The following discussion of our consolidated operating results and financial condition for the three month periods ended March 31, 2012 and 2011 should be read in conjunction with the unaudited condensed consolidated financial statements and related notes contained elsewhere in this report.

"Consolidated Communications" or the "Company" refers to Consolidated Communications Holdings, Inc. alone or with its wholly owned subsidiaries as the context requires. When this report uses the words "we," "our," or "us," they refer to the Company and its subsidiaries.

Forward-Looking Statements

Any statements contained in this Report that are not statements of historical fact, including statements about our beliefs and expectations, are forward-looking statements and should be evaluated as such. The words "anticipates", "believes", "expects", "intends", "plans", "estimates", "targets", "projects", "should", "may", "will" and similar words and expressions are intended to identify forward-looking statements. These forward-looking statements are contained throughout this Report, including, but not limited to, statements found in this Part I - Item 2 - "Management's Discussion and Analysis of Financial Condition and Results of Operations", Part I - Item 3 - "Quantitative and Qualitative Disclosures about Market Risk" and Part II - Item
1 - "Legal Proceedings". Such forward-looking statements reflect, among other things, our current expectations, plans, strategies, and anticipated financial results and involve a number of known and unknown risks, uncertainties, and factors that may cause our actual results to differ materially from those expressed or implied by these forward-looking statements, including but not limited to:

† our ability to complete the proposed merger with SureWest Communications ("SureWest");

† our ability to successfully integrate SureWest's operations and to realize the synergies from the acquisition;

† failure of SureWest's shareholders to approve the Agreement and Plan of Merger, dated as of February 5, 2012 (the "Merger Agreement"), by and among the Company, SureWest, WH Acquisition Corp, and WH Acquisition II Corp.;

† failure of our stockholders to approve the issuance of our common stock to SureWest shareholders contemplated by the Merger Agreement;

† failure to obtain, delays in obtaining or adverse conditions contained in any required regulatory approvals;

† final terms of the financing we use for the cash portion of the merger consideration contemplated by the Merger Agreement and to repay SureWest debt;

† risks to the mergers contemplated by the Merger Agreement and the surviving company related to litigation in which we and SureWest are or may become involved;

† various risks to stockholders of not receiving dividends and risks to our ability to pursue growth opportunities if we continue to pay dividends according to our current dividend policy;

†          the current volatility in economic conditions and the financial
markets;

†          adverse changes in the value of assets or obligations associated with

† various risks to the price and volatility of our common stock;

† our substantial amount of debt and our ability to refinance it or to incur additional debt in the future;

† our need for a significant amount of cash to service our debt and to pay dividends on our common stock;

† restrictions contained in our debt agreements that limit the discretion of our management in operating our business;

†          the ability to refinance our existing debt as necessary;

†          rapid development and introduction of new technologies and intense
competition in the telecommunications industry;

†          risks associated with our possible pursuit of future acquisitions;

†          the length and severity of weakened economic conditions in our
service areas in Illinois, Texas and Pennsylvania;

†          system failures;

†          loss of large customers or government contracts;

†          risks associated with the rights-of-way for our network;

†          disruptions in our relationship with third party vendors;

†          loss of key management personnel and the inability to attract and
retain highly qualified management and personnel in the future;

†          changes in the extensive governmental legislation and regulations

† telecommunications carriers disputing and/or avoiding their obligations to pay network access charges for use of our network;

†          high costs of regulatory compliance;

†          the competitive impact of legislation and regulatory changes in the
telecommunications industry;

†          liability and compliance costs regarding environmental regulations;
and

†          the additional risk factors outlined in Part I - Item 1A - "Risk

Many of these risks are beyond our ability to control or predict. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained throughout this Report. Because of these risks, uncertainties, and assumptions, you should not place undue reliance on these forward-looking statements. Furthermore, forward-looking statements speak only as of the date they are made. Except as required under the federal securities laws or the rules and regulations of the U.S. Securities and Exchange Commission, we do not undertake any obligation to update or review any forward-looking information, whether as a result of new information, future events or otherwise.

Overview

We are an established rural local exchange carrier that provides communications services to residential and business customers in Illinois, Texas and Pennsylvania. We offer a wide range of telecommunications services, including local and long-distance service, high-speed broadband Internet access ("DSL"), standard and high-definition digital television ("IPTV"), digital telephone service ("VOIP"), custom calling features, private line services, carrier access services, network capacity services over our regional fiber optic network, directory publishing and Competitive Local Exchange Carrier ("CLEC") services. We also operate two non-core complementary businesses: telephone services to correctional facilities and equipment sales.

