UNITED
                STATESSECURITIES
                AND EXCHANGE COMMISSIONWASHINGTON,
                D. C.   20549FORM
                10-Q[x]  QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
                EXCHANGE ACT OF 1934For
                the quarterly period ended  June 30,
                2007OR[
                ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                THESECURITIES
                EXCHANGE ACT OF 1934Commission
                file number  1-4996ALLTEL
                CORPORATION(Exact
                name of registrant as specified in its charter)Delaware
            34-0868285(State
                or other jurisdiction of
            (I.R.S.
                Employerincorporation
                or organization)
            Identification
                No.)One
                Allied Drive, Little Rock, Arkansas
            72202(Address
                of principal executive offices)
            (Zip
                Code)Registrant’s
                telephone number, including area code
            (501)
                905-8000(Former
                name, former address and former fiscal year, if changed since last
                report)





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





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 large
      accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):





Large
      accelerated filer  x                                                        Accelerated
      filer   ̈                                                  Non-accelerated
      filer   ̈





Indicate
      by check mark whether the
      registrant is a shell company (as defined by Rule 12b-2 of the Exchange
      Act).              
    ̈  YES   x  NO






Number
      of
      common shares outstanding as of July 31,
      2007:   343,880,806






The
      Exhibit
      Index is located on page 40.













**ALLTEL
                CORPORATION****FORM
                10-Q****TABLE
                OF CONTENTS****Page
                No.**





**PART
                I – FINANCIAL INFORMATION**Item
                1.
            Financial
                Statements
            2Item
                2.
            Management’s
                Discussion and Analysis of Financial
                Conditionand
                Results of Operations
            20Item
                3.
            Quantitative
                and Qualitative Disclosures About
                Market Risk
            36Item
                4.
            Controls
                and Procedures
            36





**PART
                II – OTHER INFORMATION**Item
                1.
            Legal
                Proceedings
            37Item
                1A.
            Risk
                Factors
            37Item
                2.
            Unregistered
                Sales of Equity Securities
                and Use of Proceeds
            37Item
                3.
            Defaults
                Upon Senior Securities
            *Item
                4.
            Submission
                of Matters to a Vote of Security
                Holders
            38Item
                5.
            Other
                Information
            *Item
                6.
            Exhibits
            38





*            
      No reportable information under this item.





Forward-Looking
      Statements


This
      Report on Form 10-Q includes, and future filings by the Company on Form 10-K,
      Form 10-Q and Form 8-K and future oral and written statements by ALLTEL
      Corporation (“Alltel”) and its management may include, certain “forward-looking
      statements” within the meaning of the Private Securities Litigation Reform Act
      of 1995.  Forward-looking statements are subject to uncertainties that
      could cause actual future events and results to differ materially from those
      expressed in the forward-looking statements.  These forward-looking
      statements are based on estimates, projections, beliefs, and assumptions and
      are
      not guarantees of future events and results.  Words such as “expects”,
“anticipates”, “intends”, “plans”, “believes”, “seeks”, “estimates”, and
“should”, and variations of these words and similar expressions, are intended to
      identify these forward-looking statements.  Alltel disclaims any
      obligation to update or revise any forward-looking statement based on the
      occurrence of future events, the receipt of new information, or
      otherwise.





Actual
      future events and results may differ materially from those expressed in these
      forward-looking statements as a result of a number of important
      factors.  Representative examples of these factors include (without
      limitation): the occurrence of any event, change or other circumstances that
      could give rise to the termination of the merger agreement with TPG Partners
      V,
      L.P. and GS Capital Partners VI Fund, L.P.; the inability to complete the merger
      due to the failure to obtain stockholder approval for the merger or the failure
      to satisfy other conditions to completion of the merger, including the receipt
      of all regulatory approvals related to the merger; risks that the proposed
      transaction disrupts current plans and operations; adverse changes in economic
      conditions in the markets served by Alltel; the extent, timing, and overall
      effects of competition in the communications business; material changes in
      the
      communications industry generally that could adversely affect vendor
      relationships with equipment and network suppliers and customer relationships
      with wholesale customers; changes in communications technology; the risks
      associated with the integration of acquired  businesses; adverse
      changes in the terms and conditions of the wireless roaming agreements of
      Alltel; the potential for adverse changes in the ratings given to Alltel’s debt
      securities by nationally accredited ratings organizations; the uncertainties
      related to Alltel’s strategic investments; the effects of litigation; and the
      effects of federal and state legislation, rules, and regulations governing
      the
      communications industry.





In
      addition to these factors, actual future performance, outcomes and results
      may
      differ materially because of more general factors including (without limitation)
      general industry and market conditions and growth rates, economic conditions,
      and governmental and public policy changes.








1


Table
          of Contents





**ALLTEL
      CORPORATION**


**FORM
      10-Q**


**PART
      I - FINANCIAL INFORMATION**


**Item
      1.    Financial
      Statements**


**CONSOLIDATED
                BALANCE SHEETS
                (UNAUDITED)**(Dollars
                in millions, except per share amounts)
            
            June
                30,
            
            
            December
                31,**Assets**
            
            2007
            
            
            2006**Current
                Assets:**Cash
                and short-term investments
            
            $
            456.3
            
            
            $
            934.2Accounts
                receivable (less allowance for doubtfulaccounts
                of $64.5 and $54.9, respectively)
            
            
            839.2
            
            
            
            807.3Inventories
            
            
            206.5
            
            
            
            218.6Prepaid
                expenses and other
            
            
            86.1
            
            
            
            67.7Assets
                related to discontinued operations
            
            
            -
            
            
            
            4.3Total
                current assets
            
            
            1,588.1
            
            
            
            2,032.1Investments
            
            
            187.1
            
            
            
            368.9Goodwill
            
            
            8,421.3
            
            
            
            8,447.0Other
                intangibles
            
            
            2,042.3
            
            
            
            2,129.4**Property,
                Plant and Equipment:**Land
            
            
            328.3
            
            
            
            314.9Buildings
                and improvements
            
            
            990.9
            
            
            
            955.1Operating
                plant and equipment
            
            
            8,313.6
            
            
            
            7,933.8Information
                processing
            
            
            1,114.1
            
            
            
            1,048.1Furniture
                and fixtures
            
            
            178.5
            
            
            
            173.8Under
                construction
            
            
            431.1
            
            
            
            496.0Total
                property, plant and equipment
            
            
            11,356.5
            
            
            
            10,921.7Less
                accumulated depreciation
            
            
            6,257.6
            
            
            
            5,690.3Net
                property, plant and equipment
            
            
            5,098.9
            
            
            
            5,231.4Other
                assets
            
            
            100.9
            
            
            
            89.4Assets
                related to discontinued operations
            
            
            -
            
            
            
            45.5**Total
                Assets**
            
            $
            17,438.6
            
            
            $
            18,343.7**Liabilities
                and Shareholders’ Equity****Current
                Liabilities:**Current
                maturities of long-term debt
            
            $
            39.7
            
            
            $
            36.3Accounts
                payable
            
            
            496.2
            
            
            
            576.1Advance
                payments and customer deposits
            
            
            205.3
            
            
            
            186.2Accrued
                taxes
            
            
            180.5
            
            
            
            114.1Accrued
                dividends
            
            
            43.0
            
            
            
            46.0Accrued
                interest
            
            
            79.1
            
            
            
            79.3Other
                current liabilities
            
            
            185.6
            
            
            
            156.5Liabilities
                related to discontinued operations
            
            
            -
            
            
            
            2.8Total
                current liabilities
            
            
            1,229.4
            
            
            
            1,197.3Long-term
                debt
            
            
            2,743.9
            
            
            
            2,697.4Deferred
                income taxes
            
            
            1,083.4
            
            
            
            1,109.5Other
                liabilities
            
            
            700.2
            
            
            
            677.6Total
                liabilities
            
            
            5,756.9
            
            
            
            5,681.8**Shareholders’
                Equity:**Preferred
                stock, Series C, $2.06, no par value, 10,028 and 10,307shares
                issued and outstanding, respectively
            
            
            0.3
            
            
            
            0.3Common
                stock, par value $1 per share, 1.0 billion shares
                authorized,343,873,537
                and 364,505,820 shares issued and outstanding,
                respectively
            
            
            343.9
            
            
            
            364.5Additional
                paid-in capital
            
            
            3,031.3
            
            
            
            4,296.8Accumulated
                other comprehensive income (loss)
            
            
            (26.1
            )
            
            
            9.5Retained
                earnings
            
            
            8,332.3
            
            
            
            7,990.8Total
                shareholders’ equity
            
            
            11,681.7
            
            
            
            12,661.9**Total
                Liabilities and Shareholders’ Equity**
            
            $
            17,438.6
            
            
            $
            18,343.7





See
      the
      accompanying notes to the unaudited interim consolidated financial
      statements.





2  Table
            of Contents

















**CONSOLIDATED
                STATEMENTS OF INCOME (UNAUDITED)**Three
                Months Ended
            
            
            Six
                Months EndedJune
                30,
            
            
            June
                30,(Millions,
                except per share amounts)
            
            2007
            
            
            2006
            
            
            2007
            
            
            2006**Revenues
                and sales:**Service
                revenues
            
            $
            1,971.6
            
            
            $
            1,734.1
            
            
            $
            3,851.7
            
            
            $
            3,383.3Product
                sales
            
            
            203.5
            
            
            
            211.1
            
            
            
            401.9
            
            
            
            405.2Total
                revenues and sales
            
            
            2,175.1
            
            
            
            1,945.2
            
            
            
            4,253.6
            
            
            
            3,788.5**Costs
                and expenses:**Cost
                of services (excluding depreciation of $197.0, $169.8,$385.8
                and $330.6, respectively, included below)
            
            
            640.2
            
            
            
            574.0
            
            
            
            1,251.2
            
            
            
            1,116.8Cost
                of products sold
            
            
            288.6
            
            
            
            283.3
            
            
            
            576.1
            
            
            
            556.0Selling,
                general, administrative and other
            
            
            479.5
            
            
            
            434.5
            
            
            
            949.4
            
            
            
            860.2Depreciation
                and amortization
            
            
            352.3
            
            
            
            309.6
            
            
            
            701.8
            
            
            
            608.9Integration
                expenses and other charges
            
            
            36.0
            
            
            
            -
            
            
            
            42.3
            
            
            
            10.8Total
                costs and expenses
            
            
            1,796.6
            
            
            
            1,601.4
            
            
            
            3,520.8
            
            
            
            3,152.7**Operating
                income**
            
            
            378.5
            
            
            
            343.8
            
            
            
            732.8
            
            
            
            635.8Equity
                earnings in unconsolidated partnerships
            
            
            16.4
            
            
            
            15.4
            
            
            
            31.4
            
            
            
            28.3Minority
                interest in consolidated partnerships
            
            
            (8.9
            )
            
            
            (11.5
            )
            
            
            (18.6
            )
            
            
            (25.4
            )Other
                income, net
            
            
            5.6
            
            
            
            21.0
            
            
            
            13.3
            
            
            
            31.8Interest
                expense
            
            
            (47.4
            )
            
            
            (86.4
            )
            
            
            (94.1
            )
            
            
            (171.1
            )Gain
                on disposal of assets
            
            
            -
            
            
            
            176.6
            
            
            
            56.5
            
            
            
            176.6Income
                from continuing operations before income taxes
            
            
            344.2
            
            
            
            458.9
            
            
            
            721.3
            
            
            
            676.0Income
                taxes
            
            
            145.7
            
            
            
            170.5
            
            
            
            292.5
            
            
            
            253.4Income
                from continuing operations
            
            
            198.5
            
            
            
            288.4
            
            
            
            428.8
            
            
            
            422.6Income
                (loss) from discontinued operations (net of income taxexpense
                of $1.8, $97.2, $1.7 and $214.7, respectively)
            
            
            (2.8
            )
            
            
            140.5
            
            
            
            (3.0
            )
            
            
            303.7Net
                income
            
            
            195.7
            
            
            
            428.9
            
            
            
            425.8
            
            
            
            726.3Preferred
                dividends
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Net
                income applicable to common shares
            
            $
            195.7
            
            
            $
            428.9
            
            
            $
            425.8
            
            
            $
            726.3**Earnings
                per share:**Basic:Income
                from continuing operations
            
            
            $
                .58
            
            
            
            $ 
                .74
            
            
            
            $1.22
            
            
            
            $1.09Income
                (loss) from discontinued operations
            
            
            (.01
            )
            
            
            .36
            
            
            
            (.01
            )
            
            
            .78Net
                income
            
            
            $
                .57
            
            
            
            $1.10
            
            
            
            $1.21
            
            
            
            $1.87Diluted:Income
                from continuing operations
            
            
            $
                .57
            
            
            
            $ 
                .74
            
            
            
            $1.21
            
            
            
            $1.08Income
                (loss) from discontinued operations
            
            
            (.01
            )
            
            
            .36
            
            
            
            (.01
            )
            
            
            .78Net
                income
            
            
            $
                .56
            
            
            
            $1.10
            
            
            
            $1.20
            
            
            
            $1.86






































See
      the
      accompanying notes to the unaudited interim consolidated financial
      statements.





3


Table
          of Contents

















**CONSOLIDATED
                STATEMENTS OF CASH FLOWS (UNAUDITED)**Six
                Months EndedJune
                30,(Millions)
            
            2007
            
            
            2006**Cash
                Flows from Operating Activities:**Net
                income
            
            $
            425.8
            
            
            $
            726.3Adjustments
                to reconcile net income to net cash provided from operating
                activities:Loss
                (income) from discontinued operations
            
            
            3.0
            
            
            
            (303.7
            )Depreciation
                and amortization expense
            
            
            701.8
            
            
            
            608.9Provision
                for doubtful accounts
            
            
            86.8
            
            
            
            113.4Non-cash
                portion of gain on disposal of assets
            
            
            (56.5
            )
            
            
            (176.6
            )Change
                in deferred income taxes
            
            
            47.1
            
            
            
            21.2Other,
                net
            
            
            (16.2
            )
            
            
            (4.3
            )Changes
                in operating assets and liabilities, net of effects of acquisitions
                and
                dispositions:Accounts
                receivable
            
            
            (120.8
            )
            
            
            (136.1
            )Inventories
            
            
            12.2
            
            
            
            71.0Accounts
                payable
            
            
            (81.7
            )
            
            
            (68.2
            )Other
                current liabilities
            
            
            133.8
            
            
            
            (155.9
            )Other,
                net
            
            
            (22.6
            )
            
            
            (53.7
            )Net
                cash provided from operating activities
            
            
            1,112.7
            
            
            
            642.3**Cash
                Flows from Investing Activities:**Additions
                to property, plant and equipment
            
            
            (477.8
            )
            
            
            (441.2
            )Additions
                to capitalized software development costs
            
            
            (17.2
            )
            
            
            (17.0
            )Purchases
                of property, net of cash acquired
            
            
            (6.2
            )
            
            
            (676.4
            )Proceeds
                from the sale of investments
            
            
            188.7
            
            
            
            199.9Proceeds
                from the return on investments
            
            
            24.8
            
            
            
            22.2Other,
                net
            
            
            0.6
            
            
            
            11.4Net
                cash used in investing activities
            
            
            (287.1
            )
            
            
            (901.1
            )**Cash
                Flows from Financing Activities:**Dividends
                paid on common and preferred stock
            
            
            (90.5
            )
            
            
            (297.2
            )Repayments
                of long-term debt
            
            
            (36.3
            )
            
            
            (0.7
            )Repurchases
                of common stock
            
            
            (1,360.3
            )
            
            
            -Cash
                payments to effect conversion of convertible notes
            
            
            -
            
            
            
            (59.8
            )Distributions
                to minority investors
            
            
            (21.1
            )
            
            
            (20.3
            )Excess
                tax benefits from stock option exercises
            
            
            5.2
            
            
            
            5.7Long-term
                debt issued
            
            
            100.0
            
            
            
            -Common
                stock issued
            
            
            53.0
            
            
            
            88.6Net
                cash used in financing activities
            
            
            (1,350.0
            )
            
            
            (283.7
            )**Cash
                Flows from Discontinued Operations:**Cash
                provided from (used in) operating activities
            
            
            (1.2
            )
            
            
            599.5Cash
                provided from investing activities
            
            
            47.7
            
            
            
            1,492.0Cash
                provided from financing activities
            
            
            -
            
            
            
            1.0Net
                cash provided from discontinued operations
            
            
            46.5
            
            
            
            2,092.5Effect
                of exchange rate changes on cash and short-term
                investments
            
            
            -
            
            
            
            (5.9
            )Increase
                (decrease) in cash and short-term investments
            
            
            (477.9
            )
            
            
            1,544.1**Cash
                and Short-term Investments:**Beginning
                of the period
            
            
            934.2
            
            
            
            982.4End
                of the period
            
            $
            456.3
            
            
            $
            2,526.5














See
      the
      accompanying notes to the unaudited interim consolidated financial
      statements.





4  Table
            of Contents



















**CONSOLIDATED
                STATEMENT OF SHAREHOLDERS’ EQUITY (UNAUDITED)**AccumulatedAdditional
            
            
            OtherPreferred
            
            
            Common
            
            
            Paid-In
            
            
            Comprehensive
            
            
            RetainedStock
            
            
            Stock
            
            
            Capital
            
            
            Income
                (Loss)
            
            
            Earnings
            
            
            TotalBalance
                at December 31, 2006
            
            $
            0.3
            
            
            $
            364.5
            
            
            $
            4,296.8
            
            
            $
            9.5
            
            
            $
            7,990.8
            
            
            $
            12,661.9Cumulative
                effect adjustment to adopt recognitionand
                measurement provisions of FASB InterpretationNo.
                48 (See Note 2)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            3.2
            
            
            
            3.2Net
                income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            425.8
            
            
            
            425.8Other
                comprehensive loss, net of tax (See Note 10)Unrealized
                holding losses on investments,net
                of reclassification adjustments
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (37.5
            )
            
            
            -
            
            
            
            (37.5
            )Defined
                benefit pension plans
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1.8
            
            
            
            -
            
            
            
            1.8Other
                postretirement benefit plan
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            0.1
            
            
            
            -
            
            
            
            0.1Comprehensive
                income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (35.6
            )
            
            
            425.8
            
            
            
            390.2Employee
                plans, net
            
            
            -
            
            
            
            1.2
            
            
            
            51.6
            
            
            
            -
            
            
            
            -
            
            
            
            52.8Issuance
                of restricted stock
            
            
            -
            
            
            
            0.2
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            0.2Amortization
                of stock-based compensation
            
            
            -
            
            
            
            -
            
            
            
            15.4
            
            
            
            -
            
            
            
            -
            
            
            
            15.4Tax
                benefit for non-qualified stock options
            
            
            -
            
            
            
            -
            
            
            
            5.8
            
            
            
            -
            
            
            
            -
            
            
            
            5.8Repurchases
                of stock
            
            
            -
            
            
            
            (22.0
            )
            
            
            (1,338.3
            )
            
            
            -
            
            
            
            -
            
            
            
            (1,360.3
            )Dividends:Common
                - $.25 per share
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (87.5
            )
            
            
            (87.5
            )Preferred
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Balance
                at June 30, 2007
            
            $
            0.3
            
            
            $
            343.9
            
            
            $
            3,031.3
            
            
            $
            (26.1
            )
            
            $
            8,332.3
            
            
            $
            11,681.7































































































See
      the
      accompanying notes to the unaudited interim consolidated financial
      statements.





5  Table
            of Contents








**NOTES
      TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS**








**1.**
            **General:**


Basis
      of Presentation– The consolidated financial statements as of June 30, 2007
      and December 31, 2006 and for the three and six month periods ended June 30,
      2007 and 2006 of ALLTEL Corporation (“Alltel” or the “Company”) are
      unaudited.  The consolidated financial statements have been prepared
      in accordance with generally accepted accounting principles for interim
      financial reporting and Securities and Exchange Commission (“SEC”) rules and
      regulations.  Certain information and footnote disclosures have been
      condensed or omitted in accordance with those rules and
      regulations.  The consolidated financial statements reflect all
      adjustments (consisting only of normal recurring adjustments) which are, in
      the
      opinion of management, necessary for a fair presentation of the financial
      position and operating results for the interim periods presented.





Classification
      of Operations Following the Spin-off of the Wireline Telecommunications
      Business– On July 17, 2006, Alltel completed the spin-off of its wireline
      telecommunications business to its stockholders and the merger of that wireline
      business with Valor Communications Group, Inc. (“Valor”).  The
      spin-off included the majority of Alltel’s communications support services,
      including directory publishing, information technology outsourcing services,
      retail long-distance and the wireline sales portion of communications
      products.  The new wireline company formed in the merger of Alltel’s
      wireline operations and Valor is named Windstream Corporation
      (“Windstream”).  In accordance with Statement of Financial Accounting
      Standards (“SFAS”) No. 144 “Accounting for the Impairment or Disposal of
      Long-Lived Assets”, the results of operations, assets, liabilities, and cash
      flows of the wireline telecommunications business have been presented as
      discontinued operations for all periods presented.  See Note 9 for a
      further discussion of the spin-off of the wireline telecommunications
      business.





