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 from Alltel Corporation ("Alltel") of its wireline telecommunications division and the immediate merger with and into Valor Communications Group, Inc. ("Valor"). This discussion should be read in conjunction with the unaudited consolidated financial statements, including the notes thereto, for the interim periods ended March 31, 2009 and 2008 and Windstream's Annual Report on Form 10-K for the year ended December 31, 2008 filed with the Securities and Exchange Commission ("SEC") on February 19, 2009.

Management believes that the assumptions underlying the Company's financial statements are reasonable. These financial statements, however, may not be necessarily 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 3.0 million customers primarily located in rural areas in 16 states. Among the highlights in the first quarter of 2009:

• The Company added approximately 31,000 high-speed Internet services customers, increasing its high-speed Internet services customer base to 1,009,700. Additionally, the Company lost approximately 44,000 access lines. Access lines declined 5.3 percent during the twelve months ended March 31, 2009.

• Revenues and sales decreased $45.0 million, as compared to the first quarter of 2008, primarily due to the decline in access lines and a decline in enterprise product sales. Partially offsetting this decrease were increases due to growth in high-speed Internet customers as discussed above. Operating income decreased $43.7 million primarily due to the increase in pension expense, the impact of continued access line losses and the amortization of franchise rights.

• The Company generated cash flows from operations of $215.0 million for the three months ended March 31, 2009, consistent with cash flows from operations, as compared to the same period in 2008. Cash flows from operations were used to fund capital expenditures of $62.8 million and to pay $109.9 million in dividends to shareholders. Additionally, the Company repurchased 2.6 million of its common shares at a cost of $20.7 million during the first quarter of 2009. As of March 31, 2009, the Company had $179.0 million in remaining capacity under the $400.0 million stock repurchase program announced in February 2008, which expires at the end of 2009.

During the remainder of 2009, 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 and distribution channels.

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.

• 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 primarily from cable television and wireless communications providers.

• Effective January 1, 2009, the Company prospectively changed its assessment of useful life for its franchises rights from indefinite-lived to 30 years, which resulted in an increase to amortization expense of approximately $8.0 million for the period ended March 31, 2009 (see Note 4).

• The Company is exposed to regulatory uncertainty in state and federal Universal Service Fund ("USF") programs. Pending regulatory proceedings and increased receipts of USF monies by wireless carriers could materially reduce the Company's USF revenues in the future. However, the Company expects funding from these programs to be maintained at their current levels for the near term.

• On November 21, 2008, Windstream completed the sale of its wireless business to AT&T Mobility II, LLC for approximately $56.7 million, and the related results are reported as discontinued operations (see Note 3).

• Economic trends in markets served by the Company could generate increases in bad debt expense, accelerated access line losses and slow 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 of Windstream's Annual Report on Form 10-K, and in the notes to the unaudited interim consolidated financial statements.

STRATEGIC TRANSACTIONS

Disposition

On November 21, 2008, Windstream completed the sale of its wireless business to AT&T Mobility II, LLC for approximately $56.7 million. The completion of this transaction resulted in the divestiture of approximately 52,000 wireless customers, spectrum licenses and cell sites covering a four-county area of North Carolina with a population of approximately 450,000, and six retail locations. The operating results of the wireless business have been separately presented as discontinued operations in the accompanying unaudited interim consolidated statements of income.

ORGANIZATION

Windstream has focused its strategy on enhancing the value of its customer relationships by offering additional products and services and providing superior customer service. Windstream delivers one-stop shopping to customers with a full range of communications products and services that include voice and related features, high-speed Internet, long distance, network access and video.

In the first quarter of 2009, the Company reorganized its operations to integrate the sales and administrative functions of the product distribution segment into its wireline operations. As a result of this change, the chief operating decision maker no longer reviews the financial statements of the product distribution operations on a stand alone basis, and the Company operates as a single reporting segment. As required by Statement of Financial Accounting Standards ("SFAS") No. 131 "Disclosures about Segments of an Enterprise and Related Information", segment results of operations have been retrospectively adjusted to reflect a single segment presentation for all periods presented. As such, separate segment reporting is no longer required, and thus not included. Additionally, certain amounts previously reported have been reclassified to conform to the current year presentation of the consolidated financial statements. These changes and reclassifications did not impact net income.

RESULTS OF OPERATIONS

The following table summarizes the Company's access lines and other key customer
metrics as of March 31:



                                                                                      %
(Access lines and customers in thousands)                          2009      2008   Change
Access lines in service (excludes high-speed Internet lines):
Residential                                                     1,960.1   2,085.2       (6 )
Business                                                          898.9     931.5       (3 )
Wholesale (a)                                                      19.0      28.7      (34 )
Special circuits                                                  115.4     115.8        -

Total access lines in service                                   2,993.4   3,161.2       (5 )

Average access lines in service                                 3,015.3   3,182.5       (5 )
Average service revenue per customer per month (b)               $79.68    $79.61        -
High-speed Internet customers                                   1,009.7     911.0       11
Digital satellite television customers                            295.4     210.4       40
Long distance customers                                         1,972.0   2,069.3       (5 )

(a) Wholesale units include unbundled network elements and pay stations.

(b) Average service revenue per customer per month is calculated by dividing service revenues by average access lines in service for the period.

Access Lines

Access lines decreased by 5.3 percent during the twelve months ended March 31, 2009, which reflects declines in residential, business and wholesale lines. These declines primarily reflect the effects of fixed line competition and wireless substitution. The Company expects access lines to continue to be impacted by these effects in 2009. As of March 31, 2009, approximately 60 percent of the Company's total access lines had fixed line voice competition, which is relatively unchanged from March 31, 2008. In 2009, the Company expects fixed line voice competition to continue to increase at a modest pace. All of the Company's markets have voice competition from multiple wireless carriers.

To slow the decline of revenue from access line loss in 2009, the Company will continue to emphasize sales of additional services and bundling of its various product offerings, including voice, high-speed Internet, and digital satellite television into one convenient solution for its customers. In an effort to further develop enhanced services and bundled product offerings, the Company will continue to invest in its network to offer faster speeds in its high-speed Internet offerings. As of March 31, 2009, the Company could deliver speeds of 3 Mb to 97 percent of its addressable lines. Additionally, speeds of 6Mb and 12Mb are available to 60 percent and 31 percent of high-speed Internet addressable lines, respectively.

High-speed Internet

During the three months ended March 31, 2009, the Company added approximately 31,000 high-speed Internet customers. This increased the Company's high-speed Internet customer base to 1,009,700, which represents a penetration rate of 34 percent of total access lines in service, and 46 percent of residential access lines in service. In 2009, we expect the pace of high-speed Internet customer growth to slow as the number of households without high-speed Internet service continues to shrink.

As of March 31, 2009, approximately 75 percent of total access lines had broadband competition primarily from cable service providers, which is relatively unchanged from March 31, 2008. Competitive expansions primarily from cable facilities into our service areas are expected to slow in 2009, but we may begin to experience competition from high-speed Internet offerings of wireless competitors.

The following table reflects the Company's financial results of operations as of March 31:

                                                                Three Months Ended
                                                                     March 31,
(Millions)                                                         2009          2008
Revenues and sales:
Voice service                                                 $   287.7      $  304.4
Long distance                                                      64.4          67.5
Data and special access                                           200.8         188.3
Switched access and USF                                           132.8         157.0
Miscellaneous                                                      35.1          42.9
Product sales                                                      34.2          39.9

Total revenues and sales                                          755.0         800.0
Costs and expenses:
Cost of services (exclusive of depreciation included below)       251.2         253.5
Cost of products sold                                              30.3          35.0
Selling, general, administrative and other                         89.0          91.4
Depreciation and amortization                                     132.0         121.6
Restructuring charges                                              (0.1 )         0.6
Merger and integration costs                                          -           1.6

Total costs and expenses                                          502.4         503.7
Operating income                                                  252.6         296.3

Other income, net                                                   0.8           5.6
Interest expense                                                  (99.7 )      (105.0 )


Income from continuing operations before income taxes             153.7         196.9
Income taxes                                                       65.5          75.1


Income from continuing operations                                  88.2         121.8
Discontinued operations, net of tax                                   -           1.9


Net income                                                    $    88.2      $  123.7
Basic and diluted earnings per share:
Income from continuing operations                                  $.20          $.27
Income from discontinued operations                                   -             -

Net income                                                         $.20          $.27

Voice Service Revenues

Voice service revenues consist of traditional telephone services provided to both residential and business customers. These revenues primarily represent monthly recurring charges for basic services such as local dial-tone and enhanced services such as caller identification, voicemail and call waiting. Voice service revenues decreased $16.7 million, or 5 percent, in the three month period ending March 31, 2009, as compared to the same period of 2008. The decrease in voice service revenues is primarily due to the overall decline in access lines discussed above.

