CT COMMUNICATIONS INC /NC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: DECEMBER 31, 2001

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO

Commission File Number: 0-19179

CT COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)

NORTH CAROLINA 56-1837282
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)

1000 PROGRESS PLACE, NORTHEAST
CONCORD, NORTH CAROLINA 28025
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(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (704) 722-2500

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

TITLE OF EACH CLASS: NAME OF EXCHANGE ON WHICH REGISTERED:
-------------------- -------------------------------------
None None

Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK
RIGHTS TO PURCHASE COMMON STOCK

Indicate by check mark whether the Company (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 Company 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. [ ]

The aggregate market value of the voting stock held by nonaffiliates of the
Company is approximately $281,018,529 (based on the March 20, 2002 closing price
of the Common Stock of $14.95 per share). As of March 20, 2002, there were
18,797,226 shares of the Company's Common Stock outstanding.

Documents Incorporated by Reference

DOCUMENT OF THE COMPANY FORM 10-K REFERENCE LOCATION
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2002 Annual Meeting Proxy Statement Part III

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CT COMMUNICATIONS, INC.
AND CONSOLIDATED SUBSIDIARIES

FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

TABLE OF CONTENTS

PART I
Item 1. Business.................................................... 2
Item 2. Properties.................................................. 21
Item 3. Legal Proceedings........................................... 22
Item 4. Submission of Matters to a Vote of Security Holders......... 22

PART II
Item 5. Market for the Company's Common Equity and Related
Shareholder Matters......................................... 22
Item 6. Selected Financial Data..................................... 23
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 24
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 33
Item 8. Financial Statements and Supplementary Data................. 33
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 34

PART III
Item 10. Directors and Executive Officers of the Company............. 34
Item 11. Executive Compensation...................................... 34
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 34
Item 13. Certain Relationships and Related Transactions.............. 34

PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 34

PART I

ITEM 1. BUSINESS

Some of the statements contained in this Form 10-K discuss future
expectations, contain projections of results of operations or financial
condition or state other forward-looking information. These "forward-looking
statements" are subject to certain risks, uncertainties and assumptions that
could cause the actual results to differ materially from those reflected in the
forward-looking statements. The forward-looking information is based on various
factors and was derived using numerous assumptions. In some cases, these
so-called forward-looking statements can be identified by the use of words such
as "may," "will," "should," "expect," "plan," "anticipate," "believe,"
"estimate," "predict," "project," "intend" or "potential" or the negative of
those words and other comparable words. Those statements however only reflect
our predictions. Actual events or results may differ substantially. Important
factors that could cause actual events or results to be materially different
from the forward-looking statements include those discussed under the heading
"Business -- Risk Factors" and throughout this Form 10-K.

References in this Form 10-K to "we," "us," "our," "the Company," and "CT
Communications" mean CT Communications, Inc. and our subsidiaries and
predecessors, unless the context suggests otherwise.

GENERAL

CT Communications, Inc. is a holding company that, through its operating
subsidiaries, provides integrated telecommunications services to residential and
business customers located primarily in North Carolina. We offer a comprehensive
package of telecommunications services, including local and long distance
telephone, Internet and data services and digital wireless services.

We began operations in 1897 as The Concord Telephone Company ("Concord
Telephone"). Concord Telephone continues to operate as an incumbent local
exchange carrier ("ILEC") in a territory covering approximately 705 square miles
in Cabarrus, Stanly and Rowan Counties, North Carolina. This area is located
just northeast of Charlotte, North Carolina along the Interstate 85 corridor, a
major north/south connector between Atlanta, Georgia and Washington, D.C. We
offer a full range of local telephone, long distance and other enhanced services
to our ILEC customers.

In 1998, we began to operate as a competitive local exchange carrier
("CLEC") in "edge-out" markets contiguous to our ILEC service area. Our CLEC
business focuses on small-to-medium-size companies along the I-85 corridor,
between Charlotte and Greensboro. In 2000, we expanded our geographical focus
with the opening of a CLEC office in the Greensboro, North Carolina market. Our
CLEC offers services substantially similar to those offered by our ILEC.

Since 2000, we have pursued our Greenfield strategy in high growth
communities, including those in the Charlotte and Raleigh, North Carolina
markets. We are working with developers and builders to become the "official
telecommunications provider" for their developments. Under these agreements, we
provide the telecommunications infrastructure within these developments. By
clustering our projects, we are able to gain capital and service efficiencies.

We provide long distance telephone service in the areas served by our ILEC,
CLEC, and Greenfield business units. We have agreements with several
interexchange carriers to terminate traffic that originates on our network, and
our switching platform enables us to route traffic to the lowest cost provider.

We offer Internet and data services to ILEC, CLEC, Greenfield, and other
business and residential customers. These services include dial-up and high
speed dedicated Internet access, Web hosting, Web design, electronic commerce
applications and digital subscriber line ("DSL") services. Between May 1998 and
December 2000, we significantly expanded this business through our strategic
acquisitions. The most significant acquisitions were Vnet, a business-oriented
Internet service provider based in Charlotte acquired in 1998, and WebServe,
Inc., a Charlotte-based provider of Web hosting, development and programming
services acquired in December 2000.
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We offer our own branded digital wireless services, through our ongoing
agreement with Cingular Wireless ("Cingular"). In June 2001, we completed the
partitioning of our area of the Cingular digital network, including the
acquisition of cell sites, subscribers, and a license for spectrum. Cingular is
a joint venture that was formed by the combination of most of the former
domestic wireless operations of BellSouth Corporation and SBC Communications.
Roaming agreements with other wireless carriers enable our customers to utilize
their digital wireless services throughout the United States and in a number of
foreign countries.

The operations of Concord Telephone are our primary business segment.
Concord Telephone accounted for approximately 61% of our operating revenues in
2001. This percentage has decreased over the past three years as we have grown
our other products and services into significant operations. Nevertheless, we
continue to expect Concord Telephone to account for a significant portion of our
revenue and earnings in 2002. Additional business, financial and competitive
information about our operations is discussed below. For other information
regarding our business segments, see the Note entitled "Segment Information" in
the notes to consolidated financial statements included elsewhere in this
report.

On February 24, 2000, the Board of Directors declared a two-for-one stock
dividend payable on April 5, 2000 to shareholders of record on March 15, 2000.

Effective January 28, 1999, our Voting Common Stock and Class B Nonvoting
Common Stock were converted into a single class of Common Stock (the
"Recapitalization"). Pursuant to the Recapitalization, our Articles of
Incorporation were amended to (i) provide for one class of Common Stock,
consisting of 100 million authorized shares, and (ii) reclassify each issued and
outstanding share of Voting Common Stock into 4.4 shares of Common Stock and
each issued and outstanding share of Class B Nonvoting Common Stock into 4.0
shares of Common Stock. Cash was paid in lieu of issuing any fractional shares.

All share and per share amounts in this Annual Report on Form 10-K have
been adjusted to reflect the two-for-one stock dividend and Recapitalization.

CT Communications, Inc. is incorporated under the laws of North Carolina
and was organized in 1993 pursuant to the corporate reorganization of Concord
Telephone into a holding company structure. Our principal executive offices are
located at 1000 Progress Place, Northeast, Concord, North Carolina 28025
(telephone number: (704) 722-2500).

OPERATIONS

ILEC SERVICES

Concord Telephone offers integrated telecommunications services as an ILEC
to customers served by nearly 123,000 access lines in Cabarrus, Stanly and Rowan
Counties in North Carolina. Our ILEC network facilities include nearly 15,000
fiber miles, serving nine exchanges in a host-remote switch architecture.

Excluding adjustments associated with the removal of 932 non-revenue
generating internal lines that were included as business lines in 2000, our
access lines increased by 1,074 lines, or 0.9%, in 2001. The economic slowdown
experienced in 2001, as well as the impact of wireless and other substitution,
had its

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effect on the ILEC line count. We expect access line growth in the business
market to continue to outpace that of the residential market. The following
table details access line growth over the past five years:

Continued high customer satisfaction remains a top priority, and our
efforts are directed accordingly. We have implemented a number of performance
and satisfaction measures in our operations and continue to survey customers
monthly to gauge loyalty and satisfaction. We hold all of our employees
accountable for service quality, and a portion of their compensation depends
upon customer survey results.

We will be focusing our sales efforts in 2002 on increasing our revenue per
customer through continued emphasis on incremental calling features. Eligible
access lines with at least one calling feature increased from 43.1% in 2000 to
44.4% in 2001. The average number of calling features per line increased from
2.54 in 2000 to 2.61 in 2001.

Our ILEC sales team is structured to provide maximum flexibility for our
customers. Residential customers may personally meet with a sales and service
representative in one of our four business offices or alternatively can take
advantage of the convenience of calling into our centralized customer care
center. Business customers are served by a specialized group that is trained to
manage the specialized products and services unique to the business market.
Customers with less complex needs are supported by a specialized telephone
customer care group, which develops solutions and schedules service
installations. Major business customers are assigned dedicated account
executives that are familiar with their complex applications and service
requirements.

A centralized operations service center coordinates provisioning and
maintenance for all ILEC customers. In addition to receiving maintenance
requests, this center dispatches field personnel and monitors the status of all
service orders and maintenance requests. To ensure continued customer
satisfaction, the center is measured against targeted time intervals and the
ability to meet customer commitment dates.

Our core ILEC network is comprised of modern digital switching equipment
and fiber optic cable with self-healing SONET ring topology. In 1996, we began
conversion to a Nortel DMS 100/200 network switching platform. We continue to
upgrade our distribution network by moving fiber and electronics closer to the
customer through the use of remote switching units. The customer care service
center operations are supported by an AS400-based service order,
trouble-ticketing, billing and collection system and a Mitel private branch
exchange with automated call distribution capabilities. At the heart of our
network is a network operations center that identifies problems as they occur
and diagnoses potential network problems before customers are impacted.
Telecommunications equipment providers have been impacted by the economic
slowdown and market conditions. While we have some diversity among our
suppliers, we experience a risk that the difficult financial conditions may
affect these companies' ability to provide enhancements to the services that
this equipment provides.

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Regulation. Our ILEC is subject to regulation by various federal, state
and local governmental bodies. We voluntarily opened our markets to competition
for local dial tone in 1997. Federal regulations have required us to permit
interconnection with our network and have established our obligations with
respect to reciprocal compensation for completion of calls, the resale of
telecommunications services, the provision of nondiscriminatory access to
unbundled network elements, number portability, dialing parity and access to
poles, ducts, conduits and rights-of-way. As a general matter, this ongoing
regulation increases our ILEC's business risks and may have a substantial impact
on our ILEC's future operating results. The Federal Communications Commission
("FCC") and North Carolina Utilities Commission ("NCUC") continue to modify
various rules surrounding local competition.

The FCC governs our ILEC's rates for interstate access services. The FCC
acted on the petition of the Multi-Association Group Plan ("MAG") by issuing an
Order in November, 2001. The first result of this Order was a rebalancing of
rates between interexchange carriers and end users. Wholesale rates charged to
interexchange carriers were lowered and the subscriber line charge was increased
dramatically to end users. The rebalancing was revenue neutral overall to our
ILEC.

The FCC has also acted on the Rural Task Force proposal by the
Federal-State Joint Board on Universal Service that would create a new explicit
universal service High Cost Fund III subsidy, which in addition to existing
universal service subsidies, would be portable to competing carriers. We
currently only receive Long Term Cost Loop support.

These actions could have a substantial, and potentially adverse, impact on
the structure of our ILEC's access charges and universal service subsidies and
the associated revenues that our ILEC collects.

State laws and regulations require us to comply with North Carolina pricing
regulations, file periodic reports, pay various fees and comply with rules
governing quality of service, consumer protection and similar matters. Local
regulations require us to obtain municipal franchises and to comply with various
building codes and business license requirements. These federal, state and local
regulations are discussed in more detail under "Legislative and Regulatory
Developments" under this Item 1.

Since September 1997, our ILEC's rates for local exchange services have
been established under a price regulation plan approved by the North Carolina
Utilities Commission ("NCUC"). Under the price regulation plan, our charges are
no longer subject to rate-base, rate-of-return regulation. Instead, the charges
for most of our local exchange services may be adjusted to reflect changes in
inflation reduced by a 2% assumed productivity offset. The price regulation plan
is also subject to adjustment for certain exogenous events outside of our
control, such as jurisdictional cost shifts or legislative mandates. In both
September 2000 and September 2001, we were allowed to rebalance our rates under
the price regulation plan. The price rebalancing arrangement allows us to
continue adjusting revenues to keep them in line with related costs. The result
has been an increase in the monthly basic service charges paid by residential
customers and a decrease in access charges paid by interexchange carriers and a
decrease in rates paid by end users for an expanded local calling scope. The
price regulation plan is scheduled for review by the NCUC prior to the fifth
anniversary in September 2002. Based on the results of this review, the plan is
subject to modification by the NCUC.

Competition. Several factors have resulted in rapid change and increased
competition in the local telephone market, including:

- growing customer demand for alternative products and services including
wireless services,

- technological advances in transmitting voice, data, video, and cable
telecommunications services,

- development of fiber optics and digital electronic technology,

- the advent of competitors in the yellow pages market,

- a decline in the level of access charges paid by interexchange carriers
to local telephone companies to access their local networks, and

- legislation and regulations designed to promote competition.
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We agreed to open our traditional service area to competition for local
dial tone service in 1997, in exchange for rate rebalancing, pricing flexibility
and simplification of rate plans in our price regulation plans. We have entered
into interconnection agreements with Time Warner Telecom of North Carolina, L.P.
("Time Warner") and US LEC of North Carolina, LLC. We have also recently entered
into resale agreements with Cat Communications, Inc. and North Carolina Telcom,
LLC to provide access to our local telephone service market. We are engaged in
renegotiating an interconnection agreement with US LEC that is expected to
become effective in late second quarter of 2002.

Cable operators are also entering the local exchange and high speed
Internet markets. Time Warner currently offers telephony services in its major
markets and cable and high speed internet service in our core service area.
Another major source of competition are the wireless service providers serving
our traditional service area.

On January 11, 2001, the merger between Time Warner and America Online,
Inc. ("AOL"), the country's largest internet service provider, was consummated.
The post-merger company could become a formidable competitor to our ILEC and may
seek to provide consumers with a "one-stop" source for a broad array of
telecommunications, information and Internet services. AOL/Time Warner has
already stated that their proposed service offerings will include a
communications platform that combines AOL's instant messaging service with local
telephony over cable. According to AOL/Time Warner, the merger will accelerate
the availability of broadband interactive services to consumers and drive
further growth in electronic commerce. The merger may also spur further
consolidation involving telecommunications, cable and information services
providers.

CLEC SERVICES

Our CLEC business was certified by the North Carolina Utilities Commission
in 1997 and by the South Carolina Public Service Commission in 2000. Operation
began late in 1997 in Salisbury, North Carolina and northern Charlotte, North
Carolina, through an interconnection agreement with BellSouth
Telecommunications, Inc. Since 1998, we have entered into interconnection
agreements with BellSouth, Verizon, Sprint, and ALLTEL Carolina. At December 31,
2001, we were providing competitive local access to customers served by more
than 20,200 access lines in select markets in North Carolina. We achieved a
significant reduction in our provisioning interval , reducing the number of days
from 86 in 2000 to 42 in 2001. In order to accelerate profitability, we will
focus our efforts in 2002 on achieving increased market penetration and higher
revenue per customer in the markets where we currently provide service.

Our CLEC business group employs the same sales strategy as our ILEC
business group, using locally-based account executives who meet face-to-face
with business customers. Our CLEC offers an integrated combination of
communications services, including local service, long distance and enhanced
voice services, and Internet and data services. Our CLEC uses the same billing
platform as our ILEC. A significant portion of compensation for our CLEC's sales
organization is based on individual and group sales results.

Our CLEC manages our own network elements and elements leased from the
incumbent local carrier, utilizing the MetaSolv ordering and provisioning
system. We are highly dependent upon these companies because of the coordination
required to transfer customers and for the reliability of the network elements
that we lease. The CLEC's customer care group has received specialized training
specific to interconnection ordering and provisioning processes. We hold these
employees to the same high standards for service quality as our ILEC customer
care groups.

We deploy a facilities-based network in our expansion markets, collocating
our own remote switching equipment with the incumbent telephone company in key
geographic areas. The local remote switches in each of our expansion markets are
connected using a variety of fiber optic links. We typically lease appropriate
network elements from the incumbent or alternate carriers to give us greater
control over the service quality and to provide a platform for future expansion.
We will continue to evaluate the economics and may build our own outside plant
network in those locations where a significant concentration of customers exist
which are not currently on our network. We have identified three opportunities
that meet these criteria and will begin construction of facilities in 2002 that
will allow us to transfer the associated
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customers to our own network facilities. In 1996, we installed a Nortel DMS 500
switch in Charlotte that permits us to switch the local traffic from our CLEC
and all of our long distance traffic.

Regulation. In general, our CLEC establishes its own rates and charges for
local services and is subject to less extensive regulation as compared to our
ILEC. However, like our ILEC, our CLEC must comply with various rules of the
North Carolina Utilities Commission and the South Carolina Public Service
Commission governing quality of service, consumer protection and similar
matters. The FCC has jurisdiction over our CLEC interstate services, such as
access service. In 2001, the FCC adopted rules that set interstate switched
access charges at declining rates. Although the switched access rates do
decline, there is an expected certainty of payment by interexchange carriers.
The FCC also adopted rules in 2001 that impact the amount of reciprocal
compensation due for Internet Service Provider dial-up traffic terminated by
CLEC's. This may reduce the overall percentage of revenue received from
reciprocal compensation. In late 2001, the FCC began a triennial review of its
policies on unbundled network elements (UNEs). The FCC will use this review to
determine what, if any, changes should be made to the requirements for ILECs to
unbundle their networks for use by CLECs.

Currently, many state commissions approve UNE rates charged by ILECs based
on a Total Element Long-Run Incremental Cost ("TELRIC") costing methodology
established by the FCC in 1996. There have been numerous legal and regulatory
battles over the use of TELRIC, which is based of forward looking costs versus
historical costs. The outcome of UNE pricing and any impact on our CLEC are
unclear.

Competition. Our CLEC competes primarily with local incumbent telephone
companies and, to a lesser extent, with other CLECs. Due to the financial
difficulties experienced by other CLEC's in the current telecommunications
market, we expect the competition to be even stronger as the remaining companies
fight to survive. We also will continue to face competition from potential
future market entrants, including other CLECs, cable television companies,
electric utilities, microwave carriers, wireless telecommunications providers,
Internet service providers, long distance providers, and private networks built
by large end-users.

GREENFIELD SERVICES

Our Greenfield business provides comprehensive wire line telecommunications
services to commercial and residential developments outside of our ILEC serving
area. While most of these developments are located in North Carolina, in early
2001, we obtained approval to provide competitive local access in Georgia. At
December 31, 2001, we were providing service to more than 3,200 access lines in
select markets in North Carolina and Georgia. Our investment is approximately
$1300 per line, including approximately $800 of capital expenditures for outside
plant facilities, approximately $300 for capital expenditures for switching
electronics, and approximately $200 of expenses associated with acquisition
costs.