Following
      the spin-off, Alltel provides wireless voice and data communications services
      to
      more than 12 million customers in 35 states.  Through roaming
      arrangements with other carriers, Alltel is able to offer its customers wireless
      services covering more than 95 percent of the U.S. population.  Alltel
      manages its wireless business and retained portion of communications support
      services as a single operating segment, and accordingly, Alltel’s continuing
      operations consist of a single reportable business segment, wireless
      communications services.  Unless otherwise noted, the footnote
      disclosures accompanying these unaudited interim consolidated financial
      statements exclude information related to the spun-off wireline
      telecommunications business.





**2.**
            **Accounting
                Changes:**


Changes
      in Accounting Principle– In June 2006, the Financial Accounting Standards
      Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes - an interpretation of FASB Statement No. 109” (“FIN 48”), which
      clarified the accounting for uncertainty in income taxes recognized in an
      enterprise’s financial statements in accordance with SFAS No. 109, “Accounting
      for Income Taxes”.  FIN 48 prescribes a recognition threshold and
      measurement attribute for the financial statement recognition and measurement
      of
      a tax position taken or expected to be taken in a tax return.  FIN 48
      also provides guidance on derecognition, classification, interest and penalties,
      accounting in interim periods, disclosure, and transition.





Effective
      January 1, 2007, Alltel adopted the provisions of FIN 48.  As a result
      of the implementation of FIN 48, the Company recognized an approximate $3.2
      million decrease in its reserves for uncertain tax positions, the offsetting
      effects of which resulted in a corresponding increase to the January 1, 2007
      balance of retained earnings.  The Company’s gross unrecognized tax
      benefits totaled $93.7 million at January 1, 2007.  Approximately
      $37.4 million of the total amount of unrecognized tax benefits (net of federal
      tax benefits on state issues) relates to tax positions that would, if
      recognized, affect Alltel’s effective tax rate in future periods.  As
      of January 1, 2007, Alltel believed that it was reasonably possible that
      approximately $50.0 to $60.0 million of gross unrecognized tax benefits for
      uncertain tax positions, related to both income inclusion and tax deductibility
      issues, would reverse in the following twelve months.  Of that amount,
      approximately $2.0 million relates to payments to be made to taxing authorities,
      $14.6 million relates to an Internal Revenue Service (“IRS”) initiative
      described below and the balance relates to the lapsing of various statutes
      of
      limitations.





Alltel’s
      only significant tax jurisdiction is the U.S. federal tax
      jurisdiction.  In 2006, Alltel elected to participate in an IRS
      initiative undertaken to address certain implications of FIN 48.  In
      connection with that initiative, on January 30, 2007, Alltel entered into a
      Memorandum of Understanding with the IRS to settle two issues.  As a
      result of this action, in the first quarter of 2007, Alltel reduced its gross
      unrecognized tax benefits by $14.6 million and its gross deferred tax assets
      by
      $0.8 million. The corresponding effects of the reduction in unrecognized tax
      benefits (including interest and any related tax benefits) of $13.8 million
      resulted in an increase to additional paid-in capital of $7.7 million, a
      decrease in goodwill of $4.0 million and an increase to current income taxes
      payable of $2.1 million.  As of June 30, 2007, no other material
      changes in Alltel’s unrecognized tax benefits have occurred subsequent to the
      Company’s adoption of FIN 48 on January 1, 2007.




6  Table
            of Contents








**NOTES
      TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL
      STATEMENTS-(Continued)**


**_____**





**2.**
            **Accounting
                Changes, Continued:**


During
      the fourth quarter of 2006, Alltel entered into a final settlement with the
      IRS
      with respect to its federal income tax returns for the tax years 1997 through
      2003, however, the statutes of limitations remain open through September 15,
      2007 for the years 2002 and 2003.  The audits and related statutes of
      limitations applicable to Alltel’s federal income tax returns for the tax years
      2004 through 2006 also remain open.  The IRS recently began its audits
      of the Company’s 2004 and 2005 federal income tax returns.  Alltel’s
      open tax years for state income tax jurisdictions range from 1997 to
      2006.





Consistent
      with Alltel’s past practices, interest charges on potential assessments and any
      penalties assessed by taxing authorities are classified as income tax expense
      within the Company’s consolidated statements of income.  The Company
      has accrued $28.7 million for the payment of interest and $0.6 million for
      the
      payment of penalties related to its gross unrecognized tax benefits as of
      January 1, 2007.





In
      December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment”, which is
      a revision of SFAS No. 123, “Accounting for Stock-Based Compensation” and
      supercedes Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for
      Stock Issued to Employees” and related Interpretations.  On March 25,
      2005, the SEC staff issued Staff Accounting Bulletin (“SAB”) 107, which
      summarized the staff’s views regarding the interaction between SFAS No. 123(R)
      and certain SEC rules and regulations and provided additional guidance regarding
      the valuation of share-based payment arrangements for public
      companies.  SFAS No. 123(R) requires all share-based payments to
      employees, including grants of employee stock options, to be valued at fair
      value on the date of grant, and to be expensed over the employee’s requisite
      service period.





Effective
      January 1, 2006, the Company adopted the provisions of SFAS No. 123(R) using
      the
      modified prospective application method and applied the provisions of SAB 107
      in
      its adoption of SFAS No. 123(R).  Operating results for prior periods
      were not restated.  Under the modified prospective transition method,
      Alltel is required to recognize compensation cost for all stock option awards
      granted after January 1, 2006 and for all existing awards for which the
      requisite service had not been rendered as of the date of
      adoption.  Compensation expense for the unvested awards outstanding as
      of January 1, 2006 is recognized over the remaining requisite service period
      based on the fair value of the awards on the date of grant, as previously
      calculated by Alltel in developing its pro forma disclosures in accordance
      with
      the provisions of SFAS No. 123.





The
      effect of adopting SFAS No. 123(R) consisted of compensation expense for stock
      options issued by Alltel and resulted in pretax charges of $5.4 million and
      $10.2 million, which decreased net income $4.1 million and $7.7 million, or
      $.01
      per share and $.02 per share, for the three and six months ended June 30, 2006,
      respectively.  (See Note 5 for a further discussion of the Company’s
      stock-based compensation plans.)





**3.**
            **Acquisitions:**


On
      October 3, 2006, Alltel completed the purchase of Midwest Wireless Holdings
      of
      Mankato, Minnesota (“Midwest Wireless”) for $1,083.5 million in
      cash.  The final purchase price included $8.3 million of working
      capital adjustments.  In this transaction, Alltel acquired wireless
      properties, including 850 MHz licenses and Personal Communications Services
      (“PCS”) spectrum covering approximately 2.0 million potential customers
      (“POPs”), network assets and approximately 450,000 customers in select markets
      in Minnesota, Iowa and Wisconsin.  Given the close proximity to
      year-end that this acquisition was completed, the value of certain assets and
      liabilities were based on preliminary valuations and subject to adjustment
      as
      additional information was obtained.  During 2007, Alltel recorded
      employee termination benefits of $6.9 million, including involuntary severance
      and related benefits to be provided to 154 former Midwest Wireless
      employees.  Alltel also recorded contract termination costs of $2.2
      million primarily related to the cancellation of a third party billing services
      agreement.  The employee benefit and contract termination costs were
      recognized in accordance with Emerging Issues Task Force Issue No. 95-3,
“Recognition of Liabilities in Connection with a Purchase Business Combination”
(“EITF 95-3”), as liabilities assumed in the business combination.  As
      of June 30, 2007, Alltel had paid $5.3 million in employee termination benefits,
      and 17 of the scheduled employee terminations had been completed.





During
      the second quarter of 2006, Alltel purchased for $217.5 million in cash wireless
      properties covering approximately 727,000 POPs in Illinois, Texas and
      Virginia.  On March 16, 2006, Alltel purchased from Palmetto
      MobileNet, L.P. for $456.3 million in cash the remaining ownership interests
      in
      ten wireless partnerships that cover approximately 2.0 million POPs in North
      and
      South Carolina.  Prior to this transaction, Alltel owned a 50 percent
      interest in each of the ten wireless partnerships.  During the first
      quarter of 2006, Alltel also acquired for $2.6 million in cash the remaining
      ownership interest in a wireless property in Wisconsin in which the Company
      owned a majority interest.








7  Table
            of Contents








**NOTES
      TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL
      STATEMENTS-(Continued)**


**_____**





**3.**
            **Acquisitions,
                Continued:**


During
      2007, Alltel adjusted the purchase price allocations related to its 2006
      acquisitions primarily for the recognition of employee benefit and contract
      termination costs associated with the Midwest Wireless acquisition discussed
      above.  These adjustments to the purchase price allocation resulted in
      a reduction to the preliminary values assigned to acquired net assets of $7.7
      million with an offsetting increase to goodwill compared to the corresponding
      values that had been previously recorded in the Company’s consolidated balance
      sheet as of December 31, 2006.





Unaudited
      pro forma financial information related to the 2006 acquisitions has not been
      presented because the acquisitions, individually or in the aggregate, were
      not
      material to Alltel’s consolidated results of operations for all periods
      presented.  During the first six months of 2007, the Company incurred
      integration expenses related to its 2006 acquisitions, principally consisting
      of
      costs for branding, signage and computer system conversions.  (See
      Note 7 for a further discussion of the integration expenses recorded by Alltel
      during the three and six month periods ended June 30, 2007.)





On
      August
      1, 2005, Alltel and Western Wireless Corporation (“Western Wireless”) completed
      the merger of Western Wireless into a wholly-owned subsidiary of
      Alltel.  As a result of the merger, Alltel added approximately 1.3
      million domestic wireless customers, adding operations in nine new states,
      including California, Idaho, Minnesota, Montana, Nevada, North Dakota, South
      Dakota, Utah and Wyoming, and expanding its wireless operations in Arizona,
      Colorado, New Mexico and Texas.  In the merger, each share of Western
      Wireless common stock was exchanged for 0.535 shares of Alltel common stock
      and
      $9.25 in cash unless the shareholder made an all-cash election, in which case
      the shareholder received $40 in cash.  Western Wireless shareholders
      making an all-stock election were subject to proration and received
      approximately 0.539 shares of Alltel common stock and $9.18 in
      cash.  In the aggregate, Alltel issued approximately 54.3 million
      shares of stock valued at $3,430.4 million and paid approximately $933.4 million
      in cash.  Through its wholly-owned subsidiary that merged with Western
      Wireless, Alltel also assumed debt of approximately $2.1 billion.  On
      the date of closing, Alltel repaid approximately $1.3 billion of term loans
      representing all borrowings outstanding under Western Wireless’ credit
      facility.  During 2005, Alltel repurchased all of the issued and
      outstanding 9.25 percent senior notes due July 15, 2013 of Western Wireless,
      representing an aggregate principal amount of $600.0 million.  Alltel
      also assumed $115.0 million of 4.625 percent convertible subordinated notes
      due
      2023 that were issued by Western Wireless in June 2003 (the “Western Wireless
      notes”).  Upon closing of the merger, each $1,000 principal amount of
      Western Wireless notes became convertible into shares of Alltel common stock
      and
      cash based on the mixed-election exchange ratio.  During 2006, an
      aggregate principal amount of $113.0 million of the Western Wireless notes
      were
      converted.





During
      the first quarter of 2007, Alltel adjusted the purchase price allocation related
      to the Western Wireless acquisition to adjust certain income tax liabilities
      primarily related to the international operations.  The effects of
      these adjustments resulted in a reduction in goodwill of $31.2
      million.  During the first quarter of 2006, Alltel completed the
      integration of the domestic operations acquired from Western
      Wireless.  In connection with this integration, the Company incurred
      integration expenses, principally consisting of costs for branding, signage,
      retail store redesigns and computer system conversions.  (See Note 7
      for a discussion of integration expenses recorded by Alltel during the first
      quarter of 2006).  Employee termination benefits of $23.8 million,
      including involuntary severance and related benefits to be provided to 337
      former Western Wireless employees, and employee retention bonuses of $7.4
      million payable to approximately 1,150 former Western Wireless employees were
      recorded during 2005.  These employee benefit costs were recognized in
      accordance with EITF 95-3 as liabilities assumed in the business
      combination.  As of June 30, 2007, Alltel had paid $31.2 million in
      employee termination and retention benefits, and all of the scheduled employee
      terminations had been completed.





**4.**
            **Goodwill
                and Other Intangible
                Assets:**


Goodwill
      represents the excess of cost over the fair value of net identifiable tangible
      and intangible assets acquired through various business
      combinations.  The cost of acquired entities at the date of the
      acquisition is allocated to identifiable assets, and the excess of the total
      purchase price over the amounts assigned to identifiable tangible and intangible
      assets is recorded as goodwill.  As of January 1, 2007, Alltel
      completed the annual impairment reviews of its goodwill and other
      indefinite-lived intangible assets and determined that no write-down in the
      carrying value of these assets was required.


























8  Table
            of Contents








**NOTES
      TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL
      STATEMENTS-(Continued)**


**_____**





**4.**
            **Goodwill
                and Other Intangible Assets,
                Continued:**


The
      changes in the carrying amount of goodwill for the six months ended June 30,
      2007 were as follows:


(Millions)Balance
                at December 31, 2006
            
            $
            8,447.0Acquired
                during the period
            
            
            1.8Other
                adjustments
            
            
            (27.5
            )Balance
                at June 30, 2007
            
            $
            8,421.3





The
      carrying values of indefinite-lived intangible assets other than goodwill were
      as follows:


June
                30,
            
            
            December
                31,(Millions)
            
            2007
            
            
            2006Cellular
                and Personal Communications Services licenses
            
            $
            1,661.5
            
            
            $
            1,657.8





Intangible
      assets subject to amortization were as follows:


June
                30, 2007NetGross
            
            
            Accumulated
            
            
            Carrying(Millions)
            
            Cost
            
            
            Amortization
            
            
            ValueCustomer
                lists
            
            $
            946.6
            
            
            $
            (568.7
            )
            
            $
            377.9Roaming
                agreement
            
            
            6.1
            
            
            
            (3.4
            )
            
            
            2.7Non-compete
                agreement
            
            
            0.3
            
            
            
            (0.1
            )
            
            
            0.2$
            953.0
            
            
            $
            (572.2
            )
            
            $
            380.8December
                31, 2006NetGross
            
            
            Accumulated
            
            
            Carrying(Millions)
            
            Cost
            
            
            Amortization
            
            
            ValueCustomer
                lists
            
            $
            946.6
            
            
            $
            (478.6
            )
            
            $
            468.0Roaming
                agreement
            
            
            6.1
            
            
            
            (2.5
            )
            
            
            3.6$
            952.7
            
            
            $
            (481.1
            )
            
            $
            471.6





Amortization
      expense for intangible assets subject to amortization was $45.2 million and
      $91.1 million, respectively, for the three and six month periods ended June
      30,
      2007, compared to $47.0 million and $92.4 million for the same periods of 2006.
      Amortization expense for intangible assets subject to amortization is estimated
      to be $170.1 million in 2007, $127.8 million in 2008, $78.5 million in 2009,
      $46.7 million in 2010 and $21.1 million in 2011.





**5.**
            **Stock-Based
                Compensation:**


Stock-based
      compensation expense was as follows for the three and six months ended June
      30:


Three
                Months Ended
            
            
            Six
                Months Ended(Millions,
                except per share amounts)
            
            2007
            
            
            2006
            
            
            2007
            
            
            2006Compensation
                expense related to stock options issued by Alltel
            
            $
            4.2
            
            
            $
            5.4
            
            
            $
            8.8
            
            
            $
            10.2Compensation
                expense related to stock options converted to Alltel stock
              optionsin
                connection with the acquisition of Western Wireless
            
            
            0.3
            
            
            
            0.5
            
            
            
            0.5
            
            
            
            1.0Compensation
                expense related to restricted stock awards
            
            
            3.0
            
            
            
            2.6
            
            
            
            6.1
            
            
            
            6.3Compensation
                expense before income taxes
            
            
            7.5
            
            
            
            8.5
            
            
            
            15.4
            
            
            
            17.5Income
                tax benefit
            
            
            (2.5
            )
            
            
            (2.6
            )
            
            
            (4.9
            )
            
            
            (5.4
            )Compensation
                expense, net of tax
            
            $
            5.0
            
            
            $
            5.9
            
            
            $
            10.5
            
            
            $
            12.1





Under
      the
      provisions of SFAS No. 123(R), stock-based compensation expense recognized
      during the period is based on the portion of the share-based payment awards
      that
      is ultimately expected to vest.  Accordingly, stock-based compensation
      expense recognized in the three and six months ended June 30, 2007 and 2006
      has
      been reduced for estimated forfeitures.  SFAS No. 123(R) requires
      forfeitures to be estimated at the time of grant and revised, if necessary,
      in
      subsequent periods if




9  Table
            of Contents








**NOTES
      TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL
      STATEMENTS-(Continued)**


_____





**5.**
            **Stock-Based
                Compensation, Continued:**


actual
      forfeitures differ from those estimates.  Pre-vesting forfeitures were
      based on Alltel’s historical experience and were estimated to be 4.7 percent and
      5.1 percent for the six months ended June 30, 2007 and 2006,
      respectively.  Compensation expense for stock option awards granted
      after January 1, 2006 is expensed using a straight-line single option
      method.  Stock-based compensation expense is included in selling,
      general, administrative and other expenses within Alltel’s unaudited interim
      consolidated statements of income.  Of the total pretax stock-based
      compensation expense presented in the table above, amounts allocated to
      discontinued operations totaled $1.4 million and $2.4 million for the three
      and
      six months ended June 30, 2006, respectively.





Under
      the
      Company’s stock-based compensation plans, Alltel may grant fixed and
      performance-based incentive and non-qualified stock options, restricted stock,
      and other equity securities to officers and other management
      employees.  The maximum number of shares of the Company’s common stock
      that may be issued to officers and other management employees under all stock
      compensation plans in effect at June 30, 2007 was 27.8 million
      shares.





Stock
      Options– Fixed stock options granted under the stock-based compensation
      plans generally become exercisable over a period of one to five years after
      the
      date of grant.  Under Alltel’s stock option plan for non-employee
      directors (the “Directors’ Plan”), the Company grants fixed, non-qualified stock
      options to directors for up to 1.0 million shares of common
      stock.  Under the Directors’ Plan, directors receive a one-time option
      grant to purchase 12,000 shares of common stock when they join the
      Board.  Directors are also granted each year, on the date of the
      annual meeting of stockholders, an option to purchase a specified number of
      shares of common stock (currently 7,800 shares).  Options granted
      under the Directors’ Plan become exercisable the day immediately preceding the
      date of the first annual meeting of stockholders following the date of
      grant.  For all plans, the exercise price of the option equals the
      market value of Alltel’s common stock on the date of grant.  The
      maximum term for each stock option granted is 10 years.  The Company’s
      practice has been to issue new shares of common stock upon the exercise of
      stock
      options.





The
      fair
      value of each option award was estimated on the grant date using the
      Black-Scholes option valuation model and the following assumptions:


Six
                Months Ended
              June
                30,2007
            2006Weighted
                average grant date fair value per share
            $17.41
            $18.55Expected
                life
            5.9
                years
            5.9
                yearsExpected
                volatility
            20.9%
            22.9%Dividend
                yield
            0.8%
            0.8%Risk-free
                interest rate
            4.7%
            4.5%





The
      expected life assumption was determined based on the Company’s historical stock
      option exercise experience using a rolling 10-year average for three separate
      groups of employees that exhibited similar historical exercise
      behavior.  Alltel believes that its historical experience is the best
      estimate of future exercise patterns currently available.  The
      expected volatility assumption was based on a combination of the implied
      volatility derived from publicly traded options to purchase Alltel common stock
      and the Company’s historical common stock volatility.  Implied
      volatility was derived from one and two-year traded options, while historical
      volatility was calculated using the weighted average of historical daily price
      changes of the Company’s common stock over the most recent period equal to the
      expected life of the stock option on the date of grant.  Alltel
      believes that estimating expected volatility based on a combination of implied
      and historical volatility is more representative of future stock price trends
      than using historical volatility alone.





The
      expected dividend yield was based on the Company’s approved annual dividend rate
      in effect following the completion of the spin-off of the Company’s wireline
      operations to Alltel’s shareholders of $.50 per share.  Future
      increases to the dividend rate were not included in the development of the
      dividend yield assumption because Alltel’s board of directors has not approved
      any increase to the dividend rate following completion of the
      spin-off.  The risk-free interest rate was determined using the
      implied yield currently available for zero-coupon U.S. government issues with
      a
      remaining term equal to the expected life of the stock options.














