             |         |   |      |   |         |  
|Net Cash Used in Financing Activities                                         |  |                             | (27,846 | ) |      |   | (27,887 | )
|                                                                              |  |                             |         |   |      |   |         |  
|NET CHANGE IN CASH AND CASH EQUIVALENTS                                       |  |                             | (8,408  | ) |      |   | (16,458 | )
|CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                              |  |                             | 13,613  |   |      |   | 21,919  |  
|                                                                              |  |                             |         |   |      |   |         |  
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                                    |  | $                           | 5,205   |   |      | $ | 5,461   |  
|                                                                              |  |                             |         |   |      |   |         |  
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                             |  |                             |         |   |      |   |         |  
|Cash paid for interest                                                        |  | $                           | 7,908   |   |      | $ | 7,672   |  
|                                                                              |  |                             |         |   |      |   |         |  
|Cash paid for income taxes                                                    |  | $                           | 3       |   |      | $ | 4       |  
|                                                                              |  |                             |         |   |      |   |         |  

SUPPLEMENTAL NON-CASH ACTIVITIES:

Dividends on Common Stock of $12,846 were declared on March 15, 2007 for shareholders of record as of March 30, 2007 and the dividends were paid on April 16, 2007.

Dividends on Common Stock of $12,959 were declared on March 14, 2008 for shareholders of record as of March 31, 2008 and the dividends were
paid on April 15, 2008.

See notes to condensed consolidated financial statements.



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Iowa Telecommunications Services, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of
Iowa Telecommunications Services, Inc. and Subsidiaries (the Company) have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial information.
Certain information and disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted or condensed pursuant to such rules and
regulations. In the opinion of the Companys management, all adjustments (consisting of only normal and recurring accruals) have been made to present fairly the financial positions, the results of operations and cash flows for the periods
presented. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. Although the Company believes that the disclosures are adequate to make the information presented not
misleading, these unaudited condensed consolidated financial statements should be read in conjunction with the Companys audited consolidated financial statements as of and for the year ended December 31, 2007, that are included in the
Companys most recently filed annual report on Form 10-K as filed with the SEC.

2. EARNINGS PER SHARE

Basic earnings per share is computed based on the weighted average number of common shares issued and outstanding during the period, excluding unvested
restricted shares. Diluted earnings per share is computed based on the weighted average common shares issued and outstanding plus equivalent shares assuming exercise of stock options and vesting of unvested compensatory shares. The dilutive effect
of stock options and unvested compensatory shares is computed by application of the treasury stock method. The following is a reconciliation between basic and diluted weighted average shares outstanding:



|                                                        |  |                                          |        |      |   |       
|------------------------------------------------------- |  | ---------------------------------------- | ------ | ---- | - | ------
|                                                        |  | Three Months EndedMarch 31,             
|                                                        |  | 2007                                     |        | 2008
|                                                        |  | (in thousands, except per share amounts)
|Net Income                                              |  | $                                        | 10,473 |      | $ | 6,957 
|                                                        |  |                                          |        |      |   |       
|Weighted average shares outstanding - basic             |  |                                          | 31,380 |      |   | 31,444
|                                                        |  |                                          |        |      |   |       
|Diluted shares outstanding:                             |  |                                          |        |      |   |       
|Weighted average shares outstanding                     |  |                                          | 31,380 |      |   | 31,444
|Add shares issuable upon exercise of stock options, net |  |                                          | 521    |      |   | 549   
|Add unvested compensatory stock shares                  |  |                                          | 112    |      |   | 44    
|                                                        |  |                                          |        |      |   |       
|Weighted average number of shares outstanding - diluted |  |                                          | 32,013 |      |   | 32,037
|                                                        |  |                                          |        |      |   |       
|Earnings Per Share:                                     |  |                                          |        |      |   |       
|Basic                                                   |  | $                                        | 0.33   |      | $ | 0.22  
|Diluted                                                 |  | $                                        | 0.33   |      | $ | 0.22  

As of March 31, 2007 and 2008, total options outstanding were 682,579 and 677,579,
respectively.

3. REVENUES AND SALES

The table below sets forth the components of our revenues and sales for the three months ended March 31, 2007 and 2008:



|                           |  |                             |        |      |   |       
|-------------------------- |  | --------------------------- | ------ | ---- | - | ------
|                           |  | Three Months EndedMarch 31,
|                           |  | 2007                        |        | 2008
|                           |  | (dollars in thousands)     
|Local services             |  | $                           | 18,847 |      | $ | 17,691
|Network access services    |  |                             | 29,281 |      |   | 22,662
|Toll services              |  |                             | 5,390  |      |   | 5,870 
|Data and internet services |  |                             | 6,944  |      |   | 8,078 
|Other services and sales   |  |                             | 6,034  |      |   | 6,544 
|                           |  |                             |        |      |   |       
|Total revenues and sales   |  | $                           | 66,496 |      | $ | 60,845
|                           |  |                             |        |      |   |       



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4. EMPLOYEE BENEFIT PLANS

Retirement Pension Plan

The Company sponsors the Iowa Telecom Pension Plan (the Plan), a defined benefit
pension plan that covers many former GTE Midwest Incorporated (GTE) employees and many union employees. The provisions of the Plan were assumed by the Company in connection with the GTE acquisition on June 30, 2000. The Plan
generally provides for employee retirement at age 65 with benefits based upon length of service and compensation. The Plan provides for early retirement, lump sum benefits, and various annuity options. There were no contributions to the Plan made
during the first quarter of 2008.

Components of pension benefit cost are as follows:



|                                            |  |                             |      |   |      |   |      |  
|------------------------------------------- |  | --------------------------- | ---- | - | ---- | - | ---- | -
|                                            |  | Three Months EndedMarch 31, |     
|                                            |  | 2007                        |      |   | 2008 |  
|                                            |  | (dollars in thousands)      |     
|Pension Benefit Cost:                       |  |                             |      |   |      |   |      |  
|Service cost                                |  | $                           | 59   |   |      | $ | 55   |  
|Interest cost                               |  |                             | 185  |   |      |   | 185  |  
|Expected return on plan assets              |  |                             | (154 | ) |      |   | (175 | )
|Amortization of unrecognized actuarial loss |  |                             | 42   |   |      |   | 7    |  
|                                            |  |                             |      |   |      |   |      |  
|Net periodic benefit cost                   |  | $                           | 132  |   |      | $ | 72   |  
|                                            |  |                             |      |   |      |   |      |  

The benefits to be paid to participants at their normal retirement age of 65 are fixed.

Postretirement Benefits

The Company
assumed a postretirement benefit plan for employees who qualified for benefits at the date of the GTE acquisition. This plan provides for defined medical and life insurance benefits to employees who satisfy certain requirements for an early or
normal pension under the defined benefit pension plan.

During the second quarter of 2007, the Company amended its postretirement welfare
plan. The amendment eliminated medical benefits for certain retirees and reduced benefits for others. Life insurance benefits were eliminated for most retirees covered under the agreement. The plan amendment resulted in a significant change in the
number of plan participants which required a re-measurement of both the plan assets and benefit obligations. The re-measurement resulted in a one time curtailment gain of $247,000 and reduction in the liability recorded for prior service costs of
$5.6 million which is being amortized over 5.31 years as a component of the annual cost.



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Components of postretirement benefit cost (income) are as follows:



|                                                |  |                             |     |   |      |   |      |  
|----------------------------------------------- |  | --------------------------- | --- | - | ---- | - | ---- | -
|                                                |  | Three Months EndedMarch 31, |    
|                                                |  | 2007                        |     |   | 2008 |  
|                                                |  | (dollars in thousands)      |    
|Postretirement Benefit Cost (Income):           |  |                             |     |   |      |   |      |  
|Service cost                                    |  | $                           | 42  |   |      | $ | 4    |  
|Interest cost                                   |  |                             | 128 |   |      |   | 51   |  
|Amortization of unrecognized net actuarial loss |  |                             | 16  |   |      |   | 12   |  
|Amortization of unrecognized prior service cost |  |                             | (39 | ) |      |   | (264 | )
|                                                |  |                             |     |   |      |   |      |  
|Net periodic benefit cost (income)              |  | $                           | 147 |   |      | $ | (197 | )
|                                                |  |                             |     |   |      |   |      |  

5. LONG-TERM DEBT AND REVOLVING CREDIT FACILITIES

Credit Facilities

As of March 31, 2008,
the Company had outstanding $477.8 million of senior debt under its term loan facilities, and had $3.0 million drawn under the $100.0 million revolving credit facility. The details of the credit facilities are as follows:

The revolving credit facility will expire in November 2011 and permits borrowings up to the aggregate principal amount of $100.0 million (less amounts
reserved for letters of credit up to a maximum amount of $25.0 million). As of March 31, 2008, $3.0 million was outstanding on the revolving credit facility and $97.0 million was available. Borrowings under our revolving credit facility bear
interest per annum at either (a) the London inter-bank offered rate, or LIBOR, plus 2.0% or (b) a base rate plus 1.0%. As of March 31, 2008, the Company had $3.0 million outstanding under LIBOR elections at an average all-in rate of
4.71%.

Term Loan B is a $400.0 million senior secured term facility maturing in November 2011, bearing interest per annum at either
(a) a LIBOR rate plus an applicable rate adder of 1.75% per annum or (b) a base rate election plus an applicable rate adder of 0.75% per annum. As of March 31, 2008, $350.0 million of the Term Loan B was based upon a LIBOR
election effective through June 30, 2008 at an all-in rate of 4.43%. The Company has entered into interest rate swap agreements to fix the rate on $350.0 million of Term Loan B as more fully described below. As of March 31, 2008, the
interest rate on the remaining $50.0 million was based upon a LIBOR election effective through September 12, 2008 at an all-in rate of 4.54%.

Term Loan C is a $70.0 million senior secured term facility maturing in November 2011, bearing interest per annum at either (a) a fixed rate or (b) a Rural Telephone Finance Cooperative variable rate plus 0.85%. The interest rate
on Term Loan C was fixed at 6.65% until November 2007. Effective August 1, 2007, the Company elected a new all-in fixed interest rate of 6.95% through June 2011 on Term Loan C. Upon the expiration of the fixed interest rate period, the term
loan will convert to the Rural Telephone Finance Cooperative base variable rate plus 0.85%.

Term Loan D is a $7.8 million senior secured
term facility maturing in November 2011, bearing interest per annum at either (a) a fixed rate or (b) a Rural Telephone Finance Cooperative variable rate plus 0.85%. The interest rate on Term Loan D was fixed at 6.65% until November 2007.
Effective August 1, 2007 the Company elected a new all-in fixed interest rate of 6.95% through June 2011 on Term Loan D. Upon the expiration of the fixed interest rate period, the term loan will convert to the Rural Telephone Finance
Cooperative variable rate plus 0.85%.

