(Amounts in thousands, except selected operating metrics and share and per share amounts)

Reference is made to Part I, Item 1 "Note About Forward Looking Statements" and Item 1A "Risk Factors", which describes important factors that could cause actual results to differ from expectations and non-historical information contained herein. In addition, the following Management's Discussion and Analysis ("MD&A") is intended to help the reader understand the results of operations and financial condition of SureWest Communications (the "Company", "we" or "our"). MD&A should be read in conjunction with our audited consolidated financial statements and accompanying notes to the financial statements ("Notes") as of and for each of the three years in the period ended December 31, 2008 included elsewhere in this Annual Report on Form 10-K.

We are one of the nation's leading integrated communications providers and are the bandwidth leader in the markets we serve. We classify our operations in two reportable segments: Broadband and Telecommunications ("Telecom"). We market our services individually and as bundled services to both residential and business customers in the greater Sacramento, California and greater Kansas City, Kansas and Missouri areas ("Kansas City area").

Our Broadband segment earns revenues primarily through subscriptions to our video, high-speed Internet and digital phone services. Our video services range from a limited basic service to a full digital cable service. Many of our services are delivered utilizing fiber-to-the-premise and fiber-to-the-node networks, which allow us to offer a high quality experience with our digital TV Packages. Our full digital cable service provides access to over 340 and 250 channels in our California and Kansas City markets, respectively, including premium and pay-per-view channels (which include concerts, wrestling, boxing, sporting events and movies); video on demand ("VOD") service (which allows access to a library of movies and the ability to start a selection at any time and to pause, rewind and fast-forward and replay); premium VOD channels, music channels and an interactive, on-screen program guide (which allows the subscriber to navigate the channel lineup and the video on demand library). Digital cable subscribers can also subscribe to additional digital cable services, including a digital video recorder ("DVR") (which allows subscribers to record two programs at the same time and pause, replay and rewind "live" television) and high-definition ("HDTV") which provides multiple channels in high definition.

Our high-speed Internet service can provide Internet access at symmetrical speeds of up to 50 Mbps, depending on the level of service selected. As of December 31, 2008, approximately 32% of the homes in the areas we serve subscribed to one of our high-speed Internet services. In March 2008, we launched our new Voice over Internet Protocol ("VoIP") digital phone product in the Sacramento market. Our digital phone service is available in packages ranging from basic service to unlimited local and domestic long distance calling plans. Nearly all of our digital phone service plans include an extensive array of calling features; including Caller ID and Call Waiting, Find Me/Follow Me, sequential ringing and selective call acceptance and rejection. As of December 31, 2008, approximately 7% of the homes in the areas we serve have subscribed to our new VoIP phone service.

Our Telecom segment, which operates only in the Sacramento area, offers a broad selection of telecommunications services including, traditional landline voice services, Digital Subscriber Line ("DSL"), long distance services and certain non-regulated services. Traditional landline services are offered from basic local service to bundled packages ranging from unlimited local calling to unlimited local and domestic long distance calling plans. Our voice products include long distance services and value-added services such as voicemail, call waiting, caller identification and many other calling feature options. Long distance services are offered by our subsidiary SureWest Long Distance, which is a reseller of long distance services.

On October 10, 2008, we entered into a definitive purchase agreement (the "Purchase Agreement") to sell our fifty-two owned wireless communications towers
("Tower Assets") owned by our subsidiary West Coast PCS, LLC ("West Coast PCS")
to Global Tower Partners. West Coast PCS is a component of our Broadband segment. On February 27, 2009, the sale was completed for an aggregate cash purchase price of $9,222, based on the tower cash flow generated by commenced tenant leases. The net proceeds from the Tower Assets will continue to enhance our financial flexibility and support our commitment to our core business strategy to provide fiber-based bundled services.

In May 2008, we sold the operating assets of our Wireless business, SureWest Wireless, to Verizon Wireless ("Verizon") for an aggregate cash purchase price of $69,746, resulting in a gain of $18,821, net of tax. Under the agreement, Verizon acquired the spectrum licenses and operating assets of SureWest Wireless, excluding our owned communication towers. SureWest Wireless was previously reported as a separate reportable segment.

In December 2007, we entered into a definitive agreement to purchase Everest Broadband, Inc. ("Everest" or the "Kansas City operations"). On February 13, 2008, we acquired 100% of the issued and outstanding stock of Everest for a total purchase price of $181,459, including transaction costs. Subsequent to the acquisition, the Kansas City operations have been included in our Broadband segment. Everest is a competitive provider of high-speed data, video and voice services in the greater Kansas City area. The acquisition of Everest accelerates our growth strategy and has positioned us as the premier provider of network services to residential and business customers in the markets we serve.

In February 2007, GateHouse Media acquired 100% of the stock of SureWest Directories, our directory publishing business, for an aggregate cash purchase price of $110,123, resulting in a gain of $59,339, net of tax. SureWest Directories was previously included in the Telecom segment. As part of the transaction, GateHouse Media became the publisher of the official directory of SureWest Telephone.

Consolidated Overview

The tables below reflect certain financial data (on a consolidated and segment
basis) and select operating metrics for each of our reportable segments as of
and for the years ended December 31, 2008, 2007 and 2006.


                                 Financial Data

                                                                               % Change
                                                                         2008 vs.    2007 vs.
                                       2008        2007        2006        2007        2006
  Operating revenues(1)
     Broadband                       $ 135,341   $  68,652   $  59,737          97 %        15 %
     Telecom                            95,032     105,605     111,245         (10 )        (5 )
        Operating revenues             230,373     174,257     170,982          32           2
  Income (loss) from operations
     Broadband                         (27,261 )   (32,826 )   (31,517 )       (17 )         4
     Telecom                            42,402      41,213      41,933           3          (2 )
        Income from operations          15,141       8,387      10,416          81         (19 )
  Income (loss) from continuing
  operations
     Broadband                         (23,684 )   (22,318 )   (22,181 )         6           1
     Telecom                            24,510      27,541      24,185         (11 )        14
        Income from continuing             826       5,223       2,004         (84 )         *
        operations


--------------------------------------------------------------------------------
        º (1)
        º External customers only
        º *
        º Not Meaningful


                            Select Operating Metrics

                                                                                 % Change
                                                                           2008 vs.    2007 vs.
                                           2008        2007       2006       2007        2006
Broadband
   Total residential subscribers(1)        102,400     58,200     52,700          76 %        10 %
   Broadband residential                   221,000     96,700     88,200         129          10
   Revenue-generating units(2)
          Data                              97,400     56,000     50,300          74          11
          Video                             60,100     20,700     19,300         190           7
          Voice                             63,500     20,000     18,600         218           8
   Total business customers(3)               6,500      4,200      3,700          55          14
Telecom
   Voice Revenue-generating units(4)        54,000     69,200     78,100         (22 )       (11 )
   Total business customers(3)               9,200      9,800     10,000          (6 )        (2 )


--------------------------------------------------------------------------------
        º (1)

Operating revenues for the Broadband segment increased $66,689 in 2008 compared to 2007. The Broadband segment results of operations and select operating metrics in the current year compared to the prior year have been impacted by the effects of the Everest acquisition, as described above. The Kansas City operations contributed approximately $57,908 of operating revenues in 2008 compared to 2007. At December 31, 2008, the Kansas City operations accounted for 39,800, 106,900 and 2,200 of the residential subscribers, residential RGUs and business customers, respectively. At the date of acquisition on February 13, 2008, the Kansas City operations accounted for 37,700, 101,900 and 1,700 of the residential subscribers, residential RGUs and business customers, respectively.

