**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

----

**Form 10-Q**

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**Forthe quarterly period ended June 30, 2007**

**OR**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**Forthe transition period from           to**

**CommissionFile Number 0-191551**

----

**Atlantic Tele-Network, Inc.**

(Exact name of registrantas specified in its charter)

| **Delaware**                                                     |   | **47-0728886**                        |
|------------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) |   | (I.R.S. Employer  Identification No.) |

 

**10 Derby Square**

**Salem, MA 01970**

**(978) 619-1300**

**(Address of principal executiveoffices, including zip code and telephone number and area code)**

----

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.   Yes x   No o

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer. Seedefinition of “accelerated filer” and “large accelerated filer” in Rule 12b-2of the Exchange Act. (Check One):

| Large accelerated filer   o |   | Accelerated  filer   x |   | (Non-accelerated  filer   o |
|---------------------------------------|--------|----------------------------------|--------|---------------------------------------|

 

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

Asof August 9, 2007, the registrant had outstanding 15,208,421****shares ofits common stock ($.01 par value).

 

----

**ATLANTICTELE-NETWORK, INC.**

FORM 10-QQuarter Ended June 30, 2007
| CAUTIONARY STATEMENT  REGARDING FORWARD LOOKING STATEMENTS |   | 3                                                                                                          |   |
|------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------|--------|
|                                                       |   |                                                                                                       |   |   |   |
| PART I—FINANCIAL  INFORMATION                    |   |                                                                                                       |   |
|                                                       |   |                                                                                                       |   |   |   |
| Item 1.                                               |   | Unaudited Condensed Consolidated Financial Statements                                                      |   | 4 |   |
|                                                       |   |                                                                                                       |   |   |   |
|                                                       |   | Condensed Consolidated Balance Sheets at  December 31, 2006 and June 30, 2007                         |   | 4 |   |
|                                                       |   |                                                                                                       |   |   |   |
|                                                       |   | Condensed Consolidated Statements of Operations for  the three and six months ended June 30, 2006 and 2007 |   | 5 |   |
|                                                       |   |                                                                                                       |   |   |   |
|                                                       |   | Condensed Consolidated Statements of Cash Flows for  the six months ended June 30, 2006 and 2007           |   | 6 |   |
|                                                       |   |                                                                                                       |   |   |   |
|                                                       |   | Notes to Unaudited Condensed Consolidated Financial  Statements                                            |   | 7 |   |
|                                                       |   |                                                                                                       |   |   |   |
| Item 2.                                                    |   | Management’s Discussion and Analysis of Financial  Condition and Results of Operations                |   | 16 |   |
|                                                       |   |                                                                                                       |   |   |   |
| Item 3.                                                    |   | Quantitative and Qualitative Disclosures About Market  Risk                                                |   | 28 |   |
|                                                       |   |                                                                                                       |   |   |   |
| Item 4.                                                    |   | Controls and Procedures                                                                                    |   | 29 |   |
|                                                       |   |                                                                                                       |   |   |   |
| PART II—OTHER  INFORMATION                       |   |                                                                                                       |   |
|                                                       |   |                                                                                                       |   | 29 |   |
| Item  1.                                                   |   | Legal  Proceedings                                                                                         |   |   |   |
|                                                       |   |                                                                                                       |   | 29 |   |
| Item  1A.                                                  |   | Risk  Factors                                                                                              |   |   |   |
|                                                       |   |                                                                                                       |   |   |   |
| Item 4.                                                    |   | Submission of Matters to a Vote of Security Holders                                                        |   | 30 |   |
|                                                       |   |                                                                                                       |   |   |   |
| Item 6.                                                    |   | Exhibits                                                                                                   |   | 30 |   |
|                                                       |   |                                                                                                       |   |   |   |
| SIGNATURES                                                 |   |                                                                                                       |   |
|                                                       |   |                                                                                                       |   |   |   |
| CERTIFICATIONS                                             |   |                                                                                                       |   |

 

2

----

**Cautionary Statement Regarding Forward-LookingStatements**

This Quarterly Report onForm 10-Q (or the “Report”) contains forward-looking statements relating to,among other matters, the future financial performance and results of operationsof the Company, including the relative contributions of the Company’ssubsidiaries; demand for our services and industry trends; the pace of ournetwork expansion and improvement, including our realization of the benefits ofcapital expenditures; and management’s plans and strategy for the future. Theseforward-looking statements are based on estimates, projections, beliefs, andassumptions and are not guarantees of future events or results. Actual futureevents and results could differ materially from the events and resultsindicated in these statements as a result of many factors, including, amongothers, (1) significant political and regulatory risk facing our exclusivelicense to provide local exchange and long distance telephone services inGuyana; (2) any significant decline in the price or volume of internationallong distance calls to Guyana; (3) increased competition affecting ourbusinesses; (4) the regulation of rates that GT&T may charge for localwireline telephone service; (5) significant tax disputes between GT&T andthe Guyanese tax authorities; (6) the derivation of a significant portion ofour U.S. wireless revenue from a small number of customers; (7) our ability tomaintain favorable roaming arrangements, including the rates Commnet chargesits wholesale customers; (8) economic, political and other risks facing ourforeign political operations; (9) regulatory changes affecting our businesses;(10) rapid and significant technological changes in the telecommunicationsindustry; (11) our reliance on a limited number of key suppliers and vendorsfor timely supply of equipment and services relating to our networkinfrastructure; (12) any loss of any key members of management; (13) theadequacy and expansion capabilities of our network capacity and customerservice system to support our customer growth; (14) dependence of our wirelessand wireline revenues on the reliability and performance of our networkinfrastructure; (15) the occurrence of severe weather and natural catastrophes;(16) the possible reduction of our economic interest in our Bermuda affiliatein 2008; and (17) our ability to realize the value that we believe exists inbusinesses that we acquire. These and other additional factors that may causeactual future events and results to differ materially from the events andresults indicated in the forward-looking statements above are set forth morefully under Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-Kfor the year ended December 31, 2006, which is on file with the SEC. TheCompany undertakes no obligation to update these forward-looking statements toreflect actual results, changes in assumptions or changes in other factors thatmay affect such forward-looking statements.

In this Report the words “we,”“our,” “ours” and “us” refer to Atlantic Tele-Network, Inc. and its subsidiaries,unless the context indicates otherwise. This Report also contains othertrademarks, service marks and trade names that are the property of others.

Reference to dollars ($)refer to U.S. dollars unless otherwise specifically indicated.

3

----

**PART I—FINANCIAL INFORMATION**

**Item 1.  Unaudited Condensed Consolidated FinancialStatements**

**ATLANTIC TELE-NETWORK, INC. ANDSUBSIDIARIES****CONDENSED CONSOLIDATED BALANCE SHEETS****(Unaudited)****(Dollars in thousands, except per shareamounts)**
| ** **                                                                                                                                                                                                                                 | ** ** | **December 31,  2006** | ** ** | **June 30,  2007** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-------------------------|------------|
| **ASSETS**                                                                                                                                                                                                                                 | ** ** | ** **                  | ** ** | ** **              | ** ** |
| **CURRENT ASSETS:**                                                                                                                                                                                                                        | ** ** | ** **                  | ** ** | ** **              | ** ** |
| Cash and cash  equivalents                                                                                                                                                                                                                 |       | $                           | 60,543     |                    | $          | 60,951 |   |
| Accounts  receivable, net of allowances of $1.4 million and $1.9 million, respectively                                                                                                                                                     |       | 20,510                      |       | 23,941                  |       |
| Materials and  supplies                                                                                                                                                                                                                    |       | 7,578                       |       | 7,052                   |       |
| Prepayments and  other current assets                                                                                                                                                                                                      |       | 2,508                       |       | 1,380                   |       |
| Total current  assets                                                                                                                                                                                                                      |       | 91,139                      |       | 93,324                  |       |
| **FIXED ASSETS:**                                                                                                                                                                                                                          | ** ** | ** **                  | ** ** | ** **              | ** ** |
| Property, plant,  and equipment                                                                                                                                                                                                            |       | 237,006                     |       | 256,188                 |       |
| Less accumulated  depreciation                                                                                                                                                                                                             |       | (98,433                     | )          | (110,531                | )          |
| Net fixed assets                                                                                                                                                                                                                           |       | 138,573                     |       | 145,657                 |       |
| **INTANGIBLE ASSETS:**                                                                                                                                                                                                                     | ** ** | ** **                  | ** ** | ** **              | ** ** |
| Licenses                                                                                                                                                                                                                                   |       | 20,641                      |       | 21,665                  |       |
| Goodwill                                                                                                                                                                                                                                   |       | 35,583                      |       | 39,158                  |       |
| Customer  relationships, net                                                                                                                                                                                                               |       | 3,509                       |       | 2,906                   |       |
| **INVESTMENT IN AND ADVANCES TO  UNCONSOLIDATED AFFILIATES**                                                                                                                                                                               |       | 12,004                      |       | 11,555                  |       |
| **OTHER ASSETS**                                                                                                                                                                                                                           |       | 1,165                       |       | 2,087                   |       |
| Total assets                                                                                                                                                                                                                               |       | $                           | 302,614    |                    | $          | 316,352 |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                                             | ** ** | ** **                  | ** ** | ** **              | ** ** |
| **CURRENT LIABILITIES:**                                                                                                                                                                                                                   | ** ** | ** **                  | ** ** | ** **              | ** ** |
| Accounts payable  and accrued liabilities                                                                                                                                                                                                  |       | $                           | 19,252     |                    | $          | 16,021 |   |
| Dividends  payable                                                                                                                                                                                                                         |       | 2,146                       |       | 2,151                   |       |
| Accrued taxes                                                                                                                                                                                                                              |       | 7,301                       |       | 9,799                   |       |
| Advance payments  and deposits                                                                                                                                                                                                             |       | 3,813                       |       | 3,837                   |       |
| Other current  liabilities                                                                                                                                                                                                                 |       | 2,529                       |       | 2,832                   |       |
| Total current  liabilities                                                                                                                                                                                                                 |       | 35,041                      |       | 34,640                  |       |
| **DEFERRED INCOME TAXES**                                                                                                                                                                                                                  |       | 12,871                      |       | 13,332                  |       |
| **LONG-TERM DEBT**                                                                                                                                                                                                                         |       | 50,000                      |       | 50,000                  |       |
| Total  liabilities                                                                                                                                                                                                                         |       | 97,912                      |       | 97,972                  |       |
| **MINORITY INTERESTS**                                                                                                                                                                                                                     |       | 25,932                      |       | 26,444                  |       |
| **COMMITMENTS AND CONTINGENCIES  (See Note 10)**                                                                                                                                                                                           | ** ** | ** **                  | ** ** | ** **              | ** ** |
| **STOCKHOLDERS’ EQUITY:**                                                                                                                                                                                                             | ** ** | ** **                  | ** ** | ** **              | ** ** |
| Preferred stock,  $.01 par value per share; 10,000,000 shares authorized, none issued and  outstanding                                                                                                                                     |       | —                      |       | —                  |       |
| Common stock,  $.01 par value per share; 50,000,000 shares authorized; 15,651,018 and  15,656,518 shares issued, respectively, and 15,170,707 and 15,205,296 shares  outstanding on December 31, 2006 and June 30, 2007, respectively |       | 157                         |       | 157                     |       |
| Treasury stock,  at cost                                                                                                                                                                                                                   |       | (3,557                      | )          | (3,293                  | )          |
| Additional  paid-in capital                                                                                                                                                                                                                |       | 104,356                     |       | 105,292                 |       |
| Retained  earnings                                                                                                                                                                                                                         |       | 79,599                      |       | 91,291                  |       |
| Accumulated  other comprehensive loss                                                                                                                                                                                                      |       | (1,785                      | )          | (1,511                  | )          |
| Total  stockholders’ equity                                                                                                                                                                                                           |       | 178,770                     |       | 191,936                 |       |
| Total liabilities and  stockholders’ equity                                                                                                                                                                                           |       | $                           | 302,614    |                    | $          | 316,352 |   |

 

The accompanyingcondensed notes are an integral part of these condensed consolidated financialstatements.