10  Table
            of Contents








**NOTES
      TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL
      STATEMENTS-(Continued)**


_____





**5.**
            **Stock-Based
                Compensation, Continued:**


Activity
      under all of the Company’s stock option plans for the six months ended June 30,
      2007 was as follows:


(Thousands)
            
            
            WeightedNumber
                of
            
            
            Average
                PriceShares
            
            
            Per
                ShareOutstanding
                at December 31, 2006
            16,176.2
            
            
            $46.78Granted
            1,601.4
            
            
            61.66Exercised
            (1,157.7)
            
            
            46.90Forfeited
            (107.1)
            
            
            45.83Expired
            (1.2)
            
            
            26.18Outstanding
                at June 30, 2007
            16,511.6
            
            
            $48.22Exercisable
                at end of period
            12,223.3
            
            
            $46.78





The
      total
      intrinsic value of stock options exercised during the six months ended June
      30,
      2007 was $19.6 million, and Alltel received $54.3 million in cash from the
      exercise of stock options.  As of June 30, 2007, the total intrinsic
      value of stock options outstanding was $319.1 million, while the total intrinsic
      value of stock options exercisable as of June 30, 2007 was $253.9
      million.





Non-vested
      stock options as of June 30, 2007 and changes during the six months ended June
      30, 2007 were as follows:


(Thousands)
            
            
            WeightedNumber
                of
            
            
            Average
                PriceShares
            
            
            Per
                ShareNon-vested
                at December 31, 2006
            4,391.9
            
            
            $45.89Granted
            1,601.4
            
            
            61.66Vested
            (1,636.3)
            
            
            44.36Forfeited
            (68.7)
            
            
            47.56Non-vested
                at June 30, 2007
            4,288.3
            
            
            $52.34





At
      June
      30, 2007, the total unamortized compensation cost for non-vested stock option
      awards amounted to $48.8 million and is expected to be recognized over a
      weighted average period of 3.8 years.





Restricted
      Stock– During each of the past four years, Alltel granted to certain senior
      management employees and non-employee directors restricted stock
      awards.  These awards had an aggregate fair value on the date of grant
      of $15.5 million in 2007, $18.6 million in 2006, $11.1 million in 2005 and
      $8.5
      million in 2004.  The cost of the restricted stock awards is
      determined based on the fair market value of the shares at the date of grant
      reduced by the $1.00 par value per share charged to the employee and is expensed
      ratably over the vesting period.  The restricted shares granted to
      employees in 2007, 2006 and 2004 vest in equal increments over a three-year
      period following the date of grant.  Certain awards granted in 2006,
      representing 96,000 shares, vest in increments of 40%, 30% and 30% over a
      five-year period beginning three years after the date of grant.  The
      restricted shares granted to employees in 2005 vest three years from the date
      of
      grant.  Restricted shares granted to non-employee directors vest one
      year from the date of grant.





Non-vested
      restricted stock activity for the six months ended June 30, 2007 was as
      follows:


WeightedAverageNumber
                of
            
            
            
            Fair
                ValueShares
            
            
            
            Per
                ShareNon-vested
                at December 31, 2006
            487,552
            
            
            
            $58.37Granted
            255,520
            
            
            
            60.64Vested
            (111,899)
            
            
            
            57.20Forfeited
            (3,833)
            
            
            
            53.18Non-vested
                at June 30, 2007
            627,340
            
            
            
            $59.53





At
      June
      30, 2007, unrecognized compensation expense for the restricted shares amounted
      to $22.0 million and is expected to be recognized over a weighted average period
      of 2.2 years.


11  Table
            of Contents








**NOTES
      TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL
      STATEMENTS-(Continued)**


_____





**6.**
            **Employee
                Benefit Plans and Postretirement Benefits Other Than
                Pensions:**


The
      Company maintains a qualified defined benefit pension plan, which covers
      substantially all employees.  In December 2005, the qualified defined
      benefit pension plan was amended such that future benefit accruals for all
      eligible nonbargaining employees ceased as of December 31, 2005 (December 31,
      2010 for employees who had attained age 40 with two years of service as of
      December 31, 2005).  The Company also maintains a supplemental
      executive retirement plan that provides unfunded, non-qualified supplemental
      retirement benefits to a select group of management employees.  In
      addition, Alltel has entered into individual retirement agreements with certain
      retired executives providing for unfunded supplemental pension
      benefits.  Alltel funds the accrued costs of these plans as benefits
      are paid.  The Company provides postretirement healthcare and life
      insurance benefits for eligible employees.  Employees share in the
      cost of these benefits.  The Company funds the accrued costs of these
      plans as benefits are paid.





The
      components of pension expense, including provision for executive retirement
      agreements, were as follows for the three and six months ended June
      30:


Three
                Months Ended
            
            
            Six
                Months Ended(Millions)
            
            2007
            
            
            2006
            
            
            2007
            
            
            2006Benefits
                earned during the year
            
            $
            2.8
            
            
            $
            5.1
            
            
            $
            5.5
            
            
            $
            11.8Interest
                cost on benefit obligation
            
            
            3.2
            
            
            
            14.4
            
            
            
            6.4
            
            
            
            29.3Special
                termination benefits
            
            
            -
            
            
            
            4.5
            
            
            
            -
            
            
            
            9.0Settlement
                and curtailment losses
            
            
            -
            
            
            
            2.4
            
            
            
            -
            
            
            
            3.4Amortization
                of prior service cost
            
            
            0.3
            
            
            
            0.4
            
            
            
            0.5
            
            
            
            0.5Amortization
                of net actuarial loss
            
            
            1.2
            
            
            
            6.8
            
            
            
            2.4
            
            
            
            15.2Expected
                return on plan assets
            
            
            (3.6
            )
            
            
            (21.0
            )
            
            
            (7.2
            )
            
            
            (41.9
            )Net
                periodic
                benefit expense
            
            $
            3.9
            
            
            $
            12.6
            
            
            $
            7.6
            
            
            $
            27.3





Of
      the
      total pension expense presented in the table above, amounts allocated to
      discontinued operations totaled $11.4 million and $19.8 million, for the three
      and six months ended June 30, 2006 respectively.  As previously
      discussed in Note 1, on July 17, 2006, Alltel completed the spin-off of its
      wireline telecommunications business to its stockholders and merger of that
      wireline business with Valor.  Two former executive officers of
      Alltel, who were eligible to receive supplemental retirement benefits payable
      under the Company’s supplemental executive retirement plan, joined
      Windstream.  As a result, the supplemental executive retirement plan
      was amended to provide for the immediate pay out of the accrued supplemental
      retirement benefits earned by the two executives at the time the spin-off was
      consummated.  The special termination benefits paid to the two
      executives and the corresponding settlement and curtailment losses presented
      in
      the table above were recognized ratably during the first six months of 2006
      and
      have been included in the amount of pension expense allocated to discontinued
      operations for the three and six months ended June 30, 2006.





In
      connection with the spin-off, Alltel transferred to Windstream the portion
      of
      the Alltel defined benefit pension plan, which represented the accumulated
      benefit obligation and fair value of plan assets attributable to the active
      and
      retired employees of the wireline business who transferred to
      Windstream.  The amount of pension plan assets and accumulated benefit
      obligations transferred to Windstream was determined by an independent actuary
      and totaled $851.2 million and $790.9 million, respectively.  The
      assumptions used to estimate the accumulated benefit obligation were as follows:
      (1) discount rate of 6.3 percent, (2) long-term rate of return on plan assets
      of
      8.5 percent and (3) rate of future compensation increases of 3.5
      percent.  Similarly, Alltel also transferred to Windstream the portion
      of the Alltel postretirement benefit plan, which represented the accumulated
      benefit obligation attributable to the active and retired employees of the
      wireline business who transferred to Windstream.  The amount of the
      accumulated benefit obligation transferred to Windstream was determined by
      an
      independent actuary and totaled $222.5 million.  The assumed discount
      rate used to estimate the accumulated benefit obligation was 6.3
      percent.





Alltel
      disclosed in its financial statements for the year ended December 31, 2006
      that
      it expected to contribute $3.4 million for retirement benefits in 2007
      consisting solely of amounts necessary to fund the expected benefit payments
      related to the unfunded supplemental retirement plans.  Through June
      30, 2007, Alltel had contributed $1.7 million to fund the supplemental
      retirement plans.  Alltel does not expect that any contribution to the
      qualified defined pension plan calculated in accordance with the minimum funding
      requirements of the Employee Retirement Income Security Act of 1974 will be
      required in 2007.  Future discretionary contributions to the plan will
      depend on various factors, including future investment performance, changes
      in
      future discount rates and changes in the demographics of the population
      participating in Alltel’s qualified pension plan.




12  Table
            of Contents








**NOTES
      TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL
      STATEMENTS-(Continued)**


_____





**6.**
            **Employee
                Benefit Plans and Postretirement Benefits Other Than Pensions,
                Continued:**


The
      Company also provides postretirement healthcare and life insurance benefits
      for
      eligible employees.  Employees share in the cost of these
      benefits.  The Company funds the accrued costs of these plans as
      benefits are paid.  The components of postretirement expense were as
      follows for the three and six month periods ended June 30:


Three
                Months Ended
            
            
            Six
                Months Ended(Millions)
            
            2007
            
            
            2006
            
            
            2007
            
            
            2006Benefits
                earned during the year
            
            $
            0.1
            
            
            $
            0.1
            
            
            $
            0.2
            
            
            $
            0.2Interest
                cost on benefit obligation
            
            
            0.1
            
            
            
            3.4
            
            
            
            0.2
            
            
            
            6.7Amortization
                of transition obligation
            
            
            -
            
            
            
            0.2
            
            
            
            -
            
            
            
            0.4Amortization
                of prior service cost
            
            
            -
            
            
            
            0.4
            
            
            
            -
            
            
            
            0.9Recognized
                net actuarial loss
            
            
            0.1
            
            
            
            1.6
            
            
            
            0.2
            
            
            
            3.2Expected
                return on plan assets
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Net
                periodic benefit expense
            
            $
            0.3
            
            
            $
            5.7
            
            
            $
            0.6
            
            
            $
            11.4





Of
      the
      total postretirement expense presented in the table above, amounts allocated
      to
      discontinued operations totaled $5.1 million and $10.2 million, respectively,
      for the three and six months ended June 30, 2006.





**7.**
            **Integration
                Expenses and Other
                Charges:**


A
      summary
      of the integration expenses and other charges recorded by Alltel were as follows
      for the three and six months ended June 30:


Three
                Months Ended
            
            
            Six
                Months Ended(Millions)
            
            2007
            
            
            2006
            
            
            2007
            
            
            2006Severance
                and employee benefit costs
            
            $
            0.7
            
            
            $
            -
            
            
            $
            4.4
            
            
            $
            -Rebranding
                and signage costs
            
            
            0.3
            
            
            
            -
            
            
            
            0.4
            
            
            
            8.3Computer
                system conversion and other integration expenses
            
            
            1.9
            
            
            
            -
            
            
            
            4.4
            
            
            
            2.5Costs
                associated with pending acquisition of Alltel
            
            
            33.1
            
            
            
            -
            
            
            
            33.1
            
            
            
            -Total
                integration expenses and other charges
            
            $
            36.0
            
            
            $
            -
            
            
            $
            42.3
            
            
            $
            10.8





During
      2007, Alltel incurred $4.8 million of integration expenses related to its 2006
      acquisitions of Midwest Wireless and properties in Illinois, Texas and
      Virginia.  The system conversion and other integration expenses
      primarily consisted of internal payroll, contracted services and other
      programming costs incurred in converting the acquired properties to Alltel’s
      customer billing and operational support systems, a process that the Company
      expects to complete during the fourth quarter of 2007.  Alltel also
      recorded severance and employee benefit costs of $4.4 million related to a
      planned workforce reduction in connection with the closing of two call
      centers.





As
      further discussed in Note 12, on May 20, 2007, Alltel entered into an agreement
      to be acquired by two private investment firms.  In connection with
      this transaction, Alltel incurred $33.1 million of incremental costs during
      the
      second quarter of 2007, principally consisting of financial advisory, legal
      and
      regulatory filing fees.  Included in this amount are attorneys’ fees
      and expenses incurred in connection with the settlement of certain shareholder
      lawsuits as further discussed in Note 13.  Upon successful closing of
      the transaction, Alltel will be obligated to pay additional financial advisory
      and legal fees of approximately $65.0 million, which will be expensed in the
      period the transaction closes.  The integration expenses and other
      charges decreased net income $34.9 million and $38.8 million for the three
      and
      six months ended June 30, 2007, respectively.





In
      the
      first quarter of 2006, the Company incurred $10.8 million of integration
      expenses related to its acquisition of Western Wireless.  The system
      conversion and other integration expenses included internal payroll and employee
      benefit costs, contracted services, relocation expenses and other programming
      costs incurred in converting Western Wireless’ customer billing and operational
      support systems to Alltel’s internal systems, a process which was completed
      during March 2006.  The integration expenses and other charges
      decreased net income $6.6 million for the six months ended June 30,
      2006.




















13  Table
            of Contents








**NOTES
      TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL
      STATEMENTS-(Continued)**


_____





**7.**
            **Integration
                Expenses and Other Charges,
                Continued:**


The
      following is a summary of the activity related to the liabilities associated
      with the Company’s integration and other restructuring activities for the six
      months ended June 30, 2007:


(Millions)Balance,
                beginning of period
            
            $
            0.1Integration
                expenses and other charges recorded during the period
            
            
            42.3Cash
                outlays during the period
            
            
            (28.9
            )Balance,
                end of period
            
            $
            13.5





At
      June
      30, 2007, the remaining unpaid liability related to Alltel’s integration
      activities consisted of severance and employee benefit costs of $4.4 million,
      legal fees associated with the pending merger transaction of $9.0 million and
      lease and contract termination costs of $0.1 million and is included in other
      current liabilities in the accompanying consolidated balance sheet.





**8.**
            **Gain
                on Disposal of Assets:**


Through
      its merger with Western Wireless, Alltel acquired marketable equity
      securities.  On January 24, 2007, Alltel completed the sale of these
      securities for $188.7 million in cash and recorded a pretax gain from the sale
      of $56.5 million.  This transaction increased net income $36.8 million
      in the six month period ended June 30, 2007.





On
      November 10, 2005, federal legislation was enacted that included provisions
      to
      dissolve and liquidate the assets of the Rural Telephone Bank
      (“RTB”).  In connection with the dissolution and liquidation, during
      April 2006, the RTB redeemed all outstanding shares of its Class C
      stock.  As a result, the Company received liquidating cash
      distributions of $198.7 million in exchange for its $22.1 million investment
      in
      RTB Class C stock and recognized a pretax gain of $176.6
      million.  This transaction increased net income $107.6 million in the
      three and six month periods ended June 30, 2006.





**9.**
            **Discontinued
                Operations:**


As
      discussed in Note 1, on July 17, 2006, Alltel completed the spin-off of the
      Company’s wireline telecommunications business.  Pursuant to the plan
      of distribution and immediately prior to the effective time of the merger with
      Valor described below, Alltel contributed all of the assets of its wireline
      telecommunications business to ALLTEL Holding Corp. (“Alltel Holding” or
“Spinco”), a wholly-owned subsidiary of the Company, in exchange for: (i) the
      issuance to Alltel of Spinco common stock that was distributed on a pro rata
      basis to Alltel’s stockholders as a tax-free stock dividend, (ii) the payment of
      a special dividend to Alltel in the amount of $2.3 billion and (iii) the
      distribution by Spinco to Alltel of certain Spinco debt securities, consisting
      of $1,746.0 million aggregate principal amount of 8.625 percent senior notes
      due
      2016 (the “Spinco Securities”).  The Spinco Securities were issued at
      a discount, and accordingly, at the date of distribution to Alltel, the Spinco
      Securities had a carrying value of $1,703.2 million (par value of $1,746.0
      million less discount of $42.8 million). In connection with the spin-off, Alltel
      also transferred to Spinco $260.8 million of long-term debt that had been issued
      by the Company’s wireline subsidiaries.  On July 17, 2006, Alltel
      exchanged the Spinco Securities received in the spin-off transaction for certain
      of its outstanding debt securities.





Immediately
      after the consummation of the spin-off, Alltel Holding merged with and into
      Valor, with Valor continuing as the surviving corporation.  As a
      result of the merger, all of the issued and outstanding shares of Spinco common
      stock were converted into the right to receive an aggregate number of shares
      of
      common stock of Valor.  Valor issued in the aggregate approximately
      403 million shares of common stock to Alltel stockholders pursuant to the
      merger, or 1.0339267 shares of Valor common stock for each share of Spinco
      common stock outstanding as of the effective time of the merger.  Upon
      completion of the merger, Alltel stockholders owned approximately 85 percent
      of
      the outstanding equity interests of the surviving corporation, which is named
      Windstream, and the stockholders of Valor owned the remaining 15 percent of
      such
      equity interests.





In
      connection with the spin-off and merger of Alltel’s wireline business with
      Valor, Alltel incurred $25.7 million of incremental costs in 2006, primarily
      consisting of the $12.4 million of special termination benefits payable to
      the
      two executives and the corresponding settlement and curtailment losses
      previously discussed (see Note 6) and additional consulting and legal fees
      of
      $5.6 million.  The remaining expenses included internal payroll and
      employee benefit costs, contracted services, relocation expenses and other
      costs
      incurred in preparation of separating the wireline operations from Alltel’s
      internal customer billing and operational support systems.  Of the
      total spin-related expenses incurred, $12.0 million and $20.7 million were
      recorded in the three and six months ended June 30, 2006, respectively, and
      have
      been classified as discontinued operations.  During 2006 and prior to
      the spin-off, Alltel transferred to Spinco certain assets and liabilities
      related to the operations of Spinco’s business that were previously utilized or
      incurred on a shared basis with Alltel’s


14  Table
            of Contents








**NOTES
      TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL
      STATEMENTS-(Continued)**


_____





**9.**
            **Discontinued
                Operations, Continued:**


wireless
      business.  As previously discussed in Note 6, Alltel also transferred
      the portion of the Alltel defined pension and postretirement benefit plans
      attributable to the active and retired employees of the wireline business who
      transferred to Windstream.  The distribution and related agreements
      with Windstream provide that Alltel and Windstream will provide each other
      with
      certain transition services for specified periods at negotiated
      prices.  In addition, Alltel will provide Windstream with
      interconnection, transport and other specified services at negotiated
      rates.  The agreements also provide for a settlement process, which
      could result in adjustments in future periods.





As
      a
      condition of receiving approval from the U.S. Department of Justice (“DOJ”) and
      the Federal Communications Commission (“FCC”) for its October 3, 2006
      acquisition of Midwest Wireless, on September 7, 2006, Alltel agreed to divest
      certain wireless operations in four rural markets in Minnesota.  On
      April 3, 2007, Alltel completed the sale of these markets to Rural Cellular
      Corporation for $48.5 million in cash.





As
      a
      condition of receiving approval for the merger with Western Wireless from the
      DOJ and the FCC, Alltel agreed to divest certain wireless operations of Western
      Wireless in 16 markets in Arkansas, Kansas and Nebraska, as well as the Cellular
      One brand.  On December 19, 2005, Alltel completed an exchange of
      wireless properties with U.S. Cellular that included a substantial portion
      of
      the divestiture requirements related to the merger.  In December 2005,
      Alltel sold the Cellular One brand and during the first quarter of 2006, Alltel
      completed the sale of the remaining market in Arkansas to
      Cingular.  During 2005, Alltel completed the sales of Western
      Wireless’ international operations in Georgia, Ghana and Ireland for $570.3
      million in cash.  During the second quarter of 2006, Alltel completed
      the sales of Western Wireless’ international operations in Austria, Bolivia,
      Côte d’Ivoire, Haiti, and Slovenia for approximately $1.7 billion in
      cash.  In connection with the sales of the international operations
      completed in the second quarter of 2006, Alltel recorded an after tax loss
      of
      $9.3 million.  There was no gain or loss realized upon the sales of
      the international operations in Georgia, Ghana and Ireland and the domestic
      markets in Arkansas, Kansas and Nebraska.





