As filed with the Securities and Exchange Commission on August 16, 1999.

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

                                    FORM 10-Q

                                   (Mark One)

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

                  For the quarterly period ended June 30, 1999

                                       OR

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

         For the transition period from                to

                           Commission File No. 0-5890

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


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

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

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


Former name, former address and former fiscal year, if changed since last report

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

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

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



                                       1
<PAGE>
<TABLE>
                                                       GCI, INC.
                                A WHOLLY OWNED SUBSIDIARY OF GENERAL COMMUNICATION, INC.
                                                       FORM 10-Q
                                          FOR THE QUARTER ENDED JUNE 30, 1999

                                                         INDEX
<CAPTION>

                                                                                                    Page No.
                                                                                                    --------
<S>                                                                                                      <C>
Cautionary Statement Regarding Forward-Looking Statements.................................................3

PART I.  FINANCIAL INFORMATION


         Item l.     Consolidated Balance Sheets as of June 30, 1999
                        (unaudited) and December 31, 1998.................................................5

                     Consolidated Statements of Operations for the
                        three- and six-month periods ended June 30, 1999
                        (unaudited) and 1998 (unaudited)..................................................7

                     Consolidated Statements of Stockholders' Equity
                        for the six months ended June 30, 1999
                        (unaudited) and 1998 (unaudited)..................................................8

                     Consolidated Statements of Cash Flows for the six
                        months ended June 30, 1999 (unaudited)
                        and 1998 (unaudited)..............................................................9

                     Notes to Interim Condensed Consolidated Financial
                        Statements........................................................................10

         Item 2.     Management's Discussion and Analysis of Financial
                     Condition and Results of Operations..................................................18

         Item 3.     Quantitative and Qualitative Disclosures About Market Risk...........................38


PART II.  OTHER INFORMATION

         Item 1.     Legal Proceedings....................................................................38

         Item 6.     Exhibits and Reports on Form 8-K.....................................................38

         Other items are omitted as they are not applicable.

SIGNATURES................................................................................................39

</TABLE>

                                       2
<PAGE>
            CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Certain   statements  in  this   quarterly   report  on  Form  10-Q   constitute
forward-looking   statements  within  the  meaning  of  the  Private  Securities
Litigation Reform Act of 1996 ("Securities Reform Act"). These statements may be
preceded  by,  followed  by,  or  include  the  words   "believes,"   "expects,"
"anticipates," or similar expressions.  For those statements,  GCI, Inc. and its
direct and indirect subsidiaries (collectively, the "Company") claims protection
of the safe-harbor for  forward-looking  statements  contained in the Securities
Reform Act. Such  forward-looking  statements  involve known and unknown  risks,
uncertainties  and other important  factors that could cause the actual results,
performance and  achievements  of the Company,  or industry  results,  to differ
materially from future results, performance or achievements expressed or implied
by such statements.  The reader is cautioned that important factors, such as the
following  risks,  uncertainties,  and  other  factors,  in  addition  to  those
contained  elsewhere  in this  document,  could  affect  future  results  of the
Company, its long-distance  telecommunication  services,  local access services,
Internet  services and cable  services  and could cause those  results to differ
materially from those expressed in the forward-looking statements:

     -  Material  adverse  changes in the  economic  conditions  in the  markets
        served by the Company;
     -  The efficacy of the rules and  regulations  to be adopted by the Federal
        Communications  Commission ("FCC") and state public regulatory  agencies
        to  implement  the  provisions  of the 1996  Telecom Act; the outcome of
        litigation  relative  thereto;  and the  impact  of  regulatory  changes
        relating to access reform;
     -  The Company's responses to competitive  products,  services and pricing,
        including pricing  pressures,  technological  developments,  alternative
        routing developments, and the ability to offer combined service packages
        that include local, cable and Internet services;  the extent and pace at
        which different competitive environments develop for each segment of the
        Company's  business;  the extent and duration for which competitors from
        each  segment  of the  telecommunications  industry  are  able to  offer
        combined or full service  packages prior to the Company being able to do
        so; the degree to which the  Company  experiences  material  competitive
        impacts to its traditional service offerings prior to achieving adequate
        local service entry; and competitor  responses to the Company's products
        and  services  and  overall  market  acceptance  of  such  products  and
        services;
     -  The outcome of  negotiations  with  Incumbent  Local  Exchange  Carriers
        ("ILECs") and state  regulatory  arbitrations and approvals with respect
        to  interconnection  agreements;  and the ability to purchase  unbundled
        network elements or wholesale  services from ILECs at a price sufficient
        to  permit  the  profitable   offering  of  local  exchange  service  at
        competitive rates;
     -  Success and market  acceptance  for new  initiatives,  many of which are
        untested;  the level and timing of the growth and  profitability  of new
        initiatives,  particularly local access services, Internet (consumer and
        business) services and wireless services; start-up costs associated with
        entering new markets,  including  advertising and  promotional  efforts;
        successful  deployment  of new systems and  applications  to support new
        initiatives; and local conditions and obstacles;
     -  Uncertainties inherent in new business strategies,  new product launches
        and  development  plans,  including  local  access  services,   Internet
        services,   wireless  services,  digital  video  services,  cable  modem
        services, and transmission services;
     -  Rapid technological changes;

                                                                     (Continued)

                                       3
<PAGE>
CAUTIONARY STATEMENT (continued)


     -  Development and financing of telecommunication,  local access, wireless,
        Internet and cable networks and services;
     -  Future  financial  performance,  including the  availability,  terms and
        deployment  of  capital;   the  impact  of  regulatory  and  competitive
        developments on capital outlays, and the ability to achieve cost savings
        and realize productivity improvements;
     -  Availability of qualified personnel;
     -  Changes  in,  or  failure,  or  inability,  to comply  with,  government
        regulations,  including, without limitation, regulations of the FCC, the
        Regulatory  Commission of Alaska (previously the Alaska Public Utilities
        Commission), and adverse outcomes from regulatory proceedings;
     -  The cost of the Company's Year 2000 compliance efforts;
     -  Uncertainties  in federal  military  spending  levels and military  base
        closures in markets in which the Company operates; and
     -  Other risks detailed from time to time in the Company's periodic reports
        filed with the Securities and Exchange Commission.

These  forward-looking  statements  (and  such  risks,  uncertainties  and other
factors)  are made only as of the date of this report and the Company  expressly
disclaims any obligation or undertaking to disseminate  any updates or revisions
to any  forward-looking  statement  contained  in this  document  to reflect any
change in the  Company's  expectations  with regard to those  statements  or any
other change in events,  conditions or circumstances on which any such statement
is based.  Readers  are  cautioned  not to put undue  reliance  on such  forward
looking statements.


                                       4
<PAGE>
PART I.  FINANCIAL INFORMATION
ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
                                              GCI, INC. AND SUBSIDIARIES
                                             CONSOLIDATED BALANCE SHEETS

<CAPTION>
                                                                           (Unaudited)
                                                                             June 30,        December 31,
                            ASSETS                                             1999              1998
---------------------------------------------------------------------    ----------------- -----------------
                                                                                 (Amounts in thousands)
<S>                                                                    <C>                      <C>
Current assets:
     Cash and cash equivalents                                         $       19,781            12,008
                                                                         ----------------- -----------------
     Receivables:
         Trade                                                                 43,888            38,890
         Income taxes                                                             ---             4,262
         Other                                                                    307               412
                                                                         ----------------- -----------------
                                                                               44,195            43,564
     Less allowance for doubtful receivables                                    2,483               887
                                                                         ----------------- -----------------
         Net receivables                                                       41,712            42,677

     Prepaid and other current assets                                           3,522             2,212
     Deferred income taxes, net                                                 5,264             1,947
     Inventories                                                                2,382             1,878
     Notes receivable                                                             628               650
                                                                         ----------------- -----------------

         Total current assets                                                  73,289            61,372
                                                                         ----------------- -----------------

Restricted cash (note 3)                                                        3,978               ---
                                                                         ----------------- -----------------

Property and equipment in service, net                                        310,957           199,827
Construction in progress                                                        4,464           119,395
                                                                         ----------------- -----------------
         Net property and equipment                                           315,421           319,222
                                                                         ----------------- -----------------

Other assets:
     Cable franchise agreements, net of amortization                          192,726           195,308
     Other intangible assets, net of amortization                              44,833            45,391
     Deferred loan and senior notes costs, net of amortization                  9,303             9,877
     Transponder deposit (note 8)                                               9,100             9,100
     Notes receivable                                                           1,614             1,432
     Other assets, at cost, net of amortization (note 9)                        9,151             4,982
                                                                         ----------------- -----------------
         Total other assets                                                   266,727           266,090
                                                                         ----------------- -----------------

         Total assets                                                  $      659,415           646,684
                                                                         ================= =================
</TABLE>
See accompanying notes to interim condensed consolidated financial statements.


                                       5                             (Continued)
<PAGE>
<TABLE>
                                               GCI, INC. AND SUBSIDIARIES
                                               CONSOLIDATED BALANCE SHEETS
                                                       (Continued)
<CAPTION>
                                                                           (Unaudited)
                                                                             June 30,        December 31,
             LIABILITIES AND STOCKHOLDERS' EQUITY                              1999              1998
---------------------------------------------------------------------    ----------------- -----------------
                                                                                (Amounts in thousands)
   <S>                                                                 <C>                      <C>
   Current liabilities:
      Current maturities of long-term debt (note 4)                    $        1,891             1,799
      Current maturities of obligations under capital leases                      543               511
      Accounts payable                                                         25,522            27,550
      Accrued interest                                                          7,967             8,072
      Accrued payroll and payroll related obligations                           6,666             6,555
      Accrued liabilities                                                       4,491             3,197
      Subscriber deposits and deferred revenues                                 6,805             5,300
                                                                         ----------------- -----------------
         Total current liabilities                                             53,885            52,984

   Long-term debt, excluding current maturities (note 4)                      343,643           349,858
   Obligations under capital leases, including related party obligations,
      excluding current maturities                                              1,394             1,675
   Deferred income taxes, net of deferred income tax benefit                   38,154            38,275
   Other liabilities                                                            3,144             3,317
                                                                         ----------------- -----------------
         Total liabilities                                                    440,220           446,109
                                                                         ----------------- -----------------

   Stockholders' equity:
    Class A common stock (no par).  Authorized 10,000 shares;
      issued and outstanding 100 shares at June 30, 1999
      and December 31, 1998                                                   206,622           206,622
   Paid-in capital                                                             23,927             2,933
   Retained deficit                                                           (11,354)           (8,980)
                                                                         ----------------- -----------------
         Total stockholders' equity                                           219,195           200,575
                                                                         ----------------- -----------------
   Commitments and contingencies (note 8)
         Total liabilities and stockholders' equity                    $      659,415           646,684
                                                                         ================= =================
</TABLE>
See accompanying notes to interim condensed consolidated financial statements.


                                       6
<PAGE>
<TABLE>
                                                GCI, INC. AND SUBSIDIARIES
                                          CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>

                                                              (Unaudited)                       (Unaudited)
                                                           Three Months Ended                 Six Months Ended
                                                               June 30,                          June 30,
                                                          1999           1998               1999            1998
                                                     -------------- --------------     --------------- --------------
                                                            (Amounts in thousands, except per share amounts)
<S>                                                <C>                  <C>                <C>             <C>

Revenues (note 7)                                  $      83,659         62,941            144,997         121,093

Cost of sales and services                                34,342         29,355             62,212          56,670
Selling, general and administrative                       25,236         23,543             48,774          43,877
Depreciation and amortization                             11,426          8,596             21,724          16,662
                                                     -------------- --------------     --------------- --------------

     Operating income                                     12,655          1,447             12,287           3,884

Interest expense, net                                      8,160          4,767             15,120           9,711
                                                     -------------- --------------     --------------- --------------

     Net income (loss) before income taxes and
       cumulative effect of a change in
       accounting principle                                4,495         (3,320)            (2,833)         (5,827)

Income tax expense (benefit)                               2,004         (1,254)              (803)         (2,145)
                                                     -------------- --------------     --------------- --------------

     Net income (loss) before cumulative effect
       of a change in accounting principle                 2,491         (2,066)            (2,030)         (3,682)

Cumulative effect of a change in accounting
   principle, net of income tax benefit of $245              ---            ---                344             ---
                                                     -------------- --------------     --------------- --------------

     Net income (loss)                             $       2,491         (2,066)            (2,374)         (3,682)
                                                     ============== ==============     =============== ==============

Basic income (loss) per common share:
   Income (loss) before cumulative effect of a
     change in accounting principle                $      24,910        (20,660)           (20,300)        (36,820)
   Cumulative effect of a change in accounting
     principle                                               ---            ---              3,440             ---
                                                     -------------- --------------     --------------- --------------
     Net income (loss)                             $      24,910        (20,660)           (23,740)        (36,820)
                                                     ============== ==============     =============== ==============

Diluted income (loss) per common share:
   Income (loss) before cumulative effect of a
     change in accounting principle                $      24,910        (20,660)           (20,300)        (36,820)
   Cumulative effect of a change in accounting
     principle                                               ---            ---              3,440             ---
                                                     -------------- --------------     --------------- --------------
     Net income (loss)                             $      24,910        (20,660)           (23,740)        (36,820)
                                                     ============== ==============     =============== ==============
</TABLE>
See accompanying notes to interim condensed consolidated financial statements.


                                       7
<PAGE>
<TABLE>
                                                     GCI, INC. AND SUBSIDIARIES
                                          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                              SIX MONTHS ENDED JUNE 30, 1999 AND 1998
<CAPTION>

                                                             Shares of
                                                              Class A         Class A
(Unaudited)                                                   Common          Common          Paid-in        Retained
(Amounts in thousands)                                        Stock           Stock           Capital         Deficit
                                                         -----------------------------------------------------------------
<S>                                                            <C>           <C>               <C>            <C>
Balances at December 31, 1997                                  100           $ 206,622            ---          (2,183)
Net loss                                                       ---                 ---            ---          (3,682)
Contribution from General Communication, Inc.                  ---                 ---            350             ---
                                                         -----------------------------------------------------------------

Balances at June 30, 1998                                      100           $ 206,622            350          (5,865)
                                                         =================================================================

Balances at December 31, 1998                                  100           $ 206,622          2,933          (8,980)
Net loss                                                       ---                 ---            ---          (2,374)
Contribution from General Communication, Inc. (note 5)         ---                 ---         20,994             ---
                                                         -----------------------------------------------------------------
Balances at June 30, 1999                                      100           $ 206,622         23,927         (11,354)
                                                         =================================================================
</TABLE>
See accompanying notes to interim condensed consolidated financial statements.