At December 31, 2008, the Broadband segment experienced a 76% annual increase in the number of residential subscribers compared to the prior year. In the Sacramento market, data and video RGUs increased 9% and 17%, respectively, compared to 2007 which was reflective of our ability to offer subscribers high-speed data, HDTV, HD DVR and other enhanced services. In addition, Broadband operating revenues increased due to the continued expansion of the broadband network and growth in the demand for digital video, voice and data offered as a bundled triple-play package.

The introduction of our VoIP Digital Phone product in the Sacramento market, including the Telecom segment service territory, has resulted in an elevated take rate and an increase in broadband residential triple-play RGUs, while successfully mitigating access line losses in the Telecom segment by migrating these customers to voice RGUs in the Broadband segment. At December 31, 2008, Broadband voice RGUs in the Sacramento market increased 45% compared to the prior year.

We will continue to invest in success-based capital and building and deploying the broadband infrastructure primarily within the Kansas City area, while focusing on the generation of new customers and increasing residential penetration on existing marketable homes.

Operating revenues in the Telecom segment decreased $10,573 in 2008 compared to 2007. Residential revenues accounted for $7,346 of the decrease in 2008. Residential services were largely impacted by our customer's migration toward alternative communication services, including those offered by our Broadband segment, which contributed to an approximate 22% decline in the Telecom segment voice RGUs as of December 31, 2008 compared to 2007. In an effort to mitigate future operating revenue and voice RGU declines, we offer various flat-rate and bundled service packages and have introduced a broadband VoIP service to customer's residing within SureWest Telephone's service area. The decrease in operating revenues was also impacted by the anticipated scheduled reduction in California High Cost Fund ("CHCF") subsidies of approximately $2,212 during 2008 compared to 2007. See the Regulatory Matters section within the Telecom Segment Result of Operations section below, for a further discussion regarding the regulatory subsidies we receive.

Consolidated operating expenses, excluding depreciation and amortization and loss on impairment of Local Multipoint Distribution System ("LMDS"), increased $43,425 in 2008 compared to 2007. Our Broadband segment accounted for substantially all of the increases in our consolidated operating expenses primarily as a result of the addition of our Kansas City operations, which accounted for $40,976 of the current year increase. Cost of services and products expense increased $32,578 in 2008 compared to 2007 primarily as a result of the Kansas City operations, as well as increases in programming costs related to the growth in Broadband subscribers. Customer operations and selling expense increased $6,469 in 2008 compared to 2007 due primarily to the addition of the Kansas City operations as well as an increase in sales and advertising costs to promote subscriber growth and new product offerings within the Broadband segment. General and administrative expenses increased $4,378 in 2008 compared to 2007 mostly as a result of the addition of our Kansas City operations. Excluding the addition of the operations for Kansas City, which accounted for $5,096 of the year over year increase, general and administrative expenses declined $718 from the prior year period primarily as a result of (i) a decline in legal fees due to additional

fees incurred in the prior year related to regulatory matters and (ii) a decrease in salaries and wages from a reduction in headcount and overhead costs, partially offset by an increase in consulting and advisory fees related to strategic initiatives.

The increase in the consolidated operating expenses in 2008 compared to the 2007 was offset by a decline in the costs associated with our defined benefit pension plan (the "Pension Plan"), Supplemental Executive Retirement Plan and certain post-retirement benefits other than pensions ("Other Benefits Plan") (collectively the "Plans"). During 2007, we substantially modified our employee compensation structure in order to attract and retain the right mix of talent necessary to successfully support a company which is significantly expanding and growing. As a result, we amended the Plans, effective April 1, 2007, which froze the Pension Plan so that no person is eligible to become a new participant in the Plans on or following that date and all future benefit accruals for existing participants under the Plans cease. The amendments to the Plans were accounted for as plan curtailments, resulting in the recognition of a $574 non-cash pretax curtailment loss ($0.04 per share) which was reflected in the operating expenses in our consolidated financial statements during the fourth quarter ended December 31, 2006. As a result of the amendments to the Plans and final actuarial calculations, consolidated operating expenses decreased $629 during the year ended December 31, 2008, compared to 2007 and $5,491 during 2007 compared to 2006. See Note 8 for more information on the Plans.

