CENTURY TELEPHONE ENTERPRISES INC - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

[ X ] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

For the fiscal year ended December 31, 1998

or

[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Commission file number 1-7784

CENTURY TELEPHONE ENTERPRISES, INC.
(Exact name of Registrant as specified in its charter)

Louisiana 72-0651161
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)

100 Century Park Drive, Monroe, Louisiana 71203
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code - (318) 388-9000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, par value $1.00 New York Stock Exchange
Berlin Stock Exchange
Preference Share Purchase Rights New York Stock Exchange
Berlin Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

As of February 28, 1999, the aggregate market value of voting stock held by
non-affiliates (affiliates being for these purposes only directors, executive
officers and holders of more than five percent of the Company's outstanding
voting securities) was $3.7 billion. As of February 28, 1999, there were
92,357,172 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the Registrant's Proxy Statement prepared in connection with the
1999 annual meeting of shareholders are incorporated in Part III of this Report.

PART I

Item 1. Business

General. Century Telephone Enterprises, Inc. ("Century"), which operates
under the tradename of CenturyTel, is a regional diversified communications
company engaged primarily in providing local exchange telephone services and
cellular telephone services. For the year ended December 31, 1998, local
exchange telephone operations and cellular operations provided 69% and 26%,
respectively, of the consolidated revenues of Century and its subsidiaries (the
"Company"). All of the Company's telephone and cellular operations are conducted
within the continental United States and Alaska.

At December 31, 1998, the Company's local exchange telephone subsidiaries
operated over 1.3 million telephone access lines, primarily in rural, suburban
and small urban areas in 21 states, with the largest customer bases located in
Wisconsin, Washington, Alaska, Michigan, Louisiana, Colorado, Ohio, Oregon and
Montana. According to published sources, the Company is the ninth largest local
exchange telephone company in the United States based on the number of access
lines served. For more information, see "Telephone Operations."

At December 31, 1998, the Company's majority-owned and operated cellular
systems served approximately 624,000 customers in 21 Metropolitan Statistical
Areas ("MSAs") in Michigan, Louisiana, Arkansas, Mississippi, Wisconsin and
Texas, and 23 Rural Service Areas ("RSAs"), most of which are in Michigan,
Mississippi, Wisconsin, Louisiana and Arkansas. The Company's ownership interest
in these operated markets represented approximately 8.1 million pops (the
estimated population of licensed cellular telephone markets multiplied by the
Company's proportionate equity interest in the licensed operators thereof). At
December 31, 1998, the Company also owned minority equity interests in 10 MSAs
and 17 RSAs, representing approximately 1.9 million pops. Of the Company's 10.1
million aggregate pops, approximately 67% are attributable to the Company's MSA
interests, with the balance attributable to its RSA interests. All of the
cellular systems operated by the Company are operated under wireline licenses,
except for five MSAs and four RSAs which are operated under non-wireline
licenses. According to data derived from published sources, the Company is the
tenth largest cellular telephone company in the United States based on the
Company's 10.1 million pops. For more information , see "Cellular Operations."

The Company also provides long distance, call center, security monitoring,
cable television and interactive services in certain local and regional markets,
as well as certain printing and related services. For more information, see
"Other Operations."

Recent acquisitions and dispositions. On December 1, 1998, the Company
acquired the assets of certain of Ameritech's telephone operations and related
telephone directories in 19 telephone exchanges covering 21 communities in
northern and central Wisconsin for approximately $221 million cash. The
operations acquired by the Company include the telephone property and equipment
that serves nearly 69,000 customers, or approximately 86,000 access lines, as
well as the nine related telephone directories.

On December 1, 1997, the Company acquired Pacific Telecom, Inc. ("PTI") in
exchange for $1.503 billion cash. As a result of the PTI acquisition, the
Company acquired (i) over 660,000 telephone access lines in four midwestern
states, seven western states and Alaska, (ii) over 88,000 cellular customers in
ten markets located in two midwestern states and Alaska and (iii) various
wireless, cable television and other communications assets. In May 1998, the
Company sold PTI's undersea cable operations for approximately $61.8 million
cash.

During late 1997 and early 1998, the Company acquired two security alarm
businesses that provide services to approximately 6,000 customers in north
central Louisiana, southern Arkansas and northwestern Mississippi.

In December 1997 the Company acquired an additional 76% interest in
Wisconsin RSA 8, which is adjacent to the Company's existing cellular operations
in southwestern Wisconsin.

During 1997 the Company exchanged its 89% interest in its competitive access
subsidiary for approximately 4.3 million shares of publicly traded common stock.
Approximately 3.8 million shares of such stock were sold in November 1997 for
$203 million and the remaining shares were converted into approximately 1.0
million shares of MCIWorldCom, Inc. ("WorldCom") in early 1998. In the second
quarter of 1998, the Company sold 750,000 shares of WorldCom common stock for
$35.6 million. In January 1999, the Company sold its remaining shares of
WorldCom stock for $20.1 million.

In January 1997 the Company acquired Pecoco, Inc., a provider of local
exchange telephone service in four counties in Wisconsin. As a result of the
acquisition, the Company acquired (i) more than 7,600 telephone access lines,
(ii) a minority interest in two cellular partnerships serving Madison and
Milwaukee, Wisconsin, representing approximately 35,000 pops and (iii) certain
cable television assets.

In August 1998 the Company entered into a definitive agreement to sell the
stock of the entities conducting the Company's Alaska operations to ALEC
Acquisition Corporation for $415 million cash, subject to various adjustments.
Proceeds from this transaction will be used to reduce debt. The Alaska
transaction is anticipated to close in the second quarter of 1999, subject to
regulatory approvals and various closing conditions. The transaction is also
subject to the buyer's receipt of financing pursuant to its existing debt and
equity financing commitments.

In January 1999 the Company signed definitive asset purchase agreements to
sell all of the operations of the Brownsville and McAllen, Texas, cellular
markets to Western Wireless Corporation for $95 million cash, subject to various
adjustments. The Company, which is the majority owner in these markets, will
receive a proportionate share of the sale proceeds of approximately $39 million
after-tax. The transaction is expected to close in the second quarter of 1999,
subject to regulatory approvals, the satisfactory completion of buyer's due
diligence and various other closing conditions.

Over the past several years, the Company has expanded its operations through
an ongoing program of acquisitions. Substantial acquisitions during the last
five years also include the 1994 acquisition of Celutel, Inc. (over 1.1 million
pops). The Company continually evaluates the possibility of acquiring additional
telecommunications assets in exchange for cash, securities or both, and at any
given time may be engaged in discussions or negotiations regarding additional
acquisitions. Over the past few years, the number and size of communications
properties on the market has increased substantially. Recently, two large
communications companies announced their intent to sell up to 1.6 million
primarily rural access lines. Although the Company's primary focus will continue
to be on acquiring telephone and wireless interests that are proximate to its
properties or that serve a customer base large enough for the Company to operate
efficiently, other communications interests may also be acquired.

Other. As of December 31, 1998, the Company had approximately 5,800
employees, approximately 1,000 of whom were members of seven different
bargaining units represented by the International Brotherhood of Electrical
Workers, Communications Workers of America, or the NTS Employee Committee.
Relations with employees continue to be generally good.

In mid-1998, the Company adopted the tradename "CenturyTel" as part of its
branding strategy to operate under a single name. The Company currently markets
its telephone, cellular, long distance, Internet access and most of its other
services under the CenturyTel tradename. Century proposes to formally change its
corporate name to CenturyTel, Inc. at its 1999 annual shareholders meeting
scheduled for May 6, 1999.

Century was incorporated under Louisiana law in 1968 to serve as a holding
company for several telephone companies acquired over the previous 15 to 20
years. Century's principal executive offices are located at 100 Century Park
Drive, Monroe, Louisiana 71203 and its telephone number is (318) 388-9000.

TELEPHONE OPERATIONS

According to published sources, the Company is the ninth largest local
exchange telephone company in the United States, based on the more than 1.3
million access lines it served at December 31, 1998. All of the Company's access
lines are digitally switched. Through its operating telephone subsidiaries, the
Company provides services to predominately rural, suburban and small urban
markets in 21 states. The table below sets forth certain information with
respect to the Company's access lines as of December 31, 1998 and 1997.

December 31, 1998 December 31, 1997
- -------------------------------------------------------------------------
Number of Percent of Number of Percent of
State access lines access lines access lines access lines
- -------------------------------------------------------------------------

Wisconsin 340,895 25% 245,091 20%
Washington 175,508 13 166,611 14
Alaska 131,858 10 124,869 10
Michigan 108,769 8 104,440 9
Louisiana 97,676 7 94,432 8
Colorado 86,249 7 81,206 7
Ohio 80,400 6 77,987 7
Oregon 75,392 6 71,544 6
Montana 60,657 5 57,390 5
Texas 44,822 3 41,852 4
Arkansas 43,778 3 42,193 4
Minnesota 29,708 2 29,029 2
Tennessee 25,609 2 24,578 2
Mississippi 19,648 2 17,839 2
Idaho 5,881 1 5,746 -
New Mexico 5,770 - 5,559 -
Indiana 5,136 - 4,975 -
Wyoming 4,663 - 4,447 -
Iowa 1,938 - 1,801 -
Arizona 1,780 - 1,624 -
Nevada 430 - 437 -
- ------------------------------------------------------------------------
1,346,567 100% 1,203,650 100%
========================================================================

As indicated in the following table, the Company has experienced growth in
its telephone operations over the past several years, a substantial portion of
which was attributable to the acquisition of PTI and other telephone properties
and to the expansion of services:

Year ended or as of December 31,
- ------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------
(Dollars in thousands)

Access lines 1,346,567 1,203,650 503,562 480,757 454,963
% Residential 74% 74 77 78 79
% Business 26% 26 23 22 21
Operating revenues $1,091,610 530,597 451,538 419,242 391,265
Capital expenditures $ 233,190 115,854 110,147 136,006 152,336
- ------------------------------------------------------------------------

Future growth in telephone operations is expected to be derived from (i)
acquiring additional telephone properties, (ii) providing service to new
customers, (iii) increasing network usage and (iv) providing additional services
made possible by advances in technology and changes in regulation. For
information on developing competitive trends, see "-Regulation and Competition."

Services

The Company's local exchange telephone subsidiaries derive revenue from
providing (i) local telephone services, (ii) network access services and (iii)
other related services. The following table reflects the percentage of telephone
operating revenues derived from these respective services:

1998 1997 1996
- ----------------------------------------------------------------

Local service 30.4% 27.8 26.9
Network access 57.7 60.2 61.2
Other 11.9 12.0 11.9
- ----------------------------------------------------------------
100.0% 100.0 100.0
================================================================

Local service revenues are derived from the provision of local exchange
telephone services in the Company's service areas. Internal access line growth
during 1998, 1997 and 1996 was 4.7%, 4.4% and 4.3%, respectively. The Company
believes that access line growth in the future should benefit from population
growth in its service areas, acquisitions and increases in the number of
households maintaining more than one access line. The Company markets local
Internet access in 396 communities in 12 states, which the Company believes has
led to an increase in orders for second lines.

Network access revenues primarily relate to services provided by the Company
to long distance carriers and other customers in connection with the use of the
Company's facilities to originate and terminate interstate and intrastate long
distance telephone calls. Access charges to long distance carriers and other
customers are based on tariffed access rates filed with the Federal
Communications Commission ("FCC") for interstate services and with the
respective state regulatory agency for intrastate services. Certain of the
Company's interstate network access revenues are based on access charges filed
directly with the FCC; the remainder of such revenues are derived under revenue
sharing arrangements with other LECs administered by the National Exchange
Carrier Association ("NECA").

Certain of the Company's intrastate network access revenues are derived
through access charges billed by the Company to intrastate long distance
carriers and other LEC customers. Such intrastate network access charges are
based on access tariffs, which are subject to state regulatory commission
approval. Additionally, certain of the Company's intrastate network access
revenues, along with intrastate long distance revenues, are derived through
revenue sharing arrangements with other LECs.

The installation of digital switches and related software has been an
important component of the Company's growth strategy because it allows the
Company to offer enhanced services (such as call forwarding, conference calling,
caller identification, selective call ringing and call waiting) and to thereby
increase utilization of existing access lines. In 1998 the Company continued to
expand its list of premium services (such as voice mail and Internet access)
offered in certain service areas and aggressively marketed these services.

The Company is installing fiber optic cable in certain of its high traffic
routes and provides alternative routing of telephone service over fiber optic
cable networks in several strategic operating areas. At December 31, 1998, the
Company's telephone subsidiaries had over 8,350 miles of fiber optic cable in
use.

Other revenues include revenues related to (i) leasing, selling, installing,
maintaining and repairing customer premise telecommunications equipment and
wiring, (ii) providing billing and collection services for long distance
companies, (iii) participating in the publication of local directories and (iv)
providing Internet access. At the end of 1998, the Company offered Internet
access in telephone markets representing 60% of its access lines. Certain large
communications companies for which the Company currently provides billing and
collection services continue to indicate their desire to reduce their billing
and collection expenses, which may result in future reductions of the Company's
billing and collection revenues.

For further information on the regulation of the Company's revenues,see
"-Regulation and Competition."

Federal Financing Programs

Certain of the Company's telephone subsidiaries receive long-term financing
from the Rural Utilities Service ("RUS") and the Rural Telephone Bank ("RTB").
The RUS has made long-term loans to telephone companies since 1949 for the
purpose of improving telephone service in rural areas. The RUS continues to make
new loans at interest rates that range from 5% to 7% based on borrower
qualifications and the cost of funds to the United States government. The RTB,
established in 1971, makes long-term loans at interest rates based on its
average cost of funds as determined by statutory formula (such rates ranged from
5.71% to 5.96% for the fiscal year ended September 30, 1998), and in some cases
makes loans concurrently with RUS loans. Most of the Company's telephone plant
is pledged or mortgaged to secure obligations of the Company's telephone
subsidiaries to the RUS and RTB. The Company's telephone subsidiaries which have
borrowed from government agencies generally may not loan or advance any funds to
Century, but may pay dividends if certain financial covenants are met.

For additional information regarding the Company's financing, see the
Company's consolidated financial statements included in Item 8 herein.

Regulation and Competition

Traditionally, LECs have operated as regulated monopolies. Consequently, the
majority of the Company's telephone operations have traditionally been regulated
extensively by various state regulatory agencies (generally called public
service commissions or public utility commissions) and by the FCC. As discussed
in greater detail below, passage of the Telecommunications Act of 1996 (the
"1996 Act"), coupled with state legislative and regulatory initiatives and
technological changes, has fundamentally altered the telephone industry by
reducing the regulation of LECs and permitting competition in each segment of
the telephone industry. Although Century anticipates that these trends towards
reduced regulation and increased competition will continue, it is difficult to
determine the form or degree of future regulation and competition in the
Company's service areas.

State regulation. The local service rates and intrastate access charges of
substantially all of the Company's telephone subsidiaries are regulated by state
regulatory commissions. Most of such commissions have traditionally regulated
pricing through "rate of return" regulation that focuses on authorized levels of
earnings by LECs. Most of these commissions also (i) regulate the purchase and
sale of LECs, (ii) prescribe depreciation rates and certain accounting
procedures and (iii) regulate various other matters, including certain service
standards and operating procedures.

In recent years, state legislatures and regulatory commissions having
jurisdiction over the Company's telephone subsidiaries in most of the states in
which the Company has substantial operations have either begun to reduce the
regulation of LECs or have announced their intention to do so, and it is
expected that this trend will continue. Wisconsin, Louisiana and several other
of these states have passed legislation which permit LECs to opt out of rate of
return regulation in exchange for agreeing to alternative forms of regulation
which typically permit the LEC greater freedom to establish service rates in
exchange for agreeing not to charge rates in excess of specified caps. The
Company continues to explore its options in these states. The Company believes
that reduced regulatory oversight of certain of the Company's telephone
operations may allow the Company to offer new and competitive services faster
than under the traditional regulatory process. Coincident with these efforts,
legislative, regulatory and technological changes have introduced competition
into the local exchange industry. See "-Developments Affecting Competition."

Substantially all of the state regulatory commissions have statutory
authority, the specific limits of which vary, to initiate and conduct earnings
reviews of the LECs that they regulate. As part of the movement towards
deregulation, several states are moving away from traditional rate of return
regulation towards price cap regulation and incentive regulation (which are
similar to the FCC regulations discussed below), and are actively encouraging
larger LECs to adopt these newer forms of price regulation. The continuation of
this trend may lead to fewer earnings reviews in the future. Currently, however,
most of the Company's LECs continue to be regulated under rate of return
regulation.

During 1995 the Louisiana Public Service Commission ("LPSC") adopted a new
regulatory plan for independent telephone companies in Louisiana that
incrementally reduced the Company's access revenues between 1996 and 1998. In
1997 the LPSC adopted a Consumer Price Protection Plan (the "Louisiana Plan"),
effective July 1997, which impacts all of the Company's LECs operating in
Louisiana. The new form of regulation will focus on price and quality of
service. Under the Louisiana Plan, the Company's Louisiana LECs' local rates
were frozen for a period of three years and access rates were frozen for a
period of two years. Although the Louisiana Plan has no specified term, the LPSC
is required to review it by mid-2000. The Company's Louisiana LECs have the
option to propose a new plan at any time if the LPSC determines that (i)
effective competition exists or (ii) unforeseen events threaten the subsidiary's
ability to provide adequate service or impair its financial health.

The Company's telephone operations in Wisconsin that were acquired in the
December 1997 acquisition of PTI have been regulated under an alternative
regulation plan (the "Wisconsin Plan") since June 1996. The Wisconsin Plan has a
five-year term and includes a provision that allows the Company's subsidiary
covered by such plan to freely adjust rates within specified parameters if
certain quality-of-service and infrastructure-development commitments are met.
The Wisconsin Plan also includes initiatives designed to promote competition. In
early 1999, another of the Company's Wisconsin LECs filed a request with the
Wisconsin Public Service Commission to be regulated under an alternative
regulation plan.

The Michigan Public Service Commission regulates the Company's Michigan
telephone subsidiaries pursuant to the parameters established by the Michigan
Telecommunications Act of 1995 ("MTA"). The MTA restructured regulation to focus
on price and quality of service as opposed to traditional rate of return
regulation. The MTA relies more on existing federal and state law regarding
antitrust consumer protection and fair trade to provide safeguards for
competition and consumers.

FCC regulation. The FCC regulates the interstate services provided by the
Company's telephone subsidiaries primarily by regulating the interstate access
charges that are billed to long distance companies and other LEC customers by
the Company for use of its local network in connection with the origination and
termination of interstate telephone calls. Additionally, the FCC has prescribed
certain rules and regulations for telephone companies, including regulations
regarding the use of radio frequencies; a uniform system of accounts; and rules
regarding the separation of costs between jurisdictions and, ultimately, between
interstate services.

Effective January 1, 1991, the FCC adopted price-cap regulation relating to
interstate access rates for the Regional Bell Operating Companies ("RBOCs") and
GTE Corporation. All other LECs may elect to be subject to price-cap regulation.
Under price-cap regulation, limits imposed on a company's interstate rates are
adjusted periodically to reflect inflation, productivity improvement and changes
in certain non-controllable costs. In May 1993 the FCC adopted an optional
incentive regulatory plan for LECs not subject to price-cap regulation. A LEC
electing the optional incentive regulatory plan would, among other things, file
tariffs based primarily on historical costs and not be allowed to participate in
the relevant NECA pooling arrangements. The Company has not elected price-cap
regulation or the optional incentive regulatory plan, but will continue to
evaluate its options on a periodic basis. Either election, if made by the
Company, would have to be applicable to all of the Company's telephone
subsidiaries. The authorized interstate access rate of return for the Company's
telephone subsidiaries is currently 11.25%, which is the authorized rate
established by the FCC for LECs not governed by price-cap regulation or the
optional incentive regulatory plan.

In September 1998, the FCC initiated a proceeding to represcribe the
authorized rate of return for interstate access services provided by LECs. The
FCC periodically represcribes this rate of return to ensure that the service
rates filed by incumbent LECs subject to rate of return regulation continue to
be just and reasonable. It is uncertain whether or by how much the FCC may lower
the authorized rate of return.

In an access charge reform order adopted in May 1997, the FCC changed its
system of interstate access charges to make them compatible with the
deregulatory framework established by the 1996 Act. Such changes are primarily
applicable to price-cap companies. The Company's telephone subsidiaries
determine interstate revenues under rate of return regulation and are,
therefore, only minimally impacted by the access charge reform order. In July
1998, the FCC issued a Notice of Proposed Rulemaking to amend the access charge
rules for rate of return companies in a manner similar to that adopted for price
cap companies, subject to reviewing whether differences exist between price cap
companies and rate of return companies that would require different rules in
order to achieve the goal of fostering an efficient, competitive marketplace.
Comments were filed with the FCC in August 1998; the FCC has not yet issued a
final ruling on this matter.

In 1998 the FCC created a federal-state joint board to review jurisdictional
separations procedures through which the costs of regulated telecommunications
services are allocated to the interstate and intrastate jurisdictions.

High-cost support funds, revenue sharing arrangements and related matters. A
significant number of the Company's telephone subsidiaries recover a portion of
their costs under federal and state cost recovery mechanisms that traditionally
have allowed LECs serving small communities and rural areas to provide
communications services reasonably comparable to those available in urban areas
and at reasonably comparable prices.

The 1996 Act authorized the establishment of new federal and state universal
service funds to provide continued support to eligible telecommunications
carriers. In May 1997 the FCC adopted an order on universal service, as mandated
by the 1996 Act. In the order, the FCC ruled that rural telephone companies
which are designated eligible telecommunications carriers will continue to
receive universal service funding. Each of the Company's LECs has been so
designated by its respective state regulatory agency. As a result, the Company's
LECs will continue to receive payments under the federal support mechanisms
currently in effect until the FCC adopts funding support mechanisms based on
forward-looking economic costs, which it is required to do, but no earlier than
January 2001. Although the Company anticipates that it may experience a
reduction in its federal support revenues at some point in the future,
management believes it is premature to assess or estimate the ultimate impact
thereof. There can be no assurance, however, that such impact will not be
material. During 1998 and 1997 the Company's telephone subsidiaries received
$127.6 million and $65.4 million, respectively, from the federal Universal
Service Fund.

As part of its universal service order, the FCC also established a new
program to provide up to $2.25 billion of discounted telecommunications services
annually to schools and libraries, commencing January 1998. In addition, the FCC
established a $400 million annual fund to provide discounted telecommunications
services for rural health care providers. All communications carriers providing
interstate telecommunications services, including the Company's LECs and its
cellular and long distance operations, are required to contribute to these
programs. The FCC has stated that local exchange telephone companies will
recover their funding contributions in their rates for interstate services. The
Company's contribution by its cellular and long distance operations for 1998,
which was passed on to its customers, was approximately $3.1 million.

Some of the Company's telephone subsidiaries operate in states where
traditional cost recovery mechanisms, including rate structures, are under
evaluation or have been modified. See "-State Regulation." There can be no
assurance that these states will continue to provide for cost recovery at
current levels.

Substantially all of the Company's LECs concur with the common line tariffs
and certain of the Company's LECs concur with the traffic sensitive tariffs
filed by the NECA; such LECs participate in the access revenue sharing
arrangements administered by the NECA for interstate services. All of the
intrastate network access revenues of the Company's LECs are based on access
charges, cost separation studies or special settlement arrangements.
See "-Services."

Certain long distance carriers continue to request that certain of the
Company's LECs reduce intrastate access tariffed rates. There is no assurance
that these requests will not result in decreased access revenues.

Developments affecting competition. The communications industry is currently
undergoing fundamental changes which may have a significant impact on the future
operations and financial performance of all communications companies. Primarily
as a result of legislative and regulatory initiatives and technological changes,
competition has been introduced and encouraged in each sector of the telephone
industry, including, most recently, the local exchange sector. As a result, the
number of companies offering competitive services has increased substantially.

As indicated above, in February 1996 Congress enacted the 1996 Act, which
obligates LECs to permit competitors to interconnect their facilities to the
LEC's network and to take various other steps that are designed to promote
competition. The 1996 Act imposes several duties on a LEC if it receives a
specific request from another entity which seeks to connect with or provide
services using the LEC's network. In addition, each incumbent LEC is obligated
to (i) negotiate interconnection agreements in good faith, (ii) provide
"unbundled" access to all aspects of the LEC's network, (iii) offer resale of
its telecommunications services at wholesale rates and (iv) permit competitors
to collocate its physical plant on the LEC's property, or provide virtual
collocation if physical collocation is not practicable. Although the 1996 Act
provides certain exemptions for rural LECs such as those operated by the
Company, the FCC's August 1996 order implementing most of the 1996 Act's
interconnection provisions placed the burden of proving the continuing
availability of these exemptions on rural LECs. States are permitted to adopt
laws or regulations that provide for greater competition than is mandated under
the 1996 Act. Although substantial portions of the FCC's August 1996
interconnection order have survived judicial challenge, the FCC has neither
completed its interconnection rulemaking nor issued rules on universal service
or access reform. Management believes that competition in its telephone service
areas will ultimately increase as a result of the 1996 Act, although the form
and degree of competition cannot be ascertained until such time as the FCC (and,
in certain instances, state regulatory commissions) adopts final and
nonappealable implementing regulations.

