UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                         FORM 10-K/ A (Amendment No. 1)

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

                   For the fiscal year ended December 31, 2003

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

                          Commission File Number 0-556

                             SUREWEST COMMUNICATIONS
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

               California                                      68-0365195
------------------------------------------          ----------------------------
      (State or other jurisdiction                          (I.R.S. Employer
    of incorporation or organization)                     Identification No.)

200 Vernon Street, Roseville, California                          95678
------------------------------------------          ----------------------------
(Address of principal executive offices)                       (Zip Code)

        Registrant's telephone number, including area code (916) 786-6141
                                                           --------------

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

                                      None

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

                        Common Stock - Without Par Value
                                (Title of class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                                              Yes   X            No _____
                                                  -----

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

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

                                              Yes   X            No _____
                                                  -----

On June 30,  2003,  which was the last  business  day of the  registrant's  most
recently  completed second fiscal quarter,  the registrant had 14,537,144 shares
of  Common   Stock   outstanding   and  the  market  value  of  shares  held  by
non-affiliates  was  approximately  $382,904,028  (based on 12,620,436 shares of
Common Stock then held by non-affiliates  and a closing price that day of $30.34
per share of Common  Stock on the Nasdaq  National  Market).  The  market  value
calculations  exclude  shares held on the stated date by  registrant's  employee
benefit  plans,  directors  and  officers on the  assumption  such shares may be
shares  owned  by  affiliates.   (Exclusion   from  these  public  market  value
calculations does not imply affiliate status for any other purpose).

On March  1,  2004,  the  registrant  had  14,580,904  shares  of  Common  Stock
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

Incorporated  by reference into Part II, Item 5 and Part III hereof are portions
of  the  registrant's  definitive  proxy  statement  to  be  filed  pursuant  to
Regulation  14A  within  120 days  after the  Registrant's  fiscal  year-end  of
December 31, 2003.

<PAGE>

                             SUREWEST COMMUNICATIONS

                                   FORM 10-K/A

                       FISCAL YEAR ENDED DECEMBER 31, 2003

                                EXPLANATORY NOTE

This Amendment No. 1 on Form 10-K/A for SureWest  Communications (the "Company")
for the fiscal year ended December 31, 2003, is being filed to amend and restate
the items described below contained in the Company's  Annual Report on Form 10-K
for such period originally filed with the Securities and Exchange  Commission on
March 30, 2004.

This Amendment No. 1 amends Part I, Item 3, Legal Proceedings;  Part II, Item 7,
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations;  Item 8, Financial  Statements and Supplementary  Data; and Item 9A,
Control and Procedures;  and Part III, Item 15,  Exhibits,  Financial  Statement
Schedules, and Reports on Form 8-K, for the following purposes:

     o    To amend Part I, Item 3, Legal  Proceedings  to clarify the amounts of
          certain monetary figures described therein;

     o    To amend Part II, Item 7, to clarify  information  regarding  Costs of
          Services and Products, and provide supplementary information regarding
          "Liquidity and Capital  Resources" and "Critical  Accounting  Policies
          and Estimates";

     o    To amend Part II, Item 8, Financial Statements and Supplementary Data,
          to provide additional  textual  information in certain of the Notes to
          Consolidated  Financial  Statements  (without any modifications to the
          financial  statement  amounts  or  quantitative   disclosures  in  the
          footnotes);

     o    To amend  Part II,  Item  9A,  Controls  and  Procedures,  to  clarify
          management's  position regarding  disclosure  controls and procedures,
          and provide  additional  information  regarding the matters  discussed
          therein; and

     o    To amend Part III, Item 15, Exhibits,  Financial Statement  Schedules,
          and  Reports on Form 8-K,  to reflect  filed  exhibits  as  separately
          tagged  on  EDGAR  (appended  originally  at  the  end  of  the  EDGAR
          submission).

Pursuant to Rule 12b-15  promulgated under the Securities  Exchange Act of 1934,
as amended,  this Form 10-K/A sets forth the complete  text of each item of Form
10-K  listed  above  as  amended,  and  included  in  Exhibits  31  and  32  new
certifications by the Chief Executive Officer and Chief Financial Officer.

For the  convenience  of the reader,  this Form  10-K/A sets forth the  original
filing,  except as amended by this  amendment  No. 1. In order to  preserve  the
nature and  character of the  disclosures  set forth in such items as originally
filed,  this Amendment No. 1 does not reflect events  occurring after the filing
of the  original  Annual  Report on Form 10-K,  except to reflect the  revisions
described  above,  and except  with  respect to Part II, Item 9A,  Controls  and
Procedures,  which  has been  updated  for  events  and  developments  occurring
subsequent to the filing of the original  Annual Report on Form 10-K through the
date of filing of this Amendment No. 1. Accordingly,  this Form 10-K/A should be
read in conjunction with the Company's  filings made subsequent to the filing of
the original Form 10-K, including any amendments to those filings.



<PAGE>


<TABLE>
<CAPTION>

                                TABLE OF CONTENTS


                                                                                                               PAGE
<S>                                     <C>                                                                    <C>
PART I

Item 1.    Business.......................................................................................      5
Item 2.    Properties.....................................................................................     16
Item 3.    Legal Proceedings..............................................................................     16
Item 4.    Submission of Matters to a Vote of Security Holders............................................     19


PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
           Purchases of Equity Securities.................................................................     21
Item 6.    Selected Financial Data........................................................................     21
Item 7.    Management's Discussion and Analysis of Financial Condition and Results of
           Operations.....................................................................................     24
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk.....................................     55
Item 8.    Financial Statements and Supplementary Data....................................................     56
Item 9.    Changes in and Disagreements With Accountants on Accounting and Financial
           Disclosure.....................................................................................     94
Item 9A.   Controls and Procedures........................................................................     94


PART III

Item 10.   Directors and Executive Officers of the Registrant.............................................     103
Item 11.   Executive Compensation.........................................................................     103
Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related
           Stockholder Matters...........................................................................      103
Item 13.   Certain Relationships and Related Transactions.................................................     104
Item 14.   Principal Accountant Fees and Services.........................................................     104
Item 15.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K...............................     105

SIGNATURES      ..........................................................................................     110


</TABLE>


<PAGE>




                                     PART I
Item 1. Business.

General Development of Business

SureWest  Communications (the "Company" or "we") is a California holding company
whose operating subsidiaries provide a wide range of telecommunications, digital
video, and other facilities-based communication services in Northern California,
primarily in the greater  Sacramento  region. The Company was incorporated under
the laws of the State of  California  in 1995,  and its  predecessor,  Roseville
Telephone Company, was incorporated in 1914.

As of December  31,  2003,  the  Company's  wholly-owned  subsidiaries  included
SureWest  Telephone,  SureWest  Directories,  SureWest Long  Distance,  SureWest
Wireless,  SureWest  Broadband,  SureWest  TeleVideo  and SureWest  Televideo of
Roseville ("SureWest  Broadband/Residential  Services"),  SureWest Internet, and
SureWest Custom Data Services (formerly Quiknet,  Inc.). Until October 27, 2003,
SureWest  Telephone  was named  Roseville  Telephone  Company and SureWest  Long
Distance was named Roseville Long Distance Company.

The  Company's  strategy is to become the first choice as a dominant  integrated
communications  provider  in the  Sacramento  region.  It seeks to achieve  this
position  by  leveraging  its  existing  advanced  fiber  network  to extend its
operations  throughout  Sacramento,  Placer and adjacent counties,  by providing
superior customer service and by integrating its systems, products and operating
functions.

No customer accounted for more than 10% of the Company's  consolidated operating
revenues during the years ended December 31, 2003, 2002 and 2001.

The  Company  currently  divides its  business  into three  reportable  business
segments: Telecommunications ("Telecom"), Broadband and Wireless. The table that
follows  reflects  the  percentage  of total  operating  revenues of the Company
generated  by each of its three  reporting  segments  for the last three  fiscal
years:

<TABLE>
<CAPTION>
                                                           % of Total Operating Revenues
                                            -------------------------------------------------------
      Reporting Segment                           2003                  2002                 2001
                                            --------------      --------------        --------------
        <S>                                      <C>                    <C>                     <C>
      Telecom                                      71%                   81%                  87%
      Broadband                                    15%                    7%                   3%
      Wireless                                     14%                   12%                  10%
                                            --------------      --------------        --------------
      Total operating revenues                    100%                  100%                 100%
                                            ==============      ==============        ==============
</TABLE>


The  Company's  products or  services  that  generated  10% or more of its total
operating revenues in any of the last three years are as follows:
<TABLE>
<CAPTION>
                                                    2003                 2002                 2001
                                            --------------      --------------        --------------
        <S>                                     <C>                      <C>                 <C>
                                                                (Amounts in thousands)
     Local service                           $   63,363           $   66,283           $   63,816
     Network access service                  $   51,286           $   58,426           $   49,030
     Wireless service                        $   27,146           $   23,225           $   16,056

</TABLE>


<PAGE>



The Company currently  generates the majority of its revenues from services that
are subject to regulation by either or both of the California  Public  Utilities
Commission ("CPUC") and the Federal Communications  Commission ("FCC"). Revenues
from services subject to comprehensive regulation include local service, network
access  service  and  toll  service  revenues.  The  Company  expects  that  the
proportion of its revenues  that comes from  nonregulated  or lightly  regulated
businesses will increase in future years because of the successful  execution of
its business  strategy and the impact of competition  on its existing  regulated
operations.  The table that follows  reflects the percentage of total  operating
revenues of the Company contributed by various sources.
<TABLE>
<CAPTION>

                                                                   % of Total Operating Revenues
                                                        -------------------------------------------------------
      Revenues                                               2003               2002              2001
                                                        --------------      --------------        -------------
                <S>                                             <C>             <C>                     <C>
      Revenues from services subject to regulation             59%                67%               69%
      Other revenues                                           41%                33%               31%
                                                        --------------      --------------        -------------
      Total operating revenues                                100%               100%              100%
                                                        ==============      ==============        =============
</TABLE>


There continues to be increased competition facing telecommunications providers.
As a result of  technology  change  and  industry,  legislative  and  regulatory
developments,  the Company continues to face new competitive  challenges.  These
developments,  however,  have also provided the Company with significant  growth
opportunities.  The  Company  believes  that  growth  from its entry  into newer
businesses  in recent  years will offset flat or slowing  growth in customers in
its other businesses,  and that the newer businesses provide significant revenue
opportunities that were not present before. Competitive issues facing individual
operating  units  are  addressed  in  connection  with  the  individual  segment
discussions below.

As  of  December  31,  2003,  the  Company,   including  all  of  its  operating
subsidiaries, had 997 employees. This reflects an increase of 6% over the number
of  employees  at  December  31,  2002.  None  of the  Company's  employees  are
represented  by a union.  The Company  considers  its  employee  relations to be
positive.

Telecom

         General

The Telecom  segment  includes  SureWest  Telephone,  SureWest  Directories  and
SureWest Long  Distance,  which provide  landline  telecommunications  services,
digital subscriber line ("DSL") services,  directory advertising services,  long
distance  services  and  certain  related  non-regulated  services.  The Telecom
segment accounted for approximately 71%, 81% and 87% of the Company's  operating
revenue in the years 2003, 2002 and 2001,  respectively.  Although revenues from
this segment have  decreased as a percentage  of all Company  revenues  over the
past several years,  the Company expects this segment to continue to provide the
largest proportion of its revenues and earnings in 2004.

SureWest Telephone operates as an incumbent local exchange carrier ("ILEC") with
a service area of approximately 83 square miles,  covering  Roseville and Citrus
Heights,  California,  and adjacent areas in Placer and Sacramento Counties. The
Company holds a non-exclusive perpetual franchise granted by section 7901 of the
California Public Utilities Code. The area served by SureWest Telephone has been
one of the most rapidly growing areas in California during the past decade,  but
the pace of growth has slowed in recent  years as the area has become more fully
developed. The rapid growth has also attracted new competitors to the area.

SureWest  Telephone's  primary  services are local  telephone  service,  network
access services,  toll services and certain vertical and non-regulated services.
Toll services and access to SureWest  Telephone's  network are provided  through
connections  with  other  carriers   serving   adjacent  areas,   including  SBC
Communications  ("SBC"),  and also  through  serving  agreements  with  numerous
interexchange carriers, including national interexchange carriers.

SureWest  Telephone  provides  services  to  residential,  business  and carrier
customers.  As of December 31, 2003,  SureWest  Telephone  served 136,365 access
lines within its service area.  Total access lines  declined by 1% from December
31, 2002 to December 31, 2003. The Company believes that economic  conditions in
the area in 2003, expanding competition, and service substitution have impacted,
and will  continue to impact,  the number of access  lines  provided by SureWest
Telephone.

This segment also  includes the  operations  of two other  businesses,  SureWest
Directories and SureWest Long Distance.

SureWest Directories  publishes and distributes the SureWest Telephone local and
Yellow Pages directories, directories for greater Sacramento and directories for
the areas to the immediate northeast of the SureWest Telephone service area. The
SureWest  Directories'  business  faces  significant  competition  from national
directory  publishers  and  other  local  businesses,  including  SBC.  SureWest
Directories'  business has expanded into  electronic  and on-line  formats.  The
directory  business is not regulated by the FCC or CPUC;  however,  the revenues
from  publishing  rights  licensed by SureWest  Telephone  under its contractual
arrangement  with SureWest  Directories  are taken into account by the CPUC with
respect to SureWest Telephone's operations.

SureWest Long Distance offers  intrastate,  interstate,  and international  long
distance  services,  including  calling  card and 800  services.  SureWest  Long
Distance is a resale  business that utilizes  other  national and  international
carriers for wholesale  transport,  switching and other  capabilities.  SureWest
Long Distance maintains  agreements with Sprint and Global Crossing to diversify
its risks related to its wholesale providers. The rates offered to SureWest Long
Distance by these companies are competitive;  however,  changes in the wholesale
marketplace  in the recent past have provided  recurring  opportunities  to long
distance  resellers to reduce their costs further.  The agreements  with both of
these  providers  will be open to  renegotiation  in 2004,  and  there are other
interexchange  providers  who could provide  wholesale  service to SureWest Long
Distance in the future.

As of December 31, 2003,  42,911, or 31%, of the customers of SureWest Telephone
have  elected to choose  SureWest  Long  Distance  as their  presubscribed  long
distance provider.

         Competition

In recent years,  competition  to serve the customers of SureWest  Telephone has
increased  significantly.  Changes  in  technology  have  made it  possible  for
customers  to receive  services in new ways at  competitive  rates.  To meet the
competition,  SureWest  Telephone  has  responded  in  part by  introducing  new
services and service "bundles,"  offering services in convenient  groupings with
package  discounts and billing  advantages,  and by investing in its network and
business  operations.  Changing technology requires that the Company continue to
adapt its  network  and the  manner in which it  provides  service.  Within  its
telephone service area,  services are provided over an integrated network making
extensive  use  of  optical  fiber.   SureWest  Telephone  deploys  fiber  optic
facilities closer to an end user's premises to broaden the reach and capacity of
Company services requiring additional bandwidth. In some instances, fiber optics
is deployed directly to a customer's  premises.  Because bandwidth is limited by
distance when utilizing copper  facilities,  the Company also deploys  equipment
throughout  its  service  area to enable the  improved  provision  of  services.
Certain of the Company's  facilities  take advantage of IP (Internet  protocol),
which allows for more efficient use of bandwidth.

See "Item 3 - Legal  Proceedings"  and  "Item 7 -  Management's  Discussion  and
Analysis  of  Financial   Condition  and  Results  of  Operations"  for  further
discussion  regarding  SureWest  Telephone's  revenues  that are  subject to the
competitive environment in which SureWest Telephone operates.

The  Company  anticipates  that  its  businesses  will  continue  to  experience
competition  and that the nature and extent of such  competition  will increase.
Competitors  to  the  SureWest  Telephone  business  include  competitive  local
exchange carriers,  interexchange carriers (including interexchange carriers who
directly serve customers  without using facilities of local exchange  carriers),
customers  who  are  telecommunications  self-providers,  and a range  of  other
providers  who   specialize  in  certain  niche  areas  of   telecommunications.
Technology  change  has  accelerated  the  pressure  on  established   carriers,
including SureWest  Telephone,  by virtue of  software-defined  businesses,  and
innovations related to packet switching and use of the Internet.



<PAGE>



         Regulation

SureWest  Telephone's revenues are influenced greatly by the actions of the CPUC
and the FCC.

All intrastate  service rates of SureWest Telephone are subject to comprehensive
regulation by the CPUC. The provision of access to the networks of interexchange
carriers  for long  distance  calling  is  governed  by  access  tariffs  and by
intercarrier  agreements  which are subject to the  jurisdiction  of the CPUC or
FCC,  or both,  depending  upon the nature of the  transmissions  that are made.
SureWest  Telephone  has a  tariff  on file  with  the FCC for all  elements  of
interstate  access  services  except  carrier  common  line  charges,  for which
SureWest  Telephone  concurs  with the tariff of the National  Exchange  Carrier
Association ("NECA").

In February 1996, Congress passed the Telecommunications Act of 1996 (the "Act")
which was intended to expand the  opportunities  for  competition  in a range of
telecommunications   businesses,   and  which  has  significantly   changed  the
regulatory  environment.  See  "Item  3  -  Legal  Proceedings"  and  "Item  7 -
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations"  for  further  discussion  regarding  the  impact  of the  Act.  The
application  of  the  Act  in  particular  circumstances  continues  to  present
contentious  issues for carriers and others,  and a number of court appeals were
pending as of December 31, 2003 that would affect the  application of the Act to
the Company.

The FCC monitors  SureWest  Telephone's  interstate  earnings through the use of
annual cost  separation  studies  that are  prepared  and  submitted by SureWest
Telephone in accordance  with rules  governing the  preparation of such studies.
SureWest Telephone utilizes actual and estimated cost information and actual and
projected demand usage.

The  characterization  of  traffic  as  interstate  or  intrastate,   and  as  a
telecommunications  or  information  service  has been a  significant  source of
dispute among carriers and others in recent years, as such characterizations can
impact the  regulatory  treatment of such traffic and the payment of obligations
of the providers who are involved. The characterization of: (i) traffic involved
in intercarrier  interconnection,  (ii) Internet traffic, and (iii) traffic that
makes use of Internet  protocol ("IP") and other  transmission  technologies are
examples  of issues  that are  currently  subject to  analysis  on the state and
federal levels,  and that are expected to be subject to regulatory action in the
near future. The FCC and CPUC initiated a major rulemaking in early 2004 that is
intended  to  evaluate  and  establish  the  appropriate  regulatory  regime for
IP-enabled services.

With respect to regulation  administered by the CPUC, in 1996, the CPUC issued a
decision in connection with SureWest Telephone's general rate proceeding,  which
authorized  SureWest  Telephone to implement a New Regulatory  Framework ("NRF")
for services  furnished  within  SureWest  Telephone's  service area in order to
accommodate  increased  competition and to afford greater  pricing  flexibility.
Under the NRF, SureWest Telephone is subject to ongoing monitoring and reporting
requirements,  including  a sharing  mechanism  whereby  SureWest  Telephone  is
required to share earnings with customers through a reduction of revenues if its
earned annual intrastate  rate-of-return exceeds that authorized by the CPUC. In
accordance  with the  requirements  of its  general  rate case  order,  SureWest
Telephone  filed an application for review of its NRF in 1999 and requested that
the sharing  mechanism be  suspended,  consistent  with past CPUC  decisions for
other  incumbent  local exchange  carriers in  California.  After a verification
audit by the CPUC's Office of Ratepayer Advocate,  the CPUC issued a decision in
June 2001 that failed to suspend the sharing mechanism, and required certain new
changes in the method used to allocate  costs for services  provided by SureWest
Telephone to its affiliates, the treatment of certain directory revenues and the
treatment of internal-use  software costs.  Since that time,  SureWest Telephone
has been engaged in  proceedings  to modify that decision and to implement a NRF
that is  consistent  with that  applicable  to other ILECs within the state.  As
discussed in "Item 3 - Legal  Proceedings",  the proceeding remains pending.  In
addition to its regulatory authority with respect to SureWest Telephone's rates,
the CPUC  also has the  power,  among  other  things,  to  establish  terms  and
conditions of service,  to prescribe uniform systems of accounts and to regulate
the mortgaging or disposition of public utility properties.

In November 2000, the CPUC  authorized SBC to terminate its  approximate  annual
$11,500 extended area service payments to SureWest Telephone  effective November
30,  2000 and  authorized  replacement  funding  on an  interim  basis  from the
California  High Cost Fund  ("CHCF").  In addition,  the CPUC ordered a separate
proceeding for the purpose of determining  whether future  recovery of all, none
or a portion of the  approximate  $11,500 should come from SureWest  Telephone's
ratepayers or other  regulatory  recovery  mechanisms.  As discussed  further in
"Item 3 - Legal  Proceedings,"  a decision in this  matter is expected  from the
CPUC during 2004.

These  actions of the CPUC and of the FCC, as noted above,  can affect the rates
charged for access and  interconnection,  and, as a result, the revenues derived
by the Company from access and related  services.  SureWest  Telephone's  future
operations  also may be  impacted  by  other  proceedings  at the FCC and  CPUC,
including  proceedings  that  address  interstate  access  and  other  rates and
charges, the nature of interconnection between incumbent local exchange carriers
and others,  the collection and  distribution  of support  payments  required to
assure universal access to basic telephone services, and the charges that can be
assessed for new forms of service that  directly or indirectly  utilize  carrier
networks.

Substantially  all of the interstate long distance business was detariffed after
a transition period that started on May 1, 2000 and ended in 2001, after the FCC
issued a  detariffing  order on January 31, 1996 and all  related  appeals  were
exhausted.  The long distance business is recognized as being fully competitive,
and there are many  providers of long  distance  services.  The  emergence  from
bankruptcy   reorganization   proceedings  of  some  larger   interexchange  and
competitive local exchange carriers has created new competitive pressures in the
sector  for  both  wholesale  and  retail  providers.  Because  of the  level of
competition, regulation of this area of the telecommunications business is light
or has been  removed  altogether.  Where it  exists,  regulation  is  focused on
specific public policy concerns, such as customer account slamming,  rather than
the rates, terms and conditions of service.

Broadband

         General

The Broadband segment includes SureWest Broadband,  SureWest Internet,  SureWest
Custom Data Services and SureWest Broadband/Residential  Services. The Broadband
segment also includes a competitive local exchange carrier  ("CLEC"),  which was
authorized by the CPUC in 1998 to provide  telecommunications  services in areas
outside the telephone service area of SureWest Telephone. As of January 1, 2003,
the Company consolidated the operations of SureWest Internet and SureWest Custom
Data Services into the operations of SureWest Broadband for financial  reporting
purposes, though they remain separate legal entities.

The Broadband  segment  provides  services to residential,  business and carrier
customers.  The  services  include:  high-speed  and dial-up  Internet  service,
digital video,  local and network access,  toll telephone and managed  services.
These  services  are  offered in the greater  Sacramento  area,  principally  to
customers  residing  outside of  SureWest  Telephone's  service  area.  However,
commencing  in December  2003,  the Company  began  providing  digital video and
high-speed  Internet services to customers within SureWest  Telephone's  service
area. Certain of the Company's  affiliates possess cable television  licenses or
franchises in Sacramento County, and the cities of Roseville and Lincoln.

The  Broadband  segment  accounted  for  approximately  15%,  7%  and  3% of the
Company's operating revenues in the years 2003, 2002 and 2001, respectively.  As
of December 31, 2003, the Broadband segment had 34,502 customers.

The Broadband segment's backbone network is comprised primarily of optical fiber
and is subject  to  continual  expansion  and  diversification  in  response  to
business growth.

The Broadband  segment  provides  dial-up and high-speed  Internet  services and
custom data solutions,  including  collocation,  fixed and burstable  bandwidth,
managed services and network monitoring services. The Company provides DSL based
Internet  services  to  residential  and  business  customers  in  the  SureWest
Telephone  service  area as well as  high-speed  Internet  services  to business
customers outside of SureWest Telephone's service area, primarily in the greater
Sacramento  region.  SureWest  Broadband had 19,805 DSL customers as of December
31, 2003.

SureWest  Broadband/Residential Services commenced operations in July 2002, when
the Company  acquired the assets formerly held by Western  Integrated  Networks,
LLC.  SureWest  Broadband/Residential  Services provides a "triple play" bundled
offering  consisting  of  digital  video,  high-speed  Internet,  and  telephone
services to residential customers in the greater Sacramento area.  Substantially
all of the services provided by SureWest  Broadband/Residential Services utilize
digital  fiber  network  capability.   SureWest  Broadband/Residential  Services
utilizes the SureWest  Broadband  brand.  From its original base in July 2002 of
approximately  5,000 subscribers,  the SureWest  Broadband/Residential  Services
subsidiary  reached a triple play subscriber  level of 11,084 as of December 31,
2003.

In 2003,  SureWest  Broadband/Residential  Services  obtained a cable television
franchise in Roseville,  California,  and began offering services to residential
customers in December 2003.  SureWest  Broadband/Residential  Services  procures
digital  transport  capability from its affiliate  SureWest  Telephone,  and has
developed an advanced method of delivering  video services to subscribers  using
Internet  protocol,  or IP-video  capability.  The Company expects that SureWest
Broadband/Residential  Services  will compete more  aggressively  in the City of
Roseville to get and to retain its  telecommunications and Internet customers as
well  as  digital  video  customers.  SureWest   Broadband/Residential  Services
acquired a new franchise in Lincoln,  California  in early 2004,  and expects to
expand its services in 2004 to already-licensed  areas of Elk Grove and Natomas,
California as well as other areas within its service area footprint.

         Competition

Except as noted below,  the  businesses in the Broadband  segment are subject to
extensive  competition.   Competition  is  highly  fragmented,   and  has  grown
dramatically  in recent years.  Except for the digital video delivery  business,
which  requires  significant  capital  investment,  there  are  few  significant
barriers to entry, and technology changes force rapid competitive adjustments.

SureWest  Broadband competes regularly against SBC, which is the incumbent local
exchange carrier in Sacramento and most of its surrounding  areas. The Broadband
segment also competes against  Frontier  Communications  in southern  Sacramento
County. Numerous CLECs and others offer  telecommunications and related services
on a flexible and highly  specialized  basis in the Sacramento area. The Company
has  found  that it can be  successful  by  constantly  seeking  out  new  sales
opportunities  in  attractive  segments of the market,  by  maintaining a highly
reliable  network that is  accessible to new  customers,  and by focusing on the
provision of excellent service to its customers.  To the extent permitted by law
and regulatory  requirements,  the Company seeks to operate its business  across
the  Broadband  segment in an  integrated  manner,  and its  network as a single
integrated  facility.  The operating  units in this segment  benefit  within the
region from the name recognition and reputation of SureWest, and from the active
participation  of Company  executives  and  employees in civic and other groups.
During 2003, the Company was able to obtain approval from the Sacramento  county
Cable  Commission to activate  service for customers in "green field" areas that
were  previously   outside  the  Company's  approved  build-out  and  activation
schedules.  It now anticipates that it will achieve a highly  competitive market
share in the provision of telephone, digital video and Internet services in many
of these areas  around  Sacramento.  It is  important  to the  Company  that its
operations  in  this  segment  be able  to  deliver  services  to  customers  in
developing areas as they grow.

The Broadband segment has assumed the  responsibility  for much of the Company's
DSL and high-speed Internet retail customer base. The emergence of cable modems,
wireless  Internet  access  and  other  avenues  to reach the  Internet  provide
significant  competition.  The  presence  of  other  broadband  Internet  access
providers has begun to have an impact on pricing,  which has been under downward
pressure in the region.

The market among  multichannel  video  providers is very  competitive.  The main
competitors of SureWest  Broadband/Residential  Services are Comcast and various
satellite  television  providers.  Sacramento County promotes competition in the
provision of cable service,  and has a  straightforward  franchise and licensing
ordinance that accommodates new entrants rapidly, and allows them flexibility in
defining service territories. SureWest has entered the Sacramento, Roseville and
Lincoln  cable service  markets as the second (or  subsequent)  franchisee,  and
while it will therefore  benefit from the somewhat reduced  regulation that such
entrants enjoy,  it will  nevertheless  face the challenge of drawing  customers
away from the  incumbent  provider.  The  provision of cable  television  over a
closed  transmission  path has been  recognized as possessing  certain  monopoly
characteristics, and therefore the ability of a second or subsequent provider to
succeed in the marketplace is not assured.


<PAGE>



         Regulation

Like SureWest  Telephone,  SureWest  Broadband must comply with various rules of
the CPUC  governing  tariffs,  access to  information,  consumer  protection and
similar  matters  for  a  telecommunication   service  provider.   The  FCC  has
jurisdiction over the SureWest  Broadband  interstate  services,  such as access
service. In 2001, the FCC adopted rules that will cause CLEC interstate switched
access  charges to decline over time, and that have also caused a decline in the
amount of  compensation  that can be  derived  from  Internet  Service  Provider
dial-up traffic. SureWest Broadband is only minimally affected by these actions,
and has already modified its rates to comply with the FCC requirements.

In late 2001,  the FCC began a triennial  review of its  policies  on  unbundled
network  elements  ("UNE")  and other  regulations  that  affect  the  nature of
competition  between ILECs and CLECs.  The FCC concluded its Triennial Review in
early 2003,  and its action was appealed by a number of parties.  The  appellate
court  reversed the FCC and vacated  significant  portions of the FCC rules in a
decision  that was  released in early  March 2004,  but stayed its mandate for a
short  time.  SureWest  Broadband  does not rely to any  significant  degree  on
unbundled  network  elements or other  offerings that would be affected by these
appeals,  and it does not  rely  generally  on the  availability  of  discounted
incremental  cost pricing of service  elements from the incumbent local exchange
carrier to serve retail customers.  However,  the position of SureWest Broadband
in the Sacramento market could be affected by a change in law or regulation that
granted unrestricted pricing flexibility to the incumbent local exchange carrier
in  Sacramento  or that denies  competitors  the ability to assure that  pricing
concessions given to customers are nondiscriminatory and offered on a consistent
basis.

The cable television  business is governed by federal,  state and local laws and
regulation,  but is most substantially  controlled by the mechanisms in Title VI
of the Communications  Act of 1934, as amended.  While closely regulated in some
areas, providers of cable services are generally free from rate regulation,  and
have wide  leeway to select  and  package  the  content  that they  deliver.  In
exchange for their use of local streets and rights of way,  cable  providers are
required  to  pay  franchise  fees,  and  to  deliver  public,  educational  and
governmental channels for use by the community, among other things.

Wireless

The Wireless segment  consists of the Company's  subsidiary  SureWest  Wireless,
which provides wireless services.

SureWest  Wireless  was formed for the purpose of  providing  wireless  personal
communications  services,  or PCS.  PCS is viewed  generally  as  involving  the
capability to deliver a more advanced set of features and capabilities  than the
basic form of cellular mobile service.

During 1997,  SureWest  Wireless  purchased from the FCC spectrum  licenses that
allow it to offer wireless services in four Basic Trading Areas, representing 16
counties  located in  central  California.  These  areas  include  the cities of
Sacramento,  Stockton,  Modesto  and  Yuba  City.  Each  license  represents  10
megahertz of spectrum,  and  accommodates  digital  wireless  technology that is
capable  of  providing  both  voice  and data  transmission.  SureWest  Wireless
commenced  deployment  of the  network  infrastructure  in  1998  and  initiated
wireless  telecommunications  services  with  telephone,  paging  and  voicemail
capabilities in June 1999.

SureWest  Wireless  derives its revenue from the  provision of wireless PCS, and
the sale of handsets and related communications equipment. In addition, SureWest
Wireless  generates  revenue from long distance calls,  roaming service,  custom
calling and other features, and handset insurance.

SureWest Wireless established its market share in the Sacramento market in large
part by  promoting  an  unlimited  flat rate  regional  calling  plan.  Wireless
customer  acquisition  has  historically  been most active  during the  December
holiday season, and the Company has always been active in sales and marketing at
this time.  During  2003,  SureWest  Wireless  initiated a number of new service
options for  customers,  including new regional  plans and in 2004 will launch a
family  plan and new  vertical  services  such as  wireless  data  capabilities.
Evolution of the marketplace  has caused  SureWest  Wireless to open four retail
stores in its service area. It is also seeking to expand its service penetration
among major  accounts in 2004.  SureWest  Wireless will seek to reduce  customer
churn and to  increase  the amount of revenue it derives  from each  customer in
2004.

As of December 31, 2003, SureWest Wireless had 46,724 subscribers.  The Wireless
segment accounted for approximately 14%, 12% and 10% of the Company's  operating
revenue in the years 2003, 2002 and 2001, respectively.

The wireless business requires capital investment to build new cell sites and to
deploy  digital  and  other  advanced  service  capabilities.  Most of  SureWest
Wireless'  planned  cell site  construction  has been  completed,  but  SureWest
Wireless will seek to expand its capability to handle  wireless data services in
2004.

Certain  operations  of the Company are reliant  upon the  services  provided by
WorldCom,  Inc. ("WorldCom"),  which filed for bankruptcy protection on July 21,
2002,  but which is  expected  to emerge from  bankruptcy  in 2004.  If SureWest
Wireless is unable to procure the services it needs from Worldcom in the future,
it  expects  to  be  able  to  procure  services  from  other  telecommunication
providers, if necessary.

         Competition

The market for  wireless  services  is highly  competitive.  There are  numerous
facilities-based  wireless providers in the Sacramento market,  including all of
the major national providers,  and additional wireless resellers.  Most of these
competitors have a national presence, and therefore have the ability to leverage
national  advertising  budgets and name  recognition.  In addition,  many of the
competitors  have access to  additional  spectrum in the  geographic  markets in
which  SureWest  Wireless  competes.  In order for  SureWest  to succeed in this
geographic  market,  it has established a marketing niche, such as its unlimited
flat rate  service  package,  and it sought to leverage  the  SureWest  name and
reputation. However, competition is expected to remain intense.

         Regulation

Because of their use of  valuable  spectrum  resources,  wireless  services  are
subject to regulation. The construction,  operation,  management and transfer of
digital wireless systems in the United States are regulated by the FCC and CPUC.
However,  regulators  do not  interfere  with price  plans  offered to  wireless
customers.

On November 24, 2003,  the FCC  implemented  its mandate that wireless  carriers
provide for local number portability ("LNP"). LNP allows wireless subscribers to
keep their  wireless  phone  numbers  while  switching  to a different  wireless
service  provider.  In addition,  LNP allows a person to move a telephone number
associated with a wired telephone to a wireless  provider in the largest markets
in the United States,  including the Sacramento market. As of December 31, 2003,
SureWest  Wireless  experienced  a net  gain  of  wireless  customers  from  LNP
implementation.  At the same time, the Company's SureWest  Telephone  subsidiary
experienced  only an incidental  loss of local  telephone  customers to wireless
providers as a result of LNP implementation.

Significant Events

         Sale of Alarm Monitoring Division

In January 2002, the Company sold  substantially  all of the assets of its alarm
monitoring  division,  which  was  a  component  of  the  Telecom  segment,  for
approximately  $5,150.  This sale  resulted in a pre-tax  gain of $4,435  during
2002.  Through  December 31, 2003,  the Company has  received  cash  proceeds of
$4,995,  of which  $4,495  and $500 were  received  during  2002 and the  fourth
quarter  of 2001,  respectively,  related  to the sale of the  alarm  monitoring
division  assets.  The alarm monitoring  assets consisted  primarily of customer
contracts and equipment,  which had a book value of approximately $355 as of the
date of the sale. The purchaser of the assets commenced  litigation  against the
Company  relating to claims  under the asset  purchase  agreement,  generally in
connection with certain contracts  assigned to the purchaser.  In July 2003, the
Company and the purchaser  settled the litigation  and the parties  released all
claims in exchange for payment by the Company to the  purchaser  of $375,  which
was paid during 2003.  Total  operating  revenues  attributable to the Company's
alarm monitoring division during 2002 were $279 (none in 2003).



<PAGE>



          Acquisition of the Assets of Western Integrated Networks, LLC

On July 12,  2002,  the  Company  purchased  substantially  all of the assets of
Western Integrated Networks, LLC and certain affiliates (collectively, "WIN") in
a transaction  supervised by the United States Bankruptcy Court for the District
of Colorado. The assets of WIN acquired by the Company, consisted principally of
accounts  receivable  and property,  plant and  equipment  located in Sacramento
County,  California.  The purchase  price for the assets of WIN consisted of (i)
$12,000 in cash,  (ii) direct  acquisition  related costs of $622, and (iii) the
assumption of certain  liabilities  aggregating  $4,717 relating  principally to
executory contracts and capital lease obligations.  Under the terms of the asset
purchase agreement, $1,200 of the aggregate purchase price was held in an escrow
account to protect  the  Company  in the event of any  claims  available  to the
Company. On January 28, 2003, $150 was released to the Company,  and the balance
remains  in the  escrow  account.  The  Company  has  entered  into a  tentative
agreement  to resolve all  differences  in  connection  with the amounts held in
escrow, and the disputes that led to the establishment of the escrow,  which has
been  submitted to the  Bankruptcy  Court for  approval.  Under the terms of the
tentative  settlement  no  additional  funds will be paid by or  released to the
Company.

Factors That Could Affect Future Results

The Company  advises of numerous  risk factors that should be taken into account
in evaluating any investment in SureWest securities.  Representative examples of
these factors include (without limitation) the following:

     We expect to continue to face  significant  competition in all parts of our
     business  and the  level of  competition  is  expected  to  intensify.  The
     telecommunications  industry  is  highly  competitive.  We face  actual  or
     potential competition from many existing and emerging companies,  including
     other incumbent and competitive  local telephone  companies,  long-distance
     carriers and resellers,  wireless  telephone  companies,  Internet  service
     providers,  satellite companies and cable television companies.  We may not
     be able to  successfully  anticipate  and  respond to  various  competitive
     factors  affecting  the  industry,  including  regulatory  changes that may
     affect our competitors and us differently,  new  technologies  and services
     that may be introduced, changes in consumer preferences, demographic trends
     and discount pricing strategies by competitors. As the incumbent carrier in
     Sacramento,  SBC enjoys certain  business  advantages,  including its size,
     financial resources,  favorable regulatory position,  brand recognition and
     connection to virtually all of our customers and potential customers there.
     As the largest cable  operator in  Sacramento  and Placer  County,  Comcast
     enjoys  certain  business   advantages,   including  its  size,   financial
     resources,  ownership or superior  access to programming and other content,
     brand recognition,  and first-in-the-field  advantages with a customer base
     that  generates  positive  cash flow for its  operations.  We face  intense
     competition  in our markets for  long-distance,  Internet  access and other
     ancillary  services  that are  important  to our business and to our growth
     strategy.

     We must adapt to rapid  technological  change.  Technological  developments
     could increase our costs and cause a decline in demand for our services. In
     addition,   technology   changes  can  give  competitors   significant  new
     advantages.  If we do not replace or upgrade  technology and equipment that
     becomes obsolete,  we will be unable to compete effectively because we will
     not  be  able  to  meet  the  needs  or   expectations  of  our  customers.
     Additionally, replacing or upgrading our infrastructure in the future could
     result in significant capital expenditures.

     We are  subject to a complex and  uncertain  regulatory  environment.  Some
     parts  of our  business  are  extensively  regulated,  and  the  nature  of
     regulation continues to undergo fundamental change and reinterpretation.

     Our operations have undergone  material  changes,  and our actual operating
     results  can be  expected  to  differ  from the  results  indicated  in our
     historical financial  statements.  As a result of our acquisition of assets
     from WIN in 2002, our mix of operating assets differs from those operations
     upon which our historical financial statements are based. Consequently, our
     historical  financial  statements  may not be reliable as an  indicator  of
     future results.

     Our success depends upon our ability to manage our growth and expansion. If
     our acquisitions and growth initiatives are not successful, we could suffer
     an adverse  effect on our  business and results of  operations.  Our growth
     strategy will require us to invest significant capital in services that may
     not achieve the desired returns.  Our future success depends, in part, upon
     our ability to manage our growth,  including  our ability to build  network
     and related facilities to serve new customers,  integrate our operations to
     take advantage of new capabilities and systems;  attract and retain skilled
     personnel across the Company,  effectively manage the demands of day to day
     operations in new areas while attempting to execute our business  strategy,
     and realize the projected  growth and revenue targets  developed by Company
     management.

     We have more indebtedness now than at December 31, 2002. In March 2003, the
     Company  completed  a note  purchase  agreement  for  the  issuance  of its
     unsecured  Series  B Senior  Notes  ("Series  B  Notes")  in the  aggregate
     principal  amount of $60,000.  The Series B Notes have a final  maturity of
     ten  years  and an  average  life  of  eight  years.  Interest  is  payable
     semi-annually at a fixed rate of 4.74%. Principal payments are due in equal
     annual installments of $12,000 commencing in March 2009 and ending in March
     2013.  The Company used a portion of the proceeds  from the issuance of the
     Series  B Notes to  retire  certain  short-term  borrowings,  which  had an
     aggregate  outstanding principal balance of $15,000. A substantial intended
     use of the Series B Notes  proceeds was and  continues to be the funding of
     capital  expenditures  for  the  Company's  SureWest  Broadband/Residential
     Services business.

     We are reliant on support funds  provided  under federal and state laws. We
     receive  revenues from various  federal or state support  funds:  long term
     support from the Universal Service Program, California High Cost Fund-B and
     Universal Lifeline Service Fund. These  governmental  programs are reviewed
     and amended from time to time, and are likely to change in the near future.
     The outcome and impact on the Company's  operations  resulting  from future
     changes to these governmental programs cannot be determined at this time.

