UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-K/A

                                (Amendment No. 1)

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

                   For the fiscal year ended December 31, 2005
                                       or
          ( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                  For the transition period from      to

                           Commission File No. 0-5890

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

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

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

       Registrant's telephone number, including area code: (907) 868-5600

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

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


Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.

                                   Yes   No X

Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.

                                   Yes   No X

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

                                   Yes X  No

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


Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and larger accelerated filer" in Rule 12b-2 of the Exchange Act (Check
one).


Large accelerated filer [  ]   Accelerated filer [  ]  Non-accelerated filer [X]


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


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

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                                Explanatory Note

GCI, Inc. (the "Company") is filing this Amendment No. 1 on Form 10-K/A (this
"Amended Filing") to its Annual Report on Form 10-K for the fiscal year ended
December 31, 2005, which was originally filed on March 23, 2006 ("Original
Filing"). The Company is a wholly owned subsidiary of General Communication,
Inc. (our parent company).

This Amended Filing is being issued because, as previously disclosed, on
November 9, 2006, the Audit Committee of our parent company's Board of Directors
and our parent company's management decided that the Company should amend our
Original Filing after identifying an additional material weakness and revising
our conclusion on the effectiveness of our disclosure controls as of December
31, 2005 ("Amendment").

For a more detailed description of our Amendment see Item 9A of Part II. For a
detailed description of our parent company's restatement see the section
entitled "Parent Company Financial Statement Restatement" under Item 7 of Part
II, "Management's Discussion and Analysis of Financial Condition and Results of
Operations," contained in this Form 10-K/A.

For the convenience of the reader, this Form 10-K/A sets forth the Original
Filing in its entirety. However, this Form 10-K/A only amends Items 7, 8 and 9A
of Part II, in each case as a result of, and to reflect, the Amendment and to
explain our parent company's restatement. No other information in the Original
Filing is amended hereby, except for certain updated risk factors in Item 1A of
Part I. The foregoing items have not been updated to reflect other events
occurring after the Original Filing or to modify or update those disclosures
affected by subsequent events. In addition, pursuant to the rules of the
Securities and Exchange Commission ("SEC"), Item 15 of Part IV of the Original
Filing has been amended to contain the currently dated certifications from the
Company's Chief Executive Officer and Chief Financial Officer, as required by
Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. Except for the foregoing
amended information, this Form 10-K/A continues to speak as of the date of the
Original Filing and the Company has not updated the disclosures contained herein
to reflect events that occurred at a later date. Other events occurring after
the filing of the Original Filing or other disclosures necessary to reflect
subsequent events have been addressed in the Company's Quarterly Reports on Form
10-Q for the quarters ended March 31, 2006 and June 30, 2006, and/or the
Company's Amendment No. 1 on Form 10-Q/A to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 2006, which was filed with the SEC
on December 6, 2006, and any reports filed with the SEC subsequent to the date
of this filing.

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<TABLE>
<CAPTION>
                                                      GCI, INC.
                                  A WHOLLY-OWNED SUBSIDIARY OF GENERAL COMMUNICATION, INC.
                                           2005 ANNUAL REPORT ON FORM 10-K/A
                                                 TABLE OF CONTENTS
<S>                                                                                                                       <C>
Glossary....................................................................................................................3


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


Part I.....................................................................................................................11

   Item 1.  Business.......................................................................................................11

   Item 1A. Risk Factors...................................................................................................51

   Item 1B. Unresolved Staff Comments......................................................................................60

   Item 2.  Properties.....................................................................................................61

   Item 3.  Legal Proceedings..............................................................................................63

   Item 4.  Submissions of Matters to a Vote of Security Holders...........................................................64

Part II....................................................................................................................64


   Item 5.  Market for the Registrant's Common Equity, Related Stockholder Matters and
            Issuer Purchases of Equity Securities..........................................................................64

   Item 6.  Selected Financial Data........................................................................................65

   Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations..........................66

   Item 7A. Quantitative and Qualitative Disclosures About Market Risk....................................................100

   Item 8.  Consolidated Financial Statements and Supplementary Data......................................................100

   Item 9.  Changes In and Disagreements With Accountants on Accounting and Financial Disclosure..........................100

   Item 9A. Controls and Procedures.......................................................................................100

   Item 9B. Other Information.............................................................................................102

Part III..................................................................................................................102


   Items 10,11,12, 13 and 14 are omitted per General Instruction I(1)(a) and (b) of Form 10-K.............................102

Part IV...................................................................................................................103


   Item 15.  Exhibits, Consolidated Financial Statement Schedules.........................................................103

   Item 15(b).  Exhibits..................................................................................................144

SIGNATURES................................................................................................................151
</TABLE>

This Annual Report on Form 10-K/A is for the year ending December 31, 2005. This
Annual Report modifies and supersedes documents filed prior to this Annual
Report. The SEC allows us to "incorporate by reference" information that we file
with them, which means that we can disclose important information to you by
referring you directly to those documents. Information incorporated by reference
is considered to be part of this Annual Report. In addition, information that we
file with the SEC in the future will automatically update and supersede
information contained in this Annual Report.


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<PAGE>

                                    Glossary

Access Charges -- Fees for accessing the local networks of the LECs in order to
originate and terminate long-distance calls and provide the customer connection
for Private Line services.

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

Alaska United or AULP -- Alaska United Fiber System Partnership -- An Alaska
partnership, indirectly wholly owned by the Company. Alaska United was organized
to construct and operate fiber optic cable systems connecting various locations
in Alaska and the Lower 49 States and foreign countries through Seattle,
Washington.

AT&T -- AT&T Inc., formerly AT&T Corp. -- A provider of long distance and other
services, parent company to AT&T Alascom.

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

AULP East -- An undersea fiber optic cable system connecting Whittier, Valdez
and Juneau, Alaska and Seattle, Washington, which was placed into service in
February 1999.

AULP West -- A new undersea fiber optic cable system connecting Seward, Alaska
to Warrenton, Oregon which was placed into service in June 2004.

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

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

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

Bandwidth -- A range or band of the frequency spectrum, measured in Hertz (Hz).
It has become vogue, though strictly a misuse of the term, to say bandwidth is
the number of bits of data per second that can move through a communications
medium.

Broadband -- A high-capacity communications circuit/path, usually implying
speeds of 256 kilobits per second ("kbps") or better.

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

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

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


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

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

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

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

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

DBS -- Direct Broadcast Satellite -- Subscription television service obtained
from satellite transmissions using frequency bands that are internationally
allocated to the broadcast satellite services. The major providers of DBS are
currently DirecTV and EchoStar (marketed as the DISH Network).

DS-0 -- A data communications circuit that carries data at the rate of 64 kbps.

DS-1 -- A data communications circuit that carries data at the rate of 1.544
Megabits per second (Mb/s), often interchangeably referred to as a T-1.

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

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

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

DLPS -- Digital Local Phone Service -- A term we use referring to our deployment
of voice telephone service utilizing our hybrid-fiber coax cable facilities.

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

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

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


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

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

GCI -- General Communication, Inc. -- An Alaska corporation and the parent of
GCI, Inc.

GCI, Inc. -- A wholly owned subsidiary of GCI, the Registrant, an Alaska
corporation and issuer of $320 million of senior notes.

GFCC -- GCI Fiber Communication Co., Inc. -- An Alaska corporation and a wholly
owned subsidiary of Holdings. Holdings acquired all minority ownership interests
in GFCC in the third and fourth quarters of 2002. GFCC owns and operates a fiber
optic cable system constructed along the trans-Alaska oil pipeline corridor
extending from Prudhoe Bay to Valdez, Alaska. See Kanas.

Holdings -- GCI Holdings, Inc. -- A wholly owned subsidiary of GCI, Inc., an
Alaska corporation and party to the Company's Senior
Credit Facility.

HDTV -- High-Definition Television -- A digital television format delivering
theater-quality pictures and CD-quality sound. HDTV offers an increase in
picture quality by providing up to 1,920 active horizontal pixels by 1,080
active scanning lines, representing an image resolution of more than two million
pixels. In addition to providing improved picture quality with more visible
detail, HDTV offers a wide screen format and Dolby(R) Digital 5.1 surround
sound.

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

Interexchange -- Communication between two different local access and transport
areas or, in Alaska, between two different local exchange serving areas.

IP -- Internet Protocol -- The method or protocol by which data is sent from one
computer to another on the Internet. Each computer (known as a host) on the
Internet has at least one IP address that uniquely identifies it from all other
computers on the Internet.

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

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

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

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

Kanas -- Kanas Telecom, Inc. -- An Alaska corporation that was renamed GFCC in
2001.


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

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

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

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

Local Number Portability -- The ability of an end user to change local or
wireless service providers while retaining the same telephone number.

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

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

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

Mat-Su Valley -- The Matanuska and Susitna valleys are located in south-central
Alaska, to the north of Anchorage, and include the communities of Palmer and
Wasilla and the immediately surrounding areas.

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

MSO - Multiple System Operators - Companies in the cable television industry
that own and operate two or more cable television systems.

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

MWNS -- MCI WorldCom Network Services -- A subsidiary of MCI, which had
previously entered into service agreements with the Company on behalf of MCI.
See "Verizon" below.

OC-n -- An optical communications circuit that optically signals at a data rate
of n times 51.84 Mbps, where n can be 1, 3, 12, 24, 48, 96, or 192.

Pay-per-view -- Offering television broadcasts to viewers in a manner whereby
they pay only for the programs they watch rather than having to subscribe to the
whole channel or station on a full-time basis.

PCS -- Personal Communication Services -- PCS encompasses a range of advanced
wireless mobile technologies and services. It promises to permit communications
to anyone, anywhere and anytime while on the move. The Cellular
Telecommunications Industry Association (CTIA) defines PCS as a "wide range of
wireless mobile technologies, chiefly cellular, paging, cordless, voice,
personal communications networks, mobile data, wireless private branch exchange,


                                       6
<PAGE>
specialized mobile radio, and satellite-based systems." The FCC defines PCS as a
"family of mobile or portable radio communications services that encompasses
mobile and ancillary fixed communications services to individuals and businesses
and can be integrated with a variety of competing networks."

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

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

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

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

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

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

Senior Credit Facility -- Holding's $215 million amended and restated credit
facility. The Senior Credit Facility includes a term loan of $160 million and a
revolving credit facility of $55 million. The new Senior Credit Facility is due
in 2012 and bears interest at LIBOR plus 1.5%. See note 7 to the accompanying
"Notes to Consolidated Financial Statements" included in Part II of this Report
for more information.

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

SONET -- Synchronous Optical Network -- A 1984 standard for optical fiber
transmission on the public network. 51.84 Mbps to 9.95 Gigabits per second,
effective for ISDN services including asynchronous transfer mode.

Sprint Nextel -- Sprint Nextel Corporation -- One of our significant customers.
Sprint Corporation ("Sprint") merged with Nextel Communications Inc. on August
12, 2005.

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

Tariff -- The schedule of rates and regulations set by communications common
carriers and filed with the appropriate federal and state regulatory agencies;
the published official list of charges, terms and conditions governing provision

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of a specific communications service or facility, which functions in lieu of a
contract between the subscriber or user and the supplier or carrier.

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

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

Verizon Communications Inc. ("Verizon") -- Merged with MCI, Inc. ("MCI") on
January 6, 2006. Verizon Business is the name of the new Verizon business unit
encompassing business and government customers and related functions of the
former MCI. At December 31, 2005, MCI owned approximately 2% of GCI's common
stock, had two representatives on GCI's Board, and was a major customer. Prior
to May 1, 2000, the company was named MCI WorldCom, Inc. See also MWNS. On July
21, 2002, MCI and substantially all of its active United States subsidiaries
filed voluntary petitions for reorganization under Chapter 11 of the United
States Bankruptcy Code in the United States Bankruptcy Court. On December 7,
2004, on behalf of GCI we closed a transaction with MCI to repurchase 3,751,509
shares of GCI's Class A common stock at $8.33 per share (for a total purchase
price of approximately $31.3 million). In addition to the common stock
repurchase, the transaction included the redemption of all issued and
outstanding shares of GCI's Series C preferred stock held by MCI for an
aggregate redemption price of $10 million. MCI retained its ownership of almost
1.3 million shares of GCI's Class B common stock and their two seats on GCI's
board of directors. See note 12 to the accompanying "Notes to Consolidated
Financial Statements" included in Part II of this Report for more information.

VoIP - Voice over Internet Protocol. Technology that allows voice telephone
service over broadband Internet connections via digital packets rather than
traditional protocols.

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

WAN -- Wide Area Network -- A remote computer communications system. WANs allow
file sharing among geographically distributed workgroups (typically at higher
cost and slower speed than LANs or MANs). WANs typically use common carriers'
circuits and networks.
 WANs may serve as a customized communication backbone that interconnects all of
an organization's local networks with communications trunks that are designed to
be appropriate for anticipated communication rates and volumes between nodes.

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

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

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

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

The purpose of the 1996 Telecom Act was to move from a regulated monopoly model
of telecommunications to a deregulatory competitive markets model. The act
eliminated the old barriers that prevented three groups of companies, the LECs,
including the BOCs, the long-distance carriers, and the cable TV operators, from

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competing head-to-head with each other. The act requires LECs to let new
competitors into their business. It also requires the LECs to open up their
networks to ensure that new market entrants have a fair chance of competing. The
bulk of the act is devoted to establishing the terms under which the LECs must
open up their networks.

The 1996 Telecom Act substantially changed the competitive and regulatory
environment for telecommunications providers by significantly amending the
Communications Act of 1934 including certain of the rate regulation provisions
previously imposed by the Cable Television Consumer Protection and Competition
Act of 1992 (the "1992 Cable Act"). The 1996 Telecom Act eliminated rate
regulation of the cable programming service tier in 1999. Further, the
regulatory environment will continue to change pending, among other things, the
outcome of legal challenges, legislative activity, and FCC rulemaking and
enforcement activity in respect of the 1992 Cable Act and the completion of a
significant number of continuing FCC rulemakings under the 1996 Telecom Act.


                                       9
<PAGE>
            Cautionary Statement Regarding Forward-Looking Statements


You should carefully review the information contained in this Annual Report, but
should particularly consider any risk factors that we set forth in this Annual
Report and in other reports or documents that we file from time to time with the
Securities and Exchange Commission ("SEC"). In this Annual Report, in addition
to historical information, we state our future strategies, plans, objectives or
goals and our beliefs of future events and of our future operating results,
financial position and cash flows. In some cases, you can identify those
so-called "forward-looking statements" by words such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential," "project," or "continue" or the negative of those words and other
comparable words. All forward-looking statements involve known and unknown
risks, uncertainties and other important factors that may cause our actual
results, performance, achievements, plans and objectives to differ materially
from any future results, performance, achievements, plans and objectives
expressed or implied by these forward-looking statements. In evaluating those
statements, you should specifically consider various factors, including those
outlined below. Those factors may cause our actual results to differ materially
from any of our forward-looking statements. For these statements, we claim the
protection of the safe harbor for forward-looking statements provided by the
Private Securities Litigation Reform Act of 1995. Such risks, uncertainties and
other factors include but are not limited to those identified under "Risk
Factors" below and elsewhere in this Annual Report, including in conjunction
with the forward-looking statements included in this Annual Report.

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


                                       10
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                                     Part I

Item 1.  Business

General

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

GCI, Inc. was incorporated in 1997 to effect the issuance of Senior Notes as
further described in note 11 to the accompanying "Consolidated Financial
Statements" included in Part II of this Report. GCI, Inc., as a wholly owned
subsidiary of GCI, received through its initial capitalization all ownership
interests in subsidiaries previously held by GCI. GCI was incorporated in 1979
under the laws of the State of Alaska and has its principal executive offices at
2550 Denali Street, Suite 1000, Anchorage, AK 99503-2781 (telephone number
907-868-5600).

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

We are the leading integrated, facilities-based communications provider in
Alaska, offering local and long-distance voice, cable video, data and Internet
communications services to residential and business customers under our GCI
brand. A substantial number of our customers subscribe to product bundles that
include two or more of our services.

Since GCI's founding in 1979, we have consistently expanded our product
portfolio to satisfy our customers' needs. We have benefited from the attractive
and unique demographic and economic characteristics of the Alaskan market. We
are pioneers of bundled communications services offerings, and believe our
integrated strategy of providing innovative bundles of voice, video and data
services provides us with an advantage over our competitors and will allow us to
continue to attract new customers, retain existing customers and expand our
addressable market. We hold leading market shares in long-distance, cable video
and Internet services and have gained significant market share in local access
against the incumbent provider.

Through our focus on long-term results and strategic capital investments, we
have consistently grown our revenues and expanded our margins. Our integrated
strategy provides us with competitive advantages in addressing the challenges of
converging telephony, video and broadband markets and has been a key driver of
our success. Today, using our extensive communications networks, we provide
customers with integrated communications services packages that we believe are
unmatched by any other competitor in Alaska.

Availability of Reports and Other Information

Internet users can access information about the Company and its services at
http://www.gci.com/, http://www.gcinetworksolutions.com/, and
http://www.alaskaunited.com/. The Company hosts Internet services at
http://www.gci.net/, broadband delivery of health services at
http://www.connectmd.com, and SchoolAccess(R) services at
http://www.schoolaccess.net/. Our online telephone directory and yellow pages
are hosted at http://www.gcidirectory.com/. We make available on the
http://www.gci.com/ website, free of charge, access to our Annual Report on Form
10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy
Statement on Schedule 14A and amendments to those materials filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934 as
soon as reasonably practicable after we electronically submit such material to
the SEC. In addition, the SEC's website is http://www.sec.gov/. The SEC makes
available on this website, free of charge, reports, proxy and information
statements, and other information regarding issuers, such as us, that file

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electronically with the SEC. Information on our website or the SEC's website is
not part of this document.

Financial Information About Industry Segments

We have four reportable segments at December 31, 2005: long-distance services,
cable services, local access services and Internet services. For information
required by this section, See Part II, Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations. Also refer to Note 12
included in Part II, Item 8, Consolidated Financial Statements and Supplementary
Data, and "New organizational structure and segment reporting" described in
"Recent Developments" below.

Recent Developments

Long distance equal access. The RCA approved and certified us and other carriers
to be included on a long-distance services equal access ballot in March 2006.
Customers in the Alaska Power & Telephone local service areas of Tok,
Metlakatla, Craig and Hydaburg will be able to choose between alternative
carriers for their direct dial long distance service.

Local service regulatory approvals. On September 23, 2005 and again on February
2, 2006, the RCA issued orders granting us certification to serve the service
areas of Ketchikan Public Utilities, Cordova Telephone Cooperative, Copper
Valley Telephone Cooperative, Matanuska Telephone Cooperative, the Glacier State
area served by ACS of the Northland, Wrangell, Petersburg, Sitka, Seward, Bethel
and Nome. See "Part I -- Item 1 -- Business -- Regulation, Franchise
Authorizations and Tariffs" below for more information about pending regulatory
proceedings.

New retail store. In February 2006 we opened a new retail store to serve our
customers in east Anchorage. Customers have a more convenient opportunity to pay
their bill, sign up for new services and obtain answers to their questions from
one of our customer service representatives.

MTA rural exemption determination. We made a bona fide request to the RCA in
2004 for interconnection for the purposes of local access competition with
Matanuska Telephone Association, Inc. ("MTA"), under the provisions of the 1996
Telecom Act. On February 22, 2005, the RCA released a ruling that MTA's rural
exemption for the areas served by MTA Vision, Inc. had been lifted and that we
could negotiate and arbitrate interconnection with MTA. On January 18, 2006 we
submitted an Interconnection Agreement by arbitration to the RCA for approval.
Such approval was granted on February 17, 2006. We intend to commence local
service entry into the Mat-Su Valley during 2007. See "Part I -- Item 1 --
Business -- Regulation, Franchise Authorizations and Tariffs" below for more
information.

New organizational structure and segment reporting. Effective January 1, 2006,
we implemented a corporate organizational structure that realigns our focus from
a commodity based organization into a customer focused organization. This is the
largest single internal organizational initiative that we have undertaken in
more than five years. Our new organizational segments will begin reporting
results in the first quarter of 2006. Our new reporting segments are Consumer,
Commercial, Network Access and Managed Broadband.

Historical Development of our Business During the Past Fiscal Year

Alaska Digitel acquisition. GCI announced on December 7, 2005 that it reached a
definitive agreement to invest $29.5 million in Alaska DigiTel, LLC ("Alaska
Digitel" or "AKD"), an Alaska wireless provider. In exchange for the investment,
GCI will receive a majority equity interest in AKD but will not own voting
control of the venture. GCI will have certain rights customarily afforded to
passive investors to approve selected major business events. The investment will
allow AKD to buy out certain investors, refinance most of its outstanding debt
and maintain its existing business plan.


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<PAGE>
GCI will acquire its ownership interest as a passive investment and does not
plan any further direct business or resale relationships with AKD at this time.
Under the agreement GCI is not required to make any further investments in AKD.
GCI views its investment as an incremental way to participate in future growth
of the wireless industry in Alaska. Our existing distribution agreement with
Dobson remains in full effect and our existing cellular products will continue
to compete with AKD in the Alaska market. Management of AKD will not change
under the agreement.

GCI's majority equity investment is expected to result in the consolidation of
AKD for financial reporting purposes. The agreement also provides for certain
buy and sell options that are, in part, reciprocal to AKD. Buy and sell options
allows GCI to acquire voting control of AKD or to divest its interest in the
venture. The transaction is subject to customary closing conditions, including
documentation and regulatory approvals. MTA filed a petition with the FCC
against GCI's application in February 2006. We are not able to determine at this
time when the transaction will close.

Intrastate access charge rulings and payments. We settled four separate claims
pursuant to a master agreement with AT&T and Alascom on November 10, 2005. The
claims settled are summarized as follows:

     o   Our claim against Alascom for failure to pay its respective share of a
         pool of access charges on long distance calls paid by pre-paid calling
         cards.
     o   Our claim against AT&T and Alascom for not allowing the company to
         purchase certain wireline services on the same terms and conditions
         that AT&T offered to other wholesale customers.
     o   Our unfiled claim against Alascom for not allowing the company to
         purchase private line services at the same price Alascom charges other
         customers.
     o   Alascom's claims against us for overpayment of transport for 1-800
         dialing service calls placed from rural Alaska areas served by us.

The settlement of the claims resulted in a payment to GCI in December 2005 of
approximately $9.1 million which resulted in a $7.5 million net pre-tax earnings
impact after deducting certain direct internal and external costs and expenses.

New integrated customer service, provisioning and billing system. We implemented
the single biggest software systems project in the company's history in August
2005. The new system, referred to as "OneView," provides us with an integrated
system that has substantially changed the way we serve our customers and better
aligns us with our new customer-focused organizational structure.

Senior credit agreement amendment and capital lease payoff. On August 31, 2005,
we finalized a $215,000,000 amended and restated senior secured credit facility.
The amendment provides for a $160,000,000 term loan and a $55,000,000 revolving
credit facility with a $25,000,000 sublimit for letters of credit. Proceeds were
used to pay down the then existing senior credit facility and our satellite
transponder capital lease with the remainder used to pay financing fees. The
amended senior credit facility reduced the interest rate for the term loan from
LIBOR plus 2.25% to LIBOR plus 1.50%.

Because a portion of the amended senior credit facility was a substantial
modification of the then existing senior credit facility and the satellite
transponder capital lease, we recognized approximately $1.8 million in
amortization and write-off of loan and senior notes fees during the year ended
December 31, 2005. We also recognized a charge of approximately $2.9 million
during the year ended December 31, 2005 due to the early termination of the
satellite transponder capital lease.

PCS license renewal. The FCC approved our PCS license effective August 30, 2005
for an additional 10-year term under FCC rules.

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<PAGE>
Series B preferred stock repurchase. On May 25, 2005, GCI announced that it
reached and closed a definitive agreement with Toronto Dominion Securities to
repurchase the remaining 4,314 shares of its Series B Preferred stock for a
total purchase price of $6,607,000. The 4,314 preferred shares were convertible
into 777,297 shares of GCI's Class A Common shares and the transaction price
represented an equivalent GCI Class A Common share purchase price of $8.50 per
share. The preferred shares held by Toronto Dominion Securities were issued as
part of a $20 million private equity investment made on April 30, 1999.

Barrow Cable TV Asset Purchase. We closed the asset purchase of Barrow Cable TV
in February 2005 for approximately $1.6 million, or approximately $1,700 per
subscriber. We upgraded the plant during 2005 in order to deliver digital
services as well as high-speed cable modem service.

Cellular Service Expansion. We launched cellular services in the Southeast
Alaska cities of Petersburg and Wrangell in February 2005. This completes our
cellular services roll-out. Our cellular services are also provided in
Anchorage, Fairbanks, Homer, Juneau, Kenai/Soldotna, Ketchikan, Palmer/Wasilla,
Seward, Sitka, and Valdez. Our cellular services are provided pursuant to a
distribution agreement with Dobson. See "Part I -- Item I -- Business -- Other
Services -- Cellular Services" for more information.

Rural Internet Program Expansion. We completed during 2005 all but one wireless
internet sites that we began work on in 2004. We now provide internet services
to 138 remote communities in Alaska at faster speeds and lower rates than
they've experienced before.

AU East Capacity Expansion. We completed a capacity expansion of our AULP East
fiber system during 2005. We upgraded the system using wavelength division
multiplexing from its previous five gigabit per second ("Gbps") capacity to 20
Gbps.

Stock Repurchase Approvals. GCI's Board of Directors authorized us, and we
obtained permission from our lenders, to repurchase up to $5 million of GCI's
common stock on a quarterly basis, to purchase an additional $10.0 million
during the six months ended June 30, 2006, and to use stock option exercise
proceeds to repurchase additional shares. We expect to continue the purchases
throughout 2006 subject to the availability of free cash flow, credit facilities
and the price of the stock. The purchases will comply with the restrictions of
Securities Exchange Commission Rule 10b-18.

Narrative Description of our Business

General

We are the largest Alaska-based and operated integrated communications provider.
A pioneer in bundled service offerings, we provide facilities-based local and
long distance voice, cable video, Internet and data communications services, and
resell wireless telephone services, to residential and business customers under
our GCI brand.

We generated consolidated revenues of $443.0 million in 2005. We ended the year
with approximately 85,300 long-distance customers, 112,900 local access lines in
service, 137,000 basic cable subscribers, and 93,900 Internet subscribers,
including 77,400 cable modem subscribers. A substantial number of our customers
subscribe to product bundles that include two or more of our services. The
National Cable and Telecommunications Association ("NCTA") reports that we were
the 25th largest MSO in the U.S. as of December 2004.

Since GCI's founding in 1979, we have consistently expanded our product
portfolio to satisfy our customers' needs. We have benefited from the attractive
and unique demographic and economic characteristics of the Alaskan market. We
believe our integrated strategy of providing innovative bundles of voice, video

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<PAGE>
and data services provides us with an advantage over our competitors and will
allow us to continue to attract new customers, retain existing customers and
expand our addressable market. We hold leading market shares in long-distance,
cable video and Internet services and have gained significant market share in
local access against an incumbent provider.

Through our focus on long-term results and strategic capital investments, we
have consistently grown our revenues and expanded our margins. Our integrated
strategy provides us with competitive advantages in addressing the challenges of
converging telephony, video and broadband markets and has been a key driver of
our success. Today, using our extensive communications networks, we provide
customers with integrated communications services packages that we believe are
unmatched by any other competitor in Alaska.

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

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

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

Competition in the Communications Industry

There is substantial competition in the communications industry. The traditional
dividing lines between providers offering long-distance, local and wireless
telephone services, Internet services and video services are increasingly
becoming blurred. Through mergers and various service integration and product
bundling strategies, major providers, including us, are striving to provide
integrated communications service offerings within and across geographic
markets. The converging communications industry is competing to deliver service
bundles that include voice, broadband Internet access, and video content. We
maintain a strong competitive position, however there is active competition in
the sale of substantially all products and services we offer.

Competitive Strengths

Market Leader. We are Alaska's leading provider of long-distance, cable
television and data and Internet services, as measured by revenues, and we are
the second largest local access provider, as measured by local access lines. We
attribute our leadership position to our commitment to provide our customers
with high-quality products in bundled offerings that maximize their
satisfaction.

Advanced Infrastructure and Robust Network Assets. We own and operate advanced
networks that provide integrated end-to-end solutions. Our hybrid-fiber coax
cable network enables us to offer last-mile broadband connectivity to our
customers. Our interstate and undersea fiber optic cable systems connect our
major markets in Alaska to the Lower 48 States. We employ satellite transmission
for rural intrastate and interstate traffic in markets where terrestrial based
network alternatives are not available. We have or expect to be able to obtain
satellite transponders to meet our long-term satellite capacity requirements. In

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<PAGE>
our local service markets, we offer services using our own facilities, unbundled
network elements and wholesale/resale.

Bundled Service Offerings. Ownership and control of our network and
communications assets have enabled us to effectively market bundled service
offerings. Bundling facilitates the integration of operations and administrative
support to meet the needs of our customers. Our product and service portfolio
includes stand-alone offerings and bundled combinations of local and
long-distance voice and data services, cable video, broadband (cable modem,
fixed wireless and DSL), dedicated Internet access services and other services.

Well-Recognized Brand Name. Our GCI brand is the oldest brand among major
communications providers in Alaska and positively differentiates our services
from those of our competitors. We believe our customers associate our brand name
with quality products. We continue to benefit from high name recognition and
strong customer loyalty, and the majority of our customers purchase multiple
services from us. We have been successful in selling new and enhanced products
to our customers based on perceived quality of products and brand recognition.

Favorable Alaskan Market Dynamics. The Alaskan communications market is
characterized by its large geographic size and isolated markets that include a
combination of major metropolitan areas and small, dense population clusters,
which create a deterrent to potential new entrants. Due to the remote nature of
its communities, the state's residents and businesses rely extensively on our
systems to meet their communications needs. We believe that, when compared to
national averages, Alaskan households spend more on communications services.
According to the United States Census Bureau, the median household income in
Alaska was 23% higher than the three-year United States national average from
2002 to 2004, and according to the Alaska Department of Revenue, in fiscal 2005,
federal spending in Alaska is expected to increase 63% year over year. We
believe there is a positive outlook for continued growth.

Experienced Management Team. Our experienced management team has a proven track
record and has consistently expanded our business and improved our operations.
Our senior management averages more than 25 years of experience in the
communications industry and more than 20 years with our company.

Business Strategy

We intend to continue to increase revenues and cash flow using the following
strategies:

     Continue to Offer Bundled Products. We offer innovative service bundles to
     meet the needs of our residential and business customers. Bundling our
     services significantly improves customer retention, increases revenue per
     customer and reduces customer acquisition expenses. Our experience
     indicates that our bundled customers are significantly less likely to
     churn, and we experience less price erosion when we effectively combine our
     offerings. Bundling improves our top line growth, provides operating cost
     efficiencies that expand our margins and drives our overall business
     performance. As a measure of success to date, substantially all of our
     local customers subscribe to our long-distance service and approximately
     one-half of our cable video subscribers also subscribe to our high-speed
     Internet service.

     Maximize Sales Opportunities. We successfully sell new and enhanced
     services and products between and within our business segments to our
     existing customer base to achieve increased revenues and penetration of our
     services. Through close coordination of our customer service and sales and
     marketing efforts, our customer service representatives cross sell and up
     sell our products. Many calls into our customer service centers result in
     sales of additional products and services. We actively seek to continue to
     encourage our existing customers to acquire higher value, enhanced
     services.

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<PAGE>
     Deliver Industry Leading Customer Service. We have positioned ourselves as
     a customer service leader in the Alaska communications market. We
     reorganized our operations in January 2006 to more effectively focus our
     organization on our customers. We operate our own customer service
     department and maintain and staff our own call centers. We have empowered
     our customer service representatives to handle most service issues and
     questions on a single call. We prioritize our customer services to expedite
     handling of our most valuable customers' issues, particularly for our
     largest business customers. We believe our integrated approach to customer
     service, including setting up the service, programming various network
     databases with the customer's information, installation, and ongoing
     service, allows us to provide a customer experience that fosters customer
     loyalty.

     Leverage Communications Operations. We continue to expand and evolve our
     integrated network for the delivery of our services. Our bundled strategy
     and integrated approach to serving our customers creates efficiencies of
     scale and maximizes network utilization. By offering multiple services, we
     are better able to leverage our network assets and increase returns on our
     invested capital. We periodically evaluate our network assets and
     continually monitor technological developments that we can potentially
     deploy to increase network efficiency and performance.

     Expand Our Product Portfolio and Footprint in Alaska. Throughout our
     history, we have successfully added and expect to continue to add new
     products to our product portfolio. Management has a demonstrated history of
     evaluating potential new products for our customers, and we will continue
     to assess revenue-enhancing opportunities that create value for our
     customers. In addition to new services such as digital video recorders,
     HDTV, video-on-demand, and VoIP, we are also expanding the reach of our
     core products to new markets. Where feasible and where economic analysis
     supports geographic expansion of our network coverage, we expect to pursue
     opportunities to increase the scale of our facilities, enhance our ability
     to serve our existing customers' needs and attract new customers.

Alaska Voice, Video and Data Markets

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

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

Fiber optics is currently the preferred method of carrying Internet, voice,
video, and data communications over long-distances, eliminating the delay
commonly found in satellite connections. Widespread use of high capacity fiber

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<PAGE>
optic facilities is expected to allow continued expansion of business,
government, educational, and health care infrastructure in Alaska.

Long-Distance Services

Industry. Until the 1970s, AT&T had a virtual monopoly on long distance service
in the United States. In the 1970s, competitors such as MCI and Sprint began to
offer long distance service. With the gradual emergence of competition, basic
rates dropped, calling surged, and AT&T's dominance declined. More than 1,000
companies now offer wire-line long distance service.

AT&T's 1984 toll revenues were approximately 90% of those reported by all long
distance carriers. The FCC's regulation of AT&T as a "dominant" carrier ended in
1995. By 2003, AT&T's revenues had declined to approximately 29% of all toll
revenues. The two largest market entrants, MCI and Sprint, had obtained a 28%
combined market share through 2003. BellSouth, Qwest, SBC Communications Inc.
("SBC"), and Verizon had obtained a 15% combined market share in 2003 as
compared to 9% in 2000.

The communications industry stabilized in 2003 after a period of decline
attributed to excess network capacity and high debt loads, but remains stagnant.
Intense price competition continues, with continuing technological innovations
threatening established services.

Significant merger and acquisition activity occurred in 2005 and early 2006,
changing the competitive landscape and further blurring the distinctions between
wire-line, mobile, long-distance and local communication services. Sprint merged
with Nextel in August 2005, SBC acquired AT&T in November 2005, and Verizon and
MCI merged in January 2006, and AT&T announced plans to acquire BellSouth Corp.
in March 2006.

The FCC reports that approximately 2% of all consumer expenditures are devoted
to telephone service. This percentage has remained relatively constant over the
past 15 years, despite major changes in the industry and in telephone usage.
Average annual expenditures for telephone service increased from $877 per
household in 2000 to $956 in 2003.

The FCC reports that approximately 106 million U.S. households had telephone
services as of March 2005, an increase of 26 million households since 1984. An
estimated 92.4% of households and virtually all businesses in the United States
subscribed to telephone service in July 2004. Approximately 91.4% of households
subscribed to telephone service in 1984.

The FCC reports that primary lines in service in the United States have grown
over time, averaging approximately 3% per year, which, until 2000, had
historically reflected growth in the population and the economy. Since then, the
number of lines provided by wireline carriers has declined. The FCC reports that
consumer substitution of wireless service for wireline service, consumer
elimination of second lines when they move from dial-up Internet service to
broadband service and migration to alternative technologies such as VoIP may
explain the decrease. The percentage of additional wirelines for households with
telephone service has increased significantly, from approximately 3% in 1988 to
approximately 26% in 2000, and decreased back to 16% in 2003.

The FCC reports that approximately $70.1 billion was derived from toll services
in 2004 as compared to $78.6 billion in 2003. The decrease can be attributed to
decreased billable minutes of use and decreased rates per minute of use. The FCC
reports that total interstate switched access minutes have declined 25.5% from
2000 to 2004; from 566.9 billion to 422.5 billion, respectively. 2004 interstate
minutes of use decreased 4.9% as compared to 444.1 billion minutes in 2003.

The interstate toll services consumer price index continued to reflect
decreasing long-distance rates in 2004, dropping 8.7% as compared to 2003.
Similarly, the intrastate toll services consumer price index dropped 6.6% in
2004 as compared to 2003. The overall consumer price index increased 3.3% in

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2004. Average revenue per minute of long distance calling dropped from $0.32 in
1984, when competitive discount and promotional long distance plans were
introduced, to $0.08 in 2003. This average price per minute represents a mix of
international calling (an average of 20 cents per minute) and domestic
interstate calling (an average of 7 cents per minute). The decline in prices
since 1984 is more than 85% after adjusting for the impact of inflation.

International communications continues to be an important segment of the
communications market. The FCC reports that the number of calls made from the
United States to other countries increased from 200 million in 1980 to 7.4
billion in 2003, and that Americans spent approximately $9.7 billion on
international telephone and private line services in 2003. Consistent with
domestic toll rates per minute, international toll rates per minute have
decreased significantly. On average, carriers billed 21 cents per minute for
international calls in 2003, a decline of more than 84% since 1980. Five
markets, Canada, Mexico, the United Kingdom, Germany, and India, accounted for
approximately 37% of the international calls billed in the United States in
2003. AT&T, MCI, and Sprint combined accounted for 88% of the international
service billed in the United States in 2003.

Growth in demand for data services is expected to continue to be a key component
of industry revenue growth. We believe that the data communications business
will eventually rival and perhaps become larger than the traditional voice
telephony market. The continuing migration of voice and other traffic from
analog to digital transmission including VoIP, and the growth in data attributed
to broadband applications are expected to fuel the growth in data with
inevitable industry realignment expected to continue.

The FCC issued a Report and Order (FCC 03-197) in 2003 eliminating a policy that
prohibited the installation or operation of more than one satellite earth
station in any Alaska rural community for competitive carriage of interstate
message telephone service ("MTS") communications. The FCC found that through a
series of regulatory steps, the environment that once called for restrictions on
competitive facilities-based entry had changed. This policy change allows us to
install facilities and provide competitive interstate MTS and other
communications services over our own equipment and network in rural communities
where we presently have no facilities.

We believe that federal and state legislators, courts and regulators will
continue to influence the communications industry in 2006. Consummation of
recent mergers between major BOCs and long-distance and wireless companies, the
announcement by telephone companies of their intentions to provide video, the
continued development of broadband content and IP-based voice products, the
increasing acceptance of VoIP services, and the potential for future mergers
continue to blur the distinction between product lines and competitors.

Industry analysts believe companies will be successful in the long-term if they
can achieve and maintain a superior operating cost position, minimize regulatory
battles, offer a full suite of integrated services to their customers using a
network that is largely under their control, and continue to offer new and
enhanced services that customers wish to purchase.

See "Part I -- Item I -- Business -- Regulation, Franchise Authorizations and
Tariffs -- Long-Distance Services" for more information.

General. We supply a full range of common carrier long-distance and other
communications products and services. We operate a modern, competitive
communications network employing the latest digital transmission technology
based upon fiber optic facilities within and between Anchorage, Fairbanks and
Juneau, Alaska. Our facilities include two self-constructed and financed digital
undersea fiber optic cables linking our Alaska terrestrial networks to the
networks of other carriers in the Lower 49 States. We use satellite transponders
to transmit voice and data traffic to remote areas of Alaska. We operate digital
microwave systems to link Anchorage with the Kenai Peninsula, and our Prudhoe
Bay Earth Station with Deadhorse. Digital microwave facilities are also used
between our Fairbanks earth station and our Fairbanks distribution center.
Virtually all switched services are computer controlled, digitally switched, and
interconnected by a packet switched SS7 signaling network.

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

Products. Our long-distance services industry segment is engaged in the
transmission of interstate and intrastate-switched message telephone service and
Private Line and Private Network communications service between the major
communities in Alaska, and the remaining United States and foreign countries.
Our message toll services include intrastate, interstate and international
direct dial, toll-free 800, 888, 877 and 866 services, our calling card,
operator and enhanced conference calling, frame relay, SDN, ISDN technology
based services, as well as terminating northbound MTS traffic for MCI, Sprint
Nextel and several large resellers who do not have facilities of their own in
Alaska. We also provide origination of southbound calling card and toll-free
800, 888, 877 and 866 toll services for MCI, Sprint Nextel, and other IXCs. We
offer our message services to commercial, residential, and government
subscribers. Subscribers generally may cancel service at any time. Toll, Private
Line and Private Network, and related services account for approximately 42.6%,
42.4%, and 45.9% of our 2005, 2004 and 2003 revenues, respectively. Private Line
and Private Network services utilize voice and data transmission circuits,
dedicated to particular subscribers, which link a device in one location to
another in a different location.

We have positioned ourselves as a price, quality, and customer service leader in
the Alaska communications market. The value of our long-distance services is
generally designed to be equal to or greater than that for comparable services
provided by our competitors.

Facilities. Our communication facilities include an undersea fiber optic cable
system connecting Whittier, Valdez and Juneau, Alaska and Seattle, Washington,
which was placed into service in February 1999.

We constructed a new undersea fiber optic cable system connecting Seward, Alaska
to Warrenton, Oregon that we placed into service in June 2004. This fiber optic
cable system is designated AULP West and the original undersea fiber optic cable
system is now designated AULP East. The Seward cable landing station connects to
our network in Anchorage and the Warrenton cable landing station connects to our
network in Seattle via long-term leased capacity. The combination of AULP West
and AULP East provides us with the ability to provide fully protected
geographically diverse routing of service between Alaska and the Lower 48
States.

These undersea fiber optic cable systems allow us to carry our military base
traffic and our Anchorage, Delta Junction, Eagle River, Fairbanks, Girdwood,
Glenallen, Healy, Juneau, Seward, Valdez, Wasilla, and Whittier, Alaska traffic
to and from the contiguous Lower 48 States and between these instate locations
over terrestrial circuits, eliminating the one-half second round trip delay
associated with satellite circuits.

Other facilities include major earth stations at Barrow, Bethel, Cordova,
Dillingham, Dutch Harbor, Eagle River, Ketchikan, King Salmon, Kodiak, Kotzebue,
Nome, Prudhoe Bay, and Sitka, all in Alaska, serving the communities in their
vicinity, and at Issaquah, Washington, which provides interconnection to Seattle
and the Lower 48 States for traffic to and from major Alaska earth stations. The
Eagle River earth station is linked to the Anchorage distribution center by
fiber optic facilities.

We use SONET as a service delivery method for our terrestrial metropolitan area
networks as well as our long-haul terrestrial and undersea fiber optic cable
networks. As of December 31, 2005 we have completed interconnection of
approximately 182 businesses and collocation facilities within the Anchorage,
Juneau and Fairbanks metropolitan areas, as well as the 800-mile long

                                       20
<PAGE>
TransAlaska Pipeline System right of way that connects Valdez to Prudhoe Bay,
Alaska. We currently connect Anchorage, Whittier, Juneau and Seattle through our
AULP East undersea fiber network. We use SONET-based next generation
multi-service nodes for purposes of delivering traditional time division
multiplex services (at DS-0, DS-1 and DS-3 data rates) as well as next
generation services, such as optical OC-n and Ethernet. We have expanded our
digital cross-connect capacity through the addition of three large 3:1 cross
connects located in Anchorage and Seattle.

A fiber optic cable system from our Anchorage distribution center connects to
the MTA Eagle River central office and to our major hub earth station in Eagle
River. The Issaquah earth station is connected with the Seattle distribution
center by means of diversely routed leased fiber optic cable transmission
systems, each having the capability to restore the other in the event of
failure. The Juneau earth station and distribution centers are collocated. We
have digital microwave facilities serving the Kenai Peninsula communities. We
maintain earth stations in Fairbanks (linked by digital microwave to the
Fairbanks distribution center), Juneau (collocated with the Juneau distribution
center), Anchorage (Benson earth station), and in Prudhoe Bay as fiber network
restoration earth stations. Our Benson earth station also uplinks our statewide
video service; such service may be pre-empted if earth station capacity is
needed to restore our fiber network between Anchorage and Prudhoe Bay.

Two additional earth stations in McGrath and Yakutat, Alaska were placed into
service in 2005.

We use our DAMA facilities to serve 60 additional locations throughout Alaska.
DAMA is a digital satellite earth station technology that allows calls to be
made between remote villages using only one satellite hop thereby reducing
satellite delay and capacity requirements while improving quality. In 1996, we
obtained the necessary RCA and FCC approvals waiving prohibitions against
construction of competitive facilities in certain rural Alaska communities,
allowing for deployment of DAMA technology in 56 sites in rural Alaska on a
demonstration basis. These prohibitions were removed by the FCC in 2003 allowing
us to begin deploying earth stations in more locations in Alaska. In addition,
69 (for a total of 129) C-band facilities provide dedicated Internet access,
Telehealth and Private Network services to rural public schools, hospitals,
health clinics, and natural resource development industries throughout Alaska.
Our Network of 83 Ku- band facilities provide dedicated Internet access,
Telehealth and private network services to rural public schools, hospitals,
health clinics, and natural resource development industries throughout Alaska,
and in 10 locations in the Lower 48 States.

Our Anchorage, Fairbanks, and Juneau distribution centers contain electronic
switches to route calls to and from local exchange companies and, in Seattle, to
obtain access to MCI, Sprint Nextel and other carriers to distribute our
southbound traffic to the remaining 49 states and international destinations. In
Anchorage, a Lucent Technologies Inc. ("Lucent") 5ESS digital host switch at our
south Anchorage distribution center is connected by fiber to seven remote
facilities that are collocated in or adjacent to the ILEC switching centers, to
provide both local and long-distance service. A second 5ESS switch in our
Anchorage distribution center provides toll tandem service. Our extensive
metropolitan area fiber network in Anchorage supports cable television, Internet
and telephony services. The Anchorage, Fairbanks, and Juneau facilities also
include digital access cross-connect systems, frame relay data switches,
Internet platforms, and in Anchorage and Fairbanks, collocation facilities for
interconnecting and hosting equipment for other carriers. We also maintain an
operator and customer service center in Wasilla, Alaska.

We have constructed a switching center and ILEC collocation offices in
Fairbanks, and have installed a Lucent switch to enable the provisioning of
local telephone access services in that market. Intrastate toll traffic
originating in Fairbanks is routed to Anchorage and interstate toll traffic is
routed to Seattle.

                                       21
<PAGE>
We utilize a Lucent switch in our Juneau distribution center and DLC equipment
at collocation facilities at two of the Juneau ILEC central offices to provide
local services to the Juneau market. Our collocation facilities enable UNE loop
access to a portion of the Juneau ILEC's loop facilities.

We own and use two Lucent 5ESS switches in Anchorage and Seattle as toll tandem
switches. The Anchorage switch serves as our primary long distance switch in
Alaska, enabling additional network efficiencies.

Our operator services traffic is processed by an integrated services platform
that also hosts answering services, directory assistance, and internal
conferencing services.

We employ satellite transmission for rural intrastate and interstate traffic and
certain other major routes. We acquired satellite transponders on PanAmSat
Corporation ("PanAmSat") Galaxy XR satellite in March 2000 to meet our long-term
satellite capacity requirements. We further augmented capacity on Galaxy XR with
the lease of a seventh C-band transponder in October, 2002.

As demand for redundant, geographically diverse capacity on our network
increases, we will need to further augment our facilities between Alaska and the
Lower 48 States.

In June 2004 we completed the construction of AULP West connecting Seward,
Alaska and Warrenton, Oregon, with leased backhaul facilities to connect it to
our switching and distribution centers in Anchorage, Alaska and Seattle,
Washington. Capital expenditures for this project totaled approximately $50.1
million, most of which was funded through our operating cash flows.

We employ a packet data satellite transmission technology for the efficient
transport of broadband data in support of our rural health and SchoolAccess(R)
initiatives. We expect to further expand this network during 2006. An upgrade of
the packet data satellite transmission equipment to a more bandwidth efficient
modulation scheme was completed during the second quarter of 2005. In addition,
our SchoolAccess(R) and rural wireless Internet service is partially provisioned
over a satellite based digital video broadcast carrier that was converted to a
more efficient modulation scheme during the second quarter of 2005. These
projects reduce the requirement for new satellite transponder bandwidth to
support expected growth in rural health, distance learning and rural Internet
services.

Emerging technology that facilitates more efficient transport of fixed assigned
point-to-point satellite transmissions became available during the third quarter
of 2005. This technology allows fixed point-to-point transmissions between two
earth stations to transmit at the same frequency. Successful implementation of
this new technology will reduce the requirement for new satellite bandwidth to
meet our needs as expected growth in demand for our services occurs. We are
planning the use of this new technology to further increase the efficiency of
bandwidth utilization for a portion of our satellite network.

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

Customers. We had approximately 85,300, 91,300, and 85,600 active Alaska
long-distance message telephone service subscribers at December 31, 2005, 2004
and 2003, respectively. Approximately 10,200, 11,200 and 11,300 of these were
business and government users at December 31, 2005, 2004 and 2003, respectively,
and the remainder were residential customers.

                                       22
<PAGE>
The 2005 decreases are primarily due to the following:

     o   A decrease in the total number of long-distance services subscribers in
         the market resulting from customers substituting cellular phone,
         prepaid calling card, VoIP and email usage for direct dial minutes,
     o   A seasonal decrease in the number of customers with calling activity in
         2005. The seasonal decrease was mitigated in 2004 by customers'
         enrollment in a certain calling plan, and
     o   Non-revenue affecting adjustments to our customer database resulting
         from the implementation of a new customer service and provisioning
         information system.

