FORM 10-K

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

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

                   For the fiscal year ended December 31, 2001

                                       Or

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

                      For the transition period from    to

                           Commission File No. 0-5890

                                    GCI, INC.
             (Exact name of registrant as specified in its charter)

                     ALASKA                         91-1820757
         (State or other jurisdiction of         (I.R.S. Employer
          incorporation or organization)        Identification No.)

    2550 Denali Street Suite 1000 Anchorage, Alaska         99503
       (Address of principal executive offices)          (Zip Code)

       Registrant's telephone number, including area code: (907) 265-5600

        Securities registered pursuant to Section 12(b) of the Act: None

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

                 $180,000,000 9.75% Senior Notes due August 2007

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

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




THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION J(1)(a) AND
(b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE
FORMAT.


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                                                GCI, INC.
                          A WHOLLY OWNED SUBSIDIARY OF GENERAL COMMUNICATION, INC.
                                    2001 ANNUAL REPORT ON FORM 10-K
                                           TABLE OF CONTENTS
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Glossary......................................................................................................3


Cautionary Statement Regarding Forward-Looking Statements....................................................10


Part I.......................................................................................................12


   Item 1.    Business.......................................................................................12

   Item 2.    Properties.....................................................................................59

   Item 3.    Legal Proceedings..............................................................................62

   Item 4.    Submissions of Matters to a Vote of Security Holders...........................................62

Part II......................................................................................................63


   Item 5.    Market for the Registrant's Common Equity and Related Stockholder Matters......................63

   Item 6.    Selected Financial Data........................................................................64

   Item 7.    Management's Discussion and Analysis of Financial Condition
                    and Results of Operations................................................................65

   Item 7A.   Quantitative and Qualitative Disclosures About Market Risk.....................................82

   Item 8.    Consolidated Financial Statements and Supplementary Data.......................................83

   Item 9.    Changes In and Disagreements With Accountants on Accounting and
                    Financial Disclosure.....................................................................83

Part III.....................................................................................................83


   Item 10.   Directors and Executive Officers of the Registrant.............................................83

   Item 11.   Executive Compensation.........................................................................83

   Item 12.   Security Ownership of Certain Beneficial Owners and Management.................................83

   Item 13.   Certain Relationships and Related Transactions.................................................83

Part IV.....................................................................................................119


   Item 14.   Exhibits, Consolidated Financial Statement Schedules, and Reports on Form 8-K.................119

SIGNATURES..................................................................................................128
</TABLE>

This Annual Report on Form 10-K is for the year ending December 31, 2001. This
Annual Report modifies and supersedes documents filed prior to this Annual
Report. The SEC allows us to "incorporate by reference" information that we file
with them, which means that we can disclose important information to you by
referring you directly to those documents. Information incorporated by reference
is considered to be part of this Annual Report. In addition, information that we
file with the SEC in the future will automatically update and supersede
information contained in this Annual Report.



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                                    Glossary

Access Charges -- Expenses incurred by an IXC and paid to LECs for accessing the
local networks of the LECs in order to originate and terminate long-distance
calls and provide the customer connection for private line services.

ACS -- Alaska Communications Systems, Inc., previously ALEC Holdings, Inc. --
ACS, one of our competitors, includes acquired properties from Century Telephone
Enterprises, Inc. and the Anchorage Telephone Utility ("ATU"). ATU provided
local telephone and long distance services primarily in Anchorage and cellular
telephone services in Anchorage and other Alaska markets.

Alaska United -- Alaska United Fiber System Partnership -- an Alaska partnership
wholly owned by The Company. Alaska United was organized to construct and
operate a new fiber optic cable connecting various locations in Alaska and the
Lower 49 states and foreign countries through Seattle, Washington.

AT&T -- AT&T Corp. -- Acquired Tele-Communications, Inc. ("TCI") in a 1999
merger; one of our competitors.

AT&T Alascom -- Alascom, Inc. -- a wholly owned subsidiary of AT&T and one of
our competitors.

Basic Service -- The basic service tier includes, at a minimum, all signals of
domestic television broadcast stations provided to any subscriber, any public,
educational, and governmental programming required by the franchise to be
carried on the basic tier, and any additional video programming service added to
the basic tier by the cable operator.

BOC -- Bell System Operating Company -- A LEC owned by any of the remaining
Regional Bell Operating Companies, which are holding companies established
following the AT&T Divestiture Decree to serve as parent companies for the BOCs.

Backbone -- A centralized high-speed network that interconnects smaller,
independent networks.

Bandwidth -- The number of bits of information that can move through a
communications medium in a given amount of time.

Broadband -- A high-capacity communications circuit/path, usually implying a
speed greater than 256 kbps.

CAP -- Competitive Access Provider -- A company that provides its customers with
an alternative to the LEC for local transport of private line and special access
telecommunications services.

Central Offices -- The switching centers or central switching facilities of the
LECs.

CLEC -- Competitive Local Exchange Carrier. -- A company that provides its
customers with an alternative to the ILEC for local transport of
telecommunications services, as allowed under the 1996 Telecom Act.

Co-Carrier Status -- A regulatory scheme under which the incumbent LEC is
required to integrate new, competing providers of local exchange service, into
the systems of traffic exchange, inter-carrier compensation, and other
inter-carrier relationships that already exist among LECs in most jurisdictions.

Collocation -- The ability of a CAP or CLEC to connect its network to the LEC's
central offices. Physical collocation occurs when a connecting carrier places
its network connection equipment inside the LEC's central offices. Virtual
collocation is an alternative to physical collocation pursuant to which the LEC
permits a CAP or CLEC to connect its network to the LEC's central offices on
comparable terms, even though the CAP's or CLEC's network connection equipment
is not physically located inside the central offices.


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The Company -- GCI, Inc. and its direct and indirect subsidiaries, also referred
to as "we," "us" and "our."

Compression / Decompression -- A method of encoding/decoding signals that allows
transmission (or storage) of more information than the media would otherwise be
able to support. Both compression and decompression require processing capacity,
but with many products, the time is not noticeable.

CPS -- a Cable Programming Service -- (also known as CPST, Cable Programming
Service Tier). CPS includes any video programming provided over a cable system,
regardless of service tier, including installation or rental of equipment used
for the receipt of such video programming, other than (1) video programming
carried on the basic service tier, (2) video programming offered on a
pay-per-channel or pay-per-programming basis, or (3) a combination of multiple
channels of pay-per-channel or pay-per-programming basis so long as the combined
service consists of commonly-identified video programming and is not bundled
with any regulated tier of service.

DAMA -- Demand Assigned Multiple Access -- The Company's digital satellite earth
station technology that allow calls to be made between remote villages using
only one satellite hop thereby reducing satellite delay and capacity
requirements while improving quality.

Dark Fiber -- An inactive fiber-optic strand without electronics or optronics.
Dark fiber is not connected to transmitters, receivers and regenerators.

DBS -- Direct Broadcast Satellite -- Subscription television service obtained
from satellite transmissions using frequency bands that are internationally
allocated to the broadcast satellite services. Direct-to-home service such as
DBS has its origins in the large direct-to-home satellite antennas that were
first introduced in the 1970's for the reception of video programming
transmitted via satellite. Because these first-generation direct-to-home
satellites operated in the C-band frequencies at low power, direct-to-home
satellite antennas, or dishes, as they are also known, generally needed to be
seven to ten feet in diameter in order to receive the signals being transmitted.
More recently, licensees have been using the Ku and extended Ku-bands to provide
direct-to-home services enabling subscribers to use a receiving home satellite
parabolic dish less than one meter in diameter. There are currently four
companies licensed by the Commission to provide DBS service: DirecTV, EchoStar
(marketed as the DISH Network), Dominion Video Satellite, Inc. (marketed as Sky
Angel) and R/L DBS Company. Of these, DirecTV, EchoStar and Dominion currently
provide service.

DS-3 -- A data communications circuit that is equivalent to 28 multiplexed T-1
channels capable of transmitting data at 44.736 mbps (sometimes called a T-3).

Dedicated -- Telecommunications lines dedicated or reserved for use by
particular customers.

Digital -- A method of storing, processing and transmitting information through
the use of distinct electronic or optical pulses that represent the binary
digits 0 and 1. Digital transmission and switching technologies employ a
sequence of these pulses to represent information as opposed to the continuously
variable analog signal. The precise digital numbers minimize distortion (such as
graininess or snow in the case of video transmission, or static or other
background distortion in the case of audio transmission).

DLC -- Digital Loop Carrier -- A digital transmission system designed for
subscriber loop plant. Multiplexes a plurality of circuits onto very few wires
or onto a single fiber pair.

DOCSIS 1.1 -- Data-Over-Cable Service Interface Specification 1.1 -- An industry
specification that provides for high-speed Internet service tiers, using
techniques known as data fragmentation and quality of service. Under this
specification, which is compatible with the existing DOCSIS 1.0 specification,
cable operators can deliver high-speed Internet services simultaneously over the
same plant and in a path parallel to core video services.


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DSL - Digital Subscriber Line -- Technology that allows Internet access at data
transmission speeds greater than those of modems over conventional telephone
lines.

Equal Access -- Connection provided by a LEC permitting a customer to be
automatically connected to the IXC of the customer's choice when the customer
dials "1". Also refers to a generic concept under which the BOCs must provide
access services to AT&T's competitors that are equivalent to those provided to
AT&T.

FCC -- Federal Communications Commission -- A federal regulatory body empowered
to establish and enforce rules and regulations governing public utility
companies and others, such as the Company.

Frame Relay -- A wideband (64 kilobits per second to 1.544 mbps) packet-based
data interface standard that transmits bursts of data over WANs. Frame-relay
packets vary in length from 7 to 1024 bytes. Data oriented, it is generally not
used for voice or video.

FTC -- Federal Trade Commission -- A federal regulatory body empowered to
establish and enforce rules and regulations governing companies involved in
trade and commerce.

GCC -- GCI Communication Corp., an Alaska corporation and a wholly owned
subsidiary of Holdings.

GCI -- General Communication, Inc., an Alaska corporation.

GCI, Inc. -- a wholly owned subsidiary of GCI, an Alaska corporation, issuer of
$180 million of publicly traded bonds and the Registrant.

Holdings -- a wholly owned subsidiary of GCI, Inc., an Alaska corporation and
party to The Company's Senior Holdings Loan.

HSD -- Home Satellite Dish - see DBS.

ILEC -- Incumbent Local Exchange Carrier -- with respect to an area, the LEC
that -- (A) on the date of enactment of the Telecommunications Act of 1996,
provided telephone exchange service in such area; and (B)(i) on such date of
enactment, was deemed to be a member of the exchange carrier association
pursuant to section 69.601(b) of the FCC's regulations (47 C.F.R. 69.601(b)); or
(ii) is a person or entity that, on or after such date of enactment, became a
successor or assign of a member described in clause (i).

Interexchange -- Communication between two different LATAs or, in Alaska,
between two different local exchange serving areas.

ISDN -- Integrated Services Digital Network -- A set of standards for
transmission of simultaneous voice, data and video information over fewer
channels than would otherwise be needed, through the use of out-of-band
signaling. The most common ISDN system provides one data and two voice circuits
over a traditional copper wire pair, but can represent as many as 30 channels.
Broadband ISDN extends the ISDN capabilities to services in the Gigabit range.

ISP -- Internet Service Provider -- a company providing retail and/or wholesale
Internet services.

Internet -- A global collection of interconnected computer networks which use
TCP/IP, a common communications protocol.

IXC -- Interexchange Carrier -- A long-distance carrier providing services
between local exchanges.


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Kanas -- Kanas Telecom, Inc. -- a 85% owned subsidiary of GCI Holdings, Inc., an
Alaska corporation that was renamed in 2001 to GCI Fiber Communication Co.,
Inc., or GFCC. GFCC owns and operates a fiber optic cable system constructed
along the trans-Alaska oil pipeline corridor extending from Prudhoe Bay to
Valdez, Alaska.

LAN -- Local Area Network -- The interconnection of computers for sharing files,
programs and various devices such as printers and high-speed modems. LANs may
include dedicated computers or file servers that provide a centralized source of
shared files and programs.

LATA -- Local Access and Transport Area -- The approximately 200 geographic
areas defined pursuant to the AT&T Divestiture Decree. The BOCs are generally
prohibited from providing long-distance service between the LATA in which they
provide local exchange services, and any other LATA.

LEC -- Local Exchange Carrier -- A company providing local telephone services.
Each BOC is a LEC.

LMDS -- Local Multipoint Distribution System -- LMDS uses microwave signals
(millimeterwave signals) in the 28 GHz spectrum to transmit voice, video, and
data signals within small cells 3-10 miles in diameter. LMDS allows license
holders to control up to 1.3 GHz of wireless spectrum in the 28 GHz Ka-band. The
1.3 GHz can be used to carry digital data at speeds in excess of one gigabit per
second. LMDS uses a specific band in the microwave spectrum, known as millimeter
waves or the 28 GHz "Ka-band." The extremely high frequency used and the need
for point to multipoint transmissions limits the distance that a receiver can be
from a transmitter. This means that LMDS will be a "cellular" technology, based
on multiple, contiguous, or overlapping cells. LMDS is expected to provide
customers with multichannel video programming, telephony, video communications,
and two-way data services. Incumbent LECs and cable companies may not obtain the
in-region 1150 MHz license for three years. Within 10 years, licensees will be
required to provide 'substantial service' in their service regions.

Local Exchange -- A geographic area generally determined by a PUC, in which
calls generally are transmitted without toll charges to the calling or called
party.

Local Number Portability -- The ability of an end user to change Local Exchange
Carriers while retaining the same telephone number.

Lower 48 States or Lower 48 -- refers to the 48 contiguous states south of or
below Alaska.

Lower 49 States or Lower 49 -- refers to Hawaii and the Lower 48 States.

MAN -- Metropolitan Area Network -- LANs interconnected within roughly a 50-mile
radius. MANs typically use fiber optic cable to connect various wire LANs.
Transmission speeds may vary from 2 to 100 Mbps.

MDU -- Multiple Dwelling Unit -- MDUs include multiple-family buildings, such as
apartment and condominium complexes.

MMDS -- Multichannel Multipoint Distribution Service - also known as wireless
cable. The FCC established the Multipoint Distribution Service (MDS) in 1972.
Originally the Commission thought MDS would be used primarily to transmit
business data. However, the service became increasingly popular in transmitting
entertainment programming. Unlike conventional broadcast stations whose
transmissions are received universally, MDS programming is designed to reach
only a subscriber based audience. In 1983, the Commission reassigned eight
channels from the Instructional Television Fixed Service (ITFS) to MDS. These
eight channels make up the MMDS. Frequently, MDS and MMDS channels are used in
combination with ITFS channels to provide video entertainment programming to
subscribers.


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MVPD -- Multi-channel Video Programming Distribution -- The distribution of
video programming over multiple platforms, such as cable and satellite.

NPT -- a New Product Tier -- a cable programming service tier offered to
subscribers at prices set by the cable operator.

OCC -- Other Common Carrier -- A long-distance carrier other than the Company.

PCS -- Personal Communication Services -- PCS encompasses a range of advanced
wireless mobile technologies and services. It promises to permit communications
to anyone, anywhere and anytime while on the move. The Cellular
Telecommunications Industry Association (CTIA) defines PCS as a "wide range of
wireless mobile technologies, chiefly cellular, paging, cordless, voice,
personal communications networks, mobile data, wireless PBX, specialized mobile
radio, and satellite-based systems." The FCC defines PCS as a "family of mobile
or portable radio communications services that encompasses mobile and ancillary
fixed communications services to individuals and businesses and can be
integrated with a variety of competing networks."

PBX -- Private Branch Exchange -- A customer premise communication switch used
to connect customer telephones (and related equipment) to LEC central office
lines (trunks), and to switch internal calls within the customer's telephone
system. Modern PBXs offer numerous software-controlled features such as call
forwarding and call pickup. A PBX uses technology similar to that used by a
central office switch (on a smaller scale). (The acronym PBX originally stood
for "Plug Board Exchange.")

POP -- Point of Presence -- The physical access location interface between a LEC
and an IXC network. The point to which the telephone company terminates a
subscriber's circuit for long-distance service or leased line communications.

PRI -- Primary Rate Interface -- An ISDN circuit transmitting at T1 (DS-1) speed
(equivalent to 24 voice-grade channels). One of the channels ("D") is used for
signaling, leaving 23 ("B") channels for data and voice communication.

Private Line -- Uses dedicated circuits to connect customer's equipment at both
ends of the line. Does not provide any switching capability (unless supported by
customer premise equipment). Usually includes two local loops and an IXC
circuit.

Private Network -- A communications network with restricted (controlled) access
usually made up of private lines (with some PBX switching).

RCA -- Regulatory Commission Of Alaska -- A state regulatory body empowered to
establish and enforce rules and regulations governing public utility companies
and others, such as the Company, within the State of Alaska (sometimes referred
to as Public Service Commissions, or PSCs, or Public Utility Commissions, or
PUCs). Previously known as the Alaska Public Utilities Commission (APUC).

Reciprocal Compensation -- The same compensation of a new CLEC for termination
of a local call by the BOC on its network, as the new competitor pays the BOC
for termination of local calls on the BOC network.

Schoolaccess(TM) -- The Company's Internet and related services offering to
schools in Alaska. The federal mandate through the 1996 Telecom Act to provide
universal service resulted in schools across Alaska qualifying for varying
levels of discounts to support the provision of Internet services. The Universal
Service Administrative Company through its Schools and Libraries Division
administers this federal program.


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SDN -- Software Defined Network -- A switched long-distance service for very
large users with multiple locations. Instead of putting together their own
network, large users can get special usage rates for calls carried on regular
switched long-distance lines.

Securities Reform Act - The Private Securities Litigation Reform Act of 1995.

Senior Holdings Loan -- Holding's $150,000,000 and $50,000,000 credit
facilities. You should see note 5(b) to the accompanying Notes to Consolidated
Financial Statements included in Part II of this Report for more information.

SMATV -- Satellite Master Antenna Television -- (also known as "private cable
systems") are multichannel video programming distribution systems that serve
residential, multiple-dwelling units ("MDUs"), and various other buildings and
complexes. A SMATV system typically offers the same type of programming as a
cable system, and the operation of a SMATV system largely resembles that of a
cable system -- a satellite dish receives the programming signals, equipment
processes the signals, and wires distribute the programming to individual
dwelling units. The primary difference between the two is that a SMATV system
typically is an unfranchised, stand-alone system that serves a single building
or complex, or a small number of buildings or complexes in relatively close
proximity to each other.

SONET -- Synchronous Optical Network -- A 1984 standard for optical fiber
transmission on the public network. 52 mbps to 13.22 Gigabits per second,
effective for ISDN services including Asynchronous Transfer Mode.

Sprint -- Sprint Corporation -- one of our significant customers.

TCP/IP -- Transmission Control Protocol/Internet Protocol -- A suite of network
protocols that allows computers with different architectures and operating
system software to communicate with other computers on the Internet.

T-1 -- A data communications circuit capable of transmitting data at 1.5 mbps.

Tariff -- The schedule of rates and regulations set by communications common
carriers and filed with the appropriate federal and state regulatory agencies;
the published official list of charges, terms and conditions governing provision
of a specific communications service or facility, which functions in lieu of a
contract between the subscriber or user and the supplier or carrier.

TRS Services -- Telecommunications Relay Services -- Enables telephone
conversations between people with and without hearing or speech disabilities.
TRS relies on communications assistants ("CA") to relay the content of calls
between users of text telephones ("TTYs") and users of traditional handsets
(voice users). For example, a TTY user may telephone a voice user by calling a
TRS provider where a CA will place the call to the voice user and relay the
conversation by transcribing spoken content for the TTY user and reading text
aloud for the voice user.

UNE -- Unbundled Network Element -- A discrete piece part of a telephone
network. Unbundled network elements are the basic network functions, i.e., the
piece parts needed to provide a full range of telecommunications services. They
are physical facilities as well as all the features, and capabilities provided
by those facilities.

VSAT -- Very Small Aperture Terminal -- A portable satellite terminal that
allows connection via a satellite link.

WAN -- Wide Area Network - A remote computer communications system. WANs allow
file sharing among geographically distributed workgroups (typically at higher
cost and slower speed than LANs or MANs). WANs typically use common carriers'
circuits and networks. WANs may serve as a customized communication backbone


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that interconnects all of an organization's local networks with communications
trunks that are designed to be appropriate for anticipated communication rates
and volumes between nodes.

World Wide Web or Web -- A collection of computer systems supporting a
communications protocol that permits multi-media presentation of information
over the Internet.

WorldCom -- WorldCom, Inc. -- owns approximately 18% of our common stock,
presently has two representatives on our Board, and is one of our major
customers. Prior to May 1, 2000, the Company was named MCI WorldCom, Inc.

1984 Cable Act -- The Cable Communications Policy Act of 1984.

1992 Cable Act -- The Cable Television Consumer Protection and Competition Act
of 1992.

1996 Telecom Act -- The Telecommunications Act of 1996 - The 1996 Telecom Act
was signed into law February 8, 1996. Under its provisions, BOCs were allowed to
immediately begin manufacturing, research and development; GTE Corp. could begin
providing interexchange services through its telephone companies nationwide;
laws in 27 states that foreclosed competition were knocked down; co-carrier
status for CLECs was ratified; and the physical collocation of competitors'
facilities in LECs central offices was allowed.

The legislation breaks down the old barriers that prevented three groups of
companies, the LECs, including the BOCs, the long-distance carriers, and the
cable TV operators, from competing head-to-head with each other. The Act
requires LECs to let new competitors into their business. It also requires the
LECs to open up their networks to ensure that new market entrants have a fair
chance of competing. The bulk of the legislation is devoted to establishing the
terms under which the LECs, and more specifically the BOCs, must open up their
networks.

The 1996 Telecom Act substantially changed the competitive and regulatory
environment for telecommunications providers by significantly amending the
Communications Act including certain of the rate regulation provisions
previously imposed by the Cable Television Consumer Protection and Competition
Act of 1992 (the "1992 Cable Act"). The 1996 Telecom Act eliminated rate
regulation of the cable programming service tier in 1999. Further, the
regulatory environment will continue to change pending, among other things, the
outcome of legal challenges and FCC rulemaking and enforcement activity in
respect of the 1992 Cable Act and the completion of a significant number of FCC
rulemakings under the 1996 Telecom Act.


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            Cautionary Statement Regarding Forward-Looking Statements

You should carefully review the information contained in this Annual Report, but
should particularly consider any risk factors that we set forth in this Annual
Report and in other reports or documents that we file from time to time with the
SEC. In this Annual Report, in addition to historical information, we state our
future strategies, plans, objectives or goals and our beliefs of future events
and of our future operating results, financial position and cash flows. In some
cases, you can identify those so-called "forward-looking statements" by words
such as "may," "will," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," "project," or "continue" or the negative
of those words and other comparable words. All forward-looking statements
involve known and unknown risks, uncertainties and other important factors that
may cause our actual results, performance, achievements, plans and objectives to
differ materially from any future results, performance, achievements, plans and
objectives expressed or implied by these forward-looking statements. In
evaluating those statements, you should specifically consider various factors,
including those outlined below. Those factors may cause our actual results to
differ materially from any of our forward-looking statements. For these
statements, we claim the protection of the safe harbor for forward-looking
statements provided by the Securities Reform Act. Such risks, uncertainties and
other factors include but are not limited to those identified below and those
further described in Part I, Item 1. Factors That May Affect Our Business and
Future Results.

     -   Material adverse changes in the economic conditions in the markets we
         serve and in general economic conditions;
     -   The efficacy of the rules and regulations to be adopted by the FCC and
         state public regulatory agencies to implement the provisions of the
         1996 Telecom Act; the outcome of litigation relative thereto; and the
         impact of regulatory changes relating to access reform;
     -   Our responses to competitive products, services and pricing, including
         pricing pressures, technological developments, alternative routing
         developments, and the ability to offer combined service packages that
         include local, cable and Internet services;
     -   The extent and pace at which different competitive environments develop
         for each segment of our business;
     -   The extent and duration for which competitors from each segment of the
         telecommunication industries are able to offer combined or full service
         packages prior to our being able to do so;
     -   The degree to which we experience material competitive impacts to our
         traditional service offerings prior to achieving adequate local service
         entry;
     -   Competitor responses to our products and services and overall market
         acceptance of such products and services;
     -   The outcome of our negotiations with incumbent local exchange carriers
         and state regulatory arbitrations and approvals with respect to
         interconnection agreements;
     -   Our ability to purchase network elements or wholesale services from
         incumbent local exchange carriers at a price sufficient to permit the
         profitable offering of local telephone service at competitive rates;
     -   Success and market acceptance for new initiatives, many of which are
         untested;
     -   The level and timing of the growth and profitability of new
         initiatives, particularly local telephone services expansion, Internet
         (consumer and business) services expansion and wireless services;
     -   Start-up costs associated with entering new markets, including
         advertising and promotional efforts;
     -   Risks relating to the operations of new systems and technologies and
         applications to support new initiatives;
     -   Local conditions and obstacles;
     -   The impact of oversupply of capacity resulting from excessive
         deployment of network capacity;
     -   Uncertainties inherent in new business strategies, new product launches
         and development plans, including local telephone services, Internet
         services, wireless services, digital video services, cable modem
         services, DSL services, and transmission services and the offering of
         these services in geographic areas with which we are unfamiliar;
     -   The risks associated with technological requirements, technology
         substitution and changes and other


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         technological developments;
     -   Development and financing of telecommunication, local telephone,
         wireless, Internet and cable networks and services;
     -   Future financial performance, including the availability, terms and
         deployment of capital; the impact of regulatory and competitive
         developments on capital outlays, and the ability to achieve cost
         savings and realize productivity improvements and the consequences of
         increased leverage;
     -   Availability of qualified personnel;
     -   Changes in, or failure, or inability, to comply with, government
         regulations, including, without limitation, regulations of the FCC, the
         RCA, and adverse outcomes from regulatory proceedings;
     -   Uncertainties in federal military spending levels and military base
         closures in markets in which we operate;
     -   The ongoing global and domestic trend towards consolidation in the
         telecommunications industry, which trend may be the effect of making
         the competitors larger and better financed and afford these competitors
         with extensive resources and greater geographic reach, allowing them to
         compete more effectively;
     -   Economic and other uncertainties arising from the terrorist attacks in
         America on September 11, 2001; and
     -   Other risks detailed from time to time in our periodic reports filed
         with the Securities and Exchange Commission.

You should not place undue reliance on any such forward-looking statements.
Further, any forward-looking statement, and such risks, uncertainties and other
factors speak, only as of the date on which it was originally made and we
expressly disclaim any obligation or undertaking to disseminate any updates or
revisions to any forward-looking statement to reflect any change in our
expectations with regard to those statements or any other change in events,
conditions or circumstances on which any such statement is based, except as
required by law. New factors emerge from time to time, and it is not possible
for us to predict what factors will arise or when. In addition, we cannot assess
the impact of each factor on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.


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                                     Part I

Item 1.  Business

General
In this Annual Report, "we," "us" and "our" refer to GCI, Inc. and its direct
and indirect subsidiaries.

GCI, Inc. was incorporated in 1997 to effect the issuance of Senior Notes as
further described in note 5 to the accompanying Consolidated Financial
Statements included in Part II of this Report. GCI, Inc., as a wholly owned
subsidiary of GCI, received through its initial capitalization all ownership
interests in subsidiaries previously held by GCI. GCI, Inc. has its principal
executive offices at 2550 Denali Street, Suite 1000, Anchorage, AK 99503
(telephone number 907-265-5600). Internet users can access information about GCI
and its services at http://www.gci.com/, http://www.alaskaunited.com/, and
http://www.gcisa.com/. The Company hosts Internet services at
http://www.gci.net/.

GCI, Inc. is primarily a holding company and together with its direct and
indirect subsidiaries, is a diversified telecommunications provider with a
leading position in facilities-based long-distance service in the state of
Alaska and is Alaska's leading cable television and Internet services provider.

We are a significant provider in Alaska of an integrated package of
long-distance, local and wireless telecommunications services, cable television
services and Internet services and are well positioned to take advantage of
growth opportunities in the communications, data and entertainment markets.

Financial Information About Industry Segments
We have four reportable segments: long-distance services, cable services, local
access services and Internet services. For information required by this section,
you should see Part II, Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations. Also refer to Note 10 included in
Part II, Item 8, Consolidated Financial Statements and Supplementary Data.

Historical Development of our Business During the Past Fiscal Year
Acquisitions
We finalized the acquisition of a cable system operator's assets in the
Fairbanks area in the first quarter of 2001, adding approximately 1,000
subscribers to our network and an additional 2,000 homes passed.

We acquired customers from a local ISP in the second quarter of 2001 that added
over 3,300 subscribers and about 150 domain names to our GCI.net domain.

Effective June 30, 2001, we acquired from WorldCom an 85% controlling interest
in the corporation owning the 800-mile fiber optic cable system that extends
from Prudhoe Bay, Alaska to Valdez, Alaska via Fairbanks. GCI issued to WorldCom
shares of its new series of Class C preferred stock valued at $10 million. We
are enhancing the system and have incorporated its operation into our operations
control systems. We expect these enhancements to improve our voice, Internet and
data services in interior Alaska, as well as third party vendors' services that
utilize capacity on the fiber optic system. We entered into a fifteen year
contract in July 2001 to provide communication services to a customer, including
long distance service, voice and dedicated data circuits, cable television and
private broadcast services, Internet and transparent local area network
services. We entered into a second agreement in December 2001 to demonstrate our
capabilities to support the customer's control systems communications. Such
services support operations of the Trans-Alaska Pipeline System.

Effective November 19, 2001 we acquired from Rogers Cable, Inc., for $19 million
in cash, 100% of the common stock of Rogers American Cablesystems, Inc., a cable
TV provider in the Wasilla and Palmer, Alaska areas. The


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acquisition added approximately 7,000 subscribers to our network and an
additional 10,000 homes passed. We plan to invest $4 to $5 million over the next
two years to migrate technical and billing functions onto our platform, upgrade
the plant and implement digital programming.

Fiber Capacity Sale
We completed a $19.5 million sale of long-haul capacity in the Alaska United
undersea fiber optic cable system in a cash transaction in the first quarter of
2001. The sale included both capacity within Alaska, and between Alaska and the
Lower 48 states. We used the proceeds from the fiber capacity sale to repay
$11.7 million of the Fiber Facility debt and to fund capital expenditures and
working capital.

Properties Expansion
We began efforts in 2001 to connect Palmer and Wasilla, Alaska to our fiber
optic network in Anchorage. We completed the first phase of the project in
February 2002, connecting our network in Anchorage to our Wasilla Call Center
with fiber optic cable facilities. The second phase will connect and expand our
facilities to provide cable and entertainment services to the Palmer-Wasilla
area. We expect that work to be complete in 2002. Upon completion, we will
provide cable television programming content from our Anchorage head end
facility to Palmer and Wasilla.

Cable Services Expansion
We continued to upgrade and expand our cable infrastructure in 2001. These
efforts increased the capacity and reliability of our systems, making possible
further deployment of two-way applications such as cable modems and digital
cable television programming, and provided capacity for additional program and
service offerings.

We extended our digital cable service to the Juneau, Kenai and Soldotna, Alaska
markets in 2001. Digital cable service allows us to use digital compression to
substantially increase the capacity of our cable communications systems, improve
picture quality and provide CD quality audio. Digital cable subscriber counts in
all locations totaled approximately 24,500 in 2001, an increase of 62.5% as
compared to 2000.

Cable modem subscriber counts increased 64.5% in 2001 as compared to 2000.
Approximately 86.2% of our cable customers are able to receive cable modem
service. Cable modems are deployed in approximately 11.2% of the homes passed by
our cable systems in markets offering such service, which we believe is well
above the national average. Cable modem services provide high-speed, dedicated
access to the Internet through our coaxial cable network.

We launched video-on-demand service to certain of our Anchorage commercial
customers and expect to provide this service to more customers in 2002. This
service passed 877 hotel rooms at December 31, 2001. During 2001 we launched
digital special interest channels and residential pay per view in the Kenai and
Soldotna markets, digital special interest channels in the Juneau market,
advanced analog programming in the Sitka market, and added new channels in
several other markets.

We continue to evaluate technology and the feasibility of using our cable plant
for telephone services that will enable us to deliver local telephone access
services on our own network. Testing and design is underway with regard to
alternative equipment, cable plant, the method of powering the system and
operational support systems. Upgrades have been made to a node in our Anchorage
plant to create a test platform for cable telephony.

Local Access Services Expansion
We had approximately 79,200 local access services lines in service in Anchorage
and Fairbanks, Alaska at December 31, 2001, a 27.5% increase from December 31,
2000. In late 2001 we began selling GCI local services in Juneau with
conversions beginning in the first quarter of 2002. We continue to evaluate
expanded implementation of wireless local loop and cable telephony technologies.


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We filed a bona fide request with the ILEC, ACS of the Northland, Inc, in 2001
to negotiate rates and services in order to provide competitive local access
services in Nenana, Ft. Greely, North Pole, Delta Junction, Kenai, Soldotna,
Ninilchik, Homer, Seldovia and Kodiak, Alaska. The request will be negotiated,
and possibly arbitrated before the RCA under the terms of the 1996 Telecom Act
and the RCA must approve our entry into these markets before we can provide
local access services. We are unable to predict when or if we will receive such
approvals.

You should see Part I, Item 1. Business, Narrative Description of our Business -
Local Access Services, and Part I, Item 1. Regulation, Franchise Authorities and
Tariffs - Telecommunication Operations for more information.

Internet and Broadband Services Expansion
We provided Internet service to approximately 69,900 dial-up subscribers at
December 31, 2001, a 11.8% increase from December 31, 2000. We provided service
to approximately 26,500 cable modem subscribers at December 31, 2001, a 64.5%
increase from December 31, 2000.

Our SchoolAccess(TM) program was first deployed successfully in Alaska where we
provide satellite-delivered voice, video and data services to many of the
state's rural communities. More than 70,000 rural Alaska students are now
connected to the Internet with SchoolAccess(TM). We provide e-mail service, a
custom user interface, a help desk, onsite training, security, network
optimization, network management, content filtering services and website hosting
for 216 schools in rural Alaska using SchoolAccess(TM), and provide Internet
only services to approximately 100 additional schools. We signed three-year
contracts in 2001 with each of the 64 Alaska schools that re-bid their
SchoolAccess(TM) service.

We signed agreements in April 2001 to deploy our SchoolAccess(TM) services to
nine school districts comprising 22 schools in rural New Mexico and Arizona,
serving more than 10,500 students. Service activation occurred in the third
quarter of 2001. We began a SchoolAccess(TM) evaluation project in two rural
Montana schools in November 2001, and plan to further market our
SchoolAccess(TM) product in Montana and other suitable locations.

We deployed high-speed broadband TeleHealth services in 2001 using an advanced
satellite network to 28 villages served by the Bristol Bay Health Corporation in
the Dillingham, Alaska area; eight villages for the Yukon-Kuskokwim Health
Corporation in the Bethel, Alaska area; 16 villages for the Norton Sound Health
Corporation in the Nome, Alaska area; and six villages in the Eastern Aleutian
area. At the end of 2001 we provided TeleHealth services to approximately 70
western Alaska communities. This broadband service allows remote communities to
access health specialists and others in Alaska and elsewhere for consultation
and diagnostic services using a combination of video, voice and data services.

We announced in 2001 our intent to provide Internet services to 152 Alaska
communities that we currently serve by 2004. The estimated $15 million project
will deliver high-speed Internet by cable modem, DSL and wireless technologies.
A considerable expansion of facilities was made in 2001 to support cable modem
Internet service launches in Valdez, Sitka, Nome and Seward, Alaska, and to
prepare for the launches in Kenai and Soldotna, Alaska in January 2002. We
expect to deploy cable modem service in Petersburg and Wrangell, Alaska by the
end of the second quarter 2002; and Ketchikan, Bethel, Cordova, Homer, Kodiak,
and Kotzebue, Alaska by the end of 2002. The Kenai and Soldotna launches were
the first U.S. deployment of a cable modem platform using the new DOCSIS 1.1
standard. This new standard supports tiered levels of service, provides quality
of service measurement, and supports voice traffic over coaxial cable systems.

We began providing 56 kilobit and high-speed Internet access services in the
third quarter of 2001 to 10 rural Alaska villages in the Northwest Arctic region
of Alaska. We deliver high-speed Internet services locally in the villages
through the ILEC's DSL service or our unlicensed 2.4 GHz band fixed wireless
service. All long-haul transport is delivered through our satellite and
associated facilities. Before this agreement, villages in the Northwest Arctic
area did not have local access to Internet services.


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We converted our Internet technical support in early 2001 to an in-house service
that operates 24 hours a day, seven days a week, and added approximately 30 jobs
to the Anchorage area economy.

PCS and LMDS Licenses
We have invested approximately $1.96 million in our PCS license at December 31,
2001. In June 2000 we began providing fixed wireless dial-tone services in
Anchorage over our PCS system, meeting the FCC requirement to provide coverage
of a commercial offering to at least one-third of our market population within
five years of being licensed. We presently offer our fixed wireless service to
customers that are not connected to the ILEC or our physical plant. We invested
approximately $275,000 in our LMDS license in 1998. LMDS licensees are required
to provide 'substantial service' in their service regions within 10 years.

Digital Cellular Service
We began offering digital cellular telephone service in 2001 in addition to
analog service. We are presently reselling cellular service to our customers.

The Link
We launched The Link product in 2001, an innovative service for professionals,
business owners and others who cannot afford to miss a phone call, fax, e-mail
or voice mail message. This convergent product gathers these incoming messages
into a virtual mailbox. The Link users can use this virtual mailbox to stay in
touch with clients, customers, family and more.

Contract Extensions
We re-negotiated and signed a contract in 2001 with WorldCom for an additional
five-year term, and in 2002 with Sprint for an initial five-year term. The
contracts allow us to continue to carry all of their traffic to and from Alaska.
We signed a five-year contract in 2001 allowing us to continue providing
entertainment and other cable services to Elmendorf Air Force Base.

State of Alaska Services
The State of Alaska announced in the fourth quarter of 2001 its intent to award
a contract for comprehensive telecom services to one of our competitors
beginning in the second half of 2002. The contract award was subject to a
competitive bidding process that concluded in 2001. We estimate the we currently
derive approximately $3 million in annual revenues from the State of Alaska for
services that will eventually be transitioned off of our network.

Telephone Relay Service Contract
The RCA notified us in the fourth quarter of 2001 that our bid to continue to
provide telephone relay services in Alaska was not successful. Such service was
transitioned to Sprint in early 2002. Sprint now provides this service through
its service centers in the Lower 48 states. We carry Sprint's traffic to and
from Alaska and will continue to generate revenues associated with this traffic
in our Long Distance segment. Affected employees have been transitioned to
customer service positions. Loss of the telephone relay services contract will
not have a material impact on our liquidity, results of operations and cash
flows.

Narrative Description of our Business
General
We operate a broadband communications network that permits the delivery of a
seamless integrated bundle of communications, entertainment and information
services. We offer a wide array of consumer and business communications and
entertainment services--including local telephone, long-distance and wireless
communications, cable television, consulting services, network and desktop
computing outsourced services, and dial-up and broadband (cable modem, wireless
and DSL) Internet access services at a wide range of speeds--all under the GCI
brand name.


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We believe that the size and growth potential of the voice, video and data
market, the increasing deregulation of telecommunication services, and the
increased convergence of telephony, wireless, and cable services offer us
considerable opportunities to continue to integrate our telecommunication,
Internet and cable services and expand into communications markets both within
and, longer-term, outside of Alaska.

Considerable deregulation has already taken place in the United States because
of the 1996 Telecom Act with the barriers to competition between long-distance,
local exchange and cable providers being lowered. We believe our acquisition of
cable television systems and our development of local exchange service, Internet
services, broadband services, and wireless services leave us well positioned to
take advantage of deregulated markets.

We are one of Alaska's leading providers of telecommunication, Internet and
cable television services and maintain a strong competitive position. There is
active competition in the sale of substantially all products and services we
offer.

Competition in the Communications Industry
There is substantial competition in the communications industry. The traditional
dividing lines between providers offering long-distance telephone service, local
telephone service, wireless telephone service, Internet services and video
services are increasingly becoming blurred. Through mergers and various service
integration strategies, major providers, including us, are striving to provide
integrated communications service offerings within and across geographic
markets.

Alaska Voice, Video and Data Markets
We estimate that the aggregate telecommunications, cable television, and
Internet markets in Alaska generated revenues in 2001 of approximately $1.1
billion. Of this amount, approximately $480 million was attributable to
interstate and intrastate long-distance service, $350 million was attributable
to local exchange services, $88 million was attributed to cable television, and
$182 million was attributable to all other services, including wireless and
Internet services.

The Alaskan voice, video and data markets are unique within the United States.
Alaska is geographically distant from the rest of the United States and is
generally characterized by large geographical size and relatively small, dense
population clusters (with the exception of population centers such as Anchorage,
Fairbanks and Juneau). It lacks a well-developed terrestrial transportation
infrastructure, and the majority of Alaska's communities are accessible only by
air or water. As a result, Alaska's telecommunication networks are different
from those found in the Lower 49 states.

Alaska continues to rely extensively on satellite-based long-distance
transmission for intrastate calling between remote communities where investment
in a terrestrial network would be uneconomic or impractical. Also, given the
geographic isolation of Alaska's communities and lack, in many cases, of major
civic institutions such as hospitals, libraries and universities, Alaskans are
dependent on telecommunications to access the resources and information of large
metropolitan areas in Alaska, the rest of the U.S. and elsewhere. In addition to
satellite-based communications, the telecommunications infrastructure in Alaska
includes fiber optic cables between Anchorage, Valdez, Fairbanks, Prudhoe Bay,
and Juneau, traditional copper wire, and digital microwave radio on the Kenai
Peninsula and other locations. For interstate and international communication,
Alaska is connected to the Lower 48 states by three fiber optic cables.

Fiber optics is the preferred method of carrying Internet, voice, video and data
communications over long distances, eliminating the delay commonly found in
satellite connections. Widespread use of high capacity fiber optic facilities is
expected to allow continued expansion of business, government and educational
infrastructure in Alaska.


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Long-Distance Services
Industry
Until the 1970s, AT&T had a virtual monopoly on long distance service in the
United States. In the 1970s, competitors such as MCI (now WorldCom) and Sprint
began to offer long distance service. With the gradual emergence of competition,
basic rates dropped, calling surged, and AT&T's dominance declined. More than
700 companies now offer long distance service. AT&T's 1984 toll revenues were
about 90% of those reported by all long distance carriers. By 2000, AT&T's
revenues had declined to less than 40% of those reported by all long distance
carriers. The FCC's regulation of AT&T as a "dominant" carrier ended in 1995.
The two largest market entrants, WorldCom and Sprint, have obtained a 32%
combined market share through 2000.

Because of this competition, the cost of long distance calling dropped from 32
cents per minute in 1984 to 14 cents per minute in 1999. The average price of 14
cents per minute represents a mix of international calling (an average of 56
cents per minute) and domestic interstate calling (an average of 11 cents per
minute). The decline in prices since 1984 is more than 70% after adjusting for
the impact of inflation.

The FCC reports that more than twenty million households have been added to the
nation's telephone system since November 1983. As of November 2000, 100.2
million households had telephone service. The FCC reports that approximately 2%
of all consumer expenditures are devoted to telephone service. This percentage
has remained relatively constant over the past 15 years, despite major changes
in the telephone industry and in telephone usage. Average annual expenditures on
telephone service increased from $325 per household in 1980 to $849 in 1999.

Since 1970, the FCC reports that over 90% of households and virtually all
businesses have subscribed to telephone service. Line growth over time,
averaging about 3% per year, has historically reflected growth in the population
and the economy. In recent years, the growth in lines has increased as
households have added additional lines. The percentage of additional lines for
households with telephone service has increased from approximately 3% in 1988 to
about 29% in 1999.

The FCC reports that approximately $108 billion was derived from toll services
in 2000. 99.1 million households had telephone services, an increase of 20
million households since 1983. Approximately $33 billion is derived from
intrastate, $55 billion from interstate, and $20 billion from international toll
services. Interstate minutes of use quadrupled to 600 billion minutes from 1983,
while long distance toll revenues increased 65%, from $60 billion in 1983 to $99
billion.

International telecommunications has become an increasingly important segment of
the telecommunications market. The FCC reports that the number of calls made
from the United States to other countries increased from 200 million in 1980 to
5.2 billion in 1999. Americans spent about $14 billion on international calls in
1999. On average, carriers billed 51 cents per minute for international calls in
1999, a decline of more than 50% since 1980. Five markets, Canada, Mexico, the
United Kingdom, Germany, and Japan, currently account for approximately 44% of
the international calls billed in the United States.

The United States Congress passed the 1996 Telecom Act that permitted the local
phone companies, the long-distance companies, and the cable service firms to
compete in each other's market. Its purpose was to move from a regulated
monopoly model of telecommunications to a deregulatory competitive markets
model. The 1996 Telecom Act has provided the telecommunications industry with
new capabilities resulting in an industry that is more competitive than ever
before.

Advancements are expected to continue to combine wireline and wireless services
directed toward voice communication with other activities such as data sharing,
on-screen collaboration, faxing, Internet access, and game playing, among many
other things.

Liquidity concerns add to the telecommunication industry's ongoing pressures
such as reduced demand for telephone lines and high-speed data services, low
per-minute rates for long-distance service, and a slowdown in


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the wireless telephone sector. The global telecommunications industry has
reportedly cut tens of thousands of jobs and has put billions of dollars of
spending on hold due to the economic slowdown occurring in markets across the
world. With the U.S. economy still weak, traditional telephone companies have
been cutting earnings forecasts, jobs and capital spending plans which has
pushed the makers of equipment that directs voice and data traffic to delay or
abandon expansion plans.

Global telecommunication industry stocks as a group dropped 27% in 2001 through
November and dropped 62% from a peak in March 2000, according to analysts from
brokerage firm Merrill Lynch & Co., Inc. The telecom industry's capital spending
forecasts project a decline in 2002 of from 10% to 25%. Analysts believe that
growth will return over time to the traditional range of 10% to 12% annually.

Deteriorating conditions in the economy and in the telecommunications industry
have led to reorganizations, mergers and divestitures. AT&T and Comcast
Corporation announced in December 2001 their agreement to combine AT&T Broadband
with Comcast in a transaction that values AT&T Broadband at an aggregate value
of $72 billion (approximately $4,500 per subscriber). The resulting AT&T Comcast
Corporation is expected to develop and deploy new broadband applications such as
video-on-demand and interactive television. The transaction is expected to close
at the end of 2002, subject to regulatory review, approval by both companies'
shareholders, and certain other conditions.

AT&T also intends to proceed with other aspects of its previously announced
restructuring, including the creation of a tracking stock for its consumer
services unit, which is expected to be fully distributed to AT&T shareholders
following shareholder approval in mid-2002.

WorldCom, also struggling with a declining stock price, created two separately
traded tracking stocks: WorldCom Group which reflects the performance of its
core data, Internet, hosting and international businesses, and MCI Group, which
reflects the performance of its consumer, small business, wholesale
long-distance voice and dial-up Internet access operations.

Industry analysts believe companies will be successful in the long-term if they
can minimize regulatory battles and offer a full suite of integrated services to
their customers, using a network that is largely under their control.

Growth in data is expected to continue to be a key component of industry revenue
growth. We believe that the data telecommunications business will eventually
rival and perhaps become larger than the traditional voice telephony market.
ISPs have become major customers and many long-distance companies have acquired
ISPs and web-hosting companies.

The U.S. House of Representatives in February 2002 adopted a measure that would
allow LECs to offer long-distance data services without first opening their
networks to competitors as they must under the 1996 Telecommunications Act.
Local telephone carriers argue that the measure would accelerate the deployment
of high-speed Internet service using DSL technology. These dominant carriers
compete with cable companies for high-speed Internet access customers. Analysts
report that cable operators have approximately 6.4 million subscribers compared
to 3.1 million DSL customers. The future of the measure in the U.S. Senate is
uncertain.

We believe that federal and state legislators and regulators will continue to
influence the telecommunications industry in 2002. Consummation of mergers
between and spin-offs from long-distance companies, local access services
companies, and cable television companies have occurred which blur the
distinction between product lines and competitors. Synergies developed through
mergers and acquisitions and obtaining end-to-end connectivity with customers is
expected to continue to drive long-run profitability and success in penetrating
new markets. Several mergers received final regulatory approval in 2001. The FCC
approved the AOL-Time Warner merger in January 2001 and WorldCom's merger with
Intermedia Communications Inc. was completed in July 2001.


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General
We supply a full range of common carrier long-distance and other
telecommunication products and services. We operate a modern, competitive
telecommunications network employing the latest digital transmission technology
based upon fiber optic and digital microwave facilities within and between
Anchorage, Fairbanks and Juneau, Alaska. Our facilities include a
self-constructed and financed digital fiber optic cable and additional owned
capacity on another undersea fiber optic cable, both linking Alaska to the
networks of other carriers in the Lower 49 states. We use satellite transponders
to transmit voice and data traffic to remote areas of Alaska. Virtually all
switched services are computer controlled, digitally switched, and
interconnected by a packet switched SS7 signaling network.

We provide interstate and intrastate long-distance services throughout Alaska
using our own facilities or facilities leased from other carriers. We also
provide (or join in providing with other carriers) telecommunication services to
and from Alaska, Hawaii, the Lower 48 states, and many foreign nations and
territories.

We offer cellular services by reselling other cellular providers' services. We
offer wireless local access services over our own facilities, and have purchased
PCS and LMDS wireless broadband licenses in FCC auctions covering markets in
Alaska.

Products
Our long-distance services industry segment is engaged in the transmission of
interstate and intrastate-switched message telephone service and private line
and private network communication service between the major communities in
Alaska, and the remaining United States and foreign countries. Our message toll
services include intrastate, interstate and international direct dial, toll-free
800, 888, 877 and 866 services, GCI calling card, operator and enhanced
conference calling, frame relay, SDN, ISDN technology based services, as well as
termination of northbound toll service for WorldCom, Sprint and several large
resellers who do not have facilities of their own in Alaska. We also provide
origination of southbound calling card and toll-free 800, 888, 877 and 866 toll
services for WorldCom, Sprint, and other IXCs. We offer our message services to
commercial, residential, and government subscribers. Subscribers may generally
cancel service at any time. Toll, private line, broadband and related services
account for approximately 53.5%, 60.4% and 57.0% of our 2001, 2000 and 1999
revenues, respectively. Broadband services include our SchoolAccess(TM) and
Rural Health initiatives. Private line and private network services utilize
voice and data transmission circuits, dedicated to particular subscribers, which
link a device in one location to another in a different location.

We have positioned ourselves as a price and customer service leader in the
Alaska telecommunication market. Rates charged for our long-distance services
are generally designed to be equal to or below those for comparable services
provided by our competitors.

In addition to providing communication services, we also design, sell, service
and operate, on behalf of certain customers, dedicated communication and
computer networking equipment and provide field/depot, third party, technical
support, telecommunications consulting and outsourcing services through our
Network Solutions business. We also supply integrated voice and data
communication systems incorporating interstate and intrastate digital private
lines, point-to-point and multipoint private network and small earth station
services. Our Network Solutions sales and services revenue totaled $16.3
million, $9.2 million and $5.7 million in the years ended December 31, 2001,
2000 and 1999, respectively, or approximately 4.6%, 3.2% and 2.1% of total
revenues, respectively. Presently, there are 18 competing companies in Alaska
that actively sell and maintain data and voice communication systems. Twelve are
located in Anchorage, four in Fairbanks and two in Juneau.

Our ability to integrate telecommunications networks and data communication
equipment has allowed us to maintain our market position based on "value added"
support services rather than price competition. These services are blended with
other transport products into unique customer solutions, including managed
services and outsourcing.


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Facilities
Our telecommunication facilities include an undersea fiber optic cable
connecting Whittier, Valdez and Juneau, Alaska and Seattle, Washington, which
was placed into service in February 1999. We also own a portion of a second
undersea fiber optic cable linking Alaska to the Lower 48 states. The fiber
optic cables allow us to carry our Anchorage, Eagle River, Wasilla, Palmer,
Kenai Peninsula, Valdez, Whittier, Delta Junction, Prudhoe Bay, Glenallen,
Fairbanks, Juneau, Ketchikan, and Sitka, Alaska traffic to and from the
contiguous Lower 48 states over terrestrial circuits, eliminating the
one-quarter second delay associated with satellite circuits. We own other
terrestrial fiber optic cables to transport our traffic from Anchorage to
Whittier and from Whittier to Deadhorse, Alaska, including connectivity to
intermediate communities of Valdez, Glenallen, Delta Junction, and Fairbanks.

Other facilities include major earth stations at Eagle River, Fairbanks, Juneau,
Kodiak, Dutch Harbor, Barrow, Bethel, Nome, Dillingham, Kotzebue, King Salmon,
Adak, and Cordova, all in Alaska, and at Issaquah, Washington, serving the
communities in their vicinity. The Eagle River and Fairbanks earth stations are
linked by digital microwave facilities to distribution centers in Anchorage and
Fairbanks, respectively. We completed construction of a fiber optic cable system
from the Anchorage distribution center to the Eagle River central office in the
second quarter of 2000. The Issaquah earth station is connected with the Seattle
distribution center by means of diversely routed leased fiber optic cable
transmission systems, each having the capability to restore the other in the
event of failure. The Juneau earth station and distribution centers are
collocated. We also have digital microwave facilities serving the Kenai
Peninsula communities.

We use our DAMA facilities to serve 56 additional locations throughout Alaska.
The digital DAMA system allows calls to be made between remote villages using
only one satellite hop thereby reducing satellite delay and capacity
requirements while improving quality. We obtained the necessary RCA and FCC
approvals waiving current prohibitions against construction of competitive
facilities in certain rural Alaska communities, allowing for deployment of DAMA
technology in 56 sites in rural Alaska on a demonstration basis. In addition,
over 80 VSAT facilities provide dedicated Internet access to rural public
schools throughout Alaska.

Our Anchorage, Fairbanks, and Juneau distribution centers contain electronic
switches to route calls to and from local exchange companies and, in Seattle, to
obtain access to WorldCom, Sprint and other facilities to distribute our
southbound traffic to the remaining 49 states and international destinations. In
Anchorage, a digital host switch manufactured by Lucent Technologies is
connected with fiber to seven remote facilities that are co-located in the
ILEC's switching centers, to provide both local and long distance service. Our
extensive metropolitan area fiber network in Anchorage supports cable
television, Internet and telephony services. The Anchorage, Fairbanks, and
Juneau facilities also include digital access cross-connect systems, frame relay
data switches, Internet platforms, and in Anchorage, a co-location facility for
interconnecting and hosting equipment for other carriers. We also maintain an
operator and customer service center in Wasilla, Alaska.

In 2001 we constructed a new switching center in Fairbanks and installed a new
Lucent Technologies switch to enable the provisioning of local telephony
services in the Fairbanks market. The existing Fairbanks long distance toll
switch was decommissioned in December 2001 after over 15 years of service.
Essentially all toll traffic from Fairbanks is now routed to Anchorage. The
first ILEC collocation office was also constructed during 2001 to enable access
to a portion of the Fairbanks ILEC UNE loop facilities. Fairbanks UNE loop
provisioning began in early 2002. A second collocation office is currently under
construction that we expect to complete in the second quarter of 2002.

We also installed a new, similar Lucent Technologies switch in our Juneau
distribution center, also enabling local services to be launched in the Juneau
market in early 2002. This new Juneau switch will replace the existing toll
switch in Juneau, which we expect to decommission in 2002 after over 15 years of
service. One collocation office and a second adjacent collocation facility are
under construction at two of the Juneau ILEC central offices. We expect to place
these collocation facilities in service in 2002 enabling UNE loop access to a
portion of the Juneau ILEC's loop facilities.


                                       20
<PAGE>
We completed construction and placed into service in February 1999 a fiber optic
cable system that interconnects Anchorage, Whittier, Valdez, Fairbanks,
Deadhorse and Juneau, Alaska and Seattle Washington. We also own a portion of a
second undersea fiber optic cable that links Alaska with the Lower 48 states.
The fiber optic cables allow us to carry our Anchorage, Eagle River, Wasilla,
Palmer, Kenai Peninsula, Valdez, Whittier, Delta Junction, Prudhoe Bay,
Glenallen, Fairbanks, Juneau, Ketchikan, and Sitka area traffic to and from the
Lower 48 states over terrestrial circuits, eliminating the one-quarter second
delay associated with satellite circuits. Our preferred routing for this traffic
is via undersea fiber optic cable, which makes available satellite capacity to
carry our rural interstate and intrastate traffic.

We employ satellite transmission for rural intrastate and interstate traffic and
certain other major routes. We acquired satellite transponders on PanAmSat
Corporation ("PanAmSat") Galaxy XR satellite in March 2000 to meet our long-term
satellite capacity requirements.

In 2000 we began deploying a new packet data satellite transmission technology
for the efficient transport of broadband data in support of our rural health and
SchoolAccess(TM) initiatives. We continued to deploy and upgrade this network
during 2001 and expect to further expand and upgrade this network during 2002.

We employ advanced digital transmission technologies to carry as many voice
circuits as possible through a satellite transponder without sacrificing voice
quality. Other technologies such as terrestrial microwave systems, metallic
cable, and fiber optics tend to be favored more for point-to-point applications
where the volume of traffic is substantial. With a sparse population spread over
a wide geographic area, neither terrestrial microwave nor fiber optic
transmission technology is considered to be economically feasible in rural
Alaska in the foreseeable future.

Customers
We had approximately 87,900, 88,600 and 90,800 active Alaska message telephone
service subscribers at December 31, 2001, 2000 and 1999, respectively.
Approximately 12,200, 12,200 and 12,500 of these were business and government
users at December 31, 2001, 2000 and 1999, respectively, and the remainder were
residential customers. Reductions in our residential, customer counts were
primarily attributed to continuing competitive pressures in Anchorage and other
markets we serve. Message telephone service revenues (excluding broadband,
operator services and private line revenues) averaged approximately $11.3
million per month during 2001.

Equal access conversions have been completed in all communities we serve with
owned facilities. We estimate that we carry over 45% of business and over 45% of
residential traffic as a statewide average for both originating interstate and
intrastate message telephone service traffic.
<TABLE>
A summary of our switched message telephone service traffic (in minutes)
follows:
<CAPTION>
                                       Interstate Minutes
                             ---------------------------------------
                                                                                 Combined
                                                                                Interstate
                                                                     Inter-     and Inter-      Intra-
                                South-        North-       Calling   national    national       State        Total
For Quarter ended              bound (1)      Bound         Card     Minutes     Minutes       Minutes      Minutes
----------------------------------------------------------------------------------------------------------------------
                                                              (Amounts in thousands)
 <S>                            <C>          <C>           <C>        <C>        <C>          <C>           <C>
 March 31, 1999                  94,623       57,039        3,694     1,578      156,934       34,950       191,884
 June 30, 1999                  128,623       52,954        3,383     1,649      186,609       37,241       223,850
 September 30, 1999             146,473       56,577        3,273     1,680      208,003       38,078       246,081
 December 31, 1999              137,077       64,823        3,204     1,609      206,713       36,055       242,768
                             -----------------------------------------------------------------------------------------
     Total 1999                 506,796      231,393       13,554     6,516      758,259      146,324       904,583
                             =========================================================================================
</TABLE>

                                       21
<PAGE>
<TABLE>
<CAPTION>
                                       Interstate Minutes
                             ---------------------------------------
                                                                                 Combined
                                                                                Interstate
                                                                     Inter-     and Inter-      Intra-
                                South-        North-       Calling   national    national       State        Total
For Quarter ended              bound (1)      Bound         Card     Minutes     Minutes       Minutes      Minutes
----------------------------------------------------------------------------------------------------------------------
                                                              (Amounts in thousands)
 <S>                            <C>          <C>           <C>        <C>        <C>          <C>         <C>
 March 31, 2000                 143,659       69,678        2,847     1,577      217,761       37,414       255,175
 June 30, 2000                  149,095       67,754        2,616     1,610      221,075       38,546       259,621
 September 30, 2000             157,993       73,802        2,493     1,698      235,986       39,329       275,315
 December 31, 2000              129,091       76,202        2,467     1,429      209,189       35,729       244,918
                             -----------------------------------------------------------------------------------------
     Total 2000                 579,838      287,436       10,423     6,314      884,011      151,018     1,035,029
                             =========================================================================================

 March 31, 2001                 126,681       74,252        2,087     1,424      204,444       38,763       243,207
 June 30, 2001                  141,091       76,256        1,926     1,530      220,803       40,407       261,210
 September 30, 2001             160,600       87,230        1,961     1,634      251,425       39,355       290,780
 December 31, 2001              130,638       90,812        1,946     1,362      224,758       39,246       264,004
                             -----------------------------------------------------------------------------------------
     Total 2001                 559,010      328,550        7,920     5,950      901,430      157,771     1,059,201
                             =========================================================================================
<FN>
   --------------------------
   (1) The 1999 and 2000 Interstate Southbound minutes include traffic carried
       from Washington to Oregon by us on behalf of an OCC customer. The 2001
       Interstate Southbound minutes include traffic that originates and
       terminates in Washington by us on behalf of an OCC customer.

   All minutes data were taken from our internal billing statistics reports.
   ---------------------------
</FN>
</TABLE>
We entered into a significant business relationship with MCI (now WorldCom) in
1993 that included the following agreements, among others.

     -   We agreed to terminate all Alaska-bound MCI long-distance traffic and
         MCI agreed to terminate all of our long-distance traffic terminating in
         the Lower 49 states excluding Washington, Oregon and Hawaii.
     -   The parties agreed to share some communications network resources and
         various marketing, engineering and operating resources. We also carry
         MCI's 800, 888, 877 and 866 traffic originating in Alaska and
         terminating in the Lower 49 states and handle traffic for MCI's calling
         card customers when they are in Alaska.

Concurrently with these agreements, MCI purchased approximately 31% (17.3% as of
December 31, 2001) of GCI's Common Stock and presently two representatives serve
on GCI's Board. In conjunction with the acquisition of certain cable television
companies in 1996, MCI purchased an additional two million shares of GCI Common
Stock at a premium to the then current market price for $13 million or $6.50 per
share.

WorldCom announced in November 2001 that it intended to sell slightly less than
one-half of its ownership of GCI Class A common stock. If the entire 4.5 million
shares being registered were sold, WorldCom's ownership would be reduced to
9.2%. The shares were registered in February 2002 on behalf of WorldCom because
of the exercise of its registration rights, however no underwriting is
anticipated. WorldCom has requested this registration as part of its normal
investment portfolio management process. We expect that WorldCom will retain its
two boards seats on GCI's board of directors.


                                       22
<PAGE>
Revenues attributed to WorldCom in 2001, 2000 and 1999 totaled $58.2 million,
$53.1 million and $43.7 million, or 16.3%, 18.1% and 15.6% of total revenues,
respectively. The contract was amended in March 2001 extending its term five
years to March 2006. The amendment reduces the rate to be charged by us for
certain traffic over the extended term of the contract.

In 1993 we entered into a long-term agreement with Sprint, pursuant to which we
agreed to terminate all Alaska-bound Sprint long-distance traffic and Sprint
agreed to handle substantially all of our international traffic. Services
provided pursuant to the contract with Sprint resulted in revenues in 2001, 2000
and 1999 of approximately $36.9 million, $25.4 million and $23.1 million, or
approximately 10.3%, 8.7% and 8.3% of total revenues, respectively. The contract
was amended in March 2002 extending its term five years to March 2007, with two
one-year automatic extensions thereafter. The amendment reduces the rate to be
charged by us for certain traffic over the extended term of the contract.

With the contracts and amendment described above, we are assured that WorldCom
and Sprint, our two largest customers, will continue to make use of our services
during the extended term. WorldCom was a major customer of our long-distance
services industry segment through 2001. Sprint met the threshold for
classification as a major customer through 1998, and met the threshold again in
2001.

Other common carrier traffic routed to us for termination in Alaska is largely
dependent on traffic routed to our carrier customers by their customers. Pricing
pressures, new program offerings and market consolidation continue to evolve in
the markets served by our carrier customers. If, as a result, their traffic is
reduced, or if their competitors' costs to terminate or originate traffic in
Alaska are reduced, our traffic will also likely be reduced, and we may have to
reduce our pricing to respond to competitive pressures. We are unable to predict
the effect of such changes on our business, however the loss of one or both of
WorldCom or Sprint as customers, a material adverse change in our relationships
with them or a material loss of or reduction in their long-distance customers
would have a material adverse effect on our financial condition and results of
operations.

We provide various services to BP Alaska, Wells Fargo Bank Alaska and Alyeska
Pipeline Service Company . Although these customers do not meet the threshold
for classification as major customers, we do derive significant revenues and
gross profit from them. There are no other individual customers, the loss of
which would have a material impact on our revenues or gross profit.

We provided private line and private network communication products and
services, including SchoolAccess(TM) private line facilities, to approximately
345 commercial and government customers in 2001. These products and services
generated approximately 9.7%, 9.9% and 7.9% of total revenues during the years
ended December 31, 2001, 2000 and 1999, respectively.

Although we have several agreements to facilitate the origination and
termination of international toll traffic, we have neither foreign operations
nor export sales (see Part I, Item 1. Business, Foreign and Domestic Operations
and Export Sales).

Competition
The long-distance industry is intensely competitive and subject to constant
technological change. Competition is based upon price and pricing plans, the
type of services offered, customer service, billing services, performance,
perceived quality, reliability and availability. A number of our competitors are
substantially larger than we are and have greater financial, technical and
marketing resources than we have.

In the long-distance market, we compete against AT&T Alascom, ACS, the Matanuska
Telephone Association and certain smaller rural local telephone carrier
affiliates. There is also the possibility that new competitors will enter the
Alaska market. In addition, wireless services continue to grow as an alternative
to wireline services as a means of reaching customers.


                                       23
<PAGE>
Historically, we have competed in the long-distance market by offering discounts
from rates charged by our competitors and by providing desirable packages of
services. Discounts have been eroded in recent years due to lowering of prices
by AT&T Alascom and entry of other competitors into the long-distance markets we
serve. In addition, our competitors have also begun to offer their own packages
of services. If competitors lower their rates further or develop more attractive
packages of services, we may be forced to reduce our rates or add additional
services, which would have a material adverse effect on our revenues and net
income.

Under the terms of AT&T's acquisition of Alascom, AT&T Alascom rates and
services must mirror those offered by AT&T, so changes in AT&T prices indirectly
affect our rates and services. AT&T's and AT&T Alascom's interstate prices are
regulated under a price cap plan whereby their rate of return is not regulated
or restricted. Price increases by AT&T and AT&T Alascom generally improve our
ability to raise prices while price decreases pressure us to follow. We believe
we have, so far, successfully adjusted our pricing and marketing strategies to
respond to AT&T and other competitors' pricing practices. However, if
competitors significantly lower their rates, we may be forced to reduce our
rates, which could have a material adverse effect on us.

As allowed under the 1996 Telecom Act, ACS and other LECs entered the interstate
and international long-distance market, and pursuant to RCA authorization,
entered the intrastate long-distance market. ACS and other LECs generally lease
or buy long-haul capacity on long-distance carriers' facilities to provide their
interstate and intrastate long-distance services.

Another carrier completed construction of fiber optic facilities connecting
points in Alaska to the Lower 48 states in 1999. The additional fiber system
provides direct competition to services we provide on our owned fiber optic
facilities, however the fiber system provides an alternative routing path for us
in case of a major fiber outage in our systems. This carrier filed for Chapter
11 bankruptcy in 2001 and it is likely to be sold or reorganized. We are
participating in the auction process and have submitted various proposals, none
of which has been accepted to date.

In the wireless communications services market, we expect our PCS business to
compete against the cellular subsidiaries of AT&T and ACS and resellers of those
services in Anchorage and other markets. The wireless communications industry
continues to experience significant consolidation. AT&T has acquired wireless
companies and negotiated roaming arrangements that give it a national presence.
Mergers and joint ventures in the industry have created large, well-capitalized
competitors with substantial financial, technical, marketing and other
resources. These competitors may be able to offer nationwide services and plans
more quickly and more economically than we can, and obtain roaming rates that
are more favorable than those that we obtain. We currently resell AT&T analog
and digital cellular services and provide limited wireless local access services
on our own facilities.

Our long-distance services sales efforts are primarily directed toward
increasing the number of subscribers we serve, selling bundled services, and
generating incremental revenues through product and feature up-sale
opportunities. We sell our long-distance communications services through
telemarketing, direct mail advertising, door-to-door selling, up-selling by our
customer contact personnel, and local media advertising.

We expect competition to increase because of the rapid development of new
technologies, products and services. We cannot predict which of many possible
future technologies, products or services will be important to maintain our
competitive position or what expenditures will be required to develop and
provide these technologies, products or services. Our ability to compete
successfully will depend on marketing and on our ability to anticipate and
respond to various competitive factors affecting the industry, including new
services that may be introduced, changes in consumer preferences, economic
conditions and pricing strategies by competitors. To the extent we do not keep
pace with technological advances or fail to timely respond to changes in
competitive factors in our industry and in our markets we could lose market
share or experience a decline in our revenue and net income. Competitive
conditions create a risk of market share loss and the risk that customers shift
to less profitable lower margin services. Competitive pressures also create
challenges to our ability to grow new


                                       24
<PAGE>
businesses or introduce new services successfully and execute on our business
plan. Each of our business segments also faces the risk of potential price cuts
by our competitors that could materially adversely affect our market share and
gross margins.

Cable Services
Industry
The programmed video services industry includes traditional broadcast
television, cable television, wireless cable, and DBS systems. Technology
convergence may also allow programmed video via the Internet but reluctance to
change the current delivery structure will likely continue to limit the
availability of programming in the near term. Cable television providers have
added non-broadcast programming, utilized improved technology to increase
channel capacity and expanded service markets to include more densely populated
areas and those communities in which off-air reception is not problematic.
Broadcast television stations including network affiliates and independent
stations generally serve the urban centers. One or more local television
stations may serve smaller communities. Rural communities may not receive local
broadcasting or have cable systems but may receive direct broadcast programming
via a satellite dish.

Advancements in technology, facility upgrades and plant expansions to enable
migration to digital programming are expected to continue to have a significant
impact on cable services in the future. We expect that changing federal, state
and local regulations, intense competition, and uncertain technologies and
standards will continue to challenge the industry.

The National Cable and Telecommunications Association ("NCTA") reported that
digital cable subscribers totaled 13.7 million through November 2001, an
increase of 41.2% as compared to 9.7 million in 2000. Industry analysts project
that the number of digital video subscribers will continue to grow as cable
plant upgrade efforts are completed and the cost of digital set-top technology
decreases.

As a converged platform, cable is a viable competitive alternative outside its
traditional video space, not only in the broadband space as a competitor with
technology such as DSL, but also in traditional telephony services. These
developments continue to move forward and will be enhanced as voice becomes
another application that is carried on data centric networks.

Industry analysts believe high-speed access cable subscribers will grow from an
estimated 7.2 million at the end of 2001 to 21.1 million at the end of 2005.
During that same period, DSL connections are expected to increase from 4.7
million to 15.4 million.

Cable television still is the dominant technology for the delivery of video
programming to consumers in the MVPD marketplace, although its market share
continues to decline. As of June 2001, the FCC reports that 78% of MVPD
subscribers received their video programming from a franchised cable operator,
compared to 80% as of June 2000. DirecTV and EchoStar are each among the ten
largest providers of multichannel video programming service.

Between June 2000 and June 2001, the number of DBS subscribers grew from almost
13 million households to about 16 million households, which is nearly two and a
half times the cable subscriber growth rate. DBS subscribers now represent 18.2%
of all MVPD subscribers. Continued DBS subscriber growth is expected with the
potential merger of DBS providers and the launching of local programming in all
markets. See Part I, Item 1. Business, Regulation, Franchise Authorizations and
Tariffs - Cable Services for more information.

The most significant convergence of service offerings over cable plant continues
to be the pairing of Internet service with other service offerings. Currently,
the most popular way to access the Internet over cable is using a cable modem
and personal computer. We are currently offering high-speed cable modem access
in Anchorage, Juneau, Fairbanks, Kenai, Soldotna, Nome, Sitka, Seward, North
Pole, Eielson Air Force Base, Fort Wainwright, Fort Richardson, Elmendorf Air
Force Base, Palmer, Wasilla and Valdez.


                                       25
<PAGE>
The cable industry is now expanding its competitive offerings to include
business and residential telephone services delivered over its fiber optic
infrastructure. Cable-delivered telephone service is a natural extension of a
network already capable of delivering digital and broadband services and
products. Once upgraded to two-way fiber optics, a cable system can offer
telephone service over the same cable line that already carries digital video,
high speed Internet, and other advanced services to consumers. At least nine of
the nation's largest multiple system operators are reported to now offer
residential and/or commercial phone service in more than 45 markets, serving
more than one million customers.

Cable companies have deployed circuit-switched technology to provide local
service, however future movement is expected toward voice over Internet protocol
("VoIP"). Circuit-switched service requires large capital expenditures for
switching equipment in addition to facility upgrades. VoIP is more modular and
does not require the large upfront cost needed to deploy circuit-switched
service. VoIP is not only an incremental expense, it utilizes the data path
already built, and is expected to allow for easy software changes and additions
to service packages, and innovative combinations of voice, data, and fax
services. Continuing questions about scalability and powering for lifeline
service need to be resolved before IP telephony can be marketed on a mass scale.

The NCTA reports that cable-delivered residential telephone service subscribers
totaled 1.5 million through December 2001, with analysts projecting 15.4 million
subscribers in 2005.

With digital transmissions and compression, cable operators are better able to
offer a variety and quality of channels to rival DBS, with pay-per-view choices
that can approximate video on demand. In 2000 we installed a commercial version
of video-on-demand for the Anchorage hotel market and continue to evaluate the
feasibility of deploying this technology in the residential market. With this
service, customers can access a wide selection of movies and other programming
at any time, with digital picture quality.

Acquisitions, mergers and divestitures are shaping the cable industry in a
technological convergence similar to what is happening in the telecommunications
industry. The FCC reports that the ten largest operators now serve close to 87%
of all U.S. cable subscribers. Twenty-three system transactions occurred during
the first six months of 2001 affecting over 4 million subscribers. The average
dollar value per subscriber totaled $3,656 as compared to $5,923 per subscriber
for transactions occurring in 2000.

The FCC reported that estimated 2001 total cable industry revenue reached $44.0
billion, an estimated 15.4% increase over 2000, and that revenue per subscriber
per year reached approximately $637, or $53 per subscriber per month. Revenue
growth in 2001 occurred primarily in advanced services (171% increase),
pay-per-view (44% increase), and local advertising (13% increase) categories.
Advanced services includes advanced analog, digital video, high-speed data,
cable telephony, interactive services, and games.

The FCC reports that the costs of acquiring video programming over the past two
years has continued to escalate. Programming costs have increased by 13% to 15%
over the past two years. Some services have increased by as much as 33%.
Increased programming costs, especially higher sports license fees, system
upgrades and equipment cost increases resulted in higher cable rates for
subscribers. Industry cable rates increased approximately 5.7% in 2001.

The NCTA reported that the number of basic cable subscribers continued to grow,
reaching 72.9 million in 2001, an increase of 5.2% as compared to 2000. The
total number of subscribers to both cable and non-cable MVPDs continues to
increase. 88.3 million households subscribe to multichannel video programming
services as of June 2001, up 4.6% over the 84.4 million households subscribing
to MVPDs in June 2000. This subscriber growth accompanied a 2.7 percentage point
increase in MVPDs' penetration of television households to 86.4% as of June
2001.


                                       26
<PAGE>
The NCTA reports that cable penetration as compared to homes passed was 69.2%.
Our overall penetration of homes passed was 67.9% at December 31, 2001 with
individual systems ranging from 52.7% to 97.9%.

In Alaska, cable television was introduced in the 1970s to provide television
signals to communities with few or no available off-air television signals and
to communities with poor reception or other reception difficulties caused by
terrain interference. Since that time, as on the national level, the cable
television providers in Alaska have added non-broadcast programming.

The market for programmed video services in Alaska includes traditional
broadcast television, cable television, wireless cable, and DBS systems.
Broadcast television stations including network affiliates and independent
stations serve the urban centers in Alaska. Eight, six and two broadcast
stations serve Anchorage, Fairbanks and Juneau, respectively. In addition,
several smaller communities such as Bethel are served by one local television
station that is typically a PBS affiliate. Other rural communities without cable
systems receive a single state sponsored channel of television by a satellite
dish and a low power transmitter.

See Part I, Item I, Business, Regulation, Franchise Authorizations and Tariffs -
Cable Service for more information.

General
We are the largest operator of cable systems in Alaska, serving approximately
132,000 residential, commercial and government basic subscribers. Our cable
television systems serve 33 communities and areas in Alaska, including the
state's three largest urban areas, Anchorage, Fairbanks, and Juneau. Our
statewide cable systems consist of approximately 2,200 miles of installed cable
plant having 330 to 550 MHz of channel capacity.

Products
Programming services offered to our cable television systems subscribers differ
by system (all information as of December 31, 2001).

Anchorage system. The Anchorage system, which is located in the urban center for
Alaska, is fully addressable and offers a basic analog service that includes 19
channels and 2 additional analog tiers offering 32 and 6 channels. This system
also carries digital service, offering enhanced picture and audio quality, over
20 digital special interest channels, 50 channels of digital music, and over 50
channels of premium and pay-per-view products. Pay TV services are available
either individually or as part of a value package. Commercial subscribers such
as hospitals, hotels and motels are charged negotiated monthly service fees.
Apartment and other multi-unit dwelling complexes receive basic service at a
negotiated bulk rate.

Fairbanks, Juneau, Kenai, and Soldotna systems. These systems offer a basic
analog service with 12 to 18 channels and an additional analog tier with 34 to
43 channels. These systems also carry digital service, offering enhanced picture
and audio quality, over 19 special interest channels, 50 channels of digital
music, and over 50 channels of premium and pay-per-view products.

Sitka System. This location offers an advanced analog service with a 15 channel
basic service, a 37 channel expanded basic service, five channels of premium
service, four channels of pay-per-view and 32 music channels.

Other systems. We own systems in the Alaska communities and areas of Bethel,
Cordova, Homer, Ketchikan, Kodiak, Kotzebue, Palmer, Wasilla, Nome, Petersburg,
Seward, Valdez, and Wrangell. These analog systems offer a basic service with
nine to 15 channels and an expanded basic service with 35 to 49 channels.
Several channels of premium service are also available in all systems. Music
service is available in Ketchikan, Kodiak, Petersburg, Valdez and Wrangell.
Pay-per-view is available in Homer, Ketchikan, Kodiak, Petersburg, Seward and
Wrangell.


                                       27
<PAGE>
Facilities
Our cable television businesses are located in Anchorage, Palmer, Wasilla,
Bethel, Chugiak, Cordova, Douglas, Eagle River, Eielson AFB, Elmendorf AFB,
Fairbanks, Fort Greely, Fort Richardson, Fort Wainwright, Homer, Juneau,
Kachemak, Kenai, Ketchikan, Kodiak, Kodiak Coast Guard Air Station, Kotzebue,
Mount Edgecombe, Nome, North Pole, Petersburg, Peters Creek, Saxman, Seward,
Sitka, Soldotna, Ward Cove, and Wrangell Alaska. Our facilities include cable
plant and head-end distribution equipment. Certain of our head-end distribution
centers are co-located with customer service, sales and administrative offices.

Customers
Our cable systems passed approximately 192,000, 177,000 and 174,000 homes at
December 31, 2001, 2000 and 1999, respectively, and served approximately
132,000, 120,400 and 116,700 basic subscribers at December 31, 2001, 2000 and
1999, respectively. Revenues derived from cable television services totaled
$76.6 million, $67.9 million and $61.1 million in 2001, 2000 and 1999,
respectively.

Competition
Our cable television systems face competition from alternative methods of
receiving and distributing television signals, including DBS, wireless and
private SMATV systems, and from other sources of news, information and
entertainment such as off-air television broadcast programming, newspapers,
movie theaters, live sporting events, interactive computer services, Internet
services and home video products, including videotape cassette and video disks.
Our cable television systems also face competition from potential overbuilds of
our existing cable systems by other cable television operators and alternative
methods of receiving and distributing television signals. The extent to which
our cable television systems are competitive depend, in part, upon our ability
to provide quality programming and other services at competitive prices.

We believe our greatest source of competition comes from the DBS industry. Two
major companies, DirecTV and Echostar, who have recently announced their
intentions to merge, are currently offering nationwide high-power DBS services.
In the past, due to the existing structure of satellite orbital slots, satellite
transmission power and lack of local signals, competition from DBS providers has
been limited.

In the past, the majority of Alaska DBS subscribers were required to install
larger satellite dishes (generally three to six feet in diameter) because of the
weaker satellite signals currently available in northern latitudes, particularly
in communities surrounding, and north of, Fairbanks. In addition, the satellites
had a relatively low altitude above the horizon when viewed from Alaska, making
their signals subject to interference from mountains, buildings and other
structures. Recent satellite placements provide Alaska and Hawaii residents with
a DBS package that requires a smaller satellite dish (typically 18 inches);
however, a second larger dish is required if the subscriber wants to receive a
channel line-up similar to that provided by our cable systems. In addition to
the dish size and cost deterrents, DBS signals are subject to degradation from
atmospheric conditions such as rain and snow.

We expect that the launch of new satellites, the pending DBS provider merger,
the potential addition of local stations, and the changing nature of technology
and of the DBS business will result in greater satellite coverage and
competition in Alaska.

Several other cable operators provide cable service in Alaska. All of these
companies are relatively small, with the largest having fewer than 1,500
subscribers. The extent to which our cable television systems are competitive
depends, in part, upon our ability to provide quality programming and other
services at competitive prices.

Competitive forces will be counteracted by offering expanded programming through
digital services and by providing high-speed data services. Over the next two
years, system upgrades are planned to make all systems reverse activated, thus
creating the necessary infrastructure to offer cable modem service. During this
period a digital platform will be established in the majority of our systems.
These plant upgrades combined with local broadcast programming is expected to
provide an attractive product in comparison to competitive offerings.


                                       28
<PAGE>
High-speed data access competition takes two primary forms: cable modem access
service and DSL service. DSL service allows Internet access to subscribers at
data transmission speeds equal to cable modems over traditional telephone lines.
Numerous companies, including telephone companies, have introduced DSL service
and certain telephone companies are seeking to provide high-speed broadband
services, including interactive online services, without regard to present
service boundaries and other regulatory restrictions. Companies in the lower-49
states, including telephone companies and ISP's, have asked local, state and
federal governments to mandate that cable communications systems operators
provide capacity on their cable infrastructure so that these companies and
others may deliver Internet services directly to customers over cable
facilities. The FCC determined in March 2002 that cable system operators will
not be required to provide such "open access" to others. See Part I, Item 1,
Business, Regulation, Franchise Authorizations and Tariffs - Cable Services for
more information.

Other new technologies may become competitive with non-entertainment services
that cable television systems can offer. The FCC has authorized television
broadcast stations to transmit textual and graphic information useful to both
consumers and businesses. The FCC also permits commercial and non-commercial FM
stations to use their subcarrier frequencies to provide non-broadcast services
including data transmissions. The FCC established an over-the-air interactive
video and data service that will permit two-way interaction with commercial and
educational programming along with informational and data services. LECs and
other common carriers also provide facilities for the transmission and
distribution to homes and businesses of interactive computer-based services,
including the Internet, as well as data and other non-video services. The FCC
has conducted spectrum auctions for licenses to provide PCS. PCS will enable
license holders, including cable operators, to provide voice and data services.
We own a statewide license to provide PCS services in Alaska.

Cable television systems generally operate pursuant to franchises granted on a
non-exclusive basis. The 1992 Cable Act gives local franchising authorities
jurisdiction over basic cable service rates and equipment in the absence of
"effective competition," prohibits franchising authorities from unreasonably
denying requests for additional franchises and permits franchising authorities
to operate cable systems. Well-financed businesses from outside the cable
industry (such as the public utilities that own certain of the poles on which
cable is attached) may become competitors for franchises or providers of
competing services.

Our cable services sales efforts are primarily directed toward increasing the
number of subscribers we serve, selling bundled services, and generating
incremental revenues through product and feature up-sale opportunities. We sell
our cable services through telemarketing, direct mail advertising, door-to-door
selling, up-selling by our customer contact personnel, and local media
advertising.

Advances in communications technology as well as changes in the marketplace are
constantly occurring. We cannot predict the effect that ongoing or future
developments might have on the telecommunications and cable television
industries or on us specifically.

Local Access Services
Industry
The FCC reported that CLECs provided 17.3 million (or 9.0%) of the approximately
192 million nationwide switched-access lines in service at the end of June 2001,
compared to 14.9 million (or 7.7% of nationwide lines) at the end of 2000. This
represents a 16% growth in CLEC market size during the first six months of 2001.
The FCC further reported about 55% of reported CLEC switched access lines serve
medium and large business, institutional, and government customers. By contrast,
a reported 23% of ILEC local telephone lines served such customers. CLECs
reported providing about one-third of switched access lines over their own local
loop facilities. To serve the remainder, CLECs resell the services of other
carriers or use UNE loops that they lease from other carriers.

Use of the Internet and expansion in the use of LANs and WANs continue to
generate an increased demand for access lines. In the home, the growing use of
computers, faxes, and the Internet led to increases in access lines and usage.
The emergence of new services, including digital cellular, personal
communications services, interactive


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<PAGE>
TV, and video dial tone, has created opportunities for growth in local loop
services. These new services are fundamentally restructuring the competitive
local loop services market.

Emerging from the new competitive landscape are CLECs who offer Internet access
and data services to medium and large size businesses. They obtain
interconnection agreements with ILECs for DSL-qualified unbundled network
element loops. One loop, so qualified and equipped with appropriate access
devices, enables the delivery of high speed (generally less than 768 kbps but
sometimes faster rates), always-connected Internet access, LAN/WAN
interconnectivity, and private line and private network circuits.

Cable telephony deployments in the US continue to expand using proprietary,
circuit switched technology. The standardized, packet (IP) technology has not
developed as quickly as the industry projected in 2001, however, significant
progress has occurred. Hardware is now available that is DOCSIS 1.1 qualified,
which provides quality of service necessary for voice services. We continue to
prepare for the earliest possible deployment of a cable telephony solution that
meets our needs and the needs of our customers.

Wireless local loop access technologies (other than fixed rate cellular
telephone service), while developing for international applications, have not
yet developed a significant market presence in the United States. AT&T Wireless'
fixed wireless plan, called Project Angel - was test-marketed in the Anchorage
area. Initially conceived as AT&T's proprietary strategy for bypassing local
phone carriers, industry analysts believe AT&T reconfigured it to primarily
deliver always-on high-speed Internet access at 512 kbps where the carrier lacks
cable system facilities in markets such as Anchorage. AT&T Wireless announced in
October 2001 that it intended to close its fixed wireless operations, citing the
high cost of expanding a business that does not fit into the company's core
strategy.

General
Our local access services division entered the local services market in
Anchorage in 1997, providing services to residential, commercial, and government
users. We can access approximately 92% of Anchorage area local loops from our
collocated remote facilities and DLC installations.

Products
Our collocated remote facilities access the ILEC's unbundled network element
loops, allowing us to offer full featured, switched-based local service products
to both residential and commercial customers. In areas where we do not have
access to Anchorage ILEC loop facilities, we offer service using total service
resale of the ILEC's local service.

Our package offerings are competitively priced and include popular features,
such as the following.

        -   Enhanced call waiting               -   Caller ID
        -   Caller ID on call waiting           -   Free caller ID box
        -   Anonymous call rejection            -   Call forwarding
        -   Call forward busy                   -   Call forward no answer
        -   Enhanced call waiting               -   Fixed call forwarding
        -   Follow me call                      -   Intercom service forwarding
        -   Multi-distinctive ring              -   Per line blocking
        -   Selective call forwarding           -   Selective call acceptance
        -   Selective call rejection            -   Selective distinctive alert
        -   Speed calling                       -   Three way calling
        -   Voice mail                          -   Inside wire repair plan
        -   Non-listed number                   -   Non-published number


                                       30
<PAGE>
Facilities
In Anchorage we utilize a Lucent Technologies host switching system (5ESS), have
collocated six remote facilities adjacent to or within the ILEC's local
switching offices to access unbundled loop network elements, and have installed
a DLC system adjacent to a smaller, seventh ILEC wire center. Remote and DLC
facilities are interconnected to the host switch via our diversely routed fiber
optic links. Our expanded capacity at each of the remote facilities allows us
access to approximately 186,000 Anchorage loops. Additionally, we provided our
own facilities-based services to over 9,500 of Anchorage's larger business
customers (those with more than 16 lines) through further expansion and
deployment of SONET fiber transmission facilities, leased and HDSL T-1
facilities, and DLC facilities. We have similar facilities at remote switching
centers in Fairbanks that allow us access to ILEC loops.

Customers
We had approximately 79,200, 62,100 and 45,100 active lines in service from
Anchorage and Fairbanks (beginning in 2001), Alaska subscribers to our local
access services at December 31, 2001, 2000 and 1999, respectively. The 2001 line
count consists of approximately 38,300 residential access lines and 40,900
business access lines, including 7,500 Internet service provider access lines.
We ended 2001 with market share gains in all market segments. At December 31,
2001 approximately 79,200 lines were in service as compared to approximately
62,000 lines in service at December 31, 2000. In late 2001 we started selling
GCI local services in Juneau with conversions to our facilities beginning in the
first quarter of 2002.

Revenues derived from local access services in 2001, 2000 and 1999 totaled $25.2
million, $20.2 million and $15.5 million, respectively, representing
approximately 7.1%, 6.9% and 5.6% of our total revenues in 2001, 2000 and 1999,
respectively.

Competition
In the local access services market the 1996 Telecom Act, judicial decisions,
and state legislative and regulatory developments have increased the likelihood
that barriers to local telephone competition will be substantially reduced or
removed. These initiatives include requirements that ILECs negotiate with
entities, including us, to provide interconnection to the existing local
telephone network, to allow the purchase, at cost-based rates, of access to
unbundled network elements, to establish dialing parity, to obtain access to
rights-of-way and to resell services offered by the incumbent local exchange
carrier.

We have been able to obtain interconnection, access and related services from
the local exchange carriers at rates that allow us to offer competitive
services. However, if we are unable to continue to obtain these services and
access at acceptable rates, our ability to offer local telephone services, and
our revenues and net income, could be materially adversely affected. To date, we
have been successful in capturing a significant portion of the local telephone
market in the locations where we are offering these services.

The 1996 Telecom Act also provides ILECs with new competitive opportunities. We
believe that we have certain advantages over these companies in providing
telecommunications services, including awareness by Alaskan customers of the GCI
brand-name, our facilities-based telecommunications network, and our prior
experience in, and knowledge of, the Alaskan market.

In the local access services market, we compete against ACS, the incumbent local
exchange carrier, in Anchorage, Juneau and Fairbanks. We also compete against
AT&T in the Anchorage service area. AT&T offers local exchange service only to
residential customers through total service resale. We have filed applications
with regulatory agencies to provide local telephone service in other markets
where ACS is the incumbent provider, and we may provide local telephone service
in other locations in the future where we would face other competitors. We
expect further competition in the Anchorage, Fairbanks and Juneau marketplaces,
as DSLnet has received certification for various markets. The Company expects
competition in business customer telephone access, Internet access, DSL and
private line markets. We believe our long-standing presence in Alaska and the
strength of our brand (as well as ACS's) will make competitive entry difficult
for new entrants.


                                       31
<PAGE>
We continue to offer local exchange services to substantially all consumers in
the Anchorage and Fairbanks service areas, primarily through our own facilities
and unbundled local loops leased from ACS.

Our local services sales efforts continue to focus on increasing the number of
commercial and small business subscribers we serve, selling bundled services,
and generating incremental revenues through product and feature up-sale
opportunities. We sell our local services through telemarketing, direct mail
advertising, up selling by our customer contact personnel, and door-to-door
selling.

You should see Part I, Item 1. Business, Regulation, Franchise Authorizations
and Tariffs - Telecommunications Operations for more information.

Internet Services
Industry
The Internet continues to expand at a significant rate, with the number of sites
almost doubling over the last several years. Dial-up Internet access is the most
widely used way to access the Internet. As of July 2001, the FCC reported that
58% of the U.S. population had Internet access at home. As of year-end 2000,
84.6% of all Internet households were accessing the Internet using dial-up
modems. It is projected that telephone dial-up will remain the principal means
of accessing the Internet until about 2005, when it is expected that only 48% of
Internet households will use dial-up access, with the remaining 52% accessing
the Internet through broadband facilities.

Industry analysts believe that broadband deployment will bring valuable new
services to consumers, stimulate economic activity, improve national
productivity, and advance many other objectives, such as improving education,
and advancing economic opportunities. While cable modem access is the primary
means of accessing the Internet over broadband networks, cable's share of the
broadband Internet access market continues to decrease. DSL is the most
significant broadband competitor to cable modem service. The NCTA reported that
cable modem subscribers totaled 6.4 million through November 2001, an increase
of 60% as compared to 4.0 million in 2000. 70 million homes were passed by cable
modem service in 2001. As of June 2001, cable modem service was available to
approximately 67.3 million homes, while DSL was available to an estimated 45
million homes with approximately three million subscribers. Satellite and
wireless technologies currently have eight percent of the market and are not
expected to increase market share over the next several years.

According to J.P. Morgan, 73% of U.S. households have cable modem service
available, and 45% of households have access to DSL. Combined, broadband
availability is estimated to currently be approximately 85% however only 12% of
these households have chosen to subscribe, leaving a large potential market for
future broadband deployment.

Analysts predict that the amount of Internet traffic will likely continue to
rise as fast as capacity allows for the foreseeable future. VoIP may have a
major impact on business and the entire telecommunications industry in the
future. Industry analysts estimate that there will be more than 20 million
installed cable modem customers in North America by year-end 2004. Most American
households still access the Internet using analog telephone dial-up modems at
speeds of less than 56 kbps.

General
Our Internet services division entered the Internet services market in 1998,
providing retail services to residential, commercial, and government users and
providing wholesale carrier services to other ISPs. We were the first provider
in Anchorage to offer commercially available DSL products.

Products
We currently offer three types of Internet access for residential use: dial-up,
fixed wireless and high-speed cable modem Internet access. Our residential
high-speed cable modem Internet service offers up to 1,544 kbps access


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<PAGE>
speeds as compared with up to 56 kbps access through standard copper wire
dial-up modem access. Our fixed wireless offers low speed 64 kbps and higher
speed 256 kbps versions. We provide free 24-hour customer service and technical
support via telephone or online. The entry-level cable modem service also offers
free data transfer up to five gigabytes per month and can be connected
24-hours-a-day, 365-days-a-year, allowing for real-time information and e-mail
access. Cable modems use our coaxial cable plant that provides cable television
service, instead of the traditional ILEC copper wire. Coaxial cable has a much
greater carrying capacity than telephone wire and can be used to simultaneously
deliver both cable television (analog or digital) and Internet access services.

We also offer a low price upgrade to double the bandwidth of the entry-level
service. In 2001, we saw a 22% take rate of this service, providing evidence of
the continuing demand for higher speed access. Additional cable modem service
packages tailored to both heavy residential and commercial Internet users are
also available.

We currently offer several Internet service packages for commercial use: dial-up
access, DSL, T1 and fractional T1 leased line, frame relay, multi-megabit and
high-speed cable modem Internet access. Our business high-speed cable modem
Internet service offers access speeds ranging from 256 kbps to 1,544 kbps, free
monthly data transfers of up to 25 gigabytes and free 24-hour customer service
and technical support. Our DSL offering can support speeds of up to 768 kbps
over the same copper line used for phone service. Business services also include
a personalized web page, domain name services, and e-mail addressing.

We also provide dedicated access Internet service to commercial and public
organizations in Alaska. We offer a premium service and currently support many
of the largest organizations in the state such as the Phillips Alaska and the
Anchorage School District. We have hundreds of other enterprise customers, both
large and small, using this service.

Bandwidth is made available to our Internet segment through our Alaska United
undersea fiber cable and our Galaxy XR transponders as previously described. Our
Internet offerings are coupled with our long-distance and local services
offerings and provide free basic Internet services if certain long-distance or
local service plans are selected. Value-added Internet features are available
for additional charges.

We provide Internet access for schools and health organizations using a platform
including many of the latest advancements in technology. Services are delivered
through a locally available circuit, our existing lines, and/or satellite earth
stations.

Facilities
The Internet is an interconnected global public computer network of tens of
thousands of packet-switched networks using the Internet protocol. The Internet
is effectively a network of networks routing data throughout the world. We
provide access to the Internet using a platform that includes many of the latest
advancements in technology. The physical platform is concentrated in Anchorage
and is extended into many remote areas of the state. Our Internet platform
includes:

     -   Circuits connecting our Anchorage facilities to multiple Internet
         access points in Seattle through multiple, diversely routed networks.
     -   Multiple routers on each end of the circuits to control the flow of
         data and to provide resiliency.
     -   Our Anchorage facility consists of routers, a bank of servers that
         perform support and application functions, database servers providing
         authentication and user demographic data, layer 2 gigabit switch
         fabrics for intercommunications and broadband services (cable modem and
         DSL), and access servers for dial-in users.


                                       33
<PAGE>
     -   SchoolAccess(TM) Internet service delivery to over 257 schools in rural
         Alaska and 22 schools in New Mexico and Arizona is accomplished by
         three variations on primary delivery systems:
         -    In communities where we have terrestrial interconnects or provide
              existing service over regional earth stations, we have configured
              intermediate distribution facilities. Schools that are within
              these service boundaries are connected locally to one of those
              facilities.
         -    In communities where we have extended telecommunications services
              via our DAMA earth station program, SchoolAccess(TM) is provided
              via a satellite circuit to an intermediate distribution facility
              at the Eagle River Earth Station.
         -    In communities or remote locations where we have not extended
              telecommunications services, SchoolAccess(TM) is provided via a
              dedicated (usually on premise) DAMA VSAT satellite station. The
              DAMA connects to an intermediate distribution facility located in
              Anchorage.

Dedicated Internet access is delivered to a router located at the service point.
Our Internet management platform constantly monitors this router; continual
communication is maintained with all of the routers in the network. The
availability and quality of service, as well as statistical information on
traffic loading, are continuously monitored for quality assurance. The
management platform has the capability to remotely access routers, permitting
changes in router configuration without the need to physically be at the service
point. This management platform allows us to offer outsourced network monitoring
and management services to commercial businesses. Many of the largest commercial
networks in the State of Alaska use this service.

GCI.net offers a unique combination of innovative network design and aggressive
performance management. Our Internet platform has received a certification that
places it in the top one percent of all service providers worldwide and is the
only ISP in Alaska with such a designation. We operate and maintain what we
believe is the largest, most reliable, and highest performance Internet network
in the state of Alaska.

Customers
We had approximately 69,900, 62,500 and 48,300 active residential and commercial
dial-up Internet subscribers at December 31, 2001, 2000 and 1999, respectively.
We had approximately 26,500, 16,100 and 5,700 active residential and commercial
cable modem Internet subscribers at December 31, 2001, 2000 and 1999,
respectively. Revenues derived from Internet services totaled $12.0 million,
$8.4 million and $4.8 million, in 2001, 2000 and 1999, respectively,
representing approximately 3.4%, 2.9% and 1.7% of our total revenues in 2001,
2000 and 1999, respectively.

Our Internet services sales efforts are primarily directed toward increasing the
number of subscribers we serve, selling bundled services, and generating
incremental revenues through product and feature upsale opportunities. We sell
our Internet services through telemarketing, direct mail advertising,
door-to-door selling, up-selling by our customer contact and technical support
personnel, and local media advertising.

Competition
The Internet industry is highly competitive, rapidly evolving and subject to
constant technological change. Competition is based upon price and pricing
plans, service packages, the types of services offered, the technologies used,
customer service, billing services, perceived quality, reliability and
availability. As of December 31, 2001, we competed with more than five Alaska
based Internet providers, and competed with other domestic, non-Alaska based
providers that provide national service coverage. Several of the providers have
substantially greater financial, technical and marketing resources than we do.

With respect to our high-speed cable modem service, ACS and other Alaska
telephone service providers are providing competitive high-speed DSL services.
Direct broadcast satellite providers and others could provide wireless high
speed Internet service in competition with our high-speed cable modem services.

Niche providers in the industry, both local and national, compete with certain
of our Internet service products, such as web hosting, list services and email.


                                       34
<PAGE>
Environmental Regulations
We may undertake activities that, under certain circumstances may affect the
environment. Accordingly, they are subject to federal, state, and local
regulations designed to preserve or protect the environment. The FCC, the Bureau
of Land Management, the U.S. Forest Service, and the National Park Service are
required by the National Environmental Policy Act of 1969 to consider the
environmental impact before the commencement of facility construction. We
believe that compliance with such regulations has no material effect on our
consolidated operations. The principal effect of our facilities on the
environment would be in the form of construction of facilities and networks at
various locations in Alaska and between Alaska and Seattle Washington. Our
facilities have been constructed in accordance with federal, state and local
building codes and zoning regulations whenever and wherever applicable. Some
facilities may be on lands that may be subject to state and federal wetland
regulation.

Uncertainty as to the applicability of environmental regulations is caused in
major part by the federal government's decision to consider a change in the
definition of wetlands. Most of our facilities are on leased property, and, with
respect to all of these facilities, we are unaware of any violations of lease
terms or federal, state or local regulations pertaining to preservation or
protection of the environment.

Our Alaska United project consists, in part, of deploying land-based and
undersea fiber optic cable facilities between Anchorage, Whittier, Valdez, and
Juneau, Alaska, and Seattle, Washington. The engineered route passes over
wetlands and other environmentally sensitive areas. We believe our construction
methods used for buried cable have a minimal impact on the environment. The
agencies, among others, that are involved in permitting and oversight of our
cable deployment efforts are the US Army Corps of Engineers, The National Marine
Fisheries Service, US Fish & Wildlife, US Coast Guard, National Oceanic and
Atmospheric Administration, Alaska Department of Natural Resources, and the
Alaska Office of the Governor - Governmental Coordination. We are unaware of any
violations of federal, state or local regulations or permits pertaining to
preservation or protection of the environment.

In the course of operating the cable television systems, we have used various
materials defined as hazardous by applicable governmental regulations. These
materials have been used for insect repellent, locate paint and pole treatment,
and as heating fuel, transformer oil, cable cleaner, batteries, and in various
other ways in the operation of those systems. We do not believe that these
materials, when used in accordance with manufacturer instructions, pose an
unreasonable hazard to those who use them or to the environment.

Patents, Trademarks, Licenses, Certificates of Public Convenience and Necessity,
and Military Franchises
We do not hold patents, franchises or concessions for telecommunications
services or local access services. We do hold registered service marks for the
Digistar(TM) logo and letters GCI(TM), and for the terms SchoolAccess(TM), Free
Fridays for Business(TM) and Unlimited Weekends(TM). The Communications Act of
1934 gives the FCC the authority to license and regulate the use of the
electromagnetic spectrum for radio communication. We hold licenses through our
long-distance services industry segment for our satellite and microwave
transmission facilities for provision of long-distance services.

We acquired a license for use of a 30-MHz block of spectrum for providing PCS
services in Alaska. We are required by the FCC to provide adequate broadband PCS
service to at least two-thirds of the population in our licensed areas within
ten years of being licensed. The PCS license has an initial duration of 10
years. At the end of the license period, a renewal application must be filed. We
believe renewal will generally be granted on a routine basis upon showing of
compliance with FCC regulations and continuing service to the public. Licenses
may be revoked and license renewal applications may be denied for cause. We
expect to renew the PCS license for an additional 10-year term under FCC rules.


                                       35
<PAGE>
We acquired a LMDS license in 1998 for use of a 150-MHz block of spectrum in the
28 GHz Ka-band for providing wireless services. The LMDS license has an initial
duration of 10 years. Within 10 years, licensees will be required to provide
'substantial service' in their service regions. Our operations may require
additional licenses in the future.

Earth stations are licensed generally for 10 years. The FCC also issues a single
blanket license for a large number of technically identical earth stations
(e.g., VSATs).

Applications for transfer of control of 15 certificates of public convenience
and necessity held by the acquired cable companies were approved in an RCA order
dated September 23, 1996, with transfers to be effective on October 31, 1996.
Such transfer of control allowed us to take control and operate the cable
systems of the acquired cable companies located in Alaska. The approval of the
transfer of these 15 certificates of public convenience and necessity is not
required under federal law, with one area of limited exception. The cable
companies operate in part using several radio-band frequencies licensed through
the FCC. These certificates were transferred to us before October 31, 1996.

Application for transfer of control of two certificates of public convenience
and necessity associated with the acquired GC Cablevision, Inc. assets and the
Rogers cable companies were approved in RCA orders in 2001. The certificates
were transferred to us following closing of the transactions.

We obtained consent of the military commanders at the military bases serviced by
the acquired cable systems to the assignment of the respective franchises for
those bases.

Regulation, Franchise Authorizations and Tariffs
The following summary of regulatory developments and legislation does not
purport to describe all present and proposed federal, state, and local
regulation and legislation affecting our businesses. Other existing federal and
state regulations are currently the subject of judicial proceedings, legislative
hearings and administrative proposals that could change, in varying degrees, the
manner in which these industries operate. We cannot predict at this time the
outcome of these proceedings and legislation, their impact on the industries in
which we operate, or their impact on us.

Every two years, the FCC is required (1) to review its rules governing
telecommunications service providers and broadcast ownership, (2) to determine
whether economic competition has made those rules unnecessary in the public
interest, and (3) to modify or repeal any such regulations. On September 18,
2000, the FCC issued its Staff Report summarizing extensive review of the rules
and recommending that no further changes in the broadcast and crossownership
rules were warranted at that time. On December 29, 2000, the FCC adopted its
1998 Biennial Review Regulatory Report and left ownership rules unchanged. This
report stated that the FCC would institute a proceeding on modification of the
newspaper/broadcast crossownership rule. That occurred on September 13, 2001, in
a Notice of Proposed Rulemaking to consider the rule's fate. The next Biennial
Review began in 2001.

Telecommunications Operations
General. We are subject to regulation by the FCC and by the RCA as a
non-dominant provider of long-distance services. We file tariffs with the FCC
for interstate and international long-distance services, and with the RCA for
intrastate service. Such tariffs routinely become effective without intervention
by the FCC, RCA or other third parties since we are a non-dominant carrier.
Military franchise requirements also affect our ability to provide
telecommunications and cable television services to military bases.

Our success in the local telephone market depends on our continued ability to
obtain interconnection, access and related services on terms that are just and
reasonable and that are based on the cost of providing these services. Our local
telephone services business faces the risk of the impact of implementing current
regulations and legislation, unfavorable changes in regulation or legislation,
or the introduction of new regulations. Our ability to enter into the local
telephone market depends on our negotiation or arbitration with ILECs to allow


                                       36
<PAGE>
interconnection to the carrier's existing local telephone network, to allow the
purchase, at cost-based rates, of access to unbundled network elements, to
establish dialing parity, to obtain access to rights-of-way and to resell
services offered by the local exchange carrier. We have in the past been
successful in these arbitration proceedings as to the material terms, including
prices and technical and competitive issues. Future arbitration proceedings with
respect to new or existing markets could result in a change in our cost of
serving these markets via ILEC facilities or via wholesale offerings.

The Supreme Court of the United States has before it several cases relating to
the provisions of the 1996 Telecom Act, including most notably the provisions
and FCC regulations dealing with the pricing of unbundled network elements. The
outcome of these cases could also result in a change in our cost of serving new
and existing markets via ILEC facilities or via wholesale offerings.

The FCC, the courts of the state of Alaska, the Federal District Court of Alaska
and the Ninth Circuit Court of Appeals also have before them several appeals by
one of our competitors relating to the interpretation by the RCA, of various
provisions of the 1996 Telecom Act. These appeals include the provisions and FCC
regulations dealing with the pricing of unbundled network elements, including
the results of arbitration proceedings before the RCA and the decision of the
RCA to remove an exemption from certain of its rules available to ACS known as
the "rural exemption." We have been largely successful in the appeals of these
arbitration proceedings as to the material terms, including prices and technical
issues, through the current stages. These appeals could also result in a change
in our costs of serving new and existing markets via ILEC facilities or via
wholesale offerings.

We have recently qualified under FCC regulations as an "eligible
telecommunications carrier" ("ETC"), with respect to our provision of local
telephone service in Fairbanks and Juneau. ETCs are entitled to receive a
subsidy paid by the Universal Service Fund. If we do not continue to qualify for
this status in Fairbanks and Juneau or if we do not qualify for this status in
rural areas where we propose to offer new services, we would not receive this
subsidy and our net cost of providing local telephone services in these areas
could be materially adversely impacted.

We received approval from the RCA in February 1997 permitting us to provide
local access services throughout ACS's existing Anchorage service area, and in
July 1999 permitting us to provide local access services in ACS's existing
service areas in Fairbanks, Juneau, Ft. Wainwright and Eielson Air Force Base
service areas. We filed a bona fide request with the ILEC, ACS of the Northland,
Inc., in 2001 to negotiate rates and services in order to provide competitive
local access services in Nenana, Ft. Greely, North Pole, Delta Junction, Kenai,
Soldotna, Ninilchik, Homer, Seldovia and Kodiak, Alaska. The request will be
negotiated, and possibly arbitrated before the RCA under the terms of the 1996
Telecom Act and the RCA must approve our entry into these markets before we can
provide local access services. We are unable to predict when or if we will
receive such approvals.

The 1996 Telecom Act preempts state statutes and regulations that restrict the
provision of competitive local telecommunications services. State commissions
can, however, impose reasonable terms and conditions upon the provision of
telecommunications service within their respective states. Because we are
authorized to offer local access services, we are regulated as a CLEC by the
RCA. In addition, we will be subject to other regulatory requirements, including
certain requirements imposed by the 1996 Telecom Act on all LECs, which
requirements include permitting resale of LEC services, local number
portability, dialing parity, and reciprocal compensation.

As a PCS and LMDS licensee, we are subject to regulation by the FCC, and must
comply with certain build-out and other conditions of the license, as well as
with the FCC's regulations governing the PCS and LMDS services. On a more
limited basis, we may be subject to certain regulatory oversight by the RCA
(e.g., in the areas of consumer protection), although states are not permitted
to regulate the rates of PCS, LMDS and other commercial wireless service
providers. PCS and LMDS licensees may also be subject to regulatory requirements
of local jurisdictions pertaining to, among other things, the location of tower
facilities.


                                       37
<PAGE>
1996 Telecom Act and Related Rulings. A key industry development was passage of
the 1996 Telecom Act. The Act was intended by Congress to open up the
marketplace to competition and has had a dramatic impact on the
telecommunications industry. The intent of the legislation was to break down the
barriers that have prevented three groups of companies, LECs, including RBOCs,
long-distance carriers, and cable TV operators, from competing head-to-head with
each other. The Act expressly prohibits any legal barriers to competition in
intrastate or interstate communications service under state and local laws, and
empowers the FCC, after notice and an opportunity for comment, to preempt the
enforcement of any statute, regulation or legal requirement that prohibits, or
has the effect of prohibiting, the ability of any entity to provide any
intrastate or interstate telecommunications service.

The Act requires incumbent LECs to let new competitors into their business. It
also requires incumbent LECs to open up their networks to ensure that new market
entrants have a fair chance of competing. The bulk of the legislation is devoted
to establishing the terms under which incumbent LECs must open up their
networks.

The FCC's Common Carrier Bureau has focused in recent years on adopting
market-opening and universal service rules for the local exchange and long
distance markets to provide meaningful opportunities for competition. The Common
Carrier Bureau has also focused on review of applications by BOCs to provide
long distance service as well as review of telecommunications company mergers.
In addition, they continue to consider regulatory reforms that could occur as
competition in the provision of telecommunications services develops.

Enactment of the 1996 Telecom Act immediately affected local exchange service
markets by requiring states to authorize local exchange service competition.
Competitors, including resellers, are able to market new bundled service
packages to attract customers. Over the long term, the requirement that
incumbent LECs unbundle access to their networks may lead to increased price
competition. Local exchange service competition has not yet occurred in all
markets on a national basis because interconnection arrangements are not yet in
place in many areas.

The 1996 Telecom Act requires the FCC to establish rules and regulations to
implement its local competition provisions. In August 1996, the FCC issued rules
governing interconnection, resale, unbundled network elements, the pricing of
those facilities and services, and the negotiation and arbitration procedures
that would be utilized by states to implement those requirements. These rules
rely on state public utilities commissions to develop the specific rates and
procedures applicable to particular states within the framework prescribed by
the FCC. These rules were vacated in part by a July 1997 ruling of the United
States Court of Appeals for the Eighth Circuit. On January 25, 1999, the United
States Supreme Court issued an opinion upholding the authority of the FCC to
establish rules, including pricing rules, to implement statutory provisions
governing both interstate and intrastate services under the 1996 Telecom Act and
remanded the proceeding back to the Eighth Circuit for further proceedings. The
Supreme Court also upheld rules allowing carriers to select provisions from
among different interconnection agreements approved by state commissions for the
carriers' own agreements and a rule allowing carriers to obtain combinations of
unbundled network elements. On remand, the Eighth Circuit overturned various
interconnection and pricing portions of the FCC regulations under the 1996
Telecom Act, but stayed the application of its pricing decision pending review
by the Supreme Court of the United States. The Supreme Court has granted
certiorari on the pricing provisions and will be considering the case in its
upcoming term.

The 1996 Telecom Act provides that registered utility holding companies and
subsidiaries may provide telecommunications services, including cable
television, notwithstanding the Public Utility Holding Company Act. Electric
utilities must establish separate subsidiaries, known as "exempt
telecommunications companies" and must apply to the FCC for operating authority.
Like telephone companies, electric utilities have substantial resources at their
disposal, and could be formidable competitors to traditional cable systems.
Several such utilities have been granted broad authority by the FCC to engage in
activities that could include the provision of video programming.


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A number of LECs, long-distance companies and others have appealed some or all
of the FCC's orders. The effective date of the orders has not been delayed, but
the appeals are expected to take a year or more to conclude. Some BOCs have also
challenged the 1996 Telecom Act restrictions on their entry into long-distance
markets as unconstitutional. We are unable to predict the outcome of such
rulemakings or litigation or the effect (financial or otherwise) of the 1996
Telecom Act and the rulemakings on us. The BOCs continue to challenge the
substance of the FCC rules, arguing that the rules do not allow them to fully
recover the money they spent building their networks.

Critics are becoming increasingly vocal asking Congress to modify if not
altogether rework the 1996 Telecom Act, citing a lack of competition in the
local phone and broadband sectors. There is a lack of consensus on what changes
are needed, however, or who is to blame for the Act's perceived failures. The
strongest momentum appears to be in support of loosening regulations on BOCs so
they can better compete in broadband, a move CLECs say could diminish local
phone competition.

Rural Exemption. ACS, through subsidiary companies, provides local telephone
services in Fairbanks and Juneau, Alaska. The ACS subsidiaries are classified as
Rural Telephone Companies under the 1996 Telecom Act, which entitles them to an
exemption of certain material interconnection terms of the 1996 Telecom Act,
until and unless such "rural exemption" is examined and not continued by the
RCA. We requested that continuation of the rural exemption of the ACS
subsidiaries relating to the Fairbanks and Juneau markets be examined. In
January 1998, the APUC denied our request to terminate the rural exemption. The
basis of the APUC's decision was primarily that various rulemaking proceedings
(including universal service and access charge reform) must be completed before
the exemption would be revoked. Those rulemaking proceedings have been largely
completed.

On March 4, 1999, an Alaska Superior Court Judge determined that the APUC erred
in reaching its decision to deny our request to provide full local telephone
service in Fairbanks and Juneau, Alaska. This service would be provided in
competition against the existing monopoly providers. Among other things, the
Court instructed the APUC to correctly assign the burden of proof to the ILECs
rather than us, as a requesting CLEC, and to decide on our requests to provide
service in Fairbanks and Juneau based on criteria established in the 1996
Telecom Act. The Court stated "this must be accomplished cognizant of the intent
of the 1996 Telecom Act to promote competition in the local market." The Court
remanded the case back to the APUC for proceedings leading to their ruling.

On July 1, 1999, the APUC ruled that the rural exemptions from local competition
for the ILECs operating in Juneau, Fairbanks and North Pole would not be
continued, which allowed us to negotiate for unbundled elements for the
provision of competitive local service. ACS requested reconsideration of this
decision and on October 11, 1999, the RCA issued an order terminating rural
exemptions for the ILECs operating in the Fairbanks and Juneau markets. ACS has
appealed these decisions.

We believe this decision is important to bring about the benefits of competition
to other communities in Alaska. We continued to negotiate with ACS for unbundled
network elements for the provisioning of competitive local assess services in
these markets, arbitrated the rates and terms and the RCA approved
interconnection agreements for unbundled elements in October 2000. ACS has
sought review of these decisions.

Internet Service Providers Regulated as Telecommunications Carriers. The FCC
affirmed in a report adopted on April 10, 1998, that Internet service providers
would not be subject to regulation as telecommunications carriers under the 1996
Telecom Act. They thus will not be subject to universal service subsidies and
other regulations. Further, in August 1998, the FCC proposed new rules that
would allow ILECs to provide their own DSL services through separate affiliates
that are not subject to ILEC regulation. On November 18, 1999, the FCC decided
to require ILECs to share telephone lines with DSL providers, an action that may
foster competition by allowing competitors to offer DSL services without their
customers having to lease a second telephone line. Whether this development will
be implemented in an effective way remains to be seen. Moreover, it is
impossible to predict


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whether the FCC or Congress may change the rules under which these services are
offered and, if such changes are made, the extent of the impact of such changes
on our business.

Access Fees. The FCC regulates the fees that local telephone companies charge
long distance companies for access to their local networks. The FCC is
considering various proposals that would restructure and could reduce access
charges. Changes in the access charge structure could fundamentally change the
economics of some aspects of our business.

Access to Unbundled Network Elements. The Supreme Court vacated an FCC rule
setting forth the specific unbundled network elements that ILECs must make
available, finding that the FCC had failed to apply the appropriate statutory
standard. On November 5, 1999, the FCC responded to the Court's decision by
issuing a decision that maintains competitors' access to a wide variety of
unbundled network elements. Six of the seven unbundled elements the FCC had
originally required carriers to provide in its 1996 order implementing the 1996
Telecom Act remain available to competitors. These elements are loops, including
loops used to provide high-capacity and advanced telecommunications services;
network interface devices; local circuit switching, subject to restrictions in
major urban markets; dedicated and shared transport; signaling and call-related
databases; and operations support systems. The FCC removed access to operator
and directory assistance service from the list of available unbundled network
elements. In addition, the FCC added to its list certain unbundled network
elements that were not at issue in 1996. These elements include subloops, or
portions of loops, and dark fiber loops and transport. The FCC later required
ILECs to unbundle facilities used to provide DSL service. The FCC did not
decide, but sought additional information on, the question of whether carriers
may combine certain unbundled network elements to provide special access
services to compete with those provided by the ILECs. The ability to obtain
unbundled network elements is an important element of our local access services
business, and we believe that the FCC's actions in this area have generally been
positive. However, we cannot predict the extent to which the existing rules will
be sustained in the face of additional legal action and the scope of the rules
that are yet to be determined by the FCC.

Recurring and non-recurring charges for telephone lines and other unbundled
network elements may increase based on the rates proposed by the ILECs and
approved by the RCA from time to time, which could have an adverse effect on the
results of our operations. We are currently involved in arbitration to revise
the interconnection rates and the terms in the existing interconnection
agreement with ACS for the Anchorage service area. Moreover, because the
cost-based methodology for determining these rates is still subject to judicial
review, we are uncertain about how these rates will be determined in the future.

Universal Service. In 1997, the FCC issued important decisions on universal
service establishing new funding mechanisms for high-cost, low-income service
areas to ensure that certain subscribers living in rural and high-cost areas, as
well as certain low-income subscribers, continue to have access to
telecommunications and information services at prices reasonably comparable to
those charged for similar services in urban areas.

These mechanisms also are meant to foster the provision of advanced
communications services to schools, libraries and rural health-care facilities.
Under the rules adopted by the FCC to implement these requirements, we and all
other telecommunications providers are required to contribute to a fund to
support universal service. The amount that we contribute to the federal
universal service subsidy will be based on our share of specified defined
telecommunications end-user revenues.

The order established significant discounts to be provided to eligible schools
and libraries for all telecommunications services, internal connections and
Internet access. It also established support for rural health care providers so
that they may pay rates comparable to those that urban health care providers pay
for similar services. The FCC estimates that first quarter 2002 net costs to be
funded out of the Universal Service Fund will total approximately $1.38 billion.
The fund administrator, based on their interstate end-user revenues, assesses
local and long distance carriers' contributions to the education and health care
funds. The second quarter 2002


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contribution factor is $0.072805. We contribute to the funds and are allowed to
recover our contributions through increased interstate charges.

Local Regulation. We may be required to obtain local permits for street opening
and construction permits to install and expand fiber optic networks. Local
zoning authorities often regulate our use of towers for microwave and other
telecommunications sites. We also are subject to general regulations concerning
building codes and local licensing. The 1996 Telecom Act requires that fees
charged to telecommunications carriers be applied in a competitively neutral
manner, but there can be no assurance that ILECs and others with whom we will be
competing will bear costs similar to those we will bear in this regard.

Reciprocal Compensation. The FCC had determined that calls to ISPs within a
caller's local calling area were non-local. To support this conclusion, the FCC
found that calls to ISPs are predominately interstate in nature because the
calls ultimately extend beyond the ISP to websites around the world. However, in
2000 the D.C. Circuit Court rejected the FCC's analysis and found that the "mere
fact that the ISP originates further telecommunications does not imply that the
original telecommunication does not `terminate' at the ISP." Accordingly, the
D.C. Circuit Court vacated and remanded the FCC's ISP-Bound Traffic Order.

The FCC, in response by its April 27, 2001 Order on Remand and Report and Order,
("ISP Remand Order"), explained why the reciprocal compensation requirements of
Section 251(b)(5) of the 1996 Telecom Act do not apply to ISP-bound traffic. The
FCC concluded that section 251(b)(5) is not limited solely to local traffic, but
rather applies to all "telecommunications" traffic, except the categories
specifically enumerated in section 251(g). The FCC concluded that ISP-bound
traffic falls within one of the section 251(g) exceptions - "information access"
- and is thus exempt from the section 251(b)(5) reciprocal compensation
requirements. In order to retain jurisdiction over ISP-bound traffic, the FCC
also found that such traffic is interstate in nature.

The FCC in its ISP Remand Order established a new "hybrid" interim mechanism for
intercarrier compensation of ISP-bound traffic that "serves to limit, if not
end, the opportunity for regulatory arbitrage, while avoiding a
market-disruptive `flash-cut' to a pure bill and keep regime."

The FCC also held that in cases where carriers are not exchanging traffic
pursuant to interconnection agreements before the adoption of the ISP Remand
Order, such carriers would be required to exchange ISP-bound traffic on a bill
and keep basis during the interim period. However, the FCC stated that the ISP
Remand Order "does not alter existing contractual obligations, except to the
extent that parties are entitled to invoke contractual change-of-law
provisions." Additionally, the FCC held that state commissions would no longer
have authority to address ISP-bound traffic issues.

The FCC's actions are controversial with industry analysts predicting continued
litigation over the status of ISP-bound traffic.

Cable Services Operations
General. The cable television industry is subject to extensive regulation at
various levels, and many aspects of such regulation are currently the subject of
judicial proceedings and administrative or legislative proposals. In particular,
FCC regulations limit our ability to set and increase rates for our basic cable
television service package and for the provision of cable television-related
equipment. The law permits certified local franchising authorities to order
refunds of rates paid in the previous 12-month period determined to be in excess
of the permitted reasonable rates. It is possible that rate reductions or
refunds of previously collected fees may be required of us in the future.

Currently, pursuant to Alaska law, basic cable rates in Juneau are the only
rates in Alaska subject to regulation by the local franchising authority, and
the rates in Juneau were reviewed and approved by the RCA in October 2000. In
addition, the FCC has recently adopted rules that will require cable operators
to carry the digital signals of broadcast television stations. However, the FCC
has tentatively decided that cable operators should not be


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required to carry both the analog and digital services of broadcast television
stations while broadcasters are transitioning from analog to digital
transmission. Carrying both the analog and digital services of broadcast
television stations would consume additional cable capacity. As a result, a
requirement to carry both analog and digital services of broadcast television
stations could require the removal of popular programming services with
materially adverse results for cable operators, including us. Should the FCC
mandate dual carriage, we will carry the broadcast signals in both analog and
digital formats.

Principal responsibility for implementing the policies of the 1934, 1984 and
1992 Cable Acts and the 1996 Telecom Act is allocated between the FCC and state
or local franchising authorities. The FCC and state regulatory agencies are
required to conduct numerous rulemaking and regulatory proceedings to implement
the 1996 Telecom Act, and such proceedings may materially affect the cable
industry.

The FCC has the authority to enforce its regulations through the imposition of
substantial fines, the issuance of cease and desist orders and/or the imposition
of other administrative sanctions, such as the revocation of FCC licenses needed
to operate certain transmission facilities used in connection with cable
operations. The 1996 Telecom Act removed barriers to competition in the cable
television market as well as the local telephone market. Among other things, it
also reduced the scope of cable rate regulation and encourages additional
competition in the video programming industry by allowing local telephone
companies to provide video programming in their own telephone service areas.

The 1996 Telecom Act required the FCC to undertake a number of rulemakings.
Moreover, Congress and the FCC have frequently revisited the subject of cable
regulation. Future legislative and regulatory changes could adversely affect our
operations, and there have been calls in Congress and at the FCC to maintain or
even tighten cable regulation in the absence of widespread effective
competition.

Subscriber Rates. The 1992 Cable Act authorized rate regulation for cable
communications services and equipment in communities that are not subject to
"effective competition," as defined by federal law, which limited the ability of
cable companies to increase subscriber fees. Most cable communications systems
are now subject to rate regulation by local officials for basic cable service,
which typically contains local broadcast stations and public, educational, and
government access channels. Such local regulation is subject to the oversight of
the FCC, which has prescribed detailed criteria for such rate regulation. Before
a local franchising authority begins basic service rate regulation, it must
certify to the FCC that it will follow applicable federal rules. Many local
franchising authorities have voluntarily declined to exercise their authority to
regulate basic service rates. Local franchising authorities also have primary
responsibility for regulating cable equipment rates. Under federal law, charges
for various types of cable equipment must be unbundled from each other and from
monthly charges for programming services. The 1992 Cable Act permits communities
to certify and regulate rates at any time, so that localities served by our
systems may choose to certify and regulate basic rates in the future.

The 1992 Cable Act also requires the FCC to resolve complaints about rates for
CPS tiers (other than programming offered on a per channel or per program basis,
which programming is not subject to rate regulation) and to reduce any such
rates found to be unreasonable. The 1996 Telecom Act eliminates the right of
individuals to file CPS tier rate complaints with the FCC and requires the FCC
to issue a final order within 90 days after receipt of CPS tier rate complaints
filed by any franchising authority. The 1992 Cable Act limits the ability of
cable television systems to raise rates for basic and certain cable programming
services (collectively, the "Regulated Services").

Under the 1996 Telecom Act, the FCC's authority to regulate CPS tier rates
sunset on March 31, 1999. The FCC has taken the position that it will still
adjudicate pending cable programming service tier complaints but will strictly
limit its review, and possible refund orders, to the period predating the sunset
date. The elimination of cable programming service tier regulation affords us
greater pricing flexibility.


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FCC regulations govern rates that may be charged to subscribers for Regulated
Services. The FCC uses a benchmark methodology as the principal method of
regulating rates for Regulated Services. Cable operators are also permitted to
justify rates using a cost-of-service methodology, which contains a rebuttable
presumption of an industry-wide 11.25% rate of return on an operator's allowable
rate base. Cost-of-service regulation is a traditional form of rate regulation,
under which a company is allowed to recover its costs of providing the regulated
service, plus a reasonable profit. Franchising authorities are empowered to
regulate the rates charged for monthly basic service, for additional outlets and
for the installation, lease and sale of equipment used by subscribers to receive
the basic cable service tier, such as converter boxes and remote control units.
The FCC's rules require franchising authorities to regulate these rates based on
actual cost plus a reasonable profit, as defined by the FCC. Cable operators
required to reduce rates may also be required to refund overcharges with
interest. The FCC has also adopted comprehensive and restrictive regulations
allowing operators to modify their regulated rates on a quarterly or annual
basis using various methodologies that account for changes in the number of
regulated channels, inflation and increases in certain external costs, such as
franchise and other governmental fees, copyright and retransmission consent
fees, taxes, programming fees and franchise-related obligations. We cannot
predict whether the FCC will modify these "going forward" regulations in the
future.

Rate regulation of non-basic cable programming service tiers ended after March
31, 1999. The 1996 Telecom Act also modifies the uniform rate provision of the
1992 Cable Act by prohibiting regulation of non-predatory bulk discount rates
offered to subscribers in commercial and residential developments and permits
regulated equipment rates to be computed by aggregating costs of broad
categories of equipment at the franchise, system, regional or company level.

Anti-Buy Through Provisions. The 1992 Cable Act requires cable systems to permit
subscribers to purchase video programming offered by the operator on a per
channel or a per program basis without the necessity of subscribing to any tier
of service, other than the basic cable service tier, unless the system's lack of
addressable converter boxes or other technological limitations does not permit
it to do so. The statutory exemption for cable systems that do not have the
technological capability to offer programming in the manner required by the
statute is available until a system obtains such capability, but not later than
December 2002. The FCC may waive such time periods, if deemed necessary. Many of
our systems do not have the technological capability to offer programming in the
manner required by the statute and thus currently are exempt from complying with
the requirement.

Cable Entry Into Telecommunications. The 1996 Telecom Act creates a more
favorable environment for us to provide telecommunications services beyond
traditional video delivery. It provides that no state or local laws or
regulations may prohibit or have the effect of prohibiting any entity from
providing any interstate or intrastate telecommunications service. A cable
operator is authorized under the 1996 Telecom Act to provide telecommunications
services without obtaining a separate local franchise. States are authorized,
however, to impose "competitively neutral" requirements regarding universal
service, public safety and welfare, service quality, and consumer protection.
State and local governments also retain their authority to manage the public
rights-of-way and may require reasonable, competitively neutral compensation for
management of the public rights-of-way when cable operators provide
telecommunications service.

Cable System Delivery of Internet Service. Although there is at present no
significant federal regulation of cable system delivery of Internet services,
and the FCC has issued several reports finding no immediate need to impose such
regulation, this situation may change as cable systems expand their broadband
delivery of Internet services. In particular, proposals have been advanced at
the FCC and Congress that would require cable operators to provide access to
unaffiliated Internet service providers and online service providers. The FCC
rejected a petition by certain Internet service providers attempting to use
existing modes of access that are commercially leased to gain access to cable
system delivery. Some states and local franchising authorities are considering
the imposition of mandatory Internet access requirements as part of cable
franchise renewals or transfers and a few local jurisdictions have adopted these
requirements. The Federal Trade Commission and the FCC recently imposed


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certain "open-access" requirements on Time Warner and AOL in connection with
their merger, but those requirements are not applicable to other cable
operators.

In June 2000, the Federal Court of Appeals for the Ninth Circuit rejected an
attempt by the City of Portland, Oregon to impose mandatory Internet access
requirements on the local cable operator. In reversing a contrary ruling by the
lower court, the Ninth Circuit court held that Internet service was not a cable
service, and therefore could not be subject to local cable franchising. At the
same time, the Court suggested that at least the transport component of
broadband Internet service could be subject to regulation as a
"telecommunications" service. Although regulation of this form of
telecommunications service would presumably be reserved for the FCC (which has
so far resisted requests for active regulation), some states may argue that they
are entitled to impose "open-access" requirements pursuant to their authority
over intrastate telecommunications. In addition, some local governments may
argue that a cable operator must secure a local telecommunications franchise
before providing Internet service.

In response to the Ninth Circuit decision, the FCC has initiated a new
proceeding to determine what regulatory treatment, if any, should be accorded to
cable modem service and the cable modem platform used in providing this service.
More specifically, the FCC notice seeks comment on the parameters the Commission
should use in determining the appropriate level of access to cable networks for
the provision of high-speed data services. The Ninth Circuit decision is the
leading case on cable-delivered Internet service at this point, but the Federal
District Court for the Eastern District of Virginia reached a similar result in
a May 2000 ruling, concluding that broadband Internet service was a cable
service, but that multiple provisions of the 1996 Telecom Act preempted local
regulation. A Federal district court in Florida recently addressed a similar
"open-access" requirement in a local franchise and struck down the requirement
as unconstitutional. There are other instances where "open-access" requirements
have been imposed and judicial challenges are pending.

On March 14, 2002, the FCC took steps toward ensuring a light regulatory touch
on broadband services delivered through the use of cable facilities (such as our
cable modem services). In a 3-1 vote, the FCC defined high-speed Internet over
cable as an "information service" not subject to local cable-franchise fees,
like cable service is, or any explicit requirements for "open access," as
telecommunications service is. The "information service" designation for cable
broadband reportedly sends a strong signal that cable-Internet services will be
able to continue to develop in a business environment that favors competition
over regulation and encourages new investment. The FCC traditionally hasn't
regulated information services. Industry analysts believe the policy of
regulatory restraint is particularly appropriate, given the strong competition
among cable, satellite and digital-subscriber-line service via telephone lines.

If regulators are allowed to impose Internet access requirements on cable
operators, it could burden the capacity of cable systems and complicate our own
plans for providing expanded Internet access services. These access obligations
could adversely affect our profitability and discourage system upgrades and the
introduction of new products and services.

LEC Ownership of Cable Systems. The 1996 Telecom Act made far-reaching changes
in the regulation of LECs that provide cable services. The 1996 Telecom Act
eliminated federal legal barriers to competition in the local telephone and
cable communications businesses, preempted legal barriers to competition that
previously existed in state and local laws and regulations, and set basic
standards for relationships between telecommunications providers. The 1996
Telecom Act eliminated the statutory telephone company/cable television
cross-ownership prohibition, thereby allowing LECs to offer video services in
their telephone service areas. LECs may provide service as traditional cable
operators with local franchises or they may opt to provide their programming
over unfranchised "open video systems," subject to certain conditions,
including, but not limited to, setting aside a portion of their channel capacity
for use by unaffiliated program distributors on a non-discriminatory basis. The
1996 Telecom Act generally limits acquisitions and prohibits certain joint
ventures between LECs and cable operators in the same market.


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A federal appellate court overturned various parts of the FCC's open video
rules, including the FCC's preemption of local franchising requirements for open
video operators. The FCC has modified its open video rules to comply with the
federal court's decision. It is unclear what effect this ruling will have on the
entities pursuing open video system operation.

Although local exchange carriers and cable operators can now expand their
offerings across traditional service boundaries, the general prohibition remains
on local exchange carrier buyouts of co-located cable systems. Co-located cable
systems are cable systems serving an overlapping territory. Cable operator
buyouts of co-located local exchange carrier systems, and joint ventures between
cable operators and local exchange carriers in the same market are also
prohibited. The 1996 Telecom Act provides a few limited exceptions to this
buyout prohibition, including a carefully circumscribed "rural exemption." The
1996 Telecom Act also provides the FCC with the limited authority to grant
waivers of the buyout prohibition.

Ownership Limitations. The 1996 Telecom Act generally prohibits us from owning
or operating a SMATV or wireless cable system in any area where we provide
franchised cable service. We may, however, acquire and operate SMATV systems in
our franchised service areas if the programming and other services provided to
SMATV subscribers are offered according to the terms and conditions of our
franchise agreement.

In February 2002, a U.S. appeals court set aside a FCC rule that bars a company
from owning television stations that reach more than 35% of U.S. homes. A
three-judge panel concluded the FCC's "decision to retain the rules was
arbitrary and capricious and contrary to law." The court overturned altogether
an FCC ban on a company owning a cable TV system in a market where it also
operates a broadcast television station. This limitation was held on March 2,
2001 to violate the First Amendment. The U.S. Court of Appeals for the District
of Columbia Circuit ruled that the limit must either be justified by the FCC "as
not burdening substantially more speech than necessary," or rewritten by the
FCC. In addition, the D.C. Circuit panel vacated on constitutional grounds the
FCC rule limiting to 40% the number of channels on which a cable operator can
offer operator-affiliated programming.

A petition for certiorari was filed with the U.S. Supreme Court asking for
review of the D.C. Circuit Court's ruling on the 30% cap but did not challenge
the court's ruling striking down the 40% cap on the channels that a cable
operator may use to offer affiliated programmers. The FCC adopted a Further
Notice of Proposed Rulemaking on September 13, 2001 concerning its horizontal
(30% of national audience reach) and vertical (40% of channels showing
operator-affiliated programming) limits and certain aspects of its attribution
rules. Comments and reply comments were due on January 4, 2002, and February 4,
2002, respectively.

The FCC broadcast and cable crossownership rule prohibits anyone from having an
attributable interest in both a cable system and a TV station if the TV
station's signals overlap any part of the service area of the cable system. The
Act eliminated the statutory prohibition of this type of crossownership, however
Congress did not require the FCC to delete its rule, which remains intact. In
its 1998 Biennial Review Report adopted May 30, 2000 (1998 report), the FCC
concluded that the rule should be retained. Oral argument was held on September
7, 2001; a court decision is pending.

Similar to the broadcast and cable prohibition, the broadcast and newspaper
crossownership rule bans common ownership of a radio or television station and a
daily newspaper if certain conditions are met. Acquisition of a daily newspaper
in conflict with this rule requires divestiture of one of the properties before
the next license expiration date of the broadcast station, or in one year,
whichever is later. In its 1998 Broadcast Ownership Biennial Review Report
adopted May 30, 2000, the FCC recommended a rulemaking to consider changes, but
kept the rule in place. At its September 13, 2001 meeting, the FCC adopted a
Notice of Proposed Rulemaking seeking comment on modification of its
newspaper/broadcast crossownership rule and waiver policies. Comments were due
December 3, 2001, and reply comments were due January 7, 2002.


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Under the FCC's TV duopoly rule, no one may hold an attributable interest in two
television stations under certain circumstances. In December 2000, the FCC
terminated its 1998 Biennial Review of the television duopoly rules and affirmed
the ban on owning a second television station in a market having fewer than
eight separately owned TV stations. On February 20, 2001, Sinclair Broadcast
Group filed a Petition for Review with the U.S. Court of Appeals for the
District of Columbia Circuit. Sinclair also sought a court stay of an FCC
decision ordering Sinclair to terminate local marketing agreements it had
entered after the November 5, 1996, start of an FCC rulemaking examining TV
local marketing agreements. The Court granted the stay pending completion of the
appeal. Sinclair filed its brief on the merits of the court appeal on August 20,
2001. Oral arguments were scheduled for January 14, 2002. Other parties have
asked the FCC for similar relief; those requests are pending.

Must Carry/Retransmission Consent. The 1992 Cable Act contains broadcast signal
carriage requirements that allow local commercial television broadcast stations
to elect once every three years to require a cable system to carry the station,
subject to certain exceptions, or to negotiate for "retransmission consent" to
carry the station. Broadcast signal carriage is the transmission of broadcast
television signals over a cable system to cable customers. A cable system
generally is required to devote up to one-third of its activated channel
capacity for the carriage of local commercial television stations whether
pursuant to the mandatory carriage or retransmission consent requirements of the
1992 Cable Act. Local non-commercial television stations are also given
mandatory carriage rights; however, such stations are not given the option to
negotiate retransmission consent for the carriage of their signals by cable
systems. Additionally, cable systems are required to obtain retransmission
consent for all distant commercial television stations (except for commercial
satellite-delivered independent "superstations" such as WGN), commercial radio
stations and certain low-power television stations carried by such systems.

Must carry requests can dilute the appeal of a cable system's programming
offerings because a cable system with limited channel capacity may be required
to forego carriage of popular channels in favor of less popular broadcast
stations electing must carry. Retransmission consent demands may require
substantial payments or other concessions.

The FCC tentatively decided against imposition of dual digital and analog must
carry in a January 2001 ruling. The ruling resolved a number of technical and
legal matters, and clarifies that a digital-only TV station, commercial or
non-commercial, can immediately assert its right to carriage on a local cable
system. The FCC also said that a TV station that returns its analog spectrum and
converts to digital operations must be carried by local cable systems. At the
same time, however, it initiated further fact gathering that ultimately could
lead to a reconsideration of the tentative conclusion.

Satellite Home Viewer Improvement Act of 1999 ("SHVIA"). A major change
introduced by the SHVIA was a "local into local" provision allowing satellite
carriers, for the first time, to retransmit the signals of local television
stations by satellite back to viewers in their local markets. The intent was to
promote multichannel video competition by removing the prohibition on satellite
retransmission of local signals, which cable operators already offered to their
subscribers under the must-carry/retransmission consent scheme of regulation
described above.

SHVIA applies a similar scheme to satellite carriage. Television stations had
until July 1, 2001, to elect must-carry or retransmission consent on satellite
carriers in their markets. Beginning January 1, 2002, a satellite company that
has chosen to provide any local-into-local service in a market will be required
to provide subscribers with the signals of all qualified television stations
assigned to that designated market area and that ask to be carried on the
satellite system. To qualify, stations must meet conditions such as providing,
at station expense, a good-quality signal to the carrier's local receive
facility.

On November 29, 2000, the FCC adopted rules governing satellite signal carriage.
These rules bar carriers from charging subscribers more for must-carry stations
than for stations that elect to be carried under retransmission consent. Rules
also prevent carriers from requiring subscribers to purchase additional
equipment (e.g., a second dish) to receive stations that insist on carriage. The
FCC allowed satellite carriers to sell local stations to


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subscribers a la carte, rather than only as a package. But a satellite carrier
that carries at least one local station under the new local-into-local copyright
compulsory license without which DBS operators would not carry the signals at
all, contained in the SHVIA, must-carry all qualifying stations in the market;
this is the carry one/carry all provision that is among those on appeal.

FCC reconsideration of the rules was petitioned for by DirecTV and the
Association of Local Television Stations, and supported and opposed by several
others. In an Order on Reconsideration released September 5, 2001, the
Commission affirmed its rules for the most part, but also clarified, on its own
motion, important aspects of carrier obligations to implement station elections
of must-carry.