     We could be harmed  by the  recent  adverse  developments  affecting  other
     communications  companies.  There have been numerous bankruptcies and other
     financial  difficulties  experienced by other carriers and suppliers in the
     telecommunications  and  Internet  sectors.  Similar  situations  with  our
     suppliers,  some of whom provide  products and services for which there are
     few substitutes, could cause us to experience delays, service interruptions
     or additional expenses.

     We depend on third  parties,  over whom we have no control,  to deliver our
     services.  Because of the interconnected  nature of the  telecommunications
     industry,   we  depend   heavily  on  other  local   telephone   companies,
     long-distance  carriers,  and numerous  other third  parties to deliver our
     services.  In addition,  we are  dependent  on  easements,  franchises  and
     licenses  from  various  private  parties  such  as  established  telephone
     companies and other utilities,  railroads,  long-distance companies,  state
     highway  authorities,  local governments and transit authorities for access
     to aerial pole space, underground conduits and other rights-of-way in order
     to construct  and operate our  networks.  The failure to maintain in effect
     the necessary third party  arrangements  on acceptable  terms would have an
     adverse effect on our ability to conduct our business.

     If we are unable to  effectively  and  efficiently  implement the necessary
     initiatives to eliminate the material weaknesses identified in our internal
     controls and procedures, there could be an adverse affect on our operations
     or financial results.  Our auditors,  Ernst & Young LLP, in connection with
     the audit of the Company's  consolidated  financial statements for the year
     ended  December 31, 2003,  advised us that they had concluded that material
     weaknesses  in the  Company's  internal  control  existed,  including  with
     respect  to  issues  identified  as a  result  of a  special  investigation
     instituted by the Audit Committee. The specific matters identified by Ernst
     &  Young  LLP  encompassed  (i)  control  of  cash  and  investments,  (ii)
     accounting  personnel,  policies and  procedures  and (iii)  accounting for
     property,   plant  and  equipment.   We  performed  substantial  additional
     procedures  designed to ensure that the internal  control  deficiencies did
     not  lead  to  material   misstatements  in  our   consolidated   financial
     statements.

     We have  already  implemented  various  initiatives,  and  are  considering
     additional  initiatives to improve our internal  controls,  and address the
     matters  identified  by  Ernst  &  Young  LLP.  The  implementation  of the
     initiatives and the consideration of additional necessary  improvements are
     among our highest priorities.  The Board of Directors,  under the direction
     of the  Audit  Committee,  will  continually  assess  the  progress  of the
     initiatives  and the  improvements,  and take  further  actions  as  deemed
     necessary.  Until all of the identified material weaknesses are eliminated,
     there  is a risk  of an  adverse  affect  on our  operations  or  financial
     results.  In addition,  we anticipate that the initiatives will require the
     hiring of additional  employees and the  incurrence of fees and expenses of
     third parties necessary to improve the internal controls,  likely resulting
     in increased operating expenses.

Available Information

The  Company's  Annual  Report on Form  10-K,  Quarterly  Reports  on Form 10-Q,
Current Reports on Form 8-K and amendments to reports filed pursuant to Sections
13(a)  and  15(d) of the  Securities  Exchange  Act of  1934,  as  amended,  are
available  on our website at  www.surewest.com/corporate/ir/,  when such reports
are available on the Securities and Exchange Commission website. Copies are also
available free of charge upon request to SureWest Communications,  P.O. Box 969,
Roseville, CA 95678, Attn: Investor Relations Manager.






<PAGE>



Item 2. Properties.

The  Company  owns and  leases  office  facilities  and  related  equipment  for
executive headquarters,  administrative personnel, central office buildings, and
operations in Roseville,  Citrus  Heights,  Granite Bay, and other  locations in
Sacramento and Placer Counties. The Company's executive headquarters,  principal
business and administrative  office, and operations facility,  which are located
in  Roseville,  consist of 262,657  square  feet.  The Company  leases a 233,167
square foot facility in McClellan Park (Sacramento County), which is used by all
of its segments. The Company has appropriate easements,  rights of way and other
arrangements  for the  accommodation  of its pole lines,  underground  conduits,
aerial and underground  cables and wires, and wireless towers and antennas.  See
Note 10 in the Notes to  Consolidated  Financial  Statements for information and
"Item 7 -  Management's  Discussion  and  Analysis of  Financial  Condition  and
Results of Operations" regarding the Company's lease obligations.

In addition to land and structures, the Company's property consists of equipment
necessary for the provision of  communication  services.  This includes  central
office  equipment,  customer  premises  equipment  and  connections,  radio  and
wireless antennas, towers, pole lines, video head-end, remote terminals,  aerial
and underground  cable and wire  facilities,  vehicles,  furniture and fixtures,
computers   and  other   equipment.   The  Company  also  owns   certain   other
communications equipment held as inventory for sale or lease.

In addition to plant and equipment  that it  wholly-owns,  the Company  utilizes
poles,  towers and cable and conduit systems  jointly-owned with other entities,
and leases space on  facilities to other  entities.  These  arrangements  are in
accordance with written agreements customary in the industry.

Item 3. Legal Proceedings. (Dollars in thousands)

Except for the  proceedings  described  below,  the  Company is not aware of any
material  pending  legal  proceedings,  other than ordinary  routine  litigation
incidental  to its  business,  to which  it is a party  or to  which  any of its
property is subject.

         Regulatory Matters

As indicated in Item 1 above, SureWest Telephone is subject to regulation by the
FCC and CPUC.  In the past,  there have been  various  proceedings  before these
agencies to which SureWest Telephone has been a party. Reference is made to Item
1 for further  information  regarding the nature of the  jurisdiction of the FCC
and CPUC over the business and operations of SureWest Telephone.

In 1996,  the CPUC issued a decision in  connection  with  SureWest  Telephone's
general rate proceeding,  which authorized SureWest Telephone to implement a New
Regulatory  Framework ("NRF") for services furnished within SureWest Telephone's
service  area in order to  accommodate  market and  regulatory  movement  toward
competition and greater pricing  flexibility.  Under the NRF, SureWest Telephone
is subject to ongoing monitoring and reporting requirements, including a sharing
mechanism  whereby  SureWest  Telephone  is  required  to  share  earnings  with
customers  through a reduction of revenues if its earned  annual  rate-of-return
exceeds that authorized by the CPUC.

In accordance  with the  requirements  of its general rate case order,  SureWest
Telephone filed an application for review of its NRF in 1999. In connection with
this proceeding,  the CPUC's Office of Ratepayer  Advocates  ("ORA") undertook a
verification  audit  of  SureWest   Telephone's   non-regulated  and  affiliated
transactions  pursuant to the general rate case and other CPUC  orders.  In June
2001,  the CPUC  adopted  its  decision in this  matter  (the  "Decision").  The
Decision  did not suspend  the  sharing  mechanism  as  SureWest  Telephone  had
requested,  and further provided that SureWest  Telephone must change the method
used to  allocate  costs for  services  provided by  SureWest  Telephone  to its
affiliates,  the  treatment of certain  directory  revenues and the treatment of
internal-use software costs. Additionally,  in accordance with the provisions of
the  Decision,  the Company  recorded  certain  liabilities  and  reductions  of
revenues relating to estimated intrastate shareable earnings obligations. On May
2, 2002,  SureWest  Telephone filed a petition for  modification of D. 01-06-077
requesting  that the  Commission  modify the sharing  mechanism to eliminate the
requirement  that fifty percent of  Roseville's  earnings  between the benchmark
rate of return  and the  ceiling  rate of return  (known as the  "50/50  sharing
band") be returned to ratepayers.  Evidentiary  hearings on the pending petition
for   modification   are  scheduled  for  mid-2004  and  a  draft  decision  for
consideration by the CPUC is scheduled for August 2004.

Prior to January 1, 2002,  SureWest  Telephone  billed SBC  various  charges for
certain local service and network  access  service  revenues in accordance  with
certain  agreements as described  below. Of the Company's total revenues for the
years ended December 31, 2002 and 2001,  less than 10% were recorded under these
agreements in each period.  In 1999, SBC expressed  interest in withdrawing from
the designated carrier plan ("DCP") for SureWest  Telephone's toll traffic.  The
DCP  was a  compensation  arrangement  between  SureWest  Telephone  and SBC for
certain intrastate toll services. SureWest Telephone and SBC agreed to allow the
DCP  arrangement to expire in December 2001. The  termination of the DCP did not
have a material impact on the Company's  consolidated  financial  position as of
December 31, 2002 or results of operations for the year then ended.

In  1999,  SBC  also  expressed  interest  in  entering  into a  new,  permanent
compensation  arrangement for extended area service  ("EAS").  At that time, SBC
had been  paying  SureWest  Telephone  $11,500  per year for EAS  pursuant  to a
Settlement  Transition  Agreement.  In November 2000, the CPUC authorized SBC to
terminate its annual EAS payments to SureWest  Telephone  effective November 30,
2000.  The CPUC  authorized  replacement  funding to  SureWest  Telephone  on an
interim  basis  using  funds from the  California  High Cost Fund  ("CHCF").  In
addition,  the CPUC opened an Order  Instituting  Investigation  ("OII") for the
purpose of determining whether future recovery of all, none, or a portion of the
$11,500 annual payments  previously  received from SBC should come from SureWest
Telephone's ratepayers or other regulatory recovery mechanisms.  This proceeding
began in 2001,  evidentiary  hearings  were held during  2002,  and briefing was
completed in February 2003. In this  proceeding,  the ORA  recommended  that the
CPUC discontinue  SureWest Telephone's present interim EAS funding from the CHCF
without replacement revenues from ratepayers. The CPUC's decision in this matter
is expected  during 2004.  The CPUC has made no  indication  as to what, if any,
changes  will be  forthcoming  relating  to EAS  revenues.  The results of these
proceedings  and their  potential  effects on SureWest  Telephone  cannot yet be
determined.

SureWest Telephone's  operations may also be impacted by the  Telecommunications
Act  of  1996  (the  "Act").  The  Act  significantly   changed  the  regulatory
environment  for  telecommunications  companies.  Beginning  in  1996,  the  FCC
conducted  proceedings and adopted orders  implementing  the Act's provisions to
open local exchange service markets,  such as the market of SureWest  Telephone,
to competition.  These  proceedings and orders address  interconnection,  access
charges and universal service.

Given the ongoing  activities of the FCC to promulgate  rules and regulations on
interconnection,  access charges,  and universal service reform, and the various
on-going legal  challenges  considering the validity of these FCC orders,  it is
not yet  possible  to  determine  fully the  impact of the Act and  related  FCC
regulations on SureWest Telephone's operations.

There are a number of other regulatory  proceedings occurring at the federal and
state  levels  that may have a  material  impact on  SureWest  Telephone.  These
regulatory proceedings include, but are not limited to, consideration of changes
to the interstate universal service fund,  intercarrier  compensation (including
access  charges)  reform and the  regulation  of local  exchange  carriers,  and
regulation  of  IP-enabled  services.   The  outcomes  and  impact  on  SureWest
Telephone's  operations of these proceedings and related court matters cannot be
determined at this time.

The regulatory  proceedings  occurring at the state and federal levels described
above may also broaden the scope of  competition  in the  provision of regulated
services  and  change  the  rates  and rate  structure  for  regulated  services
furnished  by SureWest  Telephone,  the  effects of which on SureWest  Telephone
cannot yet be determined.

         Corporate Treasury Investigation

On January 14, 2004,  the Company  announced  that the results of a  preliminary
investigation,  triggered  by the  December  17,  2003  resignation  of a Senior
Treasury  Analyst  in the  Company's  Corporate  Finance  Department,  indicated
irregularities  in the Company's cash management and investment  functions,  and
that approximately $2,000 of the Company's funds were outstanding without proper
documentation. The Audit Committee of the Company's Board of Directors commenced
a formal  internal  investigation  and  retained  independent  legal  counsel to
conduct the inquiry  with the  assistance  of forensic  accountants.  In January
2004,  the  Federal  Bureau  of  Investigation  also  began its own probe of the
matter,  culminating  with the  February  5, 2004  arrest of the former  Company
employee,  the father of the former  employee,  and a business  associate of the
former  employee's  father,  and the  subsequent  return of  federal  grand jury
indictments  against the three individuals.  In early February 2004, the Company
announced that its  investigation  suggested that $25,000 of the Company's funds
were involved in the scheme, and that approximately $23,000 had been restored to
the Company by the time of the former employee's resignation.

On February 9, 2004,  the company  initiated  civil  litigation in Placer County
Superior Court,  seeking to recover $2,000 and other costs from five individuals
and a private company in connection with the fraudulent  scheme.  The defendants
include the three  individuals who are the subjects of the federal  indictments,
together  with  a  partnership  believed  to be  controlled  by  certain  of the
individual defendants.

In February  2004,  the Company  also filed a fidelity  claim with it  insurance
carrier  to  recover  the  missing  funds,  and has  subsequently  met  with the
insurance   carrier's   representatives,   and  will  be  providing   additional
information as requested by the carrier and its representatives.

The Company's  independent  legal  counsel,  with the assistance of the forensic
accountants,  undertook an extensive  process to (i)  investigate  the facts and
circumstances  giving rise to the  misappropriation  of the Company funds,  (ii)
determine whether there were any similar or other related transactions,  and any
Company employees involved in the previously-identified  transactions other than
those  known to the  Company at the  commencement  of the  investigation,  (iii)
determine the underlying  mechanics in the origination of the  transactions  and
the  circumstances  under which  detection  failed to occur,  and (iv)  evaluate
internal controls relating to the affected portion of the Company's business.

The Audit  Committee of the Board of Directors  has been advised by  independent
legal counsel that:

     o    All of the  unauthorized  transactions  occurred in 2003 and  remained
          undetected until December 2003;

     o    The unauthorized transactions were actively concealed by the Company's
          former employee in the Company's books and records; and

     o    Independent   legal   counsel  did  not  uncover  any  other   similar
          transactions   nor  any  evidence  that  any  other  Company  employee
          intentionally participated in the unauthorized transactions.

The  Company,  beginning  in early  January  2004,  has  already  developed  and
implemented  a  number  of  internal  controls  in  response  to the  facts  and
circumstances then known. The Board of Directors is considering  further actions
in response to the investigation, and reference is made to "Item 9A-Controls and
Procedures" for further information.

The Company has engaged in informal  discussion with the Securities and Exchange
Commission  (the  "SEC"),  which has been in  possession  of certain  background
information,  regarding the facts and  circumstances of the  unauthorized  funds
transfers.  The  Company  has  provided  supplemental  information  to  the  SEC
regarding the results of the investigation, including with respect to the report
by independent legal counsel to the Audit Committee,  and anticipates it will be
providing additional information in response to further requests.



<PAGE>




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

No  matters  were  submitted  to a vote of  security  holders  during the fourth
quarter of 2003.


<PAGE>



                      EXECUTIVE OFFICERS OF THE REGISTRANT

The names,  ages and positions of the executive  officers of the Company and its
subsidiaries as of March 1, 2004 are as follows:
<TABLE>
<CAPTION>

                 Name                   Age   Positions and Offices
        <S>                             <C>    <C>
  Kirk C. Doyle                         50    Chairman of the Board of Directors (since 2003)

  Brian H. Strom                        61    President and Chief Executive Officer (since 1993)

  Michael D. Campbell                   55    Executive Vice President (since 1996), Chief Financial Officer (since
                                              1994) and Treasurer (since 2000)

  Fred A. Arcuri                        51    Senior Vice President and Chief Operating Officer - SureWest Broadband
                                              (since 2001)

  Robert M. Burger                      47    Senior Vice President and Chief Operating Officer - SureWest Wireless
                                              (since 2000)

  Jay B. Kinder                         59    Senior Vice President and Chief Operating Officer - SureWest Telephone
                                              and SureWest Directories (since 2000)

  Scott K. Barber                       43    Vice President, Network Operations - SureWest Telephone (since 2003)

  Bill M. DeMuth                        54    Vice President and Chief Technology Officer (since 2000)

  Peter C. Drozdoff                     48    Vice President, Marketing (since 2002)

  Philip D. Germond                     54    Vice President, Customer Operations - SureWest Telephone and SureWest
                                              Long Distance (since 2002)

  Barbara J. Nussbaum                   54    Vice President, Administration (since 2002)

  Darla J. Yetter                       43    Secretary (since 2003)

  Laurel R. Dismukes                    56    Assistant Secretary (since 2003)

  Martin T. McCue                       53    Assistant Secretary (since 2003)

</TABLE>



<PAGE>



                                     PART II

Item 5. Market for Registrant's  Common Equity,  Related Stockholder Matters and
        Issuer Purchases of Equity Securities.

The Company's  common stock is traded on the Nasdaq National  Market  ("NASDAQ")
under the symbol "SURW". As of March 22, 2004, there were  approximately  10,300
beneficial  owners of Company common stock.  The following  table  indicates the
range of stock closing  prices of the Company's  common stock as reported on the
NASDAQ, for each of the quarters indicated:
<TABLE>
<CAPTION>
                                                 NASDAQ National Market
                                           ----------------------------------
                                              High                   Low
                                           -------------        -------------
<S>                                            <C>                   <C>
March 31, 2002                               $56.59                 $48.08
June 30, 2002                                $57.25                 $42.00
September 30, 2002                           $53.80                 $29.03
December 31, 2002                            $40.99                 $21.45
March 31, 2003                               $38.98                 $22.66
June 30, 2003                                $32.59                 $26.43
September 30, 2003                           $39.99                 $29.44
December 31, 2003                            $41.05                 $37.20

</TABLE>
The Company paid cash  dividends on its common stock of $0.25 per share for each
quarter of 2003 and 2002.

During the year ended  December 31, 2003,  no equity  securities  of the Company
were sold by the Company which were not  registered  under the Securities Act of
1933, as amended.

         Equity Compensation Plan Information

Information  regarding the Company's equity  compensation  plans is incorporated
herein by  reference  from the proxy  statement  for the  annual  meeting of the
Company's  shareholders,  to be filed pursuant to Regulation 14A within 120 days
after the Company's fiscal year-end of December 31, 2003.

Item 6.  Selected Financial Data
<TABLE>
<CAPTION>

                                           2003             2002             2001           2000            1999

                                                     (Amounts in thousands, except per share amounts)
<S>                                             <C>             <C>              <C>             <C>            <C>
Total operating revenues (1)              $  195,337      $  185,955        $  163,485     $   143,194     $  140,801

Gain on sale of investment in
  cellular partnership (2)                $        -      $        -        $        -     $   201,294     $        -
Net income                                $      645      $   11,249        $   10,317     $   125,793     $   31,750

Basic earnings per share (3)              $     0.04      $     0.76        $     0.67     $      8.06     $     2.01
Diluted earnings per share (3)            $     0.04      $     0.76        $     0.67     $      8.05     $     2.01

Extraordinary loss, net of tax (4)        $        -      $        -        $        -     $   (10,932)    $        -

Cumulative effect of change in
  accounting principle, net of
  tax (5)                                 $        -      $        -        $        -     $    (3,273)    $        -
</TABLE>



<PAGE>
<TABLE>
<CAPTION>

                                              2003             2002             2001            2000           1999
                                                        (Amounts in thousands, except per share amounts)
<S>                                              <C>            <C>             <C>              <C>            <C>
Extraordinary loss, net of tax, per
  share (basic and diluted)               $        -      $        -       $         -      $     (0.70)  $         -

Cumulative effect of change in
  accounting principle, net of tax,
  per share, (basic and diluted)          $        -      $        -       $         -      $     (0.21)  $         -

Pro forma amounts assuming the accounting change is applied retroactively:
  Income before extraordinary loss and
     cumulative effect of change in
     accounting principle                 $      645      $   11,249       $    10,317      $  139,998    $    31,926

  Net income                              $      645      $   11,249       $    10,317      $  129,066    $    31,926

  Basic per share amounts:
   Income before extraordinary loss
     and cumulative effect of change
     in accounting principle              $     0.04      $     0.76       $      0.67      $     8.97    $      2.02

  Net income                              $     0.04      $     0.76       $      0.67      $     8.27    $      2.02

  Diluted per share amounts:
   Income before extraordinary loss
     and cumulative effect of change
     in accounting principle              $     0.04      $     0.76       $      0.67      $     8.96    $      2.02

  Net income                              $     0.04      $     0.76       $      0.67      $     8.26    $      2.02

Cash dividends per share(6)               $     1.00      $     1.00       $      1.00      $     1.00    $      1.00

Property, plant and equipment, at cost    $  646,740      $  576,579       $   524,505      $  469,389    $   383,896
Total assets                              $  435,209      $  396,516       $   412,343      $  528,942    $   333,187
Long-term obligations                     $   93,135      $   52,252       $    42,142      $   44,285    $    46,428

Shares of common stock used to calculate:
     Basic earnings per share(3)              14,522          14,728            15,326          15,610         15,815
     Diluted earnings per share(3)            14,539          14,795            15,387          15,630         15,822

</TABLE>

(1)  The  Company's  2000 and 1999  consolidated  operating  revenues  have been
     adjusted  to  eliminate  certain   intercompany   balances  that  were  not
     previously  eliminated.  However,  such  adjustments  had no  effect on the
     Company's consolidated net income for such years.

(2)  On  November  3,  2000,  two  of  the  Company's  subsidiaries  sold  their
     collective 24% cellular partnership  interest in Sacramento-Valley  Limited
     Partnership to Verizon Wireless for approximately $236,150,  resulting in a
     pre-tax gain of $201,294.

(3)  Shares used in the computation of basic earnings per share are based on the
     weighted average number of common shares  outstanding,  excluding  unvested
     restricted  common  shares.  Shares  used  in the  computation  of  diluted
     earnings per share are based on the weighted  average  number of common and
     other potentially dilutive securities outstanding in each period.

(4)  In December 2000, the Company  recognized an extraordinary  loss due to the
     discontinuation  of  accounting  under  SFAS No.  71,  "Accounting  for the
     Effects  of  Certain  Types  of  Regulation."   The  Company   recorded  an
     extraordinary  non-cash  charge of  $10,932,  which is net of  related  tax
     benefits of $7,631.

(5)  The Company  changed its method of  accounting,  retroactive  to January 1,
     2000,  for  up-front  fees  associated  with   telecommunications   service
     activation in accordance with Staff  Accounting  Bulletin  ("SAB") No. 101.
     The cumulative  effect of the change in prior years resulted in a charge to
     2000 net income of $3,273 (net of income taxes of $2,250).

(6)  Cash  dividends per share are based on the actual  dividends per share,  as
     declared by the Company's Board of Directors.


<PAGE>



Item 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

 (Amounts in thousands, except selected operating metrics and per share amounts)

Certain  information  included  in the  Company's  annual  report on Form  10-K,
including  that  which  relates  to the  impact on future  revenue  sources  and
potential sharing obligations of pending and future regulatory orders, continued
expansion of the telecommunications  network and expected changes in the sources
of the Company's revenue and its cost structure resulting from its entrance into
new communications markets, are forward looking statements and are made pursuant
to the safe harbor  provisions of the Securities  Litigation Reform Act of 1995.
Such forward  looking  statements are subject to a number of risks,  assumptions
and  uncertainties  that could cause the Company's actual results to differ from
those projected in such forward looking statements.

Important factors that could cause actual results to differ from those set forth
in the forward looking statements  include,  but are not limited to: advances in
telecommunications  technology,  changes  in the  telecommunications  regulatory
environment,  changes in the  financial  stability  of other  telecommunications
providers who are customers of the Company, changes in competition in markets in
which the  Company  operates,  adverse  circumstances  affecting  the economy in
California in general,  and in the Sacramento,  California  Metropolitan area in
particular,  the  availability  of future  financing,  changes in the demand for
services and products,  new product and service  development and  introductions,
pending and future  litigation,  internal control  weaknesses and  unanticipated
changes  in the  growth of the  Company's  emerging  businesses,  including  the
wireless,  Internet,  digital  video  and  Competitive  Local  Exchange  Carrier
operating entities.

                               Corporate Structure

SureWest  Communications  (the "Company") is a holding company with wholly-owned
subsidiaries  operating in the  Telecommunications  ("Telecom"),  Broadband  and
Wireless segments.  Prior to 2003, the Company reported its operating results in
two  segments - Telecom and  Wireless.  Beginning  in 2003,  the  Company  began
reporting its operations in segments as previously  defined.  The Company's 2002
and 2001  business  segment  information  has been  restated  to  conform to the
Company's organizational structure change in 2003.

The Telecom segment  includes  SureWest  Telephone  (formerly known as Roseville
Telephone Company),  SureWest Directories,  and SureWest Long Distance (formerly
known  as   Roseville   Long   Distance   Company),   which   provide   landline
telecommunications  services,  directory  advertising,  Digital  Subscriber Line
("DSL")  service,  long distance  services and certain  non-regulated  services.
SureWest Telephone,  which is the principal operating  subsidiary of the Telecom
segment,  provides local and toll telephone  services,  network access services,
billing and collection services,  and certain non-regulated  services.  SureWest
Directories publishes and distributes SureWest Telephone's directory,  including
the sale of yellow pages  advertising.  SureWest  Directories is also engaged in
the business of producing,  publishing  and  distributing  directories  in other
Northern California  communities outside of SureWest  Telephone's service areas.
SureWest Long Distance is a reseller of long distance services.

The Broadband  segment  provides  various  services  including:  high-speed  and
dial-up Internet,  digital video,  local and network access,  toll telephone and
managed  services in the  greater  Sacramento  area,  principally  to  customers
residing  outside of SureWest  Telephone's  service  area.  The  Company  offers
high-speed Internet,  digital video and local and long distance phone service as
a bundled package referred to as Triple Play. The Broadband segment includes the
Company's  subsidiaries  SureWest  Broadband and SureWest  Broadband/Residential
Services.  On July 12,  2002,  the Company  purchased  substantially  all of the
assets of Western Integrated  Networks,  LLC, and certain affiliates to commence
the SureWest  Broadband/Residential Services business. For further discussion of
the  acquisition  of the assets see  "Segment  Results of  Operations-Broadband"
below.  SureWest  Broadband  is  comprised,  in part,  of a division of SureWest
Telephone  operating as a Competitive Local Exchange Carrier.  In December 2003,
SureWest Broadband/Residential Services began offering digital video services to
customers inside SureWest Telephone's service area.


<PAGE>



The Wireless segment  consists of the Company's  subsidiary  SureWest  Wireless,
which provides  wireless  personal  communication  services.  SureWest  Wireless
derives its revenue from the  provision  of wireless  voice  services,  sales of
handsets and related  accessories,  long distance,  handset  insurance,  roaming
service  and custom  calling  features.  Wireless  services  are  provided  on a
month-to-month  basis and are  generally  billed  in  advance  for  non-contract
subscribers and in arrears for contract subscribers.

The Company's  shareholders  have  previously  approved a proposal to change the
Company's state of incorporation from California to Delaware.  In addition,  the
shareholders  approved an increase of the Company's authorized common stock from
100  million  shares to 200  million  shares  with a par value of $0.01 and also
authorized 10 million shares of preferred  stock with a par value of $0.01.  The
date on  which  the  Company  will  reincorporate  is at the  discretion  of the
Company's Board of Directors.

Effective  October  27,  2003,  the Company  changed the names of the  remaining
subsidiaries  that did not bear the  SureWest  name.  The name  change  effected
Roseville Telephone Company, now SureWest Telephone, and Roseville Long Distance
Company, now SureWest Long Distance.

The Company  expects that the sources of its revenues and its cost structure may
be  different  in  future  periods,  both as a  result  of its  entry  into  new
communications  markets and  competitive  forces in each of the markets in which
the Company has operations.

                               Revenue Recognition

The Company  recognizes  revenue when (i) persuasive  evidence of an arrangement
between the Company and the customer exists, (ii) delivery of the product to the
customer has occurred or service has been  provided to the  customer,  (iii) the
price to the customer is fixed or determinable  and (iv)  collectibility  of the
sales  price  is  reasonably  assured.  Revenues  based on a flat  fee,  derived
principally from local telephone, dedicated network access, data communications,
Internet access service, residential/business broadband service and non-contract
wireless  services,  are billed in advance and recognized in subsequent  periods
when the  services  are  provided.  Contract  wireless  services  are  billed in
arrears. Revenues based on usage, derived primarily from network access, roaming
and long distance  services,  are  recognized  monthly as services are provided.
Incremental direct costs of telecommunications service activation are charged to
expense in the period in which they are incurred.

Directory  advertising revenues and costs related to publishing and distributing
directories are recognized  using the "circulation  period" method,  under which
revenues and related costs are recognized  ratably over the expected useful life
of the directory, generally one year from the date of publication. For all other
operations,  revenue is  recognized  when products are delivered or services are
rendered to customers.

Effective  July 1, 2003,  the Company began  applying the  Financial  Accounting
Standards  Board's ("FASB")  Emerging Issues Task Force ("EITF") Issue No. 00-21
to all wireless handset sales below cost, which  approximates  fair value in the
absence of an activation "subsidy," when it receives an up-front fee of any kind
(e.g.,  a service  activation  fee).  The  application  of EITF Issue No.  00-21
resulted in the immediate  recognition of all or a portion of such up-front fees
as equipment sales revenue.  Additionally,  when the Company activates  wireless
service for a customer,  but does not  concurrently  provide the customer with a
handset,  any up-front fees received  continue to be deferred and amortized over
the expected term of the customer  relationship.  The Company provides a general
right of return  within  the first 30 days of service  for a 100%  refund of the
handset cost. The estimated  equipment  return  allowance  associated  with this
right of return is estimated  based on  historical  experience.  The adoption of
EITF  Issue No.  00-21 did not have a  material  impact  on the  Company's  2003
consolidated financial statements.



<PAGE>



               Treasury Investigation and Internal Control Matters

In January 2004, the Audit Committee of the Board of Directors launched a formal
investigation   and   retained   independent   legal   counsel  to  conduct  the
investigation  with the assistance of forensic  accountants.  The  investigation
resulted from a preliminary  investigation by Company  management,  triggered by
the  abrupt  resignation  in  December  2003  of an  employee  in the  Company's
Corporate Finance Department.  The investigation indicated irregularities by the
former employee in the Company's cash management and investment  functions,  and
violations of the Company's investment policies. At the time of the commencement
of the  special  investigation,  approximately  $2,000  of  Company  funds  were
outstanding without proper documentation, and such funds remain outstanding, and
have been reflected as a non-operating  loss in the Company's 2003  consolidated
financial statements.

The independent legal counsel,  with the assistance of the forensic accountants,
undertook an extensive  process to (i) investigate  the facts and  circumstances
giving rise to the  misappropriation  of Company funds,  (ii) determine  whether
there were any  similar  or  related  transactions,  and any  Company  employees
involved in the previously-identified transactions other than those known to the
Company at the commencement of the investigation, (iii) determine the underlying
mechanics in the origination of the  transactions  and the  circumstances  under
which detection failed to occur and (iv) evaluate  internal controls relating to
the affected portion of the Company's business.

The Audit Committee of the Board of Directors has been advised by independent
legal counsel that:

     o    All of the  unauthorized  transactions  occurred in 2003 and  remained
          undetected until December 2003;

     o    The unauthorized transactions were actively concealed by the Company's
          former employee in the Company's books and records; and

     o    Independent   legal   counsel  did  not  uncover  any  other   similar
          transactions  nor  any  evidence  that  any  other  Company  employees
          intentionally participated in the unauthorized transactions.

The independent  legal counsel further reported to the Audit Committee,  (i) its
view that  existing  Company  control  procedures  prior to the discovery of the
unauthorized  transactions were either circumvented or ignored,  and the control
procedures  existing  at the  time of the  unauthorized  transactions  were  not
adequate, and (ii) the Company,  subsequent to the discovery of the unauthorized
transactions,  had developed and implemented a number of key internal  controls.
In  addition,   the  independent  legal  counsel  provided   additional  control
recommendations to the Audit Committee for review and consideration.

In connection with the audit of the Company's  consolidated financial statements
for  the  year  ended  December  31,  2003,  Ernst & Young  LLP,  the  Company's
independent  auditors,  advised the Company that it had concluded  that material
weaknesses in the Company's internal control existed,  including with respect to
certain of the issues  identified as a result of the Audit  Committee's  special
investigation.  The  Company has  performed  substantial  additional  procedures
designed  to  ensure  that the  internal  control  deficiencies  did not lead to
material misstatements in its consolidated financial statements, notwithstanding
the presence of the noted internal control weaknesses.

Both before and after  December  31,  2003,  the Company  instituted  additional
processes  and  procedures  to  improve  internal  control.  Subsequent  to  the
discovery of the unauthorized wire transactions in 2003, the Company implemented
a number of internal controls with respect to banking and investment activities.



<PAGE>



The Audit  Committee  has made a number  of  additional  recommendations  to the
Company's  Board of Directors for further  review and  consideration,  which the
Company  believes  will be  formally  acted upon  beginning  early in the second
quarter of 2004, and thereafter. Such initiatives relate to:

     o    An assessment to be conducted with respect to the Company's  Corporate
          Finance  Department,  which  encompasses the Company's  accounting and
          finance personnel,  including  specifically  relating to the number of
          personnel,  and  the  collective  mix  and  technical  skills  of such
          personnel, and the addition of new personnel if necessary;

     o    An  internal  audit  process,  with  tasks to be  performed  either by
          Company  personnel  or a third  party,  with  reporting  duties to the
          Chairman of the Company's Audit Committee;

     o    A more significant  effort devoted to internal  controls  training for
          all affected personnel, and an increased emphasis on the completion of
          internal controls documentation,  including as required by Section 404
          of the Sarbanes-Oxley Act of 2002 (including the possible retention of
          a third-party to assist in performing  internal control reviews of all
          of the Company's  accounting systems,  and to assist in expediting the
          completion of the internal controls documentation); and

     o    The preparation and implementation of a formal accounting policies and
          procedures manual or electronic  database to serve as a reference tool
          for Company  personnel  and to establish  uniformity  and  consistency
          throughout the Company.

The Company has previously taken actions that it believes have improved internal
controls, including:

     o    The  establishment of a Disclosure  Committee  comprised of Management
          personnel  and  senior  representatives  of  the  Company's  Corporate
          Finance  Department,  which  undertakes  reviews prior to  significant
          filings with the Securities and Exchange Commission;

     o    The modification of written ethics and compliance  materials  provided
          to Company employees,  and the formal adoption of a Code of Ethics and
          Business  Conduct,  and  the  related  establishment  of  confidential
          procedures which permit Company  employees to communicate  anonymously
          in the event of  suspected  violations  of laws or  Company  standards
          (together  with  upcoming  mandatory  classes in 2004 for all  Company
          employees to review the Code of Ethics and Business Conduct); and

     o    The  implementation  in 2003 of new enterprise  resource  planning and
          accounting  software,  which likely assisted in identifying certain of
          the accounting  deficiencies  noted above relating to property,  plant
          and equipment. (The Company in 2004 also anticipates improving modules
          in its new software and undertaking revised physical  verification and
          other  procedures to improve its  accounting  for property,  plant and
          equipment).

The Company has filed an  insurance  claim to recover the missing  funds and has
filed a civil  lawsuit  seeking  to  recover  $2,000  and other  costs from five
individuals  and a private  company  allegedly  associated  with the  fraudulent
scheme to  illegally  transfer  the  Company's  funds to outside  accounts.  The
Company  will  recognize a recovery of funds in future  periods to the extent of
its insurance and litigation recoveries.

The Company has engaged in informal  discussion with the Securities and Exchange
Commission,  which has been in  possession  of certain  background  information,
regarding the facts and circumstances of the unauthorized  funds transfers.  The
Company has provided  supplemental  information  to the  Securities and Exchange
Commission regarding the results of the investigation, including with respect to
the report by independent legal counsel to the Audit Committee,  and anticipates
it will be providing additional information in response to further requests.



<PAGE>



                              Results of Operations

Consolidated Overview

The tables below reflect certain  financial data (on a consolidated  and segment
basis) and selected  operating metrics for each reportable segment as of and for
the years ended  December 31, 2003,  2002 and 2001.  Both the financial data and
the selected  operating  metrics  demonstrate  the increasing  importance of the
Company's Broadband and Wireless segments.

<TABLE>
<CAPTION>
                                                           Financial Data
                                                                                         Percent Change
                                                                                        -----------------
                                                                                       2003 vs.     2002 vs.
                                           2003           2002            2001          2002         2001
         <S>                                    <C>          <C>          <C>           <C>           <C>
                                        ------------  ------------   ------------    ------------  ------------
Operating revenues (1)
     Telecom                            $   138,924   $    149,679   $    142,780           (7)%          5%
     Broadband                               29,267         13,051          4,649          124          181
     Wireless                                27,146         23,225         16,056           17           45
     Total operating revenues               195,337        185,955        163,485            5           14

Operating income (loss)
     Telecom                                 47,598         51,839         45,685           (8)          13
     Broadband                              (16,312)       (11,180)        (4,005)          46          179
     Wireless                               (23,539)       (24,969)       (28,917)          (6)         (14)
     Total operating income                   7,747         15,690         12,763          (51)          23

Net income (loss)
     Telecom                                 26,565         33,634         30,724          (21)           9
     Broadband                              (10,983)        (6,715)        (2,283)          64          194
     Wireless                               (14,937)       (15,670)       (18,124)          (5)         (14)
     Total net income                   $       645   $     11,249   $     10,317          (94)%          9%

</TABLE>
(1)    External customers only

<TABLE>
<CAPTION>
                                                     Selected Operating Metrics
                                                                                         Percent Change
                                                                                        -----------------
                                                                                       2003 vs.     2002 vs.
                                           2003           2002            2001          2002         2001
                                        ------------  ------------   ------------    ------------  ------------
        <S>                                     <C>          <C>          <C>           <C>             <C>
Telecom
     ILEC access lines                      136,365        137,240       134,877           (1)%           2%
     Long distance lines                     42,911         39,654        32,958            8            20

Broadband
     DSL subscribers (1)                     19,805         15,648        11,307            27           38
     Triple Play subscribers (2)             11,084          5,646           N/A            96          N/A
     Revenue-generating units (3)            25,469         13,271           N/A            92          N/A

Wireless
     Subscribers                             46,724         40,454        31,649            15 %         28%

</TABLE>

(1)  DSL  subscribers  are customers who receive data services  within  SureWest
     Telephone's service area.

(2)  Triple Play  subscribers  are customers who receive  digital  video,  voice
     and/or data services from the SureWest Broadband/Residential Services.

(3)  The  Broadband  segment  can  deliver  multiple  services  to  a  customer.
     Accordingly,  the Company  maintains  statistical data regarding the latest
     number of various  revenue  generating  units for digital video,  voice and
     data,  in  addition  to the  number of  customers.  For  example,  a single
     customer who purchases  digital  video,  voice and data  services  would be
     reflected as three Revenue-generating units.

Broadband  operating  revenues  increased  $16,216  and $8,402 in 2003 and 2002,
respectively,  as compared to each prior year period.  During 2003 and 2002, the
Broadband  segment  experienced  substantial  increases  in  the  number  of DSL
subscribers  and ISP and  Custom  Data  subscribers.  More  significantly,  this
segment had 11,084 Triple Play subscribers and 25,469  Revenue-Generating  Units
at  December  31,  2003  within  the  Company's  SureWest  Broadband/Residential
Services  business,  which commenced in July 2002 as a result of the acquisition
of assets from Western Integrated Networks, LLC and affiliated companies.  While
continuing  to produce  significant  revenue  increases,  the  expansion  of the
broadband  business  has and will  continue to require  significant  capital and
expense  commitments.   Accordingly,   the  Broadband  segment  incurred  larger
year-over-year operating and net losses in the years 2003 and 2002.

The Wireless segment also reported increases in operating revenues of $3,921 and
$7,169 in 2003 and 2002,  respectively,  as compared to each prior year  period.
The number of wireless  subscribers  increased  to 46,724 at December  31, 2003,
representing a 15% increase for the years 2003.  SureWest  Wireless  established
its  market  share in the  Sacramento  market  in  large  part by  promoting  an
unlimited flat rate regional  calling plan.  Wireless  customer  acquisition has
historically  been most  active  during the  December  holiday  season,  and the
Company has always been active in sales and marketing at this time. During 2003,
SureWest  Wireless  initiated  a number of new service  options  for  customers,
including  new  regional  plans  and in 2004 will  launch a family  plan and new
vertical  services  such  as  wireless  data  capabilities.   Evolution  of  the
marketplace  has caused  SureWest  Wireless  to open four  retail  stores in its
service area. It is also seeking to expand its service  penetration  among major
accounts in 2004.  SureWest  Wireless will seek to reduce  customer churn and to
increase the amount of revenue it derives from each customer in 2004.

While the Company continues to experience growth from the Broadband and Wireless
segments,  the Company's  Telecom segment  operations are facing the competitive
and  regulatory  challenges  now  faced by  incumbent  local  exchange  carriers
("ILEC's")  both  nationally  and in  California.  For the first  time in recent
history,  SureWest  Telephone  had a decline in access  lines,  primarily due to
increased  competition  from wireless  services.  Telecom's  operating  revenues
decreased $10,755 in 2003 as compared to 2002, and were also below 2001 reported
revenues.   Operating   and  net  income  also   declined   $4,241  and  $7,069,
respectively, in 2003 as compared to 2002.

While the  Telecom  operating  revenues  continue  to generate a majority of the
Company's  revenues and yield significant cash flows and net income, the Company
believes that the Telecom segments results in recent years support the Company's
decision to enter and commit resources to newer businesses,  particularly in the
Broadband segment.

