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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 September 30, 2001

OR

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

For the transition period from ___________________ to __________________

ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.

(Exact name of registrant as specified in its charter)


____________________


|                                                                       |  |                                               
|---------------------------------------------------------------------- |  | ----------------------------------------------
|Delaware(State or Other Jurisdiction
of Incorporation or Organization) |  | 91-1921377(I.R.S. Employer
Identification No.)

510 L Street, Suite 500, Anchorage, Alaska 99501

(Address of Principal Executive
Offices)             (Zip Code)


Registrants Telephone Number, Including Area Code: (907) 297-3000

---

Former name, former address and former three months, if changed since last report:Not Applicable


Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes [X] No [   ]

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.

Yes [   ] No [   ]

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the last practicable date.

DOCUMENTS INCORPORATED BY REFERENCE
None



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TABLE OF CONTENTS



|                  |                                                                                               |                                            |  |  |  |  |  | 
|----------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------ |  |  |  |  |  | 
|                  |                                                                                               | Consolidated Balance Sheets               
|                  |                                                                                               | Consolidated Statements of Operations     
|                  |                                                                                               | Consolidated Statements of Cash Flows     
|                  |                                                                                               | Notes to Consolidated Financial Statements
|                  | Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                  | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|PART II          
|OTHER INFORMATION
|                  | ITEM 1. LEGAL PROCEEDINGS.                                                                   
|                  | ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.                                           
|                  | ITEM 3. DEFAULTS UPON SENIOR SECURITIES.                                                     
|                  | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.                                 
|                  | ITEM 5. OTHER INFORMATION.                                                                   
|                  | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.                                                    
|SIGNATURE        



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TABLE OF CONTENTS

|          |  |                                                                                       |  |  |    |        |    | 
|--------- |  | ------------------------------------------------------------------------------------- |  |  | -- | ------ | -- | 
|          |  |                                                                                       |  |  |    | Page  
|          |  |                                                                                       |  |  |    | Number
|          |  |                                                                                       |  |  |    |       
|PART I    |  | Financial Information                                                                 |  |  |    |       
|Item 1    |  | Financial Statements:                                                                 |  |  |    |       
|          |  | Consolidated Balance Sheets (unaudited)                                               |  |  |    |       
|          |  | As of September 30, 2001 and December 31, 2000                                        |  |  | 3  |       
|          |  | Consolidated Statements of Operations (unaudited)                                     |  |  |    |       
|          |  | For the Three and Nine Months Ended September 30, 2001 and 2000                       |  |  | 4  |       
|          |  | Consolidated Statements of Cash Flows (unaudited)                                     |  |  |    |       
|          |  | For the Nine Months Ended September 30, 2001 and 2000                                 |  |  | 5  |       
|          |  | Notes to Consolidated Financial Statements (unaudited)                                |  |  | 6  |       
|Item 2    |  | Management's
Discussion and Analysis of Financial Condition and Results of Operations |  |  | 12 |       
|Item 3    |  | Quantitative and
Qualitative Disclosures About Market Risk                            |  |  | 24 |       
|PART II   |  | Other Information                                                                     |  |  |    |       
|Item 1    |  | Legal Proceedings                                                                     |  |  | 25 |       
|Item 2    |  | Changes in Securities and Use of Proceeds                                             |  |  | 26 |       
|Item 3    |  | Defaults upon Senior Securities                                                       |  |  | 26 |       
|Item 4    |  | Submission of Matters to a Vote of Security Holders                                   |  |  | 26 |       
|Item 5    |  | Other Information                                                                     |  |  | 26 |       
|Item 6    |  | Exhibits and Reports on Form 8-K                                                      |  |  | 26 |       
|Signature |  |                                                                                       |  |  |    |        | 27 | 

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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Consolidated Balance Sheets
(Unaudited, In Thousands Except Per Share Amounts)

|                                                                 |                                                                                           |                            |           |         |         |               |         |              |         |  |  | 
|---------------------------------------------------------------- | ----------------------------------------------------------------------------------------- | -------------------------- | --------- | ------- | ------- | ------------- | ------- | ------------ | ------- |  |  | 
|                                                                 |                                                                                           |                            |           |         |         | September 30, |         | December 31,
|                                                                 |                                                                                           |                            |           |         |         | 2001          |         | 2000        
|                                                                 |                                                                                           |                            |           |         |         |               |         |             
|Assets                                                          
|Current assets:                                                  |                                                                                           |                            |           |         |         |               |         |             
|                                                                 | Cash and cash equivalents                                                                 |                            | $         | 34,731  |         |               | $       | 61,896       |        
|                                                                 | Restricted cash                                                                           |                            |           | 6,890   |         |               |         |             |        
|                                                                 | Accounts
receivable  trade, net of allowance of $6,213 and $9,831                        |                            |           | 47,374  |         |               |         | 46,337       |        
|                                                                 | Accounts receivable  affiliates                                                          |                            |           | 2,209   |         |               |         | 1,516        |        
|                                                                 | Materials and supplies                                                                    |                            |           | 10,059  |         |               |         | 11,103       |        
|                                                                 | Prepayments and other current assets                                                      |                            |           | 7,854   |         |               |         | 4,304        |        
|                                                                 |                                                                                           |                            |           |         |         |               |         |             
|                                                                 |                                                                                           | Total current assets       |           |         | 109,117 |               |         |              | 125,156 | 
|Property, plant and equipment                                    |                                                                                           |                            | 1,021,341 |         |         |               | 953,557 |             
|Less: accumulated depreciation                                   |                                                                                           |                            | 537,434   |         |         |               | 492,822 |             
|                                                                 |                                                                                           |                            |           |         |         |               |         |             
|                                                                 | Property, plant and equipment, net                                                        |                            |           | 483,907 |         |               |         | 460,735      |        
|Goodwill, net of accumulated amortization of $17,559 and $11,753 |                                                                                           |                            | 252,431   |         |         |               | 258,236 |             
|Investments                                                      |                                                                                           |                            |          |         |         |               | 1,370   |             
|Other assets                                                     |                                                                                           |                            | 60,230    |         |         |               | 63,809  |             
|                                                                 |                                                                                           |                            |           |         |         |               |         |             
|Total assets                                                     |                                                                                           | $                          | 905,685   |         |         | $             | 909,306 |             
|                                                                 |                                                                                           |                            |           |         |         |               |         |             
|Liabilities and Stockholders Equity                            
|Current liabilities:                                             |                                                                                           |                            |           |         |         |               |         |             
|                                                                 | Current portion of long-term obligations                                                  |                            |           | 5,152   |         |               |         | 2,870        |        
|                                                                 | Accounts payable  trade                                                                  |                            |           | 25,820  |         |               |         | 31,865       |        
|                                                                 | Accounts payable  affiliates                                                             |                            |           | 957     |         |               |         | 1,145        |        
|                                                                 | Advance billings and customer deposits                                                    |                            |           | 8,921   |         |               |         | 8,689        |        
|                                                                 | Accrued and other current liabilities                                                     |                            |           | 38,458  |         |               |         | 25,860       |        
|                                                                 |                                                                                           |                            |           |         |         |               |         |             
|                                                                 |                                                                                           | Total current liabilities  |           |         | 79,308  |               |         |              | 70,429  | 
|Long-term obligations, net of current portion                    |                                                                                           |                            | 591,670   |         |         |               | 596,772 |             
|Unamortized investment tax credits                               |                                                                                           |                            | 49        |         |         |               | 197     |             
|Other deferred credits and long-term liabilities                 |                                                                                           |                            | 23,832    |         |         |               | 10,755  |             
|Commitments and contingencies                                    |                                                                                           |                            |          |         |         |               |        |             
|Stockholders equity:                                            |                                                                                           |                            |           |         |         |               |         |             
|                                                                 | Common stock, $.01 par value; 1,000 shares authorized, and
1 share issued and outstanding |                            |           |        |         |               |         |             |        
|                                                                 | Contributed capital                                                                       |                            |           | 287,242 |         |               |         | 287,242      |        
|                                                                 | Accumulated deficit                                                                       |                            |           | (63,221 | )       |               |         | (56,089      | )      
|                                                                 | Accumulated other comprehensive loss                                                      |                            |           | (13,195 | )       |               |         |             |        
|                                                                 |                                                                                           |                            |           |         |         |               |         |             
|                                                                 |                                                                                           | Total stockholders equity |           |         | 210,826 |               |         |              | 231,153 | 
|                                                                 |                                                                                           |                            |           |         |         |               |         |             
|Total liabilities and stockholders equity                       |                                                                                           | $                          | 905,685   |         |         | $             | 909,306 |             
|                                                                 |                                                                                           |                            |           |         |         |               |         |             

See Notes to Consolidated Financial Statements

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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Consolidated Statements of Operations
(Unaudited, In Thousands Except Per Share Amounts)

