This management's discussion and analysis includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. When used in this report, the words "anticipate," "believe," "estimate," "expect," "intend," "plan" and similar expressions as they relate to Shenandoah Telecommunications Company or its management are intended to identify these forward-looking statements. All statements regarding Shenandoah Telecommunications Company's expected future financial position and operating results, business strategy, financing plans, forecasted trends relating to the markets in which Shenandoah Telecommunications Company operates and similar matters are forward-looking statements. We cannot assure you that the Company's expectations expressed or implied in these forward-looking statements will turn out to be correct. The Company's actual results could be materially different from its expectations because of various factors, including those discussed below and under the caption "Risk Factors" in the Company's Annual Report on Form 10-K for its fiscal year ended December 31, 2011. The following management's discussion and analysis should be read in conjunction with the Company's Annual Report on Form 10-K for its fiscal year ended December 31, 2011, including the financial statements and related notes included therein.

General

Overview. Shenandoah Telecommunications Company is a diversified telecommunications company providing both regulated and unregulated telecommunications services through its wholly owned subsidiaries. These subsidiaries provide wireless personal communications services (as a Sprint PCS Affiliate of Sprint Nextel), local exchange telephone services, video, internet and data services, long distance, fiber optics facilities, and leased tower facilities. The Company has the following three reporting segments, which it operates and manages as strategic business units organized by lines of business:

* The Wireless segment provides digital wireless service to a portion of a four-state area covering the region from Harrisburg, York and Altoona, Pennsylvania, to Harrisonburg, Virginia, as a Sprint PCS Affiliate of Sprint Nextel. This segment also owns cell site towers built on leased land, and leases space on these towers to both affiliates and non-affiliated service providers.

* The Cable segment provides video, internet and voice services in franchise areas in Virginia, West Virginia and Maryland, and leases fiber optic facilities throughout these areas.

* The Wireline segment provides regulated and unregulated voice services, DSL internet access, and long-distance access services throughout Shenandoah County and portions of Rockingham and Augusta Counties, Virginia, and leases fiber optic facilities throughout the northern Shenandoah Valley of Virginia, northern Virginia and adjacent areas along the Interstate 81 corridor, including portions of West Virginia and Maryland.

* A fourth segment, Other, primarily includes Shenandoah Telecommunications Company, the parent holding company, as well as certain general and administrative costs historically charged to Converged Services that could not be allocated to discontinued operations.

During the first quarter of 2012, the Company entered into agreements with Sprint Nextel and Alcatel-Lucent to begin updating the Company's Wireless network. The update will use base station equipment to be acquired from Alcatel-Lucent in conjunction with Sprint Nextel's wireless network upgrade plan known as Network Vision.

During the second quarter of 2012, the Company upgraded its wireless switch and began replacing cell site equipment. The Company expects to launch 4G LTE service in portions of its wireless footprint during the fourth quarter of 2012. Through September 30, 2012, the Company had replaced 80 cell sites. The Company expects to replace all of its existing cell site equipment by the end of 2013. The Company has accelerated depreciation on these assets so that net book value at time of trade-in will equal the expected value to be realized upon trade-in. Depreciation expense for the three months and nine months ended September 30, 2012, included approximately $3.2 million and $6.2 million, respectively, of accelerated depreciation on Wireless segment equipment. The Company expects accelerated depreciation expense in the Wireless segment to remain at lower but still elevated levels in the fourth quarter of 2012 and in 2013. In the nine months ended September 30, 2012, the Company recognized a favorable one-time adjustment of $0.9 million to Wireless segment depreciation expense related to changes in estimated asset retirement obligations. The Company also expects Wireless segment operating expenses to increase in the near future as changes to backhaul arrangements and cell site lease agreements related to the Network Vision upgrade take effect. During the three and nine months ended September 30, 2012, renegotiations of approximately 60 cell site leases took effect, and the first Network Vision backhaul arrangements went into effect. Incremental costs related to these activities totaled approximately $0.4 million.

In October 2012, Softbank, a Japanese software and wireless telecommunications provider, announced that it would acquire a 70% stake in Sprint Nextel in a multi-step transaction. The Company does not expect that this transaction will have any impact on the Company's contractual arrangements with Sprint Nextel.

In September 2008, the Company announced its intention to sell its Converged Services operation, and the related assets and liabilities were reclassified as held for sale in the consolidated balance sheet and the historical operating results were reclassified as discontinued operations. Depreciation and amortization on long-lived assets was also discontinued. During 2009, 2010 and 2011, the Company recorded impairment charges totaling $20.0 million ($12.2 million, net of tax). Most of the impairment charge was recorded in 2009.

In several transactions during 2011, the Company sold service contracts and related equipment for Converged Services' properties to third-party purchasers, receiving cash proceeds of $3.0 million (with an additional $2.3 million in proceeds placed in escrow). The total proceeds approximated the carrying value of the assets sold in each transaction.

In several transactions through September 30, 2012, the Company sold service contracts and related equipment for Converged Services' properties to several third party purchasers, receiving cash proceeds of $1.5 million with an additional $0.4 million placed in escrow. The total proceeds approximated the carrying value of the assets sold. The Company also collected $1.8 million in cash from previously established escrow receivables. At September 30, 2012, escrow receivables outstanding totaled $0.7 million.

At September 30, 2012, the Company had six remaining properties. The Company is working with the purchasers and owners of four properties to complete negotiated sale transactions and is in the process of ending its relationship with the remaining two. No additional impairments are anticipated.

Results of Operations

Three Months Ended September 30, 2012 Compared with the Three Months Ended
September 30, 2011

Consolidated Results

The Company's consolidated results from continuing operations for the third
quarters of 2012 and 2011 are summarized as follows:


                                       20
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  Index

                                          Three Months Ended
(in thousands)                               September 30,                 Change
                                           2012          2011          $             %

Operating revenues                      $   72,876     $ 62,657     $ 10,219        16.3
Operating expenses                          67,469       53,487       13,982        26.1
Operating income                             5,407        9,170       (3,763 )     (41.0 )

Interest expense                            (2,323 )     (2,003 )       (320 )      16.0
Other income (expense)                         381          (55 )        436       792.7
Income before taxes                          3,465        7,112       (3,647 )     (51.3 )
Income tax expense                           2,050        3,497        1,447       (41.4 )
Net income from continuing operations   $    1,415     $  3,615     $ (2,200 )     (60.9 )

Operating revenues

For the three months ended September 30, 2012, operating revenues increased $10.2 million, or 16.3%. Wireless segment revenues increased $7.2 million, cable segment revenues increased $2.4 million, and wireline segment revenues increased $0.7 million after eliminations. Postpaid PCS service revenues increased $5.0 million over the third quarter of 2011, while prepaid PCS service revenues increased $2.1 million. PCS and cable segment service revenue increases reflect subscriber count increases and increases in revenue per subscriber. Wireline revenue increases resulted primarily from increases in circuits in service.

Operating expenses

For the three months ended September 30, 2012, operating expenses increased $14.0 million, or 26.1%, compared to the 2011 period. This increase included $3.0 million of additional depreciation and amortization expense, primarily due to $3.2 million in accelerated depreciation associated with the planned upgrade of the Company's wireless cell site network to take advantage of fourth generation technology. Costs of goods and services increased $7.5 million, due to $1.9 million in additional network and backhaul costs associated with providing wireless data capacity and expanded services in our cable segment, and to increased handset costs in the wireless segment. Postpaid handset costs increased $2.1 million while prepaid handset subsidies increased $2.3 million in the third quarter of 2012 relative to the third quarter of 2011. The increase in postpaid handset costs is largely due to the incremental cost of the iPhone, which the Company began selling in the fourth quarter of 2011. The increase in prepaid handset subsidies is due to an increase in the rate per handset charged by Sprint Nextel. The Company also recognized $1.3 million in gains on trade-ins of base stations in the third quarter of 2011, which reduced costs of goods and services. Increases of $3.5 million in selling, general and administrative expenses resulted from $1.6 million of increased costs for prepaid wireless sales and marketing costs, $1.0 million of increased postpaid wireless sales, marketing and customer service costs in the Wireless segment and $0.9 million of increased sales, marketing and customer service costs in the Cable segment.

Interest expense

The increase in interest expense resulted from the write-off of $0.8 million in unamortized loan costs remaining from the 2010 loan transaction during the third quarter of 2012, offset by changes in the fair value of the Company's 2010 interest rate swap and lower interest payments on the Company's outstanding debt due to a combination of lower rates and balances.

Income tax expense

The Company's effective tax rate increased from 49.0% in the third quarter of 2011 to 59.2% in the third quarter of 2012 due to revisions to estimates utilized during the preparation of the 2011 year-end tax provision.

Net income from continuing operations

For the three months ended September 30, 2012, net income from continuing operations decreased $2.2 million from the comparable 2011 period, as growth in subscriber counts and revenue per subscriber in both the Wireless and Cable segments combined with increased revenues for fiber and other facilities in the Wireline segment, were offset by increases in operating expenses incurred in support of this growth and the accelerated depreciation charges associated with the Company's participation in the Network Vision upgrade program, as well as higher interest expenses and corrections to tax items.

Nine Months Ended September 30, 2012 Compared with the Nine Months Ended
September 30, 2011

Consolidated Results

The Company's consolidated results from continuing operations for the first nine
months of 2012 and 2011 are summarized as follows:

                                           Nine Months Ended
(in thousands)                               September 30,                 Change
                                          2012          2011           $             %

Operating revenues                      $ 213,077     $ 184,640     $ 28,437        15.4
Operating expenses                        187,715       160,385       27,330        17.0
Operating income                           25,362        24,255        1,107         4.6

Interest expense                           (5,641 )      (6,668 )      1,027       (15.4 )
Other income (expense)                      1,431           204        1,227       601.5
Income before taxes                        21,152        17,791        3,361        18.9
Income tax expense                          9,608         8,070        1,538        19.1
Net income from continuing operations   $  11,544     $   9,721     $  1,823        18.8

Operating revenues

For the nine months ended September 30, 2012, operating revenues increased $28.4 million, or 15.4%. The increase was due to $20.1 million in incremental wireless segment revenues, $6.6 million of additional cable segment revenues, and $1.7 million of additional wireline segment revenues after eliminations. Postpaid wireless service revenues increased $12.5 million in 2012, while prepaid wireless service revenues increased $7.2 million. Subscriber count increases and increases in revenue per subscriber each contributed to the increases in cable segment revenues and both categories of wireless segment service revenues. The increase in wireline revenues resulted primarily from increases in circuits in service.

Operating expenses

For the nine months ended September 30, 2012, operating expenses increased $27.3 million, or 17.0%, compared to the 2011 period. This included an increase of $5.7 million of depreciation and amortization expense, including $6.2 million in accelerated depreciation associated with the planned upgrade of the Company's wireless cell site network to take advantage of fourth generation technology, net of the $0.9 million adjustment related to asset retirement obligations. Cost of goods and services increased $15.3 million. Major changes included a $4.5 million increase in costs of postpaid handsets and a $4.2 million increase in prepaid handset subsidies in our wireless segment, as well as $2.3 million in incremental network and backhaul costs primarily in support of wireless data capacity and expanded services in our cable segment. The Company also recognized gains, totaling $1.3 million, in the 2011 period related to trade-ins of wireless base stations, while repair costs related to major storms in our territory added $0.5 million to 2012 expenses. Cable programming costs increased $2.0 million in 2012 over 2011. Selling, general and administrative expenses increased $6.5 million from the 2011 first nine months, including $2.1 million in prepaid wireless sales and marketing costs, $2.2 million in incremental commissions and advertising costs, $1.4 million in additional customer care costs and $0.7 million in other general and administrative costs.

Interest expense

The decrease in interest expense resulted from lower outstanding balances (prior to the refinancing in September 2012), reductions in the spread over LIBOR during 2011 and 2012, partially offset by the write-off of $0.8 million of unamortized loan costs remaining from the 2010 loan, reflecting the interest of lenders replaced in the 2012 refinancing.

Income tax expense

The Company's effective tax rate was 45.4% in both nine month periods.

Net income from continuing operations

For the nine months ended September 30, 2012, net income from continuing operations increased $1.8 million, reflecting growth in subscriber counts and revenue per subscriber in both the Wireless and Cable segments, increased revenues for fiber and other facilities in the Wireline segment, partially offset by increases in operating expenses incurred in support of this growth and the accelerated depreciation charges associated with the Company's participation in the Network Vision upgrade program, and lower interest expenses.

Wireless

The Company's Wireless segment provides digital wireless service to a portion of a four-state area covering the region from Harrisburg, York and Altoona, Pennsylvania, to Harrisonburg, Virginia, through Shenandoah Personal Communications Company ("PCS"), a Sprint PCS Affiliate of Sprint Nextel. This segment also leases land on which it builds Company-owned cell towers, which are leased to affiliated and non-affiliated wireless service providers, throughout the same four-state area described above, through Shenandoah Mobile Company ("Mobile").

PCS receives revenues from Sprint Nextel for subscribers that obtain service in PCS's network coverage area. PCS relies on Sprint Nextel to provide timely, accurate and complete information to record the appropriate revenue for each financial period. Postpaid revenues received from Sprint Nextel are recorded net of certain fees totaling 20% of net postpaid billed revenue retained by Sprint Nextel. These fees include an 8% management fee and 12% net service fee. Sprint Nextel also retains a 6% management fee on prepaid revenues.

The following tables show selected operating statistics of the Wireless segment as of the dates shown:

                                    Sept. 30,      Dec. 31,      Sept. 30,      Dec. 31,
                                       2012          2011           2011          2010

Retail PCS Subscribers - Postpaid      258,867       248,620        243,548       234,809
Retail PCS Subscribers - Prepaid       122,454       107,100         98,272        66,956
PCS Market POPS (000) (1)                2,390         2,388          2,397         2,337
PCS Covered POPS (000) (1)               2,056         2,055          2,114         2,049
CDMA Base Stations (sites)                 510           509            508           496
EVDO-enabled sites                         438           433            402           381
EVDO Covered POPS (000) (1)              2,028         2,027          2,053         1,981
Towers                                     149           149            149           146
Non-affiliate cell site leases             216           219            219           216

                                                   Three Months Ended           Nine Months Ended
                                                     September 30,                September 30,
                                                   2012          2011           2012          2011

Gross PCS Subscriber Additions - Postpaid           18,427        16,126         50,500        46,285
Net PCS Subscriber Additions - Postpaid              3,842         2,686         10,247         8,739
Gross PCS Subscriber Additions - Prepaid            18,777        19,545         53,184        65,579
Net PCS Subscriber Additions - Prepaid               5,384         6,940         15,355        31,316
PCS Average Monthly Retail Churn % - Postpaid         1.89 %        1.85 %         1.77 %        1.69 %
PCS Average Monthly Retail Churn % - Prepaid          3.73 %        4.43 %         3.65 %        4.50 %

1) POPS refers to the estimated population of a given geographic area and is based on information purchased from third parties. Market POPS are those within a market area which the Company is authorized to serve under its Sprint PCS affiliate agreements, and Covered POPS are those covered by the Company's network.

Three Months Ended September 30, 2012 Compared with the Three Months Ended

September 30, 2011

                               Three Months Ended
(in thousands)                   September 30,                   Change
                               2012          2011            $              %

Segment operating
revenues
Wireless service revenue    $   41,517     $  34,403     $   7,114          20.7
Tower lease revenue              2,286         2,302           (16 )        (0.7 )
Equipment revenue                1,436         1,107           329          29.7
Other revenue                      422           677          (255 )       (37.7 )
Total segment operating
revenues                        45,661        38,489         7,172          18.6
Segment operating
expenses
Cost of goods and
services, exclusive of
depreciation and
amortization shown
separately below                19,121        12,667         6,454          51.0
Selling, general and
administrative, exclusive
of depreciation and
amortization shown
separately below                 9,651         7,028         2,623          37.3
Depreciation and
amortization                     8,643         5,868         2,775          47.3
Total segment operating
expenses                        37,415        25,563        11,852          46.4
Segment operating income    $    8,246     $  12,926     $  (4,680 )       (36.2 )

Operating revenues

Wireless service revenue increased $7.1 million, or 20.7%, for the three months ended September 30, 2012, compared to the comparable 2011 period. Net postpaid service revenues increased $5.0 million, as data fees on smartphones increased $2.0 million in the 2012 period from 2011's third quarter, while 6.1% growth in quarter-over-quarter average postpaid subscribers and increased rates added an additional $3.0 million to net postpaid service revenue. Net prepaid service revenues grew $2.1 million, or 35%, compared to the 2011 third quarter. Average prepaid subscribers increased 26% in 2012 over 2011, with changes in the mix of subscribers (to those with comparatively higher revenue plans) accounting for the remainder of the increase in prepaid service revenues.

The increase in equipment revenue resulted primarily from $0.4 million in incremental revenue from sales of higher priced iPhones.

Cost of goods and services

Cost of goods and services increased $6.5 million, or 51.0%, in 2012 from the third quarter of 2011. Postpaid handset costs increased $2.0 million due to the higher cost of iPhones, which were not available in early 2011. Costs of iPhones sold to new and existing postpaid customers increased $1.0 million over the cost of a comparable quantity of smartphones sold in the third quarter of 2011. Handset subsidies associated with prepaid customer acquisitions and upgrades increased $2.3 million due to higher unit costs charged by Sprint Nextel. Network costs increased $1.2 million for backhaul and rent expenses. Network costs are expected to continue to increase due to the temporary need for redundant backhaul circuits during the implementation of the Network Vision plan, and going forward to accommodate the expected increase in data volumes. While there was no trade-in activity in the third quarter of 2012, the 2011 period costs were partially offset by a $1.4 million gain on trade-in of wireless network assets.

Selling, general and administrative

Selling, general and administrative costs increased $2.6 million, or 37.3%, in the third quarter of 2012 over the comparable 2011 period. Marketing and selling costs charged by Sprint Nextel for the addition of new prepaid customers increased $1.2 million, while costs to support the existing prepaid subscriber base increased $0.5 million primarily as a result of the growth in prepaid subscribers. The remainder of the increase related to advertising and commission expenses associated with postpaid activities, which increased $0.8 million.

Depreciation and amortization

Depreciation and amortization increased $2.8 million in 2012 over the 2011 third quarter, due to recording $3.2 million of accelerated depreciation on existing assets that will be replaced during Network Vision upgrades. There was a $0.3 million decrease in amortization of the initial purchase cost of prepaid customers acquired in July 2010, which decreases each month in relation to churn in the initial customer base. Network Vision-related accelerated depreciation expenses will remain elevated, though at a lower level, through 2013, when the Company expects to have completely replaced the existing equipment.

Nine Months Ended September 30, 2012 Compared with the Nine Months Ended

September 30, 2011

                               Nine Months Ended
(in thousands)                   September 30,                  Change
                              2012          2011            $              %

Segment operating
revenues
Wireless service revenue    $ 120,107     $ 100,413     $  19,694          19.6
Tower lease revenue             6,816         6,677           139           2.1
Equipment revenue               4,307         3,735           572          15.3
Other revenue                   1,363         1,666          (303 )       (18.2 )
Total segment operating
revenues                      132,593       112,491        20,102          17.9
Segment operating
expenses
Cost of goods and
services, exclusive of
depreciation and
amortization shown
separately below               52,432        39,671        12,761          32.2
Selling, general and
administrative, exclusive
of depreciation and
amortization shown
separately below               25,746        21,225         4,521          21.3
Depreciation and
amortization                   23,153        18,242         4,911          26.9
Total segment operating
expenses                      101,331        79,138        22,193          28.0
Segment operating income    $  31,262     $  33,353     $  (2,091 )        (6.3 )

Operating revenues

Wireless service revenue increased $19.7 million, or 19.6%, for the nine months ended September 30, 2012, compared to the comparable 2011 period. Net postpaid service revenues increased $12.5 million, as data fees on smartphones increased $6.5 million in the 2012 period over 2011, while 5.8% growth in period-over-period average postpaid subscribers added an additional $6.0 million to net postpaid service revenue. Net prepaid service revenues grew $7.2 million, or nearly 46%, compared to the nine months ended September 30, 2011. Average prepaid subscribers increased 36% in 2012 over 2011, with changes in the mix of subscribers toward higher revenue plans accounting for the remainder of the increase in prepaid service revenues.

The increase in tower lease revenue resulted primarily from scheduled escalations in revenue streams.

The increase in equipment revenue resulted primarily from the incremental revenue from iPhones sold, partially offset by fewer sales of lower priced other devices sold.

Cost of goods and services

Cost of goods and services increased $12.8 million, or 32.2%, in 2012 from the first nine months of 2011. Postpaid handset costs increased $4.6 million, . . .