• our ability to manage, integrate, market, maintain and attract sufficient customers to our Northstar and AKORN® long-haul fiber facilities and our ability to develop attractive integrated products and services making use of the facility;

• the continued availability of financing in the amounts, at the terms, and subject to the conditions necessary, to support our future business;

• our ability to generate sufficient earnings and cash flows to continue to make dividend payments to our stockholders;

• ongoing negotiations with our labor union, the International Brotherhood of Electrical Workers Local 1547 ("IBEW") and the potential outcome of such negotiations;

• rapid technological developments and changes in the telecommunications industries, including evolving standards that may not be compatible with our existing telecommunications systems;

• changes in revenue resulting from regulatory actions affecting inter-carrier compensation;

• regulatory limitations on our services, including our ability to set prices for our services;

• other unanticipated damage to one or more of our high capacity cables resulting from construction or digging mishaps, fishing boats or natural disasters;

• changes in revenue from Universal Service Funds ("USFs");

• changes in the demand for our products and services market growth rates;

• changes in interest rates or other general national, regional or local economic conditions;

• governmental and public policy changes;

• unanticipated costs required to fund our postretirement benefit plans;

• the success of any future acquisitions; and

• the matters described under "Item 1A - Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008 and this Quarterly Report on Form 10-Q.

In light of these risks, uncertainties and assumptions, you should not place undue reliance on any forward-looking statements. Additional risks that we have not identified or that we currently deem immaterial or that are not currently known to us could also cause the forward-looking events discussed in this Form 10-Q or our other reports not to occur as described. Except as otherwise required by applicable securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason after the date of this Form 10-Q.
Investors should also be aware that while we do, at various times, communicate with securities analysts, it is against our policy to disclose to them any material non-public information or other confidential information. Accordingly,

investors should not assume that we agree with any statement or report issued by an analyst irrespective of the content of the statement or report. To the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not our responsibility. Important Changes to Presentation
On July 1, 2009, our incumbent local exchange carrier operations discontinued accounting for regulated enterprises as prescribed by ASC 980-20, and reassessed certain other related practices. As a result, we were required to:
• recognize an "extraordinary item" as a result of the extinguishment of all our jurisdictional assets and liabilities net of the liability representing the Company's asset retirement obligation in accordance with ASC 410;

• eliminate all intercompany transactions;

• reclassify bad debt expense, as a component of SG&A; and

• make certain other reclassifications in the Consolidated Statement of Operations to separate operating expenses into cost of services and sales and SG&A.

The discussion that follows in this "Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations", unless otherwise specifically indicated takes these foregoing changes into account. For more information regarding these matters, please see Notes to Consolidated Financial Statements - Note 3 - Discontinuance of Regulatory Accounting. Overview
We provide leading integrated communications services in Alaska. Our wireline business comprises one of the most expansive end-to-end IP networks in Alaska, and we operate the largest local exchange carrier network in the state. We believe our wireless business comprises the most extensive, reliable wireless network in Alaska with third generation ("3G") data transmission capabilities.
The sections that follow provide information about important aspects of our operations and investments and include discussions of our results of operations, financial condition and sources and uses of cash. In addition, we have highlighted key trends and uncertainties to the extent practicable. The content and organization of the financial and non-financial data presented in these sections are consistent with information we use in evaluating our own performance and allocating our resources. We also monitor the state of the economy in general. In doing so, we compare Alaskan economic activity with broader economic conditions. In general, we believe that the Alaskan telecommunications market, as well as general economic activity in Alaska, is affected by certain economic factors, which include:
• activity in the oil and gas markets;

• tourism levels;

• military activity;

• the cost of long-haul telecommunications bandwidth;

• local customer preferences;

• average usage of Internet technology;

• unemployment levels; and

• housing activity.

We have observed variances in the factors affecting the Alaskan economy as compared to the U.S. as a whole. Some factors, particularly the price of oil and gas, may have the opposite effect on the Alaskan economy than the U.S. economy as a whole. In forecasting the local economic conditions that affect us, we take particular note of these factors.

Strategy
Our results of operations, financial position and sources and uses of cash in the current and future periods continue to reflect our focus on the following strategic imperatives:
• Emphasis on Top-Line Growth: We emphasize revenue growth as well as growth in net cash provided by operating activities. We devote more resources to higher growth markets such as wireless, including wireless data, wireline broadband connections, including our long-haul fiber investment connecting our network to the lower 48, as well as expanded strategic services to business markets rather than to the traditional wireline voice market.