The 2004 increase in our total customer count was primarily attributed to our
successful efforts to acquire and retain customers due to popular product bundle
offerings. The 2004 decrease in our business and government customer counts were
primarily attributed to continuing competitive pressures in Anchorage and other
markets we serve. Message telephone service revenues (excluding operator
services and Private Line revenues) averaged approximately $10.4 million per
month during 2005.

Equal access conversions have been completed in all communities where we serve
with owned facilities. Equal access is in progress in several small communities
where we are expanding our owned facilities. We estimate that we carry greater
than 50% of combined business and residential traffic as a statewide average for
both originating interstate and intrastate message telephone service.

A summary of our switched long-distance message telephone service traffic (in
minutes) follows:
<TABLE>
<CAPTION>
                                       Interstate Minutes
                             ---------------------------------------
                                                                                   Combined
                                                                                  Interstate
                                                                       Inter-     and Inter-
                                   South-        North-     Calling    national    national       Intra-        Total
For Quarter ended                  bound         bound        Card     Minutes     Minutes        Minutes      Minutes
-----------------------------------------------------------------------------------------------------------------------
                                                              (Amounts in thousands)
 <S>                              <C>           <C>           <C>       <C>       <C>            <C>         <C>
 March 31, 2003                   132,172        78,882       1,186     1,487      213,727        45,345       259,072
 June 30, 2003                    142,333        83,749       1,107     1,508      228,697        52,489       281,186
 September 30, 2003               159,439        96,512       1,055     1,514      258,520        55,918       314,438
 December 31, 2003                144,829       107,620       1,013     1,546      255,008        49,553       304,561
                             ------------------------------------------------------------------------------------------
     Total 2003                   578,773       366,763       4,361     6,055      955,952       203,305     1,159,257
                             ==========================================================================================

 March 31, 2004                   149,354        94,845         909     1,685      246,793        54,629       301,422
 June 30, 2004                    150,804        83,268         820     1,755      236,647        57,140       293,787
 September 30, 2004               164,019        82,190         767     1,776      248,752        62,055       310,807
 December 31, 2004                147,487        86,285         744     1,713      236,229        54,839       291,068
                             ------------------------------------------------------------------------------------------
     Total 2004                   611,664       346,588       3,240     6,929      968,421       228,663     1,197,084
                             ==========================================================================================

 March 31, 2005                   146,322        75,304         679     1,884      224,189        78,332       302,521
 June 30, 2005                    163,287        85,765         604     1,920      251,576        96,157       347,733
 September 30, 2005               178,301        94,142         530     1,901      274,874       101,718       376,592
 December 31, 2005                155,838        99,407         548     1,805      257,598        90,550       348,148
                             ------------------------------------------------------------------------------------------
     Total 2005                   643,748       354,618       2,361     7,510    1,008,237       366,757     1,374,994
                             ==========================================================================================
</TABLE>
   --------------------------
   All minutes data were taken from our internal billing statistics reports.
   ---------------------------

                                       23
<PAGE>
We entered into a significant business relationship with MCI in 1993 that
included the following agreements, among others.

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

Concurrently with these agreements, MCI purchased approximately 31% of GCI's
Common Stock and presently two representatives serve on GCI's Board. In
conjunction with our acquisition of cable television companies in 1996, MCI
purchased an additional two million shares at a premium to the then current
market price for $13 million or $6.50 per share. MCI sold 4.5 million shares of
GCI Class A common stock in 2002. On December 7, 2004 on behalf of GCI we
repurchased 3,751,509 of GCI's Class A common shares at $8.33 per share and $10
million face value of GCI's Series C Preferred Stock from MCI. The aggregate
amount of the equity repurchase totaled $41.3 million. At December 31, 2005, MCI
owns approximately 2.1% of GCI's Common Stock.

Revenues attributed to MCI's message telephone traffic from these agreements
(excluding Private Line and other revenues) in 2005, 2004 and 2003 totaled $55.3
million, $52.8 million and $57.8 million, or 12.5%, 12.4% and 14.8% of total
revenues, respectively. The contract was amended in January 2005, extending its
term to December 2009, with five, one year automatic extensions thereafter. The
amendment reduced the rate to be charged by us for certain traffic over the
extended term of the contract.

On July 21, 2002 MCI and substantially all of its active United States
subsidiaries filed voluntary petitions for reorganization under Chapter 11 of
the United States Bankruptcy Code in the United States Bankruptcy Court. Chapter
11 allows a company to continue operating in the ordinary course of business in
order to maximize recovery for the company's creditors and shareholders. On July
24, 2003, our contract to provide interstate and intrastate long-distance
services to MCI was extended for a minimum of five years to July 2008. The
agreement sets the terms and conditions under which we originate and terminate
certain types of long-distance and data services in Alaska on MCI's behalf. In
exchange for extending the term of this exclusive contract, MCI will receive a
series of rate reductions implemented in phases over the life of the contract.
On October 31, 2003, MCI's reorganization plan was approved by the United States
Bankruptcy Court and MCI emerged from bankruptcy protection on April 20, 2004.
On February 19, 2005 MCI entered into a new five-year contract with us to
originate and terminate all of their Alaska traffic with rates that comply with
new federal legislation. These rates will be reduced 3% annually for the next
four years pursuant to such legislation.

On January 6, 2006 Verizon announced the completion and closing of its merger
with MCI. We are unable to predict the impact that the merger with MCI will have
upon us in the long-term, however given the materiality of MCI's revenues to us,
a significant reduction in traffic or pricing could have a material adverse
effect on our financial position, results of operations and liquidity.

With the contracts and amendment described above, we believe that Verizon, our
largest customer, will continue to make use of our services during the extended
term. MCI was a major customer of our long-distance services industry segment
through 2005.

Other common carrier traffic routed to us for termination in Alaska is largely
dependent on traffic routed to our carrier customers by their customers. Pricing
pressures, new program offerings, revised business plans, and market
consolidation continue to evolve in the markets served by our carrier customers.
If, as a result, their traffic is reduced, or if their competitors' costs to
terminate or originate traffic in Alaska are reduced, our traffic will also
likely be reduced, and we may have to respond to competitive pressures,

                                       24
<PAGE>
consistent with federal law. We are unable to predict the effect of such changes
on our business; however the loss of MCI as a customer, a material adverse
change in our relationships with them, or a material loss of or reduction in
their long-distance customers would have a material adverse effect on our
financial position, results of operations or liquidity.

We provide various services to Dobson, Sprint Nextel, the State of Alaska, BP
Alaska, Wells Fargo Bank Alaska, First National Bank of Alaska, and Alyeska
Pipeline Service Company. Although these customers do not meet the threshold for
classification as major customers, we do derive significant revenues and
operating income from them. The loss of one or more of these customers or a
material adverse change in our relationships with them could have a material
adverse effect on our financial position, results of operations or liquidity.
There are no other individual customers, the loss of which would have a material
impact on our revenues or operating income.

We provided broadband, IP Data, Private Line and Private Network communications
products and services, including SchoolAccess(R) and rural health Private Line
facilities, to 403 commercial and government customers at the end of 2005. These
products and services generated approximately 16.3%, 17.2% and 15.9% of total
revenues during the years ended December 31, 2005, 2004 and 2003, respectively.
Broadband services results, including SchoolAccess(R) and rural health, are
included in the All Other category in the Consolidated Financial Statements
included in Part IV of this report.

Although we have several agreements to facilitate the origination and
termination of international toll traffic, we have neither foreign operations
nor export sales. See "Part I -- Item 1 -- Business -- Financial Information
about our Foreign and Domestic Operations and Export Sales" for more
information.

Competition. The long-distance industry is intensely competitive and subject to
constant technological change. Competition is based upon price and pricing
plans, the type of services offered, customer service, billing services,
performance, perceived quality, reliability and availability. AT&T Alascom, as a
subsidiary of AT&T, has access to greater financial, technical and marketing
resources than we have. Future competitors could also be substantially larger
than we are, and have greater financial, technical and marketing resources than
we have.

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

Historically, we have competed in the long-distance market by offering discounts
from rates charged by our competitors and by providing desirable packages of
services. Our favorable rate differential has been eroded in recent years due to
lowering of prices by AT&T Alascom and entry of other competitors into the
long-distance markets we serve. In addition, our competitors have also begun to
offer their own packages of services. If competitors lower their rates further
or develop more attractive packages of services, we may be forced to reduce our
rates or add additional services, which would have a material adverse effect on
our financial position, results of operations or liquidity.

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

                                       25
<PAGE>
may be forced to reduce our rates, which could have a material adverse effect on
our financial position, results of operations or liquidity.

On January 31, 2005 SBC and AT&T announced an agreement for SBC to acquire AT&T.
The acquisition closed on November 18, 2005. AT&T shareholders received total
consideration valued at $19.71 per share, or approximately $16 billion.

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

Another carrier completed construction of fiber optic facilities connecting
points in Alaska to the Lower 48 States in 1999. The additional fiber system
provides direct competition to services we provide on our owned fiber optic
facilities, however this fiber system also provides an alternative routing path
for us in case of a major fiber outage in our systems. This carrier filed for
Chapter 11 bankruptcy in 2001 and its assets were sold in 2002. We completed
construction of the AULP West fiber optic cable system in June 2004 that
provides us with owned capacity for route diversity.

Wireless local number portability was enforced in November 2003. Consumers can
now retain the same phone number as they change service providers allowing for
interchangeable and portable fixed-line and wireless numbers. Some consumers now
use wireless service as their primary voice phone service for local and
long-distance calling.

VoIP is becoming more widely accepted as an alternative to wireline and wireless
phone service. Strategy Analysis reported that VoIP subscribers in the United
States were expected to grow from 3.3 million in February 2005 to over 5 million
by the end of 2005. In-stat, a provider of research and consulting services,
estimates that total worldwide VoIP cable telephony subscriber households will
reach almost 7 million by the end of 2006. The Telecommunication Industry
Association estimates that VoIP subscribers will grow to 26 million by 2008.

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

We expect competition to increase as new technologies, products and services
continue to develop. We cannot predict which of many possible future
technologies, products or services will be important to maintain our competitive
position or what expenditures will be required to develop and provide these
technologies, products or services. Our ability to compete successfully will
depend on marketing and on our ability to anticipate and respond to various
competitive factors affecting the industry, including new services that may be
introduced, changes in consumer preferences, economic conditions, market and
competitor consolidation, and pricing strategies by competitors. To the extent
we do not keep pace with technological advances or fail to timely respond to
changes in competitive factors in our industry and in our markets we could lose
market share or experience a decline in our revenue and net income. Competitive
conditions create a risk of market share loss and the risk that customers shift
to less profitable lower margin services. Competitive pressures also create
challenges to our ability to grow new business or introduce new services
successfully and execute our business plan. Each of our business segments also
faces the risk of potential price cuts by our competitors that could materially
adversely affect our long-distance segment market share and results of
operations.

                                       26
<PAGE>
Cable Services

Industry. The programmed video services industry includes traditional broadcast
television, cable television, satellite systems such as DBS, private cable
operators, LEC entry, broadband service providers, wireless cable, open video
systems, home video sales and rentals, Internet video, and electric and gas
utilities. Cable television providers have added non-broadcast programming,
utilized improved technology to digitize signals and increase channel capacity,
and expanded service markets to include more densely populated areas and those
communities in which off-air reception is not problematic. Broadcast television
stations including network affiliates and independent stations generally serve
the urban centers. One or more local television stations may serve smaller
communities. Rural communities may not receive local broadcasting or have cable
systems but may receive direct broadcast programming via a satellite dish. More
rural communities are receiving local and regional station programming as
satellite system providers obtain local and regional programming content.

During the last 50 years, the cable television industry has experienced
extensive growth and transformation. From initially offering clear reception of
broadcast stations, cable has grown into a broadband provider of video, Internet
and voice telephone services, expanding from analog technology to an
increasingly digital platform. The NCTA reports that more than 27 million U.S.
cable customers were reported to have subscribed to digital cable television
service at the end of the third quarter of 2005. Kagan Research forecasts that
growth will climb to approximately 31 million by the end of 2006.

The 1996 Telecom Act enabled cable television operators to undertake a multiyear
upgrade of cable system infrastructure and lead in the transition from an analog
platform to a broadband digital platform. Industry progress was made in 2005 to
further deploy HDTV, video-on-demand, interactive and other new consumer-driven
services that rely on the broadband digital platform.

Cable television operators and programmers began providing HDTV services in
2002. HDTV has been described by some analysts as the most dramatic change for
viewers since the introduction of color television. The NCTA reports that as of
December 2005, 96 million U.S. television households were passed by a cable
system that offered HDTV, a growth of 151% since January 1, 2003, when HDTV was
available to 37.5 million households. In addition, the amount of cable HDTV
programming increased steadily, and now comes from a broader programming
services group.

The NCTA reported that in December 2002, the consumer electronics and cable
industries reached agreement on standards for the creation of digital cable
ready equipment for the home. The FCC approved those standards in September 2003
and new sets are readily available in retail outlets that allow for one-way
services. However, this first generation of standards does not address
interactive two-way services, including, among other things, pay-per-view
programming, video-on-demand, interactive program guides, interactive gaming,
and interactive retailing. Customers must still use set-top boxes to receive
those services.

Kagan Research estimates that 110.8 million occupied homes were passed by cable
plant in January 2006. The FCC reports that the cable industry has upgraded more
than 91% of its plant to 750MHz capacity or higher. The NCTA reported that more
than 105 million households were reported to have been passed by activated
two-way plant at the end of 2004. Industry analysts forecast that more than 116
million households will be passed by activated two-way plant by the end of 2006.
These upgrades position cable companies to compete more effectively with their
DBS competitors.

The growth of DBS is still, in part, attributable to the authority granted to
DBS operators to distribute local broadcast television stations in their local
markets by the Satellite Home Viewer Improvement Act of 1999 ("SHVIA"). In
November 2004, the U.S. Congress passed a five-year extension of the SHVIA,
which allows DBS operators to retransmit distant broadcast TV signals to
underserved areas. Continued DBS subscriber growth is expected as local
programming is offered in more markets. The FCC reports that DBS continues to

                                       27
<PAGE>
increase its share of the MVPD market, while other MVPD providers continue to
experience losses in market share.

Kagan Research reports that while the number of basic cable TV subscribers
remained flat in 2005, digital cable TV subscribers grew 21 percent from 22.9
million subscribers in the first quarter of 2004 to 27.6 million subscribers by
the third quarter of 2005.

Analysts believe that cable TV subscriber growth in the future may result from
cable television operators' ability to attract new subscribers to their
traditional analog video services, and from ongoing deployments of digital
video, video-on-demand, voice, and high-speed data services. Analysts believe
that expanded digital services allow cable operators to differentiate their
services from competing telecommunications and pay-TV service providers.

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

The most significant convergence of service offerings over cable plant continues
to be the pairing of Internet service with other service offerings. Cable
operators continue to build-out the broadband infrastructure that permits them
to offer high-speed Internet access. The most popular way to access the Internet
over cable is still through the use of a cable modem and personal computer.
Virtually all of the major multiple system operators offer Internet access via
cable modems in portions of their service areas. Like cable, the DBS industry is
developing ways to bring advanced services to their customers. Many multichannel
multipoint distribution service and private cable operators also offer Internet
access services. In addition, broadband services providers continue to build
advanced systems specifically to offer a bundle of services, including video,
voice, and high-speed Internet access. We currently offer high-speed cable modem
access in Anchorage, Barrow, Bethel, Cordova, Juneau, Eielson Air Force Base,
Elmendorf Air Force Base, Fairbanks, Fort Richardson, Fort Wainwright, Homer,
Kenai, Kodiak, Ketchikan, Nome, North Pole, Palmer, Petersburg, Seward, Sitka,
Soldotna, Wasilla, Wrangell, and Valdez.

The cable industry has expanded its competitive offerings to include business
and residential telephone services delivered over its fiber optic
infrastructure. Cable-delivered telephone service is a natural extension of a
network already capable of delivering digital and broadband services and
products. Once upgraded to a two-way capability, a cable system can offer
telephone service over the same cable line that already carries digital video,
high speed Internet, and other advanced services to consumers. Cable operators
are beginning to deploy VoIP telephony in addition to circuit-switched telephony
offerings. Circuit-switched service requires large capital expenditures for
switching equipment in addition to facility upgrades. VoIP is more modular and
does not require the large upfront cost needed to deploy circuit-switched
service. VoIP utilizes the data path already built, and allows for easy software
changes and additions to service packages including innovative combinations of
voice, data, and fax services. VoIP is already beginning to play a significant
role in the extension of practically unlimited long distance calling. There are
a number of VoIP providers operating today; among the more prominent are Vonage
Holdings Corp., SkypeTM, AT&T, Google Inc., and SunRocket, Inc. The NCTA reports
that cable-delivered residential telephone service subscribers in the United
States totaled an estimated 3.5 million through the first quarter of 2005.

With digital transmissions and compression, cable operators are better able to
offer a variety and quality of channels to rival DBS and video-on-demand. In
2000 we installed a commercial version of video-on-demand for the Anchorage
hotel market and we are evaluating the feasibility of deploying a
video-on-demand technology in the residential market. With this service,
customers can access a wide selection of movies and other programming at any
time, with digital picture quality. This is especially critical in light of
recent pay-per-view developments. Pay-per-view providers are reducing the number
of transponders as they migrate more quickly to serving the industry's

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video-on-demand needs. Our pay-per-view movie platform for general films and
events has decreased from 22 channels in November 2005 to six channels in
February 2006.

The NCTA estimated 2005 total cable industry revenue reached $69.5 billion, an
approximate 35.5% increase from $51.3 billion in 2003. Operators face constant
pressure to keep rate increases at a minimum. According to calculations by Kagan
Research in July of 2005 the average monthly rate for basic cable services rose
from $38.14 to $39.63, a 3.9% from 2004. Over the past several years, the FCC
reports that operators have averaged annual rate increases in the 5% range. The
FCC reports that cable operators attributed rate increases to increased
programming costs, an increase in the number of video and non-video services
offered, system upgrades, and general inflationary pressures. The escalation of
programming costs continues to adversely impact the economics of cable
operators. Programming costs are reported to be the largest cost item for major
system operators and the fastest growing operating cost item for most. The NCTA
reported that, on the basis of financial data supplied to them by nine cable
operators, they found that these operators' yearly programming expenses, in the
years from 2000 to end of 2004, increased by over 60% from $9.13 million to
$14.65 million.

Kagan Research estimates that cable penetration of TV households totaled 58.7%
at December 31, 2005. Our overall average penetration of residential homes
passed was 56.0% at December 31, 2005.

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

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

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

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

General. We are the largest operator of cable systems in Alaska, serving
approximately 137,000 residential, commercial and government basic subscribers
at December 31, 2005. Our cable television systems serve 40 communities and
areas in Alaska, including the state's four largest urban areas, Anchorage,
Fairbanks, the Mat-Su Valley and Juneau. Our statewide cable systems consist of
2,369 miles of installed cable plant having 450 to 625 MHz of channel capacity.

Products. Programming services offered to our cable television systems
subscribers differ by system. The following information describes our service
offerings as of December 31, 2005.

     Anchorage and Mat-Su Valley system. The Anchorage and Mat-Su Valley system,
     which is located in the urban center for Alaska, offers a basic analog
     service that includes approximately 19 channels and a fully addressable
     digitally delivered expanded basic service with 55 video programming

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     channels and 47 digital music channels. This system also carries three
     digital tiers totaling 44 channels, four HD channels with the rental of an
     HD set-top converter, a five channel HD tier, digital video recorders, and
     over 75 channels of premium (including two foreign language channels and
     five HD channels) and pay-per-view products. Commercial subscribers such as
     hospitals, hotels and motels are charged negotiated monthly service fees.
     Apartment and other multi-unit dwelling complexes can receive service at a
     negotiated bulk rate with the opportunity for additional services on a
     tenant-pay basis.

     Fairbanks system. This system offers a basic analog service with 16
     channels and a fully addressable digitally delivered expanded basic service
     with 53 channels. This system also carries three digital tiers totaling 35
     channels, three HD channels with the rental of an HD set-top converter, a
     five channel HD tier, digital video recorders, and over 75 channels of
     premium (including two foreign language channels and five HD channels) and
     pay-per-view products.

     Juneau, Kenai, Ketchikan, and Soldotna systems. These systems offer a basic
     analog service with 13 to 18 channels and an additional analog tier (analog
     and digital delivery technologies are used in Ketchikan) with 41 to 48
     channels. These systems also carry a digital programming tier with 18 to 30
     special interest channels, 47 channels of digital music, and over 50
     channels of digitally delivered premium and pay-per-view products.

     Sitka System. This location offers an advanced analog service with a 17
     channel basic service, a 43 channel expanded basic service, eight channels
     of premium service (including one foreign language channel), five channels
     of pay-per-view and 31 music channels.

     Barrow, Bethel, Cordova, Kodiak, Kotzebue, Nome, Petersburg, Seward, Valdez
     and Wrangell systems. These systems offer a basic analog service with 12 to
     15 channels and an additional analog tier (analog and digital delivery
     technologies are used in Kodiak) with 35 to 41 channels. These systems also
     carry 47 channels of digital music and over 56 channels of digitally
     delivered premium and pay-per-view products.

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

Customers. Our cable systems passed approximately 215,000, 207,200 and 202,200
homes at December 31, 2005, 2004 and 2003, respectively, and served
approximately 137,000, 134,700 and 134,400 basic subscribers at December 31,
2005, 2004 and 2003, respectively. Revenues derived from cable television
services totaled $105.3 million, $101.4 million and $96.0 million in 2005, 2004
and 2003, respectively, representing approximately 23.8%, 23.9% and 24.6% of our
total revenues in 2005, 2004 and 2003, respectively.

Competition. The 1996 Telecom Act removed barriers to telephone company or LEC
entry into the video marketplace to facilitate competition between incumbent
cable operators and telephone companies. At the time of the 1996 Telecom Act, it
was expected that LECs would compete in the video delivery market and that cable
operators would provide local telephone exchange service. One of the largest
ILECs in Alaska has begun to offer video via IP technology, and another has
announced plans to begin to offer the service. A few smaller LECs continue to
offer, or are preparing to offer, multi-channel video programming distribution.

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We believe our greatest source of competition comes from the DBS industry. Two
major companies, DirecTV and Echostar are currently offering nationwide
high-power DBS services. In the past, the majority of Alaska DBS subscribers
were required to bear the cost of and install larger satellite dishes (generally
three to six feet in diameter) because of the weaker satellite signals available
in northern latitudes, particularly in communities surrounding, and north of,
Fairbanks. In addition, the satellites had a relatively low altitude above the
horizon when viewed from Alaska, making their signals subject to interference
from mountains, buildings and other structures. Satellite placements have
provided Alaska and Hawaii residents with a DBS package that requires a smaller
satellite dish (typically 18 inches); however, a second larger dish is required
if the subscriber wants to receive a channel line-up similar to that provided by
our cable systems with HD programming. In addition to the dish and equipment
cost deterrents, DBS signals are subject to degradation from atmospheric
conditions such as rain and snow.

Our cable television systems face competition from alternative methods of
receiving and distributing television signals, including digital video service
over telephone lines, broadband IP based services, wireless and SMATV systems,
and from other sources of news, information and entertainment such as off-air
television broadcast programming, newspapers, movie theaters, live sporting
events, interactive computer services, Internet services and home video
products, including videotape cassette and video disks. Our cable television
systems also face competition from potential overbuilds of our existing cable
systems by other cable television operators and municipally owned cable systems.

Several ILECs in the Lower 48 and the largest ILEC in Alaska have engaged in
marketing arrangements to provide DBS services along with local telephone and
other services. Similar arrangements could be extended to other ILECs in the
markets we serve in Alaska. In December, 2005 DirecTV launched a new satellite,
permitting them to transmit a stronger signal and deliver local network
programming in certain communities in Alaska. They now join EchoStar which in
2003 launched Anchorage local network programming for an additional fee. We will
continue to strive to compete effectively by providing, at reasonable prices and
in competitive bundles, a greater variety of communication services than are
available off-air or through other alternative delivery sources. Additionally,
we believe we offer superior technical performance and responsive
community-based customer service.

In November 2003, the ILEC in the Mat-Su Valley launched digital video service
over telephone lines in limited areas. Its product offerings and price points
are similar to our product offerings. The ILEC in Ketchikan has indicated its
intent to launch a similar service in early 2006.

Competitive forces will be counteracted by offering expanded programming through
digital services and by providing high-speed data services. System upgrades have
been completed to make our systems reverse activated, providing the necessary
infrastructure to offer cable modem service to greater than 99% of our homes
passed. Digital delivery technology is being utilized in all but one of our
systems. In 2002, seven-year retransmission agreements were signed with
Anchorage broadcasters. These agreements provide for the uplink/downlink of
their signals into all our systems, and local programming for our customers.

High-speed data access competition takes two primary forms: cable modem access
service and DSL service. Wireless services are also becoming more prevalent. DSL
service provides Internet access to subscribers at data transmission speeds
similar to cable modems over traditional telephone lines. Numerous companies,
including telephone companies, have introduced DSL service, and certain
telephone companies are seeking to provide high-speed broadband services,
including interactive online services, without regard to present service
boundaries and other regulatory restrictions. Wireless, both from a fixed and
mobile implementation, is becoming more available. Fixed wireless providers are
using newer technologies to deliver broadband to subscribers. In 2005, ClearWire
Corporation entered the Anchorage market providing wireless Internet access at
downlink speeds up to 1.5 Mbps.

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Wireless vendors in Anchorage continue to compete for broadband subscribers. In
locations in the Lower 49 States, public organizations such as municipalities
and education organizations have begun implementing mobile wireless broadband
over specific geographic areas such as parks, campuses and major downtown
business areas. Companies in the Lower 49 States, including telephone companies
and ISPs, have asked local, state and federal governments to mandate that cable
communications systems operators provide capacity on their cable infrastructure,
so these companies and others may deliver Internet services directly to
customers over cable facilities. The FCC determined in March 2002 that cable
system operators will not be required to provide such "open access" to others.
See "Part I -- Item 1 -- Business -- Regulation, Franchise Authorizations and
Tariffs -- Cable Services" for more information.

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

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

On December 30, 2004, we applied to the Regulatory Commission of Alaska to amend
our certificates of convenience and public necessity to include areas where
population growth has occurred and is likely to occur over the next five years.
On April 8, 2005, the RCA granted the amendments to our certificates. The
service area changes are in Anchorage, Bethel, Cordova, Fairbanks, Homer,
Juneau-Douglas, Kenai, Soldotna, Sterling, Ketchikan, Kodiak, Kotzebue, Nome,
Palmer-Wasilla, Petersburg, Seward, Sitka, Valdez and Wrangell.

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

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

Local Access Services

Industry. The FCC reported that there are approximately 1,300 companies that
have historically provided local telephone service in the Unites States. The FCC
further reports that end-user customers in the U.S. obtained local service as of
December 31, 2004 by means of 145 million ILEC switched access lines and 33
million CLEC switched access lines.

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The FCC reported that total CLEC end-user switched access lines increased by 7%
during the first half of 2004, from 30 million to 32 million lines. By
comparison, total CLEC lines increased by 10% during the preceding six months,
from 27 to 30 million lines. For the full twelve month period ending June 30,
2004, CLEC end-user lines increased by 19%. Approximately 18% of the 180 million
total end-user switched access lines were reported by CLECs, compared to 16% a
year earlier.

The FCC further reported that approximately 60% of reported CLEC switched access
lines serve residential and small business customers, compared to approximately
77% of ILEC lines. CLECs reported 15% of total residential and small business
switched access lines, and 29% of the total medium and large business,
institutional, and government customer access lines.

The FCC reported that CLECs reported providing about 16% (a decline from 43% in
December 1999) of their switched access lines by reselling the services of other
carriers, about 61% (an increase from 24% in December 1999) by means of UNE
loops leased from other carriers, and about 23% of switched access lines over
their own local loop facilities.

The FCC reports that since December 1999, the percentage of nationwide CLEC
switched access lines reported to be provisioned by reselling services has
declined steadily, to 16% at the end of June 2004, and the percentage
provisioned over UNE loops has grown steadily, to 61% at June 30, 2004.

The FCC reported that ILECs provided 3% fewer UNE loops with switching to
unaffiliated customers at the end of December 2004 than they reported six months
earlier, and 3% fewer UNE loops without switching during the same period.

The FCC reports that at December 31, 2004 in the U.S., local telephone service
was provided by CLECs to over 3.7 million coaxial cable connections, which
constituted approximately 44% of the 8.5 million switched access lines provided
by CLECs over their own local loop facilities.

In-stat estimates that worldwide cable telephony service revenues rose from $4.5
billion in 2004 to $5.6 billion in 2005, and projects revenues to reach $10
billion by 2009. During 2005 cable telephony deployments in the U.S. began to
trend more heavily toward IP-based (both circuit-switched and non
circuit-switched) technologies as more operators overcame technology platform
integration and service deployment issues. The majority of cable-telephony
subscribers reportedly rely on circuit-switched technology, however non
circuit-switched technology is becoming increasingly popular due to expected
provisioning cost savings as compared to circuit-switched technology. In-stat
estimates that total worldwide VoIP cable telephony subscriber households will
reach almost 7 million by the end of 2006. Cable telephony services continue to
expand as cable television operators expand their bundled offerings of video,
data, and voice into more markets. A significant driver for cable telephony is
the bundling of telephony services with existing digital video and high-speed
data services. We began deploying a cable telephony solution in the second
quarter of 2004 that meets our needs and we believe meets the needs of our
customers.

The communications industry has been burdened by regulatory uncertainty as a
result of successive court reversals of the FCC's core local competition rules.
In response to such court reversals and to remove uncertainty, the FCC adopted
new rules for network unbundling obligations of ILECs in February 2005. See
"Part I -- Item I -- Business -- Regulation, Franchise Authorizations and
Tariffs -- Communications Operations" below for more information.

General. Our local exchange and exchange access services ("local access
services") segment entered the local services market in Anchorage in 1997,
providing services to residential, commercial, and government users. At December
31, 2005 we could access approximately 94%, 71% and 48% of Anchorage, Fairbanks,
and Juneau area local loops, respectively, from our collocated remote facilities
and DLC installations, excluding Wainwright and Eielson areas.

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<PAGE>
Products. Our own DLPS facilities and collocated remote facilities that access
the ILEC's unbundled network element loops allow us to offer full featured local
service products to both residential and commercial customers, and provide
Private Line service products to commercial customers. In areas where we do not
have our own DLPS facilities or access to ILEC loop facilities, we offer service
using total service resale of the ILEC's local service in Anchorage, and either
total service resale or UNE platform in Fairbanks and Juneau.

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

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

Facilities. In Anchorage we utilize a centrally located Lucent 5ESS host
switching system, have collocated six remote facilities adjacent to or within
the ILEC's local switching offices to access unbundled loop network elements,
and have installed a DLC system adjacent to a smaller, seventh ILEC wire center
for access to unbundled loop network elements. Remote and DLC facilities are
interconnected to the host switch via our diversely routed fiber optic links.
Additionally, we provide our own facilities-based services to many of
Anchorage's larger business customers through expansion and deployment of SONET
fiber transmission facilities, DLC facilities, and leased HDSL and T-1
facilities.

In April 2004 we successfully launched our DLPS deployment utilizing our
Anchorage coaxial cable facilities. This delivery method allows us to utilize
our own cable facilities to provide local access service to our customers and
avoid paying local loop charges to the ILEC. To ensure the necessary equipment
is available to us we have committed to purchase a certain number of broadband
multi-media terminal adapters and other vendor equipment.

In Fairbanks and Juneau we employ Lucent Distinctive Remote Module switching
systems (5ESS) and have collocated DLC systems adjacent to the ILEC's local
switching office and within the ILEC's wire center to access unbundled loop
network elements.

Customers. We had approximately 112,900, 112,100 and 106,100 local lines in
service from Anchorage, Fairbanks, and Juneau, Alaska subscribers at December
31, 2005, 2004 and 2003, respectively. We began providing local access services
in Fairbanks in 2001 and in Juneau in 2002. The 2005 line count consists of
approximately 61% residential access lines and 36% business access lines,
including 3% Internet service provider access lines. We ended 2005 with market
share gains in substantially all market segments.

Revenues derived from local access services in 2005, 2004 and 2003 totaled $51.5
million, $47.0 million and $39.0 million, respectively, representing
approximately 11.6%, 11.1% and 10.0% of our total revenues in 2005, 2004 and
2003, respectively.

Competition. In the local access services market the 1996 Telecom Act, judicial
decisions, state and federal legislative and regulatory developments, and new
technologies have increased the overall likelihood that barriers to local
telephone competition will be reduced or removed. These initiatives include

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requirements that ILECs negotiate with entities, including us, to provide
interconnection to the existing local telephone network, to allow the purchase,
at cost-based rates, of access to unbundled network elements, to establish
dialing parity, to obtain access to rights-of-way and to resell services offered
by the ILEC.

Wireless local number portability was enforced in November 2003. Consumers can
now retain the same phone number as they change service providers allowing for
interchangeable and portable fixed-line and wireless numbers. Some consumers now
use wireless service as their primary voice phone service for local and
long-distance calling.

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

Data obtained from the RCA indicates that there are 23 ILECs and 17 CLECs
certified to operate in the State of Alaska. We compete against ACS, the ILEC in
Anchorage, Juneau and Fairbanks. We also compete against AT&T Alascom in the
Anchorage, Juneau and Fairbanks service areas. AT&T Alascom offers local
exchange service only to residential customers through total service resale.
ACS, through subsidiary companies, provides local telephone services in
Fairbanks and Juneau, Alaska. These ACS subsidiaries were classified as Rural
Telephone Companies under the 1996 Telecom Act, which entitled them to an
exemption of certain material interconnection terms of the 1996 Telecom Act,
until and unless such "rural exemption" were examined and discontinued by the
RCA. On October 11, 1999, the RCA issued an order terminating rural exemptions
for the ACS subsidiaries operating in the Fairbanks and Juneau markets so that
we could compete with these companies in the provision of local telephone
service pursuant to the terms of Section 251(c) of the 1996 Telecom Act. These
rural exemptions limited the obligation of the ILECs in these markets to provide
us access to UNEs at rates under the pricing standard established by the FCC.
ACS appealed these decisions.

On December 12, 2003, the Alaska Supreme Court issued a decision in which it
reversed the RCA's rural exemption decision on the procedural ground that the
competitor, not the incumbent, must shoulder the burden of proof. The Court
remanded the matter to the RCA for reconsideration with the burden of proof
assigned to us. In accordance with the Court's ruling, the RCA re-opened the
rural exemption dockets and scheduled a hearing to take place on April 19, 2004.
On April 18, 2004, we and ACS entered into a comprehensive settlement that, in
part, included a relinquishment by ACS of its rural exemption for Juneau and
Fairbanks. In accordance with the settlement, the parties moved the RCA for a
dismissal of the rural exemption inquiry, which the Commission granted on April
21, 2004.

By letter, submitted also to the RCA, on January 12, 2004, we made a bona fide
request for interconnection for the purposes of local access competition with
MTA, under the provisions of the 1996 Telecom Act. We submitted this request to
MTA on the grounds that it waived its rural exemption under the terms of Section
251(f)(1)(C) when it launched its new video service through its wholly owned
subsidiary MTA Vision, Inc. in competition with our cable television service.
MTA, however, refused to comply with the negotiation and arbitration provisions
under the Act claiming that it still retains a rural exemption. We filed a
complaint with the RCA to resolve this dispute, and the RCA conducted a public
hearing on the matter on October 20, 2004. On February 22, 2005, the RCA
released a ruling that MTA's rural exemption for the areas served by MTA Vision,
Inc. had been lifted and that we could negotiate and arbitrate interconnection
with MTA. We tendered a new interconnection request to MTA on February 25, 2005
and proceeded with such negotiations. Negotiations were unsuccessful and an
arbitration was requested on July 15, 2005.

Following our request for arbitration, MTA filed a petition with the RCA for a
suspension or modification of its Section 251(c)(3) obligation to provision
unbundled network elements (UNEs) as well as its other 251(c) obligations as

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they related to UNEs. The petition did not affect MTA's obligation to provide
resale at wholesale rates under Section 251(c)(4). The RCA further granted a
stay of the arbitration proceeding pending the outcome of MTA's petition. On
December 20, 2005 the RCA granted MTA's petition for a three year period and
arbitration as to MTA's remaining obligations recommenced. GCI has appealed the
RCA's suspension and modification decision.

The arbitration was completed under the provisions of the 1996 Telecom Act in
January 2006. On January 18, 2006 an Interconnection Agreement by arbitration
was submitted to the RCA for approval. Such approval was granted on February 17,
2006. We intend to commence local service entry into the Mat-Su Valley during
2007.

On December 30, 2004, we applied to the RCA to amend GCI Cable, Inc.'s
certificates to include areas where population growth has occurred and is likely
to occur over the next five years. The service area changes are in Anchorage,
Bethel, Cordova, Fairbanks, Homer, Juneau-Douglas, Kenai, Soldotna, Sterling,
Ketchikan, Kodiak, Kotzebue, Nome, Palmer-Wasilla, Petersburg, Seward, Sitka,
Valdez and Wrangell. On April 8, 2005, the RCA granted the amendment to the GCI
Cable, Inc. certificate.

In January of 2005, we filed an application to amend GCC's local telephone
certificate to provide local service to the service areas of Ketchikan Public
Utilities, Cordova Telephone Cooperative, Copper Valley Telephone Cooperative,
Matanuska Telephone Cooperative, and the Glacier State service area, served by
ACS of the Northland. To serve the entire service areas means that we were
requesting to be authorized to serve all the communities within that service
area. Some of these encompass many small villages and communities. In addition
GCC requested certification to provide local service to the communities of
Wrangell, Petersburg, Sitka, Seward, Bethel and Nome. For these communities we
did not request to provide service to the entire local telephone service area,
rather we requested to serve only the portion where we had cable plant.

Under Alaska State law, the RCA has six months from the time a complete
application is filed to make a final decision. Upon filing a supplement to our
application, this timeline commenced on March 23, 2005. On September 23, 2005,
six months after our complete application was filed, the RCA issued an order
granting certification where we had applied to serve the entire service area and
extended its consideration of the remaining applications. The statutory deadline
for the RCA to decide the remaining six locations was December 23, 2005. On
December 10, the RCA requested further briefing in order to consider, under the
terms of the 1996 Act, whether or not to require GCC to serve the entire service
areas of the six locations. In that order, they stated they would be missing the
statutory deadline and they did do so.

On January 10, 2006, on the basis of the missed deadline, GCC filed a complaint
for a restraining order and declaratory ruling with the State Superior Court. A
hearing on the preliminary injunction was set for Monday February 6, 2006. The
RCA, however, released an order on February 2, 2006 approving the remaining
amendments in our application but requiring us to serve the entire service areas
of the locations for which we have applied. The complaint before the court was
voluntarily withdrawn, without prejudice, by GCC on February 7, 2006.

We expect further competition in the marketplaces we serve as other companies
may receive certifications. We expect further competition in business customer
telephone access, Internet access, DSL and Private Line markets.

We continue to offer local exchange services to substantially all consumers in
the Anchorage, Juneau and Fairbanks service areas, primarily through our own
facilities and unbundled local loops leased from ACS. On September 30, 2005, the
ACS subsidiary serving Anchorage filed a petition with the FCC, seeking
forbearance from the requirement that it provide access to unbundled network
elements, and that to the extent it voluntarily did so, that the pricing
provisions of the Act would not apply. GCI filed its opposition on January 9,
2006, and replies were filed on February 23, 2006. The FCC is required under

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statute to issue a decision by September 30, 2006, or on its own motion, in an
additional 90 days. If a decision is not issued within the required timeframe,
the petition is deemed granted. The ability to obtain unbundled network elements
is an important element of our local exchange and exchange access services
business, and the outcome of this proceeding could result in a change in our
ability to access segments of the Anchorage market via the facilities of the
ILEC and the cost of doing so. We cannot predict at this time the outcome of
this proceeding or its impact on us; however, our net cost of providing local
telephone services in Anchorage could be materially adversely affected by an
adverse decision.

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

See "Part I -- Item 1 -- Business -- Regulation, Franchise Authorizations and
Tariffs -- Communications Operations" below for more information.

Internet Services

Industry. The Internet continues to expand at a significant rate. The Internet
Systems Consortium reports that, worldwide, approximately 353 million web sites
were hosted at the end of July 2005, an increase of 24% from 285 million at the
end of July 2004. Jupiter Research reports that the number of U.S. households
with a computer grew from 71.1 million in 2001 to a projected 80.8 million in
2004, which represents approximately 73% of U.S. households. Nielsen//NetRatings
reports that an estimated 203.8 million Internet users existed in the U.S. in
December 2005, representing approximately 68.1% of the total U.S. population.

The number of broadband Internet service users continues to grow while the
number of dial-up service users continues to decrease. Nielsen NetRatings
reports that more than 54% of home users subscribed to broadband Internet
connections at the end of 2004. We believe high-speed Internet access will
likely become the dominant access method for residential Internet users as
broadband becomes more widely available, more flexibly priced, and as new kinds
of entertainment, content and services emerge.

The FCC reported that high-speed lines (those that provide services at speeds
exceeding 200 kbps in at least one direction) connecting homes and businesses to
the Internet in the U.S. increased by 17% during the second half of 2004, from
32.5 million to 37.9 million lines, compared to a 15% increase, from 28.2
million to 32.5 million lines, during the first half of 2004. Approximately 35.3
million of the 37.9 million total lines served residential and small business
subscribers, a 17% increase from the 30.1 million lines reported six months
earlier.

The FCC further reported that of the 37.9 million high-speed lines, 28.9 million
provided advanced services, i.e., services at speeds exceeding 200 kbps in both
directions. Advanced services lines increased 23% from 23.5 million lines to
28.9 million lines during the second half of 2004. Approximately 26.4 million of
the 28.9 million advanced services lines served residential and small business
subscribers.

Cable modem Internet access continues to be the primary means of accessing the
Internet in the United States over broadband networks. DSL service, the most
significant broadband competitor to cable modem service, is being rapidly
deployed. DSL providers have recognized having voice, data and video
capabilities are essential for future customer growth and retention and have
invested significantly in DSL architectures. Extensive expansion of fiber
facilities either to the node or home by regional ILECS have begun. Analysts
believe that all operators have more incentive to upgrade networks and have
potentially higher returns due to the potential for new sources of revenue from
digital cable, telephony and other products that are made possible from such
upgrades.

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The FCC reports that U.S. DSL subscribers totaled 13.8 million in December 2004.
High-speed asymmetric DSL lines in service increased by 45% during 2004. Cable's
offering of high-speed Internet access was reported by the FCC to have grown 30%
during 2004, to 21.4 million lines.

The FCC reports that high-speed connections to end users by means of satellite
or terrestrial wireless technologies increased by 50% in the U.S. during 2004,
to approximately 0.5 million. High-speed connections by means of fiber or
powerline connections were reported to increase by 16%, to approximately 0.7
million.

Industry analysts believe that broadband deployment will continue to bring
valuable new services to consumers and advance many other objectives, such as
improving education and advancing economic opportunities. With an estimated 73
million basic cable households in the United States and an estimated 21 million
households subscribing to cable modem service, broadband cable Internet access
growth is expected to continue as new advanced services are deployed.

On December 3, 2004 President Bush signed into law a three-year moratorium on
Internet access taxes. Analysts believe that keeping the Internet free of such
taxes will create an environment for innovation and will ensure that electronic
commerce will remain a vital and growing part of the economy of the United
States.

See "Part I -- Item I -- Business -- Regulation, Franchise Authorizations and
Tariffs -- Internet Services" below for more information.

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

Products. We primarily offer three types of Internet access for residential use:
dial-up, fixed wireless and high-speed cable modem Internet access. Our
residential high-speed cable modem Internet service offers up to 10 Mbps access
speeds as compared with up to 56 kbps access through standard copper wire
dial-up modem access. Our fixed wireless product is available in 129 communities
with plans to expand to 13 more in 2006. Three distinct products are offered; 56
kbps, 256 kbps, and 256 kbps for multiple computers. We provide 24-hour customer
service and technical support via telephone or online. An entry-level cable
modem service also offers free data transfer up to one gigabyte per month at a
rate of 64 Kbps and can be connected 24-hours-a-day, 365-days-a-year, allowing
for real-time information and e-mail access. This product acts as a dialup
replacement and upgrade since it is always connected and provides more efficient
data transfer. Cable modems use our coaxial cable plant that provides cable
television service, instead of the traditional ILEC copper wire. Coaxial cable
has a much greater carrying capacity than telephone copper wire and can be used
to simultaneously deliver both cable television (analog or digital) and Internet
access services.

At the end of 2003 we launched an initiative to increase the speed of our entry
level broadband cable modem level service from 512 kbps to 1 mbps for new and
current customers in Anchorage, Kenai/Soldotna and the Mat-Su Valley. The
initiative was completed in September 2004. This new service level was available
in Fairbanks in December of 2004 and Juneau in January 2005. In September 2005
we introduced a line of broadband products for customers with our bundled local,
long distance and cable entertainment that provide much higher speeds and
unlimited downloads. Additional cable modem service packages tailored to
high-use residential and commercial Internet users are also available.

We currently offer several Internet service packages for commercial use: dial-up
access, DSL, fixed wireless, T-1 and fractional T-1 leased line, frame relay,
multi-megabit and high-speed cable modem Internet access. Our business
high-speed cable modem Internet service offers access speeds ranging from 512

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kbps to 2.4 Mbps, free monthly data transfers of up to 30 gigabytes and free
24-hour customer service and technical support. Our DSL offering can support
speeds of up to 1.5 mbps over the same copper line used for phone service.
Business services also include a personalized web page, domain name services,
and e-mail.

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

Bandwidth is made available to our Internet segment through our AULP undersea
fiber cable systems and our Galaxy XR transponders. Our Internet offerings are
coupled with our long-distance, cable television, and local services offerings
and provide free basic Internet services (both dialup and cable modem access) if
certain plans are selected. Value-added Internet features are available for
additional charges.

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

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

         o    Our Anchorage facilities are connected to multiple Internet access
              points in Seattle through multiple, diversely routed networks.
         o    We use multiple routers on each end of the circuits to control the
              flow of data and to provide resiliency.
         o    Our Anchorage facility consists of routers, a bank of servers that
              perform support and application functions, database servers
              providing authentication and user demographic data, layer 2
              gigabit switch fabrics for intercommunications and broadband
              services (cable modem, wireless and DSL), and access servers for
              dial-in users.
         o    SchoolAccess(R) Internet service delivery to over 210 schools in
              rural Alaska and 32 schools in Montana, New Mexico and Arizona is
              accomplished by three variations on primary delivery systems:
                  o   In communities where we have terrestrial interconnects or
                      provide existing service over regional earth stations, we
                      have configured intermediate distribution facilities.
                      Schools that are within these service boundaries are
                      connected locally to one of those facilities.
                  o   In communities where we have extended communications
                      services via our DAMA earth station program,
                      SchoolAccess(R) is provided via a satellite circuit to an
                      intermediate distribution facility at the Eagle River
                      Earth Station.
                  o   In communities or remote locations where we have not
                      extended communications services, SchoolAccess(R) is
                      provided via a dedicated (usually on premise) VSAT
                      satellite station. The VSAT connects to an intermediate
                      distribution facility located in Anchorage.

Our dedicated Internet access and IP data services are delivered to a router
located at the service point. Our Internet management platform constantly
monitors this router and continual communications are maintained with all of the
core and distribution routers in the network. The availability and quality of
service, as well as statistical information on traffic loading, are continuously

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monitored for quality assurance. The management platform has the capability to
remotely access routers, servers and layer 2 switches, permitting changes in
configuration without the need to physically be at the service point. This
management platform allows us to offer outsourced network monitoring and
management services to commercial businesses. Many of the largest commercial
networks in the state of Alaska use this service, including the state
government.

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

Customers. We had approximately 93,900, 101,600 and 95,700 total active
residential and commercial Internet subscribers at December 31, 2005, 2004 and
2003, respectively. Included in these totals were approximately 77,400, 65,500
and 46,000 active residential and commercial cable modem Internet subscribers at
December 31, 2005, 2004 and 2003, respectively. Revenues derived from Internet
services totaled $30.0 million, $26.0 million and $19.8 million, in 2005, 2004
and 2003, respectively, representing approximately 6.8%, 6.1% and 5.1% of our
total revenues in 2005, 2004 and 2003, respectively.

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

Competition. The Internet industry is highly competitive, rapidly evolving and
subject to constant technological change. Competition is based upon price and
pricing plans, service packages, the types of services offered, the technologies
used, customer service, billing services, perceived quality, reliability and
availability. As of December 31, 2005, we competed with more than eight Alaska
based Internet providers, and competed with other domestic, non-Alaska based
providers that provide national service coverage. Several of the providers have
substantially greater financial, technical and marketing resources than we do.

ACS and other Alaska telephone service providers are providing competitive
high-speed DSL services over their telephone lines in direct competition with
our high-speed cable modem service. DBS providers and others provide wireless
high speed Internet service in competition with our high-speed cable modem
services. Competitive local fixed wireless providers are providing service in
certain of our markets. Clearwire Corporation has introduced a nomadic wireless
product the Anchorage market based on pre-802.16 technology. It offers
competitive Internet services up to 1.5 Mbps.

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

Other Services

We provide other services that are not reported in the Long-Distance, Cable,
Local Access or Internet Services segments. These services include Network
Solutions, Broadband and wireless services, and are included in the All Other
category in the Consolidated Financial Statements included in Part IV of this
report.