4

----

**ATLANTICTELE-NETWORK, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSFOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 and 2007(Unaudited)(Dollars in thousands, except per share amounts)**
| ** **                                                                                                                                                                                                                         | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                                                                                                                                                                         | ** ** | **2006**                                        | ** ** | **2007**                                      | ** ** | **2006** | ** ** | **2007** | ** ** |
| **REVENUE:**                                                                                                                                                                                                                       | ** ** | ** **                                      | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Wireless                                                                                                                                                                                                                           |       | $                                               | 14,233     |                                          | $          | 19,117 |   | $ | 27,545 |   | $ | 37,288 |   |
| Local telephone  and data                                                                                                                                                                                                          |       | 10,850                                          |       | 11,736                                        |       | 20,042 |   | 23,204 |   |
| International  long distance                                                                                                                                                                                                       |       | 11,508                                          |       | 12,329                                        |       | 22,679 |   | 25,249 |   |
| Other                                                                                                                                                                                                                              |       | 904                                             |       | 1,032                                         |       | 1,751 |   | 2,010 |   |
| Total revenues                                                                                                                                                                                                                     |       | 37,495                                          |       | 44,214                                        |       | 72,017 |   | 87,751 |   |
| **OPERATING EXPENSES**  (excluding depreciation and amortization unless otherwise indicated):                                                                                                                                      | ** ** | ** **                                      | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Termination and  access fees                                                                                                                                                                                                       |       | 5,955                                           |       | 6,753                                         |       | 11,240 |   | 12,929 |   |
| Internet and  programming                                                                                                                                                                                                          |       | 881                                             |       | 817                                           |       | 1,631 |   | 1,666 |   |
| Engineering and  operations                                                                                                                                                                                                        |       | 4,640                                           |       | 5,709                                         |       | 8,985 |   | 11,473 |   |
| Sales and  marketing                                                                                                                                                                                                               |       | 1,912                                           |       | 3,641                                         |       | 3,841 |   | 8,738 |   |
| General and  administrative                                                                                                                                                                                                        |       | 5,970                                           |       | 5,639                                         |       | 10,815 |   | 11,489 |   |
| Depreciation and  amortization                                                                                                                                                                                                     |       | 6,105                                           |       | 6,658                                         |       | 11,900 |   | 13,159 |   |
| Total operating  expenses                                                                                                                                                                                                          |       | 25,463                                          |       | 29,217                                        |       | 48,412 |   | 59,454 |   |
| Income from  operations                                                                                                                                                                                                            |       | 12,032                                          |       | 14,997                                        |       | 23,605 |   | 28,297 |   |
| **OTHER INCOME (EXPENSE):**                                                                                                                                                                                                        | ** ** | ** **                                      | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Interest expense                                                                                                                                                                                                                   |       | (1,022                                          | )          | (661                                          | )          | (1,889 | ) | (883 | ) |
| Interest income                                                                                                                                                                                                                    |       | 202                                             |       | 517                                           |       | 406 |   | 1,108 |   |
| Other income,  net                                                                                                                                                                                                                 |       | 322                                             |       | 2,557                                         |       | 597 |   | 2,944 |   |
| Other income  (expense), net                                                                                                                                                                                                       |       | (498                                            | )          | 2,413                                         |       | (886 | ) | 3,169 |   |
| **INCOME BEFORE INCOME TAXES,  MINORITY INTERESTS AND EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES**                                                                                                                            |       | 11,534                                          |       | 17,410                                        |       | 22,719 |   | 31,466 |   |
| Income taxes                                                                                                                                                                                                                       |       | 6,225                                           |       | 7,250                                         |       | 12,690 |   | 13,914 |   |
| **INCOME BEFORE MINORITY  INTERESTS AND EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES**                                                                                                                                          |       | 5,309                                           |       | 10,160                                        |       | 10,029 |   | 17,552 |   |
| Minority  interests, net of tax of $1.0 million and $0.9 million for the three months  ended June 30, 2006 and 2007, respectively and $2.0 million and $1.8 million  for the six months ended June 30, 2006 and 2007, respectively |       | (1,210                                          | )          | (1,753                                        | )          | (2,307 | ) | (2,703 | ) |
| Equity in  earnings of unconsolidated affiliates                                                                                                                                                                                   |       | 836                                             |       | 642                                           |       | 1,302 |   | 1,098 |   |
| **NET INCOME**                                                                                                                                                                                                                     |       | $                                               | 4,935      |                                          | $          | 9,049 |   | $ | 9,024 |   | $ | 15,947 |   |
| **NET INCOME PER SHARE:**                                                                                                                                                                                                          | ** ** | ** **                                      | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Basic                                                                                                                                                                                                                              |       | $                                               | 0.40       |                                          | $          | 0.60 |   | $ | 0.73 |   | $ | 1.05 |   |
| Diluted                                                                                                                                                                                                                            |       | $                                               | 0.39       |                                          | $          | 0.59 |   | $ | 0.72 |   | $ | 1.04 |   |
| **WEIGHTED AVERAGE COMMON SHARES  OUTSTANDING:**                                                                                                                                                                                   | ** ** | ** **                                      | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Basic                                                                                                                                                                                                                              |       | 12,440                                          |       | 15,161                                        |       | 12,445 |   | 15,156 |   |
| Diluted                                                                                                                                                                                                                            |       | 12,575                                          |       | 15,286                                        |       | 12,540 |   | 15,288 |   |
| **DIVIDENDS PER SHARE APPLICABLE TO COMMON STOCK**                                                                                                                                                                                 |       | $                                               | 0.12       |                                          | $          | 0.14 |   | $ | 0.24 |   | $ | 0.28 |   |

 

The accompanyingcondensed notes are an integral part of these condensed consolidatedfinancial statements.

5

----

**ATLANTICTELE-NETWORK, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2007(Unaudited)(Dollars in thousands)**
| ** **                                                                                              | ** ** | **Six Months Ended  June 30,** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                                              | ** ** | **2006**                                      | ** ** | **2007** | ** ** |
| **CASH FLOWS FROM OPERATING  ACTIVITIES:**                                                              | ** ** | ** **                                    | ** ** | ** ** | ** ** |
| Net income                                                                                              |       | $                                             | 9,024      |   | $ | 15,947 |   |
| Adjustments to  reconcile net income to net cash flows provided by operating activities:                |       |                                          |       |   |   |
| Depreciation and  amortization                                                                          |       | 11,900                                        |       | 13,159 |   |
| Gain on sale of  investments in unconsolidated affiliates                                               |       | —                                        |       | (133 | ) |
| Gain on sale of  Commnet Wireless related assets                                                        |       | —                                        |       | (1,043 | ) |
| Amortization of  deferred compensation                                                                  |       | 415                                           |       | 418 |   |
| Deferred income  taxes                                                                                  |       | 724                                           |       | 461 |   |
| Minority  interests                                                                                     |       | 2,307                                         |       | 2,703 |   |
| Equity in  earnings of unconsolidated affiliates                                                        |       | (1,302                                        | )          | (1,098 | ) |
| Dividends received  from Bermuda Digital Communications, Ltd.                                           |       | 829                                           |       | 968 |   |
| Changes in  operating assets and liabilities, excluding the effects of acquisitions:                    |       |                                          |       |   |   |
| Accounts  receivable, net                                                                               |       | (1,963                                        | )          | (3,431 | ) |
| Materials and  supplies, prepayments, and other current assets                                          |       | (1,132                                        | )          | 2,177 |   |
| Other assets                                                                                            |       | (575                                          | )          | (648 | ) |
| Accounts payable  and accrued liabilities, advance payments and deposits and other current  liabilities |       | 1,080                                         |       | (2,844 | ) |
| Accrued taxes                                                                                           |       | 429                                           |       | 1,895 |   |
| Net cash  provided by operating activities                                                              |       | 21,736                                        |       | 28,531 |   |
| **CASH FLOWS FROM INVESTING  ACTIVITIES:**                                                              | ** ** | ** **                                    | ** ** | ** ** | ** ** |
| Capital  expenditures                                                                                   |       | (12,403                                       | )          | (18,339 | ) |
| Acquisitions of  businesses, net of cash acquired of $1,687 and $0, respectively                        |       | (19,163                                       | )          | (6,553 | ) |
| Proceeds from  sale of investments in unconsolidated affiliates                                         |       | 1,991                                         |       | 276 |   |
| Proceeds from  sale of Commnet Wireless related assets                                                  |       | —                                        |       | 1,507 |   |
| Net cash used in  investing activities                                                                  |       | (29,575                                       | )          | (23,109 | ) |
| **CASH FLOWS FROM FINANCING  ACTIVITIES:**                                                              | ** ** | ** **                                    | ** ** | ** ** | ** ** |
| Dividends paid  on common stock                                                                         |       | (4,513                                        | )          | (4,250 | ) |
| Distributions to  minority shareholders                                                                 |       | (2,880                                        | )          | (823 | ) |
| Proceeds from  stock option exercises                                                                   |       | —                                        |       | 59 |   |
| Proceeds from  long-term debt                                                                           |       | 14,000                                        |       | — |   |
| Repayment of  long-term debt                                                                            |       | (2,079                                        | )          | — |   |
| Purchase of  common stock                                                                               |       | (85                                           | )          | — |   |
| Investments made  by minority shareholders in Commnet of Florida, LLC                                   |       | 400                                           |       | — |   |
| Net cash  provided by (used in) financing activities                                                    |       | 4,843                                         |       | (5,014 | ) |
| **NET CHANGE IN CASH AND CASH  EQUIVALENTS**                                                            |       | (2,996                                        | )          | 408 |   |
| **CASH AND CASH EQUIVALENTS,  beginning of the period**                                                 |       | 26,493                                        |       | 60,543 |   |
| **CASH AND CASH EQUIVALENTS, end of the period**                                                        |       | $                                             | 23,497     |   | $ | 60,951 |   |

 

The accompanyingcondensed notes are an integral part of these condensed consolidatedfinancial statements.

6

----

**ATLANTIC TELE-NETWORK, INC. ANDSUBSIDIARIES****NOTES TO UNAUDITED CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS**

**1.ORGANIZATION AND BUSINESS OPERATIONS**

Atlantic Tele-Network, Inc. (“ATN” or the “Company”)provides wireless and wireline telecommunication services in the Caribbean andNorth America through the following operating subsidiaries and affiliates:

·                    GuyanaTelephone & Telegraph Company, Ltd. (“GT&T”), the nationaland international telephone company in the Republic of Guyana and the largestwireless service provider in that country. The Company has owned 80% of thestock of GT&T since January 1991. GT&T generated approximately 61%and 58% of the Company’s consolidated revenues for the three months ended June30, 2006 and 2007, respectively and approximately 62% and 59% of the Company’sconsolidated revenues for the six months ended June 30, 2006 and 2007,respectively.

·                    CommnetWireless, LLC (“Commnet”), an owner and operator of wholesale wireless networksin rural areas of the United States. Commnet provides wireless voice and datacommunications roaming services primarily to national, regional and localwireless carriers. The Company completed its acquisition of 95% of Commnet onSeptember 15, 2005 and the remaining 5% on January 1, 2007.

·                    Sovernet, Inc.,(“Sovernet”), a facilities-based integrated voice, broadband datacommunications and dial-up service provider in New England, primarily inVermont. ATN acquired all of the outstanding common stock ofSovernet, Inc. on February 10, 2006 and, at the closing of thetransaction, issued shares of common stock of Sovernet, Inc. amounting to4% of Sovernet’s outstanding capital stock to Sovernet’s Chief ExecutiveOfficer, subject to vesting requirements and other restrictions.

·                    BermudaDigital Communications, Ltd. (“BDC”), the largest wireless voice and datacommunications service provider in Bermuda, doing business under the name “CellularOne”. The Company acquired an equity interest in, and signed a managementcontract with, BDC in 1998. The Company currently owns 43% of the equity ofBDC.

·                    ChoiceCommunications, LLC (“Choice Communications” or “Choice”), is a provider offixed wireless broadband data and wireless digital television services, anddial-up Internet services to retail and business customers in the U.S. VirginIslands. Choice is a wholly owned subsidiary of the Company.

ATN provides management, technical, financial,regulatory and marketing services for its subsidiaries and affiliates andtypically receives a management fee equal to approximately 4% to 6% of theirrespective revenues. Management fees from consolidated subsidiaries areeliminated in consolidation. Management fees from unconsolidated affiliates areincluded in “Other Income” in the accompanying statements of operations.

In the third quarter of 2006, the Company completedthe sale of 3.84 million shares of common stock at $19.00 per share in anunderwritten public offering (the “2006 Equity Offering”) consisting of thesale by the Company of an aggregate of 2.64 million shares (2.4 millionshares in July 2006 and an additional 0.24 million shares purchasedby the underwriters as a part of their over-allotment option inAugust 2006) and 1.2 million shares by our Chairman, Cornelius B.Prior, Jr., and his related entities. The net proceeds to the Company of thisoffering, which were approximately $46.3 million, were used to repay aportion of the Company’s outstanding indebtedness, and will fund capitalexpenditures, acquisitions and/or strategic investments and general corporatepurposes. The Company did not receive any proceeds from the sale of shares ofthe selling stockholders.

7

----

**2.BASIS OF PRESENTATION**

The accompanying condensed consolidated financialstatements have been prepared by the Company pursuant to the rules andregulations of the Securities and Exchange Commission (“SEC”). The financialinformation included herein is unaudited; however, the Company believes suchinformation and the disclosures herein are adequate to make the informationpresented not misleading and reflect all adjustments (consisting only of normalrecurring adjustments) that are necessary for a fair statement of the Company’sfinancial position and results of operations for such periods. The year-endcondensed balance sheet data was derived from audited financial statements, butdoes not include all disclosures required by accounting principles generallyaccepted in the United States of America. Results of interim periods may not be indicative of results for thefull year.  These condensed consolidatedfinancial statements and related notes should be read in conjunction with theCompany’s 2006 Annual Report on Form 10-K.

*Consolidation*

The consolidated financial statements include theaccounts of the Company, its majority-owned subsidiaries and Commnet of Florida,LLC, which is consolidated in accordance with the provisions of FinancialAccounting Standards Board (“FASB”) Interpretation No. 46, “Consolidationof Variable Interest Entities, an interpretation on Accounting ResearchBulletin No. 51” as revised in December 2003, since it was determinedthat the Company is the primary beneficiary of Commnet of Florida, LLC.

Except for the Company’s investment in Commnet ofFlorida, LLC, the equity method of accounting is used for the Company’sinvestments in affiliated entities in which the Company has at least a 20%ownership but does not have management control. The Company accounts forinvestments of less than 20% for which the Company does not have the ability toexert significant influence over the operations by using the cost method ofaccounting.

*RecentAccounting Pronouncements*

In February 2007, the FASB issued Statement ofFinancial Accounting Standards No. 159, *TheFair Value Option for Financial Assets and Liabilities Including an Amendmentof FASB Statement No. 115*(“SFAS 159”)*.* This standard is effective for periodsbeginning after November 15, 2007, therefore, the Company will adopt theprovisions of the standard on January 1, 2008. SFAS 159 permits theCompany to elect to measure certain of its financial instruments at eitherhistorical cost or fair value. The Company is in the process of determiningwhat method it will choose upon adoption and, once determined, the impact, ifany, adoption will have on the financial results or position of the Company.

On January 1, 2007, the Company adopted FASBInterpretation No. 48, *Accounting for Uncertaintyin Income Taxes—an interpretation of FASB Statement No. 109*(“FIN 48”),which clarifies the accounting for uncertainty in tax positions. FIN 48requires that the Company recognize the impact of a tax position in the Company’sfinancial statements if that position is more likely than not of beingsustained on audit, based on the technical merits of the position. The adoptiondid not have a material impact on the results of operations or financialposition of the Company.

The Company evaluated its uncertain tax positionsrelating to its various tax matters and rulings in Guyana and determined thatno adjustment was to be recorded to the estimated settlement amounts previouslyrecorded prior to the adoption of FIN 48. As noted in Note 11 to the 2006 Form10-K, due to various arrangements and relationships in place with thegovernment of Guyana, there is no expectation that interest and penalties willbe assessed upon reaching final settlement of the matters. There is no expectedsettlement date and upon settlement, which might not occur in the near future,the payment may vary significantly from the amounts currently recorded. TheCompany will continue to update amounts recorded as new developments arise.

8

----

*Reclassifications*

The Company revised its presentation in the 2006statement of cash flows of dividends received from BDC of $0.8 million toproperly reflect the dividends as an operating activity as they represented areturn on the Company’s investment. Certain conforming revisions have been made to the 2006 statement ofoperations to conform to the 2007 presentation.

**3.USE OF ESTIMATES**

Thepreparation of financial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the dates of the financialstatements and the reported amounts of revenues and expenses during thereporting periods. The most significant estimates relate to revenuerecognition, allowance for doubtful accounts, useful lives of the Company’sfixed and finite-lived intangible assets, allocation of purchase price toassets acquired and liabilities assumed in purchase business combinations, fairvalue of indefinite-live intangible assets, goodwill and income taxes. Actualresults could differ significantly from those estimates.