                                       8
<PAGE>
<TABLE>
                                                GCI, INC. AND SUBSIDIARIES
                                          CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                             (Unaudited)
                                                                                           Six Months Ended
                                                                                               June 30,
                                                                                         1999            1998
                                                                                    -------------- --------------
                                                                                        (Amounts in thousands)
        <S>                                                                       <C>                  <C>
        Cash flows from operating activities:
          Net loss                                                                $     (2,374)         (3,682)
            Adjustments to reconcile net loss to net cash provided (used) by
              operating activities:
                Depreciation and amortization                                           21,724          16,662
                Amortization charged to costs of sales and service and
                  selling, general and administrative                                      894             299
                Deferred income tax (benefit) expense                                   (1,048)          2,071
                Deferred compensation and compensatory stock options                       417              90
                Non-cash cost of sales                                                   3,703             ---
                Bad debt expense, net of write-offs                                      1,596             (12)
                Employee Stock Purchase Plan expense funded with Class A
                  common stock issued by General Communication, Inc.                     1,153             ---
                Write-off of unamortized start-up costs                                    589             ---
                Write-off of deferred debt issuance costs upon modification
                  of Senior Holdings Loan                                                  472             ---
                Other noncash income and expense items                                      34             147
                Change in operating assets and liabilities (note 2)                     (4,660)        (10,283)
                                                                                    -------------- --------------
                  Net cash provided by operating activities                             22,500           5,292
                                                                                    -------------- --------------

        Cash flows from investing activities:
           Purchases of property and equipment, including construction period
             interest                                                                  (23,227)        (94,853)
           Restricted cash investment                                                   (3,978)         39,406
           Purchases of other assets                                                      (329)         (3,335)
           Notes receivable issued                                                        (365)           (200)
           Payments received on notes receivable                                           149             610
                                                                                    -------------- --------------
                  Net cash used in investing activities                                (27,750)        (58,372)
                                                                                    -------------- --------------

        Cash flows from financing activities:
          Long-term borrowings - bank debt and leases                                   13,776          52,382
          Repayments of long-term borrowings and capital lease obligations             (20,223)           (900)
          Payment of debt issuance costs and loan commitment fees                         (495)         (1,526)
          Cash contribution from General Communication, Inc.                            19,965             350
                                                                                    -------------- --------------
                  Net cash provided by financing activities                             13,023          50,306
                                                                                    -------------- --------------

                  Net increase (decrease) in cash and cash equivalents                   7,773          (2,774)

                  Cash and cash equivalents at beginning of period                      12,008           3,048
                                                                                    -------------- --------------

                  Cash and cash equivalents at end of period                      $     19,781             274
                                                                                    ============== ==============
</TABLE>
        See  accompanying  notes to  interim  condensed  consolidated  financial
        statements.


                                       9
<PAGE>
                           GCI, INC. AND SUBSIDIARIES
          NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

(1)        General

           Basis of Presentation
           GCI, Inc. was  incorporated  in 1997 to effect the issuance of senior
           notes as further  described in GCI, Inc.'s annual report on Form 10-K
           at December 31, 1998.  GCI,  Inc.,  as a wholly owned  subsidiary  of
           General  Communication,  Inc.  ("GCI"),  received through its initial
           capitalization  all ownership  interests in  subsidiaries  previously
           held by GCI.

           (a)   Business
                 The Company  offers  long-distance  telephone  service  between
                 Anchorage,  Fairbanks,  Juneau, and other communities in Alaska
                 and the remaining  United States and foreign  countries.  Cable
                 television   services   are  offered   throughout   Alaska  and
                 facilities-based  competitive local access services are offered
                 in Anchorage,  Alaska. The Company provides services to certain
                 common carriers terminating traffic in Alaska and certain other
                 points in remaining  United  States,  interstate and intrastate
                 private line services,  Internet services,  managed services to
                 certain  commercial  customers and sells and services dedicated
                 communications  systems and related equipment.  Private network
                 point-to-point  data and voice  transmission  services  between
                 Alaska,  Hawaii and the western  contiguous  United  States are
                 offered  and  the  Company  owns  and  leases  capacity  on two
                 undersea  fiber  optic  cables  used  in  the  transmission  of
                 interstate  private line,  switched message  long-distance  and
                 Internet  services  between  Alaska  and the  remaining  United
                 States and foreign countries.

           (b)   Organization
                 The consolidated  financial  statements include the accounts of
                 GCI, Inc.,  GCI, Inc.'s  wholly-owned  subsidiary GCI Holdings,
                 Inc.,  GCI  Holdings,   Inc.'s  wholly-owned  subsidiaries  GCI
                 Communication Corp., GCI Communication  Services,  Inc. and GCI
                 Cable, Inc., GCI Communication  Services,  Inc.'s  wholly-owned
                 subsidiary GCI Leasing Co., Inc., GCI Transport Company,  Inc.,
                 GCI Transport  Company,  Inc.'s  wholly-owned  subsidiaries GCI
                 Fiber Co., Inc. and Fiber Hold Company, Inc. and GCI Fiber Co.,
                 Inc.'s and Fiber Hold Company,  Inc.'s wholly owned partnership
                 Alaska United Fiber System Partnership.

           (c)   Net Income (Loss) Per Common Share
<TABLE>
                 Shares used to  calculate  net income  (loss) per common  share
                 consist of the following :
<CAPTION>
                                                                  Three-Months Ended            Six-Months Ended
                                                                       June 30,                     June 30,
                                                                   1999         1998             1999         1998
                                                               ------------ ------------    ------------- ------------
                    <S>                                              <C>          <C>             <C>           <C>
                    Weighted average common shares outstanding       100          100             100           100
                    Common equivalent shares outstanding             ---          ---             ---           ---
                                                               ------------ ------------    ------------- ------------
                                                                     100          100             100           100
                                                               ============ ============    ============= ============
</TABLE>
                 Basic and diluted loss per share calculations at March 31, 1999
                 and 1998 are based on GCI, Inc.'s weighted average  outstanding
                 shares of common stock which are not publicly traded. GCI, Inc.
                 has no outstanding common stock equivalents.



                                       10                            (Continued)
<PAGE>
                           GCI, INC. AND SUBSIDIARIES
          NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

            (d)  Cumulative Effect of a Change in Accounting Principle
                 In April 1998,  the  American  Institute  of  Certified  Public
                 Accountants  (AICPA) issued Statement of Position ("SOP") 98-5,
                 "Reporting  on the  Costs  of  Start-Up  Activities".  SOP 98-5
                 provides guidance on the financial  reporting of start-up costs
                 and   organization   costs  and  requires   costs  of  start-up
                 activities and  organization  costs to be expensed as incurred.
                 SOP 98-5 is effective for financial statements for fiscal years
                 beginning  after  December 15, 1998.  Management of the Company
                 adopted SOP 98-5 in the first quarter of 1999  resulting in the
                 recognition  of a one-time  expense of $344,000  (net of income
                 tax  benefit of  $245,000)  associated  with the  write-off  of
                 unamortized start-up costs. Pro forma net loss and net loss per
                 common share for the six-months ended June 30, 1998 approximate
                 amounts   reflected  in  the  accompanying   interim  condensed
                 consolidated financial statements.

            (e)  Reclassifications
                 Reclassifications   have  been  made  to  the  1998   financial
                 statements to make them comparable with the 1999 presentation.

            (f)  Other
                 The  accompanying   unaudited  interim  condensed  consolidated
                 financial  statements  have been  prepared in  accordance  with
                 generally accepted accounting  principles for interim financial
                 information and with the  instructions to Form 10-Q and Article
                 10 of Regulation S-X.  Accordingly,  they do not include all of
                 the  information and footnotes  required by generally  accepted
                 accounting  principles for complete financial  statements.  The
                 interim condensed consolidated financial statements include the
                 consolidated  accounts  of  GCI,  Inc.  and  its  wholly  owned
                 subsidiaries (collectively, the "Company") with all significant
                 intercompany   transactions  eliminated.   In  the  opinion  of
                 management,  all  adjustments  (consisting of normal  recurring
                 accruals)  considered  necessary for a fair  presentation  have
                 been included. Operating results for the six-month period ended
                 June 30,  1999 are not  necessarily  indicative  of the results
                 that may be expected for the year ended  December 31, 1999. For
                 further  information,  refer to the  financial  statements  and
                 footnotes  thereto  included in the Company's  annual report on
                 Form 10-K for the year ended December 31, 1998.

(2)        Consolidated  Statements of Cash Flows Supplemental Disclosures
<TABLE>
           Changes in operating  assets and  liabilities  consist of (amounts in
           thousands):
<CAPTION>
                Six-month periods ended June 30,                                           1999         1998
                                                                                       ------------- ------------
                 <S>                                                                 <C>               <C>
                 Increase in receivables                                             $    (3,702)       (7,046)
                 (Increase) decrease in income tax receivable                              1,965        (4,118)
                 (Increase) decrease in prepaid and other current assets                  (1,235)          578
                 Increase in inventory                                                      (504)         (693)
                 Decrease in accounts payable                                             (2,028)       (1,788)
                 Increase in accrued liabilities                                           1,005           138
                 Increase in accrued payroll and payroll related obligations                 111         1,315
                 Increase (decrease) in accrued interest                                    (105)          800
                 Increase in deferred revenues                                               314           542
                 Decrease in other liabilities                                              (481)          (11)
                                                                                       ------------- ------------
                                                                                     $    (4,660)      (10,283)
                                                                                       ============= ============
</TABLE>

                                       11                            (Continued)
<PAGE>
                           GCI, INC. AND SUBSIDIARIES
          NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

           No income taxes were paid during the six-month periods ended June 30,
           1999 and 1998.  Income tax refunds of $1,965,000 and $0 were received
           during  the   six-month   periods  ended  June  30,  1999  and  1998,
           respectively.

           Interest  paid  totaled   $16,239,000  and  $13,011,000   during  the
           six-month periods ended June 30, 1999 and 1998, respectively.

(3)        Restricted Cash
           In June 1999,  the  Company  completed  a sale of fiber  optic  cable
           system  capacity  constructed  by the Company (see note 6). The Fiber
           Facility  Loan requires a portion of the proceeds to be used to repay
           the Fiber Facility Loan. Funds to be used to repay the Fiber Facility
           Loan were classified as Restricted Cash at June 30, 1999.

(4)        Long-term Debt
           On January 27, 1998, the Company,  through Alaska United Fiber System
           Partnership  ("Alaska United"),  closed a $75,000,000 project finance
           facility  ("Fiber  Facility") to construct a fiber optic cable system
           connecting Anchorage, Fairbanks, Valdez, Whittier, Juneau and Seattle
           (see note 6). Borrowings under the Fiber Facility totaled $75,000,000
           at June 30,  1999,  the  maximum  amount  available  under  the Fiber
           Facility agreement.

(5)        Cash Contribution from GCI
           GCI  issued  20,000  shares  of  convertible   redeemable   accreting
           preferred  stock on April 30,  1999.  Proceeds  totaling  $20 million
           (before  payment of costs and  expenses)  were used for the Company's
           general  corporate  purposes,  to  repay  the  Company's  outstanding
           indebtedness,  and to provide  additional  liquidity for the Company.
           The Company's  amended Senior Holdings Loan  facilities  limit use of
           such proceeds.

(6)        Fiber Optic Cable System
           In February 1999 the Company  completed  construction of the undersea
           portion  of a fiber  optic  cable  system  connecting  the  cities of
           Anchorage,  Juneau  and  Seattle  via  a  subsea  route.  Subsea  and
           terrestrial  connections  extended the fiber optic cable to Fairbanks
           via Whittier and Valdez. The total system cost was approximately $125
           million,  a portion of which was  allocated to cost of sales in April
           1999.  Construction  efforts  concluded in early February 1999,  with
           commercial services commencing at that time.

(7)        Industry Segments Data
           The  Company's  reportable  segments  are  business  units that offer
           different   products.   The  reportable  segments  are  each  managed
           separately  because  they  manage and offer  distinct  products  with
           different production and delivery processes.

           The Company has four reportable segments as follows:

               Long-distance   services.   A  full   range   of   common-carrier
               long-distance services are offered to business, government, other
               telecommunications  companies and consumer customers, through its
               networks of fiber optic cables, digital microwave,  and fixed and
               transportable satellite earth stations.

               Cable services. The Company provides cable television services to
               residential,  commercial  and  government  users in the  State of
               Alaska.  The Company's  cable systems  serve 26  communities


                                       12                            (Continued)
<PAGE>
                           GCI, INC. AND SUBSIDIARIES
          NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

               and areas in Alaska,  including  the state's  three largest urban
               areas,  Anchorage,  Fairbanks  and Juneau.  Anchorage  and Juneau
               cable  plant  upgrades  in 1998 and 1999  enabled  the Company to
               offer  digital cable  television  services and retail cable modem
               service (through its Internet  services segment) in Anchorage and
               Juneau, complementing its existing service offerings. The Company
               plans to expand  its  product  offerings  as plant  upgrades  are
               completed in other communities in Alaska.

               Local access services.  The Company  introduced  facilities based
               competitive  local  exchange  services in Anchorage in 1997.  The
               Company  has  announced  plans  to  ultimately   provide  similar
               competitive  local  exchange  services  in  Alaska's  other major
               population  centers,  as  access  is  allowed  by the  Regulatory
               Commission of Alaska ("RCA").

               Internet  services.  The Company  began  offering  wholesale  and
               retail Internet services in 1998.  Deployment of the new undersea
               fiber optic cable system (see note 6) allows the Company to offer
               enhanced services with high-bandwidth requirements.