The  Company's  operating  expenses  increased  due to an  increase  in  cost of
services and products expense associated with a larger number of subscribers and
services,   including   a  full  year  of   expense   in  2003   from   SureWest
Broadband/Residential  Services,  as described above. General and administrative
expenses  increased  as a  result  of  (i) an  increase  in  employee  headcount
necessary to provide the Company's services, including a full year of expense in
2003 from SureWest  Broadband/Residential Services business, (ii) an increase in
medical  insurance costs,  resulting from an increase in the number of employees
and higher per employee cost and (iii) an increase in corporate insurance costs.
Depreciation  and  amortization  expense  increased $7,344 in 2003 and $5,285 in
2002 . A  substantial  portion  of  this  increase  results  from  additions  to
property,  plant and  equipment,  primarily  within the  Broadband  and Wireless
segments. The increase in depreciation expense was offset in part by a change in
accounting estimate during the fourth quarter of 2002, which increased from five
to ten years the estimated useful lives related primarily to wireless  switching
and voice  mail  equipment.  This  change in  accounting  estimate  resulted  in
decreased depreciation expense of $930 and $206 in 2003 and 2002, respectively.



<PAGE>



         Adjustments and Eliminations

During the  Company's  financial  statement  closing  process for the year ended
December 31, 2003,  certain matters were  identified  related to prior financial
reporting  periods  that  necessitated  the  recording  of  adjustments  to  the
Company's   consolidated   financial  statements.   Such  adjustments  pertained
principally  to property,  plant and  equipment,  and  management  believes that
weaknesses in the Company's internal controls caused the errors that resulted in
these  adjustments.  The  Company  does not  believe  any of the  aforementioned
amounts are material,  individually or in the aggregate, to the respective prior
annual  periods  based on both  quantitative  factors,  including  the  trend of
operating  results,  nor does it  believe  the  prospective  correction  of such
amounts  during the quarter ended December 31, 2003 is material to the Company's
2003  consolidated   results  of  operations  based  on  both  quantitative  and
qualitative factors,  including the trend of operating results. (The prospective
correction of the  aforementioned  amounts relating to prior periods reduced the
Company's 2003 consolidated net income by $1,603, or $0.11 per basic and diluted
share,  and would have  reduced the  Company's  2002 and 2001  consolidated  net
income by $796,  or $0.05 per basic and diluted  share,  and $217,  or $0.01 per
basic and diluted  share,  respectively,  had such errors been  corrected in the
periods in which they originated).

The Company's 2002 and 2001 consolidated financial statements have been adjusted
to eliminate certain intercompany balances that were not previously  eliminated.
These adjustments  pertained to (i) the Company's December 31, 2002 intercompany
accounts  receivable and accounts payable balances  aggregating  $1,381 and (ii)
certain  of the  Company's  2002 and 2001  intercompany  revenue  and  operating
expense balances  aggregating  $2,955 and $3,480,  respectively.  However,  such
adjustments  had no effect on the  Company's  consolidated  working  capital and
shareholders'  equity balances as of December 31, 2002, or  consolidated  income
from operations or net income for the years ended December 31, 2002 and 2001.

                                2003 versus 2002

Segment Results of Operations
<TABLE>
<CAPTION>
Telecom
                                           2003              2002            $Change          %Change
                                       ------------     ------------      ------------      ------------
<S>                                             <C>           <C>               <C>              <C>
Local service                           $   63,363       $   66,283        $   (2,920)           (4)%
Network access service                      51,286           58,426            (7,140)          (12)
Directory advertising                       15,087           14,824               263             2
Long distance service                        5,098            5,368              (270)           (5)
Other                                        4,090            4,778              (688)          (14)
Total operating revenues from
   external customers                      138,924          149,679           (10,755)           (7)
Intersegment revenues                       23,576           16,826             6,750            40
Operating expenses *                        83,645           86,417            (2,772)           (3)
Depreciation and amortization               31,257           28,249             3,008            11
Operating income                            47,598           51,839            (4,241)           (8)
Net income                              $   26,565       $   33,634        $   (7,069)          (21)%
</TABLE>

    *Exclusive of depreciation and amortization


         Operating Revenues

Operating  revenues from  external  customers in the Telecom  segment  decreased
$10,755 compared to 2002.  Revenues from services  subject to regulation,  which
include local and network access services,  decreased  $10,060 compared to 2002.
The decrease in operating  revenues was primarily due to the combined effects of
(i) decreased  zone and toll calls  resulting from  increased  competition  from
wireless service,  (ii) a $1,535 increase in SureWest Telephone's  provision for
its estimated  intrastate  shareable earnings  obligations  compared to the same
period in 2002 and  (iii) a change  in  accounting  estimate  during  2002 for a
portion of SureWest  Telephone's  interstate and intrastate  shareable  earnings
obligations related to the 1999 through 2001 monitoring periods, resulting in an
increase to the Telecom  segment's  revenues of $6,207 and net income of $3,724,
respectively  (for a more detailed  discussion  refer to the Regulatory  Matters
section).

These  decreases  to operating  revenues  during 2003 were  partially  offset by
continued growth and demand for dedicated  access,  the introduction of Ethernet
Service in mid-2002 and an increase in SureWest  Telephone's  billing surcharge.
The decrease in operating  revenues in the Telecom  segment was also offset,  in
part, by a Final  Settlement  Agreement (the  "Settlement  Agreement")  SureWest
Telephone  entered  into during  2003.  As  discussed  in greater  detail in the
Regulatory  Matters  section,  the  Settlement  Agreement  provided for a $1,950
refund  from  another  telecommunications  company  for a  payment  made  by the
SureWest Telephone in 2001 related to interstate shareable earnings obligations.

SureWest  Telephone's  operating revenues were also affected by the commencement
of a wholesaling  arrangement in the fourth quarter of 2002 for its DSL service.
This wholesaling  arrangement  resulted in a decrease to network access revenues
of $5,142 for the year ended December 31, 2003 compared to 2002.

The Company adopted SEC Staff Accounting Bulletin No. 101, "Revenue  Recognition
in  Financial   Statements,"   effective   January  1,  2000,   which   requires
non-recurring  revenues  associated  with service and  activation  charges to be
deferred.  The cumulative  effect of this change in accounting  principle on the
Company was a decrease of $3,273, net of tax, ($0.21 per share) in 2000. For the
years ended December 31, 2003 and 2002, the Telecom segment  recognized $413 and
$926, respectively, of revenues that were in the cumulative effect adjustment as
of January 1, 2000. The effect of those revenues was to increase  income by $244
(net of income  taxes of $169)  and $555  (net of income  taxes of $371) for the
years ended December 31, 2003 and 2002, respectively.

         Operating Expenses

Operating  expenses for the Telecom segment  decreased  $2,772 compared to 2002.
Cost of services and  products  (exclusive  of  depreciation  and  amortization)
decreased  $1,170, or 2%, during 2003 due primarily to an increase in allocation
of resources provided to other affiliates.

Customer  operations and selling expense  decreased  $1,925, or 10%, during 2003
due primarily to (i) internal  efficiencies  resulting from integrated  customer
support systems and productivity  gains and (ii) a decrease in brand advertising
expenses.

General and administrative expense increased $323, or 2%, due primarily to (i) a
$375 one-time  settlement reached in connection with the litigation arising from
the  agreement  for the sale of alarm  monitoring  assets  during 2002,  (ii) an
increase in medical and liability insurance costs and (iii) an increase in costs
related to compliance with the requirements  imposed by The  Sarbanes-Oxley  Act
and related  regulations.  This  increase was offset in part by bad debt expense
recognized   during  2002   associated   with  access  charge   billings  to  an
interexchange  carrier that filed for bankruptcy protection as described in more
detail below.

Depreciation  and  amortization   expenses  increased  $3,008  during  2003  due
primarily to additions to central office assets,  cable and wire  facilities and
internal-use software.

Certain of the Company's customers filed for bankruptcy  protection in 2002, the
most notable of which was WorldCom, Inc. ("WorldCom"),  which, together with its
affiliates, filed for bankruptcy protection on July 21, 2002. As a result of the
bankruptcy  filing,  the Company  recognized  bad debt expense of  approximately
$1,343 in 2002  relating  to  amounts  owed from  WorldCom  to the  Company  for
services  prior  to  the  bankruptcy  filing.   With  respect  to  post-petition
obligations,  WorldCom had proposed,  pursuant to a provision of the  Bankruptcy
Code, and the Bankruptcy Court has agreed, that utilities (including ILEC's) are
entitled to "adequate assurances" that WorldCom will satisfy its obligations for
post-petition  services.  The  Bankruptcy  Court  provided,  with respect to any
post-petition  services  provided after August 14, 2002, that all utilities will
have a junior superiority  administrative  claim senior to other  administrative
claims and junior only to the claims of  WorldCom's  post-petition  lenders.  If
WorldCom  fails to pay for  post-petition  services,  a utility  can either take
appropriate  action under any applicable  tariff or  regulation,  or seek, on an
expedited basis, an order from the Bankruptcy Court requiring  immediate payment
or other relief.  As of December 31, 2003,  obligations  owed by WorldCom to the
Company for post-petition services have been paid on a timely basis.

         Regulatory Matters

Revenues from services subject to regulation  constituted  approximately  59% of
the Company's  total operating  revenues in 2003.  Such revenues,  which include
local and network access services, are derived from various sources, including:

     o    business and residential subscribers, for basic exchange services
     o    surcharges,  mandated by the California  Public  Utilities  Commission
          ("CPUC")
     o    long distance carriers, for network access service
     o    competitive  access  providers  and  subscribers,  for network  access
          services
     o    interstate  pool  settlements,  from  the  National  Exchange  Carrier
          Association ("NECA")
     o    support payments from the Universal Service Fund
     o    support   payments  from  the  California  High  Cost  Fund  ("CHCF"),
          recovering costs of services including extended area service.

Revenues  from certain  telephone  services are affected by rates  authorized by
various regulatory agencies.  Intrastate service rates are subject to regulation
by the CPUC.  With respect to toll calls  initiated by  interexchange  carriers'
customers,  the  interexchange  carriers are assessed  access  charges  based on
tariffs  filed by SureWest  Telephone.  Interstate  access  rates and  resulting
earnings  are subject to  regulation  by the Federal  Communications  Commission
("FCC").  With respect to interstate services,  SureWest Telephone has filed its
own tariff  with the FCC for all  elements  of access  services  except  carrier
common line charges,  for which SureWest Telephone concurs with tariffs filed by
NECA.

The FCC monitors  SureWest  Telephone's  interstate  earnings through the use of
annual cost separation  studies  prepared by SureWest  Telephone,  which utilize
estimated cost information and projected demand usage. The FCC establishes rules
that  carriers  must  follow  in  the   preparation   of  the  annual   studies.
Additionally,  under current FCC rules governing rate making, SureWest Telephone
is required to establish  interstate  rates based on projected  demand usage for
its various  services and  determine  the actual  earnings from these rates once
actual volumes and costs are known.

In  January  2001,  the FCC  issued a  Memorandum  Opinion  and Order to another
telephone company in which it clarified how Internet traffic,  which the FCC had
prior to that date  characterized  as largely  interstate  in nature,  should be
treated.   During  2000  and  2001,   Internet  traffic  and  DSL  service  grew
substantially,  far exceeding SureWest Telephone's estimates,  which resulted in
actual  earnings  exceeding the levels  allowed by the FCC. Based on preliminary
cost  studies,   SureWest  Telephone  recognized  liabilities  relating  to  its
estimated interstate shareable earnings obligations of $343, $650 and $3,231 for
the  years  ended  December  31,  2003,  2002 and  2001,  respectively,  through
reductions  of  revenues.  During the year ended  December  31,  2001,  SureWest
Telephone  made  payments to certain  telecommunications  companies  aggregating
$6,800 related to interstate  shareable earnings  obligations for the monitoring
period  1999-2000.  No similar  payments  were made in 2003 or 2002. On June 26,
2003,  SureWest Telephone entered into a Settlement  Agreement to recover $1,950
of the  amount  paid to a  telecommunications  company  in 2001.  The funds were
received  pursuant  to the  Settlement  Agreement  on  July  8,  2003.  SureWest
Telephone is currently seeking a similar refund from another  telecommunications
company.  However, the recoverability of the remaining funds cannot presently be
determined,  as the telecommunications  company from which SureWest Telephone is
seeking a refund has filed for bankruptcy protection.

In May 2002, the D.C. Circuit Court of Appeals (the "Court") issued its decision
in a case involving ACS of Anchorage.  The Court  determined that a tariff filed
properly  under  Section  204  "streamlined"  procedures  and allowed to go into
effect without  suspension is deemed lawful, and the carrier is not subsequently
obligated to pay refunds for earnings  higher than the permitted  rate of return
as prescribed by the FCC for that monitoring  period.  Subsequent to the Court's
decision, certain telecommunication companies filed a petition for rehearing. In
August 2002,  the petitions for  rehearing  were denied by the Court,  and later
that month the Court's order became effective.  For the monitoring  periods 1999
through  2001,  SureWest  Telephone  filed tariffs  pursuant to the  streamlined
procedures  and such tariffs were not suspended or  investigated.  Consequently,
during the third quarter of 2002,  SureWest Telephone changed its estimate for a
portion  of its  interstate  shareable  earnings  obligations  related  to those
monitoring  periods.  For the year  ended  December  31,  2002  this  change  in
accounting estimate increased the Company's revenues by $5,092 and net income by
$3,065 ($0.21 per share).

Prior to January 1, 2002,  SureWest  Telephone  billed SBC  various  charges for
certain local service and network  access  service  revenues in accordance  with
certain  agreements  as described  below.  In 1999,  SBC  expressed  interest in
withdrawing  from the designated  carrier plan ("DCP") for SureWest  Telephone's
toll traffic. The DCP was a compensation  arrangement between SureWest Telephone
and SBC for certain intrastate toll services.  SureWest Telephone and SBC agreed
to allow the DCP  arrangement to expire in December 2001. The termination of the
DCP did not have a  material  impact  on the  Company's  consolidated  financial
position as of December 31, 2003 and 2002 or results of operations for the years
then ended.

In  1999,  SBC  also  expressed  interest  in  entering  into a  new,  permanent
compensation  arrangement for extended area service  ("EAS").  At that time, SBC
had  been  paying  SureWest  Telephone  approximately  $11,500  per year for EAS
pursuant  to a  Settlement  Transition  Agreement.  In November  2000,  the CPUC
authorized  SBC to  terminate  its annual EAS  payments  to  SureWest  Telephone
effective November 30, 2000. The CPUC authorized replacement funding to SureWest
Telephone on an interim basis using funds from the CHCF.  In addition,  the CPUC
opened an Order Instituting Investigation ("OII") for the purpose of determining
whether future  recovery of all, none, or a portion of the  approximate  $11,500
annual  payments   previously  received  from  SBC  should  come  from  SureWest
Telephone's ratepayers or other regulatory recovery mechanisms.  This proceeding
began in 2001,  evidentiary  hearings  were held during  2002,  and briefing was
completed  in  February  2003.  In this  proceeding,  the  Office  of  Ratepayer
Advocates  ("ORA")  recommended that the CPUC discontinue  SureWest  Telephone's
present  interim EAS funding from the CHCF  without  replacement  revenues  from
ratepayers. The CPUC's decision in this matter is expected during 2004. The CPUC
has made no indication as to what, if any, changes will be forthcoming  relating
to EAS revenues. The results of these proceedings and their potential effects on
SureWest Telephone cannot yet be determined.

In 1996,  the CPUC issued a decision in  connection  with  SureWest  Telephone's
general rate proceeding,  which authorized SureWest Telephone to implement a New
Regulatory  Framework ("NRF") for services furnished within SureWest Telephone's
service  area in order to  accommodate  market and  regulatory  movement  toward
competition and greater pricing  flexibility.  Under the NRF, SureWest Telephone
is subject to ongoing monitoring and reporting requirements, including a sharing
mechanism  whereby  SureWest  Telephone  is  required  to  share  earnings  with
customers  through a reduction of revenues if its earned  annual  rate-of-return
exceeds that authorized by the CPUC.

In accordance  with the  requirements  of its general rate case order,  SureWest
Telephone filed an application for review of its NRF in 1999. In connection with
this  proceeding,  the CPUC's ORA  undertook  a  verification  audit of SureWest
Telephone's  non-regulated and affiliated  transactions  pursuant to the general
rate case and other CPUC orders.  In June 2001, the CPUC adopted its decision in
this matter (the "Decision"). The Decision did not suspend the sharing mechanism
as SureWest  Telephone had requested and the CPUC ruled that SureWest  Telephone
must change the method used to allocate costs for services  provided by SureWest
Telephone to its affiliates, the treatment of certain directory revenues and the
treatment of  internal-use  software costs. In accordance with the provisions of
the  Decision,  the Company  recorded  liabilities  and reduction of revenues of
$3,285,  $1,750 and $6,000 relating to estimated  intrastate  shareable earnings
obligations   during  the  years  ended  December  31,  2003,   2002  and  2001,
respectively.

Beginning in January 2002, SureWest Telephone began paying a customer refund for
intrastate shareable earnings obligations relating to the years 1998 and 1999. A
portion of the customers' intrastate service charges was returned in the form of
a  surcredit  beginning  in January  2002 and ending in January  2003,  totaling
approximately $4,605 (of which $294 was returned during 2003).

In October 2003, the CPUC issued a resolution  requiring  SureWest  Telephone to
pay a refund for intrastate overearnings totaling approximately $483 relating to
2002. A portion of the consumer's  intrastate service charges are being returned
to the  customers  in the form of a surcredit  over  approximately  three months
which began in November 2003.  During the year ended December 31, 2003, $275 was
returned to customers.

As a result of  periodic  cost  separation  studies  for the  monitoring  period
2002-2001,  SureWest  Telephone  changed  its  estimates  for a  portion  of its
interstate and intrastate  shareable  earnings  obligations and certain NECA CCL
accounts  receivable balances during the years ended December 31, 2003 and 2002.
For the year ended  December 31, 2003,  these  changes in  accounting  estimates
decreased  Telecom segment revenues by $29 and net income by $17,  respectively.
For the year ended December 31, 2002,  similar  changes in accounting  estimates
decreased Telecom segment revenues by $1,115 and net income by $671.

As of December 31, 2003,  the Company's  consolidated  balance  sheet  reflected
aggregate  liabilities  of $13,389  relating to SureWest  Telephone's  estimated
interstate and  intrastate  shareable  earnings  obligations.  The  calculations
supporting these liabilities are very complex and involve a variety of estimates
prior to the ultimate  settlement  of such  obligations.  In addition,  SureWest
Telephone's  interstate  shareable  earnings  obligations  lapse  over  time  if
SureWest Telephone's  interexchange carrier and other customers do not claim the
amounts  ascribed  to  them.   Accordingly,   it  is  reasonably  possible  that
management's   estimates  of  the  Company's   liabilities  for  interstate  and
intrastate shareable earnings obligations could change in the near term, and the
amounts involved could be material.

         Significant Business Event

In January 2002, the Company sold  substantially  all of the assets of its alarm
monitoring  division,  which  was  a  component  of  the  Telecom  segment,  for
approximately  $5,150.  This sale  resulted in a pre-tax  gain of $4,435  during
2002.  Through  December 31, 2003,  the Company has  received  cash  proceeds of
$4,995,  of which  $4,495  and $500 were  received  during  2002 and the  fourth
quarter  of 2001,  respectively,  related  to the sale of the  alarm  monitoring
division  assets.  The alarm monitoring  assets consisted  primarily of customer
contracts and equipment,  which had a book value of approximately $355 as of the
date of the sale. The purchaser of the assets commenced  litigation  against the
Company  relating to claims  under the asset  purchase  agreement,  generally in
connection with certain contracts  assigned to the purchaser.  In July 2003, the
Company and the purchaser  settled the litigation  and the parties  released all
claims in exchange for payment by the Company to the  purchaser  of $375,  which
was paid during 2003.  Total  operating  revenues  attributable to the Company's
alarm monitoring division during 2002 were $279 (none in 2003).

Broadband
<TABLE>
<CAPTION>

                                             2003             2002            $Change         %Change
                                       -------------    -------------     -------------    -------------
<S>                                        <C>                 <C>              <C>             <C>
Internet service                        $   15,984       $    7,578        $    8,406           111%
Residential Broadband service                9,586            3,052             6,534           214
Business Broadband service                   3,697            2,421             1,276            53
Total operating revenues from
  external customers                        29,267           13,051            16,216           124
Intersegment revenues                        1,683            1,189               494            42
Operating expenses *                        42,754           23,448            19,306            82
Depreciation and amortization                4,508            1,972             2,536           129
Operating loss                             (16,312)         (11,180)            5,132            46
Net loss                                $  (10,983)      $   (6,715)       $    4,268            64%
</TABLE>

   *Exclusive of depreciation and amortization




<PAGE>



         Operating Revenues

Operating  revenues from external  customers in the Broadband  segment increased
$16,216  compared to 2002. The increase in Broadband  revenues is due in a large
part to (i) a 27% increase in residential  and business DSL subscriber  customer
base, (ii) an increase in operating  revenues resulting from the commencement of
a wholesale  DSL  service  arrangement  with  SureWest  Telephone  in the fourth
quarter   of  2002,   (iii)  a  96%   increase   in  the   number  of   SureWest
Broadband/Residential  Services  subscribers and (iv) the continued expansion of
the Business  Broadband  Services,  resulting in a 73% increase in ending access
lines.

         Operating Expenses

Total operating expenses for the Broadband segment increased $21,842 compared to
2002. Cost of services and products (exclusive of depreciation and amortization)
increased $14,293, or 136%, compared to 2002 due primarily to (i) an increase in
network  administration  due to a 27%  increase in DSL  subscriber  base (ii) an
increase in  expenses,  including  programming  and  transport  costs,  from the
expanded  operations  of  SureWest  Broadband/Residential  Services,  (iii)  the
commencement of a wholesale DSL service  arrangement with SureWest  Telephone in
the  fourth  quarter  of 2002 and (iv)  increased  transport  costs  related  to
business Broadband services. These increases were partially offset by a decrease
in the  number  of DSL  modems  expensed  in the 2003  periods  due to a leasing
program  implemented  in the current  year and a 65% decrease in the cost of the
DSL modems as compared to the same period in the prior year. Customer operations
expense,  general and  administrative  expense and depreciation and amortization
expense increased $2,372,  $2,641 and $2,536,  respectively,  for the year ended
December  31,  2003  compared  to the same  period in 2002.  The  increases  are
primarily  due to the  expanded  operations  of  SureWest  Broadband/Residential
Services in 2003, the related significant  increase in the size of the Company's
workforce,  increased  medical and liability  insurance costs and an increase in
depreciation  expense resulting from property,  plant and equipment additions at
SureWest Broadband, including DSL modems leased to customers.

         Nonmonetary Transaction

During 2003, the Company entered into a 20-year  nonmonetary  transaction with a
third  party  involving  the  exchange  of  certain  fiber  optic  capacity  and
collocation rights. This transaction provides the Company with access and rights
to certain collocation facilities and cell site locations, which were previously
inaccessible  due to unreasonably  high entrance costs.  The collocation  rights
provide access to additional  network  connections to the Company while the cell
site locations  strengthen the Company's existing cellular network in key areas.
Because this  nonmonetary  transaction  did not represent the  culmination of an
earnings process, no revenues or expenses have been, or will be, recorded by the
Company pursuant to this transaction.  In addition,  there was no indicated loss
on this exchange of productive rights.

         Significant Business Event

On July 12,  2002,  the  Company  purchased  substantially  all of the assets of
Western Integrated Networks, LLC and certain affiliates (collectively, "WIN") in
a transaction  supervised by the United States Bankruptcy Court for the District
of Colorado.  The purchase  price for the assets of WIN consisted of (i) $12,000
in cash,  (ii)  direct  acquisition  costs of $622 and (iii) the  assumption  of
certain current liabilities aggregating $4,717 relating principally to executory
contracts and capital lease obligations.

Prior to July 12, 2003, the Company obtained  additional  information  regarding
the fair values of certain  assets  acquired and  liabilities  assumed from WIN.
Accordingly,  the Company prospectively  adjusted the preliminary purchase price
allocation  in  connection  with the  preparation  of its  second  quarter  2003
condensed consolidated financial statements.  The following table summarizes the
estimated fair values of the assets acquired and liabilities assumed at the date
of acquisition,  July 12, 2002,  based on the Company's final  allocation of the
aforementioned purchase price:
<TABLE>
<CAPTION>
<S>                                                               <C>
Accounts receivable, net                                   $       615
Equipment held for sale                                          2,573
Other current assets                                               931
Property, plant and equipment                                   12,327
Intangible asset relating to favorable operating leases            893
                                                          -------------
Total assets acquired                                           17,339

Current liabilities assumed under executory contracts            3,483
Liabilities assumed under capital lease obligations              1,064
Other liabilities                                                  170
                                                          -------------
Total liabilities assumed                                        4,717
                                                          -------------
Net assets acquired                                        $    12,622
                                                          =============
</TABLE>

The equipment  purchased from WIN that was held for sale consisted  primarily of
network assets located in Dallas,  Texas. The Company completed the sale of such
equipment during the first quarter of 2003. The Company did not recognize a gain
or loss on the sale of these assets.


Wireless
<TABLE>
<CAPTION>
                                             2003             2002            $Change         %Change
                                       -------------    -------------     -------------    -------------
<S>                                        <C>                <C>               <C>             <C>
Wireless revenues from external
  customers                             $   27,146       $   23,225        $    3,921            17%
Intersegment revenues                          744              507               237            47
Operating expenses *                        34,724           33,796               928             3
Depreciation and amortization               16,705           14,905             1,800            12
Operating loss                             (23,539)         (24,969)           (1,430)           (6)
Net loss                                $  (14,937)      $  (15,670)       $     (733)           (5)%
</TABLE>

*Exclusive of depreciation and amortization


         Operating Revenues

Operating  revenues from external  customers in the Wireless  segment  increased
$3,921 due primarily to (i) continued additions to the customer base, with a 15%
overall increase in wireless  subscribers based on subscriber counts at December
31, 2003  compared to December 31, 2002,  (ii) an increase in roaming  revenues,
(iii) the  introduction  of new  features  and (iv) a decrease in  uncollectible
revenues.

         Operating Expenses

Total  operating  expenses for the Wireless  segment  increased $928 compared to
2002. Cost of services and products (exclusive of depreciation and amortization)
expense  increased  $882,  or 5%,  compared to 2002  primarily  due to increased
interconnect usage associated with the increase in subscriber base and increased
property  taxes due to the addition of cell cites.  This  increase was partially
offset by (i) a reduction in roaming  expenses  due to a lower  roaming rate and
(ii)  decreased   handset   insurance  costs  due  to  fewer  claims  submitted,
outsourcing  of the  insurance  function  to a third  party and fewer  customers
selecting this feature.  Customer operations and selling expense decreased $311,
or 3%, compared to 2002 due primarily to decreased sales expense  resulting from
fewer  dealer  sales.  This  decrease  was  offset  in  part by an  increase  in
subscriber  billing costs  associated  with the higher  average  customer  base.
General and administrative  expense increased $357, or 10%, compared to 2002 due
primarily to an increase in medical and liability insurance costs.

         Local Number Portability

Effective November 24, 2003, the FCC mandated that wireless carriers provide for
local number portability  ("LNP"). LNP allows subscribers to keep their wireless
phone  numbers while  switching to a different  service  provider.  Although the
Company has experienced  favorable porting activity,  the  implementation of LNP
has not had a material effect on the Company's  consolidated  financial position
or results of operations.

Non-Operating Items

         Interest Income and Expense, Net

Interest  expense  increased  $2,371,  or  126%,  compared  to  2002  due to the
Company's  issuance in March 2003 of $60,000 of unsecured Series B Senior Notes,
$15,000  of the  proceeds  of  which  was  used  to  retire  certain  short-term
borrowings.

         Other Income (Expense), Net

In December 2003, the Company discovered certain irregular bank transactions and
deposits in a routine  investigation  following  the abrupt  resignation  of the
Company's Treasury Analyst.  Immediately  following the Company's initial review
that uncovered  these  irregularities,  the Company  broadened its review of the
investment  and cash  operations,  and a  special  corporate  investigation  was
launched  by the Audit  Committee  and the  Board of  Directors,  which  engaged
independent legal counsel and forensic accountants.  The investigations revealed
concealed  illegal  transfers in violation of the Company's  investment and cash
management  policies.  The Company has concluded  that the  irregularities  were
limited to the 2003 calendar  year. The  investigation  suggests that as much as
$25,000 may have been involved in the scheme.  Nearly all of the funds have been
recovered;   however,  as  of  March  26,  2004,  approximately  $2,000  remains
outstanding and has been reflected as a non-operating loss in the Company's 2003
consolidated  financial  statements.  In January  2004,  the  Federal  Bureau of
Investigation  ("FBI")  launched its own probe into the illegal funds  transfer,
and in February  2004,  indictments  were returned  against  three  individuals,
including  the  Company's  former  Treasury  Analyst,  on charges of mail fraud,
conspiracy  and money  laundering.  The Company has filed an insurance  claim to
recover the missing funds and has filed a civil  lawsuit  seeking to recover the
misappropriated  funds  and other  costs  from  five  individuals  and a private
company allegedly  associated with the fraudulent  scheme to illegally  transfer
the Company's funds to outside  accounts.  The Company will recognize a recovery
of the funds in future  periods to the extent of its  insurance  and  litigation
recoveries.

         Income Taxes

Income taxes decreased  $6,404,  or 86%, compared to 2002 due to a corresponding
decrease in income  subject to tax. The  effective  federal and state income tax
rate was 61.3% and 39.8% for the years  ended 2003 and 2002,  respectively.  The
increase in the effective  federal and state income tax rate is primarily due to
an  increase  in  state   income  tax  expense  and  an  increase  in  permanent
differences.

As of December 31, 2003,  the Company had net operating loss  carryforwards  for
federal income tax purposes of approximately  $19,434,  which will expire in the
years 2018 through 2023, if not  utilized.  Deferred tax assets  relating to net
operating  loss  carryforwards  for federal  purposes  as of  December  31, 2003
include approximately $463 associated with stock compensation activity for which
subsequent  realized tax  benefits,  if any, will reduce income taxes payable in
the future.  The Company also had net  operating  loss  carryforwards  for state
income tax purposes of  approximately  $218, which will expire in the years 2004
through 2011, if not utilized. The Company also had research and development tax
credit carryforwards of approximately $100 each for federal and state income tax
purposes.  The federal  credit will  expire in 2022 if it is not  utilized.  The
state credits have no expiration date.



<PAGE>



                                2002 versus 2001

Segment Results of Operations

Telecom
<TABLE>
<CAPTION>

                                           2002              2001            $Change          %Change
                                       -------------    -------------     -------------    -------------
<S>                                        <C>                  <C>               <C>           <C>
Local service                           $   66,283       $   63,816        $    2,467             4%
Network access service                      58,426           49,030             9,396            19
Directory advertising                       14,824           14,237               587             4
Long distance service                        5,368            5,830              (462)           (8)
Other                                        4,778            9,867            (5,089)          (52)
Total operating revenues from
   external customers                      149,679          142,780             6,899             5
Intersegment revenues                       16,826           12,877             3,949            31
Operating expenses *                        86,417           82,518             3,899             5
Depreciation and amortization               28,249           27,454               795             3
Operating income                            51,839           45,685             6,154            13
Net income                              $   33,634       $   30,724        $    2,910             9%
</TABLE>

*Exclusive of depreciation and amortization

         Operating Revenues

Operating  revenues from  external  customers in the Telecom  segment  increased
$6,899  compared to 2001.  Revenues from services  subject to regulation,  which
include local and network access services,  increased $11,863,  or 11%, compared
to 2001. The increase was primarily due to the combined effects of (i) increased
network  access  revenues due to expanded  demand for DSL services and dedicated
access,  (ii) access  line growth of 2% and (iii) a $6,831  decrease in SureWest
Telephone's  provision for its estimated  interstate  and  intrastate  shareable
earnings  obligations.  These  increases  were offset in part by the sale of the
Company's  alarm  monitoring  division  in January  2002 as  described  below in
Significant Business Event.

The  Telecom  segment   operating   revenues  were  also  affected  by  SureWest
Telephone's wholesaling  arrangement,  commencing in the fourth quarter of 2002,
for its DSL  service,  resulting  in a decrease  to network  access  revenues of
$1,010 for the year ended December 31, 2002.

Directory  advertising revenues increased $587 as compared to the same period in
2001 due to increased advertising sales.

The Company adopted SEC Staff Accounting Bulletin No. 101, "Revenue  Recognition
in  Financial   Statements,"   effective   January  1,  2000,   which   requires
non-recurring  revenues  associated  with service and  activation  charges to be
deferred.  The  cumulative  effect of this change in  accounting  principle  was
$3,273,  net of tax, ($0.21 per share) in 2000. For the years ended December 31,
2002 and 2001, the Company recognized $926 and $1,708, respectively, of revenues
that were in the cumulative  effect adjustment as of January 1, 2000. The effect
of those  revenues was to increase  income by $555 (net of income taxes of $371)
and $1,025 (net of income  taxes of $683) for the years ended  December 31, 2002
and 2001, respectively.

         Operating Expenses

Operating  expenses for the Telecom segment  increased  $3,899 compared to 2001.
Cost of services and  products  (exclusive  of  depreciation  and  amortization)
increased  $1,456,  or 3%,  during 2002 due  primarily to (i) a favorable  price
adjustment to purchase fiber optic cable, (ii) an increase in demand for DSL and
(iii) an  increase in the cost of  producing  and  printing  the  Roseville  and
Sacramento Telephone Directories.  General and administrative expenses increased
$1,766,  or 9%,  compared to 2001.  This  increase was due primarily to bad debt
expense  recognized  during 2002  associated  with access charge  billings to an
interexchange carrier that filed for bankruptcy protection.  In addition,  there
were moderate increases to the size of the Company's  workforce,  legal expenses
and consulting  fee's related to  internal-use  software.  These  increases were
partially  offset by increased  expenses in 2001 related to the  Company's  name
change.

Depreciation and amortization  expense  increased $795 during 2002 due primarily
to  additions  to  central  office  assets,   cable  and  wire   facilities  and
internal-use software.

Certain of the Company's customers filed for bankruptcy  protection in 2002, the
most notable of which was WorldCom, Inc. ("WorldCom"),  which, together with its
affiliates, filed for bankruptcy protection on July 21, 2002. As a result of the
bankruptcy  filing,  the Company  recognized  bad debt expense of  approximately
$1,343 in 2002  relating  to  amounts  owed from  WorldCom  to the  Company  for
services  prior  to  the  bankruptcy  filing.   With  respect  to  post-petition
obligations,  WorldCom had proposed,  pursuant to a provision of the  Bankruptcy
Code, and the Bankruptcy Court has agreed, that utilities (including ILEC's) are
entitled to "adequate assurances" that WorldCom will satisfy its obligations for
post-petition  services.  The  Bankruptcy  Court  provided,  with respect to any
post-petition  services  provided after August 14, 2002, that all utilities will
have a junior superiority  administrative  claim senior to other  administrative
claims and junior only to the claims of  WorldCom's  post-petition  lenders.  If
WorldCom  fails to pay for  post-petition  services,  a utility  can either take
appropriate  action under any applicable  tariff or  regulation,  or seek, on an
expedited basis, an order from the Bankruptcy Court requiring  immediate payment
or other relief.  As of December 31, 2002,  obligations  owed by WorldCom to the
Company for post-petition services were paid on a timely basis.

         Significant Business Event

On January 25,  2002,  the Company sold  substantially  all of the assets of its
alarm monitoring  division,  which was a component of the Telecom  segment,  for
approximately  $5,150.  This sale  resulted in a pre-tax  gain of $4,435  during
2002.  Through  December  31,  2003 the Company had  received  cash  proceeds of
$4,995, of which $500 was received during the fourth quarter of 2001, related to
the sale of the alarm monitoring  division assets.  The alarm monitoring  assets
consisted primarily of customer contracts and equipment,  which had a book value
of  approximately  $355 as of the date of the sale.  The purchaser of the assets
commenced  litigation  against  the Company  relating to claims  under the asset
agreement,  generally  in  connection  with  certain  contracts  assigned to the
purchaser.  On July  17,  2003,  the  Company  and  the  purchaser  settled  the
litigation  and the parties  released  all claims in exchange for payment by the
Company to the purchaser of $375,  which was paid during 2003.  Total  operating
revenues  attributable  to the Company's  alarm  monitoring  division during the
years ended 2002 and 2001 were $279 and $2,530, respectively.

Broadband

<TABLE>
<CAPTION>
                                             2002             2001            $Change         %Change
                                       -------------    -------------     -------------    -------------
<S>                                         <C>                  <C>              <C>           <C>
Internet service                        $    7,578       $    3,722        $    3,856           104%
Residential Broadband service                3,052                -             3,052             -
Business Broadband service                   2,421              927             1,494           161
Total operating revenues from
     external customers                     13,051            4,649             8,402           181
Intersegment revenues                        1,189               77             1,112         1,444
Operating expenses *                        23,448            8,178            15,270           187
Depreciation and amortization                1,972              553             1,419           257
Operating loss                             (11,180)          (4,005)            7,175           179
Net loss                                $   (6,715)      $   (2,283)       $    4,432           194%
</TABLE>

*Exclusive of depreciation and amortization


         Operating Revenues

Operating  revenues from external  customers in the Broadband  segment increased
$8,402 compared to 2001. The increase in Broadband revenues is due in large part
to (i)  continued  additions to the  residential  and  business  DSL  subscriber
customer base, with a 38% increase in Broadband  subscribers based on subscriber
counts at December  31,  2002  compared to December  31,  2001,  (ii)  continued
expansion  of the  Business  Broadband  services  and (iii)  increased  revenues
associated with the purchase of the Custom Data Services assets during the third
quarter of 2001 and SureWest  Broadband/Residential  Services  assets during the
third quarter of 2002. In addition,  there was an increase in operating revenues
resulting  from the  commencement  of a wholesale DSL service  arrangement  with
SureWest Telephone in the fourth quarter of 2002.

     Operating Expenses

Total  operating  expenses,  including  depreciation  and  amortization,  in the
Broadband  segment  increased  $16,689  compared to 2001.  Cost of services  and
products (exclusive of depreciation and amortization) increased $5,952, or 130%,
compared to 2001 due primarily to (i)  increased  expenses  associated  with the
purchase of the Custom Data Services assets in the third quarter of 2001 and the
SureWest Broadband/Residential Services assets during the third quarter of 2002,
(ii) increased  transport  costs related to growth of CLEC  operations and (iii)
the commencement of a wholesale DSL service  arrangement with SureWest Telephone
in the  fourth  quarter  of  2002.  Customer  operations  expense,  general  and
administrative  expense and  depreciation  and  amortization  increased  $3,347,
$5,971 and $1,419,  respectively,  for the year ended December 31, 2002 compared
to the same  period  in 2001.  The  increases  are  primarily  due to the  asset
purchases described above during the third quarter of 2002 and 2001, increase in
customer  service  and  billing  expenses  due  to  38%  increase  in  Broadband
subscribers  based  on  subscriber  counts,  growth  in CLEC  operations  and an
increase in depreciation  expense  resulting from property,  plant and equipment
additions at SureWest Broadband and assets acquired from purchase of Custom Data
Services and SureWest Broadband/Residential Services.

         Significant Business Events

Asset Purchase

On July 12,  2002,  the  Company  purchased  substantially  all of the assets of
Western Integrated Networks, LLC and certain affiliates (collectively, "WIN") in
a transaction  supervised by the United States Bankruptcy Court for the District
of Colorado.  The purchase  price for the assets of WIN consisted of (i) $12,000
in cash,  (ii)  acquisition  related  costs of $560 and (iii) the  assumption of
certain current liabilities aggregating $4,579 relating principally to executory
contracts and capital lease  obligations.  Under the terms of the asset purchase
agreement,  $1,200 of the aggregate purchase price was held in an escrow account
to protect the Company in the event of any claims  available to the Company.  On
January 28, 2003,  $150 was released to the Company,  and the balance remains in
the escrow  account.  The  Company has entered  into a  tentative  agreement  to
resolve all differences in connection  with the amounts held in escrow,  and the
disputes  that led to the  establishment  of the escrow.  Under the terms of the
tentative  settlement  no  additional  funds will be paid by or  released to the
Company. Prior to December 31, 2002, the Company sold certain equipment acquired
in the transaction for $2,157, which equaled its aggregate carrying value at the
date of sale.

The following table  summarizes the estimated fair values of the assets acquired
and liabilities assumed at the date of acquisition,  July 12, 2002, based on the
Company's preliminary allocation of the aforementioned purchase price:
<TABLE>
<CAPTION>
<S>                                                                       <C>
Accounts receivable, net                                                $    615
Equipment held for sale                                                    2,157
Other current assets                                                         943
Property, plant and equipment                                             12,064
Intangible asset relating to favorable operating leases                    1,360
     Total assets acquired                                                17,139

Current liabilities assumed under executory contracts                      3,345
Liabilities assumed under capital lease obligations                        1,064
Other liabilities                                                            170
     Total liabilities assumed                                             4,579
     Net assets acquired                                                $ 12,560
</TABLE>


Acquisition of SureWest Custom Data Services

Effective  July 31, 2001,  the Company  acquired all of the  outstanding  common
stock of SureWest  Custom Data Services for $2,100 in cash. The  acquisition was
accounted  for  as  a  purchase  in  accordance  with  SFAS  No.  141  "Business
Combinations."  The assets of  SureWest  Custom  Data  Services  acquired by the
Company,  which had an aggregate  fair value of $491,  consisted  principally of
cash, accounts receivable and property,  plant and equipment. The liabilities of
SureWest  Custom Data  Services  assumed by the Company,  which had an aggregate
fair value of $534,  consisted  principally  of accounts  payable and  long-term
debt. As a result of this acquisition,  the Company recorded $2,171 of goodwill,
which was allocated to the telephone  operating segment.  As of January 1, 2003,
SureWest  Custom Data  Services  operates as part of  Internet  Services  within
SureWest Broadband.