Network Solutions. We design, sell, install, service and operate, on behalf of
certain customers, communications and computer networking equipment and provide
field/depot, third party, technical support, communications consulting and
outsourcing services through our Network Solutions business. We also supply
integrated voice and data communications systems incorporating interstate and

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intrastate digital Private Lines, point-to-point and multipoint Private Network
and small earth station services. Our Network Solutions revenues totaled $32.4
million, $36.9 million and $28.0 million in the years ended December 31, 2005,
2004 and 2003, respectively, or approximately 7.3%, 8.7% and 7.2% of total
revenues, respectively. Presently, there are a number of competing companies in
Alaska that actively sell and maintain data and voice communications systems.

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

Broadband Services. Our Broadband services revenue, including our
SchoolAccess(R) and Rural Health initiatives, totaled $28.1 million, $30.2
million and $25.2 million in the years ended December 31, 2005, 2004 and 2003,
respectively, or approximately 6.3%, 7.1% and 6.4% of total revenues,
respectively. Presently, there are several competing companies in Alaska that
actively sell broadband services.

Our ability to provide end-to-end broadband services solutions has allowed us to
maintain our market position based on "value added" products and services rather
than solely based on price competition. These services are blended with other
transport and software products into unique customer solutions, including
SchoolAccess(R) and Rural Health applications such as video conferencing and
unique web content services.

Cellular Services. We offer cellular services by reselling Dobson's services. We
offer wireless local access services over our own facilities, and have purchased
PCS and LMDS wireless broadband licenses in FCC auctions covering markets in
Alaska. Our wireless services revenue totaled $7.1 million, $3.4 million and
$3.3 million in the years ended December 31, 2005, 2004 and 2003, respectively,
or approximately 1.6%, 0.8% and 0.9% of total revenues, respectively.

We closed a 10-year distribution agreement with Dobson in 2004 allowing us to
resell Dobson cellular services. We provide limited wireless local access and
Internet services using our own facilities. We compete against Dobson, ACS,
Alaska DigiTel, and resellers of those services in Anchorage and other markets.
We announced on December 7, 2005 that GCI reached a definitive agreement to
invest $29.5 million in Alaska DigiTel. In exchange for the investment, GCI will
receive a majority equity interest in Alaska DigiTel but will not own voting
control of the venture. The transaction is subject to customary closing
conditions, including documentation and regulatory approvals. MTA filed a
petition with the FCC against GCI's application in February 2006. We are not
able to determine at this time when the transaction will close. See "Part I --
Item 1 -- Business -- Historical Development of our Business During the Past
Fiscal Year -- Alaska Digitel Acquisition" above for more information.

Mobile wireless telephone service subscriptions were reported by the FCC to have
increased 8% during the second half of 2004 to approximately 181 million, and
increased by 15% for the full twelve-month period ending December 31, 2004.
Despite rate reductions, wireless revenues are reported to have continued to
grow faster than subscribers due to increased call length and more subscriptions
to premium services.

The wireless communications industry continues to experience significant
consolidation. In October 2004 Cingular Wireless LLC, a joint venture between
SBC Communications Inc. and BellSouth Corp., reported that it completed its
previously announced merger with AT&T Wireless Services Inc. Dobson acquired its
Anchorage wireless properties in a 2003 asset exchange with AT&T Wireless.
Dobson has acquired wireless companies and negotiated roaming arrangements that
give it a national presence. Mergers and joint ventures in the industry have
created large, well-capitalized competitors with substantial financial,
technical, marketing and other resources. These competitors may be able to offer
nationwide services and plans more quickly and more economically than we can,

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and obtain roaming rates that are more favorable than those that we obtain. The
largest three wireless providers are reported to hold almost 75% of the U.S.
wireless market.

Marketing and Sales

Our marketing and sales strategy hinges on our ability to leverage (i) our
unique position as an integrated provider of multiple communications, Internet
and cable services, (ii) our well-recognized and respected brand name in the
Alaskan marketplace and (iii) our leading market positions in long-distance,
Internet and cable television services. By continuing to pursue a marketing
strategy that takes advantage of these characteristics, we believe we can
increase our residential and commercial customer market penetration and
retention rates, increase our share of our customers' aggregate voice, video and
data services expenditures and achieve continued growth in revenues and
operating cash flow.

Environmental Regulations

We may undertake activities that, under certain circumstances may affect the
environment. Accordingly, they are subject to federal, state, and local
regulations designed to preserve or protect the environment. The FCC, the Bureau
of Land Management, the United States Forest Service, and the National Park
Service are required by the National Environmental Policy Act of 1969 to
consider the environmental impact before the commencement of facility
construction.

We believe that compliance with such regulations has had no material effect on
our consolidated operations. The principal effect of our facilities on the
environment would be in the form of construction of facilities and networks at
various locations in Alaska and between Alaska, Seattle, Washington, and
Warrenton, Oregon. Our facilities have been constructed in accordance with
federal, state and local building codes and zoning regulations whenever and
wherever applicable. Some facilities may be on lands that may be subject to
state and federal wetland regulation.

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

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

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

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Patents, Trademarks and Licenses

We do not hold patents, franchises or concessions for communications services or
local access services. We do hold registered service marks for the Digistar(R)
logo and letters GCI(R), and for the terms SchoolAccess(R), Alaska United Fiber
Optic Cable System(R), MDConnect(R), and GCI Hypernet(R). The Communications Act
of 1934 gives the FCC the authority to license and regulate the use of the
electromagnetic spectrum for radio communications. We hold licenses through our
long-distance services industry segment for our satellite and microwave
transmission facilities for provision of long-distance services.

We acquired a license for use of a 30-MHz block of spectrum for providing PCS
services in Alaska. We are required by the FCC to provide adequate broadband PCS
service to at least two-thirds of the population in our licensed areas within 10
years of being licensed. The PCS license had an initial duration of 10 years. At
the end of the license period, a renewal application was filed. Licenses may be
revoked and license renewal applications may be denied for cause. The PCS
license was renewed effective August 30, 2005 for an additional 10-year term
under FCC rules.

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

Earth stations are licensed generally for 15 years. The FCC also issues a single
blanket license for a large number of technically identical earth stations
(e.g., VSATs).

Regulation, Franchise Authorizations and Tariffs

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

Communications Operations

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

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

As a PCS and LMDS licensee, we are subject to regulation by the FCC, and must
comply with certain build-out and other conditions of the license, as well as
with the FCC's regulations governing the PCS and LMDS services (described
above). On a more limited basis, we may be subject to certain regulatory
oversight by the RCA (e.g., in the areas of consumer protection), although

                                       43
<PAGE>
states are not permitted to regulate the rates or entry of PCS, LMDS and other
commercial wireless service providers. PCS and LMDS licensees may also be
subject to regulatory requirements of local jurisdictions pertaining to, among
other things, the location of tower facilities.

Rural Exemption. ACS, through subsidiary companies, provides local telephone
services in Fairbanks and Juneau, Alaska. These ACS subsidiaries were classified
as Rural Telephone Companies under the 1996 Telecom Act, which entitled them to
an exemption of certain material interconnection terms of the 1996 Telecom Act,
until and unless such "rural exemption" were examined and discontinued by the
RCA. On October 11, 1999, the RCA issued an order terminating rural exemptions
for the ACS subsidiaries operating in the Fairbanks and Juneau markets so that
we could compete with these companies in the provision of local telephone
service pursuant to the terms of Section 251(c) of the 1996 Telecom Act. These
rural exemptions limited the obligation of the ILECs in these markets to provide
us with access to unbundled network elements at rates under the pricing standard
established by the FCC. ACS appealed these decisions.

On December 12, 2003, the Alaska Supreme Court issued a decision in which it
reversed the RCA's rural exemption decision on the procedural ground that the
competitor, not the incumbent, must shoulder the burden of proof. The Court
remanded the matter to the RCA for reconsideration with the burden of proof
assigned to us. In accordance with the Court's ruling, the RCA re-opened the
rural exemption dockets and scheduled a hearing to take place on April 19, 2004.
On April 18, 2004, we and ACS entered into a comprehensive settlement that, in
part, included a relinquishment by ACS of its rural exemption for Juneau and
Fairbanks. In accordance with the settlement, the parties moved the RCA for a
dismissal of the rural exemption inquiry, which the Commission granted on April
21, 2004.

By letter submitted to the RCA on January 12, 2004, we made a bona fide request
for interconnection for the purposes of local access competition with MTA, under
the provisions of the 1996 Telecom Act. We submitted this request to MTA on the
grounds that it waived its rural exemption under the terms of Section
251(f)(1)(C) when it launched its new video service through its wholly owned
subsidiary MTA Vision, Inc. in competition with our cable television service.
MTA, however, refused to comply with the negotiation and arbitration provisions
under the Act claiming that it still retains a rural exemption. We filed a
complaint with the RCA to resolve this dispute, and the RCA conducted a public
hearing on the matter on October 20, 2004. On February 2, 2005, the RCA ruled
that MTA's rural exemption for the areas served by MTA Vision, Inc. had been
lifted and that we may negotiate and arbitrate interconnection with MTA.
Negotiations ensued and a petition for suspension and modification of its
obligations to provide access to UNEs was filed by MTA. Following such
proceeding and arbitration, an arbitrated Interconnection Agreement was filed
for approval on January 18, 2006. See "Part I -- Item I -- Business, Local
Access Services- Competition" for more information.

Access Fees. The FCC regulates the fees that local telephone companies charge
long-distance companies for access to their local networks. In 2001, the FCC
adopted a plan to restructure access charges for rate-of-return regulated
carriers, which has the effect of shifting certain charges from IXCs to end
users. The FCC is continuing to monitor the access charge regime and is
considering other proposals that would restructure and could reduce access
charges. Changes in the access charge structure or the introduction of new
technologies that are not subject to the access charge structure could
fundamentally change the economics of some aspects of our business.

Carriers also pay fees for transport services in and out of Alaska. To the
extent these services were offered by AT&T Alascom, they were previously subject
to tariffed rates filed at the FCC. As of January 22, 2005 and for a five-year
period, the rates for such services offered by and to any provider are governed
by federal legislation effective December 8, 2004.

Access to Unbundled Network Elements. On March 2, 2004, the United States Court
of Appeals for the District of Columbia Circuit issued a decision affirming in
part, vacating in part, and remanding in part the FCC's Triennial Review Order,
in which the FCC reviewed its regulations governing access that ILECs must make

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available to competitors to unbundled network elements pursuant to Section
251(c) of the 1996 Telecom Act. On February 4, 2005, the FCC issued its Order
responding to the Court's remand. Though the FCC adopted new standards that
generally curb access to certain ILEC high capacity loop and transport
facilities, we do not believe that any of these standards are met for the
markets we serve. The FCC also eliminated access to mass market switching, which
we self-provision and we have generally not relied on stand-alone access to this
network element. The outcome of either requests for reconsideration to the FCC
or further court appeals could result in a change in our cost of serving new and
existing markets via the facilities of the ILEC or via wholesale offerings. In
addition, the regulatory classification of services that are transmitted over
facilities may impact the extent to which we will be permitted access to such
facilities. The ability to obtain unbundled network elements is an important
element of our local exchange and exchange access services business. We cannot
predict the extent to which the existing rules will be sustained in the face of
additional legal action and the scope of any further rules that are yet to be
determined by the FCC.

The FCC has pending a notice of proposed rulemaking in which it is currently
reviewing its pricing standard that governs the rates ILECs may charge
competitors for access to unbundled network elements. The outcome of this
regulatory proceeding could result in a change in our cost of serving new and
existing markets via the facilities of the ILEC or via wholesale offerings.
Recurring and non-recurring charges for telephone lines and other unbundled
network elements may increase based on the rates proposed by the ILECs and
approved by the RCA from time to time, which could have an adverse effect on our
financial position, results of operations or liquidity.

An arbitration proceeding to revise the interconnection agreement with ACS for
the Anchorage service area went to hearing before the RCA, with such hearing
ending November 13, 2003. On June 25, 2004, the RCA issued a comprehensive
decision setting forth new rates for unbundled network elements, resale, and
terms and conditions for interconnection in the Anchorage arbitration.
Significantly, the RCA raised the loop rate in Anchorage to $19.15 but
subsequently reduced the loop rate on reconsideration to $18.64. The RCA also
issued other various arbitration rulings adverse to us, including adopting ACS'
non-recurring and collocation cost models. On December 7, 2004, the Commission
issued a final order approving an interconnection agreement. We have appealed
various Commission arbitration rulings.

On September 30, 2005, the ACS subsidiary serving Anchorage filed a petition
with the FCC, seeking forbearance from the requirement that it provide access to
unbundled network elements, and that to the extent it voluntarily did so, that
the pricing provisions of the Act would not apply. GCI filed its opposition on
January 9, 2006, and replies are due on February 23, 2006. The FCC is required
under statute to issue a decision by September 30, 2006, or on its own motion,
in an additional 90 days. If a decision is not issued within the required
timeframe, the petition is deemed granted. The ability to obtain unbundled
network elements is an important element of our local exchange and exchange
access services business, and the outcome of this proceeding could result in a
change in our ability to access segments of the Anchorage market via the
facilities of the ILEC and the cost of doing so. We cannot predict at this time
the outcome of this proceeding or its impact on us; however, our net cost of
providing local telephone services in Anchorage could be materially adversely
affected by an adverse decision.

Critics continue to ask Congress to modify, if not altogether rework, the 1996
Telecom Act, citing the level of competition in the local phone and broadband
sectors. There is a lack of consensus on what changes are needed, however, or
who is to blame for the 1996 Telecom Act's perceived failures. Loosened
regulations on ILECs that control bottleneck facilities could diminish CLEC
local phone competition.

Universal Service. We have qualified under FCC regulations as a competitive
"eligible telecommunications carrier," or ETC, with respect to our provision of
local telephone service in Anchorage, Fairbanks, and Juneau. ETCs are entitled
to receive subsidies paid by the Universal Service Fund. If we do not continue

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to qualify for this status in Anchorage, Fairbanks and/or Juneau, or if we do
not qualify for this status in other rural areas where we propose to offer new
services, we would not receive this subsidy and our net cost of providing local
telephone services in these areas would be materially adversely affected.

In addition, the FCC had previously referred issues concerning the designation
of ETCs, portability of support, and the basis for calculating support to a
Federal-State Joint Board on Universal Service. On February 27, 2004, the Joint
Board issued a recommendation, adopted by the FCC on February 25, 2005, that,
among other things, established minimum requirements to guide ETC designations.
We do not believe that the adopted changes, as reported, will have a material
effect on our operations. In addition, the FCC has opened proceedings to review
the administration of the universal service fund and the method for calculating
support amounts. We cannot predict any further changes that may be adopted, but
future regulatory action, court appeals, or legislative action could affect the
subsidy and result in a change in our net costs of providing local telephone
services in new and existing markets.

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

Cable Services Operations

General. The FCC has adopted rules that will require cable operators to carry
the digital signals of broadcast television stations. However, the FCC has
decided that cable operators should not be required to carry both the analog and
digital services of broadcast television stations while broadcasters are
transitioning from analog to digital transmission. Carrying both the analog and
digital services of broadcast television stations would consume additional cable
capacity. As a result, a requirement to carry both analog and digital services
of broadcast television stations could require the removal of other programming
services. Should the FCC mandate dual carriage, we will carry the broadcast
signals in both analog and digital formats.

Subscriber Rates. In Alaska, the RCA is the local franchising authority
certified to regulate basic cable rates. Under state law, however, the cable
television service is exempt from regulation unless subscribers petition the
state commission for regulation under the procedures set forth in AS 42.05.712.
At present, the only community where regulation of the basic rate occurs is
Juneau.

FCC regulations govern rates that may be charged to subscribers for regulated
services. The FCC uses a benchmark methodology as the principal method of
regulating rates. Cable operators are also permitted to justify rates using a
cost-of-service methodology, which contains a rebuttable presumption of an
industry-wide 11.25% rate of return on an operator's allowable rate base.
Cost-of-service regulation is a traditional form of rate regulation, under which
a company is allowed to recover its costs of providing the regulated service,
plus a reasonable profit. Franchising authorities are empowered to regulate the
rates charged for monthly basic service, for additional outlets and for the
installation, lease and sale of equipment used by subscribers to receive the
basic cable service tier, such as converter boxes and remote control units. The
FCC's rules require franchising authorities to regulate these rates based on
actual cost plus a reasonable profit, as defined by the FCC. Cable operators
required to reduce rates may also be required to refund overcharges with
interest. The FCC has also adopted comprehensive and restrictive regulations
allowing operators to modify their regulated rates on a quarterly or annual
basis using various methodologies that account for changes in the number of
regulated channels, inflation and increases in certain external costs, such as
franchise and other governmental fees, copyright and retransmission consent

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fees, taxes, programming fees and franchise-related obligations. We cannot
predict whether the FCC will modify these "going forward" regulations in the
future.

Cable System Delivery of Internet Service. Although there is at present no
significant federal regulation of cable system delivery of Internet services,
and the FCC has issued several reports finding no immediate need to impose such
regulation, this situation may change as cable systems expand their broadband
delivery of Internet services and as a result of legislative, regulatory and
judicial developments.

In particular, proposals have been advanced at the FCC and Congress that would
require cable operators to provide access to unaffiliated Internet service
providers and online service providers and to govern the terms under which
content providers and applications are delivered by all broadband network
operators.

In an October 6, 2003 decision, the United States Court of Appeals for the Ninth
Circuit reversed an FCC decision defining high-speed Internet over cable as an
"information service" not subject to local cable-franchise fees, like cable
service is, or any explicit requirements for "open access," as
telecommunications service is. If Internet access requirements are imposed on
cable operators, it could burden the capacity of cable systems and complicate
our own plans for providing expanded Internet access services. These access
obligations could adversely affect our financial position, results of operations
or liquidity. The Supreme Court affirmed the FCC's decision on June 27, 2005.

Must Carry/Retransmission Consent. The 1992 Cable Act contains broadcast signal
carriage requirements that allow local commercial television broadcast stations
to elect once every three years to require a cable system to carry the station,
subject to certain exceptions, or to negotiate for "retransmission consent" to
carry the station.

The FCC decided against imposition of dual digital and analog must carry in a
January 2001 ruling. The ruling resolved a number of technical and legal
matters, and clarified that a digital-only television station, commercial or
non-commercial, can immediately assert its right to carriage on a local cable
system. The FCC also said that a television station that returns its analog
spectrum and converts to digital operations must be carried by local cable
systems. At the same time, however, it initiated further fact gathering that
ultimately could lead to a reconsideration of the conclusion. Further, on
February 23, 2005, the FCC released its order affirming its decisions not to
impose a dual carriage requirement on cable operators and not to require cable
operators to carry more than a single digital programming stream from any
particular broadcaster.

Satellite Home Viewer Improvement Act. A major change introduced by the SHVIA
was a "local into local" provision allowing satellite carriers, for the first
time, to retransmit the signals of local television stations by satellite back
to viewers in their local markets. The intent was to promote multichannel video
competition by removing the prohibition on satellite retransmission of local
signals, which cable operators already offered to their subscribers under the
must-carry/retransmission consent scheme of regulation described above. Congress
has reauthorized this Act through December 31, 2009, and we do not believe that
changes to the requirements will have a material effect on our operations.

Access to Programming. To spur the development of independent cable programmers
and competition to incumbent cable operators, the 1992 Cable Act imposed
restrictions on the dealings between cable operators and cable programmers. The
Act precludes video programmers affiliated with cable companies from favoring
their cable operators over new competitors and requires such programmers to sell
their programming to other multichannel video distributors. The current
prohibition extends until October 5, 2007.

Franchise Procedures. The 1984 Cable Act contains renewal procedures designed to
protect incumbent franchisees against arbitrary denials of renewal. The 1992
Cable Act made several changes to the renewal process that could make it easier
for a franchising authority to deny renewal. Moreover, even if the franchise is

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renewed, the franchising authority may seek to impose new and more onerous
requirements such as significant upgrades in facilities and services or
increased franchise fees as a condition of renewal. Similarly, if a franchising
authority's consent is required for the purchase or sale of a cable system or
franchise, such authority may attempt to impose more burdensome or onerous
franchise requirements in connection with a request for such consent.
Historically, franchises have been renewed for cable operators that have
provided satisfactory services and have complied with the terms of their
franchises. We believe that we have generally met the terms of our franchises
and have provided quality levels of service. Furthermore, our franchises are
issued by the state public utility commission (the RCA) and do not require
periodic renewal.

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

Pole Attachment. The Communications Act requires the FCC to regulate the rates,
terms and conditions imposed by public utilities for cable systems' use of
utility pole and conduit space unless state authorities can demonstrate that
they adequately regulate pole attachment rates. In the absence of state
regulation, the FCC administers pole attachment rates on a formula basis. This
formula governs the maximum rate certain utilities may charge for attachments to
their poles and conduit by companies providing communications services,
including cable operators.

The RCA has largely retained the existing pole attachment formula that has been
in state regulation since 1987. This formula could be subject to further
revisions upon petition to the RCA. We cannot predict at this time the outcome
of any such proceedings.

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

Cable operators distribute locally originated programming and advertising that
use music controlled by the two principal major music performing rights
organizations, the American Society of Composers, Authors and Publishers and
Broadcast Music, Inc. The cable industry has had a long series of negotiations
and adjudications with both organizations. Although we cannot predict the
ultimate outcome of these industry proceedings or the amount of any license fees
we may be required to pay for past and future use of association-controlled
music, we do not believe such license fees will be significant to our business
and operations.

Other Statutory and FCC Provisions. The Communications Act includes provisions,
among others, concerning customer service, subscriber privacy, marketing
practices, equal employment opportunity, regulation of technical standards and
equipment compatibility.

The FCC has various rulemaking proceedings pending implementing the 1996 Telecom
Act; it also has adopted regulations implementing various provisions of the 1992
Cable Act and the 1996 Telecom Act that are the subject of petitions requesting

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reconsideration of various aspects of its rulemaking proceedings. The FCC has
the authority to enforce its regulations through the imposition of substantial
fines, the issuance of cease and desist orders and/or the imposition of other
administrative sanctions, such as the revocation of FCC licenses needed to
operate certain transmission facilities often used in connection with cable
operations.

Other Regulations of the FCC. The FCC has previously initiated an inquiry to
determine whether the cable industry's future provision of interactive services
should be subject to regulations ensuring equal access and competition among
service vendors. The inquiry is another indication of regulatory concern
regarding control over cable capacity. In addition, other bills and
administrative proposals pertaining to cable communications are introduced in
Congress from time to time or have been considered by other governmental bodies
over the past several years. It is possible that Congress and other governmental
bodies will make further attempts to regulate cable communications services.

State and Local Regulation. Because our cable communications systems use local
streets and rights-of-way, our systems are subject to state and local
regulation. Cable communications systems generally are operated pursuant to
franchises, permits or licenses granted by a municipality or other state or
local government entity. In Alaska, the RCA is the franchising authority for the
state. We provide cable television service throughout Alaska pursuant to various
certificates of authority issued by the RCA. These certificates are not subject
to terms of renewal and continue in effect until and unless the state commission
were to seek to modify or revoke them for good cause.

Internet Operations

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

Internet Governance and Standards. There is no one entity or organization that
governs the Internet. Each facilities-based network provider that is
interconnected with the global Internet controls operational aspects of their
own network. Certain functions, such as IP addressing, domain name routing and
the definition of the TCP/IP protocol, are coordinated by an array of
quasi-governmental, intergovernmental, and non-governmental bodies.

The legal authority of any of these bodies is unclear. Most of the underlying
architecture of the Internet was developed under the auspices, directly or
indirectly, of the United States government. The government has not, however,
defined whether it retains authority over Internet management functions, or
whether these responsibilities have been delegated to the private sector.

1996 Telecom Act. The 1996 Telecom Act provides little direct guidance as to
whether the FCC has authority to regulate Internet-based services.

Given the absence of clear statutory guidance, the FCC must determine whether it
has the authority or the obligation to exercise regulatory jurisdiction over
specific Internet-based activities, or to decline from doing so under the
appropriate standards.

FCC Regulations. The FCC does not regulate the prices charged by ISPs or
Internet backbone providers. However, the vast majority of users connect to the
Internet over facilities of existing communications carriers. Those
communications carriers are subject to varying levels of regulation at both the
federal and the state level. Thus, regulatory decisions exercise a significant
influence over the economics of the Internet market. There are pending
complaints and proceedings at the FCC that may affect access charges,

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compensation and other aspects of Internet service, and we cannot predict the
effect or outcome of such proceedings.

Financial Information about our Foreign and Domestic Operations and Export Sales

Although we have several agreements to help originate and terminate
international toll traffic, we do not have foreign operations or export sales.
We conduct our operations throughout the western contiguous United States and
Alaska and believe that any subdivision of our operations into distinct
geographic areas would not be meaningful. Revenues associated with international
toll traffic were $2.6 million, $2.9 million and $2.9 million for the years
ended December 31, 2005, 2004 and 2003, respectively.

Seasonality

Long-distance services segment revenues (primarily those derived from our other
common carrier customers) have historically been highest in the summer months
because of temporary population increases attributable to tourism and increased
seasonal economic activity such as construction, commercial fishing, and oil and
gas activities. The cable, local access and Internet services segments do not
exhibit significant seasonality. Our ability to implement construction projects
is also hampered during the winter months because of cold temperatures, snow and
short daylight hours.

Customer-Sponsored Research

We have not expended material amounts during the last three fiscal years on
customer-sponsored research activities.

Backlog of Orders and Inventory

As of December 31, 2005 and 2004, our long-distance services segment had a
backlog of Private Line orders of approximately $76,000 and $74,000,
respectively, which represents recurring monthly charges for Private Line and
broadband services. As of December 31, 2005 and 2004, we had a backlog of
equipment sales orders of approximately $0 and $468,000, respectively for
services included in the All Other category described in note 12 to the "Notes
to Consolidated Financial Statements" included in Part II of this Report. We
expect that all of the Private Line orders in backlog at the end of 2005 will be
delivered during 2006.

Geographic Concentration and Alaska Economy

We offer voice and data communications and video services to customers primarily
in the State of Alaska. Because of this geographic concentration, growth of our
business and operations depends upon economic conditions in Alaska. The economy
of the State of Alaska is dependent upon natural resource industries, in
particular oil production, as well as investment earnings (including earnings
from the State of Alaska Permanent Fund), tourism, government, and United States
military spending. Any deterioration in these markets could have an adverse
impact on us. Oil revenues are the second largest source of state revenues,
following funds from investment sources. The slow economic recovery in the Lower
48 States appears to have dampened demand for services provided by our large
common carrier customers. To the extent that these customers experience reduced
demand for traffic destined for and originating in Alaska, it could adversely
affect our common carrier traffic and associated revenues. See "Part I -- Item
1A -- Risk Factors -- Our business is currently geographically concentrated in
Alaska," and "Part II -- Item 7 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations" for more information about the
effect of geographic concentration and the Alaska economy on us.

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Employees

We employed 1,262 persons as of January 31, 2006, and we are not party to union
contracts with our employees. We believe our future success will depend upon our
continued ability to attract and retain highly skilled and qualified employees.
We believe that relations with our employees are satisfactory.

Other

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

Item 1A.  Risk Factors.

Factors That May Affect Our Business and Future Results

Additional risks and uncertainties not currently known to us or that we
currently deem to be immaterial may also materially and adversely affect our
business operations. Any of the following risks could materially and adversely
affect our business, financial position, results of operations or liquidity.

We face competition that may reduce our market share and harm our financial
performance. There is substantial competition in the communications industry.
The traditional dividing lines between long-distance telephone service, local
telephone service, wireless telephone service, Internet services and video
services are increasingly becoming blurred. Through mergers and various service
integration strategies, major providers are striving to provide integrated
communications services offerings within and across geographic markets.

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

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

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

Historically, we have competed in the long-distance market by offering discounts
from rates charged by our competitors and by providing desirable packages of
services. Discounts have been eroded in recent years due to lowering of prices

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by AT&T Alascom and entry of other competitors into the long-distance markets we
serve. In addition, our competitors offer their own packages of services. If
competitors lower their rates further or develop more attractive packages of
services, we may be forced to reduce our rates or add additional services, which
would have a material adverse effect on our financial position, results of
operations or liquidity.

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

We believe that the greatest source of potential competition for video services
could come from the DBS industry. We also are subject to competition from
providers of digital video over telephone lines in the Mat-Su Valley and in
Ketchikan in 2006. With the addition of Anchorage local broadcast stations,
increased marketing, ILEC and DBS alliances, and emerging technologies creating
new opportunities, competition from these sources has increased and will likely
continue to increase. The changing nature of technology and of the DBS business
may result in greater satellite coverage within the State of Alaska. The
resulting increase in competition may adversely affect our market share and
results of operations from our cable services segment.

Local Telephone Services. In the local telephone market, we compete against ACS
(the ILEC), in Anchorage, Juneau and Fairbanks. We plan to provide local
telephone service in other locations in the future where we would face other
competitors. In the local telephone services market, the 1996 Telecom Act,
judicial decisions, state and federal legislative and regulatory developments,
and new technologies have increased the overall likelihood that barriers to
local telephone competition will be substantially reduced or removed. These
initiatives include requirements that local exchange carriers negotiate with
entities, including us, to provide interconnection to the existing local
telephone network, to allow the purchase, at cost-based rates, of access to
unbundled network elements, to establish dialing parity, to obtain access to
rights-of-way and to resell services offered by the ILEC. We have been able to
obtain interconnection, access and related services from the LECs, at rates that
allow us to offer competitive services. However, if we are unable to continue to
obtain these services and access at acceptable rates, our ability to offer local
telephone services, and our revenues and net income, could be materially
adversely affected. To date, we have been successful in capturing a significant
portion of the local telephone market in the locations where we are offering
these services. However, there can be no assurance that we will continue to be
successful in attracting or retaining these customers.

Internet Services. The Internet industry is highly competitive, rapidly evolving
and subject to constant technological change. Competition is based upon price
and pricing plans, service packages, the types of services offered, the
technologies used, customer service, billing services, perceived quality,
reliability and availability. We compete with several Alaska-based Internet
providers and other domestic, non-Alaska based providers. Several of the
providers have substantially greater financial, technical and marketing
resources than we do.

With respect to our high-speed cable modem service, ACS and other Alaska
telephone service providers are providing competitive high-speed Internet access
over their telephone lines. DBS providers and others also provide wireless
high-speed Internet service in competition with our high-speed cable modem
services. Competitive local fixed wireless providers are providing service in
certain of our markets as is a national WiMax based provider in Anchorage with
plans for Juneau and Fairbanks. WiMax is a standards-based wireless technology

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that provides high-throughput broadband connections over long distances. WiMax
can be used for a number of applications, including last mile broadband
connections, hotspots and cellular backhaul, and high-speed enterprise
connectivity for business.

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

Our business is subject to extensive governmental legislation and regulation.
Applicable legislation and regulations and changes to them could adversely
affect our business, financial position, results of operations or liquidity.

Local Telephone Services. Our success in the local telephone market depends on
our continued ability to obtain interconnection, access and related services
from local exchange carriers on terms that are just and reasonable and that are
based on the cost of providing these services. Our local telephone services
business faces the risk of the impact of the implementation of current
regulations and legislation, unfavorable changes in regulation or legislation or
the introduction of new regulations. Our ability to enter into the local
telephone market depends on our negotiation or arbitration with local exchange
carriers to allow interconnection to the carrier's existing local telephone
network, to establish dialing parity, to obtain access to rights-of-way, to
resell services offered by the local exchange carrier, and in some cases, to
allow the purchase, at cost-based rates, of access to unbundled network
elements. In many Alaska markets, it also depends on our ability to gain
interconnection at economic costs, and in some of these markets, it further
depends on our ability to have the rural exemption for certain carriers
terminated, so these carriers are obligated to provide access to unbundled
network elements at economic costs. Future arbitration and rural exemption
proceedings with respect to new or existing markets could result in a change in
our cost of serving these markets via the facilities of the ILEC or via
wholesale offerings.

Cable Services. The cable television industry is subject to extensive regulation
at various levels, and many aspects of such regulation are currently the subject
of judicial proceedings and administrative or legislative proposals. The law
permits certified local franchising authorities to order refunds of rates paid
in the previous 12-month period determined to be in excess of the reasonable
rates. It is possible that rate reductions or refunds of previously collected
fees may be required of us in the future. Currently, pursuant to Alaska law, the
basic cable rates in Juneau are the only rates in Alaska subject to regulation
by the local franchising authority, and the rates in Juneau were reviewed and
approved by the RCA in October 2000.

Other existing federal regulations, currently the subject of judicial,
legislative, and administrative review, could change, in varying degrees, the
manner in which cable television systems operate. Neither the outcome of these
proceedings nor their impact upon the cable television industry in general, or
on our activities and prospects in the cable television business in particular,
can be predicted at this time. There can be no assurance that future regulatory
actions taken by Congress, the FCC or other federal, state or local government
authorities will not have a material adverse effect on our business, financial
position, results of operations or liquidity.

Proposals may be made before Congress and the FCC to mandate cable operators
provide "open access" over their cable systems to Internet service providers. As
of the date of this report, the FCC has declined to impose such requirements. If
the FCC or other authorities mandate additional access to our cable systems, we
cannot predict the effect that this would have on our Internet service
offerings.

Internet Services. Changes in the regulatory environment relating to the
Internet access market, including changes in legislation, FCC regulation,
judicial action or local regulation that affect communications costs or increase
competition from the ILEC or other communications services providers, could
adversely affect the prices at which we sell Internet services.

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We depend on a small number of customers for a substantial portion of our
revenue and business. The loss of any of such customers would have a material
adverse effect on our financial position, results of operations or liquidity.

For the year ended December 31, 2005, we provided long-distance services
(excluding private lines and other revenue) to MCI, Dobson, and Sprint Nextel
which generated combined revenues of approximately 18.6% of our total revenues
for 2005. These customers are free to seek out long-distance communications
services from our competitors upon expiration of their contracts (in December
2009 in the case of MCI (Verizon beginning January 2006); in 2014 in the case of
Dobson; and in March 2007 in the case of Sprint Nextel) or earlier upon the
occurrence of certain contractually stipulated events including a default, the
occurrence of a force majeure event, or a substantial change in applicable law
or regulation under the applicable contract. Additionally, the contracts provide
for periodic reviews to assure that the prices paid by MCI and Sprint Nextel for
their services remain competitive.

Mergers and acquisitions in the communications industry are relatively common.
If a change in control of Dobson or Sprint Nextel were to occur, and in the case
of the change in control of MCI (to Verizon as of January 2006), such change in
control would not permit them to terminate their existing contracts with us, but
could in the future result in the termination of or a material adverse change in
our relationships with MCI, Dobson or Sprint Nextel.

In addition, MCI's, Dobson's and Sprint Nextel's need for our long-distance
services depends directly upon their ability to obtain and retain their own
long-distance and wireless customers and upon the needs of those customers for
long-distance services.

The loss of one or more of MCI, Dobson or Sprint Nextel as customers, a material
adverse change in our relationships with either of them or a material loss of or
reduction in their long-distance customers would have a material adverse effect
on our financial position, results of operations and liquidity.

Our businesses are currently geographically concentrated in Alaska. Any
deterioration in the economic conditions in Alaska could have a material adverse
effect on our financial position, results of operations or liquidity.

We offer voice and data communication and video services to customers primarily
in the State of Alaska. Because of this geographic concentration, our growth and
operations depend upon economic conditions in Alaska. The economy of Alaska is
dependent upon natural resource industries, in particular oil production, as
well as tourism, and government spending including substantial amounts for the
United States military. Any deterioration in these markets could have an adverse
impact on the demand for communication and cable television services and on our
results of operations and financial condition. In addition, the customer base in
Alaska is limited. Alaska has a population of approximately 655,000 people,
approximately 41% of whom are located in the Anchorage area. We have already
achieved significant market penetration with respect to our service offerings in
Anchorage and in other locations in Alaska.

We may not be able to continue to increase our market share of the existing
markets for our services and no assurance can be given that the Alaskan economy
will continue to grow and increase the size of the markets we serve or increase
the demand for the services we offer. As a result, the best opportunities for
expanding our business may arise in other geographic areas such as the
contiguous Lower 48 States. There can be no assurance that we will find
attractive opportunities to grow our businesses outside the State of Alaska or
that we will have the necessary expertise to take advantage of such
opportunities. The markets in Alaska for voice and data communications and video
services are unique and distinct within the United States due to Alaska's large
geographical size and its distance from the rest of the United States. The
expertise we have developed in operating our businesses in the State of Alaska

                                       54
<PAGE>
may not provide us with the necessary expertise to successfully enter other
geographic markets.

We may not develop our wireless services, in which case we could not meet the
needs of our customers who desire packaged services.

We offer wireless mobile services by distributing other providers' wireless
mobile services. We offer wireless local telephone services over our own
facilities, and have purchased personal communications system, or PCS, and local
multipoint distribution system, or LMDS, wireless broadband licenses in FCC
auctions covering markets in Alaska. GCI entered into an agreement to acquire a
substantial ownership interest in Alaska Digitel (see "Part I -- Item 1 --
Business -- Historical Development of our Business During the Past Fiscal Year
-- Alaska Digitel acquisition" for more information.) We have fewer subscribers
to our wireless services than to our other service offerings. The geographic
coverage of our wireless services is also smaller than the geographic coverage
of our other services. Some of our competitors offer or propose to offer an
integrated bundle of communications, entertainment and information services,
including wireless services. If we are unable to expand and further develop our
wireless services, we may not be able to meet the needs of customers who desire
packaged services, and our competitors who offer these services would have an
advantage. This could result in the loss of market share for our other service
offerings.

As a PCS and LMDS licensee, we are subject to regulation by the FCC, and must
comply with certain build-out and other conditions of the licenses, as well as
with the FCC's regulations governing the PCS and LMDS services. The conditions
of our PCS licenses required us to satisfy certain build-out requirements on or
before June, 2005. In February 2005 we submitted a filing to the FCC supporting
our compliance with such requirements, and the FCC renewed the license effective
August 30, 2005, for an additional 10-year license term.

Our efforts to deploy DLPS may be unsuccessful, in which case the margins on our
local telephone services business will not improve and we will not recover any
capital investment that we have made in DLPS.

An element of our business strategy is to deploy voice telephone service
utilizing our hybrid fiber coax cable facilities. In April 2004 we successfully
launched our DLPS deployment utilizing our Anchorage coaxial cable facilities.
DLPS allows us to utilize our own cable facilities to provide local access to
our customers and avoid paying local loop charges to the ILEC. To continue to
successfully deploy this service, we must integrate new technology with our
existing facilities and modify our operating procedures to timely detect and
effect repairs of our outside plant network. The long-term viability of this
service depends on the adoption of industry-wide standards for the sending and
receiving of voice communications over cable facilities and the availability of
the equipment necessary to provide the service at a cost-effective price. The
deployment of this service requires a substantial capital investment by us. If
we are unable to successfully deploy DLPS to a sufficiently large portion of our
customer base, we will not be able to recover all of the capital investment we
may make and the margins on our local telephone services business will not
improve.

Prolonged service interruptions could affect our business.

We rely heavily on our network equipment, communications providers, data and
software, to support all of our functions. We rely on our networks and the
networks of others for substantially all of our revenues. We are able to deliver
services only to the extent that we can protect our network systems against
damage from power or communication failures, computer viruses, natural
disasters, unauthorized access and other disruptions. While we endeavor to
provide for failures in the network by providing back-up systems and procedures,
we cannot guarantee that these back-up systems and procedures will operate
satisfactorily in an emergency. Should we experience a prolonged failure, it
could seriously jeopardize our ability to continue operations. In particular,

                                       55
<PAGE>
should a significant service interruption occur, our ongoing customers may
choose a different provider, and our reputation may be damaged, reducing our
attractiveness to new customers.

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

If failures occur in our undersea fiber optic cables, our ability to immediately
restore the entirety of our service may be limited, which could lead to a
material adverse effect on our business, financial position, results of
operations or liquidity.

Our communications facilities include an undersea fiber optic cable that carries
a large portion of our Internet voice and data traffic to and from the
contiguous Lower 48 States. We completed construction of AULP West in June 2004
that provides an alternative backup communications facility. If a failure of
both sides of the ring of our undersea fiber optic facilities occurs and we are
not able to secure alternative facilities, some of the communications services
we offer to our customers could be interrupted, which could have a material
adverse effect on our business, financial position, results of operations or
liquidity.

If a failure occurs in our satellite communications systems, our ability to
immediately restore the entirety of our service may be limited.

We serve many rural and remote Alaska locations solely via satellite
communications. Each of our C and Ku-band satellite transponders is backed up on
the same spacecraft with multiple backup transponders. The primary spacecraft we
use to provide voice, data and internet services to our rural Alaska customers
is PanAmSat's Galaxy XR, but we also lease capacity on two other spacecraft for
services we provide, SES Americom's AMC-7 and AMC-8. On Galaxy XR, we use 7
C-band transponders.

Galaxy XR experienced a failure August 3, 2004 of its secondary xenon ion
propulsion system (XIPS) that maintains the satellite's proper orbital position.
The primary XIPS failed in February 2004. The satellite is now using its backup
bi-propellant thrusters to maintain its orbital position. These thrusters are a
space flight proven technology. The failure of the primary and secondary XIPS
had no short term impact on service to our customers. PanAmSat, the owner and
operator of Galaxy XR, believes the satellite has sufficient fuel to continue
normal operations until April 2008. The terms of our Galaxy XR transponder
purchase agreement extends through March 2012. PanAmSat intends to replace the
satellite before its estimated end-of-life. We purchased a warranty with the
original agreement to cover a loss of this nature. We have had an agreement in
place that provides backup transponder capacity on the Galaxy XIII satellite in
the event of a catastrophic failure of Galaxy XR.

If such a failure occurs, service may not be fully restored for up to a week or
longer due to the time necessary to redirect earth station antennae. We also own
one Ku-band satellite transponder on the same primary spacecraft (Galaxy XR)
that provides our C-band service. In the event of total primary spacecraft
failure, we believe we would be able to restore our Ku-band transponder traffic
on Galaxy XIII, although no pre-arrangement for its backup is currently in
place. We also lease approximately 13 megahertz of protected and backed-up
C-band capacity on SES Americom's AMC-8 spacecraft. SES Americom's AMC-7 is the
backup spacecraft for AMC-8. We also lease certain C-band transponder capacity
on AMC-7 that can be preempted in the case of a satellite failure. The services
that are preempted would not be immediately restored should AMC-7 fail or be
called up to provide restoration of another of SES Americom's spacecraft.

                                       56
<PAGE>
We depend on a limited number of third-party vendors to supply communications
equipment. If we do not obtain the necessary communications equipment, we will
not be able to meet the needs of our customers.

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

We do not have insurance to cover certain risks to which we are subject, which
could lead to the incurrence of uninsured liabilities that adversely affect our
financial position, results of operations or liquidity.

We are self-insured for damage or loss to certain of our transmission
facilities, including our buried, under sea and above-ground transmission lines.
If we become subject to substantial uninsured liabilities due to damage or loss
to such facilities, our financial position, results of operations or liquidity
may be adversely affected.

New corporate governance rules impose increased costs and internal control
assessment requirements on us.

The Sarbanes-Oxley Act of 2002 and rules subsequently implemented by the SEC,
the Public Company Accounting Oversight Board, and the Nasdaq National Market
have required changes in corporate governance practices of public companies. For
example, Section 404 of the Sarbanes-Oxley Act of 2002 requires that we evaluate
and report on our system of internal controls over financial reporting and have
our auditor attest to such evaluation. We expect to incur ongoing costs to
comply with these rules and regulations, as well as increased legal and
financial compliance costs.

We must apply a direct value method to determine the fair value of our cable
certificate assets for purposes of impairment testing on an annual basis.
Impairment testing may result in a material, non-cash write-down of our cable
certificate or goodwill assets and could have a material adverse impact on our
results of operations.

Under Statement of Financial Accounting Standard No. 142, "Goodwill and Other
Intangible Assets," we must test our goodwill and other intangible assets with
indefinite lives for impairment at least annually. On September 29, 2004, the
SEC issued SEC Staff Announcement Topic "Use of the Residual Method to Value
Acquired Assets Other than Goodwill," requiring us to apply no later than
January 1, 2005 a direct value method to determine the fair value of our
intangible assets with indefinite lives other than goodwill for purposes of
impairment testing. We must also recognize previously unrecognized intangible
assets, if any, in the determination of fair value for impairment testing
purposes. Our cable certificate assets are our only indefinite-lived assets
other than goodwill as of December 31, 2005. Our cable certificate assets were
originally valued and recorded using the residual method. Impairment testing of
our cable certificate assets in future periods under Statement of Financial
Accounting Standard No. 142 must use a direct value method pursuant to such SEC

                                       57
<PAGE>
Staff Announcement, which may result in a material, non-cash write-down of our
cable certificate assets and could have a material adverse impact on our results
of operations.

Our significant debt could adversely affect our business and prevent us from
fulfilling our obligations under our senior notes.

We have and will continue to have a significant amount of debt. On December 31,
2005, we had total debt of approximately $476.5 million. Our high level of debt
could have important consequences, including the following:

     o   use of a large portion of our cash flow to pay principal and interest
         on our senior notes, the senior secured credit facility and our other
         debt, which will reduce the availability of our cash flow to fund
         working capital, capital expenditures, research and development
         expenditures and other business activities;
     o   current and future debt under our senior secured credit facility will
         continue to be secured;
     o   increase our vulnerability to general adverse economic and industry
         conditions;
     o   limit our flexibility in planning for, or reacting to, changes in our
         business and the industry in which we operate;
     o   restrict us from making strategic acquisitions or exploiting business
         opportunities;
     o   make it more difficult for us to satisfy our obligations with respect
         to the senior notes and our other debt;
     o   place us at a competitive disadvantage compared to our competitors that
         have less debt; and
     o   limit, along with the financial and other restrictive covenants in our
         debt, among other things, our ability to borrow additional funds,
         dispose of assets or pay cash dividends.

In addition, a substantial amount of our debt bears interest at variable rates.
If market interest rates increase, variable-rate debt will create higher debt
service requirements, which would adversely affect our financial position,
results of operations or liquidity.

We will require a significant amount of cash to service our debt. Our ability to
generate cash depends on many factors beyond our control.

Our ability to make payments on and to refinance our debt and to fund planned
capital expenditures and business development efforts will depend on our ability
to generate cash in the future. This is subject to general economic, financial,
competitive, legislative, regulatory and other factors that may be beyond our
control.

Our business may not generate sufficient cash flow from operations and future
borrowings may not be available to us under our senior secured credit facility
or otherwise in an amount sufficient to enable us to pay our debt or to fund our
other liquidity needs. We may need to refinance all or a portion of our debt on
or before maturity. We may not be able to refinance any of our debt on
commercially reasonable terms or at all.

Despite our current significant level of debt, we may still be able to incur
substantially more debt. This could further exacerbate the risks associated with
our substantial debt.

We may be able to incur substantial debt in the future. Although the indenture
governing the senior notes contains restrictions on the incurrence of additional
debt, these restrictions are subject to a number of qualifications and
exceptions and, under certain circumstances, debt incurred in compliance with
these restrictions could be substantial. If new debt is added to our current
debt levels, the substantial risks described above would intensify.

                                       58
<PAGE>
The terms of our debt impose restrictions on us that may affect our ability to
successfully operate our business and our ability to make payments on the senior
notes.

The indenture governing our senior notes contains and/or the credit agreement
governing our senior secured credit facility contains covenants that, among
other things, limit our ability to:

     o   incur additional debt and issue preferred stock;
     o   pay dividends or make other restricted payments;
     o   make certain investments;
     o   create liens;
     o   allow restrictions on the ability of certain of our subsidiaries to pay
         dividends or make other payments to us;
     o   sell assets;
     o   merge or consolidate with other entities; and
     o   enter into transactions with affiliates.

The senior secured credit facility also requires us to comply with specified
financial ratios and tests, including, but not limited to, minimum interest
coverage ratio, maximum leverage ratio and maximum annual capital expenditures.

These covenants could materially and adversely affect our ability to finance our
future operations or capital needs and to engage in other business activities
that may be in our best interest.

All of these covenants may restrict our ability to expand or to pursue our
business strategies. Our ability to comply with these covenants may be affected
by events beyond our control, such as prevailing economic conditions and changes
in regulations, and if such events occur, we cannot be sure that we will be able
to comply. A breach of these covenants could result in a default under the
indenture governing our senior notes and/or the senior secured credit facility.
If there were an event of default under the indenture for the senior notes
and/or the senior secured credit facility, holders of such defaulted debt could
cause all amounts borrowed under these instruments to be due and payable
immediately. Additionally, if we fail to repay the debt under the senior secured
credit facility when it becomes due, the lenders under the senior secured credit
facility could proceed against certain of our assets and capital stock of our
subsidiaries that we have pledged to them as security. Our assets or cash flow
may not be sufficient to repay borrowings under our outstanding debt instruments
in the event of a default thereunder.

A significant percentage of GCI's voting securities are owned by a small number
of shareholders and these shareholders can control stockholder decisions on very
important matters.

As of December 31, 2005, our executive officers and directors and their
affiliates owned approximately 8.9% of GCI's combined outstanding Class A and
class B common stock, representing approximately 28.1% of the combined voting
power of that stock. These shareholders can significantly influence, if not
control, our management policy and all fundamental corporate actions, including
mergers, substantial acquisitions and dispositions, and election of directors to
GCI's Board.

Terrorist attacks, such as the attacks that occurred on September 11, 2001, and
other attacks or acts of war may adversely affect us.

The attacks of September 11, 2001, and subsequent events have caused instability
in the local, national and international economies and markets and have led, and
may continue to lead, to further armed hostilities or to further acts of
terrorism in the United States or elsewhere, which could cause further
instability in such economies and markets. In addition, armed hostilities and
further acts of terrorism may directly impact our physical facilities and
operations or those of our customers. Furthermore, terrorist attacks, subsequent
events and future developments may adversely affect our customers or their
facilities or otherwise result in reduced demand from our customers for our
services. Any of the foregoing could subject our operations to increased risks
and, depending on their magnitude, could have a material adverse effect on our
financial position, results of operations or liquidity.