Substantially all of the 21 states in which the Company provides telephone
services have taken legislative or regulatory steps to further introduce
competition into the LEC business. Largely as a result of these steps and the
1996 Act, several competitive access providers originally organized to provide
redundancy or access services have begun, during the past several years, to
provide competitive local exchange services, principally in urban areas.
Moreover, several well-capitalized long distance, cable television, wireless and
electric utility companies, along with several start-up companies, have also
begun to provide competitive local exchange services or announced their
intention to do so, and this trend is expected to continue. Currently the
Company is subject to a limited number of agreements permitting competitors in
Wisconsin to purchase from the Company unbundled network elements or wholesale
services, and the Company is aware of only a few other companies that have
requested authorization to provide local exchange service in the Company's
service areas. Over time, however, the Company anticipates that several more
companies will request authorization to provide competitive services, especially
in its operating areas located near larger urban areas.

In addition to receiving services directly from companies competing with
incumbent LECs, long distance companies and other users of toll service are
expected to increasingly seek other means to bypass LECs' switching services and
local distribution facilities. Certain interexchange carriers provide services
which allow users to divert their traffic from LECs' usage-sensitive services to
their flat-rate services. In addition, users or long distance companies may
construct, modify or lease facilities to transmit traffic directly from a user
to a long distance company. Cable television companies, in particular, may be
able to modify their networks to partially or completely bypass the Company's
local network. Moreover, users may choose to use wireless services to bypass
LECs' switching services. Although certain of the Company's telephone
subsidiaries have experienced a loss of traffic to such bypass, the Company
believes that the impact of such loss on revenues has not been significant.

Historically, cellular telephone services have complemented traditional LEC
services. However, the Company anticipates that existing and emerging wireless
technologies will increasingly compete with LEC services. Technological and
regulatory developments in cellular telephone, personal communications services,
digital microwave, coaxial cable, fiber optics, local-multipoint-distribution
services and other wired and wireless technologies are expected to further
permit the development of alternatives to traditional landline services. For
further information on certain of these developments, see "Wireless Operations -
Regulation and Competition."

To the extent that the telephone industry increasingly experiences
competition, the size and resources of each respective competitor may
increasingly influence its prospects. Many companies currently providing or
planning to provide competitive communication services have substantially
greater financial and marketing resources than the Company, and several are not
subject to the same regulatory constraints as the Company.

The Company anticipates that the traditional operations of LECs will be
increasingly impacted by continued technological developments as well as
legislative and regulatory initiatives affecting the ability of LECs to provide
new services and the capability of long distance companies, competitive local
exchange providers, wireless companies, cable television companies and others to
provide competitive LEC services. Competition relating to services traditionally
provided solely by LECs is expected to initially affect large urban areas to a
greater extent than rural, suburban and small urban areas such as those in which
the Company operates. The Company intends to actively monitor these
developments, to observe the effect of emerging competitive trends in initial
competitive markets and to continue to evaluate new business opportunities that
may arise out of future technological, legislative and regulatory developments.

The Company anticipates that regulatory changes and competitive pressures
may result in future revenue reductions in its telephone operations. However,
the Company anticipates that such reductions may be minimized by increases in
revenues attributable to the continued demand for enhanced services and new
product offerings. While the Company expects its telephone revenues to continue
to grow, its internal telephone revenue growth rate may slow during upcoming
periods.

CELLULAR OPERATIONS

At December 31, 1998, the Company's cellular holdings represented
approximately 10.1 million pops, of which 67% were applicable to MSAs and 33%
were RSA pops. According to data derived from published sources, the Company is
the tenth largest cellular telephone company in the United States based on the
Company's 10.1 million pops.

Cellular Industry

The cellular telephone industry has been in existence for approximately 15
years in the United States. The industry has grown significantly during this
period and cellular service is now available in substantially all areas of the
United States. According to the Cellular Telecommunications Industry
Association, at September 1998 there were estimated to be over 51 million
cellular customers across the United States.

Until recently, substantially all radio transmissions of cellular systems
were conducted on an analog basis. Technological developments involving the
application of digital radio technology offer certain advantages over analog
technologies, including expanding the capacity of mobile communications systems,
improving voice clarity, permitting the introduction of new services, and making
such systems more secure. Providers of certain services competitive with
cellular have incorporated digital technology into their operations. In recent
years most major cellular carriers have installed digital cellular voice
transmission facilities in certain of their systems, principally in larger
markets. Digital service is now available in 95% of the Company's MSA markets
and the Company plans to expand the marketing of such service during 1999. See
"-Regulation and Competition-Developments Affecting Wireless Competition."

Construction and Maintenance

The construction and maintenance of cellular systems is capital intensive.
Although all of the Company's MSA and RSA systems have been operational for
several years, the Company has continued to add cell sites to increase coverage,
provide additional capacity, and improve the quality of these systems. In 1998
the Company completed construction of 57 cell sites in markets operated by the
Company. At December 31, 1998, the Company operated 615 cell sites in its
majority-owned markets.

During the last few years the Company upgraded certain portions of its
cellular systems to be capable of providing digital service. Such service became
operational in certain markets during 1996 and 1997 using the TDMA digital
standard and the Company continued to install digital voice transmission
facilities in other markets in 1998. See "-Regulation and
Competition-Developments Affecting Wireless Competition." Capital expenditures
related to majority-owned and operated cellular systems totaled approximately
$49.5 million in 1998. Such capital expenditures for 1999 are anticipated to be
approximately $70 million.

Strategy

The Company's business development strategy for its cellular telephone
operations is to secure operating control of service areas that are
geographically clustered. Clustered cellular systems aid the Company's marketing
efforts and provide various operating and service advantages. Approximately 43%
of the Company's pops in markets operated by the Company are in a single,
contiguous cluster of eight MSAs and nine RSAs in Michigan; another 17% are in a
cluster of five MSAs and seven RSAs in northern and central Louisiana, southern
Arkansas and eastern Texas. See "-The Company's Cellular Interests."

Another component of the Company's strategy for cellular operations includes
capturing revenues from roaming service. Roaming service revenues are derived
from calls made in one cellular service area by subscribers from other service
areas. Roaming service is made possible by technical standards requiring that
cellular telephones be functionally compatible with the cellular systems in all
United States market areas. In exchange for providing roaming service to
customers of other cellular carriers, the Company charges premium rates to most
of these other carriers, who then frequently pass on some or all of these
premium rates to their own customers. The Company's Michigan cellular properties
include a significant portion of the interstate highway corridor between Chicago
and Detroit. Its Louisiana properties include an east-west interstate highway
and a north-south interstate highway which intersect in its Louisiana cellular
service area. Its Mississippi properties include two east-west interstate
highways and two north-south interstate highways. See "-Services, Customers and
System Usage."

Marketing

The Company markets its cellular services through several distribution
channels, including its direct sales force, retail outlets owned by the Company
and independent agents. All sales employees and certain independent agents
solicit cellular customers exclusively for the Company. Company sales employees
are compensated by salary and commission and independent sales agents are paid
commissions. The Company advertises its services through various means,
including direct mail, billboard, magazine, radio, television and newspaper
advertisements.

The sales and marketing costs of obtaining new subscribers include
advertising and a direct expense applicable to most new subscribers, either in
the form of a commission payment to an agent or an incentive payment to a direct
sales employee. In addition, the Company discounts the cost of cellular
telephone equipment, and periodically runs promotions which waive certain fees
or provide some amount of free service to new subscribers. The average cost of
acquiring each new customer ($268 in 1998) remains one of the larger expenses in
conducting the Company's cellular operations. In recent years, the Company has
sought to lower this average cost by focusing more on its direct distribution
channels. The Company opened its first retail outlet in 1994, and currently
operates 59 such outlets. During 1998, approximately 58% of new cellular
customers were added through direct distribution channels, up from 37% during
1996.

Services, Customers and System Usage

There are a number of different types of cellular telephones, all of which
are currently compatible with cellular systems nationwide. The Company sells a
full range of vehicle-mounted, transportable, and hand-held portable cellular
telephones.

The Company charges its subscribers for access to its systems, for minutes
of use and for enhanced services, such as voice mail. A subscriber may purchase
certain of these services separately or may purchase rate plans which bundle
these services in different ways and are designed to fit different calling
patterns. While the Company historically has typically charged its customers
separately for custom-calling features, air time in excess of the packaged
amount, and toll calls, it currently offers plans which include features such as
unlimited toll calls and unlimited weekend calling in certain calling areas.
Custom-calling features provided by the Company include call-forwarding,
call-waiting, three-way calling and no-answer transfer. The Company offers voice
message service in many of its markets. In the Company's markets where digital
service is operational, customers can subscribe to caller ID and other digital
enhancements.

Cellular customers come from a wide range of occupations and typically
include a large proportion of individuals who work outside of their office. In
recent years, the individual consumer market has generated a majority of new
customer additions. The Company's average monthly cellular service revenue per
customer declined to $57 in 1998 from $61 in 1997 and $63 in 1996. Such average
revenue per customer may further decline (i) as market penetration increases and
additional lower usage customers are activated and (ii) as competitive pressures
from current and future wireless communications providers intensify. See
"-Regulation and Competition."

Most cellular systems allow a customer to place or receive a call in a
cellular service area away from the customer's home market area. The Company has
entered into "roaming agreements" with operators of other cellular systems
covering virtually all markets in the United States; such agreements offer the
Company's customers the opportunity to roam in these markets. Also, a customer
of a participating non-Company system traveling in a market operated by the
Company where this arrangement is in effect is able to automatically make calls
on the Company's system. The charge to a non-Company customer for this service
is typically at premium rates, and is billed by the Company to the customer's
service provider, which then bills the customer. In most instances, based on
competitive factors and financial considerations, the Company charges an amount
to its customers that is equal to or lower than the amount actually charged by
the cellular carrier providing the roaming service. The Company anticipates that
competitive factors and industry consolidation may place further pressure on
charging premium roaming rates. For additional information on roaming revenue,
see "-Strategy."

Roamer fraud, a cellular industry problem, occurs when cellular telephone
equipment is programmed to conceal the true identity and location of the user.
The Company and the industry have implemented extensive fraud control processes
in an attempt to minimize roamer fraud.

Churn rate (the average percentage of cellular customers that terminate
service each month) is an industry-wide concern. A significant portion of the
churn in the Company's markets is due to the Company disconnecting service to
cellular customers for nonpayment of their bills. In addition, the Company faces
substantial competition from the other wireless providers, including PCS
providers. The Company's average monthly churn rate in its majority-owned and
operated markets was 2.23% in 1998 and 2.31% in 1997. The Company is attempting
to lower its churn rate by increasing its proactive customer service efforts and
through the implementation of additional customer retention programs.

During recent years, the Company's cellular subsidiaries experienced strong
subscriber growth in the fourth quarter, primarily due to holiday season sales.

The following table summarizes, among other things, certain information
about the Company's customers and market penetration:

Year ended or at December 31,
- -------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------

Majority-owned and operated MSA and
RSA systems (Note 1):
Cellular systems operated 44 44 34
Cell sites 615 558 354
Population of systems operated(Note 2) 9,026,150 9,008,219 7,097,568
Customers (Note 3):
At beginning of period 569,983 368,233 290,075
Gross units added internally 214,596 193,623 165,377
Net effect of property
acquisitions/dispositions - 123,600 4,850
Disconnects 160,460 115,473 92,069
At end of period 624,119 569,983 368,233
Market penetration at end of
period (Note 4) 6.9% 6.3 5.2
Churn rate (Note 5) 2.23% 2.31 2.37

Average monthly cellular service
revenue per customer $ 57 61 63
Construction expenditures (in thousands) $ 49,538 39,102 83,679
All operated MSA and RSA systems (Note 6):
Cellular systems operated 51 50 38
Cell sites 729 656 413
Population of systems
operated (Note 2) 10,312,145 10,124,759 7,946,442
Customers at end of period (Note 7) 689,181 632,446 407,400
Market penetration at end
of period (Note 8) 6.7% 6.2 5.1
Churn rate (Note 5) 2.34% 2.33 2.32
- -------------------------------------------------------------------------------

Notes:

1. Represents the number of systems in which the Company owned at least a 50%
interest. The revenues and expenses of these cellular markets, all of which
are operated by the Company, are included in the Company's consolidated
operating revenues and operating expenses.
2. Based on independent third-party population estimates for each respective
year.
3. Represents the approximate number of revenue-generating cellular telephones
served by the cellular systems referred to in note 1.
4. Computed by dividing the number of customers at the end of the period by the
total population of systems referred to in note 1.
5. Represents the average percentage of customers that are disconnected on a
monthly basis.
6. Represents the total number of systems that the Company operated, including
systems in which it does not own a majority interest.
7. Represents the approximate number of revenue-generating cellular telephones
served by the cellular systems referred to in note 6.
8 Computed by dividing the number of customers at the end of the period by the
total population of systems referred to in note 6.

The Company's Cellular Interests

The Company obtained the right to provide cellular service through (i) the
FCC's licensing process described below, under which it received interests in
wireline licenses, and (ii) its acquisition program, under which it has acquired
interests in both wireline and non-wireline licenses. The table below sets forth
certain information with respect to the interests in cellular systems that the
Company owned as of December 31, 1998:

The Other
1998 Company's cellular
population Ownership pops at operator
(Note 1) percentage 12/31/98 (Note 2)
- --------------------------------------------------------------------------------

Majority-owned and
operated MSAs
- -------------------
Pine Bluff, AR 81,588 100.00% 81,588 SBC
Texarkana, AR/TX 137,764 89.00 122,610 AT&T
Alexandria, LA 143,311 100.00 143,311 Centennial
Monroe, LA 147,570 87.00 128,386 AT&T
Shreveport, LA 379,370 87.00 330,052 AT&T
Battle Creek, MI 195,400 97.00 189,538 Centennial
Benton Harbor, MI 161,753 97.00 156,900 Centennial
Grand Rapids, MI 770,152 97.00 747,047 AirTouch
Jackson, MI 156,316 97.00 151,627 Centennial
Kalamazoo, MI 308,144 97.00 298,900 Centennial
Lansing-E. Lansing, MI 512,390 97.00 497,018 AirTouch
Muskegon, MI 191,712 97.00 185,961 AirTouch
Saginaw-Bay City-
Midland, MI 404,426 91.70 370,859 AirTouch
Biloxi-Gulfport, MS (Note 4) 232,431 96.45 224,182 Cellular South
Jackson, MS (Note 4) 426,583 89.58 382,130 MCTA
Pascagoula, MS (Note 4) 130,979 89.22 116,862 Cellular South
Brownsville-
Harlingen, TX (Note 4) 329,824 78.74 259,700 SBC
McAllen-Edinburg-
Mission, TX (Note 4) 525,734 69.50 365,372 SBC
Appleton-Oshkosh-
Neenah, WI 500,164 98.85 494,401 U.S. Cellular
Eau Claire, WI 143,664 55.50 79,734 American Cellular
LaCrosse, WI 102,768 95.00 97,630 U. S. Cellular
- -----------------------------------------------------------
5,982,043 5,423,808
- -----------------------------------------------------------

Minority-owned MSAs (Note 3)
- ---------------------------
Little Rock, AR 555,272 36.00% 199,898
Lafayette, LA 262,964 49.00 128,852
Detroit, MI 4,761,992 3.20 152,289
Flint, MI 511,788 3.20 16,367
Rochester, MN 113,844 2.93 3,336
Austin, TX 1,016,912 35.00 355,919
Dallas-Ft. Worth, TX 4,630,120 0.50 23,151
Sherman-Denison, TX 102,618 0.50 513
Madison, WI 702,398 9.78 68,688
Milwaukee, WI 1,972,973 17.96 354,405
- -----------------------------------------------------------
14,630,881 1,303,418
- -----------------------------------------------------------
Total MSAs 20,612,924 6,727,226
- -----------------------------------------------------------

Operated RSAs
- -------------
Alaska 1 (Note 4) 85,056 100.00% 85,056 Mactel
Alaska 3 74,712 100.00 74,712 Mercury
Arkansas 2 87,646 82.00 71,870 SBC
Arkansas 3 103,724 82.00 85,054 SBC
Arkansas 11 66,228 89.00 58,943 SBC
Arkansas 12 185,325 80.00 148,260 SBC
Louisiana 1 112,083 87.00 97,512 AT&T
Louisiana 2 115,624 87.00 100,593 AT&T
Louisiana 3 B2 96,231 87.00 83,721 Centennial
Louisiana 4 72,615 100.00 72,615 Centennial
Michigan 1 196,408 100.00 196,408 American Cellular
Michigan 2 113,772 100.00 113,772 RFB
Michigan 3 164,586 42.84 70,509 Unitel
Michigan 4 135,657 100.00 135,657 RFB
Michigan 5 161,584 42.84 69,223 Unitel
Michigan 6 142,356 98.00 139,509 Centennial
Michigan 7 244,148 56.07 136,895 Centennial
Michigan 8 101,746 97.00 98,694 Allegan Cellular
Michigan 9 301,227 43.38 130,672 Centennial
Mississippi 2 (Note 4) 249,231 100.00 249,231 Bell South
Mobility
Mississippi 5 159,176 - -
Mississippi 6 (Note 4) 183,177 100.00 183,177 Cellular South
Mississippi 7 (Note 4) 181,661 100.00 181,661 MCTA
Texas 7 B6 58,013 89.00 51,632 AT&T
Wisconsin 1 112,351 42.21 47,421 American Cellular
Wisconsin 2 86,024 99.00 85,164 American Cellular
Wisconsin 5 95,903 - - American Cellular
Wisconsin 6 116,145 57.14 66,369 U.S. Cellular
Wisconsin 7 291,168 22.70 66,100 U.S. Cellular
Wisconsin 8 236,525 84.00 198,681 U.S. Cellular
- -----------------------------------------------------------
4,330,102 3,099,111
- -----------------------------------------------------------

Non-operated RSAs (Note 3)
- --------------------------
Michigan 10 137,398 26.00 35,723
Minnesota 7 172,206 2.93 5,046
Minnesota 8 67,467 2.93 1,977
Minnesota 9 134,073 2.93 3,928
Minnesota 10 230,077 2.93 6,741
Minnesota 11 205,949 2.93 6,034
Texas 16 334,056 9.60 32,069
Washington 5 60,311 8.47 5,109
Washington 8 137,237 7.36 10,095
Wisconsin 3 142,332 42.86 61,000
Wisconsin 4 119,763 25.00 29,941
Wisconsin 10 129,404 22.50 29,116
- -----------------------------------------------------------
1,870,273 226,779
- -----------------------------------------------------------
Total RSAs 6,200,375 3,325,890
- -----------------------------------------------------------
26,813,299 10,053,116
- -----------------------------------------------------------

Notes:

1. Based on 1998 independent third-party population estimates.
2. Information provided to the best of the Company's knowledge. There is also at
least one PCS competitor in each of the operated MSAs and certain of the
operated RSAs.
3. Markets not operated by the Company.
4. Represents a non-wireline interest.

For information on certain cellular properties that the Company has agreed to
sell, see "-Recent acquisitions and dispositions" above.

Operations

A substantial number of the cellular systems in MSAs operated by the Company
are owned by limited partnerships in which the Company is a general partner
("MSA Partnerships"). Most of these partnerships are governed by partnership
agreements with similar terms, including, among other things, customary
provisions concerning capital contributions, sharing of profits and losses, and
dissolution and termination of the partnership. Most of these partnership
agreements vest complete operational control of the partnership with the general
partner. The general partner typically has the power to manage, supervise and
conduct the affairs of the partnership, make all decisions appropriate in
connection with the business purposes of the partnership, and incur obligations
and execute agreements on behalf of the partnership. The general partner also
may make decisions regarding the time and amount of cash contributions and
distributions, and the nature, timing and extent of construction, without the
consent of the other partners. The Company owns more than 50% of all of the MSA
Partnerships.

A substantial number of the cellular systems in RSAs operated by the Company
are also owned by limited or general partnerships in which the Company is either
the general or managing partner (the "RSA Partnerships"). These partnerships are
governed by partnership agreements with varying terms and provisions. In many of
these partnerships, the noncontrolling partners have the right to vote on major
issues such as the annual budget and system design. In a few of these
partnerships, the Company's management position is for a limited term (similar
to a management contract) and the other partners in the partnership have the
right to change managers, with or without cause. The Company owns less than 50%
of some of the RSA Partnerships.

The partnership agreements for both the MSA Partnerships and RSA
Partnerships generally contain provisions granting all partners a right of first
refusal in the event a partner desires to transfer a partnership interest. This
restriction on transfer can under certain circumstances make these partnership
interests more difficult to sell to a third party.

Revenue

The following table reflects the major revenue categories for the Company's
wireless operations as a percentage of wireless operating revenues in 1998, 1997
and 1996.

1998 1997 1996
- ----------------------------------------------------------------------------

Cellular access fees and toll revenues 74.2% 78.2 79.7
Cellular roaming 23.6 20.0 18.6
Equipment sales 2.2 1.8 1.7
- ----------------------------------------------------------------------------
100.0% 100.0 100.0
============================================================================

For further information on these revenue categories, see
"-Services, Customers and System Usage."

Regulation and Competition

As discussed below, the FCC and various state public utility commissions
regulate, among other things, the licensing, construction, operation,
interconnection arrangements, sale and acquisition of cellular telephone
systems.

Competition between providers of wireless communications service in each
market is conducted principally on the basis of price, services and enhancements
offered, the technical quality and coverage of the system, and the quality and
responsiveness of customer service. As discussed below, competition has
intensified in recent years in a substantial number of the Company's markets.
Under applicable law, the Company is required to permit the reselling of its
services. In certain larger markets and in certain market segments, competition
from resellers may be significant. There is also substantial competition for
sales agents. Certain of the Company's competitors have substantially greater
assets and resources than the Company.

Cellular licensing process. The term "MSA" means a Metropolitan Statistical
Area for which the FCC has granted a cellular operating license. The term "RSA"
means a Rural Service Area for which the FCC has granted a cellular operating
license. During the 1980's and early 1990's, the FCC awarded two 10-year
licenses to provide cellular service in each MSA and RSA market. Initially, one
license was reserved for companies offering local telephone service in the
market (the wireline carrier) and one license was available for firms
unaffiliated with the local telephone company (the non-wireline carrier). Since
mid-1986, the FCC has permitted telephone companies or their affiliates to
acquire control of non-wireline licenses in markets in which they do not hold
interests in the wireline license. The FCC has issued a decision that grants a
renewal expectancy during the license renewal period to incumbent licensees that
substantially comply with the terms and conditions of their cellular
authorizations and the FCC's regulations. The licenses for the MSA markets
operated by the Company were initially granted between 1984 and 1987, and
licenses for operated RSAs were initially granted between 1989 and 1991. Thus
far, the Company has received 10-year extensions of all of its licenses that
have become subject to renewal since their original grant dates.

The completion of an acquisition involving the transfer of control of a
cellular system requires prior FCC approval and, in certain cases, receipt of
other federal and state regulatory approvals. The acquisition of a minority
interest generally does not require FCC approval. Whenever FCC approval is
required, any interested party may file a petition to dismiss or deny the
application for approval of the proposed transfer.

In addition to regulation by the FCC, cellular systems are subject to
certain Federal Aviation Administration tower height regulations concerning the
siting and construction of cellular transmitter towers and antennas.

Cellular operators are also subject to state and local regulation in some
instances. Although the FCC has pre-empted the states from exercising
jurisdiction in the areas of licensing, technical standards and market
structure, certain states require cellular operators to be certified. In
addition, some state authorities regulate certain aspects of a cellular
operator's business, including certain aspects of pricing, the resale of long
distance service to its customers, the technical arrangements and charges for
interconnection with the landline network, and the transfer of interests in
cellular systems. The siting and construction of the cellular facilities may
also be subject to state or local zoning, land use and other local regulations.

Developments affecting wireless competition. Competition in the wireless
communications industry has increased due to continued and rapid technological
advances in the communications field, coupled with legislative and regulatory
changes.

Several recent FCC initiatives over the past several years have resulted in
the allocation of additional radio spectrum or the issuance of licenses for
emerging mobile communications technologies that are competitive with the
Company's cellular and telephone operations, including personal communication
services ("PCS"). Although there is no universally recognized definition of PCS,
the term is generally used to refer to wireless services to be provided by
licensees operating in the 1850 MHz to 1990 MHz radio frequency band using
microcells and high-capacity digital technology. In 1996 and early 1997 the FCC
auctioned up to six PCS licenses per market. Two 30MHz frequency blocks were
awarded for each of the 51 Rand McNally Major Trading Areas ("MTAs"), while one
30MHz and three 10MHz frequency blocks were awarded for each of the 493 Rand
McNally Basic Trading Areas ("BTAs").

PCS technology permits PCS operators to offer wireless voice, data, image
and multimedia services. The largest PCS providers commenced initial operations
in late 1996 and since then have aggressively expanded their operations. These
providers have initially focused on larger markets, and have generally marketed
PCS as being a competitive service to cellular. Many of these companies have
aggressively competed for customers on the basis of price, which has placed
downward pressure on cellular prices. There is at least one PCS competitor in
each of the Company's operated MSAs and certain of its operated RSAs.

In addition to PCS, users and potential users of cellular systems may find
their communication needs satisfied by other current and developing
technologies. Several years ago the FCC authorized the licensees of certain
specialized mobile radio service ("SMR") systems (which historically have
generally been used by taxicabs and tow truck operators) to configure their
systems into digital networks that operate in a manner similar to cellular
systems. Such systems are commonly referred to as enhanced specialized mobile
radio service ("ESMR") systems. The Company believes that ESMR systems are
operating in a few of its cellular markets. One well-established ESMR provider
has constructed a nationwide digital mobile communications system to compete
with cellular systems. Other similar communication services that have the
technical capability to handle wireless telephone calls may provide competition
in certain markets, although these services currently lack the subscriber
capacity of cellular systems. Paging or beeper services that feature text
message and data display as well as tones may be adequate for potential
subscribers who do not need to converse directly with the caller. Mobile
satellite systems, in which transmissions are between mobile units and
satellites, may ultimately be successful in obtaining market share from cellular
systems that communicate directly to land-based stations.