|                         |                                          |                          |        |                    |         |                   |         |         |         |      |        |         |         |   |         |         |         |  
|------------------------ | ---------------------------------------- | ------------------------ | ------ | ------------------ | ------- | ----------------- | ------- | ------- | ------- | ---- | ------ | ------- | ------- | - | ------- | ------- | ------- | -
|                         |                                          |                          |        | Three Months Ended |         | Nine Months Ended
|                         |                                          |                          |        | September 30,      |         | September 30,    
|                         |                                          |                          |        |                    |         |                  
|                         |                                          |                          |        | 2001               |         | 2000              |         | 2001    |         | 2000
|                         |                                          |                          |        |                    |         |                   |         |         |         |     
|Operating revenues:      |                                          |                          |        |                    |         |                   |         |         |         |      |        |         |         |   |         |        
|                         | Local telephone                          |                          | $      | 53,860             |         |                   | $       | 50,819  |         |      | $      | 163,018 |         |   | $       | 167,966 |        
|                         | Cellular                                 |                          |        | 11,041             |         |                   |         | 10,947  |         |      |        | 30,734  |         |   |         | 29,657  |        
|                         | Directory                                |                          |        | 8,705              |         |                   |         | 7,255   |         |      |        | 24,857  |         |   |         | 21,584  |        
|                         | Internet                                 |                          |        | 3,584              |         |                   |         | 2,590   |         |      |        | 9,898   |         |   |         | 5,247   |        
|                         | Interexchange                            |                          |        | 5,395              |         |                   |         | 2,976   |         |      |        | 16,557  |         |   |         | 8,513   |        
|                         | Other                                    |                          |        | 235                |         |                   |         | 279     |         |      |        | 733     |         |   |         | 853     |        
|                         |                                          |                          |        |                    |         |                   |         |         |         |      |        |         |         |   |         |        
|                         |                                          | Total operating revenues |        |                    | 82,820  |                   |         |         | 74,866  |      |        |         | 245,797 |   |         |         | 233,820 |  
|Operating expenses:      |                                          |                          |        |                    |         |                   |         |         |         |      |        |         |         |   |         |        
|                         | Local telephone                          |                          |        | 29,259             |         |                   |         | 34,166  |         |      |        | 88,582  |         |   |         | 103,288 |        
|                         | Cellular                                 |                          |        | 5,951              |         |                   |         | 5,913   |         |      |        | 17,501  |         |   |         | 17,684  |        
|                         | Directory                                |                          |        | 3,616              |         |                   |         | 3,404   |         |      |        | 10,478  |         |   |         | 10,199  |        
|                         | Internet                                 |                          |        | 4,583              |         |                   |         | 3,672   |         |      |        | 11,592  |         |   |         | 7,788   |        
|                         | Interexchange                            |                          |        | 6,678              |         |                   |         | 4,187   |         |      |        | 23,043  |         |   |         | 12,774  |        
|                         | Other                                    |                          |        | 470                |         |                   |         | 342     |         |      |        | 1,429   |         |   |         | 1,031   |        
|                         | Unusual charges                          |                          |        |                   |         |                   |         | 2,083   |         |      |        |        |         |   |         | 2,083   |        
|                         | Depreciation and amortization            |                          |        | 20,054             |         |                   |         | 17,773  |         |      |        | 59,292  |         |   |         | 52,464  |        
|                         |                                          |                          |        |                    |         |                   |         |         |         |      |        |         |         |   |         |        
|                         |                                          | Total operating expenses |        |                    | 70,611  |                   |         |         | 71,540  |      |        |         | 211,917 |   |         |         | 207,311 |  
|                         |                                          |                          |        |                    |         |                   |         |         |         |      |        |         |         |   |         |        
|Operating income         |                                          |                          | 12,209 |                    |         |                   | 3,326   |         |         |      | 33,880 |         |         |   | 26,509  |        
|Other income (expense):  |                                          |                          |        |                    |         |                   |         |         |         |      |        |         |         |   |         |        
|                         | Interest expense                         |                          |        | (14,029            | )       |                   |         | (15,815 | )       |      |        | (44,005 | )       |   |         | (46,452 | )      
|                         | Interest income and other                |                          |        | 1,021              |         |                   |         | 1,753   |         |      |        | 2,777   |         |   |         | 1,984   |        
|                         | Equity in earnings (loss) of investments |                          |        |                   |         |                   |         |        |         |      |        | 69      |         |   |         | (153    | )      
|                         |                                          |                          |        |                    |         |                   |         |         |         |      |        |         |         |   |         |        
|                         |                                          | Total other expense      |        |                    | (13,008 | )                 |         |         | (14,062 | )    |        |         | (41,159 | ) |         |         | (44,621 | )
|                         |                                          |                          |        |                    |         |                   |         |         |         |      |        |         |         |   |         |        
|Loss before income taxes |                                          |                          | (799   | )                  |         |                   | (10,736 | )       |         |      | (7,279 | )       |         |   | (18,112 | )      
|Income tax benefit       |                                          |                          | 48     |                    |         |                   | 20      |         |         |      | 147    |         |         |   | 154     |        
|                         |                                          |                          |        |                    |         |                   |         |         |         |      |        |         |         |   |         |        
|Net loss                 |                                          | $                        | (751   | )                  |         | $                 | (10,716 | )       |         | $    | (7,132 | )       |         | $ | (17,958 | )      
|                         |                                          |                          |        |                    |         |                   |         |         |         |      |        |         |         |   |         |        

See Notes to Consolidated Financial Statements

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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Consolidated Statements of Cash Flows
(Unaudited, In Thousands)

|                                                                                |                                           |                                                |         |                   |        |      |         |        |        |  
|------------------------------------------------------------------------------- | ----------------------------------------- | ---------------------------------------------- | ------- | ----------------- | ------ | ---- | ------- | ------ | ------ | -
|                                                                                |                                           |                                                |         | Nine Months Ended
|                                                                                |                                           |                                                |         | September 20,    
|                                                                                |                                           |                                                |         |                  
|                                                                                |                                           |                                                |         | 2001              |        | 2000
|                                                                                |                                           |                                                |         |                   |        |     
|Cash Flows from Operating Activities:                                           |                                           |                                                |         |                   |        |      |         |       
|Net loss                                                                        |                                           | $                                              | (7,132  | )                 |        | $    | (17,958 | )     
|Adjustments to reconcile net loss to net cash provided by operating activities: |                                           |                                                |         |                   |        |      |         |       
|                                                                                | Depreciation and amortization             |                                                |         | 59,292            |        |      |         | 52,464 |       
|                                                                                | Amortization of debt issuance costs       |                                                |         | 3,256             |        |      |         | 3,389  |       
|                                                                                | Investment tax credits                    |                                                |         | (147              | )      |      |         | (154   | )     
|                                                                                | Capitalized interest                      |                                                |         | (1,114            | )      |      |         | (681   | )     
|                                                                                | Other deferred credits                    |                                                |         | (119              | )      |      |         | 5,580  |       
|                                                                                | Changes in components of working capital: |                                                |         |                   |        |      |         |        |       
|                                                                                |                                           | Accounts receivable and other current assets   |         |                   | (4,218 | )    |         |        | 92,414 |  
|                                                                                |                                           | Accounts payable and other current liabilities |         |                   | 6,502  |      |         |        | (7,338 | )
|                                                                                |                                           | Other                                          |         |                   | 414    |      |         |        | 2,156  |  
|                                                                                |                                           |                                                |         |                   |        |      |         |       
|Net cash provided by operating activities                                       |                                           |                                                | 56,734  |                   |        |      | 129,872 |       
|Cash Flows from Investing Activities:                                           |                                           |                                                |         |                   |        |      |         |       
|Construction and capital expenditures, net of capitalized interest              |                                           |                                                | (74,559 | )                 |        |      | (44,910 | )     
|Proceeds from liquidation of minority interest investment                       |                                           |                                                | 1,370   |                   |        |      |        |       
|Cost of acquisitions, net of cash received                                      |                                           |                                                | (1,000  | )                 |        |      | (5,598  | )     
|                                                                                |                                           |                                                |         |                   |        |      |         |       
|Net cash used by investing activities                                           |                                           |                                                | (74,189 | )                 |        |      | (50,508 | )     
|Cash Flows from Financing Activities:                                           |                                           |                                                |         |                   |        |      |         |       
|Payments on long-term debt                                                      |                                           |                                                | (2,820  | )                 |        |      | (4,802  | )     
|                                                                                |                                           |                                                |         |                   |        |      |         |       
|Net cash used by financing activities                                           |                                           |                                                | (2,820  | )                 |        |      | (4,802  | )     
|Increase (decrease) in cash                                                     |                                           |                                                | (20,275 | )                 |        |      | 74,562  |       
|Cash and cash equivalents at beginning of the period                            |                                           |                                                | 61,896  |                   |        |      | 9,006   |       
|                                                                                |                                           |                                                |         |                   |        |      |         |       
|Cash and cash equivalents at the end of the period                              |                                           | $                                              | 41,621  |                   |        | $    | 83,568  |       
|                                                                                |                                           |                                                |         |                   |        |      |         |       
|Supplemental Cash Flow Data:                                                    |                                           |                                                |         |                   |        |      |         |       
|Interest paid                                                                   |                                           | $                                              | 35,870  |                   |        | $    | 39,644  |       
|Income taxes paid                                                               |                                           |                                                |        |                   |        |      |        |       
|Supplemental Noncash Transactions:                                              |                                           |                                                |         |                   |        |      |         |       
|Property acquired under capital lease                                           |                                           | $                                              |        |                   |        | $    | 3,152   |       
|Note payable in connection with acquisition                                     |                                           |                                                |        |                   |        |      | 2,250   |       
|Interest rate swap marked to market                                             |                                           |                                                | 13,195  |                   |        |      |        |       

See Notes to Consolidated Financial Statements

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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements
Nine Months Ended September 30, 2001
(Unaudited, In Thousands Except Per Share Amounts)

1. DESCRIPTION OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Alaska Communications Systems Holdings, Inc. and Subsidiaries (the
Company or ACS Holdings), a Delaware corporation, is an integrated
communications provider (ICP) engaged principally in providing local
telephone, directory, cellular, Internet, and interexchange services to its
customers in the state of Alaska through its telecommunications subsidiaries.
The Company was organized in July of 1998 for the purpose of acquiring and
operating telecommunications properties. The principal activities in 1998 and
through May 14, 1999 were the preparation of systems and obtaining financing
for pending acquisitions. On May 14, 1999, the Company was acquired and became
a wholly owned subsidiary of Alaska Communications Systems Group, Inc. (the
Parent or ACS Group).

The financial statements for the Company represent the consolidated
financial position, results of operations and cash flows principally of the
following entities:



| |  |  | Alaska Communications Systems Holdings, Inc.
| | - |  | --------------------------------------------
|
| |  |  | ACS of Alaska, Inc. (ACSAK)               
|
| |  |  | ACS of the Northland, Inc. (ACSN)         
|
| |  |  | ACS of Fairbanks, Inc. (ACSF)             
|
| |  |  | ACS of Anchorage, Inc. (ACSA)             
|
| |  |  | ACS Wireless, Inc. (ACSW)                 
|
| |  |  | ACS Long Distance, Inc. (ACSLD)           
|
| |  |  | ACS Internet, Inc.                          
|
| |  |  | ACS InfoSource, Inc.                        

Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or
omitted pursuant to rules and regulations of the Securities and Exchange
Commission. However, the Company believes the disclosures which are made are
adequate to make the information presented not misleading. The consolidated
financial statements and footnotes included in this Form 10-Q should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Companys Annual Report on Form 10-K for the year ended
December 31, 2000. Certain reclassifications have been made to the 2000
financial statements to make them conform to the current presentation.

Comprehensive loss for the three and nine months ended September 30, 2001
was $9,330 and $20,327, respectively. The difference between net loss and
comprehensive loss resulted from the adoption of Statement of Financial
Accounting Standards (SFAS) 133, Accounting for Derivative Instruments and
Hedging Activities,as amended.Comprehensive loss for the nine months ended
September 30, 2000 equaled the net loss.

On June 29, 2001, the Financial Accounting Standards Board (FASB) approved
for issuance Statement of Financial Accounting Standards (SFAS) 141,Business
Combinations,which supercedes APB Opinion No, 16, Business Combinationsand
FASB Statement No. 38, Accounting for Preacquisition Contingencies of Purchased
Enterprises. This statement establishes new standards for accounting and
reporting requirements for business combinations and requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001. The Company does not believe that the adoption of this statement will
have a material impact on its financial position, results of operations or cash
flows.

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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
Nine Months Ended September 30, 2001
(Unaudited, In Thousands Except Per Share Amounts)

1. DESCRIPTION OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

On June 29,
2001, the FASB approved for issuance SFAS 142, Goodwill and
Intangible Assets, which supercedes APB Opinion No. 17, Intangible Assets. This
statement establishes new standards for goodwill acquired in a business
combination and eliminates amortization of goodwill and instead sets forth
methods to periodically evaluate goodwill for impairment. The provisions of
SFAS 142 will be effective for fiscal years beginning after December 15, 2001.
The Company is evaluating the impact of the adoption of this standard on its
financial position, results of operations and cash flows. For the three and
nine months ended September 30, 2001, the Company amortized $1,939 and $5,806
of goodwill, respectively.