• Investment with Discipline: We focus on gaining market share in those markets that contain high revenue producing customers. In our wireline business, we focus on deploying and selling broadband connections in each market covered by our network. We have targeted investment in deploying high speed fiber conductivity in and between Alaska's urban centers. During 2008, we invested heavily in interstate capacity through our purchase of Crest and construction of AKORN®. We have increasingly targeted enterprise customers. Revenues from these customers grew 31.5% and 45.5% in 2009 compared with the same three and nine months ended September 30, 2008, respectively. Sales of advanced IP services and increases in revenues from agreements with carriers to terminate their Alaskan long distance traffic, we believe, drove this increase.

• Profitability Improvement: We seek to increase operating income and margins. In support of this goal, our capital spending continues to be directed toward growth markets. High speed evolution data optimized ("EVDO") and cutting-edge 3G data services, deployment of our AKORN® fiber facility coupled with the complementary purchase of Crest, as well as expanded services to enterprise customers, including Metro Ethernet, are examples of initiatives designed to tap high growth markets.

• Process Improvement: While focusing resources on revenue growth and market share gains, we continually challenge our management team and employees at all levels to lower expenses and improve the customer experience through process improvements. We expect to invest in technology-assisted process improvement, including self-service initiatives. We expect efforts such as call center routing improvements, self-pay kiosk deployment and customer service tools, to improve our cost structure and maintain or improve operating income margins. As a result of past successes, we have been able to serve more customers while maintaining our workforce at or below prior levels.

• Pay for Performance: We embrace a culture of urgency and accountability. We establish goals for all of our employees that are tied to the imperatives described above. We seek to provide our non-represented employees cash incentives and equity compensation that are tied to these goals. We carefully design executive compensation programs to align executives' and shareholders' long-term interests.

RESULTS OF OPERATIONS
     All amounts are discussed at the consolidated level after the elimination
of affiliate revenue and expense.
Three Months Ended September 30, 2009 Compared to Three Months Ended
September 30, 2008
     The following table summarizes results of operations for the three months
ended September 30, 2009 and 2008:

                                                  Three Months ended September 30,
                                             2009         2008        Change      % Change
    Operating revenues:
    Wireline
    Retail                                $ 21,890     $ 22,197     $   (307 )       -1.4 %
    Wholesale                                2,836        3,452         (616 )      -17.8 %
    Access                                  18,426       18,251          175          1.0 %
    Enterprise                              11,218        8,531        2,687         31.5 %

    Wireline                                54,370       52,431        1,939          3.7 %
    Wireless                                36,892       38,854       (1,962 )       -5.0 %

    Total operating revenues                91,262       91,285          (23 )        0.0 %


    Operating expenses:
    Wireline
    Cost of services and sales              21,031       18,550        2,481         13.4 %
    Selling, general and administrative     15,890       19,485       (3,595 )      -18.5 %
    Wireless
    Cost of services and sales              14,287       16,498       (2,211 )      -13.4 %
    Selling, general and administrative      6,005        5,917           88          1.5 %
    Depreciation and amortization           23,724       18,790        4,934         26.3 %

    Total operating expenses                80,937       79,240        1,697          2.1 %


    Operating income                        10,325       12,045       (1,720 )      -14.3 %
    Operating margin                          11.3 %       13.2 %

    Other income and expense:
    Interest expense                        (9,642 )     (8,886 )       (756 )        8.5 %
    Interest income                             30          532         (502 )      -94.4 %
    Other                                        -         (255 )        255       -100.0 %

    Total other income and expense          (9,612 )     (8,609 )     (1,003 )       11.7 %


    Income before income tax expense           713        3,436       (2,723 )      -79.2 %

    Income tax expense                        (388 )     (1,591 )      1,203        -75.6 %


    Income before extraordinary item           325        1,845       (1,520 )      -82.4 %

    Extraordinary item, net of taxes        37,346            -       37,346          N/A


    Net income                            $ 37,671     $  1,845     $ 35,826       1941.8 %

Revenue Sources by Segment
We have two reportable business segments, wireline and wireless, which conduct the following principal activities:
• Wireline: We provide communications services including voice, data, broadband, multi-protocol label switching services, network access, long distance and other services to consumers, carriers, businesses and government customers throughout Alaska and to and from Alaska.

• Wireless: We provide wireless voice and data services, products, other value-added services and equipment sales across Alaska.