In recent years, several large cellular providers have merged with other
companies or formed joint ventures. Several of these joint ventures pooled their
resources to develop extensive PCS systems. Many current or potential
competitors of the Company have substantially greater financial and marketing
resources than the Company.

Although it is uncertain how PCS, SMR, ESMR, mobile satellites and other
emerging technologies will ultimately affect the Company, the Company
anticipates that it will continue to face increased competition in its operating
markets. However, management believes that providing digital services and
applying new microcellular technologies will permit its cellular systems to
provide services comparable with the emerging technologies described above,
although no assurances can be given that this will happen or that future
technological advances or legislative or regulatory changes will not create
additional sources of competition.

OTHER OPERATIONS

The Company provides long distance, call center, security monitoring, cable
television and interactive services in certain local and regional markets, as
well as certain printing and related services. The results of these operations,
which accounted for 4.9% and 3.2%, respectively, of the Company's consolidated
revenues and operating income during 1998, are reflected for financial reporting
purposes in the "Other operations" section in operating income.

Long distance. In 1996 the Company began marketing long distance service in
all of its equal access telephone operating areas. At December 31, 1998, the
Company provided long distance services to approximately 227,000 customers.
Approximately 65% of the Company's long distance revenues are derived from
service provided to residential customers. Although the Company owns and
operates long distance switches in LaCrosse, Wisconsin and San Marcos, Texas, it
anticipates that most of its future long distance service revenues will be
provided by reselling service purchased from other facilities-based long
distance providers. The Company intends to continue to expand its long distance
business, principally through reselling arrangements.

Call center. The Company provides certain operator services for retail and
wholesale markets. The retail market consists primarily of the hospitality and
payphone industries. The wholesale market consists of other independent
telephone companies and interexchange carriers.

PCS. In early 1997 the Company was awarded 12 PCS licenses, 11 of which are
in Michigan, in connection with the FCC's auctions of 10MHz PCS licenses. The
licenses cover areas with a population of approximately 4.0 million. As a result
of the PTI acquisition, the Company acquired PCS licenses that cover areas with
a population of approximately 4.1 million. In 1998, the Company began marketing
PCS service in select Michigan markets as a fixed wireless local loop
alternative to the LEC's service in these markets. Approximately $15 million of
the Company's 1999 capital expenditure budget is for development of the
Company's PCS networks.

Security monitoring. The Company offers 24-hour burglary and fire monitoring
services to approximately 6,000 customers in select markets in Louisiana,
Arkansas, Mississippi, Texas and Ohio. The Company plans to expand the
availability of this service to more of its markets in 1999.

Other. The Company, through one or more of its subsidiaries, provides
audiotext services; printing, database management and direct mail services; and
cable television services. In connection with its long-range plans to sell
capacity to other carriers in or near certain of its select markets, the Company
is currently constructing a $20 million 650-to 700-mile fiber optic ring
connecting several communities in southern and central Michigan. The Company
also holds minority equity investments in certain communications companies, and
is in the process of developing deployment plans for 32 Local Multipoint
Distribution System licenses acquired by the Company in 1998.

Certain service subsidiaries of the company provide installation and
maintenance services, materials and supplies, and managerial, technical and
accounting services to the telephone and wireless operating subsidiaries. In
addition, Century provides and bills management services to subsidiaries and in
certain instances makes interest-bearing advances to finance construction of
plant and purchases of equipment. These transactions are recorded by the
Company's regulated telephone subsidiaries at their cost to the extent permitted
by regulatory authorities. Intercompany profit on transactions with regulated
affiliates is limited to a reasonable return on investment and has not been
eliminated in connection with consolidating the results of operations of Century
and its subsidiaries. Such intercompany profit is reflected in operating income
in the "Other operations" segment.

FORWARD-LOOKING STATEMENTS

This report on Form 10-K and other documents filed by the Company under the
federal securities laws include, and future oral or written statements of the
Company and its management may include, certain forward-looking statements,
including without limitation statements with respect to the Company's
anticipated future operating and financial performance (including the impact of
pending acquisitions), financial position and liquidity, growth opportunities
and growth rates, business prospects, regulatory and competitive outlook,
investment and expenditure plans, financing sources, pricing plans, strategic
alternatives, business strategies, and other similar statements of expectations
or objectives that are highlighted by words such as "expects," "anticipates,"
"intends," "plans," "believes," "projects," "seeks," "estimates," "should," and
"may," and variations thereof and similar expressions. Such forward-looking
statements are inherently speculative and are based upon several assumptions
concerning future events, many of which are outside of the Company's control.
The Company's forward-looking statements, and the assumptions upon which such
statements are based, are subject to uncertainties that could cause the
Company's actual results to differ materially from such statements. These
uncertainties include but are not limited to those set forth below:

o the effects of ongoing deregulation in the telecommunications industry as
a result of the 1996 Act and other similar federal and state legislation and
federal and state regulations enacted thereunder, including without limitation
(i) greater than anticipated interconnection requests or competition in the
Company's predominately rural local exchange telephone markets resulting
therefrom, (ii) greater than anticipated reductions in revenues received from
the Universal Service Fund or other current or future federal and state support
funds designed to compensate LECs that provide services in high-cost markets,
(iii) the final outcome of regulatory and judicial proceedings with respect to
interconnection agreements and access charge reforms and (iv) future regulatory
actions taken in response to the 1996 Act.

o the effects of greater than anticipated competition from PCS, SMR, ESMR,
satellite or other wireless companies, including without limitation competition
requiring new pricing or marketing strategies or new product offerings, and the
attendant risk that the Company will not be able to respond on a timely or
profitable basis.

o possible changes in the demand for the Company's products and services,
including without limitation (i) lower than anticipated demand for traditional
or premium telephone services or for additional access lines per household, (ii)
lower than anticipated demand for wireless telephone services, whether caused by
changes in economic conditions, technology, competition, health concerns or
otherwise, and (iii) reduced demand for the Company's access or billing and
collection services.

o the Company's ability to successfully introduce new offerings on a timely
and cost-effective basis, including without limitation the Company's ability to
(i) expand successfully its long distance and Internet offerings to new markets
(including those acquired in December 1997 in the PTI acquisition or to be
acquired in connection with future acquisitions), (ii) offer bundled service
packages on terms attractive to its customers, (iii) offer digital cellular
service and (iv) successfully initiate PCS and data services in its targeted
markets.

o the risks inherent in rapid technological change, including without
limitation (i) the lack of assurance that the Company's ongoing wireless network
improvements will be sufficient to meet or exceed the capabilities and quality
of competing networks, (ii) technological developments that could make the
Company's analog and digital wireless networks uncompetitive or obsolete, such
as the risk that the Time Division Multiple Access technology used by the
Company will be uncompetitive with Code Division Multiple Access or other
digital technologies, and (iii) the risk that technologies will not be developed
by the Company on a timely or cost-effective basis or perform according to
expectations.

o the Company's ability to effectively manage its growth, including without
limitation the Company's ability to (i) integrate newly-acquired operations into
the Company's operations, (ii) attract and retain technological and other key
personnel to work at the Company's Monroe, Louisiana headquarters or regional
offices, (iii) achieve projected economies of scale and cost savings, (iv) meet
pro forma cash flow projections developed by management in valuing
newly-acquired businesses and (v) implement necessary internal controls.

o the success and expense of the remediation efforts of the Company and its
vendors in achieving year 2000 compliance (as discussed in greater detail in
Item 7 of this report).

o regulatory limits on the Company's ability to change its prices for
telephone services in response to competitive pressures.

o any difficulties in the Company's ability to expand through additional
acquisitions, whether caused by financing constraints, a decrease in the pool of
attractive target companies, or competition for acquisitions from other
interested buyers.

o higher than anticipated wireless operating costs due to churn or to
fraudulent uses of the Company's networks.

o the lack of assurance that the Company can compete effectively against
better-capitalized competitors.

o the future unavailability of SFAS 71 to the Company's telephone
subsidiaries.

o the effects of more general factors, including without limitation:

. changes in general industry and market conditions and growth rates
. changes in interest rates or other general national, regional or local
economic conditions
. changes in legislation, regulation or public policy, including changes
in federal rural financing programs
. unanticipated increases in capital, operating or administrative costs,
or the impact of new business opportunities requiring significant
up-front investments
. the continued availability of financing in amounts, and on terms and
conditions,necessary to support the Company's operations
. changes in the Company's relationships with vendors
. changes in the Company's senior debt ratings
. unfavorable outcomes of regulatory or legal proceedings, including
rate proceedings
. changes in accounting policies or practices adopted voluntarily or as
required by generally accepted accounting principles.

For additional information, see the description of the Company's business
included above, as well as Item 7 of this report. Due to these uncertainties,
you are cautioned not to place undue reliance upon the Company's forward-looking
statements, which speak only as of the date hereof. The Company undertakes no
obligation to update or revise any of its forward-looking statements for any
reason.

OTHER MATTERS

The Company has certain obligations based on federal, state and local laws
relating to the protection of the environment. Costs of compliance through 1998
have not been material and the Company currently has no reason to believe that
such costs will become material.

For additional information concerning the business and properties of the
Company, see notes 2, 4, 6, and 18 of Notes to Consolidated Financial Statements
set forth in Item 8 elsewhere herein.

Item 2. Properties.

The Company's properties consist principally of (i) telephone lines, central
office equipment, telephone instruments and related equipment, and land and
buildings related to telephone operations, and (ii) switching and cell site
equipment related to cellular telephone operations. As of December 31, 1998 and
1997, the Company's gross property, plant and equipment of approximately $4.3
billion and $3.8 billion, respectively, consisted of the following:

December 31,
- --------------------------------------------------------------
1998 1997
- --------------------------------------------------------------

Telephone operations
Cable and wire 47.7% 47.9
Central office equipment 27.9 27.9
General support 6.3 6.7
Information origination/termination
equipment 1.7 1.7
Construction in progress 1.5 1.4
Other .2 .2
- --------------------------------------------------------------
85.3 85.8
- --------------------------------------------------------------

Cellular operations
Cell site 7.4 7.4
General support 1.9 1.7
Construction in progress .6 .6
Other .1 .1
- --------------------------------------------------------------
10.0 9.8
- --------------------------------------------------------------
Other 4.7 4.4
- --------------------------------------------------------------
100.0% 100.0
==============================================================

"Cable and wire" facilities consist primarily of buried cable and aerial
cable, poles, wire, conduit and drops. "Central office equipment" consists
primarily of switching equipment, circuit equipment and related facilities.
"General support" consists primarily of land, buildings, tools, furnishings,
fixtures, motor vehicles and work equipment. "Information
origination/termination equipment" consists primarily of premise equipment
(private branch exchanges and telephones) for official company use. "Cell site"
consists primarily of radio frequency channel equipment, switching equipment and
towers. "Construction in progress" includes property of the foregoing categories
that has not been placed in service because it is still under construction.

Most of the properties of the Company's telephone subsidiaries are subject
to mortgages securing the debt of such companies. The Company owns substantially
all of the central office buildings, local administrative buildings, warehouses,
and storage facilities used in its telephone operations. The Company leases most
of the offices used in its cellular operations; certain of its transmitter sites
are leased while others are owned by the Company. For further information on the
location and type of the Company's properties, see the descriptions of the
Company's telephone and cellular operations in Item 1.

Item 3. Legal Proceedings.

From time to time, the Company is involved in litigation incidental to its
business, including administrative hearings of state public utility commissions
relating primarily to rate making, actions relating to employee claims,
occasional grievance hearings before labor regulatory agencies and miscellaneous
third party tort actions. Currently, there are no material legal proceedings.

Item 4. Submission of Matters to a Vote of Security Holders.

Not applicable.

Executive Officers of the Registrant

Information concerning Executive Officers, set forth at Item 10 in Part III
hereof, is incorporated in Part I of this Report by reference.

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

Century's common stock is listed on the New York Stock Exchange and is traded
under the symbol CTL. The following table sets forth the high and low sale
prices, along with the quarterly dividends, for each of the quarters indicated
(adjusted to reflect the March 1999 three-for-two stock split):

Sale prices
---------------- Dividend per
High Low common share
---- --- ------------

1998:
First quarter $ 27-3/8 21-9/16 .0433
Second quarter $ 33-5/16 27-1/16 .0433
Third quarter $ 35-1/8 29-15/16 .0433
Fourth quarter $ 45-3/16 30-1/16 .0433

1997:
First quarter $ 14-7/8 12-3/4 .0411
Second quarter $ 15-1/16 12-11/16 .0411
Third quarter $ 19-9/16 14-11/16 .0411
Fourth quarter $ 22-7/16 18-1/4 .0411

Common stock dividends during 1997 and 1998 were paid each quarter. As of
February 28, 1999, there were approximately 6,054 stockholders of record of
Century's common stock.

Item 6. Selected Financial Data.

The following table presents certain selected consolidated financial data as
of and for each of the years ended in the five-year period ended December 31,
1998:

Selected Income Statement Data

Year ended December 31,
--------------------------------------------------
1998 1997 1996 1995 1994
--------------------------------------------------
(Dollars, except per share amounts,and
shares expressed in thousands)

Operating revenues
Telephone $ 1,091,610 530,597 451,538 419,242 391,265
Cellular 407,749 307,742 250,243 197,494 150,802
Other 77,726 63,182 47,896 28,104 22,534
-------------------------------------------------
Total operating revenues $ 1,577,085 901,521 749,677 644,840 564,601
=================================================

Operating income
Telephone $ 333,708 173,285 155,183 143,527 137,992
Cellular 130,580 88,081 67,914 57,009 31,443
Other 15,523 6,404 199 2,383 3,371
-------------------------------------------------
Total operating income $ 479,811 267,770 223,296 202,919 172,806
=================================================

Gain on sale or exchange
of assets (pre-tax) $ 49,859 169,640 815 6,782 15,877
=================================================

Net income $ 228,757 255,978 129,077 114,776 100,238
================================================

Diluted earnings
per share * $ 1.64 1.87 .95 .87 .80
================================================

Dividends per
common share * $ .173 .164 .16 .147 .142
================================================

Average diluted shares
outstanding * 140,105 137,412 135,980 132,456 130,242
================================================
* Adjusted to reflect the March 1999 three-for-two stock split

Selected Balance Sheet Data

December 31,
------------------------------------------------------
1998 1997 1996 1995 1994
------------------------------------------------------
(Dollars in thousands)

Net property, plant
and equipment $ 2,351,453 2,258,563 1,149,012 1,047,808 947,131
Excess cost of net
assets acquired, net $ 1,956,701 1,767,352 532,410 493,655 441,436
Total assets $ 4,935,455 4,709,401 2,028,505 1,862,421 1,643,253
Long-term debt $ 2,558,000 2,609,541 625,930 622,904 518,603
Stockholders' equity $ 1,531,482 1,300,272 1,028,153 888,424 650,236
------------------------------------------------------

The following table presents certain selected consolidated operating data as
of the end of each of the years in the five-year period ended December 31, 1998:

December 31,
------------------------------------------------------
1998 1997 1996 1995 1994
------------------------------------------------------

Telephone access lines 1,346,567 1,203,650 503,562 480,757 454,963
Cellular units in service
in majority-owned markets 624,119 569,983 368,233 290,075 211,710
Long distance customers 226,730 171,962 110,560 46,608 27,632
------------------------------------------------------

See Items 1 and 2 in Part I and notes 1, 2 and 6 of Notes to Consolidated
Financial Statements set forth in Item 8 elsewhere herein for additional
information.

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations

RESULTS OF OPERATIONS

OVERVIEW

Century Telephone Enterprises, Inc., which operates under the trade name of
CenturyTel, and its subsidiaries (the "Company"), is a regional diversified
communications company engaged primarily in providing local exchange telephone
services and cellular telephone communications services. At December 31, 1998,
the Company's local exchange telephone subsidiaries operated over 1.3 million
telephone access lines primarily in rural, suburban and small urban areas in 21
states, and the Company's majority-owned and operated cellular entities had more
than 624,000 cellular subscribers. On December 1, 1997, the Company
significantly expanded its operations by acquiring Pacific Telecom, Inc. ("PTI")
for $1.503 billion cash. As a result of the acquisition, the Company acquired
(i) over 660,000 telephone access lines, (ii) over 88,000 cellular subscribers
and (iii) various wireless, cable television and other communications assets. On
December 1, 1998, the Company acquired from affiliates of Ameritech Corporation
("Ameritech") telephone operations serving 86,000 access lines in northern and
central Wisconsin and the related telephone directories for approximately $221
million cash. The operations of PTI are included in the Company's results of
operations beginning December 1, 1997 and the operations of the former Ameritech
properties are included in the Company's results of operations beginning
December 1, 1998. See Acquisitions and Note 2 of Notes to Consolidated Financial
Statements for additional information. During the three years ended December 31,
1998, the Company has acquired various other telephone and cellular operations,
the impact of which has not been material to the financial position and results
of operations of the Company.

The net income of the Company for 1998 was $228.8 million, compared to $256.0
million during 1997 and $129.1 million during 1996. Diluted earnings per share
for 1998 were $1.64 compared to $1.87 in 1997 and $.95 in 1996. Excluding gain
on sale or exchange of assets, the Company's net income (and diluted earnings
per share) for 1998, 1997 and 1996 was $198.2 million ($1.42), $149.6 million
($1.09) and $128.6 million ($.95), respectively.

Year ended December 31, 1998 1997 1996
- --------------------------------------------------------------------------------
(Dollars, except per share amounts,
and shares in thousands)

Operating income
Telephone $ 333,708 173,285 155,183
Cellular 130,580 88,081 67,914
Other 15,523 6,404 199
- --------------------------------------------------------------------------------
479,811 267,770 223,296
Gain on sale or exchange of
assets, net 49,859 169,640 815
Interest expense (167,552) (56,474) (44,662)
Income from unconsolidated
cellular entities 32,869 27,794 26,952
Minority interest (12,797) (5,498) (6,675)
Other income and expense 5,268 5,109 3,916
Income tax expense (158,701) (152,363) (74,565)
- --------------------------------------------------------------------------------
Net income $ 228,757 255,978 129,077
================================================================================
Diluted earnings per share* $ 1.64 1.87 .95
================================================================================
Average diluted shares
outstanding* 140,105 137,412 135,980
================================================================================
*Adjusted to reflect stock split in early 1999. See Note 21 of
Notes to Consolidated Financial Statements.

The Company's operating income for 1998 was $479.8 million, an increase of
$212.0 million (79.2%) over 1997 operating income of $267.8 million. During 1998
the operating income of the Company's telephone and wireless segments increased
$160.4 million (92.6%) and $42.5 million (48.2%), respectively, while the
operating income of the Company's other operations increased $9.1 million
(142.4%). The Company's operating income for 1996 was $223.3 million.

Contributions to operating revenues and operating income by the Company's
telephone, wireless and other operations for each of the years in the three-year
period ended December 31, 1998 were as follows:

Year ended December 31, 1998 1997 1996
- ---------------------------------------------------------------------------

Operating revenues
Telephone operations 69.2% 58.9 60.2
Wireless operations 25.9% 34.1 33.4
Other operations 4.9% 7.0 6.4
Operating income
Telephone operations 69.6% 64.7 69.5
Wireless operations 27.2% 32.9 30.4
Other operations 3.2% 2.4 .1
- ---------------------------------------------------------------------------

As indicated by the chart above, the percentage of the Company's total
operating revenues and operating income contributed by its telephone operations
significantly increased during 1998 as a result of the Company's acquisition of
PTI on December 1, 1997.

In addition to historical information, management's discussion and analysis
includes certain forward-looking statements regarding events and financial
trends that may affect the Company's future operating results and financial
position. Such forward-looking statements are subject to uncertainties that
could cause the Company's actual results to differ materially from such
statements. Such uncertainties include but are not limited to: the effects of
ongoing deregulation in the telecommunications industry; the effects of greater
than anticipated competition in the Company's markets; possible changes in the
demand for the Company's products and services; the Company's ability to
successfully introduce new offerings on a timely and cost-effective basis; the
risks inherent in rapid technological change; the Company's ability to
effectively manage its growth, including integrating newly-acquired properties
into the Company's operations; the success and expense of the remediation
efforts of the Company and its vendors in achieving year 2000 compliance; and
the effects of more general factors such as changes in general market or
economic conditions or in legislation, regulation or public policy. These and
other uncertainties related to the business are described in greater detail in
Item 1 to the Company's Annual Report on Form 10-K for the year ended December
31, 1998. You are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. The Company undertakes no
obligation to update any of its forward-looking statements for any reason.

TELEPHONE OPERATIONS

The Company conducts its telephone operations in rural, suburban and small
urban communities in 21 states. As of December 31, 1998, approximately 86% of
the Company's 1.3 million telephone access lines were in Wisconsin, Washington,
Alaska, Michigan, Louisiana, Colorado, Ohio, Oregon and Montana. In August 1998
the Company entered into a definitive agreement to sell all of its operations in
Alaska. This transaction is expected to close in the second quarter of 1999. As
of December 31, 1998, the Company had approximately 132,000 access lines in
Alaska. The operating revenues, expenses and income of the Company's telephone
operations for 1998, 1997 and 1996 are summarized below.

Year ended December 31, 1998 1997 1996
- --------------------------------------------------------------------
(Dollars in thousands)

Operating revenues
Local service $ 331,736 147,589 121,728
Network access 629,583 319,301 276,123
Other 130,291 63,707 53,687
- --------------------------------------------------------------------
1,091,610 530,597 451,538
- --------------------------------------------------------------------

Operating expenses
Plant operations 245,164 110,220 90,083
Customer operations 92,552 50,819 43,413
Corporate and other 157,293 80,551 67,066
Depreciation and amortization 262,893 115,722 95,793
- --------------------------------------------------------------------
757,902 357,312 296,355
- --------------------------------------------------------------------
Operating income $ 333,708 173,285 155,183
====================================================================

Local service revenues

Local service revenues are derived from the provision of local exchange
telephone services in the Company's service areas. The $184.1 million (124.8%)
increase in such revenues in 1998 included $171.0 million from acquired
properties, of which $169.2 million was from the PTI properties; $10.7 million
due to the internal increase in the number of customer access lines; and $3.0
million due to the increased provision of custom calling features. The $25.9
million increase in revenues in 1997 included $17.4 million from acquired
properties, of which $15.0 million was from the PTI properties; $5.6 million due
to the internal increase in the number of customer access lines; and $2.8
million due to the increased provision of custom calling features. Internal
access line growth during 1998, 1997 and 1996 was 4.7%, 4.4% and 4.3%,
respectively.

Network access revenues

Network access revenues are primarily derived from charges to long distance
companies and other customers for access to the Company's local exchange carrier
("LEC") networks in connection with the completion of long distance telephone
calls. These access charges are based on tariffed access rates filed with the
Federal Communications Commission ("FCC") for interstate services and with the
respective state regulatory agency for intrastate services. Certain of the
Company's interstate network access revenues are based on access charges filed
directly with the FCC; the remainder of such revenues are derived under revenue
sharing arrangements with other LECs administered by the National Exchange
Carrier Association. Intrastate network access revenues are based on access
charges or are derived under revenue sharing arrangements with other LECs.

Network access revenues increased $310.3 million (97.2%) in 1998 and $43.2
million in 1997 due to the following factors:

1998 1997
increase increase
(decrease) (decrease)
- --------------------------------------------------------------------------------
(Dollars in thousands)

PTI acquisition $ 278,471 26,040
Increased recovery from the federal
Universal Service Fund ("USF") 8,329 11,314
Increased minutes of use 8,846 5,033
Acquisitions, excluding PTI 1,013 3,465
Partial recovery of increased operating
costs through revenue sharing arrangements
with other telephone companies and return
on rate base 10,440 2,454
Other, net 3,183 (5,128)
- --------------------------------------------------------------------------------
$ 310,282 43,178
================================================================================

Included in "Other, net" for 1998 and 1997 were decreases of $1.8 million and
$3.8 million, respectively, in access revenues due to the reductions in
intrastate switched access rates mandated by the Louisiana Public Service
Commission ("LPSC") which were phased in from July 1995 through July 1997.

Other revenues

Other revenues include revenues related to (i) leasing, selling, installing,
maintaining and repairing customer premise telecommunications equipment and
wiring ("CPE services"), (ii) providing billing and collection services for long
distance carriers, (iii) participating in the publication of local directories
and (iv) providing Internet access. Acquisitions contributed $60.7 million
(which includes $60.3 million related to PTI) to the $66.6 million increase in
other revenues in 1998. Exclusive of acquisitions, revenues from the provision
of Internet access and CPE services increased $3.9 million and $3.5 million,
respectively, in 1998. Other revenues increased $10.0 million in 1997, of which
$4.6 million was attributable to the PTI acquisition. Revenues from CPE services
and the provision of Internet access contributed $3.5 million and $2.5 million,
respectively, of the remainder of the increase in other revenues in 1997.

Operating expenses

Plant operations expenses during 1998 and 1997 increased $134.9 million
(122.4%) and $20.1 million (22.4%), respectively. Expenses incurred by the PTI
and former Ameritech operations in 1998 accounted for $120.4 million of the 1998
increase. The remainder of the increase in 1998 was primarily due to an increase
in salaries and benefits. Expenses incurred by the PTI operations in 1997
accounted for $12.0 million of the 1997 increase. Exclusive of PTI, expenses
incurred in connection with providing Internet access to a larger number of
customers contributed $3.5 million to the 1997 increase and other acquisitions
accounted for $1.8 million of such increase.