On August 15,
2001, the FASB issued SFAS 143, Accounting for Asset
Retirement Obligations, which is effective January 1, 2003. This statement
requires, among other things, the accounting and reporting of legal obligations
associated with the retirement of long-lived assets that result from the
acquisition, construction, development or normal operation of a long-lived
asset. The Company has not yet determined the impact of the adoption of this
standard on its financial position, results of operations and cash flows.

On October 3,
2001, the FASB issued SFAS 144, Accounting for the
Impairment or Disposal of Long-Lived Assets,which is effective January 1,
2002. This statement addresses accounting and reporting of all long-lived
assets, except goodwill, that are either held and used or disposed of through
sale or other means. The Company has not yet determined the impact of the
adoption of this standard on its financial position, results of operations and
cash flows.

In the opinion of management, the financial statements contain all
adjustments (consisting of normal recurring adjustments) necessary to present
fairly the consolidated financial position, results of operations and cash
flows for all periods presented. The results of operations for the three and
nine months ended September 30, 2001 and 2000 are not necessarily indicative of
the results of operations which might be expected for the entire year or any
other interim periods.

2. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Commencing January 1, 2001, ACS Holdings adopted SFAS 133, Accounting for
Derivative Instruments and Hedging Activities. ACS Holdings maintains an
interest rate risk management strategy as a condition of its bank credit
agreement that uses derivatives to minimize significant, unanticipated earnings
and cash flow fluctuations caused by interest rate volatility. ACS Holdings
specific goals are (1) to manage interest rate sensitivity by modifying the
repricing characteristics of certain of its debt and (2) to lower (where
possible) the cost of borrowed funds.

By using derivative financial instruments to hedge exposure to changes in
interest rates, the Company exposes itself to credit risk and market risk. ACS
Holdings has minimized its credit risk by entering into a transaction with a
high-quality counterparty and monitoring the financial condition of that
counterparty. Market risk is managed through the setting and monitoring of
parameters that limit the types and degree of market risks that are acceptable.

On January 1, 2001 ACS Holdings recognized a net credit of $1,243 in
Stockholders Equity relating to its adoption of SFAS 133 as accumulated other
comprehensive income. As of September 30, 2001, the Company had recorded
$13,195 as accumulated other comprehensive loss net of the reversal of the
credit recorded on January 1, 2001. This increase in accumulated comprehensive
loss was due to the change in the fair market value of the Companys interest
rate swap as a result of declining interest rates experienced during the last
nine months.

7



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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
Nine Months Ended September 30, 2001
(Unaudited, In Thousands Except Per Share Amounts)

3. STOCK INCENTIVE PLANS

The Companys employees participate in various plans of ACS Group, which
through its Compensation Committee of the board of directors, may grant stock
options, stock appreciation rights and other awards to officers, employees and
non-employee directors. At September 30, 2001, ACS Group has reserved a total of
6,060 shares of authorized common stock for issuance under the various plans.
In general, options under the plans vest ratably over three, four or five years
and the plans terminate in approximately 10 years from the date of adoption.
The plans allow forfeited options to be reissued.

ALEC Holdings, Inc. 1999 Stock Incentive Plan

The Parent has reserved 3,410 shares under this plan, which was adopted in
connection with the completion of its initial acquisitions on May 14, 1999. At
September 30, 2001, 4,003 options have been granted, 1,082 have been forfeited,
260 have been exercised and 489 shares are available for grant under the plan.

On January 4, 2001, the Parents Board of Directors approved the grant of
options to purchase 75 shares under the plan to certain members of management
at an exercise price equal to the fair market value of the common stock on the
date of grant, generally vesting over four years ratably.

Alaska Communications Systems Group, Inc. 1999 Stock Incentive Plan

The Parent has reserved 1,500 shares under this plan, which was adopted in
November 1999 in connection with its initial public offering. At September 30,
2001, 1,282 options have been granted, 341 have been forfeited, nine have been
exercised, and 559 shares are available for grant under the plan. The term of
options granted under the plan may not exceed 10 years. Unless otherwise
determined by the Parents Compensation Committee, options will vest ratably on
each of the first four anniversaries after the grant date and will have an
exercise price equal to the fair market value of the common stock on the date
of grant.

On May 14, 2001, the Parents Board of Directors approved the grant of
options to purchase seven shares under the plan to an employee at an exercise
price equal to the fair market value of the common stock on the date of grant,
generally vesting over four years ratably. On June 1, 2001, the Parents Board
of Directors approved the grant of options to purchase 20 shares under the plan
to an employee at an exercise price equal to the fair market value of the
common stock on the date of grant, generally vesting over four years ratably.
On June 4, 2001, the Parents Board of Directors approved the grant of options
to purchase eight shares under the plan to an employee at an exercise price
equal to the fair market value of the common stock on the date of grant,
generally vesting over four years ratably.

Alaska Communications Systems Group, Inc. 1999 Non-Employee Director Stock
Compensation Plan

The Parent adopted its non-employee director stock compensation plan in
November 1999 in connection with its initial public offering. The Parent has
reserved 150 shares under this plan. At September 30, 2001, 46 shares have
been awarded and 104 shares are available for grant under the plan. ACS Groups
directors are required to receive not less than 25% of their annual retainer
and meeting fees in the form of the Parents stock, and may elect to receive up
to 100% of directors compensation in the form of stock.

On March 30, 2001, 10 shares under the plan were awarded to ACS Groups
directors, of which seven were elected to be deferred until termination of
service by the directors. On June 29, 2001, five shares were awarded to ACS
Groups directors, of which four were elected to be deferred until termination
of service by the directors. On September 28, 2001, five shares were awarded to
ACS Groups directors, of which four were elected to be deferred until
termination of service by the directors.

8



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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
Nine Months Ended September 30, 2001
(Unaudited, In Thousands Except Per Share Amounts)

3. STOCK INCENTIVE PLANS (Continued)

Alaska Communications Systems Group, Inc. 1999 Employee Stock Purchase Plan

This plan was also adopted in connection with the Parents initial public
offering in November 1999. At September 30, 2001, 180 shares have been issued
under the plan and 820 shares are available for issuance and sale. The plan
will terminate on December 31, 2009. All ACS Holdings employees and all of the
employees of designated subsidiaries generally will be eligible to participate
in the purchase plan, other than employees whose customary employment is 20
hours or less per week or is for not more than five months in a calendar year,
or who are ineligible to participate due to restrictions under the Internal
Revenue Code.

On June 29, 2001, 48 shares were issued under the plan.

4. BUSINESS SEGMENTS

The Company has five reportable segments: local telephone, cellular,
directory, Internet and interexchange. Beginning with the first quarter of
2001, the Company began reporting directory and interexchange as separate
segments. Prior year amounts have been reclassified to conform with the
current presentation. Local telephone provides landline telecommunications
services, and consists of local telephone service, network access and
deregulated and other revenues; cellular provides wireless telecommunications
service; directory provides yellow page advertising and other related products;
Internet provides Internet service; and interexchange provides long distance
and private network services. Each reportable segment is a strategic business
under separate management and offering different services than those offered by
the other segments. The Company also has a wireless cable television service
segment that does not currently meet the criteria for a reportable segment and
is therefore included in All Other below.

The Company also incurs interest expense, interest income, equity in
earnings of investments, goodwill amortization on the original May 14, 1999
purchases, and other operating and non operating income and expense at the
corporate level which are not allocated to the business segments, nor are they
evaluated by the chief operating decision maker in analyzing the performance of
the business segments. These non operating income and expense items are
provided in the accompanying table under the caption All Other in order to
assist the users of these financial statements in reconciling the operating
results and total assets of the business segments to the consolidated financial
statements. Common use assets are held at the Company and are allocated
to the business segments based on operating revenues. The accounting policies
of the segments are the same as those described in the summary of significant
accounting policies.

The following table illustrates selected financial data for each segment
as of and for the nine months ended September 30, 2001:

|                               |  |           |         |          |  |           |         |          |  |               |        |           |  |              |        |       |  |   |        |   |  |   |         |   |  |   |         |   |  |   |         |  
|------------------------------ |  | --------- | ------- | -------- |  | --------- | ------- | -------- |  | ------------- | ------ | --------- |  | ------------ | ------ | ----- |  | - | ------ | - |  | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|                               |  | Local     |         |          |  |           |         |          |  |               |        |           |  |              |        |       |  |   |        |   |  |   |         |   |  |   |         |   |  |  
|                               |  | Telephone |         | Cellular |  | Directory |         | Internet |  | Interexchange |        | All Other |  | Eliminations |        | Total
|                               |  |           |         |          |  |           |         |          |  |               |        |           |  |              |        |      
|Operating revenues             |  | $         | 163,018 |          |  | $         | 30,756  |          |  | $             | 24,857 |           |  | $            | 9,900  |       |  | $ | 23,718 |   |  | $ | 13,337  |   |  | $ | (19,789 | ) |  | $ | 245,797 |  
|Depreciation and amortization  |  |           | 39,613  |          |  |           | 4,373   |          |  |               | 1      |           |  |              | 1,709  |       |  |   | 1,711  |   |  |   | 11,885  |   |  |   |        |   |  |   | 59,292  |  
|Operating income (loss)        |  |           | 24,567  |          |  |           | 4,504   |          |  |               | 14,349 |           |  |              | (7,018 | )     |  |   | (1,586 | ) |  |   | (936    | ) |  |   |        |   |  |   | 33,880  |  
|Interest expense               |  |           | (1,291  | )        |  |           | (34     | )        |  |               |       |           |  |              | (77    | )     |  |   | (227   | ) |  |   | (42,376 | ) |  |   |        |   |  |   | (44,005 | )
|Interest income                |  |           | 4       |          |  |           | 14      |          |  |               |       |           |  |              |       |       |  |   |       |   |  |   | 2,845   |   |  |   |        |   |  |   | 2,863   |  
|Income tax provision (benefit) |  |           | 9,470   |          |  |           | 1,917   |          |  |               | 5,900  |           |  |              |       |       |  |   |       |   |  |   | (17,434 | ) |  |   |        |   |  |   | (147    | )
|Net income (loss)              |  |           | 13,822  |          |  |           | 2,626   |          |  |               | 8,449  |           |  |              | (7,078 | )     |  |   | (1,810 | ) |  |   | (23,141 | ) |  |   |        |   |  |   | (7,132  | )
|Total assets                   |  |           | 674,055 |          |  |           | 113,712 |          |  |               | 47,671 |           |  |              | 8,947  |       |  |   | 36,226 |   |  |   | 25,074  |   |  |   |        |   |  |   | 905,685 |  
|Capital expenditures           |  |           | 30,962  |          |  |           | 5,953   |          |  |               | 21     |           |  |              | 16,971 |       |  |   | 19,504 |   |  |   | 1,148   |   |  |   |        |   |  |   | 74,559  |  

Operating revenues disclosed above include intersegment operating revenues
of $15,981 for local telephone, $1,018 for cellular, $950 for directory and
$10,609 for interexchange. In accordance with SFAS 71, intercompany revenues
between local telephone and all other segments are not eliminated above.

