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


                                   FORM 10-Q


             [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  For the quarterly period ended June 30, 2002

                                       or

             [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
           For the transition period from ___________ to ___________

                       Commission File Number: 000-20709

                            D&E Communications, Inc.
             (Exact name of registrant as specified in its charter)

                                  PENNSYLVANIA
                        (State or other jurisdiction of
                         incorporation or organization)


               I.R.S. Employer Identification Number: 23-2837108

                           Brossman Business Complex
                              124 East Main Street
                                 P. O. Box 458
                          Ephrata, Pennsylvania 17522
                    (Address of principal executive offices)


                 Registrant's Telephone Number: (717) 733-4101

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

               Yes    X      No
                   -------      -------

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

<TABLE>
<CAPTION>
                Class                         Outstanding at August 9, 2002
                -----                         -----------------------------
<S>                                           <C>
Common Stock, par value $0.16 per share             15,396,575  Shares
</TABLE>
<PAGE>
                   D&E Communications, Inc. and Subsidiaries

                                   Form 10-Q

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
Item No.                                                                    Page
--------                                                                    ----
<S>                                                                         <C>
                          PART I. FINANCIAL INFORMATION

   1.  Financial Statements

           Consolidated Statements of Operations --
                    For the three months and six months ended
                    June 30, 2002 and 2001 ...............................    1

           Consolidated Balance Sheets --
                    June 30, 2002 and December 31, 2001 ..................    2

           Consolidated Statements of Cash Flows --
                    For the six months ended June 30, 2002 and 2001 ......    3

           Consolidated Statements of Shareholders' Equity --
                    For the six months ended June 30, 2002 and 2001 ......    4

           Notes to Consolidated Financial Statements ....................    5

   2.  Management's Discussion and Analysis of Financial
           Condition and Results of Operations............................   16

   3.  Quantitative and Qualitative Disclosures about Market Risk ........   41

                           PART II. OTHER INFORMATION

   1.   Legal Proceedings ................................................   42

   6.   Exhibits and Reports on Form 8-K .................................   43

        SIGNATURES........................................................   44
</TABLE>


                                       i
<PAGE>
Form 10-Q Part I - Financial Information
Item 1. Financial Statements


                  D & E Communications, Inc. and Subsidiaries
                     Consolidated Statements of Operations
                    (in thousands, except per-share amounts)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                               Three Months Ended            Six Months Ended
                                                                    June 30,                     June 30,
OPERATING REVENUES                                            2002           2001           2002           2001
                                                            --------       --------       --------       --------
<S>                                                         <C>            <C>            <C>            <C>
      Communication service revenues ....................   $ 22,019       $ 15,337       $ 37,954       $ 30,066
      Communication products sold .......................      3,663          3,198          6,942          6,223
      Other .............................................        467            376            857            777
                                                            --------       --------       --------       --------
         Total operating revenues .......................     26,149         18,911         45,753         37,066
                                                            --------       --------       --------       --------

OPERATING EXPENSES

      Communication service expenses (exclusive of
         depreciation and amortization below) ...........      8,260          6,473         15,284         12,842
      Cost of communication products sold ...............      3,098          2,602          5,874          5,051
      Depreciation and amortization .....................      5,581          3,693          9,465          7,222
      Marketing and customer services ...................      2,713          2,523          4,862          4,578
      Merger-related costs ..............................      1,058             --          1,058             --
      General and administrative services ...............      5,601          3,568          9,140          7,233
                                                            --------       --------       --------       --------
         Total operating expenses .......................     26,311         18,859         45,683         36,926
                                                            --------       --------       --------       --------
              Operating income (loss) ...................       (162)            52             70            140
                                                            --------       --------       --------       --------

OTHER INCOME (EXPENSE)

      Equity in net income (losses) of affiliates .......       (702)         1,730         (1,177)           442
      Interest expense ..................................     (2,048)          (465)        (2,756)          (918)
      Other than temporary loss on investments ..........     (2,999)            --         (2,999)            --
      Other, net ........................................        194            413            201            744
                                                            --------       --------       --------       --------
         Total other income (expense) ...................     (5,555)         1,678         (6,731)           268
                                                            --------       --------       --------       --------

              Income (loss) from continuing operations
                 before income taxes and dividends on
                 utility preferred stock ................     (5,717)         1,730         (6,661)           408

INCOME TAXES AND DIVIDENDS ON UTILITY PREFERRED STOCK

      Income taxes ......................................     (2,060)           136         (2,212)           244
      Dividends on utility preferred stock ..............         17             17             33             33
                                                            --------       --------       --------       --------

         Total income taxes and dividends
            on utility preferred stock ..................     (2,043)           153         (2,179)           277
                                                            --------       --------       --------       --------

              Income (loss) from continuing operations ..     (3,674)         1,577         (4,482)           131

      Discontinued operations:
        Loss from operations of discontinued D&E Wireless
          segment prior to December 31, 2001, net of income
          tax benefit of $881 and $1,552 ................         --         (1,644)            --         (2,999)
        Gain on disposal of discontinued D&E Wireless
          segment, net of operating losses during phase-out
          period and net of income taxes of $29,199 .....     55,785             --         55,785             --
        Loss from operations of Conestoga Wireless, net
          of income tax benefit of $121 .................       (159)            --           (159)            --
                                                            --------       --------       --------       --------

              Income (loss) before extraordinary item ...     51,952            (67)        51,144         (2,868)

      Extraordinary item, income tax benefit of $107 ....         --             --             --            107
                                                            --------       --------       --------       --------

NET INCOME (LOSS) .......................................   $ 51,952       $    (67)      $ 51,144       $ (2,761)
                                                            ========       ========       ========       ========

      Weighted average common shares outstanding ........     10,722          7,387          9,047          7,386

BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE

      Income (loss) from continuing operations ..........   $  (0.34)      $   0.21       $  (0.50)      $   0.02
      Income (loss) from discontinued operations ........       5.19          (0.22)          6.15          (0.41)
      Extraordinary item ................................       0.00           0.00           0.00           0.02
                                                            --------       --------       --------       --------
          Net income (loss) per common share ............   $   4.85       $  (0.01)      $   5.65       $  (0.37)
                                                            ========       ========       ========       ========

      Dividends per common share ........................   $   0.13       $   0.13       $   0.25       $   0.25
                                                            ========       ========       ========       ========
</TABLE>

                 See notes to consolidated financial statements.


                                       1
<PAGE>
                  D & E Communications, Inc. and Subsidiaries
                          Consolidated Balance Sheets
                      (in thousands, except share amounts)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                                June 30,      December 31,
                                     ASSETS                                       2002            2001
                                                                                  ----            ----
<S>                                                                            <C>             <C>
CURRENT ASSETS
      Cash and cash equivalents .............................................  $    7,151      $      615
      Accounts receivable ...................................................      21,571          10,105
      Accounts receivable - PCS ONE .........................................       2,978           5,938
      Inventories, lower of cost or market, at average cost .................       3,747           1,781
      Prepaid expenses ......................................................       7,525           3,817
      Other .................................................................       1,030             494
                                                                               ----------      ----------
         TOTAL CURRENT ASSETS ...............................................      44,002          22,750
                                                                               ----------      ----------
INVESTMENTS
      Investments in and advances to affiliated companies ...................       5,962           6,431
      Investments available-for-sale ........................................       1,355           4,425
                                                                               ----------      ----------
                                                                                    7,317          10,856
                                                                               ----------      ----------
PROPERTY, PLANT AND EQUIPMENT
      In service ............................................................     295,422         178,274
      Under construction ....................................................       9,467           5,034
                                                                               ----------      ----------
                                                                                  304,889         183,308
      Less accumulated depreciation .........................................      95,456          88,163
                                                                               ----------      ----------
                                                                                  209,433          95,145
                                                                               ----------      ----------
OTHER ASSETS
      Conestoga Wireless assets held for sale ...............................      19,000              --
      Goodwill ..............................................................     231,664           5,126
      Intangible assets, net of amortization ................................      30,455           1,017
      Deferred income taxes .................................................          --             905
      Other .................................................................      18,755           7,079
                                                                               ----------      ----------
                                                                                  299,874          14,127
                                                                               ----------      ----------

      TOTAL ASSETS ..........................................................  $  560,626      $  142,878
                                                                               ==========      ==========

                      LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
      Borrowings under line of credit .......................................  $       --      $    1,757
      Long-term debt maturing within one year ...............................         126              52
      Accounts payable and accrued liabilities ..............................      22,259          16,319
      Accrued taxes .........................................................      22,832             352
      Accrued interest and dividends ........................................       1,885             333
      Advance billings, customer deposits and other .........................       5,645           3,668
                                                                               ----------      ----------
         TOTAL CURRENT LIABILITIES ..........................................      52,747          22,481
                                                                               ----------      ----------
LONG-TERM DEBT ..............................................................     247,783          58,124
                                                                               ----------      ----------
OTHER LIABILITIES
      Equity in net losses of discontinued D&E Wireless operations in
          excess of investments and advances ................................          --          10,388
      Deferred income taxes .................................................      36,995              --
      Other .................................................................      10,812           6,564
                                                                               ----------      ----------
                                                                                   47,807          16,952
                                                                               ----------      ----------
PREFERRED STOCK OF UTILITY SUBSIDIARY, Series A 4 1/2%,
      par value $100, cumulative, callable at par at the option
      of the Company, authorized 20,000 shares,
      outstanding  14,456 shares ............................................       1,446           1,446
                                                                               ----------      ----------
COMMITMENTS

SHAREHOLDERS' EQUITY
      Common stock, par value $0.16, authorized shares 30,000,000 ...........       2,502           1,219
       Outstanding shares:  15,386,444 at June 30, 2002
                            7,362,226 at December 31, 2001
       Additional paid-in capital ...........................................     157,375          39,956
       Accumulated other comprehensive income (loss) ........................      (2,876)         (2,833)
       Retained earnings ....................................................      58,946          10,637
       Treasury stock at cost, 276,904 shares at June 30, 2002
         276,900 shares at December 31, 2001 . ..............................      (5,104)         (5,104)
                                                                               ----------      ----------
                                                                                  210,843          43,875
                                                                               ----------      ----------
       TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ...........................  $  560,626      $  142,878
                                                                               ==========      ==========
</TABLE>

                 See notes to consolidated financial statements.


                                       2
<PAGE>
                  D & E Communications, Inc. and Subsidiaries

                     Consolidated Statements of Cash Flows
                                 (in thousands)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                                    Six Months Ended
                                                                                        June 30,
                                                                                  2002            2001
                                                                               ----------      ----------
<S>                                                                            <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES OF
      CONTINUING OPERATIONS ................................................   $    5,448      $    7,738
                                                                               ----------      ----------

CASH FLOWS FROM INVESTING ACTIVITIES
      Capital expenditures, net of proceeds from sales and removal costs ...      (10,763)        (17,221)
      Business acquisition costs, net of cash acquired of $1,003 ...........     (158,720)             --
      Proceeds from sale of temporary investments ..........................           --          17,336
      Purchase of temporary investments ....................................           --         (17,333)
      Increase in investments and advances to affiliates ...................       (1,267)         (3,813)
      Decrease in investments and repayments from affiliates ...............          550             374
                                                                               ----------      ----------

        Net Cash Used In Investing Activities from Continuing Operations ...     (170,200)        (20,657)
                                                                               ----------      ----------

CASH FLOWS FROM FINANCING ACTIVITIES
      Dividends on common stock ............................................       (2,718)         (1,720)
      Payments on long-term debt ...........................................      (42,210)            (36)
      Proceeds from long-term debt financing ...............................      160,000              --
      Payment of debt issuance costs .......................................       (7,922)             --
      Net proceeds from (payments on) revolving lines of credit ............      (11,757)         21,383
      Proceeds from issuance of common stock ...............................          570             170
                                                                               ----------      ----------

        Net Cash Provided By Financing Activities from
            Continuing Operations ..........................................       95,963          19,797
                                                                               ----------      ----------

CASH PROVIDED BY (USED IN) CONTINUING OPERATIONS ...........................      (68,789)          6,878

CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS
      Cash Provided by (Used in) Operating Activities of
        Discontinued Operations ............................................         (110)            495
      Cash Provided by (Used in) Investing Activities of
        Discontinued Operations ............................................       75,435          (9,343)
                                                                               ----------      ----------

        Net Cash Provided By (Used In ) Discontinued Operations ............       75,325          (8,848)
                                                                               ----------      ----------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ...........................        6,536          (1,970)

CASH AND CASH EQUIVALENTS
      BEGINNING OF PERIOD ..................................................          615           3,527
                                                                               ----------      ----------

      END OF PERIOD ........................................................   $    7,151      $    1,557
                                                                               ==========      ==========
</TABLE>

                 See notes to consolidated financial statements.


                                       3
<PAGE>
                   D&E Communications, Inc. and Subsidiaries

                Consolidated Statements of Shareholders' Equity

                For the six months ended June 30, 2002 and 2001

                                 (in thousands)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                                  2002                           2001
                                                                                  ----                           ----
                                                                         Shares          Amount          Shares          Amount
                                                                       ----------      ----------      ----------      ----------
<S>                                                                    <C>             <C>             <C>             <C>
COMMON STOCK
      Balance at beginning of year ..................................       7,639      $    1,219           7,608      $    1,214

      Common stock issued for acquisition ...........................       7,869           1,259              --              --
      Common stock issued for Employee Stock Purchase, Long-
         Term Incentive and Dividend Reinvestment Plans .............         115              18              17               2
      Common stock issued for stock options exercised ...............          40               6              --              --
                                                                       ----------      ----------      ----------      ----------
      Balance at June 30 ............................................      15,663           2,502           7,625           1,216
                                                                       ----------      ----------      ----------      ----------

ADDITIONAL PAID-IN CAPITAL
      Balance at beginning of year ..................................                      39,956                          39,374

      Common stock issued for acquisition ...........................                     115,386                              --
      Common stock issued for Employee Stock Purchase, Long-
         Term Incentive and Dividend Reinvestment Plans .............                       1,666                             289
      Common stock issued for stock options exercised ...............                         367                              --
                                                                                       ----------                      ----------
      Balance at June 30 ............................................                     157,375                          39,663
                                                                                       ----------                      ----------

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
      Balance at beginning of year ..................................                      (2,833)                            467

      Unrealized gain (loss) on investments .........................                      (1,868)                          1,156
      Loss realized on other-than-temporary decline, net of tax .....                       1,825                              --
                                                                                       ----------                      ----------
      Balance at June 30 ............................................                      (2,876)                          1,623
                                                                                       ----------                      ----------

RETAINED EARNINGS
      Balance at beginning of year ..................................                      10,637                          18,366

      Net income (loss) .............................................                      51,144                          (2,761)
      Dividends on common stock: $.25, $.25 per share ...............                      (2,835)                         (1,840)
                                                                                       ----------                      ----------
      Balance at June 30 ............................................                      58,946                          13,765
                                                                                       ----------                      ----------

TREASURY STOCK
      Balance at beginning of year ..................................        (277)         (5,104)           (226)         (4,059)
      Treasury stock acquired .......................................          --              --             (11)           (209)
                                                                       ----------      ----------      ----------      ----------
      Balance at June 30 ............................................        (277)         (5,104)           (237)         (4,268)
                                                                       ----------      ----------      ----------      ----------
TOTAL SHAREHOLDERS' EQUITY ..........................................      15,386      $  210,843           7,388      $   51,999
                                                                       ==========      ==========      ==========      ==========
</TABLE>

<TABLE>
<CAPTION>
                                                                           Three Months Ended            Six Months Ended
                                                                                June 30                       June 30
                                                                          2002           2001           2002           2001
                                                                        --------       --------       --------       --------
<S>                                                                     <C>            <C>            <C>            <C>
COMPREHENSIVE INCOME (LOSS)
      Net income (loss) ............................................    $ 51,952       ($    67)      $ 51,144       ($ 2,761)
      Unrealized gain (loss) on investments, net of income
           taxes of ($774), $445, ($1,198) and $664 ................      (1,211)           691         (1,868)         1,156
      Loss realized on other-than-temporary decline, net of tax
           of $1,174 ...............................................       1,825             --          1,825             --
                                                                        --------       --------       --------       --------
      Total comprehensive income (loss)                                 $ 52,566       $    624       $ 51,101       ($ 1,605)
                                                                        ========       ========       ========       ========
</TABLE>

                 See notes to consolidated financial statements.


                                       4
<PAGE>
                    D&E Communications, Inc. and Subsidiaries
                   Part I - Financial Information (continued)

               Item 1. Notes to Consolidated Financial Statements
                       (Dollar amounts are in thousands)
                                   (Unaudited)

(1)   BASIS OF PRESENTATION

            The accompanying consolidated financial statements include the
      accounts of D&E Communications, Inc. and its wholly owned subsidiaries.
      D&E Communications, Inc., including its subsidiary companies, is defined
      and referred to herein as D&E. On May 24, 2002, D&E completed its
      acquisition of Conestoga Enterprises, Inc. (Conestoga). The following
      subsidiaries of Conestoga are included in D&E's June 30, 2002 results
      since the date of completion of the acquisition:

            The Conestoga Telephone and Telegraph Company and Buffalo Valley
      Telephone Company, which are independent local exchange carriers providing
      both regulated and nonregulated communication services;

            CEI Networks, Inc., which provides long distance and competitive
      local telephone services;

            Conestoga Mobile Systems, Inc., which provides paging communication
      services;

            Infocore, Inc., which provides communication consulting services
      including the design and installation of communications systems;

            Conestoga Investment, Inc., an investment holding company; and

            Conestoga Wireless Company, which provides wireless personal
      communication services (PCS) and has been reported as a discontinued
      operation.

            The accompanying financial statements are unaudited and we have
      prepared them pursuant to generally accepted accounting principles and the
      rules and regulations of the Securities and Exchange Commission (SEC). In
      the opinion of management, the financial statements include all
      adjustments (consisting of normal recurring adjustments) necessary to
      present fairly our results of operations, financial position and cash
      flows for the periods presented. Certain items in the financial statements
      for the three months and six months ended June 30, 2001 have been
      reclassified for comparative purposes to conform to the current periods'
      presentation. In addition, certain information and footnote disclosures
      normally included in financial statements prepared in accordance with
      accounting principles generally accepted in the United States of America
      have been condensed or omitted pursuant to SEC rules and regulations. The
      use of generally accepted accounting principles requires management to
      make estimates and assumptions that affect the reported amounts of assets
      and liabilities and disclosure of contingent assets and liabilities at the
      date of the financial statements and the reported amount of revenues and
      expenses during the reporting period. Actual results could differ from
      those estimates. We believe that the disclosures made are adequate to make
      the information presented not misleading. These financial statements
      should be read in conjunction with D&E's financial statements and notes
      thereto included in our Annual Report on Form 10-K/A for the fiscal year
      ended December 31, 2001 and with D&E's Current Report on Form 8-K related
      to the completion of its acquisition of Conestoga filed with the
      Securities and Exchange Commission on June 10, 2002.


                                       5
<PAGE>
                   D&E Communications, Inc. and Subsidiaries
                   Part I - Financial Information (continued)

               ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       (Dollar amounts are in thousands)
                                  (Unaudited)

(2)   ACQUISITION OF BUSINESS

            On May 24, 2002, we completed the acquisition of Conestoga
      Enterprises, Inc. (Conestoga), a neighboring rural local telephone company
      providing integrated communications services throughout the eastern half
      of Pennsylvania. The acquisition was completed through the merger of
      Conestoga with and into D&E Acquisition Corp., a wholly-owned subsidiary
      of D&E, pursuant to the Amended and Restated Agreement and Plan of Merger,
      dated as of January 9, 2002.

      Total purchase price and transaction costs were approximately $272,423 as
      follows:

<TABLE>
<S>                                                                                      <C>
      Cash consideration to Conestoga stockholders....................................   $149,554
      D&E Communications stock to Conestoga stockholders (7,868,570 shares) at            114,645
           $14.57 per share based on 3-day average market price per share prior to
           close of the merger on May 24, 2002........................................
      Fair value of Conestoga stock options...........................................      2,000
      Estimated transaction expenses..................................................      6,224
                                                                                         --------
                Total purchase price and transaction costs............................   $272,423
</TABLE>

            The final allocation will be determined by D&E based on reports of
      independent appraisers. The final allocation will include, if applicable,
      recognition of any further adjustments to tangible assets and liabilities
      to state them at their fair values, and recognition of any additional
      identifiable intangible assets at their fair values. The residual effect
      of such adjustments will be recorded as goodwill.

            D&E has accrued as a cost of the acquisition and as part of goodwill
      approximately $3,099 for the estimated costs of severance and retention
      bonuses to be paid to Conestoga employees. The costs for terminating
      certain of D&E employees, totaling $225, are included in merger-related
      costs in the statement of operations. D&E terminated approximately 20
      employees in June 2002 and an additional 30 will be terminated after a
      transition period. Most of the severance payments will be made during the
      remainder of 2002.

      The following unaudited pro forma combined results of operations is
      provided for illustrative purposes only and assumes that this acquisition
      had occurred as of the beginning of each of the periods presented. The
      following unaudited pro forma information should not be relied upon as
      necessarily being indicative of the historical results that would have
      been obtained if this acquisition had actually occurred during those
      periods, nor the results that may be obtained in the future.


                                       6
<PAGE>
                    D&E Communications, Inc. and Subsidiaries
                   Part I - Financial Information (continued)

               Item 1. Notes to Consolidated Financial Statements
                       (Dollar amounts are in thousands)
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                            Three months ended         Six months ended
                                                                  June 30,                 June 30,
                                                            2002          2001       2002           2001
                                                            ----          ----       ----           ----
<S>                                                       <C>           <C>        <C>            <C>
      Pro forma operating revenues                        $39,626       $39,820    $81,300        $79,270
      Pro forma income (loss) before extraordinary
        items                                              48,871         $(733)    47,250        $(3,856)
      Pro forma net income                                 48,871         $(733)    47,250        $(3,749)
      Pro forma income (loss) per share                     $3.19        $(0.05)     $3.08         $(0.25)
</TABLE>

(3)   DISCONTINUED OPERATIONS

      D&E WIRELESS

            D&E's fifty percent partnership interest in D&E/Omnipoint Wireless
      Joint Venture, L.P. (PCS ONE) and the related contract services D&E
      provides to PCS ONE constitute a separate segment of our business. On
      October 17, 2001, D&E entered into a definitive agreement to sell its
      interest in PCS ONE to VoiceStream Wireless Corporation for $117,000 less
      working capital and long-term debt adjustments. The related contract
      services we provide to PCS ONE will be discontinued subsequent to the
      sale, but will continue for up to six months post closing.

            During December 2001, D&E obtained required lender approvals and
      passed compliance of the Hart-Scott-Rodino Act requirements. Remaining
      regulatory approvals and other customary closing conditions were deemed to
      be perfunctory. As such, the assets and liabilities and results of
      operations of D&E Wireless are reported as discontinued operations in
      accordance with APB Opinion No. 30 with a measurement date of December 31,
      2001. The only assets or liabilities held for sale were the equity in net
      losses of PCS ONE, which were classified as equity in net losses of
      discontinued D&E Wireless operations in excess of investments and advances
      in the balance sheet.

            In accordance with EITF 85-36, beginning January 1, 2002, through
      disposal date (the phase-out period), losses from D&E Wireless
      were deferred because it was reasonably assured that the ultimate
      disposition of this business would result in the recognition of a gain.
      Losses were deferred until a gain on sale was recognized.

            On April 1, 2002, we consummated our sale of PCS ONE. We received
      $74,168 in cash, which remains subject to post closing adjustments as set
      forth in the sale agreement that are expected to be finalized in the third
      quarter of 2002. In addition, we received equipment with a fair value of
      approximately $2,014. Selling and other estimated costs, offset by
      estimated post-closing adjustments, are approximately $175 and associated
      income taxes are estimated at


                                       7
<PAGE>
                    D&E Communications, Inc. and Subsidiaries
                   Part I - Financial Information (continued)

               Item 1. Notes to Consolidated Financial Statements
                       (Dollar amounts are in thousands)
                                   (Unaudited)


      $29,164. The gain on sale recognized was $55,736 after eliminating the
      $8,893 liability for the equity in net losses of discontinued D&E Wireless
      operations in excess of investments and advances. The proceeds from the
      sale of PCS ONE were used to help finance the acquisition of Conestoga
      Enterprises, Inc. (see Note 2). Contract services will continue into the
      third quarter of 2002.

            Summarized financial information for the discontinued operations of
      D&E Wireless Services is as follows:

<TABLE>
<CAPTION>
                                                Three months ended June 30,   Six months ended June 30,
                                                ---------------------------   -------------------------
                                                      2002       2001              2002        2001
                                                      ----       ----              ----        ----
<S>                                                 <C>        <C>               <C>         <C>
      Revenue                                       $ 1,230    $ 2,884           $ 4,012     $ 5,571
      Expenses                                        1,146      2,659             3,591       5,110
                                                    -------    -------           -------     -------
         Operating income                                84        225               421         461
      Equity in net loss of PCS ONE                      --     (2,779)           (1,605)     (5,044)
      Phase-out losses deferred until sale               --         --             1,268
      Gain on sale of PCS ONE                        84,900         --            84,900          --
      Other income (expense)                             --         29                --          32
                                                    -------    -------           -------     -------
         Income (loss) from D&E wireless
           operations before taxes                   84,984     (2,525)           84,984      (4,551)
      Income taxes                                   29,199       (881)           29,199      (1,552)
                                                    -------    -------           -------     -------
         Income (loss) from D&E wireless
           operations, net of taxes                 $55,785    ($1,644)          $55,785     ($2,999)
                                                    -------    -------           -------     -------
</TABLE>

      The summarized results of operations of PCS ONE were as follows:

<TABLE>
<CAPTION>
                           Three months ended June 30,    Six months ended June 30,
                           ---------------------------    -------------------------
                                 2002       2001               2002        2001
                                 ----       ----               ----        ----
<S>                            <C>        <C>                <C>         <C>
      Net sales                $    --    $10,592            $12,312     $20,266
      Net loss                      --    ($5,558)           ($3,211)    (10,088)
      Our share of loss             --    ($2,779)           ($1,605)     (5,044)
</TABLE>

      CONESTOGA WIRELESS

            On May 24, 2002, we acquired Conestoga Enterprises, Inc. (see Note
      2). From the date of acquisition, D&E had committed to a plan to sell the
      assets of Conestoga's wireless segment. As such, the assets and results of
      operations of the Conestoga wireless segment are reported as discontinued
      operations in accordance with Statement of Financial Accounting Standards
      No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets."
      The assets are not depreciated while they are held for sale. D&E expects
      to sell the business within a year from acquisition. No liabilities are
      expected to be included as part of the sale. The carrying amount of the
      major classes of assets included as part of the Conestoga wireless
      business to be sold are as follows:


                                       8
<PAGE>
                    D&E Communications, Inc. and Subsidiaries
                   Part I - Financial Information (continued)

               Item 1. Notes to Consolidated Financial Statements
                       (Dollar amounts are in thousands)
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                    June 30, 2002
                                                    -------------
<S>                                                 <C>
      Inventories                                    $     1,250
      Property & equipment                                16,550
      PCS licenses                                         1,200
                                                     -----------
           Total                                     $    19,000
                                                     -----------
</TABLE>

            Summarized income statement information for the discontinued
      operations of the Conestoga wireless segment were as follows:

<TABLE>
<CAPTION>
                                                            May 24, 2002 through
                                                            --------------------
                                                                June 30, 2002
<S>                                                          <C>
      Revenue                                                    $       765
      Expenses                                                         1,045
                                                                 -----------
        Operating loss                                                  (280)
      Income taxes                                                      (121)
                                                                 -----------
        Loss from Conestoga wireless operations,
           net of taxes                                          $      (159)
                                                                 -----------
</TABLE>

(4)   INVESTMENTS IN AFFILIATED COMPANIES

            As of December 31, 2001, we owned a one-third investment in EuroTel
      L.L.C. (EuroTel), a domestic corporate joint venture. EuroTel held a 100%
      investment in PenneCom, B.V. (PenneCom), an international
      telecommunications holding company that held a 100% investment in Pilicka
      Telefonia, Sp.zo.o (Pilicka), a telecommunications company located in
      Poland.

            As of December 31, 2001, PenneCom was indebted to EuroTel for
      $10,656 and to the investors in EuroTel for $36,751 (including $14,623 to
      D&E). PenneCom agreed with EuroTel and the EuroTel investors to satisfy a
      portion of its indebtedness to EuroTel and the founders by transferring
      PenneCom's entire equity interests in Pilicka to EuroTel and the founders.
      PenneCom satisfied $3,384 of its indebtedness to EuroTel by transferring
      22.56% of the capital stock of Pilicka to EuroTel, satisfied $4,650 of its
      indebtedness to D&E by transferring 31.00% of the capital stock of Pilicka
      to D&E, and satisfied $6,966 of indebtedness to the other EuroTel
      investors by transferring 46.44% of the capital stock of Pilicka to the
      other EuroTel investors. The total amount of indebtedness satisfied by
      PenneCom was equal to the total estimated fair value of Pilicka at
      December 31, 2001. These transactions were effective as of January 1,
      2002. As a result of these transactions, D&E now has a 31.00% direct
      ownership in Pilicka and an indirect 7.52% ownership in Pilicka, through
      its continuing one-third interest in EuroTel. D&E accounts for both its
      investment in EuroTel and its investment in Pilicka using the equity
      method of accounting.


                                       9
<PAGE>
                    D&E Communications, Inc. and Subsidiaries
                   Part I - Financial Information (continued)

               Item 1. Notes to Consolidated Financial Statements
                       (Dollar amounts are in thousands)
                                   (Unaudited)


      The summarized results of operations of EuroTel were as follows:

<TABLE>
<CAPTION>
                                     Three months ended June 30,     Six months ended June 30,
                                     ---------------------------     -------------------------
                                         2002           2001            2002          2001
                                         ----           ----            ----          ----
<S>                                  <C>               <C>           <C>             <C>
      Net sales                         $   --         $1,966          $   --        $3,674
      Net income (loss)                ($  354)        $5,909          (1,047)        2,046
      Our share of income (loss)       ($  118)        $1,730          (  349)          442
</TABLE>

      The summarized results of operations of Pilicka were as follows:

<TABLE>
<CAPTION>
                                  Three months ended June 30,     Six months ended June 30,
                                  ---------------------------     -------------------------
                                             2002                           2002
                                             ----                           ----
<S>                               <C>                             <C>
      Net sales                             $2,415                         $4,723
      Net loss                             ($1,136)                       ($1,924)
      Our share of loss                    ($  352)                       ($  596)
      Investment amortization              ($  232)                       ($  232)
      Total loss                           ($  584)                       ($  828)
</TABLE>

(5)   ACCOUNTING CHANGES AND RECENT ACCOUNTING PRONOUNCEMENTS

            On January 1, 2002, we adopted Statement of Financial Accounting
      Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS 142),
      which addresses the accounting for goodwill and intangible assets
      subsequent to their acquisition. With the adoption of SFAS 142, goodwill
      is no longer subject to amortization. As an indefinite lived asset,
      goodwill is still subject to at least an annual assessment for impairment.
      We have completed our transitional intangible impairment test, and based
      upon a discounted future cash flows model, the goodwill has been deemed to
      not be impaired.

            The elimination of goodwill amortization would have reduced net loss
      by approximately $226 for the three months and $472 for the six months
      ended June 30, 2001, or $0.03 and $0.06 respectively per basic and diluted
      share. Pro forma net loss and loss per share information are shown as if
      the provisions of SFAS No. 142 were in effect for fiscal 2001.


                                       10
<PAGE>
                    D&E Communications, Inc. and Subsidiaries
                   Part I - Financial Information (continued)

               Item 1. Notes to Consolidated Financial Statements
                       (Dollar amounts are in thousands)
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                  Three months ended June 30,        Six months ended June 30,
                                                  ---------------------------        -------------------------
      (Dollars in thousands, except
            per share amounts)                       2002             2001             2002             2001
                                                     ----             ----             ----             ----
<S>                                               <C>               <C>             <C>               <C>
      Reported net income (loss)                   $ 51,952        ($     67)        $ 51,144        ($  2,761)
      Add: Goodwill amortization                         --              226               --              472
                                                   --------         --------         --------         --------
      Adjusted net income (loss)                   $ 51,952         $    159         $ 51,144        ($  2,289)
                                                   --------         --------         --------         --------

      Basic and diluted earnings per share:
      Reported net income (loss)                   $   4.85        ($   0.01)        $   5.65        ($   0.37)
      Add: Goodwill amortization                         --             0.03               --             0.06
                                                   --------         --------         --------         --------
      Adjusted net income (loss)                   $   4.85         $   0.02         $   5.65        ($   0.31)
                                                   --------         --------         --------         --------
</TABLE>

            During the first quarter 2002, we also adopted Statement of
      Financial Accounting Standards No. 144, "Accounting for the Impairment or
      Disposal of Long-Lived Assets" (SFAS 144) which addresses issues relating
      to the implementation of Statement of Financial Accounting Standards No.
      121, "Accounting for the Impairment of Long-Lived Assets and for
      Long-Lived Assets to Be Disposed Of." We have determined that there is no
      impairment to any long-lived assets. We have also accounted for the
      planned sale of the Conestoga wireless operations in accordance with SFAS
      144 (Note 3).

            Statement of Financial Accounting Standards No. 143, "Accounting for
      Obligations Associated with the Retirement of Long-Lived Assets" (SFAS
      143) was recently issued to provide accounting guidance for legal
      obligations associated with the retirement of long-lived assets. SFAS 143
      is effective for fiscal years beginning after June 15, 2002. We are
      currently evaluating the impact this statement will have on our financial
      position and results of operations.

6)    LONG-TERM DEBT

      During the second quarter of 2002 in connection with the Conestoga
acquisition (Note 2), we incurred additional indebtedness to finance a portion
of the acquisition and to repay certain existing indebtedness and related fees
and we also assumed certain existing indebtedness of Conestoga. In addition, in
the second quarter we incurred $833 of costs in connection with an abandoned
note offering which have been expensed in merger-related costs in the statement
of operations. The following table sets forth total long-term debt outstanding:


                                       11
<PAGE>
                    D&E Communications, Inc. and Subsidiaries
                   Part I - Financial Information (continued)

               Item 1. Notes to Consolidated Financial Statements
                       (Dollar amounts are in thousands)
                                   (Unaudited)


<TABLE>
<CAPTION>
                                          Interest               June 30,   December 31,
Description                                 rate      Maturity     2002         2001
----------------------------------------------------------------------------------------
<S>                                       <C>         <C>        <C>        <C>
Senior Secured Term Loan B                  5.69%       2010     $125,000     $     --
Senior Secured Term Loan A                  5.97%       2011       50,000       50,000
Senior Secured Revolving Credit Facility    5.65%       2009       35,000        8,000
Secured Term Loan                           9.34%       2014       20,000           --
Secured Term Loan                           9.36%       2014       15,000           --
Capital lease obligations                                           2,909          176
                                                                 -----------------------
                                                                  247,909       58,176
Less current maturities                                               126           52
                                                                 -----------------------
Total long-term debt                                             $247,783     $ 58,124
                                                                 =======================
</TABLE>

Senior Secured Term Loan B:

We have outstanding a new 8-1/2-year variable rate Senior Secured Term Loan B
("Term Loan B") for $125,000. Term Loan B bears interest at our option at either
the U.S. prime rate plus 1.75% to 3.00% or at LIBOR plus 2.50% to 4.00%,
depending on our total leverage ratio. At June 30, 2002 the average interest
rate was 5.69%. Term Loan B requires interest only payments for two years with
increasing quarterly principal payments from the third quarter of 2004 through
the fourth quarter of 2010.

Senior Secured Term Loan A:

The Secured Senior Term Loan A ("Term Loan A") bears interest at a base rate or
at one, two, three or six month LIBOR rates plus an applicable margin based on
our leverage ratio. At June 30, 2002 the average interest rate was 5.97%. The
Term Loan A requires interest only payments for three years with increasing
quarterly principal payments from the third quarter of 2004 through the second
quarter of 2011.

Senior Secured Revolving Credit Facility:

The Senior Secured Revolving Credit Facility ("Credit Facility") is a $75,000
8-1/2-year senior secured reducing revolving credit facility. The Credit
Facility requires interest only payments for two years with increasing quarterly
principal reductions of the amount available to borrow from the third quarter of
2004 through the fourth quarter of 2010. Interest is payable at a base rate or
at one, two, three or six month LIBOR rates plus an applicable margin based on
our leverage ratio. At June 30, 2002 the interest rate was 5.65%. The Credit
Facility also requires a quarterly commitment fee on the unused portion.

9.34% Secured Term Loan:

The 9.34% Secured Term Loan was assumed as a result of the Conestoga acquisition
(Note 2) and has been recorded at its book value, which approximates fair value.
The 9.34% Secured Term Loan requires interest to be paid quarterly at the stated
rate and also requires principal to be paid in quarterly installments of $500
from 2005 through 2014.


                                       12
<PAGE>
                    D&E Communications, Inc. and Subsidiaries
                   Part I - Financial Information (continued)

               Item 1. Notes to Consolidated Financial Statements
                       (Dollar amounts are in thousands)
                                   (Unaudited)


9.36% Secured Term Loan:

The 9.36% Secured Term Loan was assumed as a result of the Conestoga acquisition
(Note 2) and has been recorded at its book value, which approximates fair value.
The 9.36% Secured Term Loan requires interest to be paid quarterly at the stated
rate and also requires principal to be paid in quarterly installments of $375
from 2005 through 2014.

Our indebtedness requires that we maintain certain financial and operational
covenants. The most restrictive covenant is the total leverage ratio. At June
30, 2002, we were in compliance with all covenants. We are also required to
maintain interest rate protection on one-half of the total amount of senior
indebtedness outstanding, with a weighted average life of at least 2 years,
beginning on November 24, 2002.

Based on the borrowing rate currently available to us for bank loans, the book
value of long-term debt approximates the fair market value.

Maturities of long-term debt, for each year ending December 31, 2002 through
2006, are as follows:

<TABLE>
<CAPTION>
                        Year         Aggregate Amount
                        ----         ----------------
<S>                                  <C>
                        2002             $     --
                        2003                   --
                        2004                2,500
                        2005                5,000
                        2006                5,000
</TABLE>

At December 31, 2001, we had $1,757 outstanding under our lines of credit with
domestic banks. As of May 24, 2002, we terminated our lines of credit and repaid
all amounts outstanding.

Capital lease obligations:

      As a result of the Conestoga acquisition, we assumed a long-term lease
agreement for a building that requires monthly rent payments of approximately
$24, including interest at 7.95% through April 2020. In addition, D&E has
equipment leases that require monthly payments of $5 through October 2004.

(7)   INVESTMENTS, AVAILABLE-FOR-SALE

            During the second quarter of 2002, the company determined that the
      decline in value of two of its available-for-sale securities was other
      than temporary. As such, D&E recorded a $2,999 realized loss with a
      corresponding tax benefit of $1,174.

(8)   BUSINESS SEGMENT DATA

            Our segments, excluding the Wireless Services segment, which is now
      reported as a discontinued segment, are RLEC, CLEC, Internet Services and
      Systems Integration. In the first


                                       13
<PAGE>
                    D&E Communications, Inc. and Subsidiaries
                   Part I - Financial Information (continued)

               Item 1. Notes to Consolidated Financial Statements
                       (Dollar amounts are in thousands)
                                   (Unaudited)


      quarter of 2002 we renamed our ILEC segment our "RLEC" segment and our
      Networking Services segment our "Systems Integration" segment to better
      define these businesses. The measure of profitability for our segments is
      operating income.


                                       14
<PAGE>
                    D&E Communications, Inc. and Subsidiaries
                   Part I - Financial Information (continued)

               Item 1. Notes to Consolidated Financial Statements
                       (Dollar amounts are in thousands)
                                   (Unaudited)


      Financial results for D&E's business segments are as follows:

<TABLE>
<CAPTION>
                            External Revenues       Intersegment Revenues      Operating Income (Loss)
                           Three months ended        Three months ended          Three months ended
                                June 30,                  June 30,                    June 30,
      Segment              2002         2001         2002          2001          2002          2001
      -------            --------     --------     --------      --------      --------      --------
<S>                      <C>          <C>          <C>           <C>           <C>           <C>
RLEC                     $ 14,867     $ 10,171     $    955      $  1,211      $  1,712      $  2,666
CLEC                        3,903        1,729          120            58        (1,012)         (902)
Internet Services             981          365           37             4          (180)         (487)
Systems Integration         5,996        5,650           18            14          (631)       (1,160)
Corporate, Other
   and Eliminations           402          996       (1,130)       (1,287)          (51)          (65)
                         --------     --------     --------      --------      --------      --------
Total                    $ 26,149     $ 18,911     $     --      $     --      $   (162)     $     52
                         ========     ========     ========      ========      ========      ========
</TABLE>

<TABLE>
<CAPTION>
                            External Revenues       Intersegment Revenues      Operating Income (Loss)
                            Six months ended          Six months ended            Six months ended
                                June 30,                  June 30,                    June 30,
      Segment              2002         2001         2002          2001          2002          2001
      -------            --------     --------     --------      --------      --------      --------
<S>                      <C>          <C>          <C>           <C>           <C>           <C>
RLEC                     $ 25,467     $ 20,033     $  1,801      $  2,185      $  4,002      $  4,904
CLEC                        5,592        3,410          227           111        (1,885)       (1,590)
Internet Services           1,860          618           43            11          (469)       (1,140)
Systems Integration        11,486       11,349           25            38        (1,328)       (1,913)
Corporate, Other
   and Eliminations         1,348        1,656       (2,096)       (2,345)         (250)         (121)
                         --------     --------     --------      --------      --------      --------
Total                    $ 45,753     $ 37,066     $     --      $     --      $     70      $    140
                         ========     ========     ========      ========      ========      ========
</TABLE>

<TABLE>
<CAPTION>
                               Segment Assets
                         --------------------------
                            June          December
      Segment             30, 2002        31, 2001
      -------            ----------      ----------
<S>                      <C>             <C>
RLEC                     $  518,926      $  151,303
CLEC                         48,748          12,232
Internet Services             4,800           1,775
Systems Integration          17,708          14,787
Corporate, Other
   and Eliminations         (29,556)        (37,219)
                         ----------      ----------
Total                    $  560,626      $  142,878
                         ==========      ==========
</TABLE>

      The following table shows a reconciliation of the results for the business
segments to the applicable line items in the consolidated financial statements
as follows:

<TABLE>
<CAPTION>
                                                        Three months ended           Six months ended
                                                             June 30,                    June 30,
                                                        2002          2001          2002          2001
                                                      --------      --------      --------      --------
<S>                                                   <C>           <C>           <C>           <C>
Operating income (loss) from reportable segments      $   (111)     $    117      $    320      $    261
Corporate, other and eliminations                          (51)          (65)         (250)         (121)
Equity in net income (losses) of affiliates               (702)        1,730        (1,177)          442
Interest expense                                        (2,048)         (465)       (2,756)         (918)
Loss on investments                                     (2,999)           --        (2,999)           --
Other, net                                                 194           413           201           744
                                                      --------      --------      --------      --------
Income (loss) from continuing operations
   before income taxes and dividends
   on utility preferred stock                         $ (5,717)     $  1,730      $ (6,661)     $    408
                                                      ========      ========      ========      ========
</TABLE>


                                       15
<PAGE>
                   D&E Communications, Inc. and Subsidiaries
                   Part I - Financial Information (continued)

                Item 2. Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
                       (Dollar amounts are in thousands)


            The following discussion should be read in conjunction with our
      consolidated financial statements, including the notes thereto, included
      in this quarterly report on Form 10-Q. Monetary amounts presented in the
      following discussion are rounded to the nearest thousand dollars. Certain
      items in the financial statements for the three months and six months
      ended June 30, 2001 have been reclassified for comparative purposes.

      OVERVIEW

            We are a leading rural local telephone company providing integrated
      communications services to residential and business customers in markets
      throughout south central Pennsylvania. We operate an incumbent rural
      local telephone company, or RLEC, in parts of Berks, Lancaster, Union and
      smaller portions of three other adjacent counties in Pennsylvania, and a
      competitive local telephone company, or CLEC, in the Lancaster,
      Harrisburg, Reading, Altoona, Pottstown, State College and Williamsport,
      Pennsylvania metropolitan areas, which we refer to as our edge-out
      markets. We offer our customers a comprehensive package of communications
      services including local and long distance telephone, high speed data, and
      Internet access services. We also provide business customers with
      integrated voice and data network solutions.

            Our segments, excluding the wireless services segment, which, as
      discussed below, is now reported as a discontinued segment, are RLEC,
      CLEC, Internet Services and Systems Integration. In the first quarter of
      2002 we renamed our ILEC segment our "RLEC" segment and our Networking
      Services segment our "Systems Integration" segment to better define these
      businesses. The measure of profitability for our segments is operating
      income.

            Our RLEC revenue is derived primarily from network access charges,
      local telephone service, enhanced telephone services and regional toll
      service. Network access revenue consists primarily of charges paid by long
      distance companies for access to our network in connection with the
      completion of long distance telephone calls and payments from end-users.
      Local telephone service revenue consists of charges for local telephone
      services, including monthly charges for basic local service. Enhanced
      telephone services revenue is derived from providing special calling
      features, such as call waiting, caller ID, voicemail and PhoneGuard(TM), a
      telemarketer call-blocking service. Regional long distance revenue is
      derived from providing regional long distance services to our RLEC
      customers.


                                       16
<PAGE>
                   D&E Communications, Inc. and Subsidiaries
                   Part I - Financial Information (continued)

                Item 2. Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
                       (Dollar amounts are in thousands)


            Our CLEC revenue is derived primarily from network access charges,
      local telephone service, enhanced telephone services and long distance
      service revenue. Network access revenue consists primarily of charges paid
      by long distance companies and other non-CLEC customers for access to our
      network in connection with the completion of long distance telephone and
      local calls and the delivery of other services. Local telephone service
      revenue consists of charges for local telephone services, including
      monthly charges for basic local service. Enhanced telephone services
      revenue is derived from providing special calling features, such as call
      waiting, caller ID, voicemail and PhoneGuard(TM). Long distance revenue
      consists of charges for both national and regional long distance services,
      a portion of which are provided on a resale basis.

            Our Internet Services revenue is derived from dial-up and high speed
      Internet access services, in addition to web hosting services. We market
      these services primarily in our RLEC and CLEC service areas.

            Our Systems Integration revenue is derived from sales of services
      that support the design, implementation and maintenance of local and wide
      area networks and telecommunications systems. In addition, we sell data
      and voice communications equipment and provide custom computer programming
      service. We market these products and services primarily in our RLEC and
      CLEC service areas.

            Our operating costs and expenses primarily include wages and related
      employee benefit costs, depreciation and amortization, selling and
      advertising, software and information system services and general and
      administrative expenses. Our RLEC segment incurs costs related to network
      access charges, directory expense and other operations expenses such as
      digital electronic switch expense, engineering and testing costs. Our CLEC
      incurs costs related to leased network facilities associated with
      providing local telephone service to customers, engineering costs and
      network access costs for local calls and long distance expense. Our
      Internet Services segment incurs leased network facilities costs for our
      dial-up Internet service and for our DSL Internet service. Our Systems
      Integration business incurs expenses primarily related to equipment and
      materials used in the course of the installation and provision of service.

            We incur access line-related capital expenditures associated with
      access line growth, expenditures for upgrading existing facilities and
      costs related to the provision of DSL and dial-up Internet services in our
      RLEC and CLEC territories. We believe that our capital expenditures
      related to CLEC access line growth are generally associated with
      additional customers and therefore tend to result in incremental revenue.
      We believe that our additional capital expenditures relating to our
      investment in software and systems will provide us with a competitive
      advantage in the marketplace and generally allow for corresponding
      reductions in operating expenses.

            As of December 31, 2001, we owned a one-third investment in EuroTel
      L.L.C. (EuroTel), a domestic corporate joint venture. EuroTel held a 100%
      investment in PenneCom, B.V. (PenneCom), an international
      telecommunications holding company that held a 100% investment in Pilicka
      Telefonia, Sp.zo.o (Pilicka), a telecommunications company located in
      Poland.


                                       17
<PAGE>
                   D&E Communications, Inc. and Subsidiaries
                   Part I - Financial Information (continued)

                Item 2. Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
                       (Dollar amounts are in thousands)


            As of December 31, 2001, PenneCom was indebted to EuroTel and the
      investors in EuroTel, including D&E. PenneCom agreed with EuroTel and the
      EuroTel investors to satisfy a portion of its indebtedness to EuroTel and
      the founders by transferring PenneCom's entire equity interests in Pilicka
      to EuroTel and the founders. The total amount of indebtedness satisfied by
      PenneCom was equal to the total estimated fair value of Pilicka at
      December 31, 2001. As a result of these transactions, we now have a 31.00%
      direct ownership in Pilicka and a 7.52% indirect ownership in Pilicka,
      through our continuing one-third interest in EuroTel. We account for both
      our investment in EuroTel and Pilicka using the equity method of
      accounting. We currently are exploring strategic alternatives with regard
      to this investment.

            On April 1, 2002, we completed the sale of our investment in PCS
      ONE, which has been reported as a discontinued segment, resulting in a
      gain of $55,785. In the corresponding quarter in 2001, D&E's net loss
      included a loss of $1,644 from the wireless services segment. In
      addition, our share of losses from our European investments declined from
      an income of $1,730 in the second quarter of 2001 to a loss of $702 in the
      quarter ended June 30, 2002.

            On May 24, 2002, we completed our acquisition of Conestoga
      Enterprises, Inc. ("Conestoga"), a neighboring rural local exchange
      carrier providing integrated communications services throughout the
      eastern half of Pennsylvania. The acquisition was completed through the
      merger of Conestoga with and into D&E Acquisition Corp. (the "Merger
      Sub"), a wholly-owned subsidiary of D&E, pursuant to the Amended and
      Restated Agreement and Plan of Merger, dated as of January 9, 2002 (the
      "Merger Agreement"), by and among D&E, Conestoga and the Merger Sub (the
      "Merger"). We paid cash consideration of $149,554 and issued 7,868,570
      shares of D&E common stock to Conestoga shareholders pursuant to the
      Merger Agreement. We also assumed existing indebtedness of Conestoga and
      outstanding options issued pursuant to Conestoga equity compensation
      plans.

            In connection with the Merger, D&E entered into an Amended and
      Restated Credit Agreement dated May 24, 2002 (the "Credit Agreement") with
      CoBank, ACB ("CoBank"), as a lender and administrative agent and certain
      other lenders. The Credit Agreement provides for a new $125 million 8-1/2
      year variable rate senior secured term loan and a $25 million increase to
      D&E's existing $50 million revolving credit facility provided by CoBank.
      The Credit Agreement is also the governing document for D&E's existing $50
      million term loan from CoBank. On May 24, 2002, D&E borrowed the $125
      million term loan and $35 million under the revolving credit facility.
      These borrowings, along with the proceeds from the sale of our interest in
      PCS ONE, were used to pay the cash portion of the Merger as well as to
      repay certain existing indebtedness and related fees and expenses.  The
      $125 million term loan and borrowings under the $75 million revolving
      credit facility bear interest at D&E's option at either the U.S. prime
      rate plus 1.75% to 3.00% or at LIBOR plus 2.50% to 4.00%, depending on
      D&E's total leverage ratio. The $50 million term loan bears interest at
      D&E's option at either the U.S. prime rate plus 2.00% to 3.125% or at


                                       18
<PAGE>
                   D&E Communications, Inc. and Subsidiaries
                   Part I - Financial Information (continued)

                Item 2. Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
                       (Dollar amounts are in thousands)


      LIBOR plus 2.625% to 4.125%, depending on D&E's total leverage ratio. D&E
      is also required to maintain interest rate protection on one-half of the
      total amount of senior indebtedness outstanding, with a weighted average
      life of at least 2 years, beginning on November 24, 2002.

            The access line data presented below counts access lines associated
      with T-1 carrier systems related to our acquired Conestoga business using
      a different methodology than our non-Conestoga business. We are in the
      process of conforming these two access line count approaches. Management
      expects the access line count to be conformed during the third quarter of
      2002. We anticipate that any adjustment to our disclosed access line data
      (a) will be a positive adjustment and (b) will be immaterial as T-1
      carrier system lines are a relatively small population of our access
      lines.


RESULTS OF OPERATIONS

            The following table is a summary of our operating results by segment
      for the three months ended June 30, 2002 and 2001:

<TABLE>
<CAPTION>
                                                                                                      CORPORATE,
                                                                       INTERNET         SYSTEMS       OTHER AND         TOTAL
                                         RLEC            CLEC          SERVICES       INTEGRATION    ELIMINATIONS      COMPANY
                                      ----------      ----------      ----------      ----------      ----------      ----------
<S>                                   <C>             <C>             <C>             <C>            <C>              <C>
      JUNE 30, 2002

Revenues - External                   $   14,867      $    3,903      $      981      $    5,996      $      402      $   26,149
Revenues - Intercompany                      955             120              37              18          (1,130)             --
                                      ----------      ----------      ----------      ----------      ----------      ----------
Total Revenues                            15,822           4,023           1,018           6,014            (728)         26,149
                                      ----------      ----------      ----------      ----------      ----------      ----------

Depreciation and Amortization              4,159             423             111             332             556           5,581
Other Operating Expenses                   9,951           4,612           1,087           6,313          (1,233)         20,730
                                      ----------      ----------      ----------      ----------      ----------      ----------
Total Operating Expenses                  14,110           5,035           1,198           6,645            (677)         26,311
                                      ----------      ----------      ----------      ----------      ----------      ----------

Operating Income (Loss)                    1,712          (1,012)           (180)           (631)            (51)           (162)
                                      ----------      ----------      ----------      ----------      ----------      ----------

Adjusted EBITDA (1)                        5,871            (589)            (69)           (299)            505           5,419
                                      ----------      ----------      ----------      ----------      ----------      ----------

Net cash provided by continuing
   operating activities                                                                                                    5,027
Net cash provided by / used in
   continuing investing activities                                                                                      (164,452)
Net cash provided by / used in
   financing activities                                                                                                   91,177

      JUNE 30, 2001

Revenues - External                   $   10,171      $    1,729      $      365      $    5,650      $      996      $   18,911
Revenues - Intercompany                    1,211              58               4              14          (1,287)             --
                                      ----------      ----------      ----------      ----------      ----------      ----------
Total Revenues                            11,382           1,787             369           5,664            (291)         18,911
                                      ----------      ----------      ----------      ----------      ----------      ----------

Depreciation and Amortization              2,664             198              50             659             122           3,693
Other Operating Expense                    6,052           2,491             806           6,165            (348)         15,166
                                      ----------      ----------      ----------      ----------      ----------      ----------
Total Operating Expenses                   8,716           2,689             856           6,824            (226)         18,859
                                      ----------      ----------      ----------      ----------      ----------      ----------

Operating Income (Loss)                    2,666            (902)           (487)         (1,160)            (65)             52
                                      ----------      ----------      ----------      ----------      ----------      ----------

Adjusted EBITDA (1)                        5,330            (704)           (437)           (501)             57           3,745
                                      ----------      ----------      ----------      ----------      ----------      ----------

Net cash provided by continuing
   operating activities                                                                                                    5,889
Net cash provided by / used in
   continuing investing activities                                                                                        (9,280)
Net cash provided by / used in
   financing activities                                                                                                   12,358
</TABLE>


                                       19
<PAGE>
                   D&E Communications, Inc. and Subsidiaries
                   Part I - Financial Information (continued)

                Item 2. Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
                       (Dollar amounts are in thousands)


--------

(1) We compute Adjusted EBITDA by adding depreciation and amortization expense
to operating income. Adjusted EBITDA is presented because we believe it is
frequently used by securities analysts, investors and other interested parties
in the evaluation of companies in our industry. However, other companies in our
industry may calculate Adjusted EBITDA differently than we do. Adjusted EBITDA
is not a measurement of financial performance under generally accepted
accounting principles and should not be considered as a substitute for cash flow
from operating activities as a measure of liquidity or a substitute for net
income as an indicator of operating performance or any other measure of
performance derived in accordance with generally accepted accounting principles.

      The following table is a summary of our operating results by segment for
the six months ended June 30, 2002 and 2001:

<TABLE>
<CAPTION>
                                                                                                      CORPORATE,
                                                                       INTERNET        SYSTEMS        OTHER AND         TOTAL
                                         RLEC            CLEC          SERVICES       INTEGRATION    ELIMINATIONS      COMPANY
                                      ----------      ----------      ----------      ----------      ----------      ----------
<S>                                   <C>             <C>             <C>             <C>            <C>              <C>
      JUNE 30, 2002

Revenues - External                   $   25,467      $    5,592      $    1,860      $   11,486         $1,348       $   45,753
Revenues - Intercompany                    1,801             227              43              25        (2,096)               --
                                      ----------      ----------      ----------      ----------      ----------      ----------
Total Revenues                            27,268           5,819           1,903          11,511          (748)           45,753
                                      ----------      ----------      ----------      ----------      ----------      ----------

Depreciation and Amortization              7,275             669             209             646            666            9,465
Other Operating Expenses                  15,991           7,035           2,163          12,193        (1,164)           36,218
                                      ----------      ----------      ----------      ----------      ----------      ----------
Total Operating Expenses                  23,266           7,704           2,372          12,839          (498)           45,683
                                      ----------      ----------      ----------      ----------      ----------      ----------

Operating Income (Loss)                    4,002          (1,885)           (469)         (1,328)          (250)              70
                                      ----------      ----------      ----------      ----------      ----------      ----------

Adjusted EBITDA (1)                       11,277          (1,216)           (260)           (682)            416           9,535
                                      ----------      ----------      ----------      ----------      ----------      ----------

Net cash provided by continuing
   operating activities                                                                                                    5,448
Net cash provided by / used in
   continuing investing activities                                                                                      (170,200)
Net cash provided by / used in
   financing activities                                                                                                   95,963
</TABLE>


                                       20
<PAGE>
                   D&E Communications, Inc. and Subsidiaries
                   Part I - Financial Information (continued)

                Item 2. Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
                       (Dollar amounts are in thousands)


<TABLE>
<CAPTION>
                                                                                                      CORPORATE,
                                                                       INTERNET        SYSTEMS        OTHER AND         TOTAL
                                         RLEC            CLEC          SERVICES       INTEGRATION    ELIMINATIONS      COMPANY
                                      ----------      ----------      ----------      ----------      ----------      ----------
<S>                                   <C>             <C>             <C>             <C>            <C>              <C>
      JUNE 30, 2001

Revenues - External                   $   20,033      $    3,410      $      618      $   11,349      $    1,656      $   37,066
Revenues - Intercompany                    2,185             111              11              38          (2,345)             --
                                      ----------      ----------      ----------      ----------      ----------      ----------
Total Revenues                            22,218           3,521             629          11,387            (689)         37,066
                                      ----------      ----------      ----------      ----------      ----------      ----------

Depreciation and Amortization              5,179             416              95           1,306             226           7,222
Other Operating Expense                   12,135           4,695           1,674          11,994            (794)         29,704
                                      ----------      ----------      ----------      ----------      ----------      ----------
Total Operating Expenses                  17,314           5,111           1,769          13,300            (568)         36,926
                                      ----------      ----------      ----------      ----------      ----------      ----------

Operating Income (Loss)                    4,904          (1,590)         (1,140)         (1,913)           (121)            140
                                      ----------      ----------      ----------      ----------      ----------      ----------

Adjusted EBITDA (1)                       10,083          (1,174)         (1,045)           (607)            105           7,362
                                      ----------      ----------      ----------      ----------      ----------      ----------

Net cash provided by continuing
   operating activities                                                                                                    7,738
Net cash provided by / used in
   continuing investing activities                                                                                       (20,657)
Net cash provided by / used in
   financing activities                                                                                                   19,797
</TABLE>

CONSOLIDATED OPERATIONS

            Three months ended June 30, 2002 compared to the three months
            ended June 30, 2001

            Consolidated operating revenues from continuing operations increased
      $7,238, or 38.3%, to $26,149 for the three months ended June 30, 2002 from
      $18,911 in the same period of 2001. The revenue increase was primarily due
      to $7,342 in incremental revenue attributable to the acquisition of
      Conestoga on May 24, 2002.

            Consolidated operating income from continuing operations decreased
      $214 to a loss of $162 for the three months ended June 30, 2002 from
      income of $52 in the same period of 2001. The decrease was primarily
      attributable to $833 of financing costs expensed as merger-related costs
      during the current quarter related to an abandoned debt offering, $225 of
      severance charges expensed as merger-related costs during the current
      quarter for D&E employees terminated as a result of the merger and a
      charge to bad debt expense of $490 for WorldCom receivables due as of June
      30, 2002 as a result of their bankruptcy filing. Management anticipates an
      additional expense of $176 in the third quarter related to providing
      service to WorldCom from the end of the quarter to the date of their
      bankruptcy filing. The decrease was partially offset by the discontinuance
      of goodwill amortization in 2002 due to the adoption of


                                       21
<PAGE>
                   D&E Communications, Inc. and Subsidiaries
                   Part I - Financial Information (continued)

                Item 2. Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
                       (Dollar amounts are in thousands)


      SFAS 142 (see Note 5 to our consolidated financial statements), and lower
      Internet Services advertising and marketing costs.

            Other income and expense was a net expense of $5,555 in the second
      quarter of 2002 compared to a net income of $1,678 in the same period of
      the prior year. The equity in the operations of our European affiliates
      decreased to a loss of $702 in the second quarter of 2002 from income of
      $1,730 in 2001 as a result of a portion of an arbitration award included
      in 2001. Interest expense increased to $2,048 from $465 in the second
      quarter of 2001, as a result of increased borrowings to finance the
      acquisition of Conestoga. A loss of $2,999 was recognized in the second
      quarter of 2002 for the decline in market value of certain publicly traded
      investments that were determined to be other than temporary declines.

            Income taxes were a benefit of $2,060 in the second quarter of 2002
      compared to an expense of $136 in the same period of 2001. Discontinued
      operations from D&E Wireless resulted in after-tax income of $55,785 in
      the second quarter of 2002 primarily from the completion of the sale of
      our wireless partnership interest, compared with the loss of $1,644 in the
      second quarter of 2001. The discontinued operation of Conestoga Wireless
      for the one month included in the second quarter of 2002 was a loss of
      $159 after taxes. Our net income was $51,952, or $4.85 in the second
      quarter of 2002 compared to a net loss of $67, or $0.01 in the second
      quarter of 2001.

            Six months ended June 30, 2002 compared to the six months ended June
            30, 2001

            Consolidated operating revenues from continuing operations increased
      23.4% to $45,753 for the six months ended June 30, 2002 from $37,066 in
      the same period of 2001. The revenue increase was primarily due to $7,342
      in incremental revenue attributable to the acquisition of Conestoga on May
      24, 2002 as well as an increase of approximately 80% in the number of
      D&E's customers in our Internet Services segment and 35% more access lines
      in our CLEC segment before including Conestoga's lines.

            Consolidated operating income from continuing operations decreased
      $70 to an income of $70 for the six months ended June 30, 2002 from $140
      in the same period of 2001. The decrease was primarily attributable to
      $833 of financing costs expensed as merger-related costs during the
      current quarter related to an abandoned debt offering, $225 of severance
      charges expensed as merger-related costs during the current quarter for
      D&E employees terminated as a result of the merger and a charge to bad
      debt expense of $490 for WorldCom receivables due as of June 30, 2002 as a
      result of their bankruptcy filing. Management anticipates an additional
      expense of $176 in the third quarter related to providing service to
      WorldCom from the end of the quarter to the date of their bankruptcy
      filing. The decrease was partially offset by the discontinuance of
      goodwill amortization in 2002 due to the adoption of SFAS 142 (see Note 5
      to our financial statements), and reduced Internet Services advertising
      and marketing expense.

            Other income and expense was a net expense of $6,731 in the first
      half of 2002 compared to


                                       22
<PAGE>
                   D&E Communications, Inc. and Subsidiaries
                   Part I - Financial Information (continued)

                Item 2. Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
                       (Dollar amounts are in thousands)


      a net income of $268 in the same period of the prior year. The equity in
      the operations of our European affiliates decreased to a loss of $1,177 in
      the first half of 2002 from an income $442 in 2001 as a result of a
      portion of an arbitration award included in 2001. Interest expense
      increased to $2,756 from $918 in the first half of 2001, as a result of
      increased borrowings to finance the acquisition of Conestoga. A loss of
      $2,999 was recognized in the second quarter of 2002 for the decline in
      market value of certain publicly traded investments that were determined
      to be other than temporary declines.

            Income taxes were a benefit of $2,212 in the first half of 2002
      compared to an expense of $244 in the same period of 2001. Discontinued
      operations of D&E Wireless resulted in an income of $55,785 after tax in
      the first half of 2002 primarily from the completion of the sale of our
      wireless partnership interest, compared with the loss of $2,999 in the
      first half of 2001. The discontinued operation of Conestoga Wireless for
      the one month included in the first half of 2002 was a loss of $159 after
      taxes. Our net income was $51,144, or $5.65 in the first half of 2002
      compared to a net loss of $2,761, or $0.37 in the first half of 2001.

RLEC SEGMENT RESULTS

<TABLE>
<CAPTION>
                                           THREE MONTHS ENDED JUNE 30,                   SIX MONTHS ENDED JUNE 30,
                                     2002           2001          Change           2002           2001          Change
                                     ----           ----          ------           ----           ----          ------
<S>                                 <C>           <C>            <C>             <C>            <C>            <C>
Revenues  Revenues:
    Local Telephone Service        $  4,889       $  2,927       $  1,962        $  8,425       $  6,031       $  2,394
    Network Access                    8,248          6,511          1,737          13,957         12,396          1,561
    Other                             2,685          1,944            741           4,886          3,791          1,095
                                   --------       --------       --------        --------       --------       --------
Total Revenues                       15,822         11,382          4,440          27,268         22,218          5,050
                                   --------       --------       --------        --------       --------       --------

Depreciation and Amortization         4,159          2,664          1,495           7,275          5,179          2,096
Other Operating Expenses              9,951          6,052          3,899          15,991         12,135          3,856
                                   --------       --------       --------        --------       --------       --------
Total Operating Expenses             14,110          8,716          5,394          23,266         17,314          5,952
                                   --------       --------       --------        --------       --------       --------

Operating Income                      1,712          2,666           (954)          4,002          4,904           (902)
                                   --------       --------       --------        --------       --------       --------

Access Lines at June 30             146,902         61,720                        146,902         61,720
                                   --------        --------                      --------       --------
</TABLE>

            RLEC segment revenues increased 39.0% to $15,822 in the second
      quarter of 2002 from $11,382 in the same period of 2001. The Conestoga
      acquisition added $4,749 while our D&E RLEC revenue decreased $309 from
      the same period of 2001. Our D&E local telephone service revenues
      increased 20.0% to $3,514 in the second quarter of 2002, from $2,927 in
      the same period of 2001, driven by a rate increase effective in December
      2001. We experienced a decrease of 13.9% to $5,607 in D&E's network access
      revenues in the second quarter of 2002, from $6,511 in the same period of
      2001, as a result of lower call volumes and a decrease in certain network
      access rate elements. The access line increase was the result of 287
      additional D&E lines and 84,895 Conestoga lines acquired.


                                       23
<PAGE>
                   D&E Communications, Inc. and Subsidiaries
                   Part I - Financial Information (continued)

                Item 2. Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
                       (Dollar amounts are in thousands)


            RLEC operating expenses increased 61.9% to $14,110 in the second
      quarter of 2002 from $8,716 in the same period of the prior year. The
      increase was primarily attributable to financing costs expensed during the
      quarter related to an abandoned debt offering, severance related costs
      and a charge to bad debt expense of $428 for WorldCom receivables due as
      of June 30, 2002 as a result of their bankruptcy filing. Depreciation
      expense increased $1,495 as a result of the Conestoga acquisition and
      D&E's capital additions in the prior year, primarily from a new building
      placed into service in July 2001.

            RLEC segment revenues increased 22.7% to $27,268 in the first half
      of 2002 from $22,218 in the same period of 2001. The Conestoga acquisition
      added $4,749 while our D&E RLEC revenue increased $301 from the same
      period of 2001. Our D&E local telephone service revenues increased 16.9%
      to $7,051 in the first half of 2002, from $6,031 in the same period of
      2001, driven by a rate increase effective in December 2001. We experienced
      a decrease of 8.7% to $11,316 in D&E's network access revenues in the
      first half of 2002, from $12,396 in the same period of 2001, as a result
      of lower call volumes and a decrease in certain network access rate
      elements.

            RLEC operating expenses increased 34.4% to $23,266 in the first half
      of 2002 from $17,314 in the same period of the prior year. The increase
      was primarily attributable to financing costs expensed during the quarter
      related to an abandoned debt offering, severance related costs and a
      charge to bad debt expense of $428 for WorldCom receivables due as of June
      30, 2002 as a result of their bankruptcy filing. Depreciation expense
      increased $2,096 as a result of the Conestoga acquisition and D&E's
      capital additions in the prior year, primarily from a new building placed
      into service in July 2001.

CLEC SEGMENT RESULTS

<TABLE>
<CAPTION>
                                          THREE MONTHS ENDED JUNE 30,                  SIX MONTHS ENDED JUNE 30,
                                     2002           2001          Change          2002           2001          Change
                                     ----           ----          ------          ----           ----          ------
<S>                                <C>            <C>            <C>            <C>            <C>            <C>
Revenues:
    Local Telephone Service        $  1,041       $    346       $    695       $  1,601       $    631       $    970
    Network Access                      611            401            210            995            745            250
    Long Distance                     2,279            803          1,476          3,054          1,582          1,472
    Other                                92            237           (145)           169            563           (394)
                                   --------       --------       --------       --------       --------       --------
Total Revenues                        4,023          1,787          2,236          5,819          3,521          2,298
                                   --------       --------       --------       --------       --------       --------

Depreciation and Amortization           424            198            226            669            416            253
Other Operating Expenses              4,611          2,491          2,120          7,035          4,695          2,340
                                   --------       --------       --------       --------       --------       --------
Total Operating Expenses              5,035          2,689          2,346          7,704          5,111          2,593
                                   --------       --------       --------       --------       --------       --------

Operating Loss                       (1,012)          (902)          (110)        (1,885)        (1,590)          (295)
                                   --------       --------       --------       --------       --------       --------

Access Lines at June 30              29,541          5,571                        29,541          5,571
                                   --------       --------                      --------       --------
</TABLE>


                                       24
<PAGE>
                   D&E Communications, Inc. and Subsidiaries
                   Part I - Financial Information (continued)

                Item 2. Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
                       (Dollar amounts are in thousands)


            CLEC segment revenues increased 125.1% to $4,023 in the second
      quarter of 2002 from $1,787 in the same period of 2001. Of this increase,
      the Conestoga acquisition added $2,046 while our D&E CLEC revenue
      increased $190 from the same period of 2001. The D&E increase was
      primarily from the addition of access lines for new customers that
      increased basic area service revenues. The access line increase was the
      result of 3,550 additional D&E lines and 20,420 Conestoga lines acquired.

            CLEC operating expenses increased 87.2% to $5,035 in the second
      quarter of 2002 from $2,689 in the same period of the prior year. The
      increase was primarily related to the Conestoga acquisition and additional
      network operating costs consistent with the larger customer base, higher
      depreciation expense for additional equipment added and increased sales
      and marketing expense related to commencement of operations in our
      Harrisburg, Pennsylvania market. The expenses included a charge to bad
      debt expense of $62 for WorldCom receivables due as of June 30, 2002 as a
      result of their bankruptcy filing.

            CLEC segment revenues increased 65.3% to $5,819 in the first half of
      2002 from $3,521 in same period of 2001. The Conestoga acquisition added
      $2,046 while our D&E CLEC revenue increased $252 from the same period of
      2001. The D&E increase was primarily from the addition of access lines for
      new customers that increased basic area service revenues.

            CLEC operating expenses increased 50.7% to $7,704 in the first half
      of 2002 from $5,111 in the same period of the prior year. The increase was
      primarily related to the Conestoga acquisition and additional network
      operating costs consistent with the larger customer base, higher
      depreciation expense for additional equipment added and increased sales
      and marketing expense related to commencement of operations in our
      Harrisburg, Pennsylvania market. The expenses included a charge to bad
      debt expense of $62 for WorldCom receivables due as of June 30, 2002 as a
      result of their bankruptcy filing.

INTERNET SERVICES SEGMENT RESULTS

<TABLE>
<CAPTION>
                                      THREE MONTHS ENDED JUNE 30,                 SIX MONTHS ENDED JUNE 30,
                                 2002           2001          Change         2002           2001          Change
                                 ----           ----          ------         ----           ----          ------
<S>                            <C>            <C>            <C>           <C>            <C>            <C>
Revenues                       $  1,018       $    369       $    649      $  1,903       $    629       $  1,274

Depreciation and Amortization       111             50             61           209             95            114
Other Operating Expenses          1,087            806            281         2,163          1,674            489
                               --------       --------       --------      --------       --------       --------
Total Operating Expenses          1,198            856            342         2,372          1,769            603
                               --------       --------       --------      --------       --------       --------

Operating Loss                     (180)          (487)           307          (469)        (1,140)           671
                               --------       --------       --------      --------       --------       --------

Customers at June 30
     DSL                          2,729          1,450                        2,729         1,450
     Dial-up Access              11,906          6,296                       11,906         6,296
     Web-hosting Services           560            310                          560           310
</TABLE>


                                       25
<PAGE>
                   D&E Communications, Inc. and Subsidiaries
                   Part I - Financial Information (continued)

                Item 2. Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
                       (Dollar amounts are in thousands)


            Internet Services segment revenues increased 175.9% to $1,018 in the
      second quarter of 2002 from $369 in the same period of 2001. Dial-up
      services for single user residential and business customers, as well as
      DSL customers and web-hosting subscribers increased over 80% in the second
      quarter of 2002 from the second quarter 2001. A minimal portion of the
      increase was attributable to the Conestoga acquisition. Customer count
      increases are attributable only to D&E.

            Internet Services segment operating expenses increased 40.0% to
      $1,198 in the second quarter of 2002 from $856 in the same period of the
      prior year. The direct cost of operations increased as a result of
      providing service to the larger customer base.

            Internet Services segment revenues increased 202.5% to $1,903 in the
      first half of 2002 from $629 in the same period of 2001. Dial-up services
      for single user residential and business customers, as well as DSL
      customers and web-hosting subscriber increases accounted for the revenue
      increase, with a minimal portion of the increase attributable to the
      Conestoga acquisition.

            Internet Services segment operating expenses increased 34.1% to
      $2,372 in the first half of 2002 from $1,769 in the same period of the
      prior year. The direct cost of operations increased as a result of
      providing service to the larger customer base.

SYSTEMS INTEGRATION SEGMENT RESULTS

<TABLE>
<CAPTION>
                                         THREE MONTHS ENDED JUNE 30,                   SIX MONTHS ENDED JUNE 30,
                                     2002           2001          Change          2002           2001          Change
                                     ----           ----          ------          ----           ----          ------
<S>                                <C>            <C>            <C>            <C>            <C>            <C>
Revenues                           $  6,014       $  5,664       $    350       $ 11,511       $ 11,387       $    124

Depreciation and Amortization           332            659           (327)           646          1,306           (660)
Other Operating Expenses              6,313          6,165            148         12,193         11,994            199
                                   --------       --------       --------       --------       --------       --------
Total Operating Expenses              6,645          6,824           (179)        12,839         13,300           (461)
                                   --------       --------       --------       --------       --------       --------

Operating Loss                         (631)        (1,160)           529         (1,328)        (1,913)           585
                                   --------       --------       --------       --------       --------       --------
</TABLE>

            Systems Integration segment revenues increased 6.2% to $6,014 in the
      second quarter of 2002 from $5,664 in the same period of 2001. The
      Conestoga acquisition added $610, D&E's product sales increased $202 and
      D&E's service revenues decreased $462 from the second quarter of 2001. We
      believe the decrease partially relates to the effects of a slowing economy
      and reductions in customer spending for communications related
      infrastructure and consulting services.

            Systems Integration segment operating expenses decreased 2.6% to
      $6,645 in the second quarter 2002 from $6,824 in the same period of the
      prior year. The decrease in depreciation and amortization primarily
      relates to the discontinuance of amortizing goodwill from two acquisitions


                                       26
<PAGE>
                   D&E Communications, Inc. and Subsidiaries
                   Part I - Financial Information (continued)

                Item 2. Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
                       (Dollar amounts are in thousands)


      in 2000 due to the adoption of a new accounting pronouncement which
      amounted to $226 in the second quarter of 2001. Other operating expense
      changes in the second quarter of 2002 primarily related to increased cost
      of equipment sold offset by lower computer services expense.

            Systems Integration segment revenues increased 1.1% to $11,511 in
      the first half of 2002 from $11,387 in the same period of 2001. The
      Conestoga acquisition added $610, D&E's product sales increased $415 and
      D&E's service revenues decreased $901 from the first half of 2001. We
      believe the decrease partially relates to the effects of a slowing economy
      and reductions in customer spending for communications related
      infrastructure and consulting services.

            Systems Integration segment operating expenses decreased 3.5% to
      $12,839 in the first half 2002 from $13,300 in the same period of the
      prior year. The decrease in depreciation and amortization primarily
      relates to the discontinuance of amortizing goodwill from two acquisitions
      in 2000 due to the adoption of a new accounting pronouncement, which
      amounted to $472 for the six-months ended June 30, 2001. Other operating
      expense changes in the first half of 2002 primarily related to increased
      cost of equipment sold offset by lower computer services expense.

      OTHER INCOME (EXPENSE)

            Other income (expense) for the three months ended June 30, 2002 was
      a net expense of $5,555, compared to a net income of $1,678 in the same
      period of 2001. The equity in the operations of our European affiliates
      decreased to a loss of $702 in the second quarter of 2002 from an income
      $1,730 in 2001 as a result of a portion of an arbitration award included
      in 2001. Interest expense increased to $2,048 from $465 in the second
      quarter of 2001, as a result of increased borrowings for the Conestoga
      acquisition and capital expenditures. A loss of $2,999 was recognized in
      the second quarter of 2002 for the decline in market value of certain
      publicly traded investments that were determined to be other than
      temporary declines.

            Other income (expense) for the first half of 2002 was a net expense
      of $6,731, compared to a net income of $268 in the same period of 2001.
      The equity in the operations of our European affiliates decreased to a
      loss of $1,177 in the first half of 2002 from an income of $442 in 2001 as
      a result of a portion of an arbitration award included in 2001. Interest
      expense increased to $2,756 from $918 in the first half of 2001, as a
      result of increased borrowings for the Conestoga acquisition and capital
      expenditures. A loss of $2,999 was recognized in the second quarter of
      2002 for the decline in market value of certain publicly traded
      investments that were determined to be other than temporary declines.

      INCOME TAXES

            Income taxes were a benefit of $2,060 in the second quarter of 2002
      compared to an expense of $136 in the same period of 2001. The change in
      tax primarily resulted from the taxable income in 2001 changing to a
      taxable loss in 2002.


                                       27
<PAGE>
                   D&E Communications, Inc. and Subsidiaries
                   Part I - Financial Information (continued)

                Item 2. Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
                       (Dollar amounts are in thousands)


            Income taxes were a benefit of $2,212 in the first half of 2002
      compared to an expense of $244 in the same period of 2001. The change in
      tax primarily resulted from the taxable income in 2001 changing to a
      taxable loss in 2002.

      DISCONTINUED OPERATIONS

            On April 1, 2002, we completed the sale of our investment in PCS
      ONE, which has been reported as a discontinued segment resulting in a gain
      of $55,785. In the corresponding quarter in 2001, our loss included a loss
      of $1,644 from the wireless services segment.

            On May 24, 2002, concurrent with the completion of the Conestoga
      acquisition, we classified the Conestoga wireless business as a
      discontinued operation.Since the acquisition date, Conestoga Wireless
      recorded a loss of $159 after taxes as part of the discontinued
      operations.

      EXTRAORDINARY ITEM

            As a result of moving to an alternative form of regulation during
      the first quarter of 2001, in accordance with SFAS 101 "Regulated
      Enterprises - Accounting for the Discontinuation of Application of FASB
      No. 71," $107 of previously established regulatory tax liabilities were
      eliminated.

      FINANCIAL CONDITION

      LIQUIDITY AND CAPITAL RESOURCES

            We have historically generated cash from our operating activities.
      Our overall capital resource strategy is to finance capital expenditures
      for new and existing lines of businesses and acquisitions partly with
      operating cash and through external sources, such as bank borrowings and
      offerings of debt or equity securities.

            Net cash provided by continuing operations was $5,448 in the first
      half of 2002 compared with $7,738 in the same period of the prior year.
      Increased operating expenses relating to the expansion of our CLEC and
      Internet Services segments and payments related to severance and merger
      acquired liabilities paid in the second quarter of 2002 were the major
      causes of the decline.

            Net cash used in investing activities was $170,200 in the first half
      of 2002 primarily due to $158,720 in business acquisition costs. Other
      capital additions were $10,763 for the period. Capital additions were
      primarily for $5,597 for network infrastructure expansion plus $2,284 for
      CLEC additions and $1,537 for computers. In the first half of 2001,
      $17,221 was invested in capital additions including $6,260 for
      construction of an office building.


                                       28
<PAGE>
                   D&E Communications, Inc. and Subsidiaries
                   Part I - Financial Information (continued)

                Item 2. Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
                       (Dollar amounts are in thousands)


            Net cash provided by financing activities was $95,963 in the first
      half of 2002. Long-term debt was increased $160,000. The majority of the
      additional debt was used to fund the Conestoga acquisition. Of the
      remainder, $61,889 was used to repay other long-term loans and lines of
      credit and to pay debt issuance costs. Quarterly dividends paid were
      $2,718, which included dividends paid on shares issued to Conestoga
      shareholders in the Merger. In the first half of 2001, $21,383 was
      provided from bank lines of credit and $1,720 was used to pay quarterly
      dividends.

      EXTERNAL SOURCES OF CAPITAL AT JUNE 30, 2002

            During the second quarter of 2002, we abandoned an offering of
      senior notes due to market conditions. We completed our financing from a
      bank to amend our existing credit facility to provide a new 8-1/2-year
      variable rate senior secured term loan for $125,000 and a $25,000 increase
      to our existing 8-1/2-year revolving credit facility. In connection with
      the amended agreement, we incurred debt issuance costs of approximately
      $7,922, which will be amortized over the 8-1/2-year life of the debt. We
      amended our existing credit facility to, among other things, increase
      certain interest rate provisions, grant the lender a secured position with
      respect to all credit facility borrowings and include additional financial
      covenants.

            As of June 30, 2002, we had $285,000 in credit facilities consisting
            of the following:
            - $50,000 single draw 10-year term loan, of which $50,000 was
              outstanding,
            - $75,000 senior reducing revolving credit loan for 8-1/2 years,
              of which $35,000 was drawn,
            - $125,000 single draw 8-1/2-year term loan, of which $125,000 was
              outstanding,
            - $35,000 single draw 12-year term loan, of which $35,000 was
              outstanding.

            The $50,000 term loan requires interest only payments for three
      years with increasing quarterly principal payments from the third quarter
      of 2004 through the second quarter of 2011. The revolving credit facility
      requires interest only payments for two years with increasing quarterly
      principal reductions of the amount available to borrow from the third
      quarter of 2003 through the fourth quarter of 2009. The $125,000 term loan
      requires interest only payments for two years with increasing quarterly
      principal payments from the third quarter of 2004 through the fourth
      quarter of 2010. The $35,000 term loan requires interest only payments for
      three years with equal quarterly payment from the first quarter of 2005
      through the fourth quarter of 2014. Interest on both the $50,000 and
      $125,000 term loans and the revolving credit facility is payable at a base
      rate or at LIBOR rates plus an applicable margin based on our leverage
      ratio. Interest on the $35,000 term loan was fixed at 9.34% for $20,000
      and 9.36% for the remaining $15,000 supplement. A commitment fee must be
      paid on the unused portion of the revolving credit facility. We are
      required to maintain interest rate protection on one-half of the total
      amount of senior indebtedness outstanding, with a weighted average life of
      at least 2 years, beginning on November 24, 2002.


                                       29
<PAGE>
                   D&E Communications, Inc. and Subsidiaries
                   Part I - Financial Information (continued)

                Item 2. Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
                       (Dollar amounts are in thousands)


            The credit facilities include a number of significant covenants that
      impose restrictions on our business. These covenants include, among
      others, restrictions on additional indebtedness, mergers, acquisitions and
      the disposition of assets, sale and leaseback transactions and capital
      lease payments. In addition, we are required to comply with financial
      covenants with respect to the maximum indebtedness to total capitalization
      ratio, a maximum leverage ratio, a debt service ratio and a fixed charge
      ratio.

            Upon completion of the sale of our interest in PCS ONE on April 1,
      2002, we received approximately $74,168 and subsequently repaid the
      outstanding balances on our revolving credit facility and our bank lines
      of credit. As of May 24, 2002 we discontinued the previous two lines of
      credit totaling $20,000.

            For further information regarding our lines of credit and long-term
      debt, see Note 6 to our consolidated financial statements included in this
      Quarterly Report on Form 10-Q.

      COMMITMENTS, CONTINGENCIES AND PROJECTED USES OF CAPITAL

            Having completed the Conestoga acquisition, we believe that our most
      significant commitments, contingencies and projected uses of funds in
      2002, other than for operations, include capital expenditures, the payment
      of annual common stock dividends and other contractual obligations.

            We hold a 31% direct interest in Pilicka and a 33% interest in
      EuroTel, both of which we account for under the equity method of
      accounting. Thus, neither the assets nor the liabilities of Pilicka or
      EuroTel are presented on a consolidated basis on our balance sheets. We
      have committed to loan EuroTel, on an equal basis with the other investors
      in EuroTel, certain of its operating cash needs. In 2001, we made advances
      of $9,920 pursuant to this commitment. We advanced $674 in funds to
      EuroTel in the six months ended June 30, 2002, and we expect that our
      total 2002 funding requirements for EuroTel will be approximately $1,000.
      We have provided a letter of commitment to advance funds to EuroTel for
      2002.

      CRITICAL ACCOUNTING POLICIES AND ESTIMATES

            Our discussion and analysis of our results of operations and
      financial condition is based upon our consolidated financial statements,
      which have been prepared in accordance with accounting principles
      generally accepted in the United States. The preparation of the financial
      statements requires us to make estimates and judgments that affect the
      reported amounts. On an on-going basis, we evaluate our estimates,
      including those related to intangible assets, income taxes, revenues,
      contingencies and impairment of long-lived assets. We base our estimates
      on historical experience and other assumptions that are believed to be
      reasonable under the circumstances. Actual results may differ from these
      estimates under different assumptions or conditions, as further described
      below.


                                       30
<PAGE>
                   D&E Communications, Inc. and Subsidiaries
                   Part I - Financial Information (continued)

                Item 2. Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
                       (Dollar amounts are in thousands)


            Note 2 to our consolidated financial statements included in our
      Annual Report on Form 10-K for the year ended December 31, 2001 provides a
      summary of all significant accounting policies that we follow in the
      preparation of our financial statements. We have identified the following
      critical accounting policies as those that are the most significant to our
      financial statement presentation and that require difficult, subjective
      and complex judgments:

      Revenue Recognition

            Revenues for all of our business segments are generally recorded
      when services are provided or products are delivered. Our RLEC and CLEC
      pricing is subject to oversight by both state and federal regulatory
      commissions. Such regulation also covers services, competition and other
      public policy issues. Different interpretations by regulatory bodies may
      result in adjustments in future periods to revenues derived from our RLEC
      and CLEC operations. We monitor these proceedings closely and make
      adjustments to revenue accordingly.

            We receive a portion of our interstate access revenues in our RLEC
      and CLEC segments from settlement pools in which we participate with other
      telephone companies through the National Exchange Carrier Association,
      Inc. (NECA). These pools were established at the direction of the FCC and
      are funded by interstate access service revenues, which the FCC regulates.
      Revenues earned through this pooling process are initially recognized
      based on estimates and are subject to adjustments that may either increase
      or decrease the amount of interstate access revenues. If the actual
      amounts that we receive from the settlement pools differ from the amounts
      that we have recorded as accounts receivables on our balance sheets, we
      would be required to record the amount of such a reduction or increase as
      an adjustment to our earnings. Historically, we have not experienced
      significant adjustments to our revenues as a result of our participation
      in these pools.

      Regulated Asset Depreciation

            We use a composite group remaining life method and straight-line
      composite rates to depreciate the regulated property assets of our RLEC
      and CLEC segments. Under this method, when we replace or retire such
      assets, we deduct the net book value of these assets and charge it to
      accumulated depreciation. The effect of this accounting is to amortize any
      gains or losses on dispositions over the service lives of the remaining
      regulated telephone property assets rather than recognizing such gain or
      loss in the period of retirement.

            In addition, use of the composite group remaining life method
      requires that we periodically revise our depreciation rates. Such
      revisions are based on asset retirement activity, cost of removal and
      salvage values and often require that we make related estimates and
      assumptions. If actual outcomes differ from our estimates and assumptions,
      we may be required to adjust depreciation and amortization expense, which
      could impact our earnings.

      Goodwill and Intangible Assets:


                                       31
<PAGE>
                   D&E Communications, Inc. and Subsidiaries
                   Part I - Financial Information (continued)

                Item 2. Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
                       (Dollar amounts are in thousands)


            Purchase price accounting requires extensive use of accounting
      estimates and judgments to allocate the purchase price to the fair market
      value of the assets and liabilities purchased. In our recording of the
      purchase of Conestoga Enterprises, we have engaged a valuation expert to
      assist us in determining the fair value of these assets and liabilities.
      Included in the preliminary asset valuation for this purchase was the
      valuation of intangible assets that will be amortized over their estimated
      useful lives.

            Effective January 1, 2002, we adopted SFAS No. 142, "Goodwill and
      Other Intangible Assets" which requires that goodwill and indefinite-lived
      intangible assets resulting from business combinations no longer be
      amortized, but instead be reviewed for recoverability which may result in
      periodic write-downs. We will assess on an annual basis the fair values of
      the reporting units holding the goodwill and any intangibles and, if
      necessary, assess on an interim basis for any impairments. Any write-offs
      would result in a charge to earnings and a reduction in equity in the
      period.

      Impairment of Long-Lived Assets

            Based upon the provisions of SFAS No. 144, "Accounting for the
      Impairment or Disposal of Long-Lived Assets," we review assets and
      finite-lived intangibles for impairment whenever events or changes in
      circumstances indicate that the carrying value of the asset may not be
      recoverable. Our assets subject to SFAS No. 144 include our property,
      plant and equipment and certain intangibles. A determination of impairment
      is made based on estimates of future cash flows. While we have never
      recorded an impairment charge under SFAS 144, future events or changes in
      circumstances could result in a charge to earnings.

      Investment in Unconsolidated Affiliates

            We have investments and advances to affiliated entities that are
      accounted for under the equity method of accounting. We periodically
      evaluate whether there have been declines in value in these investments,
      and if so, whether these declines are considered temporary or
      other-than-temporary. Other-than-temporary declines would be recognized as
      realized losses in earnings. Evidence of a loss in value includes, but is
      not limited to, our inability to recover the carrying amount of the
      investment or the inability of the investee to sustain an earnings
      capacity, which would justify the carrying amount of the investment. The
      fair value of an investment that is less than its book value may indicate
      a loss in value of the investment. Our evaluations are based on many
      factors, including the duration and extent to which the fair value is less
      than carrying amount; the financial health of and business outlook for the
      investee, including industry performance, changes in technology, and
      operational and financing cash flow factors; and our intent and ability to
      hold the investment, including strategic factors.

      Retirement Benefits


                                       32
<PAGE>
                   D&E Communications, Inc. and Subsidiaries
                   Part I - Financial Information (continued)

                Item 2. Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
                       (Dollar amounts are in thousands)


            Retirement benefits are a significant cost of doing business and yet
      represent obligations that will be settled in the future. Retirement
      benefit accounting is intended to reflect the recognition of future
      benefit costs over the employee's approximate service period based on the
      terms of the plans and the investment and funding decisions made by a
      company. We record the costs of providing retirement benefits in
      accordance with SFAS No. 87 "Employers' Accounting for Pensions". Our
      estimates include assumptions regarding the discount rate to value the
      future obligation and the expected return on our plan assets. We use
      discount rates in line with current market interest rates on high quality
      fixed rate debt securities. Our return on assets is based on our current
      expectation of the long-term returns on assets held by the plan. Changes
      in these key assumptions can have a significant impact on the projected
      benefit obligations, funding requirements and periodic benefit costs that
      we incur.

      Income Taxes

            We file a consolidated federal income tax return. We have two
      categories of income taxes: current and deferred. Current taxes are those
      amounts we expect to pay when we file our tax returns. Since we must
      report some of our revenues and expenses differently for our financial
      statements than we do for income tax purposes, we record the tax effects
      of those differences as deferred tax assets and liabilities in our
      consolidated balance sheets. These deferred tax assets and liabilities are
      measured using the enacted tax rates that are currently in effect.

            Management judgment is required in determining the provision for
      current income taxes, deferred tax assets and liabilities, and any
      valuation allowance recorded against the net deferred tax assets. A
      valuation allowance is established for any deferred tax asset that we may
      not be able to use in the preparation and filing of our future tax
      returns. We have recorded a valuation allowance due to uncertainties
      related to the ability to utilize some of the deferred tax assets,
      consisting primarily of equity income losses carried forward before they
      expire.

      RECENT ACCOUNTING PRONOUNCEMENTS

            During the first quarter 2002, we adopted Statement of Financial
      Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS
      142), which addresses the accounting for goodwill and intangible assets
      subsequent to their acquisition. Annual goodwill amortization of
      approximately $1,440 ceased as of January 1, 2002 as a result of adopting
      SFAS 142. During the first quarter 2002, we also adopted Statement of
      Financial accounting Standards No. 144, "Accounting for the Impairment or
      Disposal of Long-Lived Assets" (SFAS 144) which addresses issues relating
      to the implementation of Financial Accounting Statement No. 121,
      "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
      Assets to Be Disposed Of." We have determined that there is no impairment
      to any long-lived assets. However, we have accounted for our planned sale
      of Conestoga's wireless segment in accordance with SFAS 144 as described
      in Note 3 to our consolidated financial statements included in this Form
      10-Q.


                                       33
<PAGE>
                   D&E Communications, Inc. and Subsidiaries
                   Part I - Financial Information (continued)

                Item 2. Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
                       (Dollar amounts are in thousands)


            Statement of Financial Accounting Standards No. 143, "Accounting for
      Obligations Associated with the Retirement of Long-Lived Assets" (SFAS
      143) was recently issued to provide accounting guidance for legal
      obligations associated with the retirement of long-lived assets. SFAS 143
      is effective for fiscal years beginning after June 15, 2002. We are
      currently evaluating the impact this statement will have on our financial
      position and results of operations.

      FORWARD-LOOKING STATEMENTS

            This quarterly report contains forward-looking statements within the
      meaning of Section 27A of the Securities Act of 1933 and Section 21E of
      the Securities Exchange Act of 1934. Forward looking statements provide
      our current expectations or forecasts of future events. You can identify
      these statements by the fact that they do not relate strictly to
      historical or current facts. These statements may relate to our financial
      condition, results of operations, plans, objectives, future performance
      and business. Often these statements include words such as "believes,"
      "expects," "anticipates," "estimates," "intends," "strategy," "plan," or
      similar words or expressions. In particular, statements, express or
      implied, concerning future operating results, the ability to generate
      income or cash flows, or our capital resources or financing plans are
      forward-looking statements. These forward-looking statements involve
      certain risks and uncertainties. Our actual performance or achievements
      may differ materially from those contemplated by these forward-looking
      statements.

            You should understand that various factors, in addition to those
      discussed in the section titled "Factors Affecting Our Prospects" and
      elsewhere in this document, could affect our future results and could
      cause results to differ materially from those expressed in these
      forward-looking statements. You are cautioned not to place undue reliance
      on these forward-looking statements, which speak only as of the date of
      this document. All subsequent written and oral forward-looking statements
      attributable to us are expressly qualified in their entirety by the
      cautionary statements contained or referred to in this report. We do not
      undertake any obligation to release publicly any revisions to these
      forward-looking statements to reflect events or circumstances after the
      date of this document or to reflect the occurrence of unanticipated
      events.

      FACTORS AFFECTING OUR PROSPECTS

      THE COMMUNICATIONS INDUSTRY IS BECOMING INCREASINGLY COMPETITIVE, AND THIS
      COMPETITION HAS RESULTED IN PRICING PRESSURE ON OUR SERVICE OFFERINGS.

      As a provider of integrated communications services, we face competition
      from:

      -     competitive local exchange carriers, including Adelphia Business
      Solutions (which has received regulatory approval to compete with us in
      our RLEC territory using its own facilities), Commonwealth Telephone
      Enterprises and XO Communications;

      -     Internet service providers, including AOL, EarthLink and MSN;


                                       34
<PAGE>
                   D&E Communications, Inc. and Subsidiaries
                   Part I - Financial Information (continued)

                Item 2. Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
                       (Dollar amounts are in thousands)


      -     cable television companies, including Adelphia Communications,
      Comcast, AT&T Broadband and Pencor Services;

      -     wireless services providers, including AT&T Wireless, Cingular
      Wireless, Sprint PCS and VoiceStream Wireless;

      -     providers of communications services such as long distance services,
      including, AT&T, MCI WorldCom and, as a consequence of its recently
      received regulatory approval to provide long distance services in
      Pennsylvania, Verizon Communications; and

      -     systems integration providers, including Morefield, Williams,
      IntelliMark and Weidenhammer Systems.

      Many of our competitors have substantially greater financial, technical
      and marketing resources, greater name recognition and more established
      relationships with a larger base of current and potential customers than
      us. Accordingly, it may be difficult to compete against these
      communications providers. In addition, we cannot assure you that we will
      be able to achieve or maintain adequate technology to remain competitive.
      Accordingly, it may be difficult to compete in our markets.

      WE ARE SUBJECT TO A COMPLEX AND UNCERTAIN REGULATORY ENVIRONMENT THAT MAY
      REQUIRE US TO ALTER OUR BUSINESS PLANS AND FACE INCREASED COMPETITION.

      The United States communications industry is subject to federal, state and
      other regulations that are continually evolving. As new communications
      laws and regulations are issued, we may be required to modify our business
      plans or operations and may not be able to do so in a cost-effective
      manner. Federal and state regulatory trends toward a more competitive
      marketplace through reduced competitive entry standards are likely to have
      negative effects on our business and our ability to compete. The
      regulatory environment governing ILEC operations has been and will likely
      continue to be very liberal in its approach to promoting competition and
      network access, which may increase the likelihood of new competitors
      offering similar services to our service areas. The introduction of new
      competitors could have a negative effect on our operating results.

      WE HAVE RECEIVED A LIMITED SUSPENSION FROM CERTAIN INTERCONNECTION
      REQUIREMENTS OF THE TELECOMMUNICATIONS ACT OF 1996. UPON EXPIRATION OF THE
      SUSPENSION, WE MAY BE SUBJECT TO ADDITIONAL COMPETITION FOR
      TELECOMMUNICATIONS SERVICES.

      Congress specifically recognized that the movement towards increased
      competition under the Telecommunications Act of 1996 (TA-96) requires
      accommodation for the different market characteristics of areas served by
      rural and small incumbent carriers. In this regard, the Pennsylvania
      Public Utility Commission (PA PUC) previously granted our RLECs a limited
      suspension until July 2002 from certain interconnection requirements of
      the TA-96. The suspension reduces our interconnection obligations in the
      RLEC territory by excluding us from requirements that would allow
      competitors access to our customers by relying upon our service


                                       35
<PAGE>
                   D&E Communications, Inc. and Subsidiaries
                   Part I - Financial Information (continued)

                Item 2. Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
                       (Dollar amounts are in thousands)


      and facilities.

      In June 2002, our RLECs petitioned the PA PUC for an extension of certain
      protections provided in the original suspension. Our RLECs anticipate PA
      PUC action on the petition during the third quarter of 2002. While the
      request is under review, the terms and conditions of the original
      suspension remain in effect. Although narrower in scope, the June 2002
      petition, if granted, would continue to preclude the use of our RLEC
      services and facilities by a competitor. If our RLECs do not receive
      additional extensions of this suspension, competitors will be allowed to
      seek removal of our rural exemption for the purposes of using our services
      and facilities through interconnection agreements to provide competitive
      services. If this event were to occur, our RLECs would exercise their
      right to petition the PA PUC to deny the competitor's request. The
      prospective competitor would have the burden of proof to show that the
      request is not unduly economically burdensome, is technically feasible,
      and is consistent with universal service principles.

      The introduction of new competitors could result in the loss of customers
      and have a negative effect on our operating results. However, such loss
      would be partially offset by charges paid to our RLECs by said competitors
      for utilization of our services and networks.

      WE MUST SECURE UNBUNDLED NETWORK ELEMENTS AT REASONABLE RATES OR CLEC
      GROWTH MAY BE DELAYED AND THE QUALITY OF SERVICE MAY DECLINE.

