As filed with the Securities and Exchange Commission on August 9, 2005

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

                              --------------------

                                    FORM 10-Q

                                   (Mark One)

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

                  For the quarterly period ended June 30, 2005

                                       OR

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

         For the transition period from             to

                           Commission File No. 0-5890

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

         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) 868-5600

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  .

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


                                       1
<PAGE>
<TABLE>
                                              GCI, INC.
                      A WHOLLY-OWNED SUBSIDIARY OF GENERAL COMMUNICATION, INC.
                                             FORM 10-Q
                                 FOR THE QUARTER ENDED JUNE 30, 2005

                                          TABLE OF CONTENTS
<CAPTION>
                                                                                                       Page No.
                                                                                                       --------
<S>                                                                                                       <C>
Cautionary Statement Regarding Forward-Looking Statements.................................................3

PART I.  FINANCIAL INFORMATION

         Item l.    Consolidated Balance Sheets as of June 30, 2005
                       (unaudited) and December 31, 2004..................................................6

                    Consolidated Statements of Income for the
                       three and six months ended June 30, 2005 (unaudited)
                       and 2004 (unaudited)...............................................................8

                    Consolidated Statements of Stockholder's Equity
                       for the six months ended June 30, 2005
                       (unaudited) and 2004 (unaudited)...................................................9

                    Consolidated Statements of Cash Flows for the six
                       months ended June 30, 2005 (unaudited)
                       and 2004 (unaudited)...............................................................10

                    Notes to Interim Condensed Consolidated Financial
                       Statements (unaudited).............................................................11

         Item 2.    Management's Discussion and Analysis of Financial
                    Condition and Results of Operations...................................................22

         Item 3.    Quantitative and Qualitative Disclosures About
                    Market Risk...........................................................................53

         Item 4.    Controls and Procedures...............................................................53

PART II.  OTHER INFORMATION

         Item 1.    Legal Proceedings.....................................................................54

         Item 4.    Submission of Matters to a Vote of Security Holders...................................54

         Item 5.    Other Information.....................................................................55

         Item 6.    Exhibits..............................................................................55

         Other items are omitted, as they are not applicable.

SIGNATURES................................................................................................56
</TABLE>

                                       2
<PAGE>
            Cautionary Statement Regarding Forward-Looking Statements


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

     o   Local and general market conditions and obstacles, including possible
         material adverse changes in the economic conditions in the markets we
         serve and in general economic conditions; the continuing impact of the
         current stagnant communications industry due to high levels of
         competition in the long-distance market resulting in continuing
         pressures to reduce prices; and an oversupply of long-haul capacity and
         high debt loads;
     o   The efficacy of laws enacted by Congress and the State of Alaska
         legislature; 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;
     o   The outcome of our negotiations with Incumbent Local Exchange Carriers
         ("ILECs") and state regulatory arbitrations and approvals with respect
         to interconnection agreements;
     o   Changes in, or failure, or inability, to comply with, government
         regulations, including, without limitation, regulations of the FCC, the
         Regulatory Commission of Alaska ("RCA"), and adverse outcomes from
         regulatory proceedings;
     o   Changes in regulations governing Unbundled Network Elements ("UNEs");
     o   Changes in the treatment or classification of services using a
         particular technology, including Internet protocol;
     o   Our 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 long-distance, local, cable, Internet, and cellular telephone
         services;
     o   The extent and pace at which different competitive environments develop
         for each segment of our business;


                                       3
<PAGE>
     o   The extent and duration for which competitors from each segment of the
         communications industries are able to offer combined or full service
         packages prior to our being able to do so;
     o   Competitor responses to our products and services and overall market
         acceptance of such products and services;
     o   Our ability to purchase network elements or wholesale services from
         ILECs at a price sufficient to permit the profitable offering of local
         telephone service at competitive rates;
     o   Success and market acceptance for new initiatives, some of which are
         untested;
     o   The level and timing of the growth and profitability of existing and
         new initiatives, particularly local telephone services expansion
         including deploying digital local telephone service and wireless
         services;
     o   Start-up costs associated with entering new markets, including
         advertising and promotional efforts;
     o   Risks relating to the operations of new systems and technologies and
         applications to support new initiatives;
     o   The risks associated with technological requirements, technology
         substitution and changes and other technological developments;
     o   Prolonged service interruptions which could affect our business;
     o   Development and financing of communications, local telephone, wireless,
         Internet and cable networks and services;
     o   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 and the consequences of
         increased leverage;
     o   Availability of qualified personnel;
     o   Uncertainties in federal military spending levels in markets in which
         we operate;
     o   Uncertainties surrounding the 2005 base realignment and closure program
         and proposed military base closures in markets in which we operate;
     o   The effect on us of industry consolidation including the potential
         acquisition of one or more of our large wholesale customers by a
         company with commercial relationships with other providers and the
         ongoing global and domestic trend towards consolidation in the
         communications industry, which may result in our competitors being
         larger and better financed with extensive resources and greater
         geographic reach, allowing them to compete more effectively;
     o   The effect on us of pricing pressures, new program offerings and
         continuing market consolidation in the markets served by our major
         customer, MCI, Inc. ("MCI") and our other common carrier customers; and
     o   Other risks detailed from time to time in our periodic reports filed
         with the SEC.

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


                                       4
<PAGE>
any factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements.


                                       5
<PAGE>
PART I.  FINANCIAL INFORMATION
ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
                                                     GCI, INC. AND SUBSIDIARIES
                                                    CONSOLIDATED BALANCE SHEETS
<CAPTION>

(Amounts in thousands)                                                                             (Unaudited)
                                                                                                     June 30,       December 31,
                            ASSETS                                                                     2005             2004
--------------------------------------------------------------------------------------------    ----------------- ----------------
<S>                                                                                            <C>                    <C>
Current assets:
  Cash and cash equivalents                                                                    $      17,625           31,452
                                                                                                ----------------- ----------------

  Receivables                                                                                         75,723           74,429
  Less allowance for doubtful receivables                                                              2,489            2,317
                                                                                                ----------------- ----------------
     Net receivables                                                                                  73,234           72,112

  Deferred income taxes, net                                                                          14,279           13,893
  Prepaid expenses                                                                                     7,211            7,907
  Property held for sale                                                                               3,414            2,282
  Inventories                                                                                          1,499            1,215
  Notes receivable from related parties                                                                  399              475
  Other current assets                                                                                 1,297            2,429
                                                                                                ----------------- ----------------
     Total current assets                                                                            118,958          131,765
                                                                                                ----------------- ----------------

Property and equipment in service, net of depreciation                                               428,425          432,249
Construction in progress                                                                              36,972           22,505
                                                                                                ----------------- ----------------
     Net property and equipment                                                                      465,397          454,754
                                                                                                ----------------- ----------------

Cable certificates                                                                                   191,241          191,241
Goodwill                                                                                              41,972           41,972
Other intangible assets, net of amortization of $2,230 and $1,625 at June 30, 2005 and
  December 31, 2004, respectively                                                                      6,496            6,265
Deferred loan and senior notes costs, net of amortization of $3,532 and $2,602 at June 30,
  2005 and December 31, 2004, respectively                                                             9,497           10,341
Notes receivable from related parties                                                                  3,395            3,345
Other assets                                                                                          12,010            9,508
                                                                                                ----------------- ----------------
     Total other assets                                                                              264,611          262,672
                                                                                                ----------------- ----------------
       Total assets                                                                            $     848,966          849,191
                                                                                                ================= ================

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

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

(Amounts in thousands)                                                                             (Unaudited)
                                                                                                     June 30,       December 31,
LIABILITIES AND STOCKHOLDER'S EQUITY                                                                   2005             2004
--------------------------------------------------------------------------------------------    ----------------- ----------------
<S>                                                                                            <C>                    <C>
Current liabilities:
  Current maturities of obligations under long-term debt and capital leases                    $      22,467            6,407
  Accounts payable                                                                                    28,305           28,742
  Accrued payroll and payroll related obligations                                                     15,896           15,350
  Deferred revenue                                                                                    15,147           16,253
  Accrued interest                                                                                     8,724            8,747
  Accrued liabilities                                                                                  5,787            6,760
  Due to related party                                                                                 4,406           10,004
  Subscriber deposits                                                                                    389              437
                                                                                                ----------------- ----------------
    Total current liabilities                                                                        101,121           92,700

Long-term debt                                                                                       421,352          436,969
Obligations under capital leases, excluding current maturities                                        29,664           32,750
Obligation under capital lease due to related party, excluding current maturity                          652              672
Deferred income taxes, net of deferred income tax benefit                                             56,906           49,111
Other liabilities                                                                                      9,541            8,385
                                                                                                ----------------- ----------------
    Total liabilities                                                                                619,236          620,587
                                                                                                ----------------- ----------------

Stockholder's equity:
  Class A common stock. Authorized 10 shares; issued .01 shares at June 30, 2005
    and December 31, 2004                                                                            206,622          206,622
 Paid-in capital                                                                                         ---            5,677
 Retained earnings                                                                                    23,108           16,305
                                                                                                ----------------- ----------------

    Total stockholder's equity                                                                       229,730          228,604
                                                                                                ----------------- ----------------
Commitments and contingencies

    Total liabilities and stockholder's equity                                                 $     848,966          849,191
                                                                                                ================= ================
See accompanying notes to interim condensed consolidated financial statements.
</TABLE>

                                       7
<PAGE>
<TABLE>
                                                  GCI, INC. AND SUBSIDIARIES
                                              CONSOLIDATED STATEMENTS OF INCOME
                                                         (Unaudited)
<CAPTION>
                                                                               Three Months Ended           Six Months Ended
                                                                                    June 30,                    June 30,
(Amounts in thousands)                                                          2005        2004            2005        2004
                                                                            ----------- ------------    ----------- ------------
<S>                                                                        <C>            <C>             <C>         <C>
Revenues                                                                   $  110,665     103,786         217,175     212,702

Cost of goods sold (exclusive of depreciation, amortization and
  accretion shown separately below)                                            36,045      33,257          71,245      72,002
Selling, general and administrative expenses                                   38,019      36,102          75,199      71,506
Bad debt expense (recovery)                                                       194        (487)           (159)       (884)
Depreciation, amortization and accretion expense                               18,397      15,704          36,151      31,462
                                                                            ---------- ------------    ----------- ------------
     Operating income                                                          18,010      19,210          34,739      38,616
                                                                            ----------- ------------    ----------- ------------

Other income (expense):
   Interest expense                                                            (8,354)     (6,036)        (16,636)    (13,553)
   Loss on early extinguishment of debt                                           ---         ---             ---      (6,136)
   Amortization and write-off of loan and senior notes fees                      (448)       (387)           (931)     (3,014)
   Interest income                                                                112          79             291         187
                                                                            ----------- ------------    ----------- ------------
     Other expense, net                                                        (8,690)     (6,344)        (17,276)    (22,516)
                                                                            ----------- ------------    ----------- ------------

     Net income before income taxes                                             9,320      12,866          17,463      16,100

Income tax expense                                                              4,036       5,141           7,516       6,450
                                                                            ----------- ------------    ----------- ------------

     Net income                                                            $    5,284       7,725           9,947       9,650
                                                                            =========== ============    =========== ============

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

                                       8
<PAGE>
<TABLE>
                                                           GCI, INC. AND SUBSIDIARIES
                                                 CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
                                                     SIX MONTHS ENDED JUNE 30, 2005 AND 2004
                                                                   (Unaudited)
<CAPTION>
                                                        Shares of                                          Accumulated
                                                         Class A      Class A                 Retained       Other
                                                         Common       Common        Paid-in   Earnings    Comprehensive
(Amounts in thousands, except share amounts)              Stock        Stock        Capital   (Deficit)   Income (Loss)     Total
                                                       -----------------------------------------------------------------------------
<S>                                                        <C>      <C>             <C>        <C>           <C>           <C>
Balances at December 31, 2003                              100      $ 206,622       44,904     (4,947)       (308)         246,271
Components of comprehensive income:
  Net income                                               ---            ---          ---      9,650         ---            9,650
  Change in fair value of cash flow hedge, net of
     change in income tax effect of $58                    ---            ---          ---        ---         214              214
                                                                                                                         -----------
      Comprehensive income                                                                                                   9,864
Net contribution from General Communication, Inc.          ---            ---          653        ---         ---              653
                                                       -----------------------------------------------------------------------------
Balances at June 30, 2004                                  100      $ 206,622       45,557      4,703         (94)         256,788
                                                       =============================================================================


Balances at December 31, 2004                              100      $ 206,622        5,677     16,305         ---          228,604
Net income                                                 ---            ---          ---      9,947         ---            9,947
Net distribution to General Communication, Inc.            ---            ---       (5,677)    (3,144)        ---           (8,821)
                                                       -----------------------------------------------------------------------------
Balances at June 30, 2005                                  100      $ 206,622          ---     23,108         ---          229,730
                                                       =============================================================================

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

                                       9
<PAGE>
<TABLE>
                                             GCI, INC. AND SUBSIDIARIES
                                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                                       SIX MONTHS ENDED JUNE 30, 2005 AND 2004
                                                    (Unaudited)
<CAPTION>
(Amounts in thousands)                                                                      2005             2004
                                                                                      --------------    -------------
<S>                                                                                  <C>                  <C>
Cash flows from operating activities:
   Net income                                                                        $      9,947            9,650
   Adjustments to reconcile net income to net cash provided by operating
     activities:
     Depreciation, amortization and accretion expense                                      36,151           31,462
     Deferred income tax expense                                                            7,516            6,420
     Amortization and write-off of loan and senior notes fees                                 931            3,014
     Loss on disposal of property and equipment                                               459              180
     Deferred compensation                                                                    449              332
     Bad debt expense, net of write-offs                                                      172               80
     Compensatory stock options                                                                96              152
     Loss on early extinguishment of debt                                                     ---            6,136
     Other noncash income and expense items                                                   499              158
     Change in operating assets and liabilities                                            (8,299)         (13,166)
                                                                                      --------------    -------------
       Net cash provided by operating activities                                           47,921           44,418
                                                                                      --------------    -------------

Cash flows from investing activities:
   Purchases of property and equipment, including construction period interest            (47,690)         (64,147)
   Purchases of other assets and intangible assets                                         (2,021)          (1,032)
   Proceeds from sales of assets                                                              445              859
   Additions to property held for sale                                                       (191)            (158)
   Notes receivable issued to related parties                                                 (13)             (27)
   Refund of deposit                                                                          ---              699
   Payments received on notes receivable from related parties                                 ---              786
                                                                                      --------------    -------------
       Net cash used in investing activities                                              (49,470)         (63,020)
                                                                                      --------------    -------------

Cash flows from financing activities:
   Contribution (to) from General Communication, Inc.                                      (9,021)              30
   Repayments of capital lease obligations                                                 (3,171)          (1,967)
   Payment of debt issuance costs                                                             (86)          (6,607)
   Issuance of new Senior Notes                                                               ---          245,720
   Repayment of old Senior Notes                                                              ---         (180,000)
   Repayment of Senior Credit Facility                                                        ---          (53,832)
   Borrowing on Senior Credit Facility                                                        ---           15,000
   Payment of bond call premiums                                                              ---           (6,136)
                                                                                      --------------    -------------
       Net cash provided by (used in) financing activities                                (12,278)          12,208
                                                                                      --------------    -------------
       Net decrease in cash and cash equivalents                                          (13,827)          (6,394)
       Cash and cash equivalents at beginning of period                                    31,452           10,435
                                                                                      --------------    -------------

       Cash and cash equivalents at end of period                                    $     17,625            4,041
                                                                                      ==============    =============

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

                                       10
<PAGE>
                           GCI, INC. AND SUBSIDIARIES
          Notes to Interim Condensed Consolidated Financial Statements
                                   (Unaudited)

The accompanying unaudited interim condensed consolidated financial statements
include the accounts of GCI, Inc. and its subsidiaries and have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements. They should be read in
conjunction with our audited consolidated financial statements for the year
ended December 31, 2004, filed as part of our annual report on Form 10-K. In the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. The results of
operations for interim periods are not necessarily indicative of the results
that may be expected for an entire year or any other period.