**4.ACQUISITIONS**

*a)**           **Acquisition of Minority Interest in Commnet*

In connection with the Commnet merger agreement ofSeptember 2005, the Company also entered into a put and call agreement withBrian A. Schuchman, the 5% minority shareholder of Commnet. Under the terms ofthis agreement, the Company was obligated to acquire the remaining 5% ownershipinterest from Mr. Schuchman between April 15, 2007 and October 15,2007. The purchase price was based on a fixed multiple to earnings ascalculated during the 12 month period prior to the exercise of the put andcall. The Company reached an agreement with Mr. Schuchman on January 1,2007 to purchase his ownership interest for $7.1 million, consisting of$6.5 million in cash and 21,000 shares of the Company’s common stock, valued atapproximately $0.6 million. Effective January 1, 2007, Commnet is awholly-owned subsidiary of the Company. Effective May 24, 2007, Mr. Schuchman became a member of the Company’sBoard of Directors.

The acquisition of the 5% minority interest in Commnetwas accounted for using the purchase method. After eliminating the $1.3 million minority interest in Commnet, theCompany allocated $1.7 million to property and equipment, $1.1 million tolicenses and the residual balance of $3.0 million was recorded togoodwill.  In accordance with currentaccounting standards, the goodwill will not be amortized and will be tested forimpairment at least annually as required by SFAS No. 142, *Goodwill and Other Intangible Assets* (“SFAS 142”). For taxpurposes, the Company elected to step up the basis of Commnet’s assets to fairmarket value, and therefore, the goodwill is deductible for tax purposes.

*b)            Sovernet, Inc.*

On February 10, 2006, the Company completed the acquisition ofSovernet, a facilities-based provider of communications services to businessand residential customers in Vermont, including bundled voice and high-speedInternet access, as well as traditional dial-up Internet services. Inconnection with the acquisition, ATN acquired all of the outstanding commonstock of Sovernet for approximately $13.2 million, including the repaymentof approximately $1.4 million in Sovernet debt and the payment oftransaction expenses of $0.5 million. At the closing of the transaction,the Company issued shares of Sovernet’s common stock amounting to 4% ofSovernet’s outstanding capital stock to Sovernet’s new chief executive, subjectto vesting requirements and other restrictions. The Company funded the transaction through a combination of cash on handand borrowings under its existing credit facility (see Note 5). Theacquisition of Sovernet allows the Company to expand its local telephone anddata business into the under-served, smaller markets of Vermont and northernNew England.

The acquisition of Sovernet was accounted for usingthe purchase method and Sovernet’s results of operations sinceFebruary 10, 2006, the date of acquisition, have been included in thefinancial 

9

----

statements of theCompany. The total purchase consideration was allocated to the assets acquiredand liabilities assumed at their estimated fair values as of the date ofacquisition as determined by management. Included in this allocation was$5.0 million attributable to Sovernet’s relationships with its existingcustomers as of the date of acquisition. The excess of the purchase price overthe amounts allocated to assets acquired and liabilities assumed has beenrecorded as goodwill. The Company originally recorded $8.1 million ofgoodwill in connection with the acquisition of Sovernet. However, such amountwas reduced by $1.7 million (net of tax) during 2006 as a result of theCompany’s recording of certain transactions which related to a pre-acquisitionperiod. The value of the goodwill from this acquisition can be attributed to anumber of business factors including, but not limited, to the reputation ofSovernet as a retail provider of Internet and telephone services as well as anetwork operator, Sovernet’s reputation for customer care, the skills andexperience of its management and staff and the strategic position it holds inits marketplace. In accordance with current accounting standards, the goodwillwill not be amortized and will be tested for impairment at least annually asrequired by SFAS 142. The customer relationships will be amortized, on anaccelerated basis, over the expected period during which their economicbenefits are to be realized over a period of approximately five years. Fortax purposes, the goodwill and amortization of the customer relationships arenot be deductible.  Proforma informationis not required for this acquisition as it is not considered material.

**5.CREDIT FACILITIES**

Long-term debtincludes the following (in thousands):

|                                                                                       | ** ** | **December 31,  2006** | ** ** | **June 30,  2007** | ** ** |
|---------------------------------------------------------------------------------------|------------|-----------------------------|------------|-------------------------|------------|
| Note payable to  CoBank, ACB under a $50 million term loan                            |       | $                           | 50,000     |                    | $          | 50,000 |   |
| Line of Credit,  payable to CoBank, ACB under a $20 million revolving credit facility |       | —                      |       | —                  |       |
|                                                                                  |       |                        |       |                    |       |
| Total long term debt                                                                  |       | $                           | 50,000     |                    | $          | 50,000 |   |

 

On September 15, 2005, ATN, as borrower, enteredinto a credit agreement with CoBank, ACB (the “CoBank Credit Agreement”). TheCoBank Credit Agreement provides a $50 million term loan (the “Term Loan”) anda $20 million revolving credit facility (the “Revolver Facility”, together withthe Term Loan, the “Credit Facility”). The Credit Facility is guaranteed by ourCommnet subsidiary and is collateralized by, among other things, a securityinterest in substantially all of the assets of and stock owned by ATN andCommnet. The Term Loan has principal repayments deferred until the maturity ofthe loan on October 31, 2010. Interest on the Term Loan is payable on aquarterly basis at a fixed annual interest rate of 5.85%, less any patronagepayments received by the Company from the bank. Amounts outstanding under theRevolver Facility accrue interest at a rate equal to (at the Company’s option):(i) LIBOR plus a margin ranging from 1.25% to 1.50% or (ii) avariable rate of interest as defined within the Revolver Facility plus 1%.

The CoBank Credit Agreement contains certainaffirmative and negative covenants of ATN and its subsidiaries (includingCommnet). Among other things, these covenants restrict ATN’s ability to incuradditional debt in the future or to incur liens on its property. ATN has alsoagreed to maintain certain financial ratios under the facilities, including atotal leverage ratio (debt to EBITDA, as defined) of two to one or less; a debtservice coverage ratio (EBITDA to debt service) of three to one or more; anequity to assets ratio of 0.4 to one or more; and a specified leverage ratiofor Commnet that changes over time. As of June 30, 2007, the Company was incompliance with the covenants of the CoBank Credit Facility.

**6.  STOCK-BASED COMPENSATION**

During the three monthsended June 30, 2006 and 2007, the Company recognized $286,000 and $204,000,respectively, of non-cash compensation expense relating to grants under the1998 Stock Option Plan and 2005 Atlantic Tele-Network Restricted Stock Plan andIncentive Plan (the “Share Based Plans”). During the six months ended June 30, 2006 and 2007, the Companyrecognized $415,000 and $418,000, 

10

----

respectively, of non-cash compensation expenserelating to grants under the Share Based Plans.

**7.  OTHER INCOME**

Otherincome for both the three and six months ended June 30, 2007 included a gain, recordedby Commnet, of $1.0 million received for the disposition of certain assets, and$1.25 million received by Commnet in a license settlement.

**8.NET INCOME PER SHARE**

Net income per share is computed in accordance withStatement of Financial Accounting Standards No. 128, *Earnings PerShare*. Basic net income per share is computed by dividing net incomeby the weighted average number of common shares outstanding during the periodand does not include any other potentially dilutive securities. Diluted netincome per share gives effect to all potentially dilutive securities using thetreasury stock method.

For the three and six months ended June 30, 2006 and2007, the stock options and restricted common shares issued under the ShareBased Plans were the only potentially dilutive securities.

The reconciliationfrom basic to diluted weighted average common shares outstanding is as follows(in thousands):

|                                                                             | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-----------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                  | ** ** | **2006**                                        | ** ** | **2007**                                      | ** ** | **2006** | ** ** | **2007** | ** ** |
| Basic weighted  average common shares outstanding                           |       | 12,440                                          |       | 15,161                                        |       | 12,445 |   | 15,156 |   |
| Unvested shares issued under the Company’s 2005  Restricted Stock Plan |       | 58                                              |       | 43                                            |       | 49 |   | 46 |   |
| Stock options issued under the Company’s 1998 Stock  Option Plan       |       | 77                                              |       | 82                                            |       | 46 |   | 86 |   |
| Diluted weighted  average common shares outstanding                         |       | 12,575                                          |       | 15,286                                        |       | 12,540 |   | 15,288 |   |

 

**9.SEGMENT REPORTING**

The Company has four reportable segments which areconsidered material for separate disclosure under Statement of FinancialAccounting Standards No. 131, *Disclosures About Segmentsof and Enterprise Related Information.* Those four segments are:i) Integrated Telephony-International, which generates all of its revenuesin Guyana and has all of its assets located in Guyana (“GT&T”),ii) Integrated Telephony-Domestic, which generates all of its revenues andhas all of its assets located in the United States (“Sovernet”),iii) Wireless Television and Data, which generates all of its revenues inand has all of its assets located in the U.S Virgin Islands (“Choice”), andiv) Rural Cellular, which generates all of its revenues in the UnitedStates and has all of its assets located in the United States (“Commnet”). Theoperating segments are managed separately because each offers differentservices and serves different markets. Certain elements of the 2006 segmentinformation have been revised to conform to the current format of financialinformation reviewed by the Company’s chief operating decision makers.

11

----

The following tables provide information for eachoperating segment (in thousands):
| ** **                                                   | ** ** | **For the Three Months Ended June 30, 2006** | ** ** |
|--------------------------------------------------------------|------------|---------------------------------------------------------------------------------|------------|
| ** **                                                   | ** ** | **Integrated  Telephony-  International**                                       | ** ** | **Integrated  Telephony-  Domestic** | ** ** | **Wireless  Television  and Data** | ** ** | **Rural  Wireless** | ** ** | **Corporate** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Revenues                                                     |       | $                                                                               | 22,703     |   | $ | 3,618 |   | $ | 1,647 |   | $ | 9,527 |   | $ | 1,771 |   | $ | (1,771 | ) | $ | 37,495 |   |
| Depreciation and  amortization                               |       | 3,419                                                                           |       | 567 |   | 588 |   | 1,379 |   | 152 |   | — |   | 6,105 |   |
| Non-cash  stock-based compensation                           |       | —                                                                          |       | 53 |   | — |   | — |   | 233 |   | — |   | 286 |   |
| Operating income  (loss)                                     |       | 12,175                                                                          |       | 516 |   | (779 | ) | 2,829 |   | (938 | ) | (1,771 | ) | 12,032 |   |
| Interest expense                                             |       | —                                                                          |       | — |   | (747 | ) | (153 | ) | (1,022 | ) | 900 |   | (1,022 | ) |
| Interest income                                              |       | 137                                                                             |       | 13 |   | — |   | 29 |   | 923 |   | (900 | ) | 202 |   |
| Income taxes                                                 |       | 4,614                                                                           |       | 140 |   | (272 | ) | 1,086 |   | 657 |   | — |   | 6,225 |   |
| Equity in  earnings of unconsolidated affiliates, net of tax |       | —                                                                          |       | — |   | — |   | (4 | ) | 5,790 |   | (4,950 | ) | 836 |   |
| Net income (loss)                                            |       | $                                                                               | 5,274      |   | $ | 373 |   | $ | (1,627 | ) | $ | 1,496 |   | $ | 4,369 |   | (4,950 | ) | $ | 4,935 |   |
|                                                              |            |                                                                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                                   | ** ** | **For the Three Months Ended June 30, 2007** | ** ** |
|--------------------------------------------------------------|------------|---------------------------------------------------------------------------------|------------|
| ** **                                                   | ** ** | **Integrated  Telephony-  International**                                       | ** ** | **Integrated  Telephony-  Domestic** | ** ** | **Wireless  Television  and Data** | ** ** | **Rural  Wireless** | ** ** | **Corporate** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Revenues                                                     |       | $                                                                               | 25,424     |   | $ | 3,693 |   | $ | 2,178 |   | $ | 12,919 |   | $ | 2,602 |   | $ | (2,602 | ) | $ | 44,214 |   |
| Depreciation and  amortization                               |       | 3,889                                                                           |       | 431 |   | 539 |   | 1,723 |   | 76 |   | — |   | 6,658 |   |
| Non-cash  stock-based compensation                           |       | —                                                                          |       | 32 |   | — |   | — |   | 172 |   | — |   | 204 |   |
| Operating income  (loss)                                     |       | 11,394                                                                          |       | 497 |   | (283 | ) | 5,459 |   | 532 |   | (2,602 | ) | 14,997 |   |
| Interest expense                                             |       | —                                                                          |       | — |   | (880 | ) | (168 | ) | (660 | ) | 1,047 |   | (661 | ) |
| Interest income                                              |       | 175                                                                             |       | 81 |   | — |   | 50 |   | 1,258 |   | (1,047 | ) | 517 |   |
| Income taxes                                                 |       | 4,731                                                                           |       | 195 |   | (99 | ) | 2,726 |   | (303 | ) | — |   | 7,250 |   |
| Equity in  earnings of unconsolidated affiliates, net of tax |       | —                                                                          |       | — |   | — |   | — |   | 7,475 |   | (6,833 | ) | 642 |   |
| Net income (loss)                                            |       | $                                                                               | 4,340      |   | $ | 227 |   | $ | (1,326 | ) | $ | 3,632 |   | $ | 9,009 |   | (6,833 | ) | $ | 9,049 |   |
|                                                              |            |                                                                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                                   | ** ** | **For the Six Months Ended June 30, 2006** | ** ** |
|--------------------------------------------------------------|------------|-------------------------------------------------------------------------------|------------|
| ** **                                                   | ** ** | **Integrated  Telephony-  International**                                     | ** ** | **Integrated  Telephony-  Domestic** | ** ** | **Wireless  Television  and Data** | ** ** | **Rural  Wireless** | ** ** | **Corporate** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Revenues                                                     |       | $                                                                             | 44,534     |   | $ | 5,748 |   | $ | 3,207 |   | $ | 18,528 |   | $ | 3,425 |   | $ | (3,425 | ) | $ | 72,017 |   |
| Depreciation and  amortization                               |       | 6,824                                                                         |       | 860 |   | 1,180 |   | 2,730 |   | 306 |   | — |   | 11,900 |   |
| Non-cash  stock-based compensation                           |       | —                                                                        |       | 53 |   | — |   | — |   | 362 |   | — |   | 415 |   |
| Operating income  (loss)                                     |       | 23,268                                                                        |       | 1,007 |   | (1,597 | ) | 5,519 |   | (1,167 | ) | (3,425 | ) | 23,605 |   |
| Interest expense                                             |       | —                                                                        |       | — |   | (1,443 | ) | (257 | ) | (1,888 | ) | 1,699 |   | (1,889 | ) |
| Interest income                                              |       | 283                                                                           |       | 13 |   | — |   | 56 |   | 1,753 |   | (1,699 | ) | 406 |   |
| Income taxes                                                 |       | 9,358                                                                         |       | 415 |   | (559 | ) | 2,132 |   | 1,344 |   | — |   | 12,690 |   |
| Equity in  earnings of unconsolidated affiliates, net of tax |       | —                                                                        |       | — |   | — |   | (6 | ) | 10,546 |   | (9,238 | ) | 1,302 |   |
| Net income (loss)                                            |       | $                                                                             | 9,538      |   | $ | 580 |   | $ | (3,237 | ) | $ | 2,924 |   | $ | 8,457 |   | (9,238 | ) | $ | 9,024 |   |
|                                                              |            |                                                                               |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                                   | ** ** | **For the Six Months Ended June 30, 2007** | ** ** |
|--------------------------------------------------------------|------------|-------------------------------------------------------------------------------|------------|
| ** **                                                   | ** ** | **Integrated  Telephony-  International**                                     | ** ** | **Integrated  Telephony-  Domestic** | ** ** | **Wireless  Television  and Data** | ** ** | **Rural  Wireless** | ** ** | **Corporate** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Revenues                                                     |       | $                                                                             | 51,496     |   | $ | 7,326 |   | $ | 4,173 |   | $ | 24,756 |   | $ | 5,130 |   | $ | (5,130 | ) | $ | 87,751 |   |
| Depreciation and  amortization                               |       | 7,766                                                                         |       | 901 |   | 1,086 |   | 3,253 |   | 153 |   | — |   | 13,159 |   |
| Non-cash  stock-based compensation                           |       | —                                                                        |       | 63 |   | — |   | — |   | 355 |   | — |   | 418 |   |
| Operating income  (loss)                                     |       | 22,470                                                                        |       | 936 |   | (851 | ) | 10,196 |   | 676 |   | (5,130 | ) | 28,297 |   |
| Interest expense                                             |       | —                                                                        |       | — |   | (1,742 | ) | (335 | ) | (881 | ) | 2,075 |   | (883 | ) |
| Interest income                                              |       | 315                                                                           |       | 145 |   | — |   | 84 |   | 2,639 |   | (2,075 | ) | 1,108 |   |
| Income taxes                                                 |       | 9,365                                                                         |       | 344 |   | (298 | ) | 4,555 |   | (52 | ) | — |   | 13,914 |   |
| Equity in  earnings of unconsolidated affiliates, net of tax |       | —                                                                        |       | — |   | — |   | — |   | 13,103 |   | (12,005 | ) | 1,098 |   |
| Net income (loss)                                            |       | $                                                                             | 8,459      |   | $ | 426 |   | $ | (2,877 | ) | $ | 6,052 |   | $ | 15,892 |   | (12,005 | ) | $ | 15,947 |   |
|                                                              |            |                                                                               |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **              | ** ** | **Assets**                                | ** ** |
|-------------------------|------------|-------------------------------------------|------------|
| **As of**          | ** ** | **Integrated  Telephony-  International** | ** ** | **Integrated  Telephony-  Domestic** | ** ** | **Wireless  Television  and Data** | ** ** | **Rural  Wireless** | ** ** | **Corporate** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| December 31,  2006 |       | $                                         | 142,670    |   | $ | 20,821 |   | $ | 12,061 |   | $ | 85,310 |   | $ | 186,865 |   | $ | (145,113 | ) | $ | 302,614 |   |
| June 30, 2007           |       | 145,502                                   |       | 21,030 |   | 11,663 |   | 100,059 |   | 181,333 |   | (143,235 | ) | 316,352 |   |
|                         |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