Wireless
<TABLE>
<CAPTION>
                                             2002             2001            $Change         %Change
                                       -------------    -------------     -------------    -------------
<S>                                           <C>                <C>             <C>            <C>
Wireless revenues from external
    customers                           $   23,225       $   16,056        $    7,169            45%
Intersegment revenues                          507              245               262           107
Operating expenses *                        33,796           33,384               412             1
Depreciation and amortization               14,905           11,834             3,071            26
Operating loss                             (24,969)         (28,917)           (3,948)          (14)
Net loss                                $  (15,670)      $  (18,124)       $   (2,454)          (14)%
</TABLE>

*Exclusive of depreciation and amortization


         Operating Revenues

Operating  revenues from external  customers in the Wireless  segment  increased
$7,169  compared to 2001. The increase in Wireless  revenues is due primarily to
continued  additions  to the  customer  base,  with a 28%  overall  increase  in
wireless subscribers based on subscriber counts at December 31, 2002 compared to
December 31, 2001. This increase resulted in increased  feature,  long distance,
directory  assistance and activation  revenues.  Wireless  revenues in 2001 were
negatively impacted by billings to certain customers of $2,200 that did not meet
all of  the  criteria  for  revenue  recognition  due  to  collection  concerns.

          Operating Expenses

Total  operating  expenses for the Wireless  segment  increased $412 compared to
2001. Cost of services and products  increased $3,826, or 27%, compared to 2001.
This  increase was due  primarily to  increased  costs in tower rents,  wireless
phone handset subsidies and roaming charges related to the continuing  expansion
of the  coverage  area and  increased  demand  for  wireless  service.  Customer
operations and selling expense  decreased  $1,464 compared to 2001. The decrease
was primarily due to a decrease in dealer  commissions  resulting  from customer
churn  charge  backs and  $1,200 of bad debt  expense  recorded  in 2001.  These
decreases  were  partially  offset  by  increased  subscriber  billing,  product
advertising and marketing associated with the subscriber growth.

Depreciation and amortization increased $3,071 compared to 2001 due primarily to
increased  in  wireless  property,  plant  and  equipment  and  amortization  of
internal-use  software.  This  increase  was  partially  offset by a decrease in
amortization  relating to the Company's wireless licenses due to the adoption of
SFAS No. 142 as described below. In addition, during the fourth quarter of 2002,
the Company increased the estimated useful lives primarily to wireless switching
and voice mail  equipment  from five to ten  years.  This  change in  accounting
estimate resulted in decreased  depreciation  expense of $206 for the year ended
December 31, 2002.

         Significant Business Event

During  the  second  quarter  of 2001,  the  Company  acquired  from  Foresthill
Telephone Co. ("FHT") its 1.8% interest in SureWest Wireless for $2,500 in cash.
As a result of the acquisition,  the Company now owns 100% of SureWest Wireless.
A former  member of the  Company's  Board of  Directors  was, at the time of the
acquisition, the President and sole shareholder of FHT.

Non-Operating Items

         Interest Income and Expense, Net

Other income  (expense),  net,  decreased  $1,438,  or 33%, compared to 2001 due
primarily to (i) reduced  interest income  resulting from lower average invested
balances and (ii)  increased  interest  expense  resulting  from higher  average
short-term  borrowings  during 2002.  This decrease was partially  offset by the
gain from the sale of the Company's alarm monitoring division in January 2002.

         Income Taxes

Income taxes  increased  $557, as compared to 2001, due primarily to an increase
in income  subject to tax. The  effective  federal and state income tax rate was
39.8% and 40.0% for the years ended 2002 and 2001, respectively.

                         Liquidity and Capital Resources

As reflected in the Consolidated  Statements of Cash Flows, net cash provided by
operating activities was $73,108 and $46,802 in 2003 and 2002, respectively. Net
cash used in  operating  activities  was $32,896 in 2001.  The  increase in cash
provided by operating activities for the current year compared to the prior year
was due primarily to (i) an increase in the change of  approximately  $16,046 in
accrued liabilities due in part to the increase in network build-out  activities
of SureWest Broadband/Residential Services during the latter part of 2003, (ii)a
decrease in the change of refundable  income taxes of  approximately  $6,045 and
income tax  payments of $1,846,  (iii) an  approximate  $11,285  increase in the
change of  liabilities  related to the Company's  estimated  shareable  earnings
obligations  due to a  decrease  in  customer  refunds  issued  in the  form  of
surcredits  and an increase in the provision for intrastate  shareable  earnings
obligations  as a  result  of the  Company's  periodic  preparation  of its cost
separation  studies and (iv) an increase in the change of approximately  $861 in
accrued  interest related to the issuance of the Company's Series B Senior Notes
("Series B Notes") in March 2003.  The  increase in cash  provided by  operating
activities was offset in part by a decrease in the provision for deferred income
taxes due primarily to  accelerated  depreciation.  Operating  cash flows in the
next few years will be negatively impacted by higher federal income tax payments
as the  timing  of  accelerated  tax  depreciation  in 2002 and 2003  begins  to
reverse.

Net cash  provided by  operating  activities  during  2003 was greater  than net
income of $645 due primarily to (i) non-cash  charges of  approximately  $52,470
consisting of depreciation and amortization due to increased capital investments
in the Broadband and Wireless  Segments,  (ii) an approximate $9,987 increase in
accrued  liabilities   primarily  due  to  the  increase  in  network  build-out
activities of SureWest  Broadband/Residential Services during the latter part of
2003 and  (iii)  an  approximate  $4,039  increase  in  liabilities  related  to
estimated  shareable earnings  obligations due to a decrease in customer refunds
issued  in the  form of a  surcredit  related  to 2002  and an  increase  in the
provision  for  intrastate  shareable  earnings  obligations  as a result of the
Company's periodic preparation of its cost separation studies.  During 2003, the
Company  used cash flows from  operations,  proceeds  from the  issuance  of its
Series B Senior Notes and existing cash and cash equivalents to fund (i) capital
expenditures of $76,105 pertaining to ongoing plant construction projects,  (ii)
dividends of $14,539,  (iii)  principal  payments of $5,921 to retire  long-term
debt and (iv) $15,000 to retire short-term borrowings.

The Company's  most  significant  use of funds in 2004 is expected to be for (i)
budgeted capital expenditures of approximately  $82,556, (ii) scheduled payments
of  long-term  debt of $3,779,  (iii)  support  of the  operations  of  SureWest
Broadband/Residential  Services up to an anticipated  $8,691 and (iv) support of
the operations of SureWest  Wireless up to an anticipated  $2,847. A substantial
portion of the 2004 budgeted  capital  expenditures are at the discretion of the
Company,  and  are  dependent  upon  the  Company's  working  capital  position,
operating cash flows and ability to borrow,  as described  below. The Company is
required to comply with its cable franchise agreements to continue its build-out
in the franchise areas.

On March 13,  2003,  the Company  completed a note  purchase  agreement  for the
issuance of its unsecured  Series B Notes in the aggregate  principal  amount of
$60,000.  The Series B Notes have a final  maturity  of ten years and an average
life of eight years. Interest is payable semi-annually at a fixed rate of 4.74%.
Principal payments are due in equal annual installments of $12,000 commencing in
March 2009 and ending in March 2013.  The Company used a portion of the proceeds
from the issuance of the Series B Notes to retire certain short-term borrowings,
which had an aggregate  outstanding  principal balance of $15,000. A substantial
intended use of the Series B Notes  proceeds was and continues to be the funding
of  capital  expenditures  for  the  Company's  SureWest   Broadband/Residential
Services business.

In March 2000,  the Company  entered into a business loan  agreement with a bank
for a $30,000 line of credit with a term of three years.  In July 2002, the bank
amended the credit  facility  increasing the borrowing  capacity from $30,000 to
$50,000  through  June 1, 2004.  Interest on this credit  facility is based on a
LIBOR-based  pricing  formula.  While the Company has borrowed  previously under
this  credit  facility,  there were no  amounts  outstanding  under this  credit
facility as of December 31, 2003,  nor since the issuance of the Series B Notes.
The  Company  obtained  a waiver  as of  December  31,  2003 with  respect  to a
technical  violation of the business loan agreement;  however,  the Company does
not  believe  the  violation  to be of any  consequence  since (i) there were no
amounts outstanding as of the time of the technical violation nor thereafter and
(ii)  subsequent  to December  31,  2003,  the Company and the bank  executed an
amendment to the business loan  agreement  extending the  expiration  date until
June 1, 2005 and revising certain covenants.

In April 2003,  the Company sold a short-term  investment  prior to its maturity
date. The  investment  was sold without the consent of the Company's  Management
and was a part of the irregular  transactions  discovered in connection with the
Corporate Treasury Investigation  described in "2003 versus 2002 - Non-Operating
Items,"  above.  The  Company  incurred  a  nominal  penalty  for the  premature
redemption of this investment.  The redemption did not have a material effect on
the Company's consolidated 2003 financial statements.

In February  2000,  the Board of Directors  authorized the repurchase of up to 1
million  shares  of the  Company's  common  stock.  In June  2002,  the Board of
Directors  approved the  repurchase of an additional  500 thousand  shares.  The
shares are purchased  from time to time in the open market or through  privately
negotiated  transactions  subject to overall  financial  and market  conditions.
Through  December 31, 2003,  approximately 1 million shares of common stock have
been repurchased through the programs.  The Company has remaining  authorization
from the Board of Directors to repurchase an additional 469 thousand outstanding
shares.  The  purchase  of common  shares  resulted in a decrease in the average
number of common shares  outstanding  used in calculating both basic and diluted
earnings per share by 3% and 1% for 2002 and 2001,  respectively (none in 2003).
The effects on the average  number of common shares  outstanding  resulting from
the  repurchase of stock  resulted in an increase in basic earnings per share of
$0.02 for the year ended 2002 (no  effect in 2003 or 2001).  The  effects on the
average  number of common shares  outstanding  resulting  from the repurchase of
stock  resulted in an increase in diluted  earnings per share of $0.02 and $0.01
for 2002 and 2001, respectively (no effect in 2003).

The Company had cash, cash  equivalents  and short-term  investments at December
31, 2003, of $41,707.  The Company  believes that its working capital  position,
operating cash flows and borrowing  capacity are more than sufficient to satisfy
its  liquidity  requirements  in 2004.  The Company's  forecast  indicates it is
likely that the Company will borrow  additional funds in the second-half of 2004
to fund operations and planned capital expenditures,  while maintaining adequate
cash and cash  equivalents.  Such borrowing might be undertaken  under the newly
extended  credit   facility  or  by  the  incurrence  of  additional   long-term
indebtedness,  or a combination  of short and long-term  borrowing.  The Company
believes,  given its  financial  position and  debt-to-equity  position,  it has
substantial  additional  short and long-term  borrowing  capacity.  As indicated
above, a substantial portion of the Company's 2004 budgeted capital expenditures
is at the discretion of the Company. Accordingly, the Company also believes that
it could  modify its  planned  construction  and  commitments  if the results of
operations or borrowing opportunities so require.

As of December 31, 2003, the Company's contractual obligations were as follows:
<TABLE>
<CAPTION>

                                           2004         2005-2006       2007-2008      Thereafter        Total
                                        -------------  -------------   -------------  -------------   -------------
<S>                                             <C>         <C>              <C>           <C>            <C>
Long-term debt                           $    3,779     $    7,273      $    7,273     $   78,181      $   96,506
Capital leases                           $      347     $      246      $       12     $        7      $      612
Operating leases                         $    4,815     $    6,656      $    4,748     $    6,103      $   22,322
Unconditional purchase obligations       $    2,527     $        -      $        -     $        -      $    2,527
</TABLE>


Dividends are declared at the  discretion  of the Company's  Board of Directors.
However,  unsecured  Series A Senior Notes,  unsecured  Series B Notes and other
unsecured credit arrangements contain provisions that could restrict the payment
of  dividends  in certain  circumstances.  These  restrictions  include  various
positive and negative covenants with respect to cash flow coverage, tangible net
worth and leverage  ratio.  At December 31, 2003 and 2002,  the entire amount of
retained earnings was unrestricted.

                        Other Related Party Transactions

An officer of the Company is also a member of the Board of  Directors of a local
banking  institution.  As of  December  31,  2000,  the  Company  had a  $15,000
certificate  of  deposit  with a term  greater  than one year with such  banking
institution.   In  the  fourth  quarter  of  2001,  the  Company  redeemed  this
certificate  of deposit for an amount equal to its  historical  carrying  value,
including accrued interest. In addition,  for the years ended December 31, 2003,
2002  and  2001  the  Company  provided  $45,  $17  and  $18,  respectively,  in
telecommunications services to the banking institution.

During 2002,  the Company  repurchased  300 thousand  shares of its common stock
from one of its  employee  benefit  plans.  The Company  utilized  two  separate
independent third party entities for the purpose of providing  fairness opinions
in connection with the  transaction.  The shares were  repurchased at a price of
$50 per share and were retired upon repurchase.



<PAGE>



                   Critical Accounting Policies and Estimates

Below is a summary of the Company's critical  accounting policies and estimates,
which  are  more  fully  described  in the  referenced  Notes  to the  Company's
Consolidated  Financial  Statements.  Management has discussed  development  and
selection of critical accounting policies and estimates with the Company's Audit
Committee.

o    As discussed more fully in Note 1, total  revenues from telephone  services
     are affected by rates authorized by various  regulatory  agencies.  The FCC
     monitors SureWest Telephone's interstate earnings through the use of annual
     cost  separation   studies  prepared  by  SureWest   Telephone,.   The  FCC
     establishes  rules that  carriers  must  follow in the  preparation  of the
     annual  studies.   Based  on  these  rules,  the  Company  is  required  to
     prospectively set its annual  interstate rates based on the  aforementioned
     cost  separation   studies.   These  cost  studies  include  estimates  and
     assumptions  regarding various financial data including operating expenses,
     taxes and investment in property,  plant and equipment.  Non-financial data
     estimates  are also  utilized  in the  preparation  of these cost  studies,
     including  projected  demand usage and detailed  network  information.  The
     Company must also make estimates of the  jurisdictional  separation of this
     data to assign  current  financial and operating  data to the interstate or
     intrastate jurisdiction. These estimates are finalized in future periods as
     actual  data  becomes   available  to  complete  the  separation   studies.
     Additionally,  certain FCC rules regarding  interstate  shareable  earnings
     obligations  have not yet been  clarified as to whether the Company's  rate
     filings are deemed  lawful and,  therefore,  protected  from over  earnings
     liability.  Further, the Company's separation studies include estimates and
     assumptions   regarding  issues  before  the  FCC  involving   intercarrier
     interconnection, Internet traffic, and traffic utilizing Internet Protocol.
     The  Company  also  participates  in the NECA pool for  certain  interstate
     revenues.  In addition to the estimates noted above,  the Company's  earned
     rate-of-  return  from  its  participation  in the  NECA  pool  can also be
     impacted by the earnings and data of other carriers who  participate in the
     pool.

o    In  accordance  with the NRF,  SureWest  Telephone  is  subject  to ongoing
     monitoring  and  reporting  requirements  by the CPUC,  including a sharing
     mechanism whereby SureWest Telephone may be required to share earnings with
     customers based on its earned annual  rate-of-return.  The Company utilizes
     models, which rely on estimates regarding the jurisdictional  separation of
     financial  data and  operational  data into the  intrastate  and interstate
     jurisdictions  as discussed  previously for the purposes of calculating its
     earned annual rate-of-return.  In addition, the Company must make estimates
     and assumptions  regarding various issues before the FCC and CPUC involving
     intercarrier interconnection,  Internet traffic, traffic utilizing Internet
     Protocol,  methods used to allocate costs for services provided by SureWest
     Communications  and SureWest  Telephone to its affiliates and the treatment
     of certain plant and tax costs, including internal-use software costs.

     As a result of these estimates and assumptions,  it is reasonably  possible
     that  management's  estimates of SureWest  Telephone's  shareable  earnings
     obligations  could change in the near term, and the amounts  involved could
     be material. For example, in 2002 the Company made changes in its estimates
     for  interstate  and  intrastate   shareable   earnings   obligations   for
     approximately $6,200,  principally due to the D.C. Circuit Court of Appeals
     decision issued in May 2002,  which determined that a tariff filed properly
     under Section 204  "streamlined"  procedures  and allowed to go into effect
     without  suspension  is  deemed  lawful.  Therefore,  the  carrier  is  not
     subsequently  obligated  to  pay  refunds  for  earnings  higher  than  the
     permitted  rate of  return  as  prescribed  by the FCC for that  monitoring
     period. (See Footnote 1. Summary of Significant Accounting Policies)

o    As discussed more fully in Note 2, the Company  recognizes revenue when (i)
     persuasive  evidence of an arrangement between the Company and the customer
     exists,  (ii)  delivery  of the  product to the  customer  has  occurred or
     service has been provided to the customer,  (iii) the price to the customer
     is fixed or  determinable  and (iv)  collectibility  of the sales  price is
     reasonably assured.

o    As discussed  more fully in Note 1, the Company  maintains  allowances  for
     doubtful  accounts  for  estimated  losses  resulting  from  the  potential
     inability of its customers to make  required  payments.  In evaluating  the
     collectibility of its accounts receivable, the Company assesses a number of
     factors  including a specific  customer's or carrier's  ability to meet its
     financial obligations to the Company, the length of time the receivable has
     been past due and historical and future expectations of conditions that may
     impact the  Company's  ability  to  collect  its  accounts  receivable.  If
     circumstances  change or economic conditions worsen such that the Company's
     past collection experience is no longer relevant, the Company's estimate of
     the recoverability of its accounts receivable could be further reduced from
     the levels  reflected  in the  Company's  consolidated  balance  sheet.  If
     uncollectibility of the Company's billed revenue changes by 1%, the Company
     would expect an increase in uncollectible  expense of approximately $2,000.
     As of December 31, 2003, the Company had three customers that accounted for
     7%  of  consolidated   accounts  receivable  in  the  aggregate.   Although
     management believes that these customers are creditworthy, a severe adverse
     impact on their business  operations  could have a  corresponding  material
     effect on their  ability to pay timely  and,  therefore,  on the  Company's
     results of operations, cash flows and financial condition.


o    As discussed more fully in Note 1, the Company states its inventories  held
     for  sale  at  lower  of  cost  or  market.   In  assessing   the  ultimate
     recoverability  of  inventories,  the Company is required to make estimates
     regarding future customer demand and technological advances of equipment.

o    As  discussed  more  fully in Note 1,  property,  plant and  equipment  are
     recorded at cost.  Retirements and other reductions of regulated  telephone
     plant and equipment are charged against  accumulated  depreciation  with no
     gain or loss  recognized in accordance  with the composite  group remaining
     life  methodology  utilized  for  telephone  plant  assets.  When  property
     applicable to  non-telephone  operations is sold or retired,  the asset and
     related  accumulated  depreciation  are removed  from the  accounts and the
     associated  gain or loss is  recognized.  Property,  plant and equipment is
     depreciated  or  amortized  using  the  straight-line   method  over  their
     estimated  economic lives. The economic lives are estimated at the time the
     assets are acquired  and are based on  historical  experience  with similar
     assets,  as  well  as  anticipated   technological  or  other  changes.  If
     technological  changes  were to occur  more  rapidly  than  anticipated  or
     differently than  anticipated,  the economic lives assigned to these assets
     may  need  to be  shortened,  resulting  in the  recognition  of  increased
     depreciation and amortization expense in future periods.  Likewise,  if the
     anticipated   technological   or  other  changes  occur  more  slowly  than
     anticipated,  the life of the asset group  could be  extended  based on the
     life  assigned  to new assets  added to the group.  This could  result in a
     reduction of depreciation and amortization  expense in future periods.  The
     Company  reviews the  estimated  useful  lives of its  property,  plant and
     equipment once every three years, or when events or circumstances  indicate
     that the carrying amount may not be recoverable over the remaining lives of
     the assets.  In assessing the  recoverability  of the  Company's  property,
     plant and equipment,  the Company must make assumptions regarding estimated
     future  cash  flows and other  factors to  determine  the fair value of the
     respective assets.

o    As  discussed  in  Note  1,  the  Company  accounts  for  asset  retirement
     obligations  in  accordance  with  SFAS  No.  143,  "Accounting  for  Asset
     Retirement   Obligations,"  which  requires  the  Company  to  recognize  a
     retirement  obligation  (future  cost of removal)  when a legal  obligation
     exists to remove plant at some point in the future. The Company believes it
     may have  potential  retirement  obligations  relating to its wireless cell
     sites.  Based on  terms  outlined  in its  tower  leases,  the  Company  is
     obligated to return the land or facilities to their  original  condition at
     the end of the cell site lease term,  should the lease be  terminated.  The
     Company has used a  probability-weighted  cash flow  approach in estimating
     its potential retirement obligation. The Company calculates the net present
     value of the  retirement  obligation  assuming an  inflation  rate of 3%, a
     discount  rate of 7% and a market risk  premium of 4%. The Company has also
     assumed the  settlement  date is 25 years from the date the asset is placed
     into service. The Company has also used a  probability-weighted  assessment
     to address  the  uncertainty  regarding  the timing of future cash flows to
     settle  the  potential  liability.  The  Company  believes  that  utilizing
     probabilities  less than 100% is appropriate  because the Company  believes
     the  likelihood of incurring  material  asset  retirement  expenditures  is
     remote.  The  Company  monitors  the  estimates  and  assumptions  used  in
     determining its potential asset retirement  obligations for its cell sites.
     However,  the Company believes the likelihood any future  adjustment to its
     asset retirement obligation will be material to the Company's  consolidated
     financial statements is remote.

o    As  discussed  more  fully in Note 1, in  accordance  with  SFAS  No.  142,
     "Goodwill  and Other  Intangible  Assets,"  goodwill and wireless  spectrum
     licenses are reviewed for  impairment  annually,  or more  frequently if an
     event occurs or circumstances change that would reduce the fair value below
     its carrying value.  The impairment test for goodwill  requires the Company
     to estimate the fair value at the reporting  unit level.  The fair value is
     estimated  using a discounted  cash flow method.  Under the discounted cash
     flow method, the Company determines fair value by using estimated cash flow
     forecasts,  as well as estimates of terminal  value,  which are  discounted
     using applicable  discount rates. The use of different  assumptions  within
     the  Company's  discounted  cash flow  method  could  result  in  different
     valuations for goodwill.  As a result of the Company's  annual test for the
     current year, no impairment of goodwill was indicated.

     The Company's  wireless spectrum  licenses include Personal  Communications
     Services  ("PCS")  and  Local  Multipoint   Distribution  Service  ("LMDS")
     licenses.  In assessing the  recoverability  of the Company's PCS licenses,
     the Company reviewed  transactions  involving sales of comparable  wireless
     spectrum licenses in the aftermarket,  using characteristics of the license
     and  the  related  market,  including  geographic  location,  market  size,
     megahertz frequency and population density.

     In assessing the recoverability of the Company's LMDS licenses, the Company
     obtained an independent valuation, as comparable license sales data was not
     available.  The independent valuation estimates fair value of the Company's
     LMDS licenses using a discounted cash flow model.  Assumptions used in this
     model include the following:

     o    cash flow  assumptions  regarding  investment  in network  facilities,
          distribution  channels and customer base (the  assumptions  underlying
          these inputs are based upon a combination  of  historical  results and
          trends, new industry developments and the Company's business plans);

     o    a 25%  weighted  average  cost of capital  based on industry  weighted
          averaged  cost of capital  adjusted  to  reflect  the  inherent  risks
          associated with the introduction of a new service offering; and

     o    no terminal value.

     The use of different  estimates or assumptions  within the discounted  cash
     flow model when determining fair value of the Company's LMDS licenses could
     result in different values for these license. For example, the Company used
     a discount  rate of 25% in its  assessment  of fair value.  If the discount
     rate were to  decrease  one percent  and the  terminal  growth rate were to
     increase one percent, the fair value of the LMDS licenses would increase by
     $400.

     If the  estimated  fair  value is less than the  carrying  value,  then the
     carrying  value is  written  down to the  fair  value.  As a result  of the
     Company's  annual test for the current year, no impairment of either PCS or
     LMDS licenses was indicated.

o    As discussed  more fully in Notes 1 and 8, the Company  accounts for income
     taxes using the liability  method.  Under this method,  deferred tax assets
     and liabilities are determined  based on differences  between the financial
     reporting and tax bases of assets and  liabilities  and are measured  using
     the enacted  tax rates and laws that are  expected to be in effect when the
     differences are expected to reverse.  The Company does not have a valuation
     allowance on its deferred tax asset as of December 31, 2003 or 2002 because
     it believes it is more likely than not that such deferred tax asset will be
     realized. Should the Company determine that it would not be able to realize
     all or part of its deferred tax asset in the future,  an  adjustment to the
     deferred  tax asset  would be  charged to income in the period in which the
     determination  was made.  However,  the Company  believes it will  generate
     sufficient  taxable  income to realize the deferred tax asset of $20,573 as
     of December 31, 2003.

o    As   discussed   more  fully  in  Note  9,  the  Company  has  pension  and
     post-retirement  benefit costs and obligations.  The Company's  pension and
     post-retirement  benefit  obligations are actuarially  determined  based on
     estimates of discount  rates,  long-term rates of return on plan assets and
     increases in future  compensation  levels.  Changes in these  estimates and
     other  factors  could  significantly   impact  the  Company's  pension  and
     post-retirement  benefit costs and  obligations.  Assumed  health care cost
     trend  rates have a  significant  effect on the  amounts  reported  for the
     health care plans.  A  one-percentage-point  change in assumed  health care
     cost trend rates would have the following effects:
<TABLE>
<CAPTION>
                                                                   1-Percentage-Point  1-Percentage-Point
                                                                          Increase            Decrease
                                                                  -------------------  -------------------
                        <S>                                              <C>                     <C>
                Effect on total 2003 service and interest cost         $      56           $     (47)
                Effect on post-retirement benefit obligation
                  as of December 31, 2003                              $     274           $    (239)
</TABLE>

     The discount rate is determined based on the current yields on high quality
     corporate  fixed-income  investments  with maturities  corresponding to the
     expected duration of the benefit obligations.  As of December 31, 2002, the
     Company reduced the discount rate by 25 basis points to 6.75%.  This change
     in the discount rate did not have a material  impact on the Company's  2003
     consolidated results of operations.

     In 2003, the Company used an expected long-term rate of return of 8.5%. For
     2004, the Company does not believe the expected  long-term rate will change
     significantly.  The  expected  long-term  rate of return on plan  assets is
     determined based on the current and projected  investment portfolio mix and
     estimated long-term  investment returns for each asset class. The projected
     portfolio  mix of the plan  assets is  developed  in  consideration  of the
     expected duration of related plan obligations and private equity positions.
     The expected  return on plan assets is  determined by applying the expected
     long-term rate of return to the market-value of plan assets.

     The future  compensation  levels are based on recent  experience as well as
     future  expectations.  As of December  31,  2002,  the Company  reduced the
     future  compensation  level by 100 basis  points to 5.00% and it remains at
     that  level.  This change in the future  compensation  level did not have a
     material impact on the Company's 2003 consolidated results of operations.

o    As  discussed  more  fully in Notes 1 and 10,  the  Company is a party to a
     variety of litigation,  regulatory proceedings and other contingencies that
     arise in the ordinary course of business. The Company is required to assess
     the likelihood of any adverse  judgments or outcomes to these  matters,  as
     well as potential  ranges of probable  losses for certain of these matters.
     The   determination  of  the  liabilities   required,   if  any,  for  loss
     contingencies is made after careful  analysis of each individual  issue. In
     the opinion of management,  the ultimate  outcome of these matters will not
     materially affect the Company's consolidated financial position and results
     of operations.

o    The Company currently sponsors two Equity Incentive Plans (the "Plans") for
     certain employees,  outside directors and consultants of the Company, which
     were approved by the Company's  shareholders.  The Plans permit issuance by
     the  Company  of  awards in the form of  restricted  shares,  stock  units,
     performance shares,  stock options and stock appreciation  rights. Prior to
     2003,  the Company  accounted  for those plans  under the  recognition  and
     measurement  provisions of Accounting  Principles Board Opinion ("APB") No.
     25,   "Accounting   for   stock   issued   to   employees,"   and   related
     interpretations.  No stock based compensation expense for stock options was
     reflected in net income for the years ended  December 31, 2002 and 2001, as
     all stock options  granted under those plans had an exercise price equal to
     the  fair  value of the  underlying  common  stock  on the  date of  grant.
     Effective  January 1, 2003, the Company  adopted the preferable  fair value
     recognition  provisions  of  Statement of  Financial  Accounting  Standards
     ("SFAS") No. 123, "Accounting for Stock-Based  Compensation  Transition and
     Disclosure."  Under  the  prospective  transition  method  selected  by the
     Company,  as  described  in  SFAS  No.  148,  "Accounting  for  Stock-Based
     Compensation-Transition   and   Disclosure,"   compensation   expense   was
     recognized  in 2003 for all employee  awards  granted,  modified or settled
     after  January  1,  2003.   This  change  in  accounting  for   stock-based
     compensation  resulted  in  increased  compensation  expense of $47,  which
     decreased  net income by $28 (no effect on earnings per share) for the year
     ended December 31, 2003.

     The Company  voluntarily made the choice to change to the preferable method
     of accounting for employee  stock options in accordance  with SFAS No. 123.
     The  Company   concluded   that  stock  options  are  a  form  of  employee
     compensation expense and, therefore,  it is appropriate that these expenses
     be recorded in the results of operations to more clearly  reflect  economic
     reality.

     The  Black-Scholes  option  pricing model  includes  assumptions  regarding
     dividend yields, expected volatility, expected lives and risk-free interest
     rates.  These assumptions  reflect  management's best estimates,  but these
     items involve inherent  uncertainties based on market conditions  generally
     outside of the control of the Company.  As a result,  if other  assumptions
     had been used in the current period, stock-based compensation expense could
     have been materially different. If management uses different assumptions in
     future  periods,  stock-based  compensation  expense  could  be  materially
     impacted in future years.

                        Recent Accounting Pronouncements

On May 15, 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with  Characteristics  of Both Liabilities and Equity." SFAS No. 150
establishes  standards  for  classifying  and measuring as  liabilities  certain
financial   instruments   that  embody   obligations  of  the  issuer  and  have
characteristics of both liabilities and equity,  such as mandatorily  redeemable
equity instruments.  The adoption of SFAS No. 150 had no effect on the Company's
2003 consolidated financial statements.

In January 2003, the FASB issued  Interpretation  ("FIN") No. 46, "Consolidation
of  Variable  Interest  Entities,"  an  interpretation  of  Accounting  Research
Bulletin ("ARB") No. 51, "Consolidated Financial Statements." FIN No. 46 applies
to  any  business  enterprise  that  has  a  controlling  interest,  contractual
relationship  or other business  relationship  with a variable  interest  entity
("VIE") and establishes  guidance for the consolidation of VIEs that function to
support the activities of the primary  beneficiary.  The Company believes it has
no investments in, or contractual or other business  relationships  with,  VIEs.
The adoption of FIN No. 46 had no effect on the Company's consolidated financial
statements as of and for the year ended December 31, 2003.

In July 2002,  the FASB issued SFAS No. 146,  "Accounting  for Costs  Associated
with an Exit or Disposal Activity." SFAS No. 146 revises the accounting for exit
and disposal activities EITF Issue No. 94-3, "Liability  Recognition for Certain
Employee  Termination  Benefits  and Other Costs to Exit an Activity  (Including
Certain Costs  Incurred in a  Restructuring),"  by extending the period in which
expenses  related to  restructuring  activities are reported.  A commitment to a
plan to exit an activity or dispose of long-lived assets is no longer sufficient
to  record  a  one-time  charge  for  most  restructuring  activities.  Instead,
companies will record exit or disposal costs when they are "incurred" and can be
measured  at  fair  value.  In  addition,  the  resultant  liabilities  must  be
subsequently  adjusted for changes in estimated cash flows.  The Company adopted
SFAS No. 146 on January 1, 2003,  and the  adoption of this new standard did not
have a material effect on the Company's  consolidated financial statements as of
and for the year ended December 31, 2003.

On December 31, 2002, the FASB issued SFAS No. 148,  "Accounting for Stock-Based
Compensation  - Transition  and  Disclosure."  SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based  Compensation,"  to provide  alternative  methods of
transition  for an entity that  voluntarily  changes to the fair value method of
accounting for stock-based employee  compensation.  In addition,  it also amends
the disclosure  provisions of SFAS No. 123 to require prominent disclosure about
the effects on reported net income  including per share amounts,  of an entity's
accounting policy decisions with respect to stock-based employee compensation in
annual and interim  financial  statements.  SFAS No. 148 does not amend SFAS No.
123 to require companies to account for their stock-based employee  compensation
using the fair value  method.  The  disclosure  provisions  of SFAS No. 123 were
effective immediately in 2002. The Company changed its method of accounting on a
prospective basis for stock-based employee compensation to the fair value method
during the fourth  quarter of 2003.  The  adoption of this new  standard did not
have a material effect on the Company's  consolidated financial statements as of
and for the year ended December 31, 2003.

In August 2001, the FASB issued SFAS No. 143,  "Accounting for Asset  Retirement
Obligations."  SFAS No. 143 requires  that the fair value of a liability  for an
asset retirement  obligation be recognized in the period in which it is incurred
if a  reasonable  estimate  of fair  value  can be made.  The  associated  asset
retirement  costs  are  capitalized  as  part  of  the  carrying  amount  of the
long-lived  asset.  The  Company  adopted  SFAS No. 143 on January 1, 2003.  The
adoption of this new  standard did not have a material  effect on the  Company's
consolidated  financial  statements  as of and for the year ended  December  31,
2003.

In October  2002,  the FASB's EITF reached a consensus on EITF Issue No.  00-21,
"Accounting for Revenue  Arrangements  with Multiple  Deliverables."  Under EITF
Issue No. 00-21, revenue arrangements with multiple deliverables are required to
be divided into separate units of accounting  under certain  circumstances.  The
Company  adopted EITF Issue No. 00-21 on a  prospective  basis for  arrangements
entered into after June 30, 2003.  The Company has  determined  that the sale of
its wireless  handsets and the associated phone service provided by the Wireless
segment should be considered  separate units of accounting  under EITF Issue No.
00-21.  Accordingly,  beginning on July 1, 2003, the Company began applying EITF
Issue No. 00-21 to all wireless  handset  sales below cost,  which  approximates
fair value in the  absence  of an  activation  "subsidy,"  when it  receives  an
up-front fee of any kind (e.g., a service  activation  fee). The  application of
EITF Issue No. 00-21  resulted in the immediate  recognition of all or a portion
of such up-front fees as equipment sales revenue. Additionally, when the Company
activates wireless service for a customer, but does not concurrently provide the
customer with a handset,  any up-front fees received continue to be deferred and
amortized  over the  expected  term of the  customer  relationship.  The Company
provides a general  right of return  within  the first 30 days of service  for a
100%  refund of the handset  cost.  The  estimated  equipment  return  allowance
associated   with  this  right  of  return  is  estimated  based  on  historical
experience.  The adoption of EITF Issue No. 00-21 did not have a material effect
on the Company's 2003 consolidated financial statements.

In  November  2002,  the FASB  issued FIN No. 45,  "Guarantor's  Accounting  and
Disclosure  Requirements  for  Guarantees,   Including  Indirect  Guarantees  of
Indebtedness of Others." FIN No. 45 requires  certain  guarantees to be recorded
at fair value,  which is different from current practice,  which is generally to
record a liability  only when a loss is probable and reasonably  estimable.  FIN
No. 45 also requires a guarantor to make significant new disclosures,  even when
the  likelihood  of making any  payments  under the  guarantee  is  remote.  The
disclosure  provisions of FIN No. 45 were  effective  immediately  in 2002.  The
Company adopted the  recognition  and measurement  provisions of FIN No. 45 on a
prospective  basis with respect to guarantees  issued or modified after December
31, 2002. The adoption of the recognition and measurement  provisions of FIN No.
45 did not  have a  material  effect  on the  Company's  consolidated  financial
statements as of and for year ended December 31, 2003.

The Company  adopted SFAS No. 142,  "Goodwill and Other  Intangible  Assets," on
January 1, 2002.  SFAS No. 142 addresses  accounting  and reporting for acquired
goodwill  and other  intangible  assets  and  supersedes  APB  Opinion  No.  17,
"Intangible  Assets."  Under the  provisions  of SFAS No.  142,  goodwill is not
amortized but instead  evaluated at least  annually for impairment in a two-step
process.  In the first step,  the fair value of each  reporting unit is compared
with the carrying amount of the reporting unit, including goodwill.  The Company
has determined  that the reporting  units are equal to its  reportable  business
segments since the business  units within the  reportable  segments have similar
economic  characteristics.  Goodwill was  allocated to the  reporting  unit that
received economic benefit from the acquisition.  The estimated fair value of the
reporting  unit is generally  determined on the basis of discounted  future cash
flows.  The  assumptions  used in the  estimate  of  fair  value  are  generally
consistent  with  the  past  performance  of each  reporting  unit  and are also
consistent with the forecast and assumptions that are used in current  operating
plans.  Such assumptions are subject to change as a result of changing  economic
and competitive conditions. If the estimated fair value of the reporting unit is
less than the carrying  amount of the reporting unit, then a second step must be
completed  in order to  determine  the amount of the  goodwill  impairment  that
should be recorded.  In the second step, the implied fair value of the reporting
unit's  goodwill is determined by allocating the reporting  unit's fair value to
all of its assets and  liabilities  other than goodwill in a manner similar to a
purchase price allocation. The resulting implied fair value of the goodwill that
results  from  the  application  of this  second  step is then  compared  to the
carrying  amount of the  goodwill and an  impairment  charge is recorded for the
difference.

The Company  believes its  wireless  spectrum  licenses  have  indefinite  lives
because such licenses can be renewed  indefinitely at little cost.  Accordingly,
the Company has applied  the  nonamortization  provision  of SFAS No. 142 to the
Company's  wireless spectrum licenses  effective January 1, 2002, which resulted
in an  increase  in the  Company's  consolidated  net income of $305  ($0.02 per
share) for the years ended December 31, 2003 and 2002.  The Company's  operating
results for the year ended  December  31,  2001  included  $483 of  amortization
expense related to the Company's wireless spectrum  licenses.  In the absence of
such amortization, the Company's adjusted net income for the year ended December
31,  2001 would have been  $10,600  ($0.69 per  share).  Beginning  in the first
quarter of 2002,  the Company's  wireless  spectrum  licenses are carried at the
lower of cost or fair value, which is evaluated at least annually and determined
based on transactions  involving sales of comparable  wireless spectrum licenses
in the aftermarket or independent valuations.

The goodwill  recognized by the Company in connection  with the  acquisition  of
SureWest  Custom Data Services in July 2001 has been  allocated to the telephone
operating  segment and is not being  amortized  based on the  provisions of SFAS
No's. 141 and 142.

The Company tests for impairment annually during the fourth quarter. The Company
completed  its annual  impairment  tests during the fourth  quarters of 2003 and
2002 and did not identify any  impairment  of its goodwill or wireless  spectrum
licenses.

On January 1, 2002,  the Company  adopted the  provision of EITF Issue No. 01-9,
"Accounting  for  Consideration  Given by a Vendor to a  Customer  (Including  a
Reseller of the Vendor's Products)," dealing with consideration from a vendor to
a reseller under cooperative advertising and other arrangements.  This provision
of EITF Issue No. 01-9 states that  consideration from a vendor to a resel1er of
the  vendor's  products or services is presumed to be a reduction of the selling
price of the vendor's  products or  services,  unless the vendor (i) receives an
identifiable  benefit in return for the  consideration  and (ii) can  reasonably
estimate the fair value of the benefit received.  If the amount of consideration
paid by the vendor exceeds the estimated fair value of the benefit received, the
excess  amount is to be recorded by the vendor as a reduction of  revenues.  The
application of this new guidance did not have a material effect on the Company's
2003 and 2002 consolidated financial statements.

On January 1, 2002,  the  Company  adopted  SFAS No.  144,  "Accounting  for the
Impairment  or Disposal of Long-Lived  Assets,  which  supersedes  SFAS No. 121,
Accounting for the Impairment of Long-Lived  Assets and for Long-lived Assets to
Be Disposed Of," and provides a single accounting model for long-lived assets to
be disposed of. The  adoption of SFAS No. 144 did not have a material  effect on
the Company's 2002 consolidated financial statements.

                    Factors That Could Affect Future Results

As a result of the following factors,  as well as other variables  affecting our
operating results, past financial performance may not be a reliable indicator of
future  performance,  and  historical  trends should not  necessarily be used to
anticipate results or trends in future periods.