(l)    Business and Summary of Significant Accounting Principles

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

       Basis of Presentation
       We were incorporated in Alaska in 1997 to affect the issuance of senior
       notes. As a wholly-owned subsidiary of General Communication, Inc.
       ("GCI"), we received through our initial capitalization all ownership
       interests in subsidiaries previously held by GCI.

       (a)   Business
             We offer the following services:
             o Long-distance telephone service between Alaska and the remaining
               United States and foreign countries,
             o Cable television services throughout Alaska,
             o Facilities-based competitive local access services in Anchorage,
               Fairbanks, and Juneau, Alaska,
             o Internet access services,
             o Origination and termination of traffic in Alaska for certain
               common carriers,
             o Private line and private network services,
             o Managed services to certain commercial customers,
             o Broadband services, including our SchoolAccess(TM) offering to
               rural school districts and a similar offering to rural hospitals
               and health clinics,
             o Sales and service of dedicated communications systems and related
               equipment,
             o Lease and sales of capacity on our undersea fiber optic cable
               systems used in the transmission of interstate and intrastate
               private line, switched message long-distance and Internet
               services between Alaska and the remaining United States and
               foreign countries,
             o Distribution of white and yellow pages directories to residential
               and business customers in certain markets we serve and on-line
               directory products, and
             o Resale of cellular telephone services.

       (b)   Principles of Consolidation
             The consolidated financial statements include the consolidated
             accounts of GCI and its wholly owned subsidiaries with all
             significant intercompany transactions eliminated.

                                       11                            (Continued)
<PAGE>
                           GCI, INC. AND SUBSIDIARIES
          Notes to Interim Condensed Consolidated Financial Statements
                                   (Unaudited)

       (c)   Earnings per Common Share
             We are a wholly owned subsidiary of GCI and, accordingly, are not
             required to present earnings per share. Our common stock is not
             publicly traded.

       (d)   Asset Retirement Obligations
             Following is a reconciliation of the beginning and ending aggregate
             carrying amount of our asset retirement obligations at June 30,
             2005 and 2004 (amounts in thousands):

                    Balance at December 31, 2003                      $ 2,005
                    Accretion expense for the six months
                      ended June 30, 2004                                  97
                    Other                                                 (43)
                                                                       -------
                         Balance at June 30, 2004                     $ 2,059
                                                                       =======

                    Balance at December 31, 2004                      $ 2,971
                    Accretion expense for the six months
                      ended June 30, 2005                                  99
                                                                       -------
                         Balance at June 30, 2005                     $ 3,070
                                                                       =======

       (e)   Stock Option Plan
             At June 30, 2005, GCI had one stock-based employee compensation
             plan. We account for this plan under the recognition and
             measurement principles of Accounting Principles Board ("APB")
             Opinion No. 25, "Accounting for Stock Issued to Employees," and
             related interpretations. We use the intrinsic-value method and
             compensation expense is recorded on the date of grant only if the
             current market price of the underlying stock exceeds the exercise
             price. We have adopted Statement of Financial Accounting Standard
             ("SFAS") No. 123, "Accounting for Stock-Based Compensation," which
             permits entities to recognize as expense over the vesting period
             the fair value of all stock-based awards on the date of grant.
             Alternatively, SFAS No. 123 also allows entities to continue to
             apply the provisions of APB Opinion No. 25.

             We have adopted SFAS No. 148, "Accounting for Stock-Based
             Compensation-Transition and Disclosure." This Statement amends SFAS
             No. 123 to provide alternative methods of transition for a
             voluntary change to the fair value based method of accounting for
             stock-based employee compensation. In addition, this Statement
             amends the disclosure requirements of SFAS No. 123 to require
             prominent disclosures in both annual and interim financial
             statements about the method of accounting for stock-based employee
             compensation and the effect of the method used on reported results.
             We have elected to continue to apply the provisions of APB Opinion
             No. 25 and provide the pro forma disclosure as required by SFAS No.
             148.

             In December 2004, the FASB issued SFAS No. 123R, "Share-Based
             Payment," requiring all companies to measure compensation cost for
             all share-based payments (including employee stock options) at fair
             value. After consideration of the SEC's April 2005 amendment of the
             SFAS No. 123R compliance dates, SFAS No. 123R is effective for
             annual

                                       12                            (Continued)
<PAGE>
                           GCI, INC. AND SUBSIDIARIES
          Notes to Interim Condensed Consolidated Financial Statements
                                   (Unaudited)

             periods beginning after June 15, 2005, or December 15, 2005 for
             small business issuers. As of January 1, 2006, we will apply SFAS
             No. 123R using a modified version of prospective application. Under
             that transition method, compensation cost is recognized on or after
             January 1, 2006 for the portion of outstanding awards for which the
             requisite service has not yet been rendered, based on the
             grant-date fair value of those awards calculated under SFAS No. 123
             for either recognition or pro forma disclosures. In March 2005 the
             SEC issued SAB No. 107 expressing the SEC staff's view regarding
             the interaction between SFAS No. 123R and certain SEC rules and
             regulations and providing the staff's views regarding the valuation
             of share-based payment arrangements for public companies. We
             estimate the application of SFAS No. 123R will result in an
             increase in our compensation cost for all share-based payments of
             approximately $2.3 million during the year ended December 31, 2006.

             Stock-based employee compensation cost is reflected over the
             options' vesting period of generally five years and compensation
             cost for options granted prior to January 1, 1996 is not
             considered. The following table illustrates the effect on net
             income for the three and six months ended June 30, 2005 and 2004,
             if we had applied the fair-value recognition provisions of SFAS No.
             123 to stock-based employee compensation (amounts in thousands):
<TABLE>
<CAPTION>
                                                           Three Months Ended           Six Months Ended
                                                                 June 30,                    June 30,
                                                        -------------------------    ------------------------
                                                           2005           2004          2005          2004
                                                        -----------    ----------    ----------    ----------
                <S>                                    <C>               <C>           <C>           <C>
                Net income, as reported                $  5,284          7,725         9,947         9,650

                Total stock-based employee
                 compensation expense included in
                 reported net income, net of related
                 tax effects                                 48             44            96            89

                Total stock-based employee
                 compensation expense under the
                 fair-value based method for all
                 awards, net of related tax effects        (401)          (484)         (911)       (1,040)
                                                        -----------    ----------    ----------    ----------
                   Pro forma net income                $  4,931          7,285         9,132         8,699
                                                        ===========    ==========    ==========    ==========
</TABLE>
             The calculation of total stock-based employee compensation expense
             under the fair-value based method includes weighted-average
             assumptions of a risk-free interest rate, volatility and an
             expected life.


                                       13                            (Continued)
<PAGE>
                           GCI, INC. AND SUBSIDIARIES
          Notes to Interim Condensed Consolidated Financial Statements
                                   (Unaudited)

(2)    Consolidated Statements of Cash Flows Supplemental Disclosures
       Changes in operating assets and liabilities consist of (amounts in
       thousands):
<TABLE>
<CAPTION>
             Six month periods ended June 30,                                   2005           2004
                                                                           ------------   ------------
              <S>                                                         <C>               <C>
              Increase in accounts receivable                             $   (3,130)        (3,172)
              Decrease in prepaid expenses                                       696          6,632
              Increase in inventories                                           (284)           (82)
              Decrease in other current assets                                   137            629
              Decrease in accounts payable                                      (437)        (6,766)
              Increase (decrease) in accrued payroll and payroll
                 related obligations                                             546         (3,229)
              Decrease in deferred revenues                                   (1,106)        (6,531)
              Decrease in accrued interest                                       (23)        (1,802)
              Increase (decrease) in accrued liabilities                         190            (26)
              Increase (decrease) in due to related party                     (5,432)         1,473
              Decrease in subscriber deposits                                    (48)          (133)
              Increase (decrease) in components of other long-term
                 liabilities                                                     592           (159)
                                                                           ------------   ------------
                                                                          $   (8,299)       (13,166)
                                                                           ============   ============
</TABLE>
       We paid interest totaling approximately $16.7 million and $16.4 million
       during the six months ended June 30, 2005 and 2004, respectively. We
       capitalized interest of approximately $0 and $1.1 million during the six
       months ended June 30, 2005 and 2004, respectively. Capitalized interest
       is recorded as an addition to Property and Equipment.

       GCI, Inc., as a wholly-owned subsidiary and member of the GCI controlled
       group of corporations, files its income tax returns as part of the
       consolidated group of corporations under GCI. Accordingly, the following
       discussion of an income tax payment and refund reflects the consolidated
       group's activity. Income tax refunds received totaled $202,000 and $0
       during the six months ended June 30, 2005 and 2004, respectively. We paid
       income taxes of $100,000 and $0 during the six months ended June 30, 2005
       and 2004, respectively.

(3)    Intangible Assets
       There have been no events or circumstances that indicate the
       recoverability of the carrying amounts of indefinite-lived and
       definite-lived intangible assets has changed as of June 30, 2005. The
       remaining useful lives of our cable certificates and goodwill were
       evaluated as of June 30, 2005 and events and circumstances continue to
       support an indefinite useful life. We reviewed the useful lives assigned
       to our definite-lived intangible assets and believe the lives continue to
       be appropriate as of June 30, 2005.

       On September 29, 2004, the SEC issued SEC Staff Announcement Topic "Use
       of the Residual Method to Value Acquired Assets Other than Goodwill,"
       ("SEC Staff Announcement") requiring us to apply no later than January 1,
       2005 a direct value method to determine the fair value of our intangible
       assets with indefinite lives other than goodwill for purposes of
       impairment testing. We adopted the SEC Staff Announcement on December 31,
       2004. Our cable certificate assets were originally valued and recorded
       using the residual method. Impairment testing of our cable certificate


                                       14                            (Continued)
<PAGE>
                           GCI, INC. AND SUBSIDIARIES
          Notes to Interim Condensed Consolidated Financial Statements
                                   (Unaudited)

       assets as of December 31, 2004 used a direct value method pursuant to the
       SEC Staff Announcement and did not result in impairment.

       Cable certificates are allocated to our cable services segment. Goodwill
       of approximately $41.0 million is allocated to the cable services segment
       and approximately $675,000 is allocated to the long-distance services
       segment.

       Amortization expense for amortizable intangible assets was as follows:
<TABLE>
<CAPTION>
                                                   Three Months Ended            Six Months Ended
                                                        June 30,                      June 30,
                                                   2005          2004            2005         2004
                                               -------------- -----------    ------------- -----------
             <S>                              <C>                 <C>             <C>          <C>
             Amortization expense             $     313           191             605          351
                                               ============== ===========    ============= ===========
</TABLE>
       Amortization expense for amortizable intangible assets for each of the
       five succeeding fiscal years is estimated to be (amounts in thousands):

                 Years Ending
                 December 31,
                --------------
                    2005        $  1,242
                    2006           1,268
                    2007           1,198
                    2008             946
                    2009             626

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


                                       15                            (Continued)
<PAGE>
                           GCI, INC. AND SUBSIDIARIES
          Notes to Interim Condensed Consolidated Financial Statements
                                   (Unaudited)

       After settlement, we began reducing the MCI credit as we utilized it for
       services otherwise payable to MCI. Uncertainties exist with respect to
       the potential realization and the timing of our utilization of the MCI
       credit. We have accounted for our use of the MCI credit as a gain
       contingency and, accordingly, will recognize a reduction of bad debt
       expense as services are provided by MCI and the credit is realized. The
       use of the credit is recorded as a reduction of bad debt expense. We have
       realized the following amounts of the MCI credit against amounts payable
       for services received from MCI (amounts in thousands):
<TABLE>
<CAPTION>
                                                   Three Months Ended            Six Months Ended
                                                        June 30,                      June 30,
                                                   2005          2004            2005         2004
                                               -------------- -----------    ------------- -----------
             <S>                              <C>               <C>             <C>          <C>
             MCI credit realized              $     996         1,109           1,889        2,296
                                               ============== ===========    ============= ===========
</TABLE>
       The remaining unused MCI credit totaled $1.8 million and $3.7 million at
       June 30, 2005 and December 31, 2004, respectively. The credit balance is
       not recorded on the Consolidated Balance Sheet as we are recognizing
       recovery of bad debt expense as the credit is realized.

(5)    Industry Segments Data
       Our reportable segments are business units that offer different products.
       The reportable segments are each managed separately and offer distinct
       products with different production and delivery processes.

