As filed with the Securities and Exchange Commission on May 17, 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 March 31,1999
                                       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 MARCH 31, 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 March 31, 1999
                        (unaudited) and December 31, 1998.................................................5

                     Consolidated Statements of Operations for the
                        three months ended March 31, 1999
                        (unaudited) and 1998 (unaudited)..................................................7

                     Consolidated Statements of Stockholders' Equity
                        for the three months ended March 31, 1999
                        (unaudited) and 1998 (unaudited)..................................................8

                     Consolidated Statements of Cash Flows for the three
                        months ended March 31, 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..................................................19

         Item 3.     Quantitative and Qualitative Disclosures About
                     Market Risk..........................................................................36


PART II.  OTHER INFORMATION

         Item 1.     Legal Proceedings....................................................................36

         Item 6.     Exhibits and Reports on Form 8-K.....................................................37

         Other items are omitted as they are not applicable.

SIGNATURES................................................................................................38
</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, 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;
    -    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, 


                                       3
<PAGE>
         regulations  of  the  FCC,  the  Alaska  Public  Utilities   Commission
         ("APUC"), 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)
                                                                             March 31,       December 31,
                            ASSETS                                             1999              1998
---------------------------------------------------------------------    ----------------- -----------------
                                                                                 (Amounts in thousands)
<S>                                                                    <C>                        <C> 
Current assets:
     Cash and cash equivalents                                         $          6,169            12,008
                                                                         ----------------- -----------------
     Receivables:
         Trade                                                                   39,019            38,890
         Income taxes                                                             2,262             4,262
         Other                                                                      379               412
                                                                         ----------------- -----------------
                                                                                 41,660            43,564
     Less allowance for doubtful receivables                                      1,384               887
                                                                         ----------------- -----------------
         Net receivables                                                         40,276            42,677

     Prepaid and other current assets                                             2,547             2,212
     Deferred income taxes, net                                                   1,978             1,947
     Inventories                                                                  1,611             1,878
     Notes receivable                                                               628               650
                                                                         ----------------- -----------------

         Total current assets                                                    53,209            61,372
                                                                         ----------------- -----------------

Property and equipment in service, net                                          316,071           199,827
Construction in progress                                                          4,654           119,395
                                                                         ----------------- -----------------
         Net property and equipment                                             320,725           319,222
                                                                         ----------------- -----------------

Other assets:
     Cable franchise agreements, net of amortization                            194,017           195,308
     Other intangible assets, net of amortization                                45,065            45,391
     Deferred loan and senior notes costs, net of amortization                    9,577             9,877
     Transponder deposit (note 5)                                                 9,100             9,100
     Notes receivable                                                             1,522             1,432
     Other assets, at cost, net of amortization                                   4,345             4,982
                                                                         ----------------- -----------------
         Total other assets                                                     263,626           266,090
                                                                         ----------------- -----------------

         Total assets                                                  $        637,560           646,684
                                                                         ================= =================

See accompanying notes to interim condensed consolidated financial statements.
</TABLE>


                                       5                             (Continued)
<PAGE>
<TABLE>
                                               GCI, INC. AND SUBSIDIARIES
                                               CONSOLIDATED BALANCE SHEETS
                                                       (Continued)


                                                                                 (Unaudited)
                                                                                  March 31,     December 31,
             LIABILITIES AND STOCKHOLDERS' EQUITY                                   1999            1998
---------------------------------------------------------------------------    --------------- --------------
                                                                                    (Amounts in thousands)
   <S>                                                                       <C>                 <C> 
   Current liabilities:
      Current maturities of long-term debt (note 3)                          $        1,836        1,799
      Current maturities of obligations under capital leases                            527          511
      Accounts payable                                                               26,736       27,550
      Accrued interest                                                                3,694        8,072
      Accrued payroll and payroll related obligations                                 7,013        6,555
      Accrued liabilities                                                             3,662        3,197
      Subscriber deposits and deferred revenues                                       5,983        5,300
                                                                               --------------- --------------
         Total current liabilities                                                   49,451       52,984

   Long-term debt, excluding current maturities (note 3)                            354,338      349,858
   Obligations under capital leases, including related party obligations,
      excluding current maturities                                                    1,536        1,675
   Deferred income taxes, net of deferred income tax benefit                         33,246       38,275
   Other liabilities                                                                  3,229        3,317
                                                                               --------------- --------------
         Total liabilities                                                          441,800      446,109
                                                                               --------------- --------------

   Stockholders' equity (note 6):
      Class A common  stock (no  par).  Authorized  10,000  shares;  issued  
         and outstanding 100 shares at March 31, 1999 and December 31, 1998
                                                                                    206,622      206,622
      Paid-in capital                                                                 2,983        2,933
      Retained deficit                                                             (13,845)      (8,980)
                                                                               --------------- --------------
         Total stockholders' equity                                                 195,760      200,575
                                                                               --------------- --------------
   Commitments and contingencies (notes 5 and 6)
         Total liabilities and stockholders' equity                          $      637,560      646,684
                                                                               =============== ==============

See accompanying notes to interim condensed consolidated financial statements.
</TABLE>

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

<CAPTION>
                                                                                            (Unaudited)
                                                                                        Three Months Ended
                                                                                             March 31,
                                                                                        1999           1998
                                                                                   -------------- --------------
                                                                                   (Amounts in thousands except
                                                                                        per share amounts)
    <S>                                                                          <C>                   <C> 
    Revenues (note 4)                                                            $       61,338          58,152

    Cost of sales and services                                                           27,870          27,315
    Selling, general and administrative                                                  23,538          20,334
    Depreciation and amortization                                                        10,298           8,066
                                                                                   -------------- --------------

            Operating income (loss)                                                       (368)           2,437

    Interest expense, net                                                                 6,960           4,944
                                                                                   -------------- --------------

            Net loss before income taxes and cumulative effect of a change
              in accounting principle                                                   (7,328)         (2,507)

    Income tax benefit                                                                    2,807             891
                                                                                   -------------- --------------

            Net loss before cumulative effect of a change in accounting
              principle                                                                 (4,521)         (1,616)

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

            Net loss                                                             $      (4,865)         (1,616)
                                                                                   ============== ==============