Representative  examples  of these  factors  include  (without  limitation)  the
following:

     We expect to continue to face  significant  competition in all parts of our
     business  and the  level of  competition  is  expected  to  intensify.  The
     telecommunications  industry  is  highly  competitive.  We face  actual  or
     potential competition from many existing and emerging companies,  including
     other incumbent and competitive  local telephone  companies,  long-distance
     carriers and resellers,  wireless  telephone  companies,  Internet  service
     providers,  satellite companies and cable television companies.  We may not
     be able to  successfully  anticipate  and  respond to  various  competitive
     factors  affecting  the  industry,  including  regulatory  changes that may
     affect our competitors and us differently,  new  technologies  and services
     that may be introduced, changes in consumer preferences, demographic trends
     and discount pricing strategies by competitors. As the incumbent carrier in
     Sacramento,   SBC  Communications   enjoys  certain  business   advantages,
     including its size,  financial  resources,  favorable  regulatory position,
     brand  recognition  and  connection  to virtually  all of our customers and
     potential  customers there. As the largest cable operator in Sacramento and
     Placer County,  Comcast enjoys certain business  advantages,  including its
     size, financial resources,  ownership or superior access to programming and
     other content, brand recognition, and first-in-the-field  advantages with a
     customer base that generates positive cash flow for its operations. We face
     intense  competition in our markets for long-distance,  Internet access and
     other  ancillary  services  that are  important  to our business and to our
     growth strategy.

     We must adapt to rapid  technological  change.  Technological  developments
     could increase our costs and cause a decline in demand for our services. In
     addition,   technology   changes  can  give  competitors   significant  new
     advantages.  If we do not replace or upgrade  technology and equipment that
     becomes obsolete,  we will be unable to compete effectively because we will
     not  be  able  to  meet  the  needs  or   expectations  of  our  customers.
     Additionally, replacing or upgrading our infrastructure in the future could
     result in significant capital expenditures.

     We are  subject to a complex and  uncertain  regulatory  environment.  Some
     parts  of our  business  are  extensively  regulated,  and  the  nature  of
     regulation continues to undergo fundamental change and reinterpretation.

     Our operations have undergone  material  changes,  and our actual operating
     results  can be  expected  to  differ  from the  results  indicated  in our
     historical financial  statements.  As a result of our acquisition of assets
     from WIN in 2002, our mix of operating assets differs from those operations
     upon which our historical financial statements are based. Consequently, our
     historical  financial  statements  may not be reliable as an  indicator  of
     future results.

     Our success depends upon our ability to manage our growth and expansion. If
     our acquisitions and growth initiatives are not successful, we could suffer
     an adverse  effect on our  business and results of  operations.  Our growth
     strategy will require us to invest significant capital in services that may
     not achieve the desired returns.  Our future success depends, in part, upon
     our ability to manage our growth,  including  our ability to build  network
     and related facilities to serve new customers,  integrate our operations to
     take advantage of new capabilities and systems;  attract and retain skilled
     personnel across the Company,  effectively manage the demands of day to day
     operations in new areas while attempting to execute our business  strategy,
     and realize the projected  growth and revenue targets  developed by Company
     management.

     We have more indebtedness now than at December 31, 2002. In March 2003, the
     Company  completed  a note  purchase  agreement  for  the  issuance  of its
     unsecured  Series  B Senior  Notes  ("Series  B  Notes")  in the  aggregate
     principal  amount of $60,000.  The Series B Notes have a final  maturity of
     ten  years  and an  average  life  of  eight  years.  Interest  is  payable
     semi-annually at a fixed rate of 4.74%. Principal payments are due in equal
     annual installments of $12,000 commencing in March 2009 and ending in March
     2013.  The Company used a portion of the proceeds  from the issuance of the
     Series  B Notes to  retire  certain  short-term  borrowings,  which  had an
     aggregate  outstanding principal balance of $15,000. A substantial intended
     use of the Series B Notes  proceeds was and  continues to be the funding of
     capital  expenditures  for  the  Company's  SureWest  Broadband/Residential
     Services business.

     We are reliant on support funds  provided  under federal and state laws. We
     receive  revenues from various  federal or state support  funds:  long term
     support from the Universal Service Program,  CHCF-B and Universal  Lifeline
     Service  Fund.  These  governmental  programs are reviewed and amended from
     time to time, and are likely to change in the near future.  The outcome and
     impact on the Company's  operations  resulting from future changes to these
     governmental programs cannot be determined at this time.

     We could be harmed  by the  recent  adverse  developments  affecting  other
     communications  companies.  There have been numerous bankruptcies and other
     financial  difficulties  experienced by other carriers and suppliers in the
     telecommunications  and  Internet  sectors.  Similar  situations  with  our
     suppliers,  some of whom provide  products and services for which there are
     few substitutes, could cause us to experience delays, service interruptions
     or additional expenses.

     We depend on third  parties,  over whom we have no control,  to deliver our
     services.  Because of the interconnected  nature of the  telecommunications
     industry,   we  depend   heavily  on  other  local   telephone   companies,
     long-distance  carriers,  and numerous  other third  parties to deliver our
     services.  In addition,  we are  dependent  on  easements,  franchises  and
     licenses  from  various  private  parties  such  as  established  telephone
     companies and other utilities,  railroads,  long-distance companies,  state
     highway  authorities,  local governments and transit authorities for access
     to aerial pole space, underground conduits and other rights-of-way in order
     to construct  and operate our  networks.  The failure to maintain in effect
     the necessary third party  arrangements  on acceptable  terms would have an
     adverse effect on our ability to conduct our business.

     If we are unable to  effectively  and  efficiently  implement the necessary
     initiatives to eliminate the material weaknesses identified in our internal
     controls and procedures, there could be an adverse affect on our operations
     or financial results.  Our auditors,  Ernst & Young LLP, in connection with
     the audit of the Company's  consolidated  financial statements for the year
     ended  December 31, 2003,  advised us that they had concluded that material
     weaknesses  in the  Company's  internal  control  existed,  including  with
     respect  to  issues  identified  as a result of the  special  investigation
     instituted by the Audit Committee. The specific matters identified by Ernst
     &  Young  LLP  encompassed  (i)  control  of  cash  and  investments,  (ii)
     accounting  personnel,  policies and  procedures  and (iii)  accounting for
     property,   plant  and  equipment.   We  performed  substantial  additional
     procedures  designed to ensure that the internal  control  deficiencies did
     not  lead  to  material   misstatements  in  our   consolidated   financial
     statements.

     We have  already  implemented  various  initiatives,  and  are  considering
     additional  initiatives to improve our internal  controls,  and address the
     matters  identified  by  Ernst  &  Young  LLP.  The  implementation  of the
     initiatives and the consideration of additional necessary  improvements are
     among our highest priorities.  The Board of Directors,  under the direction
     of the  Audit  Committee,  will  continually  assess  the  progress  of the
     initiatives  and the  improvements,  and take  further  actions  as  deemed
     necessary.  Until all of the identified material weaknesses are eliminated,
     there  is a risk  of an  adverse  affect  on our  operations  or  financial
     results.  In addition,  we anticipate that the initiatives will require the
     hiring of additional  employees and the  incurrence of fees and expenses of
     third parties necessary to improve the internal controls,  likely resulting
     in increased operating expenses.

                          Regulatory and Legal Matters

SureWest  Telephone is subject to  regulation  by the FCC and CPUC. In the past,
there have been  various  proceedings  before these  agencies to which  SureWest
Telephone has been a party. In 1996, Congress passed the  Telecommunications Act
of 1996 (the "Act"), which significantly changed the regulatory  environment for
telecommunications  companies.  Beginning in 1996, the FCC conducted proceedings
and adopted  orders  implementing  the Act's  provisions to open local  exchange
service markets, such as the market of SureWest Telephone, to competition. These
proceedings  and orders  address  interconnection,  access charges and universal
service.  With  respect  to local  competition,  the FCC rules  outline  pricing
methodologies for the states to follow when setting rates for incumbent carriers
(such as SureWest  Telephone) to charge competitors for resale,  interconnection
and unbundled network elements.

Given the Act's relatively  recent  enactment,  the ongoing actions taken by the
FCC to promulgate  rules and regulations on  interconnection  access charges and
universal service reform, and the various on-going legal challenges  considering
the validity of these FCC orders,  it is not yet possible to determine fully the
impact  of  the  Act  and  related  FCC  regulations  on  SureWest   Telephone's
operations.

The Company's  financial  condition and results of operations have been and will
be affected by recent and future  proceedings  before the CPUC and FCC.  Pending
before the FCC and CPUC are proceedings which are considering:

     o    additional rules governing the opening of markets to competition;

     o    the goals and definition of universal  telephone service in a changing
          environment,  including  examination of subsidy support mechanisms for
          subscribers of different carriers  (including  incumbent carriers) and
          in various geographic areas;

     o    rules that will provide non-discriminatory access by competing service
          providers to the network capabilities of local exchange carriers and

     o    the regulated rates and earnings of SureWest Telephone.

There are a number of  pending  and  anticipated  other  regulatory  proceedings
occurring  at the  federal and state  levels that may have a material  impact on
SureWest Telephone.  These regulatory  proceedings  include, but are not limited
to,   consideration  of  changes  to  the  interstate  universal  service  fund,
intercarrier  compensation  (including access charges) reform and the regulation
of local exchange carriers,  and regulation of IP-enabled services. The outcomes
and impact on SureWest  Telephone's  operations of these proceedings and related
court matters cannot be determined at this time.

The  eventual  impact  on the  Company  of the  effect  of all  the  proceedings
described above cannot presently be determined.



<PAGE>



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

The  Company's  limited  exposure to market  risk for changes in interest  rates
relates  primarily to its  long-term  debt  obligations.  The Company  primarily
enters  into debt  obligations  to support  capital  expenditures.  The  Company
currently  has no cash flow  exposure  due to rate  changes for  long-term  debt
obligations, as all obligations are at fixed rates. As of December 31, 2003, the
Company had debt  obligations of $96.4 million with an average  interest rate of
5.3%. Based on borrowing rates currently  available for loans with similar terms
and  maturities,  the estimated  fair value of long-term debt as of December 31,
2003  was  $101.3  million.  The  Company  does  not  use  derivative  financial
instruments in its investment portfolio or for any other purposes



<PAGE>



Item 8.  Financial Statements and Supplementary Data.
<TABLE>
<CAPTION>
                                                                                                              Page

<S>                                                                                                             <C>
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm ...............................       57

Consolidated Balance Sheets as of December 31, 2003 and 2002 .............................................       58

Consolidated Statements of Income for each of the three years in the period ended
December 31, 2003.........................................................................................       60

Consolidated Statements of Shareholders' Equity for each of the three years in the
period ended December 31, 2003............................................................................       61

Consolidated Statements of Cash Flows for each of the three years in the period ended
December 31, 2003.........................................................................................       62

Notes to Consolidated Financial Statements ...............................................................       64
</TABLE>


<PAGE>






   Report of Ernst & Young LLP, Independent Registered Public Accounting Firm



The Board of Directors and Shareholders
SureWest Communications

We have  audited  the  accompanying  consolidated  balance  sheets  of  SureWest
Communications  as of December 31, 2003 and 2002,  and the related  consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 2003. These financial  statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,   the  consolidated   financial  position  of  SureWest
Communications  at December 31, 2003 and 2002, and the  consolidated  results of
its  operations  and its cash  flows for each of the three  years in the  period
ended December 31, 2003, in conformity with U.S. generally  accepted  accounting
principles.

As discussed in Note 1 to the  consolidated  financial  statements,  in 2003 the
Company adopted the fair value recognition  provisions of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation, using the
prospective  adoption  method  under the  provisions  of  Statement of Financial
Accounting  Standards  No.  148,  Accounting  for  Stock-Based   Compensation  -
Transition and Disclosure.  As discussed in Note 1 to the consolidated financial
statements,  in 2003 the Company  changed its method of  accounting  for revenue
recognition  upon the  prospective  adoption of Emerging Issues Task Force Issue
No. 00-21,  Accounting for Revenue Arrangements with Multiple  Deliverables.  As
discussed  in Note 1 to the  consolidated  financial  statements,  in  2002  the
Company  discontinued  the amortization of certain  indefinite-lived  intangible
assets in accordance with Statement of Financial  Accounting  Standards No. 142,
Goodwill and Other Intangible Assets.


                                          /s/ Ernst & Young LLP



Sacramento, California
March 19, 2004



<PAGE>



                             SUREWEST COMMUNICATIONS
                           CONSOLIDATED BALANCE SHEETS
                             (amounts in thousands)

<TABLE>
<CAPTION>
                                                                                       December 31,
ASSETS                                                                          2003                  2002
                                                                            -------------         -------------
<S>                                                                             <C>                      <C>
Current assets:
   Cash and cash equivalents                                                 $    39,008           $    20,385
   Short-term investments                                                          2,699                     -
   Accounts receivable (less allowances of $2,665 and $1,705 at
      December 31, 2003 and 2002, respectively)                                   18,846                19,747
   Refundable income taxes                                                             -                 6,868
   Deferred income tax asset                                                         209                     -
   Inventories                                                                     5,537                 3,651
   Deferred directory costs                                                        5,320                 3,657
   Prepaid expenses and other current assets                                       3,440                 2,102
                                                                            -------------         -------------
Total current assets                                                              75,059                56,410

Property, plant and equipment, net                                               342,967               321,259

Intangible and other assets:
   Wireless spectrum licenses, net                                                13,566                13,566
   Goodwill                                                                        2,171                 2,171
   Intangible asset relating to pension plans                                        125                 1,507
   Intangible asset relating to favorable operating leases, net                      649                 1,260
   Deferred charges and other assets                                                 672                   343
                                                                            -------------         -------------
                                                                                  17,183                18,847
                                                                            -------------         -------------
                                                                             $   435,209           $   396,516
                                                                            =============         =============
</TABLE>





                             See accompanying notes.


<PAGE>




                             SUREWEST COMMUNICATIONS
                     CONSOLIDATED BALANCE SHEETS (CONTINUED)
                             (amounts in thousands)

<TABLE>
<CAPTION>
                                                                                       December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY                                            2003                   2002
                                                                            -------------         -------------
<S>                                                                             <C>                     <C>
Current liabilities:
  Current portion of long-term debt                                         $      3,779           $     5,920
  Current portion of capital lease obligations                                       347                   309
  Accounts payable                                                                 2,206                   605
  Other accrued liabilities                                                       14,727                 6,085
  Estimated shareable earnings obligations                                        13,389                 9,350
  Advance billings and deferred revenues                                           9,882                 7,919
  Accrued income taxes                                                             1,908                     -
  Accrued pension benefits                                                             -                 5,613
  Accrued compensation                                                             4,860                 4,902
                                                                            -------------         -------------
Total current liabilities                                                         51,098                40,703

Short-term borrowings refinanced on a long-term basis                                  -                15,000
Long-term debt                                                                    92,870                36,645
Long-term capital lease obligations                                                  265                   607
Deferred income taxes                                                             25,946                26,552
Other liabilities and deferred revenues                                            7,502                 8,004
Commitments and contingencies

Shareholders' equity:
  Common stock, without par value; 200,000 authorized,
     14,578 and 14,529 shares issued and outstanding at
     December 31, 2003 and 2002, respectively                                    160,911               158,567
  Deferred stock-based compensation                                               (1,419)                 (116)
  Accumulated other comprehensive loss                                              (261)               (1,637)
  Retained earnings                                                               98,297               112,191
                                                                            -------------         -------------
Total shareholders' equity                                                       257,528               269,005
                                                                            -------------         -------------
                                                                            $    435,209           $   396,516
                                                                            =============         =============
</TABLE>




                             See accompanying notes.


<PAGE>



                             SUREWEST COMMUNICATIONS
                        CONSOLIDATED STATEMENTS OF INCOME
                (amounts in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                       Years Ended December 31,
                                                           2003                 2002               2001
                                                         ------------     ------------       -------------
<S>                                                           <C>             <C>               <C>
Operating revenues:
   Local service                                          $   63,363       $    66,283        $    63,816
   Network access service                                     51,286            58,426             49,030
   Directory advertising                                      15,087            14,824             14,237
   Long distance service                                       5,098             5,368              5,830
   Wireless service                                           27,146            23,225             16,056
   Internet service                                           15,984             7,578              3,722
   Residential broadband service                               9,586             3,052                  -
   Business broadband service                                  3,697             2,421                927
   Other                                                       4,090             4,778              9,867
                                                         ------------     -------------       ------------
     Total operating revenues                                195,337           185,955            163,485

Operating expenses:
   Cost of services and products (exclusive of
     depreciation and amortization)                           66,890            61,220             53,075
   Customer operations and selling                            34,094            34,271             32,852
   General and administrative                                 34,136            29,648             24,954
   Depreciation and amortization                              52,470            45,126             39,841
                                                         ------------     -------------       ------------
     Total operating expenses                                187,590           170,265            150,722

Income from operations                                         7,747            15,690             12,763

Other income (expense):
   Interest income                                               306               739              4,803
   Interest expense                                           (4,247)           (1,876)            (1,314)
   Gain on sale of alarm monitoring assets                         -             4,435                  -
   Corporate treasury loss                                    (1,828)                -                  -
   Other, net                                                   (311)             (313)               934
                                                         ------------     -------------       ------------
   Total other income (expense), net                          (6,080)            2,985              4,423
                                                         ------------     -------------       ------------
Income before income taxes                                     1,667            18,675             17,186

Income taxes                                                   1,022             7,426              6,869
                                                         ------------     -------------       ------------

Net income                                                $      645      $     11,249       $     10,317
                                                         ============    ==============     ==============

Basic and diluted earnings per share                      $     0.04      $       0.76       $       0.67
                                                         ============    ==============     ==============
Dividends per share                                       $     1.00      $       1.00       $       1.00
                                                         ============    ==============     ==============

Shares of common stock used to calculate
   earnings per share:
         Basic                                                14,522            14,728             15,326
                                                         ============    ==============     ==============
         Diluted                                              14,539            14,795             15,387
                                                         ============    ==============     ==============
</TABLE>

                             See accompanying notes.


<PAGE>



                             SUREWEST COMMUNICATIONS
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                             (amounts in thousands)
<TABLE>
<CAPTION>
                                                   Common Stock
                                           --------------------------  -------------  --------------  -------------  ------------
                                                                          Deferred           Other
                                            Number of                   Stock-Based    Comprehensive    Retained
                                             Shares         Amount      Compensation       Loss         Earnings         Total
                                           -----------  -------------  -------------  --------------  -------------  ------------
<S>                                             <C>             <C>            <C>              <C>           <C>            <C>
Balance at December 31, 2000                   15,510     $  181,547    $        -       $        -     $  143,455    $  325,002
   Issuance of common stock upon exercise
     of options                                     7            288             -                -              -           288
   Issuance of restricted common stock              8            363          (363)               -              -             -
   Repurchase of common stock                    (415)       (10,115)            -                -         (8,417)      (18,532)
   Amortization of deferred stock-based
     compensation                                   -              -            60                -              -            60
   Cash dividends                                   -              -             -                -        (15,342)      (15,342)
   Net income                                       -              -             -                -         10,317        10,317
                                           -----------  -------------  -------------  --------------  -------------  ------------
Balance at December 31, 2001                   15,110        172,083          (303)               -        130,013       301,793

   Issuance of common stock upon exercise
     of options                                    23            896             -                -              -           896
   Issuance of restricted common stock              2             46             -                -              -            46
   Repurchase of common stock                    (606)       (15,149)            -                -        (14,318)      (29,467)
   Amortization of deferred stock-based
     compensation                                   -              -           187                -              -           187
   Tax benefits from stock plans                    -            691             -                -              -           691
   Minimum pension and post-retirement
     benefit obligation adjustment, net of
     income taxes                                   -              -             -           (1,637)             -        (1,637)
   Cash dividends                                   -              -             -                -        (14,753)      (14,753)
   Net income                                       -              -             -                -         11,249        11,249
                                           -----------  -------------  -------------  --------------  -------------  ------------
Balance at December 31, 2002                   14,529        158,567          (116)          (1,637)       112,191       269,005

   Issuance of common stock upon exercise
     of options                                     5            164             -                -              -           164
   Issuance of stock options to employees           -             47             -                -              -            47
   Issuance of restricted common stock             44          1,594        (1,594)               -              -             -
   Repurchase of common stock                       -              -             -                -              -             -
   Amortization of deferred stock-based
     compensation                                   -              -           291                -              -           291
   Tax benefits from stock plans                    -            539             -                -              -           539
     Minimum pension and post-retirement
     benefit obligation adjustment, net of
     income taxes                                   -              -             -            1,376              -         1,376
   Cash dividends                                   -              -             -                -        (14,539)      (14,539)
   Net income                                       -              -             -                -            645           645
                                           -----------  -------------  -------------  --------------  -------------  ------------

Balance at December 31, 2003                   14,578     $  160,911    $   (1,419)      $     (261)    $   98,297    $  257,528
                                           ===========  =============  =============  ==============  =============  ============

</TABLE>



                             See accompanying notes.

<PAGE>

                             SUREWEST COMMUNICATIONS
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                Increase (Decrease) in Cash and Cash Equivalents
                             (amounts in thousands)
<TABLE>
<CAPTION>

                                                                        Years ended December 31,
                                                            2003                 2002                  2001
                                                        -------------        -------------         -------------
<S>                                                              <C>              <C>                    <C>
Cash flows from operating activities:
   Net income                                            $       645          $    11,249           $    10,317
   Adjustments to reconcile net income to net cash
     provided by (used in) operating activities:
       Depreciation and amortization                          52,470               45,126                39,841
       Provision for deferred income taxes                    (1,309)              17,128                10,381
       Gain on sale of alarm monitoring assets                     -               (4,435)                    -
       Provision (benefit) for doubtful accounts               3,381                3,811                 2,896
       Stock-based compensation                                  338                  202                    60
       Other, net                                                307                   (4)                  838
       Net changes in:
         Receivables                                          (2,480)              (3,624)                2,110
         Refundable and accrued income taxes, net              8,852               (3,558)              (94,669)
         Inventories, prepaid expenses and other
            current assets                                    (1,926)                (155)                 (774)
         Accounts payable                                      1,601               (2,777)                  476
         Accrued liabilities and other deferred
            credits                                           11,229              (16,161)               (4,372)
                                                        -------------        -------------         -------------
 Net cash provided by (used in) operating
   activities                                                 73,108               46,802               (32,896)

Cash flows from investing activities:
   Purchase of substantially all of the assets
     from Western Integrated Networks, LLC                       (62)             (12,529)                    -
   Proceeds from the sale of alarm monitoring
     assets                                                        -                4,495                   500
   Purchase of business, net of cash acquired                      -                    -                (2,091)
   Purchase of minority interest in subsidiary                     -                    -                (2,500)
   Capital expenditures for property, plant and
     equipment                                               (76,105)             (44,352)              (69,556)
   Purchases of held-to-maturity investments                 (25,351)                   -                (8,843)
   Maturities of held-to-maturity investments                 20,652                1,723                14,555
   Sale of held-to-maturity investment prior to
     maturity                                                  2,000                    -                     -

   Return of investment in cellular partnership                    -                    -                 5,513
   Redemption of long-term certificate of deposit
     with related party                                            -                    -                15,000
   Other, net                                                     33                  192                   691
                                                        -------------        -------------         -------------
 Net cash used in investing activities                       (78,833)             (50,471)              (46,731)

</TABLE>


                             See accompanying notes.

<PAGE>



                             SUREWEST COMMUNICATIONS
                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                Increase (Decrease) in Cash and Cash Equivalents
                             (amounts in thousands)

<TABLE>
<CAPTION>

                                                                        Years ended December 31,
                                                            2003                 2002                  2001
                                                        -------------        -------------         -------------
        <S>                                                 <C>                   <C>                   <C>
 Cash flows from financing activities:
  Principal payments of long-term debt                  $    (5,921)         $    (2,142)          $    (2,143)
  Proceeds from issuance of long-term debt                   60,000                    -                     -
  Payment of debt issuance costs                               (356)                   -                     -
  Increase (decrease) in short-term borrowings              (15,000)              15,000                     -
  Dividends paid                                            (14,539)             (14,753)              (15,342)
  Proceeds from exercise of stock options                       164                  896                   288
  Repurchase of common stock                                      -              (29,467)              (18,532)
  Other, net                                                      -                    -                   (79)
                                                        -------------        -------------         -------------
 Net cash provided by (used in)
  financing activities                                       24,348              (30,466)              (35,808)
                                                        -------------        -------------         -------------

 Increase (decrease) in cash and cash equivalents            18,623              (34,135)             (115,435)

 Cash and cash equivalents at beginning of year              20,385               54,520               169,955
                                                        -------------        -------------         -------------

 Cash and cash equivalents at end of year                $   39,008          $    20,385           $    54,520
                                                        =============        =============        ==============
</TABLE>


                             See accompanying notes.



<PAGE>




                             SUREWEST COMMUNICATIONS
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

           (Amounts in thousands, except share and per share amounts)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business and Basis of Accounting

SureWest  Communications  (the "Company") is a holding company with wholly-owned
subsidiaries  that  provide  integrated   communications  services  in  Northern
California.  The Company's principal operating  subsidiary is SureWest Telephone
(formerly known as Roseville Telephone Company). SureWest Directories,  SureWest
Long Distance  (formerly  known as Roseville  Long Distance  Company),  SureWest
Broadband,    SureWest    Wireless    and    SureWest    Televideo    ("SureWest
Broadband/Residential  Services")  are each  subsidiaries  of the  Company.  The
Company  expects that the sources of its revenues and its cost  structure may be
different  in  future  periods,   both  as  a  result  of  its  entry  into  new
communications  markets and  competitive  forces in each of the markets in which
the Company has operations.

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States  requires  management to make estimates
and  assumptions  that affect the reported  amounts of assets and liabilities at
the date of the financial  statements  and the reported  amounts of revenues and
expenses during the reporting period.  Actual results may differ materially from
those estimates. The Company's critical accounting estimates include (i) revenue
recognition and the establishment of estimated  shareable  earnings  obligations
and accounts  receivable  allowances  (Notes 1 and 2), (ii) inventory  valuation
(Note 1), (iii) useful life  assignments and impairment  evaluations  associated
with  property,  plant and  equipment  and  intangible  assets  (Note  1),  (iv)
valuation  allowances  associated  with deferred tax assets (Notes 1 and 8), (v)
pension  and  post-retirement  benefit  costs and  obligations  (Note  9),  (vi)
anticipated   outcomes  of   litigation,   regulatory   proceedings   and  other
contingencies  (Notes  1 and 10) and  (vii)  employee  stock-based  compensation
(Notes 1 and 11).

Principles of Consolidation

The consolidated  financial  statements  include the accounts of the Company and
its wholly-owned  subsidiaries.  All significant intercompany  transactions have
been eliminated.

Adjustments and Eliminations

During the  Company's  financial  statement  closing  process for the year ended
December 31, 2003,  certain matters were  identified  related to prior financial
reporting  periods  that  necessitated  the  recording  of  adjustments  to  the
Company's   consolidated   financial  statements.   Such  adjustments  pertained
principally  to property,  plant and  equipment,  and  management  believes that
weaknesses in the Company's internal controls caused the errors that resulted in
these  adjustments.  The  Company  does not  believe  any of the  aforementioned
amounts are material,  individually or in the aggregate, to the respective prior
annual periods based on both quantitative and qualitative factors, including the
trend of operating  results,  nor does it believe the prospective  correction of
such  amounts  during the  quarter  ended  December  31, 2003 is material to the
Company's 2003 consolidated results of operations based on both quantitative and
qualitative factors,  including the trend of operating results. (The prospective
correction of the  aforementioned  amounts relating to prior periods reduced the
Company's 2003 consolidated net income by $1,603, or $0.11 per basic and diluted
share,  and would have  reduced the  Company's  2002 and 2001  consolidated  net
income by $796,  or $0.05 per basic and diluted  share,  and $217,  or $0.01 per
basic and diluted  share,  respectively,  had such errors been  corrected in the
periods in which they originated.)


<PAGE>

                            SUREWEST COMMUNICATIONS
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The Company's 2002 and 2001 consolidated financial statements have been adjusted
to eliminate certain intercompany balances that were not previously  eliminated.
These adjustments  pertained to (i) the Company's December 31, 2002 intercompany
accounts  receivable and accounts payable balances  aggregating  $1,381 and (ii)
certain  of the  Company's  2002 and 2001  intercompany  revenue  and  operating
expense balances  aggregating  $2,955 and $3,480,  respectively.  However,  such
adjustments  had no effect on the  Company's  consolidated  working  capital and
shareholders'  equity balances as of December 31, 2002, or  consolidated  income
from operations or net income for the years ended December 31, 2002 and 2001.

Certain amounts in the 2002 and 2001 consolidated financial statements have been
reclassified to conform with the presentation of the Company's 2003 consolidated
financial statements.

Regulation and Estimated Shareable Earnings Obligations

Certain  of the  Company's  rates  are  subject  to  regulation  by the  Federal
Communications Commission ("FCC") and the California Public Utilities Commission
("CPUC").  Pending and future  regulatory  actions may have a material impact on
the Company's consolidated financial position and results of operations.

Revenues  from certain  telephone  services are affected by rates  authorized by
various regulatory agencies.  Intrastate service rates are subject to regulation
by the CPUC.  With respect to toll calls  initiated by  interexchange  carriers'
customers,  the  interexchange  carriers are assessed  access  charges  based on
tariffs  filed by SureWest  Telephone.  Interstate  access  rates and  resulting
earnings  are  subject to  regulation  by the FCC.  With  respect to  interstate
services,  SureWest  Telephone  has  filed its own  tariff  with the FCC for all
elements  of access  services  except  carrier  common line  charges,  for which
SureWest  Telephone  concurs with tariffs filed by the National Exchange Carrier
Association ("NECA").

The FCC monitors  SureWest  Telephone's  interstate  earnings through the use of
annual cost separation  studies  prepared by SureWest  Telephone,  which utilize
estimated cost information and projected demand usage. The FCC establishes rules
that  carriers  must  follow  in  the   preparation   of  the  annual   studies.
Additionally,  under current FCC rules governing rate making, SureWest Telephone
is required to establish  interstate  rates based on projected  demand usage for
its various  services and  determine  the actual  earnings from these rates once
actual volumes and costs are known.

In  January  2001,  the FCC  issued a  Memorandum  Opinion  and Order to another
telephone company in which it clarified how Internet traffic,  which the FCC had
prior to that date  characterized  as largely  interstate  in nature,  should be
treated.  During 2000 and 2001,  Internet  traffic and digital  subscriber  line
("DSL")  service  grew   substantially,   far  exceeding  SureWest   Telephone's
estimates, which resulted in actual earnings exceeding the levels allowed by the
FCC.  Based  on  preliminary  cost  studies,   SureWest   Telephone   recognized
liabilities  relating to its estimated interstate shareable earnings obligations
of $343, $650 and $3,231 for the years ended December 31, 2003,  2002, and 2001,
respectively, through reductions of revenues. During the year ended December 31,
2001, SureWest Telephone made payments to certain  telecommunications  companies
aggregating $6,800 related to interstate  shareable earnings obligations for the
monitoring period  1999-2000.  No similar payments were made in 2003 or 2002. On
June 26, 2003, SureWest Telephone entered into a Settlement Agreement to recover
$1,950 of the amount  paid to a  telecommunications  company in 2001.  The funds
were received  pursuant to the  Settlement  Agreement on July 8, 2003.  SureWest
Telephone is currently seeking a similar refund from another  telecommunications
company.  However, the recoverability of the remaining funds cannot presently be
determined, as the telecommunications  company from which the SureWest Telephone
is seeking a refund has filed for bankruptcy protection. In addition, during the
fourth quarter of 2001,  SureWest  Telephone  changed its estimate relating to a
portion of its interstate shareable earnings obligations, principally due to the
closing of the 1997 through 1998  monitoring  period.  This change in accounting
estimate  increased  the  Company's  2001  revenues and net income by $2,150 and
$1,290 ($0.08 per share),  respectively.  In May 2002, the D.C. Circuit Court of
Appeals (the "Court")  issued its decision in a case involving ACS of Anchorage.
The  Court   determined   that  a  tariff  filed   properly  under  Section  204
"streamlined"  procedures  and allowed to go into effect  without  suspension is
deemed lawful, and the carrier is not subsequently  obligated to pay refunds for
earnings  higher than the permitted  rate of return as prescribed by the FCC for
that   monitoring   period.   Subsequent  to  the  Court's   decision,   certain
telecommunication  companies filed a petition for rehearing. In August 2002, the
petitions  for  rehearing  were  denied by the  Court,  and later that month the
Court's order became  effective.  For the monitoring  periods 1999 through 2001,
SureWest Telephone filed tariffs pursuant to the streamlined procedures and such
tariffs  were not  suspended  or  investigated.  Consequently,  during the third
quarter of 2002,  SureWest  Telephone  changed its estimate for a portion of its
interstate  shareable earnings  obligations related to those monitoring periods.
For the year  ended  December  31,  2002,  this  change in  accounting  estimate
increased the Company's  2002 revenues by $5,092 and net income by $3,065 ($0.21
per share).
<PAGE>
                            SUREWEST COMMUNICATIONS
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Prior to January 1, 2002,  SureWest  Telephone  billed SBC  Communications  Inc.
("SBC")  (formerly  Pacific Bell) various  charges for certain local service and
network  access  service  revenues in  accordance  with  certain  agreements  as
described  below.  In 1999,  SBC  expressed  interest  in  withdrawing  from the
designated carrier plan ("DCP") for SureWest  Telephone's toll traffic.  The DCP
was a compensation  arrangement  between SureWest  Telephone and SBC for certain
intrastate  toll  services.  SureWest  Telephone and SBC agreed to allow the DCP
arrangement to expire in December 2001. The  termination of the DCP did not have
a  material  impact  on the  Company's  consolidated  financial  position  as of
December 31, 2003 and 2002 or results of operations for the years then ended.

In  1999,  SBC  also  expressed  interest  in  entering  into a  new,  permanent
compensation  arrangement for extended area service  ("EAS").  At that time, SBC
had  been  paying  SureWest  Telephone  approximately  $11,500  per year for EAS
pursuant  to a  Settlement  Transition  Agreement.  In November  2000,  the CPUC
authorized  SBC to  terminate  its annual EAS  payments  to  SureWest  Telephone
effective November 30, 2000. The CPUC authorized replacement funding to SureWest
Telephone  on an interim  basis using funds from the  California  High Cost Fund
("CHCF").  In  addition,  the CPUC  opened  an Order  Instituting  Investigation
("OII") for the purpose of determining  whether future recovery of all, none, or
a portion of the approximate  $11,500 annual payments  previously  received from
SBC  should  come  from  SureWest  Telephone's  ratepayers  or other  regulatory
recovery  mechanisms.  This proceeding began in 2001,  evidentiary hearings were
held  during  2002,  and  briefing  was  completed  in  February  2003.  In this
proceeding,  the Office of Ratepayer Advocates ("ORA") recommended that the CPUC
discontinue  SureWest  Telephone's  present  interim EAS  funding  from the CHCF
without replacement revenues from ratepayers. The CPUC's decision in this matter
is expected  during 2004.  The CPUC has made no  indication  as to what, if any,
changes  will be  forthcoming  relating  to EAS  revenues.  The results of these
proceedings  and their  potential  effects on SureWest  Telephone  cannot yet be
determined.

In 1996,  the CPUC issued a decision in  connection  with  SureWest  Telephone's
general rate proceeding,  which authorized SureWest Telephone to implement a New
Regulatory  Framework ("NRF") for services furnished within SureWest Telephone's
service  area in order to  accommodate  market and  regulatory  movement  toward
competition and greater pricing  flexibility.  Under the NRF, SureWest Telephone
is subject to ongoing monitoring and reporting requirements, including a sharing
mechanism  whereby  SureWest  Telephone  is  required  to  share  earnings  with
customers  through a reduction of revenues if its earned  annual  rate-of-return
exceeds that authorized by the CPUC.

In accordance  with the  requirements  of its general rate case order,  SureWest
Telephone filed an application for review of its NRF in 1999. In connection with
this  proceeding,  the CPUC's ORA  undertook  a  verification  audit of SureWest
Telephone's  non-regulated and affiliated  transactions  pursuant to the general
rate case and other CPUC orders.  In June 2001, the CPUC adopted its decision in
this matter (the "Decision"). The Decision did not suspend the sharing mechanism
as SureWest  Telephone had requested and the CPUC ruled that SureWest  Telephone
must change the method used to allocate costs for services  provided by SureWest
Telephone to its affiliates, the treatment of certain directory revenues and the
treatment of internal-use software costs. In accordance with the provisions of


<PAGE>

                            SUREWEST COMMUNICATIONS
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

the  Decision,  the Company  recorded  certain  liabilities  and  reductions  of
revenues  of $3,285,  $1,750 and $6,000  relating  to its  estimated  intrastate
shareable earnings obligations during the years ended December 31, 2003 2002 and
2001, respectively.

Beginning in January 2002, SureWest Telephone began paying a customer refund for
intrastate shareable earnings obligations relating to the years 1998 and 1999. A
portion of the customers' intrastate service charges was returned in the form of
a  surcredit  beginning  in January  2002 and ending in January  2003,  totaling
approximately $4,605 (of which $294 was returned during 2003).

In October 2003, the CPUC issued a resolution  requiring  SureWest  Telephone to
pay a customer dividend for intrastate  overearnings totaling approximately $483
relating to 2002. A portion of the customers' intrastate service charges will be
returned to the customers in the form of a surcredit  over  approximately  three
months,  which began in November 2003.  During the year ended December 31, 2003,
$275 was returned to customers.

As a result of  periodic  cost  separation  studies  for the  monitoring  period
2002-2001,  SureWest  Telephone  changed  its  estimates  for a  portion  of its
interstate and intrastate  shareable  earnings  obligations and certain NECA CCL
accounts  receivable balances during the years ended December 31, 2003 and 2002.
For the year ended  December 31, 2003,  these  changes in  accounting  estimates
decreased  the  Company's  revenues  by $29 and net  income by $17 (no effect on
earnings per share), respectively. For the year ended December 31, 2002, similar
changes in accounting estimates decreased Telecom segment revenues by $1,115 and
net income by $671 ($0.05 per share).

As of December 31, 2003,  the Company's  consolidated  balance  sheet  reflected
aggregate  liabilities  of $13,389  relating to SureWest  Telephone's  estimated
interstate and  intrastate  shareable  earnings  obligations.  The  calculations
supporting these liabilities are very complex and involve a variety of estimates
prior to the ultimate  settlement  of such  obligations.  In addition,  SureWest
Telephone's  interstate  shareable  earnings  obligations  lapse  over  time  if
SureWest Telephone's  interexchange carrier and other customers do not claim the
amounts  ascribed  to  them.   Accordingly,   it  is  reasonably  possible  that
management's  estimates of SureWest  Telephone's  liabilities for interstate and
intrastate shareable earnings obligations could change in the near term, and the
amounts involved could be material.

Cash Equivalents and Short-term Investments

The Company invests its excess cash in high-quality  debt  instruments and money
market mutual  funds.  The Company  considers  highly  liquid  investments  with
maturities of three months or less from the  acquisition  date of the instrument
to be  cash  equivalents.  Short-term  investments  at  December  31,  2003  had
maturities  ranging from greater than 90 days to less than one year.  There were
no  short-term  investments  at December 31,  2002.  Management  determines  the
appropriate classification of securities at the time of purchase and reevaluates
such  designation  as of each balance sheet date. At December 31, 2003 and 2002,
all  securities are designated as  held-to-maturity  because  management has the
positive   intent  and   ability  to  hold  the   securities   until   maturity.
Held-to-maturity  securities are stated at cost,  adjusted for  amortization  of
premiums  and  accretion  of  discounts  to  maturity.   Such  amortization  and
accretion,  as well as any interest on the  securities,  is included in interest
income.

In April 2003,  the Company sold a short-term  investment  prior to its maturity
date. The  investment  was sold without the consent of the Company's  Management
and was a part of the irregular  transactions  discovered in connection with the
Company's treasury investigation (refer to Note 3 for a more detailed discussion
about the  Company's  treasury  investigation).  The Company  incurred a nominal
penalty for the premature redemption of this investment.  The redemption did not
have a material effect on the Company's 2003 consolidated financial statements.



<PAGE>

                            SUREWEST COMMUNICATIONS
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The  following is a summary of the Company's  cash  equivalents  and  short-term
investments  as  of  December  31,  2003  and  2002  at  amortized  cost,  which
approximates fair market value:

                                                         2003           2002
                                                    -----------   ------------
       Money market mutual funds                     $  15,726     $    2,112
       United States Government Agency Securities          999              -
       Auction rate securities                           1,700              -
                                                    -----------   ------------
                                                     $  18,425     $    2,112
                                                    ===========   ============


Fair Values of Financial Instruments

As of December 31, 2003 and 2002, the Company's financial instruments consist of
cash, cash equivalents, short-term investments, short-term borrowings, long-term
debt and capital lease obligations.  Management  believes the carrying values of
cash equivalents and short-term investments at December 31, 2003 and 2002, which
are at  amortized  cost,  approximated  their  fair  values at such  dates.  The
aggregate  fair  value  of  the  Company's  long-term  debt  (including  current
maturities)  was  approximately  $101,288  and $43,728 at December  31, 2003 and
2002,  respectively.  The  aggregate  fair  value  of the  Company's  short-term
borrowings  was $15,000 as of December 31, 2002 (none as of December 31,  2003).
The aggregate fair value of the Company's capital lease obligations was $581 and
$862 as of  December  31,  2003 and 2002,  respectively.  Fair  values  for cash
equivalents and short-term  investments were determined by quoted market prices.
Fair values for the  long-term  debt,  short-term  borrowings  and capital lease
obligations were determined  through  discounted cash flow analyses based on the
Company's current incremental interest rates for similar instruments.