       As of January 1, 2005 financial information for our SchoolAccess(TM)
       offering to rural school districts and a similar offering to rural
       hospitals and health clinics ("Broadband services") is not included in
       the long-distance services segment but is included in the "All Other"
       category. Additionally, Property and Equipment originally included in the
       Internet services segment were determined to be Broadband services
       Property and Equipment and were reclassified to the "All Other" category.
       Segment and All Other category data for the six months ended June 30,
       2004 have been restated to reflect the changes.

       We have four reportable segments as follows:

          Long-distance services. We offer a full range of common carrier
          long-distance services to commercial, government, other
          telecommunications companies and residential customers, through our
          networks of fiber optic cables, digital microwave, and fixed and
          transportable satellite earth stations.

          Cable services. We provide cable television services to residential,
          commercial and government users in the state of Alaska. Our cable
          systems serve 36 communities and areas in Alaska, including the
          state's four largest urban areas, Anchorage, Fairbanks, the
          Matanuska-Susitna Valley, and Juneau. We offer digital cable
          television services in Anchorage, Cordova, Fairbanks, Homer, Juneau,
          Kenai, Ketchikan, Kodiak, the Matanuska-Susitna Valley, Nome, Seward,
          Soldotna, and Valdez and retail cable modem service (through our
          Internet services segment) in all of our locations in Alaska except
          Barrow and Kotzebue.


                                       16                            (Continued)
<PAGE>
                           GCI, INC. AND SUBSIDIARIES
          Notes to Interim Condensed Consolidated Financial Statements
                                   (Unaudited)

          Local access services. We offer facilities based competitive local
          exchange services in Anchorage, Fairbanks and Juneau and plan to
          provide similar competitive local exchange services in other locations
          pending regulatory approval and subject to availability of capital.
          Revenue, cost of goods sold and operating expenses for our phone
          directories are included in the local access services segment.

          Internet services. We offer wholesale and retail Internet services to
          both consumer and commercial customers. We offer cable modem service
          as further described in Cable services above. Our undersea fiber optic
          cable systems allow us to offer enhanced services with high-bandwidth
          requirements.

       Included in the "All Other" category in the tables that follow are our
       Broadband services, managed services, product sales and cellular
       telephone services. None of these business units has ever met the
       quantitative thresholds for determining reportable segments. Also
       included in the All Other category are corporate related expenses
       including information technology, accounting, legal and regulatory, human
       resources, and other general and administrative expenses.

       We evaluate performance and allocate resources based on (1) earnings or
       loss from operations before depreciation, amortization and accretion
       expense, net other expense and income taxes, and (2) operating income or
       loss. The accounting policies of the reportable segments are the same as
       those described in the summary of significant accounting policies in note
       1 in the "Notes to Consolidated Financial Statements" included in Part II
       of our December 31, 2004 annual report on Form 10-K. Intersegment sales
       are recorded at cost plus an agreed upon intercompany profit.

       We earn all revenues through sales of services and products within the
       United States. All of our long-lived assets are located within the United
       States of America, except approximately 82% of our undersea fiber optic
       cable systems which transit international waters.


                                       17                            (Continued)
<PAGE>
                           GCI, INC. AND SUBSIDIARIES
          Notes to Interim Condensed Consolidated Financial Statements
                                   (Unaudited)

       Summarized financial information for our reportable segments for the six
       months ended June 30, 2005 and 2004 follows (amounts in thousands):
<TABLE>
<CAPTION>
                                                      Reportable Segments
                                     ---------------------------------------------------------
                                        Long-                 Local                  Total
                                       Distance    Cable      Access    Internet   Reportable      All
                                       Services   Services   Services   Services    Segments      Other      Total
                                     -------------------------------------------------------------------------------
       <S>                          <C>            <C>        <C>        <C>         <C>          <C>       <C>
                   2005
                   ----
       Revenues:
         Intersegment               $    8,186      1,805      4,302        531       14,824         672     15,496
         External                       92,289     52,243     25,996     14,720      185,248      31,927    217,175
                                     -------------------------------------------------------------------------------
            Total revenues          $  100,475     54,048     30,298     15,251      200,072      32,599    232,671
                                     ===============================================================================

       Earnings (loss) from
         operations before
         depreciation,
         amortization, accretion,
         net interest expense and
         income taxes               $   52,377     22,597      1,496      6,025       82,495     (11,605)    70,890
                                     ===============================================================================

       Operating income (loss)      $   39,446     12,375     (1,785)     4,206       54,242     (19,503)    34,739
                                     ===============================================================================

                   2004
                   ----
       Revenues:
         Intersegment               $    6,888      1,232      4,550      1,696       14,366         372     14,738
         External                       89,720     50,033     23,010     12,923      175,686      37,016    212,702
                                     -------------------------------------------------------------------------------
            Total revenues          $   96,608     51,265     27,560     14,619      190,052      37,388    227,440
                                     ===============================================================================

       Earnings (loss) from
         operations before
         depreciation,
         amortization, accretion,
         net interest expense and
         income taxes               $   50,518     22,551        641      4,057       77,767      (7,689)    70,078
                                     ===============================================================================

       Operating income (loss)      $   38,502     13,181     (1,322)     2,520       52,881     (14,265)    38,616
                                     ===============================================================================
</TABLE>
       A reconciliation of reportable segment revenues to consolidated revenues
       follows (amounts in thousands):
<TABLE>
<CAPTION>
         Six months ended June 30,                                               2005             2004
                                                                            --------------- ---------------
         <S>                                                               <C>                  <C>
         Reportable segment revenues                                       $   200,072          190,052
         Plus All Other revenues                                                32,599           37,388
         Less intersegment revenues eliminated in consolidation                 15,496           14,738
                                                                            --------------- ---------------
              Consolidated revenues                                        $   217,175          212,702
                                                                            =============== ===============
</TABLE>
                                       18                            (Continued)
<PAGE>
                           GCI, INC. AND SUBSIDIARIES
          Notes to Interim Condensed Consolidated Financial Statements
                                   (Unaudited)

       A reconciliation of reportable segment earnings from operations before
       depreciation, amortization and accretion expense, net other expense and
       income taxes to consolidated net income before income taxes follows
       (amounts in thousands):
<TABLE>
<CAPTION>
         Six months ended June 30,                                               2005            2004
                                                                            -------------- ----------------
         <S>                                                               <C>                  <C>
         Reportable segment earnings from operations before
           depreciation, amortization and accretion expense, net other
           expense and income taxes                                        $    82,495          77,767
         Less All Other loss from operations before depreciation,
           amortization and accretion expense, net other expense and
           income taxes                                                         11,605           7,689
                                                                            -------------- ----------------
              Consolidated earnings from operations before
                depreciation, amortization and accretion expense, net
                other expense and income taxes                                  70,890          70,078
         Less depreciation, amortization and accretion expense                  36,151          31,462
                                                                            -------------- ----------------
              Consolidated operating income                                     34,739          38,616
         Less other expense, net                                                17,276          22,516
                                                                            -------------- ----------------
              Consolidated net income before income taxes                  $    17,463          16,100
                                                                            ============== ================
</TABLE>
       A reconciliation of reportable segment operating income to consolidated
       net income before income taxes follows (amounts in thousands):
<TABLE>
<CAPTION>
         Six months ended June 30,                                               2005            2004
                                                                            --------------- ---------------
         <S>                                                               <C>                  <C>
         Reportable segment operating income                               $    54,242          52,881
         Less All Other operating loss                                          19,503          14,265
                                                                            --------------- ---------------
              Consolidated operating income                                     34,739          38,616
         Less other expense, net                                                17,276          22,516
                                                                            --------------- ---------------
              Consolidated net income before income taxes                  $    17,463          16,100
                                                                            =============== ===============
</TABLE>
(6)    Commitments and Contingencies

       Litigation, Disputes, and Regulatory Matters
       We filed a lawsuit on July 27, 2004 in federal district court against
       AT&T claiming that AT&T has discriminated and continues to discriminate
       against us by refusing to provide wholesale transport services to us on
       the same terms and conditions that AT&T makes available to other
       carriers. On November 30, 2004, AT&T filed a motion for referral of this
       matter to the Commission under the doctrine of primary jurisdiction. On
       February 24, 2005, the Court granted AT&T's motion and dismissed our
       complaint without prejudice. We filed an Amended Formal Complaint against
       AT&T and its subsidiary AT&T Alascom with the FCC on July 6, 2005,
       seeking both injunctive relief and damages to remedy the discrimination.
       We are unable to predict the outcome of our lawsuit with certainty at
       this time.

       On June 25, 2004 the RCA issued an order in our arbitration with Alaska
       Communications Systems Group, Inc. ("ACS") to revise the rates, terms,
       and conditions that govern access to UNEs

                                       19                            (Continued)
<PAGE>
                           GCI, INC. AND SUBSIDIARIES
          Notes to Interim Condensed Consolidated Financial Statements
                                   (Unaudited)

       in the Anchorage market. The RCA's ruling set rates for numerous elements
       of ACS' network, the most significant being the lease rate for local
       loops. The order initially increased the loop rate from $14.92 to $19.15
       per loop per month. We immediately filed a petition for reconsideration
       with the RCA to correct computational errors and raise other issues. On
       August 20, 2004, the RCA ruled on the petition and retroactively lowered
       the loop rate to $18.64 per month. The Commission issued a final order
       approving an interconnection agreement on December 7, 2004. In January
       2005 we appealed the RCA ruling to the Federal District Court in
       Anchorage, Alaska arguing that the pricing and methodology used by ACS
       and approved by the RCA was flawed and in violation of federal law. We
       are unable to predict the outcome of our lawsuit with certainty at this
       time.

       On May 15, 2003, AT&T Corp. ("AT&T") filed a petition with the FCC
       requesting a declaratory ruling that intrastate access charges do not
       apply to certain of its calling card offerings. When AT&T Alascom, a
       subsidiary of AT&T, characterized calling card calls that originate and
       terminate in Alaska as interstate, they shifted certain intrastate access
       charges payable to Alaska local exchange carriers to us. In a proceeding
       before the RCA, the RCA had already declared this AT&T Alascom practice
       to be improper. After AT&T petitioned the FCC, the RCA stayed AT&T
       Alascom's obligations to make back payments for the period prior to
       April, 2004, but ordered AT&T Alascom to pay on an ongoing basis from
       April 1, 2004. On February 23, 2005, the FCC also ruled against AT&T,
       consistent with the RCA's prior findings. With this ruling, we can now
       seek to collect refunds for the intrastate access charge amounts that
       AT&T Alascom unlawfully shifted to us prior to April 1, 2004. On March
       28, 2005, AT&T filed an appeal of the FCC order to the federal Court of
       Appeals for the District of Columbia Circuit. AT&T has also sought from
       the court a stay of the FCC's ruling. We have not completed our
       calculations of the amounts due to us and cannot predict at this time
       with certainty the ultimate amount to be refunded pursuant to this gain
       contingency, however it could be material to our results of operations,
       financial position and cash flows.

       We are involved in various other lawsuits, billing disputes, legal
       proceedings, and regulatory matters that have arisen from time to time in
       the normal course of business. While the ultimate results of these items
       cannot be predicted with certainty we do not expect at this time the
       resolution of them to have a material adverse effect on our financial
       position, results of operations or liquidity.

       Telecommunication Services Agreements
       We lease a portion of our 800-mile fiber optic system capacity that
       extends from Prudhoe Bay to Valdez via Fairbanks, and provide management
       and maintenance services for this capacity to a significant customer. The
       telecommunications service agreement is for fifteen years and may be
       extended for up to two successive three-year periods and, upon expiration
       of the extensions, one additional year. The agreement may be canceled by
       either party with 180 days written notice. On March 24, 2005, the lessee
       announced that they had signed a contract with a competitor to build a
       microwave system to run parallel with our fiber optic cable system. The
       lessee also announced their intention to utilize the microwave system in
       addition to our fiber optic cable system. The lessee has not notified us
       in writing of their intent to change or cancel our agreement. We are
       unable to predict the financial impact of this event on our results of
       operations, financial position and cash flows.


                                       20                            (Continued)
<PAGE>
                           GCI, INC. AND SUBSIDIARIES
          Notes to Interim Condensed Consolidated Financial Statements
                                   (Unaudited)

       A summary of minimum future service revenues from this agreement, follows
       (amounts in thousands):

          Years ending December 31,
            2005                                           $  13,200
            2006                                              13,200
            2007                                              13,200
            2008                                              13,200
            2009                                              13,200
            2010 and thereafter                               85,276
                                                            ---------
              Total minimum future service revenues        $ 151,276
                                                            =========

                                       21
<PAGE>
PART I.
ITEM 2.

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

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

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

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


General Overview

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

As of January 1, 2005 financial information for Broadband services is not
included in the long-distance services segment but is included in the "All
Other" category. Segment and All Other category data for the three and six
months ended June 30, 2004 have been restated to reflect the change.