Our Greenfield business group develops relationships with builders and
developers to gain the opportunity of providing integrated telecommunications
service in their new developments. We enter into preferred telecommunications
provider agreements with those developers and builders prior to construction in
order to offer local service, long distance and enhanced voice services, and
Internet and data services to the businesses and residents who will populate the
development. As of December 31, 2001, we have signed more than 50 agreements
that are expected to provide more than 30,000 access lines upon completion. Our
Greenfield business unit uses the same billing platform as our ILEC. A
significant portion of compensation for our Greenfield sales organization is
based on individual and group sales results.

In our Greenfield markets, Charlotte and Raleigh, North Carolina, and
Northern Georgia, we deploy our own remote switching equipment, as well as build
a distribution system to in effect, become the local telephone company for each
new development. We connect to our network via leased or owned fiber optic lines
back to our Nortel DMS 500 switch in Charlotte. Our main focus currently is on
the fastest growing areas in the high growth Charlotte and Raleigh markets. By
clustering several projects, we gain capital and service efficiencies that
contribute to increased profitability. We began providing service, in 2001, to
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customers at Discover Mills Mall in Georgia, in an arrangement similar to the
one we have with Concord Mills, another Mills Corporation project in North
Carolina. We expect to provide service to Triangle Town Center Mall in Raleigh,
North Carolina. Due to the high density of customers associated with the malls
and surrounding areas, these projects have attractive financials and accelerated
positive cash flow.

Regulation. In general, the Greenfield unit establishes its own rates and
charges for local services and is subject to less extensive regulation as
compared to our ILEC. However, like the ILEC, Greenfield must comply with
various rules of the North Carolina Utilities Commission and Georgia Public
Service Commission governing quality of service, consumer protection and similar
matters. The FCC has jurisdiction over our Greenfield interstate services, such
as access service. In 2001, the FCC adopted rules that set interstate switched
access charges at declining rates. Although the switched access rates do
decline, this should alleviate billing disputes between CLECs and interexchange
carriers.

Competition. Our Greenfield competes primarily with local incumbent
telephone companies and, to a lesser extent, with other CLECs. Local telephone
companies may increase their competition by overbuilding their networks to
include areas of future expansion. Cable telephony could be a direct competitor
in the developments where we provide service since cable companies have a
network within those developments as well.

LONG DISTANCE SERVICES

We began offering long distance services to our ILEC customers in 1992 and
now provide that service to approximately 85,000 access lines within our ILEC,
approximately 9,400 access lines within our CLEC, and approximately 800 lines
within our Greenfield markets. In our ILEC service area, approximately 69% of
the total lines are subscribed to our own branded long distance service.

We have agreements with several interexchange carriers to terminate traffic
that originates on our network, and our switching platform enables us to route
the traffic to the lowest cost provider. The long distance market has become
significantly more competitive. New competitors have entered the market and
prices have declined, resulting in increased consumer demand and significant
market growth. While this decline in price has resulted in declining revenue, it
has also allowed us to reduce our cost through more favorable contracts with
wholesale long distance carriers. Increased competition has also led to
increased consolidation among long distance service providers. Major long
distance competitors include AT&T, Sprint and WorldCom, Inc.

Strong competition in the market has forced significant price plan changes
during 2000 and 2001 that have resulted in lower prices to customers. Late in
2001, we began to see stabilization in our price plans.

Verizon Corporation and SBC Communications, Inc. have been successful in
obtaining approval to provide long distance services in multiple states.
BellSouth has applied for Long Distance authority in several states, including
North Carolina. While they have not yet been successful in obtaining similar
approvals to provide long distance service in their local service territories,
we believe it is likely that they will obtain approval within the next twelve to
eighteen months. These competitors benefit from established local market share
and from established trade names through nationwide advertising.

Internet telephony is increasingly becoming a potential competitor for low
cost telephone service and could threaten long distance revenues as well as ILEC
and CLEC access revenues. Wireless substitution has also developed into a viable
threat to our long distance customer base. Increased competition within the
digital wireless segment will continue to provide customers with more and lower
cost opportunities to replace their long distance service.

INTERNET AND DATA SERVICES

In 1995, we began providing dial-up Internet access to residential and
business customers. Since that time, we have grown our business through internal
growth and several acquisitions, the largest of which were Vnet, a
business-oriented Internet service provider based in Charlotte, North Carolina
and WebServe, Inc., a Charlotte, North Carolina based provider of Web design,
hosting, and programming services. Both
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purchases were approximately $6 million. We also acquired several smaller local
Internet providers. Since late 1999, we have seen a shift in customers away from
the dial-up access service and into the higher revenue DSL access service. At
December 31, 2001, we had approximately 17,000 Internet customers.

Internet Access Service. We offer a variety of dial-up and dedicated
access solutions which provide access to the Internet. We also offer a full
range of customer premise equipment required to connect to the Internet. Our
access services include:

- Dedicated Access. We offer a broad line of high-speed dedicated
access utilizing frame relay and dedicated circuits, which provide
business customers with direct access to a full range of Internet
applications.

- DSL Access. In late 1999, we began to offer high-speed Internet
access service using DSL technology. DSL technology permits high
speed digital transmission over the existing copper wiring of
regular telephone lines. Our DSL service is available at speeds up
to 768 Kbps and ADSL service is available at speeds up to 1.54 Mbps.
Our DSL services are designed for residential users and
small-to-medium sized businesses to provide high quality Internet
access at speeds faster than an integrated services digital network
("ISDN") and at flat-rate prices that are lower than traditional
dedicated access charges. Our DSL lines increased from 1,420 in 2000
to 3,243 in 2001.

- Dial-up Access. Our dial-up services provide access to the Internet
through ordinary telephone lines at speeds of up to 56 Kbps and
through digital ISDN lines at speeds of up to 64 Kbps.

Web Services. We offer a variety of value-added services, including Web
hosting, Web design, collocation, virtual private networks or intranets, remote
access and security solutions, and video conferencing.

Electronic Commerce. We provide software solutions that enable companies
to conduct electronic commerce. We offer electronic data interchange/extraNet
solutions consisting of software and services that are designed to help
businesses connect to their suppliers and customers. We also provide Internet
commerce software to allow businesses to build Web applications for
commerce-enabled Web sites, intranets and extranets. Common features of this
software include the ability to build electronic catalogs to conduct
transactions and to integrate with business systems, including purchasing,
accounting and inventory systems.

Account executives sell Internet and data services directly to business
customers in the Charlotte and Greensboro, North Carolina metropolitan areas.
Our technical support staff is available 24 hours a day, seven days a week. Our
technicians design, order, configure, install and maintain all of our equipment
to suit the customers' needs. We have a customer care group dedicated to
Internet and data services.

We provide Internet and data services primarily through our own network in
our ILEC and CLEC territories. In other areas, we use the network of the local
telephone company. We purchase access to the Internet from national Internet
backbone providers, which provide DS-3 access at all major national access
points.

Regulation. In general, Internet and data services are not regulated at
the federal level. However, in 2001 the FCC decided that Internet traffic will
be classified as Information Access and could therefore be subject to a lower
rate of reciprocal compensation than local traffic. This has no immediate impact
on our Internet and data services business.

Another significant issue facing Internet service providers is whether they
will be given access to broadband systems operated by cable television
companies. Internet service providers generally believe that such mandatory
access is appropriate and would allow them to provide competitive high-speed
broadband service to more customers. For example, AOL, as the world's largest
Internet service provider, strongly advocates "open access," although it is not
currently supporting the need for government intervention to mandate open
access. Time Warner and AOL recently agreed, as part of their merger, to open
Time
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Warner's cable systems to competing Internet service providers. AT&T and
Mindspring Enterprise, Inc. recently have reached a similar agreement. The issue
continues to be debated and legislation has been introduced in Congress to
mandate access to broadband cable networks. In early 2002, the FCC decided that
cable modem service should be classified as an interstate information service
and is therefore subject to FCC jurisdiction. In addition, the FCC is now
actively seeking comment on whether it should mandate a requirement for multiple
ISP access over cable modem service. The ultimate outcome of this issue could
have a significant impact on the success of Internet service providers.

Competition. The Internet and data services market is extremely
competitive, highly fragmented and has grown dramatically in recent years. The
market is characterized by the absence of significant barriers to entry and the
rapid growth in Internet usage among customers. Sources of competition are:

- access and content providers, such as AOL/Time Warner, the Microsoft
Network and Prodigy;

- local, regional and national Internet service providers, such as
EarthLink;

- the Internet services of regional, national and international
telecommunications companies, such as AT&T, BellSouth, and WorldCom;

- online services offered by direct broadcast satellite providers; and

- online services offered by incumbent cable providers, such as Time
Warner.

The recent merger of AOL and Time Warner created further, formidable
competitive threats in the Internet and data services market. AOL/Time Warner
has announced plans to leverage their combined assets and resources post-merger
to offer a wide variety of Internet and data-related services.

DIGITAL WIRELESS SERVICES

We offer digital wireless services in Cabarrus, Stanly, Rowan and Iredell
Counties in North Carolina. With the opening of a new retail location in March
of 2002, we now sell digital wireless services and products, including service
packages, long distance, features, handsets, prepaid plans, and accessories,
through six retail outlets in North Carolina. These include Concord (2),
Statesville, Mooresville, Salisbury, and our new location in Albemarle. Digital
wireless products and services are also sold through our ILEC business offices
and our direct sales force. At December 31, 2001, we served over 31,000 digital
wireless customers. Customer attrition for 2001 averaged 2.3% per month.

In June 2001, we partitioned our area of the Cingular digital network by
paying approximately $23 million. As a result of the partitioning, we acquired
47 cell sites, approximately 13,000 additional subscribers and a license for 30
MHz of spectrum in Cabarrus, Rowan, and Stanly Counties and the southern portion
of Iredell County. As part of the acquisition, we assumed the lease payments for
28 of the 47 sites acquired. The partitioned area, which is approximately twice
the size of our ILEC territory, contains a population of approximately 440,000
people. While we have ownership of the assets and customers within our
partitioned area, we continue to purchase pre-defined services from Cingular,
such as switching, and remain subject to certain conditions including certain
branding requirements, offering partnership service plans and adherence to
partnership technical and customer care standards. Products and services are
co-branded with Cingular. We are not required to pay Cingular any franchise
fees. Under the agreement, we have the ability to bundle wireless services with
other wireline products and services and can customize pricing plans based on
our customers' needs. Additionally, our agreement with Cingular allows us to
benefit from a nationally recognized brand, provides us access to favorable
manufacturing discounts for cellsite electronics, handsets, and equipment, and
enables us to participate in shared market advertising.

Until September 2000, we owned a limited partner interest in BellSouth
Carolinas PCS, L.P. (the "DCS Partnership"), which included BellSouth
Telecommunications, a subsidiary of Duke Energy Company, a subsidiary of
Progress Energy and approximately 30 other independent telephone companies. In
2000, BellSouth purchased the partners' interest in the DCS Partnership, which
owned a 100% digital communications network in North Carolina and South
Carolina, an area covering approximately 12 million
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people. Cingular was formed by the combination of most of the former domestic
wireless operations of BellSouth Corporation ("BellSouth") and SBC
Communications. BellSouth has an approximate 40 percent economic interest in
Cingular, and SBC Communications has an approximate 60 percent economic
interest.

Cingular's digital wireless network is based on Global System for Mobile
Communications ("GSM") wireless technology, which offers advanced services and
functionality, secure communications, digital voice quality and national and
international roaming. GSM technology is proven technology used by more than 390
service providers in over 164 countries and by more than 470 million customers
worldwide. GSM provides our customers with extensive roaming capabilities both
nationally and internationally. Cingular is deploying high-speed General Packet
Radio Service or "GPRS", throughout its cellular and PCS networks and has
recently introduced this service in its North and South Carolina markets.
Cingular has announced its intention to increase the capacity, speed and
functionality of its cellular and PCS networks by overlaying GSM voice and GPRS
data technology on its existing Time Division Multiple Access ("TDMA") network,
beginning in early 2002, thereby adopting the GSM standard for all of their
wireless markets. This should further enhance the service and roaming
opportunities for our customers. Additionally, Cingular has indicated an intent
to upgrade its GPRS markets to a third generation, or "3G", technology known as
Enhanced Data Rates for Global Evolution, or "EDGE", beginning in 2003, when
software is expected to be available. Completion of the deployment of this
technology is anticipated to take place in early 2004. Our capital expenditures
for deployment of data services were approximately $400,000 in 2001 and we
expect additional capital expenditures of approximately $750,000 in 2002.

In 2001, we completed the construction of 9 additional cell sites. We
expect to add an additional 18 locations during the first and second quarters of
2002. These additional cell sites should increase coverage and capacity
throughout our serving area.

We provide customer service utilizing specialized service representatives
trained to handle the specific requirements of our digital wireless customers.
The ordering and provisioning of digital wireless service can be performed at
our store locations, our ILEC business offices, or by calling our toll-free
number.

Regulation. The construction, operation, management and transfer of
digital wireless systems in the United States is regulated by the FCC. Digital
wireless carriers are exempt from regulation by the North Carolina Utilities
Commission. Because of our affiliation with Cingular, they assume the
responsibility for many of the regulatory issues. The regulation of wireless
services is discussed in more detail under "Legislative and Regulatory
Developments" in Item 1 of this document. It is unclear whether the FCC will
modify the requirement for wireless carriers to implement local number
portability in late 2002 or not. Local number portability could increase
customer churn.

Competition. Many wireless carriers compete in the Charlotte metropolitan
area, including AT&T, Nextel, Sprint PCS, ALLTEL Communications, Inc., Verizon,
Cricket Wireless and Cingular. This competition has led to intense pressure on
the pricing of services. Several providers have introduced "flat rate" pricing,
which eliminated roaming and long distance charges and further reduced unit
prices. We intend to compete by providing extensive geographical coverage, high
quality technology and service, competitive pricing and capitalizing on the
strength of customers' loyalty to us based on multiple service relationships.

WAVETEL

WaveTel currently offers its wireless broadband service in Fayetteville,
North Carolina as part of a commercial trial initiated in July of 2001.
WaveTel's service offering competes with traditional DSL, cable modem and
satellite DSL services. The architecture of the WaveTel network allows us to
provide Internet Protocol ("IP") based wireless, high-speed Internet access as
well as second line voice services over the MMDS frequencies held and controlled
by Wireless One of North Carolina, LLC. The company's investment in Wireless One
of North Carolina is discussed in detail later in this section.

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WaveTel's network technology offers important insights to CT Communications
about the ability to deliver broadband data and voice services without the need
for investment in landline plant. If successful, this approach will provide CT
Communications with some important strategic alternatives both within and
outside of our ILEC territory. Considerations for potential deployment of this
technology could include providing broadband service to areas where DSL
deployment may be cost prohibitive, providing a wireless solution for data and
voice services in certain SLEC or CLEC areas, or entering new competitive
markets with a robust broadband and voice service offering. In addition, the
experience we are gaining with the deployment of wireless backhaul through
point-to-point microwave could assist us in planning for future deployment in
the Digital Wireless business, as well as in our landline network.

In addition to validation of our technological approach, WaveTel's
commercial trial in Fayetteville offers important experience in evaluating the
effectiveness of various sales and distribution strategies for reaching the
consumer and small business markets in areas outside of our ILEC territory. We
currently have our own retail store operation in Fayetteville, as well as
distribution of our product and service through third party arrangements. These
third party or indirect distribution relationships include large office supply
retailers, computer sales and service companies, cellular and paging
distribution agents as well as other local consumer and business service
companies.

The ability to propagate our radio signals into homes and businesses within
a reasonable radius of our cell sites is one of the fundamental building blocks
of the business model for this service offering. Therefore, a significant focus
of our Fayetteville trial is on improving the in-building and in-home service
levels from our network. We currently have a single-source provider for the
electronic equipment providing the wireless link between our customers and cell
sites. We are working with our vendor on several innovative approaches to
increasing the coverage from our cell sites. The success of these efforts will,
in large part, determine our ability to consider further deployments of this
technology.

INVESTMENTS

We have made several strategic investments designed to contribute to the
execution of our business strategy. The investments are described below.

Palmetto MobileNet. In January 1998, we merged our cellular telephone
interests with Palmetto MobileNet, L.P. We own 19.8% of Palmetto MobileNet,
which holds a 50% general partnership interest in 10 rural service areas
covering more than two million people in North Carolina and South Carolina.
ALLTEL Communications, Inc. is the managing partner of the 10 cellular rural
service area general partnerships and we are dependent on their management of
the partnerships. During 2000, ALLTEL signed a roaming agreement with Verizon
Wireless that decreased roaming fees paid to the partnership. The partnerships
have faced and will continue to face heavy competition due to the network
expansion of digital wireless competitors in their serving areas, causing
erosion of roaming revenues. We saw a reduction in income in 2001 and may
continue to see additional pressure in 2002.

Maxcom. In 1996, we participated with Grupo Radio Centro in forming Maxcom
Telecomunicaciones, S.A. de C.V. (formerly Amaritel), a competitive
telecommunications company offering local, long distance and network
telecommunications services in Mexico. During 1998, we participated in an
additional $49 million private equity financing of Maxcom. The participants were
the original investors and a group of investors with international
telecommunications experience, including BankAmerica International Investment
Corporation, BancBoston Investments, Inc. and Bachow Investments Partners III,
L.P. The 1998 financing increased Maxcom's equity to $70 million, which combined
with a $100 million loan from an international bank, provided Maxcom with up to
$170 million to build the initial phases of its system. On March 10, 2000,
Maxcom privately issued $275 million of senior notes, the proceeds of which were
used to prepay vendor financing and construct its next generation platform. The
system is being built primarily by Lucent Technologies, Inc., which is using a
wide spectrum of technology, ranging from microwave to wired fiber optic
networks. Maxcom began offering commercial services in Mexico City and Puebla,
Mexico in April 1999 and had approximately 78,000 access lines at December 31,
2001.

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On March 8, 2000, we entered into a Capital Contribution Agreement with
Maxcom and its shareholders. Under this agreement, the shareholders of Maxcom
were obligated to contribute a total of $35 million to Maxcom in exchange for
capital stock and warrants to purchase additional stock. In connection with this
agreement, we contributed $6.0 million in August 2000.

In December 2001, we wrote down $13.4 million of our investment in Maxcom
to reflect management's best estimate of the net realizable value of our
investment. Our remaining investment in Maxcom at December 31, 2001 is $1.2
million.

Wireless One. In 1995, we participated with Wireless One, Inc. in forming
Wireless One of North Carolina, LLC to develop and launch wireless cable systems
in North Carolina. Wireless One of North Carolina entered into contracts with
approximately 45 community colleges, several private schools in North Carolina
and the University of North Carolina system to provide wireless cable services
and holds the majority of the MMDS and ITFS spectrum rights covering North
Carolina. In order to retain the licenses for the spectrum, we must meet the
buildout requirements imposed by the FCC. For the MMDS Spectrum, we must ensure
that two thirds of the population in the Basic Trading Area ("BTA") are covered
by August 2003. The ITFS requirements are to complete construction of
transmission facilities within eighteen months of the issuance of a construction
permit. Our ITFS deadlines are in 2002 and 2003. In late 1998, the FCC
liberalized the use of these frequencies to include two-way data and telephone
service. Wireless One of North Carolina continuously evaluates potential uses of
its frequency spectrum, including digital video, high speed Internet and other
traditional telephony services.