Long Distance Revenues

Long distance revenues are generated from switched interstate and intrastate long distance, long distance calling cards, international calls and operator services. The following table reflects the primary drivers of year-over-year changes in long distance revenues:

Long distance

                                                           Three Months Ended
                                                             March 31, 2009
                                                           Increase
   (Millions)                                             (Decrease)          %
   Due to increases in packaged plans (a)               $          2.9
   Due to decreases in one plus calling and other (b)             (6.0 )
   Total long distance                                  $         (3.1 )       (5 )%

(a) Increases in packaged plans have resulted from migrations to plans that offer a defined number of minutes or unlimited toll calling for a fixed monthly fee instead of usage-based one plus calling.

(b) Decreases in one plus calling are primarily due to the decline in access lines and declines in usage-based long distance billings as customers migrate to packaged plans.

Data and Special Access Revenues

Data and special access revenues primarily consist of retail high-speed Internet
services, the provision of virtual private network, virtual LAN, and other next
generation data services to business customers, and the provision of special
access services to wholesale customers. The following table reflects the primary
drivers of year-over-year changes in data and special access revenues:

Data and special access

                                                                 Three Months Ended
                                                                   March 31, 2009
                                                                 Increase
(Millions)                                                      (Decrease)          %
Due to increases in high-speed Internet customers, as
previously discussed                                          $         11.2
Due to increases in next generation data services (a)                    2.3
Other                                                                   (1.0 )
Total data and special access                                 $         12.5          7 %

(a) Increases in next generation data services resulted from the launch of these services in several markets last year. The Company expects revenues for next generation data services to continue to increase as we expand this offering into additional markets in 2009.

Switched Access and USF Revenues

Switched access revenues include usage sensitive charges to long distance companies and other local exchange carriers for access to the Company's network in connection with the completion of interstate and intrastate long distance calls, as well as reciprocal compensation revenues received from wireless and other local connecting carriers for the use of our facilities. USF revenues include receipts from federal and state universal service funds that subsidize the cost of providing wireline services to high cost rural markets. The following table reflects the primary drivers of year-over-year changes in switched access and USF revenues:

Switched access and USF

                                                             Three Months Ended
                                                               March 31, 2009
                                                             Increase
 (Millions)                                                 (Decrease)         %
 Due to decreases in switched access revenues (a)          $       (16.4 )
 Due to decreases in federal USF surcharge (b)                      (4.7 )
 Due to decreases in state universal service support (c)            (3.1 )
 Total switched access and USF                             $       (24.2 )     (15 )%

(a) The decrease in switched access revenues is predominately due to the decline in minutes of use, which can be attributed to a decline in access lines and reduced usage by our enterprise customers. A reduction in switched access rates implemented July 1, 2008, discussed further below, contributed $1.4 million to the year-over-year decline in these revenues.

(b) Decreases in the federal USF surcharge were primarily due to the elimination of contribution requirements for high-speed Internet services effective with the conversion to price-cap regulations on July 1, 2008 and the reduction in the USF surcharge rate by 7 percent. Both items resulted in a proportionate reduction in USF contribution expense.

Effective July 1, 2008, the Company converted the majority of its remaining interstate rate-of-return regulated operations to price-cap regulation. This conversion to price-cap regulation resulted in the transition of support received under the interstate common line support ("ICLS") program to a fixed monthly dollar amount of support per access line. Historically that support was based largely on the recovery of costs and network investments. Support from the ICLS program totaled $11.8 million for the three months ended March 31, 2009. As a result of this change, future receipts from the program are expected to decline in proportion to future access line losses.

