As filed with the Securities and Exchange Commission on May 15, 1998.

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

                                    FORM 10-Q

                                   (Mark One)
          [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                  For the quarterly period ended March 31, 1998
                                       OR

          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
         For the transition period from               to 

                           Commission File No. 0-5890

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


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

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

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


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

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

             Securities registered pursuant to Section 12(b) of the Act: None
          Securities registered pursuant to Section 12(g) of the Act:
                 $180,000,000 9.75% Senior Notes due August 2007




                                       1
<PAGE>



                                      INDEX

                                    GCI, INC.

            A WHOLLY OWNED SUBSIDIARY OF GENERAL COMMUNICATION, INC.

                                    FORM 10-Q

                      FOR THE QUARTER ENDED MARCH 31, 1998
<TABLE>
<CAPTION>

                                                                                                    PAGE NO

PART I.  FINANCIAL INFORMATION
                  <S>          <C>                                                                        <C>
                  Item l.      Consolidated Financial Statements..........................................3

                               Consolidated Balance Sheets as of March 31, 1998
                                  (unaudited) and December 31, 1997.......................................3

                               Consolidated Statements of Operations for the three
                                  months ended March 31, 1998 (unaudited)
                                  and 1997 (unaudited)....................................................5

                               Consolidated Statements of Stockholders' Equity
                                  for the three months ended March 31, 1998
                                  (unaudited) and 1997 (unaudited)........................................6

                               Consolidated Statements of Cash Flows for the three
                                  months ended March 31, 1998 (unaudited)
                                  and 1997 (unaudited)....................................................7

                               Notes to Interim Condensed Consolidated Financial
                                  Statements..............................................................8

                  Item 2.      Management's Discussion and Analysis of Financial
                                 Condition and Results of Operations......................................16


PART II.  OTHER INFORMATION

                  Item 1.      Legal Proceedings..........................................................26

                  Item 6.      Exhibits and Reports on Form 8-K...........................................27


SIGNATURES................................................................................................28
</TABLE>



                                       2
<PAGE>
PART I.  FINANCIAL INFORMATION
ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS

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

                                                                           (Unaudited)
                                                                            March 31        December 31,
                            ASSETS                                            1998              1997
--------------------------------------------------------------------    ----------------- -----------------
                                                                                (Amounts in thousands)
<S>                                                                   <C>                        <C>   
Current assets:
     Cash and cash equivalents                                        $          3,933             3,048
                                                                        ----------------- -----------------
     Receivables:
         Trade                                                                  33,633            29,599
         Income taxes                                                            7,612             4,752
         Other                                                                     526               649
                                                                        ----------------- -----------------
                                                                                41,771            35,000
     Less allowance for doubtful receivables                                     1,185             1,070
                                                                        ----------------- -----------------
         Net receivables                                                        40,586            33,930

     Prepaid and other current assets                                            2,893             2,520
     Deferred income taxes, net                                                  1,683             1,675
     Inventories                                                                 2,575             2,164
     Notes receivable                                                              765               897
                                                                        ----------------- -----------------

         Total current assets                                                   52,435            44,234

Restricted cash (note 4)                                                        26,254            39,406
                                                                        ----------------- -----------------

Property and equipment in service, net                                         181,021           165,993
Construction in progress                                                        34,569            18,513
                                                                        ----------------- -----------------
         Net property and equipment                                            215,590           184,506
                                                                        ----------------- -----------------

Other assets:
     Intangible assets, net of amortization                                    245,073           246,534
     Deferred loan and Senior Notes costs, net of amortization                  10,170             9,379
     Transponder deposit (note 4)                                                9,100             9,100
     Undersea fiber optic cable deposit (note 4)                                   ---             9,094
     Notes receivable                                                            1,424             1,331
     Other assets, at cost, net of amortization                                  2,737             1,718
                                                                        ----------------- -----------------
         Total other assets                                                    268,504           277,156
                                                                        ----------------- -----------------

         Total assets                                                 $        562,783           545,302
                                                                        ================= =================
</TABLE>
See accompanying notes to interim condensed consolidated financial statements.




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

                                                                           (Unaudited)
                                                                            March 31,        December 31,
           LIABILITIES AND STOCKHOLDERS' EQUITY                               1998              1997
------------------------------------------------------------------      ----------------- -----------------
                                                                                (Amounts in thousands)
<S>                                                                   <C>                        <C>   
Current liabilities:
     Current maturities of long-term debt (note 3)                    $          1,669             1,634
     Current maturities of obligations under capital leases                        205               198
     Accounts payable                                                           21,664            25,107
     Accrued interest                                                            3,540             7,649
     Accrued payroll and payroll related obligations                             5,627             4,630
     Accrued liabilities                                                         5,437             6,019
     Subscriber deposits and deferred revenues                                   4,225             3,898
     Accrued income taxes                                                          111               111
                                                                        ----------------- -----------------
         Total current liabilities                                              42,478            49,246

Long-term debt, excluding current maturities (note 3)                          272,045           248,450
Obligations under capital leases, including related party
  obligations, excluding current maturities                                        937               990
Deferred income taxes, net of deferred income tax benefit                       40,871            38,904
Other liabilities                                                                3,384             3,273
                                                                        ----------------- -----------------
         Total liabilities                                                     359,715           340,863
                                                                        ----------------- -----------------

Stockholders' equity:
Common stock (no par):
     Class A. Authorized 10,000 shares; issued and outstanding
       100 shares at March 31,1998 and December 31, 1997, 
       respectively                                                            206,622           206,622
Paid-in capital                                                                    245               ---
Retained deficit                                                                (3,799)           (2,183)
                                                                        ----------------- -----------------
         Total stockholders' equity                                            203,068           204,439
                                                                        ----------------- -----------------
Commitments and contingencies (note 4)
         Total liabilities and stockholders' equity                  $         562,783           545,302
                                                                        ================= =================

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



                                       4
<PAGE>
<TABLE>
                                     GCI, INC. AND SUBSIDIARIES
                                 CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>

                                                                                  (Unaudited)
                                                                         (Successor)       (Predecessor)
                                                                              Three Months Ended
                                                                                   March 31,
                                                                            1998               1997
                                                                      ------------------  -----------------
                                                                   (Amounts in thousands except per share
                                                                                  amounts)
<S>                                                                 <C>                       <C>   
Revenues:
     Telecommunication services                                     $       43,951            39,225
     Cable services                                                         14,201            13,656
                                                                      ------------------ -----------------
         Total revenues                                                     58,152            52,881

Cost of sales and services                                                  27,315            27,168
Selling, general and administrative expenses                                20,334            16,301
Depreciation and amortization                                                8,066             6,120
                                                                      ------------------ -----------------

         Operating income                                                    2,437             3,292

Interest expense, net                                                        4,944             3,949
                                                                      ------------------ -----------------

         Net loss before income taxes                                       (2,507)             (657)

Income tax benefit                                                            (891)             (132)
                                                                      ------------------ -----------------

         Net loss                                                   $       (1,616)             (525)
                                                                      ================== =================

Basic net loss per common share                                     $      (16,160)            (0.01)
                                                                      ================== =================

Diluted net loss per common share                                   $      (16,160)            (0.01)
                                                                      ================== =================
</TABLE>

See accompanying notes to interim condensed consolidated financial statements.