On September 14, 2001, we entered into a Limited Liability Company Interest
Purchase Agreement (the "Agreement") with Wireless One, Inc., Wireless One of
North Carolina, and WorldCom Broadband Solutions, Inc. Under the Agreement,
Wireless One of North Carolina will purchase the entire fifty percent (50%)
interest of Wireless One, Inc. in Wireless One of North Carolina. As a result of
the purchase, we will own more than 99% of the interests in Wireless One of
North Carolina. The total purchase price is approximately $20.7 million,
consisting of $3 million in cash at closing and an interest bearing promissory
note of Wireless One of North Carolina for the remainder. The promissory note is
payable over the ten year period following the closing, with a $7 million
payment due in one year, which payment may be deferred for up to an additional
two years, and the remainder payable in equal annual installments beginning
after six years. In the event the $7 million payment is not made when due,
either we, or Wireless One, Inc., may cause Wireless One of North Carolina to
transfer certain of its licensed frequencies to Wireless One, Inc. in payment of
the outstanding principal amount of the promissory note. The promissory note is
secured by a pledge of Wireless One of North Carolina's channel rights. The
purchase is subject to FCC approval. It is expected the transaction will close
in the second quarter of 2002.

DCS Partnership. In 1994, we purchased a limited partner interest in the
DCS Partnership. In September of 2000, BellSouth purchased our interest for
$39.2 million.

Passive Investments. Our passive investments consist of equity interests
in several private and public companies. We own 3.8% of ITC Holding Company,
which participated in the formation of a number of successful telecommunications
companies, including ITC-DeltaCom, Inc. (Nasdaq: "ITCD"), Powertel, Inc.(Nasdaq:
"PTEL"), subsequently acquired by Deutsche Telekom AG's U.S. VoiceStream
Wireless unit, and MindSpring Enterprise, Inc., subsequently acquired by
EarthLink (Nasdaq: "ELNK").

As a result of the corporate reorganization of ITC Holding Company in 1997,
we received shares of ITC-DeltaCom and currently own more than 800,000 shares of
ITC-DeltaCom. During 2000, ITC Holding announced a further reorganization
pursuant to which we received 1.6 million shares of Knology, Inc. in April 2000,
in a tax-free spin-off. To maintain the tax-free nature of this transaction, we,
and other ITC Holding Company shareholders, have agreed not to sell or transfer
the Knology shares for two years following the distribution date of the shares.

In addition, we own approximately 220,000 shares of VeriSign, Inc. (Nasdaq:
"VRSN") (formerly Illuminet Holdings, Inc.). Our Illuminet shares were subject
to certain sale restrictions that expired in

13

April 2000. We sold an aggregate of 400,000 shares of Illuminet/VeriSign from
time to time during 2001 and expect to continue to sell shares, in 2002, as we
deem appropriate.

Also, from time to time we may invest in other public and private
securities of companies we are familiar with and whose management teams we know.
The telecommunications industry slow-down has affected our investments and the
value of many of our investments may be affected by market conditions. We
continually evaluate our investments and may make changes in our portfolio as we
deem appropriate.

LEGISLATIVE AND REGULATORY DEVELOPMENTS

The telecommunications industry is subject to federal, state and local
regulation. The application of these regulations to our business segments is
discussed above. A more general description is set forth below.

Legislative. Various pieces of state and federal legislation may, from
time to time, have potential consequences on our operations. One of the most
publicized recent items of federal legislation is H.R. 1542, commonly referred
to as the Tauzin Dingell Bill. This bill is designed to provide enough
deregulation to RBOC's to allow them to offer data and Internet services across
LATA boundaries. The House of Representatives has passed this bill; however, for
this to become law, the Senate would next need to pass similar legislation.
There has been vocal opposition against this by certain key members of the
Senate.

Federal Regulations. The FCC regulates interstate and international
telecommunications services, which includes using local telephone facilities to
originate and terminate interstate and international calls. The
Telecommunications Act of 1996 ("the Telecommunications Act") is intended to
promote competitive development of new service offerings, to expand public
availability of telecommunications services and to streamline regulation of the
industry. Implementation of its legislative objectives is the task of the FCC,
state public utilities commissions and a federal-state joint board. The
Telecommunications Act makes all state and local barriers to competitive entry
unlawful, whether they are direct or indirect. The Telecommunications Act
directs the FCC to hold notice and comment proceedings and to preempt all
inconsistent state and local laws and regulations. Among the numerous and often
changing FCC proceedings are its Implementation of the Local Competition
Provisions of the Telecommunications Act of 1996 proceeding (CC Docket No.
96-98), its Deployment of Wireline Services Offering Advanced Telecommunications
Capability proceeding (CC Docket No. 98-147), and at least four proceedings
relating to universal service and access charge reform (CC Docket Nos. 94-1,
96-45, 96-262, 99-249).

In addition to opening up local exchange markets, the Telecommunications
Act contains provisions for:

- updating and expanding telecommunications service guarantees;

- removing certain restrictions relating to former AT&T operating companies
(the Regional Bell Operating Companies) resulting from the federal court
antitrust consent decree issued in 1984;

- the entry of telephone companies into video services;

- the entry of cable television operators into other telecommunications
industries;

- changes in the rules for ownership of broadcasting and cable television
operations; and

- changes in the regulations governing cable television.

Each state retains the power to impose "competitively neutral" requirements
that are both consistent with the Telecommunications Act's universal service
provision and necessary for universal service, public safety and welfare,
continued service quality and consumer rights. Although a state may not impose
requirements that effectively function as barriers to entry or create a
competitive disadvantage, the scope of state authority to maintain existing or
adopt new requirements under this section is not clear. In addition, before it
preempts a state or local requirement as violating the entry barrier
prohibition, the FCC must hold a notice and comment proceeding.
14

The FCC may forbear from applying any statutory or regulatory provision
that is not necessary to keep telecommunications rates and terms reasonable or
to protect consumers. A state may not apply a statutory or regulatory provision
that the FCC decides to forbear from applying. In addition, the FCC must review
its telecommunications regulations every two years and repeal or modify any that
it deems to be no longer in the public interest.

Although certain interpretive issues under the Telecommunications Act have
not yet been resolved, it is apparent that the requirements of the
Telecommunications Act have led to increased competition among providers of
local telecommunications services and have simplified the process of switching
from incumbent local exchange carrier services to those offered by competitive
access providers and competitive local exchange carriers.

The FCC regulates wireless services through its Wireless Telecommunications
Bureau. Providers of wireless mobile radio services are considered "common
carriers" and are subject to the obligations of such carriers, except where
specifically exempted by the FCC. As a result, our wireless operations and
business plans may be impacted by FCC regulatory activity. For example, the FCC
has concluded that commercial mobile radio service providers are entitled to
enter into reciprocal compensation arrangements with local exchange carriers.
The FCC has declined at this time to classify commercial mobile radio service
providers themselves as local exchange carriers subject to the obligations of
the Telecommunications Act, but could do so at some point in the future. Other
regulatory issues currently facing wireless carriers include issues relating to
telephone number administration. Because they are common carriers, wireless
carriers are subject to FCC and state actions regarding exhaustion, conservation
or expansion of telephone numbers and area codes. Programs to conserve or expand
telephone number and area code resources may possibly have a disproportionate
impact on wireless carriers because such carriers may not have a large reserve
of spare numbers, as wireline carriers may have, and so-called "area code
overlay" programs are sometimes imposed on wireless carriers alone, which forces
their customers to dial more digits for most local calls than wireline callers
in the same area. The FCC has issued an order asserting jurisdiction over nearly
all telephone numbering issues.

A cellular licensee must apply for FCC authority to use additional
frequencies, to modify the technical parameters of existing licenses, to expand
its service territory and to provide new services. In addition to regulation by
the FCC, cellular systems are subject to certain Federal Aviation Administration
tower height regulations with respect to the siting and construction of cellular
transmitter towers and antennas. The FCC also has a rulemaking proceeding
pending to update the guidelines and methods it uses for evaluating acceptable
levels of radio frequency emissions from radio equipment, including cellular
telephones, which could result in more restrictive standards for such devices.

State and Local Regulation. We are also regulated by the North Carolina
Utilities Commission and the Georgia Public Service Commission because we
provide intrastate telephone services within North Carolina and Georgia. As a
result, we must comply with North Carolina and Georgia pricing regulations, file
periodic reports, pay various fees and comply with rules governing quality of
service, consumer protection and similar matters. The rules and regulations are
designed primarily to promote the public's interest in receiving quality
telephone service at reasonable prices. Our networks are subject to numerous
local regulations such as requirements for franchises, building codes and
licensing. Such regulations vary on a city by city and county by county basis.

RISK FACTORS

In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, set forth below are cautionary statements
identifying important factors that could cause actual events or results to
differ materially from any forward-looking statements made by or on behalf of
us, whether oral or written. We wish to ensure that any forward-looking
statements are accompanied by meaningful cautionary statements in order to
maximize to the fullest extent possible the protections of the safe harbor
established in the Private Securities Litigation Reform Act of 1995.
Accordingly, any such statements are qualified in their entirety by reference
to, and are accompanied by, the following important factors that

15

could cause actual events or results to differ materially from our
forward-looking statements. For additional information regarding forward-looking
statements, please read the "Cautionary Note Regarding Forward-Looking
Statements" section beginning on page 32.

OUR SUCCESS DEPENDS UPON OUR ABILITY TO MANAGE OUR EXPANSION.

Our ability to continue to expand and develop our business will depend on
whether we can successfully do the following in a timely manner, at reasonable
costs and on satisfactory terms and conditions:

- acquire necessary equipment, software, and facilities, and integrate them
into our systems,

- evaluate markets,

- monitor operations,

- control costs,

- maintain effective quality controls,

- hire, train, and retain qualified personnel,

- expand internal management,

- obtain sufficient capital funding to support our business plan,

- enhance operating and accounting systems, and

- obtain any required government authorizations.

We are making significant operating and capital investments and will have
to address numerous operating challenges. We are currently developing new
processes and operating support systems. We will need to continue developing new
marketing initiatives and hiring and training sales people responsible for
selling our services. We will also need to continue developing the billing and
collection systems necessary to integrate these services. We cannot assure you
that we can design, install, and implement these products and systems in a
timely manner to permit us to offer our new services as planned.

In order to establish new operations, we may be required to spend
considerable amounts of capital before we generate related revenue. If these
services fail to be profitable or if we fail in any of these respects, this
failure may have a material adverse effect on our business and the price of our
Common Stock.

OUR SUCCESS DEPENDS UPON OUR ABILITY TO ATTRACT AND RETAIN KEY PERSONNEL.

The efforts of a small number of key management and operating personnel
will largely determine our success. Our success also depends in part upon our
ability to hire and retain highly skilled and qualified operating, marketing,
sales, financial and technical personnel. The competition for qualified
personnel in the telecommunications services industry is intense and,
accordingly, we cannot assure you that we will be able to hire or retain
necessary personnel. If we lose the services of key personnel or if we are
unable to attract additional qualified personnel, our business and the price of
our Common Stock could be materially and adversely affected.

WE EXPECT TO CONTINUE TO FACE SIGNIFICANT COMPETITION IN THE
TELECOMMUNICATIONS INDUSTRY.

We operate in an increasingly competitive environment. Our current
competitors include:

- incumbent local exchange carriers,

- competitive local exchange carriers,

- interexchange carriers,

16

- Internet service providers,

- wireless telecommunications providers,

- cable television companies,

- local and regional system integrators, and

- resellers of telecommunications services and enhanced services providers.

The trend toward business combinations and strategic alliances within the
telecommunications industry could further increase competition. In addition, the
development of new technologies could increase competition. One of the primary
purposes of the Telecommunications Act is to promote competition, particularly
in the local telephone market. Since the enactment of the Telecommunications
Act, several telecommunications companies have indicated their intention to
aggressively expand their ability to compete in many segments of the
telecommunications industry, including segments in which we participate and
expect to participate. This expansion, should it occur, may result in more
participants than can ultimately be successful in a given market.

We expect that increased competition will result in more competitive
pricing. Some of the companies with whom we compete are, or are affiliated with,
major telecommunications companies. Companies that have the resources to sustain
losses for some time have an advantage over those companies without access to
these resources. We cannot assure you that we will be able to achieve or
maintain adequate market share or revenue or compete effectively in any of our
markets. Any of these factors could materially adversely affect our business and
the price of our Common Stock.

WE MUST SECURE UNBUNDLED NETWORK ELEMENTS.

In connection with our CLEC operations, we interconnect with and use
incumbent telephone companies' networks to access our customers. Accordingly, we
depend upon the technology and capabilities of incumbent telephone companies to
meet the telecommunications needs of our CLEC customers and to maintain our
service standards. Our CLEC operations depend significantly on the quality and
availability of the incumbent telephone companies' copper lines and the
incumbent telephone companies' maintenance of these lines. We must also maintain
efficient procedures for ordering, provisioning, maintaining and repairing lines
from the incumbent telephone companies. We may not be able to obtain the copper
lines and services we require from the incumbent telephone companies at
satisfactory quality levels, rates, terms and conditions. Our inability to do so
could delay the expansion of our CLEC networks and degrade the quality of our
services to our CLEC customers. If these events occur, we may experience a
material adverse effect on our CLEC business and the price of our Common Stock.

WE ARE DEPENDENT ON OUR OPERATING SUPPORT SYSTEMS.

Sophisticated information and processing systems are vital to our growth
and our ability to monitor costs, bill customers, process customer orders and
achieve operating efficiencies. Billing and information systems have
historically been produced by outside vendors. These systems have generally met
our needs. As we continue providing more services, we will need more
sophisticated billing and information systems. Our failure, or the failure of
vendors, to adequately identify all of our information and processing needs or
to upgrade systems as necessary could have a material adverse effect on our
business and the price of our Common Stock.

WE MUST ADAPT TO RAPID TECHNOLOGICAL CHANGE.

The telecommunications industry is subject to rapid and significant changes
in technology, and we rely on third parties for the development of and access to
new technology. The effect of technological changes on our business cannot be
predicted. We believe our future success will depend, in part, on our ability to
anticipate or react appropriately to such changes and to offer, on a timely
basis, services that meet

17

customer demands. We cannot assure you that we will obtain access to new
technology on a timely basis or on satisfactory terms. Our failure to obtain
access to or properly utilize this new technology could have a material adverse
effect on our business and the price of our Common Stock.

WE ARE SUBJECT TO A COMPLEX AND UNCERTAIN REGULATORY ENVIRONMENT.

The telecommunications industry is regulated by the FCC, state regulatory
commissions and municipalities. Federal and state regulations and regulatory
trends in the direction of reduced regulation have had, and are likely to have,
both positive and negative effects on us and our ability to compete. Federal or
state regulatory changes and any resulting increase in competition may have a
material adverse effect on our businesses and on the price of our Common Stock.

WE ARE DEPENDENT ON INTERCONNECTION AGREEMENTS, PERMITS AND RIGHTS-OF-WAY.

Our success will depend, in part, on our ability to implement existing
interconnection agreements and enter into and implement new interconnection
agreements as we expand into new markets. Interconnection agreements are subject
to negotiation and interpretation by the parties to the agreements and are
subject to state regulatory commission, FCC and judicial oversight. We cannot
assure you that we will be able to enter into interconnection agreements in a
timely manner on terms favorable to us. We must also maintain existing and
obtain new local permits, including rights to utilize underground conduit and
pole space and other rights-of-way. We cannot assure you that we will be able to
maintain our existing permits and rights or to obtain and maintain other permits
and rights needed to implement our business plan on acceptable terms.
Cancellation or non-renewal of our interconnection agreements, permits,
rights-of-way or other arrangements could materially adversely affect our
business and the price of our Common Stock. In addition, the failure to enter
into and maintain any required arrangements for a new market may affect our
ability to develop that market.

THE SUCCESS OF OUR INTERNET AND DATA SERVICES BUSINESS DEPENDS ON
MAINTAINING "PEERING" AND OTHER ARRANGEMENTS.

The profitability of our Internet and data services, such as Internet
access, may be adversely affected if we are unable to maintain "peering"
arrangements with Internet service providers on favorable terms. In the past,
major Internet service providers routinely exchanged traffic with other Internet
service providers that met technical criteria on a "peering" basis. This means
that each Internet service provider accepted traffic routed to Internet
addresses on their system from their "peers" on a reciprocal basis, without
payment of compensation. Recently, Internet service providers have been
restricting the use of peering arrangements with other providers and have been
imposing charges for accepting traffic from providers other than their "peers."
Although we currently have peering arrangements with national Internet backbone
providers, we cannot assure you that we will be able to maintain "peer" status
with these providers, or that we will be able to terminate traffic on their
networks at favorable prices. A failure to maintain adequate and favorable
"peering" arrangements may have a material adverse effect on our Internet and
data services business and the price of our Common Stock.

OUR LONG DISTANCE SERVICES ARE AFFECTED BY OUR ABILITY TO ESTABLISH
EFFECTIVE TERMINATION AGREEMENTS.

We offer long distance services as part of the integrated package of
telecommunications services that we provide our customers. We have relied on and
will continue to rely on other carriers to provide transport and termination
services for portions of our long distance traffic. These agreements typically
provide for the termination of long distance services on a per-minute basis and
may contain minimum volume commitments. Negotiation of these agreements involves
estimates of future supply and demand for transport capacity, as well as
estimates of the calling patterns and traffic levels of our future customers. If
we fail to meet our minimum volume commitments, we may be obligated to pay
underutilization charges. If we underestimate our need for transport capacity,
we may be required to obtain capacity through more expensive means. These
failures may result in a material adverse effect on our business and the price
of our Common Stock.
18

THE MARKET PRICE OF OUR COMMON STOCK HAS BEEN AND MAY BE VOLATILE.

Our Common Stock has traded on the Nasdaq National Market only since
January 29, 1999. Since that time, the trading market for our Common Stock has
been characterized by limited liquidity, low volume and price volatility.

In addition, the following factors, among others, may cause the price of
our Common Stock to fluctuate:

- sales by our current shareholders of large amounts of our Common Stock,

- new legislation or regulation,

- variations in our revenue, net income and cash flows,

- the difference between our actual results and the results expected by
investors and analysts,

- announcements of unfavorable financial or operational performance for
other telecommunications companies,

- announcements of new service offerings, marketing plans or price
reductions by us or our competitors,

- technological innovations, and

- mergers, acquisitions or strategic alliances.

Further, stock markets have recently experienced significant price and
volume fluctuations. General market conditions, poor financial performance, and
bankruptcy announcements by other telecommunications companies have resulted in
fluctuations in the market prices of the stocks of many companies in our sector
that may not have been directly related to the operating performance of those
companies. These market fluctuations may materially adversely affect the price
of our Common Stock.

OUR INVESTMENTS IN MARKETABLE SECURITIES AND UNCONSOLIDATED COMPANIES MAY
NOT BE SUCCESSFUL.

We purchase investments in marketable securities, which may have
significant price fluctuations from period to period that may have a material
adverse impact on our financial results.