           Services  provided  by the Company  that are  included in the "Other"
           segment  in the tables  that  follow are  managed  services,  product
           sales, and cellular telephone services. Included in the Other segment
           are the results of insignificant business units described above which
           do  meet  the  quantitative  thresholds  for  determining  reportable
           segments. None of these business units have ever met the quantitative
           thresholds for determining reportable segments.  Also included in the
           Other segment is a $19.5  million sale of undersea  fiber optic cable
           system capacity,  and corporate related expenses including marketing,
           customer service, management information systems,  accounting,  legal
           and regulatory,  human resources and other general and administrative
           expenses.

           The Company  evaluates  performance and allocates  resources based on
           (1)   earnings   or  loss  from   operations   before   depreciation,
           amortization,  net  interest  expense,  income  taxes and  cumulative
           effect of a change in accounting principle,  and (2) operating income
           or loss. The accounting  policies of the reportable  segments are the
           same as those  described  in the  summary of  significant  accounting
           policies included in the Company's December 31, 1998 annual report on
           Form 10-K.  Intersegment  sales are  recorded  at cost plus an agreed
           upon intercompany profit.

           All revenues are earned through sales of services and products within
           the United States of America.  All of the Company's long-lived assets
           are located within the United States of America.

<TABLE>
           Summarized financial information  concerning the Company's reportable
           segments  follows  for the  six-months  ended June 30,  1999 and 1998
           (amounts in thousands):
<CAPTION>
                                                       Long-                    Local
                                                     Distance      Cable        Access     Internet
                                                     Services     Services     Services    Services     Other     Total
                                                   ------------------------------------------------------------------------
              <S>                                    <C>            <C>         <C>         <C>        <C>        <C>
                              1999
                              ----
              Revenues:
                Intersegment                         $   4,124       1,159       1,422         ---         ---      6,705
                External                                75,656      31,129       7,478       4,503      26,231    144,997
                                                   ------------------------------------------------------------------------
                   Total revenues                    $  79,780      32,288       8,900       4,503      26,231    151,702
                                                   ========================================================================
</TABLE>


                                       13                            (Continued)
<PAGE>
                           GCI, INC. AND SUBSIDIARIES
          NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                       Long-                    Local
                                                     Distance      Cable        Access     Internet
                                                     Services     Services     Services    Services     Other     Total
                                                   ------------------------------------------------------------------------
              <S>                                    <C>            <C>         <C>         <C>        <C>        <C>
              Earnings (loss) from operations
                before depreciation, amortization,
                net interest  expense, income
                taxes and cumulative effect of a
                change in accounting principle       $  26,370      18,346        (166)     (3,559)     (6,585)    34,406
                                                   ========================================================================

              Operating income (loss)                $  20,780       9,566      (2,763)     (4,090)    (10,811)    12,682
                                                   ========================================================================

                              1998
                              ----
              Revenues:
                Intersegment                         $     314         692         355         ---         ---      1,361
                External                                80,017      28,242       3,062       1,917       7,855    121,093
                                                   ------------------------------------------------------------------------
                   Total revenues                    $  80,331      28,934       3,417       1,917       7,855    122,454
                                                   ========================================================================

              Earnings (loss) from operations
                before depreciation,
                amortization, net interest
                expense and income taxes             $  30,346      14,224      (2,611)       (835)    (20,513)    20,611
                                                   ========================================================================

              Operating income (loss)                $  26,860       6,363      (3,911)     (1,005)    (24,358)     3,949
                                                   ========================================================================
</TABLE>
<TABLE>
           A reconciliation  of total segment revenues to consolidated  revenues
           follows:
<CAPTION>
                 Six-months ended June 30,                                          1999           1998
                                                                               ------------- --------------
                 <S>                                                          <C>                 <C>
                 Total segment revenues                                       $    151,702        122,454
                 Less intersegment revenues eliminated in consolidation             (6,705)        (1,361)
                                                                               ------------- --------------
                      Consolidated revenues                                   $    144,997        121,093
                                                                               ============= ==============
</TABLE>


                                       14                            (Continued)
<PAGE>
                           GCI, INC. AND SUBSIDIARIES
          NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

<TABLE>
           A  reconciliation  of total segment  earnings from operations  before
           depreciation,  amortization,  net interest expense,  income taxes and
           cumulative effect of a change in accounting principle to consolidated
           net loss before  income  taxes and  cumulative  effect of a change in
           accounting principle follows:
<CAPTION>
                 Six-months ended June 30,                                          1999           1998
                                                                              -------------- --------------
                 <S>                                                          <C>                  <C>
                 Total segment  earnings from  operations  before
                   depreciation, amortization, net interest expense,
                   income  taxes  and cumulative effect of a change in
                   accounting principle                                       $     34,406         20,611
                 Less intersegment contribution eliminated in consolidation           (395)           (65)
                                                                              -------------- --------------
                      Consolidated earnings from operations before
                        depreciation, amortization, net interest expense,
                        income taxes and cumulative effect of a change in
                        accounting principle                                        34,011         20,546
                 Depreciation and amortization                                      21,724         16,662
                                                                              -------------- --------------
                      Consolidated operating income                                 12,287          3,884
                 Interest expense, net                                             (15,120)        (9,711)
                                                                              -------------- --------------
                      Consolidated net loss before income taxes and
                        cumulative effect of a change in accounting
                        principle                                             $     (2,833)        (5,827)
                                                                              ============== ==============
</TABLE>
<TABLE>
           A  reconciliation  of total segment  operating income to consolidated
           net loss before  income  taxes and  cumulative  effect of a change in
           accounting principle follows:
<CAPTION>
                 Six-months ended June 30,                                          1999           1998
                                                                               ------------- --------------
                 <S>                                                          <C>                  <C>
                 Total segment operating income (loss)                        $     12,682          3,949
                 Less intersegment contribution eliminated in consolidation           (395)           (65)
                                                                               ------------- --------------
                      Consolidated operating income                                 12,287          3,884
                 Interest expense, net                                             (15,120)        (9,711)
                                                                               ------------- --------------
                      Consolidated net loss before income taxes and
                        cumulative effect of a change in accounting
                        principle                                             $     (2,833)        (5,827)
                                                                               ============= ==============
</TABLE>
  (8)      Commitments and Contingencies

           Deferred Compensation Plan
           The Company's  non-qualified,  unfunded  deferred  compensation  plan
           provides  a means  by  which  certain  employees  may  elect to defer
           receipt of designated  percentages  or amounts of their  compensation
           and provides a means for certain other deferrals of compensation. The
           Company may, at its discretion,  contribute  matching deferrals equal
           to  the  rate  of  matching  selected  by the  Company.  Participants
           immediately  vest in all elective  deferrals  and all income and gain
           attributable thereto.  Matching contributions and all income and gain
           attributable  thereto vest over a six-year  period.  Participants may
           elect to be paid in  either  a single  lump  sum  payment  or  annual
           installments  over a period not to exceed 10 years.  Vested  balances
           are payable upon termination of employment,  unforeseen  emergencies,
           death and total disability. Participants are general


                                       15                            (Continued)
<PAGE>
                           GCI, INC. AND SUBSIDIARIES
          NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

           creditors of the Company with respect to deferred  compensation  plan
           benefits.  No compensation  was deferred  pursuant to the plan during
           the six-month periods ended June 30, 1999 and 1998.

           Satellite Transponders
           The  Company  entered  into  a  purchase  and  lease-purchase  option
           agreement   in  August  1995  for  the   acquisition   of   satellite
           transponders to meet its long-term  satellite capacity  requirements.
           The launch of the  satellite in August 1998  failed.  The Company did
           not assume  launch risk and the launch has been  rescheduled  for the
           second   quarter  of  2000.   The  Company  will  continue  to  lease
           transponder  capacity until the delivery of the  transponders  on the
           replacement satellite.  The balance payable upon expected delivery of
           the  transponders  during the second  quarter of 2000, in addition to
           the $9.1 million deposit previously paid, totals  approximately $43.5
           million.

           Self-Insurance
           The  Company  is  self-insured  for losses  and  liabilities  related
           primarily to health and welfare  claims up to  predetermined  amounts
           above which third party insurance  applies. A reserve of $570,000 was
           recorded at June 30, 1999 to cover estimated  unreported losses based
           on  past  experience  modified  for  current  trends,  and  estimated
           expenses for  investigating  and settling claims.  Actual losses will
           vary  from  the  recorded  reserve.  While  management  uses  what it
           believes is  pertinent  information  and factors in  determining  the
           amount of reserves, future additions to the reserves may be necessary
           due to changes in the information and factors used.

           Litigation and Disputes
           The Company is from time to time involved in various lawsuits,  legal
           proceedings  and  regulatory  matters  that have arisen in the normal
           course of  business.  While the  ultimate  results  of these  matters
           cannot be predicted with  certainty,  management does not expect them
           to have a material adverse effect on the financial position,  results
           of operations or liquidity of the Company.

           Cable Service Rate Reregulation
           Effective  March 31, 1999, the rates for cable  programming  services
           (service  tiers above basic  service) are no longer  regulated.  This
           regulation ended pursuant to provisions of the Telecommunications Act
           of 1996 and the regulations adopted pursuant thereto by the FCC.

           Federal law still permits regulation of basic service rates. However,
           Alaska law  provides  that cable  television  service is exempt  from
           regulation  by the RCA unless 25% of a system's  subscribers  request
           such  regulation by filing a petition with the RCA. At June 30, 1999,
           only the  Juneau  system is subject  to RCA  regulation  of its basic
           service rates. No petition  requesting  regulation has been filed for
           any other  system.  (The Juneau  system  serves 8.0% of the Company's
           total basic service  subscribers at June 30, 1999.) Juneau's  current
           rates have been  approved  by the RCA and there are no other  pending
           filings with the RCA,  therefore,  there is no refund  liability  for
           basic service at this time.



                                       16                            (Continued)
<PAGE>
                           GCI, INC. AND SUBSIDIARIES
          NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

           Year 2000
           In  1997,  the  Company  initiated  a plan to  identify,  assess  and
           remediate  Year 2000 issues within each of its  significant  computer
           programs and certain  equipment which contain  micro-processors.  The
           plan is  addressing  the  issue of  computer  programs  and  embedded
           computer chips being unable to distinguish  between the year 1900 and
           the year 2000,  if a program or chip uses only two digits rather than
           four to define the applicable  year. The Company has divided the plan
           into two major phases.  The first phase,  including  team  formation,
           inventory assessment, compliance assessment and risk assessment, were
           completed    during    1998.    The    second    phase,     including
           resolution/remediation, validation, contingency planning and sign-off
           acceptance, was in progress at June 30, 1999. Systems which have been
           determined not to be Year 2000 compliant are being either replaced or
           reprogrammed,  and thereafter  tested for Year 2000  compliance.  The
           conversion of all critical and service  delivery systems is complete.
           The  current  budget  for the total  cost of  remediation  (including
           replacement  software and hardware) and testing,  as set forth in the
           plan, is approximately $4.0 million.

           The Company is in the process of identifying and contacting  critical
           suppliers and customers whose computerized systems interface with the
           Company's  systems,  regarding their plans and progress in addressing
           their Year 2000 issues. The Company has received varying  information
           from such  third  parties  on the  state of  compliance  or  expected
           compliance.  Contingency  plans continue to be developed in the event
           that any critical supplier or customer is not compliant.  The failure
           to  correct  a  material   Year  2000  problem  could  result  in  an
           interruption in, or a failure of, certain normal business  activities
           or operations.  Such failures could  materially and adversely  affect
           the Company's operations,  liquidity and financial condition.  Due to
           the general uncertainty inherent in the Year 2000 problem,  resulting
           in  part  from  the   uncertainty  of  the  Year  2000  readiness  of
           third-party  suppliers  and  customers,  the  Company  is  unable  to
           determine at this time whether the consequences of Year 2000 failures
           will have a material impact on the Company's operations, liquidity or
           financial condition.

  (9)      Subsequent Event

           The Company announced in August 1999 that an agreement  pertaining to
           a  second   $19.5   million   sale  of  fiber   capacity   to  Alaska
           Communications  Systems had been  executed.  The  agreement  requires
           Alaska Communications  Systems to acquire $19.5 million of additional
           capacity during the 18-month  period  following the effective date of
           the contract. Costs associated with the capacity to be sold have been
           classified  as Other  assets in the  accompanying  interim  condensed
           consolidated financial statements at June 30, 1999.



                                       17
<PAGE>
PART I.
ITEM 2.

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS
                                  (Unaudited)

The following  discussion and analysis  should be read in  conjunction  with the
Company's  Interim  Condensed  Consolidated  Financial  Statements and the notes
thereto. See - Cautionary Statement Regarding Forward-Looking Statements.

GCI,  Inc.  was  incorporated  in 1997 to effect the issuance of Senior Notes as
further described in the Company's 1998 annual report on Form 10-K. GCI, Inc., a
wholly-owned subsidiary of General Communication, Inc. ("GCI"), received through
its initial  capitalization all ownership  interests in subsidiaries  previously
held by GCI.  Shares  of GCI's  class A common  stock are  traded on the  Nasdaq
National Market tier of the Nasdaq Stock Market under the symbol GNCMA.
Shares of GCI's class B common stock are traded on the Over-the-Counter market.

                                    OVERVIEW

The Company has experienced significant growth in recent years through strategic
acquisitions,  deploying  new  business  lines,  and  expansion  of its existing
businesses.  The  Company  has  historically  met its cash needs for  operations
through  its  cash  flows  from  operating  activities.  Cash  requirements  for
acquisitions  and capital  expenditures  have been provided  largely through the
Company's financing activities.

Long-distance  services.  The Company's  provision of interstate  and intrastate
long-distance services to residential, commercial and governmental customers and
to other common carriers  (principally  MCI WorldCom,  Inc. ("MCI WorldCom") and
Sprint Corp.  ("Sprint")),  and  provision of private line and leased  dedicated
capacity services accounted for 82.4% and 17.6%, respectively,  of the Company's
total long-distance services revenues during the second quarter of 1999. Factors
that have the greatest impact on year-to-year changes in long-distance  services
revenues  include the rate per minute  charged to customers  and usage  volumes,
usually expressed as minutes of use.