Customer operations, corporate and other expenses increased $118.5 million
(90.2%) in 1998, of which $110.7 million was applicable to the PTI properties.
Exclusive of acquisitions, the remainder of the 1998 increase was due to a $4.3
million increase in salaries and benefits and a $2.0 million increase in
marketing expenses. Of the $20.9 million increase in these expenses in 1997,
$13.4 million was incurred by acquired properties (of which $11.2 million was
incurred by PTI). Exclusive of acquisitions, $1.7 million of the remaining
increase in 1997 expenses was due to an increase in marketing expenses, $1.6
million was due to higher operating taxes and $1.4 million was due to expenses
incurred in the increased provision of CPE services.

Depreciation and amortization increased $147.2 million (127.2%) and $19.9
million (20.8%) in 1998 and 1997, respectively. Approximately $136.6 million of
the 1998 increase was applicable to acquiring and operating PTI (of which $27.9
million represented amortization of goodwill) and $1.3 million was applicable to
the former Ameritech properties. Approx-imately $11.4 million of the 1997
increase was applicable to acquiring and operating PTI (of which $1.5 million
represented amortization of goodwill). Exclusive of acquisitions, depreciation
expense included nonrecurring additional depreciation charges approved by
regulators in certain jurisdictions which aggregated $6.2 million in 1998 and
$4.4 million in 1997. In addition, the Company obtained increased depreciation
rates in certain jurisdictions which increased depreciation expense by $1.1
million in 1998 and $4.4 million in 1997. The remaining increases in
depreciation and amortization in 1998 and 1997 were due to higher levels of
plant in service. The composite depreciation rate for the Company's regulated
telephone properties, including the additional depreciation charges, was 6.9%
for 1998, 7.4% for 1997 and 7.5% for 1996. The properties acquired in the PTI
acquisition historically have had a lower composite depreciation rate than the
Company's incumbent properties.

Other

For additional information regarding certain matters that have impacted or
may impact the Company's telephone operations, see Regulation and Competition.

Cellular Operations and Income From Unconsolidated Cellular Entities

Year ended December 31, 1998 1997 1996
- ------------------------------------------------------------------------------
(Dollars in thousands)

Operating income - cellular operations $ 130,580 88,081 67,914
Minority interest (12,635) (6,916) (7,062)
Income from unconsolidated cellular entities 32,869 27,794 26,952
- ------------------------------------------------------------------------------
$ 150,814 108,959 87,804
==============================================================================

The Company's cellular operations reflect 100% of the results of operations
of the cellular entities in which the Company has a majority ownership interest.
The minority interest owners' share of the income of such entities is reflected
in the Company's Consolidated Statements of Income as an expense in "Minority
interest." See Minority Interest for additional information. The Company's share
of earnings from the cellular entities in which it has less than a majority
interest is accounted for using the equity method and is reflected in the
Company's Consolidated Statements of Income in "Income from unconsolidated
cellular entities." See Income from Unconsolidated Cellular Entities for
additional information.

Cellular Operations

All of the Company's cellular customers are located in Michigan, Louisiana,
Wisconsin, Mississippi, Texas, Alaska and Arkansas. The operating revenues,
expenses and income of the Company's cellular operations for 1998, 1997 and 1996
are summarized below.

Year ended December 31, 1998 1997 1996
- ---------------------------------------------------------------------
(Dollars in thousands)

Operating revenues
Service revenues $ 398,661 302,156 246,037
Equipment sales 9,088 5,586 4,206
- ---------------------------------------------------------------------
407,749 307,742 250,243
- ---------------------------------------------------------------------

Operating expenses
Cost of equipment sold 16,954 14,576 12,771
System operations 59,920 47,572 36,301
General, administrative
and customer service 80,827 62,258 52,891
Sales and marketing 57,466 54,128 46,793
Depreciation and amortization 62,002 41,127 33,573
- ---------------------------------------------------------------------
277,169 219,661 182,329
- ---------------------------------------------------------------------
Operating income $ 130,580 88,081 67,914
=====================================================================

Operating revenues

Service revenues include monthly service fees for providing access and
airtime to customers, service fees for providing airtime to other carriers'
customers roaming through the Company's service areas and toll revenue. Cellular
service revenues during 1998 increased to $398.7 million from $302.2 million in
1997 and $246.0 million in 1996.

Of the $96.5 million increase in service revenues in 1998 and the $56.1
million increase in 1997, $76.1 million and $11.8 million, respectively, was
attributable to acquisitions of properties. Excluding acquisitions, the
remainder of the increases in cellular service revenues were primarily
attributable to the increases in cellular usage in the Company's incumbent
markets due to the increased demand for wireless services. Exclusive of
acquisitions, local and toll revenues increased $9.4 million (4.0%) in 1998 and
$34.9 million (17.5%) in 1997 while roaming revenues increased $10.9 million
(18.5%) in 1998 and $12.6 million (27.1%) in 1997.

The following table further illustrates the growth in the Company's cellular
customer base in its majority-owned markets:

Year ended December 31, 1998 1997 1996
- ------------------------------------------------------------------------

Customers at beginning of period 569,983 368,233 290,075
Gross units added internally 214,596 193,623 165,377
Disconnects 160,460 115,473 92,069
Net units added 54,136 78,150 73,308
Net effect of property acquisitions - 123,600 4,850
Customers at end of period 624,119 569,983 368,233
- -----------------------------------------------------------------------

The average monthly service revenue per customer (including acquisitions)
declined to $57 during 1998 from $61 in 1997 and $63 in 1996 due to the
continued trend that a higher percentage of new subscribers tend to be lower
usage customers and to a reduction in rates. In addition, the properties
acquired in the PTI acquisition historically have had a lower average monthly
service revenue per customer than the Company's incumbent properties. The
average monthly service revenue per customer may further decline (i) as market
penetration increases and additional lower usage customers are activated and
(ii) as competitive pressures from current and future wireless communications
providers intensify. The Company is responding to such competitive pressures by,
among other things, modifying certain of its price plans and implementing
certain other plans and promotions, all of which are likely to result in lower
average revenue per customer. The Company will continue to focus on customer
service and attempt to stimulate cellular usage by promoting the availability of
certain enhanced services and by improving the quality of its service through
the construction of additional cell sites and other enhancements to its system.

Operating expenses

System operations expenses increased $12.3 million (26.0%) in 1998 primarily
due to $15.6 million of expenses attributable to acquisitions. Such increase was
partially offset by a $6.1 million decrease in the net amounts paid to other
carriers for cellular service provided to the Company's customers who roam in
the other carriers' service areas primarily due to a decrease in rates. The
$11.3 million (31.0%) increase in system operations expenses in 1997 included a
$4.7 million increase in the net amounts paid to other carriers for cellular
service provided to the Company's customers who roam in the other carriers'
service areas and $2.8 million of expenses incurred by acquired properties. The
remainder of the increase in system operations expenses in 1997 resulted
primarily from the operation of more cell sites.

The Company operated 615 cell sites at December 31, 1998 in entities in
which it had a majority interest, compared to 558 at December 31, 1997 and 354
at December 31,1996. In 1997, 155 cell sites were added through acquisitions.

General, administrative and customer service expenses increased $18.6 million
(29.8%) in 1998, of which $13.4 million was attributable to expenses of entities
acquired. The remainder of the 1998 increase was primarily due to a $2.1 million
increase in the provision for doubtful accounts and a $1.8 million increase in
customer service expenses. Of the $9.4 million (17.7%) increase in 1997
expenses, $3.0 million was applicable to acquired operations. The remainder of
the increase in 1997 was primarily due to a $2.4 million increase in customer
service and retention costs and a $2.4 million increase in billing costs.

Churn rate (the percentage of cellular customers that terminate service) is
an industry-wide concern. The Company faces substantial competition from other
wireless providers, including Personal Communication Services ("PCS"). A
significant portion of the churn in the Company's cellular markets is due to the
Company disconnecting service to customers for nonpayment. The Company's average
monthly churn rate was 2.23% in 1998, 2.31% in 1997 and 2.37% in 1996.

Sales and marketing expenses increased $3.3 million (6.2%) in 1998 primarily
due to $9.7 million of expenses of acquired entities, a $2.9 million increase in
costs incurred in selling products and services in retail locations and a $2.4
million increase in advertising expenses. Such increases were substantially
offset by a $10.6 million reduction in commissions paid to agents for selling
services to new customers primarily as a result of fewer cellular units being
added through this distribution channel during 1998 as compared to 1997. The
1997 increase in sales and marketing expenses of $7.3 million (15.7%) included a
$4.9 million increase in costs incurred in selling products and services in
retail locations and a $2.8 million increase applicable to operations acquired.

Depreciation and amortization increased $20.9 million (50.8%) in 1998 and
$7.6 million in 1997, of which $14.5 million and $2.1 million, respectively, was
attributable to acquisitions. The remainder of the 1998 and 1997 increases were
primarily due to higher levels of plant in service.

Other

For additional information regarding certain matters that have impacted or
may impact the Company's cellular operations, see Regulation and Competition.

Other Operations

Other operations include the results of operations of subsidiaries of the
Company which are not included in the telephone or cellular segments including,
but not limited to, the Company's non-regulated long distance and call center
operations and the Company's competitive access subsidiary (which was sold to
Brooks Fiber Properties, Inc. ("Brooks") in May 1997). The operating revenues,
expenses and income of the Company's other operations for 1998, 1997 and 1996
are summarized below.

Year ended December 31, 1998 1997 1996
- ------------------------------------------------------------------------------
(Dollars in thousands)

Operating revenues
Long distance $ 53,027 36,550 28,894
Call center 9,701 14,285 8,832
Competitive access - 2,499 2,730
Other 14,998 9,848 7,440
- ------------------------------------------------------------------------------
77,726 63,182 47,896
- ------------------------------------------------------------------------------

Operating expenses
Cost of sales and operating expenses 58,544 54,132 45,042
Depreciation and amortization 3,659 2,646 2,655
- ------------------------------------------------------------------------------
62,203 56,778 47,697
- ------------------------------------------------------------------------------
Operating income $ 15,523 6,404 199
==============================================================================

The 1998 and 1997 increases of $16.5 million and $7.7 million, respectively,
in long distance revenues were attributable to the growth in the number of
customers. The number of long distance customers as of December 31, 1998, 1997
and 1996 was 226,700, 172,000 and 110,600, respectively. The $4.6 million
decrease in 1998 call center revenues was primarily due to the loss of two major
customers in the fourth quarter of 1997. The $5.5 million increase in call
center revenues in 1997 was primarily due to an increase in customers prior to
the loss of the two major customers in late 1997. The increases in other
revenues of $5.2 million in 1998 and $2.4 million in 1997 was primarily
attributable to the acquisition of cable television properties in the PTI
acquisition and the acquisition of two security businesses.

Operating expenses in 1998 increased due to (i) an increase of $13.6 million
in expenses of the Company's long distance operations due primarily to an
increase in customers and (ii) $6.6 million of operating expenses applicable to
acquisitions. Such increases were substantially offset by decreases in operating
expenses because (i) 1997 included $9.2 million of costs applicable to entities
sold during 1997 and (ii) the amount of intercompany profit with regulated
affiliates (the recognition of which in accordance with regulatory accounting
principles acts to offset operating expenses) increased $5.8 million as a result
of the acquisition of PTI.

In 1997 an increase in operating expenses of $11.7 million incurred by the
long distance and call center operations was partially offset by a decrease of
$4.1 million in operating expenses incurred by the Company's competitive access
subsidiary.

Certain of the Company's service subsidiaries provide managerial,
operational, technical and accounting services, along with materials and
supplies, to the Company's telephone subsidiaries. In accordance with regulatory
accounting, intercompany profit on transactions with regulated affiliates has
not been eliminated in connection with consolidating the results of operations
of the Company. When the regulated operations of the Company no longer qualify
for the application of Statement of Financial Accounting Standards No. 71 ("SFAS
71"), "Accounting for the Effects of Certain Types of Regulation," such
intercompany profit will be eliminated in subsequent financial statements, the
primary result of which will be a decrease in operating expenses applicable to
the Company's telephone operations and an increase in operating expenses
applicable to the Company's other operations segment. The amount of intercompany
profit with regulated affiliates which was not eliminated was approximately
$14.4 million, $8.9 million and $7.7 million in 1998, 1997 and 1996,
respectively. For additional information applicable to SFAS 71, see Regulation
and Competition - Other Matters.

Gain on Sale or Exchange of Assets, Net

In 1998 the Company recorded net pre-tax gains aggregating $49.9 million
($30.5 million after-tax; $.22 per diluted share) primarily due to the
conversion of its investment in the common stock of Brooks into common stock of
MCIWorldCom, Inc. ("WorldCom"), the subsequent sale of 750,000 shares of
WorldCom stock, and the sale of minority interests in two non-strategic cellular
entities. See Note 14 of Notes to Consolidated Financial Statements for
additional information.

In the second quarter of 1997, the Company sold its competitive access
subsidiary to Brooks in exchange for approximately 4.3 million shares of Brooks'
common stock and recorded a pre-tax gain of approximately $71 million ($46
million after-tax; $.34 per diluted share). In November 1997 the Company sold
approximately 3.8 million shares of Brooks' stock and recorded a pre-tax gain of
approximately $108 million ($66 million after-tax; $.48 per diluted share).

Interest Expense

Interest expense increased $111.1 million in 1998 primarily due to $89.7
million of interest expense on the borrowings used to finance the PTI and
Ameritech acquisitions and $23.2 million of interest expense applicable to PTI's
debt.

Interest expense increased $11.8 million in 1997 primarily due to $7.2
million of interest expense on the borrowings used to finance the PTI
acquisition and $3.5 million of interest expense applicable to PTI's debt.

Income From Unconsolidated Cellular Entities

Earnings from unconsolidated cellular entities, net of the amortization of
associated goodwill, increased $5.1 million (18.3%) in 1998 primarily due to
$7.3 million of earnings of unconsolidated cellular entities acquired in the PTI
acquisition. Such increase was partially offset by a $2.5 million decrease due
to the sale of the Company's minority interests in two non-strategic cellular
entities during the second quarter of 1998.

The improvement in profitability in 1997 of most of the cellular entities in
which the Company owns less than a majority interest was substantially offset by
a $2.4 million decrease in the Company's portion of the profits of a partnership
in which the Company has a significant ownership interest.

Minority Interest

Minority interest is the expense recorded by the Company to reflect the
minority interest owners' share of the earnings of the Company's majority-owned
and operated cellular entities and majority-owned subsidiaries. Of the $7.3
million increase in minority interest in 1998, $2.0 million was associated with
entities acquired in the PTI acquisition. The remainder of the increase was
primarily due to the increased profitability of the Company's majority-owned and
operated cellular entities.

The decrease in minority interest in 1997 of $1.2 million was due to the
effect of the Company's acquisition, during the second quarter of 1996, of an
additional 25% interest in a Louisiana cellular partnership which decreased the
minority interest percentage of such partnership.

Income Tax Expense

The Company's effective income tax rate was 41.0%, 37.3% and 36.6% in 1998,
1997 and 1996, respectively. Such increase in the effective income tax rate for
1998 was primarily due to the increase in non-deductible amortization of excess
cost of net assets acquired (goodwill) attributable to the PTI acquisition.

Acquisitions

On December 1, 1998, the Company acquired the assets of certain of
Ameritech's telephone operations and the related telephone directories in 19
telephone exchanges covering 21 communities in northern and central Wisconsin
for approximately $221 million cash. The operations acquired by the Company
include the telephone property and equipment that serves nearly 69,000
customers, or approximately 86,000 access lines, as well as the related nine
telephone directories. The Company provided initial financing for this
acquisition through its committed credit facilities and will ultimately finance
this transaction with proceeds from the sale of the Company's Alaska operations,
which the Company expects to close during the second quarter of 1999 for $415
million cash, subject to various adjustments.

On December 1, 1997, the Company acquired PTI in exchange for $1.503 billion
cash. To finance the acquisition, the Company borrowed $1.288 billion under its
committed credit facility and paid the remainder of the purchase price with
available cash, most of which consisted of the proceeds of the sale of Brooks'
common stock in November 1997. See Liquidity and Capital Resources - Financing
Activities for additional information. As a result of the acquisition, the
Company acquired (i) over 660,000 telephone access lines located in four
midwestern states, seven western states and Alaska, (ii) over 88,000 cellular
subscribers in two midwestern states and Alaska and (iii) various wireless,
cable television and other communications assets. For additional information,
see Note 2 of Notes to Consolidated Financial Statements.

Accounting Pronouncements

In June 1997 the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting
Comprehensive Income" and Statement of Financial Accounting Standards No. 131
("SFAS 131"), "Disclosures About Segments of an Enterprise and Related
Information." SFAS 130 established standards for reporting the components of
comprehensive income, which is defined to include all changes in equity during a
period except those resulting from investments by and distributions to
shareholders. SFAS 131 established standards for reporting information about
operating segments in annual financial statements and interim financial reports
to shareholders. The Company adopted both statements in the first quarter of
1998.

In February 1998 the FASB issued Statement of Financial Accounting Standards
No. 132, "Employers' Disclosures About Pensions and Other Postretirement
Benefits," which standardizes the disclosure requirements for pensions and other
postretirement benefits.

In March 1998 the Accounting Standards Executive Committee issued Statement
of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." SOP 98-1 requires that certain costs
related to the development or purchase of internal-use software be capitalized
and amortized over the estimated useful life of the software. The impact of SOP
98-1 on the Company's results of operations is not expected to be material. SOP
98-1 is effective for financial statements issued for fiscal years beginning
after December 15, 1998.

In June 1998 the FASB issued Statement of Financial Accounting Standards No.
133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities." SFAS 133 established accounting and reporting standards for
derivative instruments and for hedging activities by requiring that entities
recognize all derivatives as either assets or liabilities at fair value on the
balance sheet. Based on the Company's current use of derivatives, SFAS 133 is
not expected to materially impact the Company's financial position or results of
operations.

Inflation

The effects of increased costs historically have been mitigated by the
ability to recover certain costs applicable to the Company's regulated telephone
operations through the rate-making process. As operating expenses in the
Company's nonregulated lines of business increase as a result of inflation, the
Company, to the extent permitted by competition, recovers the costs by
increasing prices for its services and equipment. While the rate-making process
does not permit the Company to immediately recover the costs of replacing its
physical plant, the Company has historically been able to recapture these costs
over time. Possible future regulatory changes may alter the Company's ability to
recover increased costs in its regulated operations. For additional information
regarding the current regulatory environment, see Regulation and Competition.

Market Risk

The Company is not exposed to material future earnings or cash flow exposures
from changes in interest rates on long-term debt obligations since the majority
of the Company's long-debt obligations are fixed rate. At December 31, 1998, the
fair value of the Company's long-term debt was estimated to be $2.7 billion
based on the overall weighted average rate of the Company's long-term debt of
6.6% and an overall weighted maturity of 14 years compared to terms and rates
currently available in long-term financing markets. Market risk is estimated as
the potential decrease in fair value of the Company's long-term debt resulting
from a hypothetical increase of 66 basis points in interest rates (ten percent
of the Company's overall weighted average borrowing rate). Such an increase in
interest rates would result in approximately a $115.3 million decrease in fair
value of the Company's long-term debt. In early 1998 the Company utilized
interest rate hedge contracts to manage its interest rate risk related to the
issuance of $765.0 million of senior notes and debentures. During 1998 the
Company did not enter into any derivative financial instruments and is currently
not evaluating the future use of such financial instruments.

Year 2000 Readiness Disclosure

The Year 2000 issue concerns the inability of computer systems and certain
other equipment to properly recognize and process data that uses two digits
rather than four to designate particular years. The Company has initiated a Year
2000 Project Plan ("the Plan") to assess whether its systems that process date
sensitive information will perform satisfactorily leading up to and beyond
January 1, 2000. The goal of the Plan is to correct, prior to January 1, 2000,
any Year 2000-related problem with critical systems, the failure of which could
have a material adverse effect on the Company's operations. The Plan includes
steps to (i) identify each critical system element that requires date code
remediation, (ii) establish a plan to remediate such systems, (iii) implement
all required remediations and (iv) selectively test the remediated systems.

Thus far, the identification phase has identified Year 2000 issues in the
following critical Company-owned systems: (i) switching and transmission
hardware and software used by the Company to route and deliver telephone calls;
(ii) network support systems, including customer service systems and (iii)
billing and collection systems used by the Company to invoice and process most
of its customer payments. In addition, the Company (i) receives critical
services from providers of utilities and other services to facilities that house
employees and switching, transmission and other equipment and (ii) is dependent
upon outside vendors for, among other things, the provision of critical network
components and cellular billing services. The Company is also critically reliant
upon the systems of other telecommunications carriers with which the Company's
systems interconnect for the routing and delivery of telephone calls. The
Company has also identified potential Year 2000-related liability with respect
to telephone equipment manufactured by unaffiliated parties that the Company has
sold or leased to its customers ("Customer Premises Equipment" or "CPE"). The
identification and planning phases of the Plan are materially complete as they
relate to Company-owned systems. As they relate to third party vendors, other
telecommunications carriers and CPE customers, the identification and planning
phases are on-going and are expected to be materially complete by first quarter
1999.

Based on work completed under the Plan to date, the Company currently intends
to take the following additional steps under its Plan with respect to
Company-owned systems, third-party vendors, other telecommunications carriers,
and CPE customers:

o The Company generally plans to remediate Company-owned switching,
transmission, billing and collection and other critical systems through the
revision or replacement of current system components. Necessary changes to
Company-owned systems are in process and are expected to be completed by
mid-year 1999. The selective testing and verification of such changes are
expected to be completed during 1999. Due to the large number of system
components requiring remediation, the Company does not intend to test every
remediated system but will rely upon the results of selective testing to
determine the effectiveness of remediation efforts.

o With respect to critical services provided by utilities and other third
parties, the Company has contacted all such suppliers during 1998. Thus
far, a majority of those suppliers who have responded have indicated that
their systems and service delivery mechanisms are Year 2000 compliant or
can be made so through currently available modifications. The Company plans
to continue monitoring all third-party remediation efforts and to make
contingency plans for the delivery of such services as necessary.

o The Year 2000 compliance status of other telecommunications carriers with
which the Company's switching systems interconnect is not yet known. The
Company is making inquiries with these carriers to determine their
compliance status and expects to obtain the results of compliance tests
during first quarter 1999, although there can be no assurance that carriers
will supply this information.

o Finally, the Company is in the process of obtaining Year 2000 compliance
information from CPE manufacturers and plans to provide this information to
the Company's business customers in early 1999. The Company plans to work
with CPE manufacturers to encourage the development of remedies for Year
2000 problems in such equipment and to continue working with its customers
to identify Year 2000 problems in CPE. However, there can be no assurance
that CPE manufacturers or customers will cooperate with the Company's
efforts to address these problems.

While the Company currently believes that it will be able to remediate and
selectively test Company-owned systems in time to minimize any detrimental
effect on its operations, there can be no assurance that such steps will be
successful. Failure by the Company to timely and effectively remediate its
systems, or the failure of critical vendors and suppliers and other
telecommunications carriers to remediate affected systems, could have a material
adverse impact on the Company's business, financial condition, results of
operations and prospects. Because the impact of Year 2000 issues on the Company
is materially dependent on the mitigation efforts of parties outside the
Company's control, the Company cannot assess with certainty the magnitude of any
such potential adverse impact. However, based upon risk assessment work
conducted thus far, the Company believes that the most reasonably likely worst
case scenario of the failure by the Company, its suppliers or other
telecommunications carriers with which the Company interconnects to resolve Year
2000 issues would be an inability by the Company (i) to provide
telecommunications services to the Company's customers, (ii) to route and
deliver telephone calls originating from or terminating with other
telecommunications carriers, (iii) to timely and accurately process service
requests and (iv) to timely and accurately bill its customers. In addition to
lost earnings, these failures could also result in loss of customers due to
service interruptions and billing errors, substantial claims by customers and
increased expenses associated with stabilizing operations and executing
mitigation plans.

Contingency planning to maintain and restore service in the event of natural
disasters, power failures and systems-related problems is a routine part of the
Company's operations. The Company believes that such contingency plans will
assist the Company in responding to the failure by outside service providers to
successfully address Year 2000 issues. In addition, the Company is currently
identifying and considering various Year 2000-specific contingency plans,
including identification of alternate vendors and service providers and manual
alternatives to system operations. These Year 2000-specific contingency plans
are expected to be materially completed during the first quarter of 1999, but
their review and development will continue during 1999.

Although the total costs to implement the Plan cannot be precisely estimated,
the Company incurred costs of $4.2 million during 1998 (none of which was
related to hardware costs) and anticipates spending an aggregate of
approximately $32.1 million during 1999 (which includes $20.9 million of
hardware costs.) These costs will be expensed as incurred, unless new systems
are purchased that should be capitalized in accordance with generally accepted
accounting principles. Some of the costs represent ongoing investment in systems
upgrades, the timing of which is being accelerated in order to facilitate Year
2000 compliance. In some instances, such upgrades will position the Company to
provide more and better-quality services to its customers than they currently
receive. The Company expects to fund these costs with cash provided by
operations. Cost estimates and statements of the Company's plans discussed above
are forward-looking statements that are derived using numerous assumptions of
future events, many of which are outside the Company's control, including the
availability and future cost of trained personnel and various other resources,
third party modification plans, the absence of systems requiring remediation
that have not yet been discovered, and other factors.