We also purchase investments in companies who are not publicly traded. We
generally carry these investments at their cost of investment. The success or
failure of these companies and the resultant effect on our carrying value for
these investments in unconsolidated companies may have a material adverse impact
on our financial results.

OUR USE OF WIRELESS SPECTRUM FOR WAVETEL'S COMMERCIAL TRIAL MAY NOT BE
SUCCESSFUL

The commercial trial operated by WaveTel for wireless broadband service has
no guarantee of success. Although our trial is progressing well, if it were to
fail completely and we wrote-off the balance of equipment and other assets
utilized in the operations, we would incur a charge of approximately $7.0
million based on the value of the assets as of December 31, 2001.

OUR ACQUISITIONS, JOINT VENTURES AND STRATEGIC ALLIANCES MAY NOT BE
SUCCESSFUL.

We may acquire other companies as a means of expanding into new markets,
developing new services or supplementing existing businesses. We cannot predict
whether or when any acquisitions may occur or the likelihood of a material
transaction being completed on favorable terms. These types of transactions
involve risks, including:

- difficulties assimilating acquired operations and personnel,

- disruptions of our ongoing businesses,

- diversion of resources and management time,
19

- the possibility that uniform management and operating systems and
procedures may not be maintained,

- increased regulatory burdens,

- new markets in which we may have limited or no experience, and

- possible impairment of relationships with employees or customers.

Also, we cannot assure you that we could obtain financing for an
acquisition on satisfactory terms or that the acquired business would perform as
expected.

We have formed and may in the future form various strategic alliances,
joint ventures and other similar arrangements. The other parties to these
existing or future arrangements, however, may at times have economic, business
or legal interests or goals that are inconsistent with our goals or those of the
strategic alliance, joint venture or similar arrangement. In addition, a joint
venture partner may be unable to meet its economic or other obligations to the
venture. A disagreement with our strategic allies or joint venture partners over
certain business actions or the failure of a partner to meet its obligations to
the venture could adversely affect our business and the price of our Common
Stock.

ANTI-TAKEOVER PROVISIONS MAY LIMIT THE ABILITY OF SHAREHOLDERS TO EFFECT A
CHANGE IN CONTROL OF CT COMMUNICATIONS.

Our articles of incorporation and bylaws contain provisions for staggered
terms of directors, removal of directors for cause only, supermajority voting
for certain business combinations and the availability of authorized but
unissued shares of Common Stock. Also, we have adopted a shareholders' rights
plan in which each stockholder is entitled to purchase additional shares of
Common Stock at a specified purchase price upon the occurrence of certain events
related to a potential change in our control. These provisions may have the
effect of deterring transactions involving a change in our control or
management, including transactions in which shareholders might receive a premium
for their shares.

EMPLOYEES

At December 31, 2001, we had approximately 720 employees. None of our
employees are represented by a labor union, and we consider relations with our
employees to be good.

EXECUTIVE OFFICERS OF CT COMMUNICATIONS

The following is a list of our executive officers as of March 1, 2002,
including such person's name, age, positions and offices held with CT
Communications, the period served in such positions or offices and, if such
person served in such position or office for less than five years, the prior
employment of such person.

Michael R. Coltrane, age 55, has been President, Chief Executive Officer
and a director since 1988. During 2001, he succeeded L.D. Coltrane, III as
Chairman of the Board. Prior to joining us in 1988, Mr. Coltrane served as
Executive Vice President of First Charter National Bank for more than six years
and as Vice President of a large regional bank for more than 10 years. Mr.
Coltrane is Vice Chairman of Maxcom Telecomunicaciones, S.A. de C.V., a director
of the general partner of Palmetto MobileNet, L.P., a director of Northeast
Medical Center, Vice Chairman of First Charter Corporation, the parent company
of First Charter National Bank, and past Chairman of the United States Telecom
Association.

Barry R. Rubens, age 42, has been a Senior Vice President, the Chief
Financial Officer, Secretary and Treasurer since 1995. He was Vice
President-External Affairs from 1992 to 1995. Mr. Rubens serves as a an
alternate director of Maxcom, as a director of AvidXchange and as an officer and
board member of Wireless One of North Carolina, LLC. Prior to joining us, Mr.
Rubens was a senior manager with Ernst & Young's telecommunications practice in
Washington, D.C.

20

Michael R. Nash, age 49, has been a Senior Vice President since January
1999 and has primary responsibility for our network technology and network
operations. He serves on the board of directors of the Cabarrus Economic
Development Committee and of the Alliance for Telecommunications Industry
Solutions. From 1995 to 1998, he was a Vice President of Standard Telephone
Company. From 1974 to 1995, he was an operations director of BellSouth
Telecommunications, Inc.

Amy M. Justis, age 37, has been Vice President of Finance since September
1999. From March 1999 to September 1999, she was the Director of Finance of the
Network and Carrier Services Division (North Operations) of BellSouth
Telecommunications, Inc. From 1994 to March 1999, she was the Manager of Finance
of the Network and Carrier Services Division of BellSouth Telecommunications,
Inc.

ITEM 2. PROPERTIES

Our properties consist of land, buildings, central office equipment,
exchange and toll switches, data transmission equipment, underground conduits
and cable, aerial cable, poles, wires, radio transmitting equipment and other
equipment. We own approximately 16 acres of land between Copperfield Boulevard
and Interstate 85 in Concord. Our principal executive offices are in our new
Corporate Center that is located on this property. Construction of this
four-story, 118,000 square foot building began in 2000 and was occupied
beginning in March of 2002. Space in this facility has been reserved for future
growth. Two additional buildings were constructed at this site between 1996 and
1998. We also own a building on Cabarrus Avenue East in Concord. This facility,
our former headquarters location, was built in 1956 and expanded in 1967. More
recently, in 1999 and 2000 we made substantial interior renovations to the
Cabarrus Avenue facility. This building has approximately 53,000 square feet of
floor space.

We also own a general warehouse located in Concord. This facility was
completely renovated in 1991 and has approximately 12,300 square feet of floor
space. We enlarged our warehouse storage facilities by adding approximately
9,760 square feet of warehouse space in 1995.

In November 1997, we purchased a one-third interest in 22.4 acres of
undeveloped property located on Weddington Road Extension and Speedway Boulevard
in the King's Grant Development. This property may be used for future
development if needed.

All of our central office switching equipment is digital. In mid-1997, we
began replacing Concord Telephone's digital switching platform by changing from
AG switches to state-of-the-art Nortel DMS switches. This replacement process
will continue as business conditions warrant. In 1997, we also replaced the DOTS
operator workstations used by Concord Telephone with TOPS workstations from
Nortel. In 1998, we installed and co-located a Reltec digital loop carrier at
the BellSouth central office in Salisbury, North Carolina.

In connection with our wireless operations, we have entered into six real
property leases to house our retail outlets in Concord, Concord Mills Mall,
Mooresville, Statesville, Albemarle and Salisbury, North Carolina. We also lease
office space on Cabarrus Avenue West, Copperfield Boulevard and Penny Lane,
Northeast, in Concord, North Carolina, and on University Executive Drive,
Fairview Plaza and East Ninth Street in Charlotte, North Carolina. Several of
these leases will expire in conjunction with the move to the new Corporate
Center. Our CLEC operations lease space in Greensboro, Hickory and Raleigh,
North Carolina. These leases are not material to our operations or financial
condition.

As of December 31, 2001, 17% of our telephone plant in service was
represented by land, buildings and general equipment; 39% by central office
equipment including wireless cell sites and equipment; and 36% by wires, cables,
conduits, poles and related equipment. These connecting lines, poles, wires,
cables, and conduits and related equipment are located on streets and public
highways that we do not own, pursuant to consents of various governmental bodies
or to leases, permits, easements, agreements, or licenses, express or implied
through use without objection by the owners.

We utilize approximately 161 motor vehicles in our operations, all but 3 of
which we own.

21

ITEM 3. LEGAL PROCEEDINGS

CT Communications is not currently party to any lawsuits or legal
proceedings that would have a material effect on the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth
quarter of 2001.

PART II

ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Prior to January 29, 1999, both our Voting Common Stock and our Class B
Nonvoting Common Stock traded principally in local transactions without the
benefit of an established public trading market, although a Charlotte-based
brokerage firm made a market as shares of the Class B Nonvoting Common Stock
were offered for sale. During 1998, the last reported sale prices for the Class
B Nonvoting Common Stock ranged from $15.75 to $25.00 per share, as adjusted to
reflect the Recapitalization and 2-for-1 stock dividend. On January 29, 1999,
the Recapitalization became effective and our Common Stock began trading on the
Nasdaq National Market under the symbol "CTCI."

The following table shows the high and low closing sales prices per share
of our Common Stock as reported on the Nasdaq National Market for the periods
indicated.

We paid the following cash dividends per share during the past two calendar
years:

Dividends are paid only as and when declared by our board of directors, in
its sole discretion, based on our financial condition, results of operations,
market conditions and such other factors as it may deem

22

appropriate. We may not pay dividends on our Common Stock if any dividends on
our Preferred Stock are in arrears.

The number of holders of record of our Common Stock as of March 20, 2002,
was 1,906. This number does not include beneficial owners of Common Stock whose
shares are held in the name of various dealers, depositories, banks, brokers or
other fiduciaries.

The foregoing stock prices and dividend amounts have been adjusted to
reflect the two-for-one stock dividend on April 5, 2000.

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth our selected historical consolidated
financial data. We derived the data as of and for the five years ended December
31, 2001, 2000, 1999, 1998, and 1997 from our audited consolidated financial
statements and related notes. This data should be read in conjunction with our
audited consolidated financial statements and related notes for the years ended
December 31, 2001, 2000, and 1999 and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
report.

- ---------------

(1) Other income in 1997 includes an extraordinary item of $2,239,045, net of
income taxes of $1,493,312 (or $0.12 per basic and diluted share), because
of the discontinuance of SFAS No. 71.
(2) Share data is based on the weighted average number of shares outstanding
after giving retroactive effect to a 3-for-2 stock dividend effective August
1, 1997, the Recapitalization effective January 28, 1999 and the 2-for-1
stock dividend effective April 5, 2000. Dividends declared have been
restated to give retroactive effect to these events.

23

(3) Other expense in 2001 includes $14.9 million in impairment charges relating
to the write-down of Maxcom and several securities to their estimated net
realizable value.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion of our financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and related notes and the selected financial data included elsewhere
in this report.

OVERVIEW

We are a growing provider of telecommunications services to residential and
business customers located primarily in North Carolina. We offer an integrated
package of telecommunications services consisting of local and long distance
telephone services, Internet and data services, and digital wireless products
and services.

We have worked to expand our ILEC business in recent years by adding
additional telecommunications services to our integrated service packages,
emphasizing customer service and taking advantage of the strong demographic
growth in our service area. Another key component to our business strategy is to
grow our CLEC, Greenfield, Internet and data services, and digital wireless
businesses. We significantly expanded our Internet and data services during the
last four years through our acquisitions of Vnet, WebServe, and several other
local Internet providers. During 2001, we expanded our wireless business through
the partitioning of our area of the Cingular digital network. Additionally, our
Greenfield operation continues to expand through additional preferred provider
agreements with developers and builders.

We devoted substantial effort in the past three years to developing
business plans, enhancing our management team and board of directors, and
designing and developing our business support and operating systems. Development
of these areas has required significant investment of capital and start-up
expenses. We believe that through these investments, we are positioning
ourselves to achieve our strategic objectives.

Our primary focus is to maximize our ILEC business in our current markets
by cross-selling integrated products and packages and growing our customer base
through our CLEC, Greenfield, Internet and data services, and digital wireless
businesses. We will also consider strategic acquisitions and investments as
opportunities arise.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

CT Communications' discussion and analysis of its financial condition and
results of operations are based upon its consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires the Company to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. The Company continuously evaluates its
estimates, including those related to bad debts, investments, intangible assets,
income taxes, financing operations, restructuring, pensions and other
post-retirement benefits, and contingencies and litigation. The Company bases
its estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.

The Company believes the following critical accounting policies affect its
more significant judgments and estimates used in the preparation of its
consolidated financial statements. The Company maintains allowances for doubtful
accounts for estimated losses resulting from the inability of its customers to
make required payments. If the financial condition of the Company's customers
were to deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required. The Company holds investments
in various companies having operations primarily within telecommunications, some
of

24

which are publicly traded and have highly volatile share prices. The Company
records an investment impairment charge when it believes an investment has
experienced a decline in value that is other than temporary. Future adverse
changes in market conditions or poor operating results of underlying investments
could result in losses or an inability to recover the carrying value of the
investments that may not be reflected in an investment's current carrying value,
thereby possibly requiring an impairment charge in the future. The Company
records a valuation allowance to reduce its deferred tax assets to the amount
that is more likely than not to be realized. While the Company has considered
future taxable income and ongoing prudent and feasible tax planning strategies
in assessing the need for the valuation allowance, in the event the Company were
to determine that it would be able to realize its deferred tax assets in the
future in excess of its net recorded amount, an adjustment to the deferred tax
asset would increase income in the period such determination was made. Likewise,
should the Company determine that it would not be able to realize all or part of
its net deferred tax asset in the future, an adjustment to the deferred tax
asset would be charged to income in the period such determination was made. The
Company amortizes intangible assets over their estimated useful lives. Estimated
useful lives utilized by the Company and related amortization are subject to
change based on economic conditions and accounting rules. In the event that
economic factors or accounting rules change, annual amounts amortized may
increase or decrease. The Company depreciates assets over their determinable
estimated useful lives. Useful lives are periodically reviewed, along with
retirements, salvage values, and obsolescence to determine any potential
adjustment in the useful lives of assets. The Company adjusts the useful lives
as appropriate. In addition, the Company periodically reviews the carrying value
of assets for impairment by assessing the recoverability of such carrying value
through estimated undiscounted future net cash flows expected to be generated by
the assets.

During 2001 we managed our internal financial reporting along certain
business segments. We have identified those six that are reportable segments
under generally accepted accounting principles. Beginning on January 1, 2001 we
began segregating CLEC and Greenfield. Prior to that date, Greenfield was
included within CLEC. When comparing results, CLEC and Greenfield should be
combined for 2001 for comparability with 2000 and 1999 presentation. Selected
data by business segment, excluding intersegment revenue and expense, was as
follows for the years ended December 31, 2001, 2000, and 1999:

- ---------------

(1) Operating EBITDA represents earnings before other income (expense),
interest, income taxes, depreciation and amortization and is commonly used
in the telecommunications industry to analyze companies on the basis of
operating performance and liquidity. Operating EBITDA is presented because
management believes it provides financial results for the core operations of
each business entity or segment and, as a result, excludes non-operating
activities such as investment income. Management believes that investors may
use this data to analyze and compare other communications companies with us
in terms of operating performance and liquidity. Operating EBITDA is not a
measure of financial performance under generally accepted accounting
principles and should not be construed as a substitute for consolidated net
income as a measure of performance, or for cash flow as a measure of
liquidity. Operating EBITDA, as calculated by us, is not necessarily
comparable to similarly captioned amounts of other companies.
(2) Capital expenditures in 2001 for digital wireless services do not include
$23.2 million paid during the year for partitioning of the Company's portion
of the Cingular digital network which was accounted for as an acquisition.

RESULTS OF OPERATIONS

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000.

Consolidated. Operating revenues increased $19.0 million or 16.4% for the
year ended December 31, 2001 when compared to 2000. The increase in revenues is
primarily due to increases in digital wireless, CLEC, and Internet and data
services. See the following discussions by business unit for more detail.

Operating expenses, exclusive of depreciation and amortization, increased
$21.6 million or 25.9% for the year ended December 31, 2001 when compared to
2000.

Depreciation expense increased $5.9 million or 31.3% to $24.6 million for
the year ended December 31, 2001 when compared to 2000. This increase reflects
an increase in the depreciable assets acquired as part of the capital program
over the past three years. All business units except long distance experienced
growth in depreciation, with CLEC, Greenfield, digital wireless and internet and
data services experiencing the largest percentage growth due to capital
requirements for growth and expansion of these units.

ILEC. Excluding intersegment revenues, ILEC revenue was $82.7 million, a
$0.3 million or 0.4% increase over 2000. We experienced revenue growth due to a
small access line increase, increased local access revenue, additional custom
call feature and pay per use revenue, DSL revenues, as well as increased

27

access revenue. Lower equipment sales in 2001 compared with 2000 partially
offset these increases. Equipment sales during 2001 were affected by the slowing
economy as businesses postponed purchases.

Excluding intersegment expenses, ILEC expenses were $43.0 million,
consistent with amounts for the year ended December 31, 2000. During the first
quarter 2001 our ILEC incurred a $1.1 million charge related to an early
retirement plan offered within the network group.

CLEC. CLEC operating revenues were $9.3 million, representing a $4.9
million or 109.2% increase over last year. The increase is due to the additional
CLEC access lines placed in service during the past twelve months as we have
continued our steady growth within the Charlotte and Greensboro, North Carolina
markets. Billed line revenue was $6.4 million and access revenue was $2.5
million for the year. At December 31, 2001 we had over 20,000 CLEC lines in
service, an increase of more than 9,700 from December 31, 2000. Greenfield
operations were included within the CLEC prior to 2001.

CLEC operating expenses were $16.6 million compared with $14.0 million
during 2000. CLEC operating expenses continued growing throughout 2001 due to
the CLEC expansion. The growth in 2001 was lower than in 2000 due to more steady
expansion and the decision not to expand into the Raleigh, North Carolina
market. The Company made the decision not to expand to Raleigh early in 2001,
resulting in a restructuring charge of $0.8 million (See restructuring
discussion in Note 11 of the Consolidated Financial Statements included in Part
IV, Item 14(a)(i) of this report.)

Greenfield. Greenfield revenues for 2001 were $1.8 million. This revenue
is primarily attributable to access lines located at Concord Mills Mall in
Concord, North Carolina. Revenues included $1.1 million in line revenue and $0.5
million in access revenue for the year. In November 2001, service began to
approximately 830 access lines located at Discover Mills Mall outside Atlanta,
Georgia. In total, Greenfield had 3,253 lines in service as of December 31,
2001. To date we have signed more than 50 agreements with residential and
business developments located in Charlotte and Raleigh, North Carolina to
provide preferred telecommunications service.

Greenfield operating expenses were $4.9 million during 2001. These costs
were associated with operating its existing access lines at December 31, 2001 as
well as the sales effort to sign additional preferred telecommunications
provider agreements.

Long Distance. Long distance services (LD) revenue was $13.6 million,
which is comparable to revenue during 2000. During 2001, we experienced an
increase in customers and minutes. However, revenue remained flat due to
continued introduction of more competitive rate plans that follow the industry
trend of lower calling prices. The average revenue per minute has declined from
2000 to 2001. We expect long distance revenue to remain steady as decreasing
rate plans offset customer and minute increases.

Long distance services operating expenses were $6.4 million, a $1.5 million
or 19.2% decrease over the year ended December 31, 2000. This decrease was
mainly due to a decline in carrier transport and termination expense due to
lower rates on negotiated contracts. These lower rates more than offset the
decrease in revenue rates charged under the new customer service plans discussed
above.