                                       5
<PAGE>
<TABLE>
                                             GCI, INC. AND SUBSIDIARIES
                                  CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                     THREE MONTHS ENDED MARCH 31, 1998 AND 1997

<CAPTION>

                                                                                           Class A
                                             Shares of Common       Class A    Class B     Shares
(Unaudited)                                        Stock            Common     Common      Held in     Paid-in    Retained
(Amounts in thousands)                        Class A Class B       Stock      Stock       Treasury    Capital    Earnings
                                           --------------------------------------------------------------------------------
<S>                                            <C>         <C>     <C>            <C>       <C>          <C>        <C>
Predecessor balances at December 31, 1996      36,587      4,074   $ 113,421      3,432     (1,010)      4,229      29,482
Net loss                                          ---        ---         ---        ---         ---        ---       (525)
Tax effect of excess stock compensation
   expense for tax purposes over amounts
   recognized for financial reporting             ---        ---         ---        ---         ---         18         ---
   purposes
Class B shares converted to Class A                 3        (3)         ---        ---         ---        ---         ---
Shares issued upon conversion of
   convertible note                             1,538        ---       9,983        ---         ---        ---         ---
Shares purchased and held in Treasury             ---        ---         ---        ---        (29)        ---         ---
Shares issued under stock option plan              31        ---          94        ---         ---        ---         ---
                                           --------------------------------------------------------------------------------
Predecessor balances at March 31, 1997         38,159      4,071   $ 123,498      3,432     (1,039)      4,247      28,957
                                           ================================================================================

Successor balances at December 31, 1997           100        ---   $ 206,622        ---         ---        ---     (2,183)
Net earnings                                      ---        ---         ---        ---         ---        ---     (1,616)
Contribution from parent                          ---        ---         ---        ---         ---        245         ---
                                           --------------------------------------------------------------------------------
Successor balances at March 31, 1998              100        ---   $ 206,622        ---         ---        245     (3,799)
                                           ================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.



                                       6
<PAGE>
<TABLE>
                                          GCI, INC. AND SUBSIDIARIES
                                    CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
                                                                                (Unaudited)
                                                                        (Successor)     (Predecessor)
                                                                             Three Months Ended
                                                                                  March 31,
                                                                           1998              1997
                                                                      ---------------- -----------------
                                                                             (Amounts in thousands)
<S>                                                                 <C>                       <C>   
Cash flows from operating activities:
     Net loss                                                       $         (1,616)            (525)
     Adjustments to reconcile net loss to net cash
         provided (used) by operating activities:
              Depreciation and amortization                                    8,066            6,120
              Deferred income tax expense                                      1,959              264
              Deferred compensation and compensatory stock
                 options                                                          88              (58)
              Bad debt expense, net of write-offs                                115              179
              Other noncash income and expense items                             (26)              16
              Change in operating assets and liabilities 
              (note 2)                                                       (14,342)          (4,156)
                                                                      ---------------- -----------------
      Net cash provided (used) by operating activities                        (5,756)           1,840
                                                                      ---------------- -----------------

Cash flows from investing activities:
         Purchases of property and equipment                                 (28,167)          (9,529)
         Restricted cash investment                                           13,152              ---
         Purchases of other assets                                            (1,160)            (197)
         Notes receivable issued                                                 (30)            (337)
         Payments received on notes receivable                                    95                4
                                                                      ---------------- -----------------
Net cash used in investing activities                                        (16,110)         (10,059)
                                                                      ---------------- -----------------

Cash flows from financing activities:
         Long-term borrowings - bank debt and leases                          24,027           10,000
         Repayments of long-term borrowings and capital lease
              obligations                                                       (443)         (10,448)
         Contribution from parent                                                245              ---
         Payment of debt issuance costs                                       (1,078)             ---
         Proceeds from common stock issuance                                     ---               77
         Purchase of treasury stock                                              ---              (29)
                                                                      ---------------- -----------------
Net cash provided (used) by financing activities                              22,751             (400)
                                                                      ---------------- -----------------

Net increase (decrease) in cash and cash equivalents                             885           (8,619)

     Cash and cash equivalents at beginning of period                          3,048           13,349
                                                                      ---------------- -----------------

     Cash and cash equivalents at end of period                     $          3,933            4,730
                                                                      ================ =================
</TABLE>
See accompanying notes to interim condensed consolidated financial statements.




                                       7
<PAGE>
                           GCI, INC. AND SUBSIDIARIES

          NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)

                                         
(1)        General

           (a)  Basis of Presentation


           GCI,  Inc.  ("Successor")  was  incorporated  in 1997 to  effect  the
           issuance of Senior Notes as further described in note 3. GCI, Inc., a
           wholly owned  subsidiary  of General  Communication,  Inc.  ("GCI" or
           "Predecessor"),  received  through  its  initial  capitalization  all
           ownership  interests  in  subsidiaries  previously  held by GCI.  All
           assets,  liabilities  and  operating  activities of GCI not conducted
           through its  subsidiaries  were  transferred  to GCI, Inc.  effective
           January 1, 1998. The accompanying  financial statements for the three
           month period ended March 31, 1997 include the operating activities of
           GCI,  Inc.  and its  subsidiaries  and include the three month period
           ended March 31, 1997 operating activities of its predecessor GCI. The
           Predecessor's  three-month  period  ended  March 31,  1997  operating
           activities not conducted or owned through its  subsidiaries  were not
           material to GCI, Inc.

           (b)  Organization

           GCI, an Alaska  corporation,  was incorporated in 1979. GCI, Inc., an
           Alaska  corporation,  was  incorporated in 1997 and is a wholly owned
           subsidiary of GCI. GCI Holdings,  Inc. ("Holdings") is a wholly owned
           subsidiary  of  GCI,  Inc.  and  was   incorporated   in  1997.   GCI
           Communication Corp. ("GCC"), an Alaska corporation, is a wholly owned
           subsidiary   of  Holdings   and  was   incorporated   in  1990.   GCI
           Communication Services, Inc.  ("Communication  Services"),  an Alaska
           corporation,  is a  wholly  owned  subsidiary  of  Holdings  and  was
           incorporated in 1992. GCI Leasing Co., Inc. ("Leasing  Company"),  an
           Alaska  corporation,  is a wholly owned  subsidiary of  Communication
           Services and was  incorporated in 1992. GCI, GCI, Inc.,  Holdings and
           GCC are engaged in the  transmission  of  interstate  and  intrastate
           private line and switched  message long  distance  telephone  service
           between Anchorage, Fairbanks, Juneau, and other communities in Alaska
           and the  remaining  United  States and foreign  countries.  GCI, GCI,
           Inc.,  Holdings and GCC also provide  northbound  services to certain
           common carriers  terminating traffic in Alaska and sells and services
           dedicated communications systems and related equipment. Communication
           Services  provides  private  network  point-to-point  data and  voice
           transmission   services  between  Alaska,   Hawaii  and  the  western
           contiguous United States. Leasing Company owns and leases capacity on
           an undersea fiber optic cable used in the  transmission of interstate
           private line and  switched  message long  distance  services  between
           Alaska and the remaining United States and foreign countries.

           Cable television  services are provided  through GCI Cable,  Inc. and
           its wholly owned  subsidiaries  GCI  Cable/Fairbanks,  Inc.,  and GCI
           Cable/Juneau,  Inc.  (collectively "GCI Cable" or "Cable Companies").
           GCI Cable, Inc. and its subsidiaries are Alaska corporations and were
           incorporated in 1996. GCI Cable, Inc. is a wholly owned subsidiary of
           Holdings.





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

          NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)


           GCI Transport Co.,  Inc.,  Fiber Hold Co., Inc., GCI Fiber Co., Inc.,
           and  GCI  Satellite  Co.,  Inc.,   all  Alaska   corporations,   were
           incorporated   in  1997  to  finance  the  acquisition  of  satellite
           transponders and to construct and deploy the fiber optic cable system
           further  described  in note 4. GCI  Transport  Co.,  Inc. is a wholly
           owned  subsidiary of Holdings.  Fiber Hold Co.,  Inc., GCI Fiber Co.,
           Inc., and GCI Satellite Co., Inc. are  wholly-owned  subsidiaries  of
           GCI  Transport  Co.,  Inc.  Alaska  United Fiber  System  Partnership
           ("Alaska United") was organized in 1997 to construct, own and operate
           the fiber optic cable system  described in note 4. Alaska United is a
           partnership  wholly owned by the Company  through GCI Fiber Co., Inc.
           and Fiber Hold Co., Inc.