As a condition of borrowing under Term Loans C and D, the Company is required to invest $7.8
million, representing 10% of the total amounts of Term Loans C and D, in Subordinated Capital Certificates (SCCs) of the Rural Telephone Finance Cooperative. SCCs are non-interest bearing but, as a member of the Rural Telephone Finance
Cooperative, the Company shares proportionately in the institutions net earnings. The Rural Telephone Finance Cooperative will redeem the SCCs in proportion to our principal repayments on Term Loans C and D.

The credit facilities are secured by substantially all of the Companys tangible and intangible assets, properties and revenues. The credit
facilities are guaranteed by all of our subsidiaries.



9



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The credit facilities permit us to pay dividends to holders of our common stock; however, they contain
significant restrictions on our ability to do so. The credit facilities contain certain negative covenants that, among other things, limit or restrict our ability (as well as those of our subsidiaries) to: create liens and encumbrances; incur debt,
issue preferred stock, or enter into leases and guarantees; enter into loans, investments and acquisitions; make asset sales, transfers or dispositions; change lines of business; enter into hedging agreements; pay dividends, redeem stock, or make
certain restricted payments; amend material debt agreements or other material contracts; engage in certain transactions with affiliates; enter into sale/leaseback or synthetic lease transactions; grant negative pledges or agree to such other
restrictions relating to subsidiary dividends and distributions; make changes to our fiscal year; and engage in mergers and consolidations.

The credit facilities require us, subject to certain exceptions, to prepay outstanding loans under the credit facilities to the extent of net cash proceeds received from the following: issuance of certain indebtedness; proceeds of certain
asset sales; and casualty insurance proceeds. The credit facilities further require us, subject to certain exceptions, to make prepayments under the credit facilities equal to 50% of any net increase in the following: distributable cash during a
dividend suspension period, as defined; and in cumulative distributable cash, as defined, during the fiscal year less the cumulative reductions of revolving loans through such period, with reductions to the percentage to be determined based on
improvements in certain credit ratios. As of March 31, 2008, no prepayment amounts were due under these provisions.

The credit
facilities generally permit voluntary prepayments of the term loans and reductions of commitments without penalty or premium, other than standard breakage costs.

In addition, the financial covenants under the credit facilities specify, among other things, certain fixed charge coverage ratios and a maximum total leverage ratio, as defined, all of which the Company was in
compliance with as of March 31, 2008.

Interest Rate Swaps

On August 26, 2005, the Company amended the interest rate swap arrangements that were originally entered into on November 4, 2004. The amended swap arrangements effectively fixed the interest rate the
Company will pay on $350.0 million of our indebtedness under Term Loan B. The purpose of the swap agreements is to adjust the interest rate profile of our debt obligations and to achieve a targeted mix of floating and fixed rate debt. As a result of
these arrangements, the effective all-in interest rate on $350.0 million of indebtedness under Term Loan B for the period beginning August 31, 2005 and ending November 23, 2011 will be 5.865%.

6. STOCK INCENTIVE PLANS

2002 Stock Incentive Plan

The Iowa Telecommunications, Inc. 2002 Stock Incentive Plan (the 2002 Incentive Plan) allows for the issuance of incentive
stock options or nonqualified stock options. Under the 2002 Incentive Plan, options have been granted for the purchase of 2,227,714 shares of which 1,031,795 were redeemed for cash in 2004 in conjunction with the Companys initial public
offering, 518,340 have been exercised and 677,579 remained outstanding as of March 31, 2008. No new options will be granted under the 2002 Incentive Plan. The term of each option did not exceed 10 years from the date of grant. Options granted
to employees vested over 3 to 5 years from the date of the grant. All unvested options outstanding at the time of the closing of the Companys initial public offering vested pursuant to the terms of the 2002 Incentive Plan. The exercise price
for unexercised options is automatically decreased by the amount of dividends that would have been paid on the shares issuable upon exercise.

The Company recorded $266,000 of stock-based compensation expense during the three-month period ended March 31, 2008 to reflect the change in the fair value of the options from the reduction of the exercise price resulting from the
declaration of cash dividends. During the three-month period ended March 31, 2007, the Company recorded $248,000 of stock-based compensation expense to reflect the change in the fair value of the options from the reduction of the exercise price
resulting from the declaration of cash dividends.

The fair value of each option grant and subsequent modification is estimated using the
Black-Scholes option-pricing model. The table below depicts the weighted-average assumptions used in determining the options fair value at the time of the exercise price reductions.



10



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##### Table of Contents

|                                          |  |                             |    |  |      |   
|----------------------------------------- |  | --------------------------- | -- |  | ---- | --
|                                          |  | Three Months EndedMarch 31, |   
|                                          |  | 2007(1)                     |    |  | 2008 |   
|Weighted Average Expected Life (in years) |  | 2.4                         | yr |  | 1.7  | yr
|Risk free interest rate                   |  | 4.5                         | %  |  | 1.8  | % 
|Volatility                                |  | 19                          | %  |  | 30   | % 
|Dividend yield                            |  | 0                           | %  |  | 0    | % 



|(1) | Because the Companys stock had not been publicly traded
long enough to establish a reliable historical volatility rate, the average historical volatility rate for a pool of similar entities was used.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

A summary of the status of options granted under the 2002 Incentive Plan as of March 31, 2007 and 2008, and the changes during the three-month periods then ended, is presented below:



|                                 |  |                                  |  |                                        |      |        |         |                                        |   |     
|-------------------------------- |  | -------------------------------- |  | -------------------------------------- | ---- | ------ | ------- | -------------------------------------- | - | ----
|                                 |  | Three Months EndedMarch 31, 2007 |  | Three Months EndedMarch 31, 2008      
|Fixed Options                    |  | Shares                           |  | WeightedAverageExercise Priceper Share |      | Shares |         | WeightedAverageExercise Priceper Share
|OUTSTANDING AT BEGINNING OF YEAR |  | 682,579                          |  | $                                      | 4.72 |        | 677,579 |                                        | $ | 3.10
|Granted                          |  |                                 |  |                                        |     |        |        |                                        |   |    
|Exercised                        |  |                                 |  |                                        |     |        |        |                                        |   |    
|                                 |  |                                  |  |                                        |      |        |         |                                        |   |     
|OUTSTANDING AT MARCH 31,         |  | 682,579                          |  | $                                      | 4.32 |        | 677,579 |                                        | $ | 2.70
|                                 |  |                                  |  |                                        |      |        |         |                                        |   |     

The following table summarizes information about stock options outstanding at March 31, 2008:



|                               |  |                     |  |                                                  |  |         |  |                                        |      |                                         |   |          
|------------------------------ |  | ------------------- |  | ------------------------------------------------ |  | ------- |  | -------------------------------------- | ---- | --------------------------------------- | - | ---------
|                               |  | Options Outstanding |  | Options Exercisable                             
|Exercise Price per Share Range |  | Number              |  | WeightedAverageRemainingContractualLife In Years |  | Number  |  | WeightedAverageExercise Priceper Share |      | WeightedAverageAggregateIntrinsic Value
|$2.51 to $3.00                 |  | 533,005             |  | 4.1                                              |  | 533,005 |  | $                                      | 2.52 |                                         | $ | 8,105,000
|$3.01 to $3.50                 |  | 129,379             |  | 4.5                                              |  | 129,379 |  | $                                      | 3.07 |                                         | $ | 1,897,000
|$5.51 to $6.00                 |  | 15,195              |  | 5.8                                              |  | 15,195  |  | $                                      | 5.66 |                                         | $ | 183,000  

The weighted average exercise price of options exercisable at March 31, 2008 reflects the
reductions required by the plan as a result of the declaration of cash dividends.

2005 Stock Incentive Plan

The Iowa Telecommunications Services, Inc. 2005 Stock Incentive Plan (the 2005 Incentive Plan) allows for the issuance of up to an aggregate
of 1.5 million shares of restricted or unrestricted stock, of which 634,800 shares of restricted stock, net of forfeitures and cancellations, have been awarded to various officers and employees of the Company, and 7,757 shares of unrestricted
stock have been issued to members of the Companys Board of Directors.

A summary of the status of the restricted shares awarded
pursuant to the 2005 Incentive Plan as of March 31, 2007 and 2008, and the changes during the three-month periods then ended is presented below:



|                                 |  |                                  |  |                                     |       |        |         |     |                                     |   |      
|-------------------------------- |  | -------------------------------- |  | ----------------------------------- | ----- | ------ | ------- | --- | ----------------------------------- | - | -----
|                                 |  | Three Months EndedMarch 31, 2007 |  | Three Months EndedMarch 31, 2008   
|                                 |  | Shares                           |  | WeightedAverageGrant DateFair Value |       | Shares |         |     | WeightedAverageGrant DateFair Value
|OUTSTANDING AT BEGINNING OF YEAR |  | 339,300                          |  | $                                   | 18.50 |        | 378,475 |     |                                     | $ | 19.64
|Granted                          |  |                                 |  |                                     |      |        | 174,500 | (1) |                                     |   | 16.73
|Vested                           |  |                                 |  |                                     |      |        |        |     |                                     |   |     
|Cancelled/Forfeited              |  |                                 |  |                                     |      |        |        |     |                                     |   |     
|                                 |  |                                  |  |                                     |       |        |         |     |                                     |   |      
|OUTSTANDING AT MARCH 31,         |  | 339,300                          |  | $                                   | 18.50 |        | 552,975 |     |                                     | $ | 18.72
|                                 |  |                                  |  |                                     |       |        |         |     |                                     |   |      



|(1) | Weighted average vesting period at grant date for shares granted
is 61 months.
|--- | ------------------------------------------------------------------------------



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The Company recognizes compensation cost related to awards of restricted stock on a straight-line basis
over the requisite service period for the entire award. The Company recorded $524,000 and $342,000, respectively, of stock-based compensation expense during the three-month periods ended March 31, 2008 and 2007. The remaining amount to be
charged to expense for unvested awards over the remaining service periods is $8.1 million. The Company also recorded $77,000 and $3,000, respectively, of expense during the three-month periods ended March 31, 2008 and 2007 related to the
unrestricted shares issued to members of its Board of Directors.

7. DISCLOSURES ABOUT FAIR VALUE OF INTEREST RATE SWAP

Effective August 31, 2005, the Company amended the terms of its interest rate swap agreement which the Company designated as a hedge against the
variability in future interest payments due on $350.0 million of Term Loan B. The amended terms of the interest rate swap agreement effectively convert the variable rate interest payments due on $350.0 million of Term Loan B to a fixed rate of
5.865% through maturity on November 23, 2011. The purpose of the swap agreement is to adjust the interest rate profile of the Companys debt obligations and to achieve a targeted mix of floating and fixed rate debt.