Executive Summary

On February 5, 2012, we entered into a definitive agreement with SureWest Communications ("SureWest") to acquire all of its outstanding shares in a cash and stock transaction for a total consideration valued at approximately $340.9 million, exclusive of debt, based on our February 3, 2012 closing stock price. SureWest provides a wide range of telecommunications, digital video, Internet, data and other facilities-based communications services in Northern California, primarily in the greater Sacramento region, and in the greater Kansas City, Kansas and Missouri areas. In 2011, SureWest reported $248.1 million in total operating revenues. We anticipate closing on the SureWest transaction early in the third quarter of 2012.

We generated net income attributable to common stockholders of $1.8 million, or $0.06 per diluted share, in the first three months of 2012, as compared to net income attributable to common stockholders of $7.4 million, or $0.25 per diluted share, in the first three months of 2011. Net income for first three months of 2012 is lower than the first three months of 2011 primarily due to certain financing and transaction related costs incurred as a result of our acquisition of SureWest. During the first quarter of 2012 we incurred $4.6 million in fees related to an amendment of our existing credit facility that provided us with escrow consent, we incurred approximately $200 thousand in acquisition-related expenses and an additional $3.1 million in interest expense for the amortization of fees related to securing the $350.0 million bridge loan commitment to finance the SureWest acquisition.

Revenue in the first quarter of 2012 decreased $2.0 million to $93.4 million as compared to $95.4 million in the first quarter of 2011. The decrease in revenue in the first three months of 2012 is a result of declines, caused primarily by a loss of access lines (which includes local calling services, network access services, subsidies and long-distance services). These declines were partially offset by growth in DSL and IPTV subscriptions and increased revenue from our prison services business.

General

The following general factors should be considered in analyzing our results of operations:

Revenues

Telephone Operations and Other Operations. Our revenues are derived primarily from the sale of voice and data communication services to residential and business customers in our rural telephone companies' service areas. Because we operate primarily in rural service areas, we do not anticipate significant growth in revenues in either of our two operating segments except for through acquisitions. On February 5, 2012, we entered into an agreement to acquire SureWest. SureWest provides a wide range of telecommunications, digital video, Internet, data and other facilities-based communications services in Northern California, primarily in the greater Sacramento region, and in the greater Kansas City, Kansas and Missouri areas. In 2011, SureWest reported $248.1 million in total operating revenues. We anticipate closing on the SureWest transaction early in the third quarter of 2012.

Local access lines and bundled services. An "access line" is the telephone line connecting a home or business to the public switched telephone network. The number of local access lines in service directly affects the monthly recurring revenue we generate from end users, the amount of traffic on our network, the access charges we receive from other carriers, the federal and state subsidies we receive, and most other revenue streams. We had 226,167, 227,992 and 234,928 local access lines in service as of March 31, 2012, December 31, 2011 and March 31, 2011, respectively.

Most wireline telephone companies have experienced a loss of local access lines due to increased competition from wireless providers, competitive local exchange carriers and, in some cases, cable television operators, along with challenging economic conditions. While we have industry leading access line performance, we have not been immune to these conditions. Cable competitors in all of our markets offer a competing voice product. We estimate that cable companies offer voice service to all of their addressable customers, covering 85% of our entire service territory.

In addition, we expect to continue to experience modest erosion in access lines both due to market forces and through our own competing VOIP product.

We have been able in some instances to offset the decline in local access lines with increased average revenue per access line by:

† Aggressively promoting DSL service, including selling DSL as a stand-alone offering;

† Value bundling services, such as DSL or IPTV, with a combination of local service and custom calling features;

† Maintaining excellent customer service standards; and

† Keeping a strong local presence in the communities we serve.

We have implemented a number of initiatives to gain new local access lines and retain existing lines by making bundled service packages more attractive (for example, by adding unlimited long-distance) and by announcing special promotions, like discounted second lines. We also market a "triple play" bundle, which includes local telephone service, DSL, and IPTV. As of March 31, 2012, IPTV was available to approximately 212,000 homes in our markets. Our IPTV subscriber base continues to grow and totaled 35,337, 34,356 and 30,380 subscribers as of March 31, 2012, December 31, 2011 and March 31, 2011, respectively.

We also continue to experience growth in the number of DSL subscribers we serve. We had 112,368, 110,913 and 107,634 DSL lines in service as of March 31, 2012, December 31, 2011 and March 31, 2011, respectively. Currently, over 95% of our rural telephone companies' local access lines are DSL-capable.