Internet and Data Services. Internet and data services (ISP) revenue
contributed $9.4 million for the year ended December 31, 2001, an increase of
$2.5 million or 36.6% over 2000. This increase was driven by an increase in
customers for DSL and high speed access product offerings and the integration of
WebServe for the full calendar year 2001. WebServe was acquired December 31,
2000 and contributed $1.8 million in revenues during 2001. During the second
quarter of 2001, revenue from high speed and DSL accounts surpassed the revenue
from traditional dial-up for the first time. DSL subscribers have increased
throughout 2001 while traditional dial-up customers have been decreasing. Many
of our dial-up customers terminating their service are choosing to migrate to
our higher speed product offerings.

Internet and data services operating expenses were $9.8 million, a $2.6
million or 35.9% increase over the same period last year. This increase was
mainly due to inclusion of WebServe for the full year, as well as expenses
associated with the increase in DSL customers and marketing increases in support
of DSL customer acquisition.

28

Digital Wireless. Customer growth during 2001 allowed the digital wireless
services unit (DCS) to record operating income for 2001, a major turning point
for the business unit. DCS contributed $17.8 million to revenue, a $10.2 million
or 132.3% increase over the year ended December 31, 2000 due to the significant
increase in customers. During 2001, we added approximately 4,300 net post-pay
wireless customers and acquired approximately 13,000 additional post-pay
wireless customers through the partitioning of our portion of the Cingular
Wireless digital network in June 2001. See discussion in Note 4 of the
Consolidated Financial Statements included in Part IV, Item 14(a)(i) of this
report.

Operating expenses for the DCS unit are primarily cost of service, customer
acquisition costs, airtime charges, and equipment. The increase in customers has
also resulted in increased expenses, although not at the same rate as revenue
growth. DCS operating expenses were $15.1 million, a $5.6 million or 59.8%
increase over 2000. Also included in operating expenses for the year were some
additional expenses associated with ensuring a smooth transition of partitioned
customers.

Other Business Units. Revenue from other business units decreased from
$0.5 million during 2000 to $0.02 million during 2001. The decrease is primarily
attributable to the termination of services provided to Maxcom during 2000 that
were not repeated in 2001. Amounts recorded in 2001 relate to WaveTel's wireless
broadband commercial trial in Fayetteville, North Carolina.

Operating expenses for the other units increased $6.7 million due almost
exclusively to WaveTel expenses on the commercial trial in Fayetteville.
WaveTel's expenses also included $1.5 million of restructuring charges
associated with the decision to stop expansion of the commercial trial into
other areas of North Carolina.

Other Income. Other income (expenses) decreased $57.6 million when
compared to the year ended December 31, 2000. This decrease resulted from the
following:

- A $39.2 million pre-tax gain from the sale of our 1.96% interest in the
BellSouth DCS Partnership during 2000,

- $11.3 million pre-tax income from sales of Illuminet stock in 2001
compared with $11.4 million pretax income from sales of ITC-DeltaCom and
Illuminet stock in 2000,

- $13.4 million pre-tax loss recognized in the fourth quarter of 2001 due
to the write-down of Maxcom,

- $1.5 million pre-tax loss on marketable securities written down to net
realizable value during the third and fourth quarters of 2001,

- Income from the Palmetto MobileNet cellular partnership of $4.3 million
for the year ended December 31, 2001 compared with $5.8 million in 2000,
and

- Higher other expenses, primarily due to a $2.1 million increase in
interest expense during 2001.

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999.

Consolidated. Operating revenues increased $10.0 million or 9.5% for the
year ended December 31, 2000 when compared to 1999.

Operating expenses, exclusive of depreciation and amortization, increased
$13.3 million or 19.6% for the year ended December 31, 2000 when compared to
1999.

Depreciation expense increased $3.6 million or 23.7% to $18.7 million for
the year ended December 31, 2000 when compared to 1999. This increase reflects
an increase in the depreciable assets.

ILEC. Excluding intersegment revenues, ILEC revenue was $82.4 million, a
$5.7 million or 7.4% increase over 1999, primarily resulting from increased
access revenue. The two primary factors behind increased access revenue were an
increase in minutes and an increase in local revenue based on access line growth
of 5% from December 31, 1999 to December 31, 2000. Custom call features revenue
increased

29

15% due to increased telemarketing and sales efforts. Higher equipment sales
also contributed to the increase.

Excluding intersegment expenses, ILEC expenses were $42.2 million,
consistent with amounts for the year ended December 31, 1999.

CLEC. CLEC operating revenues were $4.4 million, representing a $1.8
million or 70.2% increase over 1999. The increase was due to the additional CLEC
access lines placed in service during 2000 as we continued our expansion into
the Charlotte and Greensboro, North Carolina markets. At December 31, 2000 we
had over 11,800 CLEC lines in service, an increase of more than 8,000 from
December 31, 1999. CLEC results for 2000 and 1999 included Greenfield
operations. Greenfield was not tracked separately until January 1, 2001.

CLEC operating expenses were $14.0 million compared with $4.9 million
during 1999. CLEC operating expenses increased significantly in 2000 due to
expansion of the CLEC.

Long Distance. Long distance services (LD) revenue was $13.8 million,
which is comparable to revenue during 1999. Despite the increase in the number
of pre-subscribed access lines and a corresponding increase in minutes, revenue
remained flat due to the introduction of new, more competitive long distance
price plans in the fourth quarter of 1999. These plans resulted in a decline in
the average revenue per minute.

Long distance services operating expenses were $7.9 million, a $.7 million
or 8.4% decrease over the year ended December 31, 1999. This decrease was mainly
due to a decline in carrier transport and termination expense due to lower rates
on negotiated contracts.

Internet and Data Services. Internet and data services (ISP) revenue
contributed $6.9 million for the year ended December 31, 2000, an increase of
$1.2 million or 20.7% over 1999. This increase was driven by an increase in
customers across all service offerings within the segment, particularly DSL
customers. Additionally, 1,845 customers were added in February 2000 through the
acquisition of Internet of Concord.

Internet and data services operating expenses were $7.2 million, a $1.9
million or 35.8% increase over 1999. This increase was mainly due to the
increase in ISP customers and additional personnel added during 2000.

Digital Wireless. Digital wireless services (DCS) contributed $7.7 million
to revenue, a $2.5 million or 47.8% increase over the year ended December 31,
1999, due to an increased number of customers. During 2000, our wireless
customers increased by 5,600, including prepaid, to more than 16,300. Much of
this growth has come as a result of the strong residential and business
development within our service area.

Digital wireless services operating expenses were $9.4 million, a $2.6
million or 37.5% increase over 1999. This increase was mainly due to the costs
associated with the increase in wireless subscribers.

Other Income. Other income (expenses) increased $36.1 million when
compared to the year ended December 31, 1999. This increase results from the
following:

- A $39.2 million pre-tax gain from the sale of our 1.96% interest in the
BellSouth DCS Partnership,

- $11.4 million pretax income from sales of ITC-DeltaCom and Illuminet
stock in 2000, compared with $15.8 million pretax income from sales of
ITC-DeltaCom in 1999,

- Income from the Palmetto MobileNet cellular partnership of $5.8 million
for the year ended December 31, 2000 compared with $4.8 million in 1999,
and

- Higher other expenses, primarily due to a $0.8 million increase in
interest expense during 2000.

30

LIQUIDITY AND CAPITAL RESOURCES

We had net cash provided by operating activities for the year ended
December 31, 2001 of $18.8 million. Our primary use of cash during this period
was for additions to our telephone plant of $64.2 million, purchases of
investment securities of $2.5 million, purchase of wireless spectrum of $3.2
million, acquisitions of $23.2 million, repurchase of common stock of $2.4
million, and payment of dividends of $4.9 million. Our sources of cash for the
period included the $18.8 million of operating cash, $61 million of borrowings,
$7.0 million of partnership distributions, and $13.9 million proceeds from
securities sales.

Working capital was $19.1 million on December 31, 2001, compared to $8.7
million at December 31, 2000. Current assets increased by $6.2 million in the
year ended December 31, 2001 primarily due to increases in accounts receivable,
income taxes receivable, and materials. Current liabilities decreased $4.1
million in the year ended December 31, 2001 due to an decrease in accounts
payable and repayment of $5.0 million of short-term borrowings, offset by
increases in accrued pension cost and accrued payroll.

We have significant cash requirements due to growth in our service area,
planned improvements to our existing plant and equipment, and our geographic
expansion. Capital expenditures for the year ended December 31, 2001 and
December 31, 2000 were $64.2 million and $54.1 million, respectively, for
construction on a new corporate center, network improvements, including upgrades
to the switching platform, CLEC expansion, Greenfield expansion, and
improvements in the outside plant including poles, aerial cable and buried
cable.

Our capital expenditures in 2002 are expected to be approximately $53
million, as follows:

- $8.4 million for completion of our new corporate center,

- $22.6 million for ILEC network facilities, outside plant, network
switching, and other telecommunications assets,

- $3.2 million for CLEC network expansion,

- $9.9 million for new Greenfield projects,

- $2.2 million for management information systems hardware and software
upgrades and additions,

- $4.2 million for electronics and other equipment associated with the
expansion of existing and the addition of new DCS wireless cell sites,

- $2.2 million for Internet and high speed data services equipment, and

- $0.2 million for long distance services equipment.

Other anticipated uses of cash in 2002 include additional investments in
unconsolidated companies and marketable securities. We expect to fund these
costs through cash from operations, sales of marketable securities, and
additional borrowings under our credit facility.

We have an unsecured revolving credit facility with Co-Bank for $90.0
million, of which $50 million was outstanding on December 31, 2001. The interest
rate on the credit facility is variable based on LIBOR plus a spread based on
financial ratios including debt to EBITDA. The LIBOR interest rate on December
31, 2001 was approximately 1.9% and the applicable spread was 1.25%. The credit
facility provides for quarterly payments of interest until maturity in April
2006. We have entered into interest rate swap transactions to fix $20.0 million
of the outstanding principal at rates of 5.9%, 4.53% and 3.81% plus a spread,
currently 1.25%. In addition, we have a $10.0 million revolving credit facility
with First Charter Bank at interest rates not to exceed a specified prime rate
minus 1.5%. As of December 31, 2001, we had no amounts outstanding under the
First Charter Bank facility.

We also have a $50 million senior unsecured 14-year term loan with Co-Bank.
The term loan requires quarterly payments of interest at a fixed rate of 7.32%
until maturity on December 13, 2014.

31

We believe our existing sources of liquidity, cash provided by operations,
new or existing credit facilities and the sale of investment securities will
satisfy our anticipated working capital and capital expenditure requirements for
the foreseeable future.

ACCOUNTING CONSIDERATIONS

In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other
Intangible Assets". Under SFAS No. 142, goodwill and intangible assets with
indefinite lives are no longer amortized but are reviewed at least annually for
impairment. With respect to goodwill and intangible assets acquired prior to
July 1, 2001, the Company is required to adopt SFAS No. 142 effective January 1,
2002. Application of the non-amortization provisions of SFAS No. 142 for
goodwill is expected to result in an increase in operating income of
approximately $1.2 million in 2002. Changes in the estimated useful lives of
intangible assets are not expected to result in a material effect on net income
in 2002. At December 31, 2001, the Company had goodwill of approximately $10.0
million. Pursuant to SFAS No. 142, the Company will test its goodwill for
impairment upon adoption and, if impairment is indicated, record such impairment
as a cumulative effect of accounting change. The Company is currently evaluating
the effect that the adoption may have on its consolidated results of operation
and financial position.

In June 2001 the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations," which addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets that result from
acquisition, construction, development or normal use of the asset. SFAS No. 143
is effective January 1, 2003. The Company is currently evaluating the effect
that the adoption may have on its consolidated results of operation and
financial position.

In October 2001, the FASB issued SFAS No. 144, "Accounting for Impairment
or Disposal of Long-Lived Assets," which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. SFAS No. 144
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of," and the accounting and reporting
provisions of Accounting Principles Board Opinion No. 30, "Reporting the Results
of Operations -- Reporting the Transactions for the Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." SFAS No. 144 requires that long-lived assets that are to be
disposed of by sale be measured at the lower of book value or fair value less
cost to sell. SFAS No. 144 also establishes requirements for recognition and
measurement of impairment losses on certain long-lived assets to be held or
used. SFAS No. 144 is effective January 1, 2002. The Company is currently
evaluating the effect that the adoption may have on its consolidated results of
operation and financial position and does not expect that adoption will have a
material impact.

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in current operations or
other comprehensive income, depending upon whether a derivative is designated as
part of a hedge transaction and, if it is, the type of hedge transaction. The
effective date for SFAS No. 133 is for fiscal years beginning after June 15,
2000, though earlier adoption is encouraged and retroactive application is
prohibited. The Company adopted the standard effective January 1, 2001 and it
did not have a material impact on the consolidated financial statements.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains certain "forward-looking statements," as defined in
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, that are based on the beliefs of management, as well as
assumptions made by, and information currently available to, management.
Management has based these forward-looking statements on its current
expectations and projections about future events and trends affecting the
financial condition of our business. These forward-looking statements are
subject to certain risks, uncertainties and assumptions about us that could
cause actual results to differ

32

materially from those reflected in the forward-looking statements. Factors that
may cause actual results to differ materially from these forward-looking
statements are:

- our ability to respond effectively to the sweeping changes in industry
conditions created by the Telecommunications Act and related state and
federal legislation and regulations,

- our ability to recover the substantial costs to be incurred in connection
with the implementation of our various new businesses,

- our ability to retain our existing customer base against local and long
distance service competition, and to market such services to new
customers,

- the performance of our investments,

- our ability to effectively manage rapid changes in technology, and

- our ability to effectively respond to the actions of our competitors.

These forward-looking statements are principally contained in the following
sections of this report:

- Item 1. Business; and

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

In some cases, in those and other portions of this report, these
forward-looking statements can be identified by the use of words such as "may,"
"will," "should," "expect," "intend," "plan," "anticipate," "believe,"
"estimate," "predict," "project," or "potential" or the negative of these words
or other comparable words.

In making forward-looking statements, we claim the protection of the safe
harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995. We undertake no obligation to update or revise
any forward-looking statements, whether as a result of new information, future
events or otherwise. All forward-looking statements should be viewed with
caution.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have an unsecured revolving credit facility with a syndicate of banks
for $90.0 million, of which $50.0 million was outstanding on December 31, 2001
and an unsecured term loan of $50.0 million. The interest rate of the term loan
is fixed at 7.32%. The interest rate on the revolving credit facility is
variable based on LIBOR plus a spread based on our ratio of debt to EBITDA. The
interest rate was approximately 3.2% with the spread on December 31, 2001. We
have entered into three interest rate swap transactions to establish a fixed
rate of interest on $20.0 million of the outstanding principal as of December
31, 2001. The interest rate swaps will protect us, to the extent of $20.0
million of outstanding principal amount, against an upward movement in interest
rates, but subjects us to above market interest costs if interest rates decline.
We believe that reasonably foreseeable movements in interest rates will not have
a material adverse effect on our financial condition or operations. While the
Company may be exposed to credit losses due to non-performance of the
counterparties, the Company considers the risk remote and does not expect the
settlement of these transactions to have a material effect on its results of
operations or financial condition.

Additional information regarding the interest rate swap agreements is
contained in Note 6 "Debt Instruments" and Note 7 "Derivative Financial
Instruments" of the Consolidated Financial Statements included in Part IV, Item
14(a)(1) of this report.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our consolidated financial statements, the financial statement schedules
required to be filed with this report and the report of independent public
accountants are set forth on pages F-1 through F-39 of this report. The selected
quarterly financial data required by this Item is included in Note 17 of our
consolidated financial statements.
33

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

The information called for by Item 10 with respect to directors and Section
16 matters is set forth in the Proxy Statement for our 2002 Annual Meeting of
Shareholders under the captions "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance," respectively, and is hereby
incorporated by reference. The information called for by Item 10 with respect to
executive officers is set forth in Part I, "Business -- Executive Officers of CT
Communications" of this report.

ITEM 11. EXECUTIVE COMPENSATION

The information called for by Item 11 is set forth in the Proxy Statement
for our 2002 Annual Meeting of Shareholders under the captions "Election of
Directors -- Compensation of Directors," "Executive Compensation," and
"Compensation Committee Interlocks and Insider Participation," respectively, and
is hereby incorporated by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information called for by Item 12 is set forth in the Proxy Statement
for our 2002 Annual Meeting of Shareholders under the captions "Principal
Shareholders" and "Management Ownership of Common Stock," respectively, and is
hereby incorporated by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information called for by Item 13 is set forth in the Proxy Statement
for our 2002 Annual Meeting of Shareholders under the caption "Certain
Relationships and Related Transactions" and is hereby incorporated by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) Documents filed as part of this report

(1) Financial Statements: The following financial statements, together
with the report thereon of independent auditors, are included in this
report as set forth in Item 8:

- Report of Independent Public Accountants;

- Consolidated balance sheets as of December 31, 2001 and 2000;

- Consolidated statements of income for the years ended December 31,
2001, 2000 and 1999;

- Consolidated statements of cash flows for the years ended December 31,
2001, 2000 and 1999;

- Consolidated statements of stockholders' equity for the years ended
December 31, 2001, 2000 and 1999;

- Consolidated statements of comprehensive income for the years ended
December 31, 2001, 2000 and 1999; and

- Notes to consolidated financial statements for the years ended
December 31, 2001, 2000 and 1999.

34

(2) Consolidated Financial Statement Schedules: Financial statement
schedules are omitted because the required information for Schedule II is
included. All other financial statement schedules are not applicable.

(3) Financial Statements of Palmetto MobileNet, L.P. are set forth on
pages F-33 through F-51 of this report.

(4) The exhibits filed as part of this report and exhibits
incorporated herein by reference to other documents are listed in the Index
to Exhibits to this report.

(b) Reports on Form 8-K

No reports on Form 8-K were filed during the last quarter of 2001.

(c) Exhibits

See (a)(4), above.

(d) Financial statement schedules

See (a)(2), above.

35

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.

CT COMMUNICATIONS, INC.

By: /s/ MICHAEL R. COLTRANE
------------------------------------
Michael R. Coltrane
Chairman of the Board of
Directors,
President and Chief Executive
Officer

Date: March 28, 2002

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 in the capacities indicated as of March 28, 2002.