During the three-month period ended March 31, 2008, the fair market value of the swap instrument decreased by $13.0 million. The portion of the
change in fair value attributable to hedge ineffectiveness, which for the three months ended March 31, 2008 was $259,000, was recorded in the Other Income (Expense) section of the Companys Condensed Consolidated Statements of Income.
The portion of the change in fair value attributable to hedge effectiveness was recorded, net of income tax effects, in the Accumulated Other Comprehensive Income (Loss) section of the Companys Condensed Consolidated Statements of
Stockholders Equity. In assessing hedge effectiveness, no portion of the gain or loss from the swap is excluded.

During the
three-month period ended March 31, 2007, the fair market value of the swap instrument decreased by $2.4 million. The portion of the change in fair value attributable to hedge ineffectiveness, which for the three months ended March 31,
2007 was $174,000, was recorded in the Other Income (Expense) section of the Companys Condensed Consolidated Statements of Income. The portion of the change in fair value attributable to hedge effectiveness was recorded, net of income tax
effects, in the Accumulated Other Comprehensive Income (Loss) section of the Companys Condensed Consolidated Statements of Stockholders Equity. In assessing hedge effectiveness, no portion of the gain or loss from the swap is excluded.

The fair value of the interest rate swap has been calculated by discounting the future cash flows of both the fixed rate and variable rate
interest payments. The discount rate was derived from a yield curve created by a nationally recognized financial institution. The fair value of the interest rate swap was in a liability position of $14.9 million as of March 31, 2008 and $1.9
million as of December 31, 2007. The swap was recorded in the Other Long-Term Liabilities section of the Companys Condensed Consolidated Balance Sheets. The inputs used in determining the fair value fall within Level 2 of the fair value
hierarchy, as defined in Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements (SFAS 157).

8. INCOME
TAXES

Income tax expense consists of the following for the three-month periods ended March 31:



|                      |  |                             |       |      |   |      
|--------------------- |  | --------------------------- | ----- | ---- | - | -----
|                      |  | Three Months EndedMarch 31,
|                      |  | 2007                        |       | 2008
|                      |  | (dollars in thousands)     
|Current Tax Expense:  |  |                             |       |      |   |      
|Federal               |  | $                           | 287   |      | $ | 153  
|State                 |  |                             | 91    |      |   | 54   
|                      |  |                             |       |      |   |      
|Total                 |  |                             | 378   |      |   | 207  
|                      |  |                             |       |      |   |      
|Deferred Tax Expense: |  |                             |       |      |   |      
|Federal               |  |                             | 5,877 |      |   | 4,064
|State                 |  |                             | 1,018 |      |   | 705  
|                      |  |                             |       |      |   |      
|Total                 |  |                             | 6,895 |      |   | 4,769
|                      |  |                             |       |      |   |      
|Income Tax Expense    |  | $                           | 7,273 |      | $ | 4,976
|                      |  |                             |       |      |   |      

Current income tax expense for 2007 and 2008 is primarily due to the alternative minimum tax
requirements.



12



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##### Table of Contents

As of March 31, 2008, the Company had unused tax net operating loss carryforwards of approximately
$151.6 million which expire between 2021 and 2024. Additionally, the Company expects continued goodwill amortization for tax purposes at the rate of approximately $40 million per year through June 2015. The Company determined that, based upon the
evidence available as of March 31, 2008, the combination of the continued generation of taxable income and the taxable income generated from reversing temporary differences will more likely than not, be sufficient to utilize the entire deferred
tax asset.

Effective January 1, 2008, the Company adopted the provisions of EITF Issue No. 06-11,Accounting for Income Tax
Benefits of Dividends on Share-Based Payment Awards. The Company now accounts for the income tax benefit related to dividend equivalents paid on unvested restricted stock units that are expected to vest as an increase to additional paid-in
capital when the deduction reduces taxes payable. Prior to adoption, the Company accounted for this tax benefit as a reduction to its income tax provision. Adoption of EITF Issue No. 06-11 did not have a material impact on the Companys
financial position, results of operations or cash flows.

9. COMMITMENTS AND CONTINGENCIES

The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the Companys financial position, results of operations or cash flows.

During the first quarter of 2008, the Company participated in the FCCs auction of 700 MHz Band licenses (Auction No.73) after depositing $1.9 million with the FCC. The Company was the high bidder on three Cellular Market Area licenses
in the 704-710 MHz, and 734-740 MHz bands. The Company subsequently submitted the balance of the $5.9 million total winning bids on April 17, 2008. The FCC is still processing post-auction license applications and is expected to issue licenses
sometime during the second quarter of 2008.

10. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

Effective January 1, 2008, the Company adopted the provisions of SFAS No. 157, Fair Value Measurements. SFAS 157 defines fair value,
establishes a framework for measuring fair value, and expands disclosures about fair value measurements.

SFAS 157 establishes a three-tier
fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active
markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

As of March 31, 2008, the Company held certain liabilities that are required to be measured at fair value on a recurring basis. These included
the Companys interest rate swap derivative instruments. The fair values of our interest rate swap agreements



13



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##### Table of Contents

are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted
markets. Therefore, the Company has categorized these swap contracts as Level 2. The fair value of the interest rate swap has been calculated by discounting the future cash flows of both the fixed rate and variable rate interest payments.
The discount rate was derived from a yield curve created by a nationally recognized financial institution. See Note 7 for further information on the Companys derivative instruments.

The following table presents the Companys liabilities measured at fair value subject to the disclosure requirements of SFAS 157 as of
March 31, 2008:



|                    |  |                                              |        |       |   |         |  |         |   |         |   |        |  |   |  
|------------------- |  | -------------------------------------------- | ------ | ----- | - | ------- |  | ------- | - | ------- | - | ------ |  | - | -
|                    |  | Fair Value Measurements as of March 31, 2008
|                    |  | CarryingAmount                               |        | Total |   | Level 1 |  | Level 2 |   | Level 3
|                    |  | (dollars in thousands)                      
|Interest Rate Swaps |  | $                                            | 14,852 |       | $ | 14,852  |  | $       |  |         | $ | 14,852 |  | $ | 

11. BUSINESS ACQUISITIONS

On February 7, 2008, the Company announced a definitive agreement to acquire Bishop Communications, subject to regulatory approvals. The total purchase price of $43.9 million will be subject to certain future
adjustments relating to working capital, other long-term assets and long-term indebtedness as defined in the stock purchase agreement. Bishop Communications is a privately held holding company headquartered in Annandale, Minnesota whose subsidiaries
provide a full array of regulated and non-regulated advanced telecommunications services to business and residential customers.

12. NEW ACCOUNTING
PRONOUNCEMENTS

In December 2007, the FASB issued SFAS No. 160, Non-controlling Interest in Consolidated Financial
Statements (SFAS 160), an amendment of ARB No.51. SFAS 160 establishes new accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 clarifies that
changes in a parents ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this statement requires that a parent recognize a gain
or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the non-controlling equity investment on the deconsolidation date. SFAS 160 also includes expanded disclosure requirements
regarding the interest of the parent and its non-controlling interest. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Early adoption is prohibited. The Company
does not expect the adoption of SFAS 160 to have an impact on its financial position, results of operations or cash flows because all of the Companys current subsidiaries are wholly owned.

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (SFAS 141(R)). SFAS 141(R) requires an acquiring entity
to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value, with limited exceptions and also includes a substantial number of new disclosure requirements. SFAS 141(R) applies prospectively to
business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Early adoption is prohibited. The Company will evaluate the impact of this
pronouncement on its consolidated financial statements as it considers any future acquisitions that would occur for reporting periods after fiscal year 2008.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities(SFAS 161)  an amendment of FASB Statement No. 133. The new standard is
intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entitys financial condition, financial performance, and
cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. SFAS No. 161 will impact disclosures only and will not have an impact on the Companys
consolidated financial condition, results of operations or cash flows.



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|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

Information contained herein contains forward-looking statements which can be identified by the use of forward-looking terminology such as
believes, expects, may, will, should, intend, or anticipates or the negative thereof or variations thereon or comparable terminology, or by discussions of strategy.
No assurance can be given that the future results covered by the forward-looking statements will be achieved. Some of the matters set forth in the Risk Factors section of our Annual Report on Form 10-K for the year ended
December 31, 2007 constitute cautionary statements identifying factors with respect to such forward-looking statements, including certain risks and uncertainties, that could cause actual results to vary materially from the future results
indicated in such forward-looking statements. Other factors could also cause actual results to vary materially from the future results indicated in such forward-looking statements.

Overview

General

We are the largest provider of wireline local exchange telecommunications services to residential and business customers in rural Iowa. We are the second-largest local exchange carrier in Iowa. We currently operate
288 telephone exchanges serving 417 communities as the incumbent or historical local exchange carrier and are the sole telecommunications company providing wireline services in approximately 68% of these communities. Together with our
competitive local exchange carrier subsidiaries, we provide services to approximately 237,000 access lines in Iowa.

Our core business is
the provision of local telephone service and network access to other telecommunications carriers for calls originated or terminated on our network. In addition to these core activities, which generated 66% of our total revenues in the first three
months of 2008, we provide long distance service, dial-up and DSL Internet access and other communications services. As part of our strategy of pursuing growth beyond our current service area, we compete for customers in mostly adjacent markets in
Iowa through our competitive local exchange carrier subsidiaries, Iowa Telecom Communications, Inc. (ITC) and IT Communications, LLC (IT Communications). Together, ITC and IT Communications are referred to as the
CLEC or our CLEC Operations.

Factors Affecting Our Operating Performance

We believe that a number of industry and Company-specific factors have affected and will continue to affect our results of operations. These factors
include the following:



| |  |  | the effect on our revenues of declining numbers of access lines resulting from competition and other factors and our strategic response to this trend, which
includes efforts to introduce enhanced local services and additional services like dial-up and DSL Internet access and long distance service to our subscriber base;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the effect on our revenues of our rate and pricing structure, including recent and potential future changes in rate regulation at the state and federal levels;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to control our variable operating expenses, such as sales and marketing expense; and
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | the development of our competitive local exchange carrier strategy.
| | - |  | -------------------------------------------------------------------

Access Line Trends

The number of access lines served is a factor that can affect a
telecommunications providers revenues. Consistent with a general trend in the rural local exchange carrier industry in the past few years, the number of access lines we serve as an incumbent local exchange carrier has been decreasing. We
expect that this trend will continue. Because most of our revenues result from our relationships with customers who utilize our access lines and the level of activity utilized on those lines, the access line trend has an adverse impact on
our revenues. Our response to this trend will have an important impact on our future revenues. Our primary strategy to respond to this trend is to leverage our strong incumbent market position to increase our revenue by selling additional
services to our customer base and to promote our DSL Internet access service offering, which is often used in lieu of additional access



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lines devoted to Internet usage. In addition, we expect to add new access lines as we pursue expansion of our service area through our competitive local
exchange carrier subsidiaries and, potentially, through selected acquisitions of other telecommunications companies or lines from other telecommunications companies. However, we believe that the number of access lines served is not the sole
meaningful indicator of our operating prospects and that, given our relatively stable subscriber base and ability to offer additional services, the numbers of long distance, and dial-up and DSL Internet subscribers and the average revenue per unit,
are also meaningful indicators for us.