In addition to our access line, DSL and video initiatives, we intend to continue to integrate best practices across our markets. We also continue to look for ways to enhance current products and introduce new services to ensure that we remain competitive and continue to meet our customers' needs. These initiatives have included:

† Hosted VOIP service in all of our markets to meet the needs of small- to medium-sized business customers that want robust functionality without having to purchase a traditional key or PBX phone system;

† VOIP service for residential customers, which is being offered to our customers as a growth opportunity and as an alternative to the traditional phone line for customers who are considering a switch to a cable competitor. Since we began to more aggressively promote our VOIP service in situations in which we are attempting to save or win back customers, we estimate that the product has allowed us to reduce our residential customer loss by 10%;

† DSL service-even to users who do not have our access line-which expands our customer base and creates additional revenue-generating opportunities;

† Metro-Ethernet services delivered over our copper infrastructure with speeds of 25 mega-bits per second ("mbps") to 40 mbps;

† DSL product with speeds up to 20 mbps for those customers desiring greater Internet speed; and

† High definition video service and digital video recorders in all of our IPTV markets.

These efforts may mitigate the financial impact of any access line loss we experience.

Expenses

Our primary operating expenses consist of the cost of services; selling, general and administrative expenses; and depreciation and amortization expenses.

Cost of services and products. Our cost of services includes the following:

† Operating expenses relating to plant costs, including those related to the network and general support costs, central office switching and transmission costs, and cable and wire facilities;

† General plant costs, such as testing, provisioning, network, administration, power, and engineering;

† The cost of transport and termination of long-distance and private lines outside our rural telephone companies' service area; and

† Costs associated with our standard and high definition video products.

We have agreements with various carriers to provide long-distance transport and termination services. We believe we will meet all of our commitments in these agreements and will be able to procure services for periods after our current agreements expire. We do not expect any material adverse effects from any changes in any new service contract.

Selling, general and administrative expenses. Selling, general and administrative expenses include expenses associated with customer care; billing and other operating support systems; and corporate expenses, such as professional service fees and non-cash, stock-based compensation.

Our operating support and back-office systems enter, schedule, provision, and track customer orders; test services and interface with trouble management; and operate inventory, billing, collections, and customer care service systems for the local access lines in our operations. We have migrated most key business processes onto a single Company-wide system and platform. We hope to improve profitability by reducing individual company costs through centralizing, standardizing, and sharing best practices.

Depreciation and amortization expenses. The provision for depreciation on property and equipment is recorded using the straight-line method based upon the following useful lives:

Years
Buildings                              18 - 40
Network and outside plant facilities    3 - 50
Furniture, fixtures and equipment       3 - 15
Capital leases                              11

Amortization expenses are recognized primarily for our intangible assets considered to have finite useful lives on a straight-line basis. In accordance with the applicable authoritative guidance, goodwill and intangible assets that have indefinite useful lives are not amortized but rather are tested at least annually for impairment. Because tradenames have been determined to have indefinite lives, they

are not amortized. Customer relationships are amortized over their useful life. The net carrying value of customer lists at March 31, 2012 is being amortized at a weighted-average life of approximately 2.5 years.

Results of Operations

Segments

We have two reportable business segments, Telephone Operations and Other Operations. The discussion below covers our consolidated results and results by segment.

Certain prior year amounts have been reclassified to conform to the current year's presentation. These reclassifications had no effect on total stockholders equity, total revenue, income from operations or net income.

For the Three Months Ended March 31, 2012 Compared to March 31, 2011



The following summarizes our revenues and operating expenses on a consolidated
basis for the three months ended March 31, 2012 and 2011:



                                                          2012             2011
(In millions, except for percentages)                  $        %       $        %
Revenue
Telephone operations
Local calling services                               $ 19.9    21.3   $ 21.7    23.2
Network access services                                19.8    21.2     21.4    22.4
Subsidies                                              11.5    12.3     11.5    12.1
Long-distance services                                  3.5     3.7      4.3     4.5
Data and Internet services                             22.0    23.6     20.0    20.5
Other services                                          8.4     9.0      8.5     8.9
Total telephone operations                             85.1    91.1     87.4    91.6
Other operations                                        8.3     8.9      8.0     8.4

Total operating revenue                                93.4   100.0     95.4   100.0

Expenses
Telephone operations                                   53.0    56.7     48.9    51.3
Other operations                                        7.3     7.8      7.4     7.7
Depreciation and amortization                          22.1    23.7     22.2    23.3
Total operating expense                                82.4    88.2     78.5    82.3

Income from operations                                 11.0    11.8     16.9    17.7

Interest expense, net                                  14.6    15.6     11.9    12.5
Other income                                            6.5     6.9      7.1     7.4
Income tax expense                                      1.0     1.1      4.6     4.8

Net income                                              1.9     2.0      7.5     7.8
Net income attributable to noncontrolling interest      0.1     0.1      0.1     0.1

Net income attributable to common stockholders       $  1.8     1.9   $  7.4     7.7

Revenue

Revenue in the first three months of 2012 declined by $2.0 million, or 2.1%, to $93.4 million from $95.4 million in the first three months of 2011. Overall, the decline in revenue was principally the result of decreases in the number of access lines, which reduced revenues for local calling services and long-distance services. These declines were partially offset by a 10.0% growth in data, Internet and video revenues. DSL connections increased 4% while IPTV increased over 16% at March 31, 2012 compared to March 31, 2011. Revenues from our Prison Services business also increased by $0.3 million in 2012 compared to the first three months of 2011.