Our consolidated depreciation and amortization expense increased $11,391 in 2008 compared to 2007 due to the Kansas City operations, continued network build-out and success-based capital projects undertaken within the residential broadband service territories.

Consolidated depreciation and amortization expense decreased $4,774 in 2007 compared to 2006 despite growth in the broadband network build-out and capital projects in 2007 due to a change in accounting estimate. During the first quarter of 2007, we completed our triennial review of asset lives which evaluated the appropriateness of the estimated useful lives of our property, plant and equipment for all business segments. The evaluation considered our investment and business strategy, reliability and historical performance data of certain assets, as well as the impacts of competition and anticipated technological change. As a result of this evaluation, effective January 1, 2007, we increased the estimated useful lives of certain customer premise equipment, circuit equipment and cable plant primarily in the Broadband segment. The increase in asset lives primarily ranged between 1 to 4 years. During 2007, this change in estimate decreased consolidated depreciation expense by $3,899 and increased consolidated net income by $2,764 ($0.19 per share).

In 2007, we determined that we will no longer devote significant resources to our residential and business wireless service offerings that utilize the LMDS line of site technology. The decision to no longer pursue this component of the data services is due to our strategic change in the focus toward land based network systems. As a result, during 2007, we incurred a pre-tax $5,454 non-cash impairment charge on our LMDS licenses and related network assets.

Certain amounts in our 2007 and 2006 consolidated financial statements have been reclassified to conform to the presentation of our 2008 consolidated financial statements, which primarily consists of the effects of reclassifications from presentation of our Wireless and Tower businesses as discontinued operations. In addition, the calculation of certain select operating metrics has been revised over time to reflect the current view of our business. Accordingly, where necessary, prior period metric calculations have been revised to conform to current practice.

We expect that the sources of our revenues and our cost structure may be different in future periods, as a result of our entry into new communications markets, the disposition of non-strategic investments and regulatory and competitive forces in each of the markets in which we have operations.

                                2008 versus 2007

Segment Results of Operations

Broadband

                                           2008        2007      $Change     %Change
     Data                                $  39,966   $  27,075   $ 12,891          48 %
     Video                                  38,520      14,721     23,799         162
     Voice                                  20,619       8,197     12,422         152
     Total residential revenues             99,105      49,993     49,112          98
     Business                               33,077      17,304     15,773          91
     Access                                  1,453         295      1,158         393
     Other                                   1,706       1,060        646          61
     Total operating revenues from         135,341      68,652     66,689          97
     external customers
     Intersegment revenues                     539         607        (68 )       (11 )
     Operating expenses*                   122,650      73,867     48,783          66
     Depreciation and amortization          40,491      22,764     17,727          78
     Impairment loss                             -       5,454     (5,454 )         -
     Loss from operations                  (27,261 )   (32,826 )    5,565          17
     Loss from continuing operations       (23,684 )   (22,318 )   (1,366 )        (6 )

Operating revenues from external customers in the Broadband segment increased $66,689 in 2008 compared to 2007. Our Kansas City operations, as described above, contributed $57,908 of operating revenues in 2008.

Residential Revenues

Broadband residential revenues increased $49,112 in 2008 compared to 2007, of which $43,624 was attributable to the Kansas City operations. Broadband residential subscribers and RGUs increased 76% and 129%, respectively, as of December 31, 2008 compared to 2007. We anticipate continued growth in residential broadband RGUs and average revenue per user resulting from the HD DVR and VoIP digital phone services, which were launched in the Sacramento market in late 2007 and early 2008, respectively. The digital phone product presents our customers with a more competitive triple-play offering with increased options and multiple packages.