9



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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
Nine Months Ended September 30, 2001
(Unaudited, In Thousands Except Per Share Amounts)

4. BUSINESS SEGMENTS (Continued)

The following table illustrates selected financial data for each segment
as of and for the nine months ended September 30, 2000:

|                               |  |           |         |          |  |           |         |          |  |               |        |           |  |              |        |       |  |   |        |   |  |   |         |   |  |   |         |   |  |   |         |  
|------------------------------ |  | --------- | ------- | -------- |  | --------- | ------- | -------- |  | ------------- | ------ | --------- |  | ------------ | ------ | ----- |  | - | ------ | - |  | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|                               |  | Local     |         |          |  |           |         |          |  |               |        |           |  |              |        |       |  |   |        |   |  |   |         |   |  |   |         |   |  |  
|                               |  | Telephone |         | Cellular |  | Directory |         | Internet |  | Interexchange |        | All Other |  | Eliminations |        | Total
|                               |  |           |         |          |  |           |         |          |  |               |        |           |  |              |        |      
|Operating revenues             |  | $         | 167,966 |          |  | $         | 29,678  |          |  | $             | 21,584 |           |  | $            | 5,249  |       |  | $ | 14,574 |   |  | $ | 12,946  |   |  | $ | (18,177 | ) |  | $ | 233,820 |  
|Depreciation and amortization  |  |           | 39,513  |          |  |           | 3,661   |          |  |               |       |           |  |              | 895    |       |  |   | 1,002  |   |  |   | 7,393   |   |  |   |        |   |  |   | 52,464  |  
|Operating income (loss)        |  |           | 22,062  |          |  |           | 6,661   |          |  |               | 11,385 |           |  |              | (7,007 | )     |  |   | 794    |   |  |   | (7,386  | ) |  |   |        |   |  |   | 26,509  |  
|Interest expense               |  |           | (841    | )        |  |           | (8      | )        |  |               |       |           |  |              | (66    | )     |  |   | (233   | ) |  |   | (45,304 | ) |  |   |        |   |  |   | (46,452 | )
|Interest income                |  |           | 773     |          |  |           | 148     |          |  |               |       |           |  |              |       |       |  |   |       |   |  |   | 1,159   |   |  |   |        |   |  |   | 2,080   |  
|Income tax provision (benefit) |  |           | 11,707  |          |  |           | 2,457   |          |  |               |       |           |  |              |       |       |  |   |       |   |  |   | (14,318 | ) |  |   |        |   |  |   | (154    | )
|Net income (loss)              |  |           | 16,802  |          |  |           | 4,365   |          |  |               | 4,174  |           |  |              | (7,066 | )     |  |   | 567    |   |  |   | (36,800 | ) |  |   |        |   |  |   | (17,958 | )
|Total assets                   |  |           | 655,307 |          |  |           | 123,660 |          |  |               | 36,697 |           |  |              | 27,181 |       |  |   | 49,877 |   |  |   | 30,734  |   |  |   |        |   |  |   | 923,456 |  
|Capital expenditures           |  |           | 32,703  |          |  |           | 9,932   |          |  |               |       |           |  |              | 2,205  |       |  |   | 3,032  |   |  |   | 190     |   |  |   |        |   |  |   | 48,062  |  

Operating revenues disclosed above include intersegment operating revenues
of $6,700 for local telephone, $712 for cellular, $2 for Internet and $7,977
for interexchange. In accordance with SFAS 71, intercompany revenues between
local telephone and all other segments are not eliminated above.

The following table illustrates selected financial data for each segment
as of and for the three months ended September 30, 2001:

|                               |  |           |         |          |  |           |         |          |  |               |        |           |  |              |        |       |  |   |        |   |  |   |         |   |  |   |        |   |  |   |         |  
|------------------------------ |  | --------- | ------- | -------- |  | --------- | ------- | -------- |  | ------------- | ------ | --------- |  | ------------ | ------ | ----- |  | - | ------ | - |  | - | ------- | - |  | - | ------ | - |  | - | ------- | -
|                               |  | Local     |         |          |  |           |         |          |  |               |        |           |  |              |        |       |  |   |        |   |  |   |         |   |  |   |        |   |  |  
|                               |  | Telephone |         | Cellular |  | Directory |         | Internet |  | Interexchange |        | All Other |  | Eliminations |        | Total
|                               |  |           |         |          |  |           |         |          |  |               |        |           |  |              |        |      
|Operating revenues             |  | $         | 53,860  |          |  | $         | 11,050  |          |  | $             | 8,705  |           |  | $            | 3,586  |       |  | $ | 8,062  |   |  | $ | 4,601   |   |  | $ | (7,044 | ) |  | $ | 82,820  |  
|Depreciation and amortization  |  |           | 13,384  |          |  |           | 1,530   |          |  |               | 1      |           |  |              | 463    |       |  |   | 567    |   |  |   | 4,109   |   |  |   |       |   |  |   | 20,054  |  
|Operating income (loss)        |  |           | 7,508   |          |  |           | 1,826   |          |  |               | 5,087  |           |  |              | (2,654 | )     |  |   | 617    |   |  |   | (175    | ) |  |   |       |   |  |   | 12,209  |  
|Interest expense               |  |           | (406    | )        |  |           | (31     | )        |  |               |       |           |  |              | (1     | )     |  |   | (75    | ) |  |   | (13,516 | ) |  |   |       |   |  |   | (14,029 | )
|Interest income                |  |           | 1       |          |  |           | 2       |          |  |               |       |           |  |              |       |       |  |   |       |   |  |   | 1,100   |   |  |   |       |   |  |   | 1,103   |  
|Income tax provision (benefit) |  |           | 2,821   |          |  |           | 763     |          |  |               | 2,268  |           |  |              |       |       |  |   |       |   |  |   | (5,900  | ) |  |   |       |   |  |   | (48     | )
|Net income (loss)              |  |           | 4,319   |          |  |           | 1,008   |          |  |               | 2,819  |           |  |              | (2,652 | )     |  |   | 546    |   |  |   | (6,791  | ) |  |   |       |   |  |   | (751    | )
|Total assets                   |  |           | 668,252 |          |  |           | 116,586 |          |  |               | 48,986 |           |  |              | 10,002 |       |  |   | 36,390 |   |  |   | 25,469  |   |  |   |       |   |  |   | 905,685 |  
|Capital expenditures           |  |           | 9,417   |          |  |           | 5,507   |          |  |               | 21     |           |  |              | 3,447  |       |  |   |       |   |  |   |        |   |  |   |       |   |  |   | 18,392  |  

Operating revenues disclosed above include intersegment operating revenues
of $5,482 for local telephone, $413 for cellular, $450 for directory and $3,841
for interexchange. In accordance with SFAS 71, intercompany revenues between
local telephone and all other segments are not eliminated above.

The following table illustrates selected financial data for each segment
as of and for the three months ended September 30, 2000:

|                               |  |           |         |          |  |           |         |          |  |               |        |           |  |              |        |       |  |   |        |   |  |   |         |   |  |   |        |   |  |   |         |  
|------------------------------ |  | --------- | ------- | -------- |  | --------- | ------- | -------- |  | ------------- | ------ | --------- |  | ------------ | ------ | ----- |  | - | ------ | - |  | - | ------- | - |  | - | ------ | - |  | - | ------- | -
|                               |  | Local     |         |          |  |           |         |          |  |               |        |           |  |              |        |       |  |   |        |   |  |   |         |   |  |   |        |   |  |  
|                               |  | Telephone |         | Cellular |  | Directory |         | Internet |  | Interexchange |        | All Other |  | Eliminations |        | Total
|                               |  |           |         |          |  |           |         |          |  |               |        |           |  |              |        |      
|Operating revenues             |  | $         | 50,819  |          |  | $         | 10,954  |          |  | $             | 7,255  |           |  | $            | 2,590  |       |  | $ | 5,154  |   |  | $ | 4,273   |   |  | $ | (6,179 | ) |  | $ | 74,866  |  
|Depreciation and amortization  |  |           | 13,720  |          |  |           | 1,298   |          |  |               |       |           |  |              | 601    |       |  |   | 332    |   |  |   | 1,822   |   |  |   |       |   |  |   | 17,773  |  
|Operating income (loss)        |  |           | 2,765   |          |  |           | 2,682   |          |  |               | 3,851  |           |  |              | (2,894 | )     |  |   | 635    |   |  |   | (3,713  | ) |  |   |       |   |  |   | 3,326   |  
|Interest expense               |  |           | (274    | )        |  |           | (3      | )        |  |               |       |           |  |              | (57    | )     |  |   | (78    | ) |  |   | (15,403 | ) |  |   |       |   |  |   | (15,815 | )
|Interest income                |  |           | 686     |          |  |           | 71      |          |  |               |       |           |  |              |       |       |  |   |       |   |  |   | 1,048   |   |  |   |       |   |  |   | 1,805   |  
|Income tax provision (benefit) |  |           | 1,932   |          |  |           | 1,151   |          |  |               |       |           |  |              |       |       |  |   |       |   |  |   | (3,103  | ) |  |   |       |   |  |   | (20     | )
|Net income (loss)              |  |           | 4,400   |          |  |           | 1,607   |          |  |               |       |           |  |              | (2,951 | )     |  |   | 557    |   |  |   | (14,329 | ) |  |   |       |   |  |   | (10,716 | )
|Total assets                   |  |           | 655,307 |          |  |           | 123,660 |          |  |               | 36,697 |           |  |              | 27,181 |       |  |   | 49,877 |   |  |   | 30,734  |   |  |   |       |   |  |   | 923,456 |  
|Capital expenditures           |  |           | 12,642  |          |  |           | 3,340   |          |  |               |       |           |  |              | 588    |       |  |   |       |   |  |   |        |   |  |   |       |   |  |   | 16,570  |  

Operating revenues disclosed above include intersegment operating revenues
of $3,008 for local telephone, $367 for cellular, and $2,987 for interexchange.
In accordance with SFAS 71, intercompany revenues between local telephone and
all other segments are not eliminated above.

10



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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
Nine Months Ended September 30, 2001
(Unaudited, In Thousands Except Per Share Amounts)

5. RELATED PARTY TRANSACTIONS

Fox Paine & Company, the majority stockholder of the Parent, receives an
annual management fee in the amount of one percent of the Parents net income
before interest expense, interest income, income taxes, depreciation and
amortization and equity in earnings (losses) of investments, calculated without
regard to the fee. The management fee expense for the nine months ended
September 30, 2001 and 2000 was $939 and $904, respectively.