Access line loss continues to moderate and is being offset by growth in our number of broadband connections. VOIP, DSL and IPTV connections all increased during the first three months of 2012 as compared to 2011. Connections by type are as follows:

                                          March 31,
                                       2012      2011

Residential access lines in service   136,607   139,707
Business access lines in service       89,560    95,221
Total local access lines in service   226,167   234,928
IPTV subscribers                       35,337    30,380
ILEC DSL subscribers                  112,368   107,634
Total broadband connections           147,705   138,014

VOIP subscribers                        9,569     8,665
CLEC access line equivalents (1)       89,672    81,631

Total connections                     473,113   463,238

Long-distance lines (2)               181,029   173,944

(2) Reflects the inclusion of long-distance service provided as part of our VOIP offering while excluding CLEC long-distance subscribers.

Telephone Operations Revenue

Local calling services revenue decreased by $1.8 million, or 8.3%, to $19.9 million in the first three months of 2012 compared to $21.7 million in the first three months of 2011. The decrease is primarily due to the decline in local access lines.

Network access services revenue decreased by $1.6 million, or 7.5%, to $19.8 million in the first three months of 2012 compared to $21.4 million in the first three months of 2011. Due to reduced minutes of use, our switched access revenues decreased by $2.2 million. The decreases were off-set by our special access revenues which increased by $0.3 million and our end user universal service fees which increased by $0.3 million.

Subsidy revenues were $11.5 million for the first three months of 2012 and for the first three months of 2011.

Long-distance services revenue decreased by $0.8 million, or 18.6%, to $3.5 million for the first three months of 2012 compared to $4.3 million for the first three months of 2011. The decrease is primarily a result of a decline in billable minutes, as customers increasingly shift to our unlimited long distance calling plan.

Data and Internet revenue increased by $2.0 million, or 10.0%, to $22.0 million for the first three months of 2012 compared to $20.0 million for the first three months of 2011. The increase is primarily due to an increase in DSL, IPTV and digital telephone subscribers. These increases were partially offset by erosion of our dial-up Internet base.

Other services revenue decreased by $0.1 million, or 1.2%, to $8.4 million for the first three months of 2012 compared to $8.5 million for the first three months of 2011. Declines primarily in directory revenues and leases were partially offset by an increase in transport revenues.

Other Operations Revenue

Other Operations revenue increased by $0.3 million, or 3.8%, to $8.3 million for the first three months of 2012 compared to $8.0 million for the first three months of 2011. The increase is primarily due to an increase in our prison services business.

Operating Expenses

Operating expenses increased in the first three months of 2012 by $4.0 million, or 7.1%, to $60.3 million as compared to $56.3 million in the first three months of 2011. Increases in operating expenses by segment are discussed below.

Telephone Operations Operating Expenses

Operating expenses for Telephone Operations increased by $4.1 million, or 8.4%, to $53.0 million in the first three months of 2012 as compared to $48.9 million in the first three months of 2011. The increase in operating expenses is related to $4.8 million of costs incurred for the acquisition of SureWest. This increase was partially offset by the Company's ongoing cost reduction efforts, including: reductions in salaries, occupancy costs, supplies, and professional fees.

Other Operations Operating Expenses

Operating expenses for Other Operations decreased by $0.1 million, or 1.4%, to $7.3 million in the first three months of 2012 as compared to $7.4 million in the first three months of 2011.

Depreciation and Amortization

Depreciation and amortization expense remained relatively flat at $22.1 million in the first three months of 2012 and $22.2 million for the first three months of 2011.

Interest Expense, Net

Interest expense, net of interest income, increased by $2.7 million, or 22.7%, to $14.6 million for the first three months of 2012 as compared to $11.9 million for the first three months of 2011. Interest expense in the first quarter of 2012 included $3.1 million of amortization related to the financing costs for the bridge loan commitment obtained for the SureWest acquisition.

Other Income (Expense)

Other income (expense) decreased $0.6 million to $6.5 million in the first three months of 2012 compared to $7.1 million in the first three months of 2011. The decrease was principally due to reduced earnings from our wireless partnership interests.

Income Taxes

. . .