The telecommunications industry in the United States is a large segment of the nation’s economy, which, according to the FCC, generated approximately $300 billion of revenues in 2002, representing nearly 3% of the nation’s GDP that year. Revenues of competitive local telephone companies increased by about 4% from $14.8 billion to $15.3 billion, and accounted for about 12% of the $127 billion of local telephone service revenues. Total spending in the U.S. telecom industry grew 4.7% in 2003, according to estimates by the Telecommunications Industry Association, and is expected to grow at a 9.2% compound annual rate between 2004 and 2007.

Industry participants include local exchange carriers, or LECs, which maintain local networks and provide access to residential and business users. The U.S. local exchange industry is comprised of a few large, well-known companies and a large number of relatively small independent companies. The LEC category includes incumbent local exchange carriers, or ILECs, and competitive local exchange carriers, or CLECs. ILECs were the original providers of local service in their service territories and have generally retained local service obligations. CLECs have emerged as competing providers of local service since the passage of the Telecommunications Act of 1996.

Basic local service enables customers to make and receive telephone calls within a defined local calling area for a flat monthly fee. As is customary in the telecommunications industry, the Company charges its business customers somewhat higher rates than its residential customers.

In addition to subscribing to basic local telephone services, the Company’s customers may choose from a variety of enhanced or non-basic communications services. These include call waiting, call forwarding, caller ID, voice mail and three-way calling and are billed on the customer’s monthly bill for basic local service.

The Company bills access charges to long distance companies and other carriers for the use of the Company’s facilities to terminate or originate calls on the Company’s network. These fees relate to long distance, or toll calls, that involve more than one company in the provision of the service.

The Company began offering toll, or long distance, services in July 2000 and have increased its revenues from this business to $21.7 million in 2003 through sales to its established customer base.

The Company provides long distance service through a combination of its own network facilities and a resale arrangement the Company has with INS.

The Company currently provides CLEC services through its wholly-owned subsidiary, ITC.

ITC began operations in February 2003, has 26 employees and currently serves approximately 2,500 business and 2,900 residential access lines. ITC offers a broad range of traditional and enhanced wireline communications services to business and residential customers in 13 communities throughout Iowa, representing approximately 5,400 total access lines as of March 1, 2004. The Company is able to offer competitively priced bundled services, including options such as DSL in some markets.

Network Access Services revenues decreased $823,000, or 0.9%, for 2003 compared to 2002.

Toll Services revenues increased by $1.2 million, or 5.7%, for 2003 compared to 2002.

Cost of Services and Sales decreased $4.3 million, or 8%, in 2003 compared to 2002, driven largely by a $4.3 million decrease in bad debt expense.

Selling, General and Administrative costs increased $2.6 million, or 8.2%, for 2003 compared to 2002.