As
      a
      result of the above transactions, the wireline telecommunications business,
      the
      acquired international operations and interests of Western Wireless and the
      domestic markets to be divested by Alltel have been classified as discontinued
      operations in the Company’s interim consolidated financial statements for all
      periods presented.  Depreciation of long-lived assets related to the
      international operations and the domestic markets to be divested in Arkansas,
      Kansas and Nebraska was not recorded subsequent to the completion of the merger
      on August 1, 2005.  Depreciation of long-lived assets and amortization
      of finite-lived intangible assets related to the four markets in Minnesota
      to be
      divested was not recorded subsequent to September 7, 2006, the date of Alltel’s
      agreement with the DOJ and FCC to divest these markets.  The following
      table includes certain summary income statement information related to the
      wireline telecommunications business, international operations and the domestic
      markets to be divested reflected as discontinued operations for the three and
      six months ended June 30:


Three
                Months Ended
            
            
            Six
                Months Ended(Millions)
            
            2007
            
            
            2006
            
            
            2007
            
            
            2006Revenues
                and sales
            
            $
            0.2
            
            
            $
            800.2
            
            
            $
            7.8
            
            
            $
            1,703.5Operating
                expenses (a)
            
            
            1.4
            
            
            
            542.0
            
            
            
            10.6
            
            
            
            1,156.2Operating
                income (loss)
            
            
            (1.2
            )
            
            
            258.2
            
            
            
            (2.8
            )
            
            
            547.3Minority
                interest expense in unconsolidated entities
            
            
            -
            
            
            
            (1.5
            )
            
            
            -
            
            
            
            (6.0
            )Gain
                (loss) on disposal of discontinued operations
            
            
            0.2
            
            
            
            (14.8
            )
            
            
            0.2
            
            
            
            (14.8
            )Other
                income (expense), net
            
            
            -
            
            
            
            (1.6
            )
            
            
            1.3
            
            
            
            0.3Interest
                expense (b)
            
            
            -
            
            
            
            (2.6
            )
            
            
            -
            
            
            
            (8.4
            )Pretax
                income (loss) from discontinued operations
            
            
            (1.0
            )
            
            
            237.7
            
            
            
            (1.3
            )
            
            
            518.4Income
                tax expense
            
            
            1.8
            
            
            
            97.2
            
            
            
            1.7
            
            
            
            214.7Income
                (loss) from discontinued operations
            
            $
            (2.8
            )
            
            $
            140.5
            
            
            $
            (3.0
            )
            
            $
            303.7





Notes
                to summary income statement information
                table:


(a)
            Operating
                expenses for the six month period of 2007 included an impairment
                charge of
                $1.7 million to reflect the fair value less cost to sell of the four
                rural
                markets in Minnesota required to be divested, and resulted in the
                write-down in the carrying values of goodwill ($1.4 million) and
                customer
                list ($0.3 million) allocated to these markets.  Operating
                expenses for 2006 exclude general corporate overhead expenses previously
                allocated to the wireline business in accordance with Emerging Issues
                Task
                Force Issue No. 87-24, “Allocation of Interest Expense to Discontinued
                Operations”.  The amount of corporate overhead expenses added
                back to Alltel’s continuing operations totaled $1.9 million and $7.0
                million for the three and six months ended June 30, 2006,
                respectively.




15  Table
            of Contents








**NOTES
      TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL
      STATEMENTS-(Continued)**


_____





**9.**
            **Discontinued
                Operations, Continued:**


Notes
                to
                summary income statement information table,
                continued:(b)
            Except
                for $260.8 million of long-term debt directly related to the wireline
                business that was transferred to Windstream and a $50.0 million credit
                facility agreement that was assumed by the buyer of the Bolivian
                operations, Alltel had no outstanding indebtedness directly related
                to the
                wireline business, the international operations or the domestic markets
                to
                be divested, and accordingly, no additional interest expense was
                allocated
                to discontinued operations for the periods
                presented.





**10.**
            **Comprehensive
                Income:**


Comprehensive
      income was as follows for the three and six months ended June
      30:


Three
                Months Ended
            
            
            Six
                Months Ended(Millions)
            
            2007
            
            
            2006
            
            
            2007
            
            
            2006Net
                income
            
            $
            195.7
            
            
            $
            428.9
            
            
            $
            425.8
            
            
            $
            726.3Other
                comprehensive income (loss):Unrealized
                holding gains (losses) on investments:Unrealized
                holding gains (losses) arising in the period
            
            
            -
            
            
            
            11.8
            
            
            
            (1.1
            )
            
            
            24.2Income
                tax expense (benefit)
            
            
            -
            
            
            
            4.1
            
            
            
            (0.4
            )
            
            
            8.5-
            
            
            
            7.7
            
            
            
            (0.7
            )
            
            
            15.7Less
                  reclassification adjustments for gains included
              in
                net
                income for the period
            
            
            -
            
            
            
            -
            
            
            
            (56.5
            )
            
            
            -Income
                tax expense
            
            
            -
            
            
            
            -
            
            
            
            19.7
            
            
            
            --
            
            
            
            -
            
            
            
            (36.8
            )
            
            
            -Net
                unrealized gains (losses) in the period
            
            
            -
            
            
            
            11.8
            
            
            
            (57.6
            )
            
            
            24.2Income
                tax expense (benefit)
            
            
            -
            
            
            
            4.1
            
            
            
            (20.1
            )
            
            
            8.5-
            
            
            
            7.7
            
            
            
            (37.5
            )
            
            
            15.7Foreign
                currency translation adjustment:Translation
                adjustments for the period
            
            
            -
            
            
            
            (19.7
            )
            
            
            -
            
            
            
            (2.1
            )Reclassification
                adjustments for losses includedin
                net income for the period
            
            
            -
            
            
            
            4.9
            
            
            
            -
            
            
            
            4.9-
            
            
            
            (14.8
            )
            
            
            -
            
            
            
            2.8Defined
                benefit pension plans:Amounts
                included in net periodic benefit cost for the period:Amortization
                of prior service cost
            
            
            0.3
            
            
            
            -
            
            
            
            0.5
            
            
            
            -Amortization
                of net actuarial loss
            
            
            1.2
            
            
            
            -
            
            
            
            2.4
            
            
            
            -1.5
            
            
            
            -
            
            
            
            2.9
            
            
            
            -Income
                tax expense
            
            
            0.6
            
            
            
            -
            
            
            
            1.1
            
            
            
            -0.9
            
            
            
            -
            
            
            
            1.8
            
            
            
            -Other
                postretirement benefit plan:Amounts
                included in net periodic benefit cost for the period:Amortization
                of net actuarial loss
            
            
            0.1
            
            
            
            -
            
            
            
            0.2
            
            
            
            -Income
                tax expense
            
            
            0.1
            
            
            
            -
            
            
            
            0.1
            
            
            
            --
            
            
            
            -
            
            
            
            0.1
            
            
            
            -Other
                comprehensive income (loss) before tax
            
            
            1.6
            
            
            
            (3.0
            )
            
            
            (54.5
            )
            
            
            27.0Income
                tax expense (benefit)
            
            
            0.7
            
            
            
            4.1
            
            
            
            (18.9
            )
            
            
            8.5Other
                comprehensive income (loss)
            
            
            0.9
            
            
            
            (7.1
            )
            
            
            (35.6
            )
            
            
            18.5Comprehensive
                income
            
            $
            196.6
            
            
            $
            421.8
            
            
            $
            390.2
            
            
            $
            744.8




















16  Table
            of Contents








**NOTES
      TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL
      STATEMENTS-(Continued)**


_____





**10.**
            **Comprehensive
                Income, Continued:**


The
      components of accumulated other comprehensive income (loss) were as
      follows:


(Millions)
            
            June
                30,
              2007
            
            
            December
                31, 2006Unrealized
                holding gains on investments
            
            $
            -
            
            
            $
            37.5Defined
                benefit pension plans
            
            
            (24.0
            )
            
            
            (25.8
            )Other
                postretirement benefit plan
            
            
            (2.1
            )
            
            
            (2.2
            )Accumulated
                other comprehensive income (loss)
            
            $
            (26.1
            )
            
            $
            9.5





**11.**
            **Earnings
                per Share:**


Basic
      earnings per share of common stock was computed by dividing net income
      applicable to common shares by the weighted average number of common shares
      outstanding during each period.  Diluted earnings per share reflects
      the potential dilution that could occur assuming conversion or exercise of
      all
      dilutive unexercised stock options and outstanding convertible debt, restricted
      and preferred stock.  The dilutive effect of stock options was
      determined using the treasury stock method.  Under the treasury stock
      method, the proceeds received from the exercise of stock options, the amount
      of
      compensation cost for future service not yet recognized by the Company and
      the
      amount of tax benefits that would be recorded in additional paid-in capital
      when
      the stock options become deductible for income tax purposes are assumed to
      be
      used to repurchase shares of Alltel’s common stock.  The number of
      stock options that were not included in the computation of diluted earnings
      per
      share was approximately 2.4 million and 2.3 million shares of common stock
      for
      the three and six month periods ended June 30, 2007,
      respectively.  Conversely, the number of stock options not included in
      the computation of diluted earnings per share was approximately 8.8 million
      shares for both the three and six month periods ended June 30,
      2006.  The dilutive effects of the convertible preferred stock and the
      convertible notes acquired in the Western Wireless merger were computed using
      the if-converted method.  A reconciliation of the net income and
      number of shares used in computing basic and diluted earnings per share was
      as
      follows for the three and six months ended June 30:


Three
                Months Ended
            
            
            Six
                Months Ended(Millions,
                except per share amounts)
            
            2007
            
            
            2006
            
            
            2007
            
            
            2006**Basic
                earnings per share:**Income
                from continuing operations
            
            $
            198.5
            
            
            $
            288.4
            
            
            $
            428.8
            
            
            $
            422.6Income
                (loss) from discontinued operations
            
            
            (2.8
            )
            
            
            140.5
            
            
            
            (3.0
            )
            
            
            303.7Less
                preferred dividends
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Net
                income applicable to common shares
            
            $
            195.7
            
            
            $
            428.9
            
            
            $
            425.8
            
            
            $
            726.3Weighted
                average common shares outstanding for the period
            
            
            344.6
            
            
            
            388.8
            
            
            
            350.9
            
            
            
            387.8Basic
                earnings per share:From
                continuing
                operations
            
            
            $
                .58
            
            
            
            $ 
                .74
            
            
            
            $1.22
            
            
            
            $1.09From
                discontinued
                operations
            
            
            (.01
            )
            
            
            .36
            
            
            
            (.01
            )
            
            
            .78Net
                income
            
            
            $
                .57
            
            
            
            $1.10
            
            
            
            $1.21
            
            
            
            $1.87**Diluted
                earnings per share:**Net
                income applicable to common shares
            
            $
            195.7
            
            
            $
            428.9
            
            
            $
            425.8
            
            
            $
            726.3Adjustment
                for interest expense on convertible notes, net of tax
            
            
            -
            
            
            
            0.1
            
            
            
            -
            
            
            
            0.2Adjustment
                for convertible preferred stock dividends
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Net
                income applicable to common shares assuming conversion
              of preferred stock and convertible notes
            
            $
            195.7
            
            
            $
            429.0
            
            
            $
            425.8
            
            
            $
            726.5Weighted
                average common shares outstanding for the period
            
            
            344.6
            
            
            
            388.8
            
            
            
            350.9
            
            
            
            387.8Increase
                in shares resulting from:Assumed
                exercise of stock options
            
            
            2.5
            
            
            
            0.9
            
            
            
            2.3
            
            
            
            1.1Assumed
                conversion of convertible notes
            
            
            0.1
            
            
            
            0.5
            
            
            
            0.1
            
            
            
            0.8Assumed
                conversion of preferred stock
            
            
            0.2
            
            
            
            0.2
            
            
            
            0.2
            
            
            
            0.2Non-vested
                restricted stock awards
            
            
            0.3
            
            
            
            0.1
            
            
            
            0.3
            
            
            
            0.1Weighted
                average common shares assuming conversion of the
              above securities
            
            
            347.7
            
            
            
            390.5
            
            
            
            353.8
            
            
            
            390.0Diluted
                earnings per share:From
                continuing
                operations
            
            
            $
                .57
            
            
            
            $ 
                .74
            
            
            
            $1.21
            
            
            
            $1.08From
                discontinued
                operations
            
            
            (.01
            )
            
            
            .36
            
            
            
            (.01
            )
            
            
            .78Net
                income
            
            
            $
                .56
            
            
            
            $1.10
            
            
            
            $1.20
            
            
            
            $1.86





17  Table
            of Contents








**NOTES
      TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL
      STATEMENTS-(Continued)**


_____





**12.**
            **Pending
                Acquisition of Alltel by Two Private Investment
                Firms:**


On
      May
      20, 2007, Alltel entered into an Agreement and Plan of Merger (the “Agreement”)
      with Atlantis Holdings LLC, a Delaware limited liability company (“Parent”) and
      Atlantis Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary
      of
      Parent (“Merger Sub”).  Under the terms of the Agreement, Merger Sub
      will be merged with and into Alltel (the “Merger”), with Alltel surviving the
      Merger as a wholly-owned subsidiary of Parent.  Merger Sub and Parent
      are affiliates of private investment funds TPG Partners V, L.P. and GS Capital
      Partners VI Fund, L.P. (together the “Sponsors”). Pursuant to the Agreement, at
      the effective time of the Merger, each outstanding share of $1.00 par value
      common stock of Alltel will be cancelled and converted into the right to receive
      $71.50 in cash.  Similarly, pursuant to the Agreement, at the
      effective time of the Merger, each outstanding share of Series C $2.06 no par
      cumulative convertible preferred stock and each outstanding share of Series
      D
      $2.25 no par cumulative convertible preferred stock will be cancelled and
      converted into the right to receive $523.22 and $481.37 in cash,
      respectively.  In addition, immediately prior to the effective time of
      the Merger, all shares of Company restricted stock, unless otherwise agreed
      to
      by the holder and Parent, will vest and will be converted into the right to
      receive in cash the merger consideration of $71.50 per share.  All
      options to acquire shares of Alltel common stock will vest immediately prior
      to
      the effective time of the Merger.  Holders of such options will,
      unless otherwise agreed to by the holder and Parent, be entitled to receive
      an
      amount in cash equal to the excess, if any, of the merger consideration of
      $71.50 per share over the exercise price for each share of Alltel common stock
      subject to the option.





The
      merger consideration will be funded by Alltel’s available cash on hand, cash
      equity contributions received from the Sponsors and new borrowings by Alltel
      Communications, Inc. (“ACI”), a wholly-owned subsidiary of
      Alltel.  Parent has received equity commitment letters from the
      Sponsors, pursuant to which, subject to certain conditions, the Sponsors have
      agreed to make or secure aggregate capital contributions of up to $4.6 billion
      in cash.  Parent has also received debt commitment letters from
      various banks to provide ACI with (1) a senior secured term loan facility of
      up
      to $14.0 billion and a senior secured revolving credit facility of up to $1.5
      billion, (2) a senior unsecured cash pay bridge facility of up to $4.7 billion
      less the amount of any senior unsecured cash pay notes issued in lieu of such
      bridge facility and (3) a senior unsecured pay-in-kind option bridge facility
      of
      up to $3.0 billion less the amount of any senior unsecured pay-in-kind notes
      issued in lieu of such bridge facility.  The aggregate principal
      amount of the senior secured term loan facility may be increased by up to $750.0
      million under certain circumstances.





Consummation
      of the Merger is subject to certain conditions, including the approval of the
      Merger by the stockholders of Alltel and the receipt of regulatory approvals,
      including the approval of the FCC.  The Agreement contains certain
      termination rights for each of Alltel and the Sponsors and further provides
      that, upon termination of the Agreement under specified circumstances involving
      an alternative transaction, Alltel may be required to pay the Sponsors a
      termination fee of $625.0 million.  As further discussed below in Note
      13, on July 19, 2007, the Sponsors agreed to waive the termination fee payable
      by Alltel to the extent it exceeds $550 million.  The transaction is
      expected to close by the end of 2007.  During the second quarter of
      2007,Alltelincurred
      incremental
      expenses related to the planned Merger, principally consisting of financial
      advisory, legal and regulatory filing fees.  (See Notes 7 and 13 for a
      further discussion of these expenses.)





**13.**
            **Commitments
                and Contingencies – Legal
                Proceedings:**


Subsequent
      to the announcement of the merger agreement, Alltel, its directors, and in
      certain cases the Sponsors (or entities purported to be affiliates thereof),
      were named in sixteen putative class actions alleging claims for breach of
      fiduciary duty and aiding and abetting such alleged breaches arising out of
      the
      proposed sale of Alltel.  Eight of the complaints were filed in the
      Circuit Court of Pulaski County, Arkansas and were subsequently consolidated
      into one class action complaint for breach of fiduciary duty.  The
      other eight complaints were filed in the Delaware Court of Chancery and were
      also consolidated into one complaint.





Among
      other things, the complaints in the Arkansas and Delaware actions allege that
      (1) Alltel conducted an inadequate process for extracting maximum value for
      its
      shareholders, including prematurely terminating an auction process by entering
      into a merger agreement with Parent on May 20, 2007, despite previously setting
      June 6, 2007, as the outside date for submitting bids; (2) the Alltel directors
      are in possession of material non-public information about Alltel; (3) the
      Alltel directors have material conflicts of interest and are acting to better
      their own interests at the expense of Alltel’s shareholders, including through
      the vesting of certain options for Scott Ford, the retention of an equity
      interest in Alltel after the merger by certain of Alltel’s directors and
      executive officers, and the employment of certain Alltel executives, including
      Scott Ford, by Alltel (or its successors) after the merger is completed; (4)
      taking into account the current value of Alltel stock, the strength of its
      business, revenues, cash flow and earnings power, the intrinsic value of
      Alltel’s equity, the consideration offered in connection with the proposed
      merger is inadequate; (5) the merger agreement contained provisions that will
      deter higher bids, including a $625 million termination fee payable to the
      Sponsors and restrictions on Alltel’s ability to solicit higher bids; (6) that
      Alltel’s financial advisors, JPMorgan Securities Inc. (“JPMorgan”), Merrill
      Lynch, Pierce, Fenner & Smith Inc.




18  Table
            of Contents








**NOTES
      TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL
      STATEMENTS-(Continued)**


_____





**13.**
            **Commitments
                and Contingencies – Legal Proceedings,
                Continued:**


(“Merrill
      Lynch”) and Stephens Inc. have conflicts resulting from their relationships with
      the Sponsors; and (7) that the preliminary proxy statement filed by Alltel
      with
      the SEC on June 13, 2007 failed to disclose material information concerning
      the
      merger.  The complaints seek, among other things, class action status,
      a court order enjoining Alltel and its directors from consummating the merger,
      and the payment of attorneys’ fees and expenses.





On
      July
      19, 2007, the parties in the shareholder litigation entered into a memorandum
      of
      understanding contemplating the settlement of the litigation described
      above.  Shareholders of Alltel who are members of the class expected
      to be certified in the shareholder litigation will receive written notice of
      the
      terms of the proposed settlement.  Among other things, the memorandum
      of understanding provides that: (1) the termination fee payable under certain
      circumstances by Alltel to Parent is waived to the extent it exceeds $550
      million; (2) certain additional disclosures were made in the proxy statement
      filed with the SEC on July 24, 2007 asking shareholders to approve the merger
      transaction; and (3) shares personally owned by Scott Ford and Warren Stephens
      will be voted in the same proportion in favor, against and abstaining as all
      votes cast other than with respect to such shares.  Alltel also agreed
      that, at a regularly scheduled meeting of its board of directors on July 19,
      2007, the board would request and receive oral advice from JPMorgan and Merrill
      Lynch concerning whether they had learned of any matter that would cause them
      to
      withdraw or modify their fairness opinions.  At the July 19, 2007
      board of directors’ meeting, JPMorgan and Merrill Lynch advised the board that,
      taking into consideration the types of factors and analyses considered in
      rending their May 20, 2007 opinions, they were aware of no matter, during the
      period since May 20, 2007, that would cause them to withdraw or modify their
      fairness opinions.  Certain provisions of the proposed settlement and
      the memorandum of understanding are subject to court approval.  In
      connection with the settlement, Alltel agreed to pay certain attorneys’ fees and
      expenses.  These amounts have been included in integration expenses
      and other charges in the accompanying unaudited interim consolidated statements
      of income for the three and six months ended June 30, 2007. (See Note
      7).





On
      June
      25, 2007, T-Mobile Austria Holding GmbH (“TMA Holding”) provided to the Company
      notice of warranty claims against Western Wireless International Austria
      Corporation (“WWI”), a wholly-owned subsidiary of Alltel, related to an August
      10, 2005 purchase agreement, between T-Mobile Global Holding Nr.3 GmbH, T-Mobile
      Austria GmbH and WWI.  Alltel completed the sale of WWI’s operations
      in Austria to T-Mobile Austria GmbH on April 28, 2006.  In the notice,
      TMA Holding alleges that WWI breached certain representations and warranties
      contained within the purchase agreement and claims damages as a result of the
      breach of no less than €150.9 million, or approximately $203.3 million, at
      current exchange rates.  While the Company is still investigating the
      warranty claims, it believes they are without merit, and therefore, Alltel
      intends to vigorously defend itself against the alleged
      claims.  Accordingly, as of June 30, 2007, Alltel has not recorded a
      reserve for estimated loss, if any, that could result from the ultimate
      resolution of this matter.










































































19  Table
            of Contents


**ALLTEL
      CORPORATION**


**FORM
      10-Q**


**PART
      I - FINANCIAL INFORMATION**





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





The
      following is a discussion and analysis of the historical results of operations
      and financial condition of ALLTEL Corporation (“Alltel” or the
“Company”).  This discussion should be read in conjunction with the
      unaudited consolidated financial statements, including the notes thereto, for
      the interim periods ended June 30, 2007 and 2006, and Alltel’s Annual Report on
      Form 10-K for the year ended December 31, 2006.