The Company's long-distance cost of sales and services has consisted principally
of the direct costs of providing  services,  including local access charges paid
to Local  Exchange  Carriers  ("LECs") for the  origination  and  termination of
long-distance calls in Alaska, and fees paid to other long-distance  carriers to
carry  calls  that  terminate  in areas  not  served  by the  Company's  network
(principally  the lower 49  states,  most of which  calls are  carried  over MCI
WorldCom's  network,  and  international  locations,  which  calls  are  carried
principally  over Sprint's  network).  During the second quarter of 1999,  local
access charges accounted for 56.7% of long-distance  cost of sales and services,
fees  paid  to  other  long-distance   carriers  represented  28.8%,   satellite
transponder lease and undersea fiber  maintenance  costs represented  12.1%, and
other costs represented 2.4% of long-distance cost of sales and services.

The Company's  long-distance selling,  general, and administrative expenses have
consisted  of  operating   and   engineering,   customer   service,   sales  and
communications,  management information systems, general and administrative, and
legal and regulatory expenses. Most of these expenses consist of salaries, wages
and  benefits of  personnel  and  certain  other  indirect  costs (such as rent,
travel,  utilities,  insurance and property  taxes).  A  significant  portion of
long-distance selling,  general, and administrative  expenses,  27.0% during the
second  quarter  of  1999,  represents  the cost of the  Company's  advertising,
promotion and market analysis programs.



                                       18                            (Continued)
<PAGE>
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS
                                   (Unaudited)

Long-distance  services face significant  competition  from AT&T Alascom,  Inc.,
long-distance  resellers,  and from local telephone  companies that have entered
the  long-distance  market.  The  number  of active  long-distance  residential,
commercial  and small  business  customers  increased  1.5% at June 30,  1999 as
compared to June 30, 1998,  and increased 7.5% as compared to December 31, 1998.
The  Company  believes  its  approach  to  developing,  pricing,  and  providing
long-distance  services and bundling  different  business  segment services will
continue to allow it to be competitive in providing those services.

Revenues derived from other common carriers decreased 5.4% in the second quarter
of 1999 as compared to the second quarter of 1998 due primarily to reduced rates
charged to such  carriers and a change in the mix of wholesale  minutes  carried
for such customers.  The Company secured contract  amendments  during the second
quarter of 1999 with MCI WorldCom and Sprint which provided, among other things,
for three year contract term extensions.  Other common carrier traffic routed to
the Company for termination in Alaska is largely  dependent on traffic routed to
MCI  WorldCom  and Sprint by their  customers.  Pricing  pressures,  new program
offerings and market  consolidation  continue to evolve in the markets served by
MCI WorldCom and Sprint. If, as a result,  their traffic is reduced, or if their
competitors' costs to terminate or originate traffic in Alaska are reduced,  the
Company's traffic will also likely be reduced,  and the Company's pricing may be
reduced to respond to  competitive  pressures.  The Company is unable to predict
the effect on the Company of such  changes,  however  given the  materiality  of
other common carrier revenues to the Company, a significant reduction in traffic
or pricing  could  have a material  adverse  effect on the  Company's  financial
position, results of operations and liquidity.

Cable services.  During the second quarter of 1999,  cable  television  revenues
represented  17.8%  of  consolidated   revenues.  The  cable  systems  serve  26
communities and areas in Alaska,  including the state's three largest population
centers, Anchorage, Fairbanks and Juneau.

The Company  generates cable services  revenues from three primary sources:  (1)
programming  services,  including  monthly  basic or premium  subscriptions  and
pay-per-view  movies or other  one-time  events,  such as sporting  events;  (2)
equipment rentals or installation;  and (3) advertising sales. During the second
quarter of 1999  programming  services  generated  84.5% of total cable services
revenues,  equipment  rental and  installation  fees  accounted for 8.8% of such
revenues,  advertising  sales  accounted  for 5.0% of such  revenues,  and other
services accounted for the remaining 1.7% of total cable services revenues.  The
primary  factors  that  contribute  to  year-to-year  changes in cable  services
revenues are average monthly  subscription and pay-per-view rates, the mix among
basic, premium and pay-per-view  services, and the average number of subscribers
during a given reporting period.

The  cable  systems'  cost of sales  and  selling,  general  and  administrative
expenses have  consisted  principally  of  programming  and copyright  expenses,
labor,  maintenance  and repairs,  marketing and advertising and rental expense.
During the second quarter of 1999 programming and copyright expenses represented
43.9% of total  cable  cost of sales and  selling,  general  and  administrative
expenses,  and general and administrative costs represented 39.8% of such total.
Marketing and advertising  costs represented  approximately  16.3% of such total
expenses.

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



                                       19                            (Continued)
<PAGE>
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS
                                   (Unaudited)

Local access services. The Company generates local access services revenues from
four primary sources: (1) business and residential basic dial tone services; (2)
business  private  line  and  special  access  services;  and (3)  business  and
residential  features  and other  charges,  including  voice  mail,  caller  ID,
distinctive  ring,  inside wiring and subscriber  line charges.  Effective March
1999 the Company  transitioned to the "bill and keep" cost settlement method for
termination of traffic on its and other's  facilities.  Local exchange  services
revenues totaled $3.8 million representing 4.5% of consolidated  revenues in the
second  quarter of 1999.  The primary  factors that  contribute to  year-to-year
changes in local access services revenues are the average number of business and
residential  subscribers  to the  Company's  services  during a given  reporting
period and the average monthly rates charged for non-traffic sensitive services.

Operating and engineering expenses represented approximately 4.6% of total local
access services cost of sales and selling,  general and administrative  expenses
during the second quarter of 1999.  Marketing and advertising  costs represented
approximately  7.6% of such total  expenses,  customer  service  and general and
administrative costs represented approximately 51.0% of such total expenses, and
local  access  cost of  sales  represented  approximately  36.8%  of such  total
expenses.  The Company  expects that it will generate net operating  losses from
local exchange services for the year ended December 31, 1999.

The Company's  local access services face  significant  competition in Anchorage
from Alaska  Communications  Systems and AT&T Alascom, Inc. The Company believes
its approach to developing,  pricing,  and providing  local access services will
allow it to be competitive in providing those services.

Internet  services.  The Company  began  offering  Internet  services in several
markets in Alaska during 1998. The Company generates  Internet services revenues
from three primary sources:  (1) access product services,  including  commercial
dedicated  access  ("DIAS"),  Internet service provider ("ISP") DIAS, and retail
dial-up service revenues; (2) SchoolAccess(TM) DIAS and server revenues; and (3)
network  management  services.  Internet  services revenues totaled $2.5 million
representing  3.0% of total  revenues in the second quarter of 1999. The primary
factors that contribute to year-to-year  changes in Internet  services  revenues
are the average number of subscribers to the Company's  services  during a given
reporting  period,  the average monthly  subscription  rates,  and the number of
additional premium features selected.

Operating  and general and  administrative  expenses  represented  approximately
47.6%  of total  Internet  services  cost of  sales  and  selling,  general  and
administrative  expenses  during the second  quarter of 1999.  Internet  cost of
sales represented  approximately  42.2% of such total expenses and marketing and
advertising represented approximately 10.2% of such total expenses.

Significant new marketing campaigns were introduced in the first two quarters of
1999 featuring bundled residential and commercial Internet products.  Additional
bandwidth was made available to the Company's  Internet  segment  resulting from
completion  of the Alaska United  undersea  fiber optic cable  project.  The new
Internet  offerings  are  coupled  with the  Company's  long-distance  and local
services  offerings  and provide  free basic  Internet  services  or  discounted
premium Internet  services if certain  long-distance or local services plans are
selected.  Value-added  premium  Internet  features are available for additional
charges.

The Company competes with a number of Internet service providers in its markets.
The Company believes its approach to developing, pricing, and providing Internet
services will allow it to be competitive in providing those services.

Other  services,  other  expenses  and  net  loss.  Telecommunications  services
revenues  reported  in  the  Other  segment  as  described  in  note  7  to  the
accompanying interim condensed  consolidated  financial statements include sales
of fiber  optic  system  capacity  (see  below),  corporate  network  management
contracts,


                                       20                            (Continued)
<PAGE>
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS
                                   (Unaudited)

telecommunications  equipment sales and service,  other  miscellaneous  revenues
(including  revenues  from  cellular  resale  services,  from  prepaid and debit
calling  cards sales,  and  installation  and leasing of  customers'  very small
aperture terminal ("Vsat") equipment).

During the second quarter of 1999 the Company  completed a $19.5 million sale of
long-haul  capacity in the Alaska  United  undersea  fiber  optic  cable  system
("fiber capacity sale") to Alaska Communications  Systems in a cash transaction.
The sale includes both capacity within Alaska,  and between Alaska and the lower
48 states.  Revenues and cost of sales  associated  with the  capacity  sale are
reported in the Other  services  segment.  The Company  announced in August 1999
that an agreement pertaining to a second $19.5 million sale of fiber capacity to
Alaska Communications  Systems had been executed.  The agreement requires Alaska
Communications  Systems to acquire $19.5 million of additional  capacity  during
the 18-month period following the effective date of the contract.

Other services  segment  revenues  during the second quarter of 1999 include the
fiber capacity sale proceeds,  telecommunications  equipment sales totaling $2.1
million,  network  solutions and outsourcing  revenues  totaling  $930,000,  and
cellular resale and other revenues totaling $750,000.

The  Company  began  developing  plans for PCS  service  deployment  in 1995 and
subsequently  conducted  a  technical  trial of its  candidate  technology.  The
Company has invested  approximately  $2.2 million in its PCS license at June 30,
1999. PCS licensees are required to offer service to at least one-third of their
market population within five years or risk losing their licenses.  Service must
be  extended  to  two-thirds  of the  population  within 10 years.  The  Company
continues to  reevaluate  its wireless  strategy and expects that such  strategy
will allow retention of the PCS license pursuant to its terms.

Depreciation and  amortization  and interest expense on a consolidated  basis is
expected  to be higher in 1999 as  compared  to 1998  resulting  primarily  from
additional  depreciation  on 1998  and  1999  capital  expenditures,  additional
outstanding  long-term  debt  and a  reduction  in  the  amount  of  capitalized
construction  period interest following  placement of the Alaska United undersea
fiber optic cable into service in early February 1999. As a result,  the Company
anticipates recording net losses in 1999.



                                       21                            (Continued)
<PAGE>
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS
                                   (Unaudited)

                              RESULTS OF OPERATIONS

<TABLE>
The  following  table sets forth  selected  Statement  of  Operations  data as a
percentage  of total  revenues  for the  periods  indicated  and the  percentage
changes in such data as compared to the corresponding prior year period:

(Underlying data rounded to the nearest thousands)
<CAPTION>

                                                        Three Months Ended June 30,             Six Months Ended June 30,
                                                                            Percentage                               Percentage
                                                                            Change (1)                               Change (1)
                                                                             1999 vs.                                 1999 vs.
      (Unaudited)                                    1999        1998          1998          1999         1998         1998
                                                     ----        ----          ----          ----         ----         ----
      <S>                                             <C>         <C>        <C>             <C>         <C>          <C>
      Revenues
          Long-distance services                      46.8%       65.8%       (5.3%)         52.9%       66.3%         (4.4%)
          Cable services                              17.8%       22.2%        6.4%          20.7%       23.3%          6.4%
          Local access services                        4.6%        3.2%       90.0%           5.2%        2.6%        141.9%
          Internet services                            3.0%        2.4%       66.7%           3.1%        2.2%         66.7%
          Other services                              27.8%        6.4%      482.5%          18.1%        5.6%        285.3%
                                                 ------------------------------------------------------------------------------
             Total revenues                          100.0%      100.0%       32.9%         100.0%      100.0%         19.7%

      Cost of sales and services                      41.1%       46.6%       16.7%          42.9%       46.8%          9.7%
      Selling, general and administrative
        Expenses                                      29.1%       37.3%        3.7%          33.6%       36.3%         10.9%
      Depreciation and amortization                   13.7%       13.7%       33.5%          15.0%       13.8%         29.8%
                                                 ------------------------------------------------------------------------------
             Operating income (loss)                  16.2%        2.4%      812.3%           8.5%        3.1%         215.8%
             Net income (loss) before income
               taxes and cumulative effect of a
               change in accounting principle          5.4%       (5.3%)     237.4%          (2.1%)      (4.8%)       (50.7%)
             Net income (loss) before
               cumulative effect of a change in
               accounting principle                    3.0%       (3.3%)     220.6%          (1.4%)      (3.1%)       (44.3%)
             Net income (loss)                         3.0%       (3.3%)     220.6%          (1.6%)      (3.1%)       (36.0%)
<FN>
         --------------------------
         (1)Percentage change in underlying data.
</FN>
</TABLE>
      THREE MONTHS ENDED JUNE 30, 1999 ("1999") COMPARED TO THREE MONTHS ENDED
      JUNE 30, 1998 ("1998")

      Revenues.  Total  revenues  increased  32.9% from $62.9 million in 1998 to
      $83.7   million  in  1999.   Long-distance   revenues   from   commercial,
      residential,  governmental,  and other common carrier customers  decreased
      5.3% from $41.4  million in 1998 to $39.2  million in 1999.  Long-distance
      revenues decreased notwithstanding a 1.4% increase in the number of active
      residential, small business and commercial customers billed from 86,900 at
      June 30, 1998 to 88,100 at June 30, 1999,  new  revenues in 1999  totaling
      $1.1  million  from the  lease of three  DS3  circuits  on  Alaska  United
      facilities  within Alaska,  and between


                                       22                            (Continued)
<PAGE>
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS
                                   (Unaudited)

      Alaska and the lower 48 states, a 11.5% increase in interstate  minutes of
      use to 186.4 million minutes, and a 6.5% increase in intrastate minutes of
      use to 37.4 million minutes.