Allowance for Doubtful Accounts

An allowance for doubtful  accounts is maintained  for estimated  losses,  which
result from the inability of customers to make required payments. Allowances are
based on the likelihood of recoverability  of accounts  receivable based on past
experience and  management's  best estimates of current bad debt exposures.  The
Company  performs  ongoing  credit  evaluations  of  its  customers'   financial
condition and management believes that adequate allowances for doubtful accounts
have been provided.  Accounts determined to be uncollectable are charged against
the  allowance  for doubtful  accounts and removed from the accounts  receivable
balances.

Inventories

Telephone  network  inventories  consist of materials  and  supplies,  which are
stated at average cost.  Nonregulated wireline equipment inventory held for sale
is stated at the lower of average  cost or market  value.  Wireless  handset and
accessory  inventories  are stated at the lower of average cost or market value.
Inventories at SureWest  Broadband are comprised of modems,  which are stated at
the lower of average cost or market value,  and network  materials and supplies,
which are stated at average cost.

Property, Plant and Equipment

Property,  plant and equipment is recorded at cost.  Additions  and  substantial
improvements  are  capitalized.  Repairs and  maintenance  costs are expensed as
incurred.  Retirements  and other  reductions of regulated  telephone  plant and
equipment with a cost of approximately  $4,079, $6,470 and $14,696 in 2003, 2002
and 2001,  respectively,  were charged against accumulated  depreciation with no
gain or loss  recognized in accordance  with the composite  group remaining life
methodology  utilized for telephone  plant assets.  When property  applicable to
non-telephone  operations is sold or retired,  the asset and related accumulated
depreciation  are removed from the accounts and the  associated  gain or loss is
recognized.
<PAGE>
                            SUREWEST COMMUNICATIONS
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Property,  plant and equipment consists of the following as of December 31, 2003
and 2002:

                                               2003            2002
                                           ------------     -----------
  Land                                      $    4,198      $    4,189
  Buildings                                     79,286          78,553
  Central office equipment                     156,355         140,551
  Outside plant equipment                      282,789         245,133
  Internal-use software                         46,531          29,075
  Other                                         62,474          56,243
                                           ------------     -----------
  Property, plant and equipment                631,633         553,744
  Less accumulated depreciation                303,773         255,320
                                           ------------     -----------
  Total plant in service                       327,860         298,424
  Plant under construction                      15,107          22,835
                                           ------------     -----------
  Property plant and equipment, net         $  342,967      $  321,259
                                           ============     ===========


Property, plant and equipment is depreciated using the straight-line method over
their estimated economic lives, which range from 3 to 40 years. The useful lives
of property,  plant and equipment are estimated in order to determine the amount
of depreciation  and amortization  expense to be recorded.  The useful lives are
estimated  at the time the  assets  are  acquired  and are  based on  historical
experience  with  similar  assets,  as well as taking into  account  anticipated
technological or other changes. Average annual composite depreciation rates were
7.6%, 7.1% and 7.48% in 2003, 2002 and 2001, respectively.

Effective  November 1, 2002,  the Company  increased the estimated  useful lives
primarily  related to its wireless  switching and voice mail equipment from five
to ten years.  This change in accounting  estimate  decreased the Company's 2003
and 2002 depreciation expense by $930 and $206, respectively,  and increased the
Company's 2003 and 2002  consolidated net income by $360 and $124,  respectively
($0.02 and $0.01 per share, respectively).

Intangible Assets

Wireless  spectrum  licenses are stated at cost.  Accumulated  amortization  was
$1,195 at December 31, 2003 and 2002. As described  below in "Recent  accounting
pronouncements," the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 142,  "Goodwill and Other  Intangible  Assets," on January 1, 2002.
Under the  provisions  of SFAS No. 142,  goodwill is not  amortized  but instead
evaluated at least annually for impairment in a two-step  process.  In the first
step, the fair value of each reporting unit is compared with the carrying amount
of the reporting unit,  including goodwill.  The Company has determined that the
reporting units are equal to its operating  segments.  Goodwill was allocated to
the telephone operating segment.  The estimated fair value of the reporting unit
is  generally  determined  on the basis of  discounted  future cash  flows.  The
assumptions used in the estimate of fair value are generally consistent with the
past  performance  of each  reporting  unit  and are  also  consistent  with the
forecast  and  assumptions  that  are  used in  current  operating  plans.  Such
assumptions  are  subject  to  change  as a  result  of  changing  economic  and
competitive  conditions.  If the estimated  fair value of the reporting  unit is
less than the carrying  amount of the reporting unit, then a second step must be
completed  in order to  determine  the amount of the  goodwill  impairment  that
should be recorded. In the second step, the implied fair value


<PAGE>

                            SUREWEST COMMUNICATIONS
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

of the reporting  unit's  goodwill is  determined  by  allocating  the reporting
unit's fair value to all of its assets and liabilities  other than goodwill in a
manner similar to a purchase price allocation.  The resulting implied fair value
of the goodwill  that results from the  application  of this second step is then
compared to the  carrying  amount of the goodwill  and an  impairment  charge is
recorded for the difference. The Company believes its wireless spectrum licenses
have  indefinite  lives  because such  licenses can be renewed  indefinitely  at
little cost. Accordingly,  the Company has applied the nonamortization provision
of SFAS No. 142 to the Company's wireless spectrum licenses effective January 1,
2002.,  Beginning in the first quarter of 2002, the Company's  wireless spectrum
licenses  are carried at the lower of cost or fair value,  which is evaluated at
least  annually  and  determined  based  on  transactions   involving  sales  of
comparable   wireless  spectrum  licenses  in  the  aftermarket  or  independent
valuations.

The goodwill  recognized by the Company in connection  with the  acquisition  of
SureWest  Custom Data Services in July 2001 has been  allocated to the telephone
operating  segment and is not being  amortized  based on the  provisions of SFAS
Nos. 141 and 142.

The Company tests for impairment annually during the fourth quarter. The Company
completed  its annual  impairment  tests during the fourth  quarters of 2003 and
2002 and did not identify any  impairment  of its goodwill or wireless  spectrum
licenses.

Nonmonetary Transaction

During 2003, the Company entered into a 20-year  nonmonetary  transaction with a
third  party  involving  the  exchange  of  certain  fiber  optic  capacity  and
collocation rights. This transaction provides the Company with access and rights
to certain collocation facilities and cell site locations, which were previously
inaccessible  due to unreasonably  high entrance costs.  The collocation  rights
provide access to additional  network  connections to the Company while the cell
site locations  strengthen the Company's existing cellular network in key areas.
Because this  nonmonetary  transaction  did not represent the  culmination of an
earnings process, no revenues or expenses have been, or will be, recorded by the
Company pursuant to this transaction.  In addition,  there was no indicated loss
on this exchange of productive rights.

Stock-based Compensation

The Company has two  stock-based  compensation  plans,  which are described more
fully in Note 11.  Prior to 2003,  the  Company  accounted  for  employee  stock
options  issued under these plans using the intrinsic  value method  pursuant to
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued
to Employees," and related Interpretations. No stock-based employee compensation
expense  pertaining to employee  stock  options was  recognized in the Company's
2002 or 2001 consolidated  financial  statements because all such options had an
exercise price equal to the market value of underlying  common stock on the date
of grant.  Effective  January  1,  2003,  the  Company  adopted  the fair  value
recognition  provisions  of  SFAS  No.  No.  123,  "Accounting  for  Stock-Based
Compensation."  Under the prospective method of adoption selected by the Company
under the provisions of SFAS No. 148, "Accounting for Stock-Based Compensation -
Transition and  Disclosure,"  the fair value method of accounting was applied to
all  employee  awards  granted,  modified,  or  settled  after  January 1, 2003.
Stock-based  compensation  associated  with employee stock options is recognized
over the  vesting  periods  (which  range  from 1 to 5 years)  using the  graded
vesting method.



<PAGE>

                            SUREWEST COMMUNICATIONS
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The fair value of the Company's employee stock options was estimated at the date
of grant  using  the  Black-Scholes  option-pricing  model  with  the  following
weighted-average assumptions for 2003, 2002 and 2001:

<TABLE>
<CAPTION>
                                                     2003              2002             2001
                                                 ------------     ------------      ------------
                <S>                                    <C>              <C>              <C>
           Risk-free Interest Rate                    1.79%             2.54%             4.24%
           Expected Dividend Yield                    2.5%              2.13%             1.76%
           Expected Volatility                       42.48%            39.95%            26.7%
           Expected Lives                          4 years           4 years           5 years
</TABLE>



The Black-Scholes option pricing model includes assumptions regarding dividend
yields, expected volatility, expected lives and risk-free interest rates. These
assumptions reflect management's best estimates, but these items involve
inherent uncertainties based on market conditions generally outside of the
control of the Company. As a result, if other assumptions had been used in the
current period, actual and pro forma stock-based compensation expense could have
been materially different. If management uses different assumptions in future
periods, stock-based compensation expense could be materially impacted in future
years.

The expense related to stock-based employee compensation included in the
determination of net income for 2003 is less than that which would have been
recognized if the fair value method had been applied to all awards granted after
the original effective date of SFAS No. 123. If the Company had elected to adopt
the fair value recognition provisions of SFAS No. 123 as of its original
effective date, pro forma net income (loss) and earnings (loss) per share would
be as follows:
<TABLE>
<CAPTION>
                                                                       Years ended December 31,
                                                           ---------------- ----------------- ---------------
                                                                2003               2002             2001
                                                           ---------------- ----------------- ---------------
<S>                                                             <C>             <C>                  <C>
Net income, as reported                                      $      645       $   11,249        $   10,317

Add:  Stock-based employee compensation expense included
  in reported net income, net of related tax effects                200              122                36

Deduct:  Total stock-based employee compensation expense
  determined using the fair value method for all
  awards, net of related tax effects                             (1,522)          (1,421)             (857)
                                                           ---------------- ----------------- ---------------

                                                             $     (677)      $    9,950        $    9,496
Pro forma net income (loss)
                                                           ================ ================= ===============


Earnings (loss) per share:

  Basic--as reported                                         $     0.04       $     0.76        $     0.67
  Basic--pro forma                                           $    (0.05)      $     0.68        $     0.62

  Diluted--as reported                                       $     0.04       $     0.76        $     0.67
  Diluted--pro forma                                         $    (0.05)      $     0.68        $     0.62

</TABLE>


<PAGE>

                            SUREWEST COMMUNICATIONS
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


During the years ended December 31, 2003,  2002 and 2001,  the  weighted-average
grant date fair value of options  granted  to  employees  was $8.75,  $11.42 and
$12.24 per share, respectively.

Advertising Costs

The costs of advertising are charged to expense as incurred. Advertising expense
was $4,339, $3,659 and $3,364 in 2003, 2002 and 2001, respectively.

The  Company  makes  market  development  funds  ("MDF")  available  to  certain
retailers that serve as agents for SureWest  Wireless for the  reimbursement  of
co-branded advertising expenses. To the extent that MDF is used by the Company's
customers for  co-branded  advertising,  and (i) the agents  provide the Company
with  third-party  evidence of such  co-branded  advertising  as  prescribed  by
Company  policy and (ii) the Company can  reasonably  estimate the fair value of
its portion of the advertising,  such amounts are charged to advertising expense
as incurred. To the extent that MDF do not meet the aforementioned criteria, the
Company  records these  expenditures  as a reduction of revenue in the period in
which they are incurred.

Income Taxes

The Company  accounts for income taxes using the  liability  method.  Under this
method,  deferred tax assets and liabilities are determined based on differences
between the financial  reporting and tax bases of assets and liabilities and are
measured  using the enacted tax rates and laws that are expected to be in effect
when the differences are expected to reverse.

Per Share Amounts

Basic per share amounts are computed using the weighted average number of shares
of the Company's common stock  outstanding,  less the weighted average number of
unvested restricted common shares outstanding during the period.

Diluted per share  amounts are  determined in the same manner as basic per share
amounts,  except  the  number of  weighted  average  common  shares  used in the
computations (i) includes unvested restricted common shares outstanding and (ii)
is increased  assuming the exercise of dilutive stock options using the treasury
stock method.



<PAGE>

                            SUREWEST COMMUNICATIONS
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The following table presents the  calculations of weighted average common shares
used in the computations of basic and diluted per share amounts presented in the
accompanying consolidated statements of income:
<TABLE>
<CAPTION>

                                                                            Years ended December 31,
                                                                    2003              2002              2001
        <S>                                                           <C>                <C>              <C>
                                                               ------------------------------------------------
       Basic:
         Weighted average shares of common stock outstanding         14,539            14,737           15,338
         Less weighted average shares of restricted
           common stock                                                  17                 9               12
                                                                ---------------- ----------------- -------------
         Weighted average common shares used in computing
           basic per share amounts                                   14,522            14,728           15,326
                                                                ================ ================= =============
       Diluted:
        Weighted average shares of common stock outstanding          14,539            14,737           15,338
        Plus weighted average shares of common stock from
          the assumed exercise of dilutive stock options                  -                58               49
                                                                ---------------- ----------------- -------------
        Weighted average common shares used in computing
            diluted per share amounts                                14,539            14,795           15,387
                                                                ================ ================= =============
</TABLE>
Statements of Cash Flows Information

During 2003,  2002 and 2001,  the Company made  payments for interest and income
taxes as follows:
<TABLE>
<CAPTION>

                                                                    2003              2002             2001
                                                                ---------------- ----------------- -------------
                <S>                                                   <C>                <C>             <C>
        Interest, net of amounts capitalized ($1,095 in
          2003, $1,074 in 2002 and $1,708 in 2001)                $   3,758         $   2,485        $   1,285
        Income taxes                                              $       -         $   2,812        $  93,466

</TABLE>

Other Comprehensive Income (loss)

Significant components of the Company's other comprehensive income (loss) are as
follows:

<TABLE>
<CAPTION>
                                                          Years ended December 31,
                                                   2003             2002             2001
                                               ---------------- ---------------   -------------
        <S>                                             <C>              <C>            <C>
      Net Income                                $      645       $   11,249      $   10,317
      Minimum pension and post-retirement
        benefit liability adjustment, net
        of income taxes of $934 and $1,138
        in 2003 and 2002 (none in 2001)              1,376           (1,637)            -
                                               ---------------- ---------------   -------------
      Other comprehensive income                $    2,021       $    9,612      $   10,317
                                               ================ ===============   =============
</TABLE>

<PAGE>

                            SUREWEST COMMUNICATIONS
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


As of December 31, 2003 and 2002, the accumulated other  comprehensive  loss was
$261  and  $1,637,   respectively,   which  consisted  of  minimum  pension  and
post-retirement benefit liability adjustments, net of income taxes.

Recent Accounting Pronouncements

On May 15, 2003, the Financial  Accounting  Standards Board ("FASB") issued SFAS
No. 150,  "Accounting for Certain Financial  Instruments with Characteristics of
Both Liabilities and Equity." SFAS No. 150 establishes standards for classifying
and  measuring  as  liabilities   certain  financial   instruments  that  embody
obligations  of the  issuer and have  characteristics  of both  liabilities  and
equity, such as mandatorily redeemable equity instruments.  The adoption of SFAS
No. 150 had no effect on the Company's 2003 consolidated financial statements.

In January 2003, the FASB issued  Interpretation  ("FIN") No. 46, "Consolidation
of  Variable  Interest  Entities,"  an  interpretation  of  Accounting  Research
Bulletin ("ARB") No. 51, "Consolidated Financial Statements." FIN No. 46 applies
to  any  business  enterprise  that  has  a  controlling  interest,  contractual
relationship  or other business  relationship  with a variable  interest  entity
("VIE") and establishes  guidance for the consolidation of VIEs that function to
support the activities of the primary  beneficiary.  The Company believes it has
no investments in, or contractual or other business  relationships  with,  VIEs.
The adoption of FIN No. 46 had no effect on the Company's consolidated financial
statements as of and for the year ended December 31, 2003.

In July 2002,  the FASB issued SFAS No. 146,  "Accounting  for Costs  Associated
with an Exit or Disposal Activity." SFAS No. 146 revises the accounting for exit
and disposal  activities  under  Emerging  Issues Task Force  ("EITF") Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and Other
Costs  to  Exit  an   Activity   (Including   Certain   Costs   Incurred   in  a
Restructuring),"   by  extending  the  period  in  which  expenses   related  to
restructuring  activities  are  reported.  A  commitment  to a plan  to  exit an
activity or dispose of  long-lived  assets is no longer  sufficient  to record a
one-time  charge for most  restructuring  activities.  Instead,  companies  will
record exit or disposal  costs when they are  "incurred"  and can be measured at
fair value. In addition, the resultant liabilities must be subsequently adjusted
for changes in estimated cash flows. The Company adopted SFAS No. 146 on January
1, 2003, and the adoption of this new standard did not have a material effect on
the Company's 2003 consolidated financial statements.

On December 31, 2002, the FASB issued SFAS No. 148,  "Accounting for Stock-Based
Compensation  - Transition  and  Disclosure."  SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based  Compensation,"  to provide  alternative  methods of
transition  for an entity that  voluntarily  changes to the fair value method of
accounting for stock-based employee  compensation.  In addition,  it also amends
the disclosure  provisions of SFAS No. 123 to require prominent disclosure about
the effects on reported net income  including per share amounts,  of an entity's
accounting policy decisions with respect to stock-based employee compensation in
annual and interim  financial  statements.  SFAS No. 148 does not amend SFAS No.
123 to require companies to account for their stock-based employee  compensation
using the fair value  method.  The  disclosure  provisions  of SFAS No. 123 were
effective immediately in 2002. The Company changed its method of accounting on a
prospective basis for stock-based employee compensation to the fair value method
during the fourth  quarter of 2003.  The  adoption of this new  standard did not
have a material effect on the Company's  consolidated financial statements as of
and for the year ended December 31, 2003.

In August 2001, the FASB issued SFAS No. 143,  "Accounting for Asset  Retirement
Obligations."  SFAS No. 143 requires  that the fair value of a liability  for an
asset retirement  obligation be recognized in the period in which it is incurred
if a  reasonable  estimate  of fair  value  can be made.  The  associated  asset
retirement  costs  are  capitalized  as  part  of  the  carrying  amount  of the
long-lived  asset.  The  Company  adopted  SFAS No. 143 on January 1, 2003.  The
adoption of this new  standard did not have a material  effect on the  Company's
consolidated  financial  statements  as of and for the year ended  December  31,
2003.



<PAGE>

                            SUREWEST COMMUNICATIONS
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

In October  2002,  the FASB's EITF reached a consensus on EITF Issue No.  00-21,
"Accounting for Revenue  Arrangements  with Multiple  Deliverables."  Under EITF
Issue No. 00-21, revenue arrangements with multiple deliverables are required to
be divided into separate units of accounting  under certain  circumstances.  The
Company  adopted EITF Issue No. 00-21 on a  prospective  basis for  arrangements
entered into after June 30, 2003.  The Company has  determined  that the sale of
its wireless  handsets and the associated phone service provided by the Wireless
segment should be considered  separate units of accounting  under EITF Issue No.
00-21.  Accordingly,  beginning on July 1, 2003, the Company began applying EITF
Issue No. 00-21 to all wireless  handset  sales below cost,  which  approximates
fair value in the  absence  of an  activation  "subsidy,"  when it  receives  an
up-front fee of any kind (e.g., a service  activation  fee). The  application of
EITF Issue No. 00-21  resulted in the immediate  recognition of all or a portion
of such up-front fees as equipment sales revenue. Additionally, when the Company
activates wireless service for a customer, but does not concurrently provide the
customer with a handset,  any up-front fees received continue to be deferred and
amortized  over the  expected  term of the  customer  relationship.  The Company
provides a general  right of return  within  the first 30 days of service  for a
100%  refund of the handset  cost.  The  estimated  equipment  return  allowance
associated   with  this  right  of  return  is  estimated  based  on  historical
experience.  The adoption of EITF Issue No. 00-21 did not have a material effect
on the Company's 2003 consolidated financial statements.

In  November  2002,  the FASB  issued FIN No. 45,  "Guarantor's  Accounting  and
Disclosure  Requirements  for  Guarantees,   Including  Indirect  Guarantees  of
Indebtedness of Others." FIN No. 45 requires  certain  guarantees to be recorded
at fair value,  which is different from current practice,  which is generally to
record a liability  only when a loss is probable and reasonably  estimable.  FIN
No. 45 also requires a guarantor to make significant new disclosures,  even when
the  likelihood  of making any  payments  under the  guarantee  is  remote.  The
disclosure  provisions of FIN No. 45 were  effective  immediately  in 2002.  The
Company adopted the  recognition  and measurement  provisions of FIN No. 45 on a
prospective  basis with respect to guarantees  issued or modified after December
31, 2002. The adoption of the recognition and measurement  provisions of FIN No.
45 did not  have a  material  effect  on the  Company's  consolidated  financial
statements as of and for year ended December 31, 2003.

The Company  adopted SFAS No. 142,  "Goodwill and Other  Intangible  Assets," on
January 1, 2002.  SFAS No. 142 addresses  accounting  and reporting for acquired
goodwill  and other  intangible  assets  and  supersedes  APB  Opinion  No.  17,
"Intangible  Assets." The Company believes its wireless  spectrum  licenses have
indefinite  lives  because such licenses can be renewed  indefinitely  at little
cost.  Accordingly,  the Company has applied the  non-amortization  provision of
SFAS No. 142 to the Company's  wireless spectrum  licenses  effective January 1,
2002, which resulted in an increase in the Company's  consolidated net income of
$305  ($0.02 per share) for the years  ended  December  31,  2003 and 2002.  The
Company's  operating  results for the year ended December 31, 2001 included $483
amortization expense related to the Company's wireless spectrum licenses. In the
absence of such  amortization,  the  Company's  adjusted net income for the year
ended December 31, 2001 would have been $10,600 ($0.69 per share).  Beginning in
the first quarter of 2002, the Company's  wireless spectrum licenses are carried
at the lower of cost or fair value (the  application  of this  provision of SFAS
No. 142 had no effect on the Company's  consolidated  financial statements as of
and for the years ended December 31, 2003 and 2002). The goodwill  recognized by
the Company in connection  with the acquisition of SureWest Custom Data Services
in July 2001 is not being amortized based on the provisions of SFAS Nos. 141 and
142.  Instead,  under the  provisions of SFAS No. 142,  goodwill is evaluated at
least annually for impairment in a two-step process.  The first step screens for
potential  impairment and the second step measures any impairment loss resulting
from step one.  The  Company  tests for  impairment  annually  during the fourth
quarter.  The Company  completed its annual  impairment  tests during the fourth
quarters of 2003 and 2002 and did not identify any  impairment.  The goodwill is
allocated to the telephone  operating  segment in accordance with the provisions
of SFAS No. 142.

On January 1, 2002,  the Company  adopted the  provision of EITF Issue No. 01-9,
"Accounting  for  Consideration  Given by a Vendor to a  Customer  (Including  a
Reseller of the Vendor's Products)," dealing with consideration from a vendor to
a reseller under cooperative advertising and other arrangements.  This provision
of EITF Issue No. 01-9 states that  consideration from a vendor to a resel1er of
the vendor's  products or services is presumed to be a
<PAGE>
                            SUREWEST COMMUNICATIONS
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

reduction of the selling price of the vendor's products or services,  unless the
vendor (i) receives an identifiable  benefit in return for the consideration and
(ii) can  reasonably  estimate  the fair value of the benefit  received.  If the
amount of  consideration  paid by the vendor exceeds the estimated fair value of
the  benefit  received,  the excess  amount is to be recorded by the vendor as a
reduction  of  revenues.  The  application  of this new  guidance did not have a
material  effect  on  the  Company's  2003  and  2002   consolidated   financial
statements.

On January 1, 2002,  the  Company  adopted  SFAS No.  144,  "Accounting  for the
Impairment  or Disposal of Long-Lived  Assets,  which  supersedes  SFAS No. 121,
Accounting for the Impairment of Long-Lived  Assets and for Long-Lived Assets to
Be Disposed Of," and provides a single accounting model for long-lived assets to
be disposed of. The  adoption of SFAS No. 144 did not have a material  effect on
the Company's 2002 consolidated financial statements.

2. REVENUE RECOGNITION

The Company  recognizes  revenue when (i) persuasive  evidence of an arrangement
between the Company and the customer exists, (ii) delivery of the product to the
customer has occurred or service has been  provided to the  customer,  (iii) the
price to the customer is fixed or determinable  and (iv)  collectibility  of the
sales  price  is  reasonably  assured.  Revenues  based on a flat  fee,  derived
principally from local telephone, dedicated network access, data communications,
Internet access service, residential/business broadband service and non-contract
wireless  services,  are billed in advance and recognized in subsequent  periods
when the  services  are  provided.  Contract  wireless  services  are  billed in
arrears. Revenues based on usage, derived primarily from network access and long
distance services, are recognized monthly as services are provided.  Incremental
direct costs of telecommunications  service activation are charged to expense in
the period in which they are incurred.  Directory advertising revenues and costs
related to publishing and  distributing  directories  are  recognized  using the
"circulation  period"  method,  under  which  revenues  and  related  costs  are
recognized ratably over the expected useful life of the directory, generally one
year  from  the  date of  publication.  For all  other  operations,  revenue  is
recognized when products are delivered or services are rendered to customers.

Effective July 1, 2003, the Company began applying the FASB EITF Issue No. 00-21
to all wireless handset sales below cost, which  approximates  fair value in the
absence of an activation "subsidy," when it receives an up-front fee of any kind
(e.g.,  a service  activation  fee).  The  application  of EITF Issue No.  00-21
resulted in the immediate  recognition of all or a portion of such up-front fees
as equipment sales revenue.  Additionally,  when the Company activates  wireless
service for a customer,  but does not  concurrently  provide the customer with a
handset,  any up-front fees received  continue to be deferred and amortized over
the expected term of the customer  relationship.  The Company provides a general
right of return  within  the first 30 days of service  for a 100%  refund of the
handset cost. The estimated  equipment  return  allowance  associated  with this
right of return is estimated  based on  historical  experience.  The adoption of
EITF  Issue No.  00-21 did not have a  material  impact  on the  Company's  2003
consolidated financial statements.

Certain of the Company's customers filed for bankruptcy  protection in 2002, the
most notable of which was WorldCom, Inc. ("WorldCom"), which, together, with its
affiliates, filed for bankruptcy protection on July 21, 2002. As a result of the
bankruptcy  filing,  the Company  recognized  bad debt expense of  approximately
$1,343 in 2002  relating  to  amounts  owed from  WorldCom  to the  Company  for
services  prior  to  the  bankruptcy  filing.   With  respect  to  post-petition
obligations,  WorldCom had proposed,  pursuant to a provision of the  Bankruptcy
Code, and the Bankruptcy Court has agreed, that utilities  (including  Incumbent
Local  Exchnage  Carriers) are entitled to "adequate  assurances"  that WorldCom
will satisfy its obligations for  post-petition  services.  The Bankruptcy Court
provided,  with respect to any post-petition  services provided after August 14,
2002,  that all utilities will have a junior  superiority  administrative  claim
senior  to  other  administrative  claims  and  junior  only  to the  claims  of
WorldCom's  post-petition  lenders.  If WorldCom fails to pay for  post-petition
services,  a utility can either take  appropriate  action  under any  applicable
tariff  or  regulation,  or seek,  on an  expedited  basis,  an  order  from the
Bankruptcy Court
<PAGE>

2. REVENUE RECOGNITION (CONTINUED)

requiring   immediate  payment  or  other  relief.  As  of  December  31,  2003,
obligations owed by WorldCom to the Company for post-petition services have been
paid on a timely basis.

During the fourth quarter of 2000, the Company changed its method of accounting,
retroactive   to  January  1,  2000,   for   up-front   fees   associated   with
telecommunications  service activation in accordance with the guidance contained
in the Securities and Exchange  Commission ("SEC") Staff Accounting Bulletin No.
101, "Revenue Recognition in Financial Statements." Previously,  the Company had
recognized such up-front fees as revenues upon activation of service.  Under the
new accounting method, the Company now recognizes  up-front fees associated with
service  activation  over the expected  duration of the customer  relationships,
which presently ranges from one to five years,  using the straight-line  method.
The  cumulative  effect of the  change on prior  years  resulted  in a charge to
income of $3,273  (net of income  taxes of  $2,250),  which was  included in net
income for the year ended  December 31, 2000.  For the years ended  December 31,
2003, 2002 and 2001, the Company recognized $413, $926 and $1,708, respectively,
of revenues that were in the cumulative effect adjustment as of January 1, 2000.
The effect of those revenues was to increase income by $244 (net of income taxes
of $169),  $555 (net of income taxes of $371) and $1,025 (net of income taxes of
$683) for the years ended December 31, 2003, 2002 and 2001, respectively.

3. CORPORATE TREASURY INVESTIGATION

In December 2003, the Company discovered certain irregular bank transactions and
deposits in a routine  investigation  following  the abrupt  resignation  of the
Company's Treasury Analyst.  Immediately  following the Company's initial review
that  uncovered  suspect  transfers,  the  Company  broadened  its review of the
investment  and cash  operations,  and a  special  corporate  investigation  was
launched by the Audit  Committee,  which  engaged  outside  counsel and forensic
auditors.  The investigations  revealed concealed illegal transfers in violation
of the Company's investment and cash management  policies.  The Company believes
that  the   irregularities   were  limited  to  the  2003  calendar   year.  The
investigation  suggests  that as much as $25,000  may have been  involved in the
scheme.  Nearly  all of the funds  have been  recovered;  however,  at  present,
approximately   $1,828  remains   outstanding   and  has  been  reflected  as  a
non-operating loss in the Company's 2003 consolidated financial statements.  The
Company has filed an insurance  claim to recover the missing funds.  In January,
the Federal  Bureau of  Investigation  ("FBI")  launched  its own probe into the
illegal  funds  transfer.  On  February  5, 2004,  the FBI made  three  arrests,
including  the  Company's  former  Treasury  Analyst,  on charges of mail fraud,
conspiracy and money  laundering.  The Company has filed a civil lawsuit seeking
to recover the misappropriated funds and other costs from five individuals and a
private company  allegedly  associated  with the fraudulent  scheme to illegally
transfer the Company's funds to outside accounts.  Should the insurance claim be
perfected or the civil lawsuit successful, the Company will recognize a recovery
of the funds at that time.

4. ASSET PURCHASE

On July 12,  2002,  the  Company  purchased  substantially  all of the assets of
Western Integrated Networks, LLC and certain affiliates (collectively, "WIN") in
a transaction  supervised by the United States Bankruptcy Court for the District
of Colorado.  The purchase  price for the assets of WIN consisted of (i) $12,000
in cash,  (ii)  direct  acquisition  costs of $622 and (iii) the  assumption  of
certain current liabilities aggregating $4,717 relating principally to executory
contracts and capital lease obligations.

The  Company  does  not  believe  the  assets  acquired  from WIN  constitute  a
self-sustaining, integrated set of activities and assets that would constitute a
business,  principally due to the absence of an established customer base at WIN
or significant revenue generating activities as of July 12, 2002. Since July 12,
2002,  the  Company has been  utilizing  the assets  acquired  from WIN to offer
bundled  high-speed  Internet,  digital cable and telephone  services  under the
SureWest  Broadband/Residential  Services  name in the  Sacramento  metropolitan
area.


<PAGE>
                            SUREWEST COMMUNICATIONS
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


4. ASSET PURCHASE (CONTINUED)

Prior to July 12, 2003, the Company obtained  additional  information  regarding
the fair values of certain  assets  acquired and  liabilities  assumed from WIN.
Accordingly,  the Company prospectively  adjusted the preliminary purchase price
allocation in connection with the preparation of its 2003 consolidated financial
statements.  The following  table  summarizes  the estimated  fair values of the
assets  acquired and liabilities  assumed at the date of  acquisition,  July 12,
2002,  based on the Company's final  allocation of the  aforementioned  purchase
price:

         Accounts receivable, net                                    $     615
         Equipment held for sale                                         2,573
         Other current assets                                              931
         Property, plant and equipment                                  12,327
         Intangible asset relating to favorable operating leases           893
                                                                    -----------
              Total assets acquired                                     17,339

         Current liabilities assumed under executory contracts           3,483
         Liabilities assumed under capital lease obligations             1,064
         Other liabilities                                                 170
                                                                    -----------
            Total liabilities assumed                                    4,717
                                                                    -----------
            Net assets acquired                                      $  12,622
                                                                    ===========


The equipment  purchased from WIN that was held for sale consisted  primarily of
network assets located in Dallas,  Texas. The Company completed the sale of such
equipment during the first quarter of 2003. The Company did not recognize a gain
or loss on the sale of these assets.

The property,  plant and equipment acquired from WIN consisted  principally of a
primary  processing  center,  video head end equipment,  a  fiber-coaxial  cable
network  located in the  Sacramento  metropolitan  area,  software  licenses and
office  furniture and equipment.  The Company is depreciating  these assets on a
straight-line  basis over  estimated  useful lives ranging from three to fifteen
years.

In addition,  the Company  recognized an  intangible  asset related to favorable
operating  leases assumed from WIN. This intangible  asset is being amortized to
rent expense over the remaining lease terms,  which range from two to ten years.
As of December 31, 2003 and 2002, accumulated  amortization associated with this
intangible asset was $711 and $100, respectively.

Under  the  terms of the  asset  purchase  agreement,  $1,200  of the  aggregate
purchase price was held in an escrow account to protect the Company in the event
of any claims  available to the Company.  On January 28, 2003, $150 was released
to the Company,  and the balance remains in the escrow account.  The Company has
entered into a tentative agreement to resolve all differences in connection with
the amounts held in escrow,  and the disputes that led to the  establishment  of
the escrow, which has been submitted to the Bankruptcy Court for approval. Under
the terms of the tentative  settlement,  no additional  funds will be paid by or
released to the Company.

5. SALE OF ALARM MONITORING DIVISION

On January 25,  2002,  the Company sold  substantially  all of the assets of its
alarm monitoring  division,  which was a component of the Telecom  segment,  for
approximately  $5,150.  This sale  resulted in a pre-tax  gain of $4,435  during
2002.  Through  December 31, 2003,  the Company has  received  cash  proceeds of
$4,995,  of which  $4,495  and $500 were  received  during  2002 and the  fourth
quarter  of 2001,  respectively,  related  to the sale of the  alarm  monitoring
division  assets.  The alarm monitoring  assets consisted  primarily of customer
contracts and equipment,  which had a book value of approximately $355 as of the
date of the sale. The purchaser of the assets commenced litigation


<PAGE>

                            SUREWEST COMMUNICATIONS
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


5. SALE OF ALARM MONITORING DIVISION (CONTINUED)

against the Company relating to claims under the asset  agreement,  generally in
connection with certain contracts  assigned to the purchaser.  On July 17, 2003,
the Company and the purchaser  settled the litigation  and the parties  released
all claims in  exchange  for payment by the  Company to the  purchaser  of $375,
which  was paid  during  2003.  Total  operating  revenues  attributable  to the
Company's alarm  monitoring  division during 2002 and 2001 were $279 and $2,530,
respectively (none in 2003).

6. ACQUISITION OF BUSINESS AND MINORITY INTEREST

Effective  July 31, 2001,  the Company  acquired all of the  outstanding  common
stock of SureWest  Custom Data Services for $2,100 in cash. The  acquisition was
accounted  for  as  a  purchase  in  accordance  with  SFAS  No.  141  "Business
Combinations."  The assets of  SureWest  Custom  Data  Services  acquired by the
Company,  which had an aggregate  fair value of $491,  consisted  principally of
cash, accounts receivable and property,  plant and equipment. The liabilities of
SureWest  Custom Data  Services  assumed by the Company,  which had an aggregate
fair value of $534,  consisted  principally  of accounts  payable and  long-term
debt. As a result of this acquisition,  the Company recorded $2,171 of goodwill,
which is allocated to the telephone operating segment.  None of this goodwill is
deductible  for tax  purposes.  As of  January  1, 2004,  SureWest  Custom  Data
Services operates as SureWest Broadband.

During  the  second  quarter  of 2001,  the  Company  acquired  from  Foresthill
Telephone Co. ("FHT") its 1.8% interest in SureWest Wireless for $2,500 in cash.
As a result of the acquisition,  the Company now owns 100% of SureWest Wireless.
A former  member of the  Company's  Board of  Directors  was, at the time of the
acquisition, the President and sole shareholder of FHT.

7. CREDIT ARRANGEMENTS

Long-term  debt  outstanding  as of December 31, 2003 and 2002  consisted of the
following:

<TABLE>
<CAPTION>
                                                                                     2003                2002
                                                                                 --------------    -------------
                <S>                                                                <C>                  <C>
        Unsecured Series A Senior Notes, with interest payable semiannually at a
         fixed rate of 6.3%; principal payments are due in equal annual
         installments of approximately $3,636,
         commencing in December 2003 and ending in December 2013                  $    36,363      $    40,000

        Unsecured Series B Senior Notes, with interest payable semiannually at a
         fixed rate of 4.74%; principal payments are due in equal annual
         installments of approximately $12,000,
         commencing in March 2009 and ending in March 2013                             60,000                -

        Unsecured term loan with a bank, with interest payable quarterly at a
         fixed rate of 6.22%; principal payments are due in equal quarterly
         installments of approximately $536, through December
         2003                                                                               -            2,143

        Note payable, with interest payable quarterly at a fixed rate of 8.00%;
         principal payments are due in equal quarterly
         installments of approximately $36, through November 2005                         286              422
                                                                                 --------------   --------------
        Total long-term debt                                                           96,649           42,565

        Less current portion                                                            3,779            5,920
                                                                                 --------------   --------------

        Total long-term debt, net of current portion                              $    92,870      $    36,645
                                                                                 ==============   ==============
</TABLE>
<PAGE>
                            SUREWEST COMMUNICATIONS
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


7. CREDIT ARRANGEMENTS (CONTINUED)

At December 31, 2003, the aggregate maturities of long-term debt were (i) $3,636
annually  through 2008,  (ii) $15,636  annually from 2009 through 2013 and (iii)
$143 annually through 2005 for a total of $92,870.

On March 13,  2003,  the Company  completed a note  purchase  agreement  for the
issuance  of its  unsecured  Series B Senior  Notes  ("Series  B Notes")  in the
aggregate  principal  amount of  $60,000.  The  Company  used a  portion  of the
proceeds  from the issuance of the Series B Notes to retire  certain  short-term
borrowings,  which had an aggregate  outstanding principal balance of $15,000 as
of  December  31,  2002.  Consequently,  such  short-term  borrowings  have been
presented as a long-term  liability  in the  accompanying  consolidated  balance
sheet as of December 31, 2002.

In March 2000,  the Company  entered into a business loan  agreement with a bank
for a $30,000 line of credit with a term of three years.  In July 2002, the bank
amended the credit  facility  increasing the borrowing  capacity from $30,000 to
$50,000  through  June 1, 2004.  Interest on this credit  facility is based on a
LIBOR-based  pricing  formula.  While the Company has borrowed  previously under
this  credit  facility,  there were no  amounts  outstanding  under this  credit
facility as of December 31, 2003,  nor since the issuance of the Series B Notes.
The  Company  obtained  a waiver  as of  December  31,  2003 with  respect  to a
technical  violation of the business loan agreement;  however,  the Company does
not  believe  the  violation  to be of any  consequence  since (i) there were no
amounts outstanding as of the time of the technical violation nor thereafter and
(ii)  subsequent  to December  31,  2002,  the Company and the Bank  executed an
amendment to the business loan  agreement  extending the  expiration  date until
June 1, 2005 and revising certain covenants. (see Note 17).

Certain of the aforementioned  credit arrangements  contain various positive and
negative  covenants with respect to cash flow  coverage,  tangible net worth and
leverage  ratio.  These  provisions  could  restrict the payment of dividends in
certain  circumstances;  however,  the entire  amount of  retained  earnings  at
December 31, 2003 and 2002 was unrestricted.