                                       59
<PAGE>

If we fail to maintain an effective system of internal control over financial
reporting, we may not be able to accurately report our financial results. As a
result, current and potential stockholders could lose confidence in our
financial reporting, which would harm our business and the trading price of our
stock.

Our management has determined that as of December 31, 2005, we did not maintain
effective internal controls over financial reporting based on criteria set forth
by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO")
in Internal Control-Integrated Framework as a result of identified material
weaknesses in our internal control over financial reporting.

Our system development controls associated with the introduction of our new
customer billing system did not operate effectively. The original configuration
of certain settings in the new system resulted in errors in processing credits
and other adjustments to customer accounts receivable balances. As a result,
material misstatements of revenue and accounts receivable occurred during the
fourth quarter of 2005 and were corrected prior to the issuance of our 2005
consolidated financial statements. Subsequent to December 31, 2005, we have
corrected the unified system configuration settings so that credits and other
adjustments are properly recorded.

In addition, we did not have adequately designed internal controls in our
financial reporting process related to the interpretation and application of
generally accepted accounting principles in that our policies and procedures did
not consistently provide for effective analysis and implementation of accounting
pronouncements as applied to non-routine transactions. We began to execute the
remediation plans in the fourth quarter of 2006.

For a detailed description of these material weaknesses and our remediation
efforts and plans, see Part II, Item 9A. The system development control
deficiency resulted in a material error in our financial reporting. The
financial reporting process control deficiency did not affect our 2005
consolidated financial statements since it reduced the amount of net income
available to GCI's common shareholders used to calculate GCI's basic and diluted
net income per common share, as discussed elsewhere in this Annual Report on
Form 10-K/A. However, the financial reporting process control deficiency did
affect our management's assessment of our disclosure controls and procedures as
of December 31, 2005.

In response to these material weaknesses in our internal control over financial
reporting, we are implementing additional controls and procedures and may incur
additional related expenses. We cannot be certain that the measures we have
taken and are planning to take will sufficiently and satisfactorily remediate
the identified material weaknesses in full. Furthermore, we intend to continue
improving our internal control over financial reporting and the implementation
and testing of these efforts could result in increased cost and could divert
management attention away from operating our business.

If the results of our remediation of the identified material weaknesses
discussed above are not successful, or if additional material weaknesses are
identified in our internal control over financial reporting, our management will
be unable to report favorably as to the effectiveness of our internal control
over financial reporting and/or our disclosure controls and procedures, and we
could be required to further implement expensive and time-consuming remedial
measures and potentially lose investor confidence in the accuracy and
completeness of our financial reports which could have an adverse effect on our
stock price and potentially subject us to litigation.


Item 1B.  Unresolved Staff Comments

There are no written staff comments on Exchange Act reports issued more than 180
days before the end of the fiscal year covered by this report that the issuer
believes to be material and that remain unresolved as of the filing date of this
report.

                                       60
<PAGE>
Item 2.  Properties

General. Our properties do not lend themselves to description by character or
location of principal units. Our investment in property, plant and equipment in
our consolidated operations consisted of the following at December 31:
<TABLE>
<CAPTION>
                                                                                    2005          2004
                                                                             ------------------------------
         <S>                                                                       <C>           <C>
         Telephone distribution systems                                             64.9%         59.0%
         Cable television distribution systems                                      22.9%         22.9%
         Support equipment                                                           9.8%          6.7%
         Property and equipment under capital leases                                 0.1%          6.9%
         Construction in progress                                                    1.0%          3.0%
         Transportation equipment                                                    0.7%          0.9%
         Land and buildings                                                          0.6%          0.6%
                                                                             ------------------------------
              Total                                                                100.0%        100.0%
                                                                             ==============================
</TABLE>
These properties are used by our operating segments at December 31, 2005 as
follows: long-distance services, 40.6%; cable services, 24.2%; local access
services, 11.0%; Internet services, 5.2%; and all other, 19.0%.

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

Our construction in progress totaled $8.3 million at December 31, 2005,
consisting of long-distance, cable, local and Internet services, and support
systems projects that were incomplete at December 31, 2005. Our construction in
progress totaled $22.5 million at December 31, 2004, consisting of
long-distance, cable, local and Internet services, and support systems projects
that were incomplete at December 31, 2004.

Long-Distance Services. We operate a modern, competitive communications network
employing the latest digital transmission technology based upon fiber optic and
digital microwave facilities within and between Anchorage, Fairbanks and Juneau,
Alaska. Our network includes digital fiber optic cables linking Alaska to the
Lower 48 States and providing access to other carriers' networks for
communications around the world. We use satellite transmission to remote areas
of Alaska and for certain interstate and intrastate traffic, and to provide
backup facilities for certain portions of our long-haul fiber networks.

Our long-distance services segment owns properties and facilities including
satellite earth stations, and distribution, transportation and office equipment.
We completed construction of AULP East linking Alaska to Seattle, Washington in
February 1999. In June 2004, we completed the construction of AULP West
connecting Seward, Alaska and Warrenton, Oregon, with leased backhaul facilities
to connect it to our switching and distribution centers in Anchorage, Alaska and
Seattle, Washington.

We entered into a purchase and lease-purchase option agreement in August 1995
for the acquisition of satellite transponders on the PanAmSat Galaxy XR
satellite to meet our long-term satellite capacity requirements. The purchase
and lease-purchase option agreement provided for the interim lease of
transponder capacity on the PanAmSat Galaxy IX satellite through the delivery of
the purchased transponders on Galaxy XR in March 2000. The lease was repaid and
terminated in 2005 as part of the refinancing of our senior credit facility.

                                       61
<PAGE>

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

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

Cable Services. The cable systems serve 40 communities and areas in Alaska
including Anchorage, Fairbanks, the Mat-Su Valley, and Juneau, the state's four
largest urban areas. As of December 31, 2005, the Cable Systems consisted of
approximately 2,369 miles of installed cable plant having between 450 to 625 MHz
of channel capacity. Our principal physical assets consist of cable television
distribution plant and equipment, including signal receiving, encoding and
decoding devices, headend reception facilities, distribution systems and
customer drop equipment for each of our cable television systems.

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

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

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

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

Internet Services. We operate a modern, competitive Internet network employing
the latest available technology. We provide access to the Internet using a
platform that includes many of the latest advancements in technology. The
physical platform is concentrated in Anchorage and is extended into many remote
areas of Alaska. Our Internet platform includes trunks connecting our Anchorage,

Fairbanks, and Juneau facilities to Internet access points in Seattle through
multiple, diversely routed upstream Internet networks, and various other
routers, servers and support equipment.

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

                                       62
<PAGE>
Capital Expenditures

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

The total investment in property, plant and equipment has increased from $499.8
million at January 1, 2001 to $814.9 million at December 31, 2005, including
construction in progress and not including deductions of accumulated
depreciation. Significant additions to property, plant and equipment will be
required in the future to meet the growing demand for communications, Internet
and entertainment services and to continually modernize and improve such
services to meet competitive demands.

Our capital expenditures for 2001 through 2005 were as follows (in millions):

       2001        $ 65.6
       2002        $ 65.1
       2003        $ 62.5
       2004        $ 112.6
       2005        $ 81.2

We project capital expenditures of $80 million to $90 million for 2006. We have
made capital and operating purchase commitments totaling approximately $15.5
million at December 31, 2005. A majority of the expenditures are expected to
expand, enhance and modernize our current networks, facilities and operating
systems, and to develop other businesses.

During 2005, we funded our normal business capital requirements substantially
through internal sources and, to the extent necessary, from external financing
sources. We expect expenditures for 2006 to be financed in the same manner.

Insurance

We have insurance to cover risks incurred in the ordinary course of business,
including general liability, property coverage, director and officers and
employment practices liability, auto, crime, fiduciary, aviation, and business
interruption insurance in amounts typical of similar operators in our industry
and with reputable insurance providers. Central office equipment, buildings,
furniture and fixtures and certain operating and other equipment are insured
under a blanket property insurance program. This program provides substantial
limits of coverage against "all risks" of loss including fire, windstorm, flood,
earthquake and other perils not specifically excluded by the terms of the
policies. As is typical in the communications industry, we are self-insured for
damage or loss to certain of our transmission facilities, including our buried,
under sea, and above-ground transmission lines. We self-insure with respect to
employee health insurance and workers compensation, subject to stop-loss
insurance with other parties that caps our liability at specified limits. We
believe our insurance coverage is adequate, however if we become subject to
substantial uninsured liabilities due to damage or loss to such facilities, our
financial results may be adversely affected.

Item 3.  Legal Proceedings

Except as set forth in this item, neither the Company, its property nor any of
its subsidiaries or their property is a party to or subject to any material
pending legal proceedings. We are parties to various claims and pending
litigation as part of the normal course of business. We are also involved in
several administrative proceedings and filings with the FCC, Department of Labor
and state regulatory authorities. In the opinion of management, the nature and
disposition of these matters are considered routine and arising in the ordinary

                                       63
<PAGE>

course of business. Management believes these matters would not have a
materially adverse affect on our business or financial position, results of
operations or liquidity.

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

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



                                     Part II

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

Market Information for Common Stock

All issued and outstanding shares of GCI, Inc.'s Class A common stock are held
by GCI and are not publicly traded.  GCI's Class A and Class B common stock are
publicly traded.

Dividends

GCI and GCI, Inc. have never paid cash dividends on their common stock and have
no present intention of doing so. Payment of cash dividends in the future, if
any, will be determined by GCI's Board of Directors in light of our earnings,
financial condition and other relevant considerations. Our existing bank loan
agreements contain provisions that limit payment of dividends on common stock,
other than stock dividends (See note 7 to the "Consolidated Financial
Statements" included in Part II of this Report for more information).

Stock Transfer Agent and Registrar

Mellon Investor Services is GCI's stock transfer agent and registrar.

                                       64
<PAGE>
Item 6.  Selected Financial Data

The following table presents selected historical information relating to
financial condition and results of operations over the past five years.
<TABLE>
<CAPTION>
                                                                                Years ended December 31,
                                                             ----------------------------------------------------------------
                                                                2005         2004         2003         2002         2001
                                                                ----         ----         ----         ----         ----
                                                                    (Amounts in thousands except per share amounts)
     <S>                                                    <C>               <C>          <C>          <C>          <C>
     Revenues                                               $   443,026       424,826      390,797      367,842      357,258
     Net income before income taxes and cumulative
       effect of a change in accounting principle           $    36,835        38,715       26,160       12,322        8,659
     Cumulative effect of a change in accounting
       principal, net of income tax benefit of $367 in
       2003                                                 $       ---           ---         (544)         ---          ---
     Net income                                             $    20,831        21,252       15,542        6,663        4,589
     Total assets                                           $   873,775       849,191      763,020      738,782      734,679
     Long-term debt, including current portion              $   475,840       437,137      345,000      357,700      351,700
     Obligations under capital leases, including
       current portion                                      $       672        39,661       44,775       46,632       47,282
     Total stockholder's equity                             $   243,620       228,604      246,271      230,497      224,380
     Dividends declared per common share                    $      0.00          0.00         0.00         0.00         0.00
</TABLE>
     The Selected Financial Data should be read in conjunction with "Part II --
     Item 7 -- Management's Discussion and Analysis of Financial Condition and
     Results of Operations."


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

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

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

GCI, Inc. was incorporated in 1997 to effect the issuance of senior notes. GCI,
Inc., a wholly-owned subsidiary of GCI, received through its initial
capitalization all ownership interests in subsidiaries previously held by GCI.
Shares of GCI's Class A common stock are traded on the Nasdaq National Market
tier of the Nasdaq Stock Market under the symbol GNCMA. Shares of GCI's Class B
common stock are traded on the Over-the-Counter market. Shares of GCI, Inc.'s
common stock are not publicly traded.

Parent Company Financial Statement Restatement

The Consolidated Statement of Operations of GCI, our parent company, for the
year ended December 31, 2005 reflects restated balances. Those restatements do
not affect our financial position, results of operations or liquidity since they
only reduce the amount of net income available to GCI's common shareholders used
to calculate GCI's basic and diluted net income per common share.

General Overview

Through our focus on long-term results, acquisitions, and strategic capital
investments, we strive to consistently grow our revenues and expand our margins.
We have historically met our cash needs for operations, regular capital
expenditures and maintenance capital expenditures through our cash flows from
operating activities. Historically, cash requirements for significant
acquisitions and major capital expenditures have been provided largely through
our financing activities.

As of January 1, 2005 financial information for Broadband services is not
included in the long-distance services segment but is included in the "All
Other" category. Segment and All Other category data for the years ended
December 31, 2004 and 2003 have been reclassified to reflect the change.

                                       66
<PAGE>
Results of Operations

The following table sets forth selected Statements of Operations data as a
percentage of total revenues for the periods indicated (underlying data rounded
to the nearest thousands):
<TABLE>
<CAPTION>
                                                                                          Percentage Change (1)
                                                                                          -----------------
                                                                                          2005         2004
                                                       Year Ended December 31,             vs.          vs.
                                                       -----------------------
                                                    2005        2004         2003         2004         2003
                                                    ----        ----         ----         ----         ----
<S>                                                <C>         <C>          <C>          <C>        <C>
Statement of Operations Data:
  Revenues:
    Long-distance services segment                  42.6%       42.4%        45.9%         4.9%        0.3%
    Cable services segment                          23.8%       23.9%        24.6%         3.8%        5.7%
    Local access services segment                   11.6%       11.0%        10.0%         9.6%       20.4%
    Internet services segment                        6.8%        6.1%         5.1%        15.4%       30.9%
    All other                                       15.2%       16.6%        14.4%        (4.2%)      24.7%
                                                -----------------------------------------------------------------
      Total revenues                               100.0%      100.0%       100.0%         4.3%        8.7%
  Selling, general and administrative expenses      34.9%       34.7%        35.5%         4.8%        6.2%
  Restructuring charge                               0.4%        0.0%         0.0%           NM          NM
  Bad debt expense (recovery)                        0.2%       (0.3%)        0.0%       200.6%     (503.4%)
  Impairment charge                                  0.0%        0.0%         1.4%           NM          NM
  Depreciation and amortization expense             16.7%       14.8%        13.5%        17.9%       19.1%
      Operating income                              17.3%       17.9%        17.6%         1.0%       10.8%
      Net income before income taxes and
        cumulative effect of a change in
        accounting principle in 2003                 8.3%        9.1%         6.7%        (4.9%)      48.0%
      Net income before cumulative effect of a
        change in accounting principle in 2003       4.7%        5.0%         4.1%        (2.0%)      32.1%
      Net income                                     4.7%        5.0%         4.0%        (2.0%)      36.7%
Other Operating Data:
Long-distance services segment operating
   income (2)                                       49.6%       46.1%        44.7%        12.8%        3.4%
Cable services segment operating income (3)         22.2%       26.1%        26.3%       (11.8%)       5.0%
Local access services segment operating loss
   (4)                                              (8.7%)     (12.1%)      (15.8%)       20.7%        7.9%
Internet services segment operating income (5)      28.7%       23.5%        11.5%        40.5%      169.1%
<FN>
   --------------------------
(1)Percentage change in underlying data.
(2)Computed by dividing total external long-distance services segment operating
   income by total external long-distance services segment revenues.
(3)Computed by dividing total external cable services segment operating income
   by total external cable services segment revenues.
(4)Computed by dividing total external local access services segment operating
   loss by total external local access services segment revenues.
(5)Computed by dividing total external Internet services segment operating
   income by total external Internet services segment revenues.
NM - Not meaningful.
   --------------------------
</FN>
</TABLE>
                                       67
<PAGE>
Year Ended December 31, 2005 ("2005") Compared To Year Ended December 31, 2004
("2004")

Overview of Revenues and Cost Of Goods Sold
Total revenues increased 4.3% from $424.8 million in 2004 to $443.0 million in
2005. Increased revenue in each of our segments was partially off-set by
decreased revenue in All Other Services. See the discussion below for more
information by segment and for All Other Services.

Total Cost of Goods Sold decreased 3.4% from $139.6 million in 2004 to $134.9
million in 2005. Increases in cable services and Internet services segments and
All Other Services Cost of Goods Sold were partially off-set by decreased
long-distance services and local access services segment Cost of Goods Sold. See
the discussion below for more information by segment and for All Other Services.

Long-Distance Services Segment Overview
Long-distance services segment revenue represented 42.6% of consolidated
revenues in 2005. Our provision of interstate and intrastate long-distance
services, and private line and leased dedicated capacity services accounted for
90.4% of our total long-distance services segment revenues during 2005.

Factors that have the greatest impact on year-to-year changes in long-distance
services segment revenues include the rate per minute charged to customers,
usage volumes expressed as minutes of use, and the number of private lines and
private networks in use.

Due in large part to the favorable synergistic effects of our bundling strategy,
the long-distance services segment continues to be a significant contributor to
our overall performance, although the migration of traffic from voice to data
and from fixed to mobile wireless continues.

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

On July 21, 2002 MCI and substantially all of its active United States
subsidiaries, on a combined basis a major customer, filed voluntary petitions
for reorganization under Chapter 11 of the United States Bankruptcy Code in the
United States Bankruptcy Court. On July 22, 2003, the United States Bankruptcy
Court approved a settlement agreement for pre-petition amounts owed to us by MCI
and affirmed all of our existing contracts with MCI. MCI emerged from bankruptcy
protection on April 20, 2004. The remaining pre-petition accounts receivable
balance owed by MCI to us after this settlement was $11.1 million which we have
used and will continue to use as a credit against amounts payable for services
purchased from MCI.

After settlement, we began reducing the MCI credit as we utilized it for
services otherwise payable to MCI. We have accounted for our use of the MCI
credit as a gain contingency, and, accordingly, are recognizing a reduction of
bad debt expense as services are provided by MCI and the credit is realized.
During 2005 and 2004 we realized approximately $3.3 million and $4.2 million,
respectively, of the MCI credit against amounts payable for services received
from MCI.

The remaining unused MCI credit totaled approximately $370,000 at December 31,
2005. The credit balance is not recorded on the Consolidated Balance Sheet as we
are recognizing recovery of bad debt expense as the credit is realized.

In 2005 we renewed our agreement to provide interstate and intrastate
long-distance services to MCI through December 2009 with five one-year automatic
extensions to December 2014. The amendment includes new rates mandated by the
Consolidated Appropriations Act for Fiscal Year 2005 signed into law December 8,
2004 and effective January 22, 2005 which will result in rate decreases of 3%

                                       68
<PAGE>
per year ("Tariff 11 Rates") through 2010, at which time rates will be
contractually set.

In January 2006 Verizon Communications, Inc. and MCI, our major customer,
completed their merger. While this merger has not had a material adverse effect
on our financial position, results of operations and liquidity, we are unable to
predict the long-term outcome this merger will have upon us. However, given the
materiality of MCI's revenues to us, a significant reduction in traffic or
pricing could have a material adverse effect on our financial position, results
of operations and liquidity.

Common carrier traffic routed to us for termination in Alaska is largely
dependent on traffic routed to our common carrier customers by their customers.
Pricing pressures, new program offerings, business failures, and market and
business consolidations continue to evolve in the markets served by our other
common carrier customers. If, as a result, their traffic is reduced, or if their
competitors' costs to terminate or originate traffic in Alaska are reduced, our
traffic will also likely be reduced, and our pricing may be reduced to respond
to competitive pressures, consistent with federal law. Additionally, disruption
in the economy resulting from terrorist attacks and other attacks or acts of war
could affect our carrier customers. We are unable to predict the effect on us of
such changes. However, given the materiality of other common carrier revenues to
us, a significant reduction in traffic or pricing could have a material adverse
effect on our financial position, results of operations and liquidity.

Long-distance Services Segment Revenues
Total long-distance services segment revenues increased 4.9% to $188.8 million
in 2005. The components of long-distance services segment revenues are as
follows (amounts in thousands):
<TABLE>
<CAPTION>
                                                                        Year Ended December 31,          Percentage
                                                                        2005              2004             Change
                                                                   --------------    -------------    ----------------
   <S>                                                            <C>                   <C>                <C>
   Common carrier message telephone services                      $    89,916            81,873             9.8%
   Residential, commercial and governmental message
     telephone services                                                36,607            39,045            (6.2%)
   Private line and private network services                           44,055            42,885             2.7%
   Lease of fiber optic cable system capacity                          18,173            16,160            12.5%
                                                                   --------------    -------------    ----------------
     Total long-distance services segment revenue                  $  188,751           179,963             4.9%
                                                                   ==============    =============    ================
</TABLE>
Common Carrier Message Telephone Services Revenue
The increase in message telephone service revenues from our other common carrier
customers in 2005 resulted from a 20.4% increase in wholesale minutes carried to
1.1 billion minutes.

The 2005 increase in message telephone service revenues from other common
carriers was partially off-set by a 7.7% decrease in the average rate per minute
on minutes carried for other common carriers primarily due to a change in the
composition of traffic resulting from one of our common carrier customer
contracts.

Residential, Commercial, and Governmental Message Telephone Services Revenue
Selected key performance indicators for our offering of message telephone
service to residential, commercial, and governmental customers follow:
<TABLE>
<CAPTION>
                                                      Year Ended December 31,                Percentage
                                                     2005                  2004                 Change
                                               ------------------    ------------------    ----------------
   <S>                                           <C>                   <C>                       <C>
   Retail minutes carried                        301.9 million         305.9 million             (1.3%)
   Average rate per minute (1)                      $0.130                $0.131                 (0.8%)
<FN>
   ---------------
   1  Residential, commercial, and governmental message telephone services
      revenues excluding plan fees associated with the carriage of data services
      divided by the retail minutes carried.
</FN>
</TABLE>
                                       69
<PAGE>
We had 85,300 and 91,300 active residential, commercial and governmental
customers at December 31, 2005 and 2004, respectively. An active customer is a
subscriber who has had calling activity during December 2005 and 2004,
respectively. The decrease is primarily due to the following:
     o   A decrease in the total number of long-distance services subscribers in
         the market resulting from customers substituting cellular phone,
         prepaid calling card, VoIP, and email usage for direct dial minutes,
     o   A seasonal decrease in the number of customers with calling activity in
         2005. The seasonal decrease was mitigated in 2004 by customers'
         enrollment in a certain calling plan, and
     o   Non-revenue affecting adjustments to our customer database resulting
         from the implementation of a new customer service and provisioning
         information system.

The decrease in message telephone service revenues from residential, commercial,
and governmental customers in 2005 is primarily due to a decrease in the minutes
carried for these customers and a decrease in the number of active residential,
commercial, and governmental customers billed.

Fiber Optic Cable System Capacity Lease Revenue
The increase in fiber optic cable system capacity lease revenues is primarily
due to a lease of capacity on the AULP East fiber optic cable system resulting
in increased monthly revenue of approximately $430,000 starting in July 2004 and
the resolution of a billing matter with a certain customer in 2005 which
resulted in revenue recognition of $417,000. The increase is partially off-set
by rate decreases in 2005 as compared to 2004 and disconnection of a customer in
May 2005.

Long-distance Services Segment Cost of Goods Sold
Long-distance services segment Cost of Goods Sold decreased 16.8% to $38.3
million in 2005 primarily due to the following:

     o   In November 2005, we received $9.1 million upon the settlement of four
         separate claims with AT&T and AT&T Alascom, Inc. ("Alascom") pursuant
         to a master agreement,
     o   Recognition of a $501,000 refund received in 2005 from a vendor due to
         a rate overcharge in 2001 and 2002,
     o   Reduced access costs resulting from the distribution and termination of
         our traffic on our own local access services network instead of paying
         other carriers to distribute and terminate our traffic. The statewide
         average cost savings is approximately $.010 and $.048 per minute for
         originating and terminating interstate and intrastate traffic,
         respectively. We expect cost savings to continue to occur as
         long-distance traffic originated, carried, and terminated on our own
         facilities grows, and
     o   We performed an analysis of circuit costs directly contributing to
         long-distance services segment and Broadband services revenues and, as
         a result, decreased the allocation of Cost of Goods Sold to the
         long-distance services segment by $1.1 million in 2005. Broadband
         services Cost of Goods Sold included in the All Other category was
         increased an equal amount in 2005.

The decrease in long-distance services segment Cost of Goods Sold is partially
off-set by the following:

     o   A 14.9% increase in minutes carried to 1.4 billion minutes in 2005,
     o   Receipt of a $1.2 million refund in 2004 from an intrastate access cost
         pool that previously overcharged us for access services, and
     o   A $472,000 credit received in 2004 from a vendor due to a rate
         overcharge.

                                       70
<PAGE>
Long-distance Services Segment Operating Income
Long-distance services segment operating income increased 12.8% to $93.6 million
from 2004 to 2005 primarily due to the 4.9% increase in long-distance services
segment revenue to $188.8 million in 2005 and a 16.8% decrease in long-distance
services segment Cost of Goods Sold to $38.3 million as discussed above.

The increase in long-distance services segment operating income was partially
off-set by the following:

     o   A 2.3% increase in long-distance services segment selling, general and
         administrative expenses to $32.3 million in 2005,
     o   Recognition of $584,000 as the long-distance services segment's portion
         of the restructuring charge discussed below, and
     o   A 16.4% increase in long-distance services segment depreciation and
         amortization expense to $26.3 million in 2005 as compared to 2004
         primarily due to our investment in long-distance services segment
         equipment and facilities placed into service during 2004 for which a
         full year of depreciation was recorded in 2005, and our investment in
         long-distance services segment equipment and facilities placed into
         service during 2005 for which a partial year of depreciation was
         recorded in 2005.

Cable Services Segment Overview
Cable services segment revenues represented 23.8% of consolidated revenues in
2005. Our cable systems serve 40 communities and areas in Alaska, including the
state's four largest population centers, Anchorage, Fairbanks, the
Matanuska-Susitna Valley and the Kenai Peninsula. On February 1, 2005 we
acquired all of the assets of Barrow Cable TV, Inc. ("BCTV") for approximately
$1.6 million. The BCTV asset purchase resulted in approximately 950 additional
subscribers and approximately 1,100 additional homes passed.

We generate cable services segment revenues from four primary sources: (1)
digital and analog programming services, including monthly basic and premium
subscriptions, pay-per-view movies and one-time events, such as sporting events;
(2) equipment rentals and installation; (3) cable modem services (shared with
our Internet services segment); and (4) advertising sales.

The primary factors that contribute to period-to-period changes in cable
services segment revenues include average monthly subscription rates and
pay-per-view buys, the mix among basic, premium and digital tier services, the
average number of cable television and cable modem subscribers during a given
reporting period, set-top box utilization and related rates, revenues generated
from new product offerings, and sales of cable advertising services.

We increased rates charged for certain cable services in eleven communities,
including three of the state's four largest population centers, Anchorage, the
Matanuska-Susitna Valley, and Fairbanks. The rate increases are primarily
effective in January 2006 and increased approximately 5% for those customers who
experienced an adjustment.

Cable Services Segment Revenues and Cost of Goods Sold
Selected key performance indicators for our cable services segment follow:
<TABLE>
<CAPTION>
                                                             December 31,               Percentage
                                                         2005             2004            Change
                                                    -------------    -------------    ----------------
   <S>                                                  <C>              <C>               <C>
   Basic subscribers                                    137,000          134,700            1.7%
   Digital programming tier
      subscribers                                        53,700           46,100           16.5%
   Cable modem subscribers                               77,400           65,500           18.2%
   Homes passed                                         215,000          207,200            3.8%
</TABLE>
                                       71
<PAGE>
A basic cable subscriber is defined as one basic tier of service delivered to an
address or separate subunits thereof regardless of the number of outlets
purchased. A digital programming tier subscriber is defined as one digital
programming tier of service delivered to an address or separate subunits thereof
regardless of the number of outlets or digital programming tiers purchased.
Digital programming tier subscribers are a sub-set of basic subscribers. A cable
modem subscriber is defined by the purchase of cable modem service regardless of
the level of service purchased. If one entity purchases multiple cable modem
service access points, each access point is counted as a subscriber. Cable modem
subscribers may also be basic subscribers though basic cable service is not
required to receive cable modem service.

The increases in digital programming tier subscribers and cable modem
subscribers are primarily due to customers migrating to bundled product
offerings that include digital programming and cable modem service.

The components of cable services segment revenues are as follows (amounts in
thousands):
<TABLE>
<CAPTION>
                                                                        Year Ended December 31,          Percentage
                                                                        2005              2004             Change
                                                                   --------------    -------------    ----------------
   <S>                                                            <C>                   <C>                 <C>
   Programming services                                           $    75,632            73,665              2.7%
   Cable modem services (cable services segment's allocable
     share)                                                            13,399            12,790              4.8%
   Equipment rental and installation fees                              11,351             9,777             16.1%
   Advertising sales                                                    3,948             4,343             (9.1%)
   Other                                                                  963               862             11.7%
                                                                   --------------    -------------    ----------------
     Total cable services segment revenue                         $   105,293           101,437              3.8%
                                                                   ==============    =============    ================
</TABLE>
Average gross revenue per average basic subscriber per month increased $2.71 or
4.3% in 2005.

The increase in programming services revenue is primarily due to an increase in
basic and digital programming tier subscribers in 2005. The increase in cable
services segment's allocable share of cable modem revenue is primarily due to
growth in cable modem subscribers. Partially offsetting this increase was a
decrease in the percentage of cable modem revenues allocated to our cable
services segment of approximately $803,000. The decrease in the allocation
primarily resulted from excluding revenues from certain features from allocable
revenues. The increase in equipment rental and installation fees revenue is
primarily caused by the increased use of digital distribution technology. The
decrease in advertising sales revenue in 2005 is primarily caused by Olympic and
political advertising in 2004 that did not recur in 2005.

Cable services segment Cost of Goods Sold increased 11.0% to $29.9 million in
2005 primarily due to a $407,000 refund received in 2004 from a supplier
retroactive to August 2003, an arrangement with a supplier in which we earned a
$328,000 rebate in 2004 upon us meeting a specified goal, and programming cost
increases in 2005 for certain of our cable programming service offerings.

Cable Services Segment Operating Income
Cable services segment operating income decreased 11.8% to $23.4 million from
2004 to 2005 primarily due to the following:

     o   The 11.0% increase in Cost of Goods Sold to $29.9 million in 2005
         described above,
     o   A 6.4% increase in cable services segment selling, general and
         administrative expenses to $29.9 million in 2005 primarily due to an
         increase in labor costs and contract labor and contract services
         expenses,
     o   Recognition of $302,000 as the cable services segment's portion of the
         restructuring charge discussed further below, and

                                       72
<PAGE>
     o   A 10.8% increase in cable services segment depreciation and
         amortization expense to $21.0 million in 2005 as compared to 2004
         primarily due to our investment in cable services segment equipment and
         facilities placed into service during 2004 for which a full year of
         depreciation was recorded in 2005, and our investment in cable services
         segment equipment and facilities placed into service during 2005 for
         which a partial year of depreciation was recorded in 2005.

The decrease in Cable services segment operating income was partially off-set by
the 3.8% increase in cable services segment revenues to $105.3 million in 2005
described above.

MSO Operating Statistics
Our operating statistics include capital expenditures and customer information
from our cable services segment and the components of our local access services
and Internet services segments which offer services utilizing our cable services
segment's facilities.

Our capital expenditures by standard reporting category for the year ended
December 31, 2005 and 2004 follows (amounts in thousands):
<TABLE>
<CAPTION>

                                                             2005              2004
                                                        --------------    -------------
    <S>                                                <C>                   <C>
    Customer premise equipment                         $    18,600            16,772
    Upgrade/rebuild                                         11,761             9,476
    Line extensions                                          3,877             1,752
    Scalable infrastructure                                  2,702             4,979
    Support capital                                            935             1,427
    Commercial                                                 331               574
                                                        --------------    -------------
    Sub-total                                               38,206            34,980
    Remaining reportable segments and
      All Other capital expenditures                        42,945            77,599
                                                        --------------    -------------
                                                       $    81,151           112,579
                                                        ==============    =============
</TABLE>
The standardized definition of a customer relationship is the number of
customers that receive at least one level of service utilizing our cable
services segment's facilities, encompassing voice, video, and data services,
without regard to which services customers purchase. At December 31, 2005 and
2004 we had 123,500 and 122,700 customer relationships, respectively.

The standardized definition of a revenue generating unit is the sum of all
primary analog video, digital video, high-speed data, and telephony customers,
not counting additional outlets. At December 31, 2005 and 2004 we had 236,300
and 208,300 revenue generating units, respectively.

Local Access Services Segment Overview
Local access services segment revenues represented 11.6% of consolidated
revenues in 2005. We generate local access services segment revenues from three
primary sources: (1) business and residential basic dial tone services; (2)
business private line and special access services; and (3) business and
residential features and other charges, including voice mail, caller ID,
distinctive ring, inside wiring and subscriber line charges.

The primary factors that contribute to year-to-year changes in local access
services segment revenues include the average number of business and residential
subscribers to our services during a given reporting period, the average monthly
rates charged for non-traffic sensitive services, the number and type of
additional premium features selected, the traffic sensitive access rates charged
to carriers and the Universal Service Program.

Our local access services segment faces significant competition in Anchorage,
Fairbanks, and Juneau from ACS, which is the largest ILEC in Alaska, and from
Alascom in Anchorage for residential services. Alascom has received

                                       73
<PAGE>
certification from the RCA to provide local access services in Fairbanks and
Juneau. We believe our approach to developing, pricing, and providing local
access services and bundling different business segment services will allow us
to be competitive in providing those services.

In April 2004 we successfully launched our DLPS deployment utilizing our
Anchorage coaxial cable facilities. This service delivery method allows us to
utilize our own cable facilities to provide local access service to our
customers and avoid paying local loop charges to the ILEC. We plan to continue
to deploy additional DLPS lines during the year ended December 31, 2006.

On September 23, 2005 and again on February 2, 2006, the RCA issued orders
granting us certification to serve the service areas of Ketchikan Public
Utilities, Cordova Telephone Cooperative, Copper Valley Telephone Cooperative,
Matanuska Telephone Cooperative, the Glacier State area served by ACS of the
Northland, Wrangell, Petersburg, Sitka, Seward, Bethel and Nome.

We plan to offer service in these new areas using a combination of methods. To a
large extent, we plan to use our existing cable network to deliver local
services. Where we do not have cable plant, we may use wireless technologies and
resale of other carrier's services. We may lease portions of an existing
carrier's network or seek wholesale discounts, but our application is not
dependent upon access to either unbundled network elements ("UNEs") of the
ILEC's network or wholesale discount rates for resale of ILEC services.

On June 25, 2004, the RCA issued a comprehensive decision setting forth new
rates for UNEs, resale, and terms and conditions for interconnection in the
Anchorage arbitration. Significantly, the RCA raised the loop rate in Anchorage
to $19.15 but subsequently reduced the loop rate on reconsideration to $18.64.
The RCA also issued other various arbitration rulings adverse to us, including
adopting ACS' non-recurring and collocation cost models. On December 7, 2004,
the Commission issued a final order approving an interconnection agreement. We
have appealed various Commission arbitration rulings.

On September 30, 2005, the ACS subsidiary serving Anchorage filed a petition
with the FCC, seeking forbearance from the requirement that it provide access to
UNEs, and that to the extent it voluntarily did so, that the pricing provisions
of the Act would not apply. We filed our opposition on January 9, 2006, and
replies are due on February 23, 2006. The FCC is required under statute to issue
a decision by September 30, 2006, or on its own motion, in an additional 90
days. If a decision is not issued within the required timeframe, the petition is
deemed granted. The ability to obtain UNEs is an important element of our local
exchange and exchange access services business, and the outcome of this
proceeding could result in a change in our ability to access segments of the
Anchorage market via the facilities of the ILEC and the cost of doing so. We
cannot predict at this time the outcome of this proceeding or its impact on us;
however, our net cost of providing local telephone services in Anchorage could
be materially adversely affected by an adverse decision.

By letter, submitted also to the RCA, on January 12, 2004, we made a bona fide
request for interconnection for the purposes of local access competition with
MTA, under the provisions of the 1996 Telecom Act. We submitted this request to
MTA on the grounds that it waived its rural exemption under the terms of Section
251(f)(1)(C) when it launched its new video service through its wholly owned
subsidiary MTA Vision, Inc. in competition with our cable television service.
MTA, however, refused to comply with the negotiation and arbitration provisions
under the Act claiming that it still retains a rural exemption. We filed a
complaint with the RCA to resolve this dispute, and the RCA conducted a public
hearing on the matter on October 20, 2004. On February 22, 2005, the RCA
released a ruling that MTA's rural exemption for the areas served by MTA Vision,
Inc. had been lifted and that we could negotiate and arbitrate interconnection
with MTA. We tendered a new interconnection request to MTA on February 25, 2005
and proceeded with such negotiations. Negotiations were unsuccessful and an
arbitration was requested on July 15, 2005.

                                       74
<PAGE>
Following our request for arbitration, MTA filed a petition with the RCA for a
suspension or modification of its Section 251(c)(3) obligation to provision UNEs
as well as its other 251(c) obligations as they related to UNEs. The petition
did not effect MTA's obligation to provide resale at wholesale rates under
Section 251(c)(4). The RCA further granted a stay of the arbitration proceeding
pending the outcome of MTA's petition. On December 20, 2005 the RCA granted
MTA's petition for a three year period and arbitration as to MTA's remaining
obligations recommenced. We have appealed the RCA's suspension and modification
decision.

The arbitration was completed under the provisions of the 1996 Telecom Act in
January 2006. On January 18, 2006 an Interconnection Agreement by arbitration
was submitted to the RCA for approval. Such approval was granted on February 17,
2006. We intend to commence local service entry into the Mat-Su Valley during
2007.

On May 2, 2005 we tendered an interconnection request to the City of Ketchikan
d/b/a Ketchikan Public Utilities ("KPU"), which had been authorized by the RCA
to provide video programming services through its KPU CommVision division on
April 26, 2005. Under the terms of Section 251(f)(1)(C) of the
Telecommunications Act of 1996 KPU's current rural exemption from negotiation
will be forfeited if, and when, KPU commences offering video programming. On
June 3, 2005, we entered into a stipulation with KPU recognizing that KPU will
forfeit its rural exemption and negotiations for interconnection will commence
when KPU commences offering video programming.

Local Access Services Segment Revenues and Cost of Goods Sold
Selected key performance indicators for our local services segment follow:
<TABLE>
<CAPTION>
                                                              December 31,              Percentage
                                                         2005             2004            Change
                                                    -------------    -------------    ----------------
   <S>                                                  <C>              <C>              <C>
   Total lines in service                               112,900          112,100            0.7%
   DLPS lines in service                                 22,000            8,000          175.0%
</TABLE>
A line in service is defined as a revenue generating circuit or channel
connecting a customer to the public switched telephone network. We estimate that
our 2005 and 2004 total lines in service represent a statewide market share of
approximately 26% and 24%, respectively.

Our access line mix follows:

                                                             December 31,
                                                         2005            2004
                                                     ------------    -----------
   Residential customers                                 61%              60%
   Business customers                                    36%              35%
   Internet access customers                              3%               5%

At December 31, 2005 and 2004 approximately 86% and 85%, respectively, of our
lines are provided on our own facilities and leased local loops. At December 31,
2005 and 2004 approximately 6% of our lines are provided using the UNE platform
delivery method.

Local access services segment revenues increased 9.6% in 2005 to $51.5 million
primarily due to the following:

     o   Growth in the average number of lines in service, and
     o   $2.3 million increase in support from the Universal Service Program.

Local access services segment Cost of Goods Sold decreased 2.5% to $28.4 million
in 2005 primarily due to cost savings resulting from the increased deployment of
DLPS lines in 2005.

                                       75
<PAGE>
The decrease in local access services segment Cost of Goods Sold is partially
off-set by growth in the average number of lines in service and the increased
costs resulting from the RCA's Anchorage UNE arbitration settlement order in
June 2004 which increased the UNE lease rate payable to ACS from $14.92 to
$18.64 per line per month beginning on June 25, 2004. Additionally, the UNE
lease rates payable to ACS in Fairbanks and Juneau increased from $19.19 to
$23.00 and $16.71 to $18.00, respectively, as of January 1, 2005.

Local Access Services Segment Operating Loss
Local access services segment operating loss decreased 20.7% to $4.5 million
from 2004 to 2005 primarily due to the 9.6% increase in revenue to $51.5 million
in 2005 discussed above and the 2.5% decrease in Cost of Goods Sold to $28.4
million discussed above.

The decrease in operating loss was partially off-set by the following:
     o   A 8.4% increase in local access services segment selling, general and
         administrative expenses to $19.9 million in 2005 primarily due to an
         increase in interconnect rates resulting from a renewed Anchorage
         interconnection agreement beginning in November 2004 and increased
         labor costs,
     o   Recognition of $194,000 as the local access services segment's portion
         of the restructuring charge discussed further below, and
     o   A 45.8% increase in local access services segment depreciation and
         amortization expense to $7.2 million in 2005 as compared to 2004
         primarily due to our investment in local access services segment
         equipment and facilities placed into service during 2004 for which a
         full year of depreciation was recorded in 2005, and our investment in
         local access services segment equipment and facilities placed into
         service during 2005 for which a partial year of depreciation was
         recorded in 2005.

The local access services segment operating results are negatively affected by
the allocation of all of the benefit of access cost savings to the long-distance
services segment. If the local access services segment received credit for the
access charge reductions recorded by the long-distance services segment, the
local access services segment operating loss would have improved by
approximately $6.8 million and $7.1 million in 2005 and 2004, respectively and
the long-distance services segment operating income would have been reduced by
equal amounts.

Internet Services Segment Overview
Internet services segment revenues represented 6.8% of consolidated revenues in
2005. We generate Internet services segment revenues from three primary sources:
(1) access product services, including commercial, Internet service provider,
and retail dial-up access; (2) network management services; and (3) Internet
services segment's allocable share of cable modem revenue (a portion of cable
modem revenue is also recognized by our cable services segment).

The primary factors that contribute to year-to-year changes in Internet services
segment revenues include the average number of subscribers to our services
during a given reporting period, the average monthly subscription rates, the
amount of bandwidth purchased by large commercial customers, and the number and
type of additional premium features selected.

Marketing campaigns continue to be deployed targeting residential and commercial
customers featuring bundled products. Our Internet offerings are bundled with
various combinations of our long-distance, cable, and local access services
segments' offerings and provide free or discounted basic or premium Internet
services. Value-added premium Internet features are available for additional
charges.

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

                                       76
<PAGE>
Internet Services Segment Revenues and Cost of Goods Sold
Selected key performance indicators for our Internet services segment follow:
<TABLE>
<CAPTION>
                                                      December 31,               Percentage
                                                 2005             2004             Change
                                             ------------     ------------    ---------------
   <S>                                          <C>             <C>                <C>
   Cable modem subscribers                      77,400           65,500             18.2%
   Dial-up subscribers                          16,500           36,100            (54.3%)
                                             ------------     ------------    ---------------
     Total Internet subscribers                 93,900          101,600             (7.6%)
                                             ============     ============    ===============
</TABLE>
Total Internet subscribers are defined by the purchase of Internet access
service regardless of the level of service purchased. If one entity purchases
multiple Internet access service points, that entity is included in our total
Internet subscriber count at a rate equal to the number of access points
purchased. A subscriber with both cable modem and dial-up service is included
once as a cable modem subscriber. A dial-up subscriber is defined by the
purchase of dial-up Internet service regardless of the level of service
purchased. If one entity purchases multiple dial-up service access points, each
access point is counted as a subscriber.

The decrease in dial-up subscribers is primarily due to subscribers converting
to our cable modem service and non-revenue affecting adjustments to our customer
database resulting from the implementation of a new customer service and
provisioning information system.

Total Internet services segment revenues increased 15.4% to $30.0 million in
2005 primarily due to a 19.9% increase in its allocable share of cable modem
revenues to $13.7 million in 2005 as compared to 2004. The increase in cable
modem revenues is primarily due to growth in cable modem subscribers and a
decrease in the percentage of cable modem revenues allocated to our cable
services segment resulting in a $803,000 increase in the Internet services
segment's allocable share of cable modem revenues. The decrease in the
allocation primarily resulted from removing certain features from the allocation
calculation. Additionally, in 2004 the Internet services segment sold services
to Broadband services (included in the All Other category) and all of the
revenue was eliminated from the Internet services segment. In 2005 Broadband
services and Internet services are operating under a revenue-share agreement
that has resulted in an allocation of revenue between the Internet services
segment and the All Other category. Internet services segment revenue would have
been $28.6 million and $26.0 million in 2005 and 2004, respectively, if the
change in the external revenue distribution had not occurred.

Internet services Cost of Goods Sold increased 7.8% to $7.5 million in 2005
associated with increased Internet services segment revenues.

Internet Services Segment Operating Income
Internet services segment operating income increased 40.5% to $8.6 million from
2004 to 2005 primarily due to the 15.4% increase in Internet services segment
revenues to $30.0 million in 2005 as described above.

The operating income increase is partially off-set by the following:

     o   The 7.8% increase in Cost of Goods Sold to $7.5 million as described
         above,
     o   A $172,000 increase in selling, general and administrative expenses to
         $9.5 million,
     o   Recognition of $152,000 as the Internet services segment's portion of
         the restructuring charge discussed further below, and
     o   A 18.8% increase in Internet services segment depreciation and
         amortization expense to $4.0 million in 2005 as compared to 2004
         primarily due to our investment in Internet services segment equipment
         and facilities placed into service during 2004 for which a full year of
         depreciation was recorded in 2005, and our investment in Internet
         services segment equipment and facilities placed into service during
         2005 for which a partial year of depreciation was recorded in 2005.

                                       77
<PAGE>
All Other Overview
Revenues reported in the All Other category as described in note 12 in the
accompanying "Notes to Consolidated Financial Statements" include our Broadband
services, managed services, product sales, and cellular telephone services.

Revenues included in the All Other category represented 15.2% of total revenues
in 2005.

We lease a portion of our 800-mile fiber optic system capacity that extends from
Prudhoe Bay to Valdez via Fairbanks, and provide management and maintenance
services for this capacity to a significant customer. The telecommunications
service agreement is for fifteen years and may be extended for up to two
successive three-year periods and, upon expiration of the extensions, one
additional year. On March 24, 2005, the lessee announced that they had signed a
contract with a competitor to build a microwave system to run parallel with our
fiber optic cable system. The lessee may utilize the microwave system in place
of or in addition to our fiber optic cable system. We have received notice from
the lessee of their intent to amend our agreement. We have agreed with the
lessee that the agreement may be canceled by either party with 60 days written
notice. Revenue associated with this agreement totals approximately $13.2
million per year. We are unable to predict the financial impact of this event on
our results of operations, financial position and cash flows. However, we
believe that operating income from sales or leases of capacity and provision of
other services on this fiber optic cable system to other customers will
partially offset operating income reductions that may result if our contract is
changed or cancelled.

All Other Revenues and Cost of Goods Sold
All Other revenues decreased 4.2% to $67.5 million in 2005 primarily due to $6.4
million earned in 2004 from an equipment sale and installation project and a
$1.4 million decrease in product sales revenue primarily due to the sale of
products to certain customers in 2004 that did not recur in 2005. The decrease
in All Other revenues is partially off-set by a 11.3% increase in managed
services revenues to $31.6 million primarily due to special project revenue
earned in 2005 for services sold to two customers and a 109.1% increase in
revenues from our cellular telephone services to $7.1 million resulting from
increased promotion of our digital cellular telephone service.

All Other revenues would have decreased from $70.5 million in 2004 to $68.9
million in 2005 if we had not changed the allocation of external revenue between
our Internet services segment and Broadband services. In 2004 all of a certain
revenue stream was retained by Broadband services and the associated internal
Cost of Goods Sold purchased from the Internet services segment was eliminated
from the All Other category. In 2005 Broadband services and Internet services
operate under a revenue-share agreement that has resulted in an allocation of
the revenue between the Internet services segment and the All Other category.

All Other Cost of Goods Sold increased 0.8% to $30.8 million in 2005 primarily
due to increased costs associated with managed services and cellular telephone
services revenues. The increase in All Other Cost of Goods Sold is partially
off-set by $5.8 million in costs in 2004 associated with an equipment sale and
installation project and a $1.2 million decrease in costs associated with
product sales revenues.

Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 4.8% to $154.5 million in
2005 primarily due to a $3.3 million increase in labor and health insurance
costs resulting from an increased number of employees during the majority of
2005 as compared to 2004 and a $2.6 million increase in our company-wide success
sharing bonus accrual. The increase is partially off-set by a $1.2 million
write-off in 2004 of previously capitalized mobile wireless network costs upon
finalization of a long-term distribution agreement. As a percentage of total
revenues, selling, general and administrative expenses increased to 34.9% in
2005 from 34.7% in 2004, due to an increase in selling, general and
administrative expenses without a proportional increase in revenues.

                                       78
<PAGE>
Restructuring Charge
On August 22, 2005 we committed to a reorganization plan to more efficiently
meet the demands of technological and product convergence by realigning along
customer lines rather than product lines. Effective January 1, 2006 we will be
reorganized under Consumer, Commercial, Network Access and Managed Broadband
segments, replacing the Long Distance, Cable, Local Access and Internet services
segments. The reorganization plan included integration of several functions
resulting in the layoff of 76 employees by November 30, 2005. In 2005 we
recognized a restructuring charge of approximately $2.0 million for workforce
reduction costs across all functions. The restructuring charge has been
allocated to our reportable segments as follows (amounts in thousands):

    Reportable segment:
      Long-distance services                    $   584
      Cable services                                302
      Local access services                         194
      Internet services                             152
                                                 ---------
                                                  1,232
    All other                                       735
                                                 ---------
         Total restructuring charge             $ 1,967
                                                 =========

Our estimate of the total costs to be incurred under this plan is $2.1 million.