LIQUIDITY AND CAPITAL RESOURCES

Excluding cash used for acquisitions, the Company relies on cash provided by
operations to provide substantially all of its cash needs. The Company's
operations have historically provided a stable source of cash flow which has
helped the Company continue its long-term program of capital improvements.

Operating activities

Net cash provided by operating activities was $467.8 million, $297.3 million
and $264.7 million in 1998, 1997 and 1996, respectively. The Company's
accompanying consolidated statements of cash flows identify major differences
between net income and net cash provided by operating activities for each of
those years. For additional information relating to the telephone operations,
cellular operations and other operations of the Company, see Results of
Operations.

Investing activities

Net cash used in investing activities was $375.6 million, $1.503 billion and
$241.8 million in 1998, 1997 and 1996, respectively. Cash used for acquisitions
was $225.6 million during 1998 compared to $1.544 billion during 1997 and $46.3
million during 1996. See Results of Operations - Acquisitions for additional
information. Capital expenditures for 1998 were $233.2 million for telephone
operations, $49.5 million for cellular operations and $28.2 million for
corporate and other operations. Capital expenditures during 1997 and 1996 were
$181.2 million and $222.9 million, respectively. Proceeds from the sale of
assets were $132.3 million in 1998 and $202.7 million in 1997.

Financing activities

Net cash used in financing activities in 1998 was $112.4 million. Net cash
provided by financing activities was $1.223 billion during 1997, of which $1.288
billion was related to the acquisition of PTI. Net cash used in financing
activities was $23.0 million during 1996. In December 1997 the Company filed a
shelf registration statement with the United States Securities and Exchange
Commission registering $1.5 billion of senior unsecured debt securities,
preferred stock, common stock and warrants, under which the Company issued $665
million of senior debt securities in January 1998 concurrent with the issuance
of the remaining $100 million of senior debt securities under its predecessor
shelf registration statement. The net proceeds of approximately $758 million
were used to reduce the bank indebtedness incurred by the Company in connection
with its December 1997 acquisition of PTI. In addition, the Company paid
approximately $40 million in 1998 to settle numerous interest rate hedge
contracts that had been entered into in anticipation of these debt issuances.

In December 1997 after giving consideration to the PTI acquisition, Standard
& Poor's assigned Century's senior unsecured debt a rating of BBB+ and Moody's
reaffirmed its rating of Baa1.

Other

Budgeted capital expenditures for 1999 total $215 million for telephone
operations, $70 million for cellular operations and $60 million for corporate
and other operations. The Company anticipates that capital expenditures in its
telephone operations will continue to include the installation of fiber optic
cable and the upgrading of its plant and equipment, including its digital
switches, to provide enhanced services. Capital expenditures in the cellular
operations are expected to continue to focus on constructing additional cell
sites (which will provide additional capacity and expanded areas where hand-held
cellular phones may be used) and providing digital service. Capital expenditures
for corporate and other operations include $20 million for construction of the
Company's fiber network in Michigan and $15 million for continued expansion of
the Company's PCS operations.

In April 1998 the Company acquired 32 Local Multipoint Distribution System
licenses in the FCC's A and B band auctions for an aggregate of $9.7 million.
The licenses acquired cover geographic areas with a combined population of
approximately 10.6 million. The Company has not finalized capital expenditure or
deployment plans for these systems.

The Company continually evaluates the possibility of acquiring additional
telecommunications operations and expects to continue its long-term strategy of
pursuing the acquisition of attractive communications properties in exchange for
cash, securities or both. Over the past few years, the amount of communications
properties available to be purchased by the Company has increased substantially.
The Company may require additional financing in connection with any such
acquisitions. Approximately 3.8 million shares of Century common stock and
200,000 shares of Century preferred stock remain available for future issuance
in connection with acquisitions under an acquisition shelf registration
statement.

As of December 31, 1998, the Company's telephone subsidiaries had available
for use $135.1 million of commitments for long-term financing from the Rural
Utilities Service and the Company had $332.6 million of undrawn committed bank
lines of credit. The Company also has access to debt and equity capital markets,
including its shelf registration statement mentioned above.

The following table reflects the Company's debt to total capitalization
percentage and ratio of earnings to fixed charges as of and for the years ended
December 31:

1998 1997 1996
- ---------------------------------------------------------------------------

Debt to total capitalization percentage 63.0% 67.2 38.6
Ratio of earnings to fixed charges 2.25 7.80 5.10
Ratio of earnings to fixed charges
excluding gain on sale or exchange
of assets 1.96 4.87 5.09
- ---------------------------------------------------------------------------

REGULATION AND COMPETITION

The communications industry continues to undergo various fundamental
regulatory, competitive and technological changes that make it difficult to
determine the form or degree of future regulation and competition affecting the
Company's telephone and cellular operations. These changes may have a
significant impact on the future financial performance of all communications
companies.

Events affecting the communications industry

In 1996 the United States Congress enacted the Telecommunications Act of 1996
(the "1996 Act"), which obligates LECs to permit competitors to interconnect
their facilities to the LEC's network and to take various other steps that are
designed to promote competition. The 1996 Act provides certain exemptions for
rural LECs such as those operated by the Company. Under the FCC's August 1996
order implementing most of the 1996 Act's interconnection provisions, rural LECs
have the burden of proving the availability of these exemptions.

Prior to and since the enactment of the 1996 Act, the FCC and a number of
state legislative and regulatory bodies have taken steps to foster local
exchange competition. Coincident with this recent movement toward increased
competition has been the gradual reduction of regulatory oversight of LECs.
These cumulative changes have led to the continued growth of various companies
providing services that compete with LECs' services. Wireless services entities
are also expected to increasingly compete with LECs.

The 1996 Act authorized the establishment of federal and state universal
service funds to provide support to eligible telecommunications carriers. In May
1997 the FCC adopted an order on universal service, as mandated by the 1996 Act.
In the order, the FCC ruled that rural telephone companies which are designated
eligible telecommunications carriers will continue to receive universal service
funding. Each of the Company's LECs has been so designated by its respective
state regulatory agency. As a result, the Company's LECs will continue to
receive payments under the federal support mechanisms currently in effect until
the FCC adopts funding support mechanisms based on forward-looking economic
costs, which it is required to do, but no earlier than January 2001.

As part of its universal service order, the FCC also established a new
program in January 1998 to provide up to $2.25 billion of discounted
telecommunications services annually to schools and libraries. In addition, the
FCC established a $400 million annual fund to provide discounted
telecommunications services for rural health care providers. All communications
carriers providing interstate telecommunications services, including the
Company's LECs and its cellular and long distance operations, are required to
contribute to these programs. The FCC has stated that LECs will recover their
funding contributions in their rates for interstate services. The Company's
contribution by its cellular and long distance operations for 1998, which was
passed on to its customers, was approximately $3.1 million.

In an access charge reform order adopted in May 1997, the FCC changed its
system of interstate access charges to make them compatible with the
deregulatory framework established by the 1996 Act. Such changes are primarily
applicable to price-cap companies. The Company's telephone subsidiaries
determine interstate revenues under rate of return regulation and are,
therefore, only minimally impacted by the access charge reform order. In July
1998 the FCC issued a Notice of Proposed Rulemaking to amend the access charge
rules for rate of return companies in a manner similar to that adopted for price
cap companies, subject to reviewing whether differences exist between price cap
companies and rate of return companies that would require different rules in
order to achieve the goal of fostering an efficient, competitive marketplace.
Comments were filed with the FCC in August 1998; the FCC has not yet issued a
final ruling on this matter.

In 1998 the FCC created a federal-state joint board to review jurisdictional
separations procedures through which the costs of regulated telecommunications
services are allocated to the interstate and intrastate jurisdictions.

In recent years the FCC has allocated additional frequency spectrum for
wireless technologies that compete or are expected to compete with cellular,
including PCS and mobile satellite services. The FCC has also authorized certain
specialized mobile radio service licensees to operate in a manner competitive
with cellular systems.

In September 1998 the FCC initiated a proceeding to represcribe the
authorized rate of return for interstate access services provided by LECs. The
FCC periodically represcribes this rate of return to ensure that the service
rates filed by incumbent LECs subject to rate of return regulation continue to
be just and reasonable. It is uncertain whether or by how much the FCC may lower
the authorized rate of return.

Competition to provide traditional telephone or wireless services is expected
to initially affect large urban areas to a greater extent than rural, suburban
and small urban areas such as those in which the Company's operations are
located. The Company does not believe such competition is likely to materially
affect it in the near term. The Company further believes that it may benefit
from having the opportunity to observe the effects of these developments in
large urban markets. The Company will continue to monitor ongoing changes in
regulation, competition and technology and consider which developments provide
the most favorable opportunities for the Company to pursue.

Recent events affecting the Company

During 1998 the Company's revenues from the USF increased approximately $62.3
million (of which $58.8 million was applicable to the PTI properties) to $127.6
million after increasing $16.1 million during 1997. Although the Company
anticipates that it may experience a reduction in its federal support revenues
at some point in the future, management believes it is premature to assess or
estimate the ultimate impact thereof. There can be no assurance, however, that
such impact will not be material.

During the last few years, several states in which the Company has
substantial operations took legislative or regulatory steps to further introduce
competition into the LEC business. While the Company is aware of only a few
companies which have requested authorization to provide local exchange service
in the Company's service areas, it is anticipated that similar action may be
taken by others in the future.

In June 1997 the Louisiana Public Service Commission ("LPSC") adopted a
Consumer Price Protection Plan (the "Consumer Plan"), effective July 1997, which
froze the local rates and access rates that can be charged by the Company's LECs
operating in Louisiana. Although the Consumer Plan has no specified term, the
LPSC is required to review it by mid-2000. The Company's Louisiana LECs have the
option to propose a new plan at any time if the LPSC determines that (i)
effective competition exists or (ii) unforeseen events threaten the LEC's
ability to provide adequate service or impair its financial health. Certain
other states have implemented various forms of alternative regulation plans, the
impact of which has not been material either individually or in the aggregate to
the results of operations of the Company.

Certain long distance carriers continue to request that the Company reduce
intrastate access tariffed rates for certain of its LECs. There is no assurance
that these requests will not result in reduced intrastate access revenues in the
future.

The Company anticipates that regulatory changes and competitive pressures may
result in future revenue reductions in its telephone operations. However, the
Company anticipates that such reductions may be minimized by increases in
revenues attributable to the continued demand for enhanced services and new
product offerings. While the Company expects its telephone revenues to continue
to grow, its internal telephone revenue growth rate may slow during upcoming
periods.

Other matters

The Company's regulated telephone operations are subject to the provisions of
SFAS 71, under which the Company is required to account for the economic effects
of the rate-making process, including the recognition of depreciation of plant
and equipment over lives approved by regulators. The ongoing applicability of
SFAS 71 to the Company's regulated telephone operations is being monitored due
to the changing regulatory, competitive and legislative environments. When the
regulated operations of the Company no longer qualify for the application of
SFAS 71, the net adjustments required will result in a material, extraordinary,
noncash charge against earnings. While the amount of such charge cannot be
precisely estimated at this time, management believes that the noncash,
after-tax, extraordinary charge would be between $350 million and $400 million.
See Note 12 of Notes to Consolidated Financial Statements for additional
information.

The Company has certain obligations based on federal, state and local laws
relating to the protection of the environment. Costs of compliance through 1998
have not been material, and the Company currently has no reason to believe that
such costs will become material.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

The Company is not exposed to material future earnings or cash flow
exposures from changes in interest rates on long-term obligations since the
majority of the Company's long-term obligations are fixed rate. At December 31,
1998, the Company estimates that the fair value of the Company's long-term debt
was $2.7 billion which was determined by comparing the overall weighted average
rate of the Company's long-term debt of 6.6% and an overall weighted maturity of
14 years to terms and rates currently available in long-term financing markets.
Market risk is estimated as the potential decrease in fair value of the
Company's long-term debt resulting from a hypothetical increase of 66 basis
points in interest rates (ten percent of the Company's overall weighted average
borrowing rate). Such an increase in interest rates would result in
approximately a $115.3 million decrease in fair value of the Company's long-term
debt. In late 1997 and early 1998 the Company utilized interest rate hedge
contracts to manage its interest rate risk related to its January 1998 issuance
of $765.0 million of senior notes and debentures. During 1998 the Company did
not enter into any derivative financial instruments and is not currently
evaluating the future use of such financial instruments.

Item 8. Financial Statements and Supplementary Data

Report of Management

The Shareholders
Century Telephone Enterprises, Inc.:

Management has prepared and is responsible for the Company's consolidated
financial statements. The consolidated financial statements have been prepared
in accordance with generally accepted accounting principles and necessarily
include amounts determined using our best judgments and estimates with
consideration given to materiality.

The Company maintains internal control systems and related policies and
procedures designed to provide reasonable assurance that the accounting records
accurately reflect business transactions and that the transactions are in
accordance with management's authorization. The design, monitoring and revision
of the systems of internal control involve, among other things, our judgment
with respect to the relative cost and expected benefits of specific control
measures. Additionally, the Company maintains an internal auditing function
which independently evaluates the effectiveness of internal controls, policies
and procedures and formally reports on the adequacy and effectiveness thereof.

The Company's consolidated financial statements have been audited by KPMG
LLP, independent certified public accountants, who have expressed their opinion
with respect to the fairness of the consolidated financial statements. Their
audit was conducted in accordance with generally accepted auditing standards,
which includes the consideration of the Company's internal controls to the
extent necessary to form an independent opinion on the consolidated financial
statements prepared by management.

The Audit Committee of the Board of Directors is composed of directors who
are not officers or employees of the Company. The Committee meets periodically
with the independent certified public accountants, internal auditors and
management. The Committee considers the audit scope and discusses internal
control, financial and reporting matters. Both the independent and internal
auditors have free access to the Committee.

/s/ R. Stewart Ewing, Jr.
- -------------------------
R. Stewart Ewing, Jr.
Senior Vice President and
Chief Financial Officer

Independent Auditors' Report

The Board of Directors
Century Telephone Enterprises, Inc.:

We have audited the consolidated financial statements of Century Telephone
Enterprises, Inc. and subsidiaries as listed in Item 14a(i). In connection with
our audits of the consolidated financial statements, we also have audited the
financial statement schedules as listed in Item 14a(ii). These consolidated
financial statements and financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedules based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Century
Telephone Enterprises, Inc. and subsidiaries as of December 31, 1998 and 1997,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1998, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all material respects,
the information set forth therein.

/s/ KPMG LLP
- -------------
KPMG LLP

Shreveport, Louisiana
January 28, 1999, except as to Note 21 which is as of February 23, 1999

CENTURY TELEPHONE ENTERPRISES, INC.
Consolidated Statements of Income

Year ended December 31,
- ----------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------
(Dollars in thousands, except
per share amounts,)

OPERATING REVENUES
Telephone $ 1,091,610 530,597 451,538
Cellular 407,749 307,742 250,243
Other 77,726 63,182 47,896
- ----------------------------------------------------------------------------
Total operating revenues 1,577,085 901,521 749,677
- ----------------------------------------------------------------------------

OPERATING EXPENSES
Cost of sales and
operating expenses 768,720 474,256 394,360
Depreciation and amortization 328,554 159,495 132,021
- ----------------------------------------------------------------------------
Total operating expenses 1,097,274 633,751 526,381
- ----------------------------------------------------------------------------

OPERATING INCOME 479,811 267,770 223,296
- ----------------------------------------------------------------------------

OTHER INCOME (EXPENSE)
Gain on sale or exchange of
assets, net 49,859 169,640 815
Interest expense (167,552) (56,474) (44,662)
Income from unconsolidated
cellular entities 32,869 27,794 26,952
Minority interest (12,797) (5,498) (6,675)
Other income and expense 5,268 5,109 3,916
- ----------------------------------------------------------------------------
Total other income (expense) (92,353) 140,571 (19,654)
- ----------------------------------------------------------------------------

INCOME BEFORE INCOME TAX EXPENSE 387,458 408,341 203,642
Income tax expense 158,701 152,363 74,565
- ----------------------------------------------------------------------------

NET INCOME $ 228,757 255,978 129,077
============================================================================

BASIC EARNINGS PER SHARE* $ 1.67 1.89 .96
============================================================================

DILUTED EARNINGS PER SHARE* $ 1.64 1.87 .95
============================================================================

DIVIDENDS PER COMMON SHARE* $ .173 .164 .16
============================================================================
*Adjusted to reflect stock split in early 1999. See Note 21.

See accompanying notes to consolidated financial statements.

CENTURY TELEPHONE ENTERPRISES, INC.
Consolidated Statements of Comprehensive Income

Year ended December 31,
- ----------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------
(Dollars in thousands)

Net income $ 228,757 255,978 129,077
- ----------------------------------------------------------------------------
Other comprehensive income,
net of tax:
Unrealized holding gains arising
during period, net of tax of
$8,509 and $6,404 15,802 11,893 -
Reclassification adjustment for
gains included in net income,
net of tax of $11,027 (20,478) - -
- ----------------------------------------------------------------------------
Other comprehensive income,
net of tax (4,676) 11,893 -
- ----------------------------------------------------------------------------

Comprehensive income $ 224,081 267,871 129,077
============================================================================

See accompanying notes to consolidated financial statements.

Century Telephone Enterprises, INC.
Consolidated Balance Sheets

December 31,
- ------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------
(Dollars in thousands)
ASSETS

CURRENT ASSETS
Cash and cash equivalents $ 5,742 26,017
Accounts receivable
Customers, less allowance of
$4,155 and $5,954 130,289 143,613
Other 55,109 83,659
Materials and supplies, at average cost 23,709 21,994
Other 11,389 8,197
- ------------------------------------------------------------------------------
Total current assets 226,238 283,480
- ------------------------------------------------------------------------------

NET PROPERTY, PLANT AND EQUIPMENT 2,351,453 2,258,563
- ------------------------------------------------------------------------------

INVESTMENTS AND OTHER ASSETS
Excess cost of net assets acquired,
less accumulated amortization
of $133,135 and $84,132 1,956,701 1,767,352
Other 401,063 400,006
- ------------------------------------------------------------------------------
Total investments and other assets 2,357,764 2,167,358
- ------------------------------------------------------------------------------
TOTAL ASSETS $ 4,935,455 4,709,401
==============================================================================

LIABILITIES AND EQUITY

CURRENT LIABILITIES
Current maturities of long-term debt $ 53,010 55,244
Accounts payable 87,627 83,378
Accrued expenses and other current liabilities
Salaries and benefits 36,900 38,225
Taxes 33,411 74,898
Interest 36,926 20,821
Other 24,249 25,229
Advance billings and customer deposits 32,721 24,213
- ------------------------------------------------------------------------------
Total current liabilities 304,844 322,008
- ------------------------------------------------------------------------------

LONG-TERM DEBT 2,558,000 2,609,541
- ------------------------------------------------------------------------------

DEFERRED CREDITS AND OTHER LIABILITIES 541,129 477,580
- ------------------------------------------------------------------------------

STOCKHOLDERS' EQUITY
Common stock, $1.00 par value, authorized
175,000,000 shares, issued and outstanding
138,082,926* and 91,103,674 shares 138,083 91,104
Paid-in capital 451,535 469,586
Unrealized holding gain on investments,
net of taxes 7,217 11,893
Retained earnings 932,611 728,033
Unearned ESOP shares (6,070) (8,450)
Preferred stock - non-redeemable 8,106 8,106
- ------------------------------------------------------------------------------
Total stockholders' equity 1,531,482 1,300,272
- ------------------------------------------------------------------------------

TOTAL LIABILITIES AND EQUITY $ 4,935,455 4,709,401
==============================================================================
*Adjusted to reflect stock split in early 1999. See Note 21.
See accompanying notes to consolidated financial statements.

CENTURY TELEPHONE ENTERPRISES, INC.
Consolidated Statements of Cash Flows

Year ended December 31,
- ----------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------
(Dollars in thousands)

OPERATING ACTIVITIES
Net income $ 228,757 255,978 129,077
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 328,554 159,495 132,021
Income from unconsolidated
cellular entities (32,869) (27,794) (26,952)
Minority interest 12,797 5,498 6,675
Deferred income taxes 17,713 16,230 7,935
Gain on sales of assets (49,859) (169,640) (815)
Changes in current assets and
current liabilities:
Accounts receivable (15,227) 7,649 (4,353)
Accounts payable 4,249 (25,440) 5,103
Other accrued taxes (34,908) 58,205 1,285
Other current assets and other
current liabilities, net 15,033 7,263 6,220
Increase (decrease) in other
noncurrent liabilities (1,706) 2,173 4,305
Other, net (4,760) 7,702 4,151
- ----------------------------------------------------------------------------
Net cash provided by operating
activities 467,774 297,319 264,652
- ----------------------------------------------------------------------------

INVESTING ACTIVITIES
Acquisitions, net of cash acquired (225,569) (1,543,814) (46,327)
Payments for property, plant
and equipment (310,919) (181,225) (222,885)
Proceeds from sales of assets 132,307 202,705 -
Investment in unconsolidated personal
communications services entity - - 18,900
Distributions from unconsolidated
cellular entities 26,515 16,825 15,648
Purchase of life insurance
investment, net (2,786) (12,962) (5,944)
Proceeds from note receivable - 22,500 1,667
Other, net 4,807 (7,156) (2,850)
- ----------------------------------------------------------------------------
Net cash used in investing
activities (375,645) (1,503,127) (241,791)
- ----------------------------------------------------------------------------

FINANCING ACTIVITIES
Proceeds from issuance of
long-term debt 957,668 1,312,546 59,649
Payments of long-term debt (1,015,015) (79,203) (57,021)
Payment of hedge contracts (40,237) - -
Notes payable, net - - (14,199)
Proceeds from issuance of
common stock 15,033 14,156 10,089
Payment of debt issuance costs (6,625) - -
Cash dividends (24,179) (22,671) (21,775)
Other, net 951 (1,405) 258
- ---------------------------------------------------------------------------
Net cash provided by (used in)
financing activities (112,404) 1,223,423 (22,999)
- ---------------------------------------------------------------------------

Net increase (decrease) in cash
and cash equivalents (20,275) 17,615 (138)
Cash and cash equivalents at
beginning of year 26,017 8,402 8,540
- ---------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 5,742 26,017 8,402
===========================================================================

See accompanying notes to consolidated financial statements.

CENTURY TELEPHONE ENTERPRISES, INC.
Consolidated Statements of Stockholders' Equity

Year ended December 31,
- -------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------
(Dollars and shares in thousands)

COMMON STOCK
Balance at beginning of year $ 91,104 59,859 59,114
Issuance of common stock for acquisitions 28 75 257
Conversion of convertible securities into
common stock 169 237 33
Issuance of common stock through
dividend reinvestment, incentive and
benefit plans 754 565 455
Three-for-two stock split 46,028 30,368 -
- -------------------------------------------------------------------------------
Balance at end of year 138,083 91,104 59,859
- -------------------------------------------------------------------------------

PAID-IN CAPITAL
Balance at beginning of year 469,586 474,607 453,584
Issuance of common stock for
acquisitions 1,059 3,241 8,201
Conversion of convertible securities
into common stock 3,131 4,998 163
Issuance of common stock through
dividend reinvestment, incentive
and benefit plans 14,279 13,591 9,676
Amortization of unearned compensation
and other 9,508 3,517 2,983
Three-for-two stock split (46,028) (30,368) -
- -------------------------------------------------------------------------------
Balance at end of year 451,535 469,586 474,607
- -------------------------------------------------------------------------------

UNREALIZED HOLDING GAIN ON
INVESTMENTS, NET OF TAXES
Balance at beginning of year 11,893 - -
Change in unrealized holding gain on
investments, net of taxes (4,676) 11,893 -
- -------------------------------------------------------------------------------
Balance at end of year 7,217 11,893 -
- -------------------------------------------------------------------------------

RETAINED EARNINGS
Balance at beginning of year 728,033 494,726 387,424
Net income 228,757 255,978 129,077
Cash dividends declared
Common stock - $.173, $.164 and
$.16 per share* (23,771) (22,211) (21,355)
Preferred stock (408) (460) (420)
- -------------------------------------------------------------------------------
Balance at end of year 932,611 728,033 494,726
- -------------------------------------------------------------------------------

UNEARNED ESOP SHARES
Balance at beginning of year (8,450) (11,080) (13,960)
Release of ESOP shares 2,380 2,630 2,880
- -------------------------------------------------------------------------------
Balance at end of year (6,070) (8,450) (11,080)
- -------------------------------------------------------------------------------

PREFERRED STOCK - NON-REDEEMABLE
Balance at beginning of year 8,106 10,041 2,262
Issuance of preferred stock
for acquisitions - - 7,975
Conversion of preferred stock into
common stock - (1,935) (196)
- -------------------------------------------------------------------------------
Balance at end of year 8,106 8,106 10,041
- -------------------------------------------------------------------------------

TOTAL STOCKHOLDERS' EQUITY $1,531,482 1,300,272 1,028,153
===============================================================================

COMMON SHARES OUTSTANDING
Balance at beginning of year 91,104 59,859 59,114
Issuance of common stock for
acquisitions 28 75 257
Conversion of convertible securities
into common stock 169 237 33
Issuance of common stock through
dividend reinvestment, incentive
and benefit plans 754 565 455
Three-for-two stock split 46,028 30,368 -
- -------------------------------------------------------------------------------
Balance at end of year 138,083 91,104 59,859
===============================================================================
*Adjusted to reflect stock split in early 1999. See Note 21.
See accompanying notes to consolidated financial statements.