      The  decrease  in  long-distance  revenues  was  primarily  due to a 18.9%
      reduction  in the  Company's  average  rate per  minute  on  long-distance
      traffic  from  $0.169  per  minute in 1998 to $0.137  per  minute in 1999.
      Changes in wholesale product mix and reduced rates on other common carrier
      traffic  (principally MCI WorldCom and Sprint) offset other common carrier
      wholesale  minutes  growth  of  16.8%,  resulting  in a 7.0%  decrease  in
      revenues,  from  $15.8  million  in 1998 to $14.7  million  in  1999.  The
      decrease  in rates  also  resulted  from the  Company's  promotion  of and
      customers'  enrollment in new calling plans offering  discounted rates and
      length of service  rebates,  such new plans being  prompted in part by the
      Company's primary  long-distance  competitor,  AT&T Alascom,  reducing its
      rates and entry of LECs into long-distance markets served by the Company.

      Cable revenues  increased 6.4% from $14.0 million in 1998 to $14.9 million
      in 1999.  Programming services revenues increased 2.3% to $12.6 million in
      1999 resulting from an increase of approximately  5,200 basic  subscribers
      served by the Company at June 30, 1999 as  compared to June 30,  1998,  an
      increase of $1.77 in revenue per average  basic  subscriber  per month and
      increased   pay-per-view  and  premium  service  revenues.   New  facility
      construction efforts in the summer of 1998 resulted in approximately 2,700
      additional  homes passed which  contributed to additional  subscribers and
      revenues in 1999. Other factors included  facility  upgrades which allowed
      the  introduction  of digital  cable  services in  Anchorage in the fourth
      quarter of 1998,  increased  promotional  and  advertising  efforts in the
      fourth  quarter of 1998 and the first two quarters of 1999,  and increases
      in basic and premium service rates in certain locations.  Equipment rental
      and installation  revenues  increased 20.5% to $1.3 million in 1999 due to
      increased  equipment  rentals and  installation  services  provided by the
      Cable services industry segment.

      Local access services  revenues  increased 90.0% from $2.0 million in 1998
      to $3.8 million in 1999. At June 30, 1999 approximately  38,000 lines were
      in  service  and  approximately   1,800  additional  lines  were  awaiting
      connection.

      Internet services revenues (including SchoolAccess(TM) services) increased
      66.7% from $1.5 million in 1998 to $2.5  million in 1999.  The Company had
      approximately  32,000 active  residential,  commercial  and small business
      retail and wholesale  dial-up  subscribers to its Internet service at June
      30, 1999.

      Other  services  revenues  increased  482.5% from $4.0  million in 1998 to
      $23.3  million in 1999.  The 1999  increase was due to the fiber  capacity
      sale as previously described.

      Cost of sales and  services.  Cost of sales  and  services  totaled  $29.4
      million  in 1998 and  $34.3  million  in 1999.  As a  percentage  of total
      revenues, cost of sales and services decreased from 46.6% in 1998 to 41.0%
      in 1999.  The decrease in cost of sales and  services as a  percentage  of
      revenues is primarily  attributed to the impact of the fiber capacity sale
      and changes in the Company's product mix due to continuing  development of
      new product lines (local access services and Internet). The overall margin
      improvement was partially offset by increased  long-distance cost of sales
      as a percentage of  long-distance  revenues and increased  cable  services
      cost of sales as a percentage of cable services revenues.

      Long-distance  cost of sales as a  percentage  of  long-distance  revenues
      increased  from 48.0% in 1998 to 53.8% in 1999.  The increase is primarily
      attributed  to the  decrease  in the  average  rate per  minute  billed to
      customers  without a  comparable  decrease in access  charges  paid by the
      Company.  Partially  offsetting  the 1999 increase as compared to 1998 are
      reductions  in access costs due to avoidance of access  charges  resulting
      from the Company's  distribution and termination of its traffic on its own
      network  instead of paying


                                       23                            (Continued)
<PAGE>
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS
                                   (Unaudited)

      other  carriers to  distribute  and  terminate  its  traffic.  The Company
      expects to realize  additional  cost savings as traffic carried on its own
      local services facilities grows.

      Cable cost of sales and services as a percentage of revenues are generally
      less than are  long-distance,  local access and Internet  services cost of
      sales and  services as a  percentage  of  revenues.  Cable  services  rate
      increases did not keep pace with  increases in  programming  and copyright
      costs  in  1999.  Programming  costs  increased  on most of the  Company's
      offerings and the Company  incurred  additional  costs on new  programming
      introduced  in 1998 and 1999.  Changes  in the  product  mix  provided  to
      customers also impacts cable cost of sales and services as a percentage of
      revenues.

      Local access  services cost of sales and services  totaled 46.8% and 60.9%
      as  a  percentage  of  1999  and  1998  local  access  services  revenues,
      respectively.  Internet  services cost of sales and services totaled 35.9%
      and  117.1%  as a  percentage  of the  1999  and  1998  Internet  services
      revenues, respectively. The Company's local access operations commenced in
      1997 and Internet services operations  commenced in 1998.  Fluctuations in
      cost of sales and  services as a  percentage  of revenues  are expected to
      occur as new product lines continue to develop and mature.

      Selling,  general  and  administrative  expenses.   Selling,  general  and
      administrative expenses increased 7.2% from $23.5 million in 1998 to $25.2
      million in 1999. The 1999 increase resulted from:

        -  Increased  costs  associated  with  operations and maintenance of the
           Alaska  United  fiber optic cable system that was placed into service
           in early February,  1999. 1999 costs totaled  $871,000 as compared to
           $49,000 in 1998.
        -  Internet services operating, engineering, sales, customer service and
           administrative  cost increases,  from $129,000 in 1998 as compared to
           $1.2 million in 1999. The Company  gradually  introduced its Internet
           services through the third quarter of 1998 and increased  advertising
           efforts in the fourth  quarter of 1998 and first and second  quarters
           of  1999.  The  increase  in  costs  was  necessary  to  provide  the
           operations,  engineering, customer service and support infrastructure
           necessary to accommodate  expected  growth in the Company's  Internet
           services customer base.
        -  Increased allowance for doubtful accounts receivable.

      Selling, general and administrative expenses, as a percentage of revenues,
      decreased from 37.4% in 1998 to 30.2% in 1999 primarily as a result of the
      significant  revenues  derived  from the  fiber  capacity  sale  without a
      proportionate increase in selling, general and administrative expenses.

      Depreciation  and  amortization.  Depreciation  and  amortization  expense
      increased  32.6% from $8.6 million in 1998 to $11.4  million in 1999.  The
      increase is  attributable  to the Company's  $58.4  million  investment in
      equipment and facilities  placed into service during 1998 for which a full
      year of  depreciation  will be recorded  during  1999,  the Alaska  United
      undersea fiber optic cable system placed into service in the first quarter
      of 1999 for which 11 months of depreciation  will be recorded during 1999,
      and the $23.2 million  investment in equipment and  facilities  during the
      first two quarters of 1999 for which a partial year of  depreciation  will
      be recorded in 1999.

      Interest expense, net. Interest expense, net of interest income, increased
      70.8% from $4.8  million in 1998 to $8.2  million in 1999.  This  increase
      resulted  primarily  from increases in the Company's  average  outstanding
      indebtedness   associated  with  construction  of  new  long-distance  and
      Internet   facilities,   expansion   and  upgrades  of  cable   television
      facilities,   and  investment  in  local  access  services  equipment  and
      facilities. During 1998 interest expense was offset in part by capitalized
      construction  period  interest.  During  1999 the  Company  experienced  a
      significant  reduction  in the  amount  of  construction  period  interest
      capitalized  due to


                                       24                            (Continued)
<PAGE>
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS
                                   (Unaudited)

      the  completion  of the Alaska  United  undersea  fiber optic cable system
      which was placed into service in early February 1999. The Company  charged
      to interest  expense  $470,000 of deferred  financing  costs in the second
      quarter  of  1999  resulting  from  the  amendment  to the  Holdings  Loan
      Facilities  which reduced  borrowing  capacity (see  Liquidity and Capital
      Resources).

      Income tax expense (benefit).  Income tax expense (benefit) totaled ($1.3)
      million  in 1998 and $2.0  million  in 1999.  The  increase  in income tax
      expense in 1999 was due to an increase in net income  before  income taxes
      and  cumulative  effect of a change  in  accounting  principle  in 1999 as
      compared to 1998. The Company's  effective  income tax rate increased from
      37.8% in 1998 to 44.6% in 1999 due to the  increased  net  income  and the
      proportional  amount  of  items  that are  nondeductible  for  income  tax
      purposes.

      SIX MONTHS ENDED JUNE 30, 1999 ("1999") COMPARED TO SIX MONTHS ENDED
      JUNE  30, 1998 ("1998")

      Revenues.  Total revenues  increased  19.7% from $121.1 million in 1998 to
      $145.0   million  in  1999.   Long-distance   revenues  from   commercial,
      residential,  governmental,  and other common carrier customers  decreased
      4.4% from $80.3  million in 1998 to $76.8  million in 1999.  Long-distance
      revenues decreased notwithstanding a 7.4% increase in the number of active
      residential, small business and commercial customers billed from 82,000 at
      December  31, 1998 to 88,100 at June 30,  1999,  a 5.5%  increase in total
      minutes of use to 415.4 million minutes, and new revenues in 1999 totaling
      $1.7  million  from the  lease of three  DS3  circuits  on  Alaska  United
      facilities within Alaska, and between Alaska and the lower 48 states.

      The long-distance  revenue decrease was primarily due to a 13.4% reduction
      in the  Company's  average rate per minute on  long-distance  traffic from
      $0.171 per minute in 1998 to $0.148 per minute in 1999.  The  decrease  in
      rates resulted from the Company's  promotion of and customers'  enrollment
      in new  calling  plans  offering  discounted  rates and  length of service
      rebates,  such new plans being  prompted in part by the Company's  primary
      long-distance competitor,  AT&T Alascom, reducing its rates, and the entry
      of LECs into  long-distance  markets  served by the  Company.  Changes  in
      wholesale  product mix and reduced rates on other common  carrier  traffic
      (principally  MCI WorldCom and Sprint) offset other common carrier minutes
      growth of 10.2%  resulting  in a 1.3%  decrease  in  revenues,  from $30.2
      million in 1998 to $29.8 million in 1999.

      Cable revenues  increased 6.4% from $28.2 million in 1998 to $30.0 million
      in 1999.  Programming services revenues increased 4.8% to $25.6 million in
      1999 resulting from an increase of approximately  5,200 basic  subscribers
      served by the Company,  an increase of $2.03 in revenue per average  basic
      subscriber  per month  and  increased  pay-per-view  and  premium  service
      revenues. New facility construction efforts in the summer of 1998 resulted
      in  approximately  2,700  additional  homes  passed which  contributed  to
      additional  subscribers  and  revenues  in 1999.  Other  factors  included
      facility upgrades which allowed the introduction of digital cable services
      in  Anchorage in the fourth  quarter of 1998,  increased  promotional  and
      advertising efforts in the fourth quarter of 1998 and the first and second
      quarters of 1999,  and  increases  in basic and premium  service  rates in
      certain  locations  in the  second  quarter  of  1998.  Advertising  sales
      revenues  increased  10.2%  to  $1.4  million  in  1999  due to  increased
      promotion  of  the  Company's  advertising  and  state-wide  ad  insertion
      capabilities.  Equipment rental and installation  revenues increased 20.0%
      to  $2.6  million  in  1999  due  to  increased   equipment   rentals  and
      installation services provided by the Cable services industry segment.

      Local access services revenues  increased 141.9% from $3.1 million in 1998
      to $7.5 million in 1999. At June 30, 1999 approximately  38,000 lines were
      in  service  and  approximately   1,800  additional  lines  were  awaiting
      connection.



                                       25                            (Continued)
<PAGE>
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS
                                   (Unaudited)

      Internet services revenues (including SchoolAccess(TM) services) increased
      66.7% from $2.7 million in 1998 to $4.5  million in 1999.  The Company had
      approximately  32,000 active  residential,  commercial  and small business
      retail and wholesale  dial-up  subscribers to its Internet service at June
      30, 1999.

      Other  services  revenues  increased  285.3% from $6.8  million in 1998 to
      $26.2  million in 1999.  The 1999  increase  was  largely due to the fiber
      capacity sale as previously described.

      Cost of sales and  services.  Cost of sales  and  services  totaled  $56.7
      million  in 1998 and  $62.2  million  in 1999.  As a  percentage  of total
      revenues, cost of sales and services decreased from 46.8% in 1998 to 42.9%
      in 1999.  The decrease in cost of sales and  services as a  percentage  of
      revenues is primarily  attributed to the impact of the fiber capacity sale
      and changes in the Company's product mix due to continuing  development of
      new product lines (local access services and Internet). The overall margin
      improvement was partially offset by increased  long-distance cost of sales
      as a percentage of  long-distance  revenues and increased  cable  services
      cost of sales as a percentage of cable services revenues.

      The increase in  long-distance  cost of sales and services as a percentage
      of revenues is  primarily  attributed  to the decrease in the average rate
      per minute  billed to customers  without a  comparable  decrease in access
      charges paid by the Company,  and a  non-recurring  refund received in the
      second  quarter of 1998 totaling  approximately  $1.1 million from a local
      exchange  carrier in  respect of its  earnings  that  exceeded  regulatory
      requirements.  Partially  offsetting the 1999 increase as compared to 1998
      are  reductions  in  access  costs  due to  avoidance  of  access  charges
      resulting from the Company's  distribution  and termination of its traffic
      on its own local  services  network  instead of paying  other  carriers to
      distribute and terminate its traffic.  The Company expects  increased cost
      savings as traffic carried on its own facilities continues to grow.

      Cable cost of sales and services as a percentage  of revenues is less as a
      percentage of revenues than are  long-distance,  local access and Internet
      services cost of sales and services. Cable services rate increases did not
      keep pace with  increases  in  programming  and  copyright  costs in 1999.
      Programming  costs  increased on most of the  Company's  offerings and the
      Company incurred  additional  costs on new programming  introduced in 1998
      and 1999.

      Local access  services cost of sales and services  totaled 50.0% and 69.3%
      as  a  percentage  of  1999  and  1998  local  access  services  revenues,
      respectively.  Internet  services cost of sales and services totaled 29.4%
      and 81.4% as a percentage of the 1999 and 1998 Internet services revenues,
      respectively.  The Company's local access operations commenced in 1997 and
      Internet services  operations  commenced in 1998.  Fluctuations in cost of
      sales and services as a percentage of revenues are expected to continue to
      occur as new product lines develop and mature.