We offer high speed Internet access at symmetrical speeds of up to 50 Mbps, depending on the level of service selected. The reliability and high speeds of the data service in both the Sacramento and Kansas City markets enhance other services such as the SureWest Digital Phone, where customers manage phone services through the online SureWest portal. Through the SureWest portal customers can manage their SureWest Digital Phone service and access a variety of value added features and enhancements that are designed to take advantage of the speed of the Internet service we provide.

Our residential data revenues increased $12,891 in 2008 compared to 2007 as a result of subscriber growth and the addition of our Kansas City operations. Data RGUs in the Sacramento market increased 74% as of December 31, 2008 compared to 2007.

Many of our video services range from a limited basic service to a full digital cable service. Our services are delivered utilizing fiber-to-the-premise and fiber-to-the-node networks, which allow us to offer a high quality experience with digital TV Packages. Our full digital cable service provides access to over 340 and 250 channels in our California and Kansas City markets, respectively, including premium and pay-per-view channels, VOD service, premium VOD channels, music channels and an interactive, on-screen program. Digital cable subscribers can also subscribe to additional digital cable services, including a DVR and HDTV.

Residential video revenues increased $23,799 in 2008 compared to 2007. In 2008 the Broadband segment (including our Kansas City operations) experienced growth in Video RGUs and residential subscribers of 190% and 76%, respectively. Revenues also increased as a result of higher pricing on our video services effective January 2008 and demand for enhanced video offerings such as VOD, DVR and HDTV.

In March 2008, we launched our new VoIP digital phone product in the Sacramento market. Our digital phone service is available in packages ranging from basic service to unlimited local and domestic long distance calling plans. Nearly all of digital phone service plans include a broad array of calling features; including Caller ID and Call Waiting, Find Me/Follow Me, Sequential ringing and selective call acceptance and rejection. Our digital phone service was available to approximately 7% of the homes we pass in the Sacramento market as of December 31, 2008. As of December 31, 2008, approximately 5% of the homes in the areas we serve have subscribed to our new digital phone service and we anticipate that the take rate on this service will increase to 13% by the end of 2009. We also offer traditional voice services in some of the areas we serve.

Residential voice revenues increased $12,422 in 2008 compared to 2007. The increase was due in part to the growth in voice RGUs of 218% as of December 31, 2008 compared to 2007 and the addition of our Kansas City operations in the current year. As anticipated, the launch of our VoIP Digital Phone product in the Sacramento market, including the Telecom service territory, has resulted in elevated take rates and an increase in Broadband residential triple-play RGUs.

Business Revenues

We provide a variety of business communications services to small, medium and large business customers. The services we offer to our business customers include: fiber-optics based high-speed Internet, customized data and Ethernet transport services, data center and disaster recovery solutions, traditional landline and VoIP phone services and digital TV.

Business revenues increased $15,773 in 2008 compared to 2007 due primarily to a 55% increase in business customers as of December 31, 2008 compared to 2007. We continue to expand our business broadband services in Sacramento; however a significant portion of the business revenue growth was due to the addition of our Kansas City operations.

Total operating expenses in the Broadband segment increased $48,783 in 2008 compared to 2007.

Cost of services and products (exclusive of depreciation and amortization) increased $33,558 in 2008 compared to 2007. The increase in costs in the current year period was primarily due to Kansas City operations, contributing $29,148 in additional expenses. The increase was also attributable to (i) an increase in programming, transport and access costs related to the growth in Broadband subscribers, residential broadband RGUs and business customers and (ii) an increase in maintenance costs corresponding to the increased subscriber count, as well as the expanded network footprint.

Customer operations expense increased $7,995 in 2008 compared to 2007. Substantially all of the increase in the current year period was attributable to our Kansas City operations resulting, in part, from increased radio and television advertising in the Kansas City market. We have experienced a modest increase in the Sacramento market in sales and advertising costs to promote subscriber growth, as well as new and existing product offerings.

General and administrative expense increased $7,230 in 2008 compared to 2007 . . .