Bad Debt Expense (Recovery)
Bad debt expense (recovery) increased approximately 200.5% to a net expense of
$1.1 million in 2005. The increase is primarily due to allowances established
for certain Broadband services customers and a decrease in the realization of
the MCI credit through a reduction to bad debt expense, as further discussed
above in "Long Distance Services Segment Overview," to $3.3 million in 2005 from
$4.2 million in 2004. The remaining unused MCI credit is $370,000 at December
31, 2005.

Depreciation and Amortization Expense
Depreciation and amortization expense increased 17.9% to $74.1 million in 2005.
The increase is primarily due to the following:

     o   Our $122.9 million investment in equipment and facilities placed into
         service during 2004 for which a full year of depreciation was recorded
         in 2005,
     o   The $95.3 million investment in equipment and facilities placed into
         service during the year ended December 31, 2005 for which a partial
         year of depreciation was recorded in 2005, and
     o   A $1.6 million increase in depreciation expense during 2005 due to the
         decreased useful life of our satellite transponders resulting from the
         failure of the propulsion system on the Galaxy XR satellite.

Other Expense, Net
Other expense, net of other income, increased 6.2% to $39.7 million in 2005
primarily due to following:

     o   As described further in "Liquidity and Capital Resources" below, we
         finalized a $215.0 Amended and Restated Senior Secured Credit Facility
         in August 2005 to replace our May 21, 2004 Senior Credit Facility
         resulting in the following increased expenses:
         o   We recognized a $2.8 million Loss on Early Extinguishment of Debt
             in 2005 resulting from termination of our Satellite Transponder
             Capital Lease,
         o   We recognized approximately $1.8 million in Amortization and
             Write-off of Loan and Senior Notes Fees in 2005 because a portion
             of the Amended Senior Credit Facility was a substantial
             modification of the May 21, 2004 Senior Credit Facility, and

                                       79
<PAGE>
         o   An increase in interest expense of approximately $2.9 million in
             2005 due to an increase in the outstanding balance owed on the new
             facility.
     o   An increase in interest expense of approximately $4.4 million in 2005
         on our new Senior Notes due to an increase in the outstanding balance
         owed, and
     o   An increase in interest expense of approximately $1.1 million in 2005
         due to construction period interest expense capitalization in 2004.

Partially offsetting the increases described above were the following:

     o   Decreased interest rates on our Senior Credit Facility and Senior Notes
         in 2005 as compared to 2004,
     o   In 2004 we paid bond call premiums totaling $6.1 million to redeem our
         old Senior Notes, and
     o   As a result of redeeming our old Senior Notes we recognized $2.3
         million in unamortized old Senior Notes fee expense in 2004.

Income Tax Expense
GCI, Inc., as a wholly owned subsidiary and member of the GCI controlled group
of corporations, files its income tax returns as part of the consolidated group
of corporations under GCI. Accordingly, the following discussion reflects the
consolidated group's activity and balances.

Income tax expense was $16.0 million in 2005 and $17.5 million in 2004. The
change is primarily due to an increase in income tax expense in 2004 resulting
from a true-up of the deferred tax assets and liabilities associated primarily
with fixed assets and net operating loss carryforwards. Our effective income tax
rate decreased from 45.1% in 2004 to 43.4% in 2005 due to adjustments to
deferred tax assets and liabilities balances in 2004. Partially offsetting this
decrease were increases in nondeductible entertainment expenses in 2005.

At December 31, 2005, we have (1) tax net operating loss carryforwards of
approximately $164.2 million that will begin expiring in 2009 if not utilized,
and (2) alternative minimum tax credit carryforwards of approximately $2.0
million available to offset regular income taxes payable in future years. We
utilized federal tax net operating loss carryforwards of approximately $13.4
million in 2005. We estimate that we will utilize federal tax net operating loss
carryforwards of $35.0 million to $37.0 million in 2006. Our utilization of
certain net operating loss carryforwards is subject to limitations pursuant to
Internal Revenue Code section 382. See note 10 in the accompanying "Notes to
Consolidated Financial Statements" included in Part II, Item 8 of this Report.

Tax benefits associated with recorded deferred tax assets are considered to be
more likely than not realizable through future reversals of existing taxable
temporary differences and future taxable income exclusive of reversing temporary
differences and carryforwards. The amount of deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced which would result in
additional income tax expense. We estimate that our effective annual income tax
rate for financial statement purposes will be 42% to 44% in the year ended
December 31, 2006.

Year Ended December 31, 2004 ("2004") Compared To Year Ended December 31, 2003
("2003")

Overview of Revenues and Cost of Goods Sold
Total revenues increased 8.7% from $390.8 million in 2003 to $424.8 million in
2004. All of our segments and All Other Services contributed to the increase in
total revenues. See the discussion below for more information by segment.

Total Cost of Goods Sold increased 11.3% from $125.4 million in 2003 to $139.6
million in 2004. Increases in cable services, local access services, and
Internet services segments and All Other Services Cost of Goods Sold were

                                       80
<PAGE>
partially off-set by decreased long-distance services segment Cost of Goods
Sold. See the discussion below for more information by segment.

Long-Distance Services Segment Overview
Long-distance services segment revenue in 2004 represented 42.4% of consolidated
revenues. Our provision of interstate and intrastate long-distance services,
private line and leased dedicated capacity services, and broadband services
accounted for 91.0% of our total long-distance services segment revenues during
2004. Please refer to our discussion of the 2005 results of operations for more
information about the long-distance services segment.

Long-distance Services Segment Revenues
Total long-distance services segment revenues increased 0.3% to $180.0 million
in 2004. The components of long-distance services segment revenues are as
follows (amounts in thousands):
<TABLE>
<CAPTION>
                                                                        Year Ended December 31,          Percentage
                                                                        2004              2003             Change
                                                                   --------------    -------------    ----------------
   <S>                                                            <C>                   <C>               <C>
   Common carrier message telephone services                      $    81,873            91,700           (10.7%)
   Residential, commercial and governmental message
     telephone services                                                39,045            39,701            (1.7%)
   Private line and private network services                           42,885            37,123            15.5%
   Lease of fiber optic cable system capacity                          16,159            10,876            48.6%
                                                                   --------------    -------------    ----------------
     Total long-distance services segment revenue                 $   179,962           179,400             0.3%
                                                                   ==============    =============    ================
</TABLE>
Common Carrier Message Telephone Services Revenue
The 2004 decrease in message telephone service revenues from other common
carriers (principally MCI) resulted from the following:

     o   A 10.0% decrease in the average rate per minute on minutes carried for
         other common carriers primarily due to the decreased average rate per
         minute as agreed to in the June 2004 amendment of our contract to
         provide interstate and intrastate long-distance services to a certain
         other common carrier customer and in the July 2003 extension of our
         contract to provide interstate and intrastate long-distance services to
         MCI,
     o   A $708,000 credit given to a certain other common carrier customer in
         the fourth quarter of 2004 resulting from a rate per minute overcharge
         in 2004 and 2003, and
     o   A $411,000 increase in 2004 as compared to 2003 in a discount given to
         a certain other common carrier customer which started in the third
         quarter of 2003.

The decrease in message telephone service revenues from other common carriers in
2004 was partially off-set by a 1.9% increase in wholesale minutes carried to
891.2 million minutes.

Residential, Commercial and Governmental Message Telephone Services Revenue
Selected key performance indicators for our offering of message telephone
service to residential, commercial and governmental customers follow:
<TABLE>
<CAPTION>
                                                          Year Ended December 31,                 Percentage
                                                      2004                     2003                 Change
                                               ----------------------    ------------------    ----------------
   <S>                                            <C>                     <C>                       <C>
   Retail minutes carried                         305.9 million           284.3 million              7.6%
   Average rate per minute (1)                        $0.131                  $0.138                (5.1%)
<FN>
   ------------------------------------
   1  Residential, commercial, and governmental message telephone services
      revenues excluding plan fees associated with the carriage of data services
      divided by the retail minutes carried.
</FN>
</TABLE>
                                       81
<PAGE>
We had 91,300 and 85,600 active residential, commercial and governmental
customers at December 31, 2004 and 2003, respectively. An active customer is a
subscriber who has had calling activity during December 2004 and 2003,
respectively.

The decrease in message telephone service revenues from residential, commercial,
and governmental customers in 2004 is primarily due to a decrease in the average
rate per minute. Our average rate per minute decrease is primarily due to our
promotion of and customers' enrollment in calling plans offering a certain
number of minutes for a flat monthly fee.

The decrease in message telephone service to residential, commercial and
governmental customers in 2004 is partially off-set by the following:

     o   Increased minutes carried for these customers primarily due to our
         contract to provide services to the State of Alaska starting in the
         first quarter of 2004, and
     o   An increase in the number of active residential, commercial, and
         governmental customers billed primarily due to our promotion of and our
         customers' enrollment in a new bundled offering to our residential
         customers, partially off-set by the effect of customers substituting
         cellular phone, prepaid calling card, and email usage for direct dial
         minutes.

Fiber Optic Cable System Capacity Lease Revenue
The increase in revenues from the lease of fiber optic cable system capacity is
primarily due to a lease of capacity on the AULP East fiber optic cable system
resulting in increased monthly revenue of approximately $430,000 starting in
July 2004.

Long-distance Services Segment Cost of Goods Sold
Long-distance services segment Cost of Goods Sold decreased 2.0% to $46.0
million in 2004 primarily due to reductions in access costs due to distribution
and termination of our traffic on our own local access services network instead
of paying other carriers to distribute and terminate our traffic. The statewide
average cost savings is approximately $.010 and $.061 per minute for interstate
and intrastate traffic, respectively. We expect cost savings to continue to
occur as long-distance traffic originated, carried, and terminated on our own
facilities grows.

The decrease in the long-distance services segment Cost of Goods Sold is
partially off-set by the following: o A 7.6% increase in retail minutes carried,
     o   A 1.9% increase in wholesale minutes carried,
     o   A $2.3 million refund ($1.9 million after deducting certain direct
         costs) in 2003 from a local exchange carrier in respect of its earnings
         that exceeded regulatory requirements that did not recur in 2004, and
     o   In the course of business we estimate unbilled long-distance services
         Cost of Goods Sold based upon minutes of use processed through our
         network and established rates. Such estimates are revised when
         subsequent billings are received, payments are made, billing matters
         are researched and resolved, tariffed billing periods lapse, or when
         disputed charges are resolved. Our favorable adjustments decreased to
         $2.2 million in 2004 from $3.4 million in 2003.

Long-distance Services Segment Operating Income
Long-distance services segment operating income increased 3.4% to $83.0 million
from 2003 to 2004 primarily due to the following:

     o   The 0.3% increase in long-distance services segment revenues to $180.0
         million in 2004,
     o   The 2.0% decrease in long-distance services segment costs of goods sold
         to $46.0 million in 2004, as discussed above,
     o   Bad debt recovery increased $1.9 million to a net recovery of $3.1
         million in 2004. The 2004 increase is primarily due to realization of
         approximately $4.2 million of the MCI credit through a reduction to bad

                                       82
<PAGE>
         debt expense in 2004, as further discussed in the "Long Distance
         Service Overview" in the section above titled "Year Ended December 31,
         2005 Compared To Year Ended December 31, 2004." We realized
         approximately $2.8 million of the MCI credit through a reduction to bad
         debt expense in 2003, and
     o   In 2003, we reported an impairment charge of $5.4 million representing
         the remaining net book value recorded for our North Pacific Cable asset
         as further described in the "Impairment Charge" section below.

The long-distance services segment operating income increase was partially
off-set by the following:

     o   A 3.7% increase in long-distance services segment selling, general and
         administrative expenses to $31.6 million primarily due to an
         approximately $1.0 million increase in fiber repair expenses in 2004
         compared to 2003. The increase in fiber repair expenses is the result
         of the repair of AULP East in July 2004 with a total repair cost of
         approximately $311,000 and the reversal of an accrual for estimated
         fiber repair costs of $700,000 in 2003, and
     o   A 28.8% increase in long-distance services segment depreciation and
         amortization expense to $22.6 million in 2004 as compared to 2003
         primarily due to our investment in long-distance services segment
         equipment and facilities placed into service during the year ended
         December 31, 2003 for which a full year of depreciation was recorded in
         the year ended December 31, 2004, and our investment in long-distance
         services segment equipment and facilities placed into service during
         the year ended December 31, 2004 for which a partial year of
         depreciation was recorded in the year ended December 31, 2004.

Cable Services Segment Overview
Cable services segment revenues in 2004 represented 23.9% of consolidated
revenues. Please refer to our discussion of the 2005 results of operations for
more information about the cable services segment.

Cable Services Segment Revenues and Cost of Goods Sold
Selected key performance indicators for our cable services segment follow:
<TABLE>
<CAPTION>
                                                             December 31,               Percentage
                                                         2004             2003            Change
                                                    -------------    -------------    ----------------
   <S>                                                  <C>              <C>               <C>
   Basic subscribers                                    134,700          134,400            0.2%
   Digital programming tier subscribers                  46,100           34,900           32.1%
   Cable modem subscribers                               65,500           46,600           42.4%
   Homes passed                                         207,200          202,200            2.5%
</TABLE>
The increases in digital programming tier subscribers and cable modem
subscribers are primarily due to customers migrating to bundled product
offerings that include digital programming and cable modem service.

                                       83
<PAGE>
The components of cable services segment revenues are as follows (amounts in
thousands):
<TABLE>
<CAPTION>
                                                                       Year Ended December 31,           Percentage
                                                                        2004              2003             Change
                                                                   --------------    -------------    ----------------
   <S>                                                            <C>                    <C>               <C>
   Programming services                                           $    73,665            73,206             0.6%
   Cable modem services (cable services segment's allocable
     share)                                                            12,790            10,927            17.0%
   Equipment rental and installation fees                               9,777             7,796            25.4%
   Advertising sales                                                    4,343             3,262            33.1%
   Other                                                                  862               813             6.0%
                                                                   --------------    -------------    ----------------
     Total cable services segment revenue                         $   101,437            96,004             5.7%
                                                                   ==============    =============    ================
</TABLE>
Average gross revenue per average basic subscriber per month increased $3.27 or
5.4% in 2004.

The increase in cable services segment revenues is primarily due to the
following:

     o   A 76.8% increase in digital set-top box rental revenue to $8.2 million
         in 2004 primarily caused by the increased use of digital distribution
         technology,
     o   A 17.1% increase in its share of cable modem revenue (offered through
         our Internet services segment) to $12.8 million in 2004 due to an
         increased number of cable modems deployed. Approximately 99% of our
         cable homes passed are able to subscribe to our cable modem service,
         and
     o   A 33.1% increase in advertising sales revenue to $4.3 million in 2004
         primarily caused by an increase in Olympic and national and local
         political advertising.

Cable services segment Cost of Goods Sold increased 3.7% to $27.0 million in
2004 due to programming cost increases for most of our cable programming service
offerings. The increase in Cable services segment Cost of Goods Sold is
partially off-set by a refund received in 2004 from a supplier retroactive to
August 2003 and arrangements with suppliers in which we received rebates in 2004
upon us meeting specified goals.

Cable Services Segment Operating Income
Cable services segment operating income increased $1.3 million to $26.5 million
from 2003 to 2004 primarily due to the 5.7% increase in cable services segment
revenues to $101.4 million in 2004, partially off-set by the following:

     o   The 3.7% increase in cable services segment Costs of Goods Sold to
         $27.0 million in 2004, as described above,
     o   A $999,000 increase in cable services segment selling, general and
         administrative expenses to $28.1 million primarily due to a $408,000
         increase in labor and employee benefits costs, and
     o   A 11.3% increase in cable services segment depreciation and
         amortization expense to $19.0 million in 2004 as compared to 2003
         primarily due to our investment in cable services segment equipment and
         facilities placed into service during the year ended December 31, 2003
         for which a full year of depreciation was recorded in the year ended
         December 31, 2004, and our investment in cable services segment
         equipment and facilities placed into service during the year ended
         December 31, 2004 for which a partial year of depreciation was recorded
         in the year ended December 31, 2004.

MSO Operating Statistics
Our operating statistics include capital expenditures and customer information
from our cable services segment and the components of our local access services
and Internet services segments which offer services utilizing our cable services
segment's facilities.

                                       84
<PAGE>
Our capital expenditures by standard reporting category for the year ended
December 31, 2004 and 2003 follows (amounts in thousands):
<TABLE>
<CAPTION>
                                                             2004              2003
                                                        --------------    -------------
    <S>                                                <C>                    <C>
    Customer premise equipment                         $    16,772            10,713
    Upgrade/rebuild                                          9,476             3,800
    Scalable infrastructure                                  4,979             2,221
    Line extensions                                          1,752             1,270
    Support capital                                          1,427               503
    Commercial                                                 574               705
                                                        --------------    -------------
    Sub-total                                               34,980            19,212
    Remaining reportable segments and
      All Other capital expenditures                        76,824            43,267
                                                        --------------    -------------
                                                       $   111,804            62,479
                                                        ==============    =============
</TABLE>
The standardized definition of a customer relationship is the number of
customers that receive at least one level of service utilizing our cable
services segment's facilities, encompassing voice, video, and data services,
without regard to which services customers purchase. At December 31, 2004 and
2003 we had 122,700 and 121,900 customer relationships, respectively.

The standardized definition of a revenue generating unit is the sum of all
primary analog video, digital video, high-speed data, and telephony customers,
not counting additional outlets. At December 31, 2004 and 2003 we had 208,300
and 180,400 revenue generating units, respectively.

Local Access Services Segment Overview
During 2004 local access services segment revenues represented 11.0% of
consolidated revenues. Please refer to our discussion of the 2005 results of
operations for more information about the local access services segment.

Local Access Services Segment Revenues and Cost of Goods Sold
Selected key performance indicators for our local services segment follow:
<TABLE>
<CAPTION>
                                                             December 31,                Percentage
                                                         2004             2003             Change
                                                    -------------    -------------    ----------------
   <S>                                                  <C>              <C>                <C>
   Total lines in service                               112,100          106,100            5.7%
   DLPS lines in service                                  8,000              ---               NA
</TABLE>
A line in service is defined as a revenue generating circuit or channel
connecting a customer to the public switched telephone network. We estimate that
our 2004 and 2003 total lines in service represent a statewide market share of
approximately 24% and 22%, respectively.

Our access line mix follows:

                                                           December 31,
                                                       2004             2003
                                                    -----------    -------------
   Residential customers                                60%              58%
   Business customers                                   35%              35%
   Internet access customers                             5%               7%

At December 31, 2004 and 2002 approximately 85% and 86%, respectively, of our
lines are provided on our own facilities and leased local loops. At December 31,
2004 and 2003 approximately 6% and 5%, respectively, of our lines are provided
using the UNE platform delivery method.

                                       85
<PAGE>
Local Access Services Segment Revenues and Cost of Goods Sold
Local access services segment revenues increased 20.4% in 2004 to $47.0 million
primarily due to the following:

     o   Growth in the number of lines in service from 106,100 to 112,100,
     o   $1.5 million increase to $4.1 million in support from the Universal
         Service Program, and
     o   $2.0 million increase in revenues to $2.2 million from our phone
         directories.

The increase in local access services segment revenues is partially off-set by
access rate decreases.

Local access services segment Cost of Goods Sold increased 22.4% to $29.1
million in 2004 primarily due to the growth in the average number of lines in
service and the increased costs resulting from the RCA's Anchorage UNE
arbitration settlement order in June 2004 discussed above.

Local Access Services Segment Operating Loss
Local access services segment operating loss decreased 7.9% to ($5.7) million
from 2003 to 2004 primarily due to the 20.4% revenue increase to $47.0 million
partially off-set by the following:

     o   The 22.4% increase in Cost of Goods Sold to $29.1 million,
     o   A $598,000 increase in local services segment selling, general and
         administrative expenses to $18.3 million, and
     o   A 39.1% increase in local services segment depreciation, amortization
         and accretion expense to $4.9 million in 2004 as compared to 2003
         primarily due to our investment in local access services segment
         equipment and facilities placed into service during the year ended
         December 31, 2003 for which a full year of depreciation was recorded in
         the year ended December 31, 2004, and our investment in local access
         services segment equipment and facilities placed into service during
         the year ended December 31, 2004 for which a partial year of
         depreciation was recorded in the year ended December 31, 2004.

The local access services segment operating results are negatively affected by
the allocation of the benefit of access cost savings to the long-distance
services segment. If the local access services segment received credit for the
access charge reductions recorded by the long distance services segment, the
local access services segment operating loss would have improved by
approximately $7.1 million and the long distance services segment operating
income would have been reduced by an equal amount in 2004. Avoided access
charges totaled approximately $6.9 million in 2003. The amount of allocated
access cost savings is affected by access rate decreases from 2003 to 2004.

Internet Services Segment Overview
During 2004 Internet services segment revenues represented 6.1% of consolidated
revenues. Please refer to our discussion of the 2005 results of operations for
more information about the Internet services segment.

Internet Services Segment Revenues and Cost of Goods Sold
Selected key performance indicators for our Internet services segment follow:
<TABLE>
<CAPTION>
                                                      December 31,               Percentage
                                                 2004             2003             Change
                                             ------------     ------------    ---------------
   <S>                                         <C>               <C>              <C>
   Cable modem subscribers                      65,500           46,000            42.4%
   Dial-up subscribers                          36,100           49,600           (27.2%)
                                             ------------     ------------    ---------------
     Total Internet subscribers                101,600           95,600             6.3%
                                             ============     ============    ===============
</TABLE>
Total Internet services segment revenues increased 30.9% to $26.0 million in
2004 primarily due to the 26.1% increase in its allocable share of cable modem
revenues to $11.4 million in 2004 as compared to 2003. The increase in cable
modem revenues is primarily due to growth in cable modem subscribers.

                                       86
<PAGE>
Internet services Cost of Goods Sold increased 19.3% to $7.0 million in 2004
associated with increased Internet services segment revenues.

Internet Services Segment Operating Income
Internet services segment operating income increased 168.8% to $6.1 million from
2003 to 2004 primarily due to the 30.9% increase in Internet services segment
revenues to $26.0 million in 2004 partially off-set by the 19.3% increase in
Internet services segment Cost of Goods Sold to $7.0 million in 2004, and a
$788,000 increase in selling, general and administrative expenses to $9.4
million. The increase in selling, general and administrative expenses is due to
an approximately $771,000 increase in labor and employee benefits costs.

All Other Overview
Revenues included in the All Other category represented 16.6% of total revenues
in 2004. Please refer to our discussion of the 2005 results of operations for
more information about the All Other category.

All Other Revenues and Cost of Goods Sold
All Other revenues increased 24.7% to $70.5 million in 2004. The increase is
primarily due to the following:

     o   $6.4 million in special project revenue earned from our fiber system
         that transits the Trans Alaska oil pipeline corridor in 2004,
     o   Increased monthly revenue earned from our fiber system that transits
         the Trans Alaska oil pipeline corridor,
     o   Revenue generated from our contract to provide services to the State of
         Alaska starting in the first quarter of 2004, o Special project revenue
         for services sold to the State of Alaska,
     o   An increased number of circuits leased to rural hospitals, health
         clinics, and rural school districts to both existing and a new customer
         resulting in increased revenue of $2.2 million, and
     o   A $2.7 million increase in special project revenue for services sold to
         the federal government.

The increase described above is partially off-set by a $685,000 decrease in
product sales revenue to $2.2 million in 2004. The decrease is due to sales of
product to two customers in 2003 that were not repeated in 2004.

All Other Cost of Goods Sold increased 33.8% to $30.5 million in 2004. The
increase in All Other Cost of Goods Sold is primarily due to the following:
     o   A $5.7 million increase to $5.8 million in costs associated with
         special project revenue earned from our fiber system that transits the
         Trans Alaska oil pipeline corridor in 2004,
     o   Costs associated with increased monthly revenue earned from our
         recurring service contracts in 2004,
     o   A 26.8% increase to $8.2 million in costs associated with the increased
         revenue generated from circuits leased to rural hospitals, health
         clinics, and rural school districts and
     o   Costs associated with the special project revenue described above.

Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 6.2% to $147.4 million in
2004 primarily due to the following:

     o   A $7.1 million increase in labor and health insurance costs,

                                       87
<PAGE>
     o   A $4.6 million increase in contract labor and contract services
         expenses associated with our Sarbanes-Oxley Act of 2002 ("SOX") Section
         404 compliance efforts and other special projects,
     o   A $1.2 million write-off of previously capitalized mobile wireless
         network costs upon finalization of a long-term distribution agreement,
         and
     o   A $1.0 million increase in fiber repair expenses in 2004 and compared
         to 2003. The increase in fiber repair expenses is the result of the
         repair of AULP East in July 2004 with a total repair cost of
         approximately $311,000 and the reversal of an accrual for estimated
         fiber repair costs of $700,000 in 2003.

The increases described above are partially off-set by a $4.1 million decrease
in our company-wide success sharing bonus accrual. As a percentage of total
revenues, selling, general and administrative expenses decreased to 34.7% in
2004 from 35.5% in 2003, primarily due to an increase in revenues without a
corresponding increase in selling, general and administrative expenses.

Bad Debt Recovery
Bad debt recovery increased $896,000 to a net recovery of $1.1 million in 2004.
The 2004 increase is primarily due to realization of approximately $4.2 million
of the MCI credit through a reduction to bad debt expense in 2004, as further
discussed in the "Long Distance Service Overview" above. We realized
approximately $2.8 million of the MCI credit through a reduction to bad debt
expense in 2003.

Impairment Charge
In 2003, we reported an impairment charge of $5.4 million in our long-distance
services segment which equaled the remaining net book value recorded for our
North Pacific Cable asset. In 1991 we purchased one DS-3 of capacity on a fiber
optic cable system owned by AT&T. This fiber optic cable system is a spur off of
a trans-Pacific fiber optic cable system owned by another group. We used our
owned capacity to carry traffic to and from Alaska and the Lower 48 States. The
section of the North Pacific Cable in which we owned capacity was taken out of
service in January 2004 due to a billing dispute between AT&T and the owner of
the trans-Pacific cable system causing us to re-route certain of our traffic. We
were relieved of all future obligations required by our purchase agreement and
ceased payment of maintenance and vessel standby costs totaling approximately
$324,000 per year that would otherwise be payable over the remaining life of the
system. The AULP West fiber optic cable system we built was put into service in
June 2004 and provides us with route diversity and redundancy in excess of that
previously provided by the North Pacific Cable.

Depreciation and Amortization Expense
Depreciation and amortization expense increased 19.1% to $62.9 million in 2004.
The increase is primarily attributed to our $45.8 million investment in
equipment and facilities placed into service during 2003 for which a full year
of depreciation was recorded in 2004, and the $122.9 million investment in
equipment and facilities placed into service during 2004 for which a partial
year of depreciation was recorded in 2004.

Other Expense, Net
Other expense, net of other income, decreased 12.1% to $37.4 million in 2004
primarily due to a $7.9 million decrease in interest expense in 2004 on our new
Senior Credit Facility due to a decrease in the average outstanding balance owed
on our new Senior Credit Facility and a decreased average new Senior Credit
Facility interest rate as compared to 2003.

Partially offsetting the decreases described above were the following:
     o   In 2004 we paid bond call premiums totaling $6.1 million to redeem our
         old Senior Notes,
     o   As a result of redeeming our old Senior Notes in 2004 we recognized
         $2.3 million in unamortized old Senior Notes fee expense, and

                                       88
<PAGE>
     o   A $1.6 million increase in interest expense on our new Senior Notes due
         to an increase in the outstanding balance owed, partially off-set by a
         decreased interest rate in 2004 as compared to 2003.

Income Tax Expense
GCI, Inc., as a wholly owned subsidiary and member of the GCI controlled group
of corporations, files its income tax returns as part of the consolidated group
of corporations under GCI. Accordingly, the following discussion reflects the
consolidated group's activity and balances.

Income tax expense was $17.5 million in 2004 and $10.1 million in 2003. The
change was due to increased net income before income taxes in 2004 as compared
to 2003 and an approximately $3.1 million increase in income tax expense
resulting from a true-up of the deferred tax assets and liabilities associated
primarily with fixed assets and net operating loss carryforwards. Our effective
income tax rate increased from 38.5% in 2003 to 45.1% in 2004 due to an
adjustment of deferred tax assets and liabilities in 2004.

Cumulative Effect of a Change in Accounting Principle
On January 1, 2003 we adopted SFAS No. 143, "Accounting for Asset Retirement
Obligations," and recorded the cumulative effect of accretion and depreciation
expense as a cumulative effect of a change in accounting principle of
approximately $544,000, net of income tax benefit of $367,000.

Fluctuations in Fourth Quarter Results of Operations

The following is a summary of unaudited quarterly results of operations for the
years ended December 31, 2005 and 2004 (amounts in thousands):
<TABLE>
<CAPTION>
                                                           First       Second       Third       Fourth       Total
                                                          Quarter     Quarter      Quarter     Quarter       Year
                                                       ------------ ----------- ------------ ----------- ------------
       <S>                                            <C>             <C>          <C>          <C>         <C>
       2005
       Total revenues                                 $   106,510     110,665      113,761      112,090     443,026
       Operating income                               $    16,778      18,059       18,361       23,332      76,530
       Net income                                     $     4,663       5,284        2,285        8,599      20,831

       2004
       Total revenues                                 $   108,916     103,786      106,622      105,502     424,826
       Operating income                               $    19,449      19,264       21,443       15,950      76,106
       Net income                                     $     1,925       7,725        9,295        2,307      21,252
</TABLE>
The following describes unusual or infrequently occurring items recognized in
the following quarters of 2005 and 2004:

     o   In the fourth quarter of 2005, we recognized a decrease in Cost of
         Goods Sold upon the receipt of $9.1 million from the settlement of four
         separate claims with AT&T and Alascom pursuant to a master agreement,
     o   In the third quarter of 2005 we recognized a restructuring charge of
         approximately $1.9 million for workforce reduction costs across all
         functions. An additional restructuring charge of $73,000 was recognized
         in the fourth quarter of 2005,
     o   In the first, second, third and fourth quarters of 2005 we recognized
         approximately $893,000, $996,000, $1.4 million and $0, respectively, in
         recoveries of bad debt expense for uncollected accounts due from MCI.
         In the first, second, third and fourth quarters of 2004 we recognized
         approximately $1.2 million, $1.1 million, $1.1 million and $824,000,
         respectively, in recoveries of bad debt expense for uncollected
         accounts due from MCI,
     o   In the third quarter of 2005 we recognized a $2.8 million Loss on Early
         Extinguishment of Debt resulting from termination of our Satellite
         Transponder Capital Lease,

                                       89
<PAGE>
     o   In the third quarter of 2005 we recognized approximately $1.8 million
         in Amortization and Write-off of Loan and Senior Notes Fees because a
         portion of the Amended Senior Credit Facility was a substantial
         modification of the May 21, 2004 Senior Credit Facility,
     o   In first quarter of 2004 we paid bond call premiums totaling $6.1
         million to redeem our old Senior Notes, o In first quarter of 2004 we
         recognized $2.3 million in unamortized old Senior Notes fee expense as
         a result of redeeming our old Senior Notes, and
     o   GCI, Inc., as a wholly owned subsidiary and member of the GCI
         controlled group of corporations, files its income tax returns as part
         of the consolidated group of corporations under GCI. Accordingly, the
         following discussion reflects the consolidated group's activity and
         balances. In the fourth quarter of 2004 we recognized an approximately
         $3.1 million increase in income tax expense resulting from a true-up of
         the deferred tax assets and liabilities associated primarily with fixed
         assets and net operating loss carryforwards.

Liquidity and Capital Resources

Cash flows from operating activities totaled $109.4 million for the year ended
December 31, 2005 as compared to $102.6 million for the year ended December 31,
2004. The 2005 increase is primarily due to a $5.4 million reduction in the
amount owed to a related party and increased cash flow from our long-distance
services, local access services, and Internet services segments, partially
off-set by decreased cash flows from our cable services segment and All Other
Services.

Other sources of cash during the year ended December 31, 2005 included $38.8
million in borrowings on our Amended Senior Credit Facility, as discussed below,
and $4.0 million from GCI's issuance of its Class A common stock. Other uses of
cash during the year ended December 31, 2005 included expenditures of $79.8
million for property and equipment, including construction in progress, $39.0
million in capital lease obligation repayments, the purchase of $15.9 million of
GCI common stock on GCI's behalf, and the $6.6 million repurchase of the
remaining 4,314 shares of GCI's Series B preferred stock on GCI's behalf.

Working capital totaled $76.5 million at December 31, 2005, a $37.4 million
increase as compared to $39.1 million at December 31, 2004. The increase is
primarily due to the $10.0 million decrease in due to related party, the $9.1
million received in December 2005 upon settlement of the litigation with AT&T, a
$5.7 million increase in the current deferred tax asset for the net operating
loss carryforward we expect to utilize during the year ended December 31, 2006,
and the $4.6 million decrease in the portion of our Senior Credit Facility
classified as current maturity at December 31, 2005 as compared to December 31,
2004 due to the amendment of our Senior Credit Facility discussed below. The
increases are partially off-set by a $2.6 million increase in accrued payroll
primarily due to an increased accrual for company-wide success sharing bonus
costs.

Net receivables increased $850,000 from December 31, 2004 to December 31, 2005
primarily due to the following:
     o   An increase in trade receivables from our residential, commercial and
         governmental message telephone service customers resulting from the
         implementation of a new customer service and provisioning information
         system. After our September 1, 2005 implementation we delayed the
         issuance of some customer invoices. Our bill processing returned to
         normal in December 2005 and we expect the net receivables balance to
         decrease accordingly,
     o   An increase in trade receivables for broadband services provided to
         hospitals and health clinics, and
     o   An increase in the Universal Service Program trade receivable.

The increase was partially off-set by the timing of payments on trade
receivables from a certain large customer and receipt of payment in 2005 for a
special project included in net receivables at December 31, 2004.

                                       90
<PAGE>
Senior Notes
We have outstanding Senior Notes of $316.3 million at December 31, 2005. We pay
interest of 7.25% on the Senior Notes and they are due in 2014. The Senior Notes
are carried on our Consolidated Balance Sheet net of the unamortized portion of
the discount, which is being amortized to Interest Expense over the life of the
Senior Notes.

The Senior Notes are not redeemable prior to February 15, 2009. At any time on
or after February 15, 2009, the Senior Notes are redeemable at our option, in
whole or in part, on not less than thirty days nor more than sixty days notice,
at the following redemption prices, plus accrued and unpaid interest (if any) to
the date of redemption:

          If redeemed during the twelve month period
          commencing February 1 of the year indicated:        Redemption Price
          ------------------------------------------------- --------------------
          2009                                                     103.625%
          2010                                                     102.417%
          2011                                                     101.208%
          2012 and thereafter                                      100.000%

We may, on or prior to February 17, 2007, at our option, use the net cash
proceeds of one or more underwritten public offerings of our qualified stock to
redeem up to a maximum of 35% of the initially outstanding aggregate principal
amount of our Senior Notes at a redemption price equal to 107.25% of the
principal amount of the Senior Notes, together with accrued and unpaid interest,
if any, thereon to the date of redemption, provided that not less than 65% of
the principal amount of the Senior Notes originally issued remain outstanding
following such a redemption.

The Senior Notes restrict GCI, Inc. and certain of its subsidiaries from
incurring debt in most circumstances unless the result of incurring debt does
not cause our leverage ratio to exceed 6.0 to one. The Senior Notes do not allow
debt under the Amended Senior Credit Facility to exceed the greater of (and
reduced by certain stated items):

     o   $250 million, reduced by the amount of any prepayments, or
     o   3.0 times earnings before interest, taxes, depreciation and
         amortization for the last four full fiscal quarters of GCI, Inc. and
         certain of its subsidiaries.

The Senior Notes limit our ability to make cash dividend payments.

In 2004 we conducted a Consent Solicitation and Tender Offer for our old Senior
Notes which were replaced by our current Senior Notes. The total redemption cost
was $186.1 million. The premium to redeem our old Senior Notes was $6.1 million
(excluding interest cost of $1.3 million) and was recognized as a loss on early
extinguishment of debt, a component of Other Income (Expense), during the year
ended December 31, 2004 in our Consolidated Statements of Operations.

Semi-annual interest payments of approximately $11.6 million were paid in
February 2005 and August 2005. The next semi-annual interest payment is due
February 2006.

We were in compliance with all Senior Notes loan covenants at December 31, 2005.

                                       91
<PAGE>
Amended Senior Credit Facility
We have an outstanding Amended Senior Credit Facility of $159.2 million at
December 31, 2005. On August 31, 2005 our April 2004 Senior Credit Facility was
amended and restated. The Amended Senior Credit Facility includes a $160.0
million term loan and a $55.0 million revolving credit facility with a $25.0
million sublimit for letters of credit. Our term loan is fully drawn and we have
letters of credit outstanding totaling $5.5 million at December 31, 2005, which
leaves $49.5 million available to draw under the revolving credit facility if
needed. We have not borrowed under the revolving credit facility in 2005. Our
Amended Senior Credit Facility is due in 2012.

Proceeds from the amendment were used to pay down our previous Senior Credit
Facility and to pay off our Satellite Transponder Capital Lease with the
remainder used to pay financing fees. Outstanding principal of $35.8 million on
the Satellite Transponder Capital Lease was repaid, and we incurred a $2.8
million charge due to the early termination of the capital lease which is
classified as Loss on Early Extinguishment of Debt during the year ended
December 31, 2005 in our Consolidated Statements of Operations.

The Amended Senior Credit Facility decreased the interest rate on the term loan
from LIBOR plus 2.25% to LIBOR plus 1.50%. The interest rate on the revolving
portion of the previous Senior Credit Facility was LIBOR plus a margin dependent
upon our Total Leverage Ratio (as defined) ranging from 1.75% to 2.50%. The
Amended Senior Credit Facility reduced the revolving credit facility interest
rate to LIBOR plus the following applicable margin dependent upon our Total
Leverage ratio (as defined):

                            Total Leverage             Applicable
                          Ratio (as defined)             Margin
                        --------------------------    -------------
                         > 3.75                          0.175%
                         -
                         > 3.25 but < 3.75               0.150%
                         -
                         > 2.75 but < 3.25               0.125%
                         -
                         < 2.75                          0.100%

The commitment fee we are required to pay on the unused portion of the
commitment was reduced to 0.375%.

The Amended Senior Credit Facility increased our allowed Total Leverage Ratio
(as defined) limit to 4.50:1.0 and our Senior Debt Ratio (as defined) limit to
2.25:1.0. Our Fixed Charge Coverage Ratio (as defined) must be less than
1.0:1.0.

The amendment was a substantial modification of our April 2004 Senior Credit
Facility and we therefore recognized $1.8 million in Amortization and Write-off
of Loan and Senior Notes Fees during the year ended December 31, 2005 in our
Consolidated Statements of Operations. Deferred loan fees of $362,000 were
determined not to be a substantial modification and continue to be amortized
over the life of the Amended Senior Credit Facility.

In connection with the Amended Senior Credit Facility, we paid bank fees and
other expenses of $946,000 during the year ended December 31, 2005.

Borrowings under the Amended Senior Credit Facility are subject to certain
financial covenants and restrictions on indebtedness, dividend payments,
financial guarantees, business combinations, and other related items. We were in
compliance with all Amended Senior Credit Facility loan covenants at December
31, 2005.

                                       92
<PAGE>
As of December 31, 2005 maturities of long-term debt under the Amended Senior
Credit Facility were as follows (amounts in thousands):

              Years Ending December 31,
             --------------------------
             2006                         $    1,600
             2007                              1,600
             2008                              1,600
             2009                              1,600
             2010                              1,600
             2011 and thereafter             151,200
                                           ------------
                                          $  159,200
                                           ============

Capital Expenditures
Our expenditures for property and equipment, including construction in progress,
totaled $79.8 million and $111.8 million during the years ended December 31,
2005 and 2004, respectively. Our capital expenditures requirements in excess of
approximately $25 million per year are largely success driven and are a result
of the progress we are making in the marketplace. We expect our 2006
expenditures for property and equipment for our core operations, including
construction in progress, to total $80.0 million to $90.0 million, depending on
available opportunities and the amount of cash flow we generate during 2006.

Planned capital expenditures over the next five years include those necessary
for maintenance of existing facilities, growth of our long-distance, local
exchange, cable and Internet facilities, improving network integrity, continuing
deployment of DLPS, adding new products, and introducing new facilities and
automation to reduce costs.

To ensure the necessary equipment is available to us as we expand our DLPS
service delivery method we have entered into an agreement to purchase a certain
number of outdoor, network powered multi-media adapters and other vendor
equipment. The agreement has a remaining outstanding commitment at December 31,
2005 of $6.9 million of which approximately $3.8 million, $2.7 million, and
$400,000 are expected to be paid during the years ended December 31, 2006, 2007
and 2008, respectively.

Share Repurchases
In May 2005 we repurchased the remaining 4,314 shares of GCI's Series B
preferred stock on GCI's behalf for a total purchase price of $6.6 million. The
4,314 preferred shares were convertible into 777,297 shares of GCI's Class A
common stock and the transaction price represented an equivalent Class A common
stock purchase price of $8.50 per share. The repurchase of GCI's Series B
preferred stock on their behalf was not part of GCI's buyback program discussed
below.

GCI's Board of Directors has authorized a common stock buyback program for the
repurchase of GCI's Class A and Class B common stock in order to reduce GCI's
outstanding shares of Class A and Class B common stock. We pay for the stock
repurchases on GCI's behalf. GCI's Board of Directors authorized GCI and GCI
obtained permission from our lenders for up to $30.0 million of repurchases
through December 31, 2005. GCI is authorized to continue its stock repurchases
of up to $5.0 million per quarter indefinitely, to purchase an additional $10.0
million during the six months ended June 30, 2006, and to use stock option
exercise proceeds to repurchase additional shares. If stock repurchases are less
than the total approved quarterly amount the difference may be carried forward
and applied against future stock repurchases. During the year ended December 31,
2005 we repurchased 1,721,112 shares of GCI's Class A common stock on GCI's
behalf at a cost of approximately $16.1 million. GCI expects to continue the
repurchases for an indefinite period subject to the availability of free cash
flow, availability under our credit facilities, and the price of GCI's Class A
and Class B common stock. The repurchases have and will continue to comply with
the restrictions of SEC rule 10b-18.

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<PAGE>
To ensure the necessary equipment is available to us as we expand our DLPS
service delivery method we have entered into an agreement to purchase a certain
number of outdoor, network powered multi-media adapters and other vendor
equipment. The agreement has a remaining outstanding commitment at December 31,
2005 of $6.9 million of which approximately $3.8 million, $2.7 million, and
$400,000 are expected to be paid during the years ended December 31, 2006, 2007
and 2008, respectively.

Other Expenditures
We have an agreement with Alaska Airlines, Inc. ("Alaska Airlines") to offer our
residential and business customers who make qualifying purchases from us the
opportunity to accrue mileage awards in the Alaska Airlines Mileage Plan. The
agreement as amended requires the purchase of Alaska Airlines miles during the
year ended December 31, 2005 and in future years. The agreement has a remaining
commitment at December 31, 2005 totaling $10.8 million.

GCI agreed to invest approximately $29.5 million in exchange for a substantial
majority equity interest in Alaska DigiTel, a small Alaska PCS provider. The
existing owners will retain a minority ownership interest and voting control of
a portion of Alaska DigiTel and GCI has agreed to purchase the remainder. The
exact percentage and dollar amounts for GCI's interest in DigiTel will vary in
proportion to the amount the existing owners elect to retain, but GCI expects to
own between 75% and 85% after completion of the transaction. The transaction is
based on a post closing enterprise valuation of $37.0 million for Alaska
DigiTel. On GCI's behalf we will fund the transaction from cash on hand, by
drawing down additional debt, or a combination of the two. MTA filed a petition
with the FCC against GCI's application in February 2006. The DigiTel transaction
requires certain regulatory approvals and we are uncertain when it will close.

The long-distance, local access, cable, Internet and wireless services
industries continue to experience substantial competition, regulatory
uncertainty, and continuing technological changes. Our future results of
operations will be affected by our ability to react to changes in the
competitive and regulatory environment and by our ability to fund and implement
new or enhanced technologies. We are unable to determine how competition,
economic conditions, and regulatory and technological changes will affect our
ability to obtain financing under acceptable terms and conditions.

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

New Accounting Standards

For a discussion of our new accounting standards see note 1(af) in the
accompanying "Notes to Consolidated Financial Statements" included in Part II,
Item 8 of this Report.

Critical Accounting Policies

Our accounting and reporting policies comply with accounting principles
generally accepted in the United States of America. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions. The financial position and results
of operations can be affected by these estimates and assumptions, which are
integral to understanding reported results. Critical accounting policies are
those policies that management believes are the most important to the portrayal
of our financial condition and results, and require management to make estimates
that are difficult, subjective or complex. Most accounting policies are not
considered by management to be critical accounting policies. Several factors are
considered in determining whether or not a policy is critical in the preparation

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of financial statements. These factors include, among other things, whether the
estimates are significant to the financial statements, the nature of the
estimates, the ability to readily validate the estimates with other information
including third parties or available prices, and sensitivity of the estimates to
changes in economic conditions and whether alternative accounting methods may be
utilized under accounting principles generally accepted in the United States of
America. For all of these policies, management cautions that future events
rarely develop exactly as forecast, and the best estimates routinely require
adjustment. Management has discussed the development and the selection of
critical accounting policies with GCI's Audit Committee.

Those policies considered to be critical accounting policies for the year ended
December 31, 2005 are described below.

     o   We maintain allowances for doubtful accounts for estimated losses
         resulting from the inability of our customers to make required
         payments. We also maintain an allowance for doubtful accounts based on
         our assessment of the likelihood that our customers will satisfactorily
         comply with rules necessary to obtain supplemental funding from the
         Universal Service Administration Company ("USAC") for services provided
         by us under our packaged communications offerings to rural hospitals,
         health clinics and school districts. We base our estimates on the aging
         of our accounts receivable balances, financial health of specific
         customers, regional economic data, changes in our collections process,
         regulatory requirements, and our customers' compliance with USAC rules.
         If the financial condition of our customers were to deteriorate or if
         they are unable to emerge from reorganization proceedings, resulting in
         an impairment of their ability to make payments, additional allowances
         may be required. If their financial condition improves or they emerge
         successfully from reorganization proceedings, allowances may be
         reduced. Such allowance changes could have a material effect on our
         consolidated financial condition and results of operations.

     o   We record all assets and liabilities acquired in purchase acquisitions,
         including goodwill and other intangibles, at fair value as required by
         SFAS No. 141, "Business Combinations." Goodwill and indefinite-lived
         assets such as our cable certificates are not amortized but are
         subject, at a minimum, to annual tests for impairment and quarterly
         evaluations of whether events and circumstances continue to support an
         indefinite useful life as required by SFAS No. 142, "Goodwill and Other
         Intangible Assets." Other intangible assets are amortized over their
         estimated useful lives using the straight-line method, and are subject
         to impairment if events or circumstances indicate a possible inability
         to realize the carrying amount as required by SFAS No. 142. The initial
         goodwill and other intangibles recorded and subsequent impairment
         analysis requires management to make subjective judgments concerning
         estimates of the applicability of quoted market prices in active
         markets and, if quoted market prices are not available and/or are not
         applicable, how the acquired asset will perform in the future using a
         discounted cash flow analysis. Estimated cash flows may extend beyond
         ten years and, by their nature, are difficult to determine over an
         extended timeframe. Events and factors that may significantly affect
         the estimates include, among others, competitive forces, customer
         behaviors and attrition, changes in revenue growth trends, cost
         structures and technology, and changes in discount rates, performance
         compared to peers, material and ongoing negative economic trends, and
         specific industry or market sector conditions. In determining the
         reasonableness of cash flow estimates, we review historical performance
         of the underlying asset or similar assets in an effort to improve
         assumptions utilized in our estimates. In assessing the fair value of
         goodwill and other intangibles, we may consider other information to
         validate the reasonableness of our valuations including third-party
         assessments. These evaluations could result in a change in useful lives
         in future periods and could result in write-down of the value of
         intangible assets. Our cable certificate and goodwill assets are our
         only indefinite-lived intangible assets and because of the significance
         of our cable certificate and goodwill assets to our consolidated
         balance sheet, our annual and quarterly impairment analyses and
         quarterly evaluations of remaining useful lives are critical. Any
         changes in key assumptions about the business and its prospects,

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<PAGE>
         changes in market conditions or other externalities, or recognition of
         previously unrecognized intangible assets for impairment testing
         purposes could result in an impairment charge and such a charge could
         have a material adverse effect on our consolidated results of
         operations.

     o   We estimate unbilled long-distance services segment Cost of Goods Sold
         based upon minutes of use carried through our network and established
         rates. We estimate unbilled costs for new circuits and services, and
         network changes that result in traffic routing changes or a change in
         carriers. Carriers that provide service to us regularly make network
         changes that can lead to new, revised or corrected billings. Such
         estimates are revised or removed when subsequent billings are received,
         payments are made, billing matters are researched and resolved,
         tariffed billing periods lapse, or when disputed charges are resolved.
         Revisions to previous estimates could either increase or decrease costs
         in the year in which the estimate is revised which could have a
         material effect on our consolidated financial condition and results of
         operations.

     o   GCI, Inc., as a wholly owned subsidiary and member of the GCI
         controlled group of corporations, files its income tax returns as part
         of the consolidated group of corporations under GCI. Accordingly, the
         following discussion reflects the consolidated group's activity and
         balances. Our income tax policy provides for deferred income taxes to
         show the effect of temporary differences between the recognition of
         revenue and expenses for financial and income tax reporting purposes
         and between the tax basis of assets and liabilities and their reported
         amounts in the financial statements in accordance with SFAS No. 109,
         "Accounting for Income Taxes." We have recorded deferred tax assets of
         approximately $67.2 million associated with income tax net operating
         losses that were generated from 1992 to 2003, and that expire from 2009
         to 2025. Pre-acquisition income tax net operating losses associated
         with acquired companies are subject to additional deductibility limits.
         We have recorded deferred tax assets of approximately $2.0 million
         associated with alternative minimum tax credits that do not expire.
         Significant management judgment is required in developing our provision
         for income taxes, including the determination of deferred tax assets
         and liabilities and any valuation allowances that may be required
         against the deferred tax assets. In conjunction with certain 1996
         acquisitions, GCI determined that approximately $20.0 million of the
         acquired net operating losses would not be utilized for income tax
         purposes, and elected with its December 31, 1996 income tax returns to
         forego utilization of such acquired losses. Deferred tax assets were
         not recorded associated with the foregone losses and, accordingly, no
         valuation allowance was provided. We have not recorded a valuation
         allowance on the deferred tax assets as of December 31, 2005 based on
         management's belief that future reversals of existing taxable temporary
         differences and estimated future taxable income exclusive of reversing
         temporary differences and carryforwards, will, more likely than not, be
         sufficient to realize the benefit of these assets over time. In the
         event that actual results differ from these estimates or if our
         historical trends change, we may be required to record a valuation
         allowance on deferred tax assets, which could have a material adverse
         effect on our consolidated financial position or results of operations.