The table below indicates the total number of access lines we serve and the number of customers
subscribing to the indicated types of service as of the dates shown:



|                                                   |  |                 |  |        
|-------------------------------------------------- |  | --------------- |  | -------
|                                                   |  | As of March 31,
|                                                   |  | 2007            |  | 2008   
|Incumbent local exchange access lines(1)           |  | 226,800         |  | 210,300
|Competitive local exchange carrier access lines(2) |  | 24,600          |  | 26,700 
|                                                   |  |                 |  |        
|Total access lines                                 |  | 251,400         |  | 237,000
|                                                   |  |                 |  |        
|Long distance subscribers                          |  | 147,700         |  | 141,000
|Dial-up Internet subscribers                       |  | 29,200          |  | 20,800 
|DSL subscribers                                    |  | 55,200          |  | 65,800 



|(1) | Includes lines subscribed by our incumbent local exchange
carrier retail customers and lines subscribed by our wholesale customers who are competing local exchange carriers. Wholesale access lines include: lines subscribed by our local exchange carrier competitors pursuant to interconnection
agreements on an unbundled network element basis, for which the competitive local exchange carrier pays us a monthly fee; lines that we provide to competitive local exchange carriers for resale to their subscribers, for which the competitive local
exchange carrier pays us a monthly fee equal to what we would charge our customers for local service less an agreed discount; and shared lines, for which a competitive local exchange carrier pays us a monthly fee to provide DSL service to its
customers. We had 3,000 wholesale lines subscribed at March 31, 2007 and 2,800 at March 31, 2008.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Access lines subscribed by retail customers of our competitive
local exchange carrier subsidiaries.
|--- | ---------------------------------------------------------------------------------------------------

We intend to continue our strategy of increasing revenues by cross-selling
additional services to our existing customer base, in the form of both bundled service packages and individual additional services. Between March 31, 2007 and March 31, 2008, total long distance service subscribers decreased by 6,700,
total DSL Internet access service subscribers increased by 10,600, and total dial-up Internet access service subscribers decreased by 8,400, with much of the decrease in total dial-up subscribers being a reflection of customer migration from dial-up
to DSL service.

The following is a discussion of the major factors affecting our access line counts:

Competition. We currently face competition from other providers of local services in approximately 135 of the 417 incumbent local exchange
communities that we serve. Of these 135 communities, we believe 108 communities have some voice service offered by Mediacoms telephony affiliate, MCC Telephony of Iowa, Inc. (MCC), which initiated service in these markets during
the second quarter of 2007.

In addition, we have experienced, and expect to continue experiencing some line losses due to competition from
wireless providers, but cannot precisely quantify the effect of this competition on us. We are responding proactively to wireless competition by offering bundled service packages that include blocks of long distance minutes. These packages are
designed to meet the demand of our customers who wish to purchase both local and long distance services in a package, as is typically offered by wireless providers.

Our rates for many of our retail local exchange services have been deregulated on both an exchange-by-exchange and a service-by-service basis. The Iowa Utilities Board has determined that all of the retail local
exchange services we provide in 28 exchanges are subject to effective competition and has deregulated our rates in those exchanges.

Retail
local exchange service deregulation of our business began on July 1, 2005, pursuant to our election to deregulate our rates for all of our retail local exchange services except for single line flat-rated business and residential service and
extended area service (EAS) in accordance with legislation enacted by the Iowa General Assembly in March 2005. In addition, single line flat-rated business and residential service and EAS will also be deregulated as of July 1, 2008
unless the Iowa Utilities Board determines that



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the public interest requires it to extend its jurisdiction over such services to July 1, 2010. On February 11, 2008, the Iowa Utilities Board
opened a proceeding to consider whether to extend such regulation. If the Iowa Utilities Board chooses to extend regulation, this legislation also provides us the opportunity to increase rates for services that remain price regulated, as discussed
in more detail below. We believe that the gradual deregulation of our business, on an exchange-by-exchange, and a service-by-service basis, will enable us to better respond to competitive offerings by other providers. We cannot predict the outcome
of the pending Iowa Utilities Board proceeding regarding single line flat-rated service rate regulation.

MCC is offering voice services
through a business arrangement with Sprint Communications L. P. (Sprint). On June 23, 2006, we filed a complaint against the Iowa Utilities Board and Sprint in the U.S. District Court for the Southern District of Iowa asking the
court to rule that the Iowa Utilities Board acted unlawfully when it required us to enter into an interconnection agreement with Sprint and asking the court to invalidate the agreement. On April 15, 2008, the court issued a ruling holding
against us, therefore maintaining the status quo in which we are obligated to enter into an interconnection agreement with Sprint. We are currently considering our options regarding appeal to the U.S. Court of Appeals for the Eighth Circuit.

Notwithstanding the period in which our complaint was under consideration, we have negotiated, mediated and litigated with Sprint and, at
times, with MCC to resolve issues relating to interpretation and implementation of the interconnection agreement. On January 22, 2007, we filed a second complaint against the Iowa Utilities Board and Sprint in U.S. District Court asking the
court to rule that the Iowa Utilities Board acted unlawfully when it interpreted the interconnection agreement to require Iowa Telecom to provide certain services to Sprint, particularly in the manner requested by Sprint. Now that our first
complaint has been resolved, we expect this complaint to move forward with briefing during the second or third quarters of 2008. We cannot predict how and when this litigation will be resolved.

In addition to the disputes pending in federal district court and before the Iowa Utilities Board, we are also defending a complaint filed by MCC on
July 31, 2006, in the Iowa District Court for Polk County alleging that our refusal to accede to Sprints negotiation demands improperly interfered with MCCs contracts and prospective customer relationships. The state court complaint
seeks unspecified damages and costs and additional relief as warranted. This state court proceeding had been stayed pending the result of our first federal complaint. We are currently in the process of extending the stay through resolution of the
second federal complaint. We can neither predict the result of our request to extend the stay nor when and how this state court litigation will be resolved.

Ancillary Effects of our Data Businesses. Part of our decreasing line count has been an ancillary effect of our strategic focus on growing our Internet access service business. As our Internet service provider
business has expanded, some competitors offering dial-up Internet service have cancelled their connections to our network. These connections had historically been counted as access lines. Moreover, as we increase DSL Internet access service
penetration, customer demand for second lines for dial-up Internet access service decreases accordingly because DSL Internet access service often replaces a second line dedicated to Internet usage. We believe that the revenue generated by our
dial-up and DSL Internet access services outweighs the effect of these types of access line losses.

Our Retail Local Rate and Pricing Structure

As described under OverviewCompetition above, effective July 1, 2005, the rates for all of our retail local exchange
service except for single line flat-rated business and residential service and EAS were deregulated. Beginning July 1, 2005, monthly rates for single line services remaining under price regulation could be adjusted annually by one dollar for
residential lines and two dollars for business lines, plus an inflation increment, up to a monthly rate cap of $19.00 for residential lines and $38.00 for business lines. Pursuant to a January 25, 2007 interpretation by the Iowa Utilities
Board, the $19.00 and $38.00 limits are inclusive of any incremental inflationary adjustments and, therefore, once met, do not permit further inflationary adjustments. These rates do not, however, include charges for EAS, which, to the extent that
it is offered in conjunction with single line flat-rate service, remains regulated by the Iowa Utilities Board. Single line flat-rated business and residential service and EAS will also be deregulated as of July 1, 2008 unless the Iowa
Utilities Board determines that the public interest requires it to extend its jurisdiction over such services to July 1, 2010. If the Iowa Utilities Board decides to continue price regulation to 2010, both residential and business monthly rates
may be increased up to two dollars during each twelve-month period of the extension and the overall rate caps of $19.00 and $38.00 will be eliminated.



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Effective January 1, 2007, our regulated monthly single line flat-rated business rate became $37.96.
Effective February 1, 2007, our regulated monthly single line flat-rated residential rate became $18.99. Both rates are exclusive of EAS, taxes, fees and regulatory surcharges.

Our Ability to Control Operating Expenses

We strive to control expenses in order to maintain our
operating margins. We anticipate that operating expenses generally will remain stable in line with revenue growth. Because some of our operating expenses, such as those relating to sales and marketing, are variable, we believe we can calibrate
expenses to growth in the business to a significant degree.

Development of our Competitive Local Exchange Carrier Strategy

Part of our business strategy is to use our competitive local exchange carrier subsidiaries, ITC and IT Communications, to pursue customers in markets in
close proximity to our rural local exchange carrier markets. We plan to continue this strategy by seeking growth opportunities on a low-cost, selective basis, focusing primarily on business customers.

As of March 31, 2008, our CLEC served 26,700 access lines and accounted for 11.3% of Iowa Telecoms total access lines. We plan to maintain a
limited investment approach as we continue to grow our competitive local exchange carrier business.

Revenues

We derive our revenues from five sources:

Local Services. We receive revenues from providing local exchange telephone services. These revenues include monthly subscription charges for basic service, as well as charges for extended area service (mandatory expanded calling
service to select nearby communities at a flat monthly rate), local private line services and enhanced calling features, such as voice mail, caller ID and 3-way calling.

Network Access Services. We receive revenues from charges established to compensate us for the origination, transport and termination of calls generated by the customers of long distance carriers and for calls
transported and terminated for the customers of wireless carriers. These include subscriber line charges imposed on end users, and switched and special access charges paid by carriers and others. We receive federally administered universal service
support, representing approximately 2% of our total revenue in the first three months of 2008, as a result of the interstate switched access support provisions of the FCCs CALLS Order to which the Company became subject in 2000. In addition,
Montezuma Telephone received high cost loop universal service support amounting to less than 1% of our revenue. Our incumbent local exchange carrier switched access charges for services within Iowa are based on rates approved by the Iowa Utilities
Board. Our incumbent local exchange carrier switched and special access charges for interstate and international services are based on rates approved by the FCC. The transport and termination charges paid by wireless carriers are specified in
interconnection agreements negotiated with each individual wireless carrier.

Toll Services. We receive revenues for providing toll,
or long distance, services to our customers. This revenue category also includes fees relating to our provision of directory assistance, operator assistance and long distance private lines.

Data and Internet Services.We receive revenues from monthly recurring charges for dial-up and DSL Internet access services as well as for
providing enhanced data solutions to our customers.

Other Services and Sales. We receive revenues from directory publishing, inside
line care and the sale, installation and maintenance of customer premise voice and data equipment, (CPE), and the lease of office space to third parties.