**EXECUTIVE
      SUMMARY**


Alltel
      provides wireless voice and advanced data services to more than 12 million
      residential and business customers in 35 states.  Among the highlights
      in the second quarter of 2007:





·
            Revenues
                and sales increased 12 percent over 2006 driven by Alltel’s continued
                focus on quality customer growth, improvements in data revenues and
                additional Eligible Telecommunications Carrier (“ETC”) support. Growth in
                revenues and sales in the quarter also reflected the effects of Alltel’s
                October 3, 2006 acquisition of Midwest Wireless Holdings (“Midwest
                Wireless”).  Average revenue per customer and retail revenue per
                customer increased 3 percent and 1 percent year-over-year to $54.10
                and
                $48.26, respectively, due to continued growth in data and ETC revenues,
                partially offset by lower voice revenues per customer.  Average
                revenue per customer for the second quarter of 2007 also reflected
                additional wholesale transport revenues earned from charging third
                parties, principally Windstream Corporation (“Windstream”), for use of
                Alltel’s fiber-optic network.





·
            Excluding
                the effects of acquisitions, gross customer additions were 790,000
                in the
                quarter, a 3 percent increase from a year ago, while net customer
                additions were 181,500, a 24 percent increase from
                2006.  Postpay churn decreased 31 basis points from the same
                period a year ago to 1.16 percent, while total churn declined 24
                basis
                points year-over-year to 1.67 percent, marking the sixth consecutive
                quarter that both churn metrics improved on a comparative year-over-year
                basis.  In addition, the churn levels attained in the second
                quarter of 2007 were the lowest in Alltel’s
                history.





·
            Operating
                income increased 10 percent from a year ago, primarily reflecting
                the
                growth in revenues and sales noted above and declines in bad debt
                and
                roaming expenses.  The decrease in roaming expense resulted from
                negotiated lower cost per minute
                charges.





During
      the remainder of 2007, Alltel will continue to face significant challenges
      resulting from competition in the wireless industry and changes in the
      regulatory environment, including the effects of potential changes to the rules
      governing universal service and inter-carrier compensation.  In
      addressing these challenges, Alltel will continue to focus its efforts on
      improving customer service, enhancing the quality of its networks, expanding
      its
      product and service offerings, and conducting advocacy efforts in favor of
      governmental policies that will benefit Alltel’s business and its
      customers.





**PENDING
      ACQUISITION OF ALLTEL BY TWO PRIVATE INVESTMENT FIRMS**


On
      May
      20, 2007, Alltel entered into an Agreement and Plan of Merger (the “Agreement”)
      with Atlantis Holdings LLC, a Delaware limited liability company (“Atlantis
      Holdings” or “Parent”) and Atlantis Merger Sub, Inc., a Delaware corporation and
      wholly-owned subsidiary of Parent (“Merger Sub”).  Under the terms of
      the Agreement, Merger Sub will be merged with and into Alltel (the “Merger”),
      with Alltel surviving the Merger as a wholly-owned subsidiary of
      Parent.  Merger Sub and Parent are affiliates of private investment
      funds TPG Partners V, L.P. and GS Capital Partners VI Fund, L.P. (together
      the
“Sponsors”).  Under the terms of the Agreement, Atlantis Holdings will
      acquire all of the outstanding common stock of Alltel for $71.50 per share
      in
      cash in a transaction valued at approximately $27.5 billion.  The
      merger consideration will be funded by Alltel’s available cash on hand, cash
      equity contributions received from the Sponsors of up to $4.6 billion and new
      borrowings of up to $23.2 billion by Alltel Communications, Inc. (“ACI”), a
      wholly-owned subsidiary of Alltel.




















20  Table
            of Contents


Completion
      of the transaction, which is currently expected to occur by the end of 2007,
      is
      contingent upon customary closing conditions, including approval by Alltel’s
      shareholders and certain regulatory approvals, including the approval of the
      Federal Communications Commission (“FCC”).  Alltel’s Board of
      Directors has unanimously approved the Agreement and has recommended the
      approval of the transaction by Alltel’s shareholders.  Shareholders
      will be asked to vote on the proposed transaction at a special meeting that
      will
      be held on August 29, 2007.  (See Note 12 to the interim unaudited
      consolidated financial statements for additional information regarding this
      pending transaction.)





**SPIN-OFF
      OF WIRELINE TELECOMMUNICATIONS BUSINESS**


On
      July
      17, 2006, Alltel completed the spin-off of its wireline telecommunications
      business to its stockholders and the merger of that wireline business with
      Valor
      Communications Group, Inc. (“Valor”).  Pursuant to the plan of
      distribution and immediately prior to the effective time of the merger with
      Valor described below, Alltel contributed all of the assets of its wireline
      telecommunications business to ALLTEL Holding Corp. (“Alltel Holding” or
“Spinco”), a wholly-owned subsidiary of the Company, in exchange for: (i) the
      issuance to Alltel of Spinco common stock that was distributed on a pro rata
      basis to Alltel’s stockholders as a tax-free stock dividend, (ii) the payment of
      a special dividend to Alltel in the amount of $2.3 billion and (iii) the
      distribution by Spinco to Alltel of certain Spinco debt securities, consisting
      of $1,746.0 million aggregate principal amount of 8.625 percent senior notes
      due
      2016 (the “Spinco Securities”).  The Spinco Securities were issued at
      a discount, and, at the date of distribution to Alltel, the Spinco Securities
      had a carrying value of $1,703.2 million (par value of $1,746.0 million less
      discount of $42.8 million).  Alltel also transferred to Spinco $260.8
      million of long-term debt that had been issued by the Company’s wireline
      subsidiaries.





Immediately
      after the consummation of the spin-off, Alltel Holding merged with and into
      Valor, with Valor continuing as the surviving corporation.  As a
      result of the merger, all of the issued and outstanding shares of Spinco common
      stock were converted into the right to receive an aggregate number of shares
      of
      common stock of Valor.  Valor issued in the aggregate approximately
      403 million shares of common stock to Alltel stockholders pursuant to the
      merger, or 1.0339267 shares of Valor common stock for each share of Spinco
      common stock outstanding as of the effective time of the merger.  Upon
      completion of the merger, Alltel stockholders owned approximately 85 percent
      of
      the outstanding equity interests of the surviving corporation, which is named
      Windstream, and the stockholders of Valor owned the remaining 15 percent of
      such
      equity interests.





Following
      the spin-off of the wireline business, Alltel completed a tax-free debt exchange
      in which Alltel transferred to two investment banks the Spinco debt securities
      received in the spin-off transaction in exchange for certain Alltel debt
      securities, consisting of $988.5 million of outstanding commercial paper
      borrowings and $685.1 million of 4.656 percent equity unit notes due
      2007.  On August 25, 2006, Alltel repurchased prior to maturity $1.0
      billion of long-term debt, consisting of $664.3 million of 4.656 percent equity
      unit notes due 2007, $61.0 million of 6.65 percent unsecured notes due 2008,
      $147.0 million of 7.60 percent unsecured notes due 2009 and $127.7 million
      of
      8.00 percent notes due 2010 pursuant to cash tender offers announced by Alltel
      on July 31, 2006.  Proceeds from the special cash dividend were used
      to fund both a portion of the repurchase of $1.0 billion of long-term debt
      discussed above and Alltel’s repurchase of approximately 50.5 million of its
      common shares at a total cost of more than $2.95 billion, as further discussed
      below.





**ACQUISITIONS**


On
      October 3, 2006, Alltel completed its acquisition of Midwest Wireless for $1.083
      billion in cash.  In connection with this acquisition, Alltel added
      approximately 450,000 wireless customers and expanded its wireless operations
      in
      Minnesota, Iowa and Wisconsin.  As a condition of receiving approval
      for this acquisition from the FCC and the U.S. Department of Justice (“DOJ”),
      Alltel agreed to divest four rural markets in Minnesota.  On April 3,
      2007, Alltel completed the sale of these markets to Rural Cellular Corporation
      (“Rural Cellular”).





During
      the second quarter of 2006, Alltel purchased for $217.5 million in cash wireless
      properties covering approximately 727,000 potential customers (“POPs”) in
      Illinois, Texas and Virginia.  On March 16, 2006, Alltel purchased
      from Palmetto MobileNet, L.P. for $456.3 million in cash the remaining ownership
      interests in ten wireless partnerships that cover approximately 2.0 million
      POPs
      in North and South Carolina.  Prior to this transaction, Alltel owned
      a 50 percent interest in each of the ten wireless
      partnerships.  During the first quarter of 2006, Alltel also acquired
      the remaining ownership interest in a wireless property in Wisconsin in which
      the Company owned a majority interest.  (See Notes 3 and 9 to the
      interim unaudited consolidated financial statements for additional information
      regarding these acquisitions and dispositions.)








21


Table
          of Contents


**CUSTOMER
                AND OTHER OPERATING STATISTICS**Three
                Months Ended
            
            Six
                Months EndedJune
                30,
            
            June
                30,(Thousands,
                except per customer amounts)
            2007
            
            2006
            
            2007
            
            2006Customers
            12,242.0
            
            11,085.1
            
            -
            
            -Average
                customers
            12,147.4
            
            10,951.3
            
            12,041.7
            
            10,838.9Gross
                customer additions (a)
            789.9
            
            882.6
            
            1,657.4
            
            1,688.1Net
                customer additions (a)
            181.5
            
            258.1
            
            418.1
            
            422.8Market
                penetration
            15.4%
            
            14.2%
            
            -
            
            -Postpay
                customer churn
            1.16%
            
            1.47%
            
            1.24%
            
            1.56%Total
                churn
            1.67%
            
            1.91%
            
            1.72%
            
            1.95%Retail
                minutes of use per customer per month (b)
            724
            
            638
            
            688
            
            620Retail
                revenue per customer per month (c)
            $48.26
            
            $47.57
            
            $47.59
            
            $46.91Average
                revenue per customer per month (d)
            $54.10
            
            $52.78
            
            $53.31
            
            $52.02





Notes
                to Customer and Other Operating Statistics
                Table:


(a)
            Includes
                the effects of acquisitions.  Excludes reseller customers for
                all periods presented.(b)
            Represents
                the average monthly minutes that Alltel’s customers use on both the
                Company’s network and while roaming on other carriers’
                networks.(c)
            Retail
                revenue per customer per month is calculated by dividing retail revenues
                by average customers for the period.  A reconciliation of the
                revenues used in computing retail revenue per customer per month
                was as
                follows for the three and six month periods ended June
                30:





Three
                Months Ended
            
            
            Six
                Months Ended(Millions)
            
            2007
            
            
            2006
            
            
            2007
            
            
            2006Service
                revenues
            
            $
            1,971.6
            
            
            $
            1,734.1
            
            
            $
            3,851.7
            
            
            $
            3,383.3Less
                wholesale roaming revenues
            
            
            (170.1
            )
            
            
            (163.6
            )
            
            
            (324.3
            )
            
            
            (314.6
            )Less
                wholesale transport revenues
            
            
            (42.9
            )
            
            
            (7.8
            )
            
            
            (89.3
            )
            
            
            (18.2
            )Total
                retail revenues
            
            $
            1,758.6
            
            
            $
            1,562.7
            
            
            $
            3,438.1
            
            
            $
            3,050.5





(d)
            Average
                revenue per customer per month is calculated by dividing service
                revenues
                by average customers for the period.


The
      total
      number of customers served by Alltel increased by more than 1.1 million
      customers, or 10 percent, during the twelve month period ended June 30,
      2007.  The acquisition of Midwest Wireless completed on October 3,
      2006, as previously discussed, accounted for approximately 450,000 of the
      overall increase in customers during the twelve month period ended June 30,
      2007.  During the second quarter of 2007, Alltel added more than
      181,000 net customers, substantially all of which were on postpay rate
      plans.  The increase in net customer additions in the three months
      ended June 30, 2007 was driven primarily by lower churn, as further discussed
      below, and continued growth in the “My Circle” service offering.  The
      Company’s “My Circle” offering enables Alltel customers, on select rate plans,
      to make and receive unlimited free calls to up to ten phone numbers connected
      to
      any wireless or wireline network, and add these phone numbers to their
      mobile-to-mobile service.  Overall, the Company’s wireless market
      penetration rate (number of customers as a percent of the total population
      in
      Alltel’s service areas) increased to 15.4 percent as of June 30,
      2007.





The
      level
      of customer growth for the remainder of 2007 will be dependent upon the
      Company’s ability to attract new customers and retain existing customers in a
      highly competitive marketplace.  Alltel will continue to focus its
      efforts on sustaining value-added customer growth by improving service quality
      and customer satisfaction, managing its distribution channels and customer
      segments, offering attractively priced rate plans, launching new or enhanced
      product offerings, selling additional services to existing customers,
      integrating acquired operations, and pursuing strategic
      acquisitions.





Alltel
      continues to focus its efforts on lowering customer churn (average monthly
      rate
      of customer disconnects).  To improve customer retention, Alltel
      continues to upgrade its telecommunications network in order to offer expanded
      network coverage and quality and to provide enhanced service offerings to its
      customers.  Alltel believes that its multi-year efforts devoted to
      retail store upgrades, process improvements, branding, advertising and
      innovative offerings such as My Circle are driving improvements in customer
      churn metrics.




22  Table
            of Contents


As
      a
      result of these efforts, postpay customer churn decreased 31 basis points and
      32
      basis points in the three and six month periods of 2007, respectively, compared
      to the same periods a year ago.  Primarily due to improvements in
      postpay customer churn, as well as improvements in prepay churn rates, total
      churn also decreased in the three and six months ended


June
      30,
      2007 compared to the same prior year periods.





Primarily
      due to growth in data and ETC revenues, retail revenue per customer per month
      and average revenue per customer per month both increased in the three and
      six
      months ended June 30, 2007, compared to the same periods a year
      ago.  Retail revenue per customer per month increased 1 percent in
      both the three and six month periods ended June 30, 2007 to $48.26 and $47.59,
      respectively.  Similarly, average revenue per customer per month
      increased 3 percent and 2 percent to $54.10 and $53.31 in the three and six
      month periods ended June 30, 2007, respectively.  Growth in both
      retail and average revenue per customer per month in the three and six month
      periods of 2007 was affected by decreases in voice revenues per customer
      reflecting the effects of increased sales of family and prepay rate
      plans.  Average revenue per customer for the three and six month
      periods of 2007 also reflected additional wholesale transport revenues earned
      from charging third parties, principally Windstream, for use of Alltel’s
      fiber-optic network.  Growth in service revenues and sustaining
      average revenue per customer per month for the balance of 2007 will depend
      upon
      Alltel’s ability to maintain market share in a competitive marketplace by adding
      new customers, retaining existing customers, increasing customer usage, and
      continuing to sell data services.





**CONSOLIDATED
                RESULTS OF OPERATIONS**Three
                Months Ended
            
            
            Six
                Months EndedJune
                30,
            
            
            June
                30,(Millions,
                except per share amounts)
            
            2007
            
            
            2006
            
            
            2007
            
            
            2006Revenues
                and sales:Service
                revenues
            
            $
            1,971.6
            
            
            $
            1,734.1
            
            
            $
            3,851.7
            
            
            $
            3,383.3Product
                sales
            
            
            203.5
            
            
            
            211.1
            
            
            
            401.9
            
            
            
            405.2Total
                revenues and sales
            
            
            2,175.1
            
            
            
            1,945.2
            
            
            
            4,253.6
            
            
            
            3,788.5Costs
                and expenses:Cost
                of services
            
            
            640.2
            
            
            
            574.0
            
            
            
            1,251.2
            
            
            
            1,116.8Cost
                of products sold
            
            
            288.6
            
            
            
            283.3
            
            
            
            576.1
            
            
            
            556.0Selling,
                general, administrative and other
            
            
            479.5
            
            
            
            434.5
            
            
            
            949.4
            
            
            
            860.2Depreciation
                and amortization
            
            
            352.3
            
            
            
            309.6
            
            
            
            701.8
            
            
            
            608.9Integration
                expenses and other charges
            
            
            36.0
            
            
            
            -
            
            
            
            42.3
            
            
            
            10.8Total
                costs and expenses
            
            
            1,796.6
            
            
            
            1,601.4
            
            
            
            3,520.8
            
            
            
            3,152.7Operating
                income
            
            
            378.5
            
            
            
            343.8
            
            
            
            732.8
            
            
            
            635.8Non-operating
                income, net
            
            
            13.1
            
            
            
            24.9
            
            
            
            26.1
            
            
            
            34.7Interest
                expense
            
            
            (47.4
            )
            
            
            (86.4
            )
            
            
            (94.1
            )
            
            
            (171.1
            )Gain
                on disposal of assets
            
            
            -
            
            
            
            176.6
            
            
            
            56.5
            
            
            
            176.6Income
                from continuing operations before income taxes
            
            
            344.2
            
            
            
            458.9
            
            
            
            721.3
            
            
            
            676.0Income
                taxes
            
            
            145.7
            
            
            
            170.5
            
            
            
            292.5
            
            
            
            253.4Income
                from continuing operations
            
            
            198.5
            
            
            
            288.4
            
            
            
            428.8
            
            
            
            422.6Income
                (loss) from discontinued operations
            
            
            (2.8
            )
            
            
            140.5
            
            
            
            (3.0
            )
            
            
            303.7Net
                income
            
            $
            195.7
            
            
            $
            428.9
            
            
            $
            425.8
            
            
            $
            726.3Basic
                earnings per share:Income
                from
                continuing operations
            
            
            $
                .58
            
            
            
            $ 
                .74
            
            
            
            $1.22
            
            
            
            $1.09Income
                (loss) from
                discontinued operations
            
            
            (.01
            )
            
            
            .36
            
            
            
            (.01
            )
            
            
            .78Net
                income
            
            
            $
                .57
            
            
            
            $1.10
            
            
            
            $1.21
            
            
            
            $1.87Diluted
                earnings per share:Income
                from
                continuing operations
            
            
            $
                .57
            
            
            
            $
                 .74
            
            
            
            $1.21
            
            
            
            $1.08Income
                (loss) from
                discontinued operations
            
            
            (.01
            )
            
            
            .36
            
            
            
            (.01
            )
            
            
            .78Net
                income
            
            
            $
                .56
            
            
            
            $1.10
            
            
            
            $1.20
            
            
            
            $1.86





Revenues
      and sales increased 12 percent, or $229.9 million and $465.1 million, for both
      the three and six months ended June 30, 2007, compared to the same periods
      of
      2006.  Service revenues increased by 14 percent, or $237.5 million and
      $468.4 million, in both the three and six month periods of 2007, respectively,
      as compared to the same periods a year ago.  The acquisitions of
      Midwest Wireless and other wireless properties in Illinois, Texas and Virginia
      previously discussed accounted for approximately $87.5 million and $188.8
      million of the overall increases in service revenues for the three and six
      months ended June 30, 2007, respectively.  In addition to the effects
      of the acquisitions, service revenues also reflected growth in access revenues,
      which increased $32.8 million and $67.7 million in the three and six month
      periods of 2007, respectively, from the same periods a year ago.  The
      increases in




23  Table
            of Contents


access
      revenues in both periods were primarily driven by non-acquisition-related growth
      in Alltel’s postpay customer base and increased revenues derived from the
      Company’s Simple Freedom and ”U” prepaid service offerings.  Service
      revenues for 2007 also reflected growth in revenues derived from data services,
      including text and picture messaging and downloadable applications, such as
      music, games, ringtones, wall paper and other office applications. Compared
      to
      the same periods a year ago, revenues from data services increased $90.0
      million, or 84 percent, and $159.6 million, or 80 percent, in the three and
      six
      month periods ended June 30, 2007, respectively, reflecting strong demand for
      these services.  Service revenues also included increases in
      regulatory fee revenues of $31.2 million and $57.7 million during the three
      and
      six month periods of 2007, respectively, compared to the same prior year
      periods. The increases in regulatory fees reflected additional Universal Service
      Fund (“USF”) revenues earned by Alltel due, in part, to increases in the
      contribution factor, effective April 1, 2007, and the interstate safe-harbor
      percentage, effective October 1, 2006.  Growth in USF revenues
      attributable to Alltel’s certification in 24 states as an ETC accounted for
      $11.4 million and $26.8 million of the overall increase in regulatory and other
      fees in the three and six month periods ended June 30, 2007,
      respectively.  When compared to the same periods in 2006, revenues
      from the sale of wireless equipment protection plans also increased $7.3 million
      and $14.7 million in the three and six month periods of 2007, respectively,
      primarily due to customer growth and continued demand for these
      plans.





As
      compared to the same periods of 2006, wholesale revenues increased $30.6 million
      and $53.2 million in the three and six month periods ended June 30, 2007,
      respectively, primarily due to growth in CDMA minutes of use and additional
      transport revenues earned from charging third parties, principally Windstream,
      for use of Alltel’s fiber-optic network.  Wholesale revenues also
      reflected the effects of migrating Sprint Nextel Corporation and AT&T
      Mobility LLC (formerly Cingular Wireless LLC) roaming traffic to lower rates
      in
      exchange for long-term roaming agreements signed with each carrier during the
      second quarter of 2006.





The
      above
      increases in service revenues were partially offset by lower airtime and retail
      roaming revenues.  Compared to the same periods in 2006, airtime and
      retail roaming revenues decreased $28.6 million and $51.9 million in the three
      and six month periods of 2007, respectively, primarily due to the continued
      effects of customers migrating to rate plans with a larger number of packaged
      minutes.  Such rate plans, for a flat monthly service fee, provide
      customers with a specified number of airtime minutes and include unlimited
      weekend, nighttime and mobile-to-mobile minutes at no extra charge.





Product
      sales decreased $7.6 million, or 4 percent, and $3.3 million, or 1 percent,
      in
      the three and six months ended June 30, 2007, respectively, compared to the
      same
      periods a year ago.  The decreases in both 2007 periods primarily
      reflected the effects of increased rebates offered to customers in connection
      with the sales of wireless handsets.  During 2007, Alltel has expanded
      the number of wireless handset models eligible for rebates.  The
      reductions in product sales in both periods of 2007 attributable to rebates
      were
      partially offset by the effects of increased sales resulting from the overall
      growth in gross customer additions and from acquisitions.  Product
      sales attributable to acquisitions increased $1.7 million and $6.8 million
      in
      the three and six month periods of 2007, respectively.





Cost
      of
      services increased 12 percent, or $66.2 million and $134.4 million, in the
      three
      and six month periods ended June 30, 2007, respectively, compared to the same
      periods of 2006.  The acquisitions accounted for $30.0 million and
      $62.9 million of the overall increases in cost of services in the three and
      six
      month periods of 2007, respectively. In addition to the effects of the
      acquisitions, cost of services also reflected higher network-related costs
      of
      $42.1 million and $76.2 million in the three and six month periods of 2007,
      respectively, reflecting increased network traffic due to
      non-acquisition-related customer growth, increased minutes of use and expansion
      of network facilities. Cost of services also reflected increased customer
      service expenses of $10.3 million and $19.9 million in the three and six month
      periods of 2007, respectively, primarily due to additional costs associated
      with
      Alltel’s retention efforts focused on improving customer satisfaction and
      reducing postpay churn.  In addition, cost of services increased $16.9
      million and $27.6 million in the three and six month periods of 2007,
      respectively, due to higher USF fees resulting from an increase in the
      contribution factor and the related growth in regulatory fee revenues discussed
      above.  Compared to the same periods in 2006, payments to data content
      providers increased $4.5 million and $16.2 million in the three and six month
      periods ended June 30, 2007, respectively, consistent with the growth in
      revenues derived from data services discussed above.  The above
      increases in cost of services in the three and six month periods of 2007 were
      partially offset by decreases in bad debt expense of $17.5 million and $29.6
      million, respectively, primarily due to reduced write-offs resulting from
      improvements in the Company’s internal and third-party outsourcing collection
      efforts.  Compared to the same periods a year ago, cost of services
      also reflected decreases in roaming expenses of $23.8 million and $40.2 million
      in the three and six month periods ended June 30, 2007, respectively, due to
      lower negotiated per minute roaming rates.








24  Table
            of Contents


Cost
      of
      products sold increased $5.3 million, or 2 percent, and $20.1 million, or 4
      percent, for the three and six month periods ended June 30, 2007, respectively,
      as compared to the same periods in 2006.  The increases in both 2007
      periods were primarily attributable to the acquisitions discussed above, which
      accounted for $6.8 million and $17.3 million of the overall increases in cost
      of
      products sold in the three and six month periods, respectively.





Selling,
      general, administrative and other expenses increased 10 percent, or $45.0
      million and $89.2 million, for the three and six months ended June 30, 2007,
      respectively, as compared to the same periods of 2006.  The
      acquisitions accounted for $15.0 million and $34.2 million of the overall
      increases in these expenses in the three and six month periods of 2007,
      respectively.  In addition to the effects of the acquisitions,
      selling, general, administrative and other expenses for the three and six months
      ended June 30, 2007 also included increased advertising costs of $2.8 million
      and $20.8 million, respectively.  Advertising costs in both 2007
      periods reflected growth in television and national cable advertising directed
      at promoting Alltel brand awareness among consumers and the effects of an
      overall increase in advertising spending levels following the April 2006 launch
      of the “My Circle” offering.  Higher commission costs and increased
      costs to provide and administer the Company’s wireless equipment protection
      plans also contributed to the increases in selling, general, administrative
      and
      other expenses in the three and six month periods of 2007.  When
      compared to the same periods of 2006, commission costs increased $17.4 million
      and $21.3 million in the three and six month periods of 2007, respectively,
      consistent with the growth in gross customer additions and higher commissions
      paid to agents, reflecting increased sales of data services and features and
      reduced charge-backs resulting from lower customer churn.  Costs
      associated with providing and administering the wireless equipment protection
      plans increased $1.9 million and $11.3 million in the three and six month
      periods of 2007, respectively, consistent with the growth in wireless equipment
      protection plan revenues previously discussed.





Depreciation
      and amortization expense increased $42.7 million, or 14 percent, and $92.9
      million, or 15 percent, in the three and six months ended June 30, 2007,
      respectively, as compared to the same periods of 2006.  The increases
      in both 2007 periods primarily reflected growth in operating plant in service
      and the effects of a fourth quarter 2006 prospective change in the depreciable
      lives of certain operating equipment, which accounted for $15.1 million and
      $27.0 million, respectively, of the overall increases in depreciation and
      amortization expense.  The depreciable lives were shortened in
      response to the rapid pace of technological development and Alltel’s plans to
      expand and upgrade its network facilities with 1x-EVDO technology.  In
      addition to these factors, depreciation and amortization expense in the three
      and six month periods of 2007 also included $10.3 million and $21.6 million,
      respectively, of additional expense attributable to the acquisitions previously
      discussed.





Primarily
      as a result of the growth in revenues and sales discussed above, operating
      income increased $34.7 million, or 10 percent, and $97.0 million, or 15 percent,
      for the three and six months ended June 30, 2007, respectively, compared to
      the
      same periods of 2006.  The acquisitions of Midwest Wireless and
      properties in Illinois, Texas and Virginia accounted for $27.2 million and
      $59.7
      million of the overall increases in operating income in the three and six month
      periods of 2007, respectively.  Operating income comparisons for the
      three and six months ended June 30, 2007 were also favorably affected by the
      declines in bad debt and roaming expenses previously discussed, partially offset
      by the adverse effects of integration expenses and other charges, as further
      discussed below.





Integration
      Expenses and Other Charges


A
      summary
      of the integration expenses and other charges recorded by Alltel were as follows
      for the three and six months ended June 30:


Three
                Months Ended
            
            
            Six
                Months Ended(Millions)
            
            2007
            
            
            2006
            
            
            2007
            
            
            2006Severance
                and employee benefit costs
            
            $
            0.7
            
            
            $
            -
            
            
            $
            4.4
            
            
            $
            -Rebranding
                and signage costs
            
            
            0.3
            
            
            
            -
            
            
            
            0.4
            
            
            
            8.3Computer
                system conversion and other integration expenses
            
            
            1.9
            
            
            
            -
            
            
            
            4.4
            
            
            
            2.5Costs
                associated with pending acquisition of Alltel
            
            
            33.1
            
            
            
            -
            
            
            
            33.1
            
            
            
            -Total
                integration expenses and other charges
            
            $
            36.0
            
            
            $
            -
            
            
            $
            42.3
            
            
            $
            10.8





During
      2007, Alltel incurred $4.8 million of integration expenses related to its 2006
      acquisitions of Midwest Wireless and properties in Illinois, Texas and
      Virginia.  The system conversion and other integration expenses
      primarily consisted of internal payroll, contracted services and other
      programming costs incurred in converting the acquired properties to Alltel’s
      customer billing and operational support systems, a process that the Company
      expects to complete during the fourth quarter of 2007.  Alltel also
      recorded severance and employee benefit costs of $4.4 million related to a
      planned workforce reduction in connection with the closing of two call
      centers.





25  Table
            of Contents


As
      previously discussed, on May 20, 2007, Alltel entered into an agreement to
      be
      acquired by two private investment firms.  In connection with this
      transaction, Alltel incurred $33.1 million of incremental costs during the
      second quarter of 2007, principally consisting of financial advisory, legal
      and
      regulatory filing fees.  Upon successful closing of the transaction,
      Alltel will be obligated to pay additional financial advisory and legal fees
      of
      approximately $65.0 million, which will be expensed in the period the
      transaction closes.  The integration expenses and other charges
      decreased net income $34.9 million and $38.8 million for the three and six
      months ended June 30, 2007, respectively.





In
      the
      first quarter of 2006, the Company incurred $10.8 million of integration
      expenses related to its August 1, 2005 merger with Western Wireless Corporation
      (“Western Wireless”).  These expenses consisted of $8.3 million of
      rebranding and signage costs and $2.5 million of system conversion and other
      integration costs.  The system conversion and other integration
      expenses included internal payroll and employee benefit costs, contracted
      services, relocation expenses and other programming costs incurred in converting
      Western Wireless’ customer billing and operational support systems to Alltel’s
      internal systems, a process which was completed during March
      2006.  The integration expenses and other charges decreased net income
      $6.6 million in the six months ended June 30, 2006.





At
      June
      30, 2007, the remaining unpaid liability related to Alltel’s integration
      activities consisted of severance and employee benefit costs of $4.4 million,
      legal fees associated with the pending merger transaction of $9.0 million and
      lease and contract termination costs of $0.1 million.  Cash outlays
      for the remaining unpaid liability will be disbursed over the next 12 months
      and
      will be funded from operating cash flows.  (See Note 7 to the
      unaudited interim consolidated financial statements for additional information
      regarding the integration expenses and other charges.)





Non-Operating
                Income, NetThree
                Months Ended
            
            
            Six
                Months EndedJune
                30,
            
            
            June
                30,(Millions)
            
            2007
            
            
            2006
            
            
            2007
            
            
            2006Equity
                earnings in unconsolidated partnerships
            
            $
            16.4
            
            
            $
            15.4
            
            
            $
            31.4
            
            
            $
            28.3Minority
                interest in consolidated partnerships
            
            
            (8.9
            )
            
            
            (11.5
            )
            
            
            (18.6
            )
            
            
            (25.4
            )Other
                income, net
            
            
            5.6
            
            
            
            21.0
            
            
            
            13.3
            
            
            
            31.8Non-operating
                income, net
            
            $
            13.1
            
            
            $
            24.9
            
            
            $
            26.1
            
            
            $
            34.7





As
      indicated in the table above, non-operating income, net decreased $11.8 million,
      or 47 percent, and $8.6 million or 25 percent in the three month and six month
      periods ended June 30, 2007, respectively, as compared to the same periods
      in
      2006.  The decreases in both 2007 periods primarily reflected
      reductions in tax-exempt interest earned on the Company’s cash and short-term
      investments due to a significant decrease in Alltel’s average available cash on
      hand.  Compared to the same periods a year ago, tax-exempt interest
      income decreased $16.0 million and $16.8 million during the three and six month
      periods ended June 30, 2007, respectively.  As further discussed below
      under “Cash Flows from Financing Activities – Continuing Operations”, during the
      first six months of 2007, Alltel repurchased 22.0 million shares of its common
      stock at a total cost of $1,360.3 million and funded the repurchase with
      available cash on hand.





Compared
      to the same periods a year ago, the increases in equity earnings in
      unconsolidated partnerships in the three and six month periods of 2007 of $1.0
      million and $3.1 million, respectively, primarily reflected improved operating
      results in those markets in which the Company owns a minority
      interest.  Conversely, the decreases in minority interest expense of
      $2.6 million and $6.8 million in the three and six month periods of 2007,
      respectively, primarily reflected the effects of Alltel’s acquisitions in the
      first quarter of 2006 of the remaining ownership interests in wireless
      properties in North Carolina, South Carolina and Wisconsin.





Interest
      Expense


Interest
      expense decreased 45 percent in both the three and six month periods ended
      June
      30, 2007, or $39.0 million and $77.0 million, respectively, compared to the
      same
      periods of 2006.  The decreases in interest expense primarily
      reflected the favorable effects on interest costs resulting from a reduction
      in
      Alltel’s long-term debt balance of $2.9 billion that occurred subsequent to the
      completion of the wireline spin-off.  As previously discussed, on
      August 25, 2006, Alltel repurchased prior to maturity $1.0 billion of long-term
      debt, and on July 17, 2006, Alltel completed a $1.7 billion tax-free debt
      exchange with two investment banks.  In addition, on November 1, 2006,
      Alltel repaid, at maturity, a $186.3 million, 9.0 percent senior unsecured
      note.











26  Table
            of Contents


Gain
      on Disposal of Assets


Through
      its merger with Western Wireless, Alltel acquired marketable equity
      securities.  On January 24, 2007, Alltel completed the sale of these
      securities for $188.7 million in cash and recorded a pretax gain from the sale
      of $56.5 million.  This transaction increased net income $36.8 million
      in the six month period ended June 30, 2007.





On
      November 10, 2005, federal legislation was enacted that included provisions
      to
      dissolve and liquidate the assets of the Rural Telephone Bank
      (“RTB”).  In connection with the dissolution and liquidation, during
      April 2006, the RTB redeemed all outstanding shares of its Class C
      stock.  As a result, the Company received liquidating cash
      distributions of $198.7 million in exchange for its $22.1 million investment
      in
      RTB Class C stock and recognized a pretax gain of $176.6
      million.  This transaction increased net income $107.6 million in the
      three and six month periods ended June 30, 2006.





Income
      Taxes


Income
      tax expense decreased $24.8 million, or 15 percent, and increased $39.1 million,
      or 15 percent, in the three and six month periods ended June 30, 2007,
      respectively, compared to the same periods of 2006.  The decrease in
      income tax expense in the three month period of 2007 was consistent with the
      overall reduction in Alltel’s income before taxes primarily due to the absence
      of the liquidating cash distributions received in the second quarter of 2006
      on
      the Company’s investment in RTB Class C Stock.  Conversely, the
      increase in income tax expense in the six month period of 2007 reflected the
      overall growth in Alltel’s operating income, consistent with the increase in
      revenues and sales previously discussed, lower interest costs, and the gain
      realized on the sale of marketable equity securities.  The effects on
      income tax expense attributable to these factors were partially offset by the
      absence of the liquidating cash distributions.  Alltel’s effective
      income tax rates increased to 42.3 percent and 40.5 percent for the three and
      six months ended June 30, 2007, respectively, compared to 37.2 percent and
      37.5
      percent for the corresponding periods of 2006.  The effective income
      tax rates in both 2007 periods were adversely affected by the non-deductibility
      for both federal and state income tax purposes of the $33.1 million in financial
      advisory, legal and regulatory filing fees incurred by Alltel in connection
      with
      the proposed merger transaction.  The effective income tax rates in
      both 2007 periods also reflected lower estimated annual tax benefits to be
      derived from tax-exempt interest income resulting from an expected reduction
      in
      Alltel’s average daily cash balance when compared to 2006.  For 2007,
      Alltel’s annual effective income tax rate is expected to range between 39.0
      percent and 40.0 percent, absent the effects of any future significant or
      unusual items, such as the reversal of income tax contingency
      reserves.





In
      determining its quarterly provision for income taxes, Alltel uses an estimated
      annual effective tax rate, which is based on the Company’s expected annual
      income, statutory rates and tax planning opportunities and includes the effects
      of uncertain tax positions accounted for in accordance with Financial Accounting
      Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes - an interpretation of FASB Statement No. 109” (“FIN
      48”).  Significant or unusual items, such as the taxes related to the
      sale of a business, are separately recognized in the quarter in which they
      occur.





Net
      Income and Earnings per Share from Continuing Operations


Net
      income from continuing operations decreased $89.9 million, or 31 percent, and
      increased $6.2 million, or 1 percent, in the three and six month periods ended
      June 30, 2007, respectively, compared to the same periods of
      2006.  Basic and diluted earnings per share from continuing operations
      decreased 22 percent and 23 percent for the three months ended June 30, 2007,
      respectively, compared to the same period of 2006.  For the six months
      ended June 30, 2007, basic and diluted earnings per share from continuing
      operations both increased 12 percent compared to the same period of
      2006.  The decreases in net income and earnings per share in the three
      month period of 2007 primarily reflected the absence of the liquidating
      distributions received in the second quarter of 2006 on the Company’s investment
      in RTB Class C Stock and the adverse effects resulting from the increase in
      Alltel’s effective income tax rate discussed above.  These decreases
      were partially offset by growth in operating income and reduced interest
      costs.  Conversely, the increases in net income and earnings per share
      in the six month period of 2007 were driven by the overall growth in Alltel’s
      operating income, lower interest costs, and the gain realized on the sale of
      marketable equity securities.  The effects on net income and earnings
      per share attributable to these factors were partially offset by the absence
      of
      the liquidating cash distributions and the increase in the Company’s effective
      income tax rate previously discussed.  When compared to the
      corresponding periods of 2006, the changes in basic and diluted earnings per
      share in the three and six month periods of 2007 also reflected overall
      decreases in weighted average share counts due to Alltel’s repurchase of its
      common stock, as further discussed below.














27  Table
            of Contents


Discontinued
      Operations


As
      previously discussed, on July 17, 2006, Alltel completed the spin-off of its
      wireline telecommunications business to its stockholders and the merger of
      that
      wireline business with Valor.  In accordance with Statement of
      Financial Accounting Standards (“SFAS”) No. 144 “Accounting for the Impairment
      or Disposal of Long-Lived Assets”, the results of operations, assets,
      liabilities and cash flows of the wireline telecommunications business have
      been
      presented as discontinued operations for all periods presented.





As
      a
      condition of receiving approval from the DOJ and FCC for its acquisition of
      Midwest Wireless, Alltel agreed on September 7, 2006 to divest four rural
      markets in Minnesota.  On April 3, 2007, Alltel completed the sale of
      these markets to Rural Cellular for $48.5 million in cash.  During
      2005, Alltel also had agreed to divest certain wireless operations of Western
      Wireless in 16 markets in Arkansas, Kansas and Nebraska, as well as the Cellular
      One brand as a condition of receiving approval from the DOJ and FCC for the
      merger with Western Wireless.  In December 2005, Alltel completed an
      exchange of wireless properties with United States Cellular Corporation that
      included a substantial portion of the divestiture requirements related to the
      Western Wireless merger and included the Kansas and Nebraska
      markets.  In December 2005, Alltel also sold the Cellular One brand,
      and in March 2006, Alltel sold the remaining market in
      Arkansas.  During 2005, Alltel completed the sales of Western
      Wireless’ international operations in Georgia, Ghana and Ireland for $570.3
      million in cash.  During the second quarter of 2006, Alltel completed
      the sales of Western Wireless’ international operations in Austria, Bolivia,
      Côte d’Ivoire, Haiti, and Slovenia for approximately $1.7 billion in
      cash.  The acquired international operations and interests of Western
      Wireless and the domestic markets in Arkansas, Kansas, Minnesota, and Nebraska
      required to be divested by Alltel have been classified as discontinued
      operations in the accompanying consolidated financial statements for all periods
      presented.