6. UNUSUAL CHARGES

During the quarter ended September 30, 2000, the Company recorded $2.1
million of unusual charges, consisting of the write-off of approximately $1.5
million of costs related to the attempted acquisition of Matanuska Telephone
Association and $0.6 million of severance cost related to a reduction in
workforce of approximately 100 personnel.

7. SEVERANCE AND RESTRUCTURING CHARGES

The Company recorded $3,019 related to severance and restructuring charges
under several plans adopted during 2000. Employee force reductions resulting
from these restructuring plans are expected to total approximately 300 by their
completion. The Company originally expected these plans to be completed by
December 31, 2001. Subsequently, the Company has extended the expected
completion date for the plans to September 30, 2002. Employee groups located in
Alaska within the local telephone, cellular and Internet operations are all
included within the scope of the severance and restructuring plans. The plans
also call for the closure of a branch operation in Vancouver, Washington, which
was completed during the second quarter of 2001. As of September 30, 2001,
$2,250 has been paid under the plans and approximately 125 employees have been
terminated.

8. COMMITMENTS AND CONTINGENCIES

The Company is involved in various claims, legal actions and regulatory
proceedings arising in the ordinary course of business. The Company believes
that the disposition of these matters will not have a material adverse effect
on the Companys consolidated financial position, results of operations or cash
flows.

11



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##### Table of Contents






Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements and Analysts Reports

This report contains forward looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 including statements
concerning future rates, revenues, costs, capital expenditures, and financing
needs and availability and statements of managements expectations and beliefs.
Actual results could differ materially from these statements as a result of
many factors, including future economic, regulatory and political conditions in
Alaska and the United States.

Investors should also be aware that while ACS Holdings does, at various
times, communicate with securities analysts, it is against ACS Holdings policy
to disclose to them any material non-public information or other confidential
information. Accordingly, investors should not assume that ACS Holdings agrees
with any statement or report issued by an analyst irrespective of the content
of the statement or report. To the extent that reports issued by securities
analysts contain any projections, forecasts or opinions, such reports are not
the responsibility of ACS Holdings.

Introduction

On May 14, 1999, the Company acquired the incumbent providers of local
telephone services in Anchorage, Juneau, Fairbanks and approximately 70 rural
communities in Alaska, making it the largest provider of local telephone
service in the state and the fourteenth largest provider of local exchange
services in the United States. The Company also acquired on May 14, 1999
interexchange operations primarily serving the Anchorage market and cellular
and Internet services providing statewide coverage. The Company has unified its
statewide branding under the ACS name.

ACS Holdings generates revenue principally through:



| |  |   | the provision of local telephone services, including:                                                                                    
| | - | - | -----------------------------------------------------------------------------------------------------------------------------------------
|
| |   |  | basic local service to retail customers within ACS Holdings service areas,                                                              
|
| |   |  | wholesale service to competitive local exchange carriers (CLECs),                                                                      
|
| |   |  | network access services to interexchange carriers for
origination and termination of interstate and intrastate long
distance phone calls,
|
| |   |  | universal service payments,                                                                                                              
|
| |   |  | enhanced services, and                                                                                                                   
|
| |   |  | ancillary services, such as billing and collection (B&C);                                                                              
|
| |  |   | the provision of cellular services;                                                                                                      
|
| |  |   | the provision of directory advertising;                                                                                                  
|
| |  |   | the provision of Internet services, and;                                                                                                 
|
| |  |   | the provision of interexchange services.                                                                                                 

ACS Holdings also recognizes its proportionate share of the net income or
loss of its minority-owned investments.

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Local Telephone Within the telecommunications industry, local exchange
carriers (LECs) have historically enjoyed stable revenue and cash flow from
local exchange operations resulting from the need for basic telecommunications
services, the highly regulated nature of the telecommunications industry and,
in the case of rural LECs, the underlying cost recovery settlement and support
mechanisms applicable to local exchange operations. Basic local service is
generally provided at a flat monthly rate and allows the user to place
unlimited calls within a defined local calling area. Access revenues are
generated by providing interexchange carriers access to the LECs local network
and its customers. Universal service revenues are a subsidy paid to rural LECs
to support the high cost of providing service in rural markets. Revenue is also
generated from ancillary and enhanced services.

Changes in revenue are largely attributable to changes in the number of
access lines, local service rates and minutes of use. Other factors can also
impact revenue, including:



| |  |  | intrastate and interstate revenue settlement methodologies,                                                                          
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | authorized rates of return for regulated services,                                                                                   
|
| |  |  | whether an access line is used by a business or residential subscriber,                                                              
|
| |  |  | the extent of competition in the local exchange service area,                                                                        
|
| |  |  | intrastate and interstate calling patterns,                                                                                          
|
| |  |  | customers selection of various local rate plan options,                                                                             
|
| |  |  | selection of enhanced calling services, such as
caller identification, or other packaged products, such as
cellular and Internet, and
|
| |  |  | other subscriber usage characteristics.                                                                                              

LECs have three basic tiers of customers:



| |  |  | business and residential customers located in their
local service areas that pay for local phone service,                                                                                                                                            
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | interexchange carriers that pay for access to long
distance calling customers located within its local service
areas and                                                                                                                             
|
| |  |  | CLECs that pay for wholesale access to the Companys
network in order to provide competitive local service on either
a wholesale or unbundled network element (UNE) basis as
prescribed under the Telecommunications Act of 1996 (the 1996
Act).

LECs provide access service to numerous interexchange carriers and may
also bill and collect long distance charges from interexchange carrier
customers on behalf of the interexchange carriers. The amount of access charge
revenue associated with a particular interexchange carrier varies depending
upon long distance calling patterns and the relative market share of each long
distance carrier.

ACS Holdings local service rates for end users are authorized by the
Regulatory Commission of Alaska (RCA). Authorized rates are set by the
Federal Communications Commission (FCC) and the RCA for interstate and
intrastate access charges, respectively, and may change from time to time.

Cellular ACS Holdings is the largest and only statewide provider of
cellular services in Alaska, currently serving approximately 79,000
subscribers. Its cellular network covers over 460,000 residents, including all
major population centers and highway corridors.

Directory ACS Holdings is the largest provider of yellow page
advertising directories in the State of Alaska. The Company currently publishes
eight different books in its local telephone markets throughout the
state.

Internet ACS Holdings is the second largest provider of Internet access
services in Alaska with approximately 51,000 customers. ACS Holdings offers
dedicated and dial-up Internet access and digital subscriber line, or DSL,
Internet access to its customers.

Interexchange  ACS Holdings provides long distance and other
interexchange services to over 67,000 customers in Alaska. ACS Holdings has
migrated long distance traffic on main routes from leased circuits onto its own
network infrastructure.

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##### Table of Contents



RESULTS OF OPERATIONS

The following table summarizes ACS Holdings consolidated operations for
the three and nine months ended September 30, 2001 and 2000. Certain
reclassifications have been made to the 2000 operations to conform to the
current presentation of ACS Holdings consolidated operations.

|                         |                                          |                          |        |                                          |         |                   |         |         |         |      |        |         |         |   |         |         |         |  
|------------------------ | ---------------------------------------- | ------------------------ | ------ | ---------------------------------------- | ------- | ----------------- | ------- | ------- | ------- | ---- | ------ | ------- | ------- | - | ------- | ------- | ------- | -
|                         |                                          |                          |        | Three
Months Ended                       |         | Nine Months Ended
|                         |                                          |                          |        | September 30,                            |         | September 30,    
|                         |                                          |                          |        |                                          |         |                  
|                         |                                          |                          |        | 2001                                     |         | 2000              |         | 2001    |         | 2000
|                         |                                          |                          |        |                                          |         |                   |         |         |         |     
|                         |                                          |                          |        | (In
Thousands, Except Per Share Amounts)
|Operating revenues:      |                                          |                          |        |                                          |         |                   |         |         |         |      |        |         |         |   |         |        
|                         | Local telephone                          |                          | $      | 53,860                                   |         |                   | $       | 50,819  |         |      | $      | 163,018 |         |   | $       | 167,966 |        
|                         | Cellular                                 |                          |        | 11,041                                   |         |                   |         | 10,947  |         |      |        | 30,734  |         |   |         | 29,657  |        
|                         | Directory                                |                          |        | 8,705                                    |         |                   |         | 7,255   |         |      |        | 24,857  |         |   |         | 21,584  |        
|                         | Internet                                 |                          |        | 3,584                                    |         |                   |         | 2,590   |         |      |        | 9,898   |         |   |         | 5,247   |        
|                         | Interexchange                            |                          |        | 5,395                                    |         |                   |         | 2,976   |         |      |        | 16,557  |         |   |         | 8,513   |        
|                         | Other                                    |                          |        | 235                                      |         |                   |         | 279     |         |      |        | 733     |         |   |         | 853     |        
|                         |                                          |                          |        |                                          |         |                   |         |         |         |      |        |         |         |   |         |        
|                         |                                          | Total operating revenues |        |                                          | 82,820  |                   |         |         | 74,866  |      |        |         | 245,797 |   |         |         | 233,820 |  
|Operating expenses:      |                                          |                          |        |                                          |         |                   |         |         |         |      |        |         |         |   |         |        
|                         | Local telephone                          |                          |        | 29,259                                   |         |                   |         | 34,166  |         |      |        | 88,582  |         |   |         | 103,288 |        
|                         | Cellular                                 |                          |        | 5,951                                    |         |                   |         | 5,913   |         |      |        | 17,501  |         |   |         | 17,684  |        
|                         | Directory                                |                          |        | 3,616                                    |         |                   |         | 3,404   |         |      |        | 10,478  |         |   |         | 10,199  |        
|                         | Internet                                 |                          |        | 4,583                                    |         |                   |         | 3,672   |         |      |        | 11,592  |         |   |         | 7,788   |        
|                         | Interexchange                            |                          |        | 6,678                                    |         |                   |         | 4,187   |         |      |        | 23,043  |         |   |         | 12,774  |        
|                         | Other                                    |                          |        | 470                                      |         |                   |         | 342     |         |      |        | 1,429   |         |   |         | 1,031   |        
|                         | Unusual charges                          |                          |        |                                         |         |                   |         | 2,083   |         |      |        |        |         |   |         | 2,083   |        
|                         | Depreciation and amortization            |                          |        | 20,054                                   |         |                   |         | 17,773  |         |      |        | 59,292  |         |   |         | 52,464  |        
|                         |                                          |                          |        |                                          |         |                   |         |         |         |      |        |         |         |   |         |        
|                         |                                          | Total operating expenses |        |                                          | 70,611  |                   |         |         | 71,540  |      |        |         | 211,917 |   |         |         | 207,311 |  
|                         |                                          |                          |        |                                          |         |                   |         |         |         |      |        |         |         |   |         |        
|Operating income         |                                          |                          | 12,209 |                                          |         |                   | 3,326   |         |         |      | 33,880 |         |         |   | 26,509  |        
|Other income (expense):  |                                          |                          |        |                                          |         |                   |         |         |         |      |        |         |         |   |         |        
|                         | Interest expense                         |                          |        | (14,029                                  | )       |                   |         | (15,815 | )       |      |        | (44,005 | )       |   |         | (46,452 | )      
|                         | Interest income and other                |                          |        | 1,021                                    |         |                   |         | 1,753   |         |      |        | 2,777   |         |   |         | 1,984   |        
|                         | Equity in earnings (loss) of investments |                          |        |                                         |         |                   |         |        |         |      |        | 69      |         |   |         | (153    | )      
|                         |                                          |                          |        |                                          |         |                   |         |         |         |      |        |         |         |   |         |        
|                         |                                          | Total other expense      |        |                                          | (13,008 | )                 |         |         | (14,062 | )    |        |         | (41,159 | ) |         |         | (44,621 | )
|                         |                                          |                          |        |                                          |         |                   |         |         |         |      |        |         |         |   |         |        
|Loss before income taxes |                                          |                          | (799   | )                                        |         |                   | (10,736 | )       |         |      | (7,279 | )       |         |   | (18,112 | )      
|Income tax benefit       |                                          |                          | 48     |                                          |         |                   | 20      |         |         |      | 147    |         |         |   | 154     |        
|                         |                                          |                          |        |                                          |         |                   |         |         |         |      |        |         |         |   |         |        
|Net loss                 |                                          | $                        | (751   | )                                        |         | $                 | (10,716 | )       |         | $    | (7,132 | )       |         | $ | (17,958 | )      
|                         |                                          |                          |        |                                          |         |                   |         |         |         |      |        |         |         |   |         |        

