Many communications services can be provided without incurring a short-run incremental cost for an additional unit of service. As a result, once there are several facilities-based carriers providing a service in a given market, price competition is likely and can be severe.

Several factors have resulted in increased competition in the local telephone market, including expansion of wireless networks and pricing plans which offer very high usage at a fixed cost, resulting in wireless substitution; growing customer demand for alternative products and services; technological advances in the transmission of voice, data and video; development of fiber optics and digital technology; legislation and regulations, including the Telecommunications Act, designed to promote competition; and approval of “271” petitions by the Regional Bell Operating Companies authorizing them to provide long distance services in all U.S. jurisdictions.

The internet industry is characterized by the absence of significant barriers to entry and the rapid growth in internet usage among customers. As a result, it is expected that the competition will increase from market entrants offering high-speed data services, including DSL, cable and wireless access.

The Company provides digital PCS services on a wholesale basis to other PCS providers, most notably Sprint Nextel. The Company’s wireless wholesale business began in 1999 when it signed a 10-year agreement with Horizon PCS to carry Horizon PCS’s traffic in the Company’s territories in western Virginia and West Virginia. On August 15, 2003, Horizon PCS filed for Chapter 11 bankruptcy protection. As a part of Horizon PCS’s restructuring, in June 2004 Sprint bought out Horizon PCS’s interest in the approximately 95,000 Sprint-branded subscribers in Horizon PCS’s territories which are serviced by the Company’s network.

In 2004, the Company entered into the Strategic Network Alliance with Sprint Spectrum, a subsidiary of Sprint Nextel. Under the terms of the Company’s Strategic Network Alliance with Sprint Nextel, the Company is the exclusive PCS network service provider for all Sprint Nextel products and services in the following markets: Charlottesville, Danville, Lynchburg, Martinsville, Roanoke and Staunton-Waynesboro, Virginia; Beckley, Bluefield, Charleston, Clarksburg/Elkins, Fairmont, Huntington and Morgantown, West Virginia; and Ashland, Kentucky.

Under the Strategic Network Alliance, Sprint Nextel is required to pay the Company a per minute or per megabit rate for the voice and data services, respectively, that it provides to Sprint Nextel branded subscribers and the subscribers of mobile network operator partners of Sprint Nextel, such as Virgin Mobile and Qwest, who live in or travel through the Strategic Network Alliance service area.

The Company provides RLEC services to business and residential customers in three rural Virginia areas. The Company has owned and operated a 108-year-old telephone company in western Virginia since its inception in 1897. Additionally, the Company acquired a 105-year-old telephone company in southwestern Virginia through its acquisition of R&B Communications in 2001.

The Company’s CLEC/Network operations include both the results of its CLEC business and the Company’s wholesale carrier’s carrier network. The CLEC business was launched in 1998 and currently serves 16 areas in Virginia and West Virginia. The Company markets almost exclusively to business customers with residential service limited to bundled service offerings with DSL. As of June 30, 2005, the Company had 43,774 CLEC lines in service, virtually all of which were business lines.

Total operating expenses increased $20.9 million, or 15%, from $141.4 million for the six months ended June 30, 2004 to $162.3 million for the six months ended June 30, 2005.

Cost of wireless sales increased $4.7 million, or 20%, from $23.6 million for the six months ended June 30, 2004 to $28.4 million for the six months ended June 30, 2005.

Depreciation and amortization expenses increased $7.1 million, or 23%, from $31.4 million for the six months ended June 30, 2004 to $38.5 million for the six months ended June 30, 2005.

Customer operations expenses increased $3.0 million, or 7%, from $40.6 million for the six months ended June 30, 2004 to $43.6 million for the six months ended June 30, 2005.