The
      table
      presented below includes certain summary income statement information related
      to
      the wireline business, international operations and the domestic markets to
      be
      divested reflected as discontinued operations for the three and six months
      ended
      June 30:


Three
                Months Ended
            
            
            Six
                Months Ended(Millions)
            
            2007
            
            
            2006
            
            
            2007
            
            
            2006Revenues
                and sales
            
            $
            0.2
            
            
            $
            800.2
            
            
            $
            7.8
            
            
            $
            1,703.5Operating
                expenses
            
            
            1.4
            
            
            
            542.0
            
            
            
            10.6
            
            
            
            1,156.2Operating
                income (loss)
            
            
            (1.2
            )
            
            
            258.2
            
            
            
            (2.8
            )
            
            
            547.3Minority
                interest expense in unconsolidated entities
            
            
            -
            
            
            
            (1.5
            )
            
            
            -
            
            
            
            (6.0
            )Gain
                (loss) on disposal of discontinued operations
            
            
            0.2
            
            
            
            (14.8
            )
            
            
            0.2
            
            
            
            (14.8
            )Other
                income (expense), net
            
            
            -
            
            
            
            (1.6
            )
            
            
            1.3
            
            
            
            0.3Interest
                expense
            
            
            -
            
            
            
            (2.6
            )
            
            
            -
            
            
            
            (8.4
            )Pretax
                income (loss) from discontinued operations
            
            
            (1.0
            )
            
            
            237.7
            
            
            
            (1.3
            )
            
            
            518.4Income
                tax expense
            
            
            1.8
            
            
            
            97.2
            
            
            
            1.7
            
            
            
            214.7Income
                (loss) from discontinued operations
            
            $
            (2.8
            )
            
            $
            140.5
            
            
            $
            (3.0
            )
            
            $
            303.7





Operating
      expenses for 2007 included an impairment charge of $1.7 million to reflect
      the
      fair value less cost to sell of the four rural markets in Minnesota required
      to
      be divested and resulted in the write-down in the carrying values of goodwill
      and customer list allocated to these markets.  The depreciation of
      long-lived assets related to the international operations and the domestic
      markets in Arkansas, Kansas and Nebraska to be divested ceased as of August
      1,
      2005, the date of the Western Wireless merger.  Depreciation of
      long-lived assets and amortization of finite-lived intangible assets related
      to
      the four markets in Minnesota to be divested was not recorded subsequent to
      September 7, 2006, the date of Alltel’s agreement with the DOJ and FCC to divest
      these markets.  The cessation of depreciation and amortization expense
      had the effect of reducing operating expenses by approximately $1.0 million
      in
      the six months ended June 30, 2007.  Comparatively, the cessation of
      depreciation and amortization expense had the effect of reducing operating
      expenses by approximately $8.1 million and $25.5 million in the three and six
      months ended June 30, 2006, respectively.  (See Note 9 to the
      unaudited interim consolidated financial statements for additional information
      regarding the discontinued operations.)























28  Table
            of Contents


Weighted
      Average Common Shares Outstanding


The
      weighted average number of common shares outstanding decreased 11 percent and
      10
      percent in the three and six month periods ended June 30, 2007, respectively,
      compared to the same periods of 2006.  The decreases primarily
      reflected the effects of Alltel’s aggregate repurchase of approximately 50.5
      million of its common shares during the twelve month period ended June 30,
      2007,
      as further discussed below under “Cash Flows from Financing Activities –
Continuing Operations”. The decreases in weighted average share counts in both
      2007 periods attributable to the share repurchases were partially offset by
      additional common shares issued upon the exercise of options granted under
      Alltel’s employee stock-based compensation plans.





Regulatory
      Matters


Alltel
      is
      subject to regulation primarily by the FCC as a provider of Commercial Mobile
      Radio Services (“CMRS”).  The FCC’s regulatory oversight consists of
      ensuring that wireless service providers are complying with the Communications
      Act of 1934, as amended (the “Communications Act”), and the FCC’s regulations
      governing technical standards, outage reporting, spectrum usage, license
      requirements, market structure, consumer protection, including public safety
      issues like enhanced 911 emergency service (“E-911”), the Communications
      Assistance for Law Enforcement Act (“CALEA”), accessibility requirements
      (including hearing aid capabilities), and environmental matters governing tower
      siting.  State public service commissions are pre-empted under the
      Communications Act from regulatory oversight of wireless carriers’ market entry
      and retail rates, but they are entitled to address certain terms and conditions
      of service offered by wireless service providers.  The nation’s
      telecommunications laws continue to be reviewed with bills introduced in
      Congress, rulemaking proceedings pending at the FCC and various state regulatory
      initiatives, the effects of which could significantly impact Alltel’s wireless
      telecommunications business in the future.





Regulatory
      Treatment for Wireless Broadband


The
      FCC
      has determined that wireless broadband internet access services are information
      services under the Communications Act of 1934, as amended, and, as such, are
      subject to similar regulatory treatment as other broadband services such as
      cable modem, Digital Subscriber Line (“DSL”), and broadband over power line
      services. Certain interconnected broadband services, such as Voice Over Internet
      Protocol (“VOIP”) have been made subject to various FCC mandates including
      E-911, CALEA, Customer Proprietary Network Information (“CPNI”), contributions
      to the Telecommunications Relay Services, universal service contributions and
      access for the disabled, and will apply to Alltel to the extent it offers
      wireless VOIP services or should the FCC extend the various mandates to
      broadband services generally.  Further, the FCC has instituted an
      inquiry into whether regulatory intervention is necessary in the broadband
      market to ensure network neutrality.





Universal
      Service


To
      ensure
      affordable access to telecommunications services throughout the United States,
      the FCC and many state commissions administer universal service
      programs.  CMRS providers are required to contribute to the federal
      USF and are required to contribute to some state universal service
      funds.  The rules and methodology under which carriers contribute to
      the federal fund are the subject of an ongoing FCC rulemaking in which a change
      from the current interstate revenue-based system to some other system based
      upon
      line capacity or utilized numbers is being considered.  In the
      meantime, the FCC has increased the safe harbor percentage of a wireless
      carrier’s revenue subject to a federal universal service assessment from 28.5
      percent to 37.1 percent, adopted certain reporting requirements and clarified
      the alternative methods under which CMRS providers contribute to the
      fund.  CMRS providers also are eligible to receive support from the
      federal USF if they obtain designation as an ETC.  The collection and
      distribution of USF fees are under continual review by federal and state
      legislative and regulatory bodies and are subject to audit by Universal Service
      Administration Corporation (“USAC”).  Certain of Alltel’s
      contributions to, and distributions from, the USF are the subject of on-going
      USAC audits.  The Company does not anticipate any material adverse
      findings.  The Federal-State Universal Service Joint Board has
      recommended, among other things, to cap universal service support for
      competitive eligible telecommunications carriers like Alltel, and the FCC is
      considering whether to adopt this recommendation and/or implement other changes
      to the way universal service funds are disbursed to program
      recipients.





Alltel
      is
      designated as an ETC and receives USF support from the federal fund in the
      following states: Alabama, Arkansas, California, Colorado, Florida, Georgia,
      Iowa, Kansas, Louisiana, Michigan, Minnesota, Mississippi, Montana, Nebraska,
      Nevada, New Mexico, North Carolina, North Dakota, South Dakota, Texas, Virginia,
      West Virginia, Wisconsin, and Wyoming.  Alltel also receives state
      universal service support for some offerings in Texas.











29  Table
            of Contents


The
      Communications Act and FCC regulations require that universal service receipts
      be used to provision, maintain and upgrade the networks that provide the
      supported services.  Additionally, the Company accepted certain
      federal and state reporting requirements and other obligations as a condition
      of
      the ETC certifications.  The Company believes that it is substantially
      compliant with the FCC regulations and with all of the federal and state
      reporting requirements and other obligations related to universal service
      support.  During the second quarter of 2007, Alltel received
      approximately $80.0 million of USF support.





E-911


Wireless
      service providers are required by the FCC to provide E-911 in a two-phased
      approach.  In phase one, carriers must, within six months after
      receiving a request from a phase one enabled Public Safety Answering Point
      (“PSAP”), deliver both the caller’s number and the location of the cell site to
      the PSAP serving the geographic territory from which the E-911 call
      originated.  In phase two, carriers that have opted for a
      handset-based solution must determine the location of the caller within 50
      meters for 67 percent of the originated calls and 150 meters for 95 percent
      of
      the originated calls and deploy Automatic Location Identification (“ALI”)
      capable handsets according to specified thresholds culminating with a
      requirement that carriers reach a 95 percent deployment level of ALI capable
      handsets within their subscriber base by December 31,
      2005.  Furthermore, on April 1, 2005, the FCC issued an order imposing
      an E-911 obligation to deliver ALI data on carriers providing only roaming
      services.





Alltel
      began selling ALI-capable handsets in June 2002 and had complied with each
      of
      the intermediate handset deployment thresholds under the FCC’s order or
      otherwise obtained short-term relief from the FCC to facilitate certain
      acquisitions.  On September 30, 2005, due to the slowing pace of
      customer migration to ALI-capable handsets and lower than FCC forecasted churn,
      Alltel filed a request with the FCC for a waiver of the December 31, 2005
      requirement to achieve 95 percent penetration of ALI-capable
      phones.  The request included an explanation of the Company’s
      compliance efforts to date and the expected date when it will meet the 95
      percent penetration rate of ALI-capable handsets, June 30, 2007.  A
      number of other wireless carriers, including large national carriers and
      CTIA-The Wireless Association (“CTIA”) on behalf of CMRS carriers in general,
      also sought relief from the 95 percent requirement.  On January 5,
      2007, the FCC issued a number of orders denying certain of the waivers of the
      E-911 handset deployment requirement, including the waiver filed by the
      Company.  The FCC’s order imposed reporting requirements on the
      Company and referred the issue of Alltel’s compliance with the rules to the
      FCC’s Enforcement Bureau for consideration of further action.  While
      the Company has sought reconsideration of the order denying its waiver and
      met
      the 95 percent standard by June 2007 as requested in its waiver, it cannot
      predict the outcome of any proceeding before the FCC’s Enforcement Bureau,
      although fines are possible.





The
      FCC
      has initiated a rulemaking in response to a petition for declaratory ruling
      seeking to specify the basis upon which CMRS carriers must measure the accuracy
      and reliability of the location data provided to PSAPs for E-911 Phase II
      service.  Under the proposal before the FCC, CMRS carriers, including
      the Company, will have to revise their methodology for determining accuracy
      of
      location data for purposes of compliance with the FCC’s rules.





CALEA


CALEA
      requires wireless carriers to ensure that their networks are capable of
      accommodating lawful intercept requests received from law enforcement
      agencies.  The FCC has imposed various obligations and compliance
      deadlines, including those for VOIP and Broadband Internet Access Services,
      with
      which Alltel has materially complied.  The FCC has under consideration
      a petition filed by law enforcement agencies alleging that the standards for
      packet data transmission for CDMA 2000 providers are deficient under
      CALEA.





Inter-carrier
      Compensation


Under
      the
      96 Act and the FCC’s rules, CMRS providers are subject to certain requirements
      governing the exchange of telecommunications traffic with other
      carriers.  There is a pending rulemaking at the FCC addressing
      inter-carrier compensation issues, which could impact Alltel’s future costs to
      provide service.
































30  Table
            of Contents


Wireless
      Spectrum


Alltel
      holds FCC authorizations for Cellular Radiotelephone Service (“CRS”), Personal
      Communications Service (“PCS”), and paging services, as well as ancillary
      authorizations in the private radio and microwave services (collectively, the
      “FCC Licenses”).  Generally, FCC licenses are issued initially for
      10-year terms and may be renewed for additional 10-year terms upon FCC approval
      of the renewal application.  The Company has routinely sought and been
      granted renewal of its FCC Licenses without contest and anticipates that future
      renewals of its FCC Licenses will be granted.





The
      FCC
      conducts proceedings through which additional spectrum is made available for
      the
      provision of wireless communications services, including broadband
      services.  The FCC recently completed the auction for Advanced
      Wireless Services (“AWS”) spectrum and must begin the auction of spectrum in the
      700 MHz band no later than January 28, 2008.  Alltel did not
      participate in the AWS spectrum auction.  On July 31, 2007, the FCC
      adopted rules governing the 700 MHz spectrum auction.  Alltel has made
      no determination as to whether it will participate in the auction at this
      time.  The FCC also continues to consider various uses of unlicensed
      spectrum and sharing of currently allocated spectrum between various
      users.  The FCC has, for example, instituted a rulemaking on the use
      of “white spaces” in the television spectrum on an unlicensed
      basis.





Customer
      Billing


The
      FCC
      requires CMRS carriers to ensure that the descriptions of line items on customer
      bills are clear and not misleading and has declared that any representation
      of a
      discretionary item on a bill as a tax or government-mandated charge is
      misleading.  The Federal Court of Appeals for the Eleventh Circuit has
      vacated an order of the FCC preempting states from requiring or prohibiting
      the
      use of line items on CMRS carriers’ bills and remanded the decision to the FCC
      for further proceedings.  The FCC is also considering additional CMRS
      billing regulations and state preemption issues including whether early
      termination fees constitute a rate, and consequently, are beyond a state’s
      regulatory jurisdiction.





CMRS
      Roaming


The
      FCC
      has initiated a rulemaking proceeding to examine the rules applicable to
      automatic roaming relationships between carriers.  The FCC’s rules
      currently require only that manual roaming be provided by a carrier to any
      subscriber in good standing with his/her home market
      carrier.  Automatic roaming agreements, although common throughout the
      CMRS industry, are not currently mandated by the FCC.





CPNI


The
      FCC
      has recently concluded its rulemaking governing the protection of customer
      information and call records, including the adequacy of security measures
      employed by carriers to protect certain customer information.  New FCC
      rules specify new notice and customer authentication requirements as well as
      both certification requirements and limitations on the disclosure of CPNI to
      the
      carriers joint venture partners and contractors, which remain subject to
      judicial appeal and FCC reconsideration.  While the Company has not
      been formally notified that the FCC has terminated its investigation of carrier
      practices to protect CPNI, the Company has received no further inquiries or
      notices from the FCC.





Analog
      Sunset


Under
      current FCC rules, a carrier will not be required to offer analog wireless
      services after February 2008.  This analog “sunset” rule was the
      subject of petitions seeking extension of the analog requirement beyond 2008,
      which were denied by the FCC by order dated June 15, 2007.





Warn
      Act/Emergency Alerts


On
      October 13, 2006, the Warn Act was signed into law and provides that carriers
      may, within two years, voluntarily choose to provide emergency alerts as part
      of
      their service offerings under standards and protocols adopted by the
      FCC.  The FCC has convened the industry advisory committee required
      under the Warn Act to begin consideration of technical standards and operating
      protocols.





Katrina
      Panel Recommendations


On
      June
      8, 2007, the FCC released an order directing the Public Safety and Homeland
      Security Bureau to implement several of the recommendations of the panel
      convened to study network outages in the wake of Hurricane
      Katrina.  The FCC also adopted rules requiring wireless communications
      providers to have emergency back-up power for cell sites as well as to conduct
      studies and submit reports on the redundancy and resiliency of their E-911
      networks.








31


Table
          of Contents


**FINANCIAL
                CONDITION, LIQUIDITY AND CAPITAL RESOURCES**Six
                Months EndedJune
                30,(Millions,
                except per share amounts)
            
            2007
            
            
            2006Cash
                flows from (used in):Operating
                activities from continuing operations
            
            $
            1,112.7
            
            
            $
            642.3Investing
                activities from continuing operations
            
            
            (287.1
            )
            
            
            (901.1
            )Financing
                activities from continuing operations
            
            
            (1,350.0
            )
            
            
            (283.7
            )Discontinued
                operations
            
            
            46.5
            
            
            
            2,092.5Effect
                of exchange rate changes
            
            
            -
            
            
            
            (5.9
            )Increase
                (decrease) in cash and short-term investments
            
            $
            (477.9
            )
            
            $
            1,544.1Total
                capital structure (a)
            
            
            $14,466.1
            
            
            
            $19,208.4Percent
                of equity to total capital (b)
            
            
            80.8%
            
            
            
            70.9%Book
                value per share (c)
            
            
            $33.97
            
            
            
            $34.94





Notes:


(a)
            Computed
                as the sum of long-term debt including current maturities, redeemable
                preferred stock and total shareholders’ equity.(b)
            Computed
                by dividing total shareholders’ equity by total capital structure as
                computed in (a) above.(c)
            Computed
                by dividing total shareholders’ equity less preferred stock by the total
                number of common shares outstanding at the end of the
                period.


Cash
        Flows from Operating Activities – Continuing Operations
 For
        the
        six months ended June 30, 2007, Alltel’s primary source of liquidity continued
        to be cash provided from operations.  Cash flows from operations in
        2007 reflected growth in earnings from Alltel’s business operations and
        favorable changes in working capital requirements, driven primarily by timing
        differences in the billing and collection of accounts receivable, purchase
        of
        inventory and payment of accounts payable and income taxes.  During
        the first six months of 2007, Alltel generated sufficient cash flows from
        operations to fund its capital expenditure requirements, dividend payments
        and
        scheduled long-term payments, as further discussed below.  Alltel
        expects to generate sufficient cash flows from operations to fund its operating
        requirements during the balance of 2007.
 
 Cash
        Flows from Investing Activities – Continuing Operations
 During
        the first six months of 2007, capital expenditures continued to be Alltel’s
        primary use of capital resources.  Capital expenditures for the six
        months ended June 30, 2007 were $477.8 million compared to $441.2 million
        for
        the same period in 2006.  Capital expenditures in both years were
        incurred to construct additional network facilities and to deploy 1XRTT data
        and
        1x-EVDO technology.  The Company plans to continue expanding 1x-EVDO
        deployments in its markets with an expected total coverage of approximately
        65
        percent of its cell sites by the end of 2007.  Alltel funded
        substantially all of its capital expenditures through internally generated
        funds.  Investing activities also included outlays for capitalized
        software development costs.  Additions to capitalized software for the
        six months ended June 30, 2007 were $17.2 million compared to $17.0 million
        for
        the same period in 2006.  The Company expects capital expenditures,
        including capitalized software development costs, to be approximately $1.15
        billion to $1.25 billion for 2007, which will be funded primarily from
        internally generated funds.
 
 During
        the first six months of 2007, Alltel acquired for $2.5 million in cash an
        additional ownership interest in a wireless property in Arkansas in which
        the
        Company owned a majority interest.  Alltel also acquired for $3.7
        million in cash the remaining ownership interest in a wireless license covering
        a rural service area in New Mexico.  Cash outlays for the purchase of
        property, net of cash acquired in the six months ended June 30, 2006 were
        $676.4
        million.  As previously discussed, on March 16, 2006, Alltel purchased
        from Palmetto MobileNet, L.P. for $456.3 million in cash the remaining ownership
        interests in ten wireless partnerships in North and South
        Carolina.  During the first quarter of 2006, Alltel also acquired for
        $2.6 million in cash the remaining ownership interest in a wireless property
        in
        Wisconsin in which the Company owned a majority interest.  During the
        second quarter of 2006, Alltel purchased for $217.5 million in cash wireless
        properties in Illinois, Texas and Virginia.
 
 Investing
        activities for the six months ended June 30, 2007 included proceeds from
        the
        sale of investments of $188.7 million, consisting of the cash proceeds received
        from the sale of marketable securities acquired by Alltel through its merger
        with Western Wireless.  Investing activities for the six months ended
        June 30, 2007 and 2006 included proceeds from the return of investments of
        $24.8
        million and $22.2 million, respectively.  These amounts primarily
        consisted of cash distributions received from Alltel’s wireless minority
        investments.  Investing activities for the six months ended June 30,
        2006 included proceeds from the sale of investments of $199.9 million,
        principally consisting
  32  Table
            of Contents


of
      the
      liquidating cash distributions of $198.7 million received by Alltel in exchange
      for its $22.1 million investment in RTB Class C stock, as previously
      discussed.





Cash
      Flows from Financing Activities – Continuing Operations


Common
      and preferred dividend payments were $90.5 million for the six months ended
      June
      30, 2007 compared to $297.2 million for the same period in
      2006.  Dividend payments in 2007 reflected the reduction in Alltel’s
      annual dividend rate from $1.54 to $.50 per share following the completion
      of
      the wireline spin-off to Alltel’s shareholders on July 17,
      2006.  Alltel expects to continue the payment of cash dividends until
      closing of the merger transaction.  Sources of funding future dividend
      payments include available cash on hand and operating cash flows.





Alltel
      has a five-year, $1.5 billion unsecured line of credit under a revolving credit
      agreement with an expiration date of July 28, 2009.  Alltel incurred
      no borrowings under the revolving credit agreement during the first six months
      of 2007.  The Company also has established a commercial paper program
      with a maximum borrowing capacity of $1.5 billion.  Alltel classifies
      commercial paper borrowings as long-term debt, because they are intended to
      be
      maintained on a long-term basis and are supported by the Company’s $1.5 billion
      revolving credit agreement.  Under the commercial paper program,
      commercial paper borrowings are fully supported by the available borrowings
      under the revolving credit agreement.  Accordingly, the total amount
      outstanding under the commercial paper program and the indebtedness incurred
      under the revolving credit agreement may not exceed $1.5
      billion.  During the second quarter of 2007, Alltel incurred
      borrowings of $100.0 million under the commercial paper program, all of which
      remained outstanding at June 30, 2007.  The commercial paper
      borrowings represented all of the long-term debt issued during the first six
      months of 2007 and were incurred to fund general corporate
      requirements.  Conversely, there were no commercial paper borrowings
      outstanding at December 31, 2006, and Alltel did not incur any additional
      borrowings under the commercial paper program during the first six months of
      2006.  As a result, the total commercial paper borrowings outstanding
      at June 30, 2006 remained unchanged from December 31, 2005 and amounted to
      $1.0
      billion.  As previously discussed, on July 17, 2006, Alltel exchanged
      $988.5 million of the $1.0 billion outstanding commercial paper borrowings
      for
      debt securities issued to the Company by Windstream in connection with the
      spin-off of the wireline business.  In August 2006, Alltel repaid the
      remaining $11.5 million of outstanding commercial paper borrowings with
      available cash on hand.