    Basic loss per common share:
       Loss before cumulative effect of a change in accounting principle
                                                                                 $     (45,210)        (16,160)
       Cumulative effect of a change in accounting principle                              3,440             ---
                                                                                   -------------- --------------
            Net loss                                                             $     (48,650)        (16,160)
                                                                                   ============== ==============

    Diluted loss per common share:
       Loss before cumulative effect of a change in accounting principle
                                                                                 $     (45,210)        (16,160)
       Cumulative effect of a change in accounting principle                              3,440             ---
                                                                                   -------------- --------------
            Net loss                                                             $     (48,650)        (16,160)
                                                                                   ============== ==============

See  accompanying   notes  to  interim  condensed   consolidated   financial statements.
</TABLE>


                                       7
<PAGE>
<TABLE>
                                                     GCI, INC. AND SUBSIDIARIES
                                          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                             THREE MONTHS ENDED MARCH 31, 1999 AND 1998


<CAPTION>
                                                            
(Unaudited)                                                 Shares of
(Amounts in thousands)                                    Class A Common   Class A Common       Paid-in        Retained
                                                              Stock            Stock            Capital        Deficit
                                                         -----------------------------------------------------------------
<S>                                                            <C>           <C>                <C>           <C>  
Balances at December 31, 1997                                  100           $ 206,622            ---          (2,183)
Net loss                                                       ---                 ---            ---          (1,616)
Contribution from GCI                                          ---                 ---            245             ---
                                                         -----------------------------------------------------------------
Balances at March 31, 1998                                     100           $ 206,622            245          (3,799)
                                                         =================================================================

Balances at December 31, 1998                                  100           $ 206,622          2,933          (8,980)
Net loss                                                       ---                 ---            ---          (4,865)
Contribution from GCI                                          ---                 ---             50             ---
                                                         -----------------------------------------------------------------
Balances at March 31, 1999                                     100           $ 206,622          2,983         (13,845)
                                                         =================================================================

See accompanying notes to interim condensed consolidated financial statements.
</TABLE>



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

                                                                                              (Unaudited)
                                                                                            Three Months Ended
                                                                                                March 31,
                                                                                           1999          1998
                                                                                      ------------- -------------
                                                                                        (Amounts in thousands)
        <S>                                                                       <C>                  <C> 
        Cash flows from operating activities:
          Net loss                                                                $       (4,865)       (1,616)
            Adjustments to reconcile net loss to net cash provided (used) by
              operating activities:
                Depreciation and amortization                                              10,298         8,066
                Amortization charged to selling, general and administrative                   430           115
                Deferred income tax (benefit) expense                                     (3,052)         1,969
                Deferred compensation and compensatory stock options                          172            78
                Bad debt expense, net of write-offs                                           497           115
                Write-off of unamortized start-up costs                                       589           ---
                Other noncash income and expense items                                         74          (26)
                Change in operating assets and liabilities (note 2)                       (3,956)      (14,342)
                                                                                    -------------- --------------
                  Net cash provided (used) by operating activities                            187       (5,641)
                                                                                    -------------- --------------

        Cash flows from investing activities:
          Purchases of property and equipment, including construction period
            interest                                                                      (9,882)      (28,167)
          Restricted cash investment                                                          ---        13,152
          Purchases of other assets                                                         (391)       (1,275)
          Notes receivable issued                                                           (193)          (30)
          Payments received on notes receivable                                                15            95
                                                                                    -------------- --------------
                  Net cash used in investing activities                                  (10,451)      (16,225)
                                                                                    -------------- --------------

        Cash flows from financing activities:
          Long-term borrowings - bank debt and leases                                       4,884        24,027
          Repayments of long-term borrowings and capital lease obligations                  (490)         (443)
          Payment of debt issuance costs                                                      (7)       (1,078)
          Cash contribution from GCI                                                           38           245
                                                                                    -------------- --------------
                  Net cash provided by financing activities                                 4,425        22,751
                                                                                    -------------- --------------

                  Net increase (decrease) in cash and cash equivalents                    (5,839)           885

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

                  Cash and cash equivalents at end of period                      $         6,169         3,933
                                                                                    ============== ==============

        See  accompanying  notes to  interim  condensed  consolidated  financial statements.
</TABLE>


                                       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  December 31, 1998 annual
           report on Form 10-K.  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
                 GCI,   Inc.   and  its   direct   and   indirect   subsidiaries
                 (collectively,  the "Company")  offer  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,   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 Loss Per Common Share
<TABLE>
                 Shares used to calculate  net loss per common share  consist of
                 the following (amounts in thousands):
<CAPTION>
                                                                              Three Months Ended
                                                                                   March 31,
                                                                                1999       1998
                                                                            ----------- ---------
                     <S>                                                         <C>        <C> 
                     Weighted average common shares outstanding                  100        100
                     Common equivalent shares outstanding                        ---        ---
                                                                            ----------- ---------
                                                                                 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 first quarter 1998 net
                 loss  and  net  loss  per  common  share  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  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  three-month  period  ended  March  31,  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.


                                       11                            (Continued)
<PAGE>
                           GCI, INC. AND SUBSIDIARIES

          NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)


(2)        Consolidated  Statements  of  Cash  Flows  Supplemental   Disclosures
<TABLE>
           Changes in operating assets and liabilities consist of:
<CAPTION>
                Three-month periods ended March 31,                                        1999         1998
                                                                                       ------------- ------------
                                                                                         (Amounts in thousands)
                 <S>                                                                 <C>                <C>  
                 Increase in receivables                                             $         (96)      (3,910)
                 Decrease in income tax receivable                                              ---      (2,861)
                 Increase in prepaid and other current assets                                 (335)        (373)
                 (Increase) decrease in inventory                                               267        (411)
                 Decrease in accounts payable                                                 (814)      (3,443)
                 Increase (decrease) in accrued liabilities                                     465        (582)
                 Increase in accrued payroll and payroll related obligations                    458          997
                 Decrease in accrued interest                                               (4,378)      (4,109)
                 Increase in deferred revenues                                                  683          327
                 Increase (decrease) in other liabilities                                     (206)           23
                                                                                       ------------- ------------
                                                                                     $      (3,956)     (14,342)
                                                                                       ============= ============
</TABLE>
           No income  taxes were paid and no income tax  refunds  were  received
           during the three-month periods ended March 31, 1999 and 1998.

           Interest  paid  totaled   $12,890,000  and  $10,767,000   during  the
           three-month periods ended March 31, 1999 and 1998, respectively.

 (3)       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
           as further  described in note 5. Borrowings  under the Fiber Facility
           totaled  $66,108,000  at March 31,  1999.  In April 1999,  borrowings
           under the Fiber  Facility  totaled  $75,000,000,  the maximum  amount
           available under the Fiber Facility agreement.

 (4)       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  and
               areas in Alaska, including the state's three largest urban areas,
               Anchorage,  Fairbanks and Juneau.  Anchorage cable plant upgrades
               in 1998  enabled the Company to offer  digital  cable  


                                       12                            (Continued)
<PAGE>
                           GCI, INC. AND SUBSIDIARIES

          NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)


               television  services and retail cable modem service  (through its
               Internet  services  segment)  in  Anchorage,   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 Alaska  Public
               Utilities Commission.

               Internet  services.  The Company  began  offering  wholesale  and
               retail Internet services in 1998.  Deployment of the new undersea
               fiber  optic  cable  (see note 5)  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 are 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  annual  report on Form 10-K at
           December  31, 1998.  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  quarters  ended  March 31,  1999 and 1998
           (amounts in thousands):
<CAPTION>
                                                       Long-                    Local
                                                      Distance     Cable        Access     Internet
                                                      Services    Services     Services    Services      Other      Total
                                                   ------------------------------------------------------------------------
                              1999
                              ----
              <S>                                      <C>         <C>            <C>        <C>          <C>       <C>
              Revenues:
                Intersegment                           $ 1,902        613           660        ---          ---      3,175
                External                                37,542     15,062         3,714      1,969        3,051     61,338
                                                   ------------------------------------------------------------------------
                   Total revenues                      $39,444     15,675         4,374      1,969        3,051     64,513
                                                   ========================================================================
</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                $12,859      8,673         (230)    (1,782)      (9,339)     10,181
                                                   ========================================================================

              Operating income (loss)                  $ 9,288      4,282       (1,040)    (2,034)     (10,613)      (117)
                                                   ========================================================================

                              1998
                              ----
              Revenues:
                Intersegment                           $   ---        317           ---        ---          ---        317
                External                                38,651     14,201         1,013        903        3,384     58,152
                                                   ------------------------------------------------------------------------
                   Total revenues                      $38,651     14,518         1,013        903        3,384     58,469
                                                   ========================================================================

              Earnings (loss) from operations
                before depreciation,
                amortization, net interest
                expense and income taxes               $14,290      7,136       (1,361)        377      (9,936)     10,506
                                                   ========================================================================

              Operating income (loss)                  $12,117      3,512       (2,428)        242     (11,003)      2,440
                                                   ========================================================================
</TABLE>
<TABLE>
           A reconciliation  of total segment revenues to consolidated  revenues
           follows:
<CAPTION>
                 Quarters ended March 31,                                           1999          1998
                                                                               ------------- --------------
                 <S>                                                          <C>                    <C>
                 Total segment revenues                                       $       64,513         58,469          
                 Less intersegment revenues eliminated in consolidation              (3,175)          (317)
                                                                               ------------- --------------
                      Consolidated revenues                                   $       61,338         58,152
                                                                               ============= ==============
</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  change in  accounting
           principle follows:
<CAPTION>
                 Quarters ended March 31,                                         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      $       10,181         10,506 
                 Less intersegment contribution eliminated in consolidation            (251)            (3)
                                                                              -------------- --------------
                      Consolidated earnings from operations before 
                        depreciation, amortization, net interest expense, 
                        income taxes and cumulative effect of a change in
                        accounting principle                                           9,930         10,503
                 Depreciation and amortization                                        10,298          8,066
                                                                              -------------- --------------
                      Consolidated operating income (loss)                             (368)          2,437
                 Interest expense, net                                               (6,960)        (4,944)
                                                                              -------------- --------------
                      Consolidated net loss before income taxes and
                        cumulative effect of a change in accounting
                        principle                                             $      (7,328)        (2,507) 
                                                                              ============== ==============
</TABLE>
<TABLE>
           A  reconciliation   of  total  segment  operating  income  (loss)  to
           consolidated net loss before income taxes and cumulative  effect of a
           change in accounting principle follows:
<CAPTION>
                 Quarters ended March 31,                                         1999            1998
                                                                               ------------- --------------
                 <S>                                                          <C>                   <C> 
                 Total segment operating income (loss)                        $        (117)          2,440  
                 Less intersegment contribution eliminated in consolidation            (251)            (3)
                                                                               ------------- --------------
                      Consolidated operating income (loss)                             (368)          2,437
                 Interest expense, net                                               (6,960)        (4,944)
                                                                               ------------- --------------
                      Consolidated net loss before income taxes and
                        cumulative effect of a change in accounting
                        principle                                             $      (7,328)        (2,507)  
                                                                               ============= ==============
</TABLE>
  (5)      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 creditors 


                                       15                            (Continued)
<PAGE>
                           GCI, INC. AND SUBSIDIARIES

          NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)


           of the Company with respect to deferred  compensation  plan benefits.
           Compensation  deferred  pursuant to the plan totaled  $118,000 and $0
           during  the  three-month  periods  ended  March  31,  1999 and  1998,
           respectively.

           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
           first 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 first  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 $555,000 was
           recorded  at March  31,  1999 to  cover  estimated  reported  losses,
           estimated  unreported  losses based on past  experience  modified for
           current trends, and estimated expenses for investigating and settling
           claims.  Actual  losses will vary from the  recorded  reserve.  While
           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 Federal
           Communications Commission ("FCC").

           Federal law still permits regulation of basic service rates. However,
           Alaska state law  provides  that cable  television  service is exempt
           from regulation by the Alaska Public  Utilities  Commission  ("APUC")
           unless 25% of a  system's  subscribers  request  such  regulation  by
           filing a petition with the APUC.  At March 31, 1999,  only the Juneau
           system is subject to APUC  regulation of its basic service rates.  No
           petition  requesting  regulation has been filed for any other system.
           (The Juneau system  serves 8.3% of the Company's  total basic service
           subscribers  at March 31,  1999.)  Juneau's  current  rates have been
           approved by the APUC and there are no other pending  filings with the
           APUC,  therefore,  there is no refund  liability for basic service at
           this time.