           (c)  Net Loss Per Common Share
<TABLE>
           Shares used to  calculate  net loss per common  share  consist of the
           following (amounts in thousands):
<CAPTION>
                                                                          (Successor)      (Predecessor)
                                                                         --------------- ------------------
                                                                              1998             1997
                                                                         --------------- ------------------
                   <S>                                                         <C>              <C> 
                   Weighted average common shares outstanding                  100              43,167
                   Common equivalent shares outstanding                        ---                 ---
                                                                        ---------------- ------------------
                                                                               100              43,167
                                                                         =============== ==================
</TABLE>
           There are no common equivalent  shares  outstanding for the Successor
           at March 31,  1998.  Outstanding  common  equivalent  shares  for the
           Predecessor  totaling  853,000 are antidilutive at March 31, 1997 and
           are not included in the diluted net loss per share calculation.

           (d)  Other

           The accompanying  unaudited interim condensed  consolidated financial
           statements have been prepared in accordance  with generally  accepted
           accounting  principles for interim financial information and with the
           instructions   to  Form  10-Q  and  Article  10  of  Regulation  S-X.
           Accordingly, they do not include all of the information and footnotes
           required by generally  accepted  accounting  principles  for complete
           financial statements.  The interim condensed  consolidated  financial
           statements  include the  consolidated  accounts of GCI,  Inc. and its
           wholly owned  subsidiaries  (collectively,  the  "Company")  with all
           significant intercompany  transactions eliminated.  In the opinion of
           management, all adjustments (consisting of normal recurring accruals)
           considered  necessary  for a fair  presentation  have been  included.
           Operating  results  for the  quarter  ended  March  31,  1998 are not
           necessarily  indicative  of the results  that may be expected for the
           year ended December 31, 1998. For further  information,  refer to the
           financial  statements and footnotes thereto included in the Company's
           annual report on Form 10-K for the year ended December 31, 1997.




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

          NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)


(2)        Consolidated Statements of Cash Flows Supplemental Disclosures
<TABLE>
           Changes in operating assets and liabilities consist of:
<CAPTION>
                                                                                  (Successor)       (Predecessor)
                                                                                           (Unaudited)
                  Three-month periods ended March 31,                                 1998               1997
                  -----------------------------------                         ------------------ ------------------
                                                                                     (Amounts in thousands)
                   <S>                                                      <C>                            <C>  
                   Increase in receivables                                  $           (6,771)              (253)
                   Increase  in prepaid and other current assets                          (373)               (52)
                   Increase in inventory                                                  (411)               (77)
                   Decrease in accounts payable                                         (3,443)            (1,357)
                   Increase (decrease) in accrued liabilities                             (582)                96
                   Increase (decrease) in accrued payroll and payroll
                       related obligations                                                 997               (151)
                   Decrease in accrued interest                                         (4,109)            (2,357)
                   Increase in deferred revenues                                           327                 (5)
                   Increase in other liabilities                                            23                ---
                                                                              ------------------ ------------------
                                                                            $          (14,342)            (4,156)
                                                                              ================== ==================
</TABLE>
           The  holders  of  $10  million  of  convertible   subordinated  notes
           exercised  their  conversion  rights in January 1997 resulting in the
           exchange of such notes for  1,538,457  shares of GCI's Class A common
           stock.

           No income taxes were paid during the three-month  periods ended March
           31, 1998 and 1997, respectively.

           Interest  paid  totaled   $10,800,000   and  $6,300,000   during  the
           three-month periods ended March 31, 1998 and 1997, respectively.

(3)        Long-term Debt

           In January 1998 Alaska  United closed a $75 million  project  finance
           facility  ("Fiber  Facility") to construct a fiber optic cable system
           connecting Anchorage, Fairbanks, Valdez, Whittier, Juneau and Seattle
           as further described in note 4. The Fiber Facility provides up to $75
           million in  construction  financing  and will bear interest at either
           Libor plus 3.0%, or at the Company's  choice,  at the lender's  prime
           rate plus  1.75%.  The  interest  rate  will  decline  to Libor  plus
           2.5%-2.75%,  or at the Company's choice, the lender's prime rate plus
           1.25%-1.5%  after  the  project  completion  date  and  when the loan
           balance is  $60,000,000  or less.  Alaska United is required to pay a
           commitment fee equal to 0.375% per annum on the unused portion of the
           commitment.  The  Fiber  Facility  is a  10-year  term  loan  that is
           interest only for the first 5 years.  The facility can be extended to
           a 12  year  term  loan at any  time  between  the  second  and  fifth
           anniversary  of closing the  facility if the Company can 




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

          NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)


           demonstrate projected revenues from certain capacity commitments will
           be sufficient to pay all operating  costs, and interest and principal
           installments based on the extended maturity.

           The  Fiber  Facility  contains,  among  others,  covenants  requiring
           certain intercompany loans and advances in order to maintain specific
           levels of cash flow  necessary to pay operating  costs,  interest and
           principal  installments.  Additional  covenants pertain to the timely
           completion  of certain  project  construction  milestones.  The Fiber
           Facility also contains a guarantee that  requires,  among other terms
           and conditions,  Alaska United complete the project by the completion
           date and pay any non-budgeted costs of the project.

           All of Alaska United's assets, as well as a pledge of the partnership
           interests' owning Alaska United, collateralize the Fiber Facility.

           On August 1, 1997 GCI, Inc. issued $180,000,000 of 9.75% senior notes
           due 2007  ("Senior  Notes").  The Senior  Notes  were  issued at face
           value.  Net  proceeds  to  GCI,  Inc.  after  deducting  underwriting
           discounts and commissions totaled  $174,600,000.  Issuance costs will
           be amortized to interest expense over the term of the Senior Notes.

           The Senior Notes are not  redeemable  prior to August 1, 2002.  After
           August 1, 2002 the Senior Notes are  redeemable at the option of GCI,
           Inc. under certain  conditions and at stated redemption  prices.  The
           Senior Notes  include  limitations  on  additional  indebtedness  and
           prohibit payment of dividends, payments for the purchase, redemption,
           acquisition  or retirement of GCI,  Inc.'s stock,  payments for early
           retirement of debt  subordinate to the note,  liens on property,  and
           asset sales.  GCI, Inc. was in compliance  with all covenants  during
           the period  commencing  August 1, 1997  (date of the  notes)  through
           March 31, 1998.

   (4)     Commitments and Contingencies

           Deferred Compensation Plan

           During 1995, the Company adopted a non-qualified,  unfunded  deferred
           compensation  plan to provide a means by which certain  employees may
           elect to defer receipt of designated  percentages or amounts of their
           compensation  and to provide a means for certain  other  deferrals of
           compensation. The Company may, at its discretion, contribute matching
           deferrals  equal to the rate of  matching  selected  by the  Company.
           Participants  immediately  vest  in all  elective  deferrals  and all
           income and gain attributable thereto.  Matching contributions and all
           income and gain  attributable  thereto  vest over a six-year  period.
           Participants may elect to be paid in either a single lump sum payment
           or annual  installments over a period not to exceed 10 years.  Vested
           balances  are payable  upon  termination  of  employment,  unforeseen
           emergencies,  death and total  disability.  Participants  are general
           creditors of the Company with respect to deferred  compensation  plan
           benefits.   Compensation   deferred  pursuant  to  the  plan  totaled
           approximately $0 and $12,000 during the quarters ended March 31, 1998
           and 1997, respectively.





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

          NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)


           Satellite Transponders

           The  Company  entered  into  a  purchase  and  lease-purchase  option
           agreement   in  August  1995  for  the   acquisition   of   satellite
           transponders to meet its long-term  satellite capacity  requirements.
           The balance payable upon expected delivery of the transponders during
           the third  quarter of 1998 in  addition to the $9.1  million  deposit
           previously paid is not expected to exceed $41 million.

           Litigation

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

           Cable Service Rate Reregulation

           Beginning  in  April  1993,  the  Federal  Communications  Commission
           ("FCC")  adopted   regulations   implementing  the  Cable  Television
           Consumer  Protection and  Competition  Act of 1992 ("The Cable Act of
           1992"). Included are rules governing rates charged by cable operators
           for the basic service tier, the  installation,  lease and maintenance
           of equipment  (such as converter boxes and remote control units) used
           by  subscribers  to  receive  this  tier  and for  cable  programming
           services  other  than   programming   offered  on  a  per-channel  or
           per-program  basis  (the  "regulated   services").   Generally,   the
           regulations  require  affected  cable  systems  to  charge  rates for
           regulated  services  that have been reduced to  prescribed  benchmark
           levels,  or  alternatively,  to support rates using  costs-of-service
           methodology.