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Three Months Ended September 30, 2001 Compared to Three Months Ended September 30, 2000

Beginning with the first quarter of 2001, the Company began reporting
directory and interexchange as separate segments. Prior year amounts have been
reclassified to conform with the current presentation. All amounts are
discussed at the consolidated level after the elimination of intercompany
revenue and expense.

Operating Revenues

Operating revenues increased $8.0 million, or 10.6%, for the three months
ended September 30, 2001 compared to the three months ended September 30, 2000.
Local telephone, cellular, Internet, directory advertising, and interexchange
revenues all increased compared to the corresponding period of 2000.

Local Telephone

Local telephone revenues, which consist of local network service, network
access revenue and deregulated and other revenues, increased $3.0 million, or
6.0%, for the three months ended September 30, 2001 compared to the same period
in 2000. The following table summarizes ACS Holdings consolidated local
telephone revenues by category.

|                              |                               |   |        |                    |  |      |        |        |  | 
|----------------------------- | ----------------------------- | - | ------ | ------------------ |  | ---- | ------ | ------ |  | 
|                              |                               |   |        | Three Months Ended
|                              |                               |   |        | September 30,     
|                              |                               |   |        |                   
|                              |                               |   |        | 2001               |  | 2000
|                              |                               |   |        |                    |  |     
|                              |                               |   |        | (In
Thousands)    
|Local telephone revenue:      |                               |   |        |                    |  |      |        |       
|                              | Local network service         |   | $      | 24,388             |  |      | $      | 22,679 | 
|                              | Network access revenue        |   |        | 24,993             |  |      |        | 21,779 | 
|                              | Deregulated and other revenue |   |        | 4,479              |  |      |        | 6,361  | 
|                              |                               |   |        |                    |  |      |        |       
|Total local telephone revenue |                               | $ | 53,860 |                    |  | $    | 50,819 |       
|                              |                               |   |        |                    |  |      |        |       

Local network servicerevenue increased $1.7 million, or 7.5% to $24.4
million during 2001. The net increase was due primarily to lower charges for
uncollectible accounts in 2001 than 2000 due to improved collection processes.

The Company continued to experience loss of retail market share for local
network service in its Anchorage and Fairbanks service areas during the
quarter. Generally, when the Company loses a retail local network service line
to a competitor, it continues to provide the line to the competitor on a
wholesale basis at reduced revenue per line. Management believes that the
continuing loss of market share experienced in Anchorage and Fairbanks is
partially attributable to below cost interconnection rates for UNEs currently
in place. The RCA has also approved arbitrated interconnection rates for UNEs
for the Companys Juneau market which are also below cost, although there has
been no competitive market penetration to date. During the second quarter, the
Company reopened interconnection proceedings for its Anchorage market and filed
for an interim and refundable UNE rate increase of approximately $10 per month
per loop. See Outlook under Item 2 of this Part and Legal Proceedings under
Item 1 of Part II of this report for further discussion.

The Company is also earning less than its required rate of return for
local network service and filed a local service rate case with the RCA on July
2, 2001 aimed at making up this deficiency. Subsequently, in October 2001, the
Company filed for interim and refundable local service rates in its Anchorage
market in order to expedite a partial recovery of the total revenue deficiency.
The interim and refundable rates that the Company has filed for are designed to
generate approximately $5.5 million in annual revenue requirement should they
be approved by the RCA. See Outlook under Item 2 of this Part and Legal
Proceedings under Item 1 of Part II of this report for further discussion.

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Network access revenuesincreased $3.2 million, or 14.8%, from $21.8
million in 2000 to $25.0 million in 2001. During the third quarter of 2000,
network access revenues were reduced by $3.6 million to reflect the uncertainty
of certain components of these revenues. The amounts reserved in the third
quarter of 2000 related to a complaint filed with the FCC alleging that a
subsidiary of the Company exceeded their federally authorized rate of return.
Network access revenues are based on a regulated return on rate base and
recovery of allowable expenses associated with the origination and termination
of interstate and intrastate toll calls. Universal service support revenue is
also included in network access revenue. Reductions in regulated operating
expense and its effect on the interstate access revenue requirement accounted
for the $0.4 million reduction in network access revenues after consideration
of the reduction recorded in 2000. Management expects that network access
revenues will continue to decline as a component of local telephone revenues
for the foreseeable future.

Deregulated and other revenues, which decreased $1.9 million, or 29.6%
over 2000, consists principally of B&C services, space and power rents,
deregulated equipment sales, paystation revenues, white pages directory listing
revenue, and other miscellaneous telephone revenues. The decrease was primarily
due to reductions in deregulated equipment sales experienced during the
quarter, which the Company believes to be temporary and attributable to
uncertainties within the business community about the economic outlook.

Cellular

Cellular revenues increased $0.1 million, or 0.9%, to $11.0 million for
the three months ended September 30, 2001 compared to $10.9 million for the
three months ended September 30, 2000. This growth in revenue is primarily due
to a 7.2% increase in average cellular subscribers from 73,395 in 2000 to
78,666 in 2001. Although average airtime increased from approximately 162
minutes per month in 2000 to 192 minutes per month in 2001, average revenue per
unit decreased from $49.72 in 2000 to $46.78 in 2001. The decrease is the
result of new competitive digital statewide and national pricing programs that
offer more minutes and free features than the previous plans for the same
price, coupled with other sales promotions. These competitive plans have
resulted in increased total revenues and market share but lower revenue per
unit.

Directory advertising

Directory advertising revenues increased by $1.4 million, or 20.0%, to
$8.7 million in 2001 from $7.3 million in 2000. This increase is attributable
to growth in sales for the current directory phone book cycles. Management
expects the historic growth rate experienced in directory revenue to slow in
the future.

Internet

Internet revenues increased $1.0 million, or 38.4%, to $3.6 million in
2001 from $2.6 million in 2000. This increase is due in part to growth in
Digital Subscriber Line (DSL) customers to approximately 5,900 at September
30, 2001. Additionally, on July 6, 2001, the company acquired the assets and
business of Internet Plus, L.L.C., dba MosquitoNet; a Fairbanks based ISP. The
acquisition added 4,700 dial-up and high speed customers and $0.3 million in
quarterly revenues to the Companys Internet operations.

Interexchange

Interexchange service revenues increased $2.4 million, or 81.3%, to $5.4
million in 2001 from $3.0 million in 2000. The increase was primarily due to
growth in long distance subscribers from 39,734 in 2000 to 67,211 in 2001. The
Company also experienced growth in long distance minutes of use from 18.8
million in 2000 to 49.4 million in 2001. The growth in both subscribers and
minutes of use was due to high customer acceptance of and satisfaction with the
Companys flat rate long distance product offerings, which it began rolling out
in the fourth quarter of 2000.

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##### Table of Contents



Other

Other revenues, which consist principally of wireless cable television,
decreased marginally from 2000 to 2001.

Operating Expenses

Operating expenses decreased $0.9 million, or 1.3%, to $70.6 million for
the quarter ended September 30, 2001 from $71.5 million for the quarter ended
September 30, 2000.

Local Telephone

The components of local telephone expense are plant specific operations,
plant non-specific operations, customer operations, corporate operations and
property and other operating tax expense. Depreciation and amortization
associated with the operation of the local telephone segment is included in
total depreciation and amortization. Local telephone expenses decreased $4.9
million, or 14.4%, to $29.3 million for the quarter ended September 30, 2001
from $34.2 million for the quarter ended September 30, 2000. As a percentage of
local telephone revenues, local telephone expenses dropped to 54.3% in 2001
from 67.2% in 2000. These results reflect continued improvements in the
Companys cost structure, including workforce reductions, benefits derived from
the deployment of information systems, and other synergies realized through the
continued consolidation of the operations the Company acquired in 1999.

Cellular

Cellular expenses were consistent for the three months ended September 30,
2001 compared to the three months ended September 30, 2000 at approximately
$6.0 million. Cellular expense was 53.9% of cellular revenue for 2001 compared
to 54.0% of cellular revenue for 2000.

Directory advertising

Directory advertising expense increased $0.2 million, or 6.2%, for the
three months ended September 30, 2001 compared to the three months ended
September 30, 2000. Directory expense was 41.5% of directory revenue for 2001
compared to 46.9% for 2000, reflecting improved operating margin.

Internet

Internet expense increased $0.9 million, or 24.8%, and decreased as a
percentage of revenue from 141.8% in 2000 to 127.9% in 2001. The increase in
Internet expenses was due to costs associated with deploying the Companys
advanced Multi Protocol Label Switching (MPLS) network and service center and
the acquisition of MosquitoNet in July of 2001.

Interexchange services

Interexchange services operating expense increased $2.5 million, or 59.5%,
from $4.2 million for the three months ended September 30, 2000 to $6.7 million
for the three months ended September 30, 2001. The majority of this increase
was the result of additional traffic sensitive costs incurred as a result of
the dramatic increase in customers and minutes of use with the rollout of the
Companys flat rate calling plans as discussed under interexchange service
revenues. As a percentage of revenue, interexchange service expense decreased
to 123.8% in 2001 from 140.7% in 2000.