           Undersea Fiber Optic Cable Contract Commitment
           The Company  signed a contract in July 1997 for  construction  of the
           undersea portion of a fiber optic cable system  connecting the cities
           of  Anchorage,  Juneau,  and  Seattle via a subsea  route.  The total
           system is expected to cost  approximately  $125  million.  Subsea and
           terrestrial  connections  extended the fiber optic cable to Fairbanks
           via Whittier and Valdez. Construction efforts began in 


                                       16                            (Continued)
<PAGE>
                           GCI, INC. AND SUBSIDIARIES

          NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)


           September 1998 and were completed in early February 1999.  Commercial
           services  commenced in February 1999.  Pursuant to the contract,  the
           Company has paid $86.3 million through December 31, 1998 and $424,000
           during the three-month  period ended March 31, 1999, and will pay the
           remaining balance in installments in April 1999.  Approximately $39.4
           million of proceeds from the 1997 public offerings (see the Company's
           December  31,  1998  annual  report  on Form  10-K),  net of the $9.1
           million paid in 1997, were  contributed to Alaska United.  In January
           1998,  the Company  secured $75 million in bank financing to fund the
           remaining cost of construction and deployment, of which $66.1 million
           was outstanding at March 31, 1999 (see note 3).

           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 December 31, 1998. 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 plan  anticipates  that by mid-1999 the  conversion,
           implementation  and  testing  phases will be  completed.  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.


                                       17                            (Continued)
<PAGE>
                           GCI, INC. AND SUBSIDIARIES

          NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)


  (6)      Subsequent Event
           GCI  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) will be
           used for general corporate  purposes,  to repay outstanding GCI, Inc.
           indebtedness,  , and to provide additional  liquidity.  The Company's
           amended Senior Holdings Loan facilities limit use of such proceeds.


                                       18                            
<PAGE>
PART I.
ITEM 2.

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

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 both
strategic  acquisitions and growth in 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 and Sprint)  accounted for
approximately  92.7% of the  Company's  total  long-distance  services  revenues
during  the first  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.  These factors in turn depend in part upon  economic  conditions in Alaska.
The economy of Alaska is  dependent  upon the natural  resource  industries,  in
particular  oil  production,  as well as tourism,  government  and United States
military spending.

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,  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),  and the  cost of  equipment  sold to the
Company's  customers.  During the first  quarter of 1999,  local access  charges
accounted for 44.4% of  long-distance  cost of sales and services,  fees paid to
other long-distance  carriers represented 31.1%, satellite transponder lease and
undersea fiber maintenance costs represented 11.8%, telecommunications equipment
accounted for 1.9%, network solutions and outsourcing costs represented 5.2% and
other costs represented 5.6% 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,
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,  23.9% during the
first  quarter  of  1999,  represents  the  cost of the  Company's  advertising,
promotion and market analysis programs.



                                       19                            (Continued)
<PAGE>
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.  Revenues derived from other common carriers increased
3.5% in the first quarter of 1999 as compared to the first quarter of 1998.  The
number of  active  long-distance  residential,  commercial  and  small  business
customers  decreased  2.5% in the first  quarter of 1999 as compared to the same
period of 1998,  and increased  4.4% as compared to the fourth  quarter of 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.

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.

Services  included  in  the  Other  segment  as  described  in  note  4  to  the
accompanying interim condensed consolidated financial statements are included in
the Long-distance Services segment for purposes of this Management's  Discussion
and Analysis.

Cable  services.  During the first quarter of 1999,  cable revenues  represented
24.6% 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 first
quarter of 1999  programming  services  generated  86.1% of total cable services
revenues,  equipment  rental and  installation  fees  accounted for 8.6% of such
revenues,  advertising  sales  accounted  for 4.0% of such  revenues,  and other
services accounted for the remaining 1.3% 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 first quarter of 1999 programming and copyright expenses  represented
approximately  46.1% of total  cable  cost of sales  and  selling,  general  and
administrative   expenses.   Marketing   and   advertising   costs   represented
approximately 8.5% 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.



                                       20                            (Continued)
<PAGE>
Local access services. The Company generates local access services revenues from
four primary sources: (1) business and residential basic dial tone revenues; (2)
business  private  line and  special  access  revenues;  (3)  reciprocal  access
revenues  from  the  incumbent  LEC  serving  Anchorage;  and (4)  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  expects to transition  to the "bill and keep" cost  settlement
method for termination of traffic on its and other's facilities.  Local exchange
services  revenues  totaled  $3.7  million  representing  6.0%  of  consolidated
revenues in the first 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 4.4% of total local
access services cost of sales and selling,  general and administrative  expenses
during the first quarter of 1999.  Marketing and advertising  costs  represented
approximately  6.5% of such total  expenses,  customer  service  and general and
administrative costs represented approximately 50.4% of such total expenses, and
local  access  cost of  sales  represented  approximately  38.7%  of such  total
expenses. The Company expects that it will continue to generate operating losses
from local exchange services during 1999.

The Company's local access services face  significant  competition  from ATU 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
Dial-in 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 $2.0 million
representing  3.2% of total  revenues in the first quarter of 1999.  The primary
factors that contribute to year-to-year  changes in Internet  services  revenues
are  average  monthly  subscription  rates,  the  number of  additional  premium
features  selected,  and the  average  number of  subscribers  to the  Company's
services during a given reporting period.

Operating  and general and  administrative  expenses  represented  approximately
68.5%  of total  Internet  services  cost of  sales  and  selling,  general  and
administrative expenses during the first quarter of 1999. Internet cost of sales
represented  approximately  24.2%  of such  total  expenses  and  marketing  and
advertising represented approximately 7.3% of such total expenses.