      In providing our CLEC service, we interconnect with and use other
      telephone companies' networks to access certain of their customers.
      Therefore, we depend, in certain circumstances, upon the technology and
      capabilities of these other telephone companies, the quality and
      availability of other telephone companies' lines and other telephone
      companies' maintenance of these lines. We must also maintain efficient
      procedures for ordering, provisioning, maintaining and repairing lines
      from these other telephone companies. We may not be able to obtain the
      lines and services of satisfactory quality that we require from other
      telephone companies, or on other satisfactory terms and conditions, in
      which case we may experience delays in the growth of our competitive local
      exchange carrier networks and the degradation of the quality of our
      service to customers.

      We also provide digital subscriber line services. To provide unbundled
      DSL-capable lines that connect each end-user to our equipment, we rely on
      other telephone companies. The Telecommunications Act of 1996 generally
      requires that charges for these unbundled network elements be cost-based
      and nondiscriminatory. Charges for DSL-capable lines and other unbundled
      network elements may vary based on rates proposed by other telephone
      companies and approved by state regulatory commissions. Increases in these
      rates or reductions in ILEC unbundling obligations could harm our CLEC
      business.

      Many of the FCC's rules governing the rates, terms and conditions on which
      unbundled network elements are offered by ILECs are under challenge in
      various Courts of Appeal and the U.S. Supreme Court. Any decision which
      limits the FCC's ability to regulate the rates, terms and


                                       36
<PAGE>
                   D&E Communications, Inc. and Subsidiaries
                   Part I - Financial Information (continued)

                Item 2. Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
                       (Dollar amounts are in thousands)


      conditions on which unbundled network elements are offered to CLECs may
      adversely impact our ability to compete. Additionally, the FCC's rules
      concerning the availability of unbundled network elements and the
      regulatory status of the rates, terms and conditions on which they are
      offered are subject to revision. If the FCC constricts the list of
      elements it regulates as unbundled network elements, such an action may
      have an adverse impact on our ability to compete.

      IF WE EXPAND OUR CLEC OPERATIONS INTO NEW MARKETS, THE SUCCESS OF THIS
      EXPANSION WILL BE DEPENDENT ON INTERCONNECTION AGREEMENTS, PERMITS AND
      RIGHTS-OF-WAY, AND THE FAILURE TO OBTAIN THESE AGREEMENTS AND PERMITS
      COULD HAMPER ANY SUCH EXPANSION.

      If we expand our CLEC operations into new markets, our success will
      depend, in part, on our ability to manage existing interconnection
      agreements and to enter into and implement new interconnection agreements
      with other telephone companies. Our failure to obtain these agreements and
      permits could hamper this expansion. Interconnection agreements are
      subject to negotiation and interpretation by the parties to the agreements
      and are subject to state regulatory commission, FCC and judicial
      oversight. If the terms of these interconnection agreements need to be
      renegotiated, we may not be able to renegotiate existing or enter into new
      interconnection agreements in a timely manner or on favorable terms. We
      must also maintain existing, and obtain new, local permits, including
      rights to utilize underground conduit and pole space and other
      rights-of-way. We may not be able to maintain our existing permits and
      rights or obtain and maintain other required permits and rights on
      acceptable terms. Cancellation or nonrenewal of interconnection
      agreements, permits, rights-of-way or other arrangements could
      significantly harm our business.

      DEMAND FOR OUR SYSTEMS INTEGRATION OFFERINGS IS SENSITIVE TO DOWNTURNS IN
      THE UNITED STATES ECONOMY GENERALLY.

      Unlike our RLEC, CLEC and Internet services businesses which generate
      revenues of a monthly recurring nature, demand for our systems integration
      offerings is generally more sensitive to downturns in the United States
      economy. In an economic downturn, consumers and businesses often curtail
      spending on voice and data network infrastructure. As a result, we may
      experience lower than expected revenues for our systems integration
      business during an economic downturn. Reduced demand for our systems
      integration offerings could adversely affect the operating profitability
      of our systems integration segment, which could have an adverse effect on
      our operating results and financial condition.

      OUR CHAIRMAN AND FOUR OTHER MEMBERS OF OUR BOARD OF DIRECTORS CAN
      SIGNIFICANTLY INFLUENCE THE ELECTION OF DIRECTORS AND OTHER MATTERS IN
      THEIR CAPACITIES AS TRUSTEES OF A VOTING TRUST.

      Certain of our shareholders are parties to a Voting Trust Agreement, dated
      as of November 19, 1992, pursuant to which the voting trustees have the
      right to exercise sole voting power on all matters submitted to our
      shareholders for a vote. The trustees of the voting trust are our chairman
      and four of our other directors. The shares represented by the voting
      trust are voted in accordance with resolutions adopted by a majority of
      the voting trustees. The Voting Trust


                                       37
<PAGE>
                   D&E Communications, Inc. and Subsidiaries
                   Part I - Financial Information (continued)

                Item 2. Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
                       (Dollar amounts are in thousands)


      Agreement will expire on November 19, 2002. It is our understanding that
      the parties to the voting trust intend to renew this agreement, although
      the terms, including the number of shares covered by the agreement, of any
      such renewal may differ from the terms of the current agreement.

      As of August 9, 2002, the voting trust beneficially owned 18.9% of our
      outstanding shares of common stock. As a result, these directors are able
      to significantly influence the election of directors and other matters
      submitted to shareholders for a vote. There can be no assurance that the
      interests of the trustees of the voting trust will not conflict with the
      interests of our other security holders.

      WE MAY BE UNABLE TO INTEGRATE SUCCESSFULLY THE BUSINESS OPERATIONS OF D&E
      AND CONESTOGA AND SUCH INABILITY COULD HAVE AN ADVERSE IMPACT ON OUR
      PROFITABILITY.

      The integration of the systems and operations of D&E and Conestoga will
      involve significant risks. D&E and Conestoga have different operating
      support systems, including billing, accounting, order management, toll
      rating, trouble reporting and customer service systems, which may be
      difficult to integrate. In addition, some of Conestoga's employees are
      members of a labor union and are subject to the terms of a collective
      bargaining agreement. Because D&E employees are not unionized, our
      management may face difficulties in integrating employees with different
      work rules. Even if integration of the operating systems and employees is
      ultimately successful, the amount of management attention diverted to
      integration efforts may limit their ability to work on other business
      matters.

      OUR INCREASED INDEBTEDNESS COULD RESTRICT OUR OPERATIONS.

      As of June 30, 2002, we had approximately $247,909 of total indebtedness,
      including current maturities, which increased in connection with the
      Conestoga acquisition. This increased indebtedness could restrict our
      operations due to the following factors, among others:

      -     we will use a substantial portion of our cash flow from operations,
      if any, to pay principal and interest on our indebtedness, which would
      reduce the funds available for working capital, capital expenditures,
      acquisitions and other general corporate purposes;

      -     our indebtedness may limit our ability to obtain additional
      financing on satisfactory terms, if at all;


                                       38
<PAGE>
                   D&E Communications, Inc. and Subsidiaries
                   Part I - Financial Information (continued)

                Item 2. Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
                       (Dollar amounts are in thousands)


      -     insufficient cash flow from operations may cause us to attempt to
      sell assets, restructure or refinance our debt, or seek additional equity
      capital, which we may be unable to do at all or on satisfactory terms;

      -     our level of indebtedness may make us more vulnerable to economic or
      industry downturns;

      -     we may not have the ability to pay dividends to our shareholders;
      and

      -     our debt service obligations increase our vulnerabilities to
      competitive pressures, as we may be more leveraged than many of our
      competitors.


      OUR CREDIT FACILITIES WILL CONTAIN COVENANTS THAT WILL SIGNIFICANTLY
      RESTRICT OUR OPERATIONS.

      The agreements governing our indebtedness contain covenants imposing
      financial and operating restrictions on our business. These restrictions
      may limit our ability to take advantage of potential business
      opportunities as they arise and adversely affect the conduct of our
      business. These covenants will place restrictions on our ability and the
      ability of our subsidiaries to, among other things:

      -     incur more indebtedness;

      -     pay dividends, redeem or repurchase our stock or make other
            distributions;

      -     make acquisitions or investments;

      -     use assets as security in other transactions;

      -     enter into transactions with affiliates;

      -     merge or consolidate with others;

      -     dispose of assets or use asset sale proceeds;

      -     create liens on our assets; and

      -     extend credit.

      In addition, our credit facilities require that we maintain specified
      financial ratios. Our ability to maintain these financial ratios can be
      affected by operating performance or other events beyond our control.
      Accordingly, we cannot assure you that we will meet these ratios. Our
      ability to comply with the provisions governing our indebtedness may be
      adversely affected by our operations and by changes in economic or
      business conditions or other events beyond our control. In addition, our
      failure to comply with our indebtedness-related obligations could result
      in an event of default under our credit facilities or future indebtedness.


                                       39
<PAGE>
                   D&E Communications, Inc. and Subsidiaries
                   Part I - Financial Information (continued)

                Item 2. Management's Discussion and Analysis of
                 Financial Condition and Results of Operations
                       (Dollar amounts are in thousands)


      THE INABILITY TO SELL THE WIRELESS BUSINESS OF CONESTOGA WOULD RESULT IN A
      REDUCTION OF OUR EXPECTED RESOURCES AVAILABLE FOR THE OPERATION OF OUR
      BUSINESS, AND MAY ADVERSELY AFFECT THE CONTINUING OPERATIONS OF OUR
      BUSINESS.

      We intend to dispose of Conestoga's wireless assets and business. Until
      the Conestoga wireless business is sold, we will continue to operate this
      business, which incurred operating losses of $8.2 million for the year
      ended December 31, 2001. The continued operation of the wireless business
      will negatively impact our results from discontinued operations and may
      adversely affect our business by requiring additional financing to fund
      operations. The proceeds to be realized by us from a sale of Conestoga's
      wireless assets and business are uncertain.

      In addition, pursuant to certain non-competition covenants in our
      agreement with VoiceStream Wireless Corporation, for three years following
      the sale of our interest in PCS ONE, we may be restricted from providing
      mobile voice wireless communications services in the York-Hanover,
      Lancaster and Reading, Pennsylvania markets. As a result of the
      restrictions imposed by these non-competition covenants, we may be
      required within 240 days after the Conestoga acquisition to dispose of
      that portion of Conestoga's wireless business operated in the Reading,
      Pennsylvania market, which represents approximately 37% of the population
      area serviced by such business. Due to the significant amount of fixed
      costs associated with Conestoga's wireless business, if we were unable to
      dispose of that portion of the Conestoga wireless business and were
      restricted from providing services in the Reading, Pennsylvania market, we
      may incur significantly greater losses from that business than those
      previously incurred by Conestoga.


                                       40
<PAGE>
                   D&E Communications, Inc. and Subsidiaries
                   Part I - Financial Information (continued)

       Item 3. Quantitative and Qualitative Disclosures about Market Risk

            D&E does not invest in derivative financial instruments or other
      market risk sensitive instruments for the purpose of managing its foreign
      currency exchange rate risk or for any other purpose.


                                       41
<PAGE>
                    D&E Communications, Inc. and Subsidiaries
                           Part II - Other Information


Item 1. Legal Proceedings

      We are involved in various legal proceedings arising in the ordinary
course of our business. In the opinion of management, the ultimate resolution of
these matters will not have a material adverse effect on our consolidated
financial condition or results of operations.

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

(a) Date of meeting. The Annual Meeting of Shareholders was held on May 23,
2002.

(b) Matters Voted Upon at Annual Meeting. The vote tabulations in respect to the
three matters voted upon at the 2002 Annual Meeting were as follows:

      (1)   Election of the following directors to hold office for a three year
            term to expire in 2004.

<TABLE>
<CAPTION>
          Director                          For                 Withheld
          --------                          ---                 --------
<S>                                      <C>                    <C>
      John Amos                          6,545,194                85,091
      G. William Ruhl                    6,475,728               154,357
      W. Garth Sprecher                  6,469,214               161,071
</TABLE>

      (2) Approval of the acquisition of Conestoga Enterprises, Inc.

<TABLE>
<CAPTION>
                    For             Against         Abstain
                    ---             -------         -------
<S>                                <C>              <C>
                 4,768,341         1,414,465         37,078
</TABLE>

      (3)   Ratification of the Board of Directors' selection of
            PricewaterhouseCoopers LLP as independent accountants in 2002.

<TABLE>
<CAPTION>
                    For             Against         Abstain
                    ---             -------         -------
<S>                                 <C>             <C>
                 6,597,128           13,743          19,414
</TABLE>


                                       42
<PAGE>
                    D&E Communications, Inc. and Subsidiaries
                           Part II - Other Information


Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits:

<TABLE>
<CAPTION>
     Exhibit                     Identification                     Reference
       No.                        of Exhibit                        ---------
     -------                      ----------
<S>               <C>                                            <C>
       99.1       Certification of Chief Executive Officer       Filed herewith.

       99.2       Certification of Chief Financial Officer.      Filed herewith.
</TABLE>

(b) Reports on Form 8-K:

      A current report on Form 8-K dated April 15, 2002, was filed during the
quarter ended June 30, 2002. The report announced the completion of the sale of
our partnership interest in the D&E/Omnipoint Joint Venture on April 1, 2002.

      A current report on Form 8-K dated May 1, 2002, was filed during the
quarter ended June 30, 2002. The report announced our earnings results for the
first quarter of 2002 and disclosed information that could become public in
regard to a possible offering of senior notes under Rule 144A of the Securities
Act.

      A current report on Form 8-K/A dated May 2, 2002, was filed during the
quarter ended June 30, 2002. The report corrected certain inadvertent errors on
our May 1, 2002 8-K.

      A current report on Form 8-K dated June 10, 2002, was filed during the
quarter ended June 30, 2002. The report announced the completion of our merger
with Conestoga and the terms of the related debt financing also completed on May
24, 2002.


                                       43
<PAGE>
                   D&E Communications, Inc. and Subsidiaries


                                   Signatures

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

                                         D&E Communications, Inc.



Date: August 14, 2002
                                         By: /s/  G. William Ruhl
                                             --------------------------------
                                             G. William Ruhl
                                             Chief Executive Officer

Date: August 14, 2002
                                         By: /s/  Thomas E. Morell
                                             --------------------------------
                                             Thomas E. Morell
                                             Senior Vice President, Chief
                                             Financial Officer and Treasurer


                                       44
<PAGE>
                   D&E Communications, Inc. and Subsidiaries

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
     Exhibit                    Identification                    Reference
       No.                        of Exhibit                      ---------
     -------                      ----------
<S>              <C>                                           <C>
       99.1      Certification of Chief Executive Officer.     Filed herewith.

       99.2      Certification of Chief Financial Officer.     Filed herewith.
</TABLE>


                                       45