CENTURY TELEPHONE ENTERPRISES, INC.
Notes to Consolidated Financial Statements
December 31, 1998

(1) Summary of Significant Accounting Policies

Principles of consolidation - The consolidated financial statements of Century
Telephone Enterprises, Inc. and its subsidiaries (the "Company") include the
accounts of Century Telephone Enterprises, Inc. ("Century") and its
majority-owned subsidiaries and partnerships. The Company's regulated telephone
operations are subject to the provisions of Statement of Financial Accounting
Standards No. 71, "Accounting for the Effects of Certain Types of Regulation."
Investments in cellular entities where the Company does not own a majority
interest are accounted for using the equity method of accounting.

Estimates - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.

Revenue recognition - Revenues are recognized when earned. Certain of the
Company's telephone subsidiaries participate in revenue sharing arrangements
with other telephone companies for interstate revenue and for certain intrastate
revenue. Such sharing arrangements are funded by toll revenue and/or access
charges within state jurisdictions and by access charges in the interstate
market. Revenues earned through the various sharing arrangements are initially
recorded based on the Company's estimates.

Property, plant and equipment - Telephone plant is stated substantially at
original cost. Normal retirements of telephone plant are charged against
accumulated depreciation, along with the costs of removal, less salvage, with no
gain or loss recognized. Renewals and betterments of plant and equipment are
capitalized while repairs, as well as renewals of minor items, are charged to
operating expense. Depreciation of telephone plant is provided on the straight
line method, using class or overall group rates acceptable to regulatory
authorities; such rates range from 1.8% to 25%.

Non-telephone property is stated at cost and, when sold or retired, a gain or
loss is recognized. Depreciation of such property is provided on the straight
line method over estimated service lives ranging from three to 30 years.

Impairment of long-lived assets and excess cost of net assets acquired
(goodwill) - The carrying value of long-lived assets, including allocated
goodwill, is reviewed for impairment at least annually, or whenever events or
changes in circumstances indicate that such carrying value may not be
recoverable, by assessing the recoverability of such carrying value through
estimated undiscounted future net cash flows expected to be generated by the
assets or the acquired business. The excess cost of net assets acquired of
substantially all of the Company's acquisitions accounted for as purchases is
being amortized over 40 years.

Affiliated transactions - Certain service subsidiaries of Century provide
installation and maintenance services, materials and supplies, and managerial,
technical and accounting services to subsidiaries. In addition, Century provides
and bills management services to subsidiaries and in certain instances makes
interest bearing advances to finance construction of plant and purchases of
equipment. These transactions are recorded by the Company's telephone
subsidiaries at their cost to the extent permitted by regulatory authorities.
Intercompany profit on transactions with regulated affiliates is limited to a
reasonable return on investment and has not been eliminated in connection with
consolidating the results of operations of Century and its subsidiaries.
Intercompany profit on transactions with nonregulated affiliates has been
eliminated.

Income taxes - Century files a consolidated federal income tax return with its
eligible subsidiaries. The Company uses the asset and liability method of
accounting for income taxes under which deferred tax assets and liabilities are
established for the future tax consequences attributable to differences between
the financial statement carrying amounts of assets and liabilities and their
respective tax bases. Investment tax credits related to telephone plant have
been deferred and are being amortized as a reduction of federal income tax
expense over the estimated useful lives of the assets giving rise to the
credits.

Derivative financial instruments - During 1997 the Company entered into certain
interest rate hedge contracts in anticipation of a public debt issuance,
utilizing such hedge contracts to manage interest rate exposure. The hedge
contracts were treated as off-balance sheet financial instruments. In connection
with the settlement of these contracts, all losses related to these transactions
have been deferred and amortized as interest expense over the life of the
underlying debt issuance. Such contracts were settled in 1998. See Note 6 for
additional information. The Company does not utilize derivative financial
instruments for trading or other speculative purposes.

Earnings per share - During 1997 the Company adopted Statement of Financial
Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share." SFAS 128
established requirements for the computation of basic earnings per share and
diluted earnings per share and was effective for financial statements issued for
periods ending after December 15, 1997. Earnings per share amounts for prior
periods have been restated to conform with SFAS 128.

Stock compensation - The Company accounts for employee stock compensation plans
in accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" as allowed by Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation."

Cash equivalents - The Company considers short-term investments with a maturity
at date of purchase of three months or less to be cash equivalents.

(2) Acquisitions

On December 1, 1997, Century acquired Pacific Telecom, Inc. ("PTI") in
exchange for $1.503 billion cash. To finance the acquisition, which was
accounted for as a purchase, Century borrowed $1.288 billion under its $1.6
billion senior unsecured credit facility (the "Senior Credit Facility") dated
August 28, 1997 with NationsBank of Texas, N.A. and a syndicate of other
lenders. Century paid the remainder of the PTI acquisition price with available
cash.

As a result of the acquisition, the Company acquired (i) telephone access
lines located in four midwestern states, seven western states and Alaska, (ii)
cellular subscribers in two midwestern states and Alaska and (iii) various
wireless, cable television and other communications assets.

The following pro forma information represents the consolidated results of
operations of the Company as if the PTI acquisition had been consummated as of
January 1, 1997 and 1996.

Year ended December 31, 1997 1996
- --------------------------------------------------------------------------------
(Dollars in thousands, except
per share amounts)
(unaudited)

Operating revenues $ 1,392,268 1,245,036
Net income 256,992 120,632
Diluted earnings per share 1.87 .89
- --------------------------------------------------------------------------------

The pro forma information is not necessarily indicative of the operating
results that would have occurred if the PTI acquisition had been consummated as
of January 1 of each respective period, nor is it necessarily indicative of
future operating results. The actual results of operations of PTI have been
included in the Company's consolidated financial statements only from the date
of acquisition.

On December 1, 1998, the Company acquired the assets of certain local
telephone and directory operations in parts of northern and central Wisconsin
from affiliates of Ameritech Corporation ("Ameritech"), in exchange for
approximately $221 million cash. The assets included (i) access lines and
related property and equipment in 21 predominantly rural communities in
Wisconsin and (ii) Ameritech's directory publishing operations that relate to
nine telephone directories.

(3) Investments and Other Assets

Investments and other assets at December 31, 1998 and 1997 were composed of
the following:

December 31, 1998 1997
- --------------------------------------------------------------------------------
(Dollars in thousands)

Excess cost of net assets acquired, less
accumulated amortization $ 1,956,701 1,767,352
Investments in unconsolidated cellular entities 118,016 189,363
Cash surrender value of life insurance
contracts, net 84,976 78,658
Marketable equity securities 29,496 40,570
Deferred hedge contracts 38,027 -
Other 130,548 91,415
- --------------------------------------------------------------------------------
$ 2,357,764 2,167,358
================================================================================

As a result of the purchase of PTI, the Company recorded approximately $1.2
billion of excess cost of net assets acquired in 1997.

Goodwill amortization of $47.8 million, $16.6 million and $12.8 million for
1998, 1997 and 1996, respectively, is included in "Depreciation and
amortization" in the Company's Consolidated Statements of Income.

Included in investments in unconsolidated cellular entities at December 31,
1997 was approximately $67.0 million of costs allocated to licenses from
acquisitions made by PTI prior to Century's acquisition of PTI. Upon
finalization of the PTI purchase price allocation, such costs were assigned to
excess cost of net assets acquired.

The Company's investments in marketable equity securities are classified as
available for sale and are reported at fair value with unrealized holding gains
and losses reported, net of taxes, as a separate component of stockholders'
equity. As of December 31, 1998, gross unrealized holding gains of the Company's
marketable equity securities were $11.1 million.

(4) Property, Plant and Equipment

Net property, plant and equipment at December 31, 1998 and 1997 was composed
of the following:

December 31, 1998 1997
- --------------------------------------------------------------------------------
(Dollars in thousands)

Telephone, at original cost
Cable and wire $ 2,046,638 1,843,002
Central office 1,197,438 1,070,477
General support 269,431 256,203
Information origination/termination 73,984 65,304
Construction in progress 66,241 53,382
Other 6,520 7,492
- --------------------------------------------------------------------------------
3,660,252 3,295,860
Accumulated depreciation (1,661,315) (1,375,835)
- --------------------------------------------------------------------------------
1,998,937 1,920,025
- --------------------------------------------------------------------------------
Cellular, at cost
Cell site 316,706 284,599
General support 82,618 66,400
Construction in progress 23,733 23,664
Other 5,927 5,555
- --------------------------------------------------------------------------------
428,984 380,218
Accumulated depreciation (178,569) (133,357)
- --------------------------------------------------------------------------------
250,415 246,861
- --------------------------------------------------------------------------------
Corporate and other, at cost
General support 180,359 148,883
Other 20,063 20,537
- --------------------------------------------------------------------------------
200,422 169,420
Accumulated depreciation (98,321) (77,743)
- --------------------------------------------------------------------------------
102,101 91,677
- --------------------------------------------------------------------------------
Net property, plant and equipment $ 2,351,453 2,258,563
================================================================================

Depreciation expense was $280.5 million, $142.6 million and $118.9 million in
1998, 1997 and 1996, respectively. The composite depreciation rate for telephone
properties was 6.9% for 1998, 7.4% for 1997 and 7.5% for 1996.

(5) Investments in Unconsolidated Cellular Entities

The Company's share of earnings from cellular entities in which it does not
own a majority interest was $34.1 million, $29.4 million and $28.2 million in
1998, 1997 and 1996, respectively, and is included, net of $1.2 million, $1.6
million and $1.3 million of amortization of goodwill attributable to such
investments, in "Income from unconsolidated cellular entities" in the Company's
Consolidated Statements of Income. Over 74% of the 1998 income from
unconsolidated cellular entities was attributable to the following investments.

Ownership interest
- --------------------------------------------------------------------------------
Lafayette MSA Limited Partnership 49%
GTE Mobilnet of Austin Limited Partnership 35%
Milwaukee SMSA Limited Partnership 18%
Alltel Cellular Associates of Arkansas Limited Partnership 36%
Detroit SMSA Limited Partnership 3%
Michigan RSA #9 Limited Partnership 43%
Cellular North Michigan Network General Partnership 43%
- --------------------------------------------------------------------------------

The following summarizes the unaudited combined assets, liabilities and
equity, and the unaudited combined results of operations, of the cellular
entities in which the Company's investments (as of December 31, 1998 and 1997)
were accounted for by the equity method.

December 31, 1998 1997
- --------------------------------------------------------------------------------
(Dollars in thousands)
(unaudited)

Assets
Current assets $ 293,339 322,863
Property and other noncurrent assets 759,665 767,123
- --------------------------------------------------------------------------------
$ 1,053,004 1,089,986
================================================================================
Liabilities and equity
Current liabilities $ 109,787 157,492
Noncurrent liabilities 25,099 25,413
Equity 918,118 907,081
- --------------------------------------------------------------------------------
$ 1,053,004 1,089,986
================================================================================

Year ended December 31, 1998 1997 1996
- --------------------------------------------------------------------------------
(Dollars in thousands)
(unaudited)

Results of operations
Revenues $ 1,281,803 1,277,524 985,788
Operating income $ 430,859 419,246 338,554
Net income $ 435,744 395,990 339,040
- --------------------------------------------------------------------------------

At December 31, 1998, $59.0 million of the Company's consolidated retained
earnings represented undistributed earnings of unconsolidated cellular entities.

(6) Long-Term Debt

December 31, 1998 1997
- --------------------------------------------------------------------------------
(Dollars in thousands)

Century
5.61%* Senior Credit Facility, due through 2002 $ 752,063 1,535,000
6.875% senior notes, due 2028 425,000 -
6.30% senior notes, due 2008 240,000 -
6.15% senior notes, due 2005 100,000 -
8.25% senior notes, due 2024 100,000 100,000
7.20% senior notes, due 2025 100,000 100,000
6.39%* notes payable to banks, due 2002 40,000 30,000
7.75% senior notes, due 2004 50,000 50,000
6.55% senior notes, due 2005 50,000 50,000
9.38% senior notes, due through 2003 18,900 21,200
6.64%* Employee Stock Ownership Plan commitment,
due in installments through 2004 6,070 8,450
9.85%* notes, due in installments through 2006 266 304
- --------------------------------------------------------------------------------
Total Century 1,882,299 1,894,954
- --------------------------------------------------------------------------------

Subsidiaries
First mortgage debt
5.97%* notes, payable to agencies of the United
States government and cooperative lending
associations, due in installments through 2025 341,817 348,971
7.98% notes, due through 2002 5,871 5,969
Other debt
7.21%* unsecured medium-term notes,
due through 2008 335,667 360,678
7.43%* notes, due in installments through 2020 29,301 40,805
6.50% note, due in installments through 2001 9,308 12,040
6.15%* capital lease obligations, due
through 2003 6,747 1,368
- --------------------------------------------------------------------------------
Total subsidiaries 728,711 769,831
- --------------------------------------------------------------------------------
Total long-term debt 2,611,010 2,664,785
Less current maturities 53,010 55,244
- --------------------------------------------------------------------------------
Long-term debt, excluding current maturities $ 2,558,000 2,609,541
================================================================================
* weighted average interest rate at December 31, 1998

The approximate annual debt maturities for the five years subsequent to
December 31, 1998 are as follows: 1999 - $53.0 million; 2000 - $62.6 million;
2001 - $144.5 million; 2002 - $735.0 million; and 2003 - $67.5 million.

Short-term borrowings of $40.0 million at December 31, 1998 were classified
as long-term debt on the accompanying balance sheet as the Company had adequate
committed amounts available under long-term revolving facilities.

Certain of the Company's loan agreements contain various restrictions, among
which are limitations regarding issuance of additional debt, payment of cash
dividends, reacquisition of the Company's capital stock and other matters. At
December 31, 1998, all of the consolidated retained earnings reflected on the
balance sheet was available for the declaration of dividends.

The transfer of funds from certain consolidated subsidiaries to Century is
restricted by various loan agreements. Subsidiaries which have loans from
government agencies and cooperative lending associations, or have issued first
mortgage bonds, generally may not loan or advance any funds to Century, but may
pay dividends if certain financial ratios are met. At December 31, 1998,
restricted net assets of subsidiaries were $604.4 million. Subsidiaries'
retained earnings in excess of amounts restricted by debt covenants totaled
$726.1 million.

Most of the Company's telephone property, plant and equipment is pledged to
secure the long-term debt of subsidiaries.

On January 15, 1998, Century issued $100 million of 7-year, 6.15% senior
notes (Series E); $240 million of 10-year, 6.3% senior notes (Series F); and
$425 million of 30-year, 6.875% debentures (Series G) under its shelf
registration statements. The net proceeds of approximately $758 million
(excluding payment obligations of approximately $40 million related to interest
rate hedging effected in connection with the offering) were used to reduce the
bank indebtedness incurred under the Senior Credit Facility. In addition, the
Senior Credit Facility's committed amount was reduced from $1.6 billion to $880
million in accordance with its terms. This facility carries floating rate
interest based upon London InterBank Offered Rates for short-term periods.

In mid-January 1998 the Company settled numerous interest rate hedge
contracts that had been entered into in anticipation of the above-mentioned debt
issuances. The amounts paid by the Company upon settlement of the hedge
contracts aggregated approximately $40 million, which is being amortized as
interest expense over the lives of the underlying debt instruments. The
effective weighted average interest rate of the debt (after giving consideration
to these payment obligations) is 7.15%. In March 1998 the Company paid
approximately $250,000 upon settlement of its remaining interest rate hedge
contracts.

Century's telephone subsidiaries had approximately $135.1 million in
commitments for long-term financing from the Rural Utilities Service available
at December 31, 1998. Approximately $332.6 million of additional borrowings were
available to the Company through committed lines of credit with various banks.

(7) Deferred Credits and Other Liabilities

Deferred credits and other liabilities at December 31, 1998 and 1997 were
composed of the following:

December 31, 1998 1997
- --------------------------------------------------------------------------------
(Dollars in thousands)

Deferred federal and state income taxes $ 332,151 272,290
Accrued postretirement benefit costs 109,000 99,429
Minority interest 44,970 47,695
Regulatory liability - income taxes 17,380 22,856
Deferred investment tax credits 3,939 6,355
Other 33,689 28,955
- --------------------------------------------------------------------------------
$ 541,129 477,580
================================================================================

(8) Postretirement Benefits

The Company sponsors defined benefit health care plans that provide
postretirement benefits to substantially all retired full-time employees.

Net periodic postretirement benefit cost for 1998, 1997 and 1996 included the
following components:

Year ended December 31, 1998 1997 1996
- --------------------------------------------------------------------------------
(Dollars in thousands)

Service cost $ 5,519 2,578 2,354
Interest cost 10,744 5,047 4,212
Expected return on plan assets (3,250) (458) -
Amortization of unrecognized actuarial losses 430 292 475
Amortization of unrecognized prior service cost 121 121 121
- --------------------------------------------------------------------------------
Net periodic postretirement benefit cost $ 13,564 7,580 7,162
================================================================================

The following is a reconciliation for the benefit obligation and the plan
assets.

December 31, 1998 1997 1996
- --------------------------------------------------------------------------------
(Dollars in thousands)

Change in benefit obligation
Benefit obligation at beginning of year $ 152,632 59,157 60,128
Service cost 5,519 2,578 2,354
Interest cost 10,744 5,047 4,212
Participant contributions 298 119 96
Acquisition - 80,166 -
Actuarial (gain) loss 9,720 7,789 (5,420)
Benefits paid (6,590) (2,224) (2,213)
- --------------------------------------------------------------------------------
Benefit obligation at end of year $ 172,323 152,632 59,157
================================================================================

December 31, 1998 1997 1996
- --------------------------------------------------------------------------------
(Dollars in thousands)

Change in plan assets (primarily listed
stocks and bonds)
Fair value of plan assets at beginning
of year $ 34,618 - -
Return on assets 4,080 - -
Employer contributions 749 - -
Acquisition - 34,618 -
Benefits paid (3,648) - -
- --------------------------------------------------------------------------------
Fair value of plan assets at end of year $ 35,799 34,618 -
================================================================================

The following table sets forth the amounts recognized as liabilities for
postretirement benefits at December 31, 1998, 1997 and 1996.

December 31, 1998 1997 1996
- --------------------------------------------------------------------------------
(Dollars in thousands)

Benefit obligation $ (172,323) (152,632) (59,157)
Fair value of plan assets 35,799 34,618 -
Unamortized prior service cost 1,060 1,182 1,303
Unrecognized net actuarial loss 23,972 14,622 6,986
- --------------------------------------------------------------------------------
Accrued benefit cost $ (111,492) (102,210) (50,868)
================================================================================

Assumptions used in accounting for postretirement benefits as of December 31,
1998 and 1997 were:

1998 1997
- --------------------------------------------------------------------------------
Weighted average assumptions
Discount rate 6.5-6.75% 7.0
Expected return on plan assets 10.0% 10.0
- --------------------------------------------------------------------------------

For measurement purposes, a 6.0-7.4% annual rate in the per capita cost of
covered health care benefits was assumed for 1999 and beyond. A
one-percentage-point change in assumed health care cost rates would have the
following effects:
1-Percentage 1-Percentage
Point Increase Point Decrease
- --------------------------------------------------------------------------------
(Dollars in thousands)

Effect on total of service and
interest cost components $ 1,012 (934)
Effect on postretirement
benefit obligation $ 9,884 (9,089)
- --------------------------------------------------------------------------------

(9) Stockholders' Equity

Common stock - At December 31, 1998, unissued shares of Century common stock
were reserved as follows:

December 31, 1998
- --------------------------------------------------------------------------------
(In thousands)

Incentive compensation program 6,488
Acquisitions 4,825
Employee stock purchase plan 1,016
Conversion of convertible preferred stock 511
Other employee benefit plans 3,849
- --------------------------------------------------------------------------------
16,689
================================================================================

Under Century's Articles of Incorporation each share of common stock
beneficially owned continuously by the same person since May 30, 1987 generally
entitles the holder thereof to ten votes per share. All other shares entitle the
holder to one vote per share. At December 31, 1998, the holders of 12.6 million
shares of common stock were entitled to ten votes per share.

Preferred stock - As of December 31, 1998, Century had 2.0 million shares of
preferred stock, $25 par value per share, authorized. At December 31, 1998 and
1997, there were 324,238 shares of outstanding preferred stock. Holders of
outstanding Century preferred stock are entitled to receive cumulative
dividends, receive preferential distributions equal to $25 per share plus unpaid
dividends upon Century's liquidation and vote as a single class with the holders
of common stock.

Shareholders' Rights Plan - In 1996 the Board of Directors declared a dividend
of one preference share purchase right for each common share outstanding. Such
rights become exercisable if and when a potential acquiror takes certain steps
to acquire 15% or more of Century's common stock. Upon the occurrence of such an
acquisition, each right held by shareholders other than the acquiror may be
exercised to receive that number of shares of common stock or other securities
of Century (or, in certain situations, the acquiring company) which at the time
of such transaction will have a market value of two times the exercise price of
the right.

Stock split - On February 25, 1998, Century's Board of Directors declared a
three-for-two common stock split effected as a 50% stock dividend in March 1998.
An amount equal to the par value of the additional common shares issued pursuant
to the stock split was reflected as a transfer from paid-in-capital to common
stock on the consolidated financial statements for 1997. See Note 21 for
additional information concerning a stock split in early 1999.

(10) Earnings Per Share

Basic earnings per share amounts are determined on the basis of the weighted
average number of common shares outstanding during the year. Diluted earnings
per share give effect to all potential dilutive common shares that were
outstanding during the period.

The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations:

Year ended December 31, 1998 1997 1996
- --------------------------------------------------------------------------------
(Dollars, except per share
amounts, and shares in thousands)

Income (Numerator):
Net income $ 228,757 255,978 129,077
Dividends applicable to preferred stock (408) (460) (420)
- --------------------------------------------------------------------------------
Net income applicable to common stock for
computing basic earnings per share 228,349 255,518 128,657
Dividends applicable to preferred stock 408 460 420
Interest on convertible securities,
net of taxes 372 480 579
- --------------------------------------------------------------------------------
Net income as adjusted for purposes of
computing diluted earnings per share $ 229,129 256,458 129,656
================================================================================

Shares (Denominator):
Weighted average number of shares
outstanding during period 137,568 135,637 134,147
Employee Stock Ownership Plan shares
not committed to be released (558) (653) (747)
- --------------------------------------------------------------------------------
Weighted average number of shares
outstanding during period for computing
basic earnings per share 137,010 134,984 133,400
Incremental common shares attributable
to dilutive securities:
Conversion of convertible securities 1,274 1,676 1,958
Shares issuable under stock option plan 1,821 752 622
- --------------------------------------------------------------------------------
Number of shares as adjusted for purposes
of computing diluted earnings per share 140,105 137,412 135,980
================================================================================

Basic earnings per share* $ 1.67 1.89 .96
================================================================================

Diluted earnings per share* $ 1.64 1.87 .95
================================================================================
*Adjusted to reflect stock split in early 1999.

The weighted average number of options to purchase shares of common stock
that were excluded from the computation of diluted earnings per share because
the exercise price of the option was greater than the average market price of
the common stock was 3,000, 1,099,000 and 1,415,000 for 1998, 1997 and 1996,
respectively.

(11) Stock Option Program

Century has an incentive compensation program which allows the Board of
Directors, through a subcommittee to the Compensation Committee, to grant
incentives to employees in any one or a combination of the following forms:
incentive and non-qualified stock options; stock appreciation rights; restricted
stock; and performance shares. As of December 31, 1998, Century had reserved 6.5
million shares of common stock which may be issued under the incentive
compensation program.

Under the program, options have been granted to employees at a price either
equal to or exceeding the then-current market price and all of the options
expire ten years after the date of grant.

During 1998 the Company granted 121,667 options (the "1998 Options") at
market price. The weighted average fair value of each of the 1998 Options was
estimated as of the date of grant to be $8.88 using an option-pricing model with
the following assumptions: dividend yield - .5%; expected volatility - 20%;
risk-free interest rate - 4.8%; and expected option life - seven years.

During 1997 the Company granted 1,293,909 options (the "1997 Options") at
market price. The weighted average fair value of each of the 1997 Options was
estimated as of the date of grant to be $5.68 using an option-pricing model with
the following assumptions: dividend yield - .8%; expected volatility - 25%;
risk-free interest rate - 6.5%; and expected option life - eight years.

Stock option transactions during 1998, 1997 and 1996 were as follows:

Number Average
of options price
- --------------------------------------------------------------------------------

Outstanding December 31, 1995 5,929,196 $ 11.32
Exercised (657,906) 8.32
Forfeited (28,239) 13.01
- ---------------------------------------------------------
Outstanding December 31, 1996 5,243,051 12.11
Exercised (889,173) 10.18
Granted 1,293,909 13.51
Forfeited (38,856) 13.39
- ---------------------------------------------------------
Outstanding December 31, 1997 5,608,931 12.73
Exercised (937,985) 11.41
Granted 121,667 26.25
Forfeited (12,000) 13.33
- ---------------------------------------------------------
Outstanding December 31, 1998 4,780,613 13.35
=========================================================

Exercisable December 31, 1997 4,712,532 12.59
=========================================================

Exercisable December 31, 1998 4,188,660 13.13
=========================================================

The following tables summarize certain information about Century's stock
options at December 31, 1998.