           The regulated  services  rates charged by the Company may be reviewed
           by the State of Alaska, operating through the Alaska Public Utilities
           Commission  ("APUC")  for  basic  service,  or by the FCC  for  cable
           programming  service.  Refund  liability  for basic  service rates is
           limited to a one-year period.  Refund liability for cable programming
           service  rates may be  calculated  from the date a complaint is filed
           with the FCC until the rate reduction is implemented.

           In  order  for the  State  of  Alaska  to  exercise  rate  regulation
           authority over the Company's  basic service rates,  25% of a systems'
           subscribers  must request such  regulation  by filing a petition with
           the APUC. At March 31, 1998, the State of Alaska has rate  regulation
           authority over the Juneau  system's basic service rates.  (The Juneau
           system serves  approximately  9% of the Company's total basic service
           subscribers  at March 31,  1998.)  Juneau's  current  rates have been
           approved by the APUC and there are no other pending  filings with the
           APUC,  therefore,  there is no refund  liability for basic service at
           this time.





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

          NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)


           Complaints by subscribers relating to cable programming service rates
           were filed  with,  and  accepted  by, the FCC for  certain  franchise
           areas; however,  filings made in response to those complaints related
           to the  period  prior  to July 15,  1994  were  approved  by the FCC.
           Therefore,  the  potential  liability for cable  programming  service
           refunds  would be limited to the period  subsequent  to July 15, 1994
           for these  areas.  Management  of the  Company  believes  that it has
           complied in all  material  respects  with the  provisions  of the FCC
           rules and regulations and that the Company is, therefore,  not liable
           for any  refunds.  Accordingly,  no  provision  has been  made in the
           financial  statements  for any potential  refunds.  The FCC rules and
           regulations are, however, subject to judgmental interpretations,  and
           the impact of potential  rate  changes or refunds  ordered by the FCC
           could  cause the Company to make  refunds  and/or to be in default of
           certain debt covenants.

           In February 1996, a  telecommunications  bill was signed into federal
           law that impacts the cable  industry.  Most notably,  the bill allows
           cable  system  operators  to  provide  telephony   services,   allows
           telephone  companies  to  offer  video  services,  and  provides  for
           deregulation of cable programming  service rates by 1999.  Management
           of the Company believes the bill will not have a significant  adverse
           impact on the  financial  position  or results of  operations  of the
           Company.

           Undersea Fiber Optic Cable Contract Commitment

           The Company  signed a contract in July 1997 for  construction  of the
           undersea   portion  of  a  $125  million  fiber  optic  cable  system
           connecting the cities of Anchorage,  Juneau, and Seattle via a subsea
           route. Subsea and terrestrial connections will extend the fiber optic
           cable to  Fairbanks  via  Whittier  and Valdez.  Subsea  construction
           efforts  will begin  during the late  summer of 1998 with  commercial
           services  expected  to commence  in  December  1998.  Pursuant to the
           contract,  the Company made progress  payments of $9.1 million during
           the year  ended  December  31,  1997 and  $13.6  million  during  the
           three-month  period  ended March 31,  1998.  The Company will pay the
           remaining  balance in  installments  through  December  1998 based on
           completion of certain key milestones.  Approximately $39.4 million of
           proceeds from the Senior Notes offering (see note 3), net of the $9.1
           million paid in 1997, were  contributed to Alaska United.  The use of
           such  proceeds  is  restricted  to  funding  the   construction   and
           deployment  of the  fiber  optic  cable  system  and is  reported  as
           Restricted Cash in the accompanying  Interim  Condensed  Consolidated
           Financial  Statements.  The  Company has secured up to $75 million in
           bank  financing  to  fund  the  remaining  cost of  construction  and
           deployment (see note 3).




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

          NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)


           Fiber Capacity Exchange

           The  Company  and Kanas  Telecom,  Inc.  ("Kanas")  signed a contract
           November 21, 1997 that  provides for an exchange of fiber optic cable
           capacity between Anchorage and Fairbanks via Valdez.  The Company and
           Kanas will trade "dark fiber" capacity connecting Fairbanks,  Valdez,
           Whittier  and   Anchorage.   Each  company  will  provide  their  own
           electronic  equipment to place their fiber into service.  The Company
           will provide  Kanas with dark fiber from Valdez to  Anchorage.  Kanas
           will  provide  the  Company  with  dark  fiber  between   Valdez  and
           Fairbanks.

(5)        Supplemental financial information
<TABLE>
           (Amounts in thousands)
<CAPTION>
             (Unaudited)                                    Three-month period ended March 31, 1998
                                                            ------------------------------------------------
                                                                Long-
                                                              Distance     Cable      Local      Combined
                                                            ------------ ----------- --------- -------------
             <S>                                        <C>                 <C>       <C>         <C>  
             (Successor)
             Revenues:
                Telecommunication revenues              $       42,937         ---     1,014      43,951
                Cable revenues                                     ---      14,201       ---      14,201
                                                            ------------ ----------- --------- -------------
                   Total revenues                               42,937      14,201     1,014      58,152
                                                            ------------ ----------- --------- -------------
             Cost of sales and services:
                Distribution costs and costs of
                  services                                      23,045         ---       875      23,920
                Programming and copyright costs                    ---       3,395       ---       3,395
                                                            ------------ ----------- --------- -------------
                   Total cost of sales and services             23,045       3,395       875      27,315
                                                            ------------ ----------- --------- -------------
                   Contribution                                 19,892      10,806       139      30,837
                                                            ------------ ----------- --------- -------------
             Selling, general and administrative expenses:
                Telephony operating and engineering              2,675         ---       262       2,937
                Cable television, including
                    management fees of $188                        ---       4,863       ---       4,863
                Sales and communications                         3,129         ---       267       3,396
                General and administrative                       6,907         ---     1,694       8,601
                Bad debts                                          389         148       ---         537
                                                            ------------ ----------- --------- -------------
                   Total selling, general and
                     administrative expenses                    13,100       5,011     2,223      20,334

             Depreciation and amortization                       3,375       3,624     1,067       8,066
                                                            ============ =========== ========= =============

                   Operating income (loss)              $        3,417        2,171   (3,151)      2,437
                                                            ============ =========== ========= =============
</TABLE>




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

          NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)


<TABLE>
<CAPTION>
                                                            Three-month period ended March 31, 1997
                                                            ------------------------------------------------
                                                                Long-
                                                              Distance     Cable      Local      Combined
                                                            ------------ ----------- --------- -------------
             <S>                                        <C>                 <C>         <C>       <C>
             (Predecessor)
             Revenues:
                Telecommunication revenues              $       39,225         ---       ---      39,225
                Cable revenues                                     ---      13,656       ---      13,656
                                                            ------------ ----------- --------- -------------
                   Total revenues                               39,225      13,656       ---      52,881
                                                            ------------ ----------- --------- -------------
             Cost of sales and services:
               Distribution costs and costs of
                  services                                      23,884         ---       118      24,002
               Programming and copyright costs                     ---       3,166       ---       3,166
                                                            ------------ ----------- --------- -------------
                   Total cost of sales and services             23,884       3,166       118      27,168
                                                            ------------ ----------- --------- -------------
                   Contribution                                 15,341      10,490      (118)     25,713
                                                            ------------ ----------- --------- -------------
             Selling, general and administrative
               expenses:
               Telephony operating and engineering               2,792         ---       ---       2,792
               Cable television, including
                  management fees of $271                          ---       4,368       ---       4,368
               Sales and communications                          2,864         ---        50       2,914
               General and administrative                        5,238         ---       466       5,704
               Bad debts                                           426          97       ---         523
                                                            ------------ ----------- --------- -------------
                   Total selling, general and
                     administrative expenses                    11,320       4,465       516      16,301

             Depreciation and amortization                       2,623       3,497       ---       6,120
                                                            ============ =========== ========= =============

                   Operating income (loss)              $        1,398        2,528     (634)      3,292
                                                            ============ =========== ========= =============
</TABLE>



                                       15
<PAGE>
PART I.
ITEM 2.