Other

Other expenses, which consist principally of wireless cable television,
increased marginally during 2001.

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##### Table of Contents



Unusual charges

During the quarter ended September 30, 2000, ACS Holdings recorded $2.1
million of unusual charges, consisting of the write-off of approximately $1.5
million of costs related to the attempted acquisition of Matanuska Telephone
Association and $0.6 million of severance cost related to a reduction in
workforce of approximately 100 personnel.

Depreciation and Amortization

Depreciation and amortization expense increased $2.3 million, or 12.8%,
due principally to increased plant in service for the three months ended
September 30, 2001 over the corresponding period of 2000.

Other Income and Expense

Other income and expense, which consists principally of interest expense
on the Companys outstanding debt and interest income, improved $1.1 million
due primarily to lower interest rates on the Companys variable rate debt
outstanding during 2001.

Income Taxes

Income tax benefit represents the amortization of investment tax credits
of the Companys regulated operations. ACS Holdings has fully reserved the
income tax benefit resulting from the consolidated losses it has incurred since
May 14, 1999  the date of the acquisition of substantially all of its
operations. Income tax benefit has been reserved because the Company has no
historical income and limited operating history on which to determine the
realizable value of the tax benefit of net operating loss carryforwards with
reasonable certainty. The Company reserved $1.0 million of income tax benefit
resulting from its net loss before income taxes during the quarter ended
September 30, 2001. The Companys cumulative book basis income tax valuation
allowance is $22.4 million at September 30, 2001.

Net Loss

The reduction in net loss is primarily a result of the factors discussed
above.

Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30, 2000

Operating revenues increased $12.0 million, or 5.1%, for the nine months
ended September 30, 2001 compared to the nine months ended September 30, 2000.
Local telephone revenues decreased compared to the prior period, while
cellular, Internet, directory advertising, and interexchange service revenues
all increased compared to the prior period.

Local Telephone

Local telephone revenues, which consist of local network service, network
access revenue and deregulated and other revenues, decreased $4.9 million, or
2.9%, for the nine months ended September 30, 2001 compared to the same period
in 2000. The following table summarizes ACS Holdings consolidated local
telephone revenues by category.

|                              |                               |   |                   |        |      |   |         |        | 
|----------------------------- | ----------------------------- | - | ----------------- | ------ | ---- | - | ------- | ------ | 
|                              |                               |   | Nine
Months Ended
|                              |                               |   | September 30,    
|                              |                               |   |                  
|                              |                               |   | 2001              |        | 2000
|                              |                               |   |                   |        |     
|                              |                               |   | (In Thousands)   
|Local telephone revenue:      |                               |   |                   |        |      |   |         |       
|                              | Local network service         |   | $                 | 70,530 |      |   | $       | 70,298 | 
|                              | Network access revenue        |   |                   | 76,258 |      |   |         | 79,835 | 
|                              | Deregulated and other revenue |   |                   | 16,230 |      |   |         | 17,833 | 
|                              |                               |   |                   |        |      |   |         |       
|Total local telephone revenue |                               | $ | 163,018           |        |      | $ | 167,966 |       
|                              |                               |   |                   |        |      |   |         |       

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Local network servicerevenue increased $0.2 million, or 0.3%, to $70.5
million during 2001. The net increase was due primarily to lower charges for
uncollectible accounts in 2001 than 2000 due to improved collection processes.

The Company continued to experience loss of retail market share for local
network service in its Anchorage service area during the nine months ended
September 30, 2001. Additionally, market share competition was initiated in the
Companys Fairbanks market area. Generally, when the Company loses a retail
local network service line to a competitor, it continues to provide the line to
the competitor on a wholesale basis at reduced revenue per line. Management
believes that the continuing loss of market share experienced in Anchorage and
initiated in Fairbanks is partially attributable to below cost interconnection
rates for UNEs currently in place. The RCA has also approved arbitrated
interconnection rates for UNEs for the Companys Juneau market which are also
below cost, although there has been no competitive market penetration to date.
During the second quarter, the Company reopened interconnection proceedings for
its Anchorage market and filed for an interim and refundable UNE rate increase
of approximately $10 per month per loop. See Outlook under Item 2 of this
Part and Legal Proceedings under Item 1 of Part II of this report for further
discussion.

The Company is also earning less than its required rate of return for
local network service and filed a local service rate case with the RCA on July
2, 2001 aimed at making up this deficiency. Subsequently, in October 2001, the
Company filed for interim and refundable local service rates in its Anchorage
market in order to expedite a partial recovery of the total revenue deficiency.
The interim and refundable rates that the Company has filed for are designed to
generate approximately $5.5 million in annual revenue requirement should they
be approved by the RCA. See Outlook under Item 2 of this Part and Legal
Proceedings under Item 1 of Part II of this report for further discussion.

Network access revenuesdecreased $3.5 million, or 4.5%, from $79.8
million in 2000 to $76.3 million in 2001. Network access revenues are based on
a regulated return on rate base and recovery of allowable expenses associated
with the origination and termination of interstate and intrastate toll calls.
Universal service support revenue is also included in network access revenue.
Reductions in regulated operating expense and its effect on the interstate
access revenue requirement caused the decrease. Management expects that
network access revenues will continue to decline as a component of local
telephone revenues for the foreseeable future.

Deregulated and other revenues, which decreased $1.6 million, or 9.0% over
2000, consists principally of B&C services, space and power rents, deregulated
equipment sales, paystation revenues, white pages directory listing revenue,
and other miscellaneous telephone revenues. The decrease was primarily due to
reductions in deregulated equipment sales experienced during the third quarter
of 2001, which the Company believes to be temporary and attributable to
uncertainties within the business community towards which these sales are
targeted about the economic outlook.

Cellular

Cellular revenues increased $1.0 million, or 3.6%, to $30.7 million for
the nine months ended September 30, 2001 compared to $29.7 million for the nine
months ended September 30, 2000. This growth in revenue is primarily due to a
5.8% increase in average cellular subscribers from 73,132 in 2000 to 77,346 in
2001. Although average minutes of use increased from approximately 140 minutes
per month in 2000 to 173 minutes per month in 2001, average revenue per unit
decreased from $45.06 in 2000 to $44.15 in 2001. The decrease was the result
of new competitive digital statewide and national pricing programs that offer
more minutes and free features than the previous plans for the same price,
coupled with other sales promotions. These competitive plans have resulted in
increased total revenues and market share, but lower revenue per unit.

Directory advertising

Directory advertising revenues increased $3.3 million, or 15.2%, to $24.9
million in 2001 from $21.6 million in 2000. This increase is attributable to
growth in sales for the current directory phone book cycles. Management expects
the historic growth rate experienced in directory to slow in the future.

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##### Table of Contents



Internet

Internet revenues increased $4.7 million, or 88.6%, to $9.9 million in
2001 from $5.2 million in 2000. The increase is due to the revenues resulting
from the acquisition of Internet Alaska, Inc (IAI) in June of 2000, and
growth in DSL customers. Additionally, on July 6, 2001, the company acquired
the assets and business of Internet Plus, L.L.C., d.b.a. MosquitoNet; a
Fairbanks based ISP. The acquisition added approximately 4,700 dial-up and
high-speed customers and $0.3 million in year to date revenues to the Companys
Internet operations.

Interexchange

Interexchange service revenues increased $8.1 million, or 94.5%, to $16.6
million in 2001 from $8.5 million in 2000. The increase was primarily due to
growth in long distance subscribers from 39,734 in 2000 to 67,211 in 2001. The
Company also experienced growth in long distance minutes of use from 56.8
million in 2000 to 179.0 million in 2001. The growth in both subscribers and
minutes of use was due to high customer acceptance of and satisfaction with the
Companys flat rate long distance product offerings, which it began rolling out
in the fourth quarter of 2000.

Other

Other revenues, which consist principally of wireless cable television
decreased marginally from 2000 to 2001.

Operating Expenses

Operating expenses increased $4.6 million, or 2.2%, to $211.9 million for
the nine months ended September 30, 2001 from $207.3 million for the nine
months ended September 30, 2000.

Local Telephone

The components of local telephone expense are plant specific operations,
plant non-specific operations, customer operations, corporate operations and
property and other operating tax expense. Depreciation and amortization
associated with the operation of the local telephone segment is included in
total depreciation and amortization. Local telephone expenses decreased $14.7
million, or 14.2%, to $88.6 million for the nine months ended September 30,
2001 from $103.3 million for the nine months ended September 30, 2000. As a
percentage of local telephone revenues, local telephone operating expenses
improved to 54.3% in 2001 from 61.5% in 2000. These results reflect continued
improvements in the Companys cost structure, including workforce reductions,
benefits derived from the deployment of information systems, and other
synergies, realized through the continued consolidation of the operations the
Company acquired in 1999.

Cellular

Cellular expense decreased $0.2 million, or 1.0%, for the nine months
ended September 30, 2001 compared to the nine months ended September 30, 2000.
Cellular expense was 56.9% of cellular revenue for 2001 compared to 59.6% of
cellular revenue for 2000, reflecting improved operating margin.

Directory advertising

Directory advertising expense increased $0.3 million, or 2.7%, for the
nine months ended September 30, 2001 compared to the nine months ended
September 30, 2000. Directory advertising expense was 42.2% of directory
advertising revenue for 2001 compared to 47.3% of directory advertising revenue
for 2000, reflecting improved operating margin.

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Internet

Internet expense increased $3.8 million, or 48.8%, and decreased as a
percentage of revenue to 117.1% in 2001 from 148.4% in 2000. The increase in
Internet expense was due to the acquisition of IAI in June of 2000, costs
associated with deploying the Companys advanced MPLS network and service
center, and the acquisition of MosquitoNet in July of 2001.

Interexchange services

Interexchange services increased $10.2 million, or 80.4%, from $12.8
million for the nine months ended September 30, 2000 to $23.0 million for the
nine months ended September 30, 2001. The majority of this increase was the
result of additional traffic sensitive, marketing, order processing, and other
costs incurred as a result of the dramatic increase in customers with the
rollout of the Companys flat rate calling plans as discussed under
interexchange service revenues. As a percentage of revenue, interexchange
service expense decreased to 139.2% in 2001 from 150.1% in 2000.

Other

Other expenses, which consist principally of wireless cable television,
decreased marginally from 2000 to 2001.

Unusual charges

During the nine months ended September 30, 2000, ACS Holdings recorded
$2.1 million of unusual charges, consisting of the write-off of approximately
$1.5 million of costs related to the attempted acquisition of Matanuska
Telephone Association and $0.6 million severance cost related to a reduction in
workforce of approximately 100 personnel.

Depreciation and Amortization

Depreciation and amortization expense increased $6.8 million, or 13.0%,
due principally to increases in plant in service for the nine months ended
September 30, 2001 over the corresponding period of 2000.

Other Income and Expense

Other income and expense, which consists principally of interest expense
on the Companys outstanding debt and interest income, improved $3.5 million
due primarily to lower interest rates experienced during 2001.