8. INCOME TAXES

Income tax expense consists of the following components:
<TABLE>
<CAPTION>
                                                                 2003               2002                2001
                                                          -------------        -------------      -------------
                    <S>                                         <C>                 <C>                 <C>
        Current expense (benefit):
         Federal                                           $       782          $    (9,095)       $    (4,613)
         State                                                   1,549                 (607)             1,101
                                                          -------------        -------------      -------------
        Total current expense (benefit)                          2,331               (9,702)            (3,512)

        Deferred expense (benefit):
         Federal                                                    75               15,010             10,050
         State                                                  (1,384)               2,118                331
                                                          -------------        -------------      -------------
        Total deferred expense (benefit)                        (1,309)              17,128             10,381
                                                          -------------        -------------      -------------

        Total income tax expense                            $    1,022          $     7,426        $     6,869
                                                          =============        =============      =============
</TABLE>




<PAGE>

                            SUREWEST COMMUNICATIONS
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


8. INCOME TAXES (CONTINUED)

        Income tax expense differs from that computed by using the statutory
        federal tax rate (35% in all years presented) due to the following:
<TABLE>
<CAPTION>
                                                                 2003               2002                2001
                                                           -------------        -------------      -------------
                <S>                                             <C>                     <C>             <C>
        Computed at statutory rates                         $      583           $    6,536        $    6,015

        Increase (decrease):
          State taxes, net of federal benefit                      108                  982               930
          Other, net                                               331                  (92)              (76)
                                                           -------------        -------------      -------------

        Income tax expense                                  $    1,022           $    7,426        $    6,869
                                                           =============        =============      =============
        Effective federal and state tax rate                      61.3%                39.8%             40.0%
                                                           =============        =============      =============
</TABLE>



The  significant  components  of the  Company's  deferred  income tax assets and
liabilities were as follows at December 31, 2003 and 2002:
<TABLE>
<CAPTION>

                                                                            Deferred Income Taxes
                                                       ----------------------------------------------------------------
                                                                   2003                               2002
                                                       ------------------------------  --------------------------------
                                                          Assets        Liabilities      Assets         Liabilities
                                                      --------------  --------------  --------------  --------------
        <S>                                                   <C>              <C>              <C>           <C>
        Property, plant and equipment-primarily
          due to depreciation differences                $      -        $  37,820       $       -       $  32,128

        Differences in the timing of recognition
          of revenues                                        9,838               -           7,182               -

        State franchise taxes                                  209               -               -               -

        Other, net                                          10,526           8,490           6,432           8,038
                                                      --------------  --------------  --------------  --------------

        Total                                               20,573          46,310          13,614          40,166

        Less current portion                                   209               -               -               -
                                                      --------------  --------------  --------------  --------------

        Total deferred income taxes                      $  20,364       $  46,310       $  13,614      $   40,166
                                                      ==============  ==============  ==============  ==============

        Net long-term deferred income tax liability                      $  25,946                      $   26,552
                                                                      ==============                  ==============
</TABLE>

As of December 31, 2003,  the Company had net operating loss  carryforwards  for
federal income tax purposes of approximately  $19,434,  which will expire in the
years 2018 through 2023, if not  utilized.  Deferred tax assets  relating to net
operating  loss  carryforwards  for federal  purposes  as of  December  31, 2003
include approximately $463 associated with stock compensation activity for which
subsequent  realized tax  benefits,  if any, will reduce income taxes payable in
the future.  The Company also had net  operating  loss  carryforwards  for state
income tax purposes of  approximately  $218, which will expire in the years 2004
through 2011, if not utilized. The Company also had research and development tax
credit carryforwards of approximately $100 both for federal and state income tax
purposes.  The federal  credit will  expire in 2022 if it is not  utilized.  The
state  credits have no  expiration  date.  The Company  believes that it is more
likely  than not that the  benefit  associated  with  the  deferred  tax  assets
resulting  from  these  net  operating  loss  carryforwards  will be  ultimately
realized  based on its assessment of future taxable income during the periods in
which the net  operating  losses  remain  available.  The Company  considers the
scheduled reversal of its deferred tax liabilities,  primarily depreciation, and
projected future taxable income in making this  assessment.  As a result of this
assessment, the Company has not recognized a valuation allowance associated with
its deferred  tax asset as of December  31, 2003 and 2002.



<PAGE>
                            SUREWEST COMMUNICATIONS
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


9. PENSION AND OTHER POST-RETIREMENT BENEFITS

The  Company  sponsors  a  noncontributory  defined  benefit  pension  plan (the
"Pension Plan") covering  substantially all of its employees.  In December 2003,
the Company approved an amendment to the Pension Plan that essentially  provided
for the adoption of the Pension Plan by all subsidiaries,  thereby extending the
pension  benefit to all  employees  of the Company,  effective  January 1, 2004.
Benefits are based on years of service and the employee's  average  compensation
during  the five  highest  consecutive  years of the last ten years of  credited
service.  The Company's funding policy is to contribute  annually an actuarially
determined  amount  consistent with applicable  federal income tax  regulations.
Contributions  are  intended to provide for  benefits  attributed  to service to
date.  Pension Plan assets are primarily  invested in collective trust accounts,
government and government agency  obligations,  publicly traded stocks and bonds
and mortgage-related securities.

The  Company  also  has  an  unfunded  Supplemental  Executive  Retirement  Plan
("SERP"),  which provides supplemental retirement benefits to certain executives
of the Company.  The SERP provides for incremental pension payments partially to
offset the  reduction in amounts that would have been payable  under the Pension
Plan if it was not for limitations imposed by federal income tax regulations.

In addition,  the Company provides certain  post-retirement  benefits other than
pensions  ("Other  Benefits") to  substantially  all  employees,  including life
insurance  benefits  and  a  stated  reimbursement  for  Medicare   supplemental
insurance.

The Company  uses a  measurement  date of  December  31 for the  majority of its
pension and other post retirement benefit plans.

The following table sets forth the change in benefit obligation,  change in plan
assets and funded  status of the  Pension  Plan,  SERP and Other  Benefits as of
December 31, 2003 and 2002:
<TABLE>
<CAPTION>

                                                   Pension Plan & SERP            Other Benefits
                                               ---------------------------  -------------------------
                                                   2003           2002           2003         2002
                                               ------------  -------------  ------------ ------------
<S>                                                   <C>         <C>             <C>           <C>
Change in benefit obligation:
   Benefit obligation at beginning of year      $  98,853     $   95,460     $   4,554    $   3,993
     Service cost                                   4,557          4,552           353          319
     Interest cost                                  6,841          6,866           326          297
     Plan participants' contributions                   -              -           228            -
     Plan amendments                                    -              -           175            -
     Actuarial losses (gain)                        4,521         (4,026)         (180)         312
     Benefits paid                                 (4,419)        (3,999)         (420)        (367)
                                               ------------  -------------  ------------ ------------
Benefit obligation at end of year               $ 110,353      $  98,853     $   5,036    $   4,554
                                               ============  =============  ============ ============


Change in plan assets:
   Fair value of plan assets at  beginning of
   year                                         $  73,806      $  74,019     $   1,347   $    1,450
     Actual return on plan assets                  15,453         (8,157)          289         (164)
     Company contribution                           9,109         11,943           446          428
     Participant contributions                          -              -           228            -
     Benefits paid                                 (4,419)        (3,999)         (420)        (367)
                                               ------------  -------------  ------------ ------------
Fair value of plan assets at end of year        $  93,949      $  73,806     $   1,890    $   1,347
                                               ============  =============  ============ ============
</TABLE>




<PAGE>

                            SUREWEST COMMUNICATIONS
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


9. PENSION AND OTHER POST-RETIREMENT BENEFITS (CONTINUED)
<TABLE>
<CAPTION>

                                                   Pension Plan & SERP            Other Benefits
                                               ---------------------------  -------------------------
Funded status:                                     2003           2002           2003         2002
                                               ------------  -------------  ------------ ------------
<S>                                                <C>              <C>           <C>          <C>
Unfunded status of plan at end of year          $ (16,404)    $  (25,048)    $  (3,146)   $  (3,207)
Unrecognized actuarial loss (gain)                 16,784         22,210          (142)         220
Unrecognized prior service cost                       575            667           408          259
Unrecognized net transition obligation                573            840             -            -
                                               ------------  -------------  ------------ ------------
Prepaid (accrued) benefits                      $   1,528     $   (1,331)    $  (2,880)   $  (2,728)
                                               ============  =============  ============ ============
</TABLE>


Amounts  recognized in the consolidated  balance sheets at December 31, 2003 and
2002 consist of:
<TABLE>
<CAPTION>

                                                     Pension Plan & SERP            Other Benefits
                                               ---------------------------  -------------------------
                                                   2003           2002           2003         2002
                                               ------------  -------------  ------------ ------------
<S>                                                <C>             <C>          <C>             <C>
Prepaid benefit cost                            $   3,009     $        -     $       -    $       -
Accrued benefit cost                               (1,481)        (1,331)       (2,880)      (2,728)
Additional minimum liability                         (568)        (4,282)            -            -
Intangible assets                                     126          1,507             -            -
Accumulated other comprehensive income                442          2,775             -            -
                                               ------------  -------------  ------------ ------------
Prepaid (accrued) benefits                      $   1,528     $   (1,331)    $  (2,880)   $  (2,728)
                                               ============  =============  ============ ============
</TABLE>


Information  for the  Pension  Plan and SERP,  which  have  accumulated  benefit
obligations in excess of plan assets as of December 31, 2003 are as follows:
<TABLE>
<CAPTION>
                                                                             2003           2002
                                                                         ------------   ------------
<S>                                                                           <C>           <C>
Projected benefit obligation                                              $  110,353     $   98,853
Accumulated benefit obligation                                            $   91,375     $   79,419
Fair value of plan assets                                                 $   93,949     $   73,806
</TABLE>



Net periodic  pension cost recognized in the  consolidated  statements of income
for the years ended  December  31, 2003,  2002 and 2001 under the Pension  Plan,
SERP and Other Benefits plan included the following components:
<TABLE>
<CAPTION>

                                               Pension Plan & SERP                  Other Benefits
                                         -------------------------------   --------------------------------
                                           2003       2002        2001       2003        2002       2001
                                         ---------  ---------  ---------   ---------  ---------   ---------
<S>                                         <C>         <C>       <C>          <C>         <C>        <C>
Service   cost-benefits  earned  during
   the period                             $ 4,557    $ 4,552    $ 4,060     $   353    $   320     $   237
Interest  cost  on  projected   benefit
   obligation                               6,841      6,866      6,394         326        297         233
Expected return on plan assets             (6,305)    (6,368)    (6,487)       (108)      (117)       (118)
Amortization of prior service cost             92         92         71          26         26          27
Recognized net actuarial loss                 798        151         47           -         (6)        (58)
Amortization of transition obligation         267        267        267           -          -           -
                                         ---------  ---------  ---------   ---------  ---------   ---------

Net pension cost                          $ 6,250    $ 5,560    $ 4,352     $   597    $   520     $   321
                                         =========  =========  =========   =========  =========   =========
</TABLE>



<PAGE>
                            SUREWEST COMMUNICATIONS
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


9. PENSION AND OTHER POST-RETIREMENT BENEFITS (CONTINUED)

The weighted-average assumptions used to determine projected benefit obligations
as of December 31, 2003 and 2002 are as follows:
<TABLE>
<CAPTION>

                                                      Pension Plan & SERP              Other Benefits
                                                     -----------------------      -----------------------
                                                       2003           2002           2003          2002
                                                     ----------   ----------      ----------   ----------
<S>                                                      <C>            <C>           <C>          <C>
Discount rate                                          6.25%          6.75%         6.25%         6.75%
Rate of compensation increase                          5.00%          5.00%         5.00%         5.00%

</TABLE>

Weighted-average  assumptions  used to determine net periodic benefit cost as of
December 31, 2003 and 2002 are as follows:
<TABLE>
<CAPTION>
                                                Pension Plan & SERP               Other Benefits
                                         --------------------------------  ----------------------------
                                            2003      2002        2001       2003     2002      2001
                                           -------   -------     -------    -------  -------   -------
<S>                                           <C>      <C>        <C>        <C>       <C>       <C>
Discount rate                               6.75%     7.00%      7.25%       6.75%     7.00%     7.25%
Expected long-term return on plan assets    8.50%     8.50%      8.50%       8.50%     8.50%     8.50%
Rate of compensation increase               5.00%     6.00%      6.00%       5.00%     6.00%     6.00%
</TABLE>



The expected  rate of return on plan assets is the weighted  average of expected
long-term asset return assumptions.

Assumed  health  care cost  trend  rates at  December  31,  2003 and 2002 are as
follows:

<TABLE>
<CAPTION>
                                                                         2003           2002
                                                                       --------       --------
<S>                                                                     <C>               <C>
Health care cost trend assumed for the next year                         9.00%         10.00%
Rate to which the cost trend is assumed  to decline  (the  ultimate
   trend rate)                                                           6.00%          6.00%
Year that the rate reaches the ultimate trend rate                        2007           2007

</TABLE>

Assumed  health care cost trend rates have a  significant  effect on the amounts
reported for the Other Benefits plan. A  one-percentage-point  change in assumed
health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>

                                                                     1-Percentage-Point  1-Percentage-Point
                                                                          Increase            Decrease
                                                                     ------------------  ------------------
<S>                                                                       <C>                   <C>
Effect on total 2003 service and interest costs                          $    56           $   (47)
Effect on Other Benefits obligation as of December 31, 2003              $   274           $  (239)
</TABLE>


The assets of the Pension Plan and Other Benefits are combined in a single trust
and invested in the  aggregate.  The SERP benefit  obligation is funded  through
current  Company  assets.  The allocation for the plan assets at the end of 2003
and 2002, and the target allocation for 2004, by asset category is as follows:

<TABLE>
<CAPTION>

                             Target Allocation      Percentage of Plan Assets at December 31,
                            ------------------     ------------------------------------------
Asset Category                      2004                  2003                   2002
--------------              ------------------     ------------------      ------------------
<S>                                  <C>                  <C>                    <C>
Equity securities                  35-45%                 39.6%                  53.2%
Government/credit
   securities                      35-45%                 38.6%                  30.9%
International stocks               15-25%                 20.9%                  14.1%
Cash equivalents                    0-2%                  0.9%                   1.8%
                                                   ------------------      ------------------
Total                               100%                  100%                   100%
                                                   ==================      ==================
</TABLE>

                            SUREWEST COMMUNICATIONS
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


9. PENSION AND OTHER POST-RETIREMENT BENEFITS (CONTINUED)

The fair value of plan assets for these plans is $95,839 and $75,153 at December
31, 2003 and 2002, respectively.  The expected long-term rate of return on these
plan assets for 2003 and 2002 was 8.5%.

Revised in mid-2003,  the Company's investment strategy is designed to provide a
stable  environment to secure participant  retirement  benefits and minimize the
reliance on contributions as a source of benefit security.  As such, plan assets
are  invested to maximize  the plan's  funded  ratios over the  long-term  while
managing  the  downside  risk that  funded  ratios  fall  below  some  specified
threshold  level.  The asset return  objective is to achieve,  as a minimum over
time, the passively  managed  return earned by managed index funds,  weighted in
the proportions  outlined by the asset class exposures  identified in the plan's
strategic allocation.

The Company expects to contribute  $5,500 and $460 to the Pension Plan and Other
Benefits plan, respectively, in 2004.

         Estimated Future Benefit Payments

Information  about the expected cash flows for the Pension Plan,  SERP and Other
Benefits plan is as follows :

                                  Pension Plan & SERP          Other Benefits
                                 ---------------------       ------------------
Expected benefit payments:
    2004                              $   4,475                  $    187
    2005                                  4,687                       222
    2006                                  4,972                       258
    2007                                  5,383                       296
    2008                                  5,741                       333
    2009 - 2013                          36,123                     2,336


The above table reflects the total  benefits  expected to be paid from the plans
or from the Company's assets,  including both the Company's share of the benefit
cost and the  participants'  share of the cost,  which is funded by  participant
contributions to the plans.  Expected  contributions reflect amounts expected to
be contributed to funded plans.

Prior to December  31, 2001,  the Company  maintained  two defined  contribution
retirement  plans, the Employee Stock Ownership Plan ("ESOP") and the Retirement
Supplement Plan ("RSP"), which together provided retirement and savings features
for substantially all employees.  The Company approved an amendment to merge the
RSP into the ESOP as of  December  31, 2001 and to change the  structure  of the
Company's provision to match employee contributions to the ESOP from one-half of
an employee's  contributions,  to a dollar-for-dollar match up to six percent of
an employee's salary.

In  addition,  effective  June 1, 2002,  the Company  approved an  amendment  to
establish the SureWest KSOP (the "KSOP"),  replacing the ESOP, in order to allow
its participants an opportunity to diversify their retirement  holdings.  All of
the  assets  held in the ESOP were  transferred  to the KSOP.  The  Company  has
retained  an  investment  management  company to be the  record  keeper and fund
manager  of the KSOP.  Employees  may choose  from  eleven  investment  options,
including  the  Company's  Stock  Fund.  The KSOP will  continue  to have both a
retirement and savings feature.  The retirement feature allows for qualified tax
deferred contributions by employees under Section 401(k) of the Internal Revenue
Code. The KSOP provides for voting rights as to the  participant's  share of the
Company's common stock held by the KSOP and for certain  diversification  rights
of the participant's account balances.  Aggregate matching contributions made by
the  Company and charged to expense  under the KSOP,  RSP and ESOP were  $2,204,
$1,962 and $1,725 in 2003, 2002 and 2001, respectively. The KSOP held 1,211,000,
1,263,000  and  1,633,000  shares of the  Company's  common  stock and  received
dividends  of $1,275,  $1,410 and $1,729,  respectively,  during the years ended
December 31, 2003, 2002 and 2001, respectively. The Company's earnings per share
calculations includes the issued and outstanding shares held by the KSOP.


<PAGE>


                            SUREWEST COMMUNICATIONS
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


10. COMMITMENTS AND CONTINGENCIES

Capital and Operating Leases

As a result of the  acquisition  by SureWest  Televideo of certain WIN assets in
July 2002 (Note 4) the Company  assumed  capital  leases for  certain  vehicles.
These  leases  bear  interest  at  imputed  rates of 6.3% to 16.2% per annum and
expire  through  December 2010.  The  capitalized  costs related to assets under
capital leases were $1,064 as of December 31, 2003 and 2002. The amortization of
assets under capital leases is included in depreciation and amortization expense
in the accompanying  consolidated financial statements.  As of December 31, 2003
and 2002,  the  accumulated  amortization  for these  assets  was $315 and $105,
respectively.

The Company leases certain facilities and equipment used in its operations under
arrangements  accounted for as operating  leases.  The facility leases generally
require the Company to pay operating costs,  including property taxes, insurance
and  maintenance,  and certain of them  contain  scheduled  rent  increases  and
renewal options.  The Company  recognizes rent expense on a straight-line  basis
over the term of each lease.  Total rent  expense for all  operating  leases was
$5,032, $4,238 and $2,999 in 2003, 2002 and 2001, respectively.

As of December 31, 2003,  the Company had various  non-cancelable  operating and
capital  leases with terms greater than one year.  Future minimum lease payments
for all non-cancelable  operating and capital leases at December 31, 2003 are as
follows:
<TABLE>
<CAPTION>

                                                             Operating            Capital
                                                              Leases               Leases
                                                         ---------------      ---------------
        <S>                                                     <C>                  <C>
      2004                                                $     4,815          $       417
      2005                                                      3,695                  230
      2006                                                      2,961                   32
      2007                                                      2,495                    7
      2008                                                      2,253                    7
      Thereafter                                                6,103                   14
                                                         ---------------      ---------------
                                                          $    22,322                  707
      Less: amount representing interest                 ===============                95
                                                                              ---------------
      Present value of net minimum lease payments                                      612

      Less:  current portion                                                           347
                                                                              ---------------
                                                                               $       265
                                                                              ===============
</TABLE>

Other Commitments

As of December 31, 2003,  binding  commitments  for future capital  expenditures
were approximately $2,000 in the aggregate.

SureWest Long Distance provides long distance services under resale arrangements
with two interexchange  carriers,  Global Crossing Ltd. ("Global  Crossing") and
Sprint  Communications  Company  L.P.  ("Sprint").  The  agreement  with  Global
Crossing  is due to expire in July  2004.  The  Company's  2-year  non-exclusive
agreement with Sprint will expire in December 2004. The Company's  minimum usage
requirements  for  Global  Crossing  and  Sprint  for 2004  are  $255 and  $275,
respectively.  For the years ended December 31, 2003, 2002 and 2001, the Company
paid  $1,183,  $1,343  and  $1,254,  respectively,   for  long  distance  resale
arrangements.
<PAGE>

                            SUREWEST COMMUNICATIONS
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


10. COMMITMENTS AND CONTINGENCIES (CONTINUED)

The Company  executed a surety and  indemnification  agreement  in the amount of
$500  related to a Facility  License  Agreement  entered  into  during the third
quarter  of  2003.  In  addition,  the  Company  has  certain  other  guarantees
surrounding its cable franchise licenses.

Litigation, Regulatory Proceedings and Other Contingencies

The Company is subject to certain  legal and  regulatory  proceedings,  Internal
Revenue Service  examinations  and other income tax exposures,  and other claims
arising in the ordinary  course of its business.  In the opinion of  management,
the  ultimate   outcome  of  these  matters  will  not  materially   affect  the
consolidated financial position or results of operations of the Company.

11. EQUITY INCENTIVE PLANS

The Company has two Equity Incentive Plans (the "Plans") for certain  employees,
outside  directors  and  consultants  of the  Company,  which were  approved  by
shareholders.  The  Company  authorized  for future  issuance  under the Plans 1
million shares (subject to upward adjustment based upon the Company's issued and
outstanding  shares) of authorized,  but unissued,  common stock. As of December
31, 2003,  360,159 shares were available for grant. The Plans permit issuance by
the Company of awards in the form of restricted shares, stock units, performance
shares,  stock options and stock  appreciation  rights.  The exercise  price per
share of the Company's common stock purchasable under any stock option shall not
be less than 100% of the fair market  value of a share of the  Company's  common
stock on the date of the grant,  and the  exercise  price under a  non-qualified
stock  option  shall  not be less  than  85% of the  fair  market  value  of the
Company's common stock in the date of the grant.

The  following  table  summarizes  stock  option  activity  for the years  ended
December 31, 2003, 2002 and 2001,  along with options  exercisable at the end of
each year:
<TABLE>
<CAPTION>

                                             2003                           2002                         2001
                                   --------------------------     -------------------------   -------------------------
                                                    Weighted                     Weighted                    Weighted
                                                    Average                      Average                      Average
                                     Options         Price         Options        Price        Options         Price
                                   ----------      ----------     ----------    ----------    ----------    ----------
<S>                                     <C>             <C>              <C>       <C>          <C>            <C>
Outstanding-January 1,               865,122          $40.87        739,887      $41.28        612,500       $39.46
Granted                               12,750           30.26        180,250       38.83        169,800        47.37
Exercised                             (5,344)          30.77        (22,805)      39.28         (6,678)       39.86
Cancelled                            (48,054)          41.74        (32,210)      39.91        (35,735)       39.27
                                   ----------      ----------     ----------    ----------    ----------    ----------
Outstanding-December 31,             824,474          $40.72        865,122      $40.87        739,887       $41.28
                                   ==========      ==========     ==========    ==========    ==========    ==========

Exercisable at end of year           448,471                        262,091                    111,957
                                   ==========                     ==========                  ==========

</TABLE>


<PAGE>

                            SUREWEST COMMUNICATIONS
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


11. EQUITY INCENTIVE PLANS (CONTINUED)

The  following is a summary of the status of the stock  options  outstanding  at
December 31, 2003:
<TABLE>
<CAPTION>

                                             Options Outstanding                        Options Exercisable
                                -----------------------------------------------     -----------------------------

                                                    Weighted        Weighted                          Weighted
              Range of                               Average         Average                           Average
              Exercise             Number of       Remaining        Exercise           Number of      Exercise
               Prices               Shares       Contractual Life     Price            Shares           Price
       ----------------------------------------------------------------------------------------------------------
                <S>                     <C>             <C>              <C>             <C>            <C>

           $26.51 - $39.00           197,303           8.24           $36.69             87,024        $38.02
           $39.25 - $39.25           316,221           6.53           $39.25            222,927        $39.25
           $39.50 - $50.50           301,950           7.51           $44.47            135,520        $47.06
           $53.37 - $55.74             9,000           8.30           $55.35              3,000        $55.35
                                ----------------                                    --------------

                                     824,474           7.32           $40.72            448,471        $41.48
                                ================                                    ==============
</TABLE>

During the year ended December 31, 2003, the Company issued 43,491 shares of the
Company's  restricted  common stock,  which had a fair market value ranging from
$26.40 to $39.00 per share at the dates of grant, to certain employees,  members
of management and outside counsel.  Deferred stock-based  compensation of $1,594
was recorded as a result of the issuance of these  shares of  restricted  common
stock.  During the year ended December 31, 2002, the Company issued 1,500 shares
of the Company's  restricted common stock,  which had a fair market value of $46
as of the date of grant, to certain  members of management and outside  counsel.
For the year ended December 31, 2001, the Company recorded deferred  stock-based
compensation  of $363 as a result  of  issuing  8,450  shares  of the  Company's
restricted  common  stock to members of the  Company's  Board of  Directors  and
certain members of management.  These amounts were determined  based on the fair
market value of such common shares at the date of grant and are being  amortized
to operations  over the vesting periods (which range from 2 - 5 years) using the
graded  vesting  method.  Stock-based  compensation  expense  related  to  these
restricted  stock issuances was $291, $202, and $60 for the years ended December
31, 2003, 2002 and 2001, respectively.

12. STOCK REPURCHASE

In February  2000,  the Board of Directors  authorized the repurchase of up to 1
million  shares  of the  Company's  common  stock.  In June  2002,  the Board of
Directors  approved the  repurchase of an additional  500 thousand  shares.  The
shares are purchased  from time to time in the open market or through  privately
negotiated  transactions  subject to overall  financial  and market  conditions.
Additionally, the Company implemented an odd-lot repurchase program during 2001.
Through  December 31, 2003,  approximately 1 million shares of common stock have
been repurchased through the programs.  The Company has remaining  authorization
from the Board of Directors to repurchase an additional 469 thousand outstanding
shares as of December 31, 2003.

13. SHAREHOLDER RIGHTS PLAN AND CHANGE IN CONTROL AGREEMENT

The Company has a Shareholder  Rights Plan wherein  shareholders  of the Company
receive rights to purchase the Company's  common stock, or an acquirer's  common
stock,  at a discount in certain events  involving an acquisition of 20% or more
of the  Company's  common  stock by any  person  or group in a  transaction  not
approved by the Company's Board of Directors. The rights expire in March 2008.

The Company has change in control  agreements with  approximately  20 employees,
which  provide  upon  (i) a  change  in  control  of  the  Company  and  (ii)  a
constructive  termination  of  employment,  the payment of a  severance  benefit
approximately equal to twice the employee's annual compensation.



<PAGE>

                            SUREWEST COMMUNICATIONS
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


14. BUSINESS SEGMENTS

The  Company  has  three  reportable   business   segments:   Telecommunications
("Telecom"),  Broadband  and Wireless.  The Telecom  segment  includes  SureWest
Telephone,  SureWest  Directories  and SureWest  Long  Distance,  which  provide
landline telecommunications  services,  directory advertising, DSL service, long
distance services and certain non-regulated services.  SureWest Telephone, which
is the principal operating subsidiary of the Telecom segment, provides local and
toll  telephone  services,  network  access  services and certain  non-regulated
services.  SureWest  Directories  publishes and distributes SureWest Telephone's
directory, including the sale of yellow pages advertising.  SureWest Directories
is also  engaged in the  business  of  producing,  publishing  and  distributing
directories  in  other  Northern  California  communities  outside  of  SureWest
Telephone's  service  areas.  SureWest  Long  Distance  provides  long  distance
services.

The Broadband  segment  provides  various  services  including:  high-speed  and
dial-up Internet,  digital video,  local,  network access and toll telephone and
managed  services in the  greater  Sacramento  area,  principally  to  customers
residing  outside of SureWest  Telephone's  service  area.  The  Company  offers
high-speed Internet,  digital video and local and long distance phone service as
a bundled package referred to as Triple Play. The Broadband segment includes the
Company's  subsidiaries  SureWest  Broadband and SureWest  Broadband/Residential
Services.  SureWest  Broadband is comprised,  in part, of a division of SureWest
Telephone operating as a Competitive Local Exchange Carrier.

The Wireless segment  consists of the Company's  subsidiary  SureWest  Wireless,
which provides wireless services. SureWest Wireless derives its revenue from the
provision   of  wireless   services   and  the  sale  of  handsets  and  related
communications  equipment.  Revenues include  wireless voice services,  sales of
handsets and related  accessories,  long distance,  handset  insurance,  roaming
service and custom calling features.  Non-contract  wireless services are billed
in advance and recognized in subsequent  periods when the services are provided.
Contract wireless services are billed in arrears.

In accordance with the provisions of SFAS No 131,  "Disclosure About Segments of
an Enterprise and Related  Information,"  the Company has aggregated  certain of
its  operating  segments  within the Telecom and Broadband  segments  because it
believes that such operating segments share similar economic characteristics.

Corporate Operations are allocated to the appropriate segment, except for: cash;
investments;  certain  property,  plant, and equipment and  miscellaneous  other
assets which are not allocated to the segments.  However,  the investment income
associated with cash and investments held by Corporate Operations is included in
the results of the operations of the Company's  segments.  The Company evaluates
the performance of its segments based on income (loss) from operations.

These segments are strategic  business units that offer  different  products and
services.  The  accounting  policies  of  these  segments  are the same as those
described in Notes 1 and 2. The Company accounts for  intersegment  revenues and
expenses at prevailing market rates. The Company's business segment  information
is as follows (the Company's 2002 and 2001 business segment information has been
restated to conform to the Company's organizational structure in 2003):


<PAGE>
                            SUREWEST COMMUNICATIONS
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



14. BUSINESS SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
                                                                            Corporate     Intercompany
2003                                Telecom      Broadband     Wireless     Operations    Eliminations   Consolidated
--------------------------------- ------------- ------------- ------------ ------------- -------------- --------------
<S>                                     <C>          <C>          <C>            <C>          <C>            <C>
Operating revenues from
   external customers             $  138,924    $   29,267     $   27,146    $       -     $        -     $  195,337
Intersegment revenues                 23,576         1,683           744             -        (26,003)             -
Operating expenses*                   83,645        42,754         34,724            -        (26,003)       135,120
Depreciation and amortization         31,257         4,508         16,705            -              -         52,470
Income (loss) from operations         47,598       (16,312)       (23,539)           -              -          7,747
Interest income                          322             2            (18)           -              -            306
Interest expense, net of
   capitalized interest                 (452)       (1,890)        (1,905)           -              -         (4,247)
Corporate treasury loss                1,263           347            218            -              -          1,828
Income tax expense (benefit)          19,327        (7,551)       (10,754)           -              -          1,022
Net income (loss)                 $   26,565    $  (10,983)    $  (14,937)   $       -     $        -     $      645
Total assets                      $  569,574    $  104,522     $   80,217    $  53,025     $  (372,129)   $  435,209
Capital expenditures              $   15,675    $   47,626     $    5,224    $   7,580     $        -     $   76,105


                                                                            Corporate     Intercompany
2002                                Telecom      Broadband     Wireless     Operations    Eliminations   Consolidated
--------------------------------- ------------- ------------- ------------ ------------- -------------- --------------
Operating revenues from
   external customers             $  149,679    $   13,051     $   23,225    $       -     $        -     $  185,955
Intersegment revenues                 16,826         1,189            507            -        (18,522)             -
Operating expenses*                   86,417        23,448         33,796            -        (18,522)       125,139
Depreciation and amortization         28,249         1,972         14,905            -              -         45,126
Income (loss) from operations         51,839       (11,180)       (24,969)           -              -         15,690
Interest income                          738             -              1            -              -            739
Interest expense, net of
   capitalized interest                  366            85          1,425            -              -          1,876
Income tax expense (benefit)          22,762        (4,585)       (10,751)           -              -          7,426
Net income (loss)                 $   33,634    $   (6,715)    $  (15,670)   $       -     $        -     $   11,249
Total assets                      $  524,913    $   64,654     $  132,483    $  15,085     $ (340,619)    $  396,516
Capital expenditures              $   16,460    $   10,125     $   10,650    $   7,117     $        -     $   44,352


                                                                            Corporate     Intercompany
2001                                Telecom      Broadband     Wireless     Operations    Eliminations   Consolidated
--------------------------------- ------------- ------------- ------------ ------------- -------------- --------------


Operating revenues from
   external customers             $  142,780    $    4,649     $   16,056    $       -     $        -     $  163,485
Intersegment revenues                 12,877            77            245            -        (13,199)             -
Operating expenses*                   82,518         8,178         33,384            -        (13,199)       110,881
Depreciation and amortization         27,454           553         11,834            -              -         39,841
Income (loss) from operations         45,685        (4,005)       (28,917)           -              -         12,763
Interest income                        4,803             -              -            -              -          4,803
Interest expense, net of
   capitalized interest                 (320)         (126)         1,760            -                         1,314
Income tax benefit (expense)          20,921        (1,597)       (12,455)           -              -          6,869
Net income (loss)                 $   30,724    $   (2,283)    $  (18,124)   $       -     $        -     $   10,317
Total assets                      $  486,581    $   27,559     $  123,453    $  50,694     $ (276,680)    $  411,607
Capital expenditures              $   30,957    $    9,754     $   28,845    $       -     $        -     $   69,556
</TABLE>

  *Exclusive of depreciation and amortization

<PAGE>

                            SUREWEST COMMUNICATIONS
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


15. OTHER RELATED PARTY TRANSACTIONS

An officer of the Company is also a member of the Board of  Directors of a local
banking  institution.  As of  December  31,  2000,  the  Company  had a  $15,000
certificate  of  deposit  with a term  greater  than one year with such  banking
institution.   In  the  fourth  quarter  of  2001,  the  Company  redeemed  this
certificate  of deposit for an amount equal to its  historical  carrying  value,
including  accrued  interest.  In addition,  during the years ended December 31,
2003,  2002 and 2001, the Company  provided $45, $17 and $18,  respectively,  in
telecommunications services to this banking institution.

A member of the Company's Board of Directors as of December 31, 2003 was also an
executive  officer  and  director  of a certain  entity  from which the  Company
purchased  approximately  $545 in  telecommunications  equipment during 2001 (no
similar purchases were made during 2002 and 2003).

On May 31, 2002, the company repurchased 300 thousand shares of its common stock
from one of its  employee  benefit  plans.  The Company  utilized  two  separate
independent third party entities for the purpose of providing  fairness opinions
in connection with the  transaction.  The shares were  repurchased at a price of
$50 per share and were retired upon purchase.

16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

During the Company's  financial  statement closing process for the quarter ended
December 31, 2003,  certain  matters were  identified  related to prior  interim
financial  reporting  periods that  necessitated the recording of adjustments to
the Company's condensed  consolidated  financial  information.  Such adjustments
pertained  principally  to (i) property,  plant and equipment and (ii) cash, and
management  believes that weaknesses in the Company's  internal  controls caused
the errors that resulted in these adjustments.  The Company does not believe any
of the aforementioned amounts are material, individually or in the aggregate, to
the respective prior interim periods based on both  quantitative and qualitative
factors,  including  the trend of  operating  results,  nor does it believe  the
prospective  correction of such amounts  during the quarter  ended  December 31,
2003 is material to the Company's  fourth  quarter 2003  condensed  consolidated
results  of  operations  based on both  quantitative  and  qualitative  factors,
including the trend of operating  results.  (The  prospective  correction of the
aforementioned  amounts relating to prior periods increased the Company's fourth
quarter 2003 condensed  consolidated net loss by $3,157,  or $0.22 per basic and
diluted share, and would have reduced the Company's (i) first,  second and third
quarter 2003 condensed  consolidated  net income by $223, or $0.02 per basic and
diluted share,  $119, or $0.01 per basic and diluted share, and $1,250, or $0.09
per basic and diluted  share and (ii) first,  second,  third and fourth  quarter
2002  condensed  consolidated  net income by $54, or $0.00 per basic and diluted
share,  $61, or $0.00 per basic and diluted  share,  $86, or $0.01 per basic and
diluted share, and $595, or $0.04 per basic and diluted share, respectively, had
such errors been corrected in the periods in which they originated.)

The Company's fourth quarter 2002 condensed  consolidated  financial information
has been  adjusted to  eliminate  certain  intercompany  balances  that were not
previously  eliminated.  These adjustments pertained to certain of the Company's
fourth  quarter  2002  intercompany   revenue  and  operating  expense  balances
aggregating  $1,021.  However,  such  adjustments had no effect on the Company's
condensed  consolidated  income  from  operations  or net income for the quarter
ended December 31, 2002.







<PAGE>

                            SUREWEST COMMUNICATIONS
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)

<TABLE>
<CAPTION>


2003                                                    March 31        June 30       September 30      December 31
----------------------------------------------------  -----------     -----------    -----------       -------------
<S>                                                     <C>             <C>             <C>                <C>
Operating revenues                                     $  47,429       $  50,289      $  48,902         $  48,717
Income from operations                                     1,905           5,567          3,677            (3,402)
Net income                                             $     675       $   2,713      $   1,502         $  (4,245)
Basic earnings (loss) per share                        $    0.05       $    0.19      $    0.10         $   (0.30)
Diluted earnings (loss) per share                      $    0.05       $    0.19      $    0.10         $   (0.30)

2002                                                    March 31        June 30       September 30      December 31
----------------------------------------------------  -----------     -----------    -----------       -------------
Operating revenues                                     $  43,451       $  43,118      $  51,600         $  47,786
Income from operations                                     5,129           3,047          7,026               488
Net income                                             $   5,609       $   1,703      $   3,852         $      85
Basic earnings per share                               $    0.37       $    0.12      $    0.26         $    0.01
Diluted earnings per share                             $    0.37       $    0.12      $    0.26         $    0.01
</TABLE>


As a result of the  Company's  annual cost  separation  studies  for  monitoring
periods  2002-2001,  the  Company  changed  its  estimate  for a portion  of its
interstate  and  intrastate  shareable  earnings  obligations  during the fourth
quarter of 2002.  This change in  accounting  estimate  increased  the Company's
revenues  by $1,115  and net income by $671  ($0.05  per share) for the  quarter
ended December 31, 2002.

Effective  November 1, 2002,  the Company  increased the estimated  useful lives
primarily  related to its wireless  switching and voice mail equipment from five
to ten  years.  This  change in  accounting  estimate  decreased  the  Company's
depreciation expense by $206 and increased the Company's consolidated net income
by $124 ($0.01 per share) for the quarter ended December 31, 2002.

The Company adopted SEC Staff Accounting Bulletin No. 101, "Revenue  Recognition
in  Financial   Statements,"   effective   January  1,  2000,   which   requires
non-recurring  revenues  associated  with service and  activation  charges to be
deferred.  The  cumulative  effect of this change in  accounting  principle  was
$3,273, net of tax, ($0.21 per share) in 2000.

For the three-month  periods ended March 31, June 30,  September 30 and December
31, 2003 and 2002,  the Company  recognized  the  following  revenues  that were
included in the cumulative effect adjustment as of January 1, 2000:

        Three months ended:
          March 31, 2003                               $  128
          June 30, 2003                                $  114
          September 30, 2003                           $   96
          December 31, 2003                            $   75
          March 31, 2002                               $  298
          June 30, 2002                                $  251
          September 30, 2002                           $  212
          December 31, 2002                            $  165

The net  effect of these  revenues  in 2003 was to  increase  net  income in the
three-month  periods  ended March 31, June 30,  September  30 and December 31 by
$75, $68, $57 and $44, respectively.

The net  effect of these  revenues  in 2002 was to  increase  net  income in the
three-month  periods  ended March 31, June 30,  September  30 and December 31 by
$178, $150, $127 and $100, respectively.
<PAGE>

                            SUREWEST COMMUNICATIONS
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


17.  EVENT  (UNAUDITED)  SUBSEQUENT  TO THE DATE OF THE  REPORT  OF  INDEPENDENT
     REGISTERED PUBLIC ACCOUNTING FIRM

On March 25,  2004,  the  Company  and the bank  executed  an  amendment  to the
business loan agreement  (Note 7),  extending the expiration  date until June 1,
2005 and revising certain covenants.





<PAGE>




Item  9.  Changes  in and  Disagreements  With  Accountants  on  Accounting  and
          Financial Disclosure.

Not applicable.

Item 9A. Controls and Procedures

Company  management,  including the chief executive  officer and chief financial
officer,  have  evaluated the Company's  disclosure  controls and procedures (as
defined in Rule 13a-15(e) under the Securities  Exchange Act of 1934, as amended
(the "Exchange  Act")) as of the end of the period covered by this Annual Report
on Form 10-K. Based upon that evaluation,  the chief executive officer and chief
financial  officer have concluded at the time of the original filing of the Form
10-K,  and at the  time of  filing  of this  amendment  to Form  10-K,  that the
Company's  disclosure  controls  and  procedures  were  not  effective,  at  the
reasonable  assurance level, as a result of the material  weaknesses in internal
control described below. The initial evaluation of disclosure controls commenced
in the fourth quarter of 2003 and concluded substantially  concurrently with the
initial filing of the Company's Form 10-K on March 30, 2004. As discussed below,
Philip A. Grybas joined the Company as Senior Vice President and Chief Financial
Officer on October 4, 2004,  and  concurs  with the present  conclusion  and the
conclusion  at the  time of the  original  filing  of the  Form  10-K  that  the
Company's   disclosure  controls  and  procedures  were  not  effective  at  the
reasonable  assurance  level as of the end of the period  covered by this Annual
Report on Form 10-K.

In January 2004, the Audit Committee of the Board of Directors launched a formal
investigation,  and retained the law firm of Reed Smith LLP as independent legal
counsel to conduct the investigation with the assistance of forensic accountants
(the  firm of  Deloitte  & Touche  LLP was  retained  by Reed  Smith  LLP).  The
investigation  resulted from a preliminary  investigation by Company management,
(commenced  approximately  December  15, 2003 and  concluded  December 26, 2003)
triggered by the abrupt  resignation  of an employee in the Company's  Corporate
Finance  Department,  indicating  irregularities  by the former  employee in the
Company's  cash  management  and  investment  functions,  and  violations of the
Company's  investment  policies.  At the time of the commencement of the special
investigation,  approximately  $1,828,000  of  Company  funds  were  outstanding
without proper documentation.

The independent legal counsel,  with the assistance of the forensic accountants,
undertook an extensive  process to (i) investigate  the facts and  circumstances
giving rise to the  misappropriation  of Company funds,  (ii) determine  whether
there were any  similar  or  related  transactions,  and any  Company  employees
involved in the previously-identified transactions other than those known to the
Company at the commencement of the investigation, (iii) determine the underlying
mechanics in the origination of the  transactions  and the  circumstances  under
which detection failed to occur, and (iv) evaluate internal controls relating to
the affected portion of the Company's business.