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

      The following  discussion and analysis should be read in conjunction  with
the Company's Interim Condensed  Consolidated Financial Statements and the notes
thereto.  As used herein,  EBITDA  consists of earnings  before  interest (net),
income taxes, depreciation, amortization and other income (expense). EBITDA is a
measure commonly used in the  telecommunications and cable television industries
to analyze companies on the basis of operating performance.  It is not a measure
of financial  performance  under generally  accepted  accounting  principles and
should  not be  considered  as an  alternative  to net  income as a  measure  of
performance nor as an alternative to cash flow as a measure of liquidity.

                      FACTORS AFFECTING FUTURE PERFORMANCE

      Future operating  results of the Company will depend upon many factors and
will be subject to various risks and uncertainties, including those set forth in
this and other  sections of Form 10-Q.  The  information  contained in Form 10-Q
includes forward-looking  statements regarding the Company's future performance.
Future  results of the Company may differ  materially  from any  forward-looking
statement  due to such  assumptions  and  risks.  Future  performance  cannot be
ensured.

                                    OVERVIEW

      GCI, Inc. ("Successor") was incorporated in 1997 to effect the issuance of
Senior  Notes  as  further  described  in  note  3 to the  accompanying  Interim
Condensed  Consolidated   Financial  Statements.   GCI,  Inc.,  a  wholly  owned
subsidiary of General  Communication,  Inc. ("GCI" or  "Predecessor"),  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 the GCI's  Class B common  stock  are  traded on the  Over-the-Counter
market.  Proceeds  from GCI's August 1, 1997 class A common stock  offering were
used in part to capitalize  GCI, Inc. The following  discussion  and analysis of
financial  condition  and  results of  operations  includes  the 1997  operating
activities of GCI and its subsidiaries, which operating activities not conducted
or owned through its  subsidiaries  were not material to GCI, Inc. "The Company"
as used herein for 1997 results of operations  refers to General  Communication,
Inc.,  GCI,  Inc.  and  GCI  Inc.'s  wholly  owned  subsidiaries.   All  assets,
liabilities  and  operating   activities  of  GCI  not  conducted   through  its
subsidiaries were transferred to GCI, Inc. effective January 1, 1998.

      Long Distance  Telecommunications  Services.  The Company has historically
reported  revenues  principally  from the provision of interstate and intrastate
long  distance  telecommunications  services  to  residential,   commercial  and
governmental   customers  and  to  other  common   carriers   (principally   




                                       16                            (Continued)
<PAGE>
MCI Telecommunications,  Inc. ("MCI") and Sprint Corporation ("Sprint")).  These
services accounted for approximately  91.5% of the Company's  telecommunications
services   revenues   during  the  first   quarter  of  1998.   The  balance  of
telecommunications services revenues have been attributable to corporate network
management contracts,  telecommunications  equipment sales and service, Internet
services and other  miscellaneous  revenues (including revenues from prepaid and
debit calling  cards,  the  installation  and leasing of  customers'  very small
aperture  terminal  ("Vsat")  equipment  and fees  charged to MCI and Sprint for
certain billing services). Factors that have the greatest impact on year-to-year
changes in long distance  telecommunications  services revenues include the rate
per minute charged to customers and usage volumes,  usually expressed as minutes
of use. These factors in turn depend in part upon economic conditions in Alaska.
The economy of Alaska is  dependent  upon the natural  resource  industries,  in
particular  oil  production,  as well as tourism,  government  and United States
military spending.

      The Company's long distance  telecommunications cost of sales and services
has consisted  principally of the direct costs of providing services,  including
local  access  charges  paid  to  local  exchange   carriers  ("LECs")  for  the
origination and termination of long distance calls in Alaska, fees paid to other
long distance  carriers to carry calls that terminate in areas not served by the
Company's  network  (principally  the lower 49 states,  most of which  calls are
carried over MCI's network, and international locations, which calls are carried
principally  over  Sprint's  network),  and the  cost of  equipment  sold to the
Company's  customers.  During the first  quarter of 1998,  local access  charges
accounted for 38.8% of telecommunications  cost of sales and services, fees paid
to other long distance carriers represented 35.2%,  satellite  transponder lease
and undersea fiber maintenance costs represented 10.1%,  enterprise services and
outsourcing  costs  represented  7.4%, and  telecommunications  equipment  costs
accounted for 2.8% of telecommunications cost of sales and services.

      The  Company's  long distance  telecommunications  selling,  general,  and
administrative  expenses have consisted of operating and  engineering,  customer
service, sales and communications,  management information systems,  general and
administrative,  and  legal  and  regulatory  expenses.  Most of these  expenses
consist of salaries,  wages and benefits of personnel and certain other indirect
costs  (such as rent,  travel,  utilities,  insurance  and  property  taxes).  A
significant portion of telecommunications  selling,  general, and administrative
expenses,  23.9% during the first  quarter of 1998,  represents  the cost of the
Company's advertising, promotion and market analysis programs.

      Cable  Services.  During the first  quarter of 1998,  cable  revenues  and
EBITDA represented 24.4% and 55.2%,  respectively,  of consolidated revenues and
EBITDA.  The cable systems serve 26 communities  and areas in Alaska,  including
the state's three largest population centers, Anchorage, Fairbanks and Juneau.

      The Company  generates cable services revenues from three primary sources:
(1) programming  services,  including monthly basic or premium subscriptions and
pay-per-view  movies or other  one-time  events,  such as sporting  events;  (2)
equipment rentals or installation;  and (3) advertising sales.  During the first
quarter of 1998  programming  services  generated  86.5% of total cable services
revenues,  equipment  rental and  installation  fees  accounted for 7.6% of such
revenues,  advertising  sales  accounted  for 3.9% of such  revenues,  and other
services accounted for the remaining 2.0% of total cable services revenues.  The
primary  factors  that  contribute  to  year-to-year  changes in cable  




                                       17                            (Continued)
<PAGE>
services revenues are average monthly  subscription and pay-per-view  rates, the
mix among basic,  premium and pay-per-view  services,  and the average number of
subscribers during a given reporting period.

      The cable systems' cost of sales and selling,  general and  administrative
expenses have  consisted  principally  of  programming  and copyright  expenses,
labor, maintenance and repairs,  marketing and advertising,  rental expense, and
property  taxes.  During the first  quarter of 1998  programming  and  copyright
expenses  represented  approximately  40.4% of  total  cable  cost of sales  and
selling,  general and administrative  expenses.  Marketing and advertising costs
represented approximately 12.3% of such total expenses.

      Plant upgrades in Petersburg and Wrangell were completed  during the first
quarter of 1998. A plant upgrade to 550 MHz began in Anchorage  during the first
quarter of 1998 with  completion  expected  during  the second  quarter of 1998.
Plant upgrades allow the Company to offer  additional  programming  services and
value to its customers.

      Local  Services.  The Company began offering  local  exchange  services in
Anchorage during late September 1997. Local exchange  services  revenues totaled
$1.0  million  during  the  first  quarter  of 1998  representing  1.7% of total
revenues.  The Company  expects local  services  revenues to represent less than
6.0% of total  revenues in 1998.  During the first quarter of 1998 operating and
engineering expenses represented approximately 8.5% of total local services cost
of sales  and  selling,  general  and  administrative  expenses.  Marketing  and
advertising  costs  represented  approximately  8.6%  of  such  total  expenses,
customer service, and general and administrative costs represented approximately
54.7% of such total  expenses.  The  Company  expects  that it will  continue to
generate  operating  losses and  negative  EBITDA from local  exchange  services
during 1998.  Factors that have the greatest impact on  year-to-year  changes in
local  services  revenues  include the rates  charged to customers the number of
customers served.

      Internet Services. The Company's statewide SchoolAccess services (Internet
access and related products and services for Alaska schools)  commenced  January
1998.  SchoolAccess  revenues  totaled $903,000 during the first quarter of 1998
representing 1.6% of total revenues.  The Company began offering retail Internet
services in April 1998.  The Company  expects  Internet  services  revenues will
represent  less  than  3.0% of total  revenues  in 1998.  Factors  that have the
greatest impact on year-to-year  changes in Internet  services  revenues include
the rates charged to customers the number of customers served.