Operating Revenue
Wireline
Retail: Declines in retail switched access lines in service in 2009 were concentrated in the residential market, which we believe was impacted by wireless substitution. Retail revenue decreased in the three months ended September 30, 2009 over September 30, 2008 primarily due to a $0.4 million decline in local exchange revenue associated with residential line losses, a $0.4 million decline in long distance sales and a $0.2 million decline in customer premise equipment ("CPE") sales to businesses. These losses were offset, in part, by a $0.7 million release of company liabilities for deposits made by commercial developers and a $0.2 million increase in revenue from our existing Internet Service Provider ("ISP") subscriber base.
Wholesale: Wholesale revenues decreased due to continued decline in leases of our unbundled network elements ("UNEs"). We believe this decline is primarily attributable to the ongoing migration of lines by our key competitor to its propriety cable telephony plant. We expect that wholesale revenue will continue to decline.
Access: Access revenue declines from lower lines in service and traffic sensitive activity levels were offset by $2.5 million of out-of-period settlements in the current period compared to $1.4 million in the prior year quarter . We expect that access revenues will continue to decline over time.
Enterprise: Enterprise revenue increased in the third quarter of 2009 primarily due to an increase in carrier customer data volume. We experienced an increase of $2.5 million in data sales to other carriers, inclusive of a decline in revenue of $0.4 million resulting from the expiration of a non-cash capacity exchange agreement with another carrier midway through the quarter.
Additionally, we experienced a $0.6 million increase in data sales to government and commercial customers. These increases were offset, in part, by a $0.6 million decline in wholesale carrier voice revenue.
Wireless
Wireless revenue declined in the quarter ended September 30, 2009 as compared to the quarter ended September 30, 2008. Although we saw increases of $1.9 million in Competitive Eligible Telecommunications Carrier ("CETC") revenue, these increases were offset by a $1.5 million decline in handset and accessory sales; a $0.7 million decrease in roaming revenue; and a $0.7 million decrease in recurring service plan revenue. Operating Expense
Wireline: Wireline operating expenses, which include local telephone, Internet, interexchange and cable systems operating costs, decreased $1.1 million for the quarter ended September 30, 2009 over September 30, 2008.
Cost of Services and Sales - Wireline cost of services and sales increased $2.5 million this quarter over the prior year quarter ended September 30, due to a $0.7 million increase in service contracts, $0.5 million increase in labor and $0.4 million increase in land and building charges which were all primarily related to our new cable operations. We also experienced an increase of $0.3 million in CPE sales expense, $0.3 million increase in ISP access and leased circuit expenses and a $0.2 million increase in LD interstate COGS.
Selling, General and Administrative - Wireline SG&A expenses decreased $3.6 million, this quarter over the prior year quarter ended September 30, due to $2.9 million in labor expenses and a $0.8 million shift in advertising expenses from our wireline to wireless business segment.

Wireless:
Cost of Services and Sales - Wireless cost of services and sales decreased this quarter over the prior year quarter ended September 30, due to a $1.3 million reduction in handset, accessory and data content expenses and a $0.8 million decrease in network costs.
Selling, General and Administrative - SG&A expenses remained flat this quarter over the prior year quarter ended September 30, with an increase of $0.7 million in advertising expense offset by lower labor expense.
Depreciation and Amortization: Depreciation and amortization expense increased $4.9 million in the three months ended September 30, 2009 from the same period in the prior year primarily due to the change in maximum reserve levels on our regulated subsidiary assets. Under regulatory accounting, a salvage percentage was ascribed to certain asset classes. For example, only 95% of the original cost of digital switches could be depreciated under regulatory accounting as it was presumed that 5% of the original cost of the asset could be recovered upon eventual sale. In connection with our discontinuance of regulatory accounting in accordance with ASC 980-20, we reassessed these values and determined that with recent technology changes the residual values previously set by the regulators were no longer appropriate and that the original cost of many asset pools should be fully depreciated. This change in estimate has resulted in an increase in expense as depreciation recommences for residual values in asset classes that had previously been fully depreciated under regulatory rules. We expect the majority of these assets to be fully depreciated by December 31, 2010.
Other Income and Expense: Other income and expense for the three month ended September 30, 2009 is a net expense of $9.6 million. The net increase of $1.0 million in expense over the same period in the prior year is due to reductions of capitalized interest on fixed assets in the course of construction following the commercial launch of AKORN® in April 2009 and reduced interest income due to a reduced amount of excess investible cash.
Income Taxes: Income taxes are currently being calculated using our estimated effective tax rate for the third quarter of 2009 of 54.5%. At September 30, 2009 we had tax net operating loss ("NOL") carry forwards of approximately $158.6 million. Income tax expense will not involve a significant cash outflow until these NOLs are exhausted.
Extraordinary Item: Discontinuance of regulatory accounting required us to extinguish all of our previously established jurisdictional assets and liabilities. As the Company's jurisdictional liability represented the regulatory equivalent of an asset retirement obligation, we also assessed our regulatory assets to determine the ARO required under ASC.410. The impact of extinguishing the Company's jurisdictional liability, net of the portion of the liability representing the Company's ARO for regulated assets required by ASC 410, was recorded as an extraordinary item, net of taxes.

Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008
The following table summarizes results of operations for the nine months ended September 30, 2009 and 2008:

                                                   Nine Months ended September 30,
                                            2009          2008         Change      % Change
   Operating revenues:
   Wireline
   Retail                                $  64,401     $  67,138     $ (2,737 )       -4.1 %
   Wholesale                                 8,795        11,160       (2,365 )      -21.2 %
   Access                                   49,396        55,701       (6,305 )      -11.3 %
   Enterprise                               33,518        23,029       10,489         45.5 %

   Wireline                                156,110       157,028         (918 )       -0.6 %
   Wireless                                107,329       107,239           90          0.1 %

   Total operating revenues                263,439       264,267         (828 )       -0.3 %


   Operating expenses:
   Wireline:
   Cost of services and sales               61,913        53,834        8,079         15.0 %
   Selling, general and administrative      48,797        54,793       (5,996 )      -10.9 %
   Wireless:
   Cost of services and sales               39,973        44,911       (4,938 )      -11.0 %
   Selling, general and administrative      18,049        17,837          212          1.2 %
   Depreciation and amortization            59,784        54,391        5,393          9.9 %

   Total operating expenses                228,516       225,766        2,750          1.2 %


   Operating income                         34,923        38,501       (3,578 )       -9.3 %
   Operating margin                           13.3 %        14.6 %

   Other income and expense:
   Interest expense                        (28,284 )     (25,258 )     (3,026 )       12.0 %
   Interest income                              81         1,541       (1,460 )      -94.7 %
   Other                                         -          (255 )        255       -100.0 %

   Total other income and expense          (28,203 )     (23,972 )     (4,231 )       17.6 %


   Income before income tax expense          6,720        14,529       (7,809 )      -53.7 %

   Income tax expense                       (3,018 )      (6,275 )      3,257        -51.9 %


   Income before extraordinary item          3,702         8,254       (4,552 )      -55.1 %

   Extraordinary item, net of taxes         37,346             -       37,346          N/A


   Net income                            $  41,048     $   8,254     $ 32,794        397.3 %

Operating Revenues
Wireline
Retail: Declines in retail switched access lines in service in 2009 were concentrated in the residential market which we believe is impacted by wireless substitution. Retail revenue decreased in the nine months ended September 30, 2009 over September 30, 2008 primarily due to $1.8 million declines in local exchange revenue associated with residential line losses, a $1.0 million decline in long distance sales and $0.8 million lower CPE sales to businesses. These losses were offset, in part, by a $0.9 million increase in revenue from our existing ISP subscriber base and a $0.7 million release of company liabilities for deposits made by commercial developers.
Wholesale: Wholesale revenues decreased due to declines in unbundled network leases and wholesale local revenue for the reasons described in the quarterly period comparison. We believe this decrease is primarily attributable to the ongoing migration of lines by our key competitor to its proprietary cable telephony plant. We expect that wholesale revenue will continue to decline.
Access: Access revenue declines of $6.3 million are inclusive of lower out-of-period settlements of with $4.9 million in the current period versus $5.6 million in the prior year. Declines were also driven by lower levels of eligible cost recovery; lines in service; and traffic sensitive activity levels. We expect that access revenues will continue to decline over time.
Enterprise: Enterprise revenue increased in the first nine months of 2009 primarily due to an $8.3 million increase in data sales to other carriers and a $2.2 million increase in data sales to government and commercial customers.
Wireless
In the nine months ended September 30, 2009, wireless revenue remained in line with the period ended September 30, 2008. We experienced an increase of $4.8 million in CETC revenue offset by a $1.9 million decline in handset and accessory sales, a $1.3 million decrease in roaming revenue; and a $0.7 million decrease in recurring service plan revenue. Operating Expense
Wireline: Wireline operating expenses, which include local telephone, Internet, interexchange and cable systems operating costs increased by $2.1 million for the nine months ended September 30, 2009 over September 30, 2008.
Cost of Services and Sales - Wireline cost of services and sales increased $8.1 million year over year due to a $3.8 million increase in labor, $1.8 million increase in service contracts and $1.5 million increase in land and building charges which were all primarily related to our new cable operations. We also experienced an increase of $1.1 million in ISP access and leased circuit expenses.
Selling, General and Administrative Costs - Wireline SG&A expenses decreased $6.0 million, year over year, due to $3.3 million in labor expenses and a $1.1 million shift in advertising expenses from our wireline to wireless business segment. Additionally, the loss on the disposal of certain property was $0.8 million higher in the prior year.
Wireless:
Cost of Services and Sales - Wireless costs of services and sales decreased . . .