12

----

As of June 30, 2007, total assets for the IntegratedTelephony-Domestic and Rural Wireless segments included $7.0 million and $32.2million of goodwill, respectively.  Ofthe $32.2 million of goodwill included in the Rural Wireless segment, $3.0million related to the acquisition of the 5% minority interest of Commnetduring the first quarter of 2007 (see Note 4).
| ** **                                    | ** ** | **Capital  Expenditures**                 | ** ** |
|-----------------------------------------------|------------|-------------------------------------------|------------|
| **Six Months Ended  June 30,** | ** ** | **Integrated  Telephony-  International** | ** ** | **Integrated  Telephony  Domestic** | ** ** | **Wireless  Television  and Data** | ** ** | **Rural  Wireless** | ** ** | **Corporate** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| 2006                                          |       | $                                         | 6,813      |   | $ | 156 |   | $ | 438 |   | $ | 4,993 |   | $ | 3 |   | $ | — |   | $ | 12,403 |   |
| 2007                                          |       | 10,682                                    |       | 575 |   | 4 |   | 7,078 |   | — |   | — |   | $ | 18,338 |   |
|                                               |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**10. COMMITMENTS AND CONTINGENCIES**

**Regulatory and Litigation Matters**

The Company and its subsidiaries are subject to certainregulatory and legal proceedings and other claims arising in the ordinarycourse of business, some of which involve claims for damages and taxes that aresubstantial in amount. The Company believes that, except for the itemsdiscussed below for which the Company is currently unable to predict the finaloutcome, the disposition of proceedings currently pending will not have amaterial adverse effect on the Company’s financial position or results ofoperations.

***Regulatory***

The Company’s Guyana subsidiary, GT&T, is subject toregulation in Guyana under the provisions of its license and under the GuyanaPublic Utilities Commission Act of 1999 and the Guyana Telecommunications Actof 1990. GT&T also has certain significant rights and obligations under theagreement pursuant to which the Company acquired its interest in GT&T in1991 and because of the large volume of traffic that GT&T has with theUnited States, GT&T can be significantly affected by orders of U.S.regulatory agencies.

In a letter dated September 8, 2006, the NationalFrequency Management Unit (“NFMU”) agreed that GT&T’s total spectrum feesshould not increase for the years 2006 and 2007. However, that letter impliedthat spectrum fees in 2008 and onward may be increased substantially beyond theamount agreed between GT&T and the Government. GT&T restated itsposition in a September 14, 2006 letter to the Government that, by agreementwith the Government, spectrum fees should be capped until the NFMU develops aspectrum fee methodology acceptable to all GSM spectrum licenses.  In correspondence to GT&T in June 2007,the NFMU stated, without indicating whether a fee methodology would bedeveloped, that the cap on GSM spectrum fees will be removed in December2007.   In a letter dated July 3, 2007 tothe NFMU, GT&T objected to the NFMU’s proposed action and reiterated itsposition that an increase in fees prior to development of an acceptablemethodology would violate the Governenment’s prior agreement

OnJanuary 2, 2007, a value added tax (“VAT”) of 16% on imports and othergoods and services went into effect in Guyana. GT&T successfully arguedthat its contract with the Government of Guyana provides for exemption incertain cases from payment of consumption tax and import duties, including theVAT. However, the VAT replaced the telephone tax of 10% and broadened theapplicability to include, for example, rentals and leases. Historically, thetelephone tax applied only to usage. In December 2006, the Guyana RevenueAuthority (“GRA”) expressed its opinion to GT&T that the VAT applied toGT&T’s pre-paid phone cards at the time a GT&T customer purchases thecard. GT&T believes that the VAT should apply in the same manner as thetelephone tax that the VAT replaced, that is, at the time a pre-paid customerinitiates a call. This interpretation conforms to past practice of theGovernment and GT&T’s accounting practice, which does not recognize thepre-paid revenue until a call is initiated by the pre-paid customer. GT&Tis seeking to confirm its belief with the GRA. Although the VAT’s effects areuncertain at this time, the Company believes that it will not have a materialadverse affect on GT&T’s financial condition or results of operations.

On January 15, 2007, the Public Utilities Commission(the “PUC”) issued a ruling that fixed floor and ceiling rates for both the pre-paidand the post-paid cellular services offered by GT&T and itscompetition. In addition, the PUC ordered the companies to implement per-secondbilling as opposed to the pre-existing practice of per-minutebilling. While these events have not had a material adverse effect on GT&Tto date, further rate reductions, or the expansion of per second billing tonon-mobile services could have a material adverse effect on GT&T’sfinancial condition or results of operations. Both the PUC and GT&T are closely monitoring the effect of persecond billing on international long distance traffic originating on mobilephones.

InOctober 1997, the PUC ordered GT&T to increase the number of telephonelines in service to a total of 69,278 lines by the end of 1998; 89,054 lines bythe end of 1999; and 102,126 lines by the end of 2000; to allocate and connectan additional 9,331 telephone lines before the end of 1998; and to provide tosubscribers who request them facilities for call diversion, call waiting,reminder call, and three-way calling 

13

----

by the end of1998. In issuing this order, the PUC did not hear evidence or make any findingson the cost of providing these lines and services, the adjustment in telephonerates that may be necessary to give GT&T a fair return on its investment,or the ways and means of financing the requirements of the PUC’s order.GT&T has appealed the PUC’s order to the Guyana Court of Appeal, and thatappeal is still pending. No stay currently exists against this order.

In July 2004, the FCC revised the spectrum band planapplicable to the Broadband Radio Service and Educational Broadband Service.These are the spectrum bands used by Choice to operate its video and broadbanddata services. The new rules restructure these spectrum bands and couldmaterially impact Choice customers and operations if Choice is required totransition to the new band plan.  The FCChas stated that it will consider requests for waiver of the new band planrequirements on a case-by-case basis and described thecircumstances under which waivers would be granted. To date, the FCC has grantedat least three waivers that excuse entities similar to Choice from therebanding requirement.  On April 30,2007, Choice filed a waiver request at the FCC that subsequently was contestedby Sprint Nextel Corporation, among others. This proceeding remains pending before the FCC.

In August 2006 and in January 2007, the BermudaMinistry of Telecommunications and E-Commerce issued consultationdocuments proposing a new regulatory framework for the telecommunicationsindustry. The proposals contemplate converting existing service-specificlicenses to licenses that permit any company to offer any type of service. Atthis time we do not know whether the outcome of this proposal will be positiveor negative for BDC.

***Litigation***

In Bermuda, our BDC affiliate is subject to Bermuda’sTelecommunications Act of 1986, as amended. In November 2005, the Ministerof Telecommunications and Technology directed BDC to cease offering certaindata services through its “Bull” branded wireless modem. BDC challenged thedirective in Bermuda court claiming that the directive contravenes BDC’slicense to provide data services and BDC’s long history of providing dataservices. On June 6, 2006, the court ruled in favor of BDC. The ministryhas filed an appeal which is expected to be heard in November 2007.

Upon the acquisition of GT&T in January 1991,ATN entered into an agreement with the government of Guyana to significantlyexpand GT&T’s existing facilities and telecommunications operations and toimprove service within a three-year period pursuant to an expansion andservice improvement plan (the “Plan”). The government agreed to permit rateincreases in the event of currency devaluation within the three-yearperiod, but GT&T was unable to get timely increases when the Guyanesecurrency suffered a sharp decline in March 1991. The Plan was modified incertain respects and the date for completion of the Plan was extended toFebruary 1995. Since 1995, the PUC has had pending a proceeding initiatedby the minister of telecommunications of Guyana with regard to the failure ofGT&T to complete the Plan by February 1995. The PUC last held hearingson this matter in 1998. It is GT&T’s position that its failure to receivetimely rate increases in compensation for the devaluation of the currency in1991 provides legal justification for GT&T’s delay in completing the Plan.If the PUC were to find that GT&T was not excused from fulfilling the termsof the Plan by February 1995, GT&T could be subject to monetarypenalties, cancellation of its license, or other action by the PUC or thegovernment that could have a material adverse effect on the Company’s businessand prospects. The requirements of the Plan were substantially completed morethan four years ago. GT&T believes that its obligations have been fulfilledand it has continued to aggressively develop the telecommunicationsinfrastructure in all areas including landline, wireless and data.

GT&T is contesting income tax assessments ofapproximately $7.3 million that it has received from the commissioner ofInland Revenue for the years 1991-1996 based on the disallowance as adeduction for income tax purposes of five-sixths of the advisory fees payableby GT&T to the Company. The deductibility 

14

----

of these advisory fees was upheld for one of these years by a decisionof the High Court in August 1995. The Guyana Commission of Inland Revenuehas filed a High Court Writ seeking an order setting aside that decision on thegrounds that the Commissioner did not have a proper hearing. GT&T hascontested that Writ. The assessments for the other years are being held inabeyance pending decision on the Writ and GT&T motions to strike.Subsequent to December 31, 2001, GT&T received assessments for theyears 1997-2000 in the aggregate amount of approximately$6.5 million raising the same issues. GT&T expects that proceedings onthese assessments will also be held in abeyance pending the Court’s decision.

In November 1997, GT&T received assessments ofthe current equivalent of approximately $9.7 million from the commissionerof Inland Revenue for taxes for the years 1991 through 1996. It is GT&T’sunderstanding that these assessments stem from an audit that the Guyana HighCourt stayed before it was completed. Apparently, because the audit was cutshort as a result of the High Court’s order, GT&T did not receive noticeof, and an opportunity to respond to, the proposed assessments as is thecustomary practice in Guyana, and substantially all of the issues raised in theassessments appear to be based on mistaken facts. GT&T has applied to theGuyana High Court for an order prohibiting the commissioner of Inland Revenuefrom enforcing the assessments on the grounds that the origin of the audit andthe failure to give GT&T notice of, and opportunity to respond to, theproposed assessments violated Guyanese law. The Guyana High Court has issued anorder effectively prohibiting any action on the assessments pending the determinationby the High Court of the merits of GT&T’s application.

Should GT&T be held liable for any of the above taxliabilities, totaling $23.5 million, the Company believes that thegovernment of Guyana would be obligated to reimburse GT&T for any amountsthat would reduce GT&T’s return on investment to less than 15% per annumfor the relevant periods.

In early 2000, Inet Communications, Inc., anInternet service provider in Guyana, and the Guyana Consumers Association fileda suit in the High Court against the Attorney General of Guyana and GT&T.The suit claims that GT&T is not entitled to rate increases based on theagreement between the Government of Guyana and ATN and that the Civil Law ofGuyana prohibits what is referred to as GT&T’s monopoly. Inet’s motion wasstruck down for non-appearance of counsel. However, Inet’s counsel hasapplied for the matter to be restored. The Court has not yet taken action onInet’s application.

In July 2002, an individual sued the AttorneyGeneral of Guyana in the Guyana courts asking, among other things, for adeclaration that the section of the Company’s 1990 contract with the Governmentof Guyana granting to GT&T an exclusive right to operate atelecommunications system in Guyana was null and void as contrary to law and tothe Constitution of Guyana. GT&T has joined the suit to contest theseclaims and this proceeding remains pending. In 2001, the Government of Guyanaannounced its intention to introduce competition into Guyana’stelecommunications sector in contravention of the terms of GT&T’s license.The Company believes that the termination of the exclusivity provisions ofGT&T’s license would require appropriate compensation to GT&T and arebalancing of rates so that the rates for each service represent the real economiccost of such services. The Company also believes that the government isconsidering shifting from rate of return regulation to incentive rate-capregulation. In February 2002, GT&T began negotiations with theGovernment on these issues and all other outstanding issues between GT&Tand the Government of Guyana. GT&T has not had formal discussions withGovernment officials regarding rate regulation or the introduction ofadditional competition since the second quarter of 2002. The President ofGuyana has publicly stated that competition in the wireline and long distancesectors are key objectives of his administration. In recent informaldiscussions with GT&T, senior Guyanese officials indicated an interest inre-starting negotiations regarding the exclusivity terms of GT&T’slicense, as well as other outstanding issues, such as certain tax matters.Although no schedule has been agreed to, we expect negotiations to restartshortly.