      Selling,  general  and  administrative  expenses.   Selling,  general  and
      administrative  expenses  increased  11.2% from  $43.9  million in 1998 to
      $48.8 million in 1999. The 1999 increase resulted from:

        -  Increased  costs  associated  with  operations and maintenance of the
           Alaska  United  fiber optic cable system that was placed into service
           in early February,  1999. 1999 costs totaled $1.9 million as compared
           to $70,000 in 1998.
        -  Internet services operating, engineering, sales, customer service and
           administrative  cost increases,  from $225,000 in 1998 as compared to
           $2.5 million in 1999. The Company  gradually  introduced its Internet
           services through the third quarter of 1998 and increased  advertising
           efforts in the fourth  quarter of 1998 and first and second  quarters
           of 1999.  Increased  costs were necessary to provide the  operations,
           engineering, customer service and support infrastructure necessary to
           accommodate  expected  growth  in  the  Company's  Internet  services
           customer base.


                                       26                            (Continued)
<PAGE>
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS
                                   (Unaudited)

        -  Local access services operating, engineering, sales, customer service
           and  administrative  cost increased from $5.4 million in 1998 to $6.1
           million in 1999.  The  Company  initiated  local  access  services in
           September 1997. The increase was necessary to provide the operations,
           engineering, customer service and support infrastructure necessary to
           accommodate  the  growth  in  the  Company's  local  access  services
           customer base.
        -  Increased allowance for doubtful accounts receivable.

      Partially  offsetting  these  increases  was a $2.1  million  reduction in
      long-distance  sales,  advertising,   telemarketing,   carrier  relations,
      business development, rural services, and general and administrative costs
      in 1999 as compared to 1998.

      Selling, general and administrative expenses, as a percentage of revenues,
      decreased  from  36.2% in 1998 to 33.6% in 1999  primarily  as a result of
      significant  revenues  derived  from the  fiber  capacity  sale  without a
      proportionate increase in selling, general and administrative expenses.

      Depreciation  and  amortization.  Depreciation  and  amortization  expense
      increased  30.4% from $16.7 million in 1998 to $21.7 million in 1999.  The
      increase is  attributable  to the Company's  $58.4  million  investment in
      equipment and facilities  placed into service during 1998 for which a full
      year of  depreciation  will be recorded  during  1999,  the Alaska  United
      undersea fiber optic cable system placed into service in the first quarter
      of 1999 for which 11 months of depreciation  will be recorded during 1999,
      and the $23.2 million  investment in equipment and  facilities  during the
      first two quarters of 1999 for which a partial year of  depreciation  will
      be recorded in 1999.

      Interest expense, net. Interest expense, net of interest income, increased
      55.7% from $9.7 million in 1998 to $15.1  million in 1999.  This  increase
      resulted  primarily  from increases in the Company's  average  outstanding
      indebtedness  resulting  primarily from  construction of new long-distance
      and  Internet  facilities,  expansion  and  upgrades  of cable  television
      facilities,   and  investment  in  local  access  services  equipment  and
      facilities. During 1998 interest expense was offset in part by capitalized
      construction  period  interest.  During  1999 the  Company  experienced  a
      significant  reduction  in the  amount  of  construction  period  interest
      capitalized  due to the  completion  of the Alaska United  undersea  fiber
      optic cable  which was placed into  service in early  February  1999.  The
      Company charged to interest expense  $470,000 of deferred  financing costs
      in the second quarter of 1999 resulting from the amendment to the Holdings
      Loan  Facilities  which  reduced  borrowing  capacity  (see  Liquidity and
      Capital Resources).

      Income tax benefit. Income tax benefit decreased from $2.1 million in 1998
      to  $803,000 in 1999 due to a reduced  net loss  before  income  taxes and
      cumulative effect of a change in accounting  principle in 1999 as compared
      to 1998. The Company's  effective  income tax rate decreased from 36.8% in
      1998 to 28.3% in 1999 due to the decreased  net loss and the  proportional
      amount of items that are nondeductible for income tax purposes.

      In  conjunction  with the 1996 Cable  Companies  acquisition,  the Company
      incurred a net deferred income tax liability of $24.4 million and acquired
      net operating losses totaling $57.6 million.  The Company  determined that
      approximately  $20 million of the acquired net operating  losses would not
      be utilized  for income tax  purposes,  and elected  with its December 31,
      1996  income tax returns to forego  utilization  of such  acquired  losses
      under Internal Revenue Code section  1.1502-32(b)(4).  Deferred tax assets
      were not recorded associated with the foregone losses and, accordingly, no
      valuation  allowance was provided.  At June 30, 1999,  the Company has (1)
      tax net operating loss  carryforwards of approximately  $70.0 million that
      will begin expiring in 2008 if not utilized,  and (2) alternative  minimum
      tax credit carryforwards of approximately $2.0 million available to offset
      regular income taxes payable in future years. The Company's utilization of



                                       27                            (Continued)
<PAGE>
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS
                                   (Unaudited)

      remaining  net  operating  loss   carryforwards   is  subject  to  certain
      limitations pursuant to Internal Revenue Code section 382.

      Tax benefits  associated with recorded  deferred tax assets are considered
      to be more likely than not  realizable  through  taxable  income earned in
      carryback  years,   future   reversals  of  existing   taxable   temporary
      differences,  and future taxable income  exclusive of reversing  temporary
      differences and carryforwards. The amount of deferred tax asset considered
      realizable,  however,  could be reduced in the near term if  estimates  of
      future  taxable  income during the  carryforward  period are reduced.  The
      Company  estimates  that its  effective  income  tax  rate  for  financial
      statement  purposes will be approximately 38% in 1999. The Company expects
      that its  operations  will  generate net income before income taxes during
      the carryforward  periods to allow  utilization of loss  carryforwards for
      which no allowance has been established.

                 FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS

<TABLE>
      The following chart provides  selected  unaudited  statement of operations
      data from the Company's  quarterly  results of operations  during 1999 and
      1998:
<CAPTION>
                                                       First      Second          Third         Fourth        Total
      (Unaudited)                                     Quarter     Quarter        Quarter        Quarter       Year
                                                 -----------------------------------------------------------------------
                                                            (Dollars in thousands, except per share amounts)
<S>                                            <C>                  <C>                                        <C>
                    1999
                    ----
Revenues:
   Long-distance services                      $      37,656        39,158                                      76,814
   Cable services                                     15,062        14,909                                      29,971
   Local access services                               3,714         3,764                                       7,478
   Internet services                                   1,969         2,534                                       4,503
   Other services                                      2,937        23,294                                      26,231
                                                 -----------------------------------------------------------------------
Total revenues                                        61,338        83,659                                     144,997
Operating income (loss)                                 (368)       12,655                                      12,287
    Net income  (loss)  before  income  taxes
    and  cumulative  effect  of a  change  in
    accounting principle                              (7,328)        4,495                                      (2,833)
    Net  income  (loss)   before   cumulative
    effect   of  a   change   in   accounting
    principle                                         (4,521)        2,491                                      (2,030)
Net income (loss)                              $      (4,865)        2,491                                      (2,374)
                                                 =======================================================================

Basic net income (loss) per share:
   Net income (loss) before cumulative
     effect of a change in accounting
     principle                                 $     (45,210)       24,910                                     (20,300)
   Cumulative effect of a change in
     accounting principle                             (3,440)          ---                                      (3,440)
                                                 -----------------------------------------------------------------------
   Net income (loss)                           $     (48,650)       24,910                                     (23,740)
                                                 =======================================================================
</TABLE>


                                       28                            (Continued)
<PAGE>
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                       First      Second          Third         Fourth        Total
      (Unaudited)                                     Quarter     Quarter        Quarter        Quarter       Year
                                                 -----------------------------------------------------------------------
                                                            (Dollars in thousands, except per share amounts)
<S>                                            <C>                 <C>           <C>            <C>            <C>
Diluted net income (loss) per share:
   Net income (loss) before cumulative
     effect of a change in accounting
     principle                                 $     (45,210)       24,910                                     (20,300)
   Cumulative effect of a change in
     accounting principle                             (3,440)          ---                                      (3,440)
                                                 -----------------------------------------------------------------------
   Net income (loss)                           $     (48,650)       24,910                                     (23,740)
                                                 =======================================================================

                    1998
                    ----
Revenues:
   Long-distance services                      $      38,894        41,387        39,645         36,716        156,642
   Cable services                                     14,201        14,041        14,484         14,914         57,640
   Local access services                               1,014         2,048         2,744          4,102          9,908
   Internet services                                   1,209         1,511         1,354          2,002          6,076
   Other services                                      2,834         3,954         4,539          5,202         16,529
                                                 -----------------------------------------------------------------------
Total revenues                                        58,152        62,941        62,766         62,936        246,795
Operating income                                       2,437         1,447         1,730          3,230          8,844
Net loss                                       $      (1,616)       (2,066)       (2,076)        (1,039)        (6,797)
                                                 =======================================================================
Basic net loss per share                       $     (16,160)      (20,660)      (20,760)       (10,390)       (67,970)
                                                 =======================================================================
Diluted net loss per share                     $     (16,160)      (20,660)      (20,760)       (10,390)       (67,970)
                                                 =======================================================================
</TABLE>
Revenues. Total revenues for the quarter ended June 30, 1999 ("second quarter of
1999") were $83.7 million,  representing a 36.5% increase from total revenues in
the quarter ended March 31, 1999 ("first quarter of 1999") of $61.3 million. The
increase in total revenues  resulted from a $19.5 million fiber capacity sale in
the second  quarter of 1999 and  increased  Internet  services  revenues  in the
second quarter of 1999. Partially offsetting this increase were reduced revenues
associated with a 15.1% reduction in the long-distance  average rate per minute,
notwithstanding   a  2.9%  increase  in  the  number  of  active   long-distance
residential, small business and commercial customers billed from 85,600 at March
31, 1999 to 88,100 at June 30, 1999,  and a 16.8%  increase in total  minutes of
traffic carried.  Revenues from other common carriers  (principally MCI WorldCom
and Sprint)  totaled $14.9  million in each of the first and second  quarters of
1999.

The relatively  flat growth in local services  revenues in the second quarter of
1999 as  compared  to the  first  quarter  of 1999 was  attributable  in part to
discontinuing the billing of reciprocal compensation in February 1999 on non-GCI
local services minutes terminated on the Company's network.

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

Cost of sales and  services.  Cost of sales and  services  increased  22.9% from
$27.9  million  in the first  quarter  of 1999 to $34.3  million  in the  second
quarter of 1999. The increase resulted  primarily from costs


                                       29                            (Continued)
<PAGE>
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS
                                   (Unaudited)

associated  with the fiber  capacity  sale in the second  quarter of 1999.  As a
percentage  of revenues,  second  quarter of 1999 cost of sales and services was
41.0% as compared to 45.4% for the first  quarter of 1999.  The  decrease in the
cost of sales  and  services  as a  percentage  of  revenues  is  primarily  due
increased  margin  on the fiber  capacity  sale as  compared  to margin on other
products  and  services  sold.  The  decrease in cost of sales and services as a
percentage of revenues is also attributed to growth of the Company's new product
lines and avoidance of access charges resulting from the Company's  distribution
and  termination  of its  traffic on its own  network  instead  of paying  other
carriers to distribute and terminate its traffic.

Selling,   general   and   administrative   expenses.   Selling,   general   and
administrative  expenses increased $1.7 million in the second quarter of 1999 as
compared to the first  quarter of 1999.  As a  percentage  of  revenues,  second
quarter of 1999  selling,  general  and  administrative  expenses  were 30.2% as
compared  to 38.4%  for the  first  quarter  of 1999.  The  1999  decrease  as a
percentage of sales is primarily a result of significant  revenues  derived from
the fiber capacity sale without a proportionate increase in selling, general and
administrative expenses.

Net income  (loss).  The Company  reported a net income of $2.5  million for the
second quarter of 1999 as compared to a net loss of ($4.9) million for the first
quarter of 1999. The increase in net income is primarily attributed to the fiber
capacity sale.  Offsetting this increase were additional  expenses attributed to
increased  depreciation and interest  incurred during the second quarter of 1999
as  compared  to the first  quarter of 1999 due to the  placement  of the Alaska
United  undersea fiber optic cable into service in early  February 1999.  During
the first quarter of 1999,  capitalized  construction  period interest served to
reduce interest expense.  Interest  capitalization ceased when the Alaska United
undersea  fiber  optic  cable was placed into  service.  The Company  charged to
interest expense  $470,000 of deferred  financing costs in the second quarter of
1999 resulting from the amendment to the Holdings Loan Facilities  which reduced
borrowing capacity (see Liquidity and Capital Resources).

                         LIQUIDITY AND CAPITAL RESOURCES

The first two quarters of 1999  ("1999")  cash flows from  operating  activities
totaled $22.5  million,  net of changes in the  components  of working  capital.
Additional  sources  of cash  during  1999  included  preferred  stock  issuance
proceeds  totaling  $20  million  and  long-term  borrowings  of $13.8  million.
Expenditures  for property and equipment,  including  construction  in progress,
totaled  $23.2  million and $94.9  million in 1999 and the first two quarters of
1998 ("1998"), respectively. Uses of cash during 1999 also included repayment of
$20.2 million of long-term borrowings and capital lease obligations.

Net receivables  decreased $965,000 from December 31, 1998 to June 30, 1999. The
decrease  resulted  from  a  $2.0  million   reclassification  of  income  taxes
receivable to a long-term deferred tax asset as the Company has utilized all net
operating  losses  against  income  taxes  paid  in  prior  periods,   therefore
refundable  amounts are now recorded as a long-term  deferred tax asset and will
be  realized  as  future   taxable   income  is  generated.   The  deferred  tax
reclassification   and  an  additional  provision  of  allowances  for  doubtful
receivables were partially offset by increases in trade receivable balances.

Working capital totaled $19.4 million at June 30, 1999, a $11.0 million increase
from the working  capital of $8.4 million as of December 31, 1998.  The increase
in working  capital is primarily  attributed to receipt of proceeds of the fiber
capacity  sale and  preferred  stock  sale in the second  quarter of 1999.  $4.0
million of the proceeds are reflected as long-term  restricted  cash and are not
included in June 30, 1999 working capital.