Various court appeals have been consolidated in the Fourth Circuit, where oral
argument was held September 25, 2001, focusing on carry one/carry all and a la
carte. The FCC, in its Reconsideration Order of September 5, 2001, addressed
complaints by broadcasters that satellite carriers, particularly EchoStar, have
not complied with SHVIA must-carry implementation requirements, and ordered the
carriers to comply. That Order is subject to court appeal. In the 11th Circuit
Echostar injunction case, the broadcast plaintiffs will provide new evidence of
nationwide noncompliance to the U.S. District Court in Miami. By statute and FCC
rule, satellite carriage of eligible local stations must begin January 1, 2002.

Designated Access Channels. The 1996 Telecom Act permits local franchising
authorities to require cable operators to set aside certain channels for public,
educational and governmental access programming. The 1984 Cable Act also
requires cable systems to designate a portion of their channel capacity, up to
15 percent in some cases, for commercial leased access by unaffiliated third
parties to provide programming that may compete with services offered by the
cable operator. The FCC has adopted rules regulating the terms, conditions and
maximum rates a cable operator may charge for commercial leased access use. The
FCC recently rejected a request that unaffiliated Internet service providers be
found eligible for commercial leased access.

Access to Programming. To spur the development of independent cable programmers
and competition to incumbent cable operators, the 1992 Cable Act imposed
restrictions on the dealings between cable operators and cable programmers. Of
special significance from a competitive business posture, the 1992 Cable Act
precludes video programmers affiliated with cable companies from favoring their
cable operators over new competitors and requires such programmers to sell their
programming to other multichannel video distributors. This provision limits the
ability of vertically integrated cable programmers to offer exclusive
programming arrangements to cable companies. This prohibition is scheduled to
expire in October 2002, unless the FCC determines that an extension is necessary
to protect competition and diversity. There also has been interest expressed in
further restricting the marketing practices of cable programmers, including
subjecting programmers who are not affiliated with cable operators to all of the
existing program access requirements, and subjecting terrestrially delivered
programming to the program access requirements. Terrestrially delivered
programming is programming delivered other than by satellite. Pursuant to the
Satellite Home Viewer Improvement Act, the FCC has adopted regulations governing
retransmission consent negotiations between broadcasters and all multichannel
video programming distributors, including cable and DBS.

Inside Wiring; Subscriber Access. In an order issued in 1997, the FCC
established rules that require an incumbent cable operator upon expiration of a
multiple dwelling unit service contract to sell, abandon, or remove home run
wiring that was installed by the cable operator in a multiple dwelling unit
building. These inside wiring rules are expected to assist building owners in
their attempts to replace existing cable operators with new programming
providers who are willing to pay the building owner a higher fee, where such a
fee is permissible. The FCC has also proposed abrogating all exclusive multiple
dwelling unit service agreements held by incumbent operators, but allowing such
contracts when held by new entrants. In another proceeding, the FCC has
preempted restrictions on the deployment of private antennas on rental property
within the exclusive use of a tenant, such as balconies and patios. This FCC
ruling may limit the extent to which we along with multiple dwelling unit owners
may enforce certain aspects of multiple dwelling unit agreements which otherwise
prohibit, for example, placement of digital broadcast satellite receiver
antennae in multiple dwelling unit areas under the exclusive occupancy of a
renter.


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These developments may make it even more difficult for us to provide service in
multiple dwelling unit complexes.

Video Description. On July 21, 2000, the FCC ruled that top-25-market affiliates
of the four major national networks, and MVPDs having 50,000 or more
subscribers, must provide video descriptions to make television programs more
accessible to people with visual impairments. Such broadcasters and MVPDs must
provide, in prime time or children's programming, 50 hours per calendar quarter
of video description. Other television stations and MVPDs must pass through
video descriptions contained in programs, and must add an aural tone crawl or
scroll to local emergency messages. Video description, which is in addition to
closed captioning for the hearing impaired, includes voice descriptions of a
program's visual elements inserted in audio pauses in the program. The FCC
generally affirmed its video description rules on reconsideration on January 4,
2001. On March 28, 2001, the Motion Picture Association of America, NAB and NCTA
filed a joint Petition for Review, and on April 2, 2001, the National Federation
of the Blind filed a Petition for Review with the U.S. Court of Appeals for the
District of Columbia Circuit of the FCC's January 4, 2001, reconsideration
decision. The requirements are being phased in while the appeals progress. The
court has yet to establish a schedule for briefs and oral argument in the
appeals case.

Franchise Procedures. The 1984 Cable Act affirms the right of franchising
authorities (state or local, depending on the practice in individual states) to
award one or more franchises within their jurisdictions and prohibits
non-grandfathered cable systems from operating without a franchise in such
jurisdictions. The 1992 Cable Act encourages competition with existing cable
systems by:

     -   allowing municipalities to operate their own cable systems without
         franchises;
     -   preventing franchising authorities from granting exclusive franchises
         or from unreasonably refusing to award additional franchises covering
         an existing cable system's service area; and
     -   prohibiting (with limited exceptions) the common ownership of cable
         systems and collocated MMDS or SMATV systems.

The FCC has relaxed its restrictions on ownership of SMATV systems to permit a
cable operator to acquire SMATV systems in the operator's existing franchise
area so long as the programming services provided through the SMATV system are
offered according to the terms and conditions of the cable operator's local
franchise agreement. The 1996 Telecom Act provides that the cable/SMATV and
cable/MMDS cross-ownership rules do not apply in any franchise area where the
operator faces effective competition as defined by federal law.

The Cable Acts also provide that in granting or renewing franchises, local
authorities may establish requirements for cable-related facilities and
equipment, but not for video programming or information services other than in
broad categories. The Cable Acts limit the payment of franchise fees to 5
percent of revenues derived from cable operations and permit the cable operator
to obtain modification of franchise requirements by the franchise authority or
judicial action if warranted by changed circumstances. A federal appellate court
held that a cable operator's gross revenue includes all revenue received from
subscribers, without deduction, and overturned an FCC order which had held that
a cable operator's gross revenue does not include money collected from
subscribers that is allocated to pay local franchise fees. We cannot predict the
ultimate resolution of these matters. The 1996 Telecom Act generally prohibits
franchising authorities from:

     -   imposing requirements in the cable franchising process that require,
         prohibit or restrict the provision of telecommunications services by an
         operator;
     -   imposing franchise fees on revenues derived by the operator from
         providing telecommunications services over its cable system; or
     -   restricting an operator's use of any type of subscriber equipment or
         transmission technology.

The 1984 Cable Act contains renewal procedures designed to protect incumbent
franchisees against arbitrary denials of renewal. The 1992 Cable Act made
several changes to the renewal process that could make it easier for


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a franchising authority to deny renewal. Moreover, even if the franchise is
renewed, the franchising authority may seek to impose new and more onerous
requirements such as significant upgrades in facilities and services or
increased franchise fees as a condition of renewal. Similarly, if a franchising
authority's consent is required for the purchase or sale of a cable system or
franchise, such authority may attempt to impose more burdensome or onerous
franchise requirements in connection with a request for such consent.
Historically, franchises have been renewed for cable operators that have
provided satisfactory services and have complied with the terms of their
franchises. We believe that we have generally met the terms of our franchises
and have provided quality levels of service. We anticipate that our future
franchise renewal prospects generally will be favorable.

Various courts have considered whether franchising authorities have the legal
right to limit the number of franchises awarded within a community and to impose
certain substantive franchise requirements (e.g. access channels, universal
service and other technical requirements). These decisions have been
inconsistent and, until the US Supreme Court rules definitively on the scope of
cable operators' First Amendment protections, the legality of the franchising
process generally and of various specific franchise requirements is likely to be
in a state of flux.

Pole Attachment. The Communications Act requires the FCC to regulate the rates,
terms and conditions imposed by public utilities for cable systems' use of
utility pole and conduit space unless state authorities can demonstrate that
they adequately regulate pole attachment rates. In the absence of state
regulation, the FCC administers pole attachment rates on a formula basis.

The FCC has concluded that, in the absence of state regulation, it has
jurisdiction to determine whether utility companies have justified their demand
for additional rental fees and that the Communications Act does not permit
disparate rates based on the type of service provided over the equipment
attached to the utility's pole. The FCC's existing pole attachment rate formula,
which may be modified by a pending rulemaking, governs charges for utilities for
attachments by cable operators providing only cable services. The 1996 Telecom
Act and the FCC's implementing regulations modify the current pole attachment
provisions of the 1984 Cable Act by immediately permitting certain providers of
telecommunications services to rely upon the protections of the current law and
by requiring that utilities provide cable systems and telecommunications
carriers with nondiscriminatory access to any pole, conduit or right-of-way
controlled by the utility.

The FCC's new rate formula, effective in 2001, governs the maximum rate certain
utilities may charge for attachments to their poles and conduit by companies
providing telecommunications services, including cable operators. Several
parties have requested the FCC to reconsider its new regulations and several
parties have challenged the new rules in court. A federal appellate court upheld
the constitutionality of the statutory provision that requires utilities provide
cable systems and telecommunications carriers with nondiscriminatory access to
any pole, conduit or right-of-way controlled by the utility.

The favorable pole attachment rates afforded cable operators under federal law
can be gradually increased by utility companies owning the poles if the operator
provides telecommunications service, as well as cable service, over its plant.
The FCC clarified that a cable operator's favorable pole rates are not
endangered by the provision of Internet access, but a decision by the 11th
Circuit Court of Appeals disagreed and suggested that Internet traffic is
neither cable service nor telecommunications service and might leave cable
attachments that carry Internet traffic ineligible for Pole Attachment Act
protections. This decision could have lead to substantial increases in pole
attachment rates. The cable industry sought review by the United States Supreme
Court, which issued an opinion reversing a decision from the United States Court
of Appeals for the Eleventh Circuit. The Eleventh Circuit court held that
commingled services are not covered by the Pole Attachment Act; and the Pole
Attachment Act does not grant the FCC authority to regulate wireless
communications.

Shortly after the Eleventh Circuit, opinion was issued, the U.S. Supreme Court
granted writ of certiorari and issued an order staying the Eleventh Circuit's
decision pending further review. The U.S. Supreme Court reversed


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the Eleventh Circuit's ruling. While the Supreme Court's decision does not mean
an end to arbitrations and litigation over similar issues, it does mean that the
FCC's Pole Attachment rules remain in effect.

Copyright. Cable television systems are subject to federal copyright licensing
covering carriage of television and radio broadcast signals. In exchange for
filing certain reports and contributing a percentage of their revenues to a
federal copyright royalty pool, that varies depending on the size of the system,
the number of distant broadcast television signals carried, and the location of
the cable system, cable operators can obtain blanket permission to retransmit
copyrighted material included in broadcast signals. The U.S. copyright office
adopted an industry agreement providing for an increase in the copyright royalty
rates. The possible modification or elimination of this compulsory copyright
license is the subject of continuing legislative review and could adversely
affect our ability to obtain desired broadcast programming. We cannot predict
the outcome of this legislative activity. Copyright clearances for nonbroadcast
programming services are arranged through private negotiations.

Cable operators distribute locally originated programming and advertising that
use music controlled by the two principal major music performing rights
organizations, the American Society of Composers, Authors and Publishers and
Broadcast Music, Inc. The cable industry has had a long series of negotiations
and adjudications with both organizations. A prior voluntarily negotiated
agreement with Broadcast Music has now expired, and is subject to further
proceedings. The governing rate court recently set retroactive and prospective
cable industry rates for American Society of Composers music based on the
previously negotiated Broadcast Music rate. Although we cannot predict the
ultimate outcome of these industry proceedings or the amount of any license fees
we may be required to pay for past and future use of association-controlled
music, we do not believe such license fees will be significant to our business
and operations.

Other Statutory and FCC Provisions. The 1992 Cable Act requires cable operators
to block fully both the video and audio portion of sexually explicit or indecent
programming on channels that are primarily dedicated to sexually oriented
programming or alternatively to carry such programming only at "safe harbor"
time periods currently defined by the FCC as the hours between 10 p. m. to 6 a.
m. A three-judge federal district court determined that this provision was
unconstitutional. The United States Supreme Court is currently reviewing the
lower court's ruling. The Communications Act also includes provisions, among
others, concerning customer service, subscriber privacy, marketing practices,
equal employment opportunity, regulation of technical standards and equipment
compatibility.

The FCC has various rulemaking proceedings pending that will implement the 1996
Telecom Act; it also has adopted regulations implementing various provisions of
the 1992 Cable Act and the 1996 Telecom Act that are the subject of petitions
requesting reconsideration of various aspects of its rulemaking proceedings. The
FCC has the authority to enforce its regulations through the imposition of
substantial fines, the issuance of cease and desist orders and/or the imposition
of other administrative sanctions, such as the revocation of FCC licenses needed
to operate certain transmission facilities often used in connection with cable
operations.

Other Regulations of the FCC. In addition to the FCC regulations noted above,
there are other regulations of the FCC covering such areas as the following.

     -   Programming practices, including, among other things:
           -    Syndicated program exclusivity, which is a FCC rule which
                requires a cable system to delete particular programming offered
                by a distant broadcast signal carried on the system which
                duplicates the programming for which a local broadcast station
                has secured exclusive distribution rights
           -    Network program nonduplication
           -    Local sports blackouts
           -    Indecent programming
           -    Lottery programming
           -    Political programming
           -    Sponsorship identification


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           -    Children's programming advertisements
           -    Closed captioning
     -   Registration of cable systems and facilities licensing
     -   Maintenance of various records and public inspection files
     -   Aeronautical frequency usage
     -   Lockbox availability
     -   Antenna structure notification
     -   Tower marking and lighting
     -   Emergency alert systems

The FCC has ruled that cable customers must be allowed to purchase cable
converters from third parties and established a multi-year phase-in during which
security functions, which would remain in the operator's exclusive control,
would be unbundled from basic converter functions, which could then be satisfied
by third party vendors. The first phase implementation date was July 1, 2000.
Compliance was technically and operationally difficult in our locations, so we
and several other cable operators filed a request at the FCC that the
requirement be waived in those systems. The request resulted in a temporary
deferral of the compliance deadline for those systems. We intend to implement
necessary changes in 2002 to comply with these requirements.

The FCC recently initiated an inquiry to determine whether the cable industry's
future provision of interactive services should be subject to regulations
ensuring equal access and competition among service vendors. The inquiry is
another indication of regulatory concern regarding control over cable capacity.

Other bills and administrative proposals pertaining to cable communications have
previously been introduced in Congress or have been considered by other
governmental bodies over the past several years. It is possible that Congress
and other governmental bodies will make further attempts to regulate cable
communications services.

State and Local Regulation. Because our cable communications systems use local
streets and rights-of-way, our systems are subject to state and local
regulation. Cable communications systems generally are operated pursuant to
franchises, permits or licenses granted by a municipality or other state or
local government entity. Federal law prohibits local franchising authorities
from granting exclusive franchises or from unreasonably refusing to award
additional franchises. Franchises generally are granted for fixed terms and in
many cases are terminable if the franchisee fails to comply with material
provisions. The terms and conditions of franchises vary materially from
jurisdiction to jurisdiction. Each franchise generally contains provisions
governing cable service rates, franchise fees, franchise term, system
construction and maintenance obligations, system channel capacity, design and
technical performance, customer service standards, franchise renewal, sale or
transfer of the franchise, territory of the franchisee, indemnification of the
franchising authority, use and occupancy of public streets and types of cable
services provided. The 1992 Cable Act immunizes franchising authorities from
monetary damage awards arising from regulation of cable communications systems
or decisions made on franchise grants, renewals, transfers and amendments. The
1996 Telecom Act provides that franchising fees are limited to an operator's
cable-related revenues and do not apply to revenues that a cable operator
derives from providing new telecommunications services.

Internet Operations
General. With significant growth in Internet activity and commerce over the past
several years the FCC and other regulatory bodies have been challenged to
develop new models that allow them to achieve the public policy goals of
competition and universal service. Many aspects of regulation and coordination
of Internet activities and traffic are evolving and are facing unclear
regulatory futures. Changes in regulations and in the regulatory environment,
including changes that affect communications costs or increase competition from
the ILEC or other communications service providers, could adversely affect the
prices at which we sell ISP services.

The Internet has been able to grow and develop outside the existing regulatory
structure because the FCC has made conscious decisions to limit the application
of its rules. The federal government's efforts have been directed


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away from burdening the Internet with regulation. ISPs and other companies in
the Internet industry have not been required to gain regulatory approval for
their actions. The 1996 Telecom Act adopts such a position. The 1996 Act states
that it is the policy of the United States "to preserve the vibrant and
competitive free market that presently exists for the Internet and other
interactive computer services, unfettered by Federal or State regulation."

Regulatory policy approaches toward the Internet have focused on several areas:
avoiding unnecessary regulation, questioning the applicability of traditional
rules, Internet governance (such as the allocation of domain names),
intellectual property, network reliability, privacy, spectrum policy, standards,
security, and international regulation.

Government may influence the evolution of the Internet in many ways, including
directly regulating, participating in technical standards development, providing
funding, restricting anti-competitive behavior by dominant firms, facilitating
industry cooperation otherwise prohibited by antitrust laws, promoting new
technologies, encouraging cooperation between private parties, representing the
United States in international intergovernmental bodies, and large-scale
purchasing of services.

There are many ways Internet growth could be negatively impacted which may
require future regulation and oversight. Moving toward proprietary standards or
closed networks would reduce the degree to which new services could leverage the
existing infrastructure. The absence of competition in the ISP market, or the
telecommunications infrastructure market, could reduce incentives for
innovation. Excessive or misguided government intervention could distort the
operation of the marketplace, and lead companies to expend valuable resources
working through the regulatory process. Insufficient government involvement may
also, however, have negative consequences. Some issues may require a degree of
central coordination, even if only to establish the initial terms of a
distributed, locally-controlled system. The final result, in the absence of
collective action, may be an outcome that no one favors. In addition, the
failure of the federal government to identify Internet-related areas that should
not be subject to regulation leaves open opportunities for state, local, or
international bodies to regulate excessively and/or inconsistently.

Internet Governance and Standards. There is no one entity or organization that
governs the Internet. Each facilities-based network provider that is
interconnected with the global Internet controls operational aspects of their
own network. Certain functions, such as domain name routing and the definition
of the TCP/IP protocol, are coordinated by an array of quasi-governmental,
intergovernmental, and non-governmental bodies. The United States government, in
many cases, has handed over responsibilities to these bodies through contractual
or other arrangements.

In other cases, entities have emerged to address areas of need such as the
Internet Society ("ISOC"), a non-profit professional society founded in 1992.
ISOC organizes working groups and conferences, and coordinates some of the
efforts of other Internet administrative bodies. The Internet Engineering Task
Force ("IETF"), an open international body mostly comprised of volunteers, is
primarily responsible for developing Internet standards and protocols. The work
of the IETF is coordinated by the Internet Engineering Steering Group, and the
Internet Architecture Board, which are affiliated with ISOC. The Internet
Assigned Numbers Authority handles Internet addressing matters under a contract
between the Department of Defense and the Information Sciences Institute at the
University of Southern California.

The legal authority of any of these bodies is unclear. Most of the underlying
architecture of the Internet was developed under the auspices, directly or
indirectly, of the United States government. The government has not, however,
defined whether it retains authority over Internet management functions, or
whether these responsibilities have been delegated to the private sector. The
degree to which any existing body can lay claim to representing "the Internet
community" is also unclear. Membership in the existing Internet governance
entities is drawn primarily from the research and technical communities.


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1996 Telecom Act. The 1996 Telecom Act provides little direct guidance as to
whether the FCC has authority to regulate Internet-based services. Section 223
concerns access by minors to obscene, harassing, and indecent material over the
Internet and other interactive computer networks, and sections 254, 706, and 714
address mechanisms to promote the availability of advanced telecommunications
services, possibly including Internet access. None of these sections, however,
specifically addresses the FCC's jurisdiction.

Nothing in the 1996 Telecom Act expressly limits the FCC's authority to regulate
services and facilities connected with the Internet, to the extent that they are
covered by more general language in any section of the Act. Moreover, it is not
clear what such a limitation would mean even if it were adopted. The
Communications Act directs the FCC to regulate "interstate and foreign commerce
in communication by wire and radio," and the FCC and state public utility
commissions indisputably regulate the rates and conditions under which ISPs
purchase services and facilities from telephone companies. Given the absence of
clear statutory guidance, the FCC must determine whether it has the authority or
the obligation to exercise regulatory jurisdiction over specific Internet-based
activities. The FCC may also decide whether to forebear from regulating certain
Internet-based services. Forbearance allows the FCC to decline to adopt rules
that would otherwise be required by statute. Under section 401 of the 1996
Telecom Act, the FCC must forbear if regulation would not be necessary to
prevent anticompetitive practices and to protect consumers, and forbearance
would be consistent with the public interest. Finally, the FCC could consider
whether to preempt state regulation of Internet services that would be
inconsistent with achievement of federal goals.

FCC Regulations. The FCC has not attempted to regulate the companies that
provide the software and hardware for Internet telephony, or the access
providers that transmit their data, as common carriers or telecommunications
service providers. In March 1996, America's Carriers Telecommunication
Association ("ACTA"), a trade association primarily comprised of small and
medium-size interexchange carriers, filed a petition with the FCC asking the FCC
to regulate Internet telephony. ACTA argues that providers of software that
enables real-time voice communications over the Internet should be treated as
common carriers and subject to the regulatory requirements of Title II. The FCC
has sought comment on ACTA's request. Other countries are considering similar
issues.

The FCC has not considered whether any of the rules that relate to radio and
television broadcasters should also apply to analogous Internet-based services.
The vast majority of Internet traffic today travels over wire facilities, rather
than the radio spectrum. As a policy matter, however, a continuous, live,
generally-available music broadcast over the Internet may appear similar to a
traditional radio broadcast, and the same arguments may be made about streaming
video applications. The FCC will need to consider the underlying policy
principles that, in the language of the Act and in FCC decisions, have formed
the basis for regulation of the television and radio broadcast industries.

The FCC does not regulate the prices charged by ISPs or Internet backbone
providers. However, the vast majority of users connect to the Internet over
facilities of existing telecommunications carriers. Those telecommunications
carriers are subject to varying levels of regulation at both the federal and the
state level. Thus, regulatory decisions exercise a significant influence over
the economics of the Internet market. Economics is expected to drive the
development of both the Internet and of other communications technologies.

Internet access is understood to be an enhanced service under FCC rules;
therefore, ISPs are treated as end users, rather than carriers, for purposes of
the FCC's interstate access charge rules. This distinction was created when the
FCC established the access charge system in 1983. Thus, when ISPs purchase lines
from LECs, the ISPs buy those lines under the same tariffs that any business
customer would use. Although these services generally involve a per-minute usage
charge in addition to a monthly fee, the usage charge is assessed only for
outbound calls. ISPs, however, exclusively use these lines to receive calls from
their customers, and thus effectively pay flat monthly rates. By contrast, IXCs
that interconnect with LECs are considered carriers, and thus are required to
pay interstate access charges for the services they purchase. Most of the access
charges that carriers pay are usage-sensitive in both directions. Thus, IXCs are
assessed per-minute charges for both originating and


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terminating calls. The FCC concluded in their Local Competition Order that the
rate levels of access charges appear to significantly exceed the incremental
cost of providing these services. The FCC in December 1996 launched a
comprehensive proceeding to reform access charges in a manner consistent with
economic efficiency and the development of local competition.

State and Local Regulations. The revenue effects of Internet usage today depend
to a significant extent on the structure of state and local tariffs. Internet
usage generates less revenue for LECs in states and jurisdictions where flat
local service rates have been set low, with compensating revenues in the form of
per-minute intrastate toll charges. Because ISPs only receive local calls, they
do not incur these usage charges. By contrast, in states and jurisdictions where
flat charges make up a higher percentage of LEC revenues, ISPs will have a less
significant revenue effect. ISP usage is also affected by the relative pricing
of services such as ISDN PRI, frame relay, and fractional T-1 connections, which
are alternatives to analog business lines. Prices for these services, and the
price difference on a per-voice-channel basis between the options available to
ISPs, vary widely across different states and jurisdictions. In many cases,
tariffs for these and other data services are based on assumptions that do not
reflect the realities of the Internet access market today. The scope of local
calling areas also affects the architecture of Internet access services. In
states and jurisdictions with larger unmeasured local calling areas, ISPs need
fewer POPs in order to serve the same customers through a local call.

Court Decisions and Legislative Action. We believe major court decisions and
legislative action will shape the worldwide Internet in 2002 and beyond,
including:

     -   The continuing impact of the U.S. vs. Microsoft antitrust trial and
         settlement decisions.
     -   Possible recognition that the FCC's traditional encryption regulation
         is obsolete.
     -   Minimum-regulation approaches to information privacy as a new consumer
         movement tries to use international privacy law to rein in the behavior
         of large corporations in the U.S. economy.
     -   The potential for continuing increases in inexperienced investors
         investing through online brokers and increased instances of investor
         losses that lead to arbitration claims against the brokers.
     -   The impact of more Internet patents preventing others from doing
         certain things, such as designing and maintaining certain types of Web
         sites.
     -   The legality of hyperlinking without permission.
     -   Potential legislation in Congress that would create a new form of
         intellectual property in databases.
     -   Decisions regarding whether cryptographic source code is First
         Amendment speech, and hence exportable, or that no program is covered
         by the First Amendment.
     -   Continuing calls for domestic controls of obscenity-related
         cryptography.
     -   The development of rating and filtering systems outside the United
         States.

Financial Information about our Foreign and Domestic Operations and Export Sales
Although we have several agreements to help originate and terminate
international toll traffic, we do not have foreign operations or export sales.
We conduct our operations throughout the western contiguous United States,
Alaska and Hawaii and believe that any subdivision of our operations into
distinct geographic areas would not be meaningful. Revenues associated with
international toll traffic were $4.4 million, $4.9 million and $5.5 million for
the years ended December 31, 2001, 2000 and 1999, respectively.

Seasonality
Our long-distance revenues have historically been highest in the summer months
because of temporary population increases attributable to tourism and increased
seasonal economic activity such as construction, commercial fishing, and oil and
gas activities. Our cable television revenues, on the other hand, are higher in
the winter months because consumers tend to watch more television, and spend
more time at home, during these months. Our local service and Internet
operations are not expected to exhibit significant seasonality, with the
exception of SchoolAccess(TM) Internet services that are reduced during the
summer months. Our ability to implement construction projects is also reduced
during the winter months because of cold temperatures, snow and short daylight
hours.


                                       54
<PAGE>
Customer-Sponsored Research
We have not expended material amounts during the last three fiscal years on
customer-sponsored research activities.

Backlog of Orders and Inventory
As of December 31, 2001 and 2000, our long-distance services segment had a
backlog of equipment sales and private line orders of approximately $535,000 and
$1,570,000, respectively. Approximately $450,000 and $1.0 million of the 2001
and 2000 backlogs represent recurring monthly charges for private line and
telemedicine services, respectively. The decrease in backlog as of December 31,
2001 can be attributed to a combination of decreased private line circuit orders
pending at December 31, 2001 as compared to 2000 and faster completion of
outstanding sales orders at December 31, 2001 as compared to 2000. We expect
that all of the private line orders and equipment sales in backlog at the end of
2001 will be delivered during 2002.

Geographic Concentration and Alaska Economy
We offer voice and data telecommunication and video services to customers
primarily throughout Alaska. Because of this geographic concentration, growth of
our business and our operations depend upon economic conditions in Alaska. The
economy of State of Alaska is dependent upon the natural resource industries,
and in particular oil production, as well as investment earnings (including
earnings from the State of Alaska Permanent Fund), tourism, government, and
United States military spending. Any deterioration in these markets could have
an adverse impact on us. Oil revenues are now the second largest source of state
revenues, following funds from federal sources. You should see Part II, Item 7
Management's Discussion and Analysis of Financial Condition and Results of
Operations for more information about the effect of geographic concentration and
the Alaska Economy on us.

Factors That May Affect Our Business and Future Results
Our substantial leverage will reduce cash flow from operations available to fund
our business and may cause a decline in our credit rating and/or limit our
ability to raise additional capital. We have substantial indebtedness. As of
December 31, 2001, we had total outstanding debt of $399 million. We plan to
incur additional indebtedness in the future as we implement our business plan,
subject to limitations imposed by our credit facility agreements. In connection
with the execution of our business strategies, we are continuously evaluating
acquisition opportunities with respect to each of our business segments and we
may elect to finance acquisitions by incurring additional indebtedness. We must
use a portion of our future cash flow from operations to pay the principal and
interest on our indebtedness, which will reduce the funds available for our
operations, including capital investments and business expenses. This could
hinder our ability to adjust to changing market and economic conditions. If we
incur significant additional indebtedness, our credit rating could be adversely
affected. As a result, our borrowing costs would likely increase and our access
to capital may be adversely affected.

Our credit facilities restrict our ability to incur additional indebtedness and
make capital expenditures, and contain certain other restrictions on our
business operations. Our existing credit facilities restrict our and certain of
our subsidiaries' ability to incur additional indebtedness, make certain capital
expenditures, pay dividends or make certain other restricted payments,
consummate certain asset sales, enter into certain transactions with affiliates
and incur liens. These credit facilities also impose restrictions on the ability
of a subsidiary to pay dividends or make certain payments to us, merge or
consolidate with any other person or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of our assets. These credit
facilities also require that we maintain certain financial ratios. A breach of
any of these covenants could result in a default under the credit facilities.
Our current business strategy includes the acquisition of additional assets and
the expansion of our existing businesses and service offerings. In addition, our
business strategy may in the future be expanded to include activities outside
the state of Alaska. It is likely that our current and future expansion and
growth plans will require significant additional capital in excess of capital
generated from operations and will result in significant


                                       55
<PAGE>
capital expenditures. If we are unable to negotiate modifications to these
restrictions, they could hinder our ability to follow through with expansion and
growth plans.

We have a history of operating losses. If we do not maintain profitability, we
may be unable to make capital expenditures necessary to implement our business
plan, meet our debt service requirements or otherwise conduct our business in an
effective and competitive manner. This would require us to divert cash from
other uses, which may not be possible or may detract from the growth of our
businesses. These events could limit our ability to increase our revenues and
net income or cause these amounts to decline.

We depend on a small number of customers for a substantial portion of our
revenue and business. As previously described (see Part I, Item 1. Business,
Long Distance Services, Customers), services that we provide to WorldCom and to
Sprint contribute significantly to our total revenues. These two customers are
free to seek out long-distance communication services from our competitors upon
expiration of their contracts (in March 2006, in the case of WorldCom, and in
March 2007, in the case of Sprint) or earlier upon a default or the occurrence
of certain events. These events are a force majeure event or a substantial
change in applicable law or regulation under the applicable contract.

Mergers and acquisitions in the telecommunications industry are relatively
common. If a change in control of WorldCom or Sprint were to occur, it would not
permit them to terminate their existing contracts with us, but could in the
future result in the termination of or a material adverse change in our
relationships with WorldCom or Sprint. In addition, WorldCom and Sprint's need
for our long-distance services depends directly upon their ability to obtain and
retain their own long-distance customers and upon the needs of those customers
for long-distance services.

The loss of one or both of WorldCom or Sprint as customers, a material adverse
change in our relationships with them or a material loss of or reduction in
their long-distance customers would have a material adverse effect on our
financial condition and results of operations.

We depend on a limited number of third-party vendors to supply
telecommunications equipment. We depend on a limited number of third-party
vendors to supply cable, Internet and telephony-related equipment. If our
providers of this equipment are unable to timely supply the equipment necessary
to meet our needs or provide them at an acceptable cost, we may not be able to
satisfy demand for our services and competitors may fulfill this demand.

Prolonged service interruptions could affect our business. We rely heavily on
our network equipment, telecommunications providers, data and software, to
support all of our functions. We rely on our networks and the networks of others
for substantially all of our revenues. We are able to deliver services only to
the extent that we can protect our network systems against damage from power or
telecommunication failures, computer viruses, natural disasters, unauthorized
access and other disruptions. While we endeavor to provide for failures in the
network by providing back-up systems and procedures, we cannot guarantee that
these back-up systems and procedures will operate satisfactorily in an
emergency. Should we experience a prolonged failure, it could seriously
jeopardize our ability to continue operations. In particular, should a
significant service interruption occur, our ongoing customers may choose a
different provider, and our reputation may be damaged, reducing our
attractiveness to new customers.

To the extent that any disruption or security breach results in a loss or damage
to our customers' data or applications, or inappropriate disclosure of
confidential information, we may incur liability and suffer from adverse
publicity. In addition, we may incur additional costs to remedy the damage
caused by these disruptions or security breaches.

If a failure occurs in our undersea fiber optic cable, our ability to
immediately restore the entirety of our service may be limited. Our
telecommunications facilities include an undersea fiber optic cable that carries
a large portion of our Internet voice and data traffic to and from the
contiguous Lower 48 states. We are currently


                                       56
<PAGE>
seeking arrangements to obtain alternative telecommunications facilities as
backup facilities. If a failure of our undersea fiber optic facilities occurs
before we are able to secure adequate backup facilities, some of the
telecommunications services we offer to our customers could be interrupted,
which could have a material impact on our business and results of operations.

Our businesses are currently geographically concentrated in Alaska. We offer a
variety of voice, video and data services to residential, commercial and
governmental customers in the state of Alaska. Because of this geographic
concentration, our growth and operations depend in part upon economic conditions
in Alaska. We may not be able to continue to increase our market share of the
existing markets for our services and no assurance can be given that the Alaskan
economy will continue to grow and increase the size of the markets we serve or
increase the demand for the services we offer. You should see Part II, Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations for more information.

Our best growth opportunities may be in geographic areas that differ from those
of our existing businesses. We have achieved significant market penetration in
the state of Alaska for many of the services we offer. However, opportunities
for expanding our market geographically in the state of Alaska or attaining
significant additional market penetration in the State of Alaska are limited. As
a result, the best opportunities for expanding our business may arise in other
geographic areas such as the contiguous Lower 48 states. There can be no
assurance that we will find attractive opportunities to grow our businesses
outside the State of Alaska or that we will have the necessary expertise to take
advantage of such opportunities. The Alaska voice, video and data
telecommunications markets are unique and distinct within the United States due
to Alaska's large geographical size and its distance from the rest of the United
States. The expertise we have developed in operating our businesses in the State
of Alaska may not provide us with the necessary expertise to successfully enter
other geographic markets.

We may fail to develop our wireless services. We offer wireless mobile services
by reselling other providers' wireless mobile services. We offer wireless local
telephone services over our own facilities, and have purchased PCS and LMDS
wireless broadband licenses in FCC auctions covering markets in Alaska. We have
fewer subscribers to our wireless services than to our other service offerings.
The geographic coverage of our wireless services is also smaller than the
geographic coverage of our other services. Some of our competitors offer or
propose to offer an integrated bundle of communications, entertainment and
information services, including wireless services. If we are unable to expand
and further develop our wireless services, we may not be able to meet the needs
of customers who desire packaged services, and our competitors who offer theses
services would have an advantage. This could result in the loss of market share
for our other service offerings.

Our efforts to develop cable telephony may be unsuccessful. An element of our
business strategy is to develop voice telephone service utilizing our coaxial
cable facilities. If we are able to develop this service, we will be able to
utilize our own cable facilities to provide local access to our customers and
avoid paying local loop charges to ILECs. In order to successfully develop and
market this new service, we must integrate new technology with our existing
facilities. The viability of this service depends on the availability of the
equipment necessary to provide the service at cost-effective prices. The
development and marketing of this service will require a substantial capital
investment. If we are unable to successfully develop and market voice telephone
service, we will not be able to fully recover any capital investment we may make
and the margins on our local telephone services business will not improve.

We do not have insurance to cover certain risks to which we are subject. We are
self-insured for damage or loss to certain of our transmission facilities,
including our buried, under sea, and above-ground transmission lines. If we
become subject to substantial uninsured liabilities due to damage or loss to
such facilities, our financial results may be adversely affected.

Economic and Security Impacts on Telecommunications. The recent economic
recession in the United States began with a decline in business capital spending
and investment. With the declining high-technology sector,


                                       57
<PAGE>
businesses appear to have taken a more pessimistic view of the short-term
economic future and have curtailed spending on equipment, software, real estate,
inventories and other investments. The terrorist attacks on America on September
11, 2001 and their aftermath worsened already deteriorating economic conditions.
Recent economic indicators reflect an improving economy with a growing sense of
optimism for an economic recovery.

The telecommunications sector has been significantly impacted by the recent
economic downturn. The American Stock Exchange's North American
Telecommunications Index through February 2002 has dropped 65% from the high
reached in March 2000. Investors reportedly fear that carriers with high debt
loads may face liquidity crises. The telecommunications sector has been affected
by such liquidity concerns, bankruptcy filings of Global Crossing Ltd. and
McLeodUSA Inc., and concerns about the possibility of improper accounting.

Demand for some of our communications products and services could be adversely
affected by this downturn in the United States economy as well as changes in the
global economy. Unfavorable economic conditions resulting from the recent
economic recession in the United States may cause our customers to reduce their
demand for our communications products and services. To date we have not
experienced a reduction in demand for our products and services. However, if the
economic conditions in the United States worsen or if a wider or global economic
slowdown occurs, our results of operations and financial condition may be
adversely affected.

As our business has grown, we have become increasingly subject to adverse
changes in general economic conditions and economic conditions in the State of
Alaska, which can result in reductions in capital expenditures by customers,
longer sales cycles, deferral or delay of purchase commitments for products or
services and increased price competition. Although these factors have not
materially affected us in recent years, if the current economic slowdown
continues or worsens, these factors could adversely affect our business and
results of operations.

With the terrorist events of September 11, the FCC and the communications
community are determining their respective roles in ensuring homeland security.
The FCC's principal objectives are reportedly to secure the U.S.'s
communications infrastructure and to enhance emergency response through
communications. Expected FCC actions include re-chartering the Network
Reliability and Interoperability Council ("NRIC"), consideration of a media
counter-part to NRIC, working with other agencies to ensure network protection,
reliability and redundancy, continuing efforts to solve remaining public safety
spectrum issues, continuing to work on interoperability restraints, continuing
to address emergency 911 issues, and working with other agencies on wireless
priority access that balances the need for government response and critical
needs of subscribers.

Since we are a wholly-owned subsidiary of GCI, we can be affected by activity in
GCI's Common Stock. Potential sales of large amounts of GCI Class A common stock
into the market could lower the market price of its Class A common stock. GCI
registered for resale in February 2002 4.5 million shares of its Class A common
stock owned by WorldCom, representing approximately 8.8% of its Class A common
stock outstanding as of December 31, 2001. Sales of a substantial number of
shares of GCI Class A common stock, or the perception that such sales may occur,
could cause the market price of GCI Class A common stock to decline and impede
our ability to raise capital through sales of GCI Class A common stock or
securities convertible into or exercisable for GCI Class A common stock.

A significant percentage of GCI's voting securities are held by a small number
of shareholders and these shareholders can control stockholder decisions on very
important matters. As of December 31, 2001, prior to giving effect to the sale
of the 4.5 million shares of GCI Class A common stock as described above,
WorldCom owned approximately 17% and our executive officers and GCI's directors
and their affiliates owned approximately 29% of GCI's combined outstanding Class
A and Class B common stock, representing approximately 47% of the combined
voting power of that stock (including outstanding GCI series B preferred stock
voting with GCI Class A common stock on an as-converted basis). After giving
effect to the sale of all of the shares offered for sale and registered in
February 2002, WorldCom would still own approximately 9% and our executive
officers and directors and their affiliates would still own approximately 21% of
such outstanding GCI


                                       58
<PAGE>
Class A and Class B common stock, representing approximately 42% of the combined
voting power of such stock. These shareholders can significantly influence if
not control our management policy and all fundamental corporate actions,
including mergers, substantial acquisitions and dispositions, and election of
directors to GCI's Board. This concentration of ownership may have the effect of
discouraging third parties from making bids for GCI, delaying or preventing a
change of control, or reducing premiums paid to GCI shareholders for their stock
and could have an adverse effect on the market price of GCI Class A common
stock.

Employees
We employed 1,162 persons as of March 1, 2002, and are not parties to union
contracts with our employees. We believe our future success will depend upon our
continued ability to attract and retain highly skilled and qualified employees.
We believe that relations with our employees are satisfactory.

Other
No material portion of our businesses is subject to renegotiation of profits or
termination of contracts at the election of the federal government.

Item 2.  Properties

General
Our properties do not lend themselves to description by character or location of
principal units. Our investment in property, plant and equipment in our
consolidated operations consisted of the following at December 31:

                                                      2001          2000
                                                    -----------------------
     Telephone distribution systems                   57.5%         58.0%
     Cable television distribution systems            23.1%         21.1%
     Support equipment                                 7.9%          8.1%
     Property and equipment under capital leases       8.7%         10.0%
     Construction in progress                          1.4%          1.4%
     Transportation equipment                          0.9%          0.8%
     Land and buildings                                0.5%          0.6%
                                                    -----------------------
          Total                                      100.0%        100.0%
                                                    =======================

These properties are divided among our operating segments at December 31, 2001
as follows: long-distance services, 54.6%; cable services, 24.6%; local access
services, 7.1%; Internet services, 5.4%; and all other, 8.3%.

These properties consist primarily of switching equipment, satellite earth
stations, fiber-optic networks, microwave radio and cable and wire facilities,
cable head-end equipment, coaxial distribution networks, routers, servers,
transportation equipment, computer equipment and general office equipment.
Substantially all of our properties secure our Senior Holdings Loan and Fiber
Facility. You should see note 5 to the Notes to Consolidated Financial
Statements included in Part II of this Report for more information.

Our construction in progress totaled $8.1 million at December 31, 2001,
consisting of telecommunications, cable and Internet projects that were
incomplete at December 31, 2001. Our construction in progress also totaled $8.1
million at December 31, 2000, consisting of telecommunications, Internet and
support systems projects that were incomplete at December 31, 2000.

Long-Distance Services
We operate a modern, competitive telecommunications network employing the latest
digital transmission technology based upon fiber optic and digital microwave
facilities within and between Anchorage, Fairbanks and Juneau, Alaska. Our
network includes digital fiber optic cables linking Alaska to the contiguous 48
states and


                                       59
<PAGE>
providing access to other carriers' networks for communications around the
world. We use satellite transmission to remote areas of Alaska and for certain
interstate and intrastate traffic.

Our long-distance services segment owns properties and facilities including
satellite earth stations, and distribution, transportation and office equipment.
Additionally, in December 1992 we acquired access to capacity on an undersea
fiber optic cable from Seward, Alaska to Pacific City, Oregon. We completed
construction of an additional fiber optic cable facility linking Alaska to
Seattle, Washington in February 1999, which is owned subject to an outstanding
mortgage.

We entered into a purchase and lease-purchase option agreement in August 1995
for the acquisition of satellite transponders on the PanAmSat Galaxy XR
satellite to meet our long-term satellite capacity requirements. We use the
satellite transponders pursuant to a long-term capital lease arrangement with a
leasing company. The purchase and lease-purchase option agreement provided for
the interim lease of transponder capacity on the PanAmSat Galaxy IX satellite
through the delivery of the purchased transponders on Galaxy XR in March 2000.

Effective June 30, 2001, we acquired, through GCI's issuance of preferred stock,
a controlling interest in the corporation owning the 800-mile fiber optic cable
system that extends from Prudhoe Bay, Alaska to Valdez, Alaska via Fairbanks.

We lease our long-distance services industry segment's executive, corporate and
administrative facilities in Anchorage, Fairbanks and Juneau, Alaska. Our
operating, executive, corporate and administrative properties are in good
condition. We consider our properties suitable and adequate for our present
needs and they are being fully utilized.

Cable Services
The Cable Systems serve 33 communities and areas in Alaska including Anchorage,
Fairbanks and Juneau, the state's three largest urban areas. As of December 31,
2001, the Cable Systems consisted of approximately 2,200 miles of installed
cable plant having between 330 to 550 MHz of channel capacity. Our principal
physical assets consist of a cable television distribution plant and equipment,
including signal receiving, encoding and decoding devices, headend reception
facilities, distribution systems and customer drop equipment for each of our
cable television systems.

Our cable television plant and related equipment are generally attached to
utility poles under pole rental agreements with local public utilities and
telephone companies, and in certain locations are buried in underground ducts or
trenches. We own or lease real property for signal reception sites and business
offices in many of the communities served by our systems and for our principal
executive offices.

We own the receiving and distribution equipment of each system. In order to keep
pace with technological advances, we are maintaining, periodically upgrading and
rebuilding the physical components of our cable communications systems. Such
properties are in good condition. We own all of our service vehicles. We
consider our properties suitable and adequate for our present and anticipated
future needs.

Local Access Services
We operate a modern, competitive local access telecommunications network
employing the latest digital transmission technology based upon fiber optic
facilities within Anchorage and Fairbanks through 2001, and in Juneau beginning
in 2002. Our outside plant consists of connecting lines (aerial, underground and
buried cable), the majority of which is on or under public roads, highways or
streets, while the remainder is on or under private property. Central office
equipment primarily consists of digital electronic switching equipment and
circuit equipment. Operating equipment consists of motor vehicles and other
equipment.


                                       60
<PAGE>
Substantially all of our local access services' central office equipment,
administrative and business offices, and customer service centers are in leased
facilities. Such properties are in good condition. We consider our properties
suitable and adequate for our present and anticipated future needs.

Internet Services
We operate a modern, competitive Internet network employing the latest available
technology. We provide access to the Internet using a platform that includes
many of the latest advancements in technology. The physical platform is
concentrated in Anchorage and is extended into many remote areas of the state.
Our Internet platform includes trunks connecting our Anchorage facilities to
Internet access points in Seattle through multiple, diversely routed upstream
Internet networks, and various other routers, servers and support equipment.

We lease our Internet services industry segment's operating facilities, located
primarily in Anchorage. Such properties are in good condition. We consider our
properties suitable and adequate for our present and anticipated future needs.

Capital Expenditures
Capital expenditures consist primarily of (a) gross additions to property, plant
and equipment having an estimated service life of one year or more, plus the
incidental costs of preparing the asset for its intended use, and (b) gross
additions to capitalized software.

The total investment in property, plant and equipment has increased from $178.2
million at January 1, 1997 to $582.8 million at December 31, 2001, including
construction in progress and not including deductions of accumulated
depreciation. Significant additions to property, plant and equipment will be
required in the future to meet the growing demand for communications, Internet
and entertainment services and to continually modernize and improve such
services to meet competitive demands.

Our capital expenditures for 1997 through 2001 were as follows (in millions):

       1997     $  64.6
       1998     $ 149.0
       1999     $  36.6
       2000     $  48.9
       2001     $  68.0

We project capital expenditures of $50 million to $60 million for 2002. A
majority of the expenditures will expand, enhance and modernize our current
networks, facilities and operating systems, and will develop wireless and other
businesses. Additional capital expenditures will be incurred if we successfully
acquire backup or standby facilities. You should see note 12 to the accompanying
Notes to Consolidated Financial Statements included in Part II of this Report
for more information.

During 2001, we funded our normal business capital requirements substantially
through internal sources and, to the extent necessary, from external financing
sources. We expect expenditures for 2002 to be financed in the same manner.