18



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##### Table of Contents

The following table summarizes our revenues and sales from these sources:



|                           |  |                             |        |                                                                  |   |        |  |     |      |  |     |  
|-------------------------- |  | --------------------------- | ------ | ---------------------------------------------------------------- | - | ------ |  | --- | ---- |  | --- | -
|                           |  | Three Months EndedMarch 31, |        | % of Total Revenues andSales for the Three MonthsEnded March 31, |  
|                           |  | 2007                        |        | 2008                                                             |   | 2007   |  |     | 2008 | 
|                           |  | (dollars in thousands)      |        |                                                                  |   |        |  |    
|Local services             |  | $                           | 18,847 |                                                                  | $ | 17,691 |  | 28  | %    |  | 29  | %
|Network access services    |  |                             | 29,281 |                                                                  |   | 22,662 |  | 44  | %    |  | 37  | %
|Toll services              |  |                             | 5,390  |                                                                  |   | 5,870  |  | 8   | %    |  | 10  | %
|Data and internet services |  |                             | 6,944  |                                                                  |   | 8,078  |  | 11  | %    |  | 13  | %
|Other services and sales   |  |                             | 6,034  |                                                                  |   | 6,544  |  | 9   | %    |  | 11  | %
|                           |  |                             |        |                                                                  |   |        |  |     |      |  |     |  
|Total                      |  | $                           | 66,496 |                                                                  | $ | 60,845 |  | 100 | %    |  | 100 | %
|                           |  |                             |        |                                                                  |   |        |  |     |      |  |     |  

Operating Expenses

Our operating expenses are categorized as cost of services and sales; selling, general and administrative expense; and depreciation and amortization.

Cost of services and sales. This includes expense for salaries and wages relating to plant operations and maintenance; other plant operations,
maintenance and administrative costs; network access costs; bad debt expense; operating tax expense; and cost of sales for our dial-up and DSL Internet access services and customer premise equipment products and services.

Selling, general and administrative expense. This includes expense for salaries, wages and benefits and contract service payments (e.g., legal
fees) relating to customer and corporate operations; recruiting costs; expenses for travel, lodging and meals; internal communications costs; insurance premiums; and supplies and postage.

Depreciation and amortization. This includes depreciation of our telecommunications network and equipment, and amortization of intangible assets.

Results of Operations

The following
table sets forth certain items reflected in our consolidated statements of income for the periods indicated, expressed as a percentage of total revenues and sales:



|                                                                        |  |                             |   |  |      |  
|----------------------------------------------------------------------- |  | --------------------------- | - |  | ---- | -
|                                                                        |  | Three Months EndedMarch 31, |  
|                                                                        |  | 2007                        |   |  | 2008 |  
|Total revenues and sales                                                |  | 100                         | % |  | 100  | %
|Cost of services and sales (excluding expenses listed separately below) |  | 27                          | % |  | 31   | %
|Selling, general and administrative                                     |  | 16                          | % |  | 17   | %
|Depreciation and amortization                                           |  | 18                          | % |  | 21   | %
|                                                                        |  |                             |   |  |      |  
|Operating income                                                        |  | 39                          | % |  | 31   | %
|Total other expenses, net                                               |  | 12                          | % |  | 12   | %
|                                                                        |  |                             |   |  |      |  
|Income before income taxes                                              |  | 27                          | % |  | 19   | %
|Income taxes                                                            |  | 11                          | % |  | 8    | %
|                                                                        |  |                             |   |  |      |  
|Net income                                                              |  | 16                          | % |  | 11   | %
|                                                                        |  |                             |   |  |      |  

Three Months Ended March 31, 2008 and 2007

Revenues and Sales

The table below sets forth the
components of our revenues and sales for the three months ended March 31, 2008 compared to the same period in 2007:



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|                           |  |                             |        |        |   |        |  |   |         |   |  |       |  
|-------------------------- |  | --------------------------- | ------ | ------ | - | ------ |  | - | ------- | - |  | ----- | -
|                           |  | Three Months EndedMarch 31, |        | Change |  
|                           |  | 2007                        |        | 2008   |   | Amount |  |   | Percent |  
|                           |  | (dollars in thousands)      |       
|Revenues and Sales:        |  |                             |        |        |   |        |  |   |         |   |  |       |  
|Local services             |  | $                           | 18,847 |        | $ | 17,691 |  | $ | (1,156  | ) |  | -6.1  | %
|Network access services    |  |                             | 29,281 |        |   | 22,662 |  |   | (6,619  | ) |  | -22.6 | %
|Toll services              |  |                             | 5,390  |        |   | 5,870  |  |   | 480     |   |  | 8.9   | %
|Data and internet services |  |                             | 6,944  |        |   | 8,078  |  |   | 1,134   |   |  | 16.3  | %
|Other services and sales   |  |                             | 6,034  |        |   | 6,544  |  |   | 510     |   |  | 8.5   | %
|                           |  |                             |        |        |   |        |  |   |         |   |  |       |  
|Total revenues and sales   |  | $                           | 66,496 |        | $ | 60,845 |  | $ | (5,651  | ) |  | -8.5  | %
|                           |  |                             |        |        |   |        |  |   |         |   |  |       |  

Local Services. Local services revenues decreased $1.2 million, or 6.1%, for the three
months ended March 31, 2008 as compared to the same period in 2007. The decrease was primarily due to access line erosion. From March 31, 2007 to March 31, 2008, total access lines decreased by 14,400, including the loss of 16,500
incumbent local exchange carrier lines and an increase in lines served by our competitive local exchange carriers of 2,100. The decrease in revenue resulting from the access line erosion was partially offset by higher revenue from enhanced calling
features included in bundled offering sales.

Network Access Services. Our network access services revenues decreased $6.6 million,
or 22.6%, for the three months ended March 31, 2008 as compared to the same period in 2007. The decrease was primarily due to $4.8 million of revenue from non-recurring network access billing matters with connecting carriers in 2007 and access
line erosion.

Toll Services. Our toll services revenues increased by $480,000, or 8.9%, for the three months ended March 31,
2008 as compared to the same period in 2007. The increase in revenue was due to customer connection charges which were partially offset by fewer long distance customers combined with a decrease in the average minutes of use per customer.

Data and Internet Services. Data and Internet Services revenues increased by $1.1 million, or 16.3%, for the three months ended March 31,
2008 as compared to the same period in 2007. The increase was primarily a result of growth in our DSL Internet access service of $1.3 million and growth in our data solutions products of $252,000. This increase was partially offset by decreases in
dial-up Internet revenue of $412,000. We believe the decline in dial-up Internet access service customers primarily was the result of customer migration to broadband products such as our DSL service.

Other Services and Sales. Other services and sales revenues increased by $510,000, or 8.5%, for the three months ended March 31, 2008 as
compared to the same period in 2007. The revenue increase was primarily due to growth in our CPE and data business.

Operating Costs and Expenses

The table below sets forth the components of our operating costs and expenses for the three months ended March 31, 2008 compared to
the same period in 2007:



|                                                                       |  |                             |        |        |   |        |  |   |         |   |  |      |  
|---------------------------------------------------------------------- |  | --------------------------- | ------ | ------ | - | ------ |  | - | ------- | - |  | ---- | -
|                                                                       |  | Three Months EndedMarch 31, |        | Change |  
|                                                                       |  | 2007                        |        | 2008   |   | Amount |  |   | Percent |  
|                                                                       |  | (dollars in thousands)      |       
|Operating Costs and Expenses:                                          |  |                             |        |        |   |        |  |   |         |   |  |      |  
|Cost of services and sales (exclusive of items shown separately below) |  | $                           | 18,376 |        | $ | 18,613 |  | $ | 237     |   |  | 1.3  | %
|Selling, general and administrative                                    |  |                             | 10,481 |        |   | 10,115 |  |   | (366    | ) |  | -3.5 | %
|Depreciation and amortization                                          |  |                             | 12,028 |        |   | 12,605 |  |   | 577     |   |  | 4.8  | %
|                                                                       |  |                             |        |        |   |        |  |   |         |   |  |      |  
|Total operating costs and expenses                                     |  | $                           | 40,885 |        | $ | 41,333 |  | $ | 448     |   |  | 1.1  | %
|                                                                       |  |                             |        |        |   |        |  |   |         |   |  |      |  

Cost of Services and Sales. Cost of services and sales increased $237,000, or 1.3%, for the
three months ended March 31, 2008 as compared to the same period in 2007. The increase was principally due to growth of our CPE and data businesses.



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##### Table of Contents

Selling, General and Administrative. Selling, general and administrative costs decreased $366,000,
or 3.5%, for the three months ended March 31, 2008 as compared to the same period in 2007. The decrease was primarily due to lower salary, wages, and benefits costs and lower marketing costs.

Depreciation and Amortization. Depreciation and amortization increased $577,000 or 4.8%, for the three months ended March 31, 2008 as
compared to the same period in 2007. The increase was primarily due to higher plant balances.

Other Income (Expense)

The table below sets forth the components of other income (expense) for the three months ended March 31, 2008 compared to the same period in 2007:



|                             |  |                             |        |   |        |   |        |        |  |   |         |   |  |      |  
|---------------------------- |  | --------------------------- | ------ | - | ------ | - | ------ | ------ |  | - | ------- | - |  | ---- | -
|                             |  | Three MonthsEnded March 31, |        |   | Change |  
|                             |  | 2007                        |        |   | 2008   |   |        | Amount |  |   | Percent |  
|                             |  | (dollars in thousands)      |       
|Other Income (Expense):      |  |                             |        |   |        |   |        |        |  |   |         |   |  |      |  
|Interest and dividend income |  | $                           | 371    |   |        | $ | 378    |        |  | $ | 7       |   |  | 1.9  | %
|Interest expense             |  |                             | (8,012 | ) |        |   | (7,698 | )      |  |   | 314     |   |  | -3.9 | %
|Other, net                   |  |                             | (224   | ) |        |   | (259   | )      |  |   | (35     | ) |  | 15.6 | %
|                             |  |                             |        |   |        |   |        |        |  |   |         |   |  |      |  
|Total other expense, net     |  | $                           | (7,865 | ) |        | $ | (7,579 | )      |  | $ | 286     |   |  | -3.6 | %
|                             |  |                             |        |   |        |   |        |        |  |   |         |   |  |      |  

Interest and Dividend Income. Interest and dividend income increased $7,000, or 1.9%,
primarily due to higher dividend income.

Interest Expense. Interest expense decreased $314,000, or 3.9%, for the three months ended
March 31, 2008 as compared to the same period in 2007. The decrease was due to a lower average balance on the revolving credit facility and lower interest rates on the Companys variable rate debt.

Other, Net. Other, net was a net expense of $259,000 related to ineffectiveness of the interest rate swap for the three months ended
March 31, 2008 as compared to $224,000 in the same period in 2007.

Income Tax Expense

Income tax expense decreased $2.3 million to $5.0 million for the three months ended March 31, 2008 as compared to $7.3 million for the same period
in 2007 due to lower income before taxes.

