Basis of Presentation

The following is a discussion and analysis of the historical results of operations and financial condition of Windstream Corporation ("Windstream", "we", or the "Company"). Windstream was formed on July 17, 2006 through the spin off of Alltel Holding Corp., the holding company for the wireline and communications support operating subsidiaries of Alltel Corporation ("Alltel"), in a pro rata distribution to Alltel shareholders and the immediate merger with and into Valor Communications Corporation ("Valor") (collectively referred to as the "legacy business"). This discussion should be read in conjunction with the unaudited consolidated financial statements, including the notes thereto, for the interim periods ended June 30, 2008 and 2007 and Windstream's Annual Report on Form 10-K for the year ended December 31, 2007 filed with the Securities and Exchange Commission ("SEC") on February 29, 2008.

Management believes that the assumptions underlying the Company's financial statements are reasonable. These financial statements, however, may not necessarily be indicative of future results of operations, financial position or cash flows. Certain statements set forth below under this caption constitute forward-looking statements. See "Forward-Looking Statements" at the end of this discussion for additional factors relating to such statements, and see "Risk Factors" in Item 1A of Part I of Windstream's Annual Report on Form 10-K, for a discussion of certain risk factors applicable to our business, financial condition and results of operations.

EXECUTIVE SUMMARY

Windstream is a customer-focused telecommunications company that provides local telephone, high-speed Internet, long distance, network access, and video services to approximately 3.1 million customers primarily located in rural areas in 16 states. Among the highlights in the second quarter of 2008:

• The Company added approximately 23,000 high-speed Internet services customers, increasing its high-speed Internet services customer base to over 934,000. During the quarter, the Company lost approximately 37,000 access lines or approximately 1 percent of its total access lines.

• Revenues and sales decreased $26.8 million, as compared to the second quarter of 2007, primarily due to the sale of the Company's directory publishing business in the fourth quarter of 2007 and the one time settlement for switched access revenues recorded in the second quarter of 2007 as discussed below. Offsetting these decreases was a $37.2 million increase in revenues due to the acquisition of CT Communications, Inc. ("CTC").

• Operating income decreased $3.9 million primarily due to the sale of directory publishing, partially offset by the acquisition of CTC, which accounted for an increase of $7.9 million, as well as the favorable effects of reduced depreciation rates discussed below.

• The Company generated cash flows from operations of $506.9 million for the six months ended June 30, 2008, which was used to fund capital expenditures of $133.3 million and to pay $225.4 million in dividends to shareholders. Additionally, the Company repurchased 16.0 million of its common shares at a cost of $200.3 million, leaving $199.7 million remaining under Windstream's $400.0 million stock repurchase program announced in February 2008 that expires at the end of 2009.

• The Company entered negotiations for the sale of its wireless business, and subsequently reached a definitive purchase agreement on August 7, 2008. As of June 30, 2008, we have reported these operations as discontinued and recognized a pre-tax loss of $18.0 million as discussed below.

During the remainder of 2008, the Company will continue to face significant challenges resulting from competition in the telecommunications industry. In addressing competition, the Company will continue to focus its efforts on improving customer service, increasing high-speed Internet penetration and expanding its service offerings.

Business Trends

The following risk factors and material non-recurring events and transactions could cause the Company's reported financial information to be not necessarily indicative of future operating results or future financial conditions.

• As discussed in detail below, the Company's revenues and sales and operating income in future periods will continue to be positively impacted by the acquisition of CTC. The Company added approximately 132,000 access lines through the acquisition of CTC in the third quarter of 2007.

• Wireline revenues and sales are expected to continue to be adversely impacted by future declines in access lines due to increasing competition in the telecommunications industry from cable television providers, wireless communications providers, and providers using other emerging technologies.

• The Company is also exposed to regulatory uncertainty in state and federal Universal Service Fund ("USF") programs. Pending regulatory proceedings and other legislative actions could materially reduce the Company's USF revenues, although near-term expectations are that the Company will maintain its current level of funding absent significant changes in the programs.

• The split off of the Company's directory publishing business, which was completed in the fourth quarter of 2007, resulted in a reduction in wireline segment revenues due to the elimination of royalties received on sales of advertising in Windstream telephone directories. The Company agreed to forego these royalty payments for a period of fifty years as part of the split off agreement, and received $506.7 million in up-front consideration for the publishing business (see Note 3). The split off of the publishing business also resulted in the loss of directory publishing revenues, as discussed below in "Directory Publishing".

• Economic trends in markets served by the Company could generate increases in bad debt expense, accelerated access line losses and slower high-speed Internet customer growth.

The foregoing risk factors and material transactions, as well as other risks and events that could cause Windstream's reported financial information to be not necessarily indicative of future operating results or financial condition are discussed in more detail under "Risk Factors" in Item 1A and in the notes to the unaudited interim consolidated financial statements.

STRATEGIC TRANSACTIONS

Discontinued Operations

During the second quarter of 2008, the Company entered negotiations, and subsequently reached a definitive purchase agreement dated August 7, 2008, for the sale of its wireless operations. Accordingly, we have classified these operations as held for sale, and recognized a pre-tax loss of $18.0 million to reduce the carrying value of the assets held for sale to the contemplated transaction price less estimated costs to sell.

For the six months ended June 30, 2008, revenues generated from the wireless operations totaled $23.5 million or approximately one percent of total consolidated revenues. Completion of this transaction will allow management to divest of a non-core asset to focus on other strategic initiatives.