Also as a result of converting to price-cap regulation, the Company initiated a phased reduction of its interstate access rates to achieve an ultimate rate of $0.0065 per minute estimated to effect over 95 percent of our access lines by 2012. At March 31, 2009, Windstream had a composite interstate access rate of $0.0096. On July 1, 2009, The Company will implement its next rate reduction, which will have an estimated impact of $4.7 million annually with smaller reductions required in subsequent years.

Miscellaneous Revenues

Miscellaneous revenues primarily consist of charges for service fees, rentals,
billing and collections services, and commissions earned from activations of
digital satellite television service. The following table reflects the primary
drivers of year-over-year changes in miscellaneous revenues:

Miscellaneous

                                                                 Three Months Ended
                                                                   March 31, 2009
                                                               Increase
(Millions)                                                    (Decrease)            %
Due to decreases in network management services
performed for Alltel (a)                                    $         (4.7 )
Due to increases in digital television revenues (b)                    1.3
Due to decreases in service fees and other (c)                        (4.4 )
Total miscellaneous                                         $         (7.8 )         (18 )%

(a) Decreases in network management services performed for Alltel are due to Alltel's transition of these services to their own network. We billed Alltel approximately $0.8 million for these services in the first quarter of 2009.

(b) Increases in digital television revenues are attributable to the increase in digital satellite television subscribers.

(c) Decreases in service fees were attributable to the reduction in access lines.

Product Sales

Product sales represent sales of customer premise and other telecommunications
equipment to business customers including government entities, other
telecommunications service providers and contractors. Sales to residential
customers primarily consist of modem and computer sales to customers that
subscribe to Windstream's high-speed Internet service. The following table
reflects the primary drivers of year-over-year changes in product sales
revenues:

Product sales

                                                                 Three Months Ended
                                                                   March 31, 2009
                                                               Increase
(Millions)                                                    (Decrease)            %
Due to decreases in equipment sales to business
customers (a)                                               $         (7.7 )
Due to increases in residential product sales and other
(b)                                                                    2.0
Total product sales                                         $         (5.7 )         (14 )%

(a) Decreases in equipment sales to business customers are primarily due to the decline in the demand for these products.

(b) Increases in residential product sales were primarily due to computer sales to qualifying residential high-speed Internet customers. These computers are sold at a loss to customers that sign a two-year contract for high-speed Internet services.

Average Service Revenue per Customer

Average service revenue per customer per month, calculated by dividing service revenues by average access lines in service for the period, increased slightly in the three month period of 2009, primarily due to high-speed Internet customer growth, as discussed above. Future growth in average service revenue per customer per month will depend on the Company's success in sustaining sales of high-speed Internet and other enhanced services to new and existing customers.

Cost of Services

Cost of services primarily consist of network operations costs, including
salaries and wages, employee benefits, materials, contract services and
information technology costs to support the network. Cost of services also
include interconnection expense (costs incurred by the Company to access the
public switched network and to transport traffic to the Internet), bad debt
expense and business taxes. The following table reflects the primary drivers of
year-over-year changes in cost of services:

Cost of services

                                                          Three Months Ended
                                                            March 31, 2009
                                                          Increase
   (Millions)                                            (Decrease)          %
   Due to increases in pension expense (a)             $         18.6
   Due to increases in storm related expenses (b)                 6.0
   Due to decreases in interconnection expense (c)               (8.3 )
   Due to decreases in network operations (d)                    (8.0 )
   Due to decreases in federal USF contributions (e)             (4.7 )
   Due to decreases in business taxes (f)                        (4.4 )
   Due to decreases in other employee benefits (g)               (3.1 )
   Other                                                          1.6
   Total cost of services                              $         (2.3 )       (1 )%

(a) Increases in pension expense are primarily due to the amortization in 2009 of the 2008 actuarial loss on pension assets. The actuarial loss was primarily driven by declines in the market value of pension assets, which were incurred in 2008 (see Note 8).

(b) The increase in storm related expenses were associated with the Company's efforts to repair network facilities damaged by severe ice storms primarily in our Kentucky service areas.

(c) Decreases in interconnection costs were attributable to the favorable impacts of network efficiency projects as well as rate reductions. Partially offsetting these decreases were increases related to growth in high-speed Internet customers resulting in the purchase of higher capacity circuits.

(d) Decreases in network operations resulted from the restructuring and workforce . . .