During the three months ended Mach 31, 2007 and 2008, cash income taxes paid were $3,000 and
$4,000, respectively.

Liquidity and Capital Resources

Our short-term and long-term liquidity requirements arise primarily from: (i) interest payments related to our credit facilities; (ii) capital expenditures; (iii) working capital requirements;
(iv) dividend payments on our common stock and (v) potential acquisitions.

The table below reflects the dividends declared or
paid by the Company during 2007 and 2008:



|                   |  |                    |       |             |                    |              |                 
|------------------ |  | ------------------ | ----- | ----------- | ------------------ | ------------ | ----------------
|Date Declared      |  | Dividend Per Share |       | Record Date |                    | Payment Date
|December 15, 2006  |  | $                  | 0.405 |             | December 29, 2006  |              | January 16, 2007
|March 15, 2007     |  | $                  | 0.405 |             | March 30, 2007     |              | April 16, 2007  
|June 15, 2007      |  | $                  | 0.405 |             | June 29, 2007      |              | July 16, 2007   
|September 14, 2007 |  | $                  | 0.405 |             | September 28, 2007 |              | October 15, 2007
|December 14, 2007  |  | $                  | 0.405 |             | December 31, 2007  |              | January 15, 2008
|March 14, 2008     |  | $                  | 0.405 |             | March 31, 2008     |              | April 15, 2008  



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Our intention is to distribute a substantial portion of the cash generated by our business to our
shareholders in regular quarterly dividends to the extent we generate cash in excess of operating needs, interest and principal payments on our indebtedness, and capital expenditures.

We intend to fund our operations, interest expense, capital expenditures, working capital requirements and dividend payments on our common stock with
cash from operations.

On February 7, 2008, the Company announced a definitive agreement to acquire Bishop Communications, subject to
regulatory approvals. The total purchase price of $43.9 million will be subject to certain future adjustments relating to working capital, other long-term assets and long-term indebtedness as defined in the stock purchase agreement. Bishop
Communications is a privately held holding company headquartered in Annandale, Minnesota whose subsidiaries provide a full array of regulated and non-regulated advanced telecommunications services to business and residential customers.

To fund any significant future acquisitions, we intend to use borrowings under our revolving credit facility or, subject to the restrictions in our
credit facilities, to arrange additional funding through the sale of public or private debt and/or equity securities, including common stock, or to obtain additional senior bank debt.

Our ability to service our indebtedness will depend on our ability to generate cash in the future. We are not required to make any scheduled principal
payments under our credit facilities, which will mature in 2011. However, we may be required to make annual mandatory prepayments under our credit facilities with a portion of our available cash. We will need to refinance all or a portion of our
indebtedness on or before maturity in 2011.

The dividend policy adopted by our board of directors calls for us to distribute a substantial
portion of our cash flow to our shareholders. As a result, we may not have significant cash available to meet any large unanticipated liquidity requirements, other than through available borrowings, if any, under our revolving credit facility.
Therefore, we may not have a sufficient amount of cash to finance growth opportunities, including acquisitions, to fund unanticipated capital expenditures or to fund our operations. If we do not have sufficient cash for these purposes, our financial
condition, results of operations and our business could suffer. However, our board of directors may, in its discretion, amend or repeal our dividend policy to decrease the level of dividends provided for under the policy, or to discontinue entirely
the payment of dividends.

We have historically funded our operations and capital expenditure requirements primarily with cash from
operations and our revolving line of credit. The following table summarizes our Short-Term Liquidity and Adjusted Total Debt, as defined in our credit agreement, as of December 31, 2007 and March 31, 2008:



|                                       |  |                  |         |   |               |   |         |  
|-------------------------------------- |  | ---------------- | ------- | - | ------------- | - | ------- | -
|                                       |  | As of            |        
|                                       |  | December 31,2007 |         |   | March 31,2008 |  
|                                       |  | (in thousands)   |        
|Short-Term Liquidity:                  |  |                  |         |   |               |   |         |  
|Current assets                         |  | $                | 47,454  |   |               | $ | 30,140  |  
|Current liabilities                    |  |                  | (68,531 | ) |               |   | (46,414 | )
|                                       |  |                  |         |   |               |   |         |  
|Net working capital deficit            |  | $                | (21,077 | ) |               | $ | (16,274 | )
|                                       |  |                  |         |   |               |   |         |  
|Cash and cash equivalents              |  | $                | 21,919  |   |               | $ | 5,461   |  
|Available on revolving credit facility |  | $                | 82,000  |   |               | $ | 97,000  |  
|Adjusted Total Debt:                   |  |                  |         |   |               |   |         |  
|Long-term debt                         |  | $                | 477,778 |   |               | $ | 477,778 |  
|Revolving credit facility              |  |                  | 18,000  |   |               |   | 3,000   |  
|                                       |  |                  |         |   |               |   |         |  
|Total debt                             |  |                  | 495,778 |   |               |   | 480,778 |  
|Minus:                                 |  |                  |         |   |               |   |         |  
|RTFC Capital Certificates              |  |                  | (7,778  | ) |               |   | (7,778  | )
|Cash and cash equivalents              |  |                  | (21,919 | ) |               |   | (5,461  | )
|                                       |  |                  |         |   |               |   |         |  
|Adjusted Total Debt                    |  | $                | 466,081 |   |               | $ | 467,539 |  
|                                       |  |                  |         |   |               |   |         |  

The change in net working capital deficit from December 31, 2007 to March 31, 2008 is
primarily due to the cash flow from operations. The reductions in current assets and current liabilities are primarily due to the use of cash and cash equivalents to reduce the balance outstanding on the revolving credit facility.



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The following table summarizes our Adjusted EBITDA, as defined in our credit agreement, for the three
months ended March 31, 2007 and 2008:



|                                                         |  |                             |        |   |      |   |        |  
|-------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                         |  | Three Months EndedMarch 31, |       
|                                                         |  | 2007                        |        |   | 2008 |  
|                                                         |  | (in thousands)              |       
|Adjusted EBITDA:                                         |  |                             |        |   |      |   |        |  
|Net income                                               |  | $                           | 10,473 |   |      | $ | 6,957  |  
|Income tax expense                                       |  |                             | 7,273  |   |      |   | 4,976  |  
|Interest expense                                         |  |                             | 8,012  |   |      |   | 7,698  |  
|Depreciation and amortization                            |  |                             | 12,028 |   |      |   | 12,605 |  
|Unrealized losses on financial derivatives               |  |                             | 224    |   |      |   | 259    |  
|Non-cash stock-based compensation expense                |  |                             | 593    |   |      |   | 866    |  
|Extraordinary or unusual (gains) losses                  |  |                             |       |   |      |   |       |  
|Non-cash portion of RTFC Capital Allocation              |  |                             | (158   | ) |      |   | (102   | )
|Other non-cash losses (gains)                            |  |                             |       |   |      |   |       |  
|Loss (gain) on disposal of assets not in ordinary course |  |                             |       |   |      |   |       |  
|Transaction costs                                        |  |                             |       |   |      |   |       |  
|                                                         |  |                             |        |   |      |   |        |  
|Adjusted EBITDA                                          |  | $                           | 38,445 |   |      | $ | 33,259 |  
|                                                         |  |                             |        |   |      |   |        |  

The following table summarizes our sources and uses of cash for the three months ended
March 31, 2007 and 2008:



|                             |  |                             |         |   |      |   |         |  
|---------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                             |  | Three Months EndedMarch 31, |        
|Description                  |  | 2007                        |         |   | 2008 |  
|                             |  | (in thousands)              |        
|Net Cash Provided (Used) By: |  |                             |         |   |      |   |         |  
|Operating activities         |  | $                           | 25,975  |   |      | $ | 19,193  |  
|Investing activities         |  | $                           | (6,537  | ) |      | $ | (7,764  | )
|Financing activities         |  | $                           | (27,846 | ) |      | $ | (27,887 | )

Cash Provided by Operating Activities

For the three months ended March 31, 2007, and 2008, cash provided by operating activities was $26.0 million and $19.2 million, respectively. The
decrease in cash provided by operating activities is primarily due to the funds received related to the resolution of certain network access disputes in 2007.

Cash Used in Investing Activities

The table below sets forth the components of cash used in investing activities for the
three months ended March 31, 2007 and 2008:



|                              |  |                             |       |      |   |      
|----------------------------- |  | --------------------------- | ----- | ---- | - | -----
|                              |  | Three MonthsEnded March 31,
|                              |  | 2007                        |       | 2008
|                              |  | (in thousands)             
|Network and support assets    |  | $                           | 4,551 |      | $ | 4,127
|Other                         |  |                             | 1,986 |      |   | 1,731
|                              |  |                             |       |      |   |      
|Total capital expenditures    |  |                             | 6,537 |      |   | 5,858
|Deposit for wireless licenses |  |                             |      |      |   | 1,906
|                              |  |                             |       |      |   |      
|Total                         |  | $                           | 6,537 |      | $ | 7,764
|                              |  |                             |       |      |   |      

Capital expenditures in the 2007 period included approximately $1.5 million incurred to acquire,
refurbish and provide network facilities for our new headquarters facility.

In April 2004, our incumbent local exchange carrier reached a
rate settlement agreement with the Iowa Utilities Board and other parties. Pursuant to the settlement agreement, we are obligated to invest substantially all additional revenues generated by the allowed increase in our rates, except for revenues
resulting from inflation adjustments, on capital improvements identified in our network improvement plan. We expect these capital improvements to cost less than $17 million annually.



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We expect that total capital expenditures, including those pursuant to the settlement agreement will be
between approximately $26 million and $28 million in fiscal 2008. We expect to fund all of these capital expenditures through cash generated by our operations. Our capital expenditures can fluctuate from quarter to quarter, and are impacted to some
extent by factors beyond our control, such as customer demand, the level of construction activity in our region, and weather.

During the
first quarter of 2008, we participated in the FCCs auction of 700 MHz Band licenses (Auction No.73) after depositing $1.9 million with the FCC. We were high bidder on three Cellular Market Area licenses in the 704-710 MHz, and 734-740 MHz
bands. We subsequently submitted the balance of our $5.9 million total winning bids on April 17, 2008. The FCC is still processing post-auction license applications and is expected to issue licenses during the second quarter of 2008.

We currently hold 15 FCC Advanced Wireless Service licenses and will hold three 700 MHz licenses in Iowa. Our ownership of these licenses
subjects us to FCC regulation of the wireless services we may choose to provide and the technical operating characteristics of the network equipment we may utilize. In addition, our right to renew these licenses depends on our compliance with
build-out requirements promulgated by the FCC. For the 700 MHz licenses, we must begin meeting such requirements in stages prior to the expiration of the initial ten-year license term. For our Advanced Wireless Service licenses, we must meet the
FCCs build-out requirements by the end of such licenses 15 year initial term. We cannot predict changes that may occur in the FCCs regulation of our Advanced Wireless Services or 700 MHz licenses, the network we may build or the
services we may provide over the period of time we may hold the licenses.