Insurance
We have insurance to cover risks incurred in the ordinary course of business,
including general liability, property coverage, business interruption and
workers' compensation insurance in amounts typical of similar operators in our
industry and with reputable insurance providers. Central office equipment,
buildings, furniture and fixtures and certain operating and other equipment are
insured under a blanket property insurance program. This program provides
substantial limits of coverage against "all risks" of loss including fire,
windstorm, flood, earthquake and other perils not specifically excluded by the
terms of the policies. As is typical in the communications industry, we are
self-insured for damage or loss to certain of our transmission facilities,
including our buried, under sea,


                                       61
<PAGE>
and above-ground transmission lines. We believe our insurance coverage is
adequate, however if we become subject to substantial uninsured liabilities due
to damage or loss to such facilities, our financial results may be adversely
affected.

Item 3.  Legal Proceedings

Except as set forth in this item, neither the Company, its property nor any of
its subsidiaries or their property is a party to or subject to any material
pending legal proceedings. We are parties to various claims and pending
litigation as part of the normal course of business. We are also involved in
several administrative proceedings and filings with the FCC, Department of Labor
and state regulatory authorities. In the opinion of management, the nature and
disposition of these matters are considered routine and arising in the ordinary
course of business which management believes, even if resolved unfavorably to
us, would not have a materially adverse affect on our business or financial
position, results of operations or liquidity.

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

Omitted per General Instruction J(1)(a) and (b) of Form 10-K.


                                       62
<PAGE>
                                     Part II

Item 5.  Market for the Registrant's Common Equity and Related Stockholder
         Matters

Market Information for Common Stock
All issued and outstanding shares of GCI, Inc.'s Class A common stock are held
by General Communication, Inc. and are not publicly traded. General
Communication, Inc.'s Class A and Class B common stock are publicly traded.

Dividends
GCI and GCI, Inc. have never paid cash dividends on their common stock and have
no present intention of doing so. Payment of cash dividends in the future, if
any, will be determined by GCI's and GCI, Inc.'s Board of Directors in light of
our earnings, financial condition and other relevant considerations. Our
existing bank loan agreements contain provisions that prohibit payment of
dividends, other than stock dividends (you should see note 5 to the Consolidated
Financial Statements included in Part II of this Report for more information).

Stock Transfer Agent and Registrar
Mellon Investor Services LLC is our stock transfer agent and registrar.


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<PAGE>
Item 6.  Selected Financial Data
<TABLE>
The following table presents selected historical information relating to
financial condition and results of operations over the past five years.
<CAPTION>
                                                                            Years ended December 31,
                                                             -------------------------------------------------------
                                                                2001       2000       1999       1998       1997
                                                                ----       ----       ----       ----       ----
                                                                           (Amounts in thousands)
     <S>                                                    <C>          <C>        <C>        <C>        <C>
     Revenues (1, 2)                                        $ 357,258    292,605    279,179    246,795    223,809
     Net earnings (loss) before income taxes,
       extraordinary item and cumulative effect of a
       change in accounting principle (3)                   $   8,659    (21,649)   (14,866)   (10,920)    (2,235)
     Loss on early extinguishment of debt, net of
       income tax benefit of $180                           $       0          0          0          0        521
     Cumulative effect of a change in accounting
       principal, net of income tax benefit of $245         $       0          0        344          0          0
     Net earnings (loss)                                    $   4,589    (13,234)    (9,527)    (6,797)    (2,183)
     Total assets (4)                                       $ 734,679    679,007    643,151    649,445    545,302
     Long-term debt, including current portion (4)          $ 351,700    334,400    339,400    351,657    250,084
     Obligations under capital leases, including
       current portion (5)                                  $  47,282     48,696      1,674      2,186      1,188
     Total stockholder's equity                             $ 224,450    204,822    213,618    200,575    204,439
     Dividends declared per Common share (6)                $    0.00       0.00       0.00       0.00       0.00
<FN>
     ---------------------
     (1) The 2001 revenue increase is partially attributed to a $19.5 million
         sale of fiber optic cable system capacity.
     (2) The 1999 revenue increase is partially attributed to a $19.5 million
         sale of fiber optic cable system capacity.
     (3) Our net losses in 2000, 1999, 1998 and 1997 are primarily attributed to
         additional depreciation, amortization and interest expense resulting
         from the cable company acquisitions in October 1996. Net losses in
         1999, 1998 and 1997 are also attributed to startup losses from our
         entry into local access services and Internet services markets. Net
         losses in 2000 are also attributed to additional interest expense
         resulting from our capital lease of satellite transponders in 2000 as
         further described in footnote 5 below.
     (4) Increases in assets and long-term debt in 1998 as compared to 1997
         result primarily from our construction of a fiber-optic system
         connecting points in Alaska with Seattle Washington as further
         described in note 9 to the accompanying Notes to Consolidated Financial
         Statements included in Part II of this Report.
     (5) We entered into a capital lease with a leasing company in March 2000
         for the use of satellite transponders, as further described in note 13
         to the accompanying Notes to Consolidated Financial Statements included
         in Part II of this Report.
     (6) We have never paid a cash dividend on our common stock and do not
         anticipate paying dividends in the foreseeable future. We intend to
         retain our earnings, if any, for the development of our business.
         Payment of cash dividends in the future, if any, will be determined by
         the board of directors in light of our earnings, financial condition,
         credit agreements and other relevant considerations. Our existing bank
         loan agreements contain provisions that prohibit payment of dividends,
         other than stock dividends, as further described in note 5 to the Notes
         to Consolidated Financial Statements included in Part II of this
         Report.
</FN>
</TABLE>

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<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

In the following discussion, GCI, Inc. and its direct and indirect subsidiaries
are referred to as "we," "us" and "our."

Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. On an on-going basis, we evaluate our estimates and
judgments, including those related to unbilled revenues, allowance for doubtful
accounts, depreciation and amortization periods, intangible assets, income
taxes, and contingencies and litigation. We base our estimates and judgments on
historical experience and on various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. See also our Cautionary
Statement Regarding Forward-Looking Statements.

GCI, Inc. was incorporated in 1997 to effect the issuance of senior notes. GCI,
Inc., a wholly owned subsidiary of GCI, received through its initial
capitalization all ownership interests in subsidiaries previously held by GCI.
Shares of GCI's Class A common stock are traded on the Nasdaq National Market
tier of the Nasdaq Stock Market under the symbol GNCMA. Shares of GCI's Class B
common stock are traded on the Over-the-Counter market.

Overview
We have experienced significant growth in recent years through strategic
acquisitions, deploying new business lines and expansion of our existing
businesses. We have historically met our cash needs for operations, regular
capital expenditures and maintenance capital expenditures through our cash flows
from operating activities. Cash requirements for significant acquisitions and
major capital expenditures have been provided largely through our financing
activities.

Long-Distance Services
During 2001 long-distance services revenue represented 56.2% of consolidated
revenues. Our provision of interstate and intrastate long-distance services to
residential, commercial and governmental customers and to other common carriers
(principally WorldCom, a related party, and Sprint), and provision of private
line and leased dedicated capacity services accounted for 95.3% of our total
long-distance services revenues during 2001. Factors that have the greatest
impact on year-to-year changes in long-distance services revenues include the
rate per minute charged to customers, usage volumes expressed as minutes of use,
and the number of private line and leased dedicated service products in use.

Revenues from private line and other dedicated data services sales increased
19.7% to $34.7 million during 2001 as compared to 2000 due primarily to
increasing demand for our data services by commercial and governmental
customers.

We introduced a broadband product offering to hospitals and health clinics in
2000, supplementing broadband revenues derived from our SchoolAccess(TM)
offering to rural school districts. Total broadband revenues increased 82.7% to
$15.7 million during 2001 as compared to 2000. SchoolAccess(TM) services to nine
school districts in Arizona and New Mexico began in July 2001.

Our long-distance services cost of sales and services has consisted principally
of direct costs of providing services, including local access charges paid to
LECs for originating and terminating long-distance calls in Alaska, and fees
paid to other long-distance carriers to carry calls terminating in areas not
served by our network


                                       65
<PAGE>
(principally the lower 49 states, most of which calls are carried over
WorldCom's network, and international locations, which calls are carried
principally over Sprint's network). During 2001, local access charges accounted
for 65.9% of long-distance services cost of sales and services, fees paid to
other long-distance carriers represented 28.1%, satellite transponder lease and
undersea fiber maintenance costs represented 3.5%, and other costs represented
2.5% of long-distance services cost of sales and services.

Our long-distance services selling, general, and administrative expenses have
consisted of operating and engineering, customer service, sales and
communications, management information systems, general and administrative, and
legal and regulatory expenses. Most of these expenses consist of salaries, wages
and benefits of personnel and certain other indirect costs (such as rent,
travel, utilities, insurance and property taxes). A significant portion of
long-distance services selling, general, and administrative expenses, 79.5%
during 2001, represents operating and engineering costs.

Long-distance services face significant competition from AT&T Alascom, Inc.,
long-distance resellers, and from local telephone companies that have entered
the long-distance market. We believe our approach to developing, pricing, and
providing long-distance services and bundling different business segment
services will continue to allow us to be competitive in providing those
services.

Message telephone service revenues derived from other common carriers increased
11.5% to $80.1 million during 2001 as compared to 2000. The average rate charged
other common carriers increased 6.5% during the same period due to the
discontinued carriage of certain low-margin wholesale minutes and total minutes
carried for other common carriers increased 4.8%. In conjunction with our
purchase of a controlling interest in Kanas (see note 3 to the accompanying
Notes to Consolidated Financial Statements) we negotiated a contract amendment
with WorldCom in March 2001. The amendment extended the contract term to March
2006 and reduced the rate charged by us for certain WorldCom traffic over the
extended term of the contract. The Sprint contract was amended in March 2002
extending its term to March 2007 with two one-year automatic extensions to March
2009. The amendment reduced the rate to be charged by us for certain Sprint
traffic over the extended term of the contract.

Other common carrier traffic routed to us for termination in Alaska is largely
dependent on traffic routed to WorldCom and Sprint by their customers. Pricing
pressures, new program offerings and market consolidation continue to evolve in
the markets served by WorldCom and Sprint. If, as a result, their traffic is
reduced, or if their competitors' costs to terminate or originate traffic in
Alaska are reduced, our traffic will also likely be reduced, and our pricing may
be reduced to respond to competitive pressures. We are unable to predict the
effect on us of such changes, however given the materiality of other common
carrier revenues to us, a significant reduction in traffic or pricing could have
a material adverse effect on our financial position, results of operations and
liquidity.

Cable Services
During 2001, cable television revenues represented 21.4% of consolidated
revenues. The cable systems serve 31 communities and areas in Alaska, including
the state's three largest population centers, Anchorage, Fairbanks and Juneau.

On March 31, 2001 we acquired the assets and customer base of G.C. Cablevision,
Inc. through the issuance of 238,199 unregistered shares of GCI Class A common
stock with a future payment in additional shares contingent upon certain
conditions. This acquisition increased homes passed by 2,000 and added
approximately 1,000 subscribers in Fairbanks and North Pole, Alaska.

On November 19, 2001 we acquired all of the common stock of Rogers American
Cablesystems, Inc. ("Rogers"), a cable television service provider in Palmer and
Wasilla, Alaska for approximately $19 million, of which $18.5 million was paid
in 2001. This acquisition allowed our facilities to pass an additional 10,000
homes and added approximately 7,000 subscribers.


                                       66
<PAGE>
We generate cable services revenues from four primary sources: (1) digital and
analog programming services, including monthly basic or premium subscriptions
and pay-per-view movies or other one-time events, such as sporting events; (2)
equipment rentals or installation; (3) advertising sales; and (4) cable modem
services (shared with our Internet services segment). During 2001 programming
services generated 79.6% of total cable services revenues, equipment rental and
installation fees accounted for 9.6% of such revenues, cable modem services
accounted for 6.4% of such revenues, advertising sales accounted for 3.5% of
such revenues, and other services accounted for the remaining 0.9% of total
cable services revenues. The primary factors that contribute to year-to-year
changes in cable services revenues are average monthly subscription and
pay-per-view rates, the mix among basic, premium and pay-per-view services and
digital and analog services, the average number of cable television and cable
modem subscribers during a given reporting period, and revenues generated from
new product offerings.

Cable services face competition from alternative methods of receiving and
distributing television signals and from other sources of news, information and
entertainment. We believe our cable television services will continue to be
competitive by providing, at reasonable prices, a greater variety of programming
and other communication services than are available off-air or through other
alternative delivery sources and upon superior technical performance and
customer service.

Local Access Services
We generate local access services revenues from three primary sources: (1)
business and residential basic dial tone services; (2) business private line and
special access services; and (3) business and residential features and other
charges, including voice mail, caller ID, distinctive ring, inside wiring and
subscriber line charges. Local exchange services revenues totaled $25.2 million
in 2001 representing 7.1% of consolidated revenues. The primary factors that
contribute to year-to-year changes in local access services revenues are the
average number of business and residential subscribers to our services during a
given reporting period, the average monthly rates charged for non-traffic
sensitive services and the number and type of additional premium features
selected.

Our local access services segment faces significant competition in Anchorage,
Fairbanks, and Juneau from the ILEC ACS and AT&T Alascom, Inc. We began
marketing efforts in the Juneau market in the fourth quarter of 2001 and began
provisioning service in the first quarter of 2002. We believe our approach to
developing, pricing, and providing local access services and bundling different
business segment services will allow us to be competitive in providing those
services.

Internet Services
We generate Internet services revenues from three primary sources: (1) access
product services, including commercial, Internet service provider, and retail
dial-up access; (2) network management services; and (3) cable modem services (a
portion of cable modem revenue is also recognized by our cable services
segment). Internet services segment revenues totaled $12.0 million representing
3.4% of total revenues in 2001. The primary factors that contribute to
year-to-year changes in Internet services revenues are the average number of
subscribers to our services during a given reporting period, the average monthly
subscription rates, and the number and type of additional premium features
selected.

Marketing campaigns continue to be deployed targeting residential and commercial
customers featuring bundled Internet products. Our Internet offerings are
coupled with our long-distance and local access services offerings and provide
free basic Internet services or discounted premium Internet services if certain
long-distance or local access services plans are selected. Value-added premium
Internet features are available for additional charges.

We compete with a number of Internet service providers in our markets. We
believe our approach to developing, pricing, and providing Internet services
allows us to be competitive in providing those services.


                                       67
<PAGE>
Other Services and Other Expenses
Telecommunications services revenues reported in the All Other category as
described in note 10 in the accompanying Notes to Consolidated Financial
Statements include sales of undersea fiber optic system capacity (see below),
corporate network management contracts, telecommunications equipment sales and
service, management services for Kanas through June 30, 2001 (see note 3 in the
accompanying Notes to Consolidated Financial Statements), and other
miscellaneous revenues (including revenues from cellular resale services,
prepaid and debit calling card sales, and installation and leasing of customer's
very small aperture terminal ("VSAT") equipment).

Revenues included in the All Other category represented 12.0% of total revenues
in 2001 and included $19.5 million recognized from a fiber capacity sale,
network solutions and outsourcing revenues totaling $19.0 million and
communications equipment sales, cellular resale and other revenues totaling $4.3
million. The fiber capacity sale was a cash transaction completed in January
2001.

Depreciation, amortization and net interest expense on a consolidated basis
decreased $2.1 million in 2001 as compared to 2000 resulting primarily from
decreased interest rates in 2001 on our variable rate debt, the effect of an
interest rate swap agreement described below, and decreased average outstanding
long-term debt balances during the first six months of 2001. Partially
offsetting these decreases was an increase in our depreciation expense due to
our $43.7 million investment in equipment and facilities placed into service
during 2000 for which a full year of depreciation was recorded during 2001, the
$68.0 million investment in other equipment and facilities during 2001 for which
a partial year of depreciation was recorded during 2001, and an increase in
average outstanding indebtedness in the last six months of 2001.

As further described in note 11 to the accompanying Notes to Consolidated
Financial Statements:

     -   Effective January 3, 2001, we entered into an interest rate swap
         agreement to convert $50 million of 9.75% fixed rate debt to a variable
         interest rate equal to the 90 day Libor rate plus 334 basis points.
     -   Effective September 21, 2001, we entered into an interest rate swap
         agreement to convert $25 million of variable interest rate debt to
         3.98% fixed rate debt plus applicable margin.

Results of Operations
<TABLE>
The following table sets forth selected Statement of Operations data as a
percentage of total revenues for the periods indicated (underlying data rounded
to the nearest thousands):
<CAPTION>
                                                       Year Ended December 31,            Percentage Change(1)
                                                       -----------------------            -----------------
                                                                                          2001         2000
                                                                                           vs.          vs.
                                                   2001         2000          1999        2000         1999
                                                   ----         ----          ----        ----         ----
<S>                                               <C>          <C>           <C>         <C>         <C>
Statement of Operations Data:
  Revenues:
    Long-distance services                         56.2%        62.4%         58.8%        9.9%       11.4%
    Cable services                                 21.4%        23.2%         21.9%       12.7%       11.0%
    Local access services                           7.1%         6.9%          5.6%       24.9%       30.0%
    Internet services                               3.3%         2.9%          1.7%       42.4%       75.6%
    Other services                                 12.0%         4.6%         12.0%      219.3%      (60.2%)
                                               ------------------------------------------------------------------
      Total revenues                              100.0%       100.0%        100.0%       22.1%        4.8%
  Cost of sales and services                       39.1%        40.9%         43.9%       16.8%       (2.2%)
  Selling, general and administrative expenses     33.8%        35.8%         35.2%       15.2%        6.8%
  Depreciation and amortization                    16.0%        17.8%         15.3%        9.8%       21.8%
                                               ------------------------------------------------------------------
      Operating income                             11.1%         5.5%          5.6%      147.3%        1.6%
      Net income (loss) before income taxes
        and cumulative change in an accounting
        principle                                   2.4%        (7.4%)        (5.3%)     140.0%      (45.6%)
</TABLE>

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<PAGE>
<TABLE>
<CAPTION>
                                                       Year Ended December 31,            Percentage Change(1)
                                                       -----------------------            -----------------
                                                                                          2001         2000
                                                                                           vs.          vs.
                                                   2001         2000          1999        2000         1999
                                                   ----         ----          ----        ----         ----
<S>                                               <C>          <C>           <C>         <C>         <C>
      Net income (loss) before cumulative
        change in an accounting principle           1.3%        (4.5%)        (3.3%)     134.7%      (44.1%)
      Net income (loss)                             1.3%        (4.5%)        (3.4%)     134.7%      (38.9%)
Other Operating Data (2):
Long-distance services operating income (3)        34.8%        29.6%         26.8%       29.1%       23.3%
Cable services operating income (4)                20.2%        19.3%         21.2%       17.9%        1.5%
Local access services operating loss (5)           (5.8%)      (21.2%)       (31.5%)      65.9%       12.6%
Internet services operating loss (6)              (11.9%)      (35.2%)       (81.9%)      55.2%       24.4%
<FN>
--------------------------
(1)Percentage change in underlying data.
(2)Includes customer service, marketing and advertising costs.
(3)Computed as a percentage of total external long-distance services revenues.
(4)Computed as a percentage of total external cable services revenues.
(5)Computed as a percentage of total external local access services revenues.
(6)Computed as a percentage of total external Internet services revenues.
--------------------------
</FN>
</TABLE>
Year Ended December 31, 2001 ("2001") Compared To Year Ended December 31, 2000
("2000").

Revenues
Total revenues increased 22.1% from $292.6 million in 2000 to $357.3 million in
2001. Excluding the fiber optic cable capacity sale in 2001 as described in note
1(m) in the accompanying Notes to Consolidated Financial Statements, total
revenues increased 15.4%.

Long-distance services revenues from residential, commercial, governmental, and
other common carrier customers increased 9.9% to $200.7 million in 2001. The
increase was largely due to the following:

     -   An increase of 19.7% in private line and private network transmission
         services revenues to $34.7 million in 2001 due to an increased number
         of leased circuits in service,
     -   An increase of 11.5% in message telephone service revenues from other
         common carriers (principally WorldCom and Sprint) to $80.1 million in
         2001,
     -   An increase of 82.7% to $15.7 million in 2001 revenues from our
         packaged telecommunications offering to rural hospitals and health
         clinics and our SchoolAccess(TM) offering to rural school districts.
         The increase is primarily due to an increase in circuits and services
         sold to rural hospitals and health clinics from 51 circuits at December
         31, 2000 to 74 circuits at December 31, 2001,
     -   An increase of 2.2% in total minutes of use to 1,059.2 million minutes
         primarily due to a 4.8% increase in wholesale minutes carried for other
         common carriers. After excluding certain low-margin wholesale minutes
         no longer carried for other common carriers, comparable total minutes
         over the prior year increased 13.5% and wholesale minutes carried for
         other common carriers increased 23.5% over the prior year, and
     -   A 6.5% increase in the average rate per minute on minutes carried for
         other common carriers due to the discontinued carriage of certain
         low-margin wholesale minutes.

Long-distance services revenue increases described above were partially offset
by a 3.3% decrease in our average rate per minute to $0.118 per minute in 2001
attributed to our promotion of and customers' enrollment in calling plans
offering a certain number of minutes for a flat monthly fee.

Cable services revenues increased 12.7% to $76.6 million in 2001. Programming
services revenues increased 9.4% to $60.9 million in 2001 and average gross
revenue per average basic subscriber per month increased $0.35 or 0.7% in 2001
resulting from the following:


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<PAGE>
     -   Basic subscribers served increased approximately 11,600 to
         approximately 132,000 at December 31, 2001 as compared to December 31,
         2000 (the 2001 increase includes approximately 1,000 basic subscribers
         acquired from G.C. Cablevision, Inc. on March 31, 2001 and
         approximately 7,000 basic subscribers acquired from Rogers on November
         19, 2001),
     -   Rates charged to subscribers in most systems increased as of February
         2001,
     -   New facility construction efforts in 2001 and the acquisition of GC
         Cablevision, Inc. and Rogers subscribers resulted in approximately
         14,800 additional homes passed, a 8.3% increase from 2000, and
     -   Digital subscriber counts increased 81.8% to approximately 24,600 at
         December 31, 2001 as compared to December 31, 2000.

The cable services segment's share of cable modem revenue (offered through our
Internet services segment) increased $2.5 million to $4.9 million in 2001.

Local access services revenues increased 24.9% in 2001 to $25.2 million. At
December 31, 2001 approximately 79,200 lines were in service as compared to
approximately 62,000 lines in service at December 31, 2000.

Internet services revenues increased 42.4% to $12.0 million in 2001 primarily
due to growth in the average number of customers served. We had approximately
69,900 active residential, commercial and small business retail dial-up Internet
subscribers at December 31, 2001 as compared to approximately 62,600 at December
31, 2000. We had approximately 26,500 active residential, commercial and small
business retail cable modem subscribers at December 31, 2001 as compared to
approximately 16,000 at December 31, 2000. Approximately 850 cable modem
subscribers were acquired from Rogers on November 19, 2001.

The 219.3% increase in All Other revenues to $42.8 million in 2001 is primarily
due to the $19.5 million fiber capacity sale in 2001 as previously described and
increased revenues from managed services.

Cost of Sales and Service
Total cost of sales and services increased 16.8% to $139.8 million in 2001. As a
percentage of total revenues, total cost of sales and services decreased from
40.9% in 2000 to 39.1% in 2001. Excluding the fiber capacity sale in 2001, total
cost of sales and services as a percentage of total revenues decreased from
40.9% in 2000 to 36.1% in 2001.

Long-distance services cost of sales and services decreased 4.3% to $73.3
million in 2001. Long-distance services cost of sales as a percentage of
long-distance services revenues decreased from 41.9% in 2000 to 36.5% in 2001
primarily due to reduced satellite transponder cost of sales beginning April
2000 upon our acquiring owned satellite transponder capacity, reductions in
access costs due to distribution and termination of our traffic on our own local
services network instead of paying other carriers to distribute and terminate
our traffic, the conclusion of a dispute with ACS which allowed us to reverse
$2.0 million in accrued costs, and a $450,000 non-recurring refund in 2001 from
a local exchange carrier in respect of its earnings that exceeded regulatory
requirements. Offsetting the 2001 decrease as compared to 2000 is a decrease in
the average rate per minute billed to customers without a comparable decrease in
access charges paid by us. We expect cost savings to occur as long-distance
traffic originated, carried, and terminated on our own facilities grows.

Cable services cost of sales and services increased 16.9% to $20.8 million in
2001. Cable services cost of sales and services as a percentage of cable
revenues, which is less as a percentage of revenues than are long-distance,
local access and Internet services cost of sales and services, increased from
26.2% in 2000 to 27.2% in 2001. Cable services rate increases did not keep pace
with increases in programming costs in 2001. Programming costs increased for
most of our cable services offerings, and we incurred additional costs on new
programming introduced in 2000 and 2001.

Local access services cost of sales and services increased 30.4% to $14.0
million in 2001. Local access services cost of sales and services as a
percentage of local access services revenues increased from 53.3% in 2000 to


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<PAGE>
55.6% in 2001. The local access services cost of sales increase as a percentage
of local access services revenues is due to decreased external local access
services revenues as the number of customers purchasing both long-distance and
local access services from us increase. The increases in local access services
cost of sales as a percentage of local access services revenues described above
are off-set by economies of scale and more efficient network utilization as
local access services revenues increase. ACS requested and received permission
for a 7.7% increase in the local loop lease rate effective in November 2001. We
expect the increased cost will result in a 4.0% to 5.0% increase in the local
access services cost of sales as a percentage of local access services revenue
for the year ended December 31, 2002.

Internet services cost of sales and services increased 8.2% to $4.7 million in
2001. Internet services costs of sales as a percentage of Internet services
revenues totaled 39.6% and 52.1% in 2001 and 2000, respectively. The Internet
services costs of sales decrease as a percentage of Internet services revenues
is primarily due to a $5.6 million increase in Internet's portion of cable modem
revenue that generally has higher margins than do other Internet products. As
Internet services revenues increase, economies of scale and more efficient
network utilization continue to result in reduced Internet cost of sales and
services as a percentage of Internet services revenues.

Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 15.2% to $120.8 million
in 2001 and, as a percentage of total revenues, decreased from 35.9% in 2000 to
33.8% in 2001. Excluding the fiber capacity sale in 2001, selling, general and
administrative expenses, as a percentage of total revenues, were 35.4% in 2001.
The increase in selling, general and administrative expenses in 2001 is due to
increased labor and health insurance costs, increased accrual of a company-wide
success sharing bonus, and incremental new costs to operate GCI Fiber
Communication Co., Inc. ("GFCC") (see note 3 to the accompanying Notes to
Consolidated Financial Statements).

Marketing and advertising expenses as a percentage of total revenues decreased
from 2.8% in 2000 to 2.4% in 2001. Excluding the fiber capacity sale in 2001,
marketing and advertising expenses as a percentage of total revenues were 2.5%
in 2001.

Depreciation and Amortization
Depreciation and amortization expense increased 9.8% to $57.1 million in 2001.
The increase is attributable to our $43.7 million investment in equipment and
facilities placed into service during 2000 for which a full year of depreciation
was recorded during the year ended December 31, 2001 and the $68.0 million
investment in other equipment and facilities placed into service during the year
ended December 31, 2001 for which a partial year of depreciation was recorded
during 2001.

Interest Expense, Net
Interest expense, net of interest income, decreased 19.0% to $30.9 million in
2001. This decrease resulted primarily from decreased interest rates in 2001 on
our variable rate debt, a $943,000 net interest benefit earned in 2001 from our
two interest rate swap agreements as previously described, decreased average
outstanding long-term debt balances during the first six months of 2001 and a
charge of $2.0 million to interest expense in 2000 to write-off previously
capitalized interest expense. Partially offsetting these decreases were an
increase in average outstanding indebtedness in the last six months of 2001 and
an increase in our average outstanding capital lease obligation balances in the
last six months of 2000.

Income Tax (Expense) Benefit
GCI, Inc., as a wholly owned subsidiary and member of the GCI controlled group
of corporations, files its income tax returns as part of the consolidated group
of corporations under GCI. Accordingly, the following discussions of income tax
benefit and net operating loss carryforwards reflect the consolidated group's
activity and balances.

Income tax (expense) benefit was ($4.1) million in 2001 and $8.4 million in
2000. The change was due to our generation of net income before income taxes in
2001 as compared to a net loss before income taxes in 2000. Our


                                       71
<PAGE>
effective income tax rate increased from 38.9% in 2000 to 47.0% in 2001 due to
the effect of items that are nondeductible for income tax purposes.

At December 31, 2001, we have (1) tax net operating loss carryforwards of
approximately $156.1 million that will begin expiring in 2007 if not utilized,
and (2) alternative minimum tax credit carryforwards of approximately $2.1
million available to offset regular income taxes payable in future years. Our
utilization of remaining net operating loss carryforwards is subject to certain
limitations pursuant to Internal Revenue Code section 382.

Tax benefits associated with recorded deferred tax assets are considered to be
more likely than not realizable through future reversals of existing taxable
temporary differences and future taxable income exclusive of reversing temporary
differences and carryforwards. The amount of deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced. We estimate that our
effective income tax rate for financial statement purposes will be 40% to 50% in
2002.

The Job Creation and Worker Assistance Act of 2002 was signed into law on March
9, 2002 and contains several provisions that are effective for tax years ending
in 2001, one of which relates to net operating losses. The Act amends Internal
Revenue Code ("IRC") Section 172(b)(1) to provide, generally, that a net
operating loss for a tax year ending in 2001 or 2002 can be carried back five
years, rather than the two-year carryback generally allowed by section
172(b)(1)(A). The Act also amends IRC Section 56(d)(1) to allow alternative
minimum tax net operating losses carried forward into tax years ending in 2001
or 2002 to be used without regard to the 90 percent alternative minimum taxable
income limitation that generally applies. In addition, alternative minimum tax
net operating losses generated in 2001 or 2002 and carried back to an earlier
year under IRC Section 172 are not subject to the 90 percent alternative minimum
taxable income limitation. Statement of Financial Accounting Standard ("SFAS")
No. 109 states that a change in tax law or rates that affects deferred income
taxes is recorded in the statement of operations in the year of enactment.
Accordingly the deferred income tax effect, which we estimate to total
approximately $2 million, will be recorded as a reduction of our recorded
deferred tax assets in our consolidated balance sheet in the first quarter of
2002.

The GCI consolidated group U.S. income tax return for 1999 was selected for
examination by the Internal Revenue Service during 2001. The examination
commenced during the third quarter of 2001. We believe this examination will not
have a material adverse effect on our financial position, results of operations
or our liquidity.

Year Ended December 31, 2000 ("2000") Compared To Year Ended December 31, 1999
("1999").

Revenues
Total revenues increased 4.8% from $279.2 million in 1999 to $292.6 million in
2000. Excluding the undersea fiber optic cable capacity sale in 1999 (see
below), total revenues increased 12.7% in 2000.

Long-distance services revenues from residential, commercial, governmental, and
other common carrier customers increased 11.4% to $182.7 million in 2000. The
long-distance services revenue increase in 2000 was largely due to the
following:

     -   An increase of 14.4% in total minutes of use to 1,035.4 million
         minutes,
     -   An increase of 31.6% in private line and private network transmission
         services revenues to $29.0 million in 2000 due to an
         increased number of customers,
     -   An increase of 16.9% in message telephone service revenues from other
         common carriers (principally WorldCom and Sprint) to $71.8 million in
         2000, and
     -   An increase of 98.8% to $8.6 million in 2000 revenues from our
         SchoolAccess(TM) offering to rural school districts and a new offering
         to rural hospitals and health clinics. Our SchoolAccess(TM) product was
         provided to 155 schools at December 31, 2000, a 25% increase from 1999.

Long-distance services revenue increases were offset by the following:


                                       72
<PAGE>
     -   A decrease of 2.4% in the number of active residential, small business
         and commercial customers billed from 90,800 at December 31, 1999 to
         88,700 at December 31, 2000 primarily due to a competitor's offering
         allowing customers to place unlimited intrastate and interstate calls
         for a flat monthly fee, and
     -   A 10.3% decrease in our average rate per minute on long-distance
         traffic from $0.136 per minute in 1999 to $0.122 per minute in 2000
         attributed to our promotion of and customers' enrollment in calling
         plans offering discounted rates and length of service rebates, such
         plans being prompted in part by our primary long-distance competitor,
         AT&T Alascom, reducing its rates, entry of LECs into long-distance
         markets served by us, and to a change in the mix of wholesale minutes
         carried for other common carriers.

Cable services revenues increased 11.0% to $67.9 million in 2000. Programming
services revenues increased 6.6% to $55.7 million in 2000 and revenue per
average basic subscriber per month increased $0.12, or 0.3% in 2000. Revenue
increases resulted from the following:

     -   Basic subscribers increased approximately 3,600 to approximately
         120,400 at December 31, 2000 as compared to December 31, 1999,
     -   Increased sales of pay-per-view and premium services,
     -   New facility construction efforts in 2000 resulted in approximately
         3,400 additional homes passed, a 1.9% increase from 1999, and
     -   Digital subscribers increased 131.7% to 13,500 at December 31, 2000 as
         compared to December 31, 1999.

The cable services segment's share of cable modem revenue (offered through our
Internet services segment) increased $2.0 million to $2.4 million in 2000 after
the introduction of such services in the first quarter of 1999.

Local access services revenues increased 30.0% in 2000 to $20.2 million. At
December 31, 2000 approximately 62,000 lines were in service and approximately
800 additional lines were awaiting connection as compared to approximately
45,000 lines in service and approximately 750 additional lines awaiting
connection at December 31, 1999.

Internet services revenues increased 75.6% to $8.4 million in 2000 primarily due
to growth in the average number of customers served. We had approximately 62,600
active residential, commercial and small business retail dial-up Internet
subscribers at December 31, 2000 as compared to approximately 48,000 at December
31, 1999. We had approximately 16,100 active residential, commercial and small
business retail cable modem subscribers at December 31, 2000 as compared to
approximately 5,700 at December 31, 1999.

All Other revenues decreased 60.2% to $13.4 million in 2000 primarily due to the
$19.5 million fiber capacity sale we completed in 1999 in a cash transaction.
The sale included both capacity within Alaska, and between Alaska and the lower
49 states.

Cost of Sales and Services
Cost of sales and services totaled $119.7 million in 2000 and $122.5 million in
1999. As a percentage of total revenues, cost of sales and services decreased
from 43.9% in 1999 to 40.9% in 2000.

Long-distance services cost of sales and services decreased from $81.0 million
in 1999 to $76.6 million in 2000. Long-distance cost of sales as a percentage of
long-distance revenues decreased from 49.4% in 1999 to 41.9% in 2000 primarily
due to the effect of reassigning traffic carried by satellite transponders and
fiber optic cable from leased to owned capacity and reductions in access costs
due to distribution and termination of our traffic on our own local services
network instead of paying other carriers to distribute and terminate our
traffic. Offsetting the 2000 decrease as compared to 1999 is a decrease in the
average rate per minute billed to customers without a comparable decrease in
access charges paid by us. We expect increased cost savings as traffic carried
on our own facilities continues to grow.


                                       73
<PAGE>
Cable cost of sales and services as a percentage of cable revenues, which is
less as a percentage of revenues than are long-distance, local access and
Internet services cost of sales and services, increased from 25.3% in 1999 to
26.2% in 2000. Cable services rate increases did not keep pace with increases in
programming and copyright costs in 2000. Programming costs increased for most of
our cable services offerings, and we incurred additional costs on new
programming introduced in 1999 and 2000.

Local access services cost of sales and services as a percentage of local access
services revenues increased from 50.8% in 1999 to 53.3% in 2000 primarily due to
the fluctuations in cost of sales and services as a percentage of revenues
inherent in this segment as it develops.

Internet services cost of sales and services increased $1.2 million to $4.4
million from 1999 to 2000. Internet services costs of sales as a percentage of
Internet services revenues totaled 65.7% and 52.1% in 1999 and 2000,
respectively. The Internet services costs of sales decrease as a percentage of
Internet services revenues is primarily due to a $2.6 million increase in
Internet services' portion of cable modem revenues which generally have higher
margins than do other Internet products. As Internet services revenues have
increased, economies of scale and more efficient network utilization have
resulted in reduced Internet cost of sales and services as a percentage of
Internet services revenues.

Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 6.8% to $104.9 million in
2000. Selling, general and administrative expenses, as a percentage of total
revenues, increased from 35.2% in 1999 to 35.9% in 2000.

Depreciation and Amortization
Depreciation and amortization expense increased 21.8% to $52.0 million in 2000.
The increase is attributable to our $38.8 million investment in equipment and
facilities placed into service during 1999 for which a full year of depreciation
was recorded during the year ended December 31, 2000, the acquisition of a
satellite transponder asset for which depreciation began in 2000, the $43.7
million investment in other equipment and facilities during 2000 for which a
partial year of depreciation was recorded during 2000, and a charge of $1.7
million in 2000 resulting from a change in the estimated remaining lives of
assets that we intend to replace in the future.

Interest Expense, Net
Interest expense, net of interest income, increased 24.6% to $38.1 million in
2000. This increase resulted primarily from increases in our average outstanding
indebtedness from the capital lease of satellite transponder capacity in 2000,
higher interest rates on our variable rate debt in 2000, and a charge of $2.0
million to interest expense in 2000 to write-off previously capitalized interest
expense. The increase was partially offset by principal payments of $11.2
million in 2000. In 1999 interest expense was offset in part by one month of
capitalized construction period interest attributed to the Alaska United
undersea fiber optic cable system and we charged to interest expense $470,000 of
deferred financing costs resulting from a Holdings Loan Facilities amendment
that reduced our borrowing capacity.

Income Tax Benefit
GCI, Inc., as a wholly owned subsidiary and member of the GCI controlled group
of corporations, files its income tax returns as part of the consolidated group
of corporations under GCI. Accordingly, the following discussions of income tax
benefit and net operating loss carryforwards reflect the consolidated group's
activity and balances.

Income tax benefit increased from $5.7 million in 1999 to $8.4 million in 2000
due to an increased net loss before income taxes in 2000 as compared to 1999.
Our effective income tax rate increased from 38.2% in 1999 to 38.9% in 2000 due
to the increased net loss and the proportional amount of items that are
nondeductible for income tax purposes.

Fluctuations in Quarterly Results of Operations
The following chart provides selected unaudited statement of operations data
from our quarterly results of operations during 2001 and 2000:


                                       74
<PAGE>
<TABLE>
<CAPTION>
                                                                          (Amounts in thousands)
                                                      -------------------------------------------------------------
                                                          First      Second       Third      Fourth        Total
                                                         Quarter     Quarter     Quarter     Quarter       Year
                                                      -------------------------------------------------------------
     <S>                                             <C>              <C>         <C>         <C>        <C>
     2001
     Revenues:
       Long-distance services                        $    46,236      49,851      53,892      50,715     200,694
       Cable services                                $    18,046      18,873      19,113      20,522      76,554
       Local access services                         $     5,958       6,183       6,397       6,691      25,229
       Internet services                             $     2,619       3,134       3,019       3,224      11,996
       All Other services (1)                        $    24,058       7,494       5,598       5,635      42,785
                                                      -------------------------------------------------------------
          Total revenues                             $    96,917      85,535      88,019      86,787     357,258
     Operating income (1)                            $    13,042       8,411      10,192       7,928      39,573
     Net income before income taxes                  $     4,322         436       2,717       1,184       8,659
     Net income                                      $     2,423         166       1,527         473       4,589

     2000
     Revenues:
       Long-distance services                        $    43,620      44,855      48,185      46,016     182,676
       Cable services                                $    15,930      16,660      16,708      18,600      67,898
       Local access services                         $     4,520       4,789       5,236       5,660      20,205
       Internet services                             $     1,713       2,018       2,188       2,506       8,425
       All Other services                            $     2,494       3,104       3,589       4,214      13,401
                                                      -------------------------------------------------------------
          Total revenues                             $    68,277      71,426      75,906      76,996     292,605
     Operating income                                $       877       3,550       5,610       5,966      16,003
     Net loss before income taxes                    $    (8,962)     (5,665)     (3,954)     (3,068)    (21,649)
     Net loss                                        $    (5,498)     (3,526)     (2,352)     (1,858)    (13,234)
<FN>
     ---------------
     (1) The first quarter of 2001 includes $19.5 million of revenue and $8.7 of
         operating income from the sale of long-haul capacity in the Alaska
         United undersea fiber optic cable system. See Part I, Item 1.
         Historical Development of our Business During the Past Fiscal Year for
         more information.
     ---------------
</FN>
</TABLE>
Revenues
Total revenues for the quarter ended December 31, 2001 ("fourth quarter") were
$86.8 million, representing a 1.4% decrease from $88.0 million for the quarter
ended September 30, 2001 ("third quarter"). The fourth quarter decrease resulted
primarily from a 5.9% decrease in long-distance services revenue to $50.7
million primarily due to the following:

     -   Revenues from other common carriers decreased 8.4% to $20.5 million,
         primarily due to a 10.5% decrease in minutes carried to 180.4 million
         minutes. The decrease in minutes is largely due to seasonality,
     -   A 6.3% decrease in long-distance minutes of traffic carried for
         customers other than other common carriers to 83.6 million minutes
         primarily due to seasonality, and
     -   A decrease in the long-distance services average rate per minute from
         $0.119 in the third quarter to $0.118 in the fourth quarter.

The decrease in long-distance service revenue was partially offset by a 7.4%
increase in cable services revenues to $20.5 million resulting from the
following:

     -   Basic subscribers served increased approximately 9,000 to approximately
         132,000 (of which approximately 7,000 basic subscribers were acquired
         from Rogers on November 19, 2001), and
     -   Digital subscriber counts increased 14.4% to approximately 24,600 at
         December 31, 2001 as compared to September 30, 2001.


                                       75
<PAGE>
Long-distance revenues have historically been highest in the summer months
because of temporary population increases attributable to tourism and increased
seasonal economic activity such as construction, commercial fishing, and oil and
gas activities. Cable television revenues, on the other hand, are higher in the
winter months because consumers spend more time at home and tend to watch more
television during these months. Local access and Internet services are not
expected to exhibit significant seasonality. Our ability to implement
construction projects is also hampered during the winter months because of cold
temperatures, snow and short daylight hours.

Cost of Sales and Services
Cost of sales and services decreased from $32.7 million in the third quarter to
$31.1 million in the fourth quarter. As a percentage of revenues, third and
fourth quarter cost of sales and services totaled 37.2% and 35.9%, respectively.
The fourth quarter decrease as a percentage of revenues primarily results from a
$450,000 non-recurring refund in the third quarter from a local exchange carrier
in respect of its earnings that exceeded regulatory requirements, and reductions
in access costs due to distribution and termination of traffic on our own
long-distance and local services networks instead of paying other carriers to
distribute and terminate our traffic. We expect cost savings to continue as
traffic carried on our own facilities grows.

Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 4.7% to $32.4 million in
the fourth quarter as compared to the third quarter. As a percentage of
revenues, fourth quarter selling, general and administrative expenses were 37.4%
as compared to 35.2% for the third quarter. The increase in selling, general and
administrative expenses in the fourth quarter as a percentage of revenues as
compared to the third quarter is primarily due to reduced revenues without a
comparable decrease in costs, increased accrual of company-wide success sharing
and incentive compensation bonuses, and new product development costs.

Net Income
We reported net income of $473,000 for the fourth quarter as compared to a $1.5
million for the third quarter. The decrease is due to decreased operating income
partially offset by decreased net interest expense and decreased income tax
expense.

Liquidity and Capital Resources
Cash flows from operating activities totaled $82.3 million in 2001 as compared
to $41.4 million in 2000, net of changes in the components of working capital.
The increase in 2001 is primarily due to the fiber capacity sale in 2001 and
increased cash flow from substantially all service offerings. Expenditures for
property and equipment, including construction in progress, totaled $68.0
million in 2001. Other uses of cash during 2001 included the acquisition of all
of the common stock of Rogers for approximately $19 million (of which $18.5
million was paid in 2001) net of cash received, repayment of $13.7 million of
long-term borrowings and capital lease obligations, advances to Kanas and
payments on Kanas' behalf of approximately $5.6 million (see note 3 to the
accompanying Notes to Consolidated Financial Statements), and payment of a $1.2
million equipment lease deposit. Other sources of cash in 2001 include $29.0
million in long-term borrowings and a $2.4 million contribution from GCI.

Trade receivables increased $9.0 million from December 31, 2000 to December 31,
2001 primarily due to an increase in other common carrier trade receivables and
broadband trade receivables related to our services to hospitals and health
clinics. The increase in other common carrier trade receivables is primarily due
to a 11.5% increase in message telephone service revenues to $80.1 million in
2001 from other common carriers. The increase in broadband trade receivables is
primarily due to a 278.9% increase in broadband revenues to $7.5 million in 2001
related to our provision of services to hospitals and health clinics.

Working capital deficit totaled ($10.0) million at December 31, 2001, a $19.0
million decrease from working capital of $9.0 million as of December 31, 2000.
The decrease is primarily attributed to our use of proceeds from the 2001 fiber
capacity sale to purchase long-term capital assets and repay long-term debt and
the classification of $5.7 million to current maturities of long-term debt.


                                       76
<PAGE>
Our semi-annual Senior Notes interest payments of $8.8 million are due in the
first and third quarters.

 On April 13, 1999, we amended our Holdings credit facilities. The amended
facilities reduced the aggregate commitment by $50,000,000 to $200,000,000 and
provided for the payment of a one-time amendment fee of $530,000. Pursuant to
the FASB Emerging Issues Task Force Issue 98-14, "Debtor's Accounting for
Changes in Line-of-Credit or Revolving Debt Arrangements," we recorded as
additional interest expense $472,000 of deferred financing costs in the second
quarter of 1999 associated with reduced borrowing capacity resulting from the
amendment.

On October 25, 2000, March 23, 2001, April 27, 2001 and October 31, 2001 we
further amended the Holdings $150,000,000 and $50,000,000 credit facilities.
Certain of these amendments provided for our acquisitions of Kanas and Rogers,
and contain, among other things, provision for payment of amendment fees of
$433,000, changes in certain financial covenants and ratios, and a limit of $70
million and $60 million for 2001 and 2002, respectively, for capital
expenditures (excluding capital expenditures by certain subsidiaries). Under
these amendments, Holdings may not permit the ratio of:

     -   Senior debt to annualized operating cash flow (as defined) of Holdings
         and certain of its subsidiaries to exceed 2.50 to 1.0 through September
         30, 2003 and,
     -   Fixed charges coverage ratio (as defined) of Holdings and certain of
         its subsidiaries to exceed 1.00 to 1.00 from January 1, 2003 through
         March 31, 2004 (which adjusts to 1.05 to 1.0 in April, 2004 and
         thereafter).

On December 17, 2001 we further amended the Holdings $150,000,000 and
$50,000,000 credit facilities. We paid a one-time fee of $438,000 in conjunction
with this amendment. Changes in certain financial covenants and ratios outlined
in this amendment are effective only upon the acquisition of the assets of WCI
Cable, Inc. and its subsidiaries ("WCIC") (see note 13). Because of the
uncertainty of the likelihood that we will complete the acquisition of the
assets of WCIC we recognized the amendment fee as an expense during the year
ended December 31, 2001 rather than deferring and amortizing the fee over the
remaining life of the Senior Holdings Loan. Under these amendments, the
applicable margin has been increased to the following amounts:
<TABLE>
<CAPTION>
                                Total Leverage Ratio                              Base Rate           LIBOR
                                --------------------                              ---------           -----
       <S>                                                                          <C>               <C>
       Greater than or equal to 6.50 to 1.00                                        1.375%            2.500%
       Greater than or equal to 6.00 to 1.00 but less than 6.50 to 1.00             1.000%            2.125%
       Greater than or equal to 5.50 to 1.00 but less than 6.00 to 1.00             0.750%            1.875%
       Greater than or equal to 5.00 to 1.00 but less than 5.50 to 1.00             0.500%            1.625%
       Greater than or equal to 4.50 to 1.00 but less than 5.00 to 1.00             0.250%            1.375%
       Greater than or equal to 4.00 to 1.00 but less than 4.50 to 1.00             0.000%            1.250%
       Less than 4.00 to 1.00                                                       0.000%            1.000%
</TABLE>
If we complete the acquisition of the assets of WCIC and its subsidiaries and we
enter into a refinancing of a portion of the Senior Holdings Loan the base rate
and LIBOR applicable margins will be 1.125% and 2.250%, respectively.
Additionally, the amendments require changes in certain financial covenants and
ratios and a capital expenditure limit of $70 million in 2001, $65 million in
2002, $50 million in 2003, and $15 million in January 1, 2004 through March 31,
2004 (excluding capital expenditures by certain subsidiaries). Additionally if
the acquisition is completed, Holdings may not permit the fixed charges coverage
ratio (as defined) of Holdings and certain of its subsidiaries to exceed 1.00 to
1.00 from January 1, 2003 through December 31, 2004 (which adjusts to 1.05 to
1.0 in January, 2005 and thereafter).