Options outstanding
- --------------------------------------------------------------------------------
Weighted average
Range of remaining contractual Weighted average
exercise prices Number of options life outstanding exercise price
- --------------------------------------------------------------------------------

$ 9.63-12.30 2,271,662 3.5 years $ 11.04
13.33-17.64 2,391,554 7.1 14.87
23.03-26.05 67,133 9.1 25.88
26.98-31.54 50,264 9.1 28.96
---------
9.63-31.54 4,780,613 7.3 13.35
=========

Options exercisable
- --------------------------------------------------------------------------------
Range of Number of Weighted average
exercise prices options exercisable exercise price
- --------------------------------------------------------------------------------

$ 9.63-12.30 2,271,662 $ 11.04
13.33-17.64 1,861,935 15.27
23.03-26.05 31,655 26.05
26.98-31.54 23,408 28.65
---------
9.63-31.54 4,188,660 13.13
=========

The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," in accounting for its program. Accordingly, no
compensation cost has been recognized for the program. If compensation cost for
Century's program had been determined consistent with SFAS 123, the Company's
net income and earnings per share on a pro forma basis for 1998, 1997 and 1996
would have been as follows:

Year ended December 31, 1998 1997 1996
- --------------------------------------------------------------------------------
(Dollars in thousands,
except per share amounts)

Net income
As reported $ 228,757 255,978 129,077
Pro forma $ 227,113 252,773 129,077
Diluted earnings per share
As reported $ 1.64 1.87 .95
Pro forma $ 1.62 1.84 .95
- --------------------------------------------------------------------------------

(12) Accounting for the Effects of Regulation

The Company's regulated telephone operations are subject to the provisions of
Statement of Financial Accounting Standards No. 71 ("SFAS 71"), "Accounting for
the Effects of Certain Types of Regulation." Actions of a regulator can provide
reasonable assurance of the existence of an asset, reduce or eliminate the value
of an asset and impose a liability on a regulated enterprise. Such regulatory
assets and liabilities are required to be recorded and, accordingly, reflected
in the balance sheet of an entity subject to SFAS 71.

The Company's consolidated balance sheet as of December 31, 1998 included
regulatory assets of approximately $5.9 million and regulatory liabilities of
approximately $16.0 million exclusive of (i) property, plant and equipment, (ii)
accumulated depreciation and (iii) deferred income taxes and deferred investment
tax credits associated with regulatory assets and liabilities. The $5.9 million
of regulatory assets included assets established in connection with
postretirement benefits ($1.0 million), income taxes ($2.1 million) and deferred
financing costs ($2.7 million). The $16.0 million of regulatory liabilities was
established in connection with the adoption of Statement of Financial Accounting
Standards No. 109, "Accounting For Income Taxes." Net deferred income tax assets
related to the regulatory assets and liabilities quantified above were $3.5
million.

Property, plant and equipment of the Company's regulated telephone operations
has been depreciated using generally the straight line method over lives
approved by regulators. Such depreciable lives have generally exceeded the
depreciable lives used by nonregulated entities. In addition, in accordance with
regulatory accounting, retirements of regulated telephone property have been
charged to accumulated depreciation, along with the costs of removal, less
salvage, with no gain or loss recognized. These accounting policies have
resulted in accumulated depreciation being significantly less than if the
Company's telephone operations had not been regulated.

Statement of Financial Accounting Standards No. 101 ("SFAS 101"), "Regulated
Enterprises - Accounting for the Discontinuance of Application of FASB Statement
No. 71," specifies the accounting required when an enterprise ceases to meet the
criteria for application of SFAS 71. SFAS 101 requires the elimination of the
effects of any actions of regulators that have been recognized as assets and
liabilities in accordance with SFAS 71 but would not have been recognized as
assets and liabilities by enterprises in general, along with an adjustment of
certain accumulated depreciation accounts to reflect the difference between
recorded depreciation and the amount of depreciation that would have been
recorded had the Company's telephone operations not been subject to rate
regulation. SFAS 101 further provides that the carrying amounts of property,
plant and equipment are to be adjusted only to the extent the assets are
impaired and that impairment shall be judged in the same manner as for
enterprises in general. Deferred tax liabilities and deferred investment tax
credits will be impacted based on the change in the temporary differences for
property, plant and equipment and accumulated depreciation.

The ongoing applicability of SFAS 71 to the Company's regulated telephone
operations is being monitored due to the changing regulatory, competitive and
legislative environments, and it is possible that changes in regulation,
legislation or competition or in the demand for regulated services or products
could result in the Company's telephone operations no longer being subject to
SFAS 71 in the near future. When the regulated operations of the Company no
longer qualify for the application of SFAS 71, the net adjustments required will
result in a material, noncash charge against earnings which will be reported as
an extraordinary item. While the effect of implementing SFAS 101 cannot be
precisely estimated at this time, management believes that the noncash,
after-tax, extraordinary charge would be between $350 million and $400 million.
For regulatory purposes, the accounting and reporting of the Company's telephone
subsidiaries will not be affected by the discontinued application of SFAS 71.

(13) Income Taxes

The tax effects of temporary differences that gave rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1998 and 1997 were as follows:

December 31, 1998 1997
- ---------------------------------------------------------------------------
(Dollars in thousands)

Deferred tax assets
Postretirement benefit costs $ 38,023 35,826
Regulatory support 15,509 15,681
Net operating loss carry forwards of an
acquired subsidiary 6,716 8,013
Regulatory liability 6,230 8,000
Long-term debt 3,382 3,957
Other employee benefits 8,812 8,281
Other 9,609 8,788
- ---------------------------------------------------------------------------
Gross deferred tax assets 88,281 88,546
Less valuation allowance (6,716) (8,013)
- ---------------------------------------------------------------------------
Net deferred tax assets 81,565 80,533
- ---------------------------------------------------------------------------

Deferred tax liabilities
Property, plant and equipment, primarily
due to depreciation differences (288,365) (303,500)
Excess cost of net assets acquired (8,500) (7,177)
Basis difference in assets to be sold (66,998) (3,382)
Deferred debt costs (13,309) -
Customer base (11,381) -
Marketable equity securities (8,928) (11,840)
Intercompany profits (3,128) (3,112)
Other (13,107) (23,812)
- ---------------------------------------------------------------------------
Gross deferred tax liabilities (413,716) (352,823)
- ---------------------------------------------------------------------------
Net deferred tax liability $(332,151) (272,290)
===========================================================================

Income tax expense for the years ended December 31, 1998, 1997 and 1996 was
as follows:

Year ended December 31, 1998 1997 1996
- --------------------------------------------------------------------------------
(Dollars in thousands)

Federal
Current $ 117,490 122,861 60,530
Deferred 18,048 14,768 7,390
State
Current 25,015 13,272 6,100
Deferred (1,852) 1,462 545
- --------------------------------------------------------------------------------
$ 158,701 152,363 74,565
================================================================================

Income tax expense was allocated as follows:

Year ended December 31, 1998 1997 1996
- --------------------------------------------------------------------------------
(Dollars in thousands)

Net tax expense in the consolidated
statements of income $ 158,701 152,363 74,565
Stockholders' equity, primarily for
compensation expense for tax purposes in
excess of amounts recognized
for financial reporting purposes (6,579) (2,554) (1,866)
- --------------------------------------------------------------------------------
$ 152,122 149,809 72,699
================================================================================

The following is a reconciliation from the statutory federal income tax rate
to the Company's effective income tax rate:

December 31, 1998 1997 1996
- --------------------------------------------------------------------------------
(Percentage of pre-tax income)

Statutory federal income tax rate 35.0% 35.0 35.0
State income taxes, net of federal income
tax benefit 3.9 2.3 2.1
Amortization of nondeductible excess cost
of net assets acquired 3.3 1.1 1.8
Amortization of investment tax credits (.6) (.4) (1.1)
Amortization of regulatory liability (.6) (.5) (.9)
Other, net - (.2) (.3)
- --------------------------------------------------------------------------------
Effective income tax rate 41.0% 37.3 36.6
================================================================================

(14) Sale or Exchange of Assets

In connection with the first quarter 1998 acquisition of Brooks Fiber
Properties, Inc. ("Brooks") by MCIWorldCom, Inc. ("WorldCom"), the Company's
551,000 shares of Brooks' common stock were converted into approximately 1.0
million shares of WorldCom common stock. The Company recorded such conversion at
fair value which resulted in a pre-tax gain of approximately $22.8 million
($14.8 million after-tax; $.11 per diluted share). In the second quarter of
1998, the Company sold 750,000 shares of WorldCom common stock for $35.6 million
cash and recorded a pre-tax gain of $8.7 million ($5.7 million after tax; $.04
per diluted share).

In the second quarter of 1998, the Company sold its minority interests in two
non-strategic cellular entities for approximately $31.0 million cash which
resulted in a pre-tax gain of $21.8 million ($12.3 million after-tax; $.09 per
diluted share). Additionally, in the second quarter the Company wrote off its
minority investment in a start-up company.

During the second quarter of 1998, the Company also sold various other
properties that were acquired in the PTI acquisition, including, but not limited
to, the Company's submarine cable operations. The Company utilized the proceeds
from these transactions to reduce its debt associated with the acquisition of
PTI. In accordance with purchase accounting, no gain or loss was recorded upon
the disposition of these assets.

In May 1997 the Company sold its majority-owned competitive access subsidiary
to Brooks in exchange for approximately 4.3 million shares of Brooks' common
stock. The Company recorded a pre-tax gain of approximately $71 million ($46
million after-tax; $.34 per diluted share). In November 1997 the Company sold
approximately 3.8 million shares of Brooks' common stock for $202.7 million cash
and recorded a pre-tax gain of approximately $108 million ($66 million
after-tax; $.48 per diluted share).

(15) Retirement and Savings Plans

Century sponsors an Outside Directors' Retirement Plan and a Supplemental
Executive Retirement Plan to provide directors and officers, respectively, with
supplemental retirement, death and disability benefits. In addition, as of
December 31, 1998, the bargaining unit employees of a subsidiary are provided
benefits under a defined benefit pension plan and substantially all of the
employees of PTI are covered under a separate defined benefit pension plan.

The following table sets forth the combined plans' funded status and amounts
recognized in the Company's consolidated balance sheet at December 31, 1998,
1997 and 1996.

December 31, 1998 1997 1996
- --------------------------------------------------------------------------------
(Dollars in thousands)

Benefit obligation $ (217,747) (200,554) (20,473)
Fair value of plan assets 278,678 237,618 22,158
Unrecognized transition (asset)/obligation (2,136) (1,550) 2,519
Unamortized prior service cost 1,053 - -
Unrecognized net actuarial (gain)/loss (57,981) (37,731) 1
- --------------------------------------------------------------------------------
Prepaid (accrued) benefit cost $ 1,867 (2,217) 4,205
================================================================================

Net periodic pension cost for 1998, 1997 and 1996 included the following
components:

Year ended December 31, 1998 1997 1996
- --------------------------------------------------------------------------------
(Dollars in thousands)

Service cost $ 5,361 793 466
Interest cost 13,225 2,508 1,382
Expected return on plan assets (22,925) (5,715) (2,273)
Recognized net gains (2,688) - -
Net amortization and deferral (300) 2,459 933
- --------------------------------------------------------------------------------
Net periodic pension (benefit) cost $ (7,327) 45 508
================================================================================

The following is a reconciliation of the beginning and ending balances for
the benefit obligation and the plan assets for the retirement and savings plans.

December 31, 1998 1997 1996
- --------------------------------------------------------------------------------
(Dollars in thousands)

Change in benefit obligation
Benefit obligation at beginning of year $ 200,554 20,473 19,420
Service cost 5,361 793 466
Interest cost 13,225 2,508 1,382
Plan amendments 227 - -
Acquisition - 175,165 -
Actuarial loss 8,683 2,548 95
Benefits paid (10,303) (933) (890)
- --------------------------------------------------------------------------------
Benefit obligation at end of year $ 217,747 200,554 20,473
================================================================================

Change in plan assets (primarily listed
stocks and bonds)
Fair value of plan assets at
beginning of year $ 237,618 22,158 18,098
Return on plan assets 50,720 4,237 2,274
Employer contributions 643 807 2,676
Acquisition - 211,349 -
Benefits paid (10,303) (933) (890)
- --------------------------------------------------------------------------------
Fair value of plan assets at end
of year $ 278,678 237,618 22,158
================================================================================

Assumptions used in accounting for the pension plans as of December 1998 and
1997 were:

1998 1997
- --------------------------------------------------------------------------------
Discount rates 6.5-6.75% 7.0
Expected long-term rate of return on assets 8.0-10.0% 8.0-10.0
- --------------------------------------------------------------------------------

Century sponsors an Employee Stock Bonus Plan ("ESBP") and an Employee Stock
Ownership Plan ("ESOP"). These plans cover most employees with one year of
service with the Company and are funded by Company contributions determined
annually by the Board of Directors.

The Company contributed $3.7 million, $2.8 million and $1.9 million to the
ESBP during 1998, 1997 and 1996, respectively. At December 31, 1998, the ESBP
owned 5.9 million shares of Century common stock.

The Company's contributions to the ESOP approximate the ESOP's debt service
less dividends received by the ESOP applicable to unallocated shares. The ESOP
shares initially were pledged as collateral for its debt. As the debt is repaid,
shares are released from collateral based on the percentage of principal payment
to outstanding debt before applying the principal payment. As of each year end,
such released shares are allocated to active employees.

The ESOP had outstanding debt of $570,000 at December 31, 1998 which was
applicable to shares purchased prior to 1993. Interest incurred by the ESOP on
such debt was $148,000, $274,000 and $430,000 in 1998, 1997, and 1996,
respectively. The Company contributed and expensed $1.5 million, $1.8 million
and $2.1 million during 1998, 1997 and 1996, respectively, with respect to such
shares. Dividends on unallocated ESOP shares used for debt service by the ESOP
were $69,000 in 1998, $126,000 in 1997 and $189,000 in 1996. The number of ESOP
shares as of December 31, 1998 and 1997 which were purchased prior to 1993 were
as follows:

December 31, 1998 1997
- --------------------------------------------------------------------------------
(In thousands)

Allocated shares 3,153 3,297
Unreleased shares 77 320
- --------------------------------------------------------------------------------
3,230 3,617
================================================================================

The Company accounts for shares purchased subsequent to December 31, 1992 in
accordance with Statement of Position 93-6 ("SOP 93-6"). Accordingly, as shares
are released from collateral, the Company reports compensation expense equal to
the current market price of the shares and the shares become outstanding for
earnings per share computations. Dividends on allocated ESOP shares are recorded
as a reduction of retained earnings; dividends on unallocated ESOP shares are
recorded as a reduction of debt. ESOP compensation expense applicable to shares
purchased subsequent to 1992 was $2.9 million for 1998, $1.5 million for 1997
and $1.4 million for 1996. The fair value of unreleased ESOP shares accounted
for under SOP 93-6 was $23.2 million, $13.5 million and $9.7 million at December
31, 1998, 1997 and 1996, respectively. ESOP shares purchased subsequent to 1992
totaled 937,913, of which 422,060 were allocated and 515,853 were unreleased as
of December 31, 1998.

Century also sponsors a qualified profit sharing plan pursuant to Section
401(k) of the Internal Revenue Code (the "401(k) Plan") which is available to
substantially all employees of the Company. The Company's matching contributions
to the 401(k) Plan were $8.5 million in 1998, $2.8 million in 1997 and $2.3
million in 1996.

(16) Supplemental Cash Flow Disclosures

The Company paid interest of $151.4 million, $48.8 million and $45.1 million
during 1998, 1997 and 1996, respectively. Income taxes paid were $185.9 million
in 1998, $79.3 million in 1997 and $64.1 million in 1996.

In addition to the acquisitions of PTI and the Ameritech properties,
Century has consummated the acquisitions of various telephone and cellular
operations, along with certain other assets, during the three years ended
December 31, 1998. In connection with these acquisitions, the following assets
were acquired, liabilities assumed, and common and preferred stock issued:

Year ended December 31, 1998 1997 1996
- --------------------------------------------------------------------------------
(Dollars in thousands)

Property, plant and equipment $ 75,043 1,106,558 4,963
Excess cost of net assets acquired 145,880 1,204,284 53,220
Other investments 5,028 119,356 -
Notes payable - (199,824) -
Long-term debt - (527,937) (3,273)
Deferred credits and other liabilities - (246,196) (171)
Other assets and liabilities, excluding
cash and cash equivalents (382) 90,889 8,021
Common stock issued - (3,316) (8,458)
Preferred stock issued - - (7,975)
- --------------------------------------------------------------------------------
Decrease in cash due to acquisitions $ 225,569 1,543,814 46,327
================================================================================

During the second quarter of 1998, the Company sold various properties
acquired in the PTI acquisition; a portion of its WorldCom stock; and certain
cellular operations. See Note 14 for additional information.

In May 1997 the Company sold its majority-owned competitive access subsidiary
in exchange for approximately 4.3 million shares of publicly-traded common
stock. In November 1997 approximately 85% of such stock was sold. In addition,
the Company has consummated the disposition of various cellular operations,
along with certain other assets, during the three years ended December 31, 1998.
In connection with these dispositions, the following assets were sold,
liabilities eliminated, assets received and gain recognized:

Year ended December 31, 1998 1997 1996
- --------------------------------------------------------------------------------
(Dollars in thousands)

Property, plant and equipment $ - (38,481) 900
Excess cost of net assets acquired - (597) -
Marketable equity securities (21,923) 13,795 -
Other assets and liabilities, (60,525) (7,782) (85)
Gain on sale of assets (49,859) (169,640) (815)
- --------------------------------------------------------------------------------
Increase in cash due to dispositions $ (132,307) (202,705) -
================================================================================

(17) Fair Value of Financial Instruments

The following table presents the carrying amounts and estimated fair values
of certain of the Company's financial instruments at December 31, 1998 and 1997.

Carrying Fair
amount value
- --------------------------------------------------------------------------------
(Dollars in thousands)

December 31, 1998
- -----------------

Financial assets
Investments
Marketable equity securities $ 29,496 29,496 (2)
Other $ 29,813 29,813 (1)

Financial liabilities
Long-term debt (including current
maturities) $ 2,611,010 2,708,680 (3)
Other $ 32,721 32,721 (1)
- --------------------------------------------------------------------------------

December 31, 1997
- -----------------

Financial assets
Investments
Marketable equity securities $ 40,570 40,570 (2)
Other $ 22,455 24,036 (1)

Financial liabilities
Long-term debt (including
current maturities) $ 2,664,785 2,677,348 (3)
Other $ 24,213 24,213 (1)

Off-balance sheet financial instruments
Interest rate hedge contracts $ - (16,061)(4)
- --------------------------------------------------------------------------------
(1) Fair value was estimated by the Company.
(2) Fair value was based on quoted market prices.
(3) Fair value was estimated by discounting the scheduled payment streams to
present value based upon rates currently offered to the Company for
similar debt.
(4) Fair value represents the estimated amounts the Company would have to pay to
settle these contracts. See Note 6 for additional information related to the
settlement of these contracts.

Cash and cash equivalents, accounts receivable, notes payable, accounts payable
and accrued expenses - The carrying amount approximates the fair value due to
the short maturity of these instruments.

(18) Business Segments

The Company has two reportable segments: telephone and cellular. The
Company's reportable segments are strategic business units that offer different
products and services.

The Company's telephone operations are conducted in rural, suburban and
small urban communities in 21 states. Approximately 86% of the Company's
telephone access lines are in Wisconsin, Washington, Alaska, Michigan,
Louisiana, Colorado, Ohio, Oregon and Montana. The Company's cellular customers
are located in Michigan, Louisiana, Wisconsin, Mississippi, Texas, Arkansas and
Alaska.

Depreciation
Operating and Operating
revenues amortization income
- --------------------------------------------------------------------------------
(Dollars in thousands)

Year ended December 31, 1998
- ----------------------------

Telephone $1,091,610 262,893 333,708
Cellular 407,749 62,002 130,580
Other segments 77,726 3,659 15,523
- --------------------------------------------------------------------------------
Total $1,577,085 328,554 479,811
================================================================================

Year ended December 31, 1997
- ----------------------------

Telephone $ 530,597 115,722 173,285
Cellular 307,742 41,127 88,081
Other segments 63,182 2,646 6,404
- --------------------------------------------------------------------------------
Total $ 901,521 159,495 267,770
================================================================================

Year ended December 31, 1996
- ----------------------------

Telephone $ 451,538 95,793 155,183
Cellular 250,243 33,573 67,914
Other segments 47,896 2,655 199
- --------------------------------------------------------------------------------
Total $ 749,677 132,021 223,296
================================================================================

Year ended December 31, 1998 1997 1996
- --------------------------------------------------------------------------------
(Dollars in thousands)

Operating income $ 479,811 267,770 223,296
Gain on sale or exchange of assets, net 49,859 169,640 815
Interest expense (167,552) (56,474) (44,662)
Income from unconsolidated cellular entities 32,869 27,794 26,952
Minority interest (12,797) (5,498) (6,675)
Other income and expense 5,268 5,109 3,916
- --------------------------------------------------------------------------------
Income before income tax expense $ 387,458 408,341 203,642
================================================================================

Year ended December 31, 1998 1997 1996
- --------------------------------------------------------------------------------
(Dollars in thousands)
Capital expenditures
Telephone $ 233,190 115,854 110,147
Cellular 49,538 39,102 83,679
Other segments 28,191 26,269 29,059
- --------------------------------------------------------------------------------
Total $ 310,919 181,225 222,885
================================================================================

Identifiable assets
Telephone $3,674,148 3,379,376 1,174,317
Cellular 1,097,789 989,729 644,587
Other segments 163,518 340,296 209,601
- --------------------------------------------------------------------------------
Total assets $4,935,455 4,709,401 2,028,505
================================================================================

Other accounts receivable are primarily amounts due from various long
distance carriers, principally AT&T, and several large local exchange operating
companies.

(19) Commitments and Contingencies

Construction expenditures and investments in vehicles, buildings and other
work equipment during 1999 are estimated to be $215 million for telephone
operations, $70 million for cellular operations and $60 million for corporate
and other operations.

The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position or results of operations.

(20) Pending Dispositions

In August 1998 the Company entered into a definitive agreement to sell the
stock of the entities conducting the Company's Alaska operations to ALEC
Acquisition Corporation for $415 million cash, subject to various adjustments.
Proceeds from this transaction will be used to reduce debt. The Alaska
transaction is anticipated to close in the second quarter of 1999, subject to
regulatory approvals and various closing conditions.

In January 1999 the Company signed definitive asset purchase agreements to
sell all of the operations of the Brownsville and McAllen, Texas, cellular
markets to Western Wireless Corporation for $95 million cash, subject to various
adjustments. The Company is the majority owner in these markets and, therefore,
will receive its proportionate share of the sale proceeds (approximately $39
million after-tax.) The transaction is expected to close in the second quarter
of 1999, subject to regulatory approvals and various closing conditions.

(21) Subsequent Event

On February 23, 1999, Century's Board of Directors declared a three-for-two
common stock split effected as a 50% stock dividend in March 1999. All per share
data included in this report has been restated to reflect this stock split. An
amount equal to the par value of the additional common shares issued pursuant to
the stock split has been reflected as a transfer from paid-in-capital to common
stock on the consolidated financial statements for 1998.

CENTURY TELEPHONE ENTERPRISES, INC.
Consolidated Quarterly Income Information

First Second Third Fourth
quarter quarter quarter quarter
- --------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)
1998 (unaudited)
- --------------------------------------------------------------------------------

Operating revenues $ 371,720 388,378 401,949 415,038
Operating income $ 110,132 121,488 128,184 120,007
Net income $ 57,694 64,191 54,678 52,194
Diluted earnings per share* $ .41 .46 .39 .37

1997
- --------------------------------------------------------------------------------

Operating revenues $ 198,985 210,576 218,351 273,609
Operating income $ 57,698 62,405 69,815 77,852
Net income $ 33,135 83,176 41,433 98,234
Diluted earnings per share* $ .24 .61 .30 .71
- --------------------------------------------------------------------------------
*Adjusted to reflect stock split in early 1999. See Note 21 of Notes to
Consolidated Financial Statements.

Diluted earnings per share for both the first quarter and second quarter of
1998 included $.11 of net gain on sale or exchange of assets. See Note 14 for
additional information.

Diluted earnings per share for the second quarter and fourth quarter of 1997
included $.34 and $.44 per share, respectively, of gain on sale of assets. The
fourth quarter of 1997 includes one month of results of operations of Pacific
Telecom, Inc.

Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.

None.

PART III

Item 10. Directors and Executive Officers of the Registrant.

The name, age and office(s) held by each of the Registrant's executive
officers are shown below. Each of the executive officers listed below serves at
the pleasure of the Board of Directors, except Mr. Williams who has entered into
an employment agreement with the Registrant. The agreement's initial term has
lapsed, but the agreement remains in effect from year to year, subject to the
right of Mr. Williams or the Company to terminate such agreement.

Name Age Office(s) held with Century
- ---- --- ---------------------------

Clarke M. Williams 77 Chairman of the Board
of Directors

Glen F. Post, III 46 Vice Chairman of the Board of
Directors, President and
Chief Executive Officer

W. Bruce Hanks 44 Executive Vice President
and Chief Operating Officer

David D. Cole 41 Senior Vice President -
Operational Support

Kenneth R. Cole 51 Senior Vice President -
Operations

R. Stewart Ewing, Jr. 47 Senior Vice President and
Principal Financial
and Accounting Officer

Harvey P. Perry 54 Senior Vice President, General
Counsel and Secretary

Each of the Registrant's executive officers has served as an officer of the
Registrant and one or more of its subsidiaries in varying capacities for more
than the past five years. Mr. Hanks has served as Executive Vice President and
Chief Operating Officer since November 1998, as Senior Vice President -
Corporate Development and Strategy from October 1996 to October 1998 and as
President - Telecommunications Services or a comparable position from 1989 to
1996. Mr. David D. Cole has served as Senior Vice President Operational Support
since November 1998, as President - Wireless Group from October 1996 to October
1998 and as Vice President from 1990 to 1996. Mr. Kenneth R. Cole has served as
Senior Vice President - Operations since November 1998, as President - Telephone
Group from January 1995 to October 1998 and Vice President from 1983 to 1994.