The  Holdings  $200,000,000  ($150,000,000  as amended) and  $50,000,000  credit
facilities  mature June 30, 2005. The Holdings Loan  facilities  were amended in
April 1999 (see below) and bear interest, as amended,


                                       30                            (Continued)
<PAGE>
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS
                                   (Unaudited)

at either Libor plus 1.00% to 2.50%, depending on the leverage ratio of Holdings
and  certain  of its  subsidiaries,  or at the  greater of the prime rate or the
federal  funds  effective  rate (as  defined)  plus 0.05%,  in each case plus an
additional  0.00% to 1.375%,  depending  on the  leverage  ratio of Holdings and
certain of its subsidiaries.  $87.7 million and $106.7 million were drawn on the
credit facilities as of June 30, 1999 and December 31, 1998, respectively.

On April 13, 1999, the Company  amended its Holdings  credit  facilities.  These
amendments contained,  among other things,  provisions for payment of a one-time
amendment  fee  of  0.25%  of  the  aggregate  commitment,  an  increase  in the
commitment fee by 0.125% per annum on the unused portion of the commitment,  and
an increase in the interest  rate of 0.25%.  The amended  facilities  reduce the
aggregate  commitment  by  $50  million  to  $200  million,  and  limit  capital
expenditures  to $35  million  in 1999 and $35  million  in 2000  with no limits
thereafter  (excluding  amounts to be paid for purchased  satellite  transponder
facilities).  The amended  facilities  contemplated  that  Holdings  receive $20
million in proceeds  from a GCI  preferred  stock  issuance by May 31, 1999 (see
below).  Pursuant to the Financial  Accounting  Standards  Board Emerging Issues
Task Force Issue 98-14,  "Debtor's  Accounting for Changes in  Line-of-Credit or
Revolving  Debt  Arrangements,"  the  Company  recorded as  additional  interest
expense  $470,000  of  deferred  financing  costs in the second  quarter of 1999
resulting from the reductions in borrowing capacity.

Holding's credit facilities and GCI, Inc.'s senior notes contain restrictions on
the operations and activities of the Company,  including  requirements  that the
Company comply with certain financial covenants and financial ratios.  Under the
amended  Holding's credit facility,  Holdings may not permit the ratio of senior
debt to annualized  operating  cash flow (as defined) of Holdings and certain of
its  subsidiaries to exceed 3.0 to 1.0 through  December 31, 1999, total debt to
annualized  operating cash flow to exceed 7.0 to 1.0 through June 30, 1999 (6.25
to 1.00 from July 1, 1999 through March 31, 2000), and annualized operating cash
flow to interest  expense to exceed 1.5 to 1.0 through  September 30, 1999 (1.75
to 1.0 from October 1, 1999 through  December 31,  1999).  Each of the foregoing
ratios decreases in specified increments during the life of the credit facility.
The  credit  facility  requires  Holdings  to  maintain  a ratio  of  annualized
operating cash flow to debt service of Holdings and certain of its  subsidiaries
of at least 1.25 to 1.0, and annualized  operating cash flow to fixed charges of
at  least  1.0 to  1.0  (which  adjusts  to  1.05  to 1.0  in  April,  2003  and
thereafter).  The senior notes impose a requirement  that the leverage  ratio of
GCI,  Inc.  and  certain  of its  subsidiaries  not  exceed  7.5 to 1.0 prior to
December 31, 1999 and 6.0 to 1.0 thereafter, subject to the ability of GCI, Inc.
and  certain  of its  subsidiaries  to incur  specified  permitted  indebtedness
without regard to such ratios.

On January 27, 1998 Alaska United closed a $75 million project finance  facility
("Fiber Facility") to construct a fiber optic cable system connecting Anchorage,
Fairbanks,  Valdez, Whittier, Juneau and Seattle. $75 million was borrowed under
the facility at June 30, 1999. The Fiber Facility is a 10-year term loan that is
interest only for the first 5 years.  The facility can be extended an additional
two years at any time  between the second and fifth  anniversary  of closing the
facility if the Company can demonstrate projected revenues from certain capacity
commitments  will  be  sufficient  to pay all  operating  costs,  interest,  and
principal  installments based on the extended maturity. The Fiber Facility bears
interest at either Libor plus 3.0%,  or at the  lender's  prime rate plus 1.75%.
The interest  rate will decline to Libor plus  2.5%-2.75%,  or, at the Company's
option,  the lender's prime rate plus  1.25%-1.5%  after the project  completion
date and when the loan balance is $60,000,000 or less.

The  Fiber  Facility  contains,   among  others,   covenants  requiring  certain
intercompany  loans and  advances in order to maintain  specific  levels of cash
flow necessary to pay operating costs, interest and principal installments.  All
of Alaska United's  assets,  as well as a pledge of the  partnership  interests'
owning Alaska


                                       31                            (Continued)
<PAGE>
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS
                                   (Unaudited)

United, collateralize the Fiber Facility. Construction of the fiber facility was
completed  and the  facility  was placed into  service on February 4, 1999.  The
project was completed on-budget.

The Company will use approximately one-half of the Alaska United system capacity
in  addition  to its  existing  owned  and  leased  facilities  to carry its own
traffic.  One of the Company's large commercial  customers signed  agreements in
February and March 1999 for the immediate  lease of three DS3 circuits on Alaska
United facilities within Alaska, and between Alaska and the lower 48 states. The
lease  agreements  provide  for three  year  terms,  with  renewal  options  for
additional  terms.  The  Company  continues  to  pursue  opportunities  to lease
additional capacity on its system.

The Company  completed a sale of capacity in the Alaska  United system to Alaska
Communications  Systems in a $19.5 million cash  transaction.  The sale includes
both capacity  within Alaska,  and between  Alaska and the lower 48 states.  The
Company  announced  in August  1999 that a second  $19.5  million  sale of fiber
capacity to Alaska Communications  Systems had been consummated and continues to
pursue opportunities for sale of additional capacity on its system.

The Company's expenditures for property and equipment, including construction in
progress,  totaled  $23.2  million  and  $94.9  million  during  1999 and  1998,
respectively.  The Company anticipates that its capital expenditures in 1999 may
total as much as $35 million.  Planned capital  expenditures  over the next five
years  include  those  necessary  for  continued   expansion  of  the  Company's
long-distance,  local  exchange and Internet  facilities,  the  development  and
construction of a PCS network,  and continued  upgrades to its cable  television
plant, and approximately  $43.5 million for satellite  transponders.  Sources of
funds for these planned capital  expenditures are expected to include internally
generated cash flows and borrowings under the Company's credit facilities.

The Company's ability to invest in discretionary capital and other projects will
depend  upon its future  cash flows and  access to  borrowings  under its credit
facilities.  Management  anticipates that cash flow generated by the Company and
borrowings  under its  credit  facilities  will be  sufficient  to fund  capital
expenditures  and  its  working  capital  requirements.  Should  cash  flows  be
insufficient  to  support  additional  borrowings,  such  investment  in capital
expenditures will likely be reduced.

The Company  entered  into a purchase  and  lease-purchase  option  agreement in
August 1995 for the acquisition of satellite  transponders to meet its long-term
satellite  capacity  requirements.  The launch of the  satellite  in August 1998
failed.  The  Company  did not  assume  launch  risk  and the  launch  has  been
rescheduled  for the second  quarter of 2000. The Company will continue to lease
transponder  capacity until the delivery of the  transponders on the replacement
satellite. The balance payable upon expected delivery of the transponders during
the second quarter of 2000, in addition to the $9.1 million  deposit  previously
paid, totals approximately $43.5 million.

The Company issued 20,000 shares of convertible  redeemable  accreting preferred
stock  ("Preferred  Stock") on April 30,  1999.  Proceeds  totaling  $20 million
(before payment of costs and expenses) were used for general corporate purposes,
to repay outstanding indebtedness, and to provide additional liquidity.

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



                                       32                            (Continued)
<PAGE>
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS
                                   (Unaudited)

The Company  believes  that it will be able to meet its  current  and  long-term
liquidity and capital  requirements,  including fixed charges,  through its cash
flows from operating  activities,  existing cash, cash  equivalents,  short-term
investments, credit facilities, and other external financing and equity sources.

                          NEW ACCOUNTING PRONOUNCEMENTS

SFAS No. 133. In June 1998, the Accounting  Standards Board issued SFAS No. 133,
"Accounting for Derivative  Instruments and Hedging  Activities,"  effective for
years beginning  after June 15, 1999.  SFAS No. 133  establishes  accounting and
reporting  standards  requiring  that  every  derivative  instrument,  including
certain derivative  instruments imbedded in other contracts,  be recorded in the
balance sheet as either an asset or liability  measured at its fair value.  SFAS
No. 133  requires  that  changes in the  derivative's  fair value be  recognized
currently in earnings unless specific hedge criteria are met. Special accounting
for  qualifying  hedges allow a  derivative's  gains or losses to offset related
results on the hedged item in the income  statement  and requires that a company
must formally  document,  designate and assess the effectiveness of transactions
that receive hedge  accounting.  Management of the Company expects that adoption
of SFAS No. 133 will not have a material  impact on the Company's  year-end 2000
financial statements.

                                 YEAR 2000 COSTS

Many financial  information and operational systems in use today may not be able
to interpret  dates after  December 31, 1999 because such systems allow only two
digits to indicate the year in a date.  As a result,  such systems are unable to
distinguish  January  1, 2000 from  January 1, 1900,  which  could have  adverse
consequences  on the  operations of an entity and the  integrity of  information
processing.  This could result in a system  failure or  miscalculations  causing
disruptions  of  operations,  including,  among other  things,  a shut down in a
company's  operations,  a  temporary  inability  to process  transactions,  send
invoices or engage in similar normal business activities. This potential problem
is referred to as the "Year 2000" or "Y2K" issue.

State of readiness.  The Company has undertaken various  initiatives to evaluate
the Year  2000  readiness  of the  products  and  services  sold by the  Company
("Products"),   the  information   technology  systems  used  in  the  Company's
operations ("IT Systems"),  its non-IT systems, such as power to its facilities,
HVAC systems,  building security,  voice mail and other systems,  as well as the
readiness of its customers and suppliers.  The Company has identified eight Year
2000 target areas that cover the entire scope of the Company's  business and has
internally  established  teams  committed  to  completing  an 8-step  Compliance
Validation  Process  ("CVP") for each target area with  respect to critical  and
service delivery  systems.  Each team is expected to fully complete this process
on or before  September 1, 1999. The table below identifies the Company's target
areas as well as the 8-step CVP with its  expected  timeline.  Team  activity is
currently focused towards the process of completing Phase 2.



                                       33                            (Continued)
<PAGE>
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
        ----------------------------------------------- ----------------------------------------------------------------
                    Year 2000 Target Areas                               Compliance Validation Process
        ----------------------------------------------- ----------------------------------------------------------------
        <S>                                             <C>                             <C>
        1.   Business Computer Systems                              PHASE 1
        2.   Technical Infrastructure                   1. Team Formation               Completed 1st quarter 1997
        3.   End-User Computing                         2. Inventory Assessment         Completed 4th quarter 1998
        4.   Switching and Head-end Equipment           3. Compliance Assessment        Completed 4th quarter 1998
        5.   Logistics                                  4. Risk Assessment              Completed 4th quarter 1998
        6.   Facilities                                 ------------------------------- --------------------------------
        7.   Customers                                              PHASE 2
        8.   Suppliers/Key Service Providers            5. Resolution/Remediation       Completed 2nd quarter 1999
                                                        6. Validation                   Expected completion 3rd
                                                                                        quarter 1999
                                                        7. Contingency Plan             Expected completion 3rd
                                                                                        quarter 1999
                                                        8. Sign-Off Acceptance          Expected completion 4th
                                                                                        quarter 1999
        ----------------------------------------------- ------------------------------- --------------------------------
</TABLE>
In 1997,  the  Company  established  a  corporate-wide  Year 2000 task  force to
address  Y2K issues.  This effort is  comprehensive  and  encompasses  software,
hardware,  electronic data interchange,  networks,  PC's,  facilities,  embedded
chips,  century  certification,  supplier  and customer  readiness,  contingency
planning,  and domestic and  international  operations.  The Company has tested,
replaced or upgraded all of its critical business  applications and systems. The
Company has  prioritized its third-party  relationships  as critical,  severe or
sustainable, has completed the assessment phase for third parties, has requested
a Y2K contract warranty in many new key contracts and is developing  contingency
plans for critical third parties,  including key customers,  suppliers and other
service providers. An assessment of its key customers showed that no significant
impact to the Company is  expected  due to customer  Y2K  problems.  The Company
continues  to evaluate  other  telecommunication  companies  which  purchase the
Company's services.

With respect to the  Company's  relationships  with third  parties,  the Company
relies both domestically and internationally upon various vendors,  governmental
agencies,  utility companies,  telecommunications  service  companies,  delivery
service companies and other service providers.  Although these service providers
are outside the Company's control,  the Company has mailed letters to those with
whom it believes its  relationships  are material and has verbally  communicated
with some of its strategic customers to determine the extent to which interfaces
with such entities are  vulnerable to Year 2000 issues and whether  products and
services purchased from or by such entities are Year 2000 ready.

Over 400 companies have been contacted  directly by mail, by telephone,  through
on-site  visits or through  inquiry of their Y2K Internet web sites to determine
their state of readiness.  Responses vary from  confirmation  that the supply of
products or services provided to the Company will continue without  interruption
or delay  through  the year 2000,  to  providing  their  plans for making  their
products or service  delivery  systems Y2K  compliant.  The Company is currently
evaluating the  sufficiency of the responses  received from these third parties.
The Company intends to complete follow-up activities,  including but not limited
to site  surveys,  phone  surveys and  mailings,  with  significant  vendors and
service providers as part of the Phase 2 validation.