Acquisition

On August 31, 2007, Windstream completed the acquisition of CTC in a transaction valued at $584.3 million. Under the terms of the agreement the shareholders of CTC received $31.50 in cash for each of their shares with a total cash payout of $652.2 million. The transaction value also includes a payment of $37.5 million made by Windstream to satisfy CTC's debt obligations, offset by $105.4 million in cash and short-term investments held by CTC. Including $25.3 million in severance and other transaction-related expenses, the total net consideration paid in the acquisition was $609.6 million. Windstream financed the transaction using the cash acquired from CTC, $250.0 million in borrowings available under its revolving line of credit, and additional cash on hand. The accompanying unaudited interim consolidated financial statements reflect the combined operations of Windstream and CTC following the acquisition.

The premium paid by Windstream in this transaction is attributable to the strategic importance of the CTC acquisition. The access lines and high-speed Internet customers added through the acquisition significantly increased Windstream's presence in North Carolina and provide the opportunity to generate significant operating efficiencies with contiguous Windstream markets. The transaction has increased Windstream's position in these markets where it can leverage its brand and bring significant value to customers by offering competitive bundled services.

Disposition

On November 30, 2007, Windstream completed the split off of its directory publishing business (the "publishing business") in a tax-free transaction with entities affiliated with Welsh, Carson, Anderson & Stowe ("WCAS"), a private equity investment firm and Windstream shareholder.

To facilitate the split off transaction, Windstream contributed the publishing business to a newly formed subsidiary ("Holdings"). Holdings paid a special cash dividend to Windstream in an amount of $40.0 million, issued additional shares of Holdings common stock to Windstream, and distributed to Windstream certain debt securities of Holdings having an aggregate principal amount of $210.5 million. Windstream exchanged the Holdings debt securities for outstanding Windstream debt securities with an equivalent fair market value, and then retired those securities. Windstream used the proceeds of the special dividend to repurchase approximately three million shares of Windstream common stock during the fourth quarter. Windstream exchanged all of the outstanding equity of Holdings (the "Holdings Shares") for an aggregate of 19,574,422 shares of Windstream common stock (the "Exchanged WIN Shares") owned by WCAS, which were then retired. Based on the price of Windstream common stock of $12.95 at November 30, 2007, the Exchanged WIN Shares had a value of $253.5 million. The total value of the transaction was $506.7 million, including an adjustment for net working capital of approximately $2.7 million. As a result of completing this transaction, Windstream recorded a gain on the sale of its publishing business of $451.3 million in the fourth quarter of 2007, after substantially all performance obligations had been fulfilled.

In connection with the consummation of the transaction, the parties and their affiliates entered into a publishing agreement whereby Windstream granted Local Insight Yellow Pages, Inc. ("Local Insight Yellow Pages"), the successor to the Windstream subsidiary that once operated the publishing business, an exclusive license to publish Windstream directories in each of its markets other than the newly acquired CTC markets. Local Insight Yellow Pages will, at no charge to Windstream or its affiliates or subscribers, publish directories with respect to each Windstream service area covered under the agreement in which Windstream or its affiliates are required to publish such directories by applicable law, tariff or contract. Subject to the termination provisions in the agreement, the publishing agreement will remain in effect for a term of fifty years. As part of this agreement, Windstream agreed to forego future royalty payments, which totaled $28.1 million during the six months ended June 30, 2007, from Local Insight Yellow Pages on advertising revenues generated from covered directories for the duration of the publishing agreement.

ORGANIZATION AND RESULTS OF OPERATIONS

The Company is organized based on the products and services that it offers. Under this organizational structure, its operations consist of its wireline and product distribution segments, and directory publishing operations. The Company's wireline segment consists of its retail and wholesale telecommunications services, including local telephone, high-speed Internet, long distance, network access and video services. The product distribution segment consists of warehouse and logistics operations, and it procures and sells telecommunications infrastructure equipment to both affiliated and non-affiliated businesses. Effective with the completion of the split off of its directory publishing business, as discussed above, the Company's publishing operations have ceased.

Consolidated Results of Operations

                                                          Three Months Ended           Six Months Ended
                                                               June 30,                    June 30,
(Millions)                                                    2008         2007          2008          2007
Segment revenues and sales:
Wireline                                                $    783.9     $  780.9     $ 1,571.8     $ 1,531.3
Product distribution                                          86.1         85.5         152.1         168.7
Directory publishing                                            -          45.9            -           68.0

Total business segment revenues and sales                    870.0        912.3       1,723.9       1,768.0
Less affiliated eliminations                                  70.1         85.6         124.0         157.6

Consolidated revenues and sales                              799.9        826.7       1,599.9       1,610.4
Segment income:
Wireline                                                     293.9        289.4         592.5         563.4
Product distribution                                          (0.4 )        0.3          (1.1 )        (0.5 )
Directory publishing                                            -           4.7            -            2.7

Total business segment income                                293.5        294.4         591.4         565.6
Merger and integration costs                                  (4.6 )       (1.6 )        (6.2 )        (3.2 )

Consolidated operating income                                288.9        292.8         585.2         562.4
Other income, net                                              3.0          6.3           8.6          11.5
Interest expense                                            (103.6 )     (108.1 )      (208.6 )      (222.8 )

Income from continuing operations before income taxes        188.3        191.0         385.2         351.1
Income taxes                                                  70.4         75.1         145.4         135.3

Income from continuing operations                            117.9        115.9         239.8         215.8
Discontinued operations, net of tax                          (15.9 )         -          (14.1 )          -

Net income                                              $    102.0     $  115.9     $   225.7     $   215.8

The following discussion and analysis details results for Windstream Consolidated Revenues.

The following table reflects the primary drivers of year-over-year changes in consolidated revenues and sales: