The following discussion of our consolidated operating results and financial condition for the three and six month periods ended June 30, 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 successfully integrate the operations of SureWest Communications following the acquisition and to realize the synergies from the acquisition;

† 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
our employee benefit plans;

†          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;

†          transport and content costs are substantial and continue to increase;

†          risks associated with our possible pursuit of future acquisitions;

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

†          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. As of July 2, 2012 we extended our communication services to Northern California, primarily in the Sacramento region, and the greater Kansas City, Kansas and Missouri areas with the acquisition of SureWest Communications ("SureWest"). 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: prison services facilities and equipment sales.

Executive Summary

On February 5, 2012, we entered into a definitive agreement with SureWest to acquire all of its outstanding shares in a cash and stock transaction. 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. For the year ended December 31, 2011, SureWest reported $248.1 million in total operating revenues. For the six months ended June 30, 2012, SureWest generated $127.9 million in operating revenues. We closed on the SureWest transaction on July 2, 2012. The purchase price of the acquisition, excluding debt assumed, consisted of cash of $176.7 million and 9,965,983 shares of the

Company's common stock (based on average trading prices for the Company's common stock over the 20-day period ending two days before the closing date of the merger), totaled $320.7 million. The cash portion of the merger consideration and the funds required to repay SureWest outstanding debt was financed with the sale of $300.0 million in aggregate principal amount of 10.875% Senior Notes due 2020 ("Senior Notes"). The Company also used cash on hand and approximately $35.0 million in borrowings from its revolving credit facility. Because the acquisition closed on July 2, 2012, the Company's financial information for and as of the quarter and six months ended June 30, 2012 does not include any of the results of operations from SureWest.

We generated net income attributable to common stockholders of $2.8 million, or $0.09 per diluted share, in the second quarter of 2012, as compared to net income attributable to common stockholders of $5.4 million, or $0.18 per diluted share, in the second quarter of 2011. The decrease in net income in the second quarter of 2012 resulted from costs incurred associated with the acquisition of SureWest. During the second quarter of 2012, we incurred $0.6 million in expense related to the acquisition and an additional $5.4 million in interest costs of which includes $2.8 million of interest incurred on the Senior Notes obtained for the SureWest acquisition, $1.1 million amortization of fees related to securing the bridge loan commitment to finance the SureWest acquisition, and $1.5 million of interest related to ticking fees associated with the bridge loan financing. This decrease in net income from the second quarter of 2012 compared to the second quarter 2011 was reduced by the $2.5 million incurred in 2011 for professional fees related to our credit agreement amendment.

Revenue in the second quarter of 2012 increased to $93.0 million as compared to $92.6 million in the second quarter of 2011. Revenue growth in the second quarter 2012 was due to an increase of $2.1 million in revenue from our data and internet sales due to increased DSL and IPTV subscribers. This increase was partially offset by a loss of access lines (which includes local calling services, network access services, subsidies and long-distance services).

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, such as that of SureWest.

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 225,025, 227,992 and 232,360 local access lines in service as of June 30, 2012, December 31, 2011 and June 30, 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. 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 June 30, 2012, IPTV was available to almost 212,000 homes in our Illinois, Texas and Pennsylvania markets. Our IPTV subscriber base continues to grow and totaled 35,834, 34,356 and 31,218 subscribers as of June 30, 2012, December 31, 2011 and June 30, 2011, respectively.

We also continue to experience growth in the number of DSL subscribers we serve. We had 113,856, 110,913 and 108,581 DSL lines in service as of June 30, 2012, December 31, 2011 and June 30, 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;

† 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 June 30, 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 June 30, 2012 Compared to June 30, 2011



The following summarizes our revenues and operating expenses on a consolidated
basis for the three months ended June 30, 2012 and 2011:



                                                          2012             2011
(In millions, except for percentages)                  $        %       $        %
Revenue
Telephone operations
Local calling services                               $ 19.7    21.2 % $ 21.4    23.1 %
Network access services                                19.6    21.1     19.3    20.8
Subsidies                                              11.2    12.0     11.1    12.0
Long-distance services                                  3.5     3.8      4.1     4.4
Data and Internet services                             22.7    24.4     20.6    22.3
Other services                                          8.3     8.9      8.3     9.0
Total telephone operations                             85.0    91.4     84.8    91.6
Other operations                                        8.0     8.6      7.8     8.4

Total operating revenue                                93.0   100.0     92.6   100.0

Expenses
Telephone operations                                   49.3    53.0     46.3    50.0
Other operations                                        7.1     7.6      7.1     7.7
Transaction/Debt refinancing costs                      0.6     0.6      2.5     2.7
Depreciation and amortization                          21.9    23.5     22.0    23.8
Total operating expense                                78.9    84.8     77.9    84.2

Income from operations                                 14.1    15.2     14.7    15.8

Interest expense, net                                  16.9    18.2     12.4    13.4
Other income                                            6.9     7.4      6.3     6.8
Income tax expense                                      1.2     1.3      3.1     3.3

Net income                                              2.9     3.1      5.5     5.9
Net income attributable to noncontrolling interest      0.1     0.1      0.2     0.2

Net income attributable to common stockholders       $  2.8     3.0 % $  5.3     5.7 %

Revenue

Revenue in the second quarter of 2012 increased by $0.4 million, or 0.4%, to $93.0 million from $92.6 million in the second quarter 2011. Revenue growth in the second quarter 2012 was due to an increase of $2.1 million of revenue from our data and internet sales due to increased DSL and IPTV subscribers. This increase was partially offset by decreases in the number of access lines, which reduced revenues for local calling services and long-distance services.

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 second quarter of 2012 as compared to the second quarter of 2011. Connections by type are as follows:

                                          June 30,
                                       2012      2011

Residential access lines in service   136,047   138,538
Business access lines in service       88,978    93,822
Total local access lines in service   225,025   232,360

IPTV subscribers                       35,834    31,218
ILEC DSL subscribers                  113,856   108,581
Total broadband connections           149,690   139,799

VOIP subscribers                        9,891     8,799
CLEC access line equivalents (1)       94,715    81,746

Total connections                     479,321   462,704

Long-distance lines (2)               182,311   175,439

(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 $1.7 million, or 7.9%, to $19.7 million in the second quarter of 2012 compared to $21.4 million in the second quarter of 2011. The decrease is primarily due to the decline in local access lines.

Network access services revenue increased by $0.3 million, or 1.6%, to $19.6 million for the second quarter of 2012 compared to $19.3 million in the second quarter of 2011. The increase is primarily due to an increase in federal universal service fees.

Subsidy revenues increased by $0.1 million, or 0.9%, to $11.2 million in the second quarter of 2012 compared to $11.1 million in the second quarter of 2011. The increase is principally due to an increase in interstate common line revenue.

Long-distance services revenue decreased by $0.6 million, or 14.6%, to $3.5 million in the second quarter of 2012 compared to $4.1 million in the second quarter of 2011. The decrease is

primarily due to a decline in billable minutes as a result of customers moving to unlimited long-distance plans.

Data and Internet revenue increased by $2.1 million, or 10.2%, to $22.7 million in the second quarter of 2012 compared to $20.6 million in the second quarter of 2011. The increase is primarily due to an increase in the number of DSL and IPTV subscribers.

Other services revenue was $8.3 million for both the second quarter of 2012 and the second quarter of 2011. Increases in transport revenues were offset by declines in directory revenue.

Other Operations Revenue

Other Operations revenue increased by $0.2 million, or 2.6%, to $8.0 million in the second quarter of 2012 compared to $7.8 million in the second quarter of 2011. The increases were from our prison systems business and our equipment sales and installation business.

Operating Expenses

Operating expenses increased in the second quarter of 2012 by $3.0 million, or 5.6%, to $56.4 million as compared to $53.4 million in the second quarter of 2011. Operating expenses by segment are discussed below.

Telephone Operations Operating Expenses

Operating expenses for Telephone Operations increased by $3.0 million, or 6.5%, to $49.3 million in the second quarter of 2012 as compared to $46.3 million in the second quarter of 2011. The increase in operating expense was principally related to higher costs associated with video programming for both increased subscribers and higher programming costs. Telephone operating expenses also increased due to higher pension costs in 2012.

Other Operations Operating Expenses

Operating expenses for Other Operations were $7.1 million for both the second quarter of 2012 and the second quarter of 2011. Increases in professional fees were offset by decreases in bad debt for Other Operations.

Transaction/Debt refinancing costs

In connection with the acquisition of SureWest, we incurred $0.6 million of transaction related fees which were recognized as a non-recurring expense in the second quarter of 2012. In the second quarter of 2011, we amended our credit agreement and incurred fees totaling to $2.5 million which were also recognized as a non-recurring expense.

Depreciation and Amortization

Depreciation and amortization expense remained relatively flat with a slight decrease of $0.1 million, or 0.5%, to $21.9 million in the second quarter of 2012 as compared to $22.0 million in the second quarter of 2011.

Interest Expense, Net

Interest expense, net of interest income, increased by $4.5 million, or 36.3%, to $16.9 million for the second quarter of 2012 as compared to $12.4 million for the second quarter of 2011. Interest expense in the second quarter of 2012 included $2.8 million of interest expense related to the Senior Notes associated with the SureWest acquisition as well as $1.1 million of amortization related to the financing costs for the bridge loan commitment and $1.5 million of interest related to ticking fees associated with the bridge loan commitment obtained for the SureWest acquisition. This increase was partially offset by decreased interest payments related to our interest rate swaps.

Other Income (Expense)

Other income (expense) increased by $0.6 million to $6.9 million in the second quarter of 2012 compared to $6.3 million in the second quarter of 2011. The increase was principally due to higher earnings from our wireless partnership interests.

Income Taxes

Our provision for income taxes was $1.2 million in the second quarter of 2012 . . .