Other significant accounting policies, not involving the same level of
measurement uncertainties as those discussed above, are nevertheless important
to an understanding of the financial statements. Policies related to revenue
recognition, share-based payments, and financial instruments require difficult
judgments on complex matters that are often subject to multiple sources of
authoritative guidance. Certain of these matters are among topics currently
under reexamination by accounting standards setters and regulators. No specific
conclusions reached by these standard setters appear likely to cause a material
change in our accounting policies, although outcomes cannot be predicted with
confidence. A complete discussion of our significant accounting policies can be
found in note 1 in the accompanying "Notes to Consolidated Financial
Statements."

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Geographic Concentration and the Alaska Economy

We offer voice and data telecommunication and video services to customers
primarily throughout Alaska. Because of this geographic concentration, growth of
our business and of our operations depends upon economic conditions in Alaska.
The economy of Alaska is dependent upon the natural resource industries, and in
particular oil production, as well as investment earnings, tourism, government,
and United States military spending. Any deterioration in these markets could
have an adverse impact on us. All of the federal funding and the majority of
investment revenues are dedicated for specific purposes, leaving oil revenues as
the primary source of general operating revenues. In fiscal 2005 the State of
Alaska reported that oil revenues, federal funding and investment revenues
supplied 38%, 22% and 31%, respectively, of the state's total revenues. In
fiscal 2006 state economists forecast that Alaska's oil revenues, federal
funding and investment revenues will supply 40%, 27% and 24%, respectively, of
the state's total projected revenues.

The volume of oil transported by the TransAlaska Oil Pipeline System over the
past 20 years has been as high as 2.0 million barrels per day in fiscal 1988.
Production has been declining over the last several years with an average of
0.917 million barrels produced per day in fiscal 2005. The state forecasts the
production rate to decline from 0.865 million barrels produced per day in fiscal
2006 to 0.800 million barrels produced per day in fiscal 2016.

Market prices for North Slope oil averaged $43.43 in fiscal 2005 and are
forecasted to average $57.30 in fiscal 2006. The closing price per barrel was
$64.13 on January 26, 2006. To the extent that actual oil prices vary materially
from the state's projected prices, the state's projected revenues and deficits
will change. Every $1 change in the price per barrel of oil is forecasted to
result in an approximately $50.0 million change in the state's fiscal 2006
revenue. The production policy of the Organization of Petroleum Exporting
Countries and its ability to continue to act in concert represents a key
uncertainty in the state's revenue forecast.

The State of Alaska maintains the Constitutional Budget Reserve Fund that is
intended to fund budgetary shortfalls. If the state's current projections are
realized, the Constitutional Budget Reserve Fund will be depleted in 2010. The
date the Constitutional Budget Reserve Fund is depleted is highly influenced by
the price of oil. If the fund is depleted, aggressive state action will be
necessary to increase revenues and reduce spending in order to balance the
budget. The governor of the State of Alaska and the Alaska legislature continue
to evaluate cost cutting and revenue enhancing measures.

Should new oil discoveries or developments not materialize or the price of oil
become depressed, the long term trend of continued decline in oil production
from the Prudhoe Bay area is inevitable with a corresponding adverse impact on
the economy of the state, in general, and on demand for telecommunications and
cable television services, and, therefore, on us, in particular. Periodically
there are renewed efforts to allow exploration and development in the Arctic
National Wildlife Refuge ("ANWR"). The United States Energy Information Agency
has estimated that it could take nine years to begin oil field drilling after
approval of ANWR exploration.

Deployment of a natural gas pipeline from the State of Alaska's North Slope to
the Lower 48 States has been proposed to supplement natural gas supplies. A
competing natural gas pipeline through Canada has also been proposed. The
economic viability of a natural gas pipeline depends upon the price of and
demand for natural gas. Either project could have a positive impact on the State
of Alaska's revenues and could provide a substantial stimulus to the Alaska
economy. In October 2004 both houses of Congress passed and the President signed
legislation allowing loan guarantees of up to $18.0 billion, certain favorable
income tax provisions and tax credits, and expedited permitting and judicial
review for the construction of an Alaska natural gas pipeline. To support the
construction of a natural gas pipeline, the governor of the State of Alaska has
announced that he believes the state must assume some level of shipper risk,
serve as an equity partner or both. The State of Alaska is in contract
negotiations with ConocoPhillips, BP and ExxonMobil to construct a natural gas

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<PAGE>
pipeline. The State of Alaska has announced that it reached an agreement with
ConocoPhillips, BP and ExxonMobil on the base fiscal contract terms. Ultimate
approval of any contract is uncertain as it must be approved by the Alaska
legislature.

Development of the ballistic missile defense system project may have a
significant impact on Alaskan telecommunication requirements and the Alaska
economy. The system is a fixed, land-based, non-nuclear missile defense system
with a land and space based detection system capable of responding to limited
strategic ballistic missile threats to the United States. The system includes
deployment of up to 100 ground-based interceptor silos and battle management
command and control facilities at Fort Greely, Alaska.

The United States Army Corps of Engineers awarded a construction contract in
2002 for test bed facilities. The contract is reported to contain basic
requirements and various options that could amount to $250 million in
construction, or possibly more, if all items are executed. Construction began on
the Fort Greely test bed in 2002. The first ground-based missile interceptor was
placed in an underground silo on July 22, 2004. The Missile Defense Agency is
reported to expect to continue emplacing interceptors in 2006.

Tourism, air cargo, and service sectors have helped offset the prevailing
pattern of oil industry downsizing that has occurred during much of the last
several years.

We have, since our entry into the telecommunication marketplace, aggressively
marketed our services to seek a larger share of the available market. The
customer base in Alaska is limited, however, with a population of approximately
664,000 people. The State of Alaska's population is distributed as follows:

     o   42% are located in the Municipality of Anchorage,
     o   13% are located in the Fairbanks North Star Borough,
     o   11% are located in the Matanuska-Susitna Borough,
     o   8% are located in the Kenai Peninsula Borough,
     o   5% are located in the City and Borough of Juneau, and
     o   The remaining 21% are located in other communities across the State of
         Alaska.

No assurance can be given that the driving forces in the Alaska economy, and in
particular, oil production, will continue at appropriate levels to provide an
environment for expanded economic activity.

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

Seasonality

Long-distance services segment revenues (primarily those derived from our other
common carrier customers) have historically been highest in the summer months
because of temporary population increases attributable to tourism and increased
seasonal economic activity such as construction, commercial fishing, and oil and
gas activities. The cable, local access and Internet services segments do not
exhibit significant seasonality. Our ability to implement construction projects
is also hampered during the winter months because of cold temperatures, snow and
short daylight hours.

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Off-Balance Sheet Arrangements

We have not created, and are not party to, any special-purpose or off-balance
sheet entities for the purpose of raising capital, incurring debt or operating
parts of our business that are not consolidated into our financial statements.
We do not have any arrangements or relationships with entities that are not
consolidated into our financial statements that are reasonably likely to
materially affect our liquidity or the availability of our capital resources.

Schedule of Certain Known Contractual Obligations

The following table details future projected payments associated with our
certain known contractual obligations as of December 31, 2005.
<TABLE>
<CAPTION>
                                                                    Payments Due by Period
                                               ----------------------------------------------------------------
                                                             Less than 1    1 to 3       4 to 5    More Than 5
                                                    Total        Year        Years       Years        Years
                                               ------------- ----------- ------------ ------------ ------------
                                                                    (Amounts in thousands)
   <S>                                        <C>                <C>         <C>           <C>         <C>
   Long-term debt                             $    479,550        1,725       3,425         3,200      471,200
   Interest on long-term debt                      197,200       23,200      46,400        46,400       81,200
   Capital lease obligations, including
     interest                                        1,478          252         516           516          194
   Operating lease commitments                      79,532       19,359      24,254        15,875       20,044
   Purchase obligations                             26,322       15,753      10,569           ---          ---
   Other                                            29,500       29,500         ---           ---          ---
                                               ------------- ----------- ------------ ------------ ------------
     Total contractual obligations            $    813,582       89,789      85,164        65,991      572,638
                                               ============= =========== ============ ============ ============
</TABLE>
For long-term debt included in the above table, we have included principal
payments on our Amended Senior Credit Facility and on our Senior Notes. Interest
on amounts outstanding under our Amended Senior Credit Facility is based on
variable rates and therefore the amount is not determinable. Our Senior Notes
require semi-annual interest payments of $11.6 million through August 2014. For
a discussion of our Senior Notes see note 7 in the accompanying "Notes to
Consolidated Financial Statements." For discussion of our Amended Senior Credit
Facility see note 7 in the accompanying "Notes to Consolidated Financial
Statements."

For a discussion of our capital and operating leases, see note 16 in the
accompanying "Notes to Consolidated Financial Statements."

Purchase obligations include a remaining commitment to purchase a certain number
of outdoor, network powered multi-media adapters, indoor multi-media adapters,
cable modems, and cable modem termination systems of $6.9 million and a
remaining $10.8 million commitment for our Alaska Airlines agreement as further
described in note 16 in the accompanying "Notes to Consolidated Financial
Statements." The contracts associated with these commitments are non-cancelable.
Purchase obligations also include open purchase orders for goods and services
for capital projects and normal operations totaling $15.5 million which are not
included in our Consolidated Balance Sheets at December 31, 2005, because the
goods had not been received or the services had not been performed at December
31, 2005. The open purchase orders are cancelable.

Other consists of GCI's commitment to acquire a substantial equity interest in
DigiTel for approximately $29.5 million as further described in note 17 in the
accompanying "Notes to Consolidated Financial Statements."

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Regulatory Developments

See "Part I -- Item 1 -- Business, Regulation, Franchise Authorizations and
Tariffs" for more information about regulatory developments affecting us.

Inflation

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

Audit Committee

GCI's Audit Committee, composed entirely of independent directors (as such term
is prescribed by Nasdaq Stock Market Rule 4200(a)(15)), meets periodically with
our independent auditors and management to review our financial statements and
the results of audit activities. GCI's Audit Committee, in turn, reports to
GCI's Board of Directors on the results of its review and recommends the
selection of independent auditors.

GCI's Audit Committee has approved the independent auditor to provide the
following services:

     o   Audit (audit of financial statements filed with the SEC, quarterly
         reviews, comfort letters, consents, review of registration statements,
         accounting consultations);
     o   Audit-related (employee benefit plan audits and accounting consultation
         on proposed transactions); and
     o   Income tax services (review of corporate and partnership income tax
         returns, and consultations regarding income tax matters).

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

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

Our Amended Senior Credit Facility carries interest rate risk. Amounts borrowed
under this Agreement bear interest at LIBOR plus 1.50% or less depending upon
our Total Leverage Ratio (as defined). Should the LIBOR rate change, our
interest expense will increase or decrease accordingly. As of December 31, 2005,
we have borrowed $159.2 million subject to interest rate risk. On this amount,
each 1% increase in the LIBOR interest rate would result in $1,592,000 of
additional gross interest cost on an annualized basis.

Item 8.  Consolidated Financial Statements and Supplementary Data

Our consolidated financial statements are filed under this Item, beginning on
page 103. Our supplementary data is filed under Item 7, beginning on page 89.

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

None.

Item 9A.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed by us in reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported as
specified in the SEC's rules and forms. As of the end of the period covered by
this Annual Report on Form 10-K/A, we carried out an evaluation of the
effectiveness of the design and operation of our "disclosure controls and

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procedures" (as defined in the Securities Exchange Act of 1934 ("Exchange Act")
Rules 13a - 15(e)) under the supervision and with the participation of our
management, including our Chief Executive Officer and our Chief Financial
Officer.

Based on that evaluation we have identified two material weaknesses in our
internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f)). Because of the following material weaknesses, our management,
including our Chief Executive Officer and our Chief Financial Officer, concluded
that our disclosure controls and procedures were not effective as of December
31, 2005.

    1. During 2005, our system development controls associated with the
       introduction of our new customer billing system did not operate
       effectively. Specifically, the original configuration of certain settings
       in the new system resulted in errors in processing credits and other
       adjustments to customer accounts receivable balances. As a result,
       material misstatements of revenue and accounts receivable occurred during
       the fourth quarter of 2005 and were corrected prior to the issuance of
       our 2005 consolidated financial statements.

    2. On November 9, 2006, GCI determined that it needed to restate certain of
       its previously issued consolidated financial statements. As a result of
       such restatement, our management reassessed our internal control over
       financial reporting using the COSO criteria and identified an additional
       material weakness in internal control over financial reporting associated
       with the interpretation and application of generally accepted accounting
       principles in that our policies and procedures did not consistently
       provide for effective analysis and implementation of accounting
       pronouncements as applied to non-routine transactions. Accordingly,
       management has amended this evaluation of disclosure controls and
       procedures to include this additional material weakness. An error was
       made in GCI's consolidated financial statements regarding the
       interpretation and application of generally accepted accounting
       principles as they relate to a May 25, 2005 transaction in which GCI
       repurchased from Toronto Dominion Securities ("TD") the remaining 4,314
       shares of its Series B preferred stock owned by TD for a total purchase
       price of $6,607,000. The amount that GCI paid for the preferred stock in
       excess of the carrying amount of the shares on its balance sheet should
       have reduced the amount of GCI's net income available to common
       shareholders used to calculate GCI's basic and diluted net income per
       common share.

The certifications attached as Exhibits 31 and 32 to this report should be read
in conjunction with the disclosures set forth herein.

Remediation of Material Weakness in Internal Control Over Financial
Reporting

Subsequent to December 31, 2005, we have corrected the unified system
configuration settings so that credits and other adjustments are properly
recorded. We will continue to vigorously monitor the effectiveness of these
processes, procedures and controls, and will make any further changes as
management determines appropriate.

We have has identified the steps necessary to address the second material
weakness, including:

     o Ensuring that policies and procedures are adequately designed and
       implemented to provide for effective analysis and implementation of
       accounting pronouncements; and
     o Involving internal personnel assisted by external advisors, as deemed
       necessary, early in the analysis process, particularly in complex or
       non-routine transactions, to obtain additional guidance as to the
       application of generally accepted accounting principles to any such
       proposed transaction.

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We began to execute the remediation plans identified above in the fourth quarter
of 2006, and we believe our controls and procedures will continue to improve as
a result of the further implementation of these actions.

We cannot assure you that these remediation efforts will be successful or that
our internal control over financial reporting will be effective in accomplishing
all control objectives all of the time. See Part I, Item 1A. Risk Factors.

Changes in Internal Control Over Financial Reporting

On September 1, 2005 we implemented a new unified billing system. The
implementation of the new system has resulted in certain changes to our
processes and procedures affecting internal control over financial reporting
during the fourth quarter of 2005. We have committed substantial internal and
external resources to revise and document processes and related internal
controls.

The conversion to the new system is still recent. Due to the complexities of
implementing a new billing system across multiple segments and products, we
expect to continue to experience a period of stabilization and fine-tuning for
several months. We recognize that this continues to be a complex transition that
will require close monitoring and evaluation. We believe we have the processes
and appropriate management in place to effectively manage this transition.

Other than as expressly noted above in this Item 9A, there were no changes in
our internal control over financial reporting identified in connection with the
evaluation of our controls performed during the quarter ended December 31, 2005
that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.

We may enhance, modify, and supplement internal controls and disclosure controls
and procedures based on experience.

Internal control over financial reporting is a system designed to provide
reasonable assurance to the Company's management and board of directors
regarding the preparation and fair presentation of its financial statements. All
internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparation and presentation. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

Item 9B.  Other Information

None

                                    Part III

Items 10, 11, 12, 13 and 14 are omitted per General Instruction I(1)(a) and (b)
of Form 10-K.

                                      102
<PAGE>

                                     Part IV

Item 15.  Exhibits, Consolidated Financial Statement Schedules

     (l) Consolidated Financial Statements Page No.
<TABLE>
<CAPTION>
           Included in Part II of this Report:
     <S>                                                                                                    <C>
                  Report of Independent Registered Public Accounting Firm                                   104

                  Consolidated Balance Sheets, December 31, 2005 and 2004                                   105 -- 106

                  Consolidated Statements of Operations,
                     Years ended December 31, 2005, 2004 and 2003                                           107

                  Consolidated Statements of Stockholder's Equity,
                     Years ended December 31, 2005, 2004 and 2003                                           108

                  Consolidated Statements of Cash Flows,
                     Years ended December 31, 2005, 2004 and 2003                                           109

                  Notes to Consolidated Financial Statements                                                110 -- 143

     (2) Consolidated Financial Statement Schedules

           Schedule II - Valuation and Qualifying Accounts is included in note 3
           in Notes to Consolidated Financial Statements included in Part II of
           this report.

           Other schedules are omitted, as they are not required or are not
           applicable, or the required information is shown in the applicable
           financial statements or notes thereto.

     (3) Exhibits                                                                                           144
</TABLE>

                                      103
<PAGE>
             Report of Independent Registered Public Accounting Firm


The Board of Directors
GCI, Inc.

We have audited the accompanying consolidated balance sheets of GCI, Inc. and
subsidiaries as of December 31, 2005 and 2004, and the related consolidated
statements of operations, stockholder's equity, and cash flows for each of the
years in the three-year period ended December 31, 2005. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of GCI, Inc. and
subsidiaries as of December 31, 2005 and 2004, and the results of their
operations and their cash flows for the each of the years in the three-year
period ended December 31, 2005 in conformity with U.S. generally accepted
accounting principles.




/signed/ KPMG LLP
Anchorage, Alaska
March 15, 2006


                                      104
<PAGE>
<TABLE>
<CAPTION>
                                                    GCI, INC. AND SUBSIDIARIES
                                                   CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)                                                                                December 31,
                            ASSETS                                                                 2005         2004
-----------------------------------------------------------------------------------------     ------------ ------------
<S>                                                                                          <C>              <C>
Current assets:
  Cash and cash equivalents                                                                  $    44,362       31,452
                                                                                              ------------ ------------

  Receivables                                                                                     78,279       74,429
  Less allowance for doubtful receivables                                                          5,317        2,317
                                                                                              ------------ ------------
     Net receivables                                                                              72,962       72,112

  Deferred income taxes, net                                                                      19,596       13,893
  Prepaid expenses                                                                                 8,347        7,907
  Property held for sale                                                                           2,312        2,282
  Inventories                                                                                      1,556        1,215
  Notes receivable from related parties                                                              922          475
  Other current assets                                                                             2,572        2,429
                                                                                              ------------ ------------
     Total current assets                                                                        152,629      131,765
                                                                                              ------------ ------------

Property and equipment in service, net of depreciation                                           453,008      432,249
Construction in progress                                                                           8,337       22,505
                                                                                              ------------ ------------
     Net property and equipment                                                                  461,345      454,754
                                                                                              ------------ ------------

Cable certificates                                                                               191,565      191,241
Goodwill                                                                                          42,181       41,972
Other intangible assets, net of amortization                                                       6,201        6,265
Deferred loan and senior notes costs, net of amortization of $1,451 and $2,602 at
  December 31, 2005 and 2004, respectively                                                         8,011       10,341
Notes receivable from related parties                                                              2,544        3,345
Other assets                                                                                       9,299        9,508
                                                                                              ------------ ------------
     Total other assets                                                                          259,801      262,672
                                                                                              ------------ ------------
       Total assets                                                                          $   873,775      849,191
                                                                                              ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.


                                      105                            (Continued)
<PAGE>
<TABLE>
<CAPTION>
                                                     GCI, INC. AND SUBSIDIARIES
                                                     CONSOLIDATED BALANCE SHEETS
                                                           (Continued)

             (Amounts in thousands)
                                                                                                                December 31,
               LIABILITIES AND  STOCKHOLDER'S EQUITY                                                         2005          2004
          -----------------------------------------------------------------------------------------     ------------- ------------
          <S>                                                                                          <C>              <C>
          Current liabilities:
            Current maturities of obligations under long-term debt and capital leases                  $      1,769       6,407
            Accounts payable                                                                                 23,217      28,742
            Accrued payroll and payroll related obligations                                                  17,925      15,350
            Deferred revenue                                                                                 16,439      16,253
            Accrued interest                                                                                  9,588       8,747
            Accrued liabilities                                                                               6,814       6,760
            Subscriber deposits                                                                                 361         437
            Due to related party                                                                                ---      10,004
                                                                                                        ------------- ------------
              Total current liabilities                                                                      76,113      92,700

          Long-term debt                                                                                    474,115     436,969
          Obligations under capital leases, excluding current maturities                                        ---      32,750
          Obligation under capital lease due to related party, excluding current maturity                       628         672
          Deferred income taxes, net of deferred income tax asset                                            69,753      49,111
          Other liabilities                                                                                   9,546       8,385
                                                                                                        ------------- ------------
              Total liabilities                                                                             630,155     620,587
                                                                                                        ------------- ------------

          Stockholder's equity:
           Class A common stock (no par).  Authorized 10 shares; issued .1 shares at December 31,
             2005 and 2004                                                                                  206,622     206,622
          Paid-in capital                                                                                    10,840       5,677
          Retained earnings                                                                                  26,158      16,305
                                                                                                        ------------- ------------

              Total stockholder's equity                                                                    243,620     228,604
                                                                                                        ------------- ------------
          Commitments and contingencies

              Total liabilities and stockholder's equity                                               $    873,775     849,191
                                                                                                        ============= ============
             See accompanying notes to consolidated financial statements.
</TABLE>

                                      106
<PAGE>
<TABLE>
<CAPTION>
                                              GCI, INC. AND SUBSIDIARIES
                                         CONSOLIDATED STATEMENTS OF OPERATIONS
                                      YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003


(Amounts in thousands)                                                       2005              2004             2003
                                                                         -------------     ------------     -------------
<S>                                                                     <C>                  <C>              <C>
Revenues                                                                $  443,026           424,826          390,797

Cost of goods sold (exclusive of depreciation and amortization
   shown separately below)                                                 134,861           139,563          125,383
Selling, general and administrative expenses                               154,462           147,360          138,693
Restructuring charge                                                         1,967               ---              ---
Bad debt expense (recovery)                                                  1,080            (1,074)            (178)
Impairment charge                                                              ---               ---            5,434
Depreciation and amortization expense                                       74,126            62,871           52,767
                                                                         -------------     ------------     -------------
  Operating income                                                          76,530            76,106           68,698
                                                                         -------------     ------------     -------------

Other income (expense):
  Interest expense                                                         (34,116)          (27,828)         (35,366)
  Loss on termination of capital lease and early extinguishment of
      debt                                                                  (2,797)           (6,136)             ---
  Amortization and write-off of loan and senior notes fees                  (3,406)           (3,790)          (7,732)
  Interest income                                                              624               363              560
                                                                         -------------     ------------     -------------
     Other expense, net                                                    (39,695)          (37,391)         (42,538)
                                                                         -------------     ------------     -------------

   Net income before income taxes and cumulative effect of a
      change in accounting principle                                        36,835            38,715           26,160

Income tax expense                                                          16,004            17,463           10,074
                                                                         -------------     ------------     -------------
      Net income before cumulative effect of a change in
         accounting principle                                               20,831            21,252           16,086

Cumulative effect of a change in accounting principle, net of
  income tax benefit of $367                                                   ---               ---             (544)
                                                                         -------------     ------------     -------------

         Net income                                                     $   20,831            21,252           15,542
                                                                         =============     ============     =============
</TABLE>
See accompanying notes to consolidated financial statements.

                                      107
<PAGE>
<TABLE>
<CAPTION>
                                                   GCI, INC. AND SUBSIDIARIES
                                        CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
                                         YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003

                                                        Shares of                                        Accumulated
                                                         Class A      Class A                Retained       Other
                                                         Common       Common       Paid-in   Earnings    Comprehensive
(Amounts in thousands, except share amounts)              Stock        Stock       Capital   (Deficit)   Income (Loss)      Total
                                                       -----------------------------------------------------------------------------
<S>                                                        <C>      <C>             <C>       <C>            <C>           <C>
Balances at December 31, 2002                              100      $ 206,622       44,904    (20,489)       (540)         230,497
Components of comprehensive income:
  Net income                                               ---            ---          ---     15,542         ---           15,542
  Change in fair value of cash flow hedge, net of
     change in income tax effect of $175                   ---            ---          ---        ---         232              232
                                                                                                                         -----------
      Comprehensive income                                                                                                  15,774
                                                       -----------------------------------------------------------------------------
Balances at December 31, 2003                              100        206,622       44,904     (4,947)       (308)         246,271
                                                       -----------------------------------------------------------------------------

Components of comprehensive income:
  Net income                                               ---            ---          ---     21,252         ---           21,252
  Change in fair value of cash flow hedge, net of
     change in income tax effect of $207                   ---            ---          ---        ---         308              308
                                                                                                                         -----------
      Comprehensive income                                                                                                  21,560
Distribution to General Communication, Inc.                ---            ---      (39,227)       ---         ---          (39,227)
                                                       -----------------------------------------------------------------------------
Balances at December 31, 2004                              100        206,622        5,677     16,305         ---          228,604

Net income                                                 ---            ---          ---     20,831         ---           20,831
Distribution to General Communication, Inc.                ---            ---          ---    (10,978)        ---          (10,978)
Contribution from General Communication, Inc.              ---            ---        5,163        ---         ---            5,163
                                                       -----------------------------------------------------------------------------
Balances at December 31, 2005                              100      $ 206,622       10,840     26,158         ---          243,620
                                                       =============================================================================
</TABLE>
 See accompanying notes to consolidated financial statements.


                                      108
<PAGE>
<TABLE>
<CAPTION>
                                                          GCI, INC. AND SUBSIDIARIES
                                                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                 YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003

(Amounts in thousands)                                                                    2005           2004            2003
                                                                                      -----------    -----------     -----------
<S>                                                                                  <C>              <C>              <C>
Cash flows from operating activities:
   Net income                                                                        $   20,831         21,252          15,542
   Adjustments to reconcile net income to net cash provided by operating
     activities:
     Depreciation and amortization                                                       74,126         62,871          52,767
     Deferred income tax expense                                                         14,936         16,515           9,135
     Amortization of loan and senior notes fees                                           3,406          3,790           7,732
     Loss on termination of capital lease  and early extinguishment of debt               2,797          6,136             ---
     Bad debt expense (recovery), net of write-offs                                       2,175            363          (1,084)
     Tax benefit on stock options exercised                                                 922          1,730             538
     Deferred compensation                                                                  681            657             689
     Compensatory stock options                                                             546            390           1,076
     Impairment charge                                                                      ---            ---           5,434
     Cumulative effect of a change in accounting principle, net                             ---            ---             544
     Other noncash income and expense items                                               1,906          1,033             720
     Change in operating assets and liabilities                                         (12,925)       (12,143)         (5,990)
                                                                                      -----------    -----------    ------------
       Net cash provided by operating activities                                        109,401        102,594          87,103
                                                                                      -----------    -----------    ------------

Cash flows from investing activities:
   Purchases of property and equipment, including construction period interest          (79,789)      (111,804)        (62,479)
   Proceeds from sales of assets                                                          1,995          1,190             ---
   Purchases of intangible assets and other assets                                       (1,881)        (4,692)         (6,249)
   Purchases of and additions to property held for sale                                    (240)          (626)           (138)
   Notes receivable issued to related parties                                               (18)           (52)            (99)
   Payments received on notes receivable from related parties                               350          2,607              74
   Refund of deposit                                                                        ---            699             ---
                                                                                      -----------    -----------    ------------
       Net cash used in investing activities                                            (79,583)      (112,678)        (68,891)
                                                                                      -----------    -----------    ------------

Cash flows from financing activities:
   Repayments of capital lease obligations                                              (38,989)        (5,114)         (1,857)
   Borrowings on Senior Credit Facility                                                  38,831         20,000             ---
   Net distribution to General Communication, Inc.                                      (12,077)       (41,263)         (1,632)
   Payment upon early termination of capital lease                                       (2,797)           ---             ---
   Payment of debt issuance costs                                                        (1,076)        (8,274)         (3,528)
   Repayment of Senior Credit Facility                                                     (800)       (63,832)        (12,700)
   Issuance of new Senior Notes                                                             ---        315,720             ---
   Repayment of old Senior Notes                                                            ---       (180,000)            ---
   Payment of bond call premiums                                                            ---         (6,136)            ---
                                                                                      -----------    -----------    ------------
       Net cash provided by (used in) financing activities                              (16,908)        31,101         (19,717)
                                                                                      -----------    -----------    ------------
       Net increase (decrease) in cash and cash equivalents                              12,910         21,017          (1,505)
       Cash and cash equivalents at beginning of year                                    31,452         10,435          11,940
                                                                                      -----------    -----------    ------------

       Cash and cash equivalents at end of year                                      $   44,362         31,452          10,435
                                                                                      ===========    ===========    ============
</TABLE>
 See accompanying notes to consolidated financial statements.

                                      109
<PAGE>
                                    GCI, INC.
                   Notes to Consolidated Financial Statements

(l)    Business and Summary of Significant Accounting Principles

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

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

        (a)  Business
             We offer the following services:
             o Long-distance telephone service between Alaska and the remaining
               United States and foreign countries,
             o Cable television services throughout Alaska,
             o Facilities-based competitive local access services in Anchorage,
               Fairbanks, and Juneau, Alaska,
             o Internet access services,
             o Origination and termination of traffic in Alaska for certain
               common carriers,
             o Private line and private network services,
             o Managed services to certain commercial customers,
             o Broadband services, including our SchoolAccess(R) offering to
               rural school districts and a similar offering to rural hospitals
               and health clinics,
             o Sales and service of dedicated communications systems and related
               equipment,
             o Lease and sales of capacity on our fiber optic cable systems used
               in the transmission of interstate and intrastate private line,
               switched message long-distance and Internet services within
               Alaska and between Alaska and the remaining United States and
               foreign countries,
             o Distribution of white and yellow pages directories to residential
               and business customers in certain markets we serve and on-line
               directory products, and
             o Resale of cellular telephone services and sale of cellular
               telephone handsets and accessories.

        (b)  Principles of Consolidation
             The consolidated financial statements include the consolidated
             accounts of GCI, Inc. and all wholly owned subsidiaries with all
             significant intercompany transactions eliminated.

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

        (d)  Cash Equivalents
             Cash equivalents consist of repurchase interest investments and
             certificates of deposit which are short-term and readily
             convertible into cash.

        (e)  Accounts Receivable and Allowance for Doubtful Receivables
             Trade accounts receivable are recorded at the invoiced amount and
             do not bear interest. The allowance for doubtful accounts is our
             best estimate of the amount of probable credit losses in our
             existing accounts receivable. We base our estimates on the aging of
             our accounts receivable balances, financial health of specific
             customers, regional economic data, changes in our collections
             process, regulatory requirements, and our customers' compliance
             with USAC rules. We review our allowance for doubtful accounts
             methodology at least annually. During the review process we
             consider a change to our methodology if there are any changes to
             these factors.

             Depending upon the type of account receivable our allowance is
             calculated using a pooled basis with an allowance for all accounts
             greater than 120 days past due, a specific identification method,

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

             or a combination of the two methods. When a specific identification
             method is used past due balances over 90 days old and balances less
             than 90 days old but potentially uncollectible due to bankruptcy or
             other issues are reviewed individually for collectibility. Account
             balances are charged off against the allowance when we feel it is
             probable the receivable will not be recovered. We do not have any
             off-balance-sheet credit exposure related to our customers.

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

        (g)  Property and Equipment
             Property and equipment is stated at cost. Construction costs of
             facilities are capitalized. Equipment financed under capital leases
             is recorded at the lower of fair market value or the present value
             of future minimum lease payments. Construction in progress
             represents distribution equipment and systems and support equipment
             and systems not placed in service on December 31, 2005 that
             management intends to place in service during 2006.

             Depreciation is computed on a straight-line basis based upon the
             shorter of the estimated useful lives of the assets or the lease
             term, if applicable, in the following ranges:
<TABLE>
<CAPTION>
                           Asset Category                                              Asset Lives
                  ---------------------------------------------------------------    ----------------
                  <S>                                                                  <C>
                  Telephony distribution equipment and systems and fiber optic         10-20 years
                    cable systems
                  Cable television distribution equipment and systems                  3-10 years
                  Support equipment and systems                                        3-10 years
                  Transportation equipment                                             5-10 years
                  Property and equipment under capital leases                          12-15 years
</TABLE>
             Amortization of property and equipment under capital leases is
             included in Depreciation and Amortization Expense on the
             Consolidated Statements of Operations.

             Repairs and maintenance are charged to expense as incurred.
             Expenditures for major renewals and betterments are capitalized.
             Accumulated depreciation is removed and gains or losses are
             recognized at the time of retirements, sales or other dispositions
             of property and equipment.

        (h)  Long-lived Assets to be Disposed of
             Long-lived assets to be disposed of by sales, including those of
             discontinued operations, if any, are measured at the lower of
             carrying amount or fair value less cost to sell, if applicable. We
             classify a long-lived asset to be disposed of other than by sale as
             held and used until it is disposed of. We classify a long-lived
             asset to be sold as held for sale in the period in which all of
             certain criteria established by Statement of Financial Accounting
             Standard ("SFAS") 144, "Accounting for the Impairment or Disposal
             of Long-lived Assets" are met. We do not depreciate or amortize
             long-lived assets to be sold.

             A loss is recognized for any initial or subsequent write-down to
             fair value less cost to sell. A gain is recognized for any
             subsequent increase in fair value less cost to sell, but not in
             excess of the cumulative loss previously recognized (for a
             write-down to fair value less cost to sell). The loss or gain
             adjusts only the carrying amount of a long-lived asset, whether
             classified as held for sale individually or as part of a disposal
             group. A gain or loss not previously recognized that results from
             the sale of a long-lived asset (disposal group) is recognized at
             the date of sale.

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

        (i)  Intangible Assets
             Goodwill and cable certificates (certificates of convenience and
             public necessity) are not amortized. Cable certificates represent
             certain perpetual operating rights to provide cable services.
             Goodwill represents the excess of cost over fair value of net
             assets acquired. Cable certificates are allocated to our cable
             services segment. Goodwill is primarily allocated to the cable
             services segment and the remaining amount is not allocated to a
             reportable segment, but is included in the All Other Category in
             note 12.

             The cost of our Personal Communication Services license and related
             financing costs were capitalized as an amortizable intangible
             asset. The associated assets were placed into service during 2000
             and the recorded cost of the license and related financing costs
             are being amortized over a 40-year period using the straight-line
             method. All other amortizable intangible assets are being amortized
             over 2 to 20 year periods using the straight-line method.

        (j)  Impairment of Intangibles, Goodwill, and Long-lived Assets
             Cable certificate assets are tested annually for impairment, and
             are tested for impairment more frequently if events and
             circumstances indicate that the asset might be impaired. The
             impairment test consists of a comparison of the fair value of the
             asset with its carrying amount. If the carrying amount of the
             assets exceeds its fair value, an impairment loss is recognized in
             an amount equal to that excess. After an impairment loss is
             recognized, the adjusted carrying amount of the asset is its new
             accounting basis. Impairment testing of our cable certificate
             assets as of December 31, 2005 and 2004 used a direct value method.

             Our goodwill assets are tested annually for impairment, and are
             tested for impairment more frequently if events and circumstances
             indicate that the assets might be impaired. An impairment loss is
             recognized to the extent that the carrying amount exceeds the
             asset's fair value. This determination is made at the reporting
             unit level and consists of two steps. First, we determine the fair
             value of a reporting unit and compare it to its carrying amount.
             Second, if the carrying amount of a reporting unit exceeds its fair
             value, an impairment loss is recognized for any excess of the
             carrying amount of the reporting unit's goodwill asset over the
             implied fair value of that asset. The implied fair value of
             goodwill is determined by allocating the fair value of the
             reporting unit in a manner similar to a purchase price allocation,
             in accordance with SFAS No. 141, "Business Combinations." The
             residual fair value after this allocation is the implied fair value
             of the reporting unit goodwill.

             Long-lived assets, such as property, plant, and equipment, and
             purchased intangibles subject to amortization, are reviewed for
             impairment whenever events or changes in circumstances indicate
             that the carrying amount of an asset may not be recoverable.
             Recoverability of assets to be held and used is measured by a
             comparison of the carrying amount of an asset to estimated
             undiscounted future cash flows expected to be generated by the
             asset. If the carrying amount of an asset exceeds its estimated
             future cash flows, an impairment charge is recognized by the amount
             by which the carrying amount of the asset exceeds the fair value of
             the asset.

        (k)  Amortization and Write-off of Loan and Senior Notes Fees
             Debt issuance costs are deferred and amortized using the
             straight-line method, which approximates the interest method, over
             the term of the related debt and notes. Amortization costs are
             reported as a component of Other Income (Expense) in the
             Consolidated Statements of Operations.

             If a refinancing or amendment of a debt instrument is a substantial
             modification, all or a portion of the applicable debt issuance
             costs are written-off and included in Amortization and Write-off of
             Loan and Senior Notes Fees in the Consolidated Statements of
             Operations.

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

        (l)  Other Assets
             Other Assets primarily include long-term deposits and prepayments,
             a performance bond, and non-trade accounts receivable. The
             performance bond of $2.6 million and $2.5 million at December 31,
             2005 and 2004, respectively, is a restricted asset.

        (m)  Accounting for Derivative Instruments and Hedging Activities
             We record derivatives on the balance sheet as assets or
             liabilities, measured at fair value and establish criteria for
             designation and effectiveness of hedging relationships consistent
             with SFAS No. 133, "Accounting for Derivative Instruments and
             Hedging Activities," as amended.

             In 2003 we adopted SFAS No. 149, "Amendment of Statement 133 on
             Derivative Instruments and Hedging Activities." SFAS No. 149 amends
             and clarifies financial accounting and reporting for derivative
             instruments, including certain derivative instruments embedded in
             other contracts (collectively referred to as derivatives) and for
             hedging activities under SFAS No. 133, "Accounting for Derivative
             Instruments and Hedging Activities."

        (n)  Accounting for Certain Financial Instruments with Characteristics
             of Both Liabilities and Equity
             We classify and measure certain financial instruments with
             characteristics of both liabilities and equity according to SFAS
             No. 150, "Accounting for Certain Financial Instruments with
             Characteristics of both Liabilities and Equity." SFAS No. 150
             requires that an issuer classify a financial instrument that is
             within its scope as a liability (or an asset in some
             circumstances).

        (o)  Asset Retirement Obligations
             We record the fair value of a liability for an asset retirement
             obligation in the period in which it is incurred in Other
             Liabilities on the Consolidated Balance Sheets. When the liability
             is initially recorded, we capitalize a cost by increasing the
             carrying amount of the related long-lived asset. Over time, the
             liability is accreted to its present value each period, and the
             capitalized cost is depreciated over the useful life of the related
             asset. Upon settlement of the liability, we either settle the
             obligation for its recorded amount or incur a gain or loss upon
             settlement. Upon adoption of SFAS No. 143, "Accounting for Asset
             Retirement Obligations" on January 1, 2003, we recorded the
             cumulative effect of accretion and depreciation expense as a
             cumulative effect of a change in accounting principle of
             approximately $544,000, net of income tax benefit of $367,000.

             In March 2005, the FASB issued FASB Interpretation ("FIN") 47,
             "Accounting for Conditional Asset Retirement Obligations - an
             Interpretation of FASB Statement No. 143." FIN 47 clarifies that a
             conditional asset retirement obligation must be recognized as a
             liability if the fair value of the liability can be reasonably
             estimated. We adopted FIN 47 on December 31, 2005 and it did not
             have a material effect on our results of operations, financial
             position and cash flows.

             The majority of our asset retirement obligation is the estimated
             cost to remove telephony distribution equipment and support
             equipment from leased property.

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

             Following is a reconciliation of the beginning and ending aggregate
             carrying amount of our liability for asset retirement obligation
             (amounts in thousands):
<TABLE>
<CAPTION>
                    <S>                                                                        <C>
                    Balance at December 31, 2003                                               $ 2,005
                    Liability incurred during the year ended December 31, 2004                     775
                    Accretion expense for the year ended December 31, 2004                         242
                    Liability settled                                                               (6)
                    Other                                                                          (45)
                                                                                                -------
                         Balance at December 31, 2004                                            2,971
                    Liability incurred during the year ended December 31, 2005                      41
                    Accretion expense for the year ended December 31, 2005                         198
                                                                                                -------
                         Balance at December 31, 2005                                          $ 3,210
                                                                                                =======
</TABLE>
             During the years ended December 31, 2005 and 2004 we recorded
             additional capitalized costs of $41,000 and $775,000, respectively,
             in Property and Equipment in Service, Net of Depreciation.

        (p)  Alaska Airlines, Inc. ("Alaska Airlines") Contract
             Our contract with Alaska Airlines provides that we purchase a
             specific minimum number of mileage awards in the Alaska Airlines
             Mileage Plan each year at a specific price per mile. If we exceed
             the minimum purchase commitment in any of the specified periods,
             the excess miles are priced at a reduced fixed cost per mile.
             Alaska Airlines invoices us for all mileage credited during the
             prior month. Our contractual cost for purchased miles is not tied
             or related in any way to our customers' usage of the awarded miles.
             Use of the miles is a transaction between our customers and Alaska
             Airlines and does not involve us in any way. Accordingly we do not
             account for or record our customers' usage of miles purchased.

             We have recorded a liability for the estimated obligation under the
             contract as of December 31, 2005 and 2004. We estimated the amount
             of the obligation based on the amount of mileage awards purchased
             through December 31, 2005 and 2004 in comparison to the required
             minimum commitment. We have recorded the expense for the miles
             purchased from Alaska Airlines in Selling, General and
             Administrative expenses for each of our benefiting segments.

        (q)  Revenue Recognition
             All revenues are recognized when the earnings process is complete
             in accordance with SEC Staff Accounting Bulletins No. 101 and No.
             104, "Revenue Recognition" as follows:

             o   Revenues generated from long-distance service usage and plan
                 fees, Internet service excess usage, and managed services are
                 recognized when the services are provided,
             o   Cable television service package fees, local access and
                 Internet service plan fees, and private line telecommunication
                 revenues are billed in advance, recorded as Deferred Revenue on
                 the balance sheet, and are recognized as the associated service
                 is provided,
             o   Certain of our cellular services offerings have been determined
                 to be revenue arrangements with multiple deliverables. Revenues
                 are recognized as each element is earned based on objective
                 evidence regarding the relative fair value of each element and
                 when there are no undelivered elements that are essential to
                 the functionality of the delivered elements. Revenues generated
                 from cellular service usage and plan fees are recognized when
                 the services are provided. Revenues generated from the sale of
                 cellular handsets and accessories are recognized when title to
                 the handset and accessories passes to the customer. As the
                 non-refundable, up-front activation fee charged to the customer
                 does not meet the criteria as a separate unit of accounting, we
                 allocate the additional arrangement consideration received from
                 the activation fee to the handset (the delivered item) to the
                 extent that the aggregate handset and activation fee proceeds
                 do not exceed the fair value of the handset. Any activation
                 fees not allocated to the handset would be deferred upon

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

                 activation and recognized as service revenue on a straight-line
                 basis over the expected customer relationship period,
             o   The majority of our equipment sale transactions involve the
                 sale of communications equipment with no other services
                 involved. Such equipment is subject to standard manufacturer
                 warranties and we do not manufacture any of the equipment we
                 sell. In such instances the customer takes title to the
                 equipment generally upon delivery. We recognize revenue for
                 such transactions when title passes to the customer and the
                 revenue is earned and realizable pursuant to the provisions of
                 SAB 101 and SAB 104. On certain occasions we enter into
                 agreements to sell and satisfactorily install or integrate
                 telecommunications equipment for a fixed fee. Customers may
                 have refund rights if the installed equipment does not meet
                 certain performance criteria. We defer revenue recognition
                 until we have received customer acceptance per the contract or
                 agreement, and all other required revenue recognition elements
                 have been achieved. Revenues from contracts with multiple
                 element arrangements, such as those including installation and
                 integration services, are recognized as each element is earned
                 based on objective evidence regarding the relative fair value
                 of each element and when there are no undelivered elements that
                 are essential to the functionality of the delivered elements,
             o   Technical services revenues are derived primarily from
                 maintenance contracts on equipment and are recognized on a
                 prorated basis over the term of the contracts,
             o   Revenues from telephone and yellow-page directories are
                 recognized ratably during the period following publication,
                 which typically begins with distribution and is complete in the
                 month prior to publication of the next directory,
             o   Other revenues are recognized when the service is provided, and
             o   We recognize unbilled revenues when the service is provided
                 based upon minutes of use processed or established rates, net
                 of credits and adjustments.

        (r)  Payments Received from Suppliers
             Our cable services segment occasionally receives reimbursements for
             costs to promote suppliers' services, called cooperative
             advertising arrangements. The supplier payment is classified as a
             reduction of selling, general and administrative expenses if it
             reimburses specific, incremental and identifiable costs incurred to
             resell the suppliers' services. Excess consideration, if any, is
             classified as a reduction of cost of sales and services.

             Occasionally our cable services segment enters into a binding
             arrangement with a supplier in which we receive a rebate dependent
             upon us meeting a specified goal. We recognize the rebate as a
             reduction of cost of sales and services systematically as we make
             progress toward the specified goal, provided the amounts are
             probable and reasonably estimable. If earning the rebate is not
             probable and reasonably estimable, it is recognized only when the
             goal is met.

        (s)  Advertising Expense
             We expense advertising costs in the year during which the first
             advertisement appears. Advertising expenses were approximately
             $3,188,000, $3,281,000 and $3,727,000 for the years ended December
             31, 2005, 2004 and 2003, respectively.

        (t)  Leases
             We account for capital and operating leases as lessee as required
             by SFAS No. 13, "Accounting for Leases" and in subsequently issued
             amendments and interpretations of SFAS No. 13. Scheduled operating
             lease rent increases are amortized over the lease term on a
             straight-line basis. Contingent rent expense results from increases
             in the Consumer Price Index. Rent holidays are recognized on a
             straight-line basis over the operating lease term (including any
             rent holiday period).

             Leasehold improvements are amortized over the shorter of their
             economic lives or the lease term. We may amortize a leasehold
             improvement over a term that includes assumption of a lease renewal

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

             if the renewal is reasonably assured. Leasehold improvements
             acquired in a business combination are amortized over the shorter
             of the useful life of the assets or a term that includes required
             lease periods and renewals that are deemed to be reasonably assured
             at the date of acquisition. Leasehold improvements that are placed
             in service significantly after and not contemplated at or near the
             beginning of the lease term are amortized over the shorter of the
             useful life of the assets or a term that includes required lease
             periods and renewals that are deemed to be reasonably assured at
             the date the leasehold improvements are purchased. Leasehold
             improvements made by us and funded by landlord incentives or
             allowances under an operating lease are recorded as deferred rent
             and amortized as reductions to lease expense over the lease term.

        (u)  Interest Expense
             Interest costs incurred during the construction period of
             significant capital projects, such as construction of an undersea
             fiber optic cable system, are capitalized. We capitalized interest
             cost of approximately $1.1 million and $403,000 during the years
             ended December 31, 2004 and 2003, respectively, during the
             construction of the AULP West fiber optic cable system. No interest
             was capitalized during the year ended December 31, 2005.

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

        (w)  Costs Associated with Exit or Disposal Activities
             We record exit or disposal costs when they are incurred and can be
             measured at fair value. The recorded liability is subsequently
             adjusted for changes in estimated cash flows.

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

        (y)  Stock Option Plan
             At December 31, 2005, GCI had one stock-based employee compensation
             plan, which is described more fully in note 11. We account for this
             plan under the recognition and measurement principles of Accounting
             Principles Board ("APB") Opinion No. 25, "Accounting for Stock
             Issued to Employees," and related interpretations. We use the
             intrinsic-value method and compensation expense is recorded on the
             date of grant only if the current market price of the underlying
             stock exceeds the exercise price. We have adopted SFAS 123,
             "Accounting for Stock-Based Compensation," which permits entities
             to recognize as expense over the vesting period the fair value of
             all stock-based awards on the date of grant. Alternatively, SFAS
             123 also allows entities to continue to apply the provisions of APB
             Opinion No. 25.

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

             Our employees and employees of our subsidiaries are eligible to
             participate in the Option Plan. Expenses associated with the grant
             of options to employees are recorded pursuant to the provisions of
             APB Opinion No. 25 and Interpretive Releases 1 and 2 of SAB Topic
             1B1, which amounts were not material for the years ended December
             31, 2005, 2004 and 2003.