15

----

**Item 2.Management’s Discussion and Analysis of Financial Condition and Results ofOperations**

This discussionshould be read in conjunction with Management’s Discussion and Analysis ofFinancial Condition and Results of Operations included in our 2006 AnnualReport on Form 10-K. Some of the statements in the discussion areforward-looking statements which are subject to risks, uncertainties and otherfactors that could cause actual results to differ materially from futureresults expressed or implied by such forward-looking statements. These riskfactors include those discussed under Item 1A, “Risk Factors” in our 2006Annual Report on Form 10-K and those set forth in this Report under “CautionaryStatement Regarding Forward-Looking Statements.”

**OVERVIEW**

We provide wireless and wireline telecommunicationsservices in the Caribbean and North America through the following operatingsubsidiaries and affiliate:

·       GuyanaTelephone & Telegraph Company, Ltd. (or GT&T), the nationaland international telephone company in the Republic of Guyana and the largestwireless service provider in that country. We have owned 80% of the equity ofGT&T since January 1991.

·       CommnetWireless, LLC (or Commnet), an owner and operator of wholesale wirelessnetworks in rural areas of the United States. Commnet provides wireless voiceand data communications roaming services primarily to national, regional andlocal wireless carriers. We acquired 95% of the equity of Commnet in September2005 and the remaining 5% in January 2007.

·       Sovernet, Inc., (orSovernet), a facilities-based integrated voice, broadband data communicationsand dial-up service provider in New England, primarily in Vermont. We acquiredSovernet in February 2006 and granted restricted stock equal to 4% of Sovernet’soutstanding capital stock to Sovernet’s Chief Executive Officer.

·       BermudaDigital Communications, Ltd. ( or BDC), the largest wireless voice anddata communications service provider in Bermuda, doing business under the nameCellular One. We acquired a minority equity interest in, and signed amanagement contract with, BDC in 1998. We currently own 43% of the capitalstock of BDC.

·       ChoiceCommunications, LLC (or Choice), is a leading provider of fixed wirelessbroadband data services, wireless digital television services and dial-upInternet services to retail and business customers in the U.S. Virgin Islands.We acquired Choice in October 1999 and own 100% of the equity of Choice.

As a holding company, we provide management, technical, financial,regulatory, and marketing services to, and typically receive a management feeequal to approximately 4% to 6% of revenues from each operating subsidiary andour BDC affiliate. Because we do not control BDC, we account for our investmentin that entity under the equity method. Earnings from BDC do notappear in our income from operations, but are instead reflected in equityearnings of unconsolidated affiliates in the Consolidated Financial Statementsincluded in this Report. In July 2008, BDC has the option torepurchase from us all, but not less than all, of our equity interest in BDC ata price equal to fair market value. We are uncertain as to whether BDC willexercise this option. Also in 2008, our management fee arrangement with BDC maybe terminated pursuant to our contract.

16

----

The followingchart summarizes the operating activities of our subsidiaries and our BDCaffiliate and the markets they serve as of June 30, 2007:
| **Services**                | ** ** | **Segment**                                                                                     | ** ** | **Operating Subsidiary/Affiliate**           | ** ** | **Markets**                                              |
|-----------------------------|------------|-------------------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------------------|
| Wireless                    |       | Rural Wireless  Integrated Telephony-International                                              |       | Commnet  GT&T  BDC(1)                    |       | United States (rural markets)  Guyana  Bermuda           |
|                        |       |                                                                                            |       |                                         |       |                                                     |
| Local Telephone and Data    |       | Integrated Telephony-International  Integrated Telephony-Domestic  Wireless Television and Data |       | GT&T  Sovernet  Choice (internet access) |       | Guyana  United States (New England)  U.S. Virgin Islands |
|                        |       |                                                                                            |       |                                         |       |                                                     |
| International Long Distance |       | Integrated Telephony-International                                                              |       | GT&T                                     |       | Guyana                                                   |
|                        |       |                                                                                            |       |                                         |       |                                                     |
| Other                       |       | Wireless Television and Data                                                                    |       | Choice (digital television)                  |       | U.S. Virgin Islands                                      |

----

(1)             Earningsfrom BDC do not appear in our income from operations but are instead reflectedin equity in earnings of unconsolidated affiliates in the ConsolidatedFinancial Statements included in this Report.

For information about our business segments andgeographical information about our operating revenues and long-lived assets,see Note 9 to the Consolidated Financial Statements included in this Report.

In the past, we generated most of our revenue andoperating income from our GT&T operations. GT&T providesdomestic wireline telephone service and international long distance servicepursuant to an exclusive license from the Government of Guyana and provideswireless service on a non-exclusive basis. The rates that GT&Tmay charge for its services are regulated by the Public Utility Commission ofGuyana (or PUC), an independent regulatory body responsible for regulatingtelecommunications. See “Business—Regulation of Our GT&T Subsidiary” in the2006 Annual Report on Form 10-K. The largest component of GT&T’scontribution to our consolidated revenue and profit has been from itsinternational long distance business and that business still accounts forroughly half of GT&T’s revenue. Most of these revenues and profits werefrom payment by foreign carriers, which are denominated in U.S. dollars, forhandling international long distance calls originating from foreign carrier’sterminating in Guyana. The rates at which GT&T collects fees from foreigncarriers are established by agreements between it and foreign carriers, and canbe affected by limits set by foreign telecommunications regulators, especiallythe U.S. Federal Communications Commission (or FCC). The primary drivers of thelong distance business are the population of Guyanese living abroad who initiatecalls to Guyana, the rate foreign carriers pay GT&T for handling theincoming international calls, and the number of people in Guyana capable ofreceiving international long distance calls, which consist of wirelinetelephone customers and all the wireless subscribers in Guyana (includingsubscribers to competitor wireless service providers). In addition, in recentyears, we believe various methods of illegal bypass and alternative and cheapermedia for communication, such as e-mail and text messaging, may have had anegative impact on both voice traffic and on international long distancerevenues. We have taken a number of measures to counter illegal bypass,including taking action against unlicensed operators in Guyana, introducingspecial outbound call center rates and we are examining automated technicalsolutions as well.

In 2005 and 2006, we entered new businesses andmarkets through our acquisitions of Commnet and Sovernet. These businesses haveprovided us with new sources of revenues and with growth opportunities. As aresult, while GT&T continues to represent a majority of our revenues andprofits, its relative contribution to our consolidated revenues has declined inrecent years. GT&T generated approximately 61% and 58% of our consolidatedrevenues for the three months ended June 30, 2006 and 2007, respectively, and62% and 59% of our consolidated revenues for the six months ended June 30, 2006and 2007, respectively. Commnet generated approximately 67% and 68% of ourwireless revenue for the three months ended June 30, 2006 and 2007,respectively, and approximately 67% and 66% of our wireless revenue for the sixmonths ended June 30, 2006 and 2007, respectively.  Commnet also accounted for approximately 69% and64% of the increase in wireless revenue during the three and six months endedJune 30, 2007 over the corresponding periods in 2006. Sovernet generatedapproximately 31% and 32% of our local telephone and data revenue for the threeand six months ended June 30, 2007, respectively.

We are actively evaluating additional acquisitionopportunities of businesses that meet our return-on-investment and otheracquisition criteria. As a result of our underwritten public offering of commonstock in July 2006, we raised net proceeds of approximately $46.3 million, ofwhich a portion was used to repay outstanding indebtedness, and the remainderof which we plan to use to fund capital expenditures, acquisitions and/orstrategic investments and general corporate purposes.

17

----

While our GT&T operations continue to grow, weface challenges in Guyana. Since 2001, the Government of Guyana has stated itsintention to introduce competition into Guyana’s wireline sector. Recently,senior Guyanese officials have indicated to us a renewed interest in conductingnegotiations between GT&T and the Government of Guyana regarding theexclusivity terms of GT&T’s license, and we expect these discussions willcover all significant outstanding issues, such as tax matters. GT&T has nothad formal discussions with Government officials regarding these matters sincethe second quarter of 2002. See “Business—Regulation of Our GT&T Subsidiary”in our 2006 Form 10-K. We believe that the introduction of international voiceand data competition would require the termination of the exclusivityprovisions of GT&T’s license, and thus would require appropriatecompensation to GT&T and a likely increase in local wireline service ratesso that those rates reflect the actual cost of providing such services.

In May 2007, the Americas II submarine fiber opticcable, which is owned by a consortium of national and international carriers,including GT&T, and carries a substantial amount of telecommunicationstraffic to and from South America, was damaged off the coast of French Guiana. Thedamage disrupted international long distance traffic service in Guyana,Suriname and French Guiana.  To minimizethe disruption, GT&T shifted its international long distance traffic to itsbackup satellite and purchased additional capacity to support the level oftraffic.  The disruption, which lastedapproximately two weeks, did not materially effect our results of operationsduring the second quarter.

On the fourth day of the disruption, the Government ofGuyana took the extraordinary action of unilaterally granting Digicel, our onlynationwide wireless competitor, the temporary authority to carry internationallong distance traffic until service to the Americas II cable was restored infull. We believe that the Government’s action, taken without consulting, orprior notice to GT&T was a violation of GT&T’s exclusive license toprovide international long distance services in Guyana.  GT&T initiated legal proceedings toenjoin Digicel from operating under the temporary authority.  However, before the proceedings could beheard, service on the Americas II cable was restored and the Governmentrescinded Digicel’s temporary authority to carry international long distancetraffic. As a result, GT&T withdrew its action to enjoin Digicel.

GT&T is also in the process of adapting to recentchanges in the competitive environment for wireless services in Guyana. Digicel’sentry into the Guyana wireless market in November 2006 has significantlyincreased the competition we face in the Guyana wireless market. In light ofthis development and Digicel’s attempts in other markets to use aggressivecapital spending to gain market share, we accelerated the timing of some of ourcapital expenditures on network expansion and upgrades. We believe that networkcoverage and quality of service are some of the most important bases on whichwe compete and represent competitive advantages for us because of oursubstantial investment in our network over time. During the last threequarters, we also increased our marketing expense, including handset promotionsand other promotions designed to accelerate the migration of subscribers fromour TDMA network to our GSM network, which allows us to offer richer handsetfeatures and certain wireless data services, while increasing our networkcapacity. We have also modified some of our pricing plans. This heightenedcompetition has resulted in higher marketing expense for us  and may have adverse effects on pricing andour market share.

18

----

**Results of Operations**

***Three Months Ended June 30, 2007 and 2006***
| ** **                                                                                              | ** ** | **Three Months Ended  June 30,** | ** ** | **Amount of  Increase** | ** ** | **Percent  Increase** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|------------------------------|------------|-----------------------|------------|
| ** **                                                                                              | ** ** | **2006**                                        | ** ** | **2007**                     | ** ** | **(Decrease)**        | ** ** | **(Decrease)** | ** ** |
| ** **                                                                                              | ** ** | **(In thousands)**                         | ** ** |
| **REVENUE:**                                                                                            |       |                                            |       |                         |       |                  |       |   |   |
| Wireless                                                                                                |       | $                                               | 14,233     |                         | $          | 19,117                |       | $ | 4,884 |   | 34.3 | % |
| Local telephone  and data                                                                               |       | 10,850                                          |       | 11,736                       |       | 886                   |       | 8.2 |   |
| International  long distance                                                                            |       | 11,508                                          |       | 12,329                       |       | 821                   |       | 7.1 |   |
| Other                                                                                                   |       | 904                                             |       | 1,032                        |       | 128                   |       | 14.2 |   |
| Total revenue                                                                                           |       | 37,495                                          |       | 44,214                       |       | 6,719                 |       | 17.9 |   |
| **OPERATING EXPENSES:**                                                                                 | ** ** | ** **                                      | ** ** | ** **                   | ** ** | ** **            | ** ** | ** ** | ** ** |
| Termination and  access fees                                                                            |       | 5,955                                           |       | 6,753                        |       | 798                   |       | 13.4 |   |
| Internet and programming                                                                                |       | 881                                             |       | 817                          |       | (64                   | )          | (7.3 | ) |
| Engineering and  operations                                                                             |       | 4,640                                           |       | 5,709                        |       | 1,069                 |       | 23.0 |   |
| Sales and  marketing                                                                                    |       | 1,912                                           |       | 3,641                        |       | 1,729                 |       | 90.4 |   |
| General and  administrative                                                                             |       | 5,970                                           |       | 5,639                        |       | (331                  | )          | (5.5 | ) |
| Depreciation and  amortization                                                                          |       | 6,105                                           |       | 6,658                        |       | 553                   |       | 9.1 |   |
| Total operating  expenses                                                                               |       | 25,463                                          |       | 29,217                       |       | 3,754                 |       | 14.7 |   |
| Income from  operations                                                                                 |       | 12,032                                          |       | 14,997                       |       | 2,965                 |       | 24.6 |   |
| **OTHER INCOME (EXPENSE):**                                                                             | ** ** | ** **                                      | ** ** | ** **                   | ** ** | ** **            | ** ** | ** ** | ** ** |
| Interest expense                                                                                        |       | (1,022                                          | )          | (661                         | )          | (361                  | )          | (35.3 | ) |
| Interest income                                                                                         |       | 202                                             |       | 517                          |       | 315                   |       | 156.0 |   |
| Other income,  net                                                                                      |       | 322                                             |       | 2,557                        |       | 2,235                 |       | 694.1 |   |
| Other income  (expense), net                                                                            |       | (498                                            | )          | 2,413                        |       | 2,911                 |       | 584.5 |   |
| **INCOME BEFORE INCOME TAXES,  MINORITY INTERESTS AND EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES** |       | 11,534                                          |       | 17,410                       |       | 5,876                 |       | 50.9 |   |
| Income taxes                                                                                            |       | 6,225                                           |       | 7,250                        |       | 1,025                 |       | 16.5 |   |
| **INCOME BEFORE MINORITY  INTERESTS AND EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES**               |       | 5,309                                           |       | 10,160                       |       | 4,851                 |       | 91.4 |   |
| Minority interests, net  of tax                                                                         |       | (1,210                                          | )          | (1,753                       | )          | 543                   |       | 44.9 |   |
| Equity in earnings of  unconsolidated affiliates, net of tax                                  |       | 836                                             |       | 642                          |       | (194                  | )          | (23.2 | ) |
| **NET INCOME**                                                                                          |       | $                                               | 4,935      |                         | $          | 9,049                 |       | $ | 4,114 |   | 83.4 | % |

 

*Wirelessrevenue.**  *Wirelessrevenue includes wholesale voice and data roaming revenue from our rural U.S.operations and retail wireless revenue generated in Guyana, including airtimeand activation fees.