                                       22
<PAGE>
Results of Operations

The following table sets forth selected Statements of Income data as a
percentage of total revenues for the periods indicated (underlying data rounded
to the nearest thousands):
<TABLE>
<CAPTION>
                                                                        Percentage                             Percentage
                                                                        Change (1)                             Change (1)
                                                Three Months Ended         2005         Six Months Ended          2005
                                                     June 30,               vs.              June 30,              vs.
    (Unaudited)                                 2005          2004         2004         2005         2004         2004
                                                ----          ----         ----         ----         ----         ----
    <S>                                        <C>           <C>          <C>          <C>          <C>          <C>
    Statements of Income Data:
      Revenues:
        Long-distance services segment          43.0%         43.5%         5.2%        42.5%        42.2%         2.9%
        Cable services segment                  23.8%         24.3%         4.6%        24.0%        23.5%         4.4%
        Local access services segment           11.5%         10.8%        13.2%        12.0%        10.8%        13.0%
        Internet services segment                6.7%          6.3%        13.7%         6.8%         6.1%        13.9%
        All other                               15.0%         15.1%         6.3%        14.7%        17.4%       (13.7%)
                                           -------------------------------------------------------------------------------
          Total revenues                       100.0%        100.0%         6.6%       100.0%       100.0%         2.1%
      Selling, general and administrative
        expenses                                34.4%         34.8%         5.3%        34.6%        33.6%         5.2%
      Bad debt expense (recovery)                0.2%         (0.5%)      139.8%        (0.1%)       (0.4%)      (82.0%)
      Depreciation, amortization and
        accretion expense                       16.6%         15.1%        17.2%        16.6%        14.8%        14.9%
      Operating income                          16.3%         18.5%        (6.2%)       16.0%        18.2%       (10.0%)
      Net income before income taxes             8.4%         12.4%       (27.6%)        8.0%         7.6%         8.5%
      Net income                                 4.8%          7.4%       (31.6%)        4.6%         4.5%         3.1%
</TABLE>

                                       23
<PAGE>
<TABLE>
<CAPTION>
                                                                        Percentage                             Percentage
                                                                        Change (1)                             Change (1)
                                                Three Months Ended         2005         Six Months Ended          2005
                                                     June 30,               vs.              June 30,              vs.
    (Unaudited)                                 2005          2004         2004         2005         2004         2004
                                                ----          ----         ----         ----         ----         ----
    <S>                                        <C>            <C>         <C>           <C>          <C>         <C>
    Other Operating Data:
    Long-distance services segment
       operating income (2)                     45.1%         43.7%         8.5%        42.7%        42.9%         2.5%
    Cable services segment operating
       income (3)                               22.3%         27.1%       (14.0%)       23.7%        26.3%        (6.1%)
    Local access services segment
       operating loss (4)                      (10.1%)        (8.4%)      (35.7%)       (6.9%)       (5.7%)      (35.0%)
    Internet services segment operating
       income (5)                               29.3%         22.1%        50.7%        28.6%        19.5%        67.0%
<FN>
--------------------------
1 Percentage change in underlying data.
2 Computed by dividing total external long-distance services segment operating
  income by total external long-distance services segment revenues.
3 Computed by dividing total external cable services segment operating income by
  total external cable services segment revenues.
4 Computed by dividing total external local access services segment operating
  loss by total external local access services segment revenues.
5 Computed by dividing total external Internet services segment operating income
  by total external Internet services segment revenues.
--------------------------
</FN>
</TABLE>
Three Months Ended June 30, 2005 ("2005") Compared To Three Months Ended June
30, 2004 ("2004")

Overview of Revenues and Cost of Goods Sold
Total revenues increased 6.6% from $103.8 million in 2004 to $110.7 million in
2005. Revenue increased in each of our segments and All Other Services. See the
discussion below for more information by segment and for All Other Services.

Total Cost of Goods Sold increased 8.4% from $33.3 million in 2004 to $36.0
million in 2005. Increases in cable services, local access services and Internet
services segments and All Other Services Cost of Goods Sold were partially
off-set by decreased long-distance services segment Cost of Goods Sold. See the
discussion below for more information by segment and for All Other Services.

Long-Distance Services Segment Overview
Long-distance services segment revenue in 2005 represented 43.0% of consolidated
revenues. Our provision of interstate and intrastate long-distance services, and
private line and leased dedicated capacity services accounted for 90.5% of our
total long-distance services segment revenues during 2005.


                                       24
<PAGE>
Factors that have the greatest impact on year-to-year changes in long-distance
services segment revenues include the rate per minute charged to customers,
usage volumes expressed as minutes of use, and the number of private lines and
private networks in use.

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

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

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

After settlement, we began reducing the MCI credit as we utilized it for
services otherwise payable to MCI. We have accounted for our use of the MCI
credit as a gain contingency, and, accordingly, are recognizing a reduction of
bad debt expense as services are provided by MCI and the credit is realized.
During 2005 and 2004 we realized approximately $996,000 and $1.1 million,
respectively, of the MCI credit against amounts payable for services received
from MCI.

The remaining unused MCI credit totaled $1.8 million at June 30, 2005. The
credit balance is not recorded on the Consolidated Balance Sheet as we are
recognizing recovery of bad debt expense as the credit is realized.

In 2005 we renewed our agreement to provide interstate and intrastate
long-distance services to MCI through December 2009 with five one-year automatic
extensions to December 2014. The amendment includes new rates mandated by the
Consolidated Appropriations Act for Fiscal Year 2005 signed into law December 8,
2004 and effective January 22, 2005 which will result in rate decreases of 3%
per year ("Tariff 11 Rates").

In May 2005 Verizon Communications, Inc. agreed to acquire MCI. Any such
acquisition is expected to require approval of shareholders and anti-trust
regulators, as well as state utility commissions that license phone service. We
are unable to predict the impact that a merger with or an acquisition of MCI
will have upon us, however given the materiality of MCI's revenues to us, a
significant reduction in traffic or pricing could have a material adverse effect
on our financial position, results of operations and liquidity.

The initial term of our contract to provide interstate and intrastate
long-distance services and private line and private network services to Sprint
Corporation ("Sprint"), one of our significant customers, ends

                                       25
<PAGE>
in March 2007 with two one-year automatic extensions to March 2009. In 2005 we
amended the original agreement to include Tariff 11 Rates.

In December 2004 Sprint and Nextel Communications, Inc. announced a merger. The
agreement requires approval of shareholders and anti-trust regulators, as well
as state utility commissions that license phone service. We are unable to
predict the outcome this merger will have upon us.

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

Long-distance Services Segment Revenues
Total long-distance services segment revenues increased 5.2% to $47.5 million in
2005. The components of long-distance services segment revenues are as follows
(amounts in thousands):
<TABLE>
<CAPTION>
                                                                        2005              2004        Percentage Change
                                                                   --------------    -------------    -----------------
   <S>                                                            <C>                    <C>               <C>
   Common carrier message telephone services                      $    22,612            21,318             6.1%
   Residential, commercial and governmental message telephone
     services                                                           9,551             9,713            (1.7%)
   Private line and private network services                           10,865            10,669             1.8%
   Lease of fiber optic cable system capacity                           4,519             3,493            29.4%
                                                                   --------------    -------------    -----------------
     Total long-distance services segment revenue                 $    47,547            45,193             5.2%
                                                                   ==============    =============    =================
</TABLE>
Common Carrier Message Telephone Services Revenue
The increase in message telephone service revenues from our other common carrier
customers in 2005 resulted from a 25.2% increase in wholesale minutes carried to
271.2 million minutes.

The 2005 increase in message telephone service revenues from other common
carriers was partially off-set by a 13.4% decrease in the average rate per
minute on minutes carried for other common carriers primarily due to a change in
the composition of traffic resulting from one of our common carrier customer
contracts.

                                       26
<PAGE>
Residential, Commercial, and Governmental Message Telephone Services Revenue
Selected key performance indicators for our offering of message telephone
service to residential, commercial, and governmental customers follow:
<TABLE>
<CAPTION>
                                                     2005                 2004             Percentage Change
                                               ------------------    ------------------    -----------------
   <S>                                           <C>                   <C>                      <C>
   Retail minutes carried                        76.4 million          77.1 million             (0.9%)
   Average rate per minute (1)                      $0.132                $0.133                (0.8%)
   Number of active residential,
     commercial and governmental
     customers (2)                                  91,300                90,700                 0.7%
<FN>
   ------------------------------------
   1  Residential, commercial, and governmental message telephone services
      revenues excluding plan fees associated with the carriage of data services
      divided by the retail minutes carried.
   2  All current subscribers who have had calling activity during June 2005 and
      2004, respectively.
</FN>
</TABLE>
The decrease in message telephone service revenues from residential, commercial,
and governmental customers in 2005 is primarily due to a decrease in the minutes
carried for these customers and in the average rate per minute and is partially
off-set by an increase in the number of active residential, commercial, and
governmental customers billed. The increase in the number of customers billed is
primarily due to our promotion of and our customers' enrollment in bundled
offerings to our residential customers, partially off-set by the effect of
customers substituting cellular phone, prepaid calling card, and email usage for
direct dial minutes.

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

Long-distance Services Segment Cost of Goods Sold
Long-distance services segment Cost of Goods Sold decreased 2.6% to $12.0
million in 2005 primarily due to reduced access costs resulting from the
distribution and termination of our traffic on our own local access services
network instead of paying other carriers to distribute and terminate our
traffic. The statewide average cost savings is approximately $.010 and $.051 per
minute for interstate and intrastate traffic, respectively. We expect cost
savings to continue to occur as long-distance traffic originated, carried, and
terminated on our own facilities grows. Additionally, we performed an analysis
of circuit costs directly contributing to long-distance services segment and
Broadband services revenues and, as a result, decreased long-distance services
segment Cost of Goods Sold by $535,000 in 2005. Broadband services segment Cost
of Goods Sold was increased an equal amount in 2005.

The decrease in the long-distance services segment Cost of Goods Sold in 2005 is
partially off-set by the receipt of a $400,000 refund in 2004 from an intrastate
access cost pool that previously overcharged us for access services.


                                       27
<PAGE>
Long-distance Services Segment Operating Income
Long-distance services segment operating income increased 8.5% to $21.4 million
from 2004 to 2005 primarily due to the following:

         o   A 5.2% increase in long-distance services segment revenue to $47.5
             million in 2005, as discussed above,
         o   A 2.6% decrease in long-distance services segment costs of goods
             sold to $12.0 million in 2005, as discussed above,
         o   A 3.5% decrease in long-distance services segment selling, general
             and administrative expenses to $7.9 million in 2005, and
         o   A 16.0% increase in long-distance services segment depreciation,
             amortization and accretion expense to $6.7 million in 2005 as
             compared to $5.8 million in 2004 primarily due to our investment in
             long-distance services segment equipment and facilities placed into
             service during the year ended December 31, 2004 for which a full
             year of depreciation will be recorded in the year ended December
             31, 2005, and our investment in long-distance services segment
             equipment and facilities placed into service during the six months
             ended June 30, 2005 for which a partial year of depreciation will
             be recorded in the year ended December 31, 2005.

Cable Services Segment Overview
Cable services segment revenues in 2005 represented 23.8% of consolidated
revenues. Our cable systems serve 36 communities and areas in Alaska, including
the state's four largest population centers, Anchorage, Fairbanks, the
Matanuska-Susitna Valley and Juneau. On February 1, 2005 we acquired all of the
assets of Barrow Cable TV, Inc. ("BCTV") for approximately $1.6 million. The
BCTV asset purchase resulted in approximately 950 additional subscribers and
approximately 1,100 additional homes passed.

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

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

Cable Services Segment Revenues and Cost of Goods Sold
Selected key performance indicators for our cable services segment follow:
<TABLE>
<CAPTION>
                                                               June 30,                 Percentage
                                                         2005             2004            Change
                                                    -------------    -------------    ----------------
   <S>                                                 <C>              <C>               <C>
   Basic subscribers                                   137,400          135,200            1.6%
   Digital programming tier subscribers                 48,700           38,800           25.5%
   Cable modem subscribers                              70,200           56,800           23.6%
   Homes passed                                        211,000          204,500            3.2%
</TABLE>

                                       28
<PAGE>
A basic cable subscriber is defined as one basic tier of service delivered to an
address or separate subunits thereof regardless of the number of outlets
purchased. A digital programming tier subscriber is defined as one digital
programming tier of service delivered to an address or separate subunits thereof
regardless of the number of outlets or digital programming tiers purchased. A
cable modem subscriber is defined by the purchase of cable modem service
regardless of the level of service purchased. If one entity purchases multiple
cable modem service access points, each access point is counted as a subscriber.

The components of cable services segment revenues are as follows (amounts in
thousands):
<TABLE>
<CAPTION>
                                                                        2005              2004        Percentage Change
                                                                   --------------    -------------    -----------------
   <S>                                                            <C>                    <C>               <C>
   Programming services                                           $    18,869            18,289             3.2%
   Cable modem services (cable services segment's allocable
     share)                                                             3,313             3,420            (3.1%)
   Equipment rental and installation fees                               2,809             2,375            18.3%
   Advertising sales                                                    1,071               869            23.2%
   Other                                                                  282               228            23.7%
                                                                   --------------    -------------    -----------------
     Total cable services segment revenue                         $    26,344            25,181             4.6%
                                                                   ==============    =============    =================
</TABLE>
Average gross revenue per average basic subscriber per month increased $3.09 or
4.9% in 2005.

The increase in programming services revenue is primarily due to an increase in
basic subscribers in 2005. The increase in equipment rental and installation
fees revenue is primarily caused by the increased use of digital distribution
technology.

Cable services segment Cost of Goods Sold increased 19.3% to $7.6 million in
2005 primarily due to a refund received in 2004 from a supplier retroactive to
August 2003, an arrangement with a supplier in which we earned a rebate in 2004
upon meeting a specified goal, and programming cost increases in 2005 for most
of our cable programming service offerings.

Cable Services Segment Operating Income
Cable services segment operating income decreased 14.0% to $5.9 million from
2004 to 2005 primarily due to the following:

         o   The 19.3% increase in Cost of Goods Sold to $7.6 million in 2005
             described above,
         o   A $475,000 increase in cable services segment selling, general and
             administrative expenses to $7.6 million in 2005 primarily due to an
             increase in labor costs, and
         o   A 9.2% increase in cable services segment depreciation,
             amortization and accretion expense to $5.1 million in 2005 as
             compared to 2004 primarily due to our investment in cable services
             segment equipment and facilities placed into service during the
             year ended December 31, 2004 for which a full year of depreciation
             will be recorded in the year ended December 31, 2005, and our
             investment in cable services segment equipment and facilities
             placed into service during the six months ended June 30, 2005 for
             which a partial year of depreciation will be recorded in the year
             ended December 31, 2005.

                                       29
<PAGE>
The decrease in Cable services segment operating income was partially off-set by
the 4.6% increase in cable services segment revenues to $26.3 million in 2005
described above.

Local Access Services Segment Overview
During 2005 local access services segment revenues represented 11.5% of
consolidated revenues. We generate local access services segment revenues from
three primary sources: (1) business and residential basic dial tone services;
(2) business private line and special access services; and (3) business and
residential features and other charges, including voice mail, caller ID,
distinctive ring, inside wiring and subscriber line charges.

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

Our local access services segment faces significant competition in Anchorage,
Fairbanks, and Juneau from ACS, which is the largest ILEC in Alaska, and from
AT&T Alascom, Inc. in Anchorage for residential services. AT&T Alascom, Inc. has
applied to the RCA to extend its certificate to include Fairbanks and Juneau. We
believe our approach to developing, pricing, and providing local access services
and bundling different business segment services will allow us to be competitive
in providing those services.

In April 2004 we successfully launched our DLPS deployment utilizing our
Anchorage coaxial cable facilities. This service delivery method allows us to
utilize our own cable facilities to provide local access service to our
customers and avoid paying local loop charges to the ILEC. To ensure the
necessary equipment is available to us, we have committed to purchase a certain
number of outdoor, network powered multi-media adapters. We plan to continue to
deploy additional DLPS lines during the year ended December 31, 2005.