We were in compliance with all loan covenants at December 31, 2001.


                                       77
<PAGE>
We borrowed an additional $9.0 million on our Holdings credit facilities in the
first quarter of 2002. We are scheduled to make a $5.7 million principal payment
on our Holdings credit facilities in the fourth quarter of 2002, though we
expect to refinance the Holdings credit facilities prior to the due date of such
payment.

Our expenditures for property and equipment, including construction in progress,
totaled $68.0 million and $48.9 million during 2001 and 2000, respectively. We
expect our expenditures for property and equipment, including construction in
progress, for our core operations to total $50 million - $60 million during the
year ended December 31, 2002. Planned capital expenditures over the next five
years include those necessary for continued expansion of our long-distance,
local exchange and Internet facilities, continuing development of our PCS
network, cable telephony, and upgrades to our cable television plant. Additional
capital expenditures will be incurred if we successfully acquire backup or
standby facilities as described above. You should also see note 12 to the
accompanying Notes to Consolidated Financial Statements included in Part II of
this Report for more information.
<TABLE>
Our contractual obligations, including commitments for future payments under
non-cancelable lease arrangements and long-term debt arrangements, are
summarized below and are more fully disclosed in notes 5 and 13 to the
accompanying Notes to Consolidated Financial Statements (amounts in thousands):
<CAPTION>
                                                      Payments Due by Period
                                            ---------------------------------------------
                                                                                After 5
                                               Total    1-3 Years  4-5 Years     Years
                                            ----------- ---------- ---------- -----------
   <S>                                     <C>            <C>         <C>       <C>
   Long-term debt                          $  351,700     110,272     58,571    182,857
   Capital lease obligations                   47,282       6,724     12,414     28,144
   Operating leases                            40,344      21,603      8,372     10,369
                                            ----------- ---------- ---------- -----------
     Total contractual obligations         $  439,326     138,599     79,357    221,370
                                            =========== ========== ========== ===========
</TABLE>
$3.0 million of the Senior Holdings Loan facilities have been used to provide a
letter of credit to secure payment of certain access charges associated with our
provision of telecommunications services within the State of Alaska.

The long-distance, local access, cable, Internet and wireless services
industries are experiencing increasing competition and rapid technological
changes. Our future results of operations will be affected by our ability to
react to changes in the competitive environment and by our ability to fund and
implement new technologies. We are unable to determine how competition and
technological changes will affect our ability to obtain financing.

We believe that we will be able to meet our current and long-term liquidity and
capital requirements and fixed charges through our cash flows from operating
activities, existing cash, cash equivalents, short-term investments, credit
facilities, and other external financing and equity sources. Should cash flows
be insufficient to support additional borrowings, capital expenditures will
likely be reduced.

New Accounting Standards
In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
142, "Goodwill and Other Intangible Assets." SFAS No. 142 provides accounting
and reporting standards for intangible assets acquired individually, with a
group of other assets, or as part of a business combination. This statement
addresses how acquired goodwill and other intangible assets are recorded upon
their acquisition as well as how they are to be accounted for after they have
been initially recognized in the financial statements. This statement also
requires expanded disclosure for goodwill and other intangible assets. We will
adopt this standard January 1, 2002.

Under this statement, goodwill and other intangibles with indefinite useful
lives will no longer be amortized on a prospective basis. Impairment tests will
be preformed at least annually based on a fair value comparison. Intangibles
that have finite useful lives will continue to be amortized over their
respective useful lives. We estimate that our 2002 goodwill amortization expense
will be reduced by approximately $1.2 million as a result of adopting this
standard.


                                       78
<PAGE>
We are waiting for further guidance from the FASB and/or the SEC on whether our
cable franchise agreements qualify as indefinite lived intangible assets. This
guidance is expected before we file our first quarter 2002 Form 10-Q. As of
December 31, 2001, we had unamortized franchise agreement assets of $191.1
million, and recorded amortization expense related to these during 2001 of
$5,179,000. Upon adoption of SFAS No. 142, we may cease amortization of our
franchise agreement assets if they are determined to have indefinite lives under
SFAS No. 142.

At the date of adoption, we will be required to complete a transitional
intangible asset impairment test. Any resulting impairment loss will be
recognized as a cumulative effect of a change in accounting principle. We are in
the process of evaluating whether any of our goodwill or intangible asset values
are impaired pursuant to the provisions of SFAS No. 142 and 144 (as described
below). Although our analysis is not complete, we currently do not expect
write-downs of the carrying value of our intangible assets or goodwill, if any,
to have a material affect on our results of operations, financial position and
cash flows.

In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". SFAS No. 143 provides accounting and reporting standards for costs
associated with the retirement of long-lived assets. This statement requires
entities to record the fair value of a liability for an asset retirement
obligation in the period in which it is incurred. When the liability is
initially recorded, the entity capitalizes a cost by increasing the carrying
amount of the related long-lived asset. Over time, the liability is accreted to
its present value each period, and the capitalized cost is depreciated over the
useful life of the related asset. Upon settlement of the liability, an entity
either settles the obligation for its recorded amount or incurs a gain or loss
upon settlement. We will be required to adopt this statement no later than
January 1, 2003 and do not expect that it will have a material effect on our
results of operations, financial position and cash flows.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". SFAS No. 144 replaces SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of". However it retains the fundamental provisions of SFAS No. 121 for
recognition and measurement of the impairment of long-lived assets to be held
and used and for measurement of long-lived assets to be disposed of by sale.
This statement applies to all long-lived assets, including discontinued
operations, and replaces the provisions of APB Opinion No. 30, Reporting Results
of Operations-Reporting the Effects of Disposal of a Segment of a Business, for
the disposal of segments of a business. This statement requires that those
long-lived assets be measured at the lower of carrying amount or fair value less
cost to sell, whether reported in continuing operations or in discontinued
operations. We will adopt this statement January 1, 2002 and do not expect that
it will have a material effect on our results of operations, financial position
and cash flows.

Critical Accounting Policies
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements.

     -   We recognize unbilled revenues based upon minutes of use processed and
         established rates, net of credits and adjustments.
     -   We maintain allowances for doubtful accounts for estimated losses
         resulting from the inability of our customers to make required
         payments. We base our estimates on the aging of our accounts receivable
         balances and our historical write-off experience, net of recoveries. If
         the financial condition of our customers were to deteriorate, resulting
         in an impairment of their ability to make payments, additional
         allowances may be required.
     -   When recording depreciation expense associated with our telephony and
         cable television distribution systems, we use estimated useful lives.
         Because of changes in technology and industry conditions, we
         periodically evaluate the useful lives of our telephony and cable
         television distribution systems. These evaluations could result in a
         change in useful lives in future periods.


                                       79
<PAGE>
     -   When recording amortization expense on intangible assets, we use
         estimated useful lives. We periodically evaluate the useful lives of
         our intangible assets. These evaluations could result in a change in
         useful lives in future periods. Additionally, we periodically review
         the valuation of our intangible assets. These reviews could result in
         write-down of the value of intangible assets.
     -   We record a valuation allowance to reduce our deferred tax assets to
         the amount that we believe is more likely than not to be realized.
         While we have considered future taxable income and ongoing prudent and
         feasible tax planning strategies in assessing the need for the
         valuation allowance, in the event we were to determine that we would
         not be able to realize all or part of our net deferred tax assets in
         the future, an adjustment to the deferred tax assets would be charged
         to income in the period such determination was made. Likewise, should
         we determine that we would be able to realize our deferred tax assets
         in the future in excess of its net recorded amount, an adjustment to
         the deferred tax assets would increase income in the period such
         determination was made.
     -   We have recorded revenues in 1999 and 2001 associated with cash sales
         of indefeasible rights to use certain amounts of our fiber system
         capacity. The fiber system capacity sold was treated as integral
         equipment because it is attached to real estate. Because, in each sale,
         all of the benefits and risks of ownership were transferred to the
         purchaser upon full receipt of the purchase price and other terms of
         the contract meet the requirements of SFAS No. 66, "Accounting for
         Sales of Real Estate," we accounted for the fiber capacity sales as
         sales-type leases. The accounting for the sale of fiber system capacity
         is currently evolving and accounting guidance may become available in
         the future which could require us to change our policy. If we are
         required to change our policy, it is likely the effect would be to
         recognize the gain from future sales of fiber capacity, if any, over
         the term the capacity is provided.

Geographic Concentration and the Alaska Economy
We offer voice and data telecommunication and video services to customers
primarily throughout Alaska. Because of this geographic concentration, growth of
our business and of our operations depends upon economic conditions in Alaska.
The economy of Alaska is dependent upon the natural resource industries, and in
particular oil production, as well as investment earnings, tourism, government,
and United States military spending. Any deterioration in these markets could
have an adverse impact on us. In fiscal 2001 the state's preliminary actual
results indicate that Alaska's oil revenues and federal funding supplied 60% and
35%, respectively, of the state's total revenues. Investment losses negatively
affected the state's total revenues in fiscal 2001 due to the recent decline in
its stock market investments. Investment losses comprised 16.1% of the state's
total revenues. All of the federal funding is dedicated for specific purposes,
leaving oil revenues as the primary funding source of general operating
expenditures. In fiscal 2002 state economists forecast that Alaska's federal
funding, oil revenues, and investment earnings will supply 43%, 32% and 9%,
respectively, of the state's total projected revenues.

The volume of oil transported by the TransAlaska Oil Pipeline System ("TAPS")
over the past 20 years has been as high as 2.0 million barrels per day in fiscal
1988. Production has been declining over the last several years with an average
of 0.991 million barrels produced per day in fiscal 2001. The state forecasts
the production of 1.012 million barrels per day in fiscal 2002. The state
forecasts a production rate slightly above 1.0 million barrels per day through
fiscal 2010 due to future development of recent discoveries in the National
Petroleum Reserve Alaska, further development of heavy oil in both the Kuparuk
and Prudhoe Bay fields, and additional satellite field development.

Market prices for North Slope oil averaged $27.85 in fiscal 2001 and are
forecasted to average $20.55 in fiscal 2002. State economists forecast the
average price of North Slope oil to decline to $18.81 in fiscal 2003. The
closing price per barrel was $21.02 on March 15, 2002.

State economists believe that growth in demand for crude oil will bottom out in
2002 as the result of the economic recession in the United States and the
September 11, 2001 terrorist attacks, with the consequent reduction of air
travel and jet fuel usage. State economists believe demand for oil will then
begin to increase at just over 1.5% per year, an amount close to the historical
average. Economists also believe that non-Organization of Petroleum Exporting
Countries will increase their production in 2002 through 2004, putting
significant pressure on the Organization of Petroleum


                                       80
<PAGE>
Exporting Countries ("OPEC") to reduce their production if they want to support
an OPEC oil price between $22 and $28 per barrel. The production policy of OPEC
and its ability to continue to act in concert represents a key uncertainty in
the state's revenue forecast.

The State of Alaska maintains the Constitutional Budget Reserve Fund that is
intended to fund budgetary shortfalls. If the state's current projections are
realized, the Constitutional Budget Reserve Fund will be depleted in 2004. If
the fund is depleted, aggressive state action will be necessary to increase
revenues and reduce spending in order to balance the budget. The governor of the
State of Alaska and the Alaska legislature continue to pursue cost cutting and
revenue enhancing measures. A legislative fiscal policy caucus has been formed
and caucus members believe they need to take action in 2002 to prevent a fiscal
crisis. The caucus is considering an income tax, a sales tax, an increase in the
alcohol and motor fuel taxes, a tax on cruise ship passengers, additional tax
revenue from the oil and gas industry, a reduction in oil and gas royalty
deposits to the Alaska Permanent Fund, and capping the annual Alaska Permanent
Fund check to Alaskans.

Tourism, air cargo, and service sectors have helped offset the prevailing
pattern of oil industry downsizing that has occurred during much of the last
several years. Funds from federal sources totaling $2.1 billion are expected to
be distributed to the state of Alaska for highways and other federally supported
projects in fiscal 2002.

Should new oil discoveries or developments not materialize or the price of oil
become depressed, the long term trend of continued decline in oil production
from the Prudhoe Bay field area is inevitable with a corresponding adverse
impact on the economy of the state, in general, and on demand for
telecommunications and cable television services, and, therefore, on us, in
particular. In the past year, there has been a renewed effort to allow
exploration and development in the Arctic National Wildlife Refuge ("ANWR"). On
August 2, 2001 the U.S. House of Representatives voted in favor of opening ANWR
and now the bill must go before the Senate. The U.S. Department of Energy
estimates it could take seven to twelve years after approval of ANWR exploration
for the first production.

Deployment of a natural gas pipeline from the State of Alaska's North Slope to
the Lower 48 states has been proposed to supplement natural gas supplies. A
competing natural gas pipeline through Canada has also been proposed. The
economic viability of a natural gas pipeline depends upon the price of and
demand for natural gas. Either project could have a positive impact on the State
of Alaska's revenues and the Alaska economy. According to their public comments,
neither Exxon Mobil, BP nor Phillips Petroleum, Alaska's large natural gas
owners, believe either natural gas pipeline makes financial sense based upon
their preliminary analysis, though Phillips Petroleum says it will move forward
with permitting of the project if certain federal income tax incentives are
included. The governor of the State of Alaska and certain natural gas
transportation companies continue to support a natural gas pipeline from
Alaska's North Slope by trying to reduce the project's costs and by advocating
for federal tax incentives to further reduce the project's costs. In February
2002 Senate Majority Leader Tom Daschle announced he will offer an amendment to
his energy bill mandating the following:

     -   A North Slope natural gas pipeline will follow the Alaska Highway
         route,
     -   Gas producers will be allowed to take a credit on their federal income
         taxes if prices fall,
     -   Alaskans along the pipeline route will have access to the gas, and
     -   Future gas discoveries will be allowed to move through the pipeline.

We have, since our entry into the telecommunication marketplace, aggressively
marketed our services to seek a larger share of the available market. The
customer base in Alaska is limited, however, with a population of approximately
627,000 people. The State of Alaska's population is distributed as follows:

     -   42% are located in the Municipality of Anchorage,
     -   13% is located in the Fairbanks North Star Borough, and
     -   5% is located in the City and Borough of Juneau.


                                       81
<PAGE>
No assurance can be given that oil companies doing business in Alaska will be
successful in discovering new fields or further developing existing fields which
are economic to develop and produce oil with access to the pipeline or other
means of transport to market, even with a reduced level of royalties. We are not
able to predict the effect of changes in the price and production volumes of
North Slope oil on Alaska's economy or on us.

Seasonality
Long-distance revenues have historically been highest in the summer months
because of temporary population increases attributable to tourism and increased
seasonal economic activity such as construction, commercial fishing, and oil and
gas activities. Cable television revenues, on the other hand, are higher in the
winter months because consumers spend more time at home and tend to watch more
television during these months. Local access and Internet services are not
expected to exhibit significant seasonality. Our ability to implement
construction projects is also hampered during the winter months because of cold
temperatures, snow and short daylight hours.

Regulatory Developments
You should read Part I, Item 1 Business, Regulation, Franchise Authorizations
and Tariffs for more information about regulatory developments affecting us.

Inflation
We do not believe that inflation has a significant effect on our operations.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

We are exposed to various types of market risk in the normal course of business,
including the impact of interest rate changes. We do not hold derivatives for
trading purposes.

Our Senior Holdings Loan agreement carries interest rate risk. Amounts borrowed
under this agreement bear interest at either Libor plus 1.0% to 2.5%, depending
on the leverage ratio of Holdings and certain of its subsidiaries, or at the
greater of the prime rate or the federal funds effective rate (as defined) plus
0.05%, in each case plus an additional 0.0% to 1.375%, depending on the leverage
ratio of Holdings and certain of its subsidiaries. Should the Libor rate, the
lenders' base rate or the leverage ratios change, our interest expense will
increase or decrease accordingly. As of December 31, 2001, we have borrowed
$111.7 million subject to interest rate risk. On this amount, a 1% increase in
the interest rate would cost us $1,117,000 in additional gross interest cost on
an annualized basis.

On January 3, 2001 we entered into an interest rate swap agreement to convert
$50 million in 9.75% fixed rate debt to a variable interest rate equal to the 90
day Libor rate plus 334 basis points. The swap agreement carries interest rate
risk. Should the Libor rate change, our interest expense will increase or
decrease accordingly. A 1% change in the variable interest rate will change the
annualized benefit of the swap by $500,000. As of December 31, 2001, the
interest rate spread between the fixed and swapped variable rate is 4.18%, an
annualized reduction in interest expense of approximately $2,090,000.

On September 21, 2001, we entered into an interest rate swap agreement to
convert $25 million of variable interest rate debt equal to 3.98% fixed rate
debt plus applicable margin. The swap agreement carries interest rate risk.
Should the Libor rate change, our interest expense will increase or decrease
accordingly. A 1% change in the variable interest rate will change the
annualized benefit of the swap by $250,000. As of December 31, 2001, the
interest rate spread between the variable rate and swapped fixed rate is 1.33%,
an annualized increase in interest expense of approximately $333,000.

Our Fiber Facility carries interest rate risk. Amounts borrowed under this
Agreement bear interest at either Libor plus 2.5%-2.75%, or at our choice, the
lender's prime rate plus 1.25%-1.5%. Should the Libor rate, the lenders'


                                       82
<PAGE>
base rate or the leverage ratios change, our interest expense will increase or
decrease accordingly. As of December 31, 2001, we have borrowed $60.0 million
subject to interest rate risk. On this amount, a 1% increase in the interest
rate would cost us $600,000 in additional gross interest cost on an annualized
basis.

Our Satellite Transponder Capital Lease carries interest rate risk. Amounts
borrowed under this Agreement bear interest at Libor plus 3.25%. Should the
Libor rate change, our interest expense will increase or decrease accordingly.
As of December 31, 2001, we have borrowed $45.9 million subject to interest rate
risk. On this amount, a 1% increase in the interest rate would cost us $459,000
in additional gross interest cost on an annualized basis.

Item 8.  Consolidated Financial Statements and Supplementary Data

Our consolidated financial statements are filed under this Item, beginning on
Page 84. The financial statement schedules required under Regulation S-X are
filed pursuant to Item 14 of this Report.

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

None.

                                    Part III

Item 10.  Directors and Executive Officers of the Registrant.

Omitted per General Instruction J(1)(a) and (b) of Form 10-K.

Item 11.  Executive Compensation.

Omitted per General Instruction J(1)(a) and (b) of Form 10-K.

Item 12.  Security Ownership of Certain Beneficial Owners and Management.

Omitted per General Instruction J(1)(a) and (b) of Form 10-K.

Item 13.  Certain Relationships and Related Transactions.

Omitted per General Instruction J(1)(a) and (b) of Form 10-K.


                                       83
<PAGE>
                          INDEPENDENT AUDITORS' REPORT


The Board of Directors
GCI, Inc.:


We have audited the accompanying consolidated balance sheets of GCI, Inc. and
subsidiaries as of December 31, 2001 and 2000, and the related consolidated
statements of operations, stockholder's equity and cash flows for each of the
years in the three-year period ended December 31, 2001. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

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

In our opinion the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of GCI, Inc. and
subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2001 in conformity with accounting principles generally
accepted in the United States of America.



                                    /s/

                                    KPMG LLP

Anchorage, Alaska
March 8, 2002


                                       84
<PAGE>
<TABLE>
                                         GCI, INC. AND SUBSIDIARIES
                                        CONSOLIDATED BALANCE SHEETS
<CAPTION>
                                                                                                     December 31,
                                           ASSETS                                                  2001        2000
-------------------------------------------------------------------------------------------    ----------- ------------
                                                                                                (Amounts in thousands)
<S>                                                                                            <C>            <C>
Current assets:
   Cash and cash equivalents                                                                   $   11,097       5,962
                                                                                                ----------- -----------
   Receivables:
     Trade                                                                                         58,895      49,872
     Employee and other                                                                             1,587         378
                                                                                                ----------- -----------
                                                                                                   60,482      50,250
   Less allowance for doubtful receivables                                                          4,166       2,864
                                                                                                ----------- -----------
       Net receivables                                                                             56,316      47,386
                                                                                                ----------- -----------

   Prepaid and other current assets                                                                 3,061       2,505
   Deferred income taxes, net                                                                       4,690       3,221
   Inventories                                                                                      3,462       5,717
   Property held for sale                                                                             481      10,877
   Notes receivable with related parties                                                              182         241
                                                                                                ----------- -----------

       Total current assets                                                                        79,289      75,909
                                                                                                ----------- -----------
Property and equipment in service, at cost:
   Land and buildings                                                                               3,116       3,051
   Telephony distribution systems                                                                 335,238     294,300
   Cable television distribution systems                                                          134,697     106,953
   Support equipment                                                                               46,013      40,831
   Transportation equipment                                                                         4,890       3,867
   Property and equipment under capital leases                                                     50,771      50,771
                                                                                                ----------- -----------
                                                                                                  574,725     499,773
   Less accumulated depreciation                                                                  178,838     151,971
                                                                                                ----------- -----------
     Net property and equipment in service                                                        395,887     347,802
   Construction in progress                                                                         8,121       8,097
                                                                                                ----------- -----------
       Net property and equipment                                                                 404,008     355,899
                                                                                                ----------- -----------

Cable certificates, net of amortization of $26,884,000 and $21,509,000 at December 31,
   2001 and 2000, respectively                                                                    191,132     184,983
Goodwill, net of amortization of $7,200,000 and $5,952,000 at December 31,
   2001 and 2000, respectively                                                                     40,940      40,002
Other intangible assets, net of amortization of $1,252,000 and $729,000 at December 31,
   2001 and 2000, respectively                                                                      3,387       3,936
Deferred loan and senior notes costs, net of amortization of $5,568,000 and $4,166,000 at
   December 31, 2001 and 2000, respectively                                                         7,630       8,402
Notes receivable with related parties                                                               3,246       3,235
Property held for sale                                                                              1,170       1,550
Other assets, at cost, net of amortization of $70,000 and $63,000 at December
   31, 2001 and 2000, respectively                                                                  3,877       5,091
                                                                                                ----------- -----------
       Total other assets                                                                         251,382     247,199
                                                                                                ----------- -----------
       Total assets                                                                            $  734,679     679,007
                                                                                                =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.


                                       85                            (Continued)
<PAGE>
<TABLE>
                                         GCI, INC. AND SUBSIDIARIES
                                        CONSOLIDATED BALANCE SHEETS
                                                (Continued)
<CAPTION>
                                                                                                      December 31,
                            LIABILITIES AND STOCKHOLDER'S EQUITY                                    2001        2000
-------------------------------------------------------------------------------------------     ------------ -----------
                                                                                                (Amounts in thousands)
<S>                                                                                            <C>            <C>
Current liabilities:
   Current maturities of long-term debt and obligations under capital leases                   $    7,346       1,600
   Accounts payable                                                                                36,464      29,094
   Accrued payroll and payroll related obligations                                                 15,289      10,385
   Deferred revenue                                                                                11,129       9,477
   Accrued interest                                                                                 8,049       9,256
   Due to related party                                                                             5,160       1,569
   Accrued liabilities                                                                              4,697       4,134
   Subscriber deposits                                                                              1,121       1,362
                                                                                                ----------- -----------
     Total current liabilities                                                                     89,255      66,877

Long-term debt, excluding current maturities                                                      346,000     334,400
Obligations under capital leases, excluding current maturities                                     45,016      46,882
Obligation under capital lease due to related party, excluding current maturities                     620         214
Deferred income taxes, net of deferred income tax benefit                                          25,069      22,057
Other liabilities                                                                                   4,339       3,755
                                                                                                ----------- -----------
     Total liabilities                                                                            510,299     474,185
                                                                                                ----------- -----------
Stockholder's equity:
   Class A common stock.  Authorized 10,000 shares; issued and outstanding 100 shares at
     December 31, 2001 and 2000                                                                   206,622     206,622
  Paid-in capital                                                                                  44,902      29,941
  Retained deficit                                                                                (27,152)    (31,741)
  Accumulated other comprehensive income                                                                8         ---
                                                                                                ----------- -----------

     Total stockholder's equity                                                                   224,380     204,822
                                                                                                ----------- -----------
     Commitments and contingencies
     Total liabilities and stockholder's equity                                                $  734,679     679,007
                                                                                                =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.


                                       86
<PAGE>
<TABLE>
                                                GCI, INC. AND SUBSIDIARIES
                                           CONSOLIDATED STATEMENTS OF OPERATIONS
                                        YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
<CAPTION>

                                                                             2001              2000             1999
                                                                         -------------     ------------     -------------
                                                                                      (Amounts in thousands)
<S>                                                                     <C>                  <C>              <C>

Revenues                                                                $  357,258           292,605          279,179

Cost of sales and services                                                 139,793           119,712          122,467
Selling, general and administrative expenses                               120,815           104,918           98,282
Depreciation and amortization expense                                       57,077            51,972           42,680
                                                                         -------------     ------------     -------------
   Operating income                                                         39,573            16,003           15,750
                                                                         -------------     ------------     -------------
Interest expense                                                            31,208            38,845           31,237
Interest income                                                                294               702              621
                                                                         -------------     ------------     -------------
  Interest expense, net                                                     30,914            38,143           30,616

Gain on sale of property and equipment                                         ---               491              ---
                                                                         -------------     ------------     -------------
   Net income (loss) before income taxes and cumulative effect of
      a change in accounting principle                                       8,659           (21,649)         (14,866)

Income tax (expense) benefit                                                (4,070)            8,415            5,683
                                                                         -------------     ------------     -------------
   Net income (loss) before cumulative effect of a change in
      accounting principle                                                   4,589           (13,234)          (9,183)

   Cumulative effect of a change in accounting principle, net of
      income tax benefit of $245                                               ---               ---              344
                                                                         -------------     ------------     -------------
      Net income (loss)                                                 $    4,589           (13,234)          (9,527)
                                                                         =============     ============     =============
</TABLE>
See accompanying notes to consolidated financial statements.


                                       87
<PAGE>
<TABLE>
                                                           GCI, INC. AND SUBSIDIARIES
                                                  CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
                                                   YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
<CAPTION>
                                                        Shares of                                         Accumulated
                                                         Class A                                             Other
                                                         Common      Class A       Paid-in   Retained    Comprehensive
(Amounts in thousands)                                    Stock    Common Stock    Capital    Deficit        Income        Total
                                                       -----------------------------------------------------------------------------
<S>                                                        <C>      <C>             <C>      <C>              <C>          <C>
Balances at December, 1998                                 100      $ 206,622        2,933    (8,980)         ---          200,575
Net loss                                                   ---            ---          ---    (9,527)         ---           (9,527)
Contribution from General Communication, Inc.              ---            ---       22,570       ---          ---           22,570
                                                       -----------------------------------------------------------------------------
Balances at December 31, 1999                              100        206,622       25,503   (18,507)         ---          213,618

Net loss                                                   ---            ---          ---   (13,234)         ---          (13,234)
Contribution from General Communication, Inc.              ---            ---        4,438       ---          ---            4,438
                                                       -----------------------------------------------------------------------------
Balances at December 31, 2000                              100        206,622       29,941   (31,741)         ---          204,822

Net income                                                 ---            ---          ---     4,589          ---            4,589
Fair value of cash flow hedge, net of income tax
  benefit of $5                                            ---            ---          ---       ---            8                8
Comprehensive income                                                                                          ---            4,597
Contribution from General Communication, Inc.              ---            ---       14,961       ---          ---           14,961
                                                       -----------------------------------------------------------------------------
Balances at December 31, 2001                              100      $ 206,622       44,902   (27,152)           8          224,380
                                                       =============================================================================
</TABLE>
 See accompanying notes to consolidated financial statements


                                       88
<PAGE>
<TABLE>
                                                         GCI, INC. AND SUBSIDIARIES
                                                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
<CAPTION>
                                                                                         2001          2000         1999
                                                                                      ------------------------------------
                                                                                             (Amounts in thousands)
<S>                                                                                  <C>             <C>          <C>
Cash flows from operating activities:
   Net income (loss)                                                                 $   4,589       (13,234)      (9,527)
   Adjustments to reconcile net income (loss) to net cash provided by operating
     activities:
     Depreciation and amortization                                                      57,077        51,972       42,680
     Amortization charged to selling, general and administrative expense                   ---           554        1,770
     Non-cash cost of sales                                                             10,877           ---        3,703
     Deferred income tax expense (benefit)                                               3,958        (8,415)      (5,928)
     Deferred compensation and compensatory stock options                                1,191           982          675
     Bad debt expense, net of write-offs                                                 1,294           983        1,946
     Employee Stock Purchase Plan expense funded with issuance of General
        Communication, Inc. Class A common stock                                           ---         2,773        2,448
     Write-off of capitalized interest                                                     170         1,955          ---
     Write-off of unamortized start-up costs                                               ---           ---          589
     Write-off of deferred debt issuance costs upon modification of Senior
        Holdings Loan                                                                      ---           ---          472
     Gain on sale of property and equipment                                                ---          (491)         ---
     Other noncash income and expense items                                                (44)          356         (114)
     Change in operating assets and liabilities                                          3,158         3,942       (5,413)
                                                                                      ----------    ---------    ---------
       Net cash provided by operating activities                                        82,270        41,377       33,301
                                                                                      ----------    ---------    ---------
Cash flows from investing activities:
   Purchases of property and equipment, including construction period interest         (67,981)      (48,896)     (36,573)
   Proceeds from sale of property and equipment                                            ---           802          ---
   Acquisition of Rogers net of cash received                                          (18,533)          ---          ---
   Advances and billings to Kanas                                                       (5,632)          ---          ---
   (Payment) refund of deposit                                                          (1,200)        9,100          ---
   Purchases of other assets and intangible assets                                      (1,096)       (2,957)      (1,236)
   Payments received on notes receivable with related parties                            1,065           455          653
   Notes receivable issued to related parties                                             (959)         (971)        (952)
   Purchases of and additions to property held for sale                                   (101)       (1,550)         ---
   Cash received upon acquisition of controlling interest in Kanas                         228           ---          ---
                                                                                      ----------    ---------    ---------
       Net cash used in investing activities                                           (94,209)      (44,017)     (38,108)
                                                                                      ----------    ---------    ---------
Cash flows from financing activities:
   Long-term borrowings - bank debt                                                     29,000         5,000       13,776
   Repayments of long-term borrowings and capital lease obligations                    (13,667)      (11,151)     (26,620)
   Cash contribution from General Communication, Inc.                                    2,370         1,654       20,057
   Payment of debt issuance costs                                                         (629)         (635)        (680)
                                                                                      ----------    ---------    ---------
       Net cash provided by (used in) financing activities                              17,074        (5,132)       6,533
                                                                                      ----------    ---------    ---------
       Net increase (decrease) in cash and cash equivalents                              5,135        (7,772)       1,726
       Cash and cash equivalents at beginning of year                                    5,962        13,734       12,008
                                                                                      ----------    ---------    ---------
       Cash and cash equivalents at end of year                                      $  11,097         5,962       13,734
                                                                                      ==========    =========    =========
</TABLE>
 See accompanying notes to consolidated financial statements.


                                       89
<PAGE>
                                    GCI, INC.
                   Notes to Consolidated Financial Statements

(l)     Business and Summary of Significant Accounting Principles

        In the following discussion, GCI, Inc. and its direct and indirect
        subsidiaries are referred to as "we," "us" and "our."

        Basis of Presentation
        We were incorporated in 1997 to effect the issuance of senior notes. As
        a wholly owned subsidiary of General Communication, Inc. ("GCI"), we
        received through our initial capitalization all ownership interests in
        subsidiaries previously held by GCI.

        (a)    Business
               We offer the following services:

               -   Long-distance telephone service between Anchorage, Fairbanks,
                   Juneau, and other communities in Alaska and the remaining
                   United States and foreign countries
               -   Cable television services throughout Alaska
               -   Facilities-based competitive local access services in
                   Anchorage and Fairbanks, Alaska
               -   Internet access services
               -   Termination of traffic in Alaska for certain common carriers
               -   Private line and private network services
               -   Managed services to certain commercial customers
               -   Broadband services, including our SchoolAccess(TM) offering
                   to rural school districts and a similar offering to rural
                   hospitals and health clinics
               -   Sales and service of dedicated communications systems and
                   related equipment
               -   Lease and sales of capacity on two undersea fiber optic
                   cables used in the transmission of interstate and intrastate
                   private line, switched message long-distance and Internet
                   services between Alaska and the remaining United States and
                   foreign countries

        (b)    Principles of Consolidation
               The consolidated financial statements include the accounts of
               GCI, Inc., GCI, Inc.'s wholly-owned subsidiary GCI Holdings,
               Inc., GCI Holdings, Inc.'s wholly-owned subsidiaries GCI
               Communication Corp., GCI Cable, Inc., and GCI Transport Co.,
               Inc., GCI Holdings, Inc.'s 85% controlling interest in GCI Fiber
               Communication Co., Inc., GCI Communication Corp.'s wholly-owned
               subsidiary Potter View Development Co., Inc., GCI Cable, Inc.'s
               wholly-owned subsidiary GCI American Cablesystems, Inc., GCI
               American Cablesystems, Inc.'s wholly-owned subsidiary GCI
               Cablesystems of Alaska, Inc., GCI Transport Co., Inc.'s
               wholly-owned subsidiaries GCI Satellite Co., Inc., GCI Fiber Co.,
               Inc. and Fiber Hold Co., Inc. and GCI Fiber Co., Inc.'s and Fiber
               Hold Co., Inc.'s wholly-owned partnership Alaska United Fiber
               System Partnership ("Alaska United").

               The consolidated financial statements include the consolidated
               accounts of GCI, Inc. and its wholly-owned subsidiaries with all
               significant intercompany transactions eliminated.

        (c)    Earnings Per Share and Common Stock
               We are a wholly owned subsidiary of GCI and, accordingly, we are
               not required to present earnings per share. Our common stock is
               not publicly traded.

        (d)    Cash and Cash Equivalents
               Cash equivalents consist of short-term, highly liquid investments
               that are readily convertible into cash.


                                       90                            (Continued)
<PAGE>
                                    GCI, INC.
                   Notes to Consolidated Financial Statements

        (e)    Inventories
               Inventory of merchandise for resale and parts is stated at the
               lower of cost or market. Cost is determined using the average
               cost method.

        (f)    Property and Equipment
               Property and equipment is stated at cost. Construction costs of
               facilities are capitalized. Equipment financed under capital
               leases is recorded at the lower of fair market value or the
               present value of future minimum lease payments. Construction in
               progress represents distribution systems and support equipment
               not placed in service on December 31, 2001; management intends to
               place this equipment in service during 2002.
<TABLE>
               Depreciation is computed on a straight-line basis based upon the
               shorter of the estimated useful lives of the assets or the lease
               term, if applicable, in the following ranges:
<CAPTION>
                                     Asset Category                      Asset Lives
                  ----------------------------------------------------- -------------
                  <S>                                                    <C>
                  Telephony distribution systems                         12-20 years
                  Cable television distribution systems                  10 years
                  Support equipment                                      3-5 years
                  Transportation equipment                               5-10 years
                  Property and equipment under capital leases            5-15 years
</TABLE>
               Repairs and maintenance are charged to expense as incurred.
               Expenditures for major renewals and betterments are capitalized.
               Gains or losses are recognized at the time of ordinary
               retirements, sales or other dispositions of property.

        (g)    Intangible Assets
               Intangible assets are valued at unamortized cost. Management
               reviews the valuation and amortization of intangible assets on a
               periodic basis, taking into consideration any events or
               circumstances that might indicate diminished value. The
               assessment of the recoverability is based on whether the asset
               can be recovered through undiscounted future cash flows.

               Cable certificates (certificates of convenience and public
               necessity) represent certain perpetual operating rights to
               provide cable services and are being amortized on a straight-line
               basis over 20 to 40 years.

               The cost of the PCS license and related financing costs were
               capitalized as an intangible asset. The associated assets were
               placed into service during 2000 and the recorded cost of the
               license and related financing costs are being amortized over a
               40-year period using the straight-line method.

               Goodwill represents the excess of cost over fair value of net
               assets acquired and is being amortized on a straight-line basis
               over periods of 10 to 40 years.

               In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other
               Intangible Assets." We will adopt this statement January 1, 2002.
               Amongst other requirements, SFAS No. 142 requires that goodwill
               acquired after June 30, 2001 be subject immediately to the
               nonamortization and amortization provisions of the statement.
               Accordingly, we did not recognize amortization expense on the
               goodwill acquired from the purchase of all of the stock of Rogers
               during the year ended December 31, 2001.


                                       91                            (Continued)
<PAGE>
                                    GCI, INC.
                   Notes to Consolidated Financial Statements

        (h)    Deferred Loan and Senior Notes Costs
               Debt and Senior Notes issuance costs are deferred and amortized
               using the straight-line method, which approximates the interest
               method, over the term of the related debt and notes. Through
               January 1999, (the end of the construction period of the undersea
               fiber optic cable) issuance costs were partially amortized to
               Construction in Progress (see note 9). Commencing February 1999,
               (the month the fiber optic cable was placed in service) the
               issuance costs were amortized to amortization expense.

        (i)    Other Assets
               Other assets are recorded at cost and are amortized on a
               straight-line basis over periods of 2-15 years.

        (j)    Accounting for Derivative Instruments and Hedging Activities
               Effective January 1, 2001, we adopted SFAS No. 133, "Accounting
               for Derivative Instruments and Hedging Activities", as amended.
               SFAS No. 133 requires companies to record derivatives on the
               balance sheet as assets or liabilities, measured at fair value.

        (k)    Comprehensive Income
               SFAS No. 130, "Reporting Comprehensive Income" requires us to
               report and display comprehensive income or loss and its
               components in a financial statement that is displayed with the
               same prominence as other financial statements. During the year
               ended December 31, 2001 we had other comprehensive income of
               approximately $8,000 as a result of the cash flow hedge discussed
               in note 11. Total comprehensive income at December 31, 2001 is
               $4,597,000. There were no components of other comprehensive
               income during the years ended December 31, 2000 and 1999.

        (l)    Revenue Recognition
               All revenues are recognized when the earnings process is complete
               in accordance with SEC Staff Accounting Bulletin No. 101,
               "Revenue Recognition in Financial Statements." Revenues generated
               from long-distance and managed services are recognized when the
               services are provided. Revenues from the sale of equipment are
               recognized at the time the equipment is delivered or installed.
               Technical services revenues are derived primarily from
               maintenance contracts on equipment and are recognized on a
               prorated basis over the term of the contracts. Cable television
               service, local access service, Internet service and private line
               telecommunication revenues are billed in advance and are
               recognized as the associated service is provided. Other revenues
               are recognized when the service is provided. We recognize
               unbilled revenues when the service is provided based upon minutes
               of use processed or established rates, net of credits and
               adjustments.

        (m)    Sale of Fiber Optic Cable System Capacity
               During the first quarter of 2001 we completed a $19.5 million
               sale of long-haul capacity in the Alaska United undersea fiber
               optic cable system ("fiber capacity sale") in a cash transaction
               (see note 9). The sale included both capacity within Alaska, and
               between Alaska and the lower 48 states. We used the proceeds from
               the 2001 fiber capacity sale to repay $11.7 million of the Fiber
               Facility debt and to fund capital expenditures and working
               capital.

               During the second quarter of 1999 we completed a separate $19.5
               million sale of long-haul capacity in the Alaska United undersea
               fiber optic cable system.

               The fiber capacity sales in 1999 and 2001 were pursuant to a
               contract giving the purchaser an indefeasible right to use a
               certain amount of fiber system capacity expiring on February 4,
               2024. The term may be extended if the actual useful life of the
               fiber system capacity extends beyond the estimated useful life of
               twenty-five years. The fiber system capacity sold in 1999 and
               2001 is integral equipment because it is attached to real estate.
               Because all of the benefits and risks of


                                       92                            (Continued)
<PAGE>
                                    GCI, INC.
                   Notes to Consolidated Financial Statements

               ownership have been transferred to the purchaser upon full
               receipt of the purchase price and other terms of the contract
               meet the requirements of SFAS No. 66, "Accounting for Sales of
               Real Estate" we accounted for the fiber capacity sales as
               sales-type leases. We recognized $19.5 million in revenue from
               the 2001 and 1999 fiber capacity sales. We recognized $10.9
               million and $3.7 million as cost of sales during the years ended
               December 31, 2001 and 1999, respectively. Upon the agreement for
               the second sale of fiber system capacity but before receipt of
               the cash payment, we classified $10.9 million as Property Held
               for Sale in the Consolidated Balance Sheets at December 31, 2000
               and 1999.

               The accounting for the sale of fiber system capacity is currently
               evolving and accounting guidance may become available in the
               future which could require us to change our policy. If we are
               required to change our policy, it is likely the effect would be
               to recognize the gain from future sales of fiber capacity, if
               any, over the term the capacity is provided.

        (n)    Advertising and Research and Development Expense
               We expense advertising and research and development costs as
               incurred. Advertising expenses were approximately $3,168,000,
               $3,438,000 and $4,574,000 for the years ended December 31, 2001,
               2000 and 1999, respectively. We had no research and development
               costs for the years ended December 31, 2001, 2000 and 1999.

        (o)    Interest Expense
               Interest costs incurred during the construction period of
               significant capital projects are capitalized. Interest costs
               capitalized totaled $1,260,000 during the year ended December 31,
               1999. No interest was capitalized during the years ended December
               31, 2001 and 2000.

        (p)    Cumulative Effect of a Change in Accounting Principle
               The American Institute of Certified Public Accountants issued
               Statement of Position ("SOP") 98-5, "Reporting on the Costs of
               Start-Up Activities", which provides guidance on the financial
               reporting of start-up costs and organization costs and requires
               costs of start-up activities and organization costs to be
               expensed as incurred. A one-time expense of $344,000 (net of
               income tax benefit of $245,000) associated with the write-off of
               unamortized start-up costs was recognized in the first quarter of
               1999 upon adoption of SOP 98-5.

        (q)    Income Taxes
               Income taxes are accounted for using the asset and liability
               method. Deferred tax assets and liabilities are recognized for
               their future tax consequences attributable to differences between
               the financial statement carrying amounts of existing assets and
               liabilities and their respective tax bases. Deferred tax assets
               and liabilities are measured using enacted tax rates expected to
               apply to taxable earnings in the years in which those temporary
               differences are expected to be recovered or settled. Deferred tax
               assets are recognized to the extent that the benefits are more
               likely to be realized than not. GCI, Inc. and its wholly owned
               subsidiaries file corporate income tax returns as part of the GCI
               consolidated group of companies.

        (r)    ILEC Over-Earnings Refunds
               We receive refunds from time to time from ILECs with which we do
               business in respect of their earnings that exceed regulatory
               requirements. Rate of return carriers are required by the FCC to
               refund earnings from interstate access charges assessed to
               long-distance carriers when their earnings exceed their
               authorized rate of return. Such refunds are computed based on the
               ILEC's earnings in several access categories. Uncertainties exist
               with respect to the amount of their earnings, the refunds (if
               any), their timing, and their realization. We account for such
               refundable amounts as gain contingencies, and, accordingly, do
               not recognize them until realization is a certainty upon receipt.


                                       93                            (Continued)
<PAGE>
                                    GCI, INC.
                   Notes to Consolidated Financial Statements

        (s)    Stock Option Plan
               We account for our stock option plan in accordance with the
               provisions of Accounting Principles Board ("APB") Opinion No. 25,
               "Accounting for Stock Issued to Employees," and related
               interpretations. As such, compensation expense is recorded on the
               date of grant only if the current market price of the underlying
               stock exceeds the exercise price. We have adopted SFAS 123,
               "Accounting for Stock-Based Compensation," which permits entities
               to recognize as expense over the vesting period the fair value of
               all stock-based awards on the date of grant. Alternatively, SFAS
               123 also allows entities to continue to apply the provisions of
               APB Opinion No. 25 and provide pro forma net income and pro forma
               earnings per share disclosures for employee stock option grants
               made in 1995 and future years as if the fair-value-based method
               defined in SFAS 123 had been applied. We have elected to continue
               to apply the provisions of APB Opinion No. 25 and provide the pro
               forma disclosure provisions of SFAS 123.

        (t)    Stock Options and Stock Warrants Issued for Non-employee Services
               We account for stock options and warrants issued in exchange for
               nonemployee services pursuant to the provisions of SFAS 123,
               Emerging Issues Task Force ("EITF") 96-3 and EITF 96-18, wherein
               such transactions are accounted for at the fair value of the
               consideration or services received or the fair value of the
               equity instruments issued, whichever is more reliably measurable.

               When a stock option or warrant is issued for non-employee
               services where the fair value of such services is not stated, we
               value the stock option or warrant issued using the Black Scholes
               method.

               The fair value determined using these principles is charged to
               operating expense over the term for which non-employee services
               are provided or the stock option or warrant vesting period if no
               service term is stated.

        (u)    Use of Estimates
               The preparation of financial statements in conformity with
               generally accepted accounting principles requires us to make
               estimates and assumptions that affect the reported amounts of
               assets and liabilities and disclosure of contingent assets and
               liabilities at the date of the financial statements and the
               reported amounts of revenues and expenses during the reporting
               period. Actual results could differ from those estimates.

        (v)    Concentrations of Credit Risk
               Financial instruments that potentially subject us to
               concentrations of credit risk are primarily cash and cash
               equivalents and accounts receivable. Excess cash is invested in
               high quality short-term liquid money instruments issued by highly
               rated financial institutions. At December 31, 2001 and 2000,
               substantially all of our cash and cash equivalents were invested
               in short-term liquid money instruments. Our customers are located
               primarily throughout Alaska. Because of this geographic
               concentration, our growth and operations depend upon economic
               conditions in Alaska. The economy of Alaska is dependent upon the
               natural resources industries, and in particular oil production,
               as well as tourism, government, and United States military
               spending. Though limited to one geographical area, the
               concentration of credit risk with respect to our receivables is
               minimized due to the large number of customers, individually
               small balances, and short payment terms.

        (w)    Fair Value of Financial Instruments
               SFAS No. 107, "Disclosures about Fair Value of Financial
               Instruments," requires disclosure of the fair value of financial
               instruments for which it is practicable to estimate that value.
               SFAS No. 107 specifically excludes certain items from its
               disclosure requirements. The fair value of a financial instrument
               is the amount at which the instrument could be exchanged in a
               current transaction between willing parties, other than in a
               forced sale or liquidation.