Costs to address year 2000 issues.  Costs  related to the Y2K issue are expensed
as incurred and are funded  through the Company's  operating  cash flows and its
credit agreements.  Through June 30, 1999, the Company has expensed  incremental
remediation costs totaling $1.9 million, with remaining incremental


                                       34                            (Continued)
<PAGE>
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS
                                   (Unaudited)

remediation  costs  estimated at  approximately  $2.1 million.  Management  must
balance the requirements for funding  discretionary  capital  expenditures  with
required  year 2000  efforts  given its limited  resources.  The Company has not
deferred any critical  information  technology projects because of its Year 2000
program efforts,  which are being addressed  primarily  through a dedicated team
within the Company's information technology group.

Time and cost estimates are based on currently  available  information and could
be affected by the ability to correct all relevant computer codes and equipment,
and the Y2K readiness of the Company's business  partners,  among other factors.
At this time, the Company does not possess information necessary to estimate the
potential  financial  impact  of Year 2000  compliance  issues  relating  to its
vendors, customers and other third parties.

Risk of year 2000 issues.  If necessary  modifications  and  conversions  by the
Company  are not made on a timely  basis,  or if key third  parties  are not Y2K
ready,  Y2K  problems  could have a  material  adverse  effect on the  Company's
financial condition,  results of operations and liquidity.  However, the Company
is focusing on identifying and addressing all aspects of its operations that may
be  affected  by the  Year  2000  issue  and is  addressing  the  most  critical
applications first.

Although the Company  considers  them  unlikely,  the Company  believes that the
following several situations, not in any particular order, make up the Company's
worst case Year 2000 scenarios:

     -  Disruption of Electrical Power Supplies Resulting from Extended Regional
        Power Failure(s).  The Company's major switching and information systems
        are protected by emergency standby electrical generators in the event of
        short-term power outages.  If electrical supplies from regional electric
        utilities are disrupted for longer  periods of time,  the Company may be
        required to power-down its electronic  switching,  head-end and computer
        equipment.  The Company is closely monitoring  electrical utilities that
        provide service to the Company for their Year 2000  readiness.  Based on
        their  progress  reports  and  completion  of  assessments,  the Company
        believes that there will be no  significant  impact on its operations in
        the major  communities  served by the  Company.  Many of the  electrical
        companies  serving smaller rural  communities  employ  equipment that is
        manual or controlled by non date-effecting  equipment,  however they may
        experience outages if they do not receive fuel from their suppliers.
     -  Disruption of a Significant Customer's Ability to Accept Products or Pay
        Invoices.  The Company's significant customers are large,  well-informed
        customers,  mostly in the telecommunications and oil and gas industries,
        who are disclosing  information to their vendors that indicates they are
        well along the path toward Year 2000  compliance.  These  customers have
        demonstrated   their  awareness  of  the  Year  2000  issue  by  issuing
        requirements   of  their   suppliers  and   indicating   the  stages  of
        identification   and  remediation   which  they  consider  adequate  for
        progressive  calendar  quarters  leading  up to the  century  mark.  The
        Company's  significant  customers,  moreover,  are substantial companies
        that the Company  believes  would be able to make  adjustments  in their
        processes as required to cause timely payment of invoices.
     -  Disruption of Supplies and Materials. In early 1998 the Company began an
        ongoing  process of surveying its vendors with regard to their Year 2000
        readiness  and is now in the process of assessing and  cataloging  their
        responses to the survey.  The Company  expects to work with vendors that
        show a need for assistance or that provide inadequate responses,  and in
        many cases expects that survey results will be refined  significantly by
        such work. Where ultimate survey results show that the need arises,  the
        Company will arrange for back-up  vendors  before the  changeover  date.
        Supplies and materials  necessary for invoicing and other functions will
        be acquired  in bulk prior to  December  31, 1999 to provide an adequate
        inventory  to  bridge  up  to  three  months  of  vendor   supply  chain
        disruptions.



                                       35                            (Continued)
<PAGE>
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS
                                   (Unaudited)

     -  Disruption of the Company's  Administrative and Billing IT Systems.  The
        Company  has  completed  an upgrade of its  current  financial  software
        systems to  state-of-the-art  systems and such process has required Year
        2000  compliance in the various  invitations  for  proposals.  Year 2000
        testing is  occurring as upgrades  proceed.  The  Company's  billing and
        information  systems  continue to be  assessed  and  remediated.  System
        processes have been prioritized so that critical  date-sensitive systems
        and  functionality  are  remediated  first.   Non-critical  systems  and
        functionality are remediated  following critical systems.  The Company's
        efforts are proceeding on-target and on-budget. Accordingly, the Company
        believes that, after  assessment and remediation,  if any disruptions do
        occur,  such will be dealt with promptly and will be no more severe with
        respect to correction  or impact than would be an unexpected  billing or
        information system error.
     -  Disruption of the Company's  Non-IT  Systems.  The Company  continues to
        conduct a  comprehensive  assessment  of all non-IT  systems,  including
        among other things its  switching and head-end  systems and  operations,
        with respect to both embedded  processors and obvious computer  control.
        Considering  the  nature of the  equipment  and  systems  involved,  the
        Company expects that the timing of assessment to be such that it will be
        able to complete any remediation efforts on a reasonably short schedule,
        and in any case  before  arrival  of the Year  2000.  The  Company  also
        believes that, after such assessment and remediation, if any disruptions
        do occur,  such will be dealt with  promptly  and will be no more severe
        with  respect  to  correction  or  impact  than  would be an  unexpected
        breakdown of well-maintained equipment.
     -  De-Listing of Company as a Vendor to Certain  Customers.  Several of the
        Company's  principal customers have required updated reports in the form
        of answers to extensive  multiple-choice  surveys on the Company's  Year
        2000 compliance efforts. According to these customers,  failure to reply
        to the  readiness  survey  would  have led to  de-listing  as a  service
        supplier at the present time, resulting in possible  disqualification to
        bid on  procurements  requiring  service  delivery  in the  future.  The
        Company has responded to these  reports on a timely  basis.  The Company
        has  not  been  disqualified  as a  supplier  to any  customers  Several
        significant customers have scheduled monitoring meetings during 1999.

Contingency  plans.  The  Company  is in  the  process  of  developing  specific
contingency plans for potential Year 2000 disruptions. The aforementioned 8-step
Compliance  Validation  Process includes  contingency  planning by each team and
such plans, as developed, will be carefully reviewed by the Company. The Company
is developing  contingency  plans for its most  critical  areas and is targeting
3Q99 for completion of all contingency  plans.  Future  disclosures will include
contingency plans as they become available.

                                 ALASKA ECONOMY

The Company offers  telecommunication  and video services to customers primarily
throughout Alaska. As a result of this geographic  concentration,  the Company's
growth and operations depend upon economic  conditions in Alaska. The economy of
Alaska is dependent upon the natural resource industries,  and in particular oil
production,  as  well as  tourism,  fisheries,  government,  and  United  States
military  spending.  Any  deterioration  in these  markets could have an adverse
impact on the Company. Oil revenues over the past several years have contributed
in excess of 75% of the revenues from all segments of the Alaska economy and are
expected to account for 73% in 1999.

The volume of oil  transported by the  TransAlaska  Oil Pipeline System over the
past 20 years has been as high as 2.0 million  barrels per day in 1988. Over the
past several years,  it has begun to decline.  Market prices for North Slope oil
declined to below $9 per barrel in 1998, well below the average price per barrel
used by the State of Alaska to budget its oil related revenues.



                                       36                            (Continued)
<PAGE>
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS
                                   (Unaudited)

Oil companies and service  providers  have  announced  cost cutting  measures to
offset a portion of the  declining  revenues.  Oil company and related oil field
service  company  layoffs  reportedly will result in a reduction of oil industry
jobs by at least 39 percent in 1999.  Oil prices have  recovered to over $20 per
barrel in August,  however state revenue forecasts continue to reflect decreased
oil related revenues due primarily to declining  production.  The effects of low
oil prices  will  impact  the state of  Alaska's  economy,  and is  expected  to
particularly hurt state and local government and oil service companies.  As much
as half of the  drilling  fleet  that  worked on the slope in 1998 could be idle
during 1999. Oil field service and drilling  contractors  cut operating costs to
adjust for decreasing production and exploration.

Since oil  revenues to the state of Alaska are  expected  to fall  significantly
short of budgeted  revenues,  the  Governor of the state of Alaska and the state
legislature have implemented  cost-cutting and revenue enhancing  measures.  The
State of Alaska  maintains  surplus accounts that are intended to fund budgetary
shortfalls  and may fund a portion of the  revenue  shortfall  if  approved by a
majority of the citizens of the state.

BP Amoco  announced  in April  1999 its  intention  to  purchase  ARCO for $26.8
billion.  BP Amoco and ARCO together reportedly hold approximately 75 percent of
the  ownership  of the Alaska  North  Slope oil fields and in the  company  that
operates the Trans-Alaska  Pipeline  System.  Concerns have been expressed about
the impact of this specific transaction and oil company consolidation in general
on the oil and gas  industry  in Alaska,  and in turn on the  economy of Alaska.
Concerns  include reduced  competition in an industry that is the largest source
of  revenues  to the state of Alaska,  and foreign  ownership  of a  significant
amount of United  States oil  production  facilities  and  reserves.  Alaska law
stipulates  that no single company can hold drilling leases to more than 500,000
onshore  state-owned  acres. The BP Amoco-ARCO  combination  would control about
860,000  acres,  however the companies  have  reportedly  said they will give up
360,000 acres to comply with Alaska laws.  Realignment  of operations  following
the acquisition reportedly will result in the layoff of 400 positions in Alaska.

No assurance  can be given that oil companies  doing  business in Alaska will be
successful in discovering new fields or further developing existing fields which
are  economic to develop  and  produce oil with access to the  pipeline or other
means of  transport to market,  even with the reduced  level of  royalties.  The
Company is not able to  predict  the  effect of  declines  in the price of North
Slope oil or the  acquisition of ARCO by BP Amoco on Alaska's  economy or on the
Company.

                                   SEASONALITY

Long-distance  revenues have historically been highest in the summer months as a
result of temporary population  increases  attributable to tourism and increased
seasonal economic activity such as construction, commercial fishing, and oil and
gas activities.  Cable television revenues, on the other hand, are higher in the
winter months because  consumers tend to watch more  television,  and spend more
time at home, during these months.  The Company's local access services revenues
are not expected to exhibit  significant  seasonality.  The  Company's  Internet
access services are expected to reflect  seasonality trends similar to the cable
television segment. The Company's ability to implement  construction projects is
reduced  during the winter months because of cold  temperatures,  snow and short
daylight hours.

                                    INFLATION

The Company  does not believe that  inflation  has a  significant  effect on its
operations.



                                       37
<PAGE>
PART I.
ITEM 3.  QUANTITATIVE AND QUALITIATIVE DISCLOSURES ABOUT MARKET RISK

The Company's Senior Holdings Loan carries interest rate risk.  Amounts borrowed
under this Agreement bear interest at either Libor plus 1.0% to 2.5%,  depending
on the  leverage  ratio of Holdings and certain of its  subsidiaries,  or at the
greater of the prime rate or the federal funds  effective rate (as defined) plus
0.05%, in each case plus an additional 0.0% to 1.375%, depending on the leverage
ratio of Holdings and certain of its  subsidiaries.  Should the Libor rate,  the
lenders' base rate or the leverage ratios change, the Company's interest expense
will  increase or decrease  accordingly.  As of June 30,  1999,  the Company had
borrowed  $87.7  million  subject to interest  rate risk.  On this amount,  a 1%
increase  in the  interest  rate would cost the Company  $877,000 in  additional
gross interest cost on an annualized basis.

The Company's Fiber Facility carries interest rate risk.  Amounts borrowed under
this  Agreement  bear  interest at either Libor plus 3.0%,  or at the  Company's
choice,  the lender's  prime rate plus 1.75%.  The interest rate will decline to
Libor plus 2.5%-2.75%,  or at the Company's choice, the lender's prime rate plus
1.25%-1.5%  after  the  project  completion  date and when the loan  balance  is
$60,000,000  or less.  Should  the Libor  rate,  the  lenders'  base rate or the
leverage ratios change, the Company's interest expense will increase or decrease
accordingly.  As of June 30, 1999, the Company had borrowed $75 million  subject
to interest rate risk. On this amount,  a 1% increase in the interest rate would
cost the Company  $750,000 in  additional  gross  interest cost on an annualized
basis.

PART II.   OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

Information  regarding pending legal proceedings to which the Company is a party
is  included  in Note 8 of Notes to  Interim  Condensed  Consolidated  Financial
Statements and is incorporated herein by reference.

ITEM 6.         EXHIBITS AND REPORTS ON FORM 8-K

                (a)  Exhibits:

                     Exhibit 10.80 -  Fourth Amendment to Contract for Alaska
                                      Access Services between General
                                      Communication, Inc. and its wholly owned
                                      subsidiary GCI Communication Corp., and
                                      MCI WorldCom. *
                     Exhibit 10.81 -  Fifth Amendment to Contract for Alaska
                                      Access Services between General
                                      Communication, Inc. and its wholly owned
                                      subsidiary GCI Communication Corp., and
                                      Sprint Communications Company L.P. *
                     Exhibit 27 -     Financial Data Schedule  *

                (b) Reports on Form 8-K filed during the quarter  ended June 30,
                    1999 - None


           ---------------------
           * Filed herewith.
           Note - Certain  information has been redacted from Exhibits 10.80 and
           10.81 which the Company desires to keep undisclosed and a copy of the
           unredacted documents will be filed separately with the Securities and
           Exchange Commission.



                                       38
<PAGE>
<TABLE>
                                   SIGNATURES


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



                                                   GCI, INC.

<CAPTION>
              Signature                                         Title                                Date
--------------------------------------      --------------------------------------------      ------------------
<S>                                         <C>                                                <C>

/s/                                         President and Director                             August 14, 1999
--------------------------------------      (Principal Executive Officer)                     ------------------
Ronald A. Duncan

/s/                                         Vice President and Director                        August 14, 1999
--------------------------------------                                                        ------------------
G. Wilson Hughes

/s/                                         Secretary, Treasurer and Director                  August 14, 1999
--------------------------------------      (Principal Financial and Accounting Officer)      ------------------
John M. Lowber
</TABLE>


                                       39