Wireless revenue increased to $19.1 million for thethree months ended June 30, 2007 from $14.2 million for the three months endedJune 30, 2006, an increase of $4.9 million, or 35%. Growth in our rural U.S.business was responsible for $3.4 million of this increase due primarily tocontinued deployment of additional GSM and CDMA wireless base stations, with atotal of 309 base stations deployed as of June 30, 2007, as compared to 268base stations as of June 30, 2006. Of the total base stations, 263 were GSM andCDMA base stations as of June 30, 2007, as compared to 169 GSM and CDMA basestations as of June 30, 2006. Our rural wireless revenue also increased as aresult of growth in voice and data traffic (minutes and megabytes) at existingsites, growth in data roaming revenue and new international roaming revenue.The remaining increase in wireless revenue was attributable to the continuedgrowth of our wireless subscriber base in Guyana. Our wireless subscribers inGuyana increased by 51,000 subscribers, or 20%, from 254,000 subscribers to305,000 subscribers as of June 30, 2006 and 2007, respectively. The increase insubscribers was aided by the Company’s increased sales and marketing promotionsthroughout the quarter. GT&T’s wireless revenue was $4.7****million and $6.2 million for the second quarter of 2006 and2007, respectively. In addition to subscriber growth, wireless revenue alsobenefitted from Guyana’s hosting of Cricket World Cup matches in early April2007. While we experienced wireless revenue and subscriber growth in Guyana, webelieve that some of our subscribers also own handsets and are subscribers ofour competitor, which is common in high prepaid market regions. Although ourtotal subscribers in Guyana is down slightly from 310,000 at the end of thefirst quarter, our GSM subscriber base continued to grow. Approximately 274,000of GT&T’s wireless subscribers were GSM/GPRS subscribers as of June 30,2007 as compared to 155,000 as of June 30, 2006 and 262,000 as of March 31,2007.

We expect that wholesale wireless revenue from ourrural U.S. network will continue to increase in 2007 as we continue to expandour GSM and CDMA networks and as minutes of use continue to grow on ourexisting sites. This will be offset, in part, by scheduled and negotiatedreductions in rates. In our 

19

----

retail wireless businessin Guyana, we expect that the network capacity and coverage we have added willlead to increased revenue, although competitive pressures may reduce expectedgrowth or even cause a decline in this revenue. Our nationwide competitor hassignificantly expanded network capacity and coverage and launched extensivepromotions, particularly handset subsidies. We expect their heavy marketing andcapital spending to continue throughout 2007. In turn, we have continued and expanded upon our promotions, includingsubstantial handset promotions and have also accelerated our capital build planto more rapidly increase our geographic coverage and our GSM network capacityand capabilities.

*Local telephone and datarevenue.*Local telephone anddata revenue is generated by our wireline operations in Guyana, our integratedvoice and data operations in Vermont, and our data services in the U.S. VirginIslands. This revenue includes basic service fees, measured service revenue,and Internet access fees, as well as installation charges for new lines,monthly line rental charges, long distance or toll charges (excludinginternational long distance charges in Guyana), maintenance and equipmentsales.

Local telephone and data revenue increased by $0.8million, or 7%, to $11.7 million for 2007 from $10.9 million for 2006. Theincrease is attributable to growth in GT&T’s access lines in Guyana fromapproximately 116,000 lines as of June 30, 2006 to approximately 124,000 lines asof June 30, 2007 (an increase of 7%) and continued strong growth in wirelessbroadband customers in the U.S. Virgin Islands. In future periods, we anticipate that local telephone and data revenuewill increase modestly as a result of network and subscriber growth in Guyana,the U.S. Virgin Islands and Vermont, particularly in the small and medium sizedbusinesses, including neighboring areas of New England.

*Internationallong distance revenue.* International long distance revenue,all of which is generated by our GT&T subsidiary by international telephonecalls into and out of Guyana, including calls made by visitors to Guyana ontheir mobile phones. Inbound traffic, which made up 84% of all internationallong distance traffic and more than three quarters of international longdistance revenue for the three months ended June 30, 2007, is settled in U.S.dollars.

International longdistance revenue was $12.3 million during the second quarter of 2007, anincrease of $0.8 million, or 7%, from $11.5 million in 2006. This increase wasprimarily driven by continued expansion of our wireline network and increasedtraffic, particularly wireless roaming traffic, due to International CricketWorld Cup matches hosted by Guyana in early April, as well as a substantial growthin wireless subscribers within Guyana (for both GT&T and its competitor,which uses GT&T’s international network). Growth in outbound traffic wasespecially strong due to special weekend calling rates introduced in Mayalthough the effect on revenue for the quarter was not significant.  We are subject to illegal bypass via Internetcalling and compete against alternative and cheaper media for communication,such as e-mail and text messaging. These other modes of communication may causea decline in both voice traffic and in international long distance revenues infuture periods, although we may see a slight increase in traffic and revenuesif we are effective in combating illegal bypass.

*Otherrevenue*.Other revenue represents revenue from digital television services in the U.S.Virgin Islands, which increased 11% to $1.0 million for 2007 from $0.9 millionfor 2006. The increase in television services was a result of a 12% increase intelevision subscribers, including additional hotel rooms, and to a lesserextent price increases. In the near-term, we expect this category of revenuewill largely be driven by our television subscriber base which we expect tocontinue to increase, although likely at a lower rate than in the first half of2007.

*Termination and access feeexpenses*. Termination andaccess fee expenses are charges that we pay for voice and data transportcircuits (in particular, the circuits between our rural wireless sites and ourswitches), Internet capacity and other access fees we pay to terminate ouroutbound toll and international calls.

Termination and access fees increased by $0.8 million,or 13%, from $6.0 million to $6.8 million from 2006 to 2007, respectively. Thisincrease was due to increased traffic growth at GT&T as well as an outageof the Americas II submarine fiber optic cable which Guyana and its neighboringcountries rely on as the primary international telecommunications connection.This outage caused GT&T to re-route 

20

----

international trafficover more costly high-capacity satellite links. Overall, termination and access fees are expected to increase in futureperiods as we seek to increase the backup capacity of GT&T’s internationalnetwork to help minimize the disruption in service caused by any future outagesof the Americas II cable and as we expand our rural U.S. wireless operations andour integrated voice and data operations in Vermont.

*Internet and programmingexpenses.*Internet andprogramming expenses include digital television programming costs as well asInternet connectivity charges.

Internet and programming expenses decreased from $0.9million in 2006 to $0.8 million in 2007. In December 2006, we were able tosignificantly reduce the Internet capacity expenses for our U.S. Virgin Islandoperations which offset partly the increases related to expanding televisionand broadband operations.  We expect thatinternet and programming expenses will remain consistent as compared to itsrelated revenue.

*Engineering and operationsexpenses.*Engineering andoperations expenses include the expenses associated with developing, operating,supporting and expanding our networks, including the salaries and benefits paidfor employees directly involved in the development and operation of ournetworks.

Engineering and operations expenses increased by $1.1million, or 24%, from $4.6 million to $5.7 million for 2006 to 2007,respectively. This increase is primarily the result of the expansion of ourwireless networks in the United States and Guyana. We expect that engineeringand operations will continue to increase to further support those networks.

*Sales and marketingexpenses.*Sales, marketingand customer service expenses include salaries and benefits we pay for salespersonnel, customer service expenses, sales commissions and the costsassociated with the development and implementation of our promotion andmarketing campaigns.

Sales and marketing expenses increased by $1.7million, or 89%, from $1.9 million to $3.6 million from 2006 to 2007,respectively. Substantially all of the increase is attributable to increasedsales and marketing efforts at GT&T in order to address increased wirelesscompetition in Guyana. Such sales and marketing efforts included wirelesshandset promotions, advertising and increased sales commissions. While salesand marketing expenses in Guyana decreased in the second quarter of 2007, weexpect these expenses, particularly handset promotions, to fluctuate inupcoming quarters and we believe that they may increase again as we expect tocontinue to be aggressive in GT&T’s marketing activities in response toincreased competition.

*General and administrativeexpenses.*General andadministrative expenses include salaries, benefits and related costs forgeneral corporate functions, including executive management, finance andadministration, legal and regulatory, facilities, information technology andhuman resources.

General and administrative expenses decreased by $0.4million, or 7%, from $6.0 million to $5.6 million from 2006 to 2007,respectively. This decrease is primarily attributable to lower administrativeexpenses at the parent company level.  Weexpect that general and administrative expenses will remain fairly consistentin future periods.

*Depreciation and amortizationexpenses.* Depreciation and amortization expenses representthe depreciation and amortization charges we record on our property andequipment and on our intangible assets.

Depreciation and amortization expenses increased by$0.6 million, or 10%, from $6.1 million to $6.7 million for 2006 and 2007,respectively. The increase is primarily due to the addition of fixed assets atGT&T and Commnet relating to their expanding networks. We expect thatdepreciation and amortization expenses will increase in the near-term, becauseof continued capital expenditures to expand our networks.

21

----

*Interest expense.* Interest expenserepresents interest incurred on our outstanding debt including our $50.0million term loan as well as the outstanding amounts under our $20.0 millionrevolving line of credit.

Interestexpense decreased $0.3 million, or 30.0%, from $1.0 million for 2006 to $0.7million for 2007. This decrease is primarily the result of a decrease in theaverage outstanding balance under our loan facility during 2007 as compared to2006 when we used borrowings from the revolving line of credit to help fundcertain acquisitions. We used a portion of the proceeds from the underwrittenpublic offering of our common stock in July 2006 to repay those borrowings andhad no outstanding borrowings under our revolving line of credit as of June 30,2007. The decrease in interest expense was also due to the receipt of patronageincome received from our lender during 2007.

*Interest income*. Interest income representsinterest earned on our cash and cash equivalent balances.

Interestincome increased $0.3 million, or 150.0%, from $0.2 million to $0.5 million for2006 and 2007, respectively, due to an overall increase in our cash balances asresult of the underwritten public offering of our common stock in July 2006.

*Other income (expense).*Other income(expense) represents miscellaneous non-operational income we earned, orexpenses we incurred, including management fees received from BDC and otherunconsolidated affiliates. Other income increased from $0.3 million in 2006 to$2.6 million in 2007 as the result of a gain of $1.0 million on the dispositionof certain assets and a license settlement for $1.25 million received byCommnet.

*Income taxes.**  *Income taxes represent taxes we payon our net taxable income.

The effectiveincome tax rate was 54% and 42% for 2006 and 2007, respectively, whichrepresents the statutory U.S. income tax rate plus the Guyanese income taxes inexcess of the statutory U.S. income tax rates as well as certain U.S. stateincome taxes. The effective tax rate is also impacted by the amortization of adeferred tax asset, relating to differences between book and tax basis of fixedassets, which was recorded in a prior period. The reduction in our effectiverate in 2007 is a result of the impact of increased taxable income at U.S.statutory rates which are significantly lower than the Guyana statutory ratesas well as a reduction in the losses in the U.S. Virgin Islands.  For 2007, the effective tax rate was alsoreduced due to the Company’s ability to use certain capital loss carryforwardsfrom previous years to offset the gain on the disposition of certain assets asdiscussed above.  We expect our effectivetax rate in future quarters to increase slightly from the 42% rate for thisquarter and be consistent with our effective rate through the six months endedJune 30, 2007.

*Minorityinterests.*For 2007,minority interests consisted of the Guyana government’s 20% interest inGT&T, a minority shareholder’s 4% interest in Sovernet and other minorityshareholders’ interests in certain consolidated subsidiaries of Commnet. For2006, minority interests also included a minority shareholder’s 5% interest inCommnet which we acquired on January 1, 2007. For 2007, minority interest expense also includes minority shareholders’interest in a gain on the disposition of certain assets.

*Equityin earnings of unconsolidated affiliates.*Equity in earnings of unconsolidated affiliatesincludes our share of the earnings of BDC as well as our share of the earningsof Commnet’s unconsolidated affiliates. Equity in earnings of unconsolidatedaffiliates decreased from $0.8 million to $0.6 million for 2006 and 2007,respectively. Wireless subscribers in Bermuda were 21,693 at June 30, 2006 and20,731 as of June 30, 2007. Overall, wireless subscribers continued todecrease, although this largely reflects a reduction in our pre-paid wirelessbase. Post-paid subscriber churn remains very low by industry standards and BDCwas able to increase its post-paid subscriber base on a consecutive quarterbasis.

22

----

*Net income.*As aresult of the above factors, net income increased by $4.1 million or 83% from$4.9 million for 2006 to $9.0 million for 2007. On a per share basis, netincome increased from $0.40 per basic and $0.39 diluted share to $0.60 perbasic and $0.59 per diluted share from 2006 to 2007, respectively.