The balance of the information required by Item 10 is incorporated by
reference to the Registrant's definitive proxy statement relating to its 1999
annual meeting of stockholders (the "Proxy Statement"), which Proxy Statement
will be filed pursuant to Regulation 14A within 120 days after the end of the
last fiscal year.

Item 11. Executive Compensation.

The information required by Item 11 is incorporated by reference to the Proxy
Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

The information required by Item 12 is incorporated by reference to the Proxy
Statement.

Item 13. Certain Relationships and Related Transactions.

The information required by Item 13 is incorporated by reference to the Proxy
Statement.

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

a. Financial Statements

(i) Consolidated Financial Statements:

Independent Auditors' Report on Consolidated Financial
Statements and Financial Statement Schedules

Consolidated Statements of Income for the years ended
December 31, 1998, 1997 and 1996

Consolidated Statements of Comprehensive Income for the years
ended December 31, 1998, 1997 and 1996

Consolidated Balance Sheets - December 31, 1998 and 1997

Consolidated Statements of Cash Flows for the years
ended December 31, 1998, 1997 and 1996

Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1998, 1997 and 1996

Notes to Consolidated Financial Statements

Consolidated Quarterly Income Information (unaudited)

(ii) Schedules:*

I Condensed Financial Information of Registrant

II Valuation and Qualifying Accounts

* Those schedules not listed above are omitted as not
applicable or not required.

b. Reports on Form 8-K.

(i) The following item was reported in a Form 8-K filed December 3, 1998.

Item 5. Other Events - News release announcing the acquisition
of certain of Ameritech's telephone operations and
related directories in Wisconsin.

(ii) The following items were reported in a Form 8-K filed December
10, 1998.

Item 2. News release announcing third quarter result of
operations.

c. Exhibits:

3(i) Amended and Restated Articles of Incorporation of
Registrant, dated as of December 2, 1996, (incorporated by
reference to Exhibit 3(i) to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996).

3(ii) Registrant's Bylaws, as amended through October 7, 1998
(incorporated by reference to Exhibit 3(ii) of the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998).

4.1 Note Purchase Agreement, dated September 1, 1989, between
Registrant, Teachers Insurance and Annuity Association of
America and the Lincoln National Life Insurance Company
(incorporated by reference to Exhibit 4.23 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1989).

4.2 Rights Agreement, dated as of August 27, 1996, between
Century Telephone Enterprises, Inc. and Society National
Bank, as Rights Agent, including the form of Rights
Certificate (incorporated by reference to Exhibit 1 of
Registrant's Current Report on Form 8-K filed August 30,
1996).

4.3 Form of common stock certificate of the Registrant
(incorporated by reference to Exhibit 4.1 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended June
30, 1993).

4.4 Indenture dated as of March 31, 1994 between the Company
and Regions Bank (formerly First American Bank & Trust of
Louisiana), as Trustee (incorporated by reference to
Exhibit 4.1 of the Company's Registration Statement on Form
S-3, Registration No. 33-52915).

4.5 Resolutions designating the terms and conditions of the
Company's 7-3/4% Senior Notes, Series A, due 2004 and
8-1/4% Senior Notes, Series B, due 2024 (incorporated by
reference to Exhibit 4.1 to Registrant's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1994).

4.6 Resolutions designating the terms and conditions of the
Company's 6.55% Senior Notes, Series C, due 2005 and 7.2%
Senior Notes, Series D, due 2025 (incorporated by reference
to Exhibit 4.27 to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995).

4.7 Form of Senior Notes described in 4.5 and 4.6 above
(incorporated by reference to Exhibit 4.3 of the Company's
Registration Statement on Form S-3, Registration No.
33-52915).

4.8 Competitive Advance and Revolving Credit Facility
Agreement, dated as of August 28, 1997, among Registrant,
the lenders named therein, and NationsBank of Texas, N.A.
(incorporated by reference to Exhibit 4.1 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997).

4.9 Resolutions designating the terms and conditions of the
Company's 6.15% Senior Notes, Series E, due 2005; 6.30%
Senior Notes, Series F, due 2008; and 6.875% Debentures,
Series G, due 2028, (incorporated by reference to exhibit
4.9 to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997).

4.10 Form of Board Resolution to be used in designating and
authorizing the terms and conditions of any series of
Senior Debt Securities issuable under the Company's shelf
registration statement (incorporated by reference to
Exhibit 4.3 of the Company's Registration Statement on Form
S-3, Registration No. 333-42013).

4.11 Form of Senior Debt Securities described in 4.9 above
(incorporated by reference to Exhibit 4.4 of the Company's
Registration Statement on Form S-3, Registration No.
333-42013).

4.12 First Supplemental Indenture, dated as of November 2, 1998,
to Indenture between CenturyTel of the Northwest, Inc. and
The First National Bank of Chicago (incorporated by
reference to Exhibit 10.2 to Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1998).

10.1 Employee Benefit Plans

(a) Registrant's Employee Stock Ownership Plan and Trust,
as amended and restated December 30, 1994 (incorporated
by reference to Exhibit 10.1 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31,
1995), amendment thereto dated January 26, 1996
(incorporated by reference to Exhibit 10.1(a) to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995) and amendment thereto dated
July 15, 1996 (incorporated by reference to Exhibit
10.2 to Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996), and amendment thereto
dated December 31, 1996 (incorporated by reference to
Exhibit 10.5 to Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1997), and
amendment thereto dated March 18, 1997 (incorporated by
reference to Exhibit 10.6 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31,
1997), and amendments thereto dated January 1, 1997
(incorporated by reference to Exhibit 10.3 to
Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997), and amendment thereto
dated December 29, 1998, included elsewhere herein.

(b) Registrant's Stock Bonus Plan, PAYSOP and Trust, as
amended and restated December 30, 1994 (incorporated by
reference to Exhibit 10.2 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31,
1995), amendment thereto dated July 11, 1995
(incorporated by reference to Exhibit 10.4 to
Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995), amendment thereto dated
January 26, 1996 (incorporated by reference to Exhibit
10.1(b) to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1995) and amendment thereto
dated July 15, 1996 (incorporated by reference to
Exhibit 10.1 to Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996), and
amendment thereto dated December 31, 1996 (incorporated
by reference to Exhibit 10.4 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31,
1997), and amendments thereto dated January 1, 1997
(incorporated by reference to Exhibit 10.2 to
Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997), and amendment thereto
dated December 29, 1998, included elsewhere herein.

(c) Registrant's Dollars & Sense Plan and Trust, as amended
and restated, effective January 1, 1998 and amendment
thereto dated December 29, 1998, both included
elsewhere herein.

(d) Registrant's Restated Supplemental Executive Retirement
Plan, generally effective as of November 16, 1995
(incorporated by reference to Exhibit 10.1(d) to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995) and amendment thereto dated
November 21, 1996 (incorporated by reference to Exhibit
10.1(d) to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1996).

(e) Registrant's 1983 Restricted Stock Plan, dated February
21, 1984, as amended and restated as of November 16,
1995 (incorporated by reference to Exhibit 10.1(e) to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995) and amendment thereto dated
November 21, 1996, (incorporated by reference to
Exhibit 10.1(e) to Registrant's Annual Report on Form
10-K for the year ended December 31, 1996), and
amendment thereto dated February 25, 1997 (incorporated
by reference to Exhibit 10.3 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31,
1997).

(f) Registrant's Key Employee Incentive Compensation Plan,
dated January 1, 1984, as amended and restated as of
November 16, 1995 (incorporated by reference to Exhibit
10.1(f) to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1995) and amendment thereto
dated November 21, 1996 (incorporated by reference to
Exhibit 10.1 (f) to Registrant's Annual Report on Form
10-K for the year ended December 31, 1996), and
amendment thereto dated February 25, 1997 (incorporated
by reference to Exhibit 10.2 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31,
1997).

(g) Registrant's 1988 Incentive Compensation Program as
amended and restated August 22, 1989 (incorporated by
reference to Exhibit 19.8 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1989) and amendment thereto dated November 21, 1996
(incorporated by reference to Exhibit 10.1(g) to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1996).

(h) Form of Stock Option Agreement entered into in 1988 by
the Registrant, pursuant to 1988 Incentive Compensation
Program, with certain of its officers (incorporated by
reference to Exhibit 10.10 to Registrant's Annual
Report on Form 10-K for the year ended December 31,
1988) and amendment thereto (incorporated by reference
to Exhibit 4.6 to Registrant's Registration No.
33-31314).

(i) Registrant's 1990 Incentive Compensation Program, dated
March 15, 1990 (incorporated by reference to Exhibit
19.1 to Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1990) and amendment thereto
dated November 21, 1996 (incorporated by reference to
Exhibit 10.1(i) to Registrant's Annual Report on Form
10-K for the year ended December 31, 1996).

(j) Form of Stock Option Agreement entered into in 1990 by
the Registrant, pursuant to 1990 Incentive Compensation
Program, with certain of its officers (incorporated by
reference to Exhibit 19.3 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30,
1990) and amendment thereto dated as of May 22, 1995
(incorporated by reference to Exhibit 10.1 to
Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995).

(k) Form of Stock Option Agreement entered into in 1992 by
the Registrant, pursuant to 1990 Incentive Compensation
Program, with certain of its officers and employees
(incorporated by reference to Exhibit 10.17 to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1992) and amendment thereto dated as
of May 22, 1995 (incorporated by reference to Exhibit
10.2 to Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1995).

(l) Registrant's 1995 Incentive Compensation Plan approved
by Registrant's shareholders on May 11, 1995
(incorporated by reference to Exhibit 4.4 to
Registration No. 33-60061) and amendment thereto dated
November 21, 1996 (incorporated by Reference to Exhibit
10.1 (l) to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1996), and amendment
thereto dated February 25, 1997 (incorporated by
reference to Exhibit 10.1 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31,
1997).

(m) Form of Stock Option Agreement, pursuant to 1995
Incentive Compensation Plan and dated as of May 22,
1995, entered into by Registrant and its officers
(incorporated by reference to Exhibit 10.5 to
Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995).

(n) Form of Stock Option Agreement, pursuant to 1995
Incentive Compensation Plan and dated as of June 23,
1995, entered into by Registrant and certain key
employees (incorporated by reference to Exhibit 10.6 to
Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995).

(o) Form of Performance Share Agreement Under the 1990
Incentive Compensation Program, entered into in 1993
with certain of its officers and employees
(incorporated by reference to Exhibit 28.1 to
Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1993) and amendment thereto
dated as of May 22, 1995 (incorporated by reference to
Exhibit 10.3 to Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1995).

(p) Registrant's Restated Supplemental Defined Contribution
Plan, dated as of November 16, 1995 (incorporated by
reference to Exhibit 10.1(q) to Registrant's Annual
Report on Form 10-K for the year ended December 31,
1995), amendment thereto dated July 15, 1996
(incorporated by reference to Exhibit 10.4 to
Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996) and amendment thereto
dated November 21, 1996 (incorporated by reference to
Exhibit 10.1 (p) to Registrant's Annual Report on Form
10-K for the year ended December 31, 1996).

(q) Registrant's Amended and Restated Supplemental Dollars
& Sense Plan, effective as of January 1, 1999, included
elsewhere herein.

(r) Registrant's Amended and Restated Salary Continuation
(Disability) Plan for Officers, dated November 26, 1991
(incorporated by reference to Exhibit 10.16 of
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1991).

(s) Registrant's Restated Outside Directors' Retirement
Plan, dated as of November 16, 1995 (incorporated by
reference to Exhibit 10.1(t) to Registrant's Annual
Report on Form 10-K for the year ended December 31,
1995).

(t) Registrant's Restated Deferred Compensation Plan for
Outside Directors, dated as of November 16, 1995
(incorporated by reference to Exhibit 10.1(u) to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995).

(u) Form of Stock Option Agreement, pursuant to 1995
Incentive Compensation Plan and dated as of February
24, 1997, entered into by Registrant and its officers
(incorporated by reference to Exhibit 10.4 to
Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997).

(v) Registrant's Chairman/Chief Executive Officer
Short-Term Incentive Program (incorporated by reference
to Exhibit 10.6 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997).

(w) Amended and Restated Restricted Stock and Performance
Share Agreement, pursuant to 1995 Incentive
Compensation Plan, dated as of February 24, 1998
(incorporated by reference to Exhibit 10.2 to
Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998).

(x) Form of Restricted Stock and Performance Share
Agreement, pursuant to 1995 Incentive Compensation
Plan, dated as of February 24, 1998 (incorporated by
reference to Exhibit 10.3 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31,
1998).

(y) Registrant's Supplemental Defined Benefit Plan,
effective as of January 1, 1999, included elsewhere
herein.

(z) Registrant's Amended and Restated Retirement Plan,
effective as of January 1, 1999, included elsewhere
herein.

10.2 Employment, Severance and Related Agreements

(a) Employment Agreement, dated May 24, 1993, by and
between Clarke M. Williams and Registrant (incorporated
by reference to Exhibit 19.1 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30,
1993) and amendment thereto dated as of February 27,
1996 (incorporated by reference to Exhibit 10.2(a) to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995).

(b) Form of Amended and Restated Severance Agreement, by
and between Registrant and each of its executive
officers other than Clarke M. Williams, dated as of
November 16, 1995 (incorporated by reference to Exhibit
10.2(b) to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1995).

(c) Form of Amended and Restated Severance Agreement, by
and between Registrant and three of its officers who
are not executive officers, dated as of November 16,
1995 (incorporated by reference to Exhibit 10.2(c) to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995).

(d) Agreement, dated December 31, 1994, by and between Jim
D. Reppond and Registrant (incorporated by reference to
Exhibit 10.24 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1994).

(e) Consulting Agreement, dated as of July 2, 1996, by and
between Century Telephone Enterprises, Inc. and Jim D.
Reppond (incorporated by reference to Exhibit 10 to
Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996).

10.3 Other Agreements

(a) Stock Purchase Agreement, dated as of June 11, 1997, by
and among PacifiCorp Holdings, Inc., Pacific Telecom,
Inc., Century Telephone Enterprises, Inc. and Century
Cellunet, Inc. (incorporated by reference to Exhibit
2.1 to Registrant's Current Report on Form 8-K filed
June 24, 1997) and amendment thereto, dated November 5,
1997 (incorporated by reference to Exhibit 2.2 to
Registrant's Current Report on Form 8-K dated December
1, 1997 and filed December 11, 1997).

(b) Purchase Agreement by and among ALEC Acquisition
Corporation, CenturyTel of the Northwest, Inc. and
CenturyTel Wireless, Inc., dated August 14, 1998
(incorporated by reference to Exhibit 10.1 to
Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998).

21 Subsidiaries of the Registrant, included elsewhere herein.

23 Independent Auditors' Consent, included elsewhere herein.

27 Financial Data Schedule, included elsewhere herein.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

CENTURY TELEPHONE ENTERPRISES, INC.

Date: March 15, 1999 By: /s/ Clarke M. Williams
----------------------
Clarke M. Williams
Chairman of the Board

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.

/s/ Clark M. Williams
- ------------------------- Chairman of the Board
Clarke M. Williams of Directors March 15, 1999

Vice Chairman of the
/s/ Glen F. Post, III Board of Directors,
- ------------------------- President, and Chief
Glen F. Post, III Executive Officer March 15, 1999

/s/ R. Stewart Ewing, Jr. Senior Vice President
- ------------------------- and Principal Financial
R. Stewart Ewing, Jr and Accounting Officer March 15, 1999

/s/ Harvey P. Perry Senior Vice President,
- ------------------------ General Counsel,
Harvey P. Perry Secretary and Director March 15, 1999

/s/ W. Bruce Hanks Executive Vice President,
- ------------------------ Chief Operating Officer
W. Bruce Hanks and Director March 15, 1999

/s/ William R. Boles, Jr.
- ------------------------
William R. Boles, Jr. Director March 15, 1999

/s/ Virginia Boulet
- ------------------------
Virginia Boulet Director March 15,1999

/s/ Ernest Butler, Jr.
- -------------------------
Ernest Butler, Jr. Director March 15, 1999

/s/ Calvin Czeschin
- ------------------------
Calvin Czeschin Director March 15, 1999

/s/ James B. Gardner
- ------------------------
James B. Gardner Director March 15, 1999

/s/ R. L. Hargrove, Jr.
- ------------------------
R. L. Hargrove, Jr. Director March 15, 1999

/s/ Johnny Hebert
- ------------------------
Johnny Hebert Director March 15, 1999

/s/ F. Earl Hogan
- ------------------------
F. Earl Hogan Director March 15, 1999

/s/ C. G. Melville, Jr.
- ------------------------
C. G. Melville, Jr. Director March 15, 1999

/s/ Jim D. Reppond
- ------------------------
Jim D. Reppond Director March 15, 1999

SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CENTURY TELEPHONE ENTERPRISES, INC.
(Parent Company)
STATEMENTS OF INCOME

Year ended December 31,
- ------------------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------
(Dollars in thousands)

REVENUES $ 16,055 9,666 6,520
- ------------------------------------------------------------------------------

EXPENSES
Operating expenses 15,788 9,088 6,071
Depreciation and amortization 31,842 9,401 7,286
- ------------------------------------------------------------------------------
Total expenses 47,630 18,489 13,357
- ------------------------------------------------------------------------------

OPERATING LOSS (31,575) (8,823) (6,837)
- -------------------------------------------------------------------------------

OTHER INCOME (EXPENSE)
Gain on sales of assets 28,085 172,537 -
Loss on investment - - (1,100)
Interest expense (131,309) (49,738) (36,709)
Interest income 40,005 28,697 28,884
- ------------------------------------------------------------------------------
Total other income (expense) (63,219) 151,496 (8,925)
- ------------------------------------------------------------------------------

INCOME (LOSS) BEFORE INCOME TAXES AND
EQUITY IN SUBSIDIARIES' EARNINGS (94,794) 142,673 (15,762)

Income tax benefit (expense) 21,857 (55,591) 4,467
- ------------------------------------------------------------------------------

INCOME (LOSS) BEFORE EQUITY IN
SUBSIDIARIES' EARNINGS (72,937) 87,082 (11,295)

Equity in subsidiaries' earnings 301,694 168,896 140,372
- ------------------------------------------------------------------------------
NET INCOME $ 228,757 255,978 129,077
==============================================================================

See accompanying notes to condensed financial information of registrant.

SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(continued)
CENTURY TELEPHONE ENTERPRISES, INC.
(Parent Company)
BALANCE SHEETS

December 31,
- ------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------
(Dollars in thousands)

ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 6,540 28,300
Receivables from subsidiaries 142,912 76,931
Other receivables 23,906 792
Prepayments and other 259 28
- ------------------------------------------------------------------------------
Total current assets 173,617 106,051
- ------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT
Property and equipment 1,162 1,236
Accumulated depreciation (676) (744)
- ------------------------------------------------------------------------------
Net property, plant and equipment 486 492
- ------------------------------------------------------------------------------
INVESTMENTS AND OTHER ASSETS
Investments in subsidiaries (at equity) 3,170,861 2,706,066
Receivables from subsidiaries 514,366 655,398
Other investments 42,418 75,546
Deferred charges 58,073 5,878
- ------------------------------------------------------------------------------
Total investments and other assets 3,785,718 3,442,888
- ------------------------------------------------------------------------------
TOTAL ASSETS $ 3,959,821 3,549,431
==============================================================================

LIABILITIES AND EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 30,046 11,486
Payables to subsidiaries 365,517 218,993
Accrued interest 27,711 11,088
Other accrued liabilities 23,475 41,628
- ------------------------------------------------------------------------------
Total current liabilities 446,749 283,195
- ------------------------------------------------------------------------------
LONG-TERM DEBT 1,852,253 1,883,467
- ------------------------------------------------------------------------------
PAYABLES TO SUBSIDIARIES 32,406 46,371
- ------------------------------------------------------------------------------
DEFERRED CREDITS AND OTHER LIABILITIES 96,931 36,126
- ------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock, $1.00 par value, authorized
175,000,000 shares, issued and outstanding
138,082,926* and 91,103,674 shares 138,083 91,104
Paid-in capital 451,535 469,586
Unrealized holding gain on investments,
net of taxes 7,217 11,893
Retained earnings 932,611 728,033
Unearned ESOP shares (6,070) (8,450)
Preferred stock - non-redeemable 8,106 8,106
- ------------------------------------------------------------------------------
Total stockholders' equity 1,531,482 1,300,272
- ------------------------------------------------------------------------------
TOTAL LIABILITIES AND EQUITY $ 3,959,821 3,549,431
==============================================================================
* Adjusted to reflect stock split in early 1999.

See accompanying notes to condensed financial information of registrant.

SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Continued)
CENTURY TELEPHONE ENTERPRISES, INC.
(Parent Company)
STATEMENTS OF CASH FLOWS

Year ended December 31,
- ------------------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------
(Dollars in thousands)

OPERATING ACTIVITIES
Net income $ 228,757 255,978 129,077
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 31,842 9,401 7,286
Deferred income taxes 12,902 8,068 2,934
Earnings of subsidiaries (301,694) (168,896) (140,372)
Gain on sale of assets (28,085) (172,537) -
Changes in current assets and
current liabilities:
Other receivables (23,114) 11,615 (2,639)
Other accrued liabilities (40,535) 35,754 329
Other current assets and
liabilities, net 37,754 8,412 3,998
Other, net 9,724 958 3,297
- ------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities (72,449) (11,247) 3,910
- ------------------------------------------------------------------------------

INVESTING ACTIVITIES
Acquisitions (225,569) (1,283,291) (46,327)
Capital contributions to subsidiaries - (16,634) (20,179)
Dividends received from subsidiaries 116,906 117,499 473
Receivables from subsidiaries 303,221 (235,772) (45,945)
Payables to subsidiaries (90,319) 9,738 97,908
Proceeds from sales of assets 40,778 202,705 -
Investment in unconsolidated personal
communications services entity - - 18,900
Note receivable - 22,500 1,667
Other, net (28,046) (14,959) (4,425)
- ------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities 116,971 (1,198,214) 2,072
- ------------------------------------------------------------------------------

FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 950,000 1,297,435 47,500
Payments of long-term debt (960,274) (52,214) (42,357)
Payment of hedge contracts (40,237) - -
Proceeds from issuance of common stock 15,033 14,156 10,089
Payment of debt issuance costs (6,625)
Cash dividends paid (24,179) (22,671) (21,775)
- ------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities (66,282) 1,236,706 (6,543)
- ------------------------------------------------------------------------------

Net increase (decrease) in cash and
cash equivalents (21,760) 27,245 (561)

Cash and cash equivalents at
beginning of year 28,300 1,055 1,616
- ------------------------------------------------------------------------------

CASH AND CASH EQUIVALENTS AT END OF YEAR $ 6,540 28,300 1,055
==============================================================================
See accompanying notes to condensed financial information of registrant.

SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(continued)
CENTURY TELEPHONE ENTERPRISES, INC.
(Parent Company)
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT

(A) LONG-TERM DEBT

The approximate annual debt maturities for the five years subsequent to
December 31, 1998 are as follows:

1999 - $ 30.0 million
2000 - $ 37.4 million
2001 - $ 56.6 million
2002 - $ 688.8 million
2003 - $ 3.8 million

(B) GUARANTEES

As of December 31, 1998, Century has guaranteed a promissory note for a
subsidiary of $2.0 million, as well as the applicable interest and premium.

(C) DIVIDENDS FROM SUBSIDIARIES

Dividends paid to Century by consolidated subsidiaries were $116.9 million,
$117.5 million and $472,800 during 1998, 1997 and 1996, respectively.

(D) INCOME TAXES AND INTEREST PAID

Income taxes paid by Century (including amounts reimbursed from
subsidiaries) were $162.0 million, $71.8 million and $56.0 million during 1998,
1997, and 1996 respectively.

Interest paid by Century was $114.7 million, $42.4 million and $37.3
million during 1998, 1997 and 1996, respectively.

(E) AFFILIATED TRANSACTIONS

Century provides and bills management services to subsidiaries and in
certain instances makes interest bearing advances to finance construction of
plant and purchases of equipment. Century recorded intercompany interest income
of $39.7 million, $26.6 million and $26.4 million in 1998, 1997 and 1996,
respectively.

(F) SUBSEQUENT EVENT

On February 23, 1999, Century's Board of Directors declared a three-for-two
common stock split effected as a 50% stock dividend in March 1999. An amount
equal to the par value of the additional common shares issued pursuant to the
stock split has been reflected as a transfer from paid-in-capital to common
stock on the Condensed Financial Information of Registrant for 1998.

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
CENTURY TELEPHONE ENTERPRISES, INC.

For the years ended December 31, 1998, 1997 and 1996

Additions
Balance at charged to Deductions Balance
beginning costs and from Other at end
Description of period expenses allowance(1) changes(2) of period
- --------------------------------------------------------------------------------
(Dollars in thousands)

Year ended December 31, 1998
Allowance for
doubtful accounts $ 5,954 13,951 (15,775) 25 4,155

Year ended December 31, 1997
Allowance for
doubtful accounts $ 3,327 11,838 (9,975) 764 5,954

Year ended December 31, 1996
Allowance for
doubtful accounts $ 2,768 10,155 (9,662) 66 3,327

(1) Customers' accounts written-off, net of recoveries.

(2) Allowance for doubtful accounts at the date of acquisition of
purchased subsidiaries, net of allowance for doubtful accounts at
the date of disposition of subsidiaries sold.