Significant  new marketing  campaigns were introduced in February and March 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  Project (see the  Company's  December 31, 1998
annual  report on Form 10-K).  The new Internet  offerings  are coupled with the
Company's  long-distance  and local  services  offerings  and provide free basic
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  4  to  the
accompanying  interim  condensed  consolidated  financial  statements  have been
attributable  to  corporate  network  management  contracts,  telecommunications
equipment sales and service,  other  miscellaneous  revenues (including revenues
from prepaid and debit calling cards, the 


                                       21                            (Continued)
<PAGE>
installation  and leasing of customers'  very small aperture  terminal  ("Vsat")
equipment,  and fees  charged to MCI  WorldCom  and Sprint for  certain  billing
services),  and costs associated with PCS wireless communications  services. 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 March 31,
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.

                              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     Percentage
                                                                      March 31,           Change
                                                                                         1999 vs. 
              (Unaudited)                                         1999        1998         1998
                                                                  ----        ----         ----
              <S>                                               <C>          <C>         <C>
              Statement of Operations Data:
              Revenues
                  Long-distance services                          66.2%       72.4%        (3.6%)
                  Cable services                                  24.6%       24.4%          6.3%
                  Local access services                            6.0%        1.7%        270.0%
                  Internet services                                3.2%        1.5%        122.2%
                                                           ---------------------------------------
                     Total revenues                              100.0%      100.0%          5.3%
              Cost of sales and services                          45.4%       47.0%          2.0%
              Selling, general and administrative
                expenses                                          38.4%       35.0%         15.8%
              Depreciation and amortization                       16.8%       13.9%         27.2%
                                                           ---------------------------------------
               Operating income (loss)                           (0.6%)        4.1%      (116.7%)
                     Net loss before income taxes
                       and cumulative effect of a
                       change in accounting principle           (11.9%)      (4.3%)      (192.0%)
                     Net loss before cumulative
                       effect of a change in
                       accounting principle                      (7.4%)      (2.8%)      (181.3%)
                     Net loss                                    (7.9%)      (2.8%)      (206.3%)
</TABLE>

                                       22                            (Continued)
<PAGE>
<TABLE>
<CAPTION>
                                                                 Three Months Ended     Percentage
                                                                      March 31,           Change
                                                                                         1999 vs. 
              (Unaudited)                                         1999        1998         1998
                                                                  ----        ----         ----
              <S>                                               <C>        <C>             <C>
              Other Operating Data (1):
              Cable operating income (2)                          17.2%       15.5%         18.2%
              Local operating loss (3)                          (56.8%)    (320.0%)         34.4%
              Internet operating income (4)                        0.0%       33.3%        100.0%
<FN>
-----------------------------
(1)      Includes customer service, marketing and advertising costs.
(2)      Computed as a percentage of total cable services revenues.
(3)      Computed as a percentage of total local access services revenues.
(4)      Computed as a percentage of total Internet services revenues.
</FN>
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999 ("1999")  COMPARED TO THREE MONTHS ENDED MARCH
31, 1998 ("1998")

Revenues.  Total  revenues  increased  5.3% from $58.2  million in 1998 to $61.3
million  in  1999.   Long-distance   revenues  from   commercial,   residential,
governmental,  and other  common  carrier  customers  decreased  4.3% from $39.3
million in 1998 to $37.6 million in 1999. The  long-distance  revenue decline in
1999 was largely due to the following:

    -    1.2%  decrease in interstate  minutes of use to 156.7  million  minutes
         off-set  by a  5.92%  increase  in  intrastate  minutes  of use to 34.8
         million minutes;
    -    2.5% reduction in the number of active residential,  small business and
         commercial  customers billed from 87,800 at March 31, 1998 to 85,600 at
         March 31, 1999; and
    -    6.9%   reduction   in  the   Company's   average  rate  per  minute  on
         long-distance  traffic  from  $0.173  per  minute in 1998 to $0.161 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 entry of LECs into  long-distance
         markets served by the Company.

The decrease in long-distance revenues was partially off-set by the following:
    -    New  revenues  in 1999  totaling  $575,000  from the lease of three DS3
         circuits on Alaska United facilities within Alaska,  and between Alaska
         and the lower 48 states; and
    -    3.5% increase in revenues from other common carriers  (principally  MCI
         WorldCom and Sprint),  from $14.4  million in 1998 to $14.9  million in
         1999.

Cable  revenues  increased  6.3% from $14.2  million in 1998 to $15.1 million in
1999.  Programming  services  revenues  increased 7.35% to $13.0 million in 1999
resulting from an increase of approximately  2,500 basic  subscribers  served by
the Company,  an increase of $1.78 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 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 quarter of 1999,
and  increases in basic and premium  service  rates in certain  locations in the
second quarter of 1998.  Advertising sales revenues  increased 23.6% to $607,000
in 1999 due to increased promotion of the Company's advertising and ad insertion
capabilities. Equipment rental and 


                                       23                            (Continued)
<PAGE>
installation  revenues  increased 19.6% 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  from $1.0  million in 1998 to $3.7
million in 1999.  At March 31, 1999  approximately  31,500 lines were in service
and approximately 1,800 additional lines were awaiting connection.

Internet  services  revenues  increased from $903,000 in 1998 to $2.0 million in
1999. The Company had approximately  20,500 active  residential,  commercial and
small business retail dial-up  subscribers to its Internet  service at March 31,
1999.

Cost of sales and services.  Cost of sales and services totaled $27.3 million in
1998 and $27.9 million in 1999. As a percentage of total revenues, cost of sales
and services decreased from 47.0% in 1998 to 45.4% in 1999. The decrease in cost
of sales and services as a percentage  of revenues is  primarily  attributed  to
changes in the Company's  product mix due to the  continuing  development of new
product lines (local access  services and Internet),  and reduced  long-distance
cost of sales as a percentage  of  long-distance  revenues.  The overall  margin
improvement was partially  offset by increased cable services cost of sales as a
percentage of cable services revenues.

The decrease in  long-distance  cost of sales and  services as a  percentage  of
revenues is primarily  attributed to 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.
Partially offsetting the 1999 decrease as compared to 1998 was a refund received
in the first  quarter of 1998 totaling  approximately  $1.1 million from a local
exchange   carrier  in  respect  of  its  earnings  that   exceeded   regulatory
requirements.  The Company  expects  margins to widen as  increasing  amounts of
traffic are carried on its own facilities.

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.