Cash Used in Financing Activities

For the three months ended March 31, 2007 and 2008, net cash used in financing activities was $27.8 million and $27.9 million, respectively.

Long-Term Debt and Revolving Credit Facilities

Credit Facilities

As of March 31, 2008, we had outstanding $477.8 million of senior debt under our term loan
facilities, and had $3.0 million drawn under the $100.0 million revolving credit facility. The details of the credit facilities are as follows:

The revolving credit facility will expire in November 2011 and permits borrowings up to the aggregate principal amount of $100.0 million (less amounts reserved for letters of credit up to a maximum amount of $25.0 million). As of
March 31, 2008, $3.0 million was outstanding on the revolving credit facility and $97.0 million was available. Borrowings under our revolving credit facility bear interest per annum at either (a) the London inter-bank offered rate, or
LIBOR, plus 2.0% or (b) a base rate plus 1.0%. As of March 31, 2008, we had $3.0 million outstanding under LIBOR elections at an average all-in rate of 4.71%.

Term Loan B is a $400.0 million senior secured term facility maturing in November 2011, bearing interest per annum at either (a) a LIBOR rate plus an applicable rate adder of 1.75% per annum or (b) a
base rate election plus an applicable rate adder of 0.75% per annum. As of March 31, 2008, $350.0 million was outstanding under Term Loan B based upon a LIBOR election effective through June 30, 2008 at an all-in rate of 4.43%. We
have entered into interest rate swap agreements to fix the rate on $350.0 million of Term Loan B as more fully described below. As of March 31, 2008, the interest rate on the remaining $50.0 million was based upon a LIBOR election effective
through September 12, 2008 at an all-in rate of 4.54%.

Term Loan C is a $70.0 million senior secured term facility maturing in
November 2011, bearing interest per annum at either (a) a fixed rate or (b) a Rural Telephone Finance Cooperative variable rate plus 0.85%. The interest rate on Term Loan C was fixed at 6.65% until November 2007. Effective August 1,
2007, we elected a new all-in fixed interest rate of 6.95% through June 2011 on Term Loan C. Upon the expiration of the fixed interest rate period, the term loan will convert to the Rural Telephone Finance Cooperative base variable rate plus 0.85%.



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Term Loan D is a $7.8 million senior secured term facility maturing in November 2011, bearing interest
per annum at either (a) a fixed rate or (b) a Rural Telephone Finance Cooperative variable rate plus 0.85%. The interest rate on Term Loan D was fixed at 6.65% until November 2007. Effective August 1, 2007, we elected a new all-in
fixed interest rate of 6.95% through June 2011 on Term Loan D. Upon the expiration of the fixed interest rate period, the term loan will convert to the Rural Telephone Finance Cooperative variable rate plus 0.85%.

As a condition of borrowing under Term Loans C and D, we are required to invest $7.8 million, representing 10% of the total amounts of Term Loans C and
D, in Subordinated Capital Certificates (SCCs) of the Rural Telephone Finance Cooperative. SCCs are non-interest bearing but, as a member of the Rural Telephone Finance Cooperative, we share proportionately in the institutions net
earnings. The Rural Telephone Finance Cooperative will redeem the SCCs in proportion to our principal repayments on Term Loans C and D.

The credit facilities are secured by substantially all of our tangible and intangible assets, properties and revenues. The credit facilities are guaranteed by all of our subsidiaries.

The credit facilities permit us to pay dividends to holders of our common stock; however, they contain significant restrictions on our ability to do so.
The credit facilities contain certain negative covenants that, among other things, limit or restrict our ability (as well as those of our subsidiaries) to: create liens and encumbrances; incur debt, issue preferred stock, or enter into leases and
guarantees; enter into loans, investments and acquisitions; make asset sales, transfers or dispositions; change lines of business; enter into hedging agreements; pay dividends, redeem stock, or make certain restricted payments; amend material debt
agreements or other material contracts; engage in certain transactions with affiliates; enter into sale/leaseback or synthetic lease transactions; grant negative pledges or agree to such other restrictions relating to subsidiary dividends and
distributions; make changes to our fiscal year; and engage in mergers and consolidations.

The credit facilities require us, subject to
certain exceptions, to prepay outstanding loans under the credit facilities to the extent of net cash proceeds received from the following: issuance of certain indebtedness; proceeds of certain asset sales; and casualty insurance proceeds. The
credit facilities further require us, subject to certain exceptions, to make prepayments under the credit facilities equal to 50% of any net increase in the following: distributable cash during a dividend suspension period, as defined; and in
cumulative distributable cash, as defined, during the fiscal year less the cumulative reductions of revolving loans through such period, with reductions to the percentage to be determined based on improvements in certain credit ratios. As of
March 31, 2008, no prepayment amounts were due under these provisions.

The credit facilities generally permit voluntary prepayments
of the term loans and reductions of commitments without penalty or premium, other than standard breakage costs.

In addition, the financial
covenants under the credit facilities specify, among other things, certain fixed charge coverage ratios and a maximum total leverage ratio, as defined, all of which we were in compliance with as of March 31, 2008.

Interest Rate Swaps

On August 26, 2005, we
amended the interest rate swap arrangements that were originally entered into on November 4, 2004. The amended swap arrangements effectively fixed the interest rate we will pay on $350.0 million of our indebtedness under Term Loan B. The
purpose of the swap agreements was to adjust the interest rate profile of our debt obligations and to achieve a targeted mix of floating and fixed rate debt. As a result of these arrangements, the effective all-in interest rate on
$350.0 million of indebtedness under Term Loan B for the period beginning August 31, 2005 and ending November 23, 2011 is 5.865%.



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Other Items

On August 4, 2004, the FCC adopted rules requiring certain telecommunications carriers to begin reporting additional information to the FCC in the event of selected service outages and related events affecting some fiber facilities. On
December 20, 2004, the FCC stayed the rules effectiveness pending agency reconsideration of their merits, in part due to concerns about the substantial expenditures required of telecommunications carriers in order to comply with the new
reporting obligations. At this time, we cannot predict the consequences of the FCCs reconsideration or the financial or operational impacts any final rules may have on us.

In response to the Independent Panel Reviewing the Impact of Hurricane Katrina on Communications Networks, the FCC adopted rules on May 31, 2007,
requiring incumbent local exchange carriers, competitive local exchange carriers, and wireless carriers to, among other things, maintain emergency back-up power for a minimum of eight hours for cell sites, remote switches, and digital loop carrier
system remote terminals that normally are powered from local AC commercial power. Five days prior to the new rules taking effect, the FCC on October 4, 2007, released an order amending some of these new requirements to provide greater
compliance flexibility. We do not anticipate incurring significant costs in complying with the FCCs requirements.

On May 8,
2006, the Company filed with the FCC forbearance and waiver petitions asking it to allow the Company to become eligible to qualify for high-cost support from the non-rural high cost support program of the Universal Service Fund. On August 6,
2007, the FCC issued an order denying our petition for forbearance. The FCC has not yet ruled on our petition for waiver and there is no statutory deadline for issuing a ruling. We cannot predict whether the FCC will deny or approve the waiver
petition, and the amount, if any, of high cost support funds that we may receive in the future. Furthermore, because our use of any high cost support program funds that we may receive as a result of our waiver petition would be limited to the
provision, maintenance, and upgrading of facilities and services for which the support is intended, we cannot predict the extent to which receipt of such funds would affect our liquidity or earnings.

On February 20, 2008, MCImetro Transmission Access Transmission Services LLC, d/b/a Verizon Access Transmission Services and MCI Communications Services, Inc. d/b/a
Verizon Business Services filed a complaint at the Iowa Utilities Board against our local incumbent exchange carrier, our CLEC, Frontier Communication of Iowa, Inc., and Citizens Mutual Telephone Company alleging that the tariffed intrastate
switched access rates of each are not just and reasonable and should be lowered by the Iowa Utilities Board to mirror the rates contained in Qwest Corporations Iowa tariff. The complaint appears to be similar to others asserted by
these or related entities against the intrastate access charges of mid-sized incumbent local exchange companies in several other states. We have filed a motion to dismiss the complaint and believe it to be without merit in light of our legislated
price plan, and the absence of any rationale for the proposed decrease.

Obligations and Commitments

Our ongoing capital commitments include capital expenditures and debt service requirements. For the three months ended March 31, 2008, capital
expenditures were $5.9 million; see Liquidity and Capital ResourcesCash Used in Investing Activities.

The
following table sets forth our contractual obligations as of March 31, 2008, together with cash payments due in each period indicated:



|                                 |  |                        |         |                 |   |            |  |            |        |               |   |         |  |   |   
|-------------------------------- |  | ---------------------- | ------- | --------------- | - | ---------- |  | ---------- | ------ | ------------- | - | ------- |  | - | --
|                                 |  | Payments Due by Period
|Obligation                       |  | Total                  |         | Apr. Dec. 2008 |   | 2009 2010 |  | 2011 2012 |        | 2013and after
|                                 |  | (dollars in thousands)
|Current Debt:                    |  |                        |         |                 |   |            |  |            |        |               |   |         |  |   |   
|Revolving credit facility(1) (3) |  | $                      | 3,000   |                 | $ |           |  | $          |       |               | $ | 3,000   |  | $ |  
|Long-Term Debt:                  |  |                        |         |                 |   |            |  |            |        |               |   |         |  |   |   
|Senior debt payments             |  |                        | 477,778 |                 |   |           |  |            |       |               |   | 477,778 |  |   |  
|Interest Payments(2)             |  |                        | 92,395  |                 |   | 19,450     |  |            | 51,866 |               |   | 21,079  |  |   |  
|Operating Lease Payments         |  |                        | 513     |                 |   | 204        |  |            | 253    |               |   | 14      |  |   | 42
|                                 |  |                        |         |                 |   |            |  |            |        |               |   |         |  |   |   
|Total Contractual Obligations    |  | $                      | 573,686 |                 | $ | 19,654     |  | $          | 52,119 |               | $ | 501,871 |  | $ | 42
|                                 |  |                        |         |                 |   |            |  |            |        |               |   |         |  |   |   



|(1) | Advances on the line of credit mature in periods within one
year. The terms of the line of credit are a component of our senior debt agreement which expires in November 2011.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Excludes interest payments on variable rate long-term debt that
has not been fixed through hedging arrangements. Amounts include the impact of hedging arrangements.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Excludes commitments for Bishop Communications of $43.9 million,
subject to certain future adjustments, and wireless licenses of $4.0 million.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------



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As of March 31, 2008, no letters of credit were outstanding.