 In January 2005 we applied to the RCA to expand our existing certification for
the provision of competitive local service. We applied to provide service in
competition with the existing service provider in five service areas which
include the communities of Ketchikan, Cordova, Chitina, Glenallen, McCarthy,
Mentasta, Tatitlek, Valdez, Delta Junction, Homer, Kenai, Kodiak, Soldotna,
Nenana, North Pole, and the area from Eagle River to Healy. In addition, we have
requested approval to offer local service in six areas covered by our cable
facilities only which include the communities of Wrangell, Petersburg, Sitka,
Seward, Bethel, and Nome.

We plan to offer service in these new areas using a combination of methods. To a
large extent, we plan to use our existing cable network to deliver local
services. Where we do not have cable plant, we may use wireless technologies and
resale of other carrier's services. We may lease portions of an existing
carrier's network or seek wholesale discounts, but our application is not
dependent upon access to either unbundled network elements of the ILEC's network
or wholesale discount rates for resale of ILEC services. The comment period has
closed and we expect the RCA to decide this application no later than September
30, 2005.

On June 25, 2004 the RCA issued an order in our arbitration with ACS to revise
the rates, terms, and conditions that govern access to UNEs in the Anchorage
market. The RCA's ruling set rates for

                                       30
<PAGE>
numerous elements of ACS' network, the most significant being the lease rate for
local loops. The order initially increased the loop rate payable to ACS from
$14.92 to $19.15 per loop per month. We immediately filed a petition for
reconsideration with the RCA to correct computational errors and raise other
issues. On August 20, 2004, the RCA ruled on the petition and retroactively
lowered the loop rate to $18.64 per month. The Commission issued a final order
approving an interconnection agreement on December 7, 2004. In January 2005 we
appealed the RCA ruling to the Federal District Court in Anchorage, Alaska
arguing that the pricing and methodology used by ACS and approved by the RCA was
flawed and in violation of federal law. We cannot predict at this time the
outcome of the lawsuit.

On February 22, 2005, in a complaint proceeding brought by us, the RCA released
a ruling that Matanuska Telephone Association's ("MTA's") rural exemption for
the areas served by MTA Vision, Inc. had been lifted by virtue of its offering
of video programming services and that we may negotiate and arbitrate with MTA.
We tendered a renewed interconnection request to MTA on February 25, 2005. We
filed a petition for arbitration with the RCA on July 15, 2005 and expect
arbitration to be concluded within the 135 day statutory deadline. Negotiations
are continuing while the petition for arbitration is pending.

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

Local Access Services Segment Revenues and Cost of Goods Sold
Selected key performance indicators for our local services segment follow:
<TABLE>
<CAPTION>
                                                               June 30,                 Percentage
                                                         2005             2004            Change
                                                    -------------    -------------    --------------
   <S>                                                 <C>              <C>              <C>
   Total lines in service                              111,900          110,600              1.2%
   DLPS lines in service                                12,800              840          1,423.8%
</TABLE>
A line in service is defined as a revenue generating circuit or channel
connecting a customer to the public switched telephone network. We estimate that
our 2005 and 2004 total lines in service represent a statewide market share of
approximately 24% and 23%, respectively.

Our access line mix at June 30, 2005 follows:

                                                             June 30,
                                                       2005             2004
                                                  -------------    -------------
   Residential customers                                61%              60%
   Business customers                                   36%              34%
   Internet access customers                             3%               6%

In 2005 and 2004 approximately 85% and 84%, respectively, of our lines are
provided on our own facilities and leased local loops. In 2005 and 2004
approximately 6% and 5%, respectively, of our lines are provided using the UNE
platform delivery method.

                                       31
<PAGE>
Local access services segment revenues increased 13.2% in 2005 to $12.7 million
primarily due to the following:

         o   Growth in the average number of lines in service, and
         o   $546,000 increase in support from the Universal Service Program.

Local access services segment Cost of Goods Sold increased 5.6% to $7.2 million
in 2005 primarily due to the growth in the average number of lines in service
and the increased costs resulting from the RCA's Anchorage UNE arbitration
settlement order in June 2004 which increased the UNE lease rate payable to ACS
from $14.92 to $18.64 per line per month beginning on June 25, 2004.
Additionally, the UNE lease rates payable to ACS in Fairbanks and Juneau
increased from $19.19 to $23.00 and $16.71 to $18.00, respectively, as of
January 1, 2005.

Local Access Services Segment Operating Loss
Local access services segment operating loss increased 35.7% to $1.3 million
from 2004 to 2005 primarily due to the following:

         o   The 5.6% increase in Cost of Goods Sold to $7.2 million discussed
             above,
         o   A $716,000 increase in local access services segment selling,
             general and administrative expenses to $4.9 million in 2005
             primarily due to an increase in labor costs, and
         o   An 56.3% increase in local access services segment depreciation,
             amortization and accretion expense to $1.7 million in 2005 as
             compared to 2004 primarily due to our investment in local access
             services segment equipment and facilities placed into service
             during the year ended December 31, 2004 for which a full year of
             depreciation will be recorded in the year ended December 31, 2005,
             and our investment in local access services segment equipment and
             facilities placed into service during the six months ended June 30,
             2005 for which a partial year of depreciation will be recorded in
             2005.

The operating loss increase was partially off-set by the 13.2% revenue increase
to $12.7 million in 2005 discussed above.

The local access services segment operating results are negatively affected by
the allocation of all of the benefit of access cost savings to the long-distance
services segment. If the local access services segment received credit for the
access charge reductions recorded by the long-distance services segment, the
local access services segment operating loss would have improved by
approximately $1.6 million and the long-distance services segment operating
income would have been reduced by an equal amount in 2005 and 2004.

Internet Services Segment Overview
During 2005 Internet services segment revenues represented 6.7% of consolidated
revenues. We generate Internet services segment revenues from three primary
sources: (1) access product services, including commercial, Internet service
provider, and retail dial-up access; (2) network management services; and (3)
Internet services segment's allocable share of cable modem revenue (a portion of
cable modem revenue is also recognized by our cable services segment).

                                       32
<PAGE>
The primary factors that contribute to year-to-year changes in Internet services
segment revenues include the average number of subscribers to our services
during a given reporting period, the average monthly subscription rates, the
amount of bandwidth purchased by large commercial customers, and the number and
type of additional premium features selected.

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

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

Internet Services Segment Revenues and Cost of Goods Sold
Selected key performance indicators for our Internet services segment follow:
<TABLE>
<CAPTION>
                                                        June 30,                 Percentage
                                                 2005             2004             Change
                                             ------------     ------------    ---------------
   <S>                                          <C>             <C>                <C>
   Cable modem subscribers                      70,200           56,800             23.6%
   Dial-up subscribers                          27,700           43,500            (36.3%)
                                             ------------     ------------    ---------------
     Total Internet subscribers                 97,900          100,300             (2.4%)
                                             ============     ============    ===============
</TABLE>
Total Internet subscribers are defined by the purchase of Internet access
service regardless of the level of service purchased. If one entity purchases
multiple Internet access service points, that entity is included in our total
Internet subscriber count at a rate equal to the number of access points
purchased. A subscriber with both cable modem and dial-up service is included
once as a cable modem subscriber. A dial-up subscriber is defined by the
purchase of dial-up Internet service regardless of the level of service
purchased. If one entity purchases multiple dial-up service access points, each
access point is counted as a subscriber.

The decrease in total Internet subscribers is primarily due to non-revenue
affecting adjustments to our customer database to prepare for the implementation
of a new customer service information system. We expect further such adjustments
during the three-month period ending September 30, 2005.

Total Internet services segment revenues increased 13.7% to $7.4 million in 2005
primarily due to the 12.9% increase in its allocable share of cable modem
revenues to $3.2 million in 2005 as compared to 2004. The increase in cable
modem revenues is primarily due to growth in cable modem subscribers.
Additionally, in 2004 the Internet services segment sold services to Broadband
services (included in the All Other category) and all of the revenue was
eliminated from the Internet services segment. In 2005 Broadband services and
Internet services are operating under a revenue-share agreement that has
resulted in an allocation of revenue between the Internet services segment and
the All Other category. Internet services segment revenue would have been $7.0
million and $6.5 million in 2005 and 2004, respectively, if the change in the
external revenue distribution had not occurred.

Internet services Cost of Goods Sold increased 3.8% to $1.9 million in 2005
associated with increased Internet services segment revenues.

                                       33
<PAGE>
Internet Services Segment Operating Income
Internet services segment operating income increased 50.7% to $2.2 million from
2004 to 2005 primarily due to the 13.7% increase in Internet services segment
revenues to $7.4 million in 2005 as described above and a $82,000 decrease in
selling, general and administrative expenses to $2.4 million.

The operating income increase is partially off-set by the 3.8% increase in Cost
of Goods Sold to $1.9 million as described above and a 14.3% increase in
Internet services segment depreciation, amortization and accretion expense to
$887,000 in 2005 as compared to 2004 primarily due to our investment in Internet
services segment equipment and facilities placed into service during the year
ended December 31, 2004 for which a full year of depreciation will be recorded
in the year ended December 31, 2005, and our investment in Internet services
segment equipment and facilities placed into service during the six months ended
June 30, 2005 for which a partial year of depreciation will be recorded in 2005.

All Other Overview
Revenues reported in the All Other category as described in note 5 in the
accompanying "Notes to Interim Condensed Consolidated Financial Statements"
include our Broadband services, managed services, product sales, and cellular
telephone services.

Revenues included in the All Other category represented 15.0% of total revenues
in 2005.

We lease a portion of our 800-mile fiber optic system capacity that extends from
Prudhoe Bay to Valdez via Fairbanks, and provide management and maintenance
services for this capacity to a significant customer. The telecommunications
service agreement is for fifteen years and may be extended for up to two
successive three-year periods and, upon expiration of the extensions, one
additional year. The agreement may be canceled by either party with 180 days
written notice. On March 24, 2005, the lessee announced that they had signed a
contract with a competitor to build a microwave system to run parallel with our
fiber optic cable system. The lessee also announced their intention to utilize
the microwave system in addition to our fiber optic cable system. The lessee has
not notified us in writing of their intent to change or cancel our agreement.
Revenue associated with this agreement totals approximately $13.2 million per
year. We are unable to predict the financial impact of this event on our results
of operations, financial position and cash flows, however we believe that
operating income from sales or leases of capacity and provision of other
services on this fiber optic cable system to other customers will partially
offset operating income reductions that may result if our contract is cancelled.

All Other Revenues and Cost of Goods Sold
All Other revenues increased 6.3% to $16.7 million in 2005 primarily due to a
49.7% increase in revenues from our cellular telephone services to $1.6 million
resulting from increased promotion of our digital cellular telephone service.

All Other revenues would have increased 9.2% to $17.1 million in 2005 if we had
not changed the allocation of external revenue between our Internet services
segment and Broadband services. In 2004 all of a certain revenue stream was
retained by Broadband services and the associated internal Cost of Goods Sold
purchased from the Internet services segment was eliminated from the All Other
category. In 2005 Broadband services and Internet services operate under a
revenue-share agreement that has

                                       34
<PAGE>
resulted in an allocation of the revenue between the Internet services segment
and the All Other category.

All Other Cost of Goods Sold increased 23.9% to $7.4 million in 2005 primarily
associated with increased cellular telephone services revenues. Additionally, we
performed an analysis of circuit costs directly contributing to long-distance
services segment and Broadband services revenues and, as a result, increased
Broadband services Cost of Goods Sold by $535,000 in 2005. Long-distance
services segment Cost of Goods Sold was decreased an equal amount in 2005.

Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 5.3% to $38.0 million in
2005 primarily due to a $991,000 increase in labor and health insurance costs
resulting from an increased number of employees and a $464,000 increase in
contract labor and contract services expenses associated with special projects.
As a percentage of total revenues, selling, general and administrative expenses
decreased to 34.4% in 2005 from 34.8% in 2004, primarily due to an increase in
revenues without a proportional increase in selling, general and administrative
expenses.

Bad Debt Expense (Recovery)
Bad debt expense (recovery) increased approximately $681,000 to a net expense of
$194,000 in 2005. The increase is primarily due to allowances established for
two Broadband services customers. The bad debt expense is partially off-set by
realization of approximately $996,000 of the MCI credit through a reduction to
bad debt expense in 2005, as further discussed above in "Long Distance Services
Segment Overview." We realized approximately $1.1 million of the MCI credit
through a reduction to bad debt expense in 2004.

Depreciation, Amortization and Accretion Expense
Depreciation, amortization and accretion expense increased 17.2% to $18.4
million in 2005. The increase is primarily due to the following:

         o   Our $122.9 million investment in equipment and facilities placed
             into service during 2004 for which a full year of depreciation will
             be recorded in 2005,
         o   Our $33.2 million investment in equipment and facilities placed
             into service during the six months ended June 30, 2005 for which a
             partial year of depreciation will be recorded in 2005, and
         o   A $527,000 increase in depreciation expense during 2005 due to the
             decreased useful life resulting from the failure of our Galaxy XR
             satellite propulsion system.

Other Expense, Net
Other expense, net of other income, increased 37.0% to $8.7 million in 2005
primarily due to the following:

         o   An increase in interest expense of approximately $1.3 million in
             2005 on our new Senior Notes due to an increase in the outstanding
             balance owed, and
         o   An increase in interest expense of approximately $982,000 in 2005
             on our Senior Credit Facility due to $631,000 in construction
             period interest expense capitalization in 2004.

                                       35
<PAGE>
The increase in other expense, net of other income is partially off-set by
decreased interest rates on our Senior Credit Facility in 2005 as compared to
2004.

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

Income tax expense was $4.0 million in 2005 and $5.1 million in 2004. The change
was due to decreased net income before income taxes in 2005 as compared to 2004.
Our effective income tax rate increased from 40.0% in 2004 to 43.3% in 2005 due
to adjustments to deferred tax assets and liabilities balances in 2004.

At June 30, 2005, we have (1) tax net operating loss carryforwards of
approximately $172.5 million that will begin expiring in 2007 if not utilized,
and (2) alternative minimum tax credit carryforwards of approximately $1.9
million available to offset regular income taxes payable in future years. We
estimate that we will utilize net operating loss carryforwards of $18 million to
$19 million during the year ended December 31, 2005. Our utilization of certain
net operating loss carryforwards is subject to limitations pursuant to Internal
Revenue Code section 382.