Repayments
      of long-term debt were $36.3 million for the six months ended June 30, 2007
      and
      consisted principally of the repayment of the remaining $35.6 million, 4.656
      percent equity unit notes due May 17, 2007.  The repayments were
      funded by cash on hand.  In connection with its acquisition of Western
      Wireless, Alltel assumed $115.0 million of 4.625 percent convertible
      subordinated notes due 2023 that were issued by Western Wireless in June 2003
      (the “Western Wireless notes”).  During January and February of 2006,
      an aggregate principal amount of $100.0 million of the Western Wireless notes
      were converted.  As a result of the conversion, Alltel issued 3.4
      million shares of its common stock and paid approximately $59.8 million in
      cash
      to holders of the Western Wireless notes during the first six months of
      2006.





Cash
      flows from financing activities also included distributions to minority
      investors, which amounted to $21.1 million and $20.3 million for the six months
      ended June 30, 2007 and 2006, respectively.





On
      January 19, 2006, Alltel’s Board of Directors authorized the Company to
      repurchase up to $3.0 billion of its outstanding common stock over a three-year
      period ending December 31, 2008.  Under this authorization, Alltel may
      repurchase shares, from time to time, on the open market or in negotiated
      transactions, as circumstances warrant.  Sources of funding stock
      repurchases include available cash on hand, operating cash flows and borrowings
      under the Company’s commercial paper program.  During the first six
      months of 2007, Alltel repurchased 22.0 million of its common shares at a total
      cost of $1,360.3 million, substantially completing the $3.0 billion share
      repurchase available under this authorization.  During the second half
      of 2006, Alltel had repurchased 28.5 million of its common shares at a total
      cost of $1,595.6 million under this authorization.  Alltel did not
      repurchase any of its common shares during the first half of 2006 under this
      authorization.





Liquidity
      and Capital Resources


Alltel
      believes it has sufficient cash and short-term investments on hand ($456.3
      million at June 30, 2007) and has adequate operating cash flows to finance
      its
      ongoing requirements, including capital expenditures, repayment of long-term
      debt and payment of dividends (without regard to the potential cash flow effects
      resulting from the financing of the proposed merger transaction, as further
      discussed below).  Pursuant to the terms of the merger agreement,
      Alltel agreed that, between May 20, 2007 and the effective time of the merger,
      subject to certain exceptions or unless otherwise agreed to by Atlantis
      Holdings, Alltel would not incur any additional indebtedness (including the
      issuance of any debt security) in an aggregate principal amount in excess of
      $100.0 million.




33  Table
            of Contents


In
      connection with the proposed merger transaction, Atlantis Holdings has received
      debt commitment letters from various banks to provide ACI, a wholly-owned
      subsidiary of Alltel, for the purpose of financing a portion of the merger
      consideration and paying certain fees and expenses incurred in connection with
      the merger with (1) a senior secured term loan facility of up to $14.0 billion
      and a senior secured revolving credit facility of up to $1.5 billion, (2) a
      senior unsecured cash pay bridge facility of up to $4.7 billion less the amount
      of any senior unsecured cash pay notes issued in lieu of such bridge facility
      and (3) a senior unsecured pay-in-kind option bridge facility of up to $3.0
      billion less the amount of any senior unsecured pay-in-kind notes issued in
      lieu
      of such bridge facility.  The aggregate principal amount of the senior
      secured term loan facility may be increased by up to $750.0 million under
      certain circumstances.  Atlantis Holdings has agreed to use its
      reasonable best efforts to arrange the debt financing on the terms and
      conditions set forth in the commitments.  The closing of the merger is
      not conditioned on the receipt of the debt financing.





In
      May
      2007, subsequent to the announcement of the merger agreement, Standard &
Poor’s Corporation (“Standard & Poor’s”) and Fitch Ratings (“Fitch”)
      downgraded their long-term credit ratings for Alltel to BB and BB-,
      respectively.  Presently, Moody’s Investors Service (“Moody’s”) has
      not changed its credit ratings applicable to the Company.  Alltel does
      not believe that the recent downgrade of its long-term credit ratings will
      have
      a material adverse impact on its financial liquidity.  At June 30,
      2007, Alltel’s commercial paper and long-term credit ratings with Moody’s,
      Standard & Poor’s and Fitch were as follows:


Description
            Moody’s
            Standard
              &
                Poor’s
            FitchCommercial
                paper credit rating
            Prime-1
            A-2
            WithdrawnLong-term
                debt credit rating
            A2
            BB
            BB-





Factors
      that could affect Alltel’s short and long-term credit ratings would include, but
      not be limited to, a material decline in the Company’s operating results and
      increased debt levels relative to operating cash flows resulting from future
      acquisitions or increased capital expenditure requirements.  The
      recent downgrade in Alltel’s credit ratings has resulted in the Company
      incurring modestly higher interest costs on its commercial paper
      borrowings.  A further downgrade in Alltel’s current short or
      long-term credit ratings would not accelerate scheduled principal payments
      of
      Alltel’s existing long-term debt.





The
      revolving credit agreement contains various covenants and restrictions including
      a requirement that, as of the end of each calendar quarter, Alltel maintain
      a
      total debt-to-capitalization ratio of less than 65 percent.  For
      purposes of calculating this ratio under the revolving credit agreements, total
      debt would include amounts classified as long- term debt (excluding
      mark-to-market adjustments for interest rate swaps), current maturities of
      long-term debt outstanding, short-term debt and any letters of credit or other
      guarantee obligations.  As of June 30, 2007, Alltel’s total debt to
      capitalization ratio was 19.5 percent.  In addition, the indentures
      and borrowing agreements, amended, provide, among other things, for various
      restrictions on the payment of dividends by Alltel.  Retained earnings
      unrestricted as to the payment of dividends by the Company amounted to $8.0
      billion at June 30, 2007.  There are no restrictions on the payment of
      dividends among members of Alltel’s consolidated group.





At
      June
      30, 2007, current maturities of long-term debt were $39.7 million and
      principally consisted of the remaining $39.0 million, 6.65 percent unsecured
      senior notes due January 15, 2008.  As previously discussed, on August
      25, 2006, Alltel repurchased for cash $61.0 million of the 6.65 percent
      notes.  In connection with the completion of the proposed merger
      transaction, Alltel expects to repay or refinance certain of its existing
      long-term debt obligations, including the remaining portion of the 6.65 percent
      unsecured senior notes.  The debt commitments discussed above
      contemplate that $2.3 billion of Alltel’s existing long-term debt obligations
      will remain outstanding following the completion of the proposed transaction
      and
      would consist of the following: $800.0 million of 7.00 percent unsecured senior
      notes due July 1, 2012, $200.0 million of 6.50 percent unsecured senior notes
      due November 1, 2013, $300.0 million of 7.00 percent unsecured senior notes
      due
      March 15, 2016, $300.0 million of 6.80 percent unsecured senior notes due May
      1,
      2029, and $700.0 million of 7.875 percent unsecured senior notes due July 1,
      2032.





Under
      the
      Company’s long-term debt borrowing agreements, acceleration of principal
      payments would occur upon payment default, violation of debt covenants not
      cured
      within 30 days or breach of certain other conditions set forth in the borrowing
      agreements.  At June 30, 2007, the Company was in compliance with all
      of its debt covenants.  There are no provisions within Alltel’s
      leasing agreements that would trigger acceleration of future lease
      payments.











34  Table
            of Contents


Alltel
      does not use securitization of trade receivables, affiliation with special
      purpose entities, variable interest entities or synthetic leases to finance
      its
      operations.  Additionally, the Company has not entered into any
      material arrangement requiring Alltel to guarantee payment of third party debt
      or to fund losses of an unconsolidated special purpose entity.





Critical
      Accounting Policies


Alltel
      prepares its consolidated financial statements in accordance with accounting
      principles generally accepted in the United States.  In Alltel’s
      Annual Report on Form 10-K for the year ended December 31, 2006, the Company
      identified the critical accounting policies which affect its more significant
      estimates and assumptions used in preparing its consolidated financial
      statements.  These critical accounting policies include accounting for
      service revenues, evaluating the collectibility of trade receivables, accounting
      for pension and other postretirement benefits, calculating stock-based
      compensation and depreciation and amortization expense, determining the fair
      values of goodwill and other indefinite-lived intangible assets, accounting
      for
      income taxes and business combinations.





Except
      for a change in accounting for uncertain tax positions resulting from the
      adoption of a new accounting standard as discussed below, there were no material
      changes to Alltel’s critical accounting policies during the first six months of
      2007.  In July 2006, the FASB issued FIN 48, which clarified the
      accounting for uncertainty in income taxes recognized in an enterprise’s
      financial statements in accordance with SFAS No. 109, “Accounting for Income
      Taxes”.





As
      required, Alltel adopted the provisions of FIN 48 effective January 1,
      2007.  FIN 48 addressed the determination of how tax benefits claimed
      or expected to be claimed on a tax return should be recorded in the financial
      statements. Under FIN 48, the Company must recognize the tax benefit from an
      uncertain tax position only if it is more likely than not that the tax position
      will be sustained on examination by the taxing authorities, based on the
      technical merits of the position.  The tax benefits recognized in the
      financial statements from such a position are measured based on the largest
      benefit that has a greater than fifty percent likelihood of being realized
      upon
      ultimate resolution.  The impact of the Company’s reassessment of its
      tax positions in accordance with FIN 48 did not have a material impact on its
      results of operations, financial condition or liquidity.  (See Note 2
      to the unaudited interim consolidated financial statements for additional
      information regarding the adoption of FIN 48.)





Recently
      Issued Accounting Pronouncements


In
      September 2006, the FASB issued SFAS No. 157, “Fair Value
      Measurements”.  SFAS No. 157 clarifies the definition of fair value,
      establishes a framework for measuring fair value and expands the disclosures
      related to fair value measurements that are included in a company’s financial
      statements.  SFAS No. 157 does not expand the use of fair value
      measurements in financial statements, but emphasizes that fair value is a
      market-based measurement and not an entity-specific measurement that should
      be
      based on an exchange transaction in which a company sells an asset or transfers
      a liability (exit price).  SFAS No. 157 also establishes a fair value
      hierarchy in which observable market data would be considered the highest level,
      while fair value measurements based on an entity’s own assumptions would be
      considered the lowest level.  For calendar year companies like Alltel,
      SFAS No. 157 is effective beginning January 1, 2008.  The Company is
      currently evaluating the effects, if any, that SFAS No. 157 will have on its
      consolidated financial statements.





In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities – Including an amendment of FASB
      Statement No. 115”.  SFAS No. 159 permits entities to measure at fair
      value eligible financial assets and liabilities that are not currently required
      to be measured at fair value.  If the fair value option for an
      eligible item is elected, unrealized gains and losses for that item will be
      reported in current earnings at each subsequent reporting date.  SFAS
      No. 159 also establishes presentation and disclosure requirements designed
      to
      facilitate comparison between the different measurement attributes the entity
      elects for similar types of assets and liabilities.  SFAS No. 159 is
      effective as of the beginning of an entity’s first fiscal year that begins after
      November 15, 2007.  The Company is in the process of evaluating the
      impact, if any, that SFAS No. 159 will have on its consolidated financial
      statements.





Other
      Matters


On
      June
      7, 2007, Broadcom Corporation (“Broadcom”) prevailed in a patent infringement
      action brought before the United States International Trade Commission (“ITC”)
      against Qualcomm Corporation.  The ITC ordered that wireless telephone
      handsets not currently in commerce in the United States of
      America (“USA”)  that are manufactured using certain Broadcom
      patents are barred from importation into the USA.  Alltel was not
      immediately affected by the ITC order but nevertheless has taken and will
      continue to take appropriate steps to mitigate the effects of the ITC order
      on
      its future wireless operations.




35  Table
            of Contents


**ALLTEL
                CORPORATION****FORM
                10-Q****PART
                I – FINANCIAL INFORMATION**





**Item
      3.    Quantitative and Qualitative
      Disclosures About Market Risk**


Alltel’s
      market risks at June 30, 2007 are similar to the market risks discussed in
      the
      Company’s Annual Report on Form 10-K for the year ended December 31,
      2006.  Following the January 24, 2007 sale of its investment in
      marketable equity securities acquired from Western Wireless, Alltel does not
      hold any remaining material investments in marketable equity
      securities.  Accordingly, Alltel no longer has significant market risk
      exposure resulting from changes in marketable equity security
      prices.  Alltel continues to be exposed to market risk from changes in
      interest rates.  Alltel has estimated its market risk using
      sensitivity analysis.  Market risk is defined as the potential change
      in earnings resulting from a hypothetical adverse change in interest
      rates.  The results of the sensitivity analysis used to estimate
      market risk are presented below.  Actual results may differ from these
      estimates.





Interest
      Rate Risk


The
      Company’s earnings are affected by changes in variable interest rates related to
      Alltel’s issuance of short-term commercial paper and interest rate swap
      agreements.  The Company has established policies and procedures for
      risk assessment and the approval, reporting, and monitoring of interest rate
      swap activity.  Alltel does not enter into interest rate swap
      agreements, or other derivative financial instruments, for trading or
      speculative purposes.  Management periodically reviews Alltel’s
      exposure to interest rate fluctuations and implements strategies to manage
      the
      exposure.





As
      of
      June 30, 2007, Alltel had $100.0 million of commercial paper borrowings
      outstanding and had entered into four, pay variable receive fixed, interest
      rate
      swap agreements on notional amounts totaling $850.0 million to convert fixed
      interest rate payments to variable.  The maturities of the interest
      rate swaps range from August 15, 2010 to November 1, 2013.  The
      weighted average fixed rate received by Alltel on these swaps is 5.5 percent,
      and the variable rate paid by Alltel is the three month LIBOR (London-Interbank
      Offered Rate).  The weighted average variable rate paid by the Company
      was 5.4 percent at June 30, 2007.  A hypothetical increase of 100
      basis points in variable interest rates would reduce annual pre-tax earnings
      by
      approximately $9.5 million.  Conversely, a hypothetical decrease of
      100 basis points in variable interest rates would increase annual pre-tax
      earnings by approximately $9.5 million.





**Item
      4.    Controls and
      Procedures**





(a)
            Evaluation
                of disclosure controls and procedures.The
                term “disclosure controls and procedures” (defined in SEC Rule 13a-15(e))
                refers to the controls and other procedures of a company that are
                designed
                to ensure that information required to be disclosed by a company
                in the
                reports that it files under the Securities Exchange Act of 1934 (the
                “Exchange Act”) is recorded, processed, summarized and reported within
                required time periods.  Disclosure controls and procedures (as
                defined in SEC Rule 13a-15(e)) include, without limitation, controls
                and
                procedures designed to ensure that information required to be disclosed
                by
                a company in the reports that it files or submits under the Exchange
                Act
                is accumulated and communicated to the company’s management, including the
                company’s principal executive and financial officers, as appropriate to
                allow timely decisions regarding required disclosure.  Alltel’s
                management, with the participation of the Chief Executive Officer
                and
                Chief Financial Officer, have evaluated the effectiveness of the
                Company’s
                disclosure controls and procedures as of the end of the period covered
                by
                this quarterly report (the “Evaluation Date”).  Based on that
                evaluation, Alltel’s Chief Executive Officer and Chief Financial Officer
                have concluded that, as of the Evaluation Date, such controls and
                procedures were effective.(b)
            Changes
                in internal control over financial reporting.The
                term “internal control over financial reporting” (defined in SEC Rule
                13a-15(f)) refers to the process of a company that is designed to
                provide
                reasonable assurance regarding the reliability of financial reporting
                and
                the preparation of financial statements for external purposes in
                accordance with generally accepted accounting
                principles.  Alltel’s management, with the participation of the
                Chief Executive Officer and Chief Financial Officer, have evaluated
                any
                changes in the Company’s internal control over financial reporting that
                occurred during the period covered by this quarterly report, and
                they have
                concluded that there were no changes to Alltel’s internal control over
                financial reporting that have materially affected, or are reasonably
                likely to materially affect, Alltel’s internal control over financial
                reporting.




36


Table
          of Contents




**ALLTEL
                CORPORATION****FORM
                10-Q****PART
                II – OTHER INFORMATION**





**Item
      1.    Legal
      Proceedings**





Alltel
      is
      involved in certain legal matters that are discussed in Note 13 to the unaudited
      interim consolidated financial statements included in this Quarterly Report
      on
      Form 10-Q.  In addition to those matters, Alltel is also a party to
      various other legal proceedings arising in the ordinary course of
      business.  Although the ultimate resolution of these various
      proceedings cannot be determined at this time, management of the Company does
      not believe that such proceedings, individually or in the aggregate, will have
      a
      material adverse effect on the future results of operations or financial
      condition of Alltel.





In
      addition, management of the Company is currently not aware of any environmental
      matters that, individually or in the aggregate, would have a material adverse
      effect on the consolidated financial condition or results of operations of
      the
      Company.





**Item
      1A. Risk Factors**





During
      the first six months of 2007, there have been no significant changes to the
      risk
      factors affecting Alltel’s wireless telecommunications business that were
      discussed under Item 1A of the Company’s Annual Report on Form 10-K for the year
      ended December 31, 2006.





**Item
      2.    Unregistered Sales
      of Equity Securities and Use of Proceeds**





(c)
            On
                January 19, 2006, Alltel’s Board of Directors authorized the Company to
                repurchase up to $3.0 billion of its outstanding common stock over
                a
                three-year period ending December 31, 2008.  During 2006, Alltel
                repurchased 28,472,500 shares of its common stock at a total cost
                of
                $1,595.6 million, or at an average cost of $56.04 per
                share.  During the first quarter of 2007, Alltel repurchased
                15,250,000 shares of its common stock at a total cost of $938.8 million,
                or at an average cost of $61.56 per share.  Information
                pertaining to this authorization for the second quarter of 2007 is
                presented in the table below.


Period
            
            Total
                Number
              of
                Shares
              Purchased
            
            Average
              Price
                Paid
              per
                Share
            
            Total
                Number of
              Shares
                Purchased
              as
                Part of
              Publicly
              Announced
                Plans
            
            Maximum
                Number of
              Shares
                (or Approximate
              Dollar
                Value) that May
              Yet
                Be Purchased
              Under
                the PlansApril
                1-30, 2007
            
            5,000,000
            
            $61.91
            
            5,000,000
            
            $156.1
                millionMay
                1-31, 2007
            
            1,774,000
            
            $63.12
            
            1,774,000
            
            $  44.1
                millionJune
                1-30, 2007
            
            -
            
            -
            
            -
            
            $  44.1
                millionTotals
            
            6,774,000
            
            $62.23
            
            6,774,000
























































37


Table
          of Contents





**ALLTEL
                CORPORATION****FORM
                10-Q****PART
                II – OTHER INFORMATION**





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





The
      Company’s 2007 Annual Meeting of Stockholders was held on May 15,
      2007.  At the meeting, the following items were submitted to a vote of
      stockholders:





(1)
            The
                election of four directors, constituting the class of the Board of
                Directors who will serve a three-year term expiring at the 2010 Annual
                Meeting of Stockholders.Nominee
            Votes
                For
            Votes
                WithheldScott
                T. Ford
            297,035,291
            5,976,944Lawrence
                L. Gellerstedt, III
            276,588,806
            26,423,429Emon
                A. Mahony, Jr.
            296,637,044
            6,375,191Ronald
                Townsend
            275,358,590
            27,653,645Directors
                whose term of office continued after the Annual Meeting were: John
                R.
                Belk, Peter A. Bridgman, John W. Stanton and Warren A. Stephens,
                each of
                whose terms expire in 2008, and William H. Crown,Joe
                T. Ford, John P. McConnell and Josie C. Natori, each of whose terms
                expire
                in 2009.(2)
            The
                appointment of PricewaterhouseCoopers LLP to audit Alltel’s consolidated
                financial statements for the year ending December 31, 2007 was ratified
                with 297,672,321 votes for, 2,991,962 votes against and 2,347,952
                abstentions.








**Item
      6.   Exhibits**





See
      the
      exhibits specified on the Index of Exhibits located at Page
      40.































































































38  Table
            of Contents





SIGNATURE








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








ALLTEL
                CORPORATION(Registrant)/s/
                Sharilyn S. GasawaySharilyn
                S. GasawayExecutive
                Vice President - Chief Financial Officer(Principal
                Financial Officer)August
                8, 2007



































































































































39  Table
            of Contents


**ALLTEL
                CORPORATION****FORM
                10-Q****INDEX
                OF
                EXHIBITS**








Form
                10-QExhibit
                No.
            Description
                of Exhibits10(m)(2)
            Amendment
                No. 1 to Alltel Corporation Comprehensive Plan of Group Insurance
                (January
                1, 2006 Restatement).
            (a)31(a)
            Certification
                of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002.
            (a)31(b)
            Certification
                of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002.
            (a)32(a)
            Certification
                of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
            (a)32(b)
            Certification
                of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
            (a)








































































































(a)
            Filed
                herewith.











40