                                       94                            (Continued)
<PAGE>
                                    GCI, INC.
                   Notes to Consolidated Financial Statements

        (x)    Impairment of Long-Lived Assets and Long-Lived Assets to Be
               Disposed Of
               SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
               and for Long-Lived Assets to Be Disposed Of," requires that
               long-lived assets and certain identifiable intangibles be
               reviewed for impairment whenever events or changes in
               circumstances indicate that the carrying amount of an asset may
               not be recoverable. Recoverability of assets to be held and used
               is measured by a comparison of the carrying amount of an asset to
               future net cash flows expected to be generated by the asset. If
               such assets are considered impaired, the impairment to be
               recognized is measured by the amount by which the carrying amount
               of the assets exceeds the fair value of the assets. Assets to be
               disposed of are reported at the lower of the carrying amount or
               fair value less costs to sell. SFAS No. 121 has been superceded
               by SFAS No. 144, "Accounting for the Impairment or Disposal of
               Long-Lived Assets."

        (y)    Business Combinations
               SFAS No. 141, "Business Combinations," requires that the purchase
               method of accounting be used for all business combinations
               initiated after June 30, 2001. Use of the pooling-of-interests
               method has been prohibited on a prospective basis only. We used
               the purchase method of accounting for our acquisition of all of
               the common stock of Rogers (see note 3).

        (z)    Year 2000 Costs
               We charged incremental Year 2000 assessment and remediation costs
               to expense as incurred during the years ended December 31, 2000
               and 1999. No such costs were incurred during the year ended
               December 31, 2001.

        (aa)   Reclassifications
               Reclassifications have been made to the 1999 and 2000 financial
               statements to make them comparable with the 2001 presentation.

 (2)    Consolidated Statements of Cash Flows Supplemental Disclosures
<TABLE>
        Changes in operating assets and liabilities consist of (amounts in
        thousands):
<CAPTION>
          Year ended December 31,                                        2001            2000            1999
                                                                     ------------    ------------    -------------
          <S>                                                       <C>                 <C>             <C>
          Increase in accounts receivable                           $  (10,229)         (3,451)         (5,783)
          Decrease in income tax receivable                                ---             ---           1,965
          Increase in prepaid and other current assets                    (487)           (390)           (235)
          (Increase) decrease in inventories                             2,255          (1,963)           (767)
          Increase (decrease) in accounts payable                        5,701           3,773          (2,229)
          Increase (decrease) in accrued liabilities                     1,091             982             (95)
          Increase in accrued payroll and payroll related
              obligations                                                4,872           2,260           1,368
          Increase in deferred revenue                                   1,519           2,178           1,802
          Increase (decrease) in accrued interest                       (1,207)          1,271             (87)
          Decrease in subscriber deposits                                 (253)           (826)           (944)
           Increase (decrease) in components of other long-term
              liabilities                                                 (104)            108            (408)
                                                                     ------------    ------------    -------------
                                                                    $    3,158           3,942          (5,413)
                                                                     ============    ============    =============
</TABLE>
        GCI, Inc., as a wholly owned subsidiary and member of the GCI controlled
        group of corporations, files its income tax returns as part of the
        consolidated group of corporations under GCI. Accordingly, the following
        discussion of income tax payments and refunds reflect the consolidated
        group's activity. We paid income taxes totaling $112,000 during the year
        ended December 31, 2001. We paid no income taxes during the years ended
        December 31, 2000 and 1999. Net income tax refunds received totaled
        $1,965,000


                                       95                            (Continued)
<PAGE>
                                    GCI, INC.
                   Notes to Consolidated Financial Statements

        during the year ended December 31, 1999. We received no income tax
        refunds during the years ended December 31, 2001 and 2000.

        We paid interest totaling approximately $32,175,000, $36,223,000 and
        $32,900,000 during the years ended December 31, 2001, 2000 and 1999,
        respectively.

        We recorded $789,000, $640,000 and $211,000 during the years ended
        December 31, 2001, 2000 and 1999, respectively, in paid-in capital in
        recognition of the income tax effect of excess stock compensation
        expense for tax purposes over amounts recognized for financial reporting
        purposes.

        During the years ended December 31, 2000 and 1999 we funded the employer
        matching portion of Employee Stock Purchase Plan contributions by GCI's
        issuance of its Class A common stock valued at $2,773,000 and
        $2,448,000, respectively. Employer matching shares were purchased on the
        open market during the year ended December 31, 2001.

        We financed the purchase of satellite transponder capacity pursuant to a
        long-term capital lease arrangement with a leasing company during the
        year ended December 31, 2000 at a cost of $48.2 million (see note 13).

        Effective March 31, 2001 we acquired the assets and customer base of
        G.C. Cablevision, Inc. The seller received 238,199 unregistered shares
        of GCI Class A common stock (see note 3).

        Effective June 30, 2001 we acquired from WorldCom their 85% controlling
        interest in Kanas in exchange for $10.0 million of Series C preferred
        stock issued by GCI (see note 3).

(3)     Acquisitions
        Effective March 31, 2001 we acquired the assets and customer base of
        G.C. Cablevision, Inc. of Fairbanks. The seller received 238,199
        unregistered shares of GCI Class A common stock with a future payment in
        additional shares contingent upon certain conditions. The property and
        equipment was valued at $2,088,000 on the date of acquisition. The
        remaining assets and liabilities acquired were immaterial. All assets
        and liabilities acquired were contributed to us.

        Effective June 30, 2001 we completed the acquisition of WorldCom's 85%
        controlling interest in Kanas, which owns the 800-mile fiber optic cable
        system that extends from Prudhoe Bay to Valdez via Fairbanks. The
        corporation owning the fiber optic system was renamed and is now
        operated as GFCC. The fiber optic cable system was valued at
        approximately $21,198,000 on the date of acquisition. On June 30, 2001
        GCI issued to WorldCom, a related party, shares of its Series C
        preferred stock valued at $10.0 million. The balance of the purchase
        price consisted of payments to Kanas to fund its operations prior to
        June 30, 2001. The remaining assets and liabilities acquired were
        immaterial. All assets and liabilities acquired were contributed to us.

        Effective November 19, 2001 we acquired all of the stock of Rogers, a
        cable television service provider in Palmer and Wasilla, Alaska for
        $18.5 million in cash. Per the acquisition agreement $467,000 was
        withheld from the original payment to account for the amount by which
        Rogers' current liabilities exceeded current assets and for certain
        capital expenditures incurred by the previous owners of Rogers through
        May 2001. We expect the final settlement to occur during the second
        quarter of 2002. This acquisition was funded through a $19.0 million
        draw on our Senior Holdings Loan. The results of Roger's operations have
        been included in the consolidated financial statements in the cable
        services segment since the acquisition date. Because of this acquisition
        our cable services segment has increased homes passed by approximately
        10,000 homes and has increased cable services subscribers by
        approximately 7,000 subscribers.


                                       96                            (Continued)
<PAGE>
                                    GCI, INC.
                   Notes to Consolidated Financial Statements

        The following table summarizes the estimated fair values of the assets
        acquired and liabilities assumed at the date of acquisition (amounts in
        thousands):

          Current assets                            $     525
          Property and equipment, net of
            accumulated depreciation                    5,160
          Franchise agreement                          11,192
          Goodwill                                      2,293
                                                     ----------
          Total assets                                 19,170
          Current liabilities                             170
                                                     ----------
             Net assets acquired                    $  19,000
                                                     ==========

        The allocation of the purchase price is subject to refinement pending
        final working capital settlement and valuation of property and
        equipment.

 (4)    Notes Receivable with Related Parties
<TABLE>
        Notes receivable with related parties consist of the following (amounts
        in thousands):
<CAPTION>
                                                                                        December 31,
                                                                                    2001           2000
                                                                                --------------- ------------
               <S>                                                             <C>                 <C>
               Notes receivable from officers bearing interest up to 9.0% or
                at the rate paid by us on our senior indebtedness, unsecured
                and secured by personal residences, a life insurance policy
                and GCIcommon stock, due through December 3, 2005              $    1,625          2,480
               Notes receivable from other related parties bearing
                interest up to 8.305% or at the rate paid by us on our
                senior indebtedness, unsecured and secured by property,
                due through October 24, 2006                                          961            212
               Interest receivable                                                    842            784
                                                                                --------------- ------------
                 Total notes receivable with related parties                        3,428          3,476
               Less current portion, including current interest receivable            182            241
                                                                                --------------- ------------
                Long-term portion, including long-term interest receivable     $    3,246          3,235
                                                                                =============== ============
</TABLE>
 (5)    Long-term Debt
<TABLE>
        Long-term debt consists of the following (amounts in thousands):
<CAPTION>
                                                                                        December 31,
                                                                                    2001           2000
                                                                                ------------- --------------
              <S>                                                              <C>                <C>
              Senior Notes (a)                                                 $   180,000        180,000
              Senior Holdings Loan (b)                                             111,700         82,700
              Fiber Facility (c)                                                    60,000         71,700
                                                                                ------------- --------------
                 Long-term debt, excluding current maturities                  $   351,700        334,400
                                                                                ============= ==============
</TABLE>

                                       97                            (Continued)
<PAGE>
                                    GCI, INC.
                   Notes to Consolidated Financial Statements

        (a)   On August 1, 1997 GCI, Inc. issued $180,000,000 of 9.75% senior
              notes due 2007 ("Senior Notes"). The Senior Notes were issued at
              face value. Net proceeds to GCI, Inc. after deducting underwriting
              discounts and commissions totaled $174,600,000. Issuance costs of
              $6,496,000 are being amortized to amortization expense over the
              term of the Senior Notes.

              The Senior Notes are not redeemable before August 1, 2002. After
              August 1, 2002, the Senior Notes are redeemable at GCI, Inc.'s
              option under certain conditions and at stated redemption prices.
              The Senior Notes include limitations on additional indebtedness
              and prohibit payment of dividends, payments for the purchase,
              redemption, acquisition or retirement of our stock, payments for
              early retirement of debt subordinate to the notes, liens on
              property, and asset sales (excluding sales of Alaska United
              assets). GCI, Inc. was in compliance with all covenants during the
              year ending 2001. The Senior Notes are unsecured obligations.

        (b)   The GCI Holdings, Inc., $150,000,000 and $50,000,000 credit
              facilities ("Senior Holdings Loan") mature on June 30, 2005. The
              Senior Holdings Loan facilities bear interest, as amended, at
              either Libor plus 1.00% to 2.50%, depending on the leverage ratio
              of Holdings and certain of its subsidiaries, or at the greater of
              the prime rate or the federal funds effective rate (as defined)
              plus 0.05%, in each case plus an additional 0.00% to 1.375%,
              depending on the leverage ratio of Holdings and certain of its
              subsidiaries. We are required to pay a commitment fee equal to
              0.50% per annum on the unused portion of the commitment.
              Commitment fee expense on the Senior Holdings Loan totaled
              $405,000, $570,000 and $533,000 during the years ended December
              31, 2001, 2000 and 1999, respectively.

              On April 13, 1999, we amended our Holdings credit facilities. The
              amended facilities reduced the aggregate commitment by $50,000,000
              to $200,000,000 and provided for the payment of a one-time
              amendment fee of $530,000. Pursuant to the FASB Emerging Issues
              Task Force Issue 98-14, "Debtor's Accounting for Changes in
              Line-of-Credit or Revolving Debt Arrangements," we recorded as
              additional interest expense $472,000 of deferred financing costs
              in the second quarter of 1999 associated with reduced borrowing
              capacity resulting from the amendment.

              On October 25, 2000, March 23, 2001, April 27, 2001 and October
              31, 2001 we further amended the Holdings $150,000,000 and
              $50,000,000 credit facilities. Among other things, amendments
              provided for our acquisitions of Kanas and Rogers, and contain,
              among other things, provision for payment of amendment fees of
              $433,000, changes in certain financial covenants and ratios, and a
              limit of $70 million and $60 million for 2001 and 2002,
              respectively, for capital expenditures (excluding capital
              expenditures by certain subsidiaries). Under these amendments,
              Holdings may not permit the ratio of:

                  -   Senior debt to annualized operating cash flow (as defined)
                      of Holdings and certain of its subsidiaries to exceed 2.50
                      to 1.0 through September 30, 2003, and
                  -   Fixed charges coverage ratio (as defined) of Holdings and
                      certain of its subsidiaries to exceed 1.00 to 1.00 from
                      January 1, 2003 through March 31, 2004 (which adjusts to
                      1.05 to 1.0 in April, 2004 and thereafter).

              On December 17, 2001 we further amended the Holdings $150,000,000
              and $50,000,000 credit facilities. We paid a one-time fee of
              $438,000 in conjunction with this amendment. Changes in certain
              financial covenants and ratios outlined in this amendment are
              effective only upon the acquisition of the assets of WCIC (see
              note 13). Because of the uncertainty of the likelihood that we
              will complete the acquisition of the assets of WCIC we recognized
              the amendment fee as an expense during the year ended December 31,
              2001 rather than deferring and amortizing the fee over the
              remaining life of the Senior Holdings Loan. Under these
              amendments, the applicable margin has been increased to the
              following amounts:


                                       98                            (Continued)
<PAGE>
                                    GCI, INC.
                   Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>
                                           Total Leverage Ratio                              Base Rate          LIBOR
                                           --------------------                              ---------          -----
                  <S>                                                                         <C>              <C>
                  Greater than or equal to 6.50 to 1.00                                       1.375%           2.500%
                  Greater than or equal to 6.00 to 1.00 but less than 6.50 to 1.00            1.000%           2.125%
                  Greater than or equal to 5.50 to 1.00 but less than 6.00 to 1.00            0.750%           1.875%
                  Greater than or equal to 5.00 to 1.00 but less than 5.50 to 1.00            0.500%           1.625%
                  Greater than or equal to 4.50 to 1.00 but less than 5.00 to 1.00            0.250%           1.375%
                  Greater than or equal to 4.00 to 1.00 but less than 4.50 to 1.00            0.000%           1.250%
                  Less than 4.00 to 1.00                                                      0.000%           1.000%
</TABLE>
              If we complete the acquisition of the assets of WCIC and its
              subsidiaries and we enter into a refinancing of a portion of the
              Senior Holdings Loan the base rate and LIBOR applicable margins
              will be 1.125% and 2.250%, respectively. Additionally, the
              amendments require changes in certain financial covenants and
              ratios and a capital expenditure limit of $70 million in 2001, $65
              million in 2002, $50 million in 2003, and $15 million in January
              1, 2004 through March 31, 2004 (excluding capital expenditures by
              certain subsidiaries). Additionally if the acquisition is
              completed, Holdings may not permit the fixed charges coverage
              ratio (as defined) of Holdings and certain of its subsidiaries to
              exceed 1.00 to 1.00 from January 1, 2003 through December 31, 2004
              (which adjusts to 1.05 to 1.0 in January, 2005 and thereafter).

              The Series B preferred stock issuance proceeds of $19 million were
              used to reduce outstanding indebtedness under the Senior Holdings
              Loan (see note 7).
<TABLE>
              While Holdings may elect at any time to reduce amounts due and
              available under the Senior Holdings Loan facilities, a mandatory
              prepayment is required each quarter if the outstanding borrowings
              at the following dates of payment exceed the allowable borrowings
              using the following percentages:
<CAPTION>
                                                                        Percentage of
                                                                        Reduction of
                                                                        Outstanding
                  Date Range of Quarterly Payments                      Facilities
                  ----------------------------------------------------- ----------------
                  <S>                                                        <C>
                  March 31, 2002 through December 31, 2003                   5.000%
                  March 31, 2004 through December 31, 2004                   5.625%
                  March 31, 2005                                             7.500%
                  July 31, 2005                                              7.500% and all remaining
                                                                               outstanding balances
</TABLE>
              We borrowed an additional $9.0 million on our Holdings credit
              facilities in the first quarter of 2002 to fund our Senior Notes
              interest payment. We are scheduled to make a $5.7 million
              principal payment on our Holdings credit facilities at December
              31, 2002, though we expect to refinance the Holdings credit
              facilities during the second or third quarter of 2002.

              The facilities contain, among others, covenants requiring
              maintenance of specific levels of operating cash flow to
              indebtedness and to interest expense, and limitations on
              acquisitions and additional indebtedness. The facilities prohibit
              any direct or indirect distribution, dividend, redemption or other
              payment to any person on account of any general or limited
              partnership interest in, or shares of capital stock or other
              securities of Holdings or any of its subsidiaries. Holdings was in
              compliance with all Senior Holdings Loan facilities covenants
              during the year ended December 31, 2001.

              Substantially all of Holdings' assets as well as a pledge of
              Holdings' stock by GCI, Inc. collateralize the Senior Holdings
              Loan facilities.


                                       99                            (Continued)
<PAGE>
                                    GCI, INC.
                   Notes to Consolidated Financial Statements

              $3.0 million of the Senior Holdings Loan facilities have been used
              to provide a letter of credit to secure payment of certain access
              charges associated with our provision of telecommunications
              services within the State of Alaska.

              In connection with the initial funding and amendments of the
              Senior Holdings Loan facilities, Holdings paid bank fees and other
              expenses since the initial funding through December 31, 2001 of
              approximately $3,893,000 that are being amortized to amortization
              expense over the life of the agreement and approximately $438,000
              that were charged to Selling, General and Administrative Expense
              in the Consolidated Statements of Operations during the year ended
              December 31, 2001.

        (c)   On January 27, 1998 Alaska United closed a $75 million project
              finance facility ("Fiber Facility") to construct a fiber optic
              cable system connecting Anchorage, Fairbanks, Valdez, Whittier,
              Juneau and Seattle. The Fiber Facility is a 10-year term loan that
              is interest only for the first 5 years. The facility can be
              extended an additional two years at any time between the second
              and fifth anniversary of closing the facility if we can
              demonstrate projected revenues from certain capacity commitments
              will be sufficient to pay all operating costs, interest, and
              principal installments based on the extended maturity. The Fiber
              Facility interest rate was either Libor plus 3.0%, or at the
              lender's prime rate plus 1.75% while the loan balance was greater
              than $60 million. The interest rate declined to Libor plus
              2.5%-2.75%, or, at our option, the lender's prime rate plus
              1.25%-1.5% when the loan balance was reduced to $60 million.

              The Fiber Facility contains covenants requiring certain
              intercompany loans and advances in order to maintain specific
              levels of cash flow necessary to pay operating costs and interest
              and principal installments. Alaska United was in compliance with
              all covenants during the year ended December 31, 2001.

              All of Alaska United's assets, as well as a pledge of the
              partnership interests' owning Alaska United, collateralize the
              Fiber Facility.

              In connection with the funding of the Fiber Facility, Alaska
              United paid bank fees and other expenses of $2,183,000 that are
              being amortized over the life of the agreement. Through January
              1999, (the end of the construction period of the undersea fiber
              optic cable system) bank fees and costs were amortized to
              Construction in Progress. Commencing February 1999, (the month the
              fiber optic cable was placed in service) the bank fees and costs
              were amortized to amortization expense.

        (d)   On December 31, 1992, we entered into a $12,000,000 loan
              agreement ("Undersea Fiber and Equipment Loan Agreement"), of
              which approximately $9,000,000 of the proceeds were used to
              acquire capacity on the undersea fiber optic cable system linking
              Seward, Alaska and Pacific City, Oregon. Concurrently, we leased
              the capacity under a ten-year all events, take or pay, contract
              with WorldCom, who subleased the capacity back to us. The
              obligation was fully paid and the lease and sublease were
              cancelled at December 31, 1999.


                                       100                           (Continued)
<PAGE>
                                    GCI, INC.
                   Notes to Consolidated Financial Statements

        As of December 31, 2001 maturities of long-term debt were as follows
        (amounts in thousands):

                  Years ending December 31,
                  2003                                  $   45,286
                  2004                                      59,286
                  2005                                      44,286
                  2006                                      14,285
                  2007 and thereafter                      182,857
                                                         -----------
                                                        $  346,000
                                                         ===========

(6)     Income Taxes
<TABLE>
        Total income tax (expense) benefit was allocated as follows (amounts in
        thousands):
<CAPTION>
                                                                                   Years ended December 31,
                                                                                  2001        2000        1999
                                                                              ----------- ----------- ----------
                  <S>                                                        <C>             <C>         <C>
                  Net (income) loss from continuing operations               $  (4,070)      8,415       5,928
                  Cumulative effect of a change in accounting principle            ---         ---        (245)
                                                                              ----------- ----------- ----------
                                                                                (4,070)      8,415       5,683
                  Tax effect of excess stock compensation expense for
                    tax purposes over amounts recognized for financial
                    reporting purposes in Stockholders' Equity                   2,317         640         211
                                                                              ----------- ----------- ----------
                                                                             $  (1,753)      9,055       5,894
                                                                              =========== =========== ==========
</TABLE>
<TABLE>
        Income tax (expense) benefit consists of the following (amounts in
        thousands):
<CAPTION>
                                                                                   Years ended December 31,
                                                                                  2001        2000        1999
                                                                              ----------- ---------- -----------
                  <S>                                                        <C>             <C>         <C>
                  Deferred tax (expense) benefit:
                    Federal taxes                                            $  (3,115)      6,494       4,807
                    State taxes                                                   (955)      1,921         876
                                                                              ----------- ---------- -----------
                         Total tax (expense) benefit                         $  (4,070)      8,415       5,683
                                                                              =========== ========== ===========
</TABLE>
<TABLE>
        Total income tax (expense) benefit differed from the "expected" income
        tax (expense) benefit determined by applying the statutory federal
        income tax rate of 34% as follows (amounts in thousands):
<CAPTION>
                                                                                   Years ended December 31,
                                                                                  2001        2000        1999
                                                                             ------------ ---------- -----------
                  <S>                                                       <C>              <C>         <C>
                  "Expected" statutory tax (expense) benefit                $   (2,944)      7,361       5,054
                  State income taxes, net of federal benefit                      (630)      1,268         649
                  Income tax effect of goodwill amortization,
                    nondeductible expenditures and other items, net               (496)       (399)       (469)
                  Other                                                            ---         185         449
                                                                             ------------ ---------- -----------
                                                                            $   (4,070)      8,415       5,683
                                                                             ============ ========== ===========
</TABLE>


                                       101                           (Continued)
<PAGE>
                                    GCI, INC.
                   Notes to Consolidated Financial Statements

<TABLE>
        The tax effects of temporary differences that give rise to significant
        portions of the deferred tax assets and deferred tax liabilities at
        December 31, 2001 and 2000 are presented below (amounts in thousands):
<CAPTION>
                                                                                          December 31,
                                                                                      2001            2000
                                                                                  -------------- -------------
                  <S>                                                            <C>                 <C>
                  Current deferred tax assets:
                     Accounts receivable, principally due to allowance for
                       doubtful accounts                                         $    1,351             539
                     Compensated absences, accrued for financial reporting
                       purposes                                                       1,599           1,305
                     Inventory expense for financial reporting purposes in
                       excess of amounts recognized for tax purposes                  1,323             892
                     Workers compensation and self insurance health reserves,
                       principally due to accrual for financial reporting
                       purposes                                                         637             341
                     Other                                                             (220)            144
                                                                                  -------------- -------------
                       Total current deferred tax assets                         $    4,690           3,221
                                                                                  ============== =============
                  Long-term deferred tax assets:
                    Net operating loss carryforwards                             $   62,760          51,052
                    Alternative minimum tax credits                                   2,081           2,502
                    Lease expense for financial reporting purposes in excess
                       of amounts recognized for tax purposes                           ---             857
                    Deferred compensation expense for financial reporting
                       purposes in excess of amounts recognized for tax
                       purposes                                                       1,913             979
                    State income taxes                                                1,755             ---
                    Employee stock option compensation expense for financial
                       reporting purposes in excess of (less than) amounts
                       recognized for tax purposes                                      145            (579)
                    Sweepstakes award in excess of amounts recognized for tax
                       purposes                                                         188             193
                    Charitable contributions expense for financial reporting
                       purposes in excess of amounts recognized for tax
                       purposes                                                         423             315
                    Deferred loan fees for financial reporting purposes in
                       excess of amounts recognized for tax purposes                    347             ---
                    Cost of sales and services for financial reporting
                       purposes in excess of amounts recognized for tax
                       purposes                                                         402             ---
                    Other                                                               350              82
                                                                                  -------------- -------------
                       Total long-term deferred tax assets                           70,364          55,401
                                                                                  -------------- -------------
</TABLE>

                                       102                           (Continued)
<PAGE>
                                    GCI, INC.
                   Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                                      2001            2000
                                                                                  -------------- -------------
                  <S>                                                            <C>                 <C>
                  Long-term deferred tax liabilities:
                    Plant and equipment, principally due to differences in
                       depreciation                                              $   80,516          67,108
                    Amortizable assets                                               13,670           9,017
                    Costs recognized for tax purposes in excess of amounts
                       recognized for book purposes                                     891           1,319
                    Other                                                               356              14
                                                                                  -------------- -------------
                       Total gross long-term deferred tax liabilities                95,433          77,458
                                                                                  -------------- -------------
                         Net combined long-term deferred tax liabilities         $   25,069          22,057
                                                                                  ============== =============
</TABLE>
        GCI, Inc., as a wholly owned subsidiary and member of the GCI controlled
        group of corporations, files its income tax returns as part of the
        consolidated group of corporations under GCI. Accordingly, the following
        discussions of net operating loss carryforwards and income tax benefit
        reflect the consolidated group's activity and balances.

        In conjunction with the acquisition of seven Alaska cable television
        companies in 1996, we incurred a net deferred income tax liability of
        $24.4 million and acquired net operating losses totaling $57.6 million.
        We determined that approximately $20 million of the acquired net
        operating losses would not be utilized for income tax purposes, and
        elected with our December 31, 1996 income tax returns to forego
        utilization of such acquired losses under Internal Revenue Code section
        1.1502-32(b)(4). Deferred tax assets were not recorded associated with
        the foregone losses and, accordingly, no valuation allowance was
        provided. At December 31, 2001, we have (1) tax net operating loss
        carryforwards of approximately $156.1 million that will begin expiring
        in 2007 if not utilized, and (2) alternative minimum tax credit
        carryforwards of approximately $2.1 million available to offset regular
        income taxes payable in future years. The following schedule shows our
        tax net operating loss carryforwards by year of expiration (amounts in
        thousands):

                  Years ending December 31,
                    2007                              $   3,006
                    2008                                  7,509
                    2009                                 11,482
                    2010                                  8,935
                    2011                                  6,685
                    2012                                    ---
                    2018                                 19,386
                    2019                                 28,786
                    2020                                 45,400
                    2021                                 24,931
                                                       ---------
                      Total tax net operating loss
                       carryforwards                  $ 156,120
                                                       =========

        Our utilization of remaining acquired net operating loss carryforwards
        is subject to annual limitations pursuant to Internal Revenue Code
        section 382 which could reduce or defer the utilization of these losses.

        Tax benefits associated with recorded deferred tax assets are considered
        to be more likely than not realizable through future reversals of
        existing taxable temporary differences, future taxable income exclusive
        of reversing temporary differences and carryforwards, and tax planning
        strategies. The amount of deferred tax asset considered realizable,
        however, could be reduced in the near term if estimates of future
        taxable income during the carryforward period are reduced.


                                       103                           (Continued)
<PAGE>
                                    GCI, INC.
                   Notes to Consolidated Financial Statements

        The Job Creation and Worker Assistance Act of 2002 was signed into law
        on March 9, 2002 and contains several provisions that are effective for
        tax years ending in 2001, one of which relates to net operating losses.
        The Act amends IRC Section 172(b)(1) to provide, generally, that a net
        operating loss for a tax year ending in 2001 or 2002 can be carried back
        five years, rather than the two-year carryback generally allowed by
        section 172(b)(1)(A). The Act also amends IRC Section 56(d)(1) to allow
        alternative minimum tax net operating losses carried forward into tax
        years ending in 2001 or 2002 to be used without regard to the 90 percent
        alternative minimum taxable income limitation that generally applies. In
        addition, alternative minimum tax net operating losses generated in 2001
        or 2002 and carried back to an earlier year under IRC Section 172 are
        not subject to the 90 percent alternative minimum taxable income
        limitation. SFAS No. 109 states that a change in tax law or rates that
        affects deferred income taxes is recorded in the statement of operations
        in the year of enactment. Accordingly the deferred income tax effect,
        which we estimate to total approximately $2 million, will be recorded as
        a reduction of our recorded deferred tax assets in our consolidated
        balance sheet in the first quarter of 2002.

(7)     Cash Contribution from GCI
        GCI issued 20,000 shares of convertible redeemable accreting Series B
        preferred stock on April 30, 1999. Proceeds totaling $20 million (before
        payment of expenses of $88,000) were contributed to us in 1999 and were
        used for general corporate purposes, to repay outstanding indebtedness,
        and to provide additional liquidity. Our amended Senior Holdings Loan
        facilities limit use of such proceeds (see note 5(b)).

(8)     Stockholder's Equity

        Common Stock
        We were incorporated in 1997 and issued 100 shares of our no par Class A
        common stock to GCI in our initial capitalization. We received all
        ownership interests in subsidiaries previously held by GCI and proceeds
        from GCI's August 1, 1997 common stock offering. We recorded
        $206,622,000 associated with our initial capitalization. All of our
        issued and outstanding Class A common stock is owned by GCI.

        Stock Option Plan
        In December 1986, GCI adopted a Stock Option Plan (the "Option Plan") in
        order to provide a special incentive to our officers, non-employee
        directors, and employees by offering them an opportunity to acquire an
        equity interest in GCI. The Option Plan, as amended in 1999, provides
        for the grant of options for a maximum of 8,700,000 shares of GCI Class
        A common stock, subject to adjustment upon the occurrence of stock
        dividends, stock splits, mergers, consolidations or certain other
        changes in corporate structure or capitalization. If an option expires
        or terminates, the shares subject to the option will be available for
        further grants of options under the Option Plan. The Option Committee of
        GCI's Board of Directors administers the Option Plan.

        The Option Plan provides that all options granted under the Option Plan
        must expire not later than ten years after the date of grant. If at the
        time an option is granted the exercise price is less than the market
        value of the underlying common stock, the difference in these amounts at
        the time of grant is expensed ratably over the vesting period of the
        option. Options granted pursuant to the Option Plan are only exercisable
        if at the time of exercise the option holder is our employee,
        non-employee director, or a consultant or advisor working on our behalf.

        Our employees and employees of our subsidiaries are eligible to
        participate in the Option Plan. Expenses associated with the grant of
        options to employees are recorded pursuant to the provisions of APB
        Number 25 and Interpretive Responses 1 and 2 of SAB Topic 1B1, which
        amounts were not material in 2001, 2000 or 1999. We believe the
        allocation method used is reasonable.


                                       104                           (Continued)
<PAGE>
                                    GCI, INC.
                   Notes to Consolidated Financial Statements

<TABLE>
        Information for the years 1999, 2000 and 2001 with respect to the Option
        Plan follows:
<CAPTION>
                                                                                        Weighted
                                                                                        Average             Range of
                                                                      Shares         Exercise Price      Exercise Prices
                                                                  -------------     ---------------    ------------------
               <S>                                                 <C>                   <C>               <C>
                 Outstanding at December 31, 1998                   4,070,334            $4.95              $0.01-$7.63

               Granted                                                865,796            $4.57              $3.25-$6.00
               Exercised                                             (416,365)           $3.83              $0.01-$6.00
               Forfeited                                             (165,050)           $6.03              $0.01-$7.63
                                                                  -------------
                 Outstanding at December 31, 1999                   4,354,715            $4.94              $0.01-$7.63

               Granted                                              1,970,599            $5.96              $3.00-$7.50
               Exercised                                             (513,289)           $2.37              $0.01-$6.50
               Forfeited                                             (398,460)           $5.18              $0.01-$7.63
                                                                  -------------
                 Outstanding at December 31, 2000                   5,413,565            $5.54              $0.01-$7.63

               Granted                                                755,277            $7.34             $2.84-$11.25
               Exercised                                           (1,044,511)           $4.01              $0.01-$7.50
               Forfeited                                              (24,200)           $6.53             $6.00-$10.98
                                                                  -------------
                 Outstanding at December 31, 2001                   5,100,131            $6.11             $0.01-$11.25
                                                                  =============

                 Available for grant at December 31, 2001             659,280
                                                                  =============
</TABLE>
        Stock Options Not Pursuant to a Plan
        In June 1989, an officer was granted options to acquire 100,000 GCI
        Class A common shares at $0.75 per share. The options vested in equal
        annual increments over a five-year period, expiring in February 1999.
        Options to acquire 50,000 shares were exercised during 1998, and options
        to acquire the remaining 50,000 shares were exercised in 1999 before
        their expiration.

        Stock Warrants Not Pursuant to a Plan
        We entered into a stock warrant agreement in December 1998 with Prime II
        Management, L.P. ("PMLP"). In lieu of cash payments for services from
        January 1, 1998 to January 31, 1999 under the amended Management
        Agreement, PMLP agreed to accept a stock warrant which provided for the
        purchase of 425,000 shares of GCI Class A common stock, with immediate
        vesting at the stock warrant date and an exercise price of $3.25 per
        share. The fair value of the stock warrant was $750,000. The stock
        warrant was exercised in 2000.

        We entered into a stock warrant agreement in exchange for services in
        December 1998 with certain of our legal counsel which provides for the
        purchase of 16,667 shares of GCI Class A common stock, vesting in
        December 1999, with an exercise price of $3.00 per share, and expiring
        December 2003. The fair value of the stock warrant was approximately
        $23,000.

        We entered into a stock warrant agreement in exchange for services in
        June 1999 with certain of our legal counsel which provides for the
        purchase of 25,000 shares of GCI Class A common stock, vesting through
        December 2001, with an exercise price of $3.00 per share, and expiring
        December 2003. The fair value of the stock warrant was approximately
        $94,000.

        SFAS 123 Disclosures
        Our stock options and warrants expire at various dates through October
        2011. At December 31, 2001, 2000, and 1999, the weighted-average
        remaining contractual lives of options outstanding were 6.95, 6.88 and
        6.14 years, respectively.


                                       105                           (Continued)
<PAGE>
                                    GCI, INC.
                   Notes to Consolidated Financial Statements

        At December 31, 2001, 2000, and 1999, the number of exercisable shares
        under option was 2,837,361, 2,350,334 and 2,509,756, respectively, and
        the weighted-average exercise price of those options was $5.75, $4.78
        and $3.91, respectively.

        The per share weighted-average fair value of stock options granted
        during 2001 was $6.99 per share for compensatory and $10.58 for
        non-compensatory options; for 2000 was $4.07 per share for compensatory
        and $2.71 for non-compensatory options; and for 1999 was $4.14 per share
        for compensatory and $2.85 for non-compensatory options. The amounts
        were determined as of the options' grant dates using a qualified
        Black-Scholes option-pricing model with the following weighted-average
        assumptions: 2001 - risk-free interest rate of 4.664%, volatility of
        0.6178 and an expected life of 6.67 years; 2000 - risk-free interest
        rate of 4.987%, volatility of 0.6203 and an expected life of 5.82 years;
        and 1999 - risk-free interest rate of 6.66%, volatility of 0.6455 and an
        expected life of 5.7 years.
<TABLE>
        Summary information about our stock options and warrants outstanding at
        December 31, 2001:
<CAPTION>
                            Options and Warrants Outstanding                          Options and Warrants Exercisable
          -----------------------------------------------------------------------  --------------------------------------
                                                  Weighted
                                                   Average
                                     Number        Remaining         Weighted            Number
           Range of Exercise     outstanding as   Contractual        Average         Exercisable as   Weighted Average
                 Prices            of 12/31/01       Life         Exercise Price      of 12/31/01      Exercise Price
          -----------------------------------------------------------------------  --------------------------------------
             <S>                   <C>               <C>              <C>             <C>                  <C>
             $0.01-$4.00             872,646         5.07              $3.48            744,199            $3.54
             $4.06-$5.69             438,804         7.57              $4.97            176,800            $4.92
             $6.00-$6.00             608,283         6.57              $6.00            392,989            $6.00
             $6.13-$6.13              50,000         8.95              $6.13             10,000            $6.13
             $6.50-$6.50           1,824,600         7.76              $6.50            656,714            $6.50
             $6.63-$6.94              80,000         6.08              $6.80             45,333            $6.81
             $7.00-$7.00             778,022         6.63              $7.00            428,788            $7.00
             $7.25-$7.50             544,750         7.00              $7.41            346,000            $7.36
             $7.63-$10.98            145,693         8.31              $8.88             36,538            $7.63
             $11.25-$11.25            50,000         9.50             $11.25                ---            $ ---
                                -------------------------------------------------  --------------------------------------
             $0.01-$11.25          5,392,798         6.95              $6.10          2,837,361            $5.75
                                =================================================  ======================================
</TABLE>
        Had compensation cost for our 2001, 2000 and 1999 grants for stock-based
        compensation plans been determined consistent with SFAS 123, our net
        income (loss) would approximate the pro forma amounts below (in
        thousands):
                                          As Reported        Pro Forma
                                        ---------------- -------------------
          2001:
          Net income                      $   4,589          $   1,578

          2000:
          Net loss                        $ (13,234)         $ (15,646)

          1999:
          Net loss                        $  (9,527)         $ (11,714)

        Pro forma net income (loss) reflects options granted in 1996 through
        2001. Therefore, the full impact of calculating compensation cost for
        stock options under SFAS 123 is not reflected in the pro forma net
        income amounts presented above since compensation cost is reflected over
        the options'


                                       106                           (Continued)
<PAGE>
                                    GCI, INC.
                   Notes to Consolidated Financial Statements

        vesting period of generally 5 years and compensation cost for options
        granted prior to January 1, 1996 is not considered.

        Employee Stock Purchase Plan
        In December 1986, GCI adopted an Employee Stock Purchase Plan ("Plan")
        qualified under Section 401 of the Internal Revenue Code of 1986
        ("Code"). The Plan provides for acquisition of GCI's Class A and Class B
        common stock at market value. The Plan permits each employee of GCI,
        Inc. and affiliated companies who has completed one year of service to
        elect to participate in the Plan. Eligible employees may elect to reduce
        their compensation in any even dollar amount up to 10 percent of such
        compensation up to a maximum of $10,500 in 2001 and $11,000 in 2002;
        they may contribute up to 10 percent of their compensation with
        after-tax dollars, or they may elect a combination of salary reductions
        and after-tax contributions.

        We may match employee salary reductions and after tax contributions in
        any amount, elected by GCI's Board of Directors each year, but not more
        than 10 percent of any one employee's compensation will be matched in
        any year. For the years ended December 31, 2001, 2000 and 1999 the
        combination of salary reductions, after tax contributions and matching
        contributions could not exceed 25 percent of any employee's compensation
        (determined after salary reduction) for any year. For the year ended
        December 31, 2002 the combination of salary reductions, after tax
        contributions and matching contributions cannot exceed 100 percent of
        any employee's compensation up to a maximum of $40,000 (determined after
        salary reduction) for any year. Matching contributions vest over six
        years. Employee contributions may be invested in GCI common stock,
        WorldCom common stock, AT&T common stock or various mutual funds. TCI
        common stock was previously offered to employees as an investment choice
        however TCI's merger with AT&T in March 1999 resulted in the conversion
        of TCI shares of common stock into AT&T shares of common stock.

        Employee contributions invested in GCI common stock receive up to 100%
        matching, as determined by GCI's Board of Directors each year, in GCI
        common stock. Employee contributions invested in other than GCI common
        stock receive up to 50% matching, as determined by GCI's Board of
        Directors each year, in GCI common stock. Our matching contributions
        allocated to participant accounts totaled approximately $3,194,000,
        $2,773,000 and $2,448,000 for the years ended December 31, 2001, 2000,
        and 1999, respectively. The Plan may, at its discretion, purchase shares
        of GCI common stock from GCI at market value or may purchase GCI's
        common stock on the open market. In 1999 and 2000 we funded our
        employer-matching contributions through GCI's issuance of new shares of
        common stock rather than market purchases. In 2001 we funded our
        employer-matching contributions through the purchase of shares on the
        open market.

        Effective July 1, 2000, we transferred all of the Plan assets to
        Merrill, Lynch, Pierce, Fenner and Smith, Incorporated who became the
        Plan's new recordkeeper.

        We are exploring opportunities to allow our employees to diversify
        certain of their holdings of GCI common stock in the Plan beginning in
        2002.

(9)     Fiber Optic Cable System
        In early February 1999 we completed construction of our fiber optic
        cable system with commercial services commencing at that time. The
        cities of Anchorage, Juneau and Seattle are connected via a subsea
        route. Subsea and terrestrial connections extended the fiber optic cable
        to Fairbanks via Whittier and Valdez. The total system cost was
        approximately $125 million. Portions of the fiber optic system capacity
        have been sold (see note 1(m)).


                                       107                           (Continued)
<PAGE>
                                    GCI, INC.
                   Notes to Consolidated Financial Statements

(10)    Industry Segments Data
        Our reportable segments are business units that offer different
        products. The reportable segments are each managed separately because
        they manage and offer distinct products with different production and
        delivery processes.

        We have four reportable segments as follows:

         Long-distance services. We offer a full range of common-carrier
         long-distance services to commercial, government, other
         telecommunications companies and residential customers, through our
         networks of fiber optic cables, digital microwave, and fixed and
         transportable satellite earth stations and our SchoolAccess(TM)
         offering to rural school districts and a similar offering to rural
         hospitals and health clinics.

         Cable services. We provide cable television services to residential,
         commercial and government users in the State of Alaska. Our cable
         systems serve 31 communities and areas in Alaska, including the state's
         three largest urban areas, Anchorage, Fairbanks and Juneau. We offer
         digital cable television services in Anchorage, Fairbanks, Juneau and
         Kenai and retail cable modem service (through our Internet services
         segment) in Anchorage, Fairbanks, Juneau and several other communities
         in Alaska. We plan to expand our product offerings as plant upgrades
         are completed in other communities in Alaska.

         Local access services. We offer facilities based competitive local
         exchange services in Anchorage and Fairbanks and plan to provide
         similar competitive local exchange services in Juneau during the first
         quarter of 2002 and in other locations pending regulatory approval.

         Internet services. We offer wholesale and retail Internet services. We
         offer cable modem service in Anchorage, Fairbanks, Juneau and several
         other communities in Alaska and plan to provide cable modem service in
         other areas in 2002. Our undersea fiber optic cable allows us to offer
         enhanced services with high-bandwidth requirements.

        Included in the "All Other" category in the tables that follow are our
        managed services, product sales, cellular telephone services, and
        management services for Kanas, a related party (see note 12). None of
        these business units has ever met the quantitative thresholds for
        determining reportable segments. Also included in the All Other category
        are corporate related expenses including marketing, customer service,
        management information systems, accounting, legal and regulatory, human
        resources and other general and administrative expenses. In 1999 and
        2001, the All Other category includes revenues and costs associated with
        sales of undersea fiber optic cable system capacity (see note 1(m)).

        We evaluate performance and allocate resources based on (1) earnings or
        loss from operations before depreciation, amortization, net interest
        expense and income taxes, and (2) operating income or loss. The
        accounting policies of the reportable segments are the same as those
        described in the summary of significant accounting policies in note 1.
        Intersegment sales are recorded at cost plus an agreed upon intercompany
        profit.

        We earn all revenues through sales of services and products within the
        United States of America. All of our long-lived assets are located
        within the United States of America.


                                       108                           (Continued)
<PAGE>
                                    GCI, INC.
                   Notes to Consolidated Financial Statements

<TABLE>
        Summarized financial information for our reportable segments for the
        years ended December 31, 2001, 2000 and 1999 follows (amounts in
        thousands):
<CAPTION>
                                                       Reportable Segments
                                     --------------------------------------------------------
                                        Long-                 Local                 Total
                                       Distance    Cable      Access  Internet    Reportable      All
                                       Services   Services   Services Services     Segments      Other     Total
                                     ------------------------------------------------------------------------------
        <S>                           <C>           <C>       <C>      <C>         <C>           <C>       <C>
                   2001
        Revenues:
         Intersegment                 $   20,239     1,650     8,716    6,110       36,715          355     37,070
         External                        200,694    76,554    25,229   11,996      314,473       42,785    357,258
                                     ------------------------------------------------------------------------------
            Total revenues               220,933    78,204    33,945   18,106      351,188       43,140    394,328
                                     ------------------------------------------------------------------------------
        Cost of sales and services:
         Intersegment                     16,739       ---     1,586   17,345       35,670          461     36,131
         External                         73,257    20,829    14,037    4,749      112,872       26,921    139,793
                                     ------------------------------------------------------------------------------
            Total cost of sales and
            services                      89,996    20,829    15,623   22,094      148,542       27,382    175,924
                                     ------------------------------------------------------------------------------
        Contribution:
         Intersegment                      3,500     1,650     7,130  (11,235)       1,045         (106)       939
         External                        127,437    55,725    11,192    7,247      201,601       15,864    217,465
                                     ------------------------------------------------------------------------------
            Total contribution           130,937    57,375    18,322   (3,988)     202,646       15,758    218,404

        Selling, general and
         administrative expenses          34,218    19,528     9,122    5,698       68,566       52,249    120,815
                                     ------------------------------------------------------------------------------
        Earnings (loss) from
         operations before
         depreciation, amortization,
         net interest expense and
         income taxes                     96,719    37,847     9,200   (9,686)     134,080      (36,491)    97,589

        Depreciation and amortization     23,301    20,704     3,530    2,879       50,414        6,663     57,077
                                     ------------------------------------------------------------------------------
        Operating income (loss)       $   73,418    17,143     5,670  (12,565)      83,666      (43,154)    40,512
                                     ==============================================================================

        Total assets                  $  294,175   321,722    30,040   27,363      673,300       61,379    734,679
                                     ==============================================================================

        Capital expenditures          $   27,035    16,034     8,085    6,516       57,670       10,311     67,981
                                     ==============================================================================

                   2000
        Revenues:
         Intersegment                 $   15,750     1,493     6,675    3,173       27,091          123     27,214
         External                        182,676    67,898    20,205    8,425      279,204       13,401    292,605
                                     ------------------------------------------------------------------------------
            Total revenues               198,426    69,391    26,880   11,598      306,295       13,524    319,819
                                     ------------------------------------------------------------------------------
        Cost of sales and services:
         Intersegment                     13,554       ---     1,401   11,692       26,647          123     26,770
         External                         76,568    17,821    10,768    4,389      109,546       10,166    119,712
                                     ------------------------------------------------------------------------------
            Total cost of sales and
             services                     90,122    17,821    12,169   16,081      136,193       10,289    146,482
                                     ------------------------------------------------------------------------------
        Contribution:

         Intersegment                      2,196     1,493     5,274   (8,519)         444          ---        444
         External                        106,108    50,077     9,437    4,036      169,658        3,235    172,893
                                     ------------------------------------------------------------------------------
            Total contribution           108,304    51,570    14,711   (4,483)     170,102        3,235    173,337
</TABLE>


                                       109                           (Continued)
<PAGE>
                                    GCI, INC.
                   Notes to Consolidated Financial Statements


<TABLE>
<CAPTION>
                                                       Reportable Segments
                                     --------------------------------------------------------
                                        Long-                 Local                 Total
                                       Distance    Cable      Access  Internet    Reportable      All
                                       Services   Services   Services Services     Segments      Other     Total
                                     ------------------------------------------------------------------------------
        <S>                           <C>          <C>        <C>     <C>          <C>          <C>        <C>
        Selling, general and
         administrative expenses      $   31,139    17,997     9,343    5,090       63,569       41,349    104,918
                                     ------------------------------------------------------------------------------
        Earnings (loss) from
         operations before
         depreciation, amortization,
         net interest expense and
         income taxes                     77,165    33,573     5,368   (9,573)     106,533      (38,114)    68,419

        Depreciation and amortization     20,817    18,942     4,375    1,915       46,049        5,923     51,972
                                     ------------------------------------------------------------------------------
                                                                                                           104,918
        Operating income (loss)       $   56,348    14,631       993  (11,488)      60,484      (44,037)    16,447
                                     ==============================================================================

        Total assets                  $  257,913   304,094    24,827   22,768      609,602       69,405    679,007
                                     ==============================================================================

        Capital expenditures          $   15,577    11,661     3,430    7,902       38,570       10,326     48,896
                                     ==============================================================================

                   1999
        Revenues:
         Intersegment                 $    5,243     1,942     3,937      207       11,329          ---     11,329
         External                        164,043    61,146    15,543    4,799      245,531       33,648    279,179
                                     ------------------------------------------------------------------------------
            Total revenues               169,286    63,088    19,480    5,006      256,860       33,648    290,508
                                     ------------------------------------------------------------------------------
        Cost of sales and services:
         Intersegment                      3,430       ---     1,255    6,094       10,779          ---     10,779
         External                         80,970    15,478     7,892    3,151      107,491       14,976    122,467
                                     ------------------------------------------------------------------------------
            Total cost of sales and
             services                     84,400    15,478     9,147    9,245      118,270       14,976    133,246
                                     ------------------------------------------------------------------------------
        Contribution:
         Intersegment                      1,813     1,942     2,682   (5,887)         550          ---        550
         External                         83,073    45,668     7,651    1,648      138,040       18,672    156,712
                                     ------------------------------------------------------------------------------
            Total contribution            84,886    47,610    10,333   (4,239)     138,590       18,672    157,262

        Selling, general and
         administrative expenses          22,872    15,092     9,269    4,448       51,681       46,601     98,282
                                     ------------------------------------------------------------------------------
        Earnings (loss) from
         operations before
         depreciation, amortization,
         net interest expense and
         income taxes                     62,014    32,518     1,064   (8,687)      86,909      (27,929)    58,980

        Depreciation and amortization     16,270    17,626     3,281    1,128       38,305        4,375     42,680
                                     ------------------------------------------------------------------------------
                                                                                                           104,918
        Operating income (loss)       $   45,744    14,892    (2,217)  (9,815)      48,604      (32,304)    16,300
                                     ==============================================================================

        Total assets                  $  223,941   310,421    28,364   16,176      578,902       64,249    643,151
                                     ==============================================================================

        Capital expenditures          $   17,626     7,186     3,207    5,991       34,010        2,563     36,573
                                     ==============================================================================
</TABLE>
        Long-distance services, local access services and Internet services are
        billed utilizing a unified accounts receivable system and are not
        reported separately by business segment. All such accounts receivable
        are included above in the long-distance services segment for all periods
        presented.