Tax benefits associated with recorded deferred tax assets are considered to be
more likely than not realizable through future reversals of existing taxable
temporary differences and future taxable income exclusive of reversing temporary
differences and carryforwards. The amount of deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced which would result in
additional income tax expense. We estimate that our effective annual income tax
rate for financial statement purposes will be 42% to 44% in 2005.

Six Months Ended June 30, 2005 ("2005") Compared To Six Months Ended
June 30, 2004 ("2004")

Overview of Revenues and Cost of Goods Sold
Total revenues increased 2.1% from $212.7 million in 2004 to $217.2 million in
2005. Revenue increases in each of our segments were off-set by a decrease in
All Other Services revenues. See the discussion below for more information by
segment.

Total Cost of Goods Sold decreased 1.0% from $72.0 million in 2004 to $71.2
million in 2005. A decrease in All Other Services Cost of Goods Sold was
partially off-set by increases in all of our segment's Cost of Goods Sold. See
the discussion below for more information by segment.

Long-Distance Services Segment Overview
Long-distance services segment revenue in 2005 represented 42.5% of consolidated
revenues. Our provision of interstate and intrastate long-distance services, and
private line and leased dedicated capacity services accounted for 89.9% of our
total long-distance services segment revenues during 2005.

After the settlement agreement for pre-petition amounts owed to us by MCI
discussed above, we have been recognizing a reduction of bad debt expense as
services are provided by MCI and the credit is

                                       36
<PAGE>
realized. During 2005 and 2004 we realized approximately $1.9 million and $2.3
million, respectively, of the MCI credit against amounts payable for services
received from MCI.

Please refer to our discussion of the three-month results of operations for
greater detail about this segment.

Long-distance Services Segment Revenues
Total long-distance services segment revenues increased 2.9% to $92.3 million in
2005. The components of long-distance services segment revenues are as follows
(amounts in thousands):
<TABLE>
<CAPTION>
                                                                        2005              2004        Percentage Change
                                                                   --------------    -------------    -----------------
   <S>                                                            <C>                    <C>               <C>
   Common carrier message telephone services                      $    41,939            42,396            (1.1%)
   Residential, commercial and governmental message telephone
     services                                                          19,150            19,700            (2.8%)
   Private line and private network services                           21,865            21,035             3.9%
   Lease of fiber optic cable system capacity                           9,335             6,589            41.7%
                                                                   --------------    -------------    -----------------
     Total long-distance services segment revenue                 $    92,289            89,720             2.9%
                                                                   ==============    =============    =================
</TABLE>
Common Carrier Message Telephone Services Revenue
The 2005 decrease in message telephone service revenues from our other common
carrier customers resulted from a 7.4% decrease in the average rate per minute
on minutes carried for other common carriers primarily due to the decreased
average rate per minute as agreed to in the June 2004 amendment of our contract
to provide interstate and intrastate long-distance services to Sprint, and the
Tariff 11 Rate decrease effective January 23, 2005.

The decrease in message telephone service revenues from other common carriers in
2005 was partially off-set by a 12.6% increase in wholesale minutes carried to
497.8 million minutes.

Residential, Commercial, and Governmental Message Telephone Services Revenue
Selected key performance indicators for our offering of message telephone
service to residential, commercial, and governmental customers follow:
<TABLE>
<CAPTION>
                                                      2005                 2004            Percentage Change
                                               ------------------    ------------------    -----------------
   <S>                                            <C>                   <C>                      <C>
   Retail minutes carried                         152.3 million         153.0 million            (0.5%)
   Average rate per minute (1)                       $0.132                $0.131                 0.8%
   Number of active residential,
     commercial and governmental
     customers (2)                                   91,300                90,700                 0.7%
<FN>
   ------------------------------------
   1  Residential, commercial, and governmental message telephone services
      revenues excluding plan fees associated with the carriage of data services
      divided by the retail minutes carried.
   2  All current subscribers who have had calling activity during June 2005 and
      2004, respectively.
</FN>
</TABLE>
                                       37
<PAGE>
The decrease in message telephone service revenues from residential, commercial,
and governmental customers in 2005 is primarily due to decreased minutes carried
for these customers and is partially off-set by an increase in the average rate
per minute and an increase in the number of active residential, commercial, and
governmental customers billed. The increase in the number of customers billed is
primarily due to our promotion of and our customers' enrollment in bundled
offerings to our residential customers, partially off-set by the effect of
customers substituting cellular phone, prepaid calling card, and email usage for
direct dial minutes.

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

Long-distance Services Segment Cost of Goods Sold
Long-distance services segment Cost of Goods Sold was $24.8 million in 2005 and
2004.

The benefit of a $800,000 refund in 2004 from an intrastate access cost pool
that previously overcharged us for access services was off-set by reduced access
costs in 2005 due to distribution and termination of our traffic on our own
local access services network instead of paying other carriers to distribute and
terminate our traffic. The statewide average cost savings is approximately $.010
and $.051 per minute for interstate and intrastate traffic, respectively. We
expect cost savings to continue to occur as long-distance traffic originated,
carried, and terminated on our own facilities grows.

Long-distance Services Segment Operating Income
Long-distance services segment operating income increased 2.5% to $39.4 million
from 2004 to 2005 primarily due to a 2.9% increase in long-distance services
segment revenue to $92.3 million in 2005, as discussed above. The increase in
long-distance services segment operating income was partially off-set by the
following:

         o   A 1.3% increase in long-distance services segment selling, general
             and administrative expenses to $16.2 million in 2005, and
         o   A 7.6% increase in long-distance services segment depreciation,
             amortization and accretion expense to $12.9 million in 2005 as
             compared to 2004 primarily due to our investment in long-distance
             services segment equipment and facilities placed into service
             during the year ended December 31, 2004 for which a full year of
             depreciation will be recorded in the year ended December 31, 2005,
             and our investment in long-distance services segment equipment and
             facilities placed into service during the six months ended June 30,
             2005 for which a partial year of depreciation will be recorded in
             the year ended December 31, 2005.

Cable Services Segment Overview
Cable services segment revenues in 2005 represented 24.0% of consolidated
revenues.

Please refer to our discussion of the three-month results of operations for
greater detail about this segment.


                                       38
<PAGE>
Cable Services Segment Revenues and Cost of Goods Sold
The components of cable services segment revenues are as follows (amounts in
thousands):
<TABLE>
<CAPTION>
                                                                        2005              2004        Percentage Change
                                                                   --------------    -------------    -----------------
   <S>                                                            <C>                    <C>               <C>
   Programming services                                           $    37,675            36,542             3.1%
   Cable modem services (cable services segment's allocable
     share)                                                             6,574             6,736            (2.4%)
   Equipment rental and installation fees                               5,544             4,702            17.9%
   Advertising sales                                                    1,961             1,615            21.4%
   Other                                                                  489               438            11.6%
                                                                   --------------    -------------    -----------------
     Total cable services segment revenue                         $    52,243            50,033             4.4%
                                                                   ==============    =============    =================
</TABLE>
Average gross revenue per average basic subscriber per month increased $3.12 or
5.0% in 2005.

The increase in programming services revenue is primarily due to an increase in
basic subscribers in 2005. The increase in equipment rental and installation
fees revenue is primarily caused by the increased use of digital distribution
technology.

Cable services segment Cost of Goods Sold increased 8.8% to $14.6 million in
2005 primarily due to a refund received in 2004 from a supplier retroactive to
August 2003, an arrangement with a supplier in which we earned a rebate in 2004
upon us meeting a specified goal, and programming cost increases in 2005 for
most of our cable programming service offerings. The increase in Cable services
segment Cost of Goods Sold is partially off-set by a rebate received in 2005
upon meeting specified goals according to arrangements with suppliers.

Cable Services Segment Operating Income
Cable services segment operating income decreased 6.1% to $12.4 million from
2004 to 2005 primarily due to the following:

         o   The 8.8% increase in Cost of Goods Sold to $14.6 million in 2005
             described above,
         o   A $1.0 million increase in cable services segment selling, general
             and administrative expenses to $14.7 million in 2005 primarily due
             to an increase in labor costs and contract labor and contract
             services expenses, and
         o   A 9.1% increase in cable services segment depreciation,
             amortization and accretion expense to $10.2 million in 2005 as
             compared to 2004 primarily due to our investment in cable services
             segment equipment and facilities placed into service during the
             year ended December 31, 2004 for which a full year of depreciation
             will be recorded in the year ended December 31, 2005, and our
             investment in cable services segment equipment and facilities
             placed into service during the six months ended June 30, 2005 for
             which a partial year of depreciation will be recorded in the year
             ended December 31, 2005.

The decrease in Cable services segment operating income was partially off-set by
the 4.4% increase in cable services segment revenues to $52.2 million in 2005
described above.


                                       39
<PAGE>
Multiple System Operator ("MSO") Operating Statistics
Our operating statistics include capital expenditures and customer information
from our cable services segment and the components of our local access services
and Internet services segments which offer services utilizing our cable services
segment's facilities.

Our capital expenditures by standard reporting category for the six months ended
June 30, 2005 and 2004 follows (amounts in thousands):

                                                        2005              2004
                                                    ----------        ----------
    Upgrade/rebuild                                $   7,441             3,355
    Customer premise equipment                         7,138             6,970
    Scalable infrastructure                            1,818             2,805
    Line extensions                                    1,363               149
    Support capital                                      508               595
    Commercial                                           169               213
                                                    ----------        ----------
    Sub-total                                         18,437            14,087

    Remaining reportable segments and
      All Other capital expenditures                  29,253            50,060
                                                    ----------        ----------
                                                   $  47,690            64,147
                                                    ==========        ==========

The standardized definition of a customer relationship is the number of
customers that receive at least one level of service utilizing our cable
services segment's facilities, encompassing voice, video, and data services,
without regard to which services customers purchase. At June 30, 2005 and 2004
we had 125,400 and 123,300 customer relationships, respectively.

The standardized definition of a revenue generating unit is the sum of all
primary analog video, digital video, high-speed data, and telephony customers,
not counting additional outlets. At June 30, 2005 and 2004 we had 220,500 and
192,000 revenue generating units, respectively.

Local Access Services Segment Overview
During 2005 local access services segment revenues represented 12.0% of
consolidated revenues.

Please refer to our discussion of the three-month results of operations for
greater detail about this segment.

Local Access Services Segment Revenues and Cost of Goods Sold
Local access services segment revenues increased 13.0% in 2005 to $26.0 million
primarily due to the following:

         o   Growth in the average number of lines in service, and
         o   $1.3 million increase in support from the Universal Service
             Program.

Local access services segment Cost of Goods Sold increased 8.3% to $14.5 million
in 2005 primarily due to the growth in the average number of lines in service
and the increased costs resulting from the RCA's Anchorage UNE arbitration
settlement order in June 2004 which increased the UNE lease rate payable to ACS
from $14.92 to $18.64 per line per month beginning on June 25, 2004.
Additionally,

                                       40
<PAGE>
the UNE lease rates payable to ACS in Fairbanks and Juneau increased from $19.19
to $23.00 and $16.71 to $18.00, respectively, as of January 1, 2005.

Local Access Services Segment Operating Loss
Local access services segment operating loss increased 35.0% to $1.8 million
from 2004 to 2005 primarily due to the following:

         o   The 8.3% increase in Cost of Goods Sold to $14.5 million discussed
             above,
         o   A $891,000 increase in local access services segment selling,
             general and administrative expenses to $9.8 million in 2005 due to
             additional costs associated with DLPS and an increase in
             interconnect rates resulting from a renewed Anchorage
             interconnection agreement beginning in June 2004, and
         o   An 67.1% increase in local access services segment depreciation,
             amortization and accretion expense to $3.3 million in 2005 as
             compared to 2004 primarily due to our investment in local access
             services segment equipment and facilities placed into service
             during the year ended December 31, 2004 for which a full year of
             depreciation will be recorded in the year ended December 31, 2005,
             and our investment in local access services segment equipment and
             facilities placed into service during the six months ended June 30,
             2005 for which a partial year of depreciation will be recorded in
             2005.

The operating loss increase was partially off-set by the 13.0% revenue increase
to $26.0 million in 2005 discussed above.

The local access services segment operating results are negatively affected by
the allocation of all of the benefit of access cost savings to the long-distance
services segment. If the local access services segment received credit for the
access charge reductions recorded by the long-distance services segment, the
local access services segment operating loss would have improved by
approximately $3.4 million and $3.3 million and the long-distance services
segment operating income would have been reduced by an equal amount in 2005 and
2004, respectively.

Internet Services Segment Overview
During 2005 Internet services segment revenues represented 6.8% of consolidated
revenues.

Please refer to our discussion of the three-month results of operations for
greater detail about this segment.

Internet Services Segment Revenues and Cost of Goods Sold
Total Internet services segment revenues increased 13.9% to $14.7 million in
2005 primarily due to the 12.7% increase in its allocable share of cable modem
revenues to $6.2 million in 2005 as compared to 2004. The increase in cable
modem revenues is primarily due to growth in cable modem subscribers.
Additionally, in 2004 the Internet services segment sold services to Broadband
services (included in the All Other category) and all of the revenue was
eliminated from the Internet services segment. In 2005 Broadband services and
Internet services are operating under a revenue-share agreement that has
resulted in an allocation of revenue between the Internet services segment and
the All Other category. Internet services segment revenue would have been $13.8
million and $12.9 million in 2005 and 2004, respectively, if the change in the
external revenue distribution had not occurred.


                                       41
<PAGE>
Internet services Cost of Goods Sold increased 5.4% to $3.8 million in 2005
associated with increased Internet services segment revenues.

Internet Services Segment Operating Income
Internet services segment operating income increased 67.0% to $4.2 million from
2004 to 2005 primarily due to the 13.9% increase in Internet services segment
revenues to $14.7 million in 2005 as described above and a $435,000 decrease in
selling, general and administrative expenses to $4.8 million.

The operating income increase is partially off-set by the 5.4% increase in Cost
of Goods Sold to $3.8 million as described above and a 18.3% increase in
Internet services segment depreciation, amortization and accretion expense to
$1.8 million in 2005 as compared to 2004 primarily due to our investment in
Internet services segment equipment and facilities placed into service during
the year ended December 31, 2004 for which a full year of depreciation will be
recorded in the year ended December 31, 2005, and our investment in Internet
services segment equipment and facilities placed into service during the six
months ended June 30, 2005 for which a partial year of depreciation will be
recorded in 2005.