      PCS  Services.  The  Company  began  developing  plans  for  PCS  wireless
communications  service  deployment in 1995 and is currently  evaluating various
vendors for a proposed  PCS network.  In 1997 the Company  conducted a technical
trial of its candidate  technology.  The Company currently expects to launch PCS
service in Anchorage in 1999, although it may be deferred beyond that date.

      Depreciation and amortization and interest expense on a consolidated basis
is expected to be higher in 1998 as compared to 1997  resulting  primarily  from
additional  depreciation  on 1997 and 1998 capital  expenditures  and additional
outstanding  long-term  debt.  As a result,  the  Company  expects  that it will
continue to record net losses in 1998.




                                       18                            (Continued)
<PAGE>

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

(Underlying data rounded to the nearest thousands)
<CAPTION>
                                                                Quarter Ended              Percentage
          (Unaudited)                                             March 31,                  Change
                                                                  ---------                  ------
                                                       (Predecessor)     (Successor)        1997 vs.
                                                           1997              1998             1998
          Statement of Operations Data:                 ------------    -------------     -------------
          <S>                                                <C>            <C>                <C>
          Revenues:   
              Telecommunications services...........          74.2%            73.8%              9.5%
              Cable services........................          25.8%            24.4%              4.0%
              Local services........................            ---             1.8%               ---
                                                        ------------    -------------     -------------
          Total revenues...........................          100.0%           100.0%             10.0%
              Cost of sales and services...........           51.4%            47.0%              0.5%
              Selling, general and administrative
                 expenses..........................           30.8%            35.0%             24.7%
              Depreciation and amortization........           11.6%            13.9%             31.8%
                                                        ------------    -------------     -------------
          Operating income.........................            6.2%             4.2%           (26.0)%
                                                        ------------    -------------     -------------
          Net loss before income taxes.............          (1.2)%           (4.3)%            281.6%
                                                        ------------    -------------     -------------

          Net loss                                           (1.0)%           (2.8)%            207.8%
                                                        ============    =============     =============

          Other Operating Data:
              Cable operating income (1)...........           18.5%            15.3%           (14.1)%
              Cable EBITDA  (1)........................       44.1%            40.8%            (3.8)%
              Local operating loss (2).............             ---         (310.7)%            397.0%
              Local EBITDA  (2)....................             ---         (205.5)%            228.7%
              Consolidated EBITDA..................           17.8%            18.1%             11.6%
<FN>
   --------------------------
   (1) Computed as a percentage of total cable services  revenues.  
   (2) Computed as a percentage of total local services revenues.
</FN>
</TABLE>



                                       19                            (Continued)
<PAGE>
THREE MONTHS ENDED March 31, 1998 ("1998")  COMPARED TO THREE MONTHS ENDED MARCH
31, 1997 ("1997")

      REVENUES.  Total  revenues  increased  10.0% from $52.9 million in 1997 to
$58.2 million in 1998.  Long  distance  transmission  revenues from  commercial,
residential,  governmental,  and other common carrier  customers  increased 8.3%
from $36.3 million in 1997 to $39.3 million in 1998.  This increase  reflected a
5.6% increase in interstate  minutes of use to 158.2 million  minutes and a 3.1%
increase in  intrastate  minutes of use to 33.0 million  minutes.  Long distance
revenue growth in 1998 was largely due to a 7.5% increase in revenues from other
common  carriers  (principally  MCI and Sprint),  from $13.4  million in 1997 to
$14.4 million in 1998 and a 25.0%  increase in private line and private  network
transmission  services  revenues,  from $3.6  million in 1997 to $4.5 million in
1998.  The  Company's  average  rate per  minute on long  distance  traffic  was
constant  at $0.173  per  minute in 1998 as  compared  to 1997.  Cable  revenues
increased  3.6% from $13.7  million in 1997 to $14.2  million in 1998  resulting
primarily from a 4.0% increase in basic subscribers of approximately 4,200 as of
March 31, 1998 as compared to March 31, 1997.  The number of homes passed by the
cable systems increased  approximately  940 during the three-month  period ended
March 31,  1998.  The Company  began  offering  local  services in  Anchorage in
September 1997 with first quarter 1998 revenues totaling $1.0 million.

      Product  sales and  network  services  revenues  increased  4.2% from $2.4
million in 1997 to $2.5  million in 1998,  primarily  due to  increased  network
services revenues in 1998 as compared to 1997.

      COST OF SALES AND  SERVICES.  Cost of sales  and  services  totaled  $27.2
million in 1997 and $27.3 million in 1998.  As a percentage  of total  revenues,
cost of sales and services  decreased  from 51.4% in 1997 to 47.0% in 1998.  The
decrease in cost of sales and services as a percentage  of revenues is primarily
attributed  to: 1) a refund  received  in the  first  quarter  of 1998  totaling
approximately  $1.1  million  from a local  exchange  carrier  in respect of its
earnings that exceeded regulatory requirements,  2) reductions in access charges
paid by the  Company to other  carriers  for  distribution  of its  traffic,  3)
avoidance  of access  charges  resulting  from the  Company's  distribution  and
termination  of its traffic on its own network  instead of paying other carriers
to distribute and terminate its traffic, and 4) changes in the Company's product
mix.

      SELLING,  GENERAL  AND  ADMINISTRATIVE  EXPENSES.   Selling,  general  and
administrative  expenses  increased  24.7% from  $16.3  million in 1997 to $20.3
million in 1998, and, as a percentage of revenues,  increased from 30.8% in 1997
to 35.0% in 1998. This increase resulted from:

           1.   Operating,    engineering,    sales,    customer   service   and
                administrative  costs  totaling  $516,000 in 1997 as compared to
                $2.2  million  in  1998  associated  with  the  Company's  local
                services segment which initiated  service in September 1997. The
                first quarter  increase was necessary to provide the operations,
                engineering,   customer   service  and  support   infrastructure
                necessary to  accommodate  the expected  growth in the Company's
                local services customer base.
           2.   Increased  telecommunication general and administrative expenses
                of $13.1  million in 1998 as compared  to $11.3  million in 1997
                due to increased  personnel and other costs in customer service,
                engineering,  operations, accounting, human resources, legal and




                                       20                            (Continued)
<PAGE>
                regulatory,  and management information services. Cost increases
                were associated with the development,  introduction,  or planned
                introduction, and support of new products and services including
                rural message and data  telephone  services,  PCS services,  and
                Internet  services.  Increased  customer  service  expenses were
                associated   with  support  of  increased   sales   volumes  and
                expenditures  necessary for  continuing  integration of customer
                service operations across product lines.
           3.   Increased   telecommunication  segment  sales,  advertising  and
                telemarketing  costs  totaling  $2.9 million in 1997 compared to
                $3.1 million in 1998.  Increased  selling costs were  associated
                with the  introduction  of  various  marketing  plans  and other
                proprietary  rate  plans and cross  promotion  of  products  and
                services.

      DEPRECIATION  AND  AMORTIZATION.  Depreciation  and  amortization  expense
increased  31.8% from $6.1 million in 1997 to $8.1 million in 1998. The increase
is attributable to the Company's $64.6 million  investment in facilities  during
1997 for which a full year of depreciation  will be recorded during 1998 and the
first quarter 1998 facilities investment of $28.2 million.

      INTEREST EXPENSE, NET. Interest expense, net of interest income, increased
25.2% from $3.9 million in 1997 to $4.9 million in 1998. This increase  resulted
from  increases in the  Company's  average  outstanding  indebtedness  resulting
primarily  from  construction  of new long distance and local  telecommunication
equipment  and  facilities  and  expansion  and  upgrades  of  cable  television
facilities.  Such  increases  were offset in part by  increases in the amount of
interest capitalized during 1998.

      INCOME TAX BENEFIT.  Income tax benefit increased from $132,000 in 1997 to
$891,000 in 1998 due to an increase in the net loss before  income taxes in 1998
as compared to 1997.  The Company's  effective  income tax rate  increased  from
20.1%  in  1997  to  35.5%  in  1998  due to the  increased  net  loss  and  the
proportional amount of items that are nondeductible for income tax purposes.