By: /s/ MICHAEL R. COLTRANE
------------------------------------
Michael R. Coltrane
Chairman of the Board of
Directors,
President and Chief Executive
Officer
(Principal Executive Officer)

By: /s/ JOHN R. BOGER, JR.
------------------------------------
John R. Boger, Jr.
Director

By: /s/ O. CHARLIE CHEWNING, JR.
------------------------------------
O. Charlie Chewning, Jr.
Director

By: /s/ WILLIAM A. COLEY
------------------------------------
William A. Coley
Director

By: /s/ RAYMOND C. GROTH
------------------------------------
Raymond C. Groth
Director

By: /s/ SAMUEL E. LEFTWICH
------------------------------------
Samuel E. Leftwich
Director

36

By: /s/ JERRY H. MCCLELLAN
----------------------------------
Jerry H. McClellan
Director

By: /s/ TOM E. SMITH
------------------------------------
Tom E. Smith
Director

By: /s/ PHIL W. WIDENHOUSE
------------------------------------
Phil W. Widenhouse
Director

By: /s/ BARRY R. RUBENS
------------------------------------
Barry R. Rubens
Senior Vice President, Treasurer,
Secretary and Chief Financial
Officer
(Principal Financial Officer)

By: /s/ AMY M. JUSTIS
------------------------------------
Amy M. Justis
Vice President of Finance and
Chief Accounting Officer
(Principal Accounting Officer)

By: /s/ CHRISTOPHER R. MAY
------------------------------------
Christopher R. May
Controller

37

INDEX TO EXHIBITS

CT COMMUNICATIONS, INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS INDEX
DECEMBER 31, 2001, 2000 AND 1999

(1) Consolidated Financial Statements

The following financial statements, together with independent auditors'
report thereon, are included:

- Independent Auditors' Report.............................. F-2

- Consolidated balance sheets as of December 31, 2001 and
2000...................................................... F-3

- Consolidated statements of income for the years ended
December 31, 2001, 2000, and 1999......................... F-4

- Consolidated statements of comprehensive income (loss) for
the years ended December 31, 2001, 2000, and 1999......... F-5

- Consolidated statements of stockholders' equity for the
years ended December 31, 2001, 2000, and 1999............. F-6

- Consolidated statements of cash flows for the years ended
December 31, 2001, 2000, and 1999......................... F-8

- Notes to consolidated financial statements for the years
ended December 31, 2001, 2000, and 1999..................... F-9 to F-31

(2) Consolidated Financial Statement Schedule

The following financial statement schedule is included:

- Schedule II -- Valuation and Qualifying Accounts.......... F-32

Other schedules are omitted because the required information is included
in the financial statements or is not applicable.

F-1

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
CT Communications, Inc.:

We have audited the consolidated financial statements of CT Communications,
Inc. and subsidiaries as listed in the accompanying index. In connection with
our audits of these consolidated financial statements, we also have audited the
financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 CT
Communications, Inc. and subsidiaries as of December 31, 2001 and 2000, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America. Also in our
opinion, the related financial statement schedule, when considered in relation
to the consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.

/s/ KPMG LLP

Charlotte, North Carolina
February 22, 2002

F-2

CT COMMUNICATIONS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000

See accompanying notes to consolidated financial statements.
F-3

CT COMMUNICATIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

See accompanying notes to consolidated financial statements.
F-4

CT COMMUNICATIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

See accompanying notes to consolidated financial statements.
F-5

CT COMMUNICATIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

F-6

See accompanying notes to consolidated financial statements.
F-7

CT COMMUNICATIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

See accompanying notes to consolidated financial statements.
F-8

CT COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 AND 1999

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(A) PRINCIPLES OF CONSOLIDATION AND ORGANIZATION

These consolidated financial statements include the accounts of CT
Communications, Inc. (the Company), a holding company, and its wholly-owned
subsidiaries, The Concord Telephone Company ("CTC"), CTC Long Distance Services,
LLC ("CTLD"), CT Cellular, Inc., Carolina Personal Communications, Inc. (dba
"CTC Wireless, Inc."), CT Wireless Cable, Inc., CTC Exchange Services, Inc., CT
Global Telecommunications, Inc. ("CTGT"), CT Communications Northeast Trust, CT
Communications Northeast, Inc., CT Communications Northeast Wireless Trust, CTC
Internet Services, Inc., WebServe, Inc. and WaveTel, LLC (WaveTel). All
significant intercompany accounts and transactions have been eliminated in
consolidation.

CT Communications, Inc. and subsidiaries operate entirely in the
communications industry. Concord Telephone, the Company's principal subsidiary,
provides local telephone service as well as telephone and equipment rental to
customers who are primarily residents of Cabarrus, Stanly and Rowan counties in
North Carolina. The Company also provides long distance service via CTLD. CT
Cellular owns and accounts for investments in a limited partnership which
provides cellular mobile telephone services to various counties in North and
South Carolina. CTC Wireless accounts for the retail operations and services
provided in relation to personal communications services, a wireless
telecommunications system which includes voice, data interface and paging. CT
Wireless Cable accounts for an investment in Wireless One of North Carolina,
LLC, which participates in the wireless cable television market in North
Carolina. CTC Exchange Services provides competitive local telephone service in
North Carolina. CTGT was formed to build telecommunications networks outside of
the United States. CT Communications Northeast Trust and CT Communications
Northeast, Inc. hold the Company's investment securities and investments in
unconsolidated companies. CTC Internet Services, Inc. provides internet services
to customers in North Carolina. WebServe provides web hosting, design and
programming services to customers primarily in North Carolina. WaveTel provides
broadband wireless data and voice services in Fayetteville, North Carolina.

(B) RECLASSIFICATIONS

In certain instances, amounts previously reported in the 2000 and 1999
consolidated financial statements have been reclassified to conform to the 2001
consolidated financial statement presentation. Such reclassifications have no
effect on net income or retained earnings as previously reported.

(C) PROPERTY AND EQUIPMENT

Telephone plant in service is stated at original cost and includes certain
indirect costs consisting of payroll taxes, pension and other fringe benefits.

Maintenance, repairs, and minor renewals are primarily charged to
maintenance expense accounts. Additions, renewals, and betterments are charged
to telephone plant accounts. Within Concord Telephone Company, the original cost
of depreciable property retired is removed from telephone plant accounts and
charged to accumulated depreciation, which is credited with the salvage less
removal cost. Under this method, no gain or loss is calculated on ordinary
retirements of depreciable property. For all other companies, the original cost
and accumulated depreciation are removed from the accounts and any gain or loss
included in the results of operations.

F-9

CT COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Depreciation is calculated using the straight-line method over the
estimated useful lives of the respective assets as follows:

Buildings and equipment..................................... 3 to 40 years
Central office equipment.................................... 7 to 14 years
Poles, wires, cables and conduit............................ 10 to 30 years

(D) INVESTMENT SECURITIES

Investment securities at December 31, 2001 and 2000 consist of state,
county and municipal debt securities, and corporate equity securities. The
Company classifies its debt and equity securities as available-for-sale.
Unrealized holding gains and losses, net of the related tax effect, are excluded
from earnings and are reported as a separate component of other comprehensive
income until realized. Realized gains and losses from the sale of securities are
determined on a specific identification basis.

A decline in the market value of a security below cost that is deemed to be
other than temporary results in a reduction in carrying amount to fair value.
The impairment is charged to earnings and a new cost basis for the security is
established. Dividend and interest income are recognized when earned.

(E) INVESTMENTS IN UNCONSOLIDATED COMPANIES

The Company has interests in several partnerships and corporations that
operate in the communications industry. Investments in unconsolidated companies
over which the Company has the ability to exercise significant influence are
accounted for by the equity method.

(F) MATERIALS AND SUPPLIES

Materials and supplies are determined principally at the lower of average
cost or market. Cost of sales are charged at average cost.

(G) INCOME TAXES

Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

Investment tax credits related to telephone plant have been deferred and
amortized as a reduction of federal income tax expense over the estimated useful
lives of the assets giving rise to the credits. Unamortized deferred investment
tax credits are treated as temporary differences.

(H) REVENUE RECOGNITION

Revenues are recognized when services are provided regardless of the period
in which they are billed. Revenues from sales of telephone equipment are
recognized upon delivery to the customer for direct-sale leases while revenues
from sales-type leases are recognized upon delivery to the customer in an amount
equal to the present value of the minimum rental payments under the fixed
non-cancelable lease term. The deferred finance charges applicable to these
leases are recognized over the terms of the leases using the effective interest
method.

F-10

CT COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The cost of wireless handsets exceeds the sales price. Costs in excess of
revenues for handset sales are recognized upon delivery of equipment to the
customer. Revenues are deferred and the related cost of sales equal to revenues
are capitalized and amortized over the average life of customer service
contracts.

Installation fees are deferred and the related costs are capitalized and
amortized over the estimated life of the customer.

(I) INTANGIBLES

Intangibles consist of customer lists, wireless spectrum, and goodwill
representing the excess of the purchase price of acquisitions over the fair
value of the net assets acquired. Customer lists are amortized using the
straight-line method over the estimated remaining life of the customers.
Wireless spectrum is amortized using the straight-line method over 40 years.
Goodwill is amortized using the straight-line method over 10 to 15 years. The
Company assesses the recoverability of this intangible asset by determining
whether the amortization of the goodwill balance over its remaining life can be
recovered through undiscounted future operating cash flows of the acquired
operation. The amount of impairment, if any, is measured based on projected
discounted future operating cash flows using a discount rate reflecting the
Company's average cost of funds. The assessment of recoverability will be
impacted if estimated future operating cash flows are not achieved. Amortization
expense for the years ended December 31, 2001, 2000 and 1999 amounted to
$1,954,507, $809,823, and $679,340, respectively. Accumulated amortization at
December 31, 2001 and 2000 was $3,855,998 and $1,901,491, respectively.

(J) CASH EQUIVALENTS

For purposes of the statement of cash flows, the Company considers all
short-term investments with original maturities at the date of purchase of three
months or less to be cash equivalents.

(K) USE OF 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 could differ from those estimates.

(L) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF

The Company reviews long-lived assets and certain identifiable intangibles
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.

(M) STOCK OPTION PLANS

The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations including FASB
Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation an interpretation of APB Opinion No. 25" issued in March 2000 to
account for its fixed plan stock options. Under this method, compensation
expense is recorded on the date of grant only if

F-11

CT COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the current market price of the underlying stock exceeded the exercise price.
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," established accounting and disclosure requirements
using a fair value-based method of accounting for stock-based employee
compensation plans. As allowed by SFAS 123, the Company has elected to continue
to apply the intrinsic value-based method of accounting described above, and has
adopted the disclosure requirements of SFAS 123.

(N) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company is exposed to certain interest rate risks as part of its
ongoing business operations and may use derivative financial instruments, where
appropriate, to manage these risks. The derivative instruments must be effective
at reducing the risk associated with the exposure being hedged and must be
designated as a hedge at the inception of the contract. The Company does not use
derivatives for trading purposes.

Effective January 1, 2001, the Company adopted SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities," as amended. This statement
establishes a new standard for accounting for derivatives and hedging
activities. Under SFAS No. 133, all derivatives must be recognized as assets and
liabilities and measured at fair value. The effect of the adoption did not have
a material impact on the Company's results of operations or consolidated
financial position in 2001.

The Company recognizes all derivative financial instruments as assets and
liabilities and measures them at fair value. For derivative financial
instruments that are designated and qualify as a cash flow hedge, the effective
portions of changes in fair value of the derivative are recorded in other
comprehensive income, net of tax, and are recognized in the income statement
when the hedged item affects earnings. Ineffective portions of changes in the
fair value of cash flow hedges are recognized currently in earnings. Changes in
the fair value of derivatives that do not qualify for hedge treatment are
recognized currently in earnings.

For the years ended December 31, 2000 and 1999, prior to the adoption of
SFAS No. 133, the Company entered into an interest swap agreement to reduce its
exposure to market risks from changing interest rates. The difference to be paid
or received by the Company is accrued and recognized in interest expense and may
change as market interest rates change.

(O) RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) 142, "Goodwill and Other
Intangible Assets." Under SFAS No. 142, goodwill and intangible assets with
indefinite lives are no longer amortized but are reviewed at least annually for
impairment. The amortization provisions of SFAS No. 142 apply to goodwill and
intangible assets acquired after June 30, 2001. With respect to goodwill and
intangible assets acquired prior to July 1, 2001, the Company is required to
adopt SFAS No. 142 effective January 1, 2002. Application of the non-
amortization provisions of SFAS No. 142 for goodwill is expected to result in an
increase in operating income of approximately $1.2 million in 2002. Changes in
the estimated useful lives of intangible assets are not expected to result in a
material effect on net income in 2002. At December 31, 2001, the Company had
goodwill of approximately $10 million. Pursuant to SFAS No. 142, the Company
will test its goodwill for impairment upon adoption and, if impairment is
indicated, record such impairment as a cumulative effect of an accounting
change. The Company is currently evaluating the effect that the adoption may
have on its consolidated results of operation and financial position.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which addresses financial accounting and reporting
obligations associated with the retirement of tangible

F-12

CT COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

long-lived assets that result from the acquisition, construction, development or
normal use of the asset. The Company is required to adopt SFAS No. 143 on
January 1, 2003 and does not expect the adoption to have a material impact on
the Company's consolidated financial statements.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which is effective for fiscal
years beginning after December 15, 2001. SFAS No. 144 supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," and addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. SFAS No. 144 requires that
long-lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of the asset to future net cash flows expected
to be generated by the asset. If the carrying amount of an asset exceeds its
estimated future cash flows, an impairment charge is recognized by the amount by
which the carrying amount of the asset exceeds the fair value of the asset. SFAS
No. 144 requires companies to separately report discontinued operations and
extends that reporting to a component of an entity that either has been disposed
of (by sale, abandonment, or in a distribution to owners) or is classified as
held for sale. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell. The Company is required to
adopt SFAS No. 144 on January 1, 2002 and does not expect the adoption to have a
material impact on the Company's consolidated financial statements.

(2) INVESTMENT SECURITIES

The amortized cost, gross unrealized holding gains, gross unrealized
holding losses and fair value for the Company's investments by major security
type and class of security at December 31, 2001 and 2000, were as follows:

In 2001, 2000, and 1999 proceeds from the sale of investment securities
available for sale were $13,897,218, $19,238,469, and $25,949,049 and included
in income were gross realized gains of $11,427,860, $12,164,249, and
$16,189,174, and gross realized losses of $360,871, $800,045, and $382,428,
respectively.

During 2001 the Company wrote down to fair market value certain equity
security investments. The write down amounted to $1,518,216 and was due to a
decline in the fair value of the equity security which, in the opinion of
management, was considered to be other than temporary. The write-down is
included in interest, dividend income and gain (loss) on sale of investments in
the accompanying financial statements.

F-13

CT COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(3) INVESTMENTS IN UNCONSOLIDATED COMPANIES

Investments in unconsolidated companies consist of the following:

Palmetto MobileNet, L.P. is a partnership that holds interests in 10
cellular rural service areas (RSA's) in North and South Carolina. The Company's
investment in Palmetto MobileNet is accounted for within its CT Cellular, Inc.
subsidiary. ALLTEL Communications, Inc. is the managing partner of the 10 RSA's.
The Company uses the equity method to account for its investment because the
Company exercises significant influence over Palmetto MobileNet's operating and
financial activities through the Company's ownership interest in the corporate
general partner of Palmetto MobileNet.

The purpose of Wireless One of North Carolina, LLC is to develop and deploy
broadband wireless services in North Carolina. The Company uses the equity
method to account for its investment because the Company exercises significant
influence over the operating and financial activities of Wireless One of North
Carolina, LLC.

BellSouth Carolinas PCS, L.P. provides digital personal communications
services that competes with cellular phone service. During 2000, the Company
sold its interest in this partnership and recognized a gain of $39,214,000
before income taxes.

ITC Holding Company has participated in the formation of several
telecommunications companies. During 2000, ITC Holding reorganized and as a
result the Company received 1,600,000 shares of Knology, Inc. which is included
in investment securities within the financial statements. Under the
reorganization agreement the Company has agreed not to sell or transfer the
shares for two years. During 1997 ITC Holding restructured and as a result the
Company received shares in ITC-DeltaCom. The investment in ITC-DeltaCom is
included in available-for-sale equity securities described in note 2.

Maxcom Telecomunicaciones, S.A. de C.V. ("Maxcom", formerly known as
Amaritel, S.A. de C.V.) is creating a competitive telecommunications company
offering local, long distance, and network telecommunications services in
Mexico. The Company's investment in Maxcom is through its subsidiary, CTGT. In
2001 the Company determined that its carrying value for the investment in Maxcom
was impaired and the estimated net realizable value was determined to be
approximately $1.2 million. This resulted in a $13,400,000 impairment charge
recognized during 2001.

Included in the Company's share of earnings from unconsolidated companies
accounted for under the equity method for 2001 were total losses of $87,214 and
total income of $4,296,708. 100% of the income was attributable to Palmetto
MobileNet, L.P.

F-14

CT COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Summarized audited financial position information for Palmetto MobileNet,
L.P. as of December 31, 2001 is as follows: current assets -- $21,006,989;
property and other non-current assets -- $83,805,996; current
liabilities -- $1,660,780; partners' capital -- $100,024,510. Summarized audited
combined results of operations for this entity for the year ended December 31,
2001, is as follows: revenues -- $20,784,846; operating income -- $20,467,370
and net income -- $21,278,770.

Summarized audited financial position information for Palmetto MobileNet,
L.P. as of December 31, 2000 is as follows: current assets -- $13,462,575;
property and other non-current assets -- $106,369,147; current
liabilities -- $1,550,782; partners' capital -- $113,782,560. Summarized audited
combined results of operations for this entity for the year ended December 31,
2000, is as follows: revenues -- $30,255,306; operating income -- $29,999,952
and net income -- $30,737,566.

(4) ACQUISITIONS

On June 1, 2001, the Company effected the partitioning of its portion of
the Cingular DCS Network. As a result, the Company acquired 47 cell sites,
approximately 13,100 additional subscribers and a license for spectrum for
Cabarrus, Rowan, and Stanly Counties in North Carolina and the southern portion
of Iredell County, North Carolina. This partitioned area contains a population
of approximately 440,000 people. This transaction has been accounted for under
the purchase method of accounting. The total purchase price of $23,248,426
million has been allocated to assets and liabilities assumed as follows:

Property and equipment...................................... $ 4,635,875
Intangible and other assets................................. 18,762,551
Other liabilities........................................... (150,000)
-----------
Total purchase price........................................ $23,248,426
===========

Intangibles and other assets consists of wireless spectrum which is being
amortized over 40 years and customer lists which are being amortized over 4
years, the average customer life.

As part of the purchase, the Company assumed responsibility for 28
non-cancelable operating leases for properties where cell sites were acquired.
Rent expense for 2001 related to these operating leases was $370,433. Minimum
annual rental commitments under these leases are as follows:

2002........................................................ $ 456,852
2003........................................................ 455,652
2004........................................................ 411,122
2005........................................................ 147,451
2006........................................................ 64,868
Thereafter.................................................. 95,136
----------
$1,631,081
==========

While the Company has ownership of the assets and customer accounts within
its partitioned area, the Company will continue to purchase pre-defined services
from the DCS Partnership, such as switching, and will remain subject to certain
conditions including certain branding requirements, offering partnership service
plans and adherence to partnership technical and customer care standards.

On December 13, 2000, the Company acquired WebServe, Inc. (WebServe) a
regional web services company based in Charlotte, North Carolina for $6,071,000.
This transaction was structured as a stock purchase and WebServe will operate as
part of the Company's subsidiary, CTC Internet Services, Inc. Pursuant to the
purchase, the Company acquired all of the outstanding shares of WebServe. This

F-15

CT COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

transaction was accounted for under the purchase method of accounting and the
total purchase has been allocated to assets and liabilities assumed as follows:

Accounts receivable......................................... $ 158,000
Prepaid expenses............................................ 13,000
Property, plant and equipment............................... 37,000
Goodwill.................................................... 6,273,000
Other intangibles........................................... 17,000
Accounts payable............................................ (423,000)
Other liabilities........................................... (4,000)
----------
Total purchase price........................................ $6,071,000
==========

Since WebServe, Inc. was acquired in December of 2000, assessment of final
asset values was not completed until 2001. The determination of final fair
values and payment of additional purchase price, as described below, resulted in
adjustments that increased goodwill in 2001 by approximately $300,000.