All Other Overview
Revenues included in the All Other category represented 14.7% of total revenues
in 2005.

Please refer to our discussion of the three-month results of operations for
greater detail about the All Other category.

All Other Revenues and Cost of Goods Sold
All Other revenues decreased 13.7% to $31.9 million in 2005 primarily due to
$6.1 million earned in 2004 from an equipment sale and installation project. The
decrease in All Other revenues is partially off-set by a 77.5% increase in
revenues from our cellular telephone services to $2.7 million resulting from
increased promotion of our digital cellular telephone service.

All Other revenues would have decreased 11.2% to $32.9 million in 2005 if we had
not changed the allocation of external revenue between our Internet services
segment and Broadband services. In 2004 all of a certain revenue stream was
retained by Broadband services and the associated internal Cost of Goods Sold
purchased from the Internet services segment was eliminated from the All Other
category. In 2005 Broadband services and Internet services operate under a
revenue-share agreement that has resulted in an allocation of the revenue
between the Internet services segment and the All Other category.

All Other Cost of Goods Sold decreased 19.2% to $13.6 million in 2005 due to
$5.5 million in costs in 2004 associated with an equipment sale and installation
project. The decrease in All Other Cost of Goods Sold is partially off-set by
increased costs associated with cellular telephone services revenues.

Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 5.2% to $75.2 million in
2005 primarily due to a $1.4 million increase in labor and health insurance
costs resulting from an increased number of employees and a $1.3 million
increase in contract labor and contract services expenses associated with
special projects. As a percentage of total revenues, selling, general and
administrative expenses

                                       42
<PAGE>
increased to 34.6% in 2005 from 33.6% in 2004, primarily due to an increase in
selling, general and administrative expenses without a proportional increase in
revenues.

Bad Debt Recovery
Bad debt recovery decreased 82.0% to a net recovery of $159,000 in 2005. The
decrease is primarily due to allowances established for two Broadband services
customers.

Bad debt recovery includes realization of approximately $1.9 million of the MCI
credit through a reduction to bad debt expense in 2005, as further discussed
above in "Long Distance Services Segment Overview." We realized approximately
$2.3 million of the MCI credit through a reduction to bad debt expense in 2004.

Depreciation, Amortization and Accretion Expense
Depreciation, amortization and accretion expense increased 14.9% to $36.2
million in 2005. The increase is primarily due to the following:

         o   Our $122.9 million investment in equipment and facilities placed
             into service during 2004 for which a full year of depreciation will
             be recorded in 2005,
         o   The $33.2 million investment in equipment and facilities placed
             into service during the six months ended June 30, 2005 for which a
             partial year of depreciation will be recorded in 2005, and
         o   A $527,000 increase in depreciation expense during 2005 due to the
             decreased useful life resulting from the failure of our Galaxy XR
             satellite propulsion system.

Other Expense, Net
Other expense, net of other income, decreased 23.3% to $17.3 million in 2005
primarily due to following:

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

 Partially offsetting the decreases described above were the following:

         o   An increase in interest expense of approximately $2.1 million in
             2005 on our new Senior Notes due to an increase in the outstanding
             balance owed, and
         o   An increase in interest expense of approximately $1.2 million in
             2005 on our Senior Credit Facility due to $1.1 million in
             construction period interest expense capitalization in 2004.

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


                                       43
<PAGE>
Income tax expense was $7.5 million in 2005 and $6.5 million in 2004. The change
was due to increased net income before income taxes in 2005 as compared to 2004.
Our effective income tax rate increased from 40.3% in 2004 to 43.0% in 2005 due
to adjustments to deferred tax assets and liabilities balances in 2004.


Liquidity and Capital Resources

Cash flows from operating activities totaled $47.9 million in 2005 as compared
to $44.4 million in 2004. The 2005 increase is primarily due to increased cash
flow from our long-distance services, cable services, local access services and
Internet services segments and a $4.1 million decrease in the payment of our
company-wide success sharing bonus in 2005, partially off-set by decreased cash
flows from All Other Services.

Other uses of cash during 2005 included expenditures of $47.7 million for
property and equipment, including construction in progress, the purchase of $8.0
million of GCI's common stock, the purchase of $6.6 million of GCI's Series B
preferred stock, and $3.2 million in capital lease obligation repayments.

Working capital totaled $17.8 million at June 30, 2005, a $21.3 million decrease
as compared to $39.1 million at December 31, 2004. The decrease is primarily due
to the $16.0 million increase in the portion of our Senior Credit Facility
classified as current maturity at June 30, 2005 as compared to December 31,
2004, the use of $8.0 million to repurchase shares of GCI's Class A common stock
in 2005 as compared to no such purchases in 2004, and the use of cash to fund
our capital expenditures during 2005.

We have outstanding Senior Notes of $316.1 million at June 30, 2005. We pay
interest of 7.25% on the Senior Notes. The Senior Notes are carried on our
Consolidated Balance Sheet net of the unamortized portion of the discount, which
is being amortized to Interest Expense over the life of the Senior Notes.

A semi-annual interest payment of approximately $11.6 million was paid in
February 2005; the next semi-annual interest payment will be made in August
2005.

The Senior Notes limit our ability to make cash dividend payments. The Senior
Notes are due in February 2014.

In December 2004 we sold $70.0 million in aggregate principal amount of senior
unsecured debt securities to qualified institutional buyers pursuant to Rule
144A and non-United States persons pursuant to Regulation S. On May 6, 2005, we
commenced an offer to exchange these privately issued Senior Notes that have
been registered under the Securities Act and have otherwise identical terms to
the original Senior Notes privately issued in February 2004 (except for
provisions relating our obligations to consummate the exchange offer). The
exchange offer closing occurred on June 9, 2005, 2005, at which time all $70.0
million in aggregate principal amount of the privately issued Senior Notes were
tendered and exchanged for the Senior Notes that have been registered under the
Securities Act.

We were in compliance with all Senior Notes loan covenants at June 30, 2005.


                                       44
<PAGE>
Our Senior Credit Facility term loan is fully drawn and we have letters of
credit outstanding totaling $5.5 million, which leaves $44.5 million available
to draw under the revolving credit facility at June 30, 2005 if needed. We have
not borrowed under the revolving portion of our Senior Credit Facility in 2005.
Our ability to draw down the revolving portion of our Senior Credit Facility
could be diminished if we are not in compliance with all Senior Credit Facility
covenants or have a material adverse change at the date of the request for the
draw.

We are required to pay down $168,000, $8.0 million, and $8.0 million in term
loan principal on our Senior Credit Facility by December 31, 2005, March 31,
2006, and June 30, 2006, respectively. All outstanding amounts under our Senior
Credit Facility are due October 31, 2007. We expect to refinance our Senior
Credit Facility during the third quarter of 2005.

We were in compliance with all Senior Credit Facility loan covenants at June 30,
2005.

Our expenditures for property and equipment, including construction in progress,
totaled $47.7 million and $64.1 million during the six months ended June 30,
2005 and 2004, respectively. Our capital expenditures requirements in excess of
approximately $25 million per year are largely success driven and are a result
of the progress we are making in the marketplace. We expect our 2005
expenditures for property and equipment for our core operations, including
construction in progress, to total approximately $85.0 million, depending on
available opportunities and the amount of cash flow we generate during 2005.

Planned capital expenditures over the next five years include those necessary
for continued expansion of our long-distance, local exchange and Internet
facilities, supplementing our existing network backup facilities, continuing
deployment of DLPS, and upgrades to and expansions of our cable television
plant.

In December 2004 Sprint and Nextel Communications, Inc. announced a merger. The
agreement requires approval of shareholders and anti-trust regulators, as well
as state utility commissions that license phone service. Sprint is one of our
significant customers. We are unable to predict the outcome this merger will
have on us.

In May 2005 Verizon Communications, Inc. agreed to acquire MCI, our major
customer. Any such acquisition is expected to require approval of shareholders
and anti-trust regulators. We are unable to predict the impact that a merger
with or an acquisition of MCI will have upon us, however given the materiality
of MCI's revenues to us, a significant reduction in traffic or pricing could
have a material adverse effect on our financial position, results of operations
and liquidity.

A migration of MCI's or Sprint's traffic off of our network without it being
replaced by other common carriers that interconnect with our network could have
a material adverse impact on our financial position, results of operations and
liquidity.

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


                                       45
<PAGE>
GCI's Board of Directors has authorized a common stock buyback program for the
repurchase of GCI's Class A and Class B common stock. We pay for the stock
repurchases on GCI's behalf. GCI's Board of Directors authorized us and we
obtained permission from our lenders and GCI's preferred shareholder for up to
$20.0 million of repurchases through June 30, 2005. During the six month period
ended June 30, 2005 we repurchased on GCI's behalf 930,762 shares of its Class A
common stock at a cost of approximately $8.7 million. We expect to continue the
repurchases throughout 2005 subject to the availability of free cash flow,
availability under our credit facilities, the price of GCI's Class A and Class B
common stock and the requisite consents of our lenders. The repurchases have and
will continue to comply with the restrictions of SEC rule 10b-18.

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

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

New Accounting Standards

In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment,"
requiring all companies to measure compensation cost for all share-based
payments (including employee stock options) at fair value. After consideration
of the SEC's April 2005 amendment of the SFAS No. 123R compliance dates, SFAS
No. 123R is effective for annual periods beginning after June 15, 2005, or
December 15, 2005 for small business issuers. As of January 1, 2006, we will
apply SFAS No. 123R using a modified version of prospective application. Under
that transition method, compensation cost is recognized on or after January 1,
2006 for the portion of outstanding awards for which the requisite service has
not yet been rendered, based on the grant-date fair value of those awards
calculated under SFAS No. 123 for either recognition or pro forma disclosures.
In March 2005 the SEC issued SAB No. 107 expressing the SEC staff's view
regarding the interaction between SFAS No. 123R and certain SEC rules and
regulations and providing the staff's views regarding the valuation of
share-based payment arrangements for public companies. We estimate the
application of SFAS No. 123R will result in an increase in our compensation cost
for all share-based payments of approximately $2.3 million during the year ended
December 31, 2006.

In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets," which amends APB Opinion No. 29, "Accounting for Nonmonetary
Transactions." The guidance in APB Opinion No. 29 is based on the principle that
exchanges of nonmonetary assets should be measured based on the fair value of
the assets exchanged. The guidance in that Opinion, however, included certain
exceptions to that principle. SFAS No. 153 amends APB Opinion No. 29 to
eliminate the exception for nonmonetary exchanges of similar productive assets
and replaces it with a general exception for exchanges of nonmonetary assets
that do not have commercial substance. A nonmonetary exchange has commercial
substance if the future cash flows of the entity are expected to change
significantly as a result of the

                                       46
<PAGE>
exchange. We will adopt this statement July 1, 2005 and do not expect it to have
a material effect on our results of operations, financial position and cash
flows.

In March 2005, the FASB issued FASB Interpretation ("FIN") 47, "Accounting for
Conditional Asset Retirement Obligations." FIN 47 clarifies that the term
conditional asset retirement obligation as used in SFAS No. 143, "Accounting for
Asset Retirement Obligations," refers to a legal obligation to perform an asset
retirement activity in which the timing and (or) method of settlement are
conditional on a future event that may or may not be within the control of the
entity. The obligation to perform the asset retirement activity is unconditional
even though uncertainty exists about the timing and (or) method of settlement.
Thus, the timing and (or) method of settlement may be conditional on a future
event. Accordingly, an entity is required to recognize a liability for the fair
value of a conditional asset retirement obligation if the fair value of the
liability can be reasonably estimated. The fair value of a liability for the
conditional asset retirement obligation should be recognized when
incurred--generally upon acquisition, construction, or development and (or)
through the normal operation of the asset. We will adopt FIN 47 for our annual
report for the year ended December 31, 2005 and do not expect it to have a
material effect on our results of operations, financial position and cash flows.

In May 2005, the FASB issued SFAS 154, "Accounting Changes and Error
Corrections--a replacement of APB Opinion No. 20 and FASB Statement No. 3." SFAS
154 replaces APB Opinion No. 20, "Accounting Changes," and FASB Statement No. 3,
"Reporting Accounting Changes in Interim Financial Statements," and changes the
requirements for the accounting for and reporting of a change in accounting
principle. SFAS 154 applies to all voluntary changes in accounting principle. It
also applies to changes required by an accounting pronouncement in the unusual
instance that the pronouncement does not include specific transition provisions.
When a pronouncement includes specific transition provisions, those provisions
should be followed. We will adopt this statement January 1, 2006 and do not
expect it to have a material effect on our results of operations, financial
position and cash flows.

In June 2005, the FASB ratified EITF Issue No. 04-10, "Determining Whether to
Aggregate Operating Segments That Do Not Meet the Quantitative Thresholds,"
which clarifies the guidance in paragraph 19 of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." According to EITF Issue No.
04-10, operating segments that do not meet the quantitative thresholds can be
aggregated only if aggregation is consistent with the objective and basic
principles of SFAS No. 131, the segments have similar economic characteristics,
and the segments share a majority of the aggregation criteria listed in items
(a)-(e) in paragraph 17 of SFAS No. 131. We will adopt EITF Issue No. 04-10 for
our annual report for the year ended December 31, 2005 and do not expect it to
result in a change to our SFAS No. 131 disclosures.


Critical Accounting Policies

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


                                       47
<PAGE>
considered in determining whether or not a policy is critical in the preparation
of financial statements. These factors include, among other things, whether the
estimates are significant to the financial statements, the nature of the
estimates, the ability to readily validate the estimates with other information
including third parties or available prices, and sensitivity of the estimates to
changes in economic conditions and whether alternative accounting methods may be
utilized under accounting principles generally accepted in the United States of
America. For all of these policies, management cautions that future events
rarely develop exactly as forecast, and the best estimates routinely require
adjustment. Management has discussed the development and the selection of
critical accounting policies with GCI's Audit Committee.

Those policies considered to be critical accounting policies for the six months
ended June 30, 2005 are described below.