                                       110                           (Continued)
<PAGE>
                                    GCI, INC.
                   Notes to Consolidated Financial Statements

<TABLE>
        A reconciliation of reportable segment revenues to consolidated revenues
        follows (amounts in thousands):
<CAPTION>
         Years ended December 31,                                                 2001            2000           1999
                                                                            --------------- --------------- --------------
         <S>                                                               <C>                  <C>            <C>
         Reportable segment revenues                                       $    351,188         306,295        256,860
         Plus All Other revenues                                                 43,140          13,524         33,648
         Less intersegment revenues eliminated in consolidation                  37,070          27,214         11,329
                                                                            --------------- --------------- --------------
              Consolidated revenues                                        $    357,258         292,605        279,179
                                                                            =============== =============== ==============
</TABLE>
<TABLE>
        A reconciliation of reportable segment earnings from operations before
        depreciation, amortization, net interest expense, income taxes and
        cumulative effect of a change in accounting principle to consolidated
        net income (loss) before income taxes and cumulative effect of a change
        in accounting principle follows (amounts in thousands):
<CAPTION>
         Years ended December 31,                                                 2001            2000           1999
                                                                            -------------- ---------------- --------------
         <S>                                                               <C>                  <C>            <C>
         Reportable segment earnings from operations before depreciation,
           amortization, net interest expense, income taxes and cumulative
           effect of a change in accounting principle                      $    134,080         106,533         86,909
         Less All Other loss from operations before depreciation,
           amortization, net interest expense, income taxes and
           cumulative effect of a change in accounting principle                 36,491          38,114         27,929
         Less intersegment contribution eliminated in consolidation                 939             444            550
                                                                            -------------- ---------------- --------------
              Consolidated earnings from operations before depreciation,
                amortization, net interest expense, income taxes and
                cumulative effect of a change in accounting principle            96,650          67,975         58,430
         Less depreciation and amortization expense                              57,077          51,972         42,680
                                                                            -------------- ---------------- --------------
              Consolidated operating income                                      39,573          16,003         15,750
         Less interest expense, net                                              30,914          38,143         30,616
         Plus gain on sale of property and equipment                                ---             491            ---
                                                                            -------------- ---------------- --------------
              Consolidated net income (loss) before income taxes and
                cumulative effect of a change in accounting principle      $      8,659         (21,649)       (14,866)
                                                                            ============== ================ ==============
</TABLE>

                                       111                           (Continued)
<PAGE>
                                    GCI, INC.
                   Notes to Consolidated Financial Statements

<TABLE>
        A reconciliation of reportable segment operating income to consolidated
        net income (loss) before income taxes and cumulative effect of a change
        in accounting principle follows (amounts in thousands):
<CAPTION>
         Years ended December 31,                                                 2001            2000           1999
                                                                            --------------- --------------- --------------
         <S>                                                               <C>                  <C>            <C>
         Reportable segment operating income                               $     83,666          60,484         48,604
         Less All Other operating loss                                           43,154          44,037         32,304
         Less intersegment contribution eliminated in consolidation                 939             444            550
                                                                            --------------- --------------- --------------
              Consolidated operating income                                      39,573          16,003         15,750
         Less interest expense, net                                              30,914          38,143         30,616
         Plus gain on sale of property and equipment                                ---             491            ---
                                                                            --------------- --------------- --------------
              Consolidated net income (loss) before income taxes and
                cumulative effect of a change in accounting principle      $      8,659         (21,649)       (14,866)
                                                                            =============== =============== ==============
</TABLE>
        We provide long-distance services to WorldCom (see note 12) and Sprint,
        major customers. We earned revenues from Sprint, net of discounts,
        included in the long-distance segment, totaling approximately
        $36,899,000 for the year ended December 31, 2001. As a percentage of
        total revenues, Sprint revenues totaled 10.3% for the year ended
        December 31, 2001. Sprint was not a major customer for segment
        disclosure purposes for the years ended December 31, 2000 and 1999.

(11)    Financial Instruments
<TABLE>
        Fair Value of Financial Instruments The fair value of a financial
        instrument is the amount at which the instrument could be exchanged in a
        current transaction between willing parties. The carrying amounts and
        estimated fair values of our financial instruments at December 31, 2001
        and 2000 follows (amounts in thousands):
<CAPTION>
                                                     2001                      2000
                                           ------------------------- -------------------------
                                             Carrying      Fair        Carrying      Fair
                                              Amount       Value        Amount       Value
                                           ------------------------- -------------------------
         <S>                                <C>           <C>          <C>          <C>
         Short-term assets                  $  66,747      66,747       53,589       53,589
         Notes receivable with related
            parties                         $   3,246       3,246        3,235        3,235
         Short-term liabilities             $  47,172      47,172       41,312       41,312
          Long-term debt and capital lease
            obligations                     $ 397,096     411,712      381,496      396,976
          Fair value hedge asset            $   1,261       1,261          ---          ---
          Cash flow hedge liability         $     217         217          ---          ---
</TABLE>

       The following methods and assumptions were used to estimate fair values:

           Short-term assets: The fair values of cash and cash equivalents, net
           receivables and current portion of notes receivable with related
           parties approximate their carrying values due to the short-term
           nature of these financial instruments.

           Notes receivable with related parties: The carrying value of notes
           receivable with related parties is estimated to approximate fair
           values. Although there are no quoted market prices available for
           these


                                       112                           (Continued)
<PAGE>
                                    GCI, INC.
                   Notes to Consolidated Financial Statements

           instruments, the fair value estimates were based on the change in
           interest rates and risk related interest rate spreads since the note
           origination dates.

           Short-term liabilities: The fair values of current maturities of
           long-term debt and capital lease obligations, accounts payable,
           accrued interest, and subscriber deposits approximate their carrying
           value due to the short-term nature of these financial instruments.

           Long-term debt and capital lease obligations: The fair value of
           long-term debt is based primarily on discounting the future cash
           flows of each instrument at rates currently offered to us for similar
           debt instruments of comparable maturities by our bankers.

        Derivative Instruments and Hedging Activities
        Effective January 3, 2001, we entered into an interest rate swap
        agreement to convert $50 million of 9.75% fixed rate debt to a variable
        interest rate equal to the 90 day Libor rate plus 334 basis points.
        Terms of the interest rate swap mirror the underlying fixed rate debt,
        except the interest rate swap extends through August 1, 2007 and is
        cancelable at the option of the counterparty beginning August 1, 2002.
        We entered into the transaction to take advantage of an anticipated
        decline in interest rates. Under SFAS No. 133, the interest rate swap is
        accounted for as a fair value hedge. The differential to be paid or
        received is recorded as an increase or decrease in Interest Expense in
        the Consolidated Statements of Operations in the period in which it is
        recognized. During the year ended December 31, 2001 we recognized
        approximately $1.1 million as a decrease to interest expense. As of
        December 31, 2001, the amount of change in the fair value of debt
        approximates the change in the fair value of the interest rate swap.

        Effective September 21, 2001, we entered into an interest rate swap
        agreement to convert $25 million of variable interest rate debt equal to
        the 90 day Libor rate plus 334 basis points to 3.98% fixed rate debt
        plus applicable margins. Terms of the interest rate swap mirror the
        underlying variable rate debt, except the interest rate swap terminates
        on September 21, 2004. We entered into the transaction to help insulate
        us from future increases in interest rates. Under SFAS No. 133, the
        interest rate swap is accounted for as a cash flow hedge. The initial
        fair value of the interest rate swap was recorded in other comprehensive
        income in the consolidated statements of stockholder's equity. The
        change in the fair value of the interest rate swap net of income taxes
        will be recorded as an increase or decrease in other comprehensive
        income in the Consolidated Statements of Stockholder's Equity in the
        period in which it is recognized. The interest rate swap fair value of
        $13,000 ($8,000 after deducting income taxes) was recorded in other
        comprehensive income in the Consolidated Statements of Stockholder's
        Equity during the year ended December 31, 2001. The accrual of interest
        income or expense is recognized in Interest Expense in the Consolidated
        Statements of Operations. During the year ended December 31, 2001 we
        recognized approximately $112,000 in incremental interest expense
        resulting from this transaction.

(12)    Related Party Transactions
        We earned revenues from WorldCom, a major shareholder of GCI, net of
        discounts, of approximately $58,225,000, $53,065,000 and $43,676,000 for
        the years ended December 31, 2001, 2000 and 1999, respectively. As a
        percentage of total revenues, WorldCom revenues totaled 16.3%, 18.1% and
        15.6% for the years ended December 31, 2001, 2000 and 1999,
        respectively. Amounts receivable, net of accounts payable, from WorldCom
        totaled $15,379,000 and $10,453,000 at December 31, 2001 and 2000,
        respectively. We paid WorldCom for distribution of our traffic in the
        lower 49 states amounts totaling approximately $7,289,000, $9,124,000
        and $10,623,000 for the years ended December 31, 2001, 2000 and 1999,
        respectively.

        We entered into a long-term capital lease agreement in 1991 with the
        wife of our president for property occupied by us. We guarantee the
        lease. The lease term is 15 years with monthly payments increasing in
        $800 increments at each two-year anniversary of the lease. Monthly lease
        costs will increase to $19,200


                                       113                           (Continued)
<PAGE>
                                    GCI, INC.
                   Notes to Consolidated Financial Statements

        effective October 2003. Since the property was not sold prior to the
        tenth year of the lease, the owner is required to pay us the greater of
        one-half of the appreciated value of the property over $900,000, or
        $500,000. Accordingly, we have recognized a $500,000 account receivable
        in Employee and Other Receivables and a corresponding increase in
        Obligations Under Capital Lease Due to Related Party at December 31,
        2001. The account receivable was paid in the first quarter of 2002. The
        leased asset was capitalized in 1991 at the owner's cost of $900,000 and
        the related obligation was recorded in the accompanying financial
        statements.

        GCI Cable, Inc. ("GCI Cable") was a party to a Management Agreement with
        PMLP that began in 1996. We mutually agreed to terminate the agreement
        in 2000. In connection with the agreement, GCI Cable received services
        valued at approximately $239,000 and $334,000 including reimbursable
        expenses for the years ended December 31, 2000 and 1999, respectively.

        During the six-month period ended June 30, 2001 and the year ended
        December 31, 2000 we provided management services to Kanas. Effective
        June 30, 2001 we completed the acquisition of WorldCom's 85% controlling
        interest in Kanas (see note 3). During the six-month period ended June
        30, 2001 and the year ended December 31, 2000 we earned revenues of
        approximately $618,000 and $690,000, respectively, for management
        services and long-distance services provided to Kanas. We paid
        approximately $372,000 and $744,000 to Kanas for the lease and
        maintenance of fiber optic cable capacity during the six-month period
        ended June 30, 2001 and the year ended December 31, 2000, respectively.
        We advanced approximately $4.9 million and $3.0 million to Kanas to
        partially fund its operations during the six-month period ended June 30,
        2001 and the year ended December 31, 2000, respectively. Accounts
        receivable from Kanas were approximately $3.7 million at December 31,
        2000 and were classified as Other Assets in the Consolidated Balance
        Sheets at December 31, 2000.

        In January 2001 we entered into an aircraft operating lease agreement
        with a company owned by GCI's president. The lease is month-to-month,
        may be terminated at any time upon one hundred and twenty days written
        notice, and contains a monthly lease rate of $40,000. Upon signing the
        lease, the lessor was granted an option to purchase 250,000 shares of
        GCI Class A common stock at $6.50 per share. At December 31, 2001
        204,333 shares under the option agreement are exercisable, the remaining
        45,667 shares become exercisable at a rate of approximately 11,000 per
        month through April 2002. We paid a deposit of $1.5 million in
        connection with the lease. The deposit will be repaid to us upon the
        earlier of (1) thirty-six months from the initial date of the lease, (2)
        six months after the agreement terminates, or (3) nine months after the
        date of a termination notice.

 (13)   Commitments and Contingencies

        Leases
        Operating Leases as Lessee. We lease business offices, have entered into
        site lease agreements and use satellite transponder capacity and certain
        equipment pursuant to operating lease arrangements. Rental costs under
        such arrangements amounted to approximately $9,292,000, $8,152,000 and
        $13,678,000 for the years ended December 31, 2001, 2000 and 1999,
        respectively.

        Satellite Transponder Capacity Capital Lease. We lease satellite
        transponder capacity through a capital lease arrangement with a leasing
        company. The capital lease was entered into in March 2000. The effective
        term of the lease is nine years from the closing date. The capital lease
        includes certain covenants requiring maintenance of specific levels of
        operating cash flow to indebtedness and limitations on additional
        indebtedness. We were in compliance with all covenants during the year
        ending December 31, 2001.

        We began operating the satellite transponders on April 1, 2000. The
        satellite transponders are recorded at a cost of $48.2 million and are
        being depreciated over nine years with a remaining residual value of
        $14.3


                                       114                           (Continued)
<PAGE>
                                    GCI, INC.
                   Notes to Consolidated Financial Statements

        million at December 31, 2001. At December 31, 2001 and 2000 $45.9
        million and $47.6 million, respectively, was financed under this capital
        lease.
<TABLE>
        A summary of future minimum lease payments for all leases follows
        (amounts in thousands):
<CAPTION>
           Years ending December 31:                                           Operating      Capital
                                                                              ------------ -------------
             <S>                                                             <C>          <C>
             2002                                                            $    8,692         6,771
             2003                                                                 7,393         6,673
             2004                                                                 5,518         8,632
             2005                                                                 4,994        10,426
             2006                                                                 3,378         9,868
             2007 and thereafter                                                 10,369        34,250
                                                                              ------------ -------------
               Total minimum lease payments                                  $   40,344        76,620
                                                                              ============
               Less amount representing interest                                              (29,338)
               Less current maturities of obligations under capital
                 leases                                                                        (1,646)
                                                                                           -------------
               Subtotal - long-term obligations under capital leases                           45,636
               Less long-term obligations under capital leases due to
                 related party, excluding current maturities                                     (620)
                                                                                           -------------
                   Long-term obligations under capital leases, excluding
                      related party, excluding current maturities                         $    45,016
                                                                                           =============
</TABLE>
        The leases generally provide that we pay the taxes, insurance and
        maintenance expenses related to the leased assets. We expect that in the
        normal course of business leases that expire will be renewed or replaced
        by leases on other properties.

        Operating Leases as Lessor. In 1999 we signed agreements with a large
        commercial customer for the lease of DS3 circuits on Alaska United
        facilities within Alaska, and between Alaska and the lower 48 states.
        The lease agreements were for three years with renewal options. One
        lease was canceled in January 2002, approximately two months before its
        expiration. We do not expect that the remaining two leases will be
        renewed.

        In 2000 we signed additional agreements with WorldCom (see note 12) for
        the lease of DS3 circuits within Alaska, and between Alaska and the
        lower 48 states. The lease agreements are for five years with no renewal
        options.

        A summary of minimum future operating lease rentals follows (amounts in
        thousands):

           Years ending December 31,
             2002                                  $   4,513
             2003                                      3,984
             2004                                      3,984
             2005                                      3,984
                                                    ---------
              Total minimum lease rentals          $  16,465
                                                    =========

        Telecommunication Services Agreement
        We lease a portion of our 800-mile fiber optic system capacity that
        extends from Prudhoe Bay to Valdez via Fairbanks, and provide management
        and maintenance services for this capacity to a customer. The
        telecommunications service agreement is for fifteen years and may be
        extended for up to two successive three-year periods and, upon
        expiration of the extensions, one additional year.


                                       115                           (Continued)
<PAGE>
                                    GCI, INC.
                   Notes to Consolidated Financial Statements

        A summary of minimum future service revenues, assuming the agreement is
        not terminated pursuant to contract provisions, follows (amounts in
        thousands):

          Years ending December 31,
          2002                                   $   7,620
          2003                                       7,620
          2004                                       7,620
          2005                                       7,620
          2006                                       7,620
          2007 and thereafter                       72,087
                                                  -----------
          Total minimum future service revenues  $ 110,187
                                                  ===========

        In December 2001 we signed an additional agreement with our customer in
        which we agreed to, amongst other things, upgrade the 800-mile fiber
        optic system, install multiple earth stations, and potentially provide
        other services.

        Deferred Compensation Plan
        During 1995, we adopted a non-qualified, unfunded deferred compensation
        plan to provide a means by which certain employees may elect to defer
        receipt of designated percentages or amounts of their compensation and
        to provide a means for certain other deferrals of compensation. We may
        contribute matching deferrals at a rate selected by us. Participants
        immediately vest in all elective deferrals and all income and gain
        attributable thereto. Matching contributions and all income and gain
        attributable thereto vest over a six-year period. Participants may elect
        to be paid in either a single lump sum payment or annual installments
        over a period not to exceed 10 years. Vested balances are payable upon
        termination of employment, unforeseen emergencies, death and total
        disability. Participants are general creditors of us with respect to
        deferred compensation plan benefits. Compensation deferred pursuant to
        the plan totaled approximately $39,000, $0 and $60,000 for the years
        ended December 31, 2001, 2000 and 1999, respectively.

        Self-Insurance
        We are self-insured for losses and liabilities related primarily to
        health and welfare claims up to predetermined amounts above which third
        party insurance applies. A reserve of $1.5 million and $660,000 was
        recorded at December 31, 2001 and 2000, respectively, to cover estimated
        reported losses, estimated unreported losses based on past experience
        modified for current trends, and estimated expenses for investigating
        and settling claims. Actual losses will vary from the recorded reserve.
        While we use what we believe is pertinent information and factors in
        determining the amount of reserves, future additions to the reserves may
        be necessary due to changes in the information and factors used.

        We are self-insured for damage or loss to certain of our transmission
        facilities, including our buried, under sea, and above-ground
        transmission lines. If we become subject to substantial uninsured
        liabilities due to damage or loss to such facilities, our financial
        position, results of operations or liquidity may be adversely affected.

        Litigation and Disputes
        We are involved in various lawsuits, billing disputes, legal proceedings
        and regulatory matters that have arisen in the normal course of
        business. While the ultimate results of these items cannot be predicted
        with certainty, we do not expect at this time the resolution of them to
        have a material adverse effect on our financial position, results of
        operations or liquidity.


                                       116                           (Continued)
<PAGE>
                                    GCI, INC.
                   Notes to Consolidated Financial Statements

        Cable Service Rate Reregulation
        Federal law permits regulation of basic cable programming services
        rates. However, Alaska law provides that cable television service is
        exempt from regulation by the RCA unless 25% of a system's subscribers
        request such regulation by filing a petition with the RCA. At December
        31, 2001, only the Juneau system is subject to RCA regulation of its
        basic service rates. No petition requesting regulation has been filed
        for any other system. (The Juneau system serves 7.4% of our total basic
        service subscribers at December 31, 2001.) On July 27, 2000 the RCA
        approved in full a requested rate increase for the Juneau system, which
        was effective October 1, 2000.

        Internal Revenue Service Examination
        Our U.S. income tax return for 1999 was selected for examination by the
        Internal Revenue Service during 2001. The examination commenced during
        the third quarter of 2001. We believe this examination will not have a
        material adverse effect on our financial position, results of operations
        or our liquidity.

        ILEC Over-earnings Refund
        The FCC ruled in February 2001 that ACS's earnings for the 1997 to 1998
        reporting period exceeded their authorized rate of return and ordered a
        refund to us of approximately $2.7 million, plus interest. Rate of
        return carriers such as ACS are required by the FCC to refund earnings
        from interstate access charges assessed to long-distance carriers when
        their earnings exceed their authorized rate of return. ACS has appealed
        the FCC ruling which is expected to be decided by the U.S. Court of
        Appeals for the District of Columbia circuit in June 2002. We are unable
        to determine the final amount to be refunded and when it may be
        refunded. The refundable amount has been accounted for as a gain
        contingency, and, accordingly, has not been recorded. The refundable
        amount, if any, will be recorded upon receipt when realization is a
        certainty.

        Bid to Purchase Fiber Optic Cable System Assets
        The assets of WCIC, a competing fiber optic cable system connecting
        Alaska to the lower 48 states, have been offered for sale following its
        bankruptcy filing and reorganization. We have submitted several bids to
        purchase system assets and capacity, none of which have been accepted.
        We have amended our credit agreements as described further in note 5 to
        allow us to obtain sufficient financing in the event we are the
        successful bidder. We expect the seller to complete the sales
        transaction in the second or third quarter of 2002.


                                       117                           (Continued)
<PAGE>
                                    GCI, INC.
                   Notes to Consolidated Financial Statements

 (13)   Supplementary Financial Data
<TABLE>
        The following is a summary of unaudited quarterly results of operations
        for the years ended December 31, 2001 and 2000 (amounts in thousands):
<CAPTION>
                                                           First      Second        Third      Fourth        Total
                                                          Quarter     Quarter      Quarter     Quarter       Year
                                                       ------------ ----------- ------------ ----------- ------------
         <S>                                          <C>              <C>          <C>         <C>         <C>
         2001
         Total revenues (1)                           $    96,917      85,535       88,019      86,787      357,258
         Net income                                   $     2,423         166        1,527         473        4,589

         2000
         Total revenues                               $    68,277      71,426       75,906      76,996      292,605
         Net loss                                     $    (5,498)     (3,526)      (2,352)     (1,858)     (13,234)

<FN>
     -------------
     (1) The first quarter of 2001 includes $19.5 million of revenue and $8.7 of
         operating income from the sale of long-haul capacity in the Alaska
         United undersea fiber optic cable system.
     -------------
</FN>
</TABLE>


                                      118
<PAGE>
<TABLE>
                                     Part IV

Item 14.  Exhibits, Consolidated Financial Statement Schedules, and Reports on Form 8-K

<CAPTION>

     (a)(l) Consolidated Financial Statements                                                               Page No.
                                                                                                            --------
           <S>                                                                                              <C>
           Included in Part II of this Report:

                  Independent Auditors' Report..............................................................84

                  Consolidated Balance Sheets, December 31, 2001 and 2000...................................85 -- 86

                  Consolidated Statements of Operations,
                     Years ended December 31, 2001, 2000 and 1999...........................................87

                  Consolidated Statements of Stockholder's Equity,
                     Years ended December 31, 2001, 2000 and 1999...........................................88

                  Consolidated Statements of Cash Flows,
                     Years ended December 31, 2001, 2000 and 1999...........................................90

                  Notes to Consolidated Financial Statements................................................91 -- 118

     (a)(2) Consolidated Financial Statement Schedules

           Included in Part IV of this Report:

                  Independent Auditors' Report..............................................................126

                  Schedule VIII - Valuation and Qualifying Accounts,
                     Years ended December 31, 2001, 2000 and 1999...........................................127
</TABLE>
     Other schedules are omitted, as they are not required or are not
     applicable, or the required information is shown in the applicable
     financial statements or notes thereto.


                                      119
<PAGE>
<TABLE>
(b)     Exhibits

        Listed below are the exhibits that are filed as a part of this Report
        (according to the number assigned to them in Item 601 of Regulation
        S-K):
<CAPTION>
        Exhibit No.                                             Description
      ------------------------------------------------------------------------------------------------------------------
          <S>            <C>
          3.1            Restated Articles of Incorporation of the Issuer dated December 18, 2000 (30)
          3.2            Amended and Restated Bylaws of the Issuer dated January 28, 2000 (28)
          4.1            1997 Amendment No. 1 to Voting Agreement dated October 31, 1996, among Prime II Management
                            L.P., as agent for the Voting Prime Sellers, MCI Telecommunications Corporation, Ronald
                            A. Duncan, Robert M. Walp and TCI GCI, Inc. (23)
          10.1           Employee stock option agreements issued to individuals Spradling, Strid, Behnke, and
                            Lewkowski (3)
          10.3           Westin Building Lease (5)
          10.4           Duncan and Hughes Deferred Bonus Agreements (6)
          10.5           Compensation Agreement between General Communication, Inc. and William C. Behnke dated
                            January 1, 1997 (19)
          10.6           Order approving Application for a Certificate of Public Convenience and Necessity to operate
                            as a Telecommunications (Intrastate Interexchange Carrier) Public Utility within Alaska
                            (3)
          10.7           1986 Stock Option Plan, as amended (21)
          10.8           Loan agreement between National Bank of Alaska and GCI Leasing Co., Inc. dated December 31,
                            1992 (4)
          10.13          MCI Carrier Agreement between MCI Telecommunications Corporation and General Communication,
                            Inc. dated January 1, 1993 (8)
          10.14          Contract for Alaska Access Services Agreement between MCI Telecommunications Corporation and
                            General Communication, Inc. dated January 1, 1993 (8)
          10.15          Promissory Note Agreement between General Communication, Inc. and Ronald A. Duncan, dated
                            August 13, 1993 (9)
          10.16          Deferred Compensation Agreement between General Communication, Inc. and Ronald A. Duncan,
                            dated August 13, 1993 (9)
          10.17          Pledge Agreement between General Communication, Inc. and Ronald A. Duncan, dated August 13,
                            1993 (9)
          10.19          Summary Plan Description pertaining to the Revised Qualified Employee Stock Purchase Plan of
                            General Communication, Inc. (10)
          10.20          The GCI Special Non-Qualified Deferred Compensation Plan (11)
          10.21          Transponder Purchase Agreement for Galaxy X between Hughes Communications Galaxy, Inc. and
                            GCI Communication Corp. (11)
          10.23          Management Agreement, between Prime II Management, L.P., and GCI Cable, Inc., dated October
                            31, 1996 (12)
          10.25          Licenses: (5)
          10.25.1           214 Authorization
          10.25.2           International Resale Authorization
          10.25.3           Digital Electronic Message Service Authorization
          10.25.4           Fairbanks Earth Station License
          10.25.5           Fairbanks (Esro) Construction Permit for P-T-P Microwave Service
          10.25.6           Fairbanks (Polaris) Construction Permit for P-T-P Microwave Service
          10.25.7           Anchorage Earth Station Construction Permit
          10.25.8           License for Eagle River P-T-P Microwave Service
          10.25.9           License for Juneau Earth Station
          10.25.10          Issaquah Earth Station Construction Permit
          10.26          ATU Interconnection Agreement between GCI Communication Corp. and Municipality of Anchorage,
                            executed January 15, 1997 (18)
          10.29          Asset Purchase Agreement, dated April 15, 1996, among General Communication,
</TABLE>

                                      120
<PAGE>
<TABLE>
<CAPTION>
        Exhibit No.                                             Description
      ------------------------------------------------------------------------------------------------------------------
          <S>            <C>
                            Inc., ACNFI, ACNJI and ACNKSI (12)
          10.30          Asset Purchase Agreement, dated May 10, 1996, among General Communication, Inc., and Alaska
                            Cablevision, Inc. (12)
          10.31          Asset Purchase Agreement, dated May 10, 1996, among General Communication, Inc., and
                            McCaw/Rock Homer Cable System, J.V. (12)
          10.32          Asset Purchase Agreement, dated May 10, 1996, between General Communication, Inc., and
                            McCaw/Rock Seward Cable System, J.V. (12)
          10.33          Amendment No. 1 to Securities Purchase and Sale Agreement, dated October 31, 1996, among
                            General Communication, Inc., and the Prime Sellers Agent (13)
          10.34          First Amendment to Asset Purchase Agreement, dated October 30, 1996, among General
                            Communication, Inc., ACNFI, ACNJI and ACNKSI (13)
          10.36          Order Approving Arbitrated Interconnection Agreement as Resolved and Modified by Order
                            U-96-89(8) dated January 14, 1997 (18)
          10.37          Amendment to the MCI Carrier Agreement executed April 20, 1994 (18)
          10.38          Amendment No. 1 to MCI Carrier Agreement executed July 26, 1994 (16)
          10.39          MCI Carrier Addendum--MCI 800 DAL Service effective February 1, 1994 (16)
          10.40          Third Amendment to MCI Carrier Agreement dated as of October 1, 1994 (16)
          10.41          Fourth Amendment to MCI Carrier Agreement dated as of September 25, 1995 (16)
          10.42          Fifth Amendment to the MCI Carrier Agreement executed April 19, 1996 (18)
          10.43          Sixth Amendment to MCI Carrier Agreement dated as of March 1, 1996 (16)
          10.44          Seventh Amendment to MCI Carrier Agreement dated November 27, 1996 (20)
          10.45          First Amendment to Contract for Alaska Access Services between General Communication, Inc.
                            and MCI Telecommunications Corporation dated April 1, 1996 (20)
          10.46          Service Mark License Agreement between MCI Communications Corporation and General
                            Communication, Inc. dated April 13, 1994 (19)
          10.47          Radio Station Authorization (Personal Communications Service License), Issue Date June 23,
                            1995 (19)
          10.48          Framework Agreement between National Bank of Alaska (NBA) and General Communication, Inc.
                            dated October 31, 1995 (17)
          10.49          1997 Call-Off Contract between National Bank of Alaska (NBA) and General Communication,
                            Inc. (GCI) dated November 1, 1996 (20)
          10.50          Contract No. 92MR067A Telecommunications Services between BP Exploration (Alaska), Inc.
                            and GCI Network Systems dated April 1, 1992 (20)
          10.51          Amendment No. 03 to BP Exploration (Alaska) Inc. Contract No. 92MRO67A effective August 1,
                            1996 (20)
          10.52          Lease Agreement dated September 30, 1991 between RDB Company and General Communication,
                            Inc. (3)
          10.53          Certificate of Public Convenience and Necessity No. 436 for Telecommunications Service
                            (Relay Services) (19)
          10.54          Order Approving Transfer Upon Closing, Subject to Conditions, and Requiring Filings dated
                            September 23, 1996 (19)
          10.55          Order Granting Extension of Time and Clarifying Order dated October 21, 1996 (19)
          10.56          Contract for Alaska Access Services among General Communication, Inc. and GCI
                            Communication Corp., and Sprint Communications Company L.P. dated June 1, 1993 (20)
          10.57          First Amendment to Contract for Alaska Access Services between General Communication, Inc.
                            and Sprint Communications Company L.P. dated as of August 7, 1996 (20)
          10.58          Employment and Deferred Compensation Agreement between General Communication, Inc. and
                            John M. Lowber dated July 1992 (19)
          10.59          Deferred Compensation Agreement between GCI Communication Corp. and Dana L. Tindall dated
                            August 15, 1994 (19)
</TABLE>

                                      121
<PAGE>
<TABLE>
<CAPTION>
        Exhibit No.                                             Description
      ------------------------------------------------------------------------------------------------------------------
          <S>            <C>
          10.60          Transponder Lease Agreement between General Communication Incorporated and Hughes
                            Communications Satellite Services, Inc., executed August 8, 1989 (9)
          10.61          Addendum to Galaxy X Transponder Purchase Agreement between GCI Communication Corp. and
                            Hughes Communications Galaxy, Inc. dated August 24, 1995 (19)
          10.62          Order Approving Application, Subject to Conditions; Requiring Filing; and Approving
                            Proposed Tariff on an Inception Basis, dated February 4, 1997 (19)
          10.63          Resale Solutions Switched Services Agreement between Sprint Communications Company L.P.
                            and GCI Communications, Inc. dated May 31, 1996 (20)
          10.64          Commitment Letter from Credit Lyonnais New York Branch, NationsBank of Texas, N.A. and TD
                            Securities (USA) Inc. for Fiber Facility dated as of July 3, 1997 (19)
          10.65          Commitment Letter from NationsBank for Credit Facility dated July 2, 1997 (19)
          10.66          Supply Contract Between Submarine Systems International Ltd. And GCI Communication Corp.
                            dated as of July 11, 1997. (23)
          10.67          Supply Contract Between Tyco Submarine Systems Ltd. And Alaska United Fiber System
                            Partnership Contract Variation No. 1 dated as of December 1, 1997. (23)
          10.68          $200,000,000 Amended and Restated Credit Agreement between GCI Holdings, Inc. and
                            NationsBank of Texas, N.A., as administrative agent, Credit Lyonnais New York Branch,
                            as documentation agent, and TD Securities (USA), Inc. as syndication agent, dated as of
                            November 14, 1997. (23)
          10.69          $50,000,000 Amended and Restated Credit Agreement between GCI Holdings, Inc. and
                            NationsBank of Texas, N.A., as administrative agent, Credit Lyonnais New York Branch,
                            as documentation agent, and TD Securities (USA), Inc. as syndication agent, dated as of
                            November 14, 1997. (23)
          10.70          Credit and Security Agreement Dated as of January 27, 1998 among Alaska United Fiber
                            System Partnership as Borrower and The Lenders Referred to Herein and Credit Lyonnais
                            New York Branch as Administrative Agent and NationsBank of Texas, N.A. as Syndication
                            Agent and TD Securities (USA), Inc. as Documentation Agent. (24)
          10.71          Third Amendment to Contract for Alaska Access Services between General Communication, Inc.
                            and MCI Telecommunications Corporation dated February 27, 1998 (25)
          10.72          Consent and First Amendment to Credit Agreements dated November 14, 1997 (26)
          10.73          Second Amendment to $200,000,000 Amended and Restated Credit Agreement (26)
          10.74          Second Amendment to $50,000,000 Amended and Restated Credit Agreement (26)
          10.75          Third Amendment to $200,000,000 Amended and Restated Credit Agreement (26)
          10.76          Third Amendment to $50,000,000 Amended and Restated Credit Agreement (26)
          10.77          General Communication, Inc. Preferred Stock Purchase Agreement (26)
          10.78          Qualified Employee Stock Purchase Plan of General Communication, Inc., as amended and restated
                            January 01, 2000 (28)
          10.79          Statement of Stock Designation (Series B) (26)
          10.80          Fourth Amendment to Contract for Alaska Access Services between General Communication,
                            Inc. and its wholly owned subsidiary GCI Communication Corp., and MCI WorldCom. (27)
          10.81          Fifth Amendment to Contract for Alaska Access Services between General Communication, Inc.
                            and its wholly owned subsidiary GCI Communication Corp., and Sprint Communications
                            Company L.P. (27)
          10.82          Lease Intended for Security between GCI Satellite Co., Inc. and General Electric Capital
                            Corporation (29)
</TABLE>


                                      122
<PAGE>
<TABLE>
<CAPTION>
        Exhibit No.                                             Description
      ------------------------------------------------------------------------------------------------------------------
          <S>            <C>
          10.83          Fourth Amendment to $50,000,000 Amended and Restated Credit Agreements (30)
          10.84          Fourth Amendment to $200,000,000 Amended and Restated Credit Agreement (30)
          10.85          Fifth Amendment to $50,000,000 Amended and Restated Credit Agreements (30)
          10.86          Fifth Amendment to $200,000,000 Amended and Restated Credit Agreement (30)
          10.87          Sixth Amendment to $50,000,000 Amended and Restated Credit Agreements (30)
          10.88          Sixth Amendment to $200,000,000 Amended and Restated Credit Agreements (30)
          10.89          Fifth Amendment to Contract for Alaska Access Services between General Communication, Inc.
                            and its wholly owned subsidiary GCI Communication Corp., and MCI WorldCom Network
                            Services, Inc., formerly known as MCI Telecommunications Corporation dated August 7, 2000
                            ** (31)
          10.90          Sixth Amendment to Contract for Alaska Access Services between General Communication, Inc.
                            and its wholly owned subsidiary GCI Communication Corp., and MCI WorldCom Network
                            Services, Inc., formerly known as MCI Telecommunications Corporation dated February 14,
                            2001 ** (31)
          10.91          Seventh Amendment to Contract for Alaska Access Services between General Communication,
                            Inc. and its wholly owned subsidiary GCI Communication Corp., and MCI WorldCom Network
                         Services, Inc., formerly known as MCI Telecommunications Corporation dated March 8, 2001
                            ** (31)
          10.92          Sixth Amendment to Contract for Alaska Access Services between General Communication, Inc.
                            and its wholly owned subsidiary GCI Communication Corp., and Sprint Communications
                            Company L.P. dated March 9, 2001 ** (31)
          10.93          Seventh Amendment to $50,000,000 Amended and Restated Credit Agreements (33)
          10.94          Seventh Amendment to $200,000,000 Amended and Restated Credit Agreements (33)
          10.95          Eighth Amendment to $50,000,000 Amended and Restated Credit Agreements *
          10.96          Eighth Amendment to $200,000,000 Amended and Restated Credit Agreements *
          10.97          Ninth Amendment to $50,000,000 Amended and Restated Credit Agreements *
          10.98          Ninth Amendment to $200,000,000 Amended and Restated Credit Agreements *
          10.99          Statement of Stock Designation (Series C) *

          21.1           Subsidiaries of the Registrant *
          99             Additional Exhibits:
          99.1              The Articles of Incorporation of GCI Communication Corp. (2)
          99.2              The Bylaws of GCI Communication Corp. (2)
          99.7              The Bylaws of GCI Cable, Inc. (14)
          99.8              The Articles of Incorporation of GCI Cable, Inc. (14)
          99.15             The Bylaws of GCI Holdings, Inc.  (19)
          99.16             The Articles of Incorporation of GCI Holdings, Inc.  (19)
          99.17             The Articles of Incorporation of GCI, Inc.  (18)
          99.18             The Bylaws of GCI, Inc.  (18)
          99.19             The Bylaws of GCI Transport, Inc. (23)
          99.20             The Articles of Incorporation of GCI Transport, Inc. (23)
          99.21             The Bylaws of Fiber Hold Co., Inc. (23)
          99.22             The Articles of Incorporation of Fiber Hold Co., Inc. (23)
          99.23             The Bylaws of GCI Fiber Co., Inc. (23)
          99.24             The Articles of Incorporation of GCI Fiber Co., Inc. (23)
          99.25             The Bylaws of GCI Satellite Co., Inc. (23)
          99.26             The Articles of Incorporation of GCI Satellite Co., Inc. (23)
          99.27             The Partnership Agreement of Alaska United Fiber System (23)
          99.28             The Bylaws of Potter View Development Co., Inc. (32)
          99.29             The Articles of Incorporation of Potter View Development Co., Inc. (32)
          99.30             The Bylaws of GCI American Cablesystems, Inc. *
          99.31             The Articles of Incorporation of GCI American Cablesystems, Inc. *
</TABLE>


                                      123
<PAGE>
<TABLE>
<CAPTION>
        Exhibit No.                                             Description
      ------------------------------------------------------------------------------------------------------------------
          <S>               <C>
          99.32             The Bylaws of GCI Cablesystems of Alaska, Inc. *
          99.33             The Articles of Incorporation of GCI Cablesystems of Alaska, Inc. *
          99.34             The Bylaws of GCI Fiber Communication Co., Inc. *
          99.35             The Articles of Incorporation of GCI Fiber Communication Co., Inc. *
</TABLE>
          -------------------------
             **          Certain information has been redacted from this
                          document which we desire to keep undisclosed.
             *           Filed herewith.

          -------------------------
<TABLE>
<CAPTION>
         Exhibit
        Reference                                               Description
      ------------------------------------------------------------------------------------------------------------------
            <S>          <C>
            2            Incorporated by reference to The Company's Annual Report on Form 10-K for the year ended
                            December 31, 1990
            3            Incorporated by reference to The Company's Annual Report on Form 10-K for the year ended
                            December 31, 1991
            4            Incorporated by reference to The Company's Annual Report on Form 10-K for the year ended
                            December 31, 1992
            5            Incorporated by reference to The Company's Registration Statement on Form 10  (File No.
                            0-15279), mailed to the Securities and Exchange Commission on December 30, 1986
            6            Incorporated by reference to The Company's Annual Report on Form 10-K for the year ended
                            December 31, 1989.

            8            Incorporated by reference to The Company's Current Report on Form 8-K dated June 4, 1993.
            9            Incorporated by reference to The Company's Annual Report on Form 10-K for the year ended
                            December 31, 1993.
            10           Incorporated by reference to The Company's Annual Report on Form 10-K for the year ended
                            December 31, 1994.
            11           Incorporated by reference to The Company's Annual Report on Form 10-K for the year ended
                            December 31, 1995.
            12           Incorporated by reference to The Company's Form S-4 Registration Statement dated October
                            4, 1996.
            13           Incorporated by reference to The Company's Current Report on Form 8-K dated November 13,
                            1996.
            14           Incorporated by reference to The Company's Annual Report on Form 10-K for the year ended
                            December 31, 1996.

            16           Incorporated by reference to The Company's Current Report on Form 8-K dated March 14,
                            1996, filed March 28, 1996.
            17           Incorporated by reference to The Company's Amendment to Annual Report dated December 31,
                            1995 on Form 10-K/A as amended on August 6, 1996.
            18           Incorporated by reference to The Company's Form S-3 Registration Statement (File No.
                            333-28001) dated May 29, 1997.
            19           Incorporated by reference to The Company's Amendment No. 1 to Form S-3/A Registration
                            Statement (File No. 333-28001) dated July 8, 1997.
            20           Incorporated by reference to The Company's Amendment No. 2 to Form S-3/A Registration
                            Statement (File No. 333-28001) dated July 21, 1997.
            21           Incorporated by reference to The Company's Amendment No. 3 to Form S-3/A Registration
                            Statement (File No. 333-28001) dated July 22, 1997.
            23           Incorporated by reference to The Company's Annual Report on Form 10-K for the year ended
                            December 31, 1997.
            24           Incorporated by reference to The Company's Quarterly Report on Form 10-Q for
</TABLE>

                                      124
<PAGE>
<TABLE>
<CAPTION>
         Exhibit
        Reference                                               Description
      ------------------------------------------------------------------------------------------------------------------
            <S>          <C>
                         the period ended June 30, 1998.
            25           Incorporated by reference to The Company's Annual Report on Form 10-K for the year ended
                            December 31, 1998.
            26           Incorporated by reference to The Company's Quarterly Report on Form 10-Q for the period
                            ended March 31, 1999.
            27           Incorporated by reference to The Company's Quarterly Report on Form 10-Q for the period
                            ended June 30, 1999.
            28           Incorporated by reference to The Company's Annual Report on Form 10-K for the year ended
                            December 31, 1999.
            29           Incorporated by reference to The Company's Quarterly Report on Form 10-Q for the period
                            ended June 30, 2000.
            30           Incorporated by reference to The Company's Annual Report on Form 10-K for the year ended
                            December 31, 2000.
            31           Incorporated by reference to The Company's Quarterly Report on Form 10-Q for the period
                            ended March 31, 2001
            32           Incorporated by reference to The Company's Quarterly Report on Form 10-Q for the period
                            ended June 30, 2001
            33           Incorporated by reference to The Company's Quarterly Report on Form 10-Q for the period
                            ended September 30, 2001
</TABLE>
(c)     Reports on Form 8-K

        None.



                                      125
<PAGE>
                          INDEPENDENT AUDITORS' REPORT




The Board of Directors and Stockholders
GCI, Inc.:


Under date of March 8, 2002, we reported on the consolidated balance sheets of
GCI, Inc. and subsidiaries ("Company") as of December 31, 2001 and 2000 and the
related consolidated statements of operations, stockholder's equity and cash
flows for each of the years in the three-year period ended December 31, 2001,
which are included in the Company's 2001 Annual Report on Form 10-K. In
connection with our audit of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedule which is listed in the index in Item 14(a)(2) of the Company's 2001
Annual Report on Form 10-K. This consolidated financial statement schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion on this consolidated financial statement schedule based on our
audits.

In our opinion this consolidated financial statement schedule, when considered
in relation to the consolidated financial statements taken as a whole, presents
fairly, in all material respects the information set forth therein.


                                    /s/

                                    KPMG LLP





Anchorage, Alaska
March 8, 2002



                                      126
<PAGE>
Schedule VIII

<TABLE>
                                                     GCI, INC. AND SUBSIDIARIES

                                                 Valuation and Qualifying Accounts

                                            Years ended December 31, 2001, 2000 and 1999
<CAPTION>
                                                                                Additions          Deductions
                                                                           -------------------     ----------
                                                              Balance at   Charged to              Write-offs    Balance
                                                              beginning    profit and                net of     at end of
Description                                                    of year        loss       Other     recoveries      year
-------------------------------------------------------     --------------------------------------------------------------
                                                                                (Amounts in thousands)
<S>                                                        <C>                 <C>        <C>         <C>          <C>
Allowance for doubtful receivables, year ended:

    December 31, 2001                                      $    2,864          4,076      ---         2,774        4,166
                                                            ============= ============ ========= ============= ===========

    December 31, 2000                                      $    2,833          5,546      ---         5,515        2,864
                                                            ============= ============ ========= ============= ===========

    December 31, 1999                                      $      887          4,224      ---         2,278        2,833
                                                            ============= ============ ========= ============= ===========
</TABLE>





                                      127
<PAGE>
                                   SIGNATURES

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

                                             GCI, INC.

                                             By: /s/ Ronald A. Duncan
                                                 Ronald A. Duncan, President
                                                 (Chief Executive Officer)
Date:   March 27, 2002
<TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
<CAPTION>
           Signatures                                Title                                  Date
           ----------                                -----                                  ----
     <S>                                    <C>                                         <C>
      /s/ Ronald A. Duncan                  President and Director                      March 27, 2002
     -------------------------------        (Principal Executive Officer)       ------------------------------
     Ronald A. Duncan

     /s/ G. Wilson Hughes                   Vice President and Director                 March 27, 2002
     -------------------------------                                            ------------------------------
     G. Wilson Hughes

     /s/ John M. Lowber                     Secretary, Treasurer and Director           March 27, 2002
     -------------------------------        (Principal Financial and            ------------------------------
     John M. Lowber                         Accounting Officer)
</TABLE>



                                      128