The purchase agreement included contingent purchase payments of up to
$5,000,000, based on 2001 performance levels. During September 2001, the Company
settled the contingent purchase obligations by paying $100,000. This amount
represents additional purchase price and has increased goodwill. Goodwill from
the acquisition is being amortized over 10 years.

In February 2000, the Company acquired Internet of Concord, an internet
provider based in Concord, NC for $795,000. Goodwill is being amortized over 10
years. The total purchase price has been allocated to assets acquired as
follows:

Accounts receivable......................................... $ 33,000
Property, plant and equipment............................... 223,000
Goodwill.................................................... 631,000
Accounts payable............................................ (92,000)
--------
$795,000
========

Results of operations for the acquired entities have been included from the
date of acquisition. Pro forma results for these entities are not material to
the consolidated financial statements.

(5) FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value
of the Company's financial instruments:

Cash and cash equivalents, accounts receivable, notes receivable,
other assets, and accounts payable -- the carrying amount approximates fair
value because of the short maturity of these instruments.

Investment securities -- debt and equity securities are carried at
quoted market value.

Debt instruments -- the fair value of the Company's long-term debt is
estimated by discounting the scheduled payment streams to present value
based on current rates for similar instruments of comparable maturities.

Based on the methods and assumptions noted above, the estimated fair values
of the Company's financial instruments approximate carrying amounts at December
31, 2001 and 2000 due to the variability in interest rates of the underlying
instruments not subject to an interest rate swap agreement.
F-16

CT COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(6) DEBT INSTRUMENTS

Long-term debt at December 31 consists of the following:

The Company has an available line of credit totaling $90,000,000, of which
$50,000,000 was outstanding at December 31, 2001. The term loan and line of
credit have debt covenants with specific requirements for leverage and the ratio
of indebtedness to total capitalization. The Company is in compliance with all
debt covenants as of December 31, 2001. The Company has entered into three
interest rate swap agreements as of December 31, 2001 (See note 7).

In addition, the Company has a $10.0 million revolving credit facility with
First Charter Bank. As of December 31, 2001, there were no amounts outstanding
under this facility. The First Charter facility bears interest at 30-day LIBOR
plus 1.25% (3.369% at December 31, 2001).

Interest expense recognized in 2001, 2000, and 1999 was $4,291,949,
$2,157,360, and $1,404,359. During 2001 and 2000, interest capitalized into
construction in progress was $681,735 and $85,044, respectively.

(7) DERIVATIVE FINANCIAL INSTRUMENTS

The Company has three interest rate swap agreements with a financial
institution to manage its exposure on debt instruments. The variable-to-fixed
interest rate swaps are accounted for as a cash flow hedge, with effectiveness
assessed based on changes in the present value of interest payments on the
underlying debt. Under the agreements, the Company pays interest on $20,000,000
of the line of credit at fixed rates of 5.9%, 4.53%, and 3.81% plus an
applicable spread (1.25% at December 31, 2001) respectively, in return for
receiving interest at LIBOR plus 1.25%. The fair values of these three
agreements at December 31, 2001 are ($572,775), $99,668, and $48,835,
respectively and are recorded in other long-term liabilities. At December 31,
2000, the fair value of the 5.9% agreement was ($42,983).

(8) REDEEMABLE PREFERRED STOCK

The 4.8% redeemable preferred stock is callable at a redemption price of
$100 a share plus accumulated dividends. Sinking fund requirements in the next
five years are $12,500 annually.

There have been no changes in the 4.8% series preferred stock in the three
years ended December 31, 2001, other than the annual sinking fund requirement of
$12,500.

(9) COMMON STOCK AND PREFERRED STOCK NOT SUBJECT TO MANDATORY REDEMPTION

There are 100,000,000 shares of voting common stock, no par value,
authorized.

On April 5, 2000 the Company effected a two-for-one stock dividend to
stockholders of record at March 15, 2000. All share amounts have been
retroactively restated for all years presented.

F-17

CT COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On January 28, 1999, the Company's shareholders approved a plan of
recapitalization for its common stock. On that date, the Company's Articles of
Incorporation were amended to provide for one class of common stock, rather than
the two existing classes of Voting Common Stock and Class B Nonvoting Common
Stock. Each outstanding share of Voting Common Stock has been automatically
converted into 4.4 shares of common stock, and each outstanding share of Class B
Nonvoting Common Stock has been automatically converted into 4.0 shares of
common stock. The foregoing financial statements and footnotes have been
adjusted to reflect the recapitalization. Earnings per share, dividends per
share and weighted average shares outstanding have been retroactively restated
for all years presented.

The Company has a stockholders' rights plan that entitles each stockholder
the right to purchase additional shares of common stock at a specified price
upon the occurrence of certain events related to a potential change in control.

Cash dividends per share of common stock are as follows: $0.26 in 2001,
$0.26 in 2000, and $0.26 in 1999.

Preferred stock is comprised of cumulative $100 par value 5% and 4.5%
series stock. There are 17,000 shares of the 5% series stock authorized. There
are 2,000 shares of the 4.5% series stock authorized.

(10) STOCK COMPENSATION PLANS

At December 31, 2001, the Company has six stock-based compensation plans,
which are described below. The Company applies APB Opinion No. 25 and related
Interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for its fixed stock option plans and its stock purchase
plan. Had compensation cost for the Company's stock-based compensation plans
been determined consistent with SFAS No. 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:

The Company has an Executive Stock Option Plan (the Plan) to allow key
employees to increase their holdings of the Company's common stock. 90,000
shares of common stock were reserved for issuance under the Plan. At December
31, 2001, all shares reserved for issuance have been granted. Options are
granted at prices determined by the Board of Directors, generally the most
recent sales price at the date of grant, and must be exercised within five years
of the date of grant. Options are exercisable immediately

F-18

CT COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

when granted. Activity under the Plan for each of the years in the three-year
period ended December 31, 2001, is as follows:

The Company has a Comprehensive Stock Option Plan (the Plan) to allow key
employees to increase their holdings of the Company's common stock. Under the
Plan, 180,000 shares of common stock have been reserved for issuance. At
December 31, 2001, the number of common stock reserved for issuance but
ungranted was 480 shares. Options are granted at prices determined by the Board
of Directors, generally the most recent sales price at the date of grant, and
must be exercised within ten years of the date of grant. Options become
exercisable over periods from six months to four years after the grant date.

Activity under the Plan for each of the years in the three-year period
ended December 31, 2001 is as follows:

As of December 31, 2001 and 2000, the 90,832 and 98,376 options outstanding
have exercise prices between $8 and $9 and a weighted-average remaining
contractual life of 4.0 and 5.5 years, respectively.

The Company has a Restricted Stock Award Program (the Program) to provide
deferred compensation and additional equity participation to certain executive
management and key employees. The

F-19

CT COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

aggregate amount of common stock that may be awarded to participants under the
Program is 180,000 shares. The Company records deferred compensation in the
amount of the fair market value of the stock granted and amortizes this amount
on a straight line basis over the restricted period, generally 1 to 10 years. In
2001, 2000, and 1999, respectively, the Company granted 34,399, 41,039, and
48,436 shares to participants with a weighted-average fair value of $14, $25,
and $20. Deferred compensation at December 31, 2001 and 2000, respectively was
$653,693 and $836,005, which is disclosed net of accumulated amortization of
$1,929,620 and $1,247,670, in the consolidated statements of stockholders'
equity.

In 1996, a Director Compensation Plan (the Plan) was approved to provide
each member of the Board of Directors the right to receive the Director's
compensation in shares of common stock or cash, at the Director's discretion. An
aggregate of 90,000 shares have been reserved for issuance under the Plan. All
compensation for a Director who elects to receive shares of stock in lieu of
cash will be converted to shares of stock based upon the fair market value of
the common stock on the grant date. The initial grant date is the first day that
is six months and one day following the Directors election. All subsequent
compensation shall be converted to shares of common stock based upon the fair
market value of the common stock on the date such compensation is paid or made
available to the Director. During 2001, 2000, and 1999, the Company granted
10,557, 6,810, and 9,056 shares, respectively, with an average fair market value
of $15, $27, and $19, respectively.

During 1997, the CT Communications, Inc. Omnibus Stock Compensation Plan
(the Plan) was approved. Under the Plan, 800,000 shares of common stock have
been reserved for issuance. The Plan provides for awards of stock, stock options
and stock appreciation rights. There are no stock appreciation rights
outstanding. At December 31, 2001, the number of shares of common stock reserved
for issuance but ungranted was 204,202 shares. Options are granted at prices
determined by the Board of Directors, generally the most recent sales price at
the date of grant, and must be exercised within ten years of the date of grant.

Activity under the Plan for the year ended December 31, 2001 is as follows:

As of December 31, 2001 and 2000, the 460,125 and 347,761 options
outstanding have exercise prices of between $10 and $31 and a weighted-average
remaining contractual life of 6.2 and 9.8 years, respectively.

F-20

CT COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The per share fair value of stock options granted in 2001, 2000, and 1999
was $4, $12, and $16 at the date of grant. The fair value of each option grant
is estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions: 1999 -- dividend yield of 1.5%;
expected volatility of 20%; risk-free interest rate of 6%, and expected lives of
10 years; 2000 -- dividend yield of 2.0%; expected volatility of 40%; risk-free
interest rate of 7%, and expected lives of 6 years; 2001 -- dividend yield of
2.0%; expected volatility of 33%; risk-free interest rate of 5%, and expected
lives of 6 years.

During 2001, the 2001 Stock Incentive Plan (the Plan) was approved. Under
the Plan, 1.2 million shares, plus any shares remaining available for grant
under the Company's Omnibus Stock Compensation Plan, have been reserved for
issuance. As of December 31, 2001, no shares had been issued under the plan.

(11) RESTRUCTURING COSTS

In February 2001, the Company recorded restructuring charges of $1,942,076
in connection with an early retirement plan and the closing of competitive local
exchange carrier operations in Raleigh, North Carolina. The related liabilities
are included in other accrued liabilities and accrued pension cost in the
accompanying consolidated balance sheets and were established to accrue for
estimated retirement and severance costs related to 17 employees primarily
within the network department, lease termination costs, Raleigh transport costs,
and other costs associated with the restructuring action. A summary of
restructuring liability activity for the year ended December 31, 2001 is as
follows:

Balance at December 31, 2000................................ $ --
Early retirement and severance costs........................ 1,178,369
Lease termination costs..................................... 241,110
Raleigh transport costs..................................... 307,093
Other costs................................................. 215,504
----------
Restructuring charge incurred............................... 1,942,076
Cash payments:
Early retirement and severance costs...................... (115,369)
Raleigh transport costs................................... (307,093)
Raleigh lease payments.................................... (93,929)
Other costs............................................... (215,504)
----------
Balance at December 31, 2001................................ $1,210,181
==========

F-21

CT COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In November 2001, the Company recorded restructuring charges of $1,521,511
in connection with stopping the expansion of WaveTel into the Raleigh, Durham,
and Charlotte, North Carolina markets. The related liabilities are included in
other accrued liabilities in the accompanying consolidated balance sheets and
were established to accrue for remaining severance costs related to ten WaveTel
employees, cell site lease termination costs, design and engineering costs, and
other costs associated with the restructuring action. A summary of restructuring
liability activity related to the WaveTel restructuring is as follows:

Balance at December 31, 2000................................ $ --
Severance costs............................................. 68,201
Cell-site lease termination costs........................... 250,000
Impairment of design and engineering costs.................. 1,203,310
------------
Restructuring charge incurred............................... 1,521,511
Cash payments:
Severance costs........................................... (60,692)
Cell-site lease termination costs......................... (35,000)
Write-off of design and engineering costs................. (1,203,310)
------------
Balance at December 31, 2001................................ $ 222,509
============

(12) EMPLOYEE STOCK PURCHASE PLAN

The Company approved the 2001 Employee Stock Purchase Plan which authorized
500,000 shares of Common Stock to be offered to all employees eligible to
purchase shares. Purchase price of shares is established by the Compensation
Committee and may not be less than 85% of the fair market value of Common Stock
on the first or last day of an offering period. Employees electing to
participate have their contributions to the Plan made by payroll deduction.
Under the Plan, 3,122 shares were issued at a weighted average purchase price of
$18 per share in 2001.

The 1997 Employee Stock Purchase Plan (the Plan) authorized 96,000 shares
of common stock to be offered to all employees eligible to buy shares. Purchase
price of shares is 100% of fair market value with the option to finance up to
100% of purchase by payroll deduction over a period of up to 24 months at 6%
interest. Under the Plan, 2,294 and 39,002 shares were issued at a purchase
price of $25 and $22 per share in 2000 and 1999, respectively.

(13) EMPLOYEE BENEFIT PLANS

(A) PENSION PLAN AND SAVINGS PLAN

The Company has a trusteed, defined benefit, noncontributory pension plan
covering substantially all of its employees. The benefits are based on years of
service and the employee's highest five consecutive plan years of compensation.
Contributions to the plan are based upon the Entry Age Normal Method with Frozen
Initial Liability and comply with the funding requirements of the Employee
Retirement Income Security Act. Since the plan is adequately funded, there have
been no contributions made in 2001 or 2000. Plan assets are invested primarily
in common stocks, long-term bonds and U.S. treasury notes.

F-22

CT COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table sets forth the funded status of the Company's pension
plan and amounts recognized in the Company's financial statements at December
31, 2001 and 2000.

The Company also has an unqualified defined benefit Supplemental Executive
Retirement Plan. Accrued costs related to this plan were $449,205 and $419,490
at December 31, 2001 and 2000, respectively. This plan was frozen on December
31, 2000.

The Company adopted an unqualified defined contribution Supplemental
Executive Retirement Plan (SERP) during 2001 for certain key executives. The
SERP allows participants to defer compensation.

Net pension cost for 2001, 2000, and 1999 included the following:

The weighted average discount rate of 7.25% in 2001 and 7.5% in 2000 and
1999 and the rate of increase in future compensation levels of 5% in 2001, 2000
and 1999 were used in determining the actuarial present value of the projected
benefit obligations at the end of the year. The assumed long-term rate of return
on pension plan assets was 7.5% in 2001, 2000 and 1999.

F-23

CT COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(B) EMPLOYEE SAVINGS PLAN

The Company has a 401(k) salary savings plan which provides that employees
may contribute a portion of their salary to the plan on a tax deferred basis.
The Company's match of a portion of the employee's contribution totaled
$512,566, $516,452, and $336,208 in 2001, 2000, and 1999, respectively.

(C) EMPLOYEE STOCK OWNERSHIP PLAN

The Employee Stock Ownership Plan of The Concord Telephone Company (the
Plan) was originally a defined contribution plan sponsored by the Company. The
Company was responsible for all contributions to the Plan. Contributions were in
the form of Company stock or cash used to purchase Company stock. Prior to the
Tax Reform Act of 1986 (the Act), the Company was eligible for certain tax
credits as a result of the Plan contributions. Subsequent to the Act, these tax
credits were no longer available. As a result, the plan has been frozen. As of
January 1, 1987, no more contributions can be made into the plan and no employee
may become eligible to participate.

(D) POSTRETIREMENT BENEFITS

In addition to the Company's defined benefit pension plan, the Company
sponsors a health care plan that provides postretirement medical benefits and
life insurance coverage to full-time employees who meet minimum age and service
requirements. The plan is contributory with respect to coverage for
beneficiaries. The Company's policy is to fund the cost of medical benefits on a
cash basis.

The Company has adopted Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions,"
and has elected to amortize the transition liability over 15 years. The
Statement requires the accrual, during the years that an employee renders the
necessary service, of the expected cost of providing those benefits to the
employee and employee's beneficiaries and covered dependents.

The following table presents the plan's accumulated postretirement benefit
obligation reconciled with amounts recognized in the Company's balance sheets at
December 31, 2001 and 2000:

F-24

CT COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Net periodic postretirement benefit cost for 2001, 2000 and 1999 includes
the following components:

For measurement purposes, an 8.0% percent annual rate of increase in the
per capita cost of covered benefits (i.e., health care cost trend rate) was
assumed for 2001 and the rate was assumed to decrease annually to 5.5% by the
year 2003 and to remain level thereafter. The health care cost trend rate
assumption has a significant effect on the amounts reported. For example,
increasing the assumed health care cost trend rates by one percentage point in
each year would increase the accumulated postretirement benefit obligation as of
December 31, 2001, to approximately $10,793,700 and the aggregate of the service
and interest cost components of net periodic postretirement benefit cost for the
year ended December 31, 2001 to approximately $985,300. Decreasing the assumed
health care cost trend rates by one percentage point in each year would decrease
the accumulated postretirement benefit obligation as of December 31, 2001, to
approximately $8,188,700 and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for the year ended
December 31, 2001 to approximately $716,300.

The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25% in 2001 and 7.5% in 2000 and 1999.

(14) INCOME TAXES

Total income taxes for the years ended December 31, 2001, 2000, and 1999
were allocated as follows:

F-25

CT COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Income tax expense (benefit) attributable to income from continuing
operations for the years ended December 31, 2001, 2000, and 1999, consists of:

Income tax expense attributable to income from continuing operations
differs from the amounts computed by applying the U.S. federal income tax rate
of 35 percent to pretax income from continuing operations as a result of the
following:

F-26

CT COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities as of December 31,
2001 and 2000 were as follows:

The valuation allowance for deferred tax assets as of January 1, 2001 and
2000 was $2,372,832 and $1,431,367, respectively. The net change in the total
valuation allowance for the years ended December 31, 2001, 2000 and 1999 was an
increase of $941,465, $859,553 and $650,571, respectively. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment. Based upon the level of historical taxable
income and projections for future taxable income over the periods in which the
deferred tax assets are deductible, management believes it is more like than not
the Company will realize the benefits of these deductible differences, net of
the existing valuation allowances at December 31, 2001.

At December 31, 2001, the Company has net operating loss carryforwards for
state income tax purposes in certain subsidiaries of approximately $60,100,000
which will expire in the years 2012-2016.