Local access  services  cost of sales and services  totaled 52.5% and 86.3% as a
percentage of the 1999 and 1998 local access  services  revenues,  respectively.
Internet  services  cost of sales  and  services  totaled  21.1%  and 46.7% 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 mature.

Selling,   general   and   administrative   expenses.   Selling,   general   and
administrative  expenses  increased  15.8% from  $20.3  million in 1998 to $23.5
million in 1999, and, as a percentage of revenues,  increased from 35.0% in 1998
to 38.3% in 1999. The 1999 increase resulted from:

    -    Internet services operating,  engineering,  sales, customer service and
         administrative cost increases, from $96,000 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 quarter 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.


                                       24                            (Continued)
<PAGE>
    -    Local access services operating,  engineering,  sales, customer service
         and administrative cost increased from $2.2 million in 1998 as compared
         to $3.1 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  long-distance  sales,  advertising,  telemarketing,  carrier
         relations,  business development and rural services costs totaling $3.1
         million in 1998  compared to $4.8  million in 1999.  Increased  selling
         costs were associated with the introduction of various  marketing plans
         and other  proprietary  rate plans and cross  promotion of products and
         services.
    -    Increased allowance for doubtful accounts receivable.

Depreciation and amortization.  Depreciation and amortization  expense increased
27.2%  from $8.1  million  in 1998 to $10.3  million in 1999.  The  increase  is
attributable to the Company's  investment in $58.4 million of facilities  placed
into service during 1998 for which a full year of depreciation  will be recorded
during 1999, the $117.3  million of facilities  placed into service in the first
quarter of 1999 for which 11 months of depreciation will be recorded during 1999
and the $7.0 million of  facilities  placed into service in the first quarter of
1999 for which a partial  year of  depreciation  will be recorded  during  1999.
Facilities  placed  into  service  during  the  first  quarter  of 1999  consist
primarily of the Alaska  United  undersea  fiber optic cable  completed in early
February 1999.

Interest expense, net. Interest expense, net of interest income, increased 42.9%
from $4.9  million  in 1998 to $7.0  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 will experience 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.

Income tax benefit.  GCI,  Inc., as a wholly owned  subsidiary and member of the
GCI controlled  group of  corporations,  files its income tax returns as part of
the consolidated  group of corporations  under GCI.  Accordingly,  the following
discussions of income tax benefit and net operating loss  carryforwards  reflect
the  consolidated  group's activity and balances.  Income tax benefit  increased
from  $891,000 in 1998 to $3.1  million in 1999 due to the  Company  incurring a
larger  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  increased from 35.5% in 1998 to 38.6% in 1999 due to the increased 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 March
31,  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 remaining net operating loss  carryforwards is subject
to certain limitations pursuant to Internal Revenue Code section 382.



                                       25                            (Continued)
<PAGE>
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
                                                 -----------------------------------------------------------------------
                    1999                                    (Dollars in thousands, except per share amounts)
                    ----
<S>                                            <C>                                                             <C>
Revenues
   Long-distance services                      $        40,593                                                   40,593
   Cable services                                       15,062                                                   15,062
   Local access services                                 3,714                                                    3,714
   Internet services                                     1,969                                                    1,969
                                                 -----------------------------------------------------------------------
Total revenues                                          61,338                                                   61,338
Operating loss                                           (368)                                                    (368)
Net loss before income taxes and
  cumulative effect of a change in
  accounting principle                                 (7,328)                                                  (7,328)
Net loss before cumulative effect
  of a change in accounting
  principle                                            (4,521)                                                  (4,521)
Net loss                                       $       (4,865)                                                  (4,865)
                                                 =======================================================================

Basic loss per share:
   Loss before cumulative effect of a change
     in accounting principle                   $      (45,210)                                                 (45,210)
   Cumulative effect of a change
      in accounting principle                            3,440                                                    3,440
                                                 -----------------------------------------------------------------------
   Net loss                                    $      (48,650)                                                 (48,650)
                                                 =======================================================================

Diluted loss per share:
   Loss before cumulative effect
      of a change in accounting
      principle                                $      (45,210)                                                 (45,210)
   Cumulative effect of a change
      in accounting principle                            3,440                                                    3,440
                                                 -----------------------------------------------------------------------
   Net loss                                    $      (48,650)                                                 (48,650)
                                                 =======================================================================
</TABLE>

                                       26                            (Continued)
<PAGE>
<TABLE>
<CAPTION>
                                                       First      Second          Third         Fourth          Total
(Unaudited)                                           Quarter      Quarter       Quarter        Quarter         Year
                                                 -----------------------------------------------------------------------
                    1998                                    
                    ----
<S>                                            <C>                  <C>            <C>           <C>           <C>
Revenues
   Long-distance services                      $        42,034        45,838         44,478        42,306       174,656
   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                                       903         1,014          1,060         1,614         4,591
                                                 -----------------------------------------------------------------------
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 March 31, 1999 ("first quarter of
1999") were $61.3  million,  representing a 2.5% decrease from total revenues in
the quarter ended December 31, 1998 ("fourth quarter of 1998") of $62.9 million.
The decrease in long-distance  services revenues  resulted  primarily a one-time
$1.6 million  product sale in the fourth quarter of 1998.  Partially  offsetting
this decrease were  additional  revenues  associated with a 4.4% increase in the
number  of active  long-distance  residential,  small  business  and  commercial
customers  billed from 81,900 at December  31, 1998 to 85,600 at March 31, 1999.
The Company's long-distance  average-rate-per-minute  remained constant at $0.16
during  1999  as  compared  to  1998.   Revenues  from  other  common   carriers
(principally MCI WorldCom and Sprint) increased from $14.6 million in the fourth
quarter of 1998 to $14.9 million in the first quarter of 1999.

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 decreased 6.1% from $29.7
million in the fourth  quarter of 1998 to $27.9  million in the first quarter of
1999.  The  decrease in cost of sales and  services  resulted  primarily  from a
one-time $1.3 million  product cost of sale in the fourth  quarter of 1998. As a
percentage of revenues, the first quarter of 1999 cost of sales and services was
45.4% as compared to 47.2 % for the fourth  quarter of 1998. The decrease in the
cost of sales and services as a percentage  of revenues is primarily  due to the
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  $500,000 in the first  quarter of 1999 from
$23.0 million in the fourth quarter of 1998. As a percentage of revenues,  first
quarter of 1999  selling,  general  and  administrative  expenses  were 38.4% as
compared to 36.5% for the fourth quarter of 1998.