The Audit  Committee of the Board of Directors was advised by independent  legal
counsel that:

     o    All of the  unauthorized  transactions  occurred in 2003 and  remained
          undetected  until  December  2003,  consisting  of  thirteen  distinct
          principal  transfers to and from the Company  beginning on January 10,
          2003,  with  additional  transfers  occurring  in the months of March,
          April, July, August and December 2003;

     o    The unauthorized transactions were actively concealed by the Company's
          former employee in the Company's books and records; and

     o    Independent   legal   counsel  did  not  uncover  any  other   similar
          transactions  nor  any  evidence  that  any  other  Company  employees
          intentionally participated in the unauthorized transactions.

The independent  legal counsel  further  reported to the Audit Committee (i) its
view that  existing  Company  control  procedures  prior to the discovery of the
unauthorized  transactions were either circumvented or ignored,  and the control
procedures  existing  at the  time of the  unauthorized  transactions  were  not
adequate and (ii) the Company,  subsequent to the discovery of the  unauthorized
transactions,  had developed and implemented a number of key internal  controls.
In  addition,   the  independent  legal  counsel  provided   additional  control
recommendations to the Audit Committee for review and consideration.

The firm of Reed Smith LLP made an oral report to the Company's  Audit Committee
on March 1, 2004,  and  subsequently  delivered a written report dated March 16,
2004.  The  independent  legal counsel  provided the  following  reasons for its
conclusion  regarding the inadequacy of the Company's control  procedures at the
time of the unauthorized transactions:

     o    The Company's then existing  control  procedures  relating to its wire
          transfer  process were either  circumvented  or ignored,  and controls
          relating  to  bank  reconciliations,   investment  schedules,  journal
          entries and the review process were not followed; and

     o    The  Company's  then  existing  control  procedures  were not adequate
          because  of  (i)   insufficient   documentation  of  internal  control
          procedures,  (ii) the absence of an internal  audit  function  testing
          internal  controls  and  reporting  directly  to the  Chief  Financial
          Officer or Board of Directors;  (iii) the lack of management oversight
          and diligence,  and  communication of specific  responsibilities,  and
          (iv) the absence of policies or procedures to report control issues.

The Company's  Audit  Committee  was further  advised by the  independent  legal
counsel  that,  in response to the  unauthorized  transactions,  the Company had
taken significant steps to strengthen  internal  controls,  categorized in three
main areas: entity-level controls, banking controls, and investment controls.

At the  entity  level,  and even  prior  to the  discovery  of the  unauthorized
transactions,  the  Company  had begun the  process  of  documenting  all of its
controls and processes in accordance with Section 404 of the Sarbanes-Oxley Act.

With  respect to banking  controls,  independent  legal  counsel  noted that the
Company  formalized  its  bank  reconciliation   process  and  review  policies,
including the requirement of a thorough  secondary  review by segment  financial
analysts,  independent  of the Company's  Treasury  Group.  The Company,  it was
noted, had immediately  suspended use of one of its wire transfer  systems,  and
implemented  administrative  modifications  requiring  specific approval in each
instance by the Company's Chief  Financial  Officer.  Further,  since late 2003,
wire  transfers are reviewed by the Chief  Financial  Officer or Controller on a
weekly basis.  Additional changes were made to security  procedures  relating to
passwords to access the Company's banking information.

The independent  legal counsel noted, as to investment  controls,  the Company's
identification  and  requirement of standard  supporting  documentation  for any
investment  transactions and related  wire-transfer  approvals.  Included in the
documentation  now necessary for approval of investment  transactions  are (a) a
written  analysis  of  excess  cash  and a  determination  of the  amount  to be
invested; (b) an investment compliance worksheet to be completed by the Treasury
Supervisor; (c) wire-transfer request forms; and (d) manual journal entry forms.
All documentation must be approved by the Chief Financial Officer, the President
(in the Chief Financial  Officer's  absence),  or the Chief Financial  Officer's
designee.  Investment- schedules are prepared by accountants  independent of the
Treasury  Group,  with reviews  ultimately  by the Treasury  Supervisor  and the
Controller  or Chief  Financial  Officer,  or both.  Investment-related  journal
entries are  prepared by  accountants  independent  of the  Treasury  Group with
reviews by the Treasury Supervisor. Investment compliance is tested on a monthly
basis  (and  each  time  investment  activity  is  requested)  by  the  Treasury
Supervisor,  with reviews by the Controller and the Chief Financial Officer,  or
both.

The independent legal counsel also recommended a number of additional changes to
strengthen  further the Company's  internal  controls,  also  categorized in the
areas of entity  level  controls,  banking  controls  and  investment  controls,
including as follows:

Entity Level Controls

It was recommended that the Audit Committee  undertake  appropriate  measures to
establish the proper management tone regarding internal controls,  with a strong
commitment  and  regular  communication  throughout  the Company  regarding  the
importance  of  controls.   Further,   counsel   recommended  that  the  Company
objectively   assess  all  Corporate   Finance  personnel  to  assure  necessary
competence and technical  skills  appropriate  for the relevant job duties,  and
further recommended a focused effort on developing and implementing  appropriate
internal control training for all employees.  The Audit Committee met on various
occasions  during  the  second  quarter  of  2004  with  representatives  of the
Company's  Corporate Finance  Department to emphasize the importance of internal
controls.  All Company  employees  attended  training  sessions  relating to the
Company's  Code of Conduct during the second and third quarters of 2004. A large
portion of the assessment of Corporate  Finance  personnel was undertaken in the
second and third quarters of 2004. This review and the Chief Financial Officer's
report to the Audit Committee were completed in February 2005.

It was also  recommended  that  the  Company  commit  appropriate  and  adequate
resources  to the  internal  audit  function,  with  the  head  of the  function
reporting directly to the Audit Committee and/or providing periodic reporting to
the Audit  Committee  regarding  control  testing plans and results.  Additional
recommendations  related to encouragement  of Company  personnel to consult with
management  or the  Audit  Committee  with any  concerns,  and  annual  employee
acknowledgment  and  affirmation  of the Code of  Conduct.  The  internal  audit
function was authorized and filled in the second quarter of 2004 with the hiring
of the Company's  Senior Internal  Auditor.  As described  above,  the Company's
employee  training  sessions were  conducted in the second and third quarters of
2004,  and  it  is  anticipated  that  an  annual  employee  acknowledgment  and
affirmation of the Code of Conduct will begin in 2005.

Banking Controls

With respect to banking controls, the independent legal counsel recommended that
the Company (i) assess the number of its bank  accounts and consider a reduction
in  the  number  of  accounts,   resulting  in  a  decrease  in  the  number  of
reconciliations,   less   complexity   and  better   controls,   (ii)   consider
implementation  of lockbox  processing  for checks,  (iii)  periodically  verify
account  signatures and banking  software user access with bank records and bank
personnel,  and (iv) segregate the function of performing  bank  reconciliations
from the Treasury function.  The Company has completed an assessment of its bank
accounts and lockbox  processing,  and has not effected  any  immediate  changes
based upon its  assessment,  the  requirement of the Company's  operations,  the
other  modifications  made to its bank  reconciliation  processes  in the  first
quarter of 2004, and the scheduled  implementation  of a new enterprise  billing
system in 2005.  In the third  quarter  of 2004,  the  Company  implemented  its
procedures  requiring  verification of account  signatures and banking  software
user access with bank records and bank personnel.


Investment Controls

The independent legal counsel recommended,  with respect to investment controls,
that the Company  (i)  formalize  the  instructions  provided to approved  money
managers,   and  secure   evidence  from  money   managers   acknowledging   the
instructions,  (ii) take  steps to ensure  that  appropriate  Corporate  Finance
personnel are assigned to, and complete, adequate investment schedule reviews on
a monthly  basis,  (iii)  obtain  SAS 70 Type II  reports  from all third  party
service  providers (such as approved money  managers),  providing an independent
opinion on the effectiveness and design of the third party's internal  controls,
and (iv) assign preparation of the monthly  investment  schedule to the Treasury
Group,  with review by a non-Treasury  employee and the Controller.  The Company
completed the implementation of all of the investment control recommendations in
the second  quarter of 2004,  with the  exception  of  obtaining  SAS 70 Type II
reports that were not available from certain third party service providers.

In connection with the audit of the Company's  consolidated financial statements
for  the  year  ended  December  31,  2003,  Ernst & Young  LLP,  the  Company's
independent  registered public  accounting firm,  advised the Audit Committee on
March 12, 2004,  and delivered a formal  letter to the Audit  Committee on March
26, 2004,  that it had  concluded  that  material  weaknesses  in the  Company's
internal  control  existed,  including  with  respect  to  certain of the issues
identified as a result of the Audit  Committee's  special  investigation.  Other
than the material  weaknesses  described below, Ernst & Young LLP did not advise
the  Company of any other  reportable  conditions.  The  Company  has  performed
substantial  additional  procedures designed to ensure that the internal control
deficiencies  did  not  lead  to  material  misstatements  in  its  consolidated
financial statements, notwithstanding the presence of the noted internal control
weaknesses.  The  specific  matters  identified  by Ernst & Young LLP  involving
internal  control  and  its  operation  considered  to  be  material  weaknesses
encompassed:

     o    Control of cash and  investments,  including  with respect  control of
          cash disbursements,  reconciliation procedures,  segregation of duties
          and investment policy compliance;
     o    Accounting personnel, policies and procedures; and
     o    Accounting for property, plant and equipment.

The material  weaknesses  associated  with the  categories  described  above are
described in more detail as follows:

Control of Cash and Investments

Ernst & Young LLP provided  four specific  comments  relating to control of cash
and investments, including with respect to:

     o    control of cash  disbursements,  evidenced  by the  former  employee's
          unauthorized  transactions  during 2003, in which the former  employee
          was  able  to  unilaterally  authorize,   initiate  and  execute  wire
          transfers from the Company's bank accounts;

     o    cash   and   investment   reconciliation   procedures,   noting   that
          reconciliations  had not been reviewed and approved by an  appropriate
          member of Company management;

     o    segregation of duties, including a single employee reconciling certain
          accounts,  preparing the manual journal  entries and recording them in
          the general ledger (in each instance without review or approval of the
          Controller); and

     o    investment  policy  compliance,  relating  to the  absence of a formal
          process  to  monitor  the  Company's  compliance  with its  investment
          policy.

Accounting Personal Policies and Procedures

Ernst & Young LLP  advised  that the  increase  in scope and  complexity  of the
Company's  operations  during 2003 placed  demands on the  Company's  accounting
department  that  exceeded its  capabilities,  as evidenced by (i) the adjusting
journal  entries  recorded by the Company in connection  with the 2003 audit and
post-closing   reconciliations   process,   and  (ii)  the   unauthorized   wire
transactions  ultimately leading to the  misappropriation  of Company funds, and
specifically cited the collective mix of experience, technical skills, attention
to detail and diligence of the Company's accounting department personnel.

Further, the Audit Committee was apprised that the Company did not then maintain
a  comprehensive   accounting  policies  and  procedures  manual  or  electronic
database,  instead  relying  on the  memory  and  experience  of its  accounting
personnel to account for the routine and more complex  aspects of the  Company's
operations.

Accounting for Property, Plant and Equipment

The Company's Audit Committee was advised that the Company's  wireless affiliate
did not have  appropriate  accounting  policies  and  procedures  to (i) capture
internal labor costs that were subject to capitalization,  (ii) evaluate whether
decommissioned  network  assets were  impaired  and (iii)  ensure that its parts
inventory  general ledger  balance was reflective of actual  quantities on hand,
including consideration of obsolete items.

Remediation Efforts

As a result of the material  weaknesses noted above, the Company had implemented
a number of actions and  procedures in response to its discovery of the material
weakness  related to control of cash and  investments  prior to  year-end  2003,
which included the following:

     o    With respect to investment transfers,  a segregation of duties between
          initiation and approval of wire transfers;

     o    With respect to non-investment  transfers,  requests must be initiated
          by a  Company  business  segment  external  to the  Corporate  Finance
          Department or the Treasury Group;

     o    The  preparation of supporting  documentation  for all wire transfers,
          including  review  and  approval  of the  disbursement  based upon the
          Company's expenditure approval policy;

     o    The suspension of the particular wire transfer system utilized for all
          but one of the unauthorized transfers;

     o    A requirement that  modification of dual  administration  function for
          the wire transfer  system be approved by the Chief  Executive  Officer
          and Chief Financial Officer; and

     o    Segregation  of duties  with  respect to  journal  entries so that the
          approver of a wire  transfer does not prepare the  associated  journal
          entry.

The material  weakness  related to cash and  investments  was  identified by the
Company in December  2003, and the material  weakness  related to accounting for
property,  plant and  equipment  was  identified by the Company in late November
2003.  Ernst & Young LLP advised the Audit Committee of the material  weaknesses
relating  to  control of cash and  investments,  including  with  respect to the
control of cash disbursements,  reconciliation procedures, segregation of duties
and investment policy compliance,  accounting for property,  plant and equipment
and  accounting  personnel,  policies and  procedures on March 12, 2004,  and by
formal letter delivered on March 26, 2004.

All of the material  weaknesses  existed at December  31, 2003,  but the Company
believes that the actions it undertook in December 2003 and the first quarter of
2004 and described herein remediated the cash and investments material weakness.
The  additional  steps which must be completed to remediate  the other  material
weakness are as follows:

     Accounting Personnel, Policies and Procedures

     o    The completion of the assessment of the Corporate  Finance  Department
          by  management,  including  the new Senior  Vice  President  and Chief
          Financial  Officer who joined the Company on October 4, 2004,  and the
          implementation  of a training  program and the hiring of new personnel
          as  necessary,  to assure the proper mix of  technical  skills and the
          relevant  personnel,  which the  Company.  This  review  and the Chief
          Financial  Officers'  report to the Audit  Committee were completed in
          February 2005.

     Accounting for Property, Plant and Equipment

     o    The completion of  enhancements to the Company's  enterprise  resource
          planning and accounting software,  for which implementation  commenced
          in the second quarter of 2004 and is ongoing.

The Company  performed a number of procedures to compensate  for the  identified
material  weaknesses in internal  controls to permit its certifying  officers to
state that the Company's  financial  statements fairly presented in all material
respects the Company's financial condition, results of operation, and cash flows
in 2003. Specifically,  with respect to the control of cash and investments, the
Company  performed a  comprehensive  reconciliation  of all cash and  investment
accounts  for each month  during the 2003 fiscal year and each month during 2004
(in  addition  to  procedures  performed  in  connection  with  prior  years  in
connection with the Audit Committee's special investigation).

With respect to the material weakness relating to Accounting for Property, Plant
and Equipment, in the first quarter of 2004:

     o    The Company performed  physical counts of certain aspects of materials
          and supplies  inventories  at each of its  subsidiaries  in connection
          with year-end closing procedures;
     o    The results of the physical inventories were reconciled to the general
          ledger;
     o    With  respect to the  reconciliation  of its plant under  construction
          account,  the  Company  performed  a  detailed  reconciliation  of the
          sub-ledger to the general ledger;
     o    The  Company  conducted  a  detailed  reconstruction  of its  Wireless
          subsidiary accounts with respect to plant under construction;
     o    Certain  open jobs for plant  under  construction  were  reviewed  for
          compliance with the Company's policies and procedures;
     o    The Company implemented strengthened project and capitalization review
          procedures for open wireless projects; and
     o    The  Company  performed  a  comprehensive  review  of  labor  charging
          practices in its wireless affiliate and developed detailed  timesheets
          which  required  the  employee  to  use  detailed  job  codes  in  the
          timesheets  to assure proper  categorization  of time in the Company's
          financial records.

The Company  continued to implement  and  instituted  additional  processes  and
procedures to improve internal control in the first quarter of 2004.  Subsequent
to the discovery of the  unauthorized  wire  transactions  in 2003,  the Company
implemented  in the first  quarter of 2004 a number of  internal  controls  with
respect to banking activities, including:

     o    An improved  process  with  respect to bank  reconciliation  policies,
          including  secondary  reviews  performed  by  Company  personnel  with
          appropriate segregation of duties;

     o    Revised   procedures  for  the  initiation  of  modifications  to  the
          Company's instructions to its bank relating to authorizations; and

     o    Weekly  reviews of the Company's  wire transfer  activity by the Chief
          Financial Officer or Controller.

The Company  also  implemented  new  controls in the first  quarter of 2004 with
respect to its investment activities, including:

     o    Standardizing  supporting  documentation  for investment  activity and
          approvals  as  described  by  independent  legal  counsel to the Audit
          Committee as noted above;

     o    Revisions to the journal  entry process for  investment  transactions,
          and related segregation of duty modifications;

     o    The  preparation  of  investment   schedules  by  properly  segregated
          personnel; and

     o    Monthly investment compliance testing.

The Audit Committee made a number of additional recommendations to the Company's
Board of Directors  for further  review and  consideration,  which were formally
acted upon  beginning  late in the  second  quarter  of 2004,  and  contemplated
additional actions thereafter. Such initiatives relate to:

     o    An assessment to be conducted with respect to the Company's  Corporate
          Finance  Department,  which  encompasses the Company's  accounting and
          finance personnel,  including  specifically  relating to the number of
          personnel,  and  the  collective  mix  and  technical  skills  of such
          personnel,  and the  addition of new  personnel  if  necessary,  which
          resulted in the hiring of a Treasury Supervisor with a CPA license and
          more than 13 years of public and private  accounting  practice  and an
          increase in size of the Company's  fixed asset group from two to four,
          including  a  supervisor   with  more  than  16  years  of  accounting
          experience.  In addition,  The Company's new Senior Vice President and
          Chief Financial  Officer,  who has more than 20 years of experience in
          finance  and  telecommunications,  began work on October 4, 2004.  The
          assessment  and the  Chief  Financial  Officer's  report  to the Audit
          Committee were completed in February 2005;

     o    An  internal  audit  process,  with  tasks to be  performed  either by
          Company  personnel  or a third  party,  with  reporting  duties to the
          Chairman of the Company's Audit Committee, (implemented in part by the
          Company's hiring of a Senior Internal Auditor in July 2004);

     o    A more significant  effort devoted to internal  controls  training for
          all affected personnel, and an increased emphasis on the completion of
          internal controls documentation,  including as required by Section 404
          of the Sarbanes-Oxley Act of 2002 (including the retention in May 2004
          of third-parties  to assist in performing  internal control reviews of
          all of the Company's  accounting systems,  and to assist in expediting
          the completion of the internal controls documentation, which commenced
          in the second quarter of 2004); and

     o    The preparation and implementation of a formal Accounting Policies and
          Procedures Manual or electronic  database to serve as a reference tool
          for Company  personnel  and to establish  uniformity  and  consistency
          throughout the Company.  The Accounting Policies and Procedures Manual
          was  completed  in draft in October  2004,  and the Manual and certain
          additional  sections were  completed  subsequent to December 31, 2004.
          Management is currently  developing  training  programs to ensure that
          Company personnel have the adequate knowledge, experience and guidance
          to perform job duties.

The Company has previously taken actions that it believes have improved internal
controls, including:

     o    The  establishment  in 2003 of a  Disclosure  Committee  comprised  of
          Management  personnel  and  senior  representatives  of the  Company's
          Corporate  Finance  Department,  which  undertakes  reviews  prior  to
          significant filings with the Securities and Exchange Commission;

     o    The modification of written ethics and compliance  materials  provided
          to Company employees,  and the formal adoption of a Code of Ethics and
          Business  Conduct,  and  the  related  establishment  of  confidential
          procedures which permit Company  employees to communicate  anonymously
          in the event of  suspected  violations  of laws or  Company  standards
          (together with  mandatory  classes in the second and third quarters of
          2004 for all  Company  employees  to  review  the Code of  Ethics  and
          Business Conduct);

     o    The  implementation  in 2003 of new enterprise  resource  planning and
          accounting  software,  which likely assisted in identifying certain of
          the accounting  deficiencies  noted above relating to property,  plant
          and equipment. (The Company in the third quarter of 2004 also improved
          modules in its new  software  and  undertook  in October  2004 revised
          physical  verification  and other procedures to improve its accounting
          for property, plant and equipment);

     o    The provision of a mandatory time charging program for all supervisors
          and managers and  timekeepers in the related  departments  focusing on
          proper  time  charging  practices,  including  capitalized  labor,  in
          addition to proper review and approval procedures; and

     o    The correction in the fourth quarter of 2003 and first quarter of 2004
          of historical data converted to the new enterprise  resource  planning
          system  relating  to  plant  and  accounting   software,   and  formal
          procedures  implemented in 2004 to assure that  construction  projects
          are reviewed by project managers to consider the correct  recording of
          costs before projects are place into service.

On April 15, 2004, Michael D. Campbell,  the Company's  Executive Vice President
and Chief Financial Officer retired from the Company.  Brian H. Strom, President
and Chief  Executive  Officer of the Company,  served as interim Chief Financial
Officer  while the  Company  undertook  the  search  for a new  Chief  Financial
Officer.  Effective  October 4, 2004,  Philip A.  Grybas  joined the  Company as
Senior Vice President and Chief Financial  Officer.  Mr. Grybas has more than 20
years of finance and accounting experience in the telecommunications industry.

Under the supervision and with the  participation  of our management,  including
our Chief  Executive  Officer  and Chief  Financial  Officer,  we  conducted  an
evaluation of the effectiveness of our internal control over financial reporting
as of December 31, 2004 based on the  framework  in Internal  Control-Integrated
Framework  issued by the Committee of Sponsoring  Organizations  of the Treadway
Commission  (COSO).  Our  evaluation  identified  a  material  weakness  in  the
Company's  internal control over financial  reporting relating to the accounting
for property,  plant and equipment,  which resulted from control weaknesses that
caused the following conditions:  The Company was unable to completely reconcile
its plant in service  and plant  under  construction  subsidiary  ledgers to the
corresponding  general  ledger  balances for periods  throughout  2004 and as of
December  31, 2004.  Management  believes  these  unreconciled  differences  are
attributable  principally to  deficiencies  in the  reliability of the Company's
information system interfaces between the general ledger and the property, plant
and equipment  subsidiary  ledgers.  In addition,  during 2004,  several  errors
occurred  in  the  Company's  periodic  depreciation  and  capitalized  interest
calculations that were more than inconsequential.  Additionally,  as of December
31, 2004, the Company did not have effective  procedures with which to determine
the cost bases of property, plant and equipment that had been retired. Moreover,
certain manual  internal  controls  pertaining to property,  plant and equipment
implemented  by the Company  during the third quarter of 2004 were not operating
effectively  as of December  31,  2004.  These  matters  required the Company to
record  adjustments to both its annual and interim 2004  consolidated  financial
statements.  The  significant  accounts  affected by this material  weakness are
property,  plant and equipment and related accumulated  depreciation included in
the Company's consolidated balance sheets, and depreciation expense and interest
expense included in the Company's consolidated statements of operations.  Due to
this material  weakness,  management  believes that as of December 31, 2004, the
Company's  internal control over financial  reporting was not effective based on
the COSO criteria.

Management's  assessment  of the  effectiveness  of our  internal  control  over
financial  reporting  as of December  31, 2004 has been audited by Ernst & Young
LLP, an independent  registered public accounting firm, as stated in its report,
which is included in our 2004 Annual Report on Form 10-K.

Remediation Steps Related to Material Weakness

As noted in Management's  Report on Internal  Control over Financial  Reporting,
which is included in our 2004 Annual Report on Form 10-K, the material  weakness
relating to the  accounting  for  property,  plant and  equipment  resulted from
control weaknesses that caused the following conditions:

     o    The Company was unable to  completely  reconcile  its plant in service
          and plant under  construction  subsidiary ledgers to the corresponding
          general ledger balances for periods throughout 2004 and as of December
          31, 2004. At December 31, 2004, the  unreconciled  difference was less
          than  1%  of  the  Company's  consolidated  net  property,  plant  and
          equipment balance.  Management believes these unreconciled differences
          are attributable principally to deficiencies in the reliability of the
          Company's information system interfaces between the general ledger and
          the property, plant and equipment subsidiary ledgers. Manual controls,
          put in place in the third  quarter  of 2004 as noted in the  Company's
          Form 10-Q for the quarter ended  September 30, 2004, were not adequate
          to resolve to a reasonable level the various data errors.

     o    Depreciation  and capitalized  interest  calculations by the Company's
          enterprise  resource  planning system have been  inconsistent and have
          required  various manual  adjustments to properly record  depreciation
          expense and related interest costs in the proper period.

     o    Monthly reviews of plant under construction balances for propriety and
          correct  classification,  a manual  control  implemented  in the third
          quarter of 2004, were not performed at the appropriate level or at the
          appropriate  time to  provide  reasonable  assurance  that  costs  are
          properly reflected in the property, plant and equipment sub-modules.

     o    As of December 31, 2004, the Company did not have effective procedures
          with  which  to  determine  the  cost  bases of  property,  plant  and
          equipment that had been retired.

The Company has or will implement the following remediation steps to address the
material weakness discussed above:

     o    Enhancements  to  the  Company's   enterprise  resource  planning  and
          accounting software, for which implementation  commenced in the second
          quarter of 2004, is ongoing.

     o    The performance of additional detailed reviews, on a monthly basis, of
          all open construction  projects by the appropriate  project manager to
          validate the results generated by the Company's systems.

     o    The review of systematic  routines,  which  generate and transfer data
          between modules within the enterprise  resource  planning  system,  as
          necessary  to  determine  if  the  routines  are  generating  accurate
          reports.

     o    Timely detailed reviews by management will occur to provide reasonable
          assurance that manual controls are operating effectively.


The Company believes that it is reasonably  likely the material weakness related
to property, plant and equipment will be remediated and tested in 2005.

Other Internal Control Matters

Management of the Company,  during its  assessment of the  effectiveness  of the
Company's  internal  control over  financial  reporting as of December 31, 2004,
identified the following other internal control deficiencies:

     Information Technology

     o    The  Company  has  identified  certain  deficiencies  related  to  its
          Information  Technology general and application  controls. In response
          to these  deficiencies,  during the third quarter of 2004, the Company
          engaged an outside  consulting firm to design and implement changes to
          the controls in an effort to remediate  the  identified  deficiencies.
          Although  the Company has made  progress in its  remediation  efforts,
          these  efforts were not  completed  by December 31, 2004.  The Company
          believes  that it is  reasonably  likely that this control  deficiency
          will be remediated and tested in 2005.

     Accounting Personnel, Policies and Procedures

     o    In the third quarter of 2004, the Company expected that the assessment
          of the Corporate Finance  Department by management,  including the new
          Senior  Vice  President  and Chief  Financial  Officer  who joined the
          Company  on  October 4,  2004,  and the  implementation  of a training
          program and the hiring of new  personnel as  necessary,  to assure the
          proper mix of technical  skills and the relevant  personnel,  would be
          completed by December 31,  2004.  This review and the Chief  Financial
          Officer's  report to the Audit  Committee  were  completed in February
          2005.

     o    On September  30,  2004,  the Company  issued in draft its  Accounting
          Policies  and  Procedure  Manual.  The manual and  certain  additional
          sections were completed subsequent to December 31, 2004.

     o    During management's assessment of internal controls, it was noted that
          the  quality of  evidence  was not  consistent  across  the  Company's
          controls.  Management put into place various  remediation steps during
          the third and fourth quarters of 2004, which it believed would improve
          the overall quality of the control documentation.  During management's
          testing  of  internal  controls  in 2005,  we will  determine  if such
          remediation  was effective in improving the Company's  overall quality
          of control documentation.


Change in Internal Control over Financial Reporting

During  the  fourth  quarter  of  2003,  the  Company  identified  the  material
weaknesses  with respect to cash and  investments  and  accounting for property,
plant and equipment  described  above, and began the process of remediating such
weaknesses, as described above. With the exception of such matters, there was no
change in the Company's  internal  control over financial  reporting  during the
fourth quarter of 2003, that has materially  affected or is reasonably likely to
materially affect the Company's internal control over financial reporting.



                                    PART III

Item 10. Directors and Executive Officers of the Registrant.

For information  regarding the executive officers of the Company, see "Executive
Officers  of  the  Registrant"  at the  end of  Part  I of  this  report.  Other
information  required by this item is incorporated  herein by reference from the
proxy statement for the annual meeting of the Company's shareholders to be filed
pursuant to Regulation 14A within 120 days after the Company's  fiscal  year-end
of December 31, 2003.

Code of Ethics

The Company has adopted a Code of Ethics and Business Conduct  applicable to all
employees and members of the Board of Directors. The Code of Ethics and Business
Conduct is available on the Company's website at
http://www.surewest.com/corporate/ir/corpgov/Code_of_Ethics_Business_Conduct.php
Shareholders  may request a free copy of the Code of Ethics and Business Conduct
from:

                  SureWest Communications
                  P.O. Box 969
                  Roseville, California 95678
                  Attention:  Investor Relations

Item 11. Executive Compensation.

Incorporated herein by reference from the proxy statement for the annual meeting
of the Company's  shareholders to be filed pursuant to Regulation 14A within 120
days after the Company's fiscal year-end of December 31, 2003.

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

Equity Compensation Plan Information

The Company maintains the 1999 Restricted Stock Bonus Plan (the "1999 Plan") and
the 2000 Equity Incentive Plan (the "2000 Plan"), pursuant to which it may grant
equity awards to eligible persons. The 1999 Plan and the 2000 Plan were approved
by the Company's shareholders.

The following table provides information about equity awards under the 1999 Plan
and the 2000 Plan.
<TABLE>
<CAPTION>

                                                                                           Number of securities
                                                                                         remaining available for
                                                                                          future issuance under
                                    Number of securities to       Weighted-average         equity compensation
                                    be issued upon exercise       exercise price of          plans (excluding
                                    of outstanding options,      outstanding options     securities reflected in
           Plan category              warrants and rights        warrants and rights            column (a)
           -------------           ------------------------      -------------------     ------------------------
                                              (a)                        (b)                       (c)
  <S>                                           <C>                     <C>                         <C>
  Equity compensation plans
    approved by security holders

                                             824,474                  $40.72                      359,364

  Equity compensation plans not
    approved by security holders

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

  Total                                      824,474                  $40.72                      359,364
                                   ========================      ===================     ========================

</TABLE>

     (1)  The 1999 Plan permits only the issuance of  Restricted  Shares.  As of
          December 31,  2003,  the Company had made  Restricted  Share grants in
          respect of 77,759  shares of the Company's  common stock,  and 166,107
          shares of the Company's  common stock remain  available under the 1999
          Plan.

     (2)  The 2000 Plan, as originally  approved by the Company's  shareholders,
          contemplated  the  issuance of up to 800,000  shares of the  Company's
          common  stock.  Thereafter,  the  Company's  shareholders  approved an
          increase  to 950,000  shares  and the  incorporation  of an  evergreen
          provision  pursuant to which the number of shares of the Company stock
          which  shall be made  available  under the 2000 Plan  shall be 950,000
          shares  plus an annual  increase to be added on January 1 of each year
          beginning  January 1, 2003 equal to the lesser of (i) 149,035  shares,
          or (ii) 1% of the outstanding shares.

Additional  information  required by Item 12 is incorporated herein by reference
from the proxy statement for the annual meeting of the Company's shareholders to
be filed pursuant to Regulation  14A within 120 days after the Company's  fiscal
year-end of December 31, 2003.

Item 13. Certain Relationships and Related Transactions.

Incorporated herein by reference from the proxy statement for the annual meeting
of the Company's  shareholders  to filed  pursuant to Regulation  14A within 120
days after the Company's fiscal year-end of December 31, 2003.

Item 14. Principal Accountant Fees and Services

Incorporated herein by reference from the proxy statement for the annual meeting
of the Company's  shareholders to be filed pursuant to Regulation 14A within 120
days after the Company's fiscal year-end of December 31, 2003.


<PAGE>



                                     PART IV

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

(a) 1 and 2. Financial Statements Schedules

                    None

                 3. Exhibits

                    The exhibits  listed on the  accompanying  Index to Exhibits
                    are filed as part of this annual report.

(b) Reports on Form 8-K

                    The  Company  filed a report on Form 8-K on November 4, 2003
                    relating to the announcement of third quarter 2003 financial
                    results.


<PAGE>













                             SUREWEST COMMUNICATIONS
                                INDEX TO EXHIBITS
                                 (Item 15 (A) 3)

<TABLE>
<CAPTION>
                                                                                          Method
    Exhibit No.                               Description                                of Filing
        <S>                                     <C>                                      <C>

        3.1           Articles of Incorporation of Registrant, together with          Incorporated by
                      Certificate of Amendment of Articles of Incorporation dated        reference
                      January 25, 1996 and Certificate of Amendment of Articles
                      of Incorporation dated June 21, 1996 (Filed as Exhibit 3(a)
                      to Form 10-Q Quarterly Report for the quarter ended
                      September 30, 1996)

        3.2           Certificate of Amendment of Articles of Incorporation dated     Incorporated by
                      May 18, 2001 (Filed as Exhibit 3(b) to Form 10-Q Quarterly         reference
                      Report for the quarter ended June 30, 2001)

        3.3           Bylaws of Registrant (Filed as Exhibit 3(b) to Form 10-K        Incorporated by
                      Annual Report of the Registrant for the year ended December        reference
                      31, 2000)

        4.1           Shareholder Rights Plan (Filed as Exhibit 2.1 to Form 8-A       Incorporated by
                      Registration Statement under the Securities Act of 1934)           reference

        10.1          Credit Agreement of SureWest Telephone Company with Bank of     Incorporated by
                      America National Trust and Savings Association, dated              reference
                      January 4, 1994 (Filed as Exhibit 10(c) to Form 10-K Annual
                      Report of Registrant for the year ended December 31, 1993)

        10.2          Note Purchase Agreement for Series A Senior Notes in the        Incorporated by
                      aggregate amount of $40,000,000 dated December 9, 1998             reference
                      (Filed as Exhibit 10(b) to Form 10-K Annual Report of
                      Registrant for the year ended December 31, 1998)

        10.3          Supplement to Note Purchase Agreement for Series B Senior       Incorporated by
                      Notes in the aggregate amount of $60,000,000 dated March           reference
                      13, 2003 (Filed as Exhibit 99.1 to the Form 8-K filed March
                      13, 2003)

        10.4          Business Loan Agreement of Registrant with Bank of America,     Incorporated by
                      dated March 15, 2000, as amended by Amendment No. 1 dated          reference
                      as of April 10, 2000 (Filed as Exhibit 10(f) to Form 10-Q
                      Quarterly Report of Registrant for the quarter ended March
                      31, 2000), as amended by Amendment No. 2 dated as of
                      September 15, 2000, Amendment No. 3 dated as of July 17,
                      2001, and Amendment No. 4 dated as of June 26, 2000 (Filed
                      as Exhibit 10(l) to Form 10-Q Quarterly Report of
                      Registrant for the Quarter ended June 30, 2002)
</TABLE>



<PAGE>







                             SUREWEST COMMUNICATIONS
                                INDEX TO EXHIBITS
                                 (Item 15 (A) 3)
<TABLE>
<CAPTION>

                                                                                          Method
    Exhibit No.       Description                                                        of Filing
        <S>                                     <C>                                          <C>

        10.5          Amendment No. 5 to Business Loan Agreement dated                Incorporated by
                      February 26, 2003 (filed as Exhibit 10(e) to Form 10-K             reference
                      Annual Report of Registrant for the year ended December
                      31, 2002)

        10.6          Amendment No. 6 to Business Loan Agreement dated                Filed herewith
                      As of January 13, 2004 (Originally filed as Exhibit 10.6 to
                      initial Form 10-K Annual Report of Registrant for the year
                      ended December 31, 2003 filed on March 30, 2004)

        10.7          Amendment No. 7 to Business Loan Agreement dated                Filed herewith
                      As of March 25, 2004 (Originally filed as Exhibit 10.7 to
                      initial Form 10-K Annual Report of Registrant for the year
                      ended December 31, 2003 filed on March 30, 2004)

        10.8          1999 Restricted Stock Bonus Plan (Filed as Exhibit 10(d) to     Incorporated by
                      Form 10-K Annual Report of Registrant for the year ended           reference
                      December 31, 1998)

        10.9          2000 Equity Incentive Plan, as amended (Originally filed as     Filed herewith
                      Exhibit 10.9 to initial Form 10-K Annual Report of
                      Registrant for the year ended December 31, 2003 filed on
                      March 30, 2004)

       10.10          SureWest KSOP (filed as Exhibit 4.1 to Registration             Incorporated by
                      Statement on Form S-8 [No. 333-87222])                             reference

       10.11          Letter agreement dated January 16, 2001 between Registrant      Incorporated by
                      and Brian H. Strom (Filed as Exhibit 10 (g) to Form 10-K           reference
                      Annual Report of Registrant for the year ended December 31,
                      2000)

       10.12          Letter agreement dated January 16, 2001                         Incorporated by
                      between Registrant and Michael D. Campbell (Filed as               reference
                      Exhibit 10 (h) to Form 10-K Annual Report of Registrant for
                      the year ended December 31, 2000)

       10.13          Letter agreement dated January 16, 2001 between Registrant      Incorporated by
                      and Jay B. Kinder (Filed as Exhibit 10 (i) to Form 10-K            reference
                      Annual Report of Registrant for the year ended December 31,
                      2000)

       10.14          Letter agreement dated January 16, 2001 between Registrant      Filed herewith
                      and Bill M. DeMuth (Filed as Exhibit 10.14 to initial Form
                      10-K Annual Report of Registrant for the year ended
                      December 31, 2003 filed on March 30, 2004)

</TABLE>


<PAGE>









                                        SUREWEST COMMUNICATIONS
                                           INDEX TO EXHIBITS
                                            (Item 15 (A) 3)
<TABLE>
<CAPTION>

                                                                                          Method
    Exhibit No.       Description                                                        of Filing
        <S>                                             <C>                             <C>

        10.15         Letter agreement dated January 16, 2001 between Registrant      Filed herewith
                      and Fred A. Arcuri (Originally filed as Exhibit 10.15 to
                      initial Form 10-K Annual Report of Registrant for the year
                      ended December 31, 2003 filed on March 30, 2004)

        21.1          List of Subsidiaries                                            Filed herewith

        23.1          Consent of Ernst & Young LLP, Independent Registered Public     Filed herewith
                      Accounting Firm

        31.1          Certification of Brian H. Strom, President and Chief            Filed herewith
                      Executive Officer, as adopted pursuant to Section 302 of
                      the Sarbanes-Oxley Act of 2002

        31.2          Certification of Philip A. Grybas, Senior Vice President        Filed herewith
                      and Chief Financial Officer, as adopted pursuant to
                      Section 302 of the Sarbanes-Oxley Act of 2002

        32.1          Certification of Brian H. Strom, President and Chief            Filed herewith
                      Executive Officer, pursuant to 18 U.S.C. Section 1350, as
                      adopted pursuant to Section 906 of the Sarbanes-Oxley Act
                      of 2002

        32.2          Certification of Philip A. Grybas, Senior Vice President        Filed herewith
                      and Chief Financial Officer, pursuant to 18 U.S.C.Section
                      1350, as adopted pursuant to Section 906 of the
                      Sarbanes-Oxley Act of 2002


















</TABLE>


<PAGE>



                                   SIGNATURES

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

                             SUREWEST COMMUNICATIONS
                                  (Registrant)


                                      By:          /s/ Brian H. Strom
                                                   Brian H. Strom,
                                                   President and Chief
                                                   Executive Officer


                                      By:          /s/ Philip A. Grybas
                                                   Philip A. Grybas,
                                                   Senior Vice President
                                                   and Chief Financial Officer

Date:  March 10, 2005


<PAGE>



                                   SIGNATURES

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

                                                   /s/ Kirk C. Doyle
                                                   Kirk C. Doyle,
                                                   Chairman of the Board

                                                   /s/ Brian H. Strom
                                                   Brian H. Strom,
                                                   President and Chief
                                                   Executive Officer; Director

                                                   /s/ Philip A. Grybas
                                                   Philip A. Grybas,
                                                   Senior Vice President
                                                   and Chief Financial Officer


                                                   /s/ Guy R. Gibson
                                                   Guy R. Gibson,
                                                   Director

                                                   /s/ Steven C. Oldham
                                                   Steven C. Oldham,
                                                   Director

                                                   /s/ John R. Roberts III
                                                   John R. Roberts III,
                                                   Director

                                                   /s/ Timothy D. Taron
                                                   Timothy D. Taron,
                                                   Director




Date:  March 10, 2005


<PAGE>



                                   SIGNATURES

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

                             SUREWEST COMMUNICATIONS
                                  (Registrant)


Date: March 10, 2005                  By:
                                                   -----------------------------
                                                   Brian H. Strom,
                                                   President and Chief
                                                   Executive Officer


Date: March 10, 2005                  By:
                                                   -----------------------------
                                                   Philip A. Grybas,
                                                   Senior Vice President
                                                   and Chief Financial Officer


<PAGE>



                                   SIGNATURES

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


Date: March 10, 2005
                                                   -----------------------------
                                                   Kirk C. Doyle,
                                                   Chairman of the Board

Date: March 10, 2005
                                                   -----------------------------
                                                   Brian H. Strom,
                                                   President and Chief
                                                   Executive Officer; Director

Date: March 10, 2005
                                                   -----------------------------
                                                   Philip A. Grybas,
                                                   Senior Vice President
                                                   and Chief Financial Officer

Date: March 10, 2005
                                                   -----------------------------
                                                   Guy R. Gibson,
                                                   Director

Date: March 10, 2005
                                                   -----------------------------
                                                   Steven C. Oldham,
                                                   Director

Date: March 10, 2005
                                                   -----------------------------
                                                   John R. Roberts III,
                                                   Director

Date: March 10, 2005
                                                   -----------------------------
                                                   Timothy D. Taron,
                                                   Director