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

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

                                       48
<PAGE>
             consider other information to validate the reasonableness of our
             valuations including third-party assessments. These evaluations
             could result in a change in useful lives in future periods and
             could result in write-down of the value of intangible assets. Our
             cable certificate and goodwill assets are our only indefinite-lived
             intangible assets and because of their significance to our
             consolidated balance sheet, our annual and quarterly impairment
             analyses and quarterly evaluations of remaining useful lives are
             critical. Any changes in key assumptions about the business and its
             prospects, changes in market conditions or other externalities, or
             recognition of previously unrecognized intangible assets for
             impairment testing purposes could result in an impairment charge
             and such a charge could have a material adverse effect on our
             consolidated results of operations.

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

         o   GCI, Inc., as a wholly owned subsidiary and member of the GCI
             controlled group of corporations, files its income tax returns as
             part of the consolidated group of corporations under GCI.
             Accordingly, the following discussion reflects the consolidated
             group's activity and balances. Our income tax policy provides for
             deferred income taxes to show the effect of temporary differences
             between the recognition of revenue and expenses for financial and
             income tax reporting purposes and between the tax basis of assets
             and liabilities and their reported amounts in the financial
             statements in accordance with SFAS No. 109, "Accounting for Income
             Taxes." We have recorded deferred tax assets of approximately $70.4
             million associated with income tax net operating losses that were
             generated from 1992 to 2003, and that expire from 2007 to 2023.
             Pre-acquisition income tax net operating losses associated with
             acquired companies are subject to additional deductibility limits.
             We have recorded deferred tax assets of approximately $1.9 million
             associated with alternative minimum tax credits that do not expire.
             Significant management judgment is required in developing our
             provision for income taxes, including the determination of deferred
             tax assets and liabilities and any valuation allowances that may be
             required against the deferred tax assets. In conjunction with
             certain 1996 acquisitions, GCI determined that approximately $20.0
             million of the acquired net operating losses would not be utilized
             for income tax purposes, and elected with its December 31, 1996
             income tax returns to forego utilization of such acquired losses.
             Deferred tax assets were not recorded associated with the foregone
             losses and, accordingly, no valuation allowance was provided. We
             have not recorded a valuation allowance on the deferred tax assets
             as of June 30, 2005 based on management's belief that future
             reversals of existing taxable temporary differences and estimated
             future taxable income exclusive of reversing temporary differences
             and carryforwards, will, more likely than not, be sufficient to
             realize the benefit of these assets over time. In the event that
             actual results differ from these estimates or if our historical
             trends change, we may be required to record a valuation allowance
             on deferred tax assets, which could have a material adverse effect
             on our consolidated financial position or results of operations.

                                       49
<PAGE>
Other significant accounting policies, not involving the same level of
measurement uncertainties as those discussed above, are nevertheless important
to an understanding of the financial statements. Policies related to revenue
recognition and financial instruments require difficult judgments on complex
matters that are often subject to multiple sources of authoritative guidance.
Certain of these matters are among topics currently under reexamination by
accounting standards setters and regulators. No specific conclusions reached by
these standard setters appear likely to cause a material change in our
accounting policies, although outcomes cannot be predicted with confidence. A
complete discussion of our significant accounting policies can be found in note
1 in the "Notes to Consolidated Financial Statements" of our annual report on
Form 10-K for the year ended December 31, 2004.

Geographic Concentration and the Alaska Economy

We offer voice and data telecommunication and video services to customers
primarily throughout Alaska. Because of this geographic concentration, growth of
our business and of our operations depends upon economic conditions in Alaska.
The economy of Alaska is dependent upon the natural resource industries, and in
particular oil production, as well as investment earnings, tourism, government,
and United States military spending. Any deterioration in these markets could
have an adverse impact on us. All of the federal funding and the majority of
investment revenues are dedicated for specific purposes, leaving oil revenues as
the primary source of general operating revenues. In fiscal 2004 the State of
Alaska reported that oil revenues, federal funding and investment revenues
supplied 28%, 23% and 41%, respectively, of the state's total revenues. In
fiscal 2005 state economists forecast that Alaska's oil revenues, federal
funding and investment revenues will supply 33%, 34% and 23%, respectively, of
the state's total projected revenues.

The volume of oil transported by the TransAlaska Oil Pipeline System over the
past 20 years has been as high as 2.0 million barrels per day in fiscal 1988.
Production has been declining over the last several years with an average of
0.980 million barrels produced per day in fiscal 2004. The state forecasts the
production rate to decline from 0.920 million barrels produced per day in fiscal
2005 to 0.833 million barrels produced per day in fiscal 2015.

Market prices for North Slope oil averaged $31.74 in fiscal 2004 and are
forecasted to average $41.75 in fiscal 2005. The closing price per barrel was
$52.88 on July 21, 2005. To the extent that actual oil prices vary materially
from the state's projected prices, the state's projected revenues and deficits
will change. When the price of oil is $30.00 per barrel or greater, every $1
change in the price per barrel of oil is forecasted to result in an
approximately $60.0 million change in the state's fiscal 2005 revenue. The
production policy of the Organization of Petroleum Exporting Countries and its
ability to continue to act in concert represents a key uncertainty in the
state's revenue forecast.

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

Should new oil discoveries or developments not materialize or the price of oil
become depressed, the long term trend of continued decline in oil production
from the Prudhoe Bay area is inevitable with a corresponding adverse impact on
the economy of the state, in general, and on demand for

                                       50
<PAGE>
telecommunications and cable television services, and, therefore, on us, in
particular. Periodically there are renewed efforts to allow exploration and
development in the Arctic National Wildlife Refuge ("ANWR"). The United States
Energy Information Agency estimates it could take nine years to begin oil field
drilling after approval of ANWR exploration.

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

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

The United States Army Corps of Engineers awarded a construction contract in
2002 for test bed facilities. The contract is reported to contain basic
requirements and various options that could amount to $250 million in
construction, or possibly more, if all items are executed. Construction began on
the Fort Greely test bed in 2002. The first ground-based missile interceptor was
placed in an underground silo on July 22, 2004. The Missile Defense Agency is
reported to expect to have up to ten more interceptors emplaced by the end of
2005.

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

We have, since our entry into the telecommunication marketplace, aggressively
marketed our services to seek a larger share of the available market. The
customer base in Alaska is limited, however, with a population of approximately
644,000 people. The State of Alaska's population is distributed as follows:

         o   42% are located in the Municipality of Anchorage,
         o   13% are located in the Fairbanks North Star Borough,
         o   10% are located in the Matanuska-Susitna Borough,
         o   5% are located in the City and Borough of Juneau, and
         o   The remaining 30% are located in other communities across the State
             of Alaska.

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


                                       51
<PAGE>
No assurance can be given that oil companies doing business in Alaska will be
successful in discovering new fields or further developing existing fields which
are economic to develop and produce oil with access to the pipeline or other
means of transport to market, even with a reduced level of royalties. We are not
able to predict the effect of changes in the price and production volumes of
North Slope oil on Alaska's economy or on us.

Seasonality

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

Schedule of Certain Known Contractual Obligations

The following table details future projected payments associated with our
certain known contractual obligations as of December 31, 2004, the date of our
most recent fiscal year-end balance sheet.
<TABLE>
<CAPTION>
                                                                    Payments Due by Period
                                               ----------------------------------------------------------------
                                                                                                       More
                                                             Less than 1    1 to 3       4 to 5       Than 5
                                                    Total        Year        Years        Years        Years
                                               ------------- ----------- ------------ ------------ ------------
                                                                    (Amounts in thousands)
   <S>                                        <C>               <C>         <C>           <C>         <C>
   Long-term debt                             $    441,168         168      121,000          ---      320,000
   Interest on long-term debt                      220,400      23,200       46,400       46,400      104,400
   Capital lease obligations, including
     interest                                       53,560       9,461       17,849       25,798          452
   Operating lease commitments                      72,771      14,564       21,080       15,070       22,057
   Redeemable preferred stock                        4,249         ---          ---          ---        4,249
   Purchase obligations                             43,168      24,076       15,183        3,909          ---
                                               ------------- ----------- ------------ ------------ ------------
     Total contractual obligations            $    835,316      71,469      221,512       91,177      451,158
                                               ============= =========== ============ ============ ============
</TABLE>
For long-term debt included in the above table, we have included principal
payments on our Senior Credit Facility and on our Senior Notes. Interest on
amounts outstanding under our Senior Credit Facility is based on variable rates
and therefore the amount is not determinable. Our Senior Notes require
semi-annual interest payments of $11.6 million through August 2014. For a
discussion of our long-term debt see note 7 in the "Notes to Consolidated
Financial Statements" included in Part II of our December 31, 2004 annual report
on Form 10-K.

For a discussion of our capital and operating leases, see note 15 in the "Notes
to Consolidated Financial Statements" included in Part II of our December 31,
2004 annual report on Form 10-K.

                                       52
<PAGE>
In May 2005 we repurchased on GCI's behalf the remaining 4,314 shares of GCI's
Series B preferred stock for a total purchase price of $6.6 million from Toronto
Dominion Investments, Inc. The 4,314 preferred shares were convertible into
777,297 shares of GCI's Class A common stock and the transaction price
represented an equivalent Class A common stock purchase price of $8.50 per
share. For more information about GCI's redeemable preferred stock, see Note
1(e) in the "Notes to Consolidated Financial Statements" included in Part II of
GCI's December 31, 2004 annual report on Form 10-K.

Purchase obligations include a remaining DLPS equipment purchase commitment of
$13.5 million, a remaining $13.9 million commitment for our Alaska Airlines
agreement as further described in note 15 in the "Notes to Consolidated
Financial Statements" included in Part II of our December 31, 2004 annual report
on Form 10-K, and a $411,000 maintenance contract commitment. The contracts
associated with these commitments are non-cancelable. Purchase obligations also
include open purchase orders for goods and services for capital projects and
normal operations totaling $15.4 million which are not included in our
Consolidated Balance Sheets at December 31, 2004, because the goods had not been
received or the services had not been performed at December 31, 2004. The open
purchase orders are cancelable.

PART I.
ITEM 3.
           Quantitative and Qualitative Disclosures About Market Risk

We are exposed to various types of market risk in the normal course of business,
including the impact of interest rate changes. We do not hold derivatives for
trading purposes.

Our Senior Credit Facility carries interest rate risk. Amounts borrowed under
this Agreement bear interest at LIBOR plus 2.25% or less depending upon our
Total Leverage Ratio (as defined). Should the LIBOR rate change, our interest
expense will increase or decrease accordingly. As of June 30, 2005, we have
borrowed $121.2 million subject to interest rate risk. On this amount, a 1%
increase in the interest rate would result in $1,212,000 in additional gross
interest cost on an annualized basis.

Our Satellite Transponder Capital Lease carries interest rate risk. Amounts
borrowed under this Agreement bear interest at LIBOR plus 3.25%. Should the
LIBOR rate change, our interest expense will increase or decrease accordingly.
As of June 30, 2005, we have borrowed $35.7 million subject to interest rate
risk. On this amount, a 1% increase in the interest rate would result in
$357,000 in additional gross interest cost on an annualized basis.

PART I.
ITEM 4.
                             Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, we
carried out an evaluation of the effectiveness of the design and operation of
our "disclosure controls and procedures" (as defined in the Securities Exchange
Act of 1934 ("Exchange Act") Rules 13a - 15(e)) under the supervision and with
the participation of our management, including our Chief Executive Officer and
our Chief Financial

                                       53
<PAGE>
Officer. Based upon that evaluation, our Chief Executive Officer and our Chief
Financial Officer concluded that our disclosure controls and procedures are
effective.

Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed in our reports
filed or submitted under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the SEC's rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed in our
reports filed under the Exchange Act is accumulated and communicated to
management to allow timely decisions regarding required disclosure.

Changes in Internal Controls

There were no changes in our internal control over financial reporting during
the second quarter of 2005 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.


PART II.
ITEM 1.

                                LEGAL PROCEEDINGS

Information regarding material pending legal proceedings to which we are a party
is included in note 6 to the accompanying "Notes to Interim Condensed
Consolidated Financial Statements" and is incorporated herein by reference.

PART II.
ITEM 4.
               SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

                (a) Date of the meeting: June 30, 2005
                    Purpose of meeting:  Annual Meeting of the Shareholder

                (b) Name of each director elected at the meeting by the sole
                    shareholder General Communication, Inc. and the name of each
                    other director whose term of office as a director continued
                    after the meeting until the next annual meeting in June
                    2006:

                    Ronald A. Duncan
                    Wilson Hughes
                    John M. Lowber

                    Directors, in addition to those listed above, whose term of
                    office as director continued after the meeting:

                     None


                                       54
<PAGE>
                (c) Other matters voted upon:

                    Ratification nunc pro tunc of other significant and material
                    actions that may have been taken by the shareholder General
                    Communication, Inc. on behalf of GCI, Inc. at the meetings
                    during 2004 - 2005.

                (d) Not applicable

PART II.
ITEM 5.
                                OTHER INFORMATION

Stephen A. Reinstadtler declined to run for re-election to serve as a member of
GCI's board of directors at GCI's annual shareholders' meeting. Mr.
Reinstadtler's term as a director of GCI expired on June 27, 2005, the date of
the meeting.

PART II.
ITEM 6.
<TABLE>
                                    EXHIBITS
<CAPTION>
          Exhibit No.                                        Description
        --------------------------------------------------------------------------------------------------------
            <S>          <C>
            31.1         Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302
                           of the Sarbanes-Oxley Act of 2002 by our President and Director
            31.2         Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302
                           of the Sarbanes-Oxley Act of 2002 by our Senior Vice President, Chief Financial
                           Officer, Secretary and Treasurer
            32.1         Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
                           of the Sarbanes-Oxley Act of 2002 by our President and Director
            32.2         Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
                           of the Sarbanes-Oxley Act of 2002 by our Senior Vice President, Chief Financial
                           Officer, Secretary and Treasurer
</TABLE>

                                       55
<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/ Ronald A. Duncan                        President and Director                                 August 5, 2005
--------------------------------------      (Principal Executive Officer)                     -----------------------
Ronald A. Duncan

/s/ G. Wilson Hughes                        Vice President and Director                            August 5, 2005
--------------------------------------                                                        -----------------------
G. Wilson Hughes

/s/ John M. Lowber                          Secretary, Treasurer and Director                      August 5, 2005
--------------------------------------      (Principal Financial and Accounting Officer)      -----------------------
John M. Lowber
</TABLE>

                                       56