             We have adopted SFAS No. 148, "Accounting for Stock-Based
             Compensation-Transition and Disclosure." This Statement amends SFAS
             No. 123 to provide alternative methods of transition for a
             voluntary change to the fair value based method of accounting for
             stock-based employee compensation. In addition, this Statement
             amends the disclosure requirements of SFAS No. 123 to require
             prominent disclosures in both annual and interim financial
             statements about the method of accounting for stock-based employee
             compensation and the effect of the method used on reported results.
             We have elected to continue to apply the provisions of APB Opinion
             No. 25 and provide the pro forma disclosure as required by SFAS
             148. See note 1(af) for discussion of SFAS No. 123R, "Share-Based
             Payment."

             Stock-based employee compensation cost is reflected over the
             options' vesting period of generally five years and compensation
             cost for options granted prior to January 1, 1996 is not
             considered. The following table illustrates the effect on net
             income for the years ended December 31, 2005, 2004 and 2003, if we
             had applied the fair-value recognition provisions of SFAS 123 to
             stock-based employee compensation (amounts in thousands):
<TABLE>
<CAPTION>
                                                                               2005         2004         2003
                                                                           ------------ ------------ ------------
                <S>                                                       <C>              <C>          <C>
                Net income after cumulative effect of a change in         $   20,831       21,252       15,542
                 accounting principle in 2003, as reported
                Total stock-based employee compensation expense
                 included in reported net income, net of related tax
                 effects                                                         287          215          630
                Total stock-based employee compensation expense
                 under the fair-value based method for all awards,
                 net of related tax effects                                   (1,876)      (2,047)      (1,981)
                                                                           ------------ ------------ ------------
                    Pro forma net income after cumulative effect of
                    a change in accounting principle in 2003              $   19,242       19,420       14,191
                                                                           ============ ============ ============
</TABLE>
             The calculation of total stock-based employee compensation expense
             under the fair-value based method includes weighted-average
             assumptions of a risk-free interest rate, volatility, an expected
             life, and dividend distributions.

        (z)  Stock Options and Stock Warrants Issued for Non-employee Services
             Stock options and warrants issued in exchange for non-employee
             services pursuant to the provisions of SFAS 123, EITF 96-3 and EITF
             96-18 are accounted for at the fair value of the consideration or
             services received or the fair value of the equity instruments
             issued, whichever is more reliably measurable.

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

             The fair value determined using these principles is charged to
             operating expense over the shorter of the term for which
             non-employee services are provided, if stated, or the stock option
             or warrant vesting period.

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

       (aa)  Use of Estimates
             The preparation of financial statements in conformity with
             generally accepted accounting principles requires us to make
             estimates and assumptions that affect the reported amounts of
             assets and liabilities and disclosure of contingent assets and
             liabilities at the date of the financial statements and the
             reported amounts of revenues and expenses during the reporting
             period. Significant items subject to estimates and assumptions
             include allowance for doubtful receivables, valuation allowances
             for deferred income tax assets, depreciable lives of assets, the
             carrying value of long-lived assets including goodwill, and the
             accrual of cost of goods sold. Actual results could differ from
             those estimates.

       (ab)  Concentrations of Credit Risk
             Financial instruments that potentially subject us to concentrations
             of credit risk are primarily cash and cash equivalents and accounts
             receivable. Excess cash is invested in high quality short-term
             liquid money instruments issued by highly rated financial
             institutions. At December 31, 2005 and 2004, substantially all of
             our cash and cash equivalents were invested in short-term liquid
             money instruments at one highly rated financial institution.

             We have one major customer, MCI (see note 12). There is increased
             risk associated with this customer's accounts receivable balances.
             Our remaining customers are located primarily throughout Alaska.
             Because of this geographic concentration, our growth and operations
             depend upon economic conditions in Alaska. The economy of Alaska is
             dependent upon the natural resources industries, and in particular
             oil production, as well as tourism, government, and United States
             military spending. Though limited to one geographical area and
             except for MCI, the concentration of credit risk with respect to
             our receivables is minimized due to the large number of customers,
             individually small balances, and short payment terms.

       (ac)  Software Capitalization Policy
             Internally used software, whether purchased or developed, is
             capitalized and amortized using the straight-line method over an
             estimated useful life of five years. In accordance with Statement
             of Position ("SOP") 98-1, "Accounting for the Costs of Computer
             Software Developed or Obtained for Internal Use," we capitalize
             certain costs associated with internally developed software such as
             payroll costs of employees devoting time to the projects and
             external direct costs for materials and services. Costs associated
             with internally developed software to be used internally are
             expensed until the point the project has reached the development
             stage. Subsequent additions, modifications or upgrades to
             internal-use software are capitalized only to the extent that they
             allow the software to perform a task it previously did not perform.
             Software maintenance and training costs are expensed in the period
             in which they are incurred. The capitalization of software requires
             judgment in determining when a project has reached the development
             stage.

       (ad)  Guarantor's Accounting and Disclosure Requirements for Guarantees,
             Including Indirect Guarantees of Indebtedness of Others Certain of
             our customers have guaranteed levels of service and we account for
             these guarantees according to FASB Interpretation ("FIN") No. 45,
             "Guarantor's Accounting and Disclosure Requirements for Guarantees,
             Including Indirect Guarantees of Indebtedness of Others." We accrue
             for guarantees as they become probable and estimable.

       (ae)  Exchanges of Nonmonetary Assets
             The cost of a nonmonetary asset or service acquired in exchange for
             another nonmonetary asset or service is based upon the fair value
             of the asset surrendered to obtain it unless the fair value is not
             determinable or the transaction is an exchange of a product or
             property held for sale in the ordinary course of business for a
             product or property to be sold in the same line of business to
             facilitate sales to customers other than the parties to the
             exchange. If the exceptions apply we value the transaction using

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

             the recorded amount (after reduction, if appropriate, for an
             indicated impairment of value) of the nonmonetary asset or service
             relinquished. A gain or loss may be recognized on the exchange.

       (af)  New Accounting Standards
             In December 2004, the FASB issued SFAS No. 123R, "Share-Based
             Payment," requiring all companies to measure compensation cost for
             all share-based payments (including employee stock options) at fair
             value. After consideration of the SEC's April 2005 amendment of the
             SFAS No. 123R compliance dates, SFAS No. 123R is effective for
             annual periods beginning after June 15, 2005, or December 15, 2005
             for small business issuers. As of January 1, 2006, we will apply
             SFAS No. 123R and applicable FASB Staff Positions ("FSP") using a
             modified version of prospective application. Under that transition
             method, compensation cost is recognized on or after January 1, 2006
             for the portion of outstanding awards for which the requisite
             service has not yet been rendered, based on the grant-date fair
             value of those awards calculated under SFAS No. 123 for either
             recognition or pro forma disclosures. In March 2005 the SEC issued
             SAB No. 107 expressing the SEC staff's view regarding the
             interaction between SFAS No. 123R and certain SEC rules and
             regulations, and regarding the valuation of share-based payment
             arrangements for public companies. In August 2005 the FASB staff
             issued FASB Staff Position ("FSP") FAS 123(R)-1 regarding the
             recognition and measurement requirements of freestanding financial
             instruments originally issued as employee compensation. In October
             2005 the FASB staff issued FSP FAS 123(R)-2 regarding guidance on
             application of grant date as defined in SFAS 123. In November 2005
             the FASB staff issued FSP FAS 123(R)-3 which provides a practical
             transition election related to accounting for the tax effects of
             share-based payment awards to employees. In February 2006 the FASB
             staff issued FSP FAS 123(R)-4 to require evaluation of the
             probability of occurrence of a contingent cash settlement event in
             determining whether the underlying options or similar instruments
             issued as employee compensation should be classified as liabilities
             or equity. We estimate the application of SFAS No. 123R and other
             applicable guidance will result in an increase in our compensation
             cost for all share-based payments of approximately $2.5 million to
             $3.0 million during the year ended December 31, 2006.

             In May 2005, the FASB issued SFAS 154, "Accounting Changes and
             Error Corrections--a replacement of APB Opinion No. 20 and FASB
             Statement No. 3." SFAS 154 replaces APB Opinion No. 20, "Accounting
             Changes," and FASB Statement No. 3, "Reporting Accounting Changes
             in Interim Financial Statements," and changes the requirements for
             the accounting for and reporting of a change in accounting
             principle. SFAS 154 applies to all voluntary changes in accounting
             principle. It also applies to changes required by an accounting
             pronouncement in the unusual instance that the pronouncement does
             not include specific transition provisions. When a pronouncement
             includes specific transition provisions, those provisions should be
             followed. We will adopt this statement January 1, 2006 and do not
             expect it to have a material effect on our results of operations,
             financial position and cash flows.

             In October 2005 the FASB issued FSP No. FAS 13-1, "Accounting for
             Rental Costs Incurred During a Construction Period." FSP No. FAS
             13-1 requires a reporting entity to recognize rental costs
             associated with ground or building operating leases that are
             incurred during a construction period as rental expense in income
             from continuing operations. We will begin application of FSP No.
             FAS 13-1 on January 1, 2006 and do not expect it to have a material
             effect on our results of operations, financial position and cash
             flows.

             In December 2004 the FASB issued SFAS 153, "Exchanges of
             Nonmonetary Assets," which amends APB Opinion No. 29, "Accounting
             for Nonmonetary Transactions." The guidance in APB Opinion No. 29
             is based on the principle that exchanges of nonmonetary assets
             should be measured based on the fair value of the assets exchanged.
             The guidance in that Opinion, however, included certain exceptions
             to that principle. SFAS No. 153 amends APB Opinion No. 29 to

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

             eliminate the exception for nonmonetary exchanges of similar
             productive assets and replaces it with a general exception for
             exchanges of nonmonetary assets that do not have commercial
             substance. A nonmonetary exchange has commercial substance if the
             future cash flows of the entity are expected to change
             significantly as a result of the exchange. We will adopt SFAS 153
             on January 1, 2006 and do not expect it to have a material effect
             on our results of operations, financial position and cash flows.

             In February 2006 the FASB issued SFAS 155, "Accounting for Certain
             Hybrid Financial Instruments" which amends SFAS 133 to narrow the
             scope exception for interest-only and principal-only strips on debt
             instruments to include only such strips representing rights to
             receive a specified portion of the contractual interest or
             principal cash flows. SFAS 155 also amends SFAS 140 to allow
             qualifying special-purpose entities to hold a passive derivative
             financial instrument pertaining to beneficial interests that itself
             is a derivative financial instrument. We will adopt SFAS No. 155 on
             January 1, 2007 and do not expect it to have a material effect on
             our results of operations, financial position and cash flows.

       (ag)  Reclassifications
             Reclassifications have been made to the 2004 and 2003 financial
             statements to make them comparable with the 2005 presentation.

(2)    Consolidated Statements of Cash Flows Supplemental Disclosures
       Changes in operating assets and liabilities consist of (amounts in
       thousands):
<TABLE>
<CAPTION>
          Year ended December 31,                                           2005             2004              2003
                                                                       -------------    -------------     ------------
          <S>                                                         <C>                  <C>               <C>
          Increase in accounts receivable                             $    (5,824)          (4,976)          (16,549)
          (Increase) decrease in prepaid expenses                            (609)           2,529            (1,830)
          (Increase) decrease in inventories                                   27              298            (1,113)
          (Increase) decrease in other current assets                         179             (706)           (1,158)
          Increase (decrease) in accounts payable                          (5,525)          (5,391)            2,465
          Increase (decrease) in accrued payroll and payroll
             related obligations                                            2,963           (2,195)            5,724
          Increase (decrease) in deferred revenue                             460           (5,022)            2,985
          Increase (decrease) in due to related party                      (5,432)           3,746             1,387
          Increase in accrued interest                                        841              102               707
          Increase (decrease) in accrued liabilities                           97             (659)            1,927
          Decrease in subscriber deposits                                     (76)            (214)             (238)
          Increase (decrease) in components of other long-term
             liabilities                                                      (26)             345              (297)
                                                                       -------------    -------------     ------------
                                                                      $   (12,925)         (12,143)           (5,990)
                                                                       =============    =============     ============
</TABLE>
       We paid interest totaling approximately $33,077,000, $28,581,000 and
       $34,441,000 during the years ended December 31, 2005, 2004 and 2003,
       respectively.

       GCI, Inc., as a wholly-owned subsidiary and member of the GCI controlled
       group of corporations, files its income tax returns as part of the
       consolidated group of corporations under GCI. Accordingly, the following
       discussion of an income tax payment and refund reflects the consolidated
       group's activity. We paid income taxes totaling $133,000 and $205,000
       during the years ended December 31, 2005 and 2004, respectively. We paid
       no income taxes during the year ended December 31, 2003. We received no
       income tax refunds during the years ended December 31, 2005, 2004 and
       2003.

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

       We recorded $922,000, $1,730,000 and $538,000 during the years ended
       December 31, 2005, 2004 and 2003, respectively, in paid-in capital in
       recognition of the income tax effect of excess stock compensation expense
       for tax purposes over amounts recognized for financial reporting
       purposes.

 (3)   Receivables and Allowance for Doubtful Receivables
       Receivables consist of the following at December 31, 2005 and 2004
       (amounts in thousands):

                                                       2005          2004
                                                    ----------    ----------
           Trade                                   $  75,370        71,034
           Employee                                      215           277
           Other                                       2,694         3,118
                                                    ----------    ----------
             Total receivables                     $  78,279        74,429
                                                    ==========    ==========

       Following are the changes in the allowance for doubtful receivables
       during the years ended December 31, 2005, 2004 and 2003 (amounts in
       thousands):
<TABLE>
<CAPTION>
                                                                     Additions            Deductions
                                                              -----------------------    ------------
                                             Balance at        Charged to  Charged to     Write-offs      Balance
                                             beginning          costs and     Other         net of       at end of
          Description                         of year           expenses    Accounts      recoveries        year
          ------------------------------    ------------      ------------ ----------    ------------    ----------
             <S>                           <C>                    <C>          <C>          <C>             <C>
             December 31, 2005             $   2,317              4,366        ---           1,366          5,317
                                            ============      ============ ==========     ===========    ==========

             December 31, 2004             $   1,954              3,136        ---           2,773          2,317
                                            ============      ============ ==========     ===========    ==========

             December 31, 2003             $  14,010              2,640        ---          14,696          1,954
                                            ============      ============ ==========     ===========    ==========
</TABLE>
       As further described in note 12, during the year ended December 31, 2003
       we reached a settlement agreement for pre-petition amounts owed to us by
       MCI. The remaining pre-petition accounts receivable balance owed by MCI
       after this settlement was removed from our Consolidated Balance Sheets in
       2003. During the years ended December 31, 2005, 2004 and 2003 we utilized
       approximately $3.3 million, $4.2 million and $2.8 million, respectively,
       of the MCI credit against amounts otherwise payable for services received
       from MCI.

(4)    Net Property and Equipment in Service
       Net property and equipment in service consists of the following at
       December 31, 2005 and 2004 (amounts in thousands):
<TABLE>
<CAPTION>
                                                                                            2005         2004
                                                                                        ------------ ------------
             <S>                                                                       <C>              <C>
             Land and buildings                                                        $     4,987        4,061
             Telephony distribution systems                                                528,213      440,050
             Cable television distribution systems                                         186,482      170,843
             Support equipment                                                              80,035       50,211
             Transportation equipment                                                        5,929        6,648
             Property and equipment under capital leases                                       900       50,992
                                                                                        ------------ ------------
                                                                                           806,546      722,805
             Less accumulated depreciation                                                 353,310      269,626
             Less accumulated amortization                                                     228       20,930
                                                                                        ------------ ------------
               Net property and equipment in service                                   $   453,008      432,249
                                                                                        ============ ============
</TABLE>
(5)    Intangible Assets
       As of December 31, 2005 cable certificates and goodwill were tested for
       impairment and the fair values were greater than the carrying amounts,
       therefore these intangible assets were determined not to be impaired at

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

       December 31, 2005. The remaining useful lives of our cable certificates
       and goodwill were evaluated as of December 31, 2005 and events and
       circumstances continue to support an indefinite useful life.

       No intangible assets subject to amortization have been impaired based
       upon impairment testing performed as of December 31, 2005.

       No indicators of impairment have occurred since the impairment testing
       was performed.

       Following is the change in Goodwill (amounts in thousands):
<TABLE>
<CAPTION>
              <S>                                                           <C>
              Balance, December 31, 2004                                    $  41,972
              Addition upon the acquisition of Barrow Cable Television            209
                                                                             -----------
                 Balance, December 31, 2005                                 $  42,181
                                                                             ===========
</TABLE>
       Other Intangible Assets include the following at December 31, 2005 and
       2004 (amounts in thousands):

                                                           2005         2004
                                                       ----------   ------------
             Software license fees                    $   5,843        4,828
             PCS license                                  1,788        1,788
             Right-of-way                                   783          783
             Other                                          656          491
                                                          9,070        7,890
             Less accumulated amortization                2,869        1,625
                                                       ----------   ------------
               Net other intangible assets            $   6,201        6,265
                                                       ==========   ============

       Following are the changes in Other Intangible Assets (amounts in
       thousands):

                Balance, December 31, 2003            $   4,195
              Asset additions                             2,926
              Less amortization expense                     856
                                                       ----------
                Balance, December 31, 2004                6,265
              Asset additions                             1,180
              Less amortization expense                   1,244
                                                       ----------
                Balance, December 31, 2005            $   6,201
                                                       ==========

       Amortization expense for amortizable intangible assets for the years
       ended December 31, 2005, 2004 and 2003 follow (amounts in thousands):
<TABLE>
<CAPTION>
                                                                                     Years Ended December 31,
                                                                                   2005        2004       2003
                                                                                ---------- ----------- ----------
          <S>                                                                  <C>              <C>         <C>
          Amortization expense for amortizable intangible assets               $  1,244         856         660
                                                                                ========== =========== ==========
</TABLE>
                                      122                            (Continued)
<PAGE>
                                    GCI, INC.
                   Notes to Consolidated Financial Statements

       Amortization expense for amortizable intangible assets for each of the
       five succeeding fiscal years is estimated to be (amounts in thousands):

                 Years ending
                 December 31,
                 ------------
                    2006        $ 1,378
                    2007        $ 1,312
                    2008        $   992
                    2009        $   673
                    2010        $   151

 (6)   Notes Receivable from Related Parties
       Notes receivable from related parties consist of the following (amounts
       in thousands):
<TABLE>
<CAPTION>
                                                                                        December 31,
                                                                                    2005           2004
                                                                               -------------   -----------
               <S>                                                            <C>                 <C>
               Notes receivable from officers bearing interest up to 6.5%
                or at the rate paid by us on our senior indebtedness,
                unsecured, due through February 8, 2007                       $    1,958          2,436
               Notes receivable from officers bearing interest at the rate
                paid by us on our senior indebtedness, secured by GCI
                common stock, due through December 1, 2006                           350            350
               Notes receivable from other related parties bearing
                interest up to 7.6% or at the rate paid by us on our
                senior indebtedness, unsecured and secured by property,
                due through December 31, 2007                                         86            185
               Interest receivable                                                 1,072            849
                                                                               -------------   -----------
                 Total notes receivable from related parties                       3,466          3,820

               Less current portion, including current interest receivable           922            475
                                                                               -------------   -----------
                Long-term portion, including long-term interest receivable    $    2,544          3,345
                                                                               =============   ===========
</TABLE>
(7)    Debt
       Long-term debt consists of the following (amounts in thousands):
<TABLE>
<CAPTION>
                                                                                        December 31,
                                                                                     2005           2004
                                                                                -------------- -------------
              <S>                                                              <C>                <C>
              Senior Notes (a)                                                 $   320,000        320,000
              Senior Credit Facility (b)                                           159,200        121,168
              Note Payable                                                             350            ---
                                                                                -------------- -------------
                 Debt                                                              479,550        441,168
               Less unamortized bond discount paid on the Senior Notes               3,710          4,031
               Less current portion of long-term debt                                1,725            168
                                                                                -------------- -------------
                    Long-term debt, net of unamortized bond discount           $   474,115        436,969
                                                                                ============== =============
</TABLE>
                                      123                            (Continued)
<PAGE>
                                    GCI, INC.
                   Notes to Consolidated Financial Statements

       (a) We have outstanding Senior Notes of $316.3 million at December 31,
           2005. We pay interest of 7.25% on the Senior Notes and they are due
           in 2014. The Senior Notes are an unsecured obligation. The Senior
           Notes are carried on our Consolidated Balance Sheet net of the
           unamortized portion of the discount, which is being amortized to
           Interest Expense over the life of the Senior Notes.

           The Senior Notes are not redeemable prior to February 15, 2009. At
           any time on or after February 15, 2009, the Senior Notes are
           redeemable at our option, in whole or in part, on not less than
           thirty days nor more than sixty days notice, at the following
           redemption prices, plus accrued and unpaid interest (if any) to the
           date of redemption:

          If redeemed during the twelve month period
          commencing February 1 of the year indicated:         Redemption Price
          ---------------------------------------------------- -----------------
          2009                                                     103.625%
          2010                                                     102.417%
          2011                                                     101.208%
          2012 and thereafter                                      100.000%

           We may, on or prior to February 17, 2007, at our option, use the net
           cash proceeds of one or more underwritten public offerings of our
           qualified stock to redeem up to a maximum of 35% of the initially
           outstanding aggregate principal amount of our Senior Notes at a
           redemption price equal to 107.25% of the principal amount of the
           Senior Notes, together with accrued and unpaid interest, if any,
           thereon to the date of redemption, provided that not less than 65% of
           the principal amount of the Senior Notes originally issued remain
           outstanding following such a redemption.

           The Senior Notes restrict GCI, Inc. and certain of its subsidiaries
           from incurring debt in most circumstances unless the result of
           incurring debt does not cause our leverage ratio to exceed 6.0 to
           one. The Senior Notes do not allow debt under the Amended Senior
           Credit Facility to exceed the greater of (and reduced by certain
           stated items):

           o  $250 million, reduced by the amount of any prepayments, or
           o  3.0 times earnings before interest, taxes, depreciation and
              amortization for the last four full fiscal quarters of GCI, Inc.
              and certain of its subsidiaries.

           The Senior Notes limit our ability to make cash dividend payments.

           In 2004 we conducted a Consent Solicitation and Tender Offer for our
           old Senior Notes which were replaced by our current Senior Notes. The
           total redemption cost was $186.1 million. The premium to redeem our
           old Senior Notes was $6.1 million (excluding interest cost of $1.3
           million) and was recognized as a loss on early extinguishment of
           debt, a component of Other Income (Expense), during the year ended
           December 31, 2004 in our Consolidated Statements of Operations.

           Semi-annual interest payments of approximately $11.6 million were
           paid in February 2005 and August 2005. The next semi-annual interest
           payment is due February 2006.

           The Senior Notes are subordinate to our Amended Senior Credit
           Facility.

           We were in compliance with all Senior Notes loan covenants at
           December 31, 2005.

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

       (b) We have an outstanding Amended Senior Credit Facility of $159.2
           million at December 31, 2005. On August 31, 2005 our April 2004
           Senior Credit Facility was amended and restated. The Amended Senior
           Credit Facility includes a $160.0 million term loan and a $55.0
           million revolving credit facility with a $25.0 million sublimit for
           letters of credit. Our term loan is fully drawn and we have letters
           of credit outstanding totaling $5.5 million at December 31, 2005,
           which leaves $49.5 million available to draw under the revolving
           credit facility if needed. We have not borrowed under the revolving
           credit facility in 2005. Our Amended Senior Credit Facility is due in
           2012.

           Proceeds from the amendment were used to pay down our previous Senior
           Credit Facility and to pay off our Satellite Transponder Capacity
           Capital Lease with the remainder used to pay financing fees.
           Outstanding principal of $35.8 million on the Satellite Transponder
           Capacity Capital Lease was repaid, and we incurred a $2.8 million
           charge due to the early termination of the capital lease which is
           classified as a component of Other Income (Expense) during the year
           ended December 31, 2005 in our Consolidated Statements of Operations.

           The Amended Senior Credit Facility decreased the interest rate on the
           term loan from LIBOR plus 2.25% to LIBOR plus 1.50%. The interest
           rate on the revolving portion of the previous Senior Credit Facility
           was LIBOR plus a margin dependent upon our Total Leverage Ratio (as
           defined) ranging from 1.75% to 2.50%. The Amended Senior Credit
           Facility reduced the revolving credit facility interest rate to LIBOR
           plus the following applicable margin dependent upon our Total
           Leverage ratio (as defined):

                  Total Leverage Ratio
                      (as defined)          Applicable Margin
                 ----------------------    --------------------
                 >3.75                           0.175%
                 -
                 >3.25 but <3.75                 0.150%
                 -
                 >2.75 but <3.25                 0.125%
                 -
                 < 2.75                          0.100%

           The commitment fee we are required to pay on the unused portion of
           the commitment was reduced to 0.375%.

           The Amended Senior Credit Facility increased our allowed Total
           Leverage Ratio (as defined) limit to 4.50:1.0 and our Senior Debt
           Ratio (as defined) limit to 2.25:1.0. Our Fixed Charge Coverage Ratio
           (as defined) must be less than 1.0:1.0.

           Substantially all of the Company's assets collateralize the Amended
           Senior Credit Facility.

           The amendment was a substantial modification of our April 2004 Senior
           Credit Facility and we therefore recognized $1.8 million in
           Amortization and Write-off of Loan and Senior Notes Fees during the
           year ended December 31, 2005 in our Consolidated Statements of
           Operations. Deferred loan fees of $362,000 were determined not to be
           a substantial modification and continue to be amortized over the life
           of the Amended Senior Credit Facility.

           In connection with the Amended Senior Credit Facility, we paid bank
           fees and other expenses of $946,000 during the year ended December
           31, 2005.

           Borrowings under the Amended Senior Credit Facility are subject to
           certain financial covenants and restrictions on indebtedness,
           dividend payments, financial guarantees, business combinations, and
           other related items. We were in compliance with all Amended Senior
           Credit Facility loan covenants at December 31, 2005.

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

           As of December 31, 2005 maturities of long-term debt were as follows
           (amounts in thousands):

                  Years ending December 31,
                  2006                               $   1,725
                  2007                                   1,725
                  2008                                   1,700
                  2009                                   1,600
                  2010                                   1,600
                  2011 and thereafter                  471,200
                                                      ---------
                                                     $ 479,550
                                                      =========

(8)    Impairment Charge
       In 2003, we reported an impairment charge of $5.4 million which equaled
       the remaining net book value recorded for our North Pacific Cable asset.
       In 1991 we purchased one DS-3 of capacity on a fiber optic cable system
       owned by AT&T. This fiber optic cable system is a spur off of a
       trans-Pacific fiber optic cable system owned by another group. We used
       our owned capacity to carry traffic to and from Alaska and the Lower 48
       States. The section of the North Pacific Cable in which we owned capacity
       was taken out of service in January 2004 due to a billing dispute between
       AT&T and the owner of the trans-Pacific cable system causing us to
       re-route certain of our traffic. We were relieved of all future
       obligations required by our purchase agreement and ceased payment of
       maintenance and vessel standby costs totaling approximately $324,000 per
       year that would otherwise be payable over the remaining life of the
       system. The AULP West fiber optic cable system we built was put into
       service in June 2004 and provides us with route diversity and redundancy
       in excess of that previously provided by the North Pacific Cable.

(9)    Comprehensive Income
       During the years ended December 31, 2005, 2004 and 2003 we had other
       comprehensive income of $0, $308,000 and $232,000, respectively. Total
       comprehensive income during the years ended December 31, 2005, 2004 and
       2003 was $20,831,000, $21,560,000 and $15,774,000, respectively.

(10)   Income Taxes
       GCI, Inc., as a wholly owned subsidiary and member of the GCI controlled
       group of corporations, files its income tax returns as part of the
       consolidated group of corporations under GCI. Accordingly, the following
       discussion reflects the consolidated group's activity and balances.

       Total income tax (expense) benefit was allocated as follows (amounts in
       thousands):
<TABLE>
<CAPTION>
                                                                                       Years ended December 31,
                                                                                   2005          2004          2003
                                                                             -------------- ------------- ------------
                  <S>                                                       <C>                <C>           <C>
                  Net income before cumulative effect of a change in        $    (16,004)      (17,463)      (10,074)
                     accounting principle
                  Cumulative effect of a change in accounting principle              ---           ---           367
                                                                             -------------- ------------- ------------
                  Net income from continuing operations                          (16,004)      (17,463)       (9,707)

                  Stockholders' equity, for stock option compensation
                    expense for tax purposes in excess of amounts
                    recognized for financial reporting purposes                      922         1,730           538
                                                                             -------------- ------------- ------------
                                                                            $    (15,082)      (15,733)       (9,169)
                                                                             ============== ============= ============
</TABLE>
                                      126                            (Continued)
<PAGE>
                                    GCI, INC.
                   Notes to Consolidated Financial Statements

       Income tax (expense) benefit consists of the following (amounts in
       thousands):
<TABLE>
<CAPTION>
                                                                                       Years ended December 31,
                                                                                   2005          2004          2003
                                                                             -------------- ------------- ------------
                  <S>                                                       <C>                <C>           <C>
                  Current tax expense:
                    Federal taxes                                           $       (827)          606          (297)
                    State taxes                                                     (238)          176          (104)
                                                                             -------------- ------------- ------------
                                                                                  (1,065)          782          (401)
                                                                             -------------- ------------- ------------

                  Deferred tax expense:
                    Federal taxes                                                (11,587)      (14,151)       (7,169)
                    State taxes                                                   (3,352)       (4,094)       (2,504)
                                                                             -------------- ------------- ------------
                                                                                 (14,939)      (18,245)       (9,673)
                                                                             -------------- ------------- ------------
                                                                            $    (16,004)      (17,463)      (10,074)
                                                                             ============== ============= ============
</TABLE>
       Total income tax expense differed from the "expected" income tax expense
       determined by applying the statutory federal income tax rate of 35% as
       follows (amounts in thousands):
<TABLE>
<CAPTION>
                                                                                       Years ended December 31,
                                                                                   2005          2004          2003
                                                                             -------------- ------------- ------------
                  <S>                                                       <C>                <C>           <C>
                  "Expected" statutory tax expense                          $    (12,892)      (13,550)       (9,156)
                  State income taxes, net of federal benefit                      (2,343)       (2,439)       (1,695)
                  Income tax effect of goodwill amortization,
                    nondeductible expenditures and other items, net                 (780)         (668)         (568)
                  Adjustments to ending temporary difference and other
                     balances, net                                                    11          (806)        1,345
                                                                             -------------- ------------- ------------
                                                                            $    (16,004)      (17,463)      (10,074)
                                                                             ============== ============= ============
</TABLE>
       The tax effects of temporary differences that give rise to significant
       portions of the deferred tax assets and deferred tax liabilities at
       December 31, 2005 and 2004 are presented below (amounts in thousands):
<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                                       2005           2004
                                                                                  -------------- ---------------
                  <S>                                                            <C>                  <C>
                  Current deferred tax assets:
                     Net operating loss carryforwards                            $    14,880          8,344
                     Accounts receivable, principally due to allowance for
                       doubtful accounts                                               1,902          2,450
                     Compensated absences, accrued for financial reporting
                       purposes                                                        2,216          2,186
                     Workers compensation and self insurance health reserves,
                       principally due to accrual for financial reporting
                       purposes                                                          542            854
                     Other                                                                56             59
                                                                                  -------------- ---------------
                       Total current deferred tax assets                         $    19,596         13,893
                                                                                  ============== ===============
</TABLE>
                                      127                            (Continued)
<PAGE>
                                    GCI, INC.
                   Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
                                                                                           December 31,
                                                                                       2005           2004
                                                                                  -------------- ---------------
                  <S>                                                            <C>                <C>
                  Long-term deferred tax assets:
                    Net operating loss carryforwards                             $    52,288         63,524
                    Alternative minimum tax credits                                    2,028          1,892
                    Deferred compensation expense for financial reporting
                       purposes in excess of amounts recognized for tax
                       purposes                                                        1,582          1,729
                    Asset retirement obligations in excess of amounts
                       recognized for tax purposes                                     1,316          1,218
                    Employee stock option compensation expense for financial
                       reporting purposes in excess of amounts recognized for
                       tax purposes                                                      612            601
                    Sweepstakes award in excess of amounts recognized for tax
                       purposes                                                          120            178
                    Charitable contributions expense for financial reporting
                       in excess of amount recognized for tax purposes and
                       other items                                                       368            523
                                                                                  -------------- ---------------
                       Total long-term deferred tax assets                            58,314         69,665
                                                                                  -------------- ---------------

                  Long-term deferred tax liabilities:
                    Plant and equipment, principally due to differences in
                       depreciation                                                  106,701        101,603
                    Amortizable assets                                                21,366         17,173
                                                                                  -------------- ---------------
                       Total gross long-term deferred tax liabilities                128,067        118,776
                                                                                  -------------- ---------------
                       Net combined long-term deferred tax liabilities           $    69,753         49,111
                                                                                  ============== ===============
</TABLE>
       In conjunction with the 1996 Cable Companies acquisition, GCI incurred a
       net deferred income tax liability of $24.4 million and acquired net
       operating losses totaling $57.6 million. GCI determined that
       approximately $20.0 million of the acquired net operating losses would
       not be utilized for income tax purposes, and elected with its December
       31, 1996 income tax returns to forego utilization of such acquired losses
       under Internal Revenue Code section 1.1502-32(b)(4). Deferred tax assets
       were not recorded associated with the foregone losses and, accordingly,
       no valuation allowance was provided.

       At December 31, 2005, we have (1) tax net operating loss carryforwards of
       approximately $164.2 million that will begin expiring in 2009 if not
       utilized, and (2) alternative minimum tax credit carryforwards of
       approximately $2.0 million available to offset regular income taxes
       payable in future years. We utilized federal tax net operating loss
       carryforwards of approximately $13.4 million in 2005. Our utilization of
       certain net operating loss carryforwards is subject to limitations
       pursuant to Internal Revenue Code section 382.

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

       The following schedule shows our tax net operating loss carryforwards by
       year of expiration (amounts in thousands):
<TABLE>
<CAPTION>
                  Years ending December 31,                                          Federal       State
                                                                                  ------------ ------------
                    <S>                                                          <C>              <C>
                    2009                                                         $     6,031        8,264
                    2010                                                               9,018        8,935
                    2011                                                               6,919        6,685
                    2018                                                              19,995       17,883
                    2019                                                              27,910       26,516
                    2020                                                              44,747       43,799
                    2021                                                              29,614       28,987
                    2022                                                              14,080       13,788
                    2023                                                               3,968        3,902
                    2024                                                                 544          ---
                    2025                                                               1,341          ---
                                                                                  ------------ ------------
                       Total tax net operating loss carryforwards                $   164,167      158,759
                                                                                  ============ ============
</TABLE>
       Our utilization of remaining acquired net operating loss carryforwards is
       subject to annual limitations pursuant to Internal Revenue Code section
       382 which could reduce or defer the utilization of these losses.

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

(11)   Stockholder's Equity

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

       Stock Option Plan
       In December 1986, GCI adopted a Stock Option Plan (the "Option Plan") in
       order to provide a special incentive to our officers, non-employee
       directors, and employees by offering them an opportunity to acquire an
       equity interest in GCI. The Option Plan, as amended, provides for the
       grant of options for a maximum of 13.2 million shares of GCI Class A
       common stock, subject to adjustment upon the occurrence of stock
       dividends, stock splits, mergers, consolidations or certain other changes
       in corporate structure or capitalization. If an option expires or
       terminates, the shares subject to the option will be available for
       further grants of options under the Option Plan. The Compensation
       Committee of GCI's Board of Directors administers the Option Plan.

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

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

       Our employees and employees of our subsidiaries are eligible to
       participate in the Option Plan. Expenses associated with the grant of
       options to employees are recorded pursuant to the provisions of APB
       Number 25 and Interpretative Releases 1 and 2 of SAB Topic 1B1, which
       amounts were not material in the years ended December 31 2005, 2004 and
       2003. We believe the allocation method used is reasonable.

       Information for the years 2005, 2004 and 2003 with respect to the Option
       Plan follows:
<TABLE>
<CAPTION>
                                                                                          Weighted
                                                                                          Average
                                                                      Shares           Exercise Price
                                                                -------------------    ---------------
               <S>                                                 <C>                      <C>
                 Outstanding at December 31, 2002                   6,288,766               $6.34

               Granted                                                963,200               $6.24
               Exercised                                             (377,487)              $4.95
               Forfeited                                              (98,200)              $5.93
                                                                -------------------
                 Outstanding at December 31, 2003                   6,776,279               $6.41

               Granted                                                881,500               $8.19
               Exercised                                           (1,116,704)              $5.49
               Forfeited                                             (104,200)              $7.07
                                                                -------------------
                 Outstanding at December 31, 2004                   6,436,875               $6.81

               Granted                                                983,455               $9.47
               Exercised                                             (659,098)              $6.06
               Forfeited                                             (217,955)              $7.22
                                                                -------------------
                 Outstanding at December 31, 2005                   6,543,277               $7.27
                                                                ===================

                 Available for grant at December 31, 2005             939,997
                                                                ===================
</TABLE>
       Our stock options and warrants expire at various dates through December
       2015. At December 31, 2005, 2004, and 2003, the weighted-average
       remaining contractual lives of options outstanding were 5.75, 6.16, and
       6.47 years, respectively.

       At December 31, 2005, 2004, and 2003, the number of exercisable shares
       under option was 3,867,118, 3,473,340, and 3,495,361, respectively, and
       the weighted-average exercise price of those options was $6.62, $6.45,
       and $6.11, respectively.

       The per share weighted-average fair value of stock options granted during
       2005 was $4.81 per share for compensatory and $3.91 for non-compensatory
       options; for 2004 was $4.65 per share for compensatory and $4.48 for
       non-compensatory options; and for 2003 was $4.30 per share for
       compensatory and $2.99 for non-compensatory options. The amounts were
       determined as of the options' grant dates using a Black-Scholes
       option-pricing model with the following weighted-average assumptions:
       2005 - risk-free interest rate of 4.24%, volatility of 0.43, an expected
       life of 4.95 years, and no dividend distribution; 2004 - risk-free
       interest rate of 3.62%, volatility of 0.52, an expected life of 5.69
       years, and no dividend distribution; and 2003 - risk-free interest rate
       of 3.45%, volatility of 0.53, an expected life of 5.26 years, and no
       dividend distribution.

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

       Summary information about our stock options outstanding at December 31,
       2005 follows:
<TABLE>
<CAPTION>
                                    Options Outstanding                                       Options Exercisable
          -------------------------------------------------------------------------- --------------------------------------
                                                     Weighted
                                                      Average
                                                     Remaining
                                                     Weighted
                 Range of              Number       Contractual        Average            Number        Weighted Average
             Exercise Prices        outstanding        Life         Exercise Price     Exercisable       Exercise Price
          -------------------------------------------------------------------------- --------------------------------------
             <S>                     <C>               <C>             <C>             <C>                  <C>
             $3.11-$5.99               524,490         4.35             $4.62            454,090             $4.53
             $6.00-$6.04               751,264         5.77             $6.00            433,364             $6.00
             $6.05-$6.49                52,000         5.03             $6.13             51,000             $6.13
             $6.50-$6.94             1,579,210         4.44             $6.50          1,419,610             $6.50
             $6.95-$7.24               664,500         2.66             $7.00            592,932             $7.00
             $7.25-$7.39             1,175,000         6.18             $7.25            278,330             $7.25
             $7.40-$8.49               766,293         6.10             $7.98            477,259             $7.80
             $8.50-$9.99               823,420         8.75             $9.38            117,133             $9.03
             $10.00-$11.24             434,600         9.54            $10.12             19,400            $10.54
             $11.25                     30,000         5.50            $11.25             24,000            $11.25
                                  --------------                                     -------------
             $3.11-$11.25            6,800,777         5.75             $7.24          3,867,118             $6.62
                                  ==============                                     =============
</TABLE>
       Employee Stock Purchase Plan
       In December 1986, GCI adopted an Employee Stock Purchase Plan (the
       "Plan") qualified under Section 401 of the Internal Revenue Code of 1986.
       The Plan provides for acquisition of GCI's Class A and Class B common
       stock at market value. The Plan permits each employee who has completed
       one year of service to elect to participate in the Plan. Through December
       31, 2005, eligible employees could elect to reduce their compensation in
       any even dollar amount up to 50 percent of such compensation (subject to
       certain limitations) up to a maximum of $14,000. Beginning January 1,
       2006, eligible employees can elect to reduce their compensation in any
       even dollar amount up to 50 percent of such compensation (subject to
       certain limitations) up to a maximum of $15,000. Eligible employees may
       contribute up to 10 percent of their compensation with after-tax dollars,
       or they may elect a combination of salary reductions and after-tax
       contributions.

       Eligible employees were allowed to make catch-up contributions of no more
       than $4,000 during the year ended December 31, 2005 and will be able to
       make such contributions limited to $5,000 during the year ended December
       31, 2006. We do not match employee catch-up contributions.

       We may match employee salary reductions and after tax contributions in
       any amount, elected by GCI's Board of Directors each year, but not more
       than 10 percent of any one employee's compensation will be matched in any
       year. Matching contributions vest over the initial six years of
       employment. For the year ended December 31, 2003 the combination of
       salary reductions, after tax contributions and matching contributions
       could not exceed the lesser of 100 percent of an employee's compensation
       or $40,000 (determined after salary reduction) for any year. For the year
       ended December 31, 2004, the combination of salary reductions, after tax
       contributions and matching contributions could not exceed the lesser of
       100 percent of an employee's compensation or $41,000 (determined after
       salary reduction). For the year ended December 31, 2005, the combination
       of salary reductions, after tax contributions and matching contributions
       could not exceed the lesser of 100 percent of an employee's compensation
       or $42,000 (determined after salary reduction).

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

       Employee contributions may be invested in GCI Class A and Class B common
       stock, AT&T common stock, Comcast Corporation common stock, or various
       mutual funds.

       As of April 1, 2004 employee contributions receive up to 100% matching,
       as determined by GCI's Board of Directors each year, in GCI common stock.
       Prior to April 1, 2004 employee contributions invested in GCI common
       stock received up to 100% matching, as determined by GCI's Board of
       Directors each year, in GCI common stock and employee contributions
       invested in other than GCI common stock received up to 50% matching, as
       determined by GCI's Board of Directors each year, in GCI common stock.

       Our matching contributions allocated to participant accounts totaled
       approximately $5,180,000, $4,858,000, and $4,035,000 for the years ended
       December 31, 2005, 2004, and 2003, respectively. The Plan may, at its
       discretion, purchase shares of GCI common stock from GCI at market value
       or may purchase GCI's common stock on the open market. In 2005, 2004 and
       2003 we funded all of our employer-matching contributions through market
       purchases.

(12)   Industry Segments Data
       Our reportable segments are business units that offer different products.
       The reportable segments are each managed separately and offer distinct
       products with different production and delivery processes. The
       determination of a reportable segment is based upon SFAS No. 131,
       "Disclosures about Segments of an Enterprise and Related Information" and
       EITF Issue No. 04-10, "Determining Whether to Aggregate Operating
       Segments That Do Not Meet the Quantitative Thresholds."

       As of January 1, 2005 financial information for our SchoolAccess(R)
       offering to rural school districts and a similar offering to rural
       hospitals and health clinics ("Broadband services") is not included in
       the long-distance services segment but is included in the "All Other"
       category. Additionally, Property and Equipment originally included in the
       Internet services segment were determined to be Broadband services
       Property and Equipment and were reclassified to the "All Other" category.
       Segment and All Other category data for the years ended December 31, 2004
       and 2003 have been reclassified to reflect the changes.

       We have four reportable segments as follows:

         Long-distance services. We offer a full range of common carrier
         long-distance services to commercial, government, other
         telecommunications companies and residential customers, through our
         networks of fiber optic cables, digital microwave, and fixed and
         transportable satellite earth stations.

         Cable services. We provide cable television services to residential,
         commercial and government users in the state of Alaska. Our cable
         systems serve 40 communities and areas in Alaska, including the state's
         four largest urban areas, Anchorage, Fairbanks, the Matanuska-Susitna
         Valley, and Juneau. We offer digital cable television services in
         Anchorage, Barrow, Bethel, Cordova, Fairbanks, Homer, Juneau, Kenai,
         Ketchikan, Kodiak, Kotzebue, the Matanuska-Susitna Valley, Nome,
         Petersburg, Seward, Soldotna, Valdez and Wrangell and retail cable
         modem service (through our Internet services segment) in all of our
         locations in Alaska except Kotzebue.

         Local access services. We offer facilities based competitive local
         exchange services in Anchorage, Fairbanks and Juneau and plan to
         provide similar competitive local exchange services in other locations
         pending regulatory approval and subject to availability of capital.
         Revenue, cost of goods sold and operating expenses for our phone
         directories are included in the local access services segment.

         Internet services. We offer wholesale and retail Internet services to
         both consumer and commercial customers. We offer cable modem service as
         further described in Cable services above. Our undersea fiber optic
         cable systems allow us to offer enhanced services with high-bandwidth
         requirements.

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

       Included in the "All Other" category in the tables that follow are our
       Broadband services, managed services, product sales and cellular
       telephone services. None of these business units has ever met the
       quantitative thresholds for determining reportable segments. Also
       included in the All Other category are corporate related expenses
       including information technology, accounting, legal and regulatory, human
       resources, and other general and administrative expenses.

       We evaluate performance and allocate resources based on (1) earnings or
       loss from operations before depreciation and amortization expense, net
       other expense and income taxes, and (2) operating income or loss. The
       accounting policies of the reportable segments are the same as those
       described in the summary of significant accounting policies in note 1.
       Intersegment sales are recorded at cost plus an agreed upon intercompany
       profit.

       We earn all revenues through sales of services and products within the
       United States. All of our long-lived assets are located within the United
       States of America, except approximately 82% of our undersea fiber optic
       cable systems which transit international waters.