(15) SEGMENT INFORMATION

Effective December 31, 1998, the Company adopted SFAS 131, "Disclosures
about Segments of an Enterprise and Related Information." The Company has five
reportable segments, each of which are strategic businesses that are managed
separately due to certain fundamental differences such as regulatory

F-27

CT COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

environment or services offered. The segments and a description of their
businesses are as follows: the incumbent local exchange carrier (ILEC) which
provides local telephone services, the competitive local exchange carrier (CLEC)
which provides competitive local telephone services to customers outside the
ILEC's operating area, the Greenfield services unit (Greenfield) which provides
full telecommunications services to new mixed-use developments outside the
ILEC's operating area, the long distance company (LD), the internet and data
services company (ISP) which provides dial-up and high-speed internet access,
web design, hosting and other data related services, and the wireless company
(DCS). Palmetto MobileNet, L.P. is a limited partnership with interests in
wireless phone service in North and South Carolina. The Company has an equity
interest in Palmetto MobileNet, L.P. through CT Cellular, Inc. Results for
Palmetto MobileNet, L.P. are combined with CT Cellular, Inc. and presented as
"Palmetto". Prior to January 2001, the results of the Greenfield segment were
included within the CLEC. Combining the two segments (Greenfield and CLEC) for
2001 provides comparative results for 2000 and 1999. Accounting policies of the
segments are the same as those described in the summary of significant
accounting policies. The Company evaluates performance based on operating profit
before other income (expenses) and income taxes. Intersegment sales are
accounted for as if the transactions were to third parties. All segments provide
services primarily within North and South Carolina. Greenfield also provides
service in Georgia.

F-28

CT COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

F-29

CT COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

F-30

CT COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(16) RECONCILIATION OF BASIC AND DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING

2001:
Basic weighted average shares outstanding................. 18,816,047
Effect of dilutive securities:
Stock options............................................. 44,233
----------
Diluted weighted average shares outstanding............... 18,860,280
==========
2000:
Basic weighted average shares outstanding................. 18,833,807
Effect of dilutive securities:
Stock options............................................. 97,173
----------
Diluted weighted average shares outstanding............... 18,930,980
==========
1999:
Basic weighted average shares outstanding................. 18,705,886
Effect of dilutive securities:
Stock options............................................. 145,964
----------
Diluted weighted average shares outstanding............... 18,851,850
==========

(17) SUMMARY OF INCOME STATEMENT INFORMATION (UNAUDITED)

A summary of quarterly income statement information for the years ended
December 31, 2001 and 2000, follows:

F-31

SCHEDULE II

CT COMMUNICATIONS, INC. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999

- ---------------

Note: Represents balances written-off as uncollectible less collections on
balances previously written off of $191,274, $188,399, and $170,132 for 2001,
2000, and 1999, respectively. Balance at December 31, 2001 includes $150,000
assumed in the partitioning of our portion of the Cingular PCS network in June,
2001. Balance at December 31, 2000 includes $270,000 assumed in the acquisition
of WebServe accounted for as a purchase in 2000.

F-32

PALMETTO MOBILENET, L.P.

CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

CONTENTS

Report of Independent Auditors.............................. F-34
Consolidated Financial Statements
Consolidated Balance Sheets................................. F-35
Consolidated Statements of Income and Partners' Equity...... F-36
Consolidated Statements of Cash Flows....................... F-37
Notes to Consolidated Financial Statements.................. F-38 to F-41

F-33

REPORT OF INDEPENDENT AUDITORS

To the Partners of
Palmetto MobileNet, L.P.

We have audited the accompanying consolidated balance sheets of Palmetto
MobileNet, L.P. as of December 31, 2001 and 2000, and the related consolidated
statements of income and partners' equity, and cash flows for each of the three
years ended December 31, 2001, 2000, and 1999. These financial statements are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits. We did not
audit the financial statements of certain RSA partnerships, the investments in
which, as discussed in Note 3 to the financial statements, are accounted for by
the equity method of accounting. The investments in these RSA partnerships were
$77,483,276 and $99,916,083 as of December 31, 2001 and 2000, respectively, and
the equity in their net income was $20,784,846, $30,255,306, and $27,644,685 for
the years 2001, 2000, and 1999, respectively. The financial statements of the
RSA partnerships were audited by other auditors whose reports were furnished to
us, and our opinion on the consolidated financial statements of Palmetto
MobileNet, L.P., insofar as it relates to the amounts included for the RSA
partnerships, is based solely on the reports of the other auditors.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the consolidated
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 Palmetto
MobileNet, L.P. as of December 31, 2001 and 2000, and the results of its
operations and its cash flows for the years ended December 31, 2001, 2000, and
1999 in conformity with accounting principles generally accepted in the United
States.

/s/ Bauknight Pietras & Stormer, P.A.

March 18, 2002
Columbia, South Carolina

F-34

PALMETTO MOBILENET, L.P.

CONSOLIDATED BALANCE SHEETS

See accompanying notes.
F-35

PALMETTO MOBILENET, L.P.

CONSOLIDATED STATEMENTS OF INCOME AND PARTNERS' EQUITY

See accompanying notes.
F-36

PALMETTO MOBILENET, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes.
F-37

PALMETTO MOBILENET, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 AND 1999

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Palmetto MobileNet, L.P. (the "Partnership") is a South Carolina limited
partnership and is a general partner in ten general partnerships formed to
provide cellular telephone service in certain Rural Service Areas ("RSA") in
South Carolina and North Carolina. These partnerships' operations are managed by
affiliates of ALLTEL Communications, Inc.

During 2000, the Partnership formed HamptonNet, LLC, a wholly-owned
subsidiary, for the purpose of owning and operating commercial rental real
estate located in Columbia, South Carolina.

CONSOLIDATION

The financial statements include the accounts of the Partnership and its
wholly-owned subsidiary. All significant intercompany accounts and transactions
have been eliminated.

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
disclosures 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 could differ from those estimates.

CASH EQUIVALENTS

The Partnership considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.

The Partnership maintains its cash and cash equivalent balances in one
financial institution located in Columbia, South Carolina. At December 31, 2001
and 2000, cash equivalents of $16,500,000 and $10,100,000, respectively,
consisted of investments in repurchase agreements.

INTERESTS IN RSA PARTNERSHIPS

Investments in the RSA general partnerships are accounted for using the
equity method, under which the Partnership's share of earnings of these
partnerships is reflected in income as earned and distributions are credited
against the interests in the partnerships when received.

INCOME TAXES

Palmetto MobileNet, L.P. is a South Carolina limited partnership and,
therefore, is not subject to income taxes. Each partner includes in income its
distributive share of the Partnership's taxable income or loss.

2. ACQUISITION

In a prior year, the Partnership acquired 100% of the equity in two
companies and a 51% equity interest in a general partnership in exchange for
Partnership equity valued at approximately $57,700,000 resulting in the
Partnership obtaining a 50% interest in North Carolina RSA 5 Cellular
Partnership and a 50% interest in North Carolina RSA 15 Cellular Partnership.
Consistent with investments in other general partnerships, these interests are
accounted for using the equity method. At the acquisition date, the investments
in these partnerships, which are recorded at cost less accumulated amortization,
exceeded the underlying equity in net assets by approximately $11,116,000 and
$37,512,000, respectively. This cost in
F-38

PALMETTO MOBILENET, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

excess of underlying equity in net assets is being amortized over a 15 year
period. Accumulated amortization, which has been recorded as a reduction in the
interest in RSA partnerships and a reduction in the equity in earnings of RSA
partnership interests, was approximately $12,967,000 and $9,725,000 at December
31, 2001 and 2000 respectively. Amortization expense for the years ended
December 31, 2001, 2000 and 1999 was approximately $3,241,000 annually.

In June 2001, the Financial Accounting Standards Board issued its Statement
No. 142, Intangible Assets. This new standard will be adopted by the Partnership
effective January 1, 2002. Accordingly, the Partnership will no longer amortize
the remaining portion of the "cost in excess of underlying equity in net assets"
discussed above. Instead, the Partnership will be required to perform an annual
test for impairment of this intangible asset.

3. INTERESTS IN RSA PARTNERSHIPS

Interests in RSA partnerships which are all engaged in providing cellular
telephone service to rural areas of South Carolina and North Carolina, are:

South Carolina RSA No. 2 Cellular General Partnership (50% owned)
South Carolina RSA No. 3 Cellular General Partnership (50% owned)
South Carolina RSA No. 4 Cellular General Partnership (50% owned)
South Carolina RSA No. 5 Cellular General Partnership (50% owned)
South Carolina RSA No. 6 Cellular General Partnership (50% owned)
South Carolina RSA No. 7 Cellular General Partnership (50% owned)
South Carolina RSA No. 8 Cellular General Partnership (50% owned)
South Carolina RSA No. 9 Cellular General Partnership (50% owned)
North Carolina RSA 5 Cellular Partnership (50% owned)
North Carolina RSA 15 Cellular Partnership (50% owned)

Summarized combined financial information for the RSA partnerships follows:

At December 31:

For the years ended December 31:

The Partnership's equity in the combined net income of the RSA partnerships
was $24,026,648, $33,497,118, and $30,886,498 for the years ended December 31,
2001, 2000, and 1999, respectively.

During 2000, the RSA's changed their method of accounting for revenues. The
cumulative effect of retroactively applying this accounting change to periods
prior to 2000 resulted in a one-time, non-cash charge of approximately $2.6
million, which was included in net income for the RSA's for the year ended
December 31, 2000.

Market values of these partnership interests are not readily available.

F-39

PALMETTO MOBILENET, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. LAND, BUILDING AND IMPROVEMENTS, NET

Land, building and improvements consisted of the following:

The building and improvements are depreciated on a straight-line basis over
the estimated useful lives of the assets.

The Partnership has entered into operating leases with a related party and
other third parties for substantially all of the space available in the
building. Lease terms range from 5 to 10 years plus various renewal options.
Most leases contain fixed monthly rental amounts plus provisions for
reimbursement of certain costs of operating the property.

Total minimum annual rentals under the terms of executed leases are as
follows:

5. LONG-TERM DEBT

The Partnership has a $10 million term loan agreement and a $3 million
working capital line of credit agreement with the Rural Telephone Finance
Cooperative (the "RTFC"). The terms of the agreements require the Partnership to
maintain a specified amount of RTFC Subordinated Capital Certificates ("SCC's").
The Partnership had $411,073 and $473,562 of SCC's at December 31, 2001 and
2000, respectively.

The debt is collateralized by a first lien on the assets of the Partnership
other than the Partnership's equity interests in the ten RSA partnership
investments. The term loan provides for varying quarterly payments of principal,
plus interest at fixed rates ranging from 5.85% to 6.50%. The terms of the line
of credit agreement provide for interest to be paid quarterly at the RTFC's
published variable interest rate. No funds have been advanced against the line
of credit agreement. At December 31, 2001 and 2000, $4,435,893 and $5,724,890
were outstanding under the financing agreement.

The Partnership extinguished all of the RTFC debt in March 2002.

The carrying amount of the Company's long-term debt approximates fair
value.

F-40

PALMETTO MOBILENET, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Cash paid for interest totaled $322,069, $399,079, and $471,965 for the
years ended December 31, 2001, 2000, and 1999, respectively.

6. RELATED PARTY TRANSACTIONS

The business affairs of Palmetto MobileNet, L.P. are managed by its 0.8%
general partner, PMN, Inc. For the years ended December 31, 2001, 2000, and
1999, approximately $317,000, $255,000, and $210,000 were paid to the general
partner to perform this function.

7. COMMITMENTS AND CONTINGENCIES

Pursuant to each RSA general partnership agreement, Palmetto MobileNet,
L.P. is subject to requests for additional capital.

The Internal Revenue Service ("IRS") is performing examinations of the
records of a significant number of the RSA partnerships, in which the
Partnership has ownership interests, for the years ended December 31, 1991 to
1996.

For certain RSA's, agreements were reached with the IRS in 2001 and 2000 as
to certain adjustments which have been allocated to each partner to be included
in their taxable income.

For certain other RSA's, the IRS has completed its audits and has issued
"60 Day Letters" indicating adjustments they plan to make to the RSA tax
returns. The RSA partnerships are vigorously contesting the IRS audit findings
and, as a result, the amount of final adjustment, if any, cannot be determined
at this time. The final adjustments, if any, from the IRS examinations will
ultimately be allocated to each partner to be included in their taxable income.

One of the Partnership's partners has filed a "Summons and Complaint for
Declaratory Judgment" against the Partnership, PMN, Inc., and each of the other
partners in the Partnership. The partner is seeking clarification of certain
proposed amendments to the partnership agreement. Management does not believe
that the resolution of this matter will have a material impact on the
Partnership's financial statements, however, the ultimate outcome cannot be
determined at this time.

8. SUBSEQUENT EVENT

The Partnership paid distributions to its partners of approximately
$5,000,000 in March 2002.

F-41

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Partners of South Carolina RSA No. 4 Cellular General Partnership:

We have audited the accompanying balance sheets of South Carolina RSA No. 4
Cellular General Partnership (a South Carolina general partnership) as of
December 31, 2001 and 2000, and the related statements of operations, changes in
partners' capital and cash flows for the years then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 financial statements referred to above present fairly,
in all material respects, the financial position of South Carolina RSA No. 4
Cellular General Partnership as of December 31, 2001 and 2000, and the results
of its operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.

As explained in Note 2 to the financial statements, effective January 1,
2000, the Partnership changed its method of accounting for certain revenues.

/s/ ARTHUR ANDERSEN LLP

Little Rock, Arkansas,
February 6, 2002

F-42

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Partners of South Carolina RSA No. 5 Cellular General Partnership:

We have audited the accompanying balance sheets of South Carolina RSA No. 5
Cellular General Partnership (a South Carolina general partnership) as of
December 31, 2001 and 2000, and the related statements of operations, changes in
partners' capital and cash flows for the years then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 financial statements referred to above present fairly,
in all material respects, the financial position of South Carolina RSA No. 5
Cellular General Partnership as of December 31, 2001 and 2000, and the results
of its operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.

As explained in Note 2 to the financial statements, effective January 1,
2000, the Partnership changed its method of accounting for certain revenues.

/s/ ARTHUR ANDERSEN LLP

Little Rock, Arkansas,
February 6, 2002

F-43

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Partners of South Carolina RSA No. 6 Cellular General Partnership:

We have audited the accompanying balance sheets of South Carolina RSA No. 6
Cellular General Partnership (a South Carolina general partnership) as of
December 31, 2001 and 2000, and the related statements of operations, changes in
partners' capital and cash flows for the years then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 financial statements referred to above present fairly,
in all material respects, the financial position of South Carolina RSA No. 6
Cellular General Partnership as of December 31, 2001 and 2000, and the results
of its operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.

As explained in Note 2 to the financial statements, effective January 1,
2000, the Partnership changed its method of accounting for certain revenues.

/s/ ARTHUR ANDERSEN LLP

Little Rock, Arkansas,
February 6, 2002

F-44

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Partners of North Carolina RSA 15 Cellular Partnership:

We have audited the accompanying balance sheets of North Carolina RSA 15
Cellular Partnership (a North Carolina general partnership) as of December 31,
2001 and 2000, and the related statements of operations, changes in partners'
capital and cash flows for the years then ended. These financial statements are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 financial statements referred to above present fairly,
in all material respects, the financial position of North Carolina RSA 15
Cellular Partnership as of December 31, 2001 and 2000, and the results of its
operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.

As explained in Note 2 to the financial statements, effective January 1,
2000, the Partnership changed its method of accounting for certain revenues.

/s/ ARTHUR ANDERSEN LLP

Little Rock, Arkansas,
February 6, 2002

F-45

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Partners of North Carolina RSA 5 Cellular Partnership:

We have audited the accompanying balance sheets of North Carolina RSA 5
Cellular Partnership (a North Carolina general partnership) as of December 31,
2001 and 2000, and the related statements of operations, changes in partners'
capital and cash flows for the years then ended. These financial statements are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 financial statements referred to above present fairly,
in all material respects, the financial position of North Carolina RSA 5
Cellular Partnership as of December 31, 2001 and 2000, and the results of its
operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.

As explained in Note 2 to the financial statements, effective January 1,
2000, the Partnership changed its method of accounting for certain revenues.

/s/ ARTHUR ANDERSEN LLP

Little Rock, Arkansas,
February 6, 2002

F-46

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Partners of South Carolina RSA No. 3 Cellular General Partnership:

We have audited the accompanying balance sheets of South Carolina RSA No. 3
Cellular General Partnership (a South Carolina general partnership) as of
December 31, 2001 and 2000, and the related statements of operations, changes in
partners' capital and cash flows for the years then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 financial statements referred to above present fairly,
in all material respects, the financial position of South Carolina RSA No. 3
Cellular General Partnership as of December 31, 2001 and 2000, and the results
of its operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.

As explained in Note 2 to the financial statements, effective January 1,
2000, the Partnership changed its method of accounting for certain revenues.

/s/ ARTHUR ANDERSEN LLP

Little Rock, Arkansas,
February 6, 2002

F-47

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Partners of South Carolina RSA No. 7 Cellular General Partnership:

We have audited the accompanying balance sheets of South Carolina RSA No. 7
Cellular General Partnership (a South Carolina general partnership) as of
December 31, 2001 and 2000, and the related statements of operations, changes in
partners' capital and cash flows for the years then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 financial statements referred to above present fairly,
in all material respects, the financial position of South Carolina RSA No. 7
Cellular General Partnership as of December 31, 2001 and 2000, and the results
of its operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.

As explained in Note 2 to the financial statements, effective January 1,
2000, the Partnership changed its method of accounting for certain revenues.

/s/ ARTHUR ANDERSEN LLP

Little Rock, Arkansas,
February 6, 2002

F-48

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Partners of South Carolina RSA No. 9 Cellular General Partnership:

We have audited the accompanying balance sheets of South Carolina RSA No. 9
Cellular General Partnership (a South Carolina general partnership) as of
December 31, 2001 and 2000, and the related statements of operations, changes in
partners' capital and cash flows for the years then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 financial statements referred to above present fairly,
in all material respects, the financial position of South Carolina RSA No. 9
Cellular General Partnership as of December 31, 2001 and 2000, and the results
of its operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.

As explained in Note 2 to the financial statements, effective January 1,
2000, the Partnership changed its method of accounting for certain revenues.

/s/ ARTHUR ANDERSEN LLP

Little Rock, Arkansas,
February 6, 2002

F-49

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Partners of South Carolina RSA No. 2 Cellular General Partnership:

We have audited the accompanying balance sheets of South Carolina RSA No. 2
Cellular General Partnership (a South Carolina general partnership) as of
December 31, 2001 and 2000, and the related statements of operations, changes in
partners' capital and cash flows for the years then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 financial statements referred to above present fairly,
in all material respects, the financial position of South Carolina RSA No. 2
Cellular General Partnership as of December 31, 2001 and 2000, and the results
of its operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.

As explained in Note 2 to the financial statements, effective January 1,
2000, the Partnership changed its method of accounting for certain revenues.

/s/ ARTHUR ANDERSEN LLP

Little Rock, Arkansas,
February 6, 2002

F-50

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Partners of South Carolina RSA No. 8 Cellular General Partnership:

We have audited the accompanying balance sheets of South Carolina RSA No. 8
Cellular General Partnership (a South Carolina general partnership) as of
December 31, 2001 and 2000, and the related statements of operations, changes in
partners' capital and cash flows for the years then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 financial statements referred to above present fairly,
in all material respects, the financial position of South Carolina RSA No. 8
Cellular General Partnership as of December 31, 2001 and 2000, and the results
of its operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.

As explained in Note 2 to the financial statements, effective January 1,
2000, the Partnership changed its method of accounting for certain revenues.

/s/ ARTHUR ANDERSEN LLP

Little Rock, Arkansas,
February 6, 2002

F-51