Net loss. The Company  reported a net loss of $4.9 million for the first quarter
of 1999 as compared to a net loss of $1.1 million  during the fourth  quarter of
1998. In addition to the impact of factors  described  above,  the increased net
loss was  attributable to increased  depreciation  and interest expense incurred
during the first  quarter of 1999 as compared to the fourth  quarter of 1998 due
to the placement of the Alaska United 


                                       27                            (Continued)
<PAGE>
undersea  fiber  optic cable into  service in early  February  1999.  During the
fourth  quarter of 1998,  capitalized  construction  period  interest  served to
reduce interest expense.  Interest  capitalization ceased when the Alaska United
undersea fiber optic cable was placed into service.

                         LIQUIDITY AND CAPITAL RESOURCES

The  Company's  first  quarter  of  1999  ("1999")  cash  flows  from  operating
activities  totaled  $187,000,  net of  changes  in the  components  of  working
capital.  An additional  source of cash during 1999 was long-term  borrowings of
$4.9 million. The Company's  expenditures for property and equipment,  including
construction in progress, totaled $9.9 million and $28.2 million in 1999 and the
first  quarter of 1998  ("1998"),  respectively.  Uses of cash  during 1999 also
included  repayment  of  $490,000 of  long-term  borrowings  and  capital  lease
obligations and purchases of other assets totaling $391,000.

Net receivables decreased $2.4 million from December 31, 1998 to March 31, 1999.
The  decrease  resulted  from a $2.0  million  reclassification  of  income  tax
receivable  to 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 included in long-term deferred tax asset and will be
realized as future taxable income is generated.

Working capital totaled $3.8 million at March 31, 1999, a $4.6 million  decrease
from the working  capital of $8.4 million as of December 31, 1998.  The decrease
in working  capital is primarily  attributed to the investment of current assets
in long-term capital assets.

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, 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.
$106.7  million  were drawn on the credit  facilities  as of March 31,  1999 and
December 31, 1998.

On April 13, 1999, the Company  amended its Holdings  credit  facilities.  These
amendments  contain,  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,  $35  million  in 2000  with no  limits
thereafter  (excluding  amounts to be paid for purchased  satellite  transponder
facilities). The amended facilities require that Holdings receive $20 million in
proceeds from a GCI preferred stock issuance by May 31, 1999 (see below).

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 3.5 to 1.0 through  March 31, 1999 (3.0 to 1.0 from
April 1, 1999 through  December 31, 1999),  total debt to  annualized  operating
cash flow to exceed 7.0 to 1.0 from closing of the  amendments  to 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 from closing of the
amendments  to  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 


                                       28                            (Continued)
<PAGE>
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.  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. Alaska United is required
to pay a commitment  fee equal to 0.375% per annum on the unused  portion of the
commitment. $66.1 million was borrowed under the facility at March 31, 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  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.  The
Fiber Facility also contains a guarantee  that  requires,  among other terms and
conditions,  Alaska United  complete the project by the completion  date and pay
any non-budgeted costs of the project. All of Alaska United's assets, as well as
a pledge of the partnership  interests' owning Alaska 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's expenditures for property and equipment, including construction in
progress,  totaled  $9.9  million  and  $28.2  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
described above.

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 first  quarter of 2000.  The Company will continue to lease
transponder  capacity until the 


                                       29                            (Continued)
<PAGE>
delivery of the transponders on the replacement  satellite.  The balance payable
upon expected delivery of the transponders  during the first quarter of 2000, in
addition to the $9.1 million deposit previously paid, totals approximately $43.5
million.

GCI 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) will be used for general corporate  purposes,  to
repay outstanding GCI, Inc.  indebtedness,  and to provide additional liquidity.
The  Company's  amended  Senior  Holdings  Loan  facilities  limit  use of  such
proceeds.   The  Preferred  Stock  contains  a  $1,000  per  share   liquidation
preference,  plus accrued but unpaid  dividends and fees.  Dividends are payable
semi-annually  at the rate of 8.5% of the liquidation  preference.  Prior to the
four-year anniversary following closing, dividends are payable, at GCI's option,
in cash or in additional  fully-paid  shares of Preferred  Stock.  Dividends are
payable only in cash following the four-year  anniversary of closing.  Mandatory
redemption is required 12 years from the date of closing.

GCI may  redeem the  Preferred  Stock  after the  four-year  anniversary  of its
issuance,  and  must  redeem  the  Preferred  Stock  upon  the  occurrence  of a
triggering  event.  The holders may convert the Preferred Stock into GCI Class A
common stock at any time after the four-year  anniversary of the issuance of the
Preferred  Stock,  at a price of $5.55 per share.  At any time subsequent to the
third  anniversary  following  closing,  and assuming the stock is trading at no
less than two times the conversion price, GCI may require immediate  conversion.
The Preferred Stock, subject to lender approval,  is exchangeable in whole or in
part,  at GCI's  option,  into  subordinated  debt  with  terms  and  conditions
comparable to those governing the Preferred Stock. The Preferred Stock is senior
to all other classes of GCI's equity securities,  and has voting rights equal to
that number of shares of common stock into which it can be converted.

Holders of the Preferred Stock shares will have the right to vote on all matters
presented for vote to the holders of GCI common stock on an as-converted  basis.
Additionally,  the Preferred  Stock  offering  requires as long as the Preferred
Stock shares remain outstanding and unconverted, the holders of it will have the
right to vote, as a class, and GCI must obtain the written consent of holders of
a majority  (or higher as required by Alaska law) of that stock to take  certain
actions, some of which require shareholder approval  necessitating  amendment of
GCI's Articles of Incorporation.