We currently project that cash provided by operations will be adequate to meet our foreseeable operational liquidity needs for the next twelve months.
However, our actual cash needs and the availability of required funding may differ from our expectations and estimates, and those differences could be material. Our future capital requirements will depend on many factors, including, among others,
the demand for our services in our existing markets, regulatory, technological and competitive developments, the level of construction activity in our region and weather.

Critical Accounting Policies

The process of preparing financial statements requires the use of
estimates on the part of management. The estimates used by management are based on our historical experiences combined with managements understanding of current facts and circumstances. Certain of our accounting policies are considered
critical, as they are both important to the portrayal of our financial statements and require significant or complex judgments on the part of management. The following is a summary of certain policies considered critical by management:

Impairment of Long-Lived Assets (Including Property, Plant and Equipment), Goodwill and Identifiable Intangible Assets. We reduce the carrying
amounts of long-lived assets to their fair values when the carrying amounts are not recoverable from estimated future cash flows on an undiscounted basis. We reduce the carrying amounts of goodwill and identifiable intangible assets to their fair
values when the fair value of such assets is determined to be less than their carrying amounts. Fair value is typically estimated using a discounted cash flow analysis, which requires us to estimate the future cash flows anticipated to be generated
by the particular asset being tested for impairment, and to select a discount rate to measure the present value of the anticipated cash flows. When determining future cash flow estimates, we consider historical operating results, as adjusted to
reflect current and anticipated operating conditions. Estimating future cash flows requires significant judgment by us in such areas as future economic conditions, industry specific conditions and necessary capital expenditures. The use of different
assumptions or estimates for future cash flows could produce different impairment amounts (or none at all) for long-lived assets, goodwill and identifiable intangible assets.

We performed an annual impairment review of goodwill and indefinite lived intangible assets as required by SFAS No. 142, Goodwill and Other
Intangible Assets as of August 31, 2007.

Revenue Recognition. Revenues are recorded based upon services provided to customers.
We record unbilled revenue representing the estimated amounts customers will be billed for services rendered since the last billing date through the end of a particular month. The unbilled revenue estimate is reversed in the following month when
actual billings are made. All revenues are recorded net of applicable taxes assessed by governmental authorities.



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Allowance for Doubtful Accounts. Our allowance for doubtful accounts reflects reserves for
customer receivables to reduce receivables to amounts expected to be collected. In estimating uncollectible amounts, management considers factors such as current overall economic conditions, industry-specific economic conditions, historical customer
payment trends and anticipated customer payment trends. While we believe our process effectively addresses our exposure for doubtful accounts, changes in economic, industry or specific customer conditions may require adjustment to the allowance for
doubtful accounts recorded by us.

Income Taxes. Management calculates the income tax provision, current and deferred income taxes,
along with the valuation allowance based upon various complex estimates and interpretations of income tax laws and regulations. Deferred tax assets are reduced by a valuation allowance to the extent that it is more likely than not they will not be
realized.

As of March 31, 2008, our unused tax net operating loss carry forward was $151.6 million, and will expire between 2021 and
2024. Additionally, the Company expects to be able to continue taking deductions related to the amortization of intangibles in excess of the amount recorded for book purposes in the amount of approximately $40.0 million per year through June 2015.
Based upon the evidence available as of March 31, 2008 the combination of the continued generation of taxable income from operations and reversing temporary differences will be, more likely than not, sufficient to utilize the entire deferred
tax asset. As such, we have determined that no valuation allowance was required for our deferred tax assets.

Off-Balance Sheet Risk and Concentration
of Credit Risk

The Company has no known off-balance sheet exposure or risk.

Certain financial instruments potentially subject us to concentrations of credit risk. These financial instruments consist primarily of trade
receivables, interest rate swap agreements, cash, and cash equivalents.

We place our cash and temporary cash investments with high credit
quality financial institutions. We also periodically evaluate the credit worthiness of the institutions with which we invest. We have entered into interest rate swap agreements to adjust the interest rate profile of our debt obligations and to
achieve a targeted mix of floating and fixed rate debt. The floating rate payers under the interest rate swap agreements are nationally recognized counterparties. While we may be exposed to losses due to non-performance of the counterparties or the
calculation agents, we consider the risk remote and do not expect the settlement of these transactions to have a material adverse effect on our financial condition or results of operations.

New Accounting Pronouncements

In December 2007, the
FASB issued SFAS No. 160,Non-controlling Interest in Consolidated Financial Statements (SFAS 160), an amendment of ARB No. 51. SFAS 160 establishes new accounting and reporting standards for the non-controlling interest
in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 clarifies that changes in a parents ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling
financial interest. In addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the non-controlling equity investment on
the deconsolidation date. SFAS 160 also includes expanded disclosure requirements regarding the interest of the parent and its non-controlling interest. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning
on or after December 15, 2008. Early adoption is prohibited. The Company does not expect the adoption of SFAS 160 to have an impact on its financial position, results of operations or cash flows because all of the Companys current
subsidiaries are wholly owned.

In December 2007, the FASB issued SFAS No. 141(R),Business Combinations (SFAS
141(R)). SFAS 141(R) requires an acquiring entity to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value, with limited exceptions and also includes a substantial number of new
disclosure requirements. SFAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Early adoption is
prohibited. The Company will evaluate the impact of this pronouncement on its consolidated financial statements as it considers any future acquisitions that would occur for reporting periods after fiscal year 2008.



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In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities(SFAS 161)  an amendment of FASB Statement No. 133. The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable
investors to better understand their effects on an entitys financial condition, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008.
SFAS No. 161 will impact disclosures only and will not have an impact on the Companys consolidated financial condition, results of operations or cash flows.

Inflation

We do not believe that inflation has a significant effect on the financial results of our
operations.



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|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

Our short-term excess cash balance, if any, is typically invested in short-term commercial paper. We do not invest in any derivative or commodity type instruments. Accordingly, we are subject to minimal market risk on our investments.

Under the terms of our credit facilities as amended, our long-term secured debt facilities will mature in November 2011. Our $400.0
million of indebtedness under Term Loan B, maturing in 2011, bears an annual interest at either (a) LIBOR plus 1.75% or (b) a base rate plus 0.75%. On August 26, 2005, we entered into interest rate swap agreements with nationally
recognized counterparties for the purpose of fixing the interest on a portion of these borrowings. Pursuant to the swap agreements, we will pay a fixed rate of interest of 5.865% on a notional $350.0 million of Term Loan B from August 31, 2005
through November 23, 2011.

We pay interest at a fixed rate on all borrowings under Term Loans C and D through June 2011. Thereafter,
we expect our interest rates under Term Loans C and D to convert to the Rural Telephone Finance Cooperative variable rate then in effect, as provided in the credit facilities.

We are exposed to interest rate risk, resulting primarily from fluctuations in LIBOR, with respect to $50.0 million of borrowings under Term Loan B
through November 2011. Similarly, changes in LIBOR will be the primary source of interest rate risk we face with respect to the $3.0 million of borrowings drawn under the revolving credit facility at March 31, 2008. With respect to our $77.8
million of borrowings under Term Loan C and D, we are exposed to interest rate risk, resulting primarily from fluctuations in the Rural Telephone Finance Cooperatives variable rate, from July 2011 through maturity in November 2011. As of
March 31, 2008 a one percent change in the underlying interest rates for all of the variable rate debt that was outstanding would have an impact of approximately $530,000 per year on our interest expense while our fixed rates and swaps are in
place.



|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we
evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of March 31, 2008 (the Evaluation Date). Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Changes in Internal Controls

There was no significant change in the Companys internal control over financial
reporting (as defined in Exchange Act Rules 13a  15(f) and 15d  15(f)) during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Companys
internal control over financial reporting.



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PART II - OTHER INFORMATION



|ITEM 1. | LEGAL PROCEEDINGS
|------- | -----------------

We currently, and from time to
time, are involved in litigation and regulatory proceedings incidental to the conduct of our business. We are not a party to any lawsuits or proceedings that, in the opinion of our management, are likely to have a material adverse effect on us.

On February 20, 2008, MCImetro Transmission Access Transmission Services LLC, d/b/a Verizon Access Transmission Services and MCI
Communications Services, Inc. d/b/a Verizon Business Services filed a complaint at the Iowa Utilities Board against our local incumbent exchange carrier, our CLEC, Frontier Communication of Iowa, Inc., and Citizens Mutual Telephone Company alleging
that the tariffed intrastate switched access rates of each are not just and reasonable and should be lowered by the Iowa Utilities Board to mirror the rates contained in Qwest Corporations Iowa tariff. The complaint appears to be
similar to others asserted by these or related entities against the intrastate access charges of mid-sized incumbent local exchange companies in several other states. We have filed a motion to dismiss the complaint and we believe it to be without
merit in light of our legislated price plan, and the absence of any rationale for the proposed decrease.



|ITEM 1A. | RISK FACTORS
|-------- | ------------

In addition to the other information
set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2007, which could materially affect our business,
financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may
materially adversely affect our business, financial condition and/or operating results.



|ITEM 6. | EXHIBITS
|------- | --------

See Exhibit Index following the signature
page of this Report.



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|            |  |  |  |                                                             
|----------- |  |  |  | ------------------------------------------------------------
|May 1, 2008 |  |  |  | /s/ Alan L. Wells                                           
|            |  |  |  | Alan L. Wells                                               
|            |  |  |  | President, Chief Executive Officer and Chairman of the Board
|            |  | 
|May 1, 2008 |  |  |  | /s/ Craig A. Knock                                          
|            |  |  |  | Craig A. Knock                                              
|            |  |  |  | Vice President,                                             
|            |  |  |  | Chief Financial Officer and Treasurer                       
|            |  |  |  | (Principal Accounting Officer)                              



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##### Table of Contents

EXHIBIT INDEX

IOWA TELECOMMUNICATIONS SERVICES, INC.

FORM 10-Q FOR QUARTER ENDED MARCH 31, 2008



|              |  |                                                                                                                                                                                                                               
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                   
|3.1           |  | Amended and Restated Articles of Incorporation of Iowa Telecommunications Services, Inc. - incorporated by reference to Exhibit 3.1 to Iowa Telecoms Registration Statement on Form
S-1/Amendment No. 6 (File No. 333-114349)
|              | 
|3.2           |  | Amended and Restated Articles of Incorporation of Iowa Telecommunications Services, Inc. - incorporated by reference to Exhibit 3.2 to Iowa Telecoms Registration Statement on Form
S-1/Amendment No. 6 (File No. 333-114349)
|              | 
|10.1*         |  | Stock Purchase Agreement dated as of February 5, 2008 among Iowa Telecommunications Services, Inc., the sellers named in the Agreement and John M. Bishop as Sellers
Representative                                          
|              | 
|31.1*         |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                            
|              | 
|31.2*         |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                            
|              | 
|32.1*         |  | Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                            
|              | 
|32.2*         |  | Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                            



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



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