Income Taxes

Income tax benefit represents the amortization of investment tax credits
of the Companys regulated operations. ACS Holdings has fully reserved the
income tax benefit resulting from the consolidated losses it has incurred since
May 14, 1999  the date of the acquisition of substantially all of its
operations. Income tax benefit has been reserved because the Company has no
historical income and limited operating history on which to determine the
realizable value of the tax benefit of net operating loss carryforwards with
reasonable certainty. The Company reserved $3.4 million of income tax benefit
resulting from its net loss before income taxes during the nine months ended
September 30, 2001. The Companys cumulative book basis income tax valuation
allowance is $22.4 million at September 30, 2001.

Net Loss

The reduction in net loss is primarily a result of the factors discussed
above.

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LIQUIDITY AND CAPITAL RESOURCES

ACS Holdings has satisfied its operational and capital cash requirements
primarily through internally generated funds, debt financing, or contributions
from the Parent. For the nine months ended September 30, 2001 the Companys
cash flows from operating activities were $56.7 million. At September 30, 2001,
the Company had approximately $41.6 million in cash and cash equivalents, of
which $6.9 million is restricted. As of September 30, 2001 the Company had
$75.0 million of remaining capacity under its revolving credit facility,
representing 100% of available capacity.

The Company has a $435.0 million bank credit agreement (Senior Credit
Facility) and $150.0 million in 9.375% senior subordinated notes due 2009,
representing substantially all of the Companys long-term debt of $596.8
million as of September 30, 2001. In addition, $17.3 million in senior discount
debentures are recorded at ACS Group and are collateralized by substantially
all assets of the Company. Interest on ACS Groups senior discount debentures
and ACS Holdings senior subordinated notes are payable semiannually. Interest
on borrowings under the senior credit facility is payable monthly, quarterly or
semi-annually at the Companys option, and the senior credit facility requires
annual principal payments commencing on May 14, 2002.

The Company employs an interest rate hedge transaction, which fixes at
5.99% the underlying variable rate on one-half of the borrowings under the
Senior Credit Facility, or $217.5 million, expiring in June 2002, but subject
to extension at the same terms under a swaption agreement for two additional
years solely at the counterparties option. The underlying variable rate for the
Senior Credit Facility is based on the London Interbank Offer Rate (LIBOR),
which is adjusted at each monthly, quarterly or semi-annual rollover date.

As of September 30, 2001 the Company has a total of $6.9 million between
two separate escrow accounts pending the outcome of the Companys appeal of a
January 24, 2001 FCC Order awarding damages to an interexchange carrier. These
amounts were fully reserved as of September 30, 2001. See Legal Proceedings
under Item 1 of Part II of this report for further discussion.

The local telephone network requires the timely maintenance of plant and
infrastructure. ACS Holdings local network is of high quality, is technically
advanced and will have relatively predictable annual capital needs. The
Companys historical capital expenditures have been significant. The
construction and geographic expansion of ACS Holdings cellular network has
required significant capital. The implementation of the Companys interexchange
and data services strategy is also capital intensive. ACS Holdings anticipates
total capital spending in 2001 to be approximately $85 million, including the
Companys purchase of additional fiber capacity for $19.5 million in January
2001. The Company intends to fund its future capital expenditures with cash on
hand, through internally generated cash flows, and if necessary, through
additional borrowings under the revolving credit facility.

ACS Holdings capital requirements may change, however, due to, among
other things: the Companys decision to pursue specific acquisition
opportunities, changes in technology, the effects of competition or changes in
the Companys business strategy. ACS Holdings believes that it will have
sufficient working capital provided by operations and available borrowing
capacity under the existing revolving credit facility to fund its operations
and capital expenditures over the next 12 months. ACS Holdings ability to
satisfy its capital requirements will be dependent upon its future financial
performance, which is, in turn, subject to future economic and regulatory
conditions and to financial, business and other factors, many of which are
beyond the Companys control.

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OUTLOOK

ACS Holdings expects demand for telecommunications services in Alaska to
remain strong during 2001. Certain Alaskan economic indicators suggest a
number of factors within the state may help mitigate effects of a general
slowdown in the U.S. economy, including:



| |  |  | A growth in employment during 2000, with jobs up 2.2%;                                                                                                                                   
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Approval of projects to expand Ted Stevens International Airport in
Anchorage, at which 90% of all freighter jets carrying cargo between
the lower 48 state and the Pacific Rim now stop;
|
| |  |  | Low office vacancy rates in Anchorage (2.4%) and;                                                                                                                                        
|
| |  |  | Construction of a $215 million military hospital in Fairbanks.                                                                                                                           

In addition, there is the potential that one or more of the following
proposed undertakings may be approved, any one of which could offer significant
stimulation to the Alaskan economy:



| |  |  | Construction of a pipeline to transport natural gas from the North
Slope area to commercial markets in Canada and the lower 48 states;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Development of a new national missile defense system with deployments at Alaskan sites; and                                           
|
| |  |  | Opening of the Arctic National Wildlife Refuge (ANWR) to new oil exploration.                                                       

ACS Holdings believes it is well positioned to compete in the Alaska
telecommunications market as an integrated, diversified, facilities-based
provider of local telephone, long distance, cellular and Internet services.
Certain of the markets served by ACS Holdings experience vigorous competition.
Specifically, ACS Holdings faces competition in the Anchorage, Fairbanks, and
Juneau local telephone markets; in the Anchorage, Fairbanks, Southeast, and
Kenai Peninsula areas for cellular telephone and Internet services; and
throughout the state for interstate and intrastate long distance services.

ACS Holdings is actively pursuing legal and regulatory objectives,
particularly with regard to local telephone services, to improve its
competitive and economic situation. Legal proceedings have been initiated in
federal and state courts challenging termination of the rural exemption and the
interconnection agreements applicable to Fairbanks and Juneau. ACS Holdings has
been seeking an increase in the rates charged to CLECs for UNE loops in
Anchorage. The current rate was adopted as temporary by the regulatory
commission in 1997 and, as it was not based on a forward looking cost
methodology, the Company believes it is not in compliance with the 1996 Act.
ACS Holdings has filed a request for an interim and refundable rate increase
with the RCA pending adjudication of a compliant rate. See Legal Proceedings
under Item 1 of Part II of this report for further discussion.

ACS Holdings commenced rate proceedings before the RCA in July for all
four of its local exchange companies. Subsequently, on October 9, 2001, the
Company filed for interim and refundable local service rates in its Anchorage.
The interim and refundable rates that the Company has filed for are designed to
generate approximately $5.5 million in annual revenue requirement should they
be approved by the RCA. These proceedings, which are not expected to be
concluded during 2001, will offer ACS Holdings the opportunity to rebalance
rates and increase its revenues.

As previously reported, the Company has several restructuring plans in
place to reduce costs and continue to realize operating synergies resulting
from a consolidated organization. On April 1, 2001, the branch operation in
Vancouver, Washington was closed and severance benefits were paid to the
impacted employees. The Company anticipates achieving additional operational
efficiencies during 2001 and beyond, most notably through the implementation of
a new automated customer care system. This system, the first phase of which is
scheduled to go on-line during the first quarter of 2002, will offer the
capacity to provide better customer service with reduced staff.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company has issued senior subordinated notes and has entered into a
bank credit facility. These on-balance sheet financial instruments, to the
extent they provide for variable rates of interest, expose the Company to
interest rate risk, with the primary interest rate risk exposure resulting from
changes in LIBOR or the prime rate, which are used to determine the interest
rates that are applicable to borrowings under the Companys bank credit
facilities. The Company uses off-balance sheet derivative financial
instruments, in particular an interest rate swap agreement, to partially hedge
variable interest transactions. The Companys derivative financial instrument
transaction has been entered into for non-trading purposes. The terms and
characteristics of the derivative financial instruments are matched with the
underlying on-balance sheet instrument or anticipated transactions and do not
constitute speculative or leveraged positions independent of these exposures.
There have been no material changes to the Companys outstanding debt
instruments since December 31, 2000.

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PART II




OTHER INFORMATION




ITEM 1. LEGAL PROCEEDINGS.

The Company is involved in various claims, legal actions and regulatory
proceedings arising in the ordinary course of business. The Company believes
that the disposition of these matters will not have a material adverse effect
on the Companys consolidated financial position, results of operations or cash
flows.

As previously reported, the Company filed a formal appeal of the RCAs
order terminating the rural exemption for Fairbanks and Juneau on November 10,
1999. This matter remains pending in state court.

The Company also previously reported a dispute concerning the Fairbanks
and Juneau interconnection agreements ordered by the RCA. Certain procedural
aspects of this dispute are currently before the U. S. Ninth Circuit Court of
Appeals.

The Company also previously reported that on February 7, 2001, it filed an
appeal in the United States Court of Appeals for the District of Columbia
Circuit of a January 24, 2001 FCC Order to pay $2.7 million plus interest to
General Communication, Inc. (GCI) for excess interstate access charges. On
April 4, 2001, the FCC released an order granting the Companys request for a
stay of the payment and allowed the Company to place the funds in question,
already fully reserved, in escrow pending the outcome of the appeal. In
addition, AT&T Alascom, made a demand for payment of approximately $3.5 million
dollars based on the FCCs January 24, 2001 Order in favor of GCI. These
funds, also fully reserved, have been placed in a similar escrow account
pending resolution of the Companys appeal of the FCC Order.

At the end of May 2001, the Company requested an immediate interim and
refundable increase in its Anchorage UNE rate. On July 2, 2001, the Company
filed revenue requirements studies with the RCA for each of its four LECs
initiating new rate cases for each of its LECs and a revenue requirements
hearing is expected in February 2002. On October 9, 2001, ACSA requested an
interim rate increase. The Company intends to vigorously pursue all of these
actions in the coming months. In addition, the Company is involved in a number
of other on-going regulatory proceedings.

On May 14, 2001, the Company was served with a class action lawsuit
concerning its interstate Infinite Minutes long distance plan. It is
impossible to determine at this time the actual number of plaintiffs or the
claims that will actually continue to be in dispute. The Company believes this
suit is without merit and intends to vigorously defend its position.

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ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

None.




ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.




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

None.




ITEM 5. OTHER INFORMATION.

None.




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.



|(a) |  | Exhibits:
|--- |  | ---------

None.



|(b) |  | Reports on Form 8-K:
|--- |  | --------------------

No reports on Form 8-K were filed during the quarter ended September 30,
2001.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report on Form 10-Q to be signed on its behalf
by the undersigned, thereunto duly authorized.



|Date: October 25, 2001 | ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
|---------------------- | --------------------------------------------



| | /s/ Kevin P. Hemenway
Kevin P. Hemenway
Senior Vice President and
Chief Financial Officer
(Signing both in his capacity as
Senior Vice President on behalf of
the Registrant and as Chief
Financial Officer of the Registrant)
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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