       Summarized financial information for our reportable segments for the
       years ended December 31, 2005, 2004 and 2003 follows (amounts in
       thousands):
<TABLE>
<CAPTION>
                                                        Reportable Segments
                                     ----------------------------------------------------------
                                        Long-                  Local                Total
                                       Distance     Cable    Access    Internet   Reportable      All
                                       Services   Services   Services  Services    Segments      Other      Total
                                     --------------------------------------------------------------------------------
       <S>                           <C>          <C>         <C>       <C>         <C>          <C>       <C>
            2005
            ----
       Revenues:
         Intersegment                $  17,164      3,913      8,472     1,153       30,702       1,344     32,046
         External                      188,751    105,293     51,480    29,957      375,481      67,545    443,026
                                     --------------------------------------------------------------------------------
            Total revenues             205,915    109,206     59,952    31,110      406,183      68,889    475,072
                                     --------------------------------------------------------------------------------

       Cost of goods sold
        (exclusive of depreciation
        and amortization shown
        separately below) ("Cost
        of goods sold"):
         Intersegment                   19,168          1      4,198     3,975       27,342         550     27,892
         External                       38,263     29,925     28,359     7,534      104,081      30,780    134,861
                                     --------------------------------------------------------------------------------
            Total cost of good sold     57,431     29,926     32,557    11,509      131,423      31,330    162,753
                                     --------------------------------------------------------------------------------

       Contribution:
         Intersegment                   (2,004)     3,912      4,274    (2,822)       3,360         794      4,154
         External                      150,488     75,368     23,121    22,423      271,400      36,765    308,165
                                     --------------------------------------------------------------------------------
            Total contribution         148,484     79,280     27,395    19,601      274,760      37,559    312,319
                                     --------------------------------------------------------------------------------

       Selling, general and
        administrative expenses         32,309     29,908     19,858     9,549       91,624      62,838    154,462
       Restructuring charge                584        302        194       152        1,232         735      1,967
       Bad debt expense (recovery)      (2,299)       804        357       168         (970)      2,050      1,080
       Loss on termination of
         capital lease                   2,797        ---        ---       ---        2,797         ---      2,797
                                     --------------------------------------------------------------------------------
</TABLE>

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

<TABLE>
<CAPTION>
                                                        Reportable Segments
                                     ----------------------------------------------------------
                                        Long-                  Local                Total
                                       Distance     Cable    Access    Internet   Reportable      All
                                       Services   Services   Services  Services    Segments      Other      Total
                                     --------------------------------------------------------------------------------
       <S>                           <C>          <C>         <C>       <C>         <C>          <C>       <C>
       Earnings (loss) from
        external operations before
        depreciation, amortization,
        net interest expense and
        income taxes                   117,097     44,354      2,712    12,554      176,717     (28,858)   147,859

       Less depreciation and
        amortization expense            26,258     21,000      7,205     3,960       58,423      15,703     74,126
       Add loss on termination of
         capital lease                   2,797        ---        ---       ---        2,797         ---      2,797
                                     --------------------------------------------------------------------------------

       Operating income (loss)       $  93,636     23,354     (4,493)    8,594      121,091     (44,561)    76,530
                                     ================================================================================

       Total assets                  $ 239,694    324,861     68,815    27,470      660,840     212,935    873,775
                                     ================================================================================

       Capital additions             $  16,321     17,003     21,540     5,760       60,624      20,527     81,151
                                     ================================================================================

              2004
              ----
       Revenues:
         Intersegment                $  14,447      2,596      9,436     3,731       30,210         794     31,004
         External                      179,963    101,437     46,957    25,969      354,326      70,500    424,826
                                     --------------------------------------------------------------------------------
            Total revenues             194,410    104,033     56,393    29,700      384,536      71,294    455,830
                                     --------------------------------------------------------------------------------

       Cost of goods sold:
         Intersegment                   18,099          1      2,624     4,322       25,046       2,824     27,870
         External                       45,980     26,959     29,088     6,991      109,018      30,545    139,563
                                     --------------------------------------------------------------------------------
            Total cost of good sold     64,079     26,960     31,712    11,313      134,064      33,369    167,433
                                     --------------------------------------------------------------------------------

       Contribution:
         Intersegment                   (3,652)     2,595      6,812      (591)       5,164      (2,030)     3,134
         External                      133,983     74,478     17,869    18,978      245,308      39,955    285,263
                                     --------------------------------------------------------------------------------
            Total contribution         130,331     77,073     24,681    18,387      250,472      37,925    288,397
                                     --------------------------------------------------------------------------------

       Selling, general and
        administrative expenses         31,577     28,100     18,316     9,377       87,370      59,990    147,360
       Bad debt expense (recovery)      (3,142)       932        279       154       (1,777)        703     (1,074)
       Early extinguishment of debt        ---        ---        ---       ---          ---       6,136      6,136
                                     --------------------------------------------------------------------------------

       Earnings (loss) from
        external operations before
        depreciation, amortization,
        net interest expense and
        income taxes                   105,548     45,446       (726)    9,447      159,715     (26,874)   132,841

       Less depreciation and
        amortization expense            22,567     18,957      4,941     3,332       49,797      13,074     62,871
       Add early extinguishment of
        debt                               ---        ---        ---       ---          ---       6,136      6,136
                                     --------------------------------------------------------------------------------

       Operating income (loss)       $  82,981     26,489     (5,667)    6,115      109,918     (33,812)    76,106
                                     ================================================================================

       Total assets                  $ 265,529    328,887     55,120    26,512      676,048     173,143    849,191
                                     ================================================================================

       Capital additions             $  42,982     20,350     19,280     9,085       91,697      20,882    112,579
                                     ================================================================================
</TABLE>
                                      134                            (Continued)
<PAGE>
                                    GCI, INC.
                   Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>
                                                        Reportable Segments
                                     ----------------------------------------------------------
                                        Long-                  Local                Total
                                       Distance     Cable    Access    Internet   Reportable      All
                                       Services   Services   Services  Services    Segments      Other      Total
                                     --------------------------------------------------------------------------------
       <S>                           <C>          <C>         <C>       <C>         <C>          <C>       <C>
              2003
              ----
       Revenues:
         Intersegment                $  13,648      2,504      9,763     2,423       28,338         744     29,082
         External                      179,400     96,004     38,998    19,842      334,244      56,553    390,797
                                     --------------------------------------------------------------------------------
            Total revenues             193,048     98,508     48,761    22,265      362,582      57,297    419,879
                                     --------------------------------------------------------------------------------

       Cost of goods sold:
         Intersegment                   17,517          1      2,121     4,484       24,123       2,585     26,708
         External                       46,936     25,988     23,761     5,862      102,547      22,836    125,383
                                     --------------------------------------------------------------------------------
            Total cost of good sold     64,453     25,989     25,882    10,346      126,670      25,421    152,091
                                     --------------------------------------------------------------------------------

       Contribution:
         Intersegment                   (3,869)     2,503      7,642    (2,061)       4,215      (1,841)     2,374
         External                      132,464     70,016     15,237    13,980      231,697      33,717    265,414
                                     --------------------------------------------------------------------------------
            Total contribution         128,595     72,519     22,879    11,919      235,912      31,876    267,788
                                     --------------------------------------------------------------------------------

       Selling, general and
        administrative expenses         30,462     27,101     17,718     8,589       83,870      54,823    138,693
       Bad debt expense (recovery)      (1,187)       651        119        60         (357)        179       (178)
       Impairment charge                 5,434        ---        ---       ---        5,434         ---      5,434
                                     --------------------------------------------------------------------------------

       Earnings (loss) from external
        operations before
        depreciation, amortization,
        net interest expense and
        income taxes                    97,755     42,264     (2,600)    5,331      142,750     (21,285)   121,465

       Depreciation and
        amortization expense            17,519     17,028      3,553     3,056       41,156      11,611     52,767
                                     --------------------------------------------------------------------------------

       Operating income (loss)       $  80,236     25,236     (6,153)    2,275      101,594     (32,896)    68,698
                                     ================================================================================

       Total assets                  $ 294,362    326,435     40,763    22,021      683,581      79,439    763,020
                                     ================================================================================

       Capital additions             $  26,790     15,223      3,608     2,993       48,614      13,865     62,479
                                     ================================================================================
</TABLE>
       Long-distance services, local access services and Internet services are
       billed utilizing a unified accounts receivable system and are not
       reported separately by business segment. All such accounts receivable are
       included above in the long-distance services segment for all periods
       presented.

       A reconciliation of reportable segment revenues to consolidated revenues
       follows (amounts in thousands):
<TABLE>
<CAPTION>
         Years ended December 31,                                                 2005            2004           2003
                                                                            --------------- --------------- --------------
         <S>                                                               <C>                  <C>            <C>
         Reportable segment revenues                                       $    406,183         384,536        362,582
         Plus All Other revenues                                                 68,889          71,294         57,297
         Less intersegment revenues eliminated in consolidation                  32,046          31,004         29,082
                                                                            --------------- --------------- --------------
              Consolidated revenues                                        $    443,026         424,826        390,797
                                                                            =============== =============== ==============
</TABLE>
                                      135                            (Continued)
<PAGE>
                                    GCI, INC.
                   Notes to Consolidated Financial Statements

       A reconciliation of reportable segment earnings from operations before
       depreciation and amortization expense, net interest expense and income
       taxes to consolidated net income before income taxes and cumulative
       effect of a change in accounting principle follows (amounts in
       thousands):
<TABLE>
<CAPTION>
         Years ended December 31,                                                 2005            2004           2003
                                                                            --------------- --------------- --------------
         <S>                                                               <C>                  <C>            <C>
         Reportable segment earnings from external operations before
           depreciation and amortization expense, net interest expense
           and income taxes                                                $    176,717         159,715         142,750
         Less All Other loss from operations before depreciation and
           amortization expense, net interest expense and income taxes           28,858          26,874          21,285
                                                                            -------------- ---------------- --------------
              Consolidated earnings from operations before depreciation
                and amortization expense, net interest expense and
                income taxes                                                    147,859         132,841         121,465
         Less depreciation and amortization expense                              74,126          62,871          52,767
         Add loss on termination of capital lease and early extinguishment
           of debt                                                                2,797           6,136             ---
                                                                            -------------- ---------------- --------------
              Consolidated operating income                                      76,530          76,106          68,698
         Less other expense, net                                                 39,695          37,391          42,538
                                                                            -------------- ---------------- --------------
              Consolidated net income before income taxes and cumulative
                effect of a change in accounting principle                 $     36,835          38,715          26,160
                                                                            ============== ================ ==============
</TABLE>
       A reconciliation of reportable segment operating income to consolidated
       net income before income taxes and cumulative effect of a change in
       accounting principle follows (amounts in thousands):
<TABLE>
<CAPTION>
         Years ended December 31,                                                 2005            2004           2003
                                                                            --------------- --------------- --------------
         <S>                                                               <C>                  <C>            <C>
         Reportable segment operating income                               $    121,091         109,918         101,594
         Less All Other operating loss                                           44,561          33,812          32,896
                                                                            --------------- --------------- --------------
              Consolidated operating income                                      76,530          76,106          68,698
         Less other expense, net                                                 39,695          37,391          42,538
                                                                            --------------- --------------- --------------
              Consolidated net income before income taxes and cumulative
                effect of a change in accounting principle                 $     36,835          38,715          26,160
                                                                            =============== =============== ==============
</TABLE>
       We earn revenues included in the long-distance services segment from MCI,
       a major customer. We earned revenues from MCI, net of discounts, of
       approximately $85,396,000, $81,741,000 and $81,996,000 for the years
       ended December 31, 2005, 2004 and 2003, respectively. As a percentage of
       total revenues, MCI revenues, net of amounts earned from the third party
       obligor, totaled 19.3%, 19.2% and 21.0% for the years ended December 31,
       2005, 2004 and 2003, respectively.

       On July 21, 2002 MCI and substantially all of its active United States
       subsidiaries filed voluntary petitions for reorganization under Chapter
       11 of the United States Bankruptcy Code in the United States Bankruptcy
       Court. On July 22, 2003, the United States Bankruptcy Court approved a
       settlement agreement for pre-petition amounts owed to us by MCI and
       affirmed all of our existing contracts with MCI. MCI emerged from
       bankruptcy protection on April 20, 2004. The remaining pre-petition
       accounts receivable balance owed by MCI to us after this settlement was
       $11.1 million ("MCI credit") which we have used and will continue to use
       as a credit against amounts payable for services purchased from MCI.

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

       After settlement, we began reducing the MCI credit as we utilized it for
       services otherwise payable to MCI. We have accounted for our use of the
       MCI credit as a gain contingency, and, accordingly, are recognizing a
       reduction of bad debt expense as services are provided by MCI and the
       credit is realized. During the years ended December 31, 2005, 2004 and
       2003 we realized approximately $3.3 million, $4.2 million, $2.8 million,
       respectively, of the MCI credit against amounts payable for services
       received from MCI.

       The remaining unused MCI credit totaled $370,000 and $3.7 million at
       December 31, 2005 and 2004, respectively. The credit balance is not
       recorded on the Consolidated Balance Sheet as we are recognizing recovery
       of bad debt expense as the credit is realized.

       In the fourth quarter of 2005 we recognized a decrease in Cost of Goods
       Sold (exclusive of depreciation and amortization shown separately) upon
       the receipt of $9.1 million from the settlement of four separate claims
       with AT&T Corp. and AT&T Alascom, Inc. pursuant to a master agreement.

(13)   Restructuring Charge
       On August 22, 2005 we committed to a reorganization plan to more
       efficiently meet the demands of technological and product convergence by
       realigning along customer lines rather than product lines. The
       reorganization plan included integration of several functions resulting
       in the layoff of 76 employees by November 30, 2005. The reorganization
       was completed and became effective on January 1, 2006. Beginning January
       1, 2006 we will be reorganized under Consumer, Commercial, Network Access
       and Managed Broadband segments, replacing the Long-distance, Cable, Local
       Access and Internet services segments.

       Charges incurred in relation to the reorganization plan were accounted
       for under SFAS No. 146, "Accounting for Costs Associated with Exit or
       Disposal Activities." Our estimate of the total costs to be incurred
       under this plan is $2.1 million of which $2.0 million has been recognized
       as a liability for one-time termination benefits in accordance with SFAS
       No. 146 during the year ended December 31, 2005. The following table sets
       forth the restructuring charges by segment during the year ended December
       31, 2005 (amounts in thousands):
<TABLE>
<CAPTION>
                                                     Reportable Segments
                                 -------------------------------------------------------------
                                    Long-                   Local                    Total
                                   Distance     Cable       Access     Internet    Reportable
                                   Services    Services    Services    Services     Segments     All Other    Total
                                 ----------- ----------- ----------- ----------- -------------- ---------- ----------
<S>                             <C>              <C>         <C>         <C>          <C>          <C>        <C>
Estimated total restructuring
  charges to be incurred        $    658         302         194         152          1,306         782       2,088
                                 =========== =========== =========== =========== ============== ========== ==========
Total restructuring charges
  recognized  at December 31,
  2005                          $    584         302         194         152          1,232         735       1,967
                                 =========== =========== =========== =========== ============== ========== ==========
</TABLE>
       Following is a reconciliation of our beginning and ending liability
       related to the reorganization plan at December 31, 2005 (amounts in
       thousands):

                    Balance at December 31, 2004                 $    ---
                    Restructuring charge incurred                   1,967
                    Cash paid                                      (1,554)
                    Non-cash charges                                 (282)
                                                                  --------
                         Balance at December 31, 2005            $    131
                                                                  ========

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

 (14)  Financial Instruments

       Fair Value of Financial Instruments
       The fair value of a financial instrument is the amount at which the
       instrument could be exchanged in a current transaction between willing
       parties. At December 31, 2005 and 2004 the fair values of cash and cash
       equivalents, net receivables, current portion of notes receivable from
       related parties, current maturities of capital lease obligations and
       long-term debt, accounts payable, accrued payroll and payroll related
       obligations, accrued interest, accrued liabilities, subscriber deposits,
       and due to related party approximate their carrying value due to the
       short-term nature of these financial instruments. The carrying amounts
       and estimated fair values of our financial instruments at December 31,
       2005 and 2004 follow (amounts in thousands):
<TABLE>
<CAPTION>
                                                                            2005                        2004
                                                                --------------------------- ---------------------------
                                                                  Carrying       Fair          Carrying       Fair
                                                                   Amount        Value          Amount        Value
                                                                --------------------------- ---------------------------
          <S>                                                  <C>             <C>             <C>          <C>
          Notes receivable with related parties                $    2,544        2,544           3,345        3,345
          Long-term debt and capital lease obligations         $  474,743      475,325         470,391      474,422
          Other liabilities                                    $    8,657        8,515           8,108        8,108
</TABLE>
       The following methods and assumptions were used to estimate fair values:

           Notes receivable from related parties: Substantially all of the
           carrying value of the long-term portion of notes receivable from
           related parties is estimated to approximate fair value because these
           instruments are subject to variable interest rates.

           Long-term debt and capital lease obligations: The fair value of our
           Senior Notes is estimated based on the quoted market price for the
           same issue. The fair value of our Amended Senior Credit Facility and
           Satellite Transponder Capacity Capital Lease obligation is estimated
           to approximate the carrying value because these instruments are
           subject to variable interest rates. The fair value of our capital
           lease due to related party is estimated based upon the discounted
           amount of future cash flows using our current incremental rate of
           borrowing on our Amended Senior Credit Facility.

           Other Liabilities: Deferred compensation liabilities have no defined
           maturity dates therefore the fair value is the amount payable on
           demand as of the balance sheet date. Asset retirement obligations are
           recorded at their fair value and, over time, the liability is
           accreted to its present value each period. Lease escalation
           liabilities are valued at the discounted amount of future cash flows
           using the Amended Senior Credit Facility interest rate at December
           31, 2005.

       Derivative Instruments and Hedging Activities
       Effective September 21, 2001, we entered into an interest rate swap
       agreement to convert $25.0 million of variable interest rate debt equal
       to the 90 day LIBOR rate plus 334 basis points to 3.98% fixed rate debt
       plus applicable margins. Terms of the interest rate swap mirrored the
       underlying variable rate debt, except the interest rate swap terminated
       on September 21, 2004. We entered into the transaction to help insulate
       us from future increases in interest rates. Under SFAS No. 133, the
       interest rate swap was accounted for as a cash flow hedge. The change in
       the fair value of the interest rate swap net of income taxes was recorded
       as an increase or decrease in Accumulated Other Comprehensive Loss in the
       Consolidated Statements of Stockholder's Equity. The associated cost was
       recognized in Interest Expense in the Consolidated Statements of
       Operations. During the years ended December 31, 2004 and 2003 we
       recognized approximately $526,000 and $681,000, respectively, in
       incremental interest expense resulting from this transaction.

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

(15)   Related Party Transactions

       MCI
       MCI was a related party through December 7, 2004 and during the year
       ended December 31, 2003. In December 2004 on GCI's behalf we repurchased
       from MCI 3,751,509 shares of GCI's Class A common stock after which MCI
       no longer qualifies as a related party. We earned revenues from MCI, net
       of discounts, of approximately $81,741,000 and $81,996,000 for the years
       ended December 31, 2004 and 2003, respectively. As a percentage of total
       revenues, MCI revenues totaled 19.2% and 21.0% for the years ended
       December 31, 2004 and 2003, respectively.

       We paid MCI to distribute our traffic in the contiguous 48 states and
       Hawaii approximately $4,174,000 and $4,570,000 for the years ended
       December 31, 2004 and 2003, respectively.

       Other
       GCI is a related party due to its 100% ownership of our Class A common
       stock. We pay the dividends on GCI's preferred stock. During the year
       ended December 31, 2005 we funded the redemption of GCI's Series B
       preferred stock and the buyback program of GCI's common stock. During the
       year ended December 31, 2004 we funded the redemption of GCI's Series C
       preferred stock, the purchase of MCI's 3,751,509 shares of GCI's Class A
       common stock, and the buyback program of GCI's common stock. During the
       years ended December 31, 2005, 2004 and 2003 we paid GCI's preferred
       stock dividends of $212,000, $1,637,000 and $2,036,000, respectively.
       During the year ended December 31, 2005 we paid $16.1 million to
       repurchase GCI's common stock and $6.6 million to redeem GCI's Series B
       preferred stock. During the year ended December 31, 2004 we paid $31.3
       million, $10.0 million, and $2.4 million to purchase MCI's ownership of
       GCI's Class A common stock, to redeem GCI's Series C preferred stock, and
       to repurchase GCI's common stock, respectively.

       GCI entered into a long-term capital lease agreement in 1991 with the
       wife of our President and CEO for property occupied by us. The leased
       asset was capitalized in 1991 at the owner's cost of $900,000 and the
       related obligation was recorded in the accompanying financial statements.
       The lease agreement was amended in September 2002. The amended lease
       terminates on September 30, 2011. Through September 30, 2003 our monthly
       payment was $20,000, increasing to $20,860 per month October 1, 2003
       through September 30, 2006 and increasing to $21,532 per month October 1,
       2006 through September 30, 2011.

       In January 2001 we entered into an aircraft operating lease agreement
       with a company owned by our President and CEO. The lease was amended
       effective January 1, 2002 and February 25, 2005. The lease is
       month-to-month and may be terminated at any time upon one hundred and
       twenty days written notice. The monthly lease rate is $75,000. Upon
       signing the lease, the lessor was granted an option to purchase 250,000
       shares of GCI Class A common stock at $6.50 per share, all of which are
       exercisable. We paid a deposit of $1.5 million in connection with the
       lease. The deposit will be repaid to us upon the earlier of six months
       after the agreement terminates, or nine months after the date of a
       termination notice. The lessor may sell to us the stock arising from the
       exercise of the stock option or surrender the right to purchase all or a
       portion of the stock option to repay the deposit, if allowed by our debt
       instruments in effect at such time.

(16)   Commitments and Contingencies

       Leases
       Operating Leases as Lessee. We lease business offices, have entered into
       site lease agreements and use satellite transponder and fiber capacity
       and certain equipment pursuant to operating lease arrangements. Rental
       costs, including immaterial amounts of contingent rent expense, under
       such arrangements amounted to approximately $31,951,000, $30,635,000 and
       $25,221,000 for the years ended December 31, 2005, 2004 and 2003,
       respectively.

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

       Capital Leases
       In August 2005 we used proceeds from our Amended Senior Credit Facility
       to pay off our Satellite Transponder Capacity Capital Lease. Outstanding
       principal of $35.8 million was repaid and we incurred a $2.8 million
       charge due to the early termination of the capital lease which is
       classified as Loss on Early Extinguishment of Capital Lease during the
       year ended December 31, 2005 on our Consolidated Statements of
       Operations.

       We entered into a long-term capital lease agreement in 1991 with the wife
       of our President and CEO for property occupied by us as further described
       in note 15.

       A summary of future minimum lease payments for all leases follows
       (amounts in thousands):
<TABLE>
<CAPTION>
           Years ending December 31:                                           Operating      Capital
                                                                              ------------ -------------
             <S>                                                             <C>          <C>
             2006                                                            $   19,359         252
             2007                                                                12,685         258
             2008                                                                11,569         258
             2009                                                                 9,089         258
             2010                                                                 6,786         258
             2011 and thereafter                                                 20,044         194
                                                                              ------------ -------------
               Total minimum lease payments                                  $   79,532       1,478
                                                                              ============
               Less amount representing interest                                               (806)
               Less current maturity of obligations under capital leases                        (44)
                                                                                           -------------
                   Long-term obligations under capital leases, due to
                      related party, excluding current maturity                           $     628
                                                                                           =============
</TABLE>
       The leases generally provide that we pay the taxes, insurance and
       maintenance expenses related to the leased assets. Several of our leases
       include renewal options, escalation clauses and immaterial amounts of
       contingent rent expense. We have no leases that include rent holidays. We
       expect that in the normal course of business leases that expire will be
       renewed or replaced by leases on other properties.

       Telecommunication Services Agreements Agreement and Capacity Leases
       We lease a portion of our 800-mile fiber optic system capacity that
       extends from Prudhoe Bay to Valdez via Fairbanks, and provide management
       and maintenance services for this capacity to a significant customer. The
       telecommunications service agreement is for fifteen years and may be
       extended for up to two successive three-year periods and, upon expiration
       of the extensions, one additional year with a total outstanding
       commitment of $138.1 million at December 31, 2005. On March 24, 2005, the
       lessee announced that they had signed a contract with a competitor to
       build a microwave system to run parallel with our fiber optic cable
       system. The lessee may utilize the microwave system in place of or in
       addition to our fiber optic cable system. We have received notice from
       the lessee of their intent to amend our agreement. We have agreed with
       the lessee that the agreement may be canceled by either party with 60
       days written notice.

       We lease portions of our fiber optic system capacity to certain
       customers. The operating lease agreements have term commitments that
       expire in 2006 through 2010.

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

       A summary of minimum future service revenues, assuming the agreement for
       a portion of our 800-mile fiber optic system capacity is not terminated
       pursuant to contract provisions, follows (amounts in thousands):

              Years ending December 31,
                2006                                          $   24,776
                2007                                              21,174
                2008                                              20,214
                2009                                              17,634
                2010                                              15,054
                2011 and thereafter                               72,076
                                                               ------------
                  Total minimum future service revenues       $  170,928
                                                               ============

       The operating leases do not include contingent lease revenue.
       Letters of Credit
       We have letters of credit totaling $5.5 million outstanding under our
Amended Senior Credit Facility as follows:

       o   $3.0 million to secure payment of certain access charges associated
           with our provision of telecommunications services within the State of
           Alaska,
       o   $2.4 million to meet obligations associated with our insurance
           arrangements, and
       o   $100,000 to secure right of way access.

       Digital Local Phone Service ("DLPS") Equipment Purchase Commitment
       To ensure the necessary equipment is available to us to provision DLPS
       service delivery, we have entered into an agreement to purchase a certain
       number of outdoor, network powered multi-media adapters and other vendor
       equipment. The agreement has a remaining outstanding commitment at
       December 31, 2005 of $6.9 million of which approximately $3.8 million,
       $2.7 million, and $400,000 are expected to be paid during the years ended
       December 31, 2006, 2007 and 2008, respectively.

       Alaska Airline Miles Agreement
       In August 2003 we entered into an agreement with Alaska Airlines, Inc. to
       offer our residential and business customers who make qualifying
       purchases from us the opportunity to accrue mileage awards in the Alaska
       Airlines Mileage Plan. The agreement as amended requires the purchase of
       Alaska Airlines miles during the year ended December 31, 2005 and in
       future years. The agreement has a remaining commitment at December 31,
       2005 totaling approximately $10.8 million.

       Deferred Compensation Plan
       During 1995, we adopted a non-qualified, unfunded deferred compensation
       plan to provide a means by which certain employees may elect to defer
       receipt of designated percentages or amounts of their compensation and to
       provide a means for certain other deferrals of compensation. We may
       contribute matching deferrals at a rate selected by us. Participants
       immediately vest in all elective deferrals and all income and gain
       attributable thereto. Matching contributions and all income and gain
       attributable thereto vest over a six-year period. Participants may elect
       to be paid in either a single lump sum payment or annual installments
       over a period not to exceed 10 years. Vested balances are payable upon
       termination of employment, unforeseen emergencies, death and total
       disability. Participants are general creditors of us with respect to
       deferred compensation plan benefits. Compensation deferred pursuant to
       the plan totaled approximately $37,000, $37,000 and $0 for the years
       ended December 31, 2005, 2004 and 2003, respectively.

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

       Performance Based Incentive Compensation Plan
       During 2003 we adopted and in 2005 we amended a non-qualified,
       performance based incentive compensation plan. The amended incentive
       compensation plan provides additional compensation to certain officers
       and key employees based upon the Company's achievement of specified
       financial performance goals. The Compensation Committee of GCI's Board of
       Directors establishes goals on which executive officers are compensated,
       and management establishes the goals for other covered employees. The
       amended incentive compensation plan goals were met as of December 31,
       2005. We expect to pay awards in cash or by GCI's issuance of its Class A
       common stock by December 31, 2006. Under this plan we recognized expenses
       of $1.2 million, $673,000 and $672,000 during the years ended December
       31, 2005, 2004 and 2003, respectively.

       Guaranteed Service Levels
       Certain customers have guaranteed levels of service with varying terms.
       In the event we are unable to provide the minimum service levels we may
       incur penalties or issue credits to customers.

       Self-Insurance
       We are self-insured for losses and liabilities related primarily to
       health and welfare claims up to $150,000 per incident and $1.0 million
       per lifetime per beneficiary above which third party insurance applies. A
       reserve of $1.1 million and $2.0 million was recorded at December 31,
       2005 and 2004, respectively, to cover estimated reported losses,
       estimated unreported losses based on past experience modified for current
       trends, and estimated expenses for investigating and settling claims. We
       are self-insured for losses and liabilities related to workers'
       compensation claims up to $500,000 above which third party insurance
       applies. A reserve of $119,000 and $122,000 was recorded at December 31,
       2005 and 2004, respectively, to cover estimated reported losses and
       estimated expenses for investigating and settling claims. Actual losses
       will vary from the recorded reserves. While we use what we believe is
       pertinent information and factors in determining the amount of reserves,
       future additions to the reserves may be necessary due to changes in the
       information and factors used.

       We are self-insured for damage or loss to certain of our transmission
       facilities, including our buried, under sea, and above-ground
       transmission lines. If we become subject to substantial uninsured
       liabilities due to damage or loss to such facilities, our financial
       position, results of operations or liquidity may be adversely affected.

       Anchorage Unbundled Network Elements Arbitration
       On June 25, 2004, the Regulatory Commission of Alaska ("RCA") issued a
       comprehensive decision setting forth new rates for unbundled network
       elements, resale, and terms and conditions for interconnection in the
       Anchorage arbitration. Significantly, the RCA raised the loop rate in
       Anchorage to $19.15 but subsequently reduced the loop rate on
       reconsideration to $18.64. The RCA also issued other various arbitration
       rulings adverse to us, including adopting Alaska Communications Systems
       Group, Inc.'s ("ACS") non-recurring and collocation cost models. On
       December 7, 2004, the Commission issued a final order approving an
       interconnection agreement. We have appealed various Commission
       arbitration rulings. On September 30, 2005, the ACS subsidiary serving
       Anchorage filed a petition with the FCC, seeking forbearance from the
       requirement that it provide access to unbundled network elements, and
       that to the extent it voluntarily did so, that the pricing provisions of
       the Act would not apply. We filed our opposition on January 9, 2006, and
       replies are due on February 23, 2006. The FCC is required under statute
       to issue a decision by September 30, 2006, or on its own motion, in an
       additional 90 days. If a decision is not issued within the required
       timeframe, the petition is deemed granted. The ability to obtain
       unbundled network elements is an important element of our local exchange
       and exchange access services business, and the outcome of this proceeding
       could result in a change in our ability to access segments of the
       Anchorage market via the facilities of the ILEC and the cost of doing so.
       We cannot predict at this time the outcome of this proceeding or its
       impact on us; however, our net cost of providing local telephone services
       in Anchorage could be materially adversely affected by an adverse
       decision.

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

       Cable Service Rate Reregulation
       Federal law permits regulation of basic cable programming services rates.
       However, Alaska law provides that cable television service is exempt from
       regulation by the RCA unless 25% of a system's subscribers request such
       regulation by filing a petition with the RCA. At December 31, 2005, only
       the Juneau system is subject to RCA regulation of its basic service
       rates. No petition requesting regulation has been filed for any other
       system. (The Juneau system serves 7.2% of our total basic service
       subscribers at December 31, 2005.) A cable rate increase in the Juneau
       system effective February 1, 2003, did not affect basic programming
       service and therefore did not require RCA approval.

       Litigation and Disputes
       We are routinely involved in various lawsuits, billing disputes, legal
       proceedings and regulatory matters that have arisen in the normal course
       of business.

(17)   Subsequent Event
       GCI agreed to invest approximately $29.5 million in exchange for a
       majority equity interest in Alaska DigiTel, a small Alaska PCS provider.
       The existing owners will retain a minority ownership interest and voting
       control of Alaska DigiTel. The exact percentage and dollar amounts for
       GCI's interest in Alaska DigiTel will vary in proportion to the amount
       the existing owners elect to retain, but GCI expects to own between 75%
       and 85% after completion of the transaction. The transaction is based on
       a post closing enterprise valuation of $37.0 million for Alaska DigiTel.
       On GCI's behalf we will fund the Alaska DigiTel transaction from cash on
       hand, by drawing down additional debt, or a combination of the two.
       Matanuska Telephone Association filed a petition with the FCC against
       GCI's application in February 2006. The Alaska DigiTel transaction
       requires certain regulatory approvals and we are uncertain when it will
       close.


                                      143
<PAGE>
Item 15(b).  Exhibits

       Listed below are the exhibits that are filed as a part of this Report
       (according to the number assigned to them in Item 601 of Regulation S-K):
<TABLE>
<CAPTION>
         Exhibit No.                                               Description
       ----------------------------------------------------------------------------------------------------------------------
          <S>              <C>
          3.1              Articles of Incorporation of the Registrant (18)
          3.2              Bylaws of the Registrant (18)
          10.3             Westin Building Lease (5)
          10.4             Duncan and Hughes Deferred Bonus Agreements (6)
          10.5             Compensation Agreement between General Communication, Inc. and William C. Behnke dated January
                              1, 1997 (19)
          10.6             Order approving Application for a Certificate of Public Convenience and Necessity to operate as
                              a Telecommunications (Intrastate Interexchange Carrier) Public Utility within Alaska (3)
          10.13            MCI Carrier Agreement between MCI Telecommunications Corporation and General Communication,
                              Inc. dated January 1, 1993 (8)
          10.14            Contract for Alaska Access Services Agreement between MCI Telecommunications Corporation and
                              General Communication, Inc. dated January 1, 1993 (8)
          10.15            Promissory Note Agreement between General Communication, Inc. and Ronald A. Duncan, dated
                              August 13, 1993 (9)
          10.16            Deferred Compensation Agreement between General Communication, Inc. and Ronald A. Duncan, dated
                              August 13, 1993 (9)
          10.17            Pledge Agreement between General Communication, Inc. and Ronald A. Duncan, dated August 13,
                              1993 (9)
          10.20            The GCI Special Non-Qualified Deferred Compensation Plan (11)
          10.21            Transponder Purchase Agreement for Galaxy X between Hughes Communications Galaxy, Inc. and GCI
                              Communication Corp. (11)
          10.25            Licenses: (5)
          10.25.1             214 Authorization
          10.25.2             International Resale Authorization
          10.25.3             Digital Electronic Message Service Authorization
          10.25.11            Certificate of Convenience and Public Necessity - Telecommunications Service (Local
                                 Exchange) dated July 7, 2000 (48)
          10.26            ATU Interconnection Agreement between GCI Communication Corp. and Municipality of Anchorage,
                              executed January 15, 1997 (18)
          10.29            Asset Purchase Agreement, dated April 15, 1996, among General Communication, Inc., ACNFI, ACNJI
                              and ACNKSI (12)
          10.30            Asset Purchase Agreement, dated May 10, 1996, among General Communication, Inc., and Alaska
                              Cablevision, Inc. (12)
          10.31            Asset Purchase Agreement, dated May 10, 1996, among General Communication, Inc., and McCaw/Rock
                              Homer Cable System, J.V. (12)
          10.32            Asset Purchase Agreement, dated May 10, 1996, between General Communication, Inc., and
                              McCaw/Rock Seward Cable System, J.V. (12)
          10.33            Amendment No. 1 to Securities Purchase and Sale Agreement, dated October 31, 1996, among
                              General Communication, Inc., and the Prime Sellers Agent (13)
          10.34            First Amendment to Asset Purchase Agreement, dated October 30, 1996, among General
                              Communication, Inc., ACNFI, ACNJI and ACNKSI (13)
          10.36            Order Approving Arbitrated Interconnection Agreement as Resolved and Modified by Order
                              U-96-89(8) dated January 14, 1997 (18)
          10.37            Amendment to the MCI Carrier Agreement executed April 20, 1994 (18)
          10.38            Amendment No. 1 to MCI Carrier Agreement executed July 26, 1994 (16)
          10.39            MCI Carrier Addendum--MCI 800 DAL Service effective February 1, 1994 (16)
          10.40            Third Amendment to MCI Carrier Agreement dated as of October 1, 1994 (16)
</TABLE>
                                      144
<PAGE>
<TABLE>
<CAPTION>
         Exhibit No.                                               Description
       ----------------------------------------------------------------------------------------------------------------------
          <S>              <C>
          10.41            Fourth Amendment to MCI Carrier Agreement dated as of September 25, 1995 (16)
          10.42            Fifth Amendment to the MCI Carrier Agreement executed April 19, 1996 (18)
          10.43            Sixth Amendment to MCI Carrier Agreement dated as of March 1, 1996 (16)
          10.44            Seventh Amendment to MCI Carrier Agreement dated November 27, 1996 (20)
          10.45            First Amendment to Contract for Alaska Access Services between General Communication, Inc.
                              and MCI Telecommunications Corporation dated April 1, 1996 (20)
          10.46            Service Mark License Agreement between MCI Communications Corporation and General
                              Communication, Inc. dated April 13, 1994 (19)
          10.47            Radio Station Authorization (Personal Communications Service License), Issue Date June
                              23, 1995 (19)
          10.50            Contract No. 92MR067A Telecommunications Services between BP Exploration (Alaska), Inc.
                              and GCI Network Systems dated April 1, 1992 (20)
          10.51            Amendment No. 03 to BP Exploration (Alaska) Inc. Contract No. 92MRO67A effective August
                              1, 1996 (20)
          10.52            Lease Agreement dated September 30, 1991 between RDB Company and General Communication,
                              Inc. (3)
          10.54            Order Approving Transfer Upon Closing, Subject to Conditions, and Requiring Filings dated
                              September 23, 1996 (19)
          10.55            Order Granting Extension of Time and Clarifying Order dated October 21, 1996 (19)
          10.58            Employment and Deferred Compensation Agreement between General Communication, Inc. and
                              John M. Lowber dated July 1992 (19)
          10.59            Deferred Compensation Agreement between GCI Communication Corp. and Dana L. Tindall dated
                              August 15, 1994 (19)
          10.60            Transponder Lease Agreement between General Communication Incorporated and Hughes
                              Communications Satellite Services, Inc., executed August 8, 1989 (9)
          10.61            Addendum to Galaxy X Transponder Purchase Agreement between GCI Communication Corp. and
                              Hughes Communications Galaxy, Inc. dated August 24, 1995 (19)
          10.62            Order Approving Application, Subject to Conditions; Requiring Filing; and Approving
                              Proposed Tariff on an Inception Basis, dated February 4, 1997 (19)
          10.66            Supply Contract Between Submarine Systems International Ltd. And GCI Communication Corp.
                              dated as of July 11, 1997. (23)
          10.67            Supply Contract Between Tyco Submarine Systems Ltd. And Alaska United Fiber System Partnership
                              Contract Variation No. 1 dated as of December 1, 1997. (23)
          10.71            Third Amendment to Contract for Alaska Access Services between General Communication,
                              Inc. and MCI Telecommunications Corporation dated February 27, 1998 (25)
          10.80            Fourth Amendment to Contract for Alaska Access Services between General Communication,
                              Inc. and its wholly owned subsidiary GCI Communication Corp., and MCI WorldCom. (27)
          10.89            Fifth Amendment to Contract for Alaska Access Services between General Communication,
                              Inc. and its wholly owned subsidiary GCI Communication Corp., and MCI WorldCom Network
                              Services, Inc., formerly known as MCI Telecommunications Corporation dated August 7,
                              2000 # (31)
          10.90            Sixth Amendment to Contract for Alaska Access Services between General Communication,
                              Inc. and its wholly owned subsidiary GCI Communication Corp., and MCI WorldCom Network
                              Services, Inc., formerly known as MCI Telecommunications Corporation dated February
                              14, 2001 # (31)
          10.91            Seventh Amendment to Contract for Alaska Access Services between General Communication,
                              Inc. and its wholly owned subsidiary GCI Communication Corp., and MCI WorldCom Network
                              Services, Inc., formerly known as MCI Telecommunications Corporation dated March 8,
                              2001 # (31)
</TABLE>
                                      145
<PAGE>
<TABLE>
<CAPTION>
         Exhibit No.                                               Description
       ----------------------------------------------------------------------------------------------------------------------
          <S>              <C>
          10.100           Contract for Alaska Access Services between Sprint Communications Company L.P. and
                              General Communication, Inc. and its wholly owned subsidiary GCI Communication Corp.
                              dated March 12, 2002 # (35)
          10.102           First Amendment to Lease Agreement dated as of September 2002 between RDB Company and GCI
                              Communication Corp. as successor in interest to General Communication, Inc. (37)
          10.103           Agreement and plan of merger of GCI American Cablesystems, Inc. a Delaware corporation
                              and GCI Cablesystems of Alaska, Inc. an Alaska corporation each with and into GCI
                              Cable, Inc. an Alaska corporation, adopted as of December 10, 2002  (37)
          10.104           Articles of merger between GCI Cablesystems of Alaska, Inc. and GCI Cable, Inc., adopted
                              as of December 10, 2002  (37)
          10.105           Aircraft lease agreement between GCI Communication Corp., and Alaska corporation and 560
                              Company, Inc., an Alaska corporation, dated as of January 22, 2001 (37)
          10.106           First amendment to aircraft lease agreement between GCI Communication Corp., and Alaska
                              corporation and 560 Company, Inc., an Alaska corporation, dated as of February 8,
                              2002  (37)
          10.108           Bonus Agreement between General Communication, Inc. and Wilson Hughes (39)
          10.109           Eighth Amendment to Contract for Alaska Access Services between General Communication,
                              Inc. and its wholly owned subsidiary GCI Communication Corp., and MCI WorldCom Network
                              Services, Inc. # (39)
          10.110           Settlement and Release Agreement between General Communication, Inc. and WorldCom, Inc.
                              (39)
          10.112           Waiver letter agreement dated as of February 13, 2004 for Credit, Guaranty, Security and
                              Pledge Agreement  (41)
          10.113           Indenture dated as of February 17, 2004 between GCI, Inc. and The Bank of New York, as
                              trustee  (41)
          10.114           Registration Rights Agreement dated as of February 17, 2004, among GCI, Inc.,  and
                              Deutsche Bank Securities Inc., Jefferies & Company, Inc., Credit Lyonnais Securities
                              (USA), Inc., Blaylock & Partners, L.P., Ferris, Baker Watts, Incorporated, and TD
                              Securities (USA), Inc., as Initial Purchasers (41)
          10.121           First amendment to contract for Alaska Access Services between Sprint Communications
                              Company L.P. and General Communication, Inc. and its wholly owned subsidiary GCI
                              Communication Corp. dated July 24, 2002 # (43)
          10.122           Second amendment to contract for Alaska Access Services between Sprint Communications
                              Company L.P. and General Communication, Inc. and its wholly owned subsidiary GCI
                              Communication Corp. dated December 31, 2003 (43)
          10.123           Third amendment to contract for Alaska Access Services between Sprint Communications
                              Company L.P. and General Communication, Inc. and its wholly owned subsidiary GCI
                              Communication Corp. dated February 19, 2004  (43)
          10.124           Fourth amendment to contract for Alaska Access Services between Sprint Communications
                              Company L.P. and General Communication, Inc. and its wholly owned subsidiary GCI
                              Communication Corp. dated June 30, 2004 # (43)
</TABLE>
                                      146
<PAGE>
<TABLE>
<CAPTION>
         Exhibit No.                                               Description
       ----------------------------------------------------------------------------------------------------------------------
          <S>              <C>
          10.126           Audit Committee Charter (as revised by the board of directors of General Communication,
                              Inc. effective as of February 3, 2005)  (46)
          10.127           Nominating and Corporate Governance Committee Charter (as revised by the board of
                              directors of General Communication, Inc. effective as of February 3, 2005)  (46)
          10.128           Fifth amendment to contract for Alaska Access Services between Sprint Communications
                              Company L.P. and General Communication, Inc. and its wholly owned subsidiary GCI
                              Communication Corp. dated January 22, 2005 # (46)
          10.129           Ninth Amendment to Contract for Alaska Access Services between General Communication,
                              Inc. and its wholly owned subsidiary GCI Communication Corp., and MCI WorldCom Network
                              Services, Inc. # (47)
          10.130           Amended and Restated Credit Agreement among GCI Holdings, Inc. and Calyon New York
                              Branch as Administrative Agent, Sole Lead Arranger, and Co-Bookrunner, The Initial
                              Lenders and Initial Issuing Bank Named Herein as Initial Lenders and Initial Issuing
                              Bank, General Electric Capital Corporation as Syndication Agent, and Union Bank of
                              California, N.A., CoBank, ACB, CIT Lending Services Corporation and Wells Fargo Bank,
                              N.A. as Co-Documentation Agents, dated as of August 31, 2005  (47)
          10.131           Amended and Restated 1986 Stock Option Plan of General Communication, Inc. as of June 7,
                              2005  (47)
          10.132           Amendment #1 to $150 Million EBITDA Incentive Program dated December 30, 2005 (48)
          10.133           Memorandum of Understanding dated effective as of December 4, 2005 setting forth the
                              principal terms and conditions of transactions proposed to be consummated among Alaska
                              DigiTel, LLC, an Alaska limited liability company, all of the members of Denali PCS, LLC,
                              an Alaska limited liability company, and General Communication, Inc., an Alaska corporation # (48)

          14               Code Of Business Conduct and Ethics (originally reported as exhibit 10.118) (42)
          21.1             Subsidiaries of the Registrant  (48)
          31               Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
          32               Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
                             Sarbanes-Oxley Act of 2002 *
          99               Additional Exhibits:
          99.1                The Articles of Incorporation of GCI Communication Corp. (2)
          99.2                The Bylaws of GCI Communication Corp. (2)
          99.7                The Bylaws of GCI Cable, Inc. (14)
          99.8                The Articles of Incorporation of GCI Cable, Inc. (14)
          99.15               The Bylaws of GCI Holdings, Inc.  (19)
          99.16               The Articles of Incorporation of GCI Holdings, Inc.  (19)
          99.27               The Partnership Agreement of Alaska United Fiber System (23)
          99.28               The Bylaws of Potter View Development Co., Inc. (32)
          99.29               The Articles of Incorporation of Potter View Development Co., Inc. (32)
          99.30               The Bylaws of GCI American Cablesystems, Inc. (34)
          99.31               The Articles of Incorporation of GCI American Cablesystems, Inc. (34)
</TABLE>
                                      147
<PAGE>
<TABLE>
<CAPTION>
         Exhibit No.                                               Description
       ----------------------------------------------------------------------------------------------------------------------
          <S>              <C>
          99.32               The Bylaws of GCI Cablesystems of Alaska, Inc. (34)
          99.33               The Articles of Incorporation of GCI Cablesystems of Alaska, Inc. (34)
          99.34               The Bylaws of GCI Fiber Communication, Co., Inc. (34)
          99.35               The Articles of Incorporation of GCI Fiber Communication, Co., Inc. (34)
          99.37               The Articles of Incorporation of Wok 1, Inc. (38)
          99.38               The Bylaws of Wok 1, Inc. (38)
          99.39               The Articles of Incorporation of Wok 2, Inc. (38)
          99.40               The Bylaws of Wok 2, Inc. (38)
</TABLE>
          -------------------------
             #           Certain information has been redacted from this
                          document which we desire to keep undisclosed.
             *           Filed herewith.

          -------------------------
<TABLE>
<CAPTION>
         Exhibit
        Reference                                         Description
      ------------------------------------------------------------------------------------------------------------------
            <S>          <C>
            2            Incorporated by reference to GCI's Annual Report on Form 10-K for the year
                            ended December 31, 1990
            3            Incorporated by reference to GCI's Annual Report on Form 10-K for the year
                            ended December 31, 1991
            5            Incorporated by reference to GCI's Registration Statement on Form 10 (File No.
                            0-15279), mailed to the Securities and Exchange Commission on December 30, 1986
            6            Incorporated by reference to GCI's Annual Report on Form 10-K for the year
                            ended December 31, 1989.
            8            Incorporated by reference to GCI's Current Report on Form 8-K dated June 4,
                            1993.
            9            Incorporated by reference to GCI's Annual Report on Form 10-K for the year
                            ended December 31, 1993.
            10           Incorporated by reference to GCI's Annual Report on Form 10-K for the year
                            ended December 31, 1994.
            11           Incorporated by reference to GCI's Annual Report on Form 10-K for the year
                            ended December 31, 1995.
            12           Incorporated by reference to GCI's Form S-4 Registration Statement dated
                            October 4, 1996.
            13           Incorporated by reference to GCI's Current Report on Form 8-K dated November
                            13, 1996.
            14           Incorporated by reference to GCI's Annual Report on Form 10-K for the year
                            ended December 31, 1996.
            16           Incorporated by reference to GCI's Current Report on Form 8-K dated March 14,
                            1996, filed March 28, 1996.
            18           Incorporated by reference to GCI's Form S-3 Registration Statement (File No.
                            333-28001) dated May 29, 1997.
            19           Incorporated by reference to GCI's Amendment No. 1 to Form S-3/A Registration
                            Statement (File No. 333-28001) dated July 8, 1997.
            20           Incorporated by reference to GCI's Amendment No. 2 to Form S-3/A Registration
                            Statement (File No. 333-28001) dated July 21, 1997.
            21           Incorporated by reference to GCI's Amendment No. 3 to Form S-3/A Registration
                            Statement (File No. 333-28001) dated July 22, 1997.
            23           Incorporated by reference to The Company's Annual Report on Form 10-K for the year ended
                            December 31, 1997.
</TABLE>
                                      148
<PAGE>
<TABLE>
<CAPTION>
         Exhibit
        Reference                                         Description
      ------------------------------------------------------------------------------------------------------------------
            <S>          <C>
            24           Incorporated by reference to The Company's Quarterly Report on Form 10-Q for the period
                            ended June 30, 1998.
            25           Incorporated by reference to The Company's Annual Report on Form 10-K for the year ended
                            December 31, 1998.
            26           Incorporated by reference to The Company's Quarterly Report on Form 10-Q for the period
                            ended March 31, 1999.
            27           Incorporated by reference to The Company's Quarterly Report on Form 10-Q for the period
                            ended June 30, 1999.
            28           Incorporated by reference to The Company's Annual Report on Form 10-K for the year ended
                            December 31, 1999.
            29           Incorporated by reference to The Company's Quarterly Report on Form 10-Q for the period
                            ended June 30, 2000.
            30           Incorporated by reference to The Company's Annual Report on Form 10-K for the year ended
                            December 31, 2000.
            31           Incorporated by reference to The Company's Quarterly Report on Form 10-Q for the period
                            ended March 31, 2001.
            32           Incorporated by reference to The Company's Quarterly Report on Form 10-Q for the period
                            ended June 30, 2001.
            33           Incorporated by reference to The Company's Quarterly Report on Form 10-Q for the period
                            ended September 30, 2001.
            34           Incorporated by reference to The Company's Annual Report on Form 10-K for the year ended
                            December 31, 2001.
            35           Incorporated by reference to The Company's Quarterly Report on Form 10-Q for the period
                            ended June 30, 2002.
            36           Incorporated by reference to The Company's Quarterly Report on Form 10-Q for the period
                            ended September 30, 2002.
            37           Incorporated by reference to The Company's Annual Report on Form 10-K for the year ended
                            December 31, 2002.
            38           Incorporated by reference to The Company's Quarterly Report on Form 10-Q for the period
                            ended March 31, 2003.

                                      149
<PAGE>
            39           Incorporated by reference to The Company's Quarterly Report on Form 10-Q for the period
                            ended June 30, 2003.
            40           Incorporated by reference to The Company's Quarterly Report on Form 10-Q for the period
                            ended September 30, 2003.
            41           Incorporated by reference to The Company's Annual Report on Form 10-K for the year ended
                            December 31, 2003.
            42           Incorporated by reference to The Company's Quarterly Report on Form 10-Q for the period
                            ended March 31, 2004.
            43           Incorporated by reference to The Company's Quarterly Report on Form 10-Q for the period
                            ended June 30, 2004.
            44           Incorporated by reference to GCI's Annual Definitive Proxy Statement on Form 14A
                            filed on April 30, 2004.
            45           Incorporated by reference to The Company's Annual Report on Form 10-K for the year ended
                            December 31, 2004.
            46           Incorporated by reference to The Company's Quarterly Report on Form 10-Q for the period
                            ended March 31, 2005.
            47           Incorporated by reference to The Company's Quarterly Report on Form 10-Q for the period
                            ended September 30, 2005.
            48           Incorporated by reference to The Company's Annual Report on Form 10-K for the year ended
                            December 31, 2005 filed March 23, 2006.
</TABLE>


                                      150
<PAGE>
                                   SIGNATURES

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

                                       GCI, INC.

                                       By: /s/ Ronald A. Duncan
                                          ---------------------------------
                                           Ronald A. Duncan, President
                                           (Chief Executive Officer)
Date:      December 13, 2006

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
<TABLE>
<CAPTION>
                Signature                                        Title                                 Date
-------------------------------------       ------------------------------------------       -------------------
<S>                                         <C>                                                 <C>
/s/ Ronald A. Duncan                        President and Director                            December 13, 2006
-------------------------------------       (Principal Executive Officer)                    -------------------
Ronald A. Duncan

/s/ G. Wilson Hughes                        Vice President and Director                       December 13, 2006
-------------------------------------                                                        -------------------
G. Wilson Hughes

/s/ John M. Lowber                          Secretary, Treasurer and Director                 December 13, 2006
-------------------------------------       (Principal Financial and Accounting              -------------------
John M. Lowber                              Officer)
</TABLE>

                                      151