With the issuance of the Preferred  Stock shares,  the holders of that stock may
recommend one individual to GCI's Board of Directors ("Board").  Under the terms
of the Preferred Stock offering, the Board will expand its size from the present
nine to ten seats and, upon  qualification,  appoint that individual to that new
seat to serve until the next shareholder  meeting. At that shareholder  meeting,
the  individual  would be required to stand for election to complete the term of
the class of directors to which the individual  was assigned.  The offering also
provides that the Board include the  individual  recommended by those holders on
the  subsequent  Board slate for election of directors  and actively to seek the
election of that individual to the Board.  The offering  further  provides that,
should the holders of common stock of GCI not elect that individual, the holders
of the Preferred  Stock Shares will have the right to appoint an observer at the
meetings of the Board.  The  offering  also  provides  that these  rights of the
holders of Preferred Stock shares relating to the Board seat and observer are to
remain   effective  so  long  as  any  of  the  Preferred  Stock  shares  remain
outstanding.

The  long-distance  services,  local access services,  cable services,  Internet
services  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.



                                      30                            (Continued)
<PAGE>
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.

EITF 98-14.  In March 1999, the Financial  Accounting  Standards  Board ("FASB")
Emerging  Issues  Task  Force  ("EITF")  issued  EITF  Issue  98-14,   "Debtor's
Accounting for Changes in Line-of-Credit or Revolving Debt  Arrangements".  EITF
Issue 98-14 establishes guidelines regarding unamortized costs associated with a
modified  line-of-credit or revolving-debt  arrangement and requires a debtor to
compare  the  new  and  old  borrowing   capacities  upon  the  modification  of
line-of-credit or revolving-debt arrangements.  If the new borrowing capacity is
equal to or greater than the old borrowing capacity, the debtor should defer and
amortize any unamortized deferred costs over the term of the new arrangement. If
the new  borrowing  capacity  is less than  that  available  under the  previous
arrangement,   the  debtor  should  amortize  fees  paid  to  the  creditor  and
third-party  costs  over  the new  term,  any  unamortized  costs  from  the old
arrangement  should be written off in  proportion  to the decreases in borrowing
capacity,  with remaining  unamortized costs attributable to the old arrangement
amortized  over  the  term of the new  arrangement.  Management  of the  Company
expects  that  adoption  of EITF Issue 98-14 will result in a charge to interest
expense of  approximately  $470,000 in the second quarter of 1999 resulting from
the amended Holdings Loan Facilities agreements' reduced borrowing capacity.

                                 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. 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.


                                      31                            (Continued)
<PAGE>
<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                                  ------------------------------- ------------------------------------
        8.   Suppliers/Key Service Providers                   PHASE 2                         
                                                        5. Resolution/Remediation       Expected completion 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 is currently on
schedule  and is more than 75%  complete as of March 31,  1999.  The Company has
tested,  replaced or upgraded  most of its critical  business  applications  and
systems and has begun the century  testing phase for these  critical  technology
systems.  The target date to repair or replace the remaining  critical  business
information systems is June 30, 1999. The Company is assessing its telephone and
cable  systems  and  equipment  and the target date to  complete  equipment  and
facilities  efforts is also June 30,  1999.  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.



                                      32                            (Continued)
<PAGE>
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 March 31, 1999, the Company has expensed incremental
remediation costs totaling $1.4 million, with remaining incremental  remediation
costs  estimated at  approximately  $2.6  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
most reasonably likely 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 is hopeful of  receiving
         adequate   responses   from   remaining   critical   vendors  and  many
         non-critical vendors by June 30, 1999. 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.



                                      33                            (Continued)
<PAGE>
    -    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 and, in addition,  will occur
         after all  upgrades are  completed  at the end of the first  quarter of
         1999.  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.
         For some  systems,  upgrades are already  scheduled  and it is expected
         that the Phase 1  assessments  will  highlight by the end of the second
         quarter of 1999 any further  remediation needs.  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, but details of such
plans will depend on the  Company's  final  assessment of the problem as well as
the evaluation and success of its remediation  efforts.  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, 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 $10 per  barrel in 1998,  well  below the  average  price per
barrel  used by the  State of Alaska to budget  its oil  related  revenues.  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.



                                      34                            (Continued)
<PAGE>
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.  The
Company,  as an outsourcing  services provider to the oil industry,  reduced its
outsourcing work force by 8 employees in February 1999.

Since oil  revenues to the state of Alaska are  expected  to fall  significantly
short of budgeted  revenues,  (estimated  at $1.04 billion for the coming budget
year),  the  Governor  of the state of Alaska has  announced  his  intention  to
implement  cost-cutting  and  revenue  enhancing  measures.  The State of Alaska
maintains  surplus  accounts that are intended to fund budgetary  shortfalls and
would be expected to fund a portion of the revenue shortfall.

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. 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.


                                      35                            (Continued)
<PAGE>
                                   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.


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 March 31, 1999,  the Company had
borrowed  $106.7  million  subject to interest rate risk.  On this amount,  a 1%
increase in the interest  rate would cost the Company  $1,067,000  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 March 31,  1999,  the Company  had  borrowed  $66.1  million
subject to interest  rate risk.  On this  amount,  a 1% increase in the interest
rate would cost the Company  $661,000 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 5 of  Notes  to  Interim  Condensed
           Consolidated  Financial  Statements  and is  incorporated  herein  by
           reference.


                                      36                           
<PAGE>
ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

           (a) Exhibits:

               Exhibit 10.72 -     Consent and First Amendment to Credit 
                                   Agreements dated November 14, 1997 *
               Exhibit 10.73 -     Second Amendment to $200,000,000 Amended and
                                   Restated Credit Agreement *
               Exhibit 10.74 -     Second Amendment to $50,000,000 Amended and 
                                   Restated Credit Agreement *
               Exhibit 10.75 -     Third Amendment to $200,000,000 Amended and 
                                   Restated Credit Agreement *
               Exhibit 10.76 -     Third Amendment to $50,000,000 Amended and 
                                   Restated Credit Agreement *
               Exhibit 10.77 -     General Communication, Inc. Preferred Stock 
                                   Purchase Agreement *
               Exhibit 10.78 -     Revised Qualified Employee Stock Purchase 
                                   Plan of General Communication, Inc. *
               Exhibit 10.79 -     Statement of Stock Designation *
               Exhibit 27 -        Financial Data Schedule  *

           (b) Reports on Form 8-K filed during the quarter ended March 31, 1999
               - None


           ---------------------
           * Filed herewith.



                                      37                           
<PAGE>
                                   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.
<TABLE>
<CAPTION>

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

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

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

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


                                       38

</TABLE>