      As a result of its  acquisition  of the Cable  Companies,  the Company has
available  net operating  loss  carryforwards  for income tax purposes  totaling
$37.6  million at March 31, 1998 which begin to expire in 2004 if not  utilized.
The  Company's   utilization  of  these  carryforwards  is  subject  to  certain
limitations pursuant to section 382 of the Internal Revenue Code.

      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  periods are  reduced.  The Company  estimates  that its  effective
income tax rate for financial  statement  purposes will be approximately  36% in
1998. The Company  expects that its  operations  will generate net income before
income  taxes  during  the  carryforward  periods to allow  utilization  of loss
carryforwards for which no allowance has been established.





                                       21                            (Continued)
<PAGE>
                 FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS
<TABLE>
      The following chart provides  selected  unaudited  statement of operations
data from the Company's quarterly results of operations during 1997 and 1998:
<CAPTION>
                                                        (Dollars in thousands, except per share amounts)
                                                 First          Second        Third            Fourth           Total
(Unaudited)                                     Quarter         Quarter       Quarter          Quarter          Year
                                          ------------------------------------------------------------------------------
                 1997
                 ----
            (Predecessor)
<S>                                     <C>        <C>            <C>             <C>            <C>            <C>
Revenues
     Telecommunications services        $          39,225         42,131          44,407         42,271         168,034
     Cable services                                13,656         14,055          13,294         14,160          55,165
     Local services                                   ---            ---             255            355             610
                                          ------------------------------------------------------------------------------
Total revenues                                     52,881         56,186          57,956         56,786         223,809
Operating income                                    3,292          2,786           3,786          5,518          15,382
Extraordinary item, net of income tax
     benefit                                          ---            ---             433             88             521
Net income (loss)                       $            (525)          (832)           (928)           102          (2,183)
                                          ==============================================================================
Basic net earnings (loss) per share     $           (0.01)         (0.02)          (0.02)          0.00           (0.05)
                                          ==============================================================================
Diluted net earnings (loss) per share   $           (0.01)         (0.02)          (0.02)          0.00           (0.05)
                                          ==============================================================================
Other financial data:
     Cable EBITDA                       $           6,025          5,863           5,687          6,168          23,743
                                          ==============================================================================
     Local EBITDA                       $            (634)          (814)           (540)        (2,443)         (3,797)
                                          ==============================================================================
     Consolidated EBITDA                $           9,412          8,394           9,553         11,790          39,149
                                          ==============================================================================

                 1998
                 ----
              (Successor)
Revenues
     Telecommunications services        $          42,937                                                        42,937
     Cable services                                14,201                                                        14,201
     Local services                                 1,014                                                         1,014
                                          ------------------------------------------------------------------------------
Total revenues                                     58,152                                                        58,152
Operating income                                    2,437                                                         2,437
Net loss                                $          (1,616)                                                       (1,616)
                                          ==============================================================================
Basic net loss per share                $         (16,160)                                                      (16,160)
                                          ==============================================================================
Diluted net loss per share              $         (16,160)                                                      (16,160)
                                          ==============================================================================
Other financial data:
     Cable EBITDA                       $           5,795                                                         5,795
                                          ==============================================================================
     Local EBITDA                       $          (2,084)                                                       (2,084)
                                          ==============================================================================
     Consolidated EBITDA                $          10,503                                                        10,503
                                          ==============================================================================
</TABLE>


                                       22                            (Continued)
<PAGE>

      Total  revenues for the quarter  ended March 31, 1998 were $58.2  million,
representing  a 2.5% increase from total  revenues in the fourth quarter of 1997
of $56.8 million. This increase in total revenues resulted from the following:

        1. A 1.4%  increase  in  telecommunications  services  revenues to $42.9
           million in the first  quarter of 1998 from $42.3  million  during the
           fourth quarter of 1997.  This increase is  attributable in part to an
           increase in minutes of traffic  carried  during the first  quarter of
           1998 of  approximately  5.6 million minutes as compared to the fourth
           quarter of 1997 (a 3.0% increase).
        2. An increase in Internet revenues  included in the  Telecommunications
           segment totaling $800,000 in 1998.
        3. An increase in local services revenues totaling $659,000 in 1998.
        4. These  increases were offset,  in part, by a reduction in the average
           rate per minute  billed by the  company  during the first  quarter of
           1998 of  approximately  $0.003 as compared  to the fourth  quarter of
           1997 (a 0.6% decrease).

      Cost of sales and  services  for the quarter  ended March 31, 1998 totaled
$27.3  million,  representing  a 7.9%  increase  from  total  cost of sales  and
services in the fourth quarter of 1997 of $25.3 million. Increased cost of sales
resulted from:

        1. A 1.4% increase in long-distance  telecommunications  revenues. 
        2. An increase in local services costs totaling $1.0 million in 1998.
        3. Universal Service Fund costs totaling $665,000 in 1998.
        4. An  increase  in Internet  costs  included in the  Telecommunications
           segment totaling $368,000 in 1998.
        5. These  increases  were  offset,  in part,  by a refund  in the  first
           quarter of 1998 aggregating  approximately  $1.1 million from a local
           exchange carrier in respect of its earnings that exceeded  regulatory
           requirements.

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

                            ACCOUNTING PRONOUNCEMENTS

      In June  1997,  the  Accounting  Standards  Board  issued  SFAS  No.  131,
"Financial Reporting for Segments of a Business Enterprise" which applies to all
public business  enterprises.  This new standard requires  companies to disclose
segment data based on how management makes decisions about allocating  resources
to segments and how it measures segment performance. SFAS 131 requires companies
to  disclose  a  measure  of  segment  profit  or  loss,   segment  assets,  and
reconciliations to consolidated totals. It also requires entity-wide disclosures
about a company's  products and services,  its major  customers and the material
countries  in which it holds  assets  and 



                                       23                            (Continued)
<PAGE>
reports  revenues.  Statement  131 is effective  for  financial  statements  for
periods  beginning  after December 15, 1997.  Management of the Company  expects
that  adoption of SFAS No. 131 will not have a material  impact on the Company's
year-end 1998 financial statement disclosures.

      In February  1998,  the  Accounting  Standards  Board issued SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement  Benefits." SFAS
132  standardizes the disclosure  requirements  for pensions and  postretirement
benefits where practical.  It also eliminates  certain  disclosures and requires
additional information on changes in benefit obligations and fair values of plan
assets.  The  Company  will  adopt  SFAS  132 in  its  1998  year-end  financial
statements.  SFAS  132 is not  expected  to  have a  significant  effect  on the
Company's pension and postretirement benefit plan disclosures.

                         LIQUIDITY AND CAPITAL RESOURCES

      The  Company's   first  quarter  1998  ("1998")  cash  used  by  operating
activities  totaled $5.7  million,  net of changes in the  components of working
capital.  Sources of cash during 1998  included  long-term  borrowings  of $24.0
million  and the  Predecessor's  class A common  stock sales  proceeds  totaling
$170,000.  The  Company's  expenditures  for property and  equipment,  including
construction  in  progress,  totaled  $9.5  million  and $28.2  million  for the
quarters ended March 31, 1997 and 1998,  respectively.  Uses of cash during 1998
included  repayment  of  $443,000 of  long-term  borrowings  and  capital  lease
obligations,  payment of deferred debt issuance  costs totaling $1.1 million and
an increase in other assets of $1.2 million.

      Net receivables increased $6.7 million from December 31, 1997 to March 31,
1998  resulting  from  increased  revenues  in 1998 as  compared  to 1997 and an
increase in refundable income taxes in 1998 of $2.9 million.

      Accounts  payable  decreased $3.4 million and accrued  interest  decreased
$4.1  million  from  December  31,  1997 to March 31,  1998  resulting  from the
Company's  payment of amounts  accrued at  December  31,  1997  during the first
quarter of 1998.