***Six Months Ended June 30, 2007 and 2006***
| ** **                                                                                              | ** ** | **Six Months Ended  June 30,** | ** ** | **Amount of  Increase** | ** ** | **Percent  Increase** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|------------------------------|------------|-----------------------|------------|
| ** **                                                                                              | ** ** | **2006**                                      | ** ** | **2007**                     | ** ** | **(Decrease)**        | ** ** | **(Decrease)** | ** ** |
| ** **                                                                                              | ** ** | **(In thousands)**                       | ** ** |
| **REVENUE:**                                                                                            |       |                                          |       |                         |       |                  |       |   |   |
| Wireless                                                                                                |       | $ 27,545                                 |       | $ 37,288                |       | $ 9,743          |       | 35.4 | % |
| Local telephone  and data                                                                               |       | 20,042                                        |       | 23,204                       |       | 3,162                 |       | 15.8 |   |
| International  long distance                                                                            |       | 22,679                                        |       | 25,249                       |       | 2,570                 |       | 11.3 |   |
| Other                                                                                                   |       | 1,751                                         |       | 2,010                        |       | 259                   |       | 14.8 |   |
| Total revenue                                                                                           |       | 72,017                                        |       | 87,751                       |       | 15,734                |       | 21.8 |   |
| **OPERATING EXPENSES:**                                                                                 | ** ** | ** **                                    | ** ** | ** **                   | ** ** | ** **            | ** ** | ** ** | ** ** |
| Termination and  access fees                                                                            |       | 11,240                                        |       | 12,929                       |       | 1,689                 |       | 15.0 |   |
| Internet and  programming                                                                               |       | 1,631                                         |       | 1,666                        |       | 35                    |       | 2.1 |   |
| Engineering and  operations                                                                             |       | 8,985                                         |       | 11,473                       |       | 2,488                 |       | 27.7 |   |
| Sales and  marketing                                                                                    |       | 3,841                                         |       | 8,738                        |       | 4,897                 |       | 127.5 |   |
| General and  administrative                                                                             |       | 10,815                                        |       | 11,489                       |       | 674                   |       | 6.2 |   |
| Depreciation and  amortization                                                                          |       | 11,900                                        |       | 13,159                       |       | 1,259                 |       | 10.6 |   |
| Total operating  expenses                                                                               |       | 48,412                                        |       | 59,454                       |       | 11,042                |       | 22.8 |   |
| Income from  operations                                                                                 |       | 23,605                                        |       | 28,297                       |       | 4,692                 |       | 19.9 |   |
| **OTHER INCOME (EXPENSE):**                                                                             | ** ** | ** **                                    | ** ** | ** **                   | ** ** | ** **            | ** ** | ** ** | ** ** |
| Interest expense                                                                                        |       | (1,889                                        | )          | (883                         | )          | (1,006                | )          | 53.3 |   |
| Interest income                                                                                         |       | 406                                           |       | 1,108                        |       | 702                   |       | 172.9 |   |
| Other income,  net                                                                                      |       | 597                                           |       | 2,944                        |       | 2,347                 |       | 393.1 |   |
| Other income  (expense), net                                                                            |       | (886                                          | )          | 3,169                        |       | 4,055                 |       | 457.7 |   |
| **INCOME BEFORE INCOME TAXES,  MINORITY INTERESTS AND EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES** |       | 22,719                                        |       | 31,466                       |       | 8,747                 |       | 38.5 |   |
| Income taxes                                                                                            |       | 12,690                                        |       | 13,914                       |       | 1,224                 |       | 9.6 |   |
| **INCOME BEFORE MINORITY  INTERESTS AND EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES**               |       | 10,029                                        |       | 17,552                       |       | 7,523                 |       | 75.0 |   |
| Minority interests, net  of tax                                                                         |       | (2,307                                        | )          | (2,703                       | )          | 396                   |       | 17.2 |   |
| Equity in earnings of  unconsolidated affiliates, net of tax                                  |       | 1,302                                         |       | 1,098                        |       | (204                  | )          | (15.7 | ) |
| **NET INCOME**                                                                                          |       | $ 9,024                                  |       | $ 15,947                |       | $ 6,923          |       | 76.7 | % |

 

Period to period comparisons are affected by ouracquisitions. We acquired Sovernet on February 10, 2006.

*Wireless revenue.**  *Wireless revenue increased to $37.3million for the six months ended June 30, 2007 from $27.5 million for the sixmonths ended June, 2006, an increase of $9.8 million, or 36%. Growth in ourrural U.S. business was responsible for $6.2 million of this increase dueprimarily to continued deployment of additional GSM and CDMA wireless basestations, with a total of 309 base stations deployed as of June 30, 2007 ascompared to 268 base stations as of June 30, 2006. Of the total base stations,263 were GSM and CDMA base stations as of June 30, 2007, as compared to 169 GSMand CDMA base stations as of June 30, 2006. Our rural wireless revenue alsoincreased as a result of growth in voice and data traffic (minutes andmegabytes) at existing sites, growth in data roaming revenue and newinternational roaming revenue. The remaining increase in wireless revenue wasattributable to the continued growth of our wireless subscriber base in Guyanaand certain non-recurring events during the six months such as Guyana’s hostingof Cricket World Cup matches and the Rio Group Summit. Our wireless subscribersin Guyana increased by 51,000, or 20%, from 254,000 subscribers to 305,000

23

----

subscribers as of June30, 2006 and 2007, respectively. Such increase in subscribers was aided by theCompany’s increased sales and marketing efforts including handset promotionsthroughout the first six months of 2007. GT&T’s wireless revenue was $9.0****million and $12.5 million for the first six months of 2006and 2007, respectively. While we experienced wireless revenue and subscribergrowth in Guyana, we believe that some of our subscribers also own handsets andare subscribers of our competitor, which is common in a region of the worldwith a high percentage of prepaid subscribers. Although our total subscribersin Guyana is down slightly from 310,000 at the end of the first quarter, ourGSM subscriber base continued to grow. Approximately 274,000 of GT&T’swireless subscribers were GSM/GPRS subscribers as of June 30, 2007 as comparedto 155,000 as of June 30, 2006 and 262,000 as of March 31, 2007.

*Local telephone and data revenue*. Local telephone and data revenueincreased by $3.2 million, or 16%, to $23.2 million for 2007 from $20.0 millionfor 2006. Of the $3.2 million increase, $1.5 million derives from the inclusionof a full six months of results for Sovernet, our Vermont based voice and dataprovider which was acquired in February 2006. The remaining increase of$1.7 million is primarily attributable to growth in GT&T’s access lines inGuyana from approximately 116,000 lines as of June 30, 2006 to approximately124,000 lines as of June 30, 2007 (an increase of 7%), growth in broadband datacustomers in Guyana and continued strong growth in wireless broadband customersin the U.S. Virgin Islands.

*Internationallong distance revenue.* International long distance revenuewas $25.2 million during the six months ended June 30, 2007, an increase of$2.5 million, or 11%, from $22.7 million in 2006. This increase resulted from asubstantial growth in wireless subscribers within Guyana (for both GT&T andits competitor, which uses GT&T’s international network) and certainnon-recurring events during the six months such as Guyana’s hosting of CricketWorld Cup matches and the Rio Group Summit, which helped drive traffic volumesto higher levels.

*Otherrevenue*.Revenue from digital television services in the U.S. Virgin Islands increased11% to $2.0 million for 2007 from $1.8 million for 2006. The increase intelevision services was a result of a 12% increase in television subscribers,including additional hotel rooms, and an increase in prices which took effectin February 2006.

*Termination and access feeexpenses*. Termination andaccess fees increased by $1.7 million, or 15%, from $11.2 million to $12.9million from 2006 to 2007, respectively. This increase was due to a full sixmonths of operations of Sovernet, increased traffic growth at GT&T andCommnet and an outage of the Americas II submarine fiber optic cable whichGuyana and its neighboring countries rely on as the primary internationaltelecommunications connection. This outage caused GT&T to re-routeinternational traffic over more costly high-capacity satellite links.

*Internet and programmingexpenses.*Internet andprogramming expenses increased from $1.6 million in 2006 to $1.7 million in2007. This increase was primarily from the growth in our television andbroadband data subscribers in the U.S. Virgin Islands. In December 2006, we wereable to significantly reduce the Internet capacity expenses for our U.S. VirginIsland operations which will offset partly the increases related to expandingtelevision and broadband operations.

*Engineering and operationsexpenses.*Engineering and operationsexpenses increased by $2.5 million, or 28%, from $9.0 million to $11.5 millionfor 2006 to 2007, respectively. This increase is primarily the result of theexpansion of our wireless networks in the United States and Guyana.

*Sales and marketing expenses.*Sales and marketing expensesincreased by $4.9 million, or 129%, from $3.8 million to $8.7 million from 2006to 2007, respectively. Of this increase, $4.6 million is attributable toincreased sales and marketing efforts at GT&T in order to address increasedwireless competition in Guyana. Such sales and marketing efforts includedwireless handset promotions, advertising and increased sales commissions.

*General and administrativeexpenses.*General andadministrative expenses increased by $0.7 million, or 6%, from $10.8 million to$11.5 million from 2006 to 2007, respectively. This increase is primarilyattributable to a full six months of operations at Sovernet and additionalcompensation and overhead costs to support our growth.

24

----

*Depreciation and amortizationexpenses.* Depreciation andamortization expenses increased by $1.3 million, or 11%, from $11.9 million to$13.2 million for 2006 and 2007, respectively. The increase is primarily due tothe addition of fixed assets at GT&T and Commnet, as well as theamortization of intangible assets at Sovernet.

*Interest expense.* Interest expensedecreased from $1.9 million for 2006 to $0.9 million for 2007. This decrease isprimarily the result of a decrease in the average outstanding balance under ourloan facility during 2007 as compared to 2006 when we used borrowings from therevolving line of credit to help fund certain acquisitions. We used a portionof the proceeds from the underwritten public offering of our common stock inJuly 2006 to repay those borrowings and had no outstanding borrowings under therevolving line of credit as of June, 2007. The decrease in interest expense wasalso due to the receipt of patronage income from our lender during 2007.

*Interest income*. Interest income increasedfrom $0.4 million to $1.1 million for 2006 and 2007, respectively, due to anoverall increase in our cash balances as a result of the underwritten publicoffering of our common stock in July 2006.

*Other income (expense).*Other income(expense) represents miscellaneous non-operational income we earned, orexpenses we incurred, including management fees received from BDC and otherunconsolidated affiliates. Other income increased from $0.6 million in 2006 to$2.9 million in 2007 as the result of a gain of $1.0 million on the dispositionof certain assets and a license settlement for $1.25 million received byCommnet.

*Income taxes.**  *The effective income tax rate was56% and 44% for 2006 and 2007, respectively, which represents the statutoryU.S. income tax rate plus the Guyanese income taxes in excess of the statutoryU.S. income tax rates as well as certain U.S. state income taxes. The effectivetax rate is also impacted by the amortization of a deferred tax asset, relatingto differences between book and tax basis of fixed assets, which was recordedin a prior period. The reduction in our effective rate in 2007 is a result ofthe impact of increased taxable income at U.S. statutory rates which aresignificantly lower than the Guyana statutory rates as well as a reduction in thelosses in the US Virgin Islands. We expect that our effective income tax rateshould remain fairly consistent with the first half of 2007.

*Minorityinterests.*For 2007,minority interests consisted of the Guyana government’s 20% interest inGT&T, a minority shareholder’s 4% interest in Sovernet and other minorityshareholders’ interests in certain consolidated subsidiaries of Commnet. For2006, minority interests also included a minority shareholder’s 5% interest inCommnet which we acquired on January 1, 2007. For 2007, minority interestexpense also includes a minority shareholders’ interest in a gain on thedisposition of certain assets.

*Equityin earnings of unconsolidated affiliates.* Equity in earningsof unconsolidated affiliates includes our share of the earnings of BDC as wellas our share of the earnings of Commnet’s unconsolidated affiliates. Equity inearnings of unconsolidated affiliates decreased from $1.3 million for 2006 to$1.1 million for 2007, respectively. This decrease was mostly due to a declinein wireless subscribers in Bermuda from 21,693 at June 30, 2006 to 20,731 as ofJune 30, 2007.

*Netincome.*As a result of the above factors, net incomeincreased by $6.9 million or 77% from $9.0 million for 2006 to $15.9 millionfor 2007. On a per share basis, net income increased from $0.73 per basic and$0.72 diluted share to $1.05 per basic and $1.04 per diluted share from 2006 to2007, respectively.

*Segment results.*We have four materialoperating segments, which we manage and evaluate separately: (1) IntegratedTelephony — International; (2) Integrated Telephony — Domestic; (3) WirelessTelevision and Data; and (4) Rural Wireless. Segment results are set forth inNote 9 “Segment Reporting” to the Consolidated Financial Statements included inthis Report.

**Regulatory and Tax Issues**

We are involved in a number of regulatory and taxproceedings**.**See Note 10 to theConsolidated Financial Statements included in this Report. A material andadverse outcome in one or more of these proceedings could have a materialadverse impact on our financial condition and future operations and cash flows.

25

----

**Liquidity and Capital Resources**

We have met our operational liquidity needs through acombination of cash on hand and internally generated funds and have fundedcapital expenditures and acquisitions with a combination of internallygenerated funds, cash on hand and borrowings under our credit facility.

***Uses of Cash***

*Capital Expenditures.*A significant use of our cash has been for capitalexpenditures relating to expanding and upgrading our networks. For the sixmonths ended June 30, 2006 and 2007, we spent approximately $12.4 million and$18.3 million on capital expenditures, respectively.

*Of the $18.3 million of 2007 capitalexpenditures, we spent approximately $7.1 million expanding Commnet’s networkby increasing the number of GSM and CDMA base stations including the switchingequipment required to support the additional base stations, additional radiochannels and switching capacity for existing sites, and purchase of spectrum licences.In addition, approximately $10.7 million was incurred expanding the capacityand coverage of our networks in Guyana, bringing the total amount invested inour Guyanese telecommunications infrastructure to approximately $260 million.We also spent $0.6 million at Sovernet and expanded our service areas andswitch capabilities.*

We are continuing to invest in expanding our networksin Guyana, Commnet and Sovernet and expect to incur capital expendituresbetween $43 million and $48 million in 2007, with over half made in connectionwith Commnet and most of the remaining balance invested in Guyana. We expect tofund these expenditures from cash generated from our operations.

*Acquisitions.*We have funded our recent acquisitions with acombination of cash on hand and borrowings under our $70 million creditfacility.

*During January 2007, we purchasedthe remaining 5% equity interest in Commnet for $6.5 million and 21,000 sharesof our common stock in satisfaction of our obligation (and in accordance withour right) under and consistent with the terms of the agreement entered into inconnection with our acquisition of Commnet in September 2005. We funded thispurchase with cash on hand and the reissuance of shares held in our treasury.*

We continue to explore opportunities to acquirecommunications properties or licenses in the United States, the Caribbean andelsewhere. Such acquisitions may require external financing. While therecan be no assurance as to whether, when or on what terms we will be able toacquire any such businesses or licenses, such acquisitions may be accomplishedthrough the issuance of shares, payment of cash and/or incurrence of debt.

*Dividends andDistributions.*We use cash onhand to make dividend payments to our common stockholders when declared by ourBoard of Directors. For the six months ended June 30, 2007, our dividends toour stockholders approximated $4.3 million. We have paid quarterly dividendsfor the last 35 fiscal quarters. Also our Board of Directors approved a $5.0million stock buyback plan in September 2004 pursuant to which we havespent to date $916,130 repurchasing common stock. Although we currently do not haveimmediate plans to make additional repurchases of common stock under this plan,we may act to do so in the future, depending on market conditions and ourcash needs.

***Sources of Cash***

*Total Liquidity at June 30,2007*. As of June 30, 2007, wehad approximately $61.0 million in cash and cash equivalents, an increase of$0.5 million from the December 31, 2006 balance of $60.5 million. We believeour existing cash balances and other capital resources, including the $20million available under our revolving line of credit included in our creditfacility, are adequate to meet our current operating and capital needs.

*Cash Generated by Financing Activities.*Inthe third quarter of 2006, we completed the sale of 3.84 million shares ofcommon stock at $19.00 per share in an underwritten public offering, consistingof the sale by us of an aggregate of 2.64

26

----

million shares (2.4million shares in July 2006 and an additional 0.24 million shares purchased bythe underwriters as a part of their over-allotment option in August 2006) and1.2 million shares by our Executive Chairman Cornelius B. Prior, Jr. andrelated entities. Our net proceeds of this offering, which were approximately$46.3 million, were used to repay a portion of our outstanding indebtedness,and will fund capital expenditures, acquisitions and/or strategic investmentsand general corporate purposes. We did not receive any proceeds from the saleof shares by the selling stockholders.