      Working  capital at March 31, 1998 totaled $10.0 million,  a $15.0 million
increase from the working  capital deficit of $5.0 million at December 31, 1997.
The  increase  in  working  capital  is  primarily  attributed  to 1) payment of
accounts  payable and accrued  interest at December 31, 1997 with cash generated
by operating activities,  2) payment of amounts accrued for facilities expansion
and equipment at December 31, 1997 with cash  generated by operating  activities
and cash obtained through the Company's credit  agreements,  and 3) increases in
trade accounts receivable and refundable income taxes.

      On January 27, 1998 Alaska  United  closed a $75 million  project  finance
facility ("Fiber  Facility") to construct a fiber optic cable system  connecting
Anchorage, Fairbanks, Valdez, Whittier, Juneau and Seattle (see notes 3 and 5 to
the accompanying Notes to Interim Condensed  Consolidated Financial Statements).
The Fiber Facility provides up to $75 million in construction financing and will
bear  interest  at either  Libor  plus 3.0%,  or at the  Company's  choice,  the
lender's  prime rate plus 1.75%.  The  interest  rate will decline to Libor plus
2.5%-2.75%,  or at the Company's choice, the lender's prime rate plus 1.25%-1.5%
after the project  completion  date and when the loan balance is  



                                       24                            (Continued)
<PAGE>
$60,000,000 or less.  Alaska United is required to pay a commitment fee equal to
0.375% per annum on the unused portion of the commitment.  The Fiber Facility is
a 10-year  term loan that is interest  only for the first 5 years.  The facility
can be extended to a 12 year term loan at any time  between the second and fifth
anniversary  of closing the  facility if the Company can  demonstrate  projected
revenues  from  certain  capacity  commitments  will  be  sufficient  to pay all
operating costs, and interest and principal  installments  based on the extended
maturity. $1.0 million was borrowed under the facility at March 31, 1998.

      The Fiber Facility  contains,  among others,  covenants  requiring certain
intercompany  loans and  advances in order to maintain  specific  levels of cash
flow  necessary to pay operating  costs,  interest and  principal  installments.
Additional  covenants  pertain  to the  timely  completion  of  certain  project
construction  milestones.  The Fiber  Facility  also  contains a guarantee  that
requires,  among other terms and conditions,  Alaska United complete the project
by the completion  date and pay any  non-budgeted  costs of the project.  All of
Alaska United's assets, as well as a pledge of the partnership interests' owning
Alaska United, collateralize the Fiber Facility.

      The  Company's   expenditures   for  property  and  equipment,   including
construction  in progress,  totaled  $28.2  million and $9.5 million  during the
first quarters of 1998 and 1997, respectively.  The Company anticipates that its
capital  expenditures  in 1998 may  total as much as $225.0  million,  including
approximately $40.0 million for satellite  transponders and approximately $125.0
million  for  new  undersea  fiber  optic  cable  facilities.   Planned  capital
expenditures  over the next five years include $50.0 million to $70.0 million to
fund  expansion of long distance  facilities,  between $120.0 million and $140.0
million  to fund  development,  construction  and  operating  costs of its local
exchange and PCS networks and  businesses;  and between  $55.0 million and $65.0
million to upgrade its cable television plant and to purchase  equipment for new
cable  television   services.   Sources  of  funds  for  these  planned  capital
expenditures  include  internally  generated cash flows and borrowings under the
Company's  credit  facilities  including  borrowings  under the new $75  million
project financing  described above. All such funds will be necessary to complete
the Company's capital expenditure plans.

      The Alaska United  project will provide a high  capacity  fiber optic link
between  Fairbanks,  Anchorage,  Valdez,  and Juneau,  Alaska,  and the lower 48
states through Seattle,  Washington. Its initial capacity will be more than five
times the capacity of Alaska's  current  undersea fiber to the lower 48. After a
preliminary route survey was completed and initial cost components determined, a
detailed sea floor survey was commissioned. On August 1, 1997 the Company issued
a down payment to TSS to begin construction.  Manufacturing of the cable and its
electronics  has been underway since that time. The cable is expected to be laid
from August to October  1998.  Testing  will occur after that,  and services are
expected to commence in December 1998.

      The  Company's  ability  to  invest  in  discretionary  capital  and other
projects will depend upon its future cash flows and access to  borrowings  under
its credit  facilities.  Management  anticipates that cash flow generated by the
Company and borrowings  under its credit  facilities  will be sufficient to meet
its planned capital expenditures and working capital requirements





                                       25                            (Continued)
<PAGE>
The Company  entered  into a purchase  and  lease-purchase  option  agreement in
August 1995 for the acquisition of satellite  transponders to meet its long-term
satellite  capacity  requirements.  The amount payable upon expected delivery of
the transponders  during the third quarter of 1998 is not expected to exceed $41
million.

                                 YEAR 2000 COSTS

      The "Year 2000" issue affects the Company's  installed  computer  systems,
network elements,  software  applications,  and other business systems that have
time-sensitive  programs  that may not properly  reflect or  recognize  the year
2000. Because many computers and computer  applications define dates by the last
two digits of the year,  "00" may not be properly  identified  as the year 2000.
This error could result in miscalculations or system failures.

      The  Company  has  established  a year 2000 task force to  coordinate  the
identification,  evaluation,  and  implementation  of changes to  financial  and
operating  computer  systems and  applications  necessary to achieve a year 2000
date   conversion  with  no  effect  on  customers  or  disruption  to  business
operations.  These  actions  are  necessary  to  insure  that  the  systems  and
applications will recognize and process the year 2000 and beyond. Major areas of
potential  business  impact have been  identified  and are being  assessed,  and
initial  conversion  efforts  are  underway  using both  internal  and  external
resources.

      The Year 2000 issue may also affect the systems  and  applications  of the
Company's customers and vendors. The Company is also contacting others with whom
it conducts  business to receive the appropriate  warranties and assurances that
those third parties are, or will be, Year 2000 compliant.

      The total cost of modifications and conversions is not known at this time.
The Company's  management estimates that the incremental cost of compliance over
the cost of normal  software  upgrades  and  replacements  and its effect on the
Company's future results of operations  totals  approximately $3 million in each
of 1998 and 1999,  subject to further review as part of the detailed  conversion
planning.  The  cost of  modifications  and  conversions  is being  expensed  as
incurred. 1998 Costs incurred through March 31 totaled approximately $80,000.

      If  compliance  is not  achieved in a timely  manner,  the Year 2000 issue
could have a material effect on the Company's  operations.  However, the Company
is focusing on identifying and addressing all aspects of its operations that may
be  affected  by the  Year  2000  issue  and is  addressing  the  most  critical
applications  first. As a result, the Company's  management does not believe its
operations will be materially adversely affected.

      Funds for year 2000 costs are expected to be provided  from the  Company's
operating  activities  and  credit  facilities.   Management  must  balance  the
requirements for funding  discretionary  capital expenditures with required year
2000 efforts given its limited resources.

                                    INFLATION

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




                                       26                            
<PAGE>
PART II.   OTHER INFORMATION

ITEM 1.    Legal Proceedings

           Information  regarding pending legal proceedings to which the Company
           is a party  is  included  in Note 5 of  Notes  to  Interim  Condensed
           Consolidated  Financial  Statements  and is  incorporated  herein  by
           reference.

ITEM 6.    Exhibits and Reports on Form 8-K

                 (a) Exhibits:

                     Exhibit 27 - Financial Data Schedule  *

                 (b) Reports on Form 8-K filed  during the  quarter  ended March
                     31, 1998 - None


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





                                       27
<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.



           May 12, 1998                 By:     /s/ Ronald A. Duncan
---------------------------------              --------------------------------
              (Date)                            Ronald A. Duncan, President and
                                                Director
                                                (Chief Executive Officer)



           May 12, 1998                 By:     /s/ G. Wilson Hughes
---------------------------------              --------------------------------
              (Date)                            G. Wilson Hughes, Vice President
                                                and Director



           May 12, 1998                 By:     /s/ John M. Lowber
---------------------------------              --------------------------------
              (Date)                            John M. Lowber, Secretary, 
                                                Treasurer and Director
                                                (Chief Financial and Accounting
                                                Officer)




                                       28