*Cash Generated byOperations.*Cash provided byoperating activities was $28.5 million for the six months ended June 30, 2007compared to $21.7 million for the six months ended June 30, 2006.

*Credit Facility.*On September 15, 2005, AtlanticTele-Network entered into a Credit Agreement with CoBank, ACB providing for acredit facility consisting of a $50 million term loan and a $20 millionrevolving credit facility. Under the term loan, repayments of principal aredeferred until the maturity of the loan on October 31, 2010. Interest onthe term loan is payable on a quarterly basis at a fixed annual interest rateof 5.85%. Because CoBank is a cooperative financial institution, we expect toreceive patronage payments annually, and at the end of the term, from CoBankwhich reflect our portion of CoBank’s profits, if any. These payments, ifreceived, are expected to reduce our effective interest expense on the termloan. For 2006 and 2007, our patronage payments approximated $148,000 and$500,000, respectively. Half of these patronage amounts was received in cashwhile the remaining half was received as equity in our lending institution.

***Factors Affecting Sources of Liquidity***

*InternallyGenerated Funds.**  *The keyfactors affecting our internally generated funds are demand for our services,competition, regulatory developments, economic conditions in the markets wherewe operate our businesses and industry trends within the telecommunicationsindustry. For a discussion of tax and regulatory risks in Guyana that couldhave a material adverse impact on our liquidity, see “Business—RiskFactors—Risks Relating to Our Wireless and Wireline Services in Guyana,” and “—Regulationof Our GT&T Subsidiary” in our 2006 Form 10-K and Note 10 to theConsolidated Financial Statements included in this Report.

*Guyana—U.S.Foreign Currency Exchange.**  *Historically,the Guyana dollar has been considerably devalued relative to the U.S. dollar.The current exchange rate is approximately $205 Guyana dollars to $1 U.S.dollar. We use U.S. dollars to make GT&T capital expenditures, to paycertain GT&T liabilities and to value our GT&T assets for the purposeof making our Guyanese rate of return calculation. Unfavorable changes in theGuyana dollar- U.S. dollar exchange rate would reduce our purchasing power inthese areas. The continued expansion of GT&T’s network is dependent uponthe ability of GT&T to purchase equipment with U.S. dollars.

While currently a significant portion of GT&T’srevenues are transacted in U.S. dollars, this circumstance could change in thefuture. As a result of the growth of GT&T’s wireless and local exchangeoperations and the general trend toward lower international settlement rates,it is likely that an increasing portion of our revenues will be earned inGuyanese currency. While there are no legal restrictions on our conversion ofGuyanese currency into U.S. dollars or other hard currencies, or onexpatriation of Guyanese currency or foreign currency from Guyana, there arerisks associated with the conversion of Guyanese dollars to U.S. dollars due tolimited liquidity in the Guyana foreign currency markets. Nevertheless, thislimited liquidity has not prevented us from converting Guyanese currency intoU.S. dollars within a given three month period or from converting at a pricethat reasonably approximates the reported exchange rate.

While we believe that GT&T has, and will continueto have, adequate cash flows denominated in U.S. currency to meet its currentoperating and capital requirements, there can be no assurance that GT&Twill be able to convert its Guyana currency earnings into the U.S. currencyneeded to meet such obligations. As of June 30, 2007, we had $6.8 million ofcash held in Guyanese dollars. See “Quantitative and Qualitative Disclosuresabout Market Risk.”

*Restrictions Under CreditFacility.**  *Our creditfacility contains four financial tests with which Atlantic Tele-Network mustcomply:

·       a total leverage ratio(debt to EBITDA) of 2.00 to 1.00 or less;

27

----

·       a debt service coverageratio (EBITDA to debt service) of 3.00 to 1.00 or more; and

·       an equity to assets ratioof 0.40 to 1.00 or more.

In addition, Commnet must comply with a leverage ratiotest (debt of Atlantic Tele-Network and its subsidiaries, net of pledged cash,to EBITDA of Commnet and its subsidiaries) of 5.75 to 1.00, which will decreaseto 5.00 to 1.00 at July 1, 2007. As of June 30, 2007, we were incompliance with the covenants of the credit facility.

*CapitalMarkets.**  *Ourability to raise funds in the capital markets depends on, among other things,general economic conditions, the conditions of the wireless industry, ourfinancial performance and the state of the capital markets. In June 2006, theSecurities and Exchange Commission declared effective a “universal” shelfregistration statement filed by us. This shelf registration statement registeredthe potential future offerings by us, from time to time of up to an aggregateof $200 million of our securities, consisting potentially of common stock, debtsecurities, and other equity and convertible securities and combinations of theforegoing. Following our July 2006 equity offering which was conducted pursuantto the shelf registration statement, we have approximately $127 million ofsecurities registered for potential offerings.

***Inflation***

We do not believe that inflation has had a significantimpact on our consolidated operations in any of the periods presented in theReport.

***Recent Accounting Pronouncements***

In February 2007, the Financial AccountingStandards Board (“FASB”) issued Statement No. 159, *The FairValue Option for Financial Assets and Liabilities Including an Amendmentof FASB Statement No. 115*(“SFAS 159”). This standard iseffective for periods beginning after November 15, 2007, therefore, wewill adopt the provisions of the standard on January 1, 2008.SFAS 159 permits us to elect to measure certain of our financialinstruments at either historical cost or fair value. We are in the process ofdetermining what method we will choose upon adoption and, once determined, theimpact, if any, adoption will have on our financial results or position.

On January 1, 2007, we adopted FASB Interpretation No.48, *Accounting for Uncertainty in Income Taxes—aninterpretation of FASB Statement No. 109* (“FIN 48”), which clarifiesthe accounting for uncertainty in tax positions. FIN 48 requires us torecognize the impact of a tax position in our financial statements if thatposition is more likely than not of being sustained on audit, based on thetechnical merits of the position. The adoption did not have a material impacton our results of operations or financial position.

We evaluated our uncertain tax positions relating toits various tax matters and rulings in Guyana and determined that no adjustmentwas to be recorded to the estimated settlement amounts previously recordedprior to the adoption of FIN 48. As noted in Note 11 to the 2006 Form 10-K, dueto various arrangements and relationships in place with the government ofGuyana, there is no expectation that interest and penalties will be assessedupon reaching final settlement of the matters. There is no expected settlementdate and upon settlement, which might not occur in the near future, the paymentmay vary significantly from the amounts currently recorded. We will continue toupdate amounts recorded as new developments arise.

**Item 3.Quantitative and Qualitative Disclosures about Market Risks**

Although asignificant portion of our Guyana subsidiary’s revenues and expenditures arecurrently transacted in U.S. dollars, the results of future operationsnevertheless may be affected by changes in the value of the Guyana dollar.From February 1991 until early 1994, the Guyana dollar remained relativelystable at the rate of approximately $125 to the U.S. dollar. In 1994 the Guyanadollar declined in value to approximately $142 to the U.S. dollar. It remainedrelatively stable at approximately that rate through 1997. FromDecember 31, 1997, through December 31, 1998 the Guyana dollarfurther declined in value to approximately $180 to the U.S. dollar and itremained relatively stable until late 2003. In the fourth quarter 2003, theGuyana dollar declined in value to approximately $195 to the U.S. dollar and toapproximately $205 during

28

----

the first quarter of2004. Since the first quarter of 2004 through June 2007, the value of theGuyana dollar has remained at $205 Guyana dollars to one U.S. dollar.

A substantialmajority of our consolidated cash balances are kept in U.S. dollar denominatedshort term investments. GT&T generally endeavors to maintain a balancebetween its Guyana dollar cash deposits and local receivables which aredenominated in Guyana dollars and its local tax and other payables which arealso denominated in the Guyana dollar. As of June 30, 2007, GT&T maintained$6.8 million of its cash balances in Guyana dollars.

GT&T’sfunctional currency has been the U.S. dollar because a significant portion ofGT&T’s revenues and expenditures have been transacted in U.S. dollars.Accordingly, in our view, GT&T is currently entitled to its agreed uponminimum 15% return on rate base computed in U.S. dollars on a U.S. dollarhistorical cost rate base and therefore devaluations of the Guyana dollarshould have had no long-term impact on the value of GT&T’s earnings in U.S.dollars. The Guyana Public Utility Commission has neither approved nor disapprovedof our position. Moreover, with the decline in international settlement ratesand the increases that GT&T has had in local revenue, it is possible thatthe Guyana dollar will become GT&T’s functional currency at some timein the future. See “Management’s Discussion and Analysis of Financial Conditionand Results of Operations” above.

We maintain aportion of our cash and cash equivalents in short-term financial instrumentsthat are subject to interest rate fluctuations. Due to the relatively shortduration of such instruments and the fact that we have no variable rate debt,we believe that fluctuations in interest rates will not materially affect ourfinancial condition or results of operations.

**Item 4.Controls and Procedures**

*Evaluationof disclosure controls and procedures.*Our management, withthe participation of our principal executive officer and principal financialofficer, evaluated the effectiveness of our disclosure controls and proceduresas of June 30, 2007. The term “disclosure controls and procedures,” as definedin Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controlsand other procedures of a company that are designed to ensure that informationrequired to be disclosed by a company in the reports that it files or submitsunder the Exchange Act is recorded, processed, summarized and reported, withinthe time periods specified in the SEC’s rules and forms. Disclosure controlsand procedures include, without limitation, controls and procedures designed toensure that information required to be disclosed by a company in the reportsthat it files or submits under the Exchange Act is accumulated and communicatedto the company’s management, including its principal executive and principalfinancial officers, as appropriate to allow timely decisions regarding requireddisclosure. Management recognizes that any controls and procedures, no matterhow well designed and operated, can provide only reasonable assurance ofachieving their objectives and management necessarily applies its judgment inevaluating the cost-benefit relationship of possible controls and procedures.Based on the evaluation our disclosure controls and procedures as of June 30,2007, our principal executive officer and principal financial officer concludedthat, as of such date, our disclosure controls and procedures were effective atthe reasonable assurance level.

*Changesin internal control over financial reporting.*There was nochange in the internal control over financial reporting that occurred duringthe three months ended June 30, 2007 that has materially affected, or isreasonably likely to materially affect, our internal control over financialreporting.

**PART II—OTHER INFORMATION**

**Item 1.Legal Proceedings**

See Note 10 to the Consolidated Financial Statementsincluded in this Report.

**Item1A. Risk Factors**

There have been no material changes from the factorsdiscussed in Part I, “Item 1A. Risk Factors” of our 2006 Annual Report on Form10-K. In addition to the other information set forth in this Report, you shouldcarefully consider these factors discussed in our 2006 Annual Report on Form10-K which could materially affect our business, financial

29

----

condition or futureresults. The risks described in our 2006 Annual Report on Form 10-K arenot the only risks facing our Company. Additional risks and uncertainties notcurrently known to us or that we currently deem to be immaterial alsomay materially adversely affect our business, financial condition and/oroperating results.

**Item4. Submission of Matters to a Vote of Securities Holders**

At our annualmeeting of stockholders held on May 24, 2007, the persons whose names are setforth below were elected as directors. The relevant voting information for eachperson is set forth opposite such person’s name:

|                          | ** ** | **Number of  Shares Voted  For** | ** ** | **Number of  Shares  Withheld** | ** ** |
|--------------------------|------------|--------------------------------------------|------------|--------------------------------------|------------|
| Martin L. Budd           |       | 13,780,909                                 |       | 923,346                              |       |
| Cornelius B.  Prior, Jr. |       | 12,296,906                                 |       | 2,407,349                            |       |
| Charles J.  Roesslein    |       | 14,422,641                                 |       | 281,614                              |       |
| Brian A.  Schuchman      |       | 11,794,004                                 |       | 2,910,251                            |       |
| Henry U. Wheatley        |       | 14,423,941                                 |       | 280,314                              |       |

 

Also at the annualmeeting our stockholders approved the amendment of our 1998 Stock Option Plan(the “1998 Plan”) to (i) increase the number of shares of common stockavailable for issuance under the 1998 Plan by 300,000 shares, (ii) prohibit thegranting of options at an exercise price below fair market value and (iii)prevent deferred delivery of shares following the exercise of options grantedunder the 1998 Plan. The voting results related to the proposed amendment wereas follows:

| Voted     | ** ** | **Number of Votes** | ** ** |
|-----------|------------|-------------------------------|------------|
| For       |       | 5,681,929                     |       |
| Against   |       | 2,086,898                     |       |
| Abstain   |       | 70,000                        |       |
| Non-votes |       | 6,865,428                     |       |

 

**Item 6. Exhibits-**
| 3.1    |   | Restated Certificate of Incorporation (incorporated  by reference to Exhibit 4.1 to the Company’s Registration Statement on  Form S-8 (File No. 333-62416) filed on June 6, 2001)                                                                                                        |   |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |   |                                                                                                                                                                                                                                                                                                              |   |
| 3.2    |   | Certificate of Amendment to the Restated Certificate  of Incorporation, as filed with the Delaware Secretary of State on  August 14, 2006 (incorporated by reference to Exhibit 3.2 of the  Company’s Quarterly Report on Form 10-Q (File No. 001-12593) filed  on August 14, 2006) |   |
|   |   |                                                                                                                                                                                                                                                                                                              |   |
| 10.1   |   | Atlantic Tele-Network, Inc. 1998 Stock Option Plan  (as amended May 24, 2007) (incorporated by reference to Appendix A to  Atlantic Tele-Network, Inc.’s Proxy Statement on Schedule 14A (File No.  001-12593) filed on April 30, 2007)                                                                      |   |
|   |   |                                                                                                                                                                                                                                                                                                              |   |
| 31.1   |   | Certification of Chief Executive Officer pursuant to  Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                 |   |
|   |   |                                                                                                                                                                                                                                                                                                              |   |
| 31.2   |   | Certification of Chief Financial Officer pursuant to  Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                 |   |
|   |   |                                                                                                                                                                                                                                                                                                              |   |
| 32.1   |   | Certification of Chief 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  Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                     |   |

** **

30

----

**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
|                       | Atlantic Tele-Network, Inc.      |
|-----------------------|---------------------------------------|
|                  |                                  |
| Date: August 9,  2007 | /s/ Michael T. Prior                  |
|                  | Michael T. Prior                      |
|                  | President and Chief Executive Officer |
|                  |                                  |
| Date: August 9,  2007 | /s/ Justin D. Benincasa               |
|                  | Justin D. Benincasa                   |
|                  | Chief